Quarterly Cashflow Report

30 July 2014

Cashflow Report for the June Quarter

Ceramic Fuel Cells Limited (AIM/ASX: CFU), today released its quarterly cashflow report for the June 2014 quarter.

Summary of the Quarter

· Sales volume - 71 units sold this quarter, 210 units sold in the twelve months ended 30 June 2014 (FY2013 - 147 units). This represents a 43% increase in unit sales over FY2013.

· Fundraising - successfully raised equity of £3.36M (A$6.11M) together with the entering into of an investor agreement for a minimum US$3.00M (A$3.20M or £1.76M) and up to US$8.50M (A$9.10M to £5.00M) over the twelve months to 28 February 2015. To 30 June, under the investor agreement, equity to the value of US$0.7M (A$0.74M, £0.41M) has been issued as well as US$0.25M (A$0.27M, £0.14M) of convertible notes.

· Cash for Ameland order received - 20 units for the Ameland order were despatched in May with the remaining 20 in June. All proceeds from the sale of these units were received by 30 June.

· Cash position at 30 June 2014 - A$5.31M (£2.92M).

· Announcement of major degradation improvements - on 30 June 2014 the Company announced that a substantial reduction (up to 70%) in stack degradation rates had been achieved following patented improvements to its BlueGEN product.

Operational Review

Overview

CFU makes small-scale generators that use proprietary fuel cell technology to convert natural gas into electricity and heat for homes and small commercial buildings. CFU has fully commercialised its technology into products, and in addition to selling these products to commercial customers in Europe, is focussing on developing a product that can undertake thermal cycling.

The Company has recently announced substantial reductions in degradation rates following the introduction of patented improvements to its BlueGEN product. Extensive in-house and in-field testing demonstrated reductions of up to 70% of the average degradation rate experienced in current customer BlueGEN products. These patented improvements, which significantly improve the efficiency of the product over the life of the stack, are presently being introduced into the supply chain and will then be incorporated into routine stack production. It is envisaged that these improvements will reduce the magnitude of the required future warranty provision per unit.

Market Developments and Sales

During the June quarter, 71 BlueGEN units were sold. Whilst this is a substantial improvement on the March quarter's 15 units, the Company has previously acknowledged that this level of sales will not sustain the business and is focusing its limited sales resources on large, project-based sales in both the UK and Europe. Development of these large-scale projects is progressing and the Board is confident that a number of these targeted projects will be converted into orders in the near future.

The Company sold 210 units for FY2014 which was a 43% increase on the previous year. The Company acknowledges that, whilst there is the basis to significantly increase sales volumes through project based schemes, there is also the opportunity to secure the business' future viability through actively pursuing strategic partnerships with a number of key distribution partners in Europe, Asia and North America.

In addition to distribution partners the Company has been approached to develop larger capacity units for certain markets. Such developments will require additional levels of resource and discussions are proceeding with a number of organisations to secure the appropriate financial support. These activities may lead to the Company becoming a multiple product business.

The Company remains in dialogue with Synergy International OÜ (SI), of Estonia, however until the situation is resolved no costs are being incurred in relation to potential SI sales.

A summary of the Company's sales performance by quarter since FY11 is as follows:

http://www.rns-pdf.londonstockexchange.com/rns/7136N_-2014-7-30.pdf

Monthly sales for the 12 months to 30 June 2014 were as follows:

http://www.rns-pdf.londonstockexchange.com/rns/7136N_-2014-7-30.pdf

Sales by geographical region for the 12 months to 30 June 2014 were as follows:

http://www.rns-pdf.londonstockexchange.com/rns/7136N_-2014-7-30.pdf

During the June quarter Ameland, in the Netherlands, purchased 40 units and 5 German installers purchased multiple units. The Company is pleased with the increase in sales via its installers given the reduction in its direct sales force in March. During the quarter Avilos took the first 2 units under their agreement with the Company.

Financial Review

June Quarter Cash Flows

Net operating cash outflow for the June quarter was A$2.95M (£1.62M). During the quarter, receipts from customers, including the receipt from Ameland, amounted to A$2.00M (£1.10M) and operating expense cash outflow was A$5.10M (£2.80M). The quarter's net operating cash outflow compares to the March quarter's net operating cash outflow of A$8.06M (£4.43M), the December 2013 quarter's outflow of A$1.22M (£0.67M) and the September 2013 quarter's outflow of A$6.03M (£3.30M). The December 2013 quarter's net operating cash outflow was materially reduced by the receipt of a tax refund of A$4.02M (£2.21M) for research and development expenditure for FY2013, hence the operating cash outflow before the tax receipt was A$5.24M (£2.88M). It is anticipated that a research and development tax refund will be received for FY2014 in the last quarter of CY2014.

During March 2014 the Company undertook a review of its operations which led to a restructure in all countries in which it operates. This has led to a reduction in its work force and a lowering of its operational and production costs. The benefits of this restructure began to be realised during the June quarter as demonstrated by the reduced cash outflow for the quarter with further savings to be realised over the coming months.

The Board continues its strategic review of the Company's financial and operational needs along with its pursuit of joint venture possibilities with partners who are willing to pay for the Company's technology or can add significant synergies to the Company's operations.

Net investing cash flow for the quarter was an outflow of A$0.012M (£0.007M). The outflow was for the acquisition of plant and equipment.

Net financing cash flow for the quarter was an inflow of A$6.09M (£3.35M). Of the amount, A$6.11M (£3.36M) was received from the equity placement approved by shareholders at the EGM on 28 April. The balance of the proceeds from the issue of shares was received under the investor agreement announced in March. The capital raise expenses disclosed in the Appendix 4C cover the majority of the equity placement and investor agreement expenses, with further cash outflows for these in the coming quarters.

Cash on hand at 31 March 2014 was A$2.29M (£1.26M).

Cash on hand at 30 June 2014 was A$5.31M (£2.92M).

About Ceramic Fuel Cells Limited:

Ceramic Fuel Cells is a world leader in developing fuel cell technology to generate highly efficient and low-emission electricity from widely available natural gas. Ceramic Fuel Cells has sold its BlueGEN gas-to-electricity generator to major utilities and other foundation customers in Germany, the United Kingdom, Switzerland, The Netherlands, Italy, Japan, Australia, and the USA. Ceramic Fuel Cells is now focusing on markets in Germany, the United Kingdom and Benelux.

The company is listed on the London Stock Exchange AIM market and the Australian Securities Exchange (code CFU).

www.cfcl.com.au

www.bluegen.info