Publication of Annual Report

Intelligent Energy Holdings plc

Martin Bloom, Group Chief Executive Officer

John Maguire, Chief Financial Officer

+44 (0)1509 271271

Tulchan Communications

James Macey White

Matt Low

+44 (0)207 353 4200

Risk Category

Description

Mitigation

Funding and commercial strategy

The Directors recognise that the short-term trading and commercialisation of the Group's fuel cell technology provides some challenges. The Group meets its day to day working capital requirements through its cash resources. As at 30 September 2016, we had a cash balance of £20.6m.

The current trading position of the Group and its forecast development plans result in cash consumption for at least the next year. While it is expected that the Group will exit the current financial year with cash on its balance sheet, the cash position thereafter will depend on the future trading and/or any further action taken with respect to the Company's cost base. The exact nature and evolution of these are, by their nature, uncertain.

We undertake regular cash flow forecasting within the business.

The Group has now been restructured, with costs and cash burn reduced by more than half during the 2015/16 financial year, and a re-focused approach on the delivery of short-term commercial opportunities.

The Company has the ability to realise value from its intellectual property portfolio, which has the potential to be a significant store of value. We also maintain close relationships with the Company's key shareholders.

Technology

As our technology is innovative and complex, projects and programmes may not be delivered on time, or on budget. They may not achieve the expected performance criteria, or experience product deficiencies/defects whilst in-the-field.

Such delays could create the impression that our fuel cell technology is not suitable or ready for the particular markets in which the Company is now focusing.

Our prime focus is to deliver the Company's technology to customers. We also place a huge importance on making continual improvements, in order to maintain a technological advantage over our competitors, within both the fuel cell industry and the wider power supply markets.

We operate via strict project management control frameworks to ensure that project, technology and testing milestones are adhered to and that any delays or performance issues can be controlled.

We employ highly skilled engineers and technicians who are at the forefront of developments within the fuel cell industry. We believe they have the knowledge and technical product expertise to deliver our existing technological capabilities within our chosen markets.

Competitive markets

Material markets for fuel cell technology may never develop, or develop more slowly and on a much smaller level than is anticipated. The Company's ability to secure customer contracts may be slower than expected to materialise, or may never materialise at the required levels.

In addition, fuel cells may never be as competitive as other competing technologies in providing alternative power sources, such as solar/wind power, other fuel cell providers, or the existing diesel powered solution.

Commercialisation of fuel cell products and technologies also depends upon the achievement of a suitable total cost of ownership of these products. We may be unable to supply our technology at volume and via a cost-effective solution.

Our commercialisation strategy relies, in part, on the expansion of the business in parts of the world which are perhaps less well developed than the UK or US. The costs, risks, operational challenges and competition associated with entering, and then maintaining, a foothold in such markets may be higher than expected, or delay the roll-out of our technology.

A significant amount of work is being carried out within the business to understand where in the energy ecosystem we fit, and where our technology is best placed to compete. The key will be to find markets where revenues are likely to scale rapidly.

As part of this strategy we will be looking for opportunities to 'seed the market' with our technology, in order that potential customers can see what our products can offer to them and the benefits they can realise. The Directors believe this will lead to an on-going sales pipeline over time.

The development of cost effective manufacturing techniques, coupled with volume increases, will help to drive down the up-front costs that are currently associated with our technology and allow us to compete more easily with alternative sources of power.

Where appropriate, we employ personnel who have strong international backgrounds. An added focus has been placed on ensuring that we have the right commercial and technical expertise in parts of the world where we see the biggest potential opportunities, namely Japan, China and India.

Operational

As part of our commercialisation strategy we will be looking to undertake in-house, low volume manufacturing and fuel cell stack assembly at our facility in Loughborough, UK, to meet initial customer orders.

As demand increases, we may experience problems in being able to supply the volumes required, or suffer from a reduction in fuel cell stack performance, reliability and/or durability. We may not be able to reduce production costs to a sufficient level.

As demand for our fuel cell products increases over time, we will need to find alternative solutions in relation to the manufacture and assembly of our fuel cell stacks, via the use of contract manufacturers. There is a risk that third party providers cannot be identified, taking into account the challenges and risks associated with introducing a new technology to the market, at volume. The use of such third party contract manufacturers to produce our fuel cells at volume may also lead to quality/performance issues for the product.

We have the benefit of being able to call on our highly skilled and experienced in-house engineers and technicians who are based in Loughborough, UK; they have an in-depth knowledge of manufacturing and stack assembly for fuel cells, can resolve problems quickly and have the ability to make calculated and real-time improvements to the production line processes that we will operate.

A significant amount of stack manufacturing experience has recently been gained via the production of the Company's 'Upp' product. Several of the engineers and technicians who worked on these production lines with our contract manufacturers in the Far East are still working for us, in order that we can learn the lessons from the past.

We will be using our production line in Loughborough. It has been successfully used in the past for the small scale manufacture and assembly of stacks for Suzuki, as well as our own in-house development, testing and prototype requirements.

In time, and subject to commercial growth being achieved, we are planning to develop long-term relations with key suppliers and contract manufacturers, to ensure they provide reliable, flexible and scalable solutions.

IP/cyber

We are dependent on proprietary technology underpinned by intellectual property ("IP"). There is a risk that we may not be able to obtain, maintain, defend, or enforce those IP rights. We may also be exposed to litigation in the future in respect of IP infringement or product liability claims.

There can be no assurances that any currently pending or future patent will be granted, the Group's patent applications will not be challenged by third parties, where patents have been issued to the Group others will not be able to design around such patents to create a competing technology or product, competitors will not develop similar products which are not within the scope of the Group's patents and our IT systems can fully prevent a loss of IP through a cyber-attack.

As we begin to commercialise and deploy our technology in the marketplace, the technology itself will likely become more visible to competitors and others.

We register our IP rights where appropriate to aid enforcement and to protect against infringement challenges, where appropriate. We regularly look to extend our technology capabilities through continuous research activities and proprietary knowledge.

IP boundaries and ownership rights are an integral part of all contracts the Company has already entered into, or may do so in the future, with potential customers and partners. We have specialist in-house IP capabilities to oversee all IP activity, including the management of external IP service providers.

We have an IT security framework and roadmap in place, which highlights the highest cyber risks. As new cyber risks develop the roadmap and priorities adjust accordingly.

Key personnel

The success of our business strategy is dependent on our ability to attract and retain key personnel. The loss of these individuals, or the inability to recruit sufficiently qualified and experienced replacements, may make it difficult for the business to meet its objectives.

Taking into account the current financial constraints placed on the Company, and the large-scale restructure that took place earlier this year, the Directors believe there is an additional risk of key employees leaving the business at the current time.

We maintain regular contact with recruitment bodies to understand trends in the labour market and also frequently review staff turnover rates.

We are aware of the need to create a structured and meaningful success-based incentive programme for our employees, in order to retain key personnel and assist in the recruitment of the best talent.

We believe this risk will begin to decline as the business starts to gain more commercial traction, thus providing a more secure business for employees to work in.

Legal and regulatory

Our growth strategy involves operating in fast-growing economies around the world, where there may be different and/or additional legal, regulatory and accounting compliance frameworks. There is a risk that the Company may fail to adhere to such obligations.

External advisers are sourced locally, where deemed relevant, to ensure legal, regulatory and accounting compliance.

We also employ relevant personnel who have strong international backgrounds and who understand the local markets, cultures/customs and market practices in which we operate.