Preliminary Results

VPhase plc

("VPhase" or the "Group")

Preliminary Results

For the year ended 31 December 2011

VPhase plc, (AIM:VPHA), a leading developer of energy saving products for residential and commercial properties announces its preliminary results for the twelve months ended 31 December 2011.

2011 Highlights

Post year end

Rick Smith, Chief Executive Officer of VPhase, commented: "We continue to make steady progress in growing the business, with revenue increasing by 65% during the period, £2.3 million raised in December and continued independent recognition by the industry for our achievements and innovative products. We have entered into a number of agreements in the social housing market as well as broadening our offering in new territories such as Australia.

The Board's stated strategy is to build a solid platform for future growth through markets such as social housing, and with a strong and growing pipeline of orders, we are excited about the opportunities that exist both domestically and overseas for the Group."

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Chairman's Statement

During 2011, the Group saw sales grow 65% to £440,000, and demand for our product continues to grow steadily. As we start 2012, our monthly run rate continues to increase and our pipeline of potential business has strengthened further.

Progress within the social housing sector has been pleasing and there are now over 50 registered social landlords trialling the VPhase product. 2011 orders include Stockport Homes with a 1,200 unit order and City South Manchester Housing Trust with a 980 unit order which British Gas Community Energy ("BGCE") is installing.

Other routes to market are also being developed and our product will shortly be available on the Tesco Home Energy website via Enact Energy.

The Group's focus on converting its pipeline to sales intensified as the year progressed with over 35% of the total sales volume occurring in the last quarter of 2011. At the end of the year the Group had orders worth £178,000.

We continue to lobby for inclusion in the UK Government's Green Deal programme and have gained the support of some utilities and other organisations in this regard.

We have today announced the extension of our product range with the introduction of our premium priced and light commercial products. This includes a modular distribution board offering, making it even quicker and more cost effective to fit a VPhase unit and widening significantly the number of properties where a VPhase can be fitted. These products will be available for sale from the beginning of the third quarter of 2012.

Awards

We were pleased to win a number of prestigious awards during the year, notably being named winner of the Shell Springboard regional Awards for carbon busting technologies and the National Runner up in the national finals and being a winner of the worldwide GE Ecomagination challenge.

Outlook

2011 was a year of steady progress, we remain confident that significant further progress will be made in 2012.

Vanda Murray OBE

Chairman

19 March 2012

Chief Executive's Review

2011 was a year of steady progress in the Social Housing sector for VPhase. The Group is also beginning to attract significant interest from overseas markets and has sold product to Australia, France, South Africa and Poland.

In 2011 we made steady progress against our stated objective of driving the business forward and finished the year with an order book of £178,000 (2010: £nil). Since the year end the rate of sales has increased and the order book is healthy with a good pipeline of potential orders.

The Group's increased focus on the Social Housing market, where our product addresses the key objectives of Registered Social Landlords, tackling fuel poverty and reducing the carbon footprint of their housing stock, has resulted in increased demand. We have entered into a framework agreement with Procurement for Housing, received an order for 1,200 units with Stockport Homes as part of their Shine program, as well as an order for 980 units from British Gas to supply City South Manchester Housing Trust. Subsequent to the year end and following the installation of the first 500 units, City South Manchester Housing Trust has confirmed that all future rewires they carry out will have a VPhase unit fitted. Additionally, the relationship with Great Places Housing continues to strengthen. Building on the success of early trials, the VPhase VX1 unit is now specified on all Great Places new builds, rewires, voids and boiler replacements. Great Places have been so pleased with the product that they now present their experiences at Social Housing seminars sharing their positive feedback amongst their peer group. As a consequence we have generated significant interest in the sector and there are now some 50 Registered Social Landlords trialling VPhase units.

March 2011 saw the award by Ofgem of 2.5 tonnes of CERT credits for each VPhase installed. The changes to the CERT scheme shifting the emphasis to heating and insulation, which must now comprise 67% of the total expenditure, has made accessing the value of these credits more challenging, but discussions continue with the major utilities on how to achieve value.

 In June 2011 we were delighted to be one of only ten winners of the GE Ecomagination challenge out of some 5,000 applicants. Discussions continue between the Group and GE as to how we might work closer together, and the award has already had the ancillary benefit of attracting other organisations to our product.

The supply of VPhase units to Tesco customers via Enact Energy, has, before going live necessitated the availability of a nationwide installation capability. I am delighted that this is now substantially in place and it is expected that sales would commence by the end of the second quarter.

Overseas opportunities are considered as they arise and I am pleased to announce that on 15 March 2012 we secured a supply agreement with Energy Home Solutions Pty Limited ("EHS") in Australia worth up to £12.4 million over the next five years, subject to EHS meeting the minimum order levels.

The Group has developed an excellent team with a breadth of knowledge in our industry and has further added to and strengthened that team at both management and at the Board level.

Review of the Group's strategic progress through 2011

As outlined in last year's annual report, we continue to establish long term relationships with key partners and customers to drive demand and whilst our policy of establishing these relationships with larger organisations takes time to deliver, we believe it will provide the base for sustainable growth in the future.

In line with our stated objective of continuous innovation, we are launching two new added value versions of VPhase, a 2kw ("VX2") version and 5kw ("VX5") version each of which can be installed more easily, can offer wireless connectivity and which will be modular offering 6 way and 16 way distribution boards to extend the value proposition.

We restricted headcount growth in 2011 to those positions that could rapidly add value to the business and therefore have strengthened our sales, technical and supply chain teams as well as the Board of Directors with the appointment of Duncan Sedgwick as an additional Non-Executive Director on 22 March 2011. The Group's headcount has increased during the period from 13 to 17 as at 31 December 2011.

Carbon Footprint

A VPhase unit effectively reduces the carbon footprint of any property in which it is installed and this can be by as much as 4,500 kgs of CO2 over the product's installed life of 25 years. To ensure that this gain is not eroded by our chosen supply chain, we have worked with CTech Innovation Ltd under a European funded project, where we have tested the carbon impact of our chosen supply chain, component selection, manufacturing location and transport implications.

The overall carbon impact of the supply chain is around 53 kgs of CO2 which in turn means that a VPhase VX1 is carbon neutral within its first year and will continue to save carbon for the subsequent 24 years of its life.

The Compelling Case for VPhase

VPhase is the only voltage optimisation technology that can cost effectively optimise to a set voltage.

VPhase has been extensively tested by SSE, Ofgem and Housing Authorities substantiating the claims that the benefits of VPhase unit are:

·; a saving of up to 12% off a domestic electricity bill;

·; a reduction in carbon emissions by up to 4.5 tonnes over its 25 year life;

·; it becomes an integral part of the infrastructure of the property once professionally installed;

·; it is a fit and forget product which sees the units of electricity consumed in the home reduced with no need for behavioural change on behalf of the customer; and

·; a payback of three to five years dependent upon overall levels of electricity used and mix of appliances assuming a typical £300 installed cost.

In addition to stand alone benefits, the device is complementary with other energy saving technologies. For example, installing a VPhase unit with a solar PV system can reduce the payback period and improve the return on investment.

VPhase is the next most affordable green option after loft, cavity and floor insulation. According to DECC it was estimated that at the beginning of 2011 out of 26.6 million homes in Great Britain, 23.3 million have lofts and 18.7 million have cavity walls of which 12.9 million homes had loft insulation of at least 125 mm (55.4 % of relevant homes) and 10.6 million had cavity wall insulations (56.6% of relevant homes).

Less than 0.02% of UK homes have voltage optimisation.

Future Strategy

VPhase will continue to build on the excellent base it has established in the Social Housing market.

Our new products should substantially increase the footprint of properties that can cost effectively fit a VPhase unit and open the market for light commercial single phase applications.

The Group continues to look for opportunities to further accelerate the demand for VPhase and where the technology can be combined with other products/technologies to provide greater savings for the home owner.

Outlook

With a healthy and growing order book and pipeline of potential orders we believe your business will make significant progress in 2012.

 Financial and Business Review

Set out below is an extract of the Group Financial Statements for the years ended 31 December 2011 and 2010 together with an analysis of the Group's Key Performance Indicators.

Revenues

Revenues increased as the Group began to secure traction in the Social Housing Sector. This required an element of price reduction to find the correct market price. Product revenue increased 76% and sales volumes increased 97%. A continued increase in volumes will enable the Group to source product from higher volume and lower priced suppliers, increasing margins.

Gross Margins

Margins came under pressure as prices were reduced to secure volume before volume manufacturing could be established. This should correct later in 2012 / early 2013 depending on speed of volume growth.

Margins for 2011 were within expectation at 34% (2010: 39%).

Warranty Claims

Warranty claims were low and within expectations for a newly introduced product. Claims reduced as the year progressed and product improvements were introduced based on market feedback.

Research and Development Expenditure

Research and development expenditure increased in the year to £168,000 (2010: £81,000) of which £110,000 was capitalised under IAS38 (2010: £nil) and £58,000 was charged to administrative expense (2010: £81,000).

This reflects the development of new products designed to enhance the Group's product offering. The new range of products is due to be released early in Q3 2012.

Administrative Expenditure

Administrative expenditure increased in line with expectations as the team was strengthened and the resources were put in place to deliver sales growth.

Total administrative expenditure was £2,118,000 (2010: £1,817,000), an increase of 16%.

Income Tax

During the year the Group received research and development tax credits for the years 2009 and 2008 amounting to £103,000 (2010: £nil).

Loss for the year and loss per ordinary share attributable to the equity holders of the Company

The net loss for the year was £1,863,000 (2010: £1,711,000) and this equates to a loss per ordinary share of 0.24 pence (2010: £0.24 pence).

Capital Expenditure

Intangible Assets

The Group invests in research and development which, when it meets the criteria established in IAS38, is capitalised and then amortised over its useful economic life. These assets form part of the Group's intangible assets.

In 2011 the Group capitalised £110,000 (2010: £nil) as it develops new products for launch in 2012.

Tangible Assets

The Group outsources its manufacturing which reduces the need for high levels of investment into tangible assets. The total expenditure on property plant and equipment was £76,000 (2010: £36,000) and was predominantly tooling for the new products currently in development.

Cash Management

Cash is critical to any business but particularly to a business in the early stages of commercialisation. Cash management involves the control of inventory debtors and creditors as well as overheads.

At the end of 2011 cash resources available to the business amounted to £2,148,000 (2010: £2,078,000) and the net amount invested in working capital (inventory plus debtors less creditors) was £582,000 (2010: £347,000). This increase was driven by the increase in inventories in anticipation of a significant increase in sales.

Rick Smith

Chief Executive Officer19 March 2012

Group Income Statement

for the year ended 31 December 2011

The loss for the year is also the total comprehensive loss for the year and consequently no separate statement of comprehensive income is presented.

All revenue and costs originate from continuing activities.

Group Statement of Changes in Equity

for the year ended 31 December 2011

Group Statement of Financial Position

as at 31 December 2011

Group Statement of Cash Flows

for the year ended 31 December 2011

Notes

1. Basis of preparation

While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards ("IFRS"), this announcement does not itself contain sufficient information to comply with IFRS. The accounting policies used in preparation of this preliminary announcement have remained unchanged from those set out in the Group's 2010 annual report. They are also consistent with those in the full financial statements which have yet to be published. The preliminary results for the year ended 31 December 2011 were approved by the board of directors on 19 March 2012.

The financial information set out in this preliminary announcement does not constitute the Group's financial statement for the years ended 31 December 2011 and 2010. The financial information for the year ended 31 December 2010 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006. The statutory accounts for the year ended 31 December 2011 will be delivered to the Registrar of Companies following the Company's annual general meeting.

Going concern

The Group, together with its ultimate Parent Company, has sufficient financial resources to continue to operate for the foreseeable future and with the growing demand and interest in the product the Group has a sound platform for generating future sales. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.

The Group's forecasts and projections, which have been prepared for the period to 31 December 2015 and taking account of reasonably possible changes in performance in relation to sales volumes and the ability of the Group to factor its debtors show that the Group should be able to operate within the level of its current cash resources.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group Financial Statements.

2. Income tax

The prior year adjustment originates from a tax credit received in cash arising from research and development activities

during the financial years ended 31 December 2008 and 2009.

Unrelieved tax losses relating to the current trade of £4,865,000 (2010: £3,210,000) remain available to offset against future taxable trading profits. No deferred tax asset has been recognised in respect of the losses, as recoverability is currently uncertain.

3. Loss per ordinary share

The loss per ordinary share is based on the loss of £1,966,000 (2010: loss £1,711,000) and 835,689,813 (2010: 719,426,982) ordinary shares of 0.25 pence each, being the weighted average number of shares in issue during the year. All shares have been included in the computation based on the weighted average number of days since issuance.

The share options and warrants in issue are anti-dilutive in respect of the diluted loss per share calculation and have therefore not been included.

4. Cash consumed by operations

5. Availability of financial statements

Copies of the full statutory financial statements will be available from the registered office from 19 May 2012 and will also be available from the Group's website at www.vphase.co.uk.

6. Annual General Meeting

The Annual General Meeting will be held at 12.00pm on 21 May 2012 at the Company's registered office, Castlefield House, Liverpool Road, Castlefield, Manchester, M3 4SB.

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