Landmark transaction

1 October 2015

(LSE: IEH; ADR: INGYY)

Intelligent Energy Holdings plc

LANDMARK TRANSACTION WORTH £1.2BN OF REVENUES OVER TEN YEARS

Further to the announcement on 24 February 2015, Intelligent Energy ("IE"), the energy technology group, is delighted to announce that yesterday it signed an agreement to acquire GTL Limited's ("GTL") energy management business to provide efficient and economical energy to over 27,400 telecom towers in India ("Energy Management Business").

This pioneering transaction supports the growth strategy of IE's Distributed Power and Generation division ("DP&G"). It immediately provides a managed customer base of significant scale to which IE can begin to economically deploy its market leading fuel cell technology, optimise the existing operating base which includes the increasing use of IE's asset management and business intelligence capability ('AMBIS') and develop cost effective hydrogen fuel distribution. The transaction provides a platform for the large scale economic deployment of fuel cells as a distributed power solution.

Highlights of the transaction

Henri Winand, CEO of Intelligent Energy, said:

"This is a major day for Intelligent Energy. We have not just announced a landmark transaction for Intelligent Energy, but a transaction which is important for the fuel cell industry itself.

From a financial perspective, this transaction provides high quality, long-term, recurring cash flows and we have a plan in place to improve the margins from those cash flows over the life time of the contracts.

More broadly though, it also provides Intelligent Energy with a fantastic reference point showcasing how our market leading fuel cell technology and remote engine monitoring software can economically and efficiently provide power.

In the Indian telecom industry alone, we have identified major growth opportunities and are hopeful that our first mover advantage will allow us to capitalise on some of those opportunities. In the longer term though, we see huge demand for our technology in other industries and economies."

Manoj Tirodkar, Chairman of GTL:

"GTL has been working on an interim sub-contract basis with Intelligent Energy for over twelve months and I am pleased to see this relationship deepen with the acquisition of our Energy Management Business by IE. I am also excited by the prospect of IE introducing fuel cell power generation technology at scale into India and to the new business building on the sound work that has taken place to date."

Further information on the transaction

How the Energy Management Business will be operated

The energy management contracts that underpin the delivery of power to the telecom towers are between IE's Indian subsidiary Essential Energy ("E2") and the telecom tower companies of the Global Group ("Tower Companies") along with a number of direct billing arrangements with mobile network operators ("MNOs"). These contracts involve the provision of power to the Tower Companies' telecom tower sites including the day to day management of the Tower Companies' standby generating capacity.

Subsequent to completion of the deal, IE will optimise site operations, including using the proprietary know-how and capabilities of IE's asset management and business intelligence capability ('AMBIS'). It is anticipated that, by initially improving operating efficiencies and later deploying more efficient assets including fuel cells and additional customers, considerable improvements will be made to the asset life of the power equipment and EBITDA margin. Operating efficiencies may be further improved through the deployment of additional acquired know how and intangible assets, further details of which are set out below.

The acquisition of the Energy Management Business also includes approximately 290 permanent staff who are currently involved with the delivery of the energy management contracts and of sub-contracted services.

Manufacturing

Fuel cell stacks for the expected initial deployment into India in 2015 will be manufactured in Japan at SMILE's ready to scale production line in Yokohama, Japan. SMILE is a 50:50 owned joint venture between Suzuki and Intelligent Energy. This deployment of IE's core fuel cell 'engine' in a DP&G application represents a further concrete example of IE's 'design once, deploy many times' philosophy.

Financial details

IE expects to earn approximately £120m revenue per annum for providing power and maintaining equipment. The charge out rate is based on a pre-determined charge for power supply based on expected levels of efficiency. The rates paid by the tower companies for these power supplies are indexed against current electricity and diesel prices such that E2 manages fuel volume risk but not fuel price risk. This will result in an expected initial gross EBITDA margin of c.15%. This is equivalent to pre-tax cash EBITDA margin of c.£17m per year. E2 will have a direct billing relationship with the MNOs Aircel and Tata but will otherwise invoice the tower companies.

Until completion, IE will continue to operate under an existing interim sub-contract arrangement for power supply services to the 27,400 sites. This interim sub-contract has minimal EBITDA margins.

The Tower Companies will fund replacement of power generating assets as requested by IE. IE will however fund the incremental capital cost of introducing fuel cell technology. The deployment of fuel cells is expected to be economic where generators run off-grid for more than 8 hours a day. This is currently the case for around 70% of sites and initial deployment is now anticipated to increase pace with wide scale roll-out occurring over the next 3 -5 years, the incremental capital cost of which is estimated to be in the region of £1.5m per annum; IE has already received positive indications on external financing for this amount.

Over the ten year life of the agreement, EBITDA margin is expected to grow to between 30%-35% which is a cash equivalent EBITDA of c.£40m per year as IE moves through the four step process of acquisition, enhancement, diesel to fuel cell substitution and the addition of customers on a material proportion of sites.

Total consideration is comprised of INR 850 Crores (approximately £85m) in cash of which up to £25m will be financed from IE's existing cash resources. INR 600 Crores (approximately £60m) of debt will be sourced from the Indian banking markets. The interest rate is expected to be c.12%. This will be secured against the revenue stream of the power management contracts acquired as part of the Energy Management Business.

Conditions precedent

Completion of the acquisition of the Energy Management Business is subject to a number of conditions, including those set out below:

Strategic Objective - Providing a platform for large-scale deployment of fuel cell technology

The deal will immediately provide a managed customer base of significant scale to which IE can economically deploy its market leading fuel cell technology and develop cost effective hydrogen fuel distribution for the sites it will manage. This will be done through the gradual replacement of managed power assets with fuel cells on a site-by-site basis where economically suitable and appropriate with IE funding any incremental capex beyond that needed for a traditional power generation solution, which will remain funded by the Tower Companies. IE intends to engage a third party manufacturer located in India to assemble the fuel cell systems and to derive its revenue from IP licensing and support.

UPDATE ON ACTIVITIES IN SOUTH EAST ASIA

IE has, over the past 2 years, established a presence in Singapore to complement its existing Japanese representative office in fostering relationships and unlocking opportunities to improve and build capability from an operational, business and technology basis. This includes working on various opportunities with Japan, Singapore, China and other Asian based partners in all three of its business divisions Motive, Consumer Electronics and DP&G.

As a consequence of this presence, an opportunity has been identified to acquire certain intangible assets to support the development of its energy management capabilities within DP&G. The Board of IE believe that this transaction would align with the acquisition of the energy management business in India by providing IE with increased operational capabilities with a particular focus on its energy management activities.

Should the transaction conclude, IE would secure access to valuable know-how, operational processes and services that can be leveraged within the acquired energy management business, together with IE's existing know how and new technology, to drive increased efficiencies and higher EBITDA margins. The intangible assets proposed to be acquired would be harnessed to benefit the acquired energy management business by improving performance and reducing down time for the network. The transaction would also be expected to (i) enable IE to replicate the business model elsewhere across the South East Asian market; and (ii) increase the attractiveness of IE's energy management model to partners. The approach aligns with IE's medium term targets for the DP&G business and offers IE increased capabilities and opportunities that will benefit IE as we seek to replicate our Indian power management model in other developing markets.

The transaction is expected to require funding in the range of £30 to £45 million and will be funded by non-recourse debt finance (with no related IE equity injection or cash outflow). It is expected that the debt repayments will be self-financed by charges payable by IE's Indian energy management business for access to and use of the acquired assets and expertise as a result of expanding margins.

IE will provide further information in due course if and when details of the transaction are finalised. The Directors of IE retain final discretion to decide whether or not to proceed with the transaction which decision shall depend on various factors, including the outcome of the proposed acquisition of the Energy Management Business.

Note

1: By way of comparison, if this were to be in the UK context, 27,400 sites represents over 50% of the total UK telecom tower sites, or in the US context, over 10%.

Enquiries:

Notes to Editors

About Intelligent Energy

Intelligent Energy Holdings plc is an energy technology group which develops efficient and clean hydrogen fuel cell power systems for the global automotive, consumer electronics, distributed power and generation markets - from powering zero-emission vehicles to compact energy packs for mobile devices and stationary power units for the always-on infrastructure.

Working with international companies, Intelligent Energy aims to embed its technology in mass market applications to solve the challenges of continuous power and productivity, by creating everyday energy solutions to power people's lives. The Group's intellectual property and expertise is based around proprietary fuel cell technologies, which are the product of over 25 years of research and development. Its patent portfolio includes more than 900 patents granted (and over 1000 patents pending) across more than 400 patent families. The Group also maintains a significant body of confidential know-how and trade secrets.

With its principal facility and headquarters in Loughborough, UK, the company also has operations in India, Japan and Singapore, a commercial office in Silicon Valley, USA and development facilities co-located at the French Alternative Energies and Atomic Energy Commission in Grenoble and at NASA in Florida, USA. Intelligent Energy Holdings plc is listed on the London Stock Exchange and has an ADR program in the USA (LSE: IEH; ADR: INGYY).

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