21st Nov 2016 07:00
(LSE: IEH; ADR: INGYY)
21 November 2016
INTELLIGENT ENERGY HOLDINGS PLC: RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2016
REFOCUSED BUSINESS PROVIDES A PLATFORM FOR GROWTH IN SALES OF FUEL CELL PRODUCTS
Intelligent Energy Holdings plc, the energy technology group ("Intelligent Energy", "IE", the "Group" or the "Company"), is pleased to announce its annual financial results for the year ended 30 September 2016.
SUMMARY FINANCIAL PERFORMANCE
12 months to 30 September 2016 £m | 12 months to 30 September 2015 £m |
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Revenue | 91.8 | 78.2 |
| |
Adjusted EBITDA (1) | (33.4) | (46.2) |
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Exceptional items and impairments (3) | (51.3) | (0.0) |
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Profit/(loss) after tax | (82.7) | (42.8) |
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Cash (2) | 20.6 | 24.2 |
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(1) |
EBITDA is a non-statutory measure often used by investors as a proxy for cash and to calculate the value of a business. The Company uses adjusted EBITDA (Earnings before Interest, impairment charges, Tax, Depreciation, Amortisation, share of joint venture results, equity fund raising costs and IFRS2 share-based payment charges) as an indicator of trading profitability and a proxy for operating cash flow, before any cash movements relating to investment, tax, funding and changes in working capital. It is not an IFRS measure, and not therefore shown in the Group income statement. Please see notes 1 and 2 for a reconciliation of adjusted EBITDA to EBITDA and operating loss | |||
(2) (3) | Cash is defined as cash and cash equivalents and short term deposits Exceptional items and impairments include £48.6m of non-cash accounting charges and £2.7m of cash restructuring costs
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OPERATIONAL HIGHLIGHTS
· Launched and are implementing a revised corporate strategy, focused on commercialising IE's proven technology and generating revenues in the short term
o Operating business refocused on air cooled fuel cell technology with a power output from 1W to 20kW
o Changing the culture of the business with much greater commercial and results based focus
o Commercial team strengthened
o Increased emphasis on sales opportunities relating to manufacture and sale of existing reference designs
o Simplified the structure and internal systems of the company, including a unified Commercial, Delivery and Design function
o Monthly cash burn reduced by more than 50%
· Continued and ongoing Joint Development Agreement activity with Suzuki
· Demonstration of fuel cell applications for drones and hand held devices
· Continued successful operation of the Interim power management agreement with GTL for 27,000 Indian telecoms sites
o Seven sites currently being powered by IE's fuel cells (generating 49.632 MWh of fuel cell powered electricity as at 31 October 2016)
o Site power availability of close to 100%
STRATEGIC FOCUS AND OUTLOOK
As previously announced, IE reviewed its strategy during the year. This reflected a lack of commercial traction across a variety of applications and an eventual funding envelope that necessitated in IE having to focus upon those technologies which were closest to being ready to be brought to market and deliver revenue growth.
Having secured additional funding, the Company has launched its revised strategy and believes the most appropriate way to deliver shareholder value, given current markets, is to continue to commercialise the business with a focus on driving revenue growth from a simplified operating base.
The UK business is now focused on Air Cooled (AC) fuel cell commercial opportunities with a power requirement of sub 1W to 20kW. It is the intention to grow this business in FY16/17 from its restructured base and to continue to reduce cash burn from the current run rates over the course of this financial year.
Four important developments have been carried out as part of the revised strategy to focus IE on commercial outcomes:
1. Instigation of a much more focused approach. The implementation of a change of culture across the business and the creation of a more focused executive decision making body will speed up the process from the laboratory to the market.
2. Creation of a new Product Delivery function. This will accelerate the market deployment of the Company's technologies and take those technologies which are closest to market to the point of manufacture.
3. Simplification of the Company systems. Over the last few months IE has been reviewing its processes and systems with a view to streamlining and simplifying the way the newly resized business operates. Going forward, the Company will adhere to a continuous improvement programme to ensure it remains operationally aligned to delivering the revised strategy.
4. Commercial team strengthened. The Company has recruited additional people with different skill sets and track records to deliver commercial outcomes and is increasing its resources in the US, Japan, China and India. These are potentially lucrative markets for IE where there is already an existing customer base.
Consequently, the Company will move to selling its core fuel cell stack products and systems to customers, while only co-developing projects under a JDA model in selective cases where it makes sense to do so. IE has enough manufacturing capacity for at least the next year to meet demand and will continue to protect its intellectual property portfolio. The Company believes there is demand for its fuel cell stacks and modules and the Company will target markets where its technology can be incorporated into commercial products.
Martin Bloom was appointed as Interim Group Chief Executive Officer on 9 June 2016 when Dr Henri Winand stepped down from the role. With immediate effect, Mr Bloom has been appointed to this role on a permanent basis. He was an independent Non-Executive Director of Intelligent Energy from 2012 and has significant experience in building high-growth energy technology companies and has strong international connections in the energy sector.
Martin Bloom, Chief Executive Officer of Intelligent Energy Holdings plc, commented:
"As I outlined at the Analyst and Investor Day in September, we know we have the technology, people and know-how to deliver future growth for the core fuel cell business, so the next steps are all about commercialisation. My objective is to prioritise delivering revenues and building the business. The revised strategy is all about outcomes, especially commercial outcomes."
There will be a conference call for analysts and investors at 09:00 this morning. Please contact Tulchan Communications via [email protected] for details.
A copy of the presentation will be made available from 07:00 on the Intelligent Energy website at: http://www.intelligent-energy.com/investors/reports-presentations
Enquiries:
Intelligent Energy Holdings plc +44 (0)1509 271271
Martin Bloom Group Chief Executive Officer
John Maguire Chief Financial Officer
Tulchan Communications [email protected]
James Macey White
Matt Low
Group Financial Summary As a result of lower than originally expected commercial traction, constrained funding and a slower than expected evolution of the market, the Company entered into a restructuring programme during the year which included a reappraisal of the carrying values of certain assets and a revised strategy. As part of the restructuring process, the divisional structure of the Company's three customer facing segments and a platform support segment were replaced by unified commercial, deployment and design functions in the core fuel cell business. In addition, new development activity on the evaporatively cooled fuel cell platform covering a 20kW - 200kW power range ceased, while the current capability has been maintained. Consequently, while the business was reported as 4 segments in 2014/15, it is reported in 2015/16 as a unified core fuel cell division and a separate Essential Energy branded business in India, which has been providing power management services for telecoms towers. Consequently, the results (and the prior year numbers) are presented on this new reporting basis. Overall, at a consolidated financial level, while Revenue grew from £78.2m in 2014/15 to £91.8m in 2015/16, the impact of the restructuring was such that losses attributable to shareholders increased from £42.8m to £82.7m. This included the de-recognition of the deferred tax asset, impairments to other assets and restructuring costs which in total comprised £51.3m (2014/15 £0.0m). This represents a one-time, non-cash accounting charge of £48.6m and a cash cost of £2.7m to the income statement. It reflects, with reference to the deferred tax assets, uncertainty as to future profits and, in relation to the impairment of the carrying value of assets and IP, less certainty of commercial traction for specified activities in the short term. Within these headline numbers, the segmental position was as follows: The Essential Energy business, though the interim contract arrangements with GTL, (which are renewed on a monthly basis), saw revenue expansion year on year, due to the full year effect of 27,000 sites being serviced and exchange rate movements. This was delivered, as expected under the interim arrangements, at low margins, resulting in negative EBITDA for the year once central EE costs were accounted for. The core fuel cell segment recorded revenue in the year relating to AC fuel cell joint development agreements. While the JDAs generated incremental margin in their own right, costs relating to running the business and further development of fuel cell technology meant that the fuel cell segment continued to be EBITDA negative. With respect to the balance sheet, negative EBITDA and investment activities represent a consumption of cash in the business, at an average of £2.4m per month for H1, including R&D tax credits of £5.4m. Restructuring of the business in H2 reduced the underlying cash burn to an estimated £1.1m by September 2016, incurring one off cash costs of £2.5m in H2. The cash burn for the year was partly offset by the gross proceeds of £30m from the issue of a convertible loan note, the full terms of which were approved by shareholders in general meeting on 09 June 2016. Cash balances at 30 September 2016 were £20.6m, (£24.2m 30 September 2015). Consolidated income statement Revenue and gross margin Revenue for the year was £91.8m (2014/15: £78.2m). £85.1m (2014/15 £72.2m) was recorded in the Essential Energy segment for the provision of power management related services to GTL in India for a portfolio of c27,000 telecoms towers. The year on year growth in revenue of £12.9m reflected the full year effect of the interim contract, an increase in the number of customers using the towers and a £2.5m increase resulting from the impact of exchange rate movements. £6.7m (2014/15 £6.0m) of revenue was recorded in the fuel cell technology segment. This related to Joint Development activity with automotive customers and an emerging markets mobile hand set OEM. Over 99% of revenue in the year related to activity for customers based outside of the UK. The Company's gross margin is stated after deducting cost of sales which includes fuel costs in the Essential Energy segment, labour costs, materials and direct facilities costs used in delivering contracted revenue-earning joint development projects. Gross margin for the year was £1.8m (2014/15: £2.3m) and in percentage terms, 2% of revenue (2014/15: 3%). The low gross margins reflected the nature of the interim sub-contract arrangements with GTL within the Essential Energy segment, which as previously disclosed generates minimal margins. The Company continues discussions with GTL in relation to Essential Energy. Research and development In the year, R&D expenditure amounted to £9.6m (2014/15: £19.1m). £1.0m of restructuring costs were recorded in H2 within this total, and R&D spend is now focused on AC fuel cells and their applications. R&D costs mainly comprise of staff costs, outsourced services and material costs related to fuel cell research and development. The overall decrease year on year of £9.5m reflected the impact of the restructuring program in the second half of 2015/16. An average of 60 (2014/15: 105) directly employed staff have been engaged in R&D over the course of the year, and post the restructuring this had reduced to 31 staff as at 30 September (31 were so engaged in the fuel cell segment and none in the Essential Energy segment). Operations and application engineering Operating costs in the year amounted to £44.5m (2014/15: £24.9m). £25.1m of non-cash impairment charges and £0.9m of other restructuring charges were recorded within this, reflecting the implementation of the restructuring program and impairment of those assets which do not directly relate to the focus on relevant AC fuel cell applications. Excluding restructuring and impairments the decrease in costs year on year reflects lower headcount, with an average of 151 directly employed staff in the year (2014/15: 215), and post the restructuring this had reduced to 119 (74 in the fuel cell segment and 37 in the Essential Energy segment). Activities covered include application engineering, solutions development, supplier management, logistics, facilities and IT. Administration costs Administration costs in the year amounted to £7.6m, (2014/15: £12.1m). This included £0.8m of restructuring charges. Administration costs comprise commercial and corporate activities, including sales, marketing, HR, finance, legal and procurement. An average of 116 (2014/15: 116) directly employed staff have been engaged in this area over the course of the year, and post the restructuring this had reduced to 52 staff (31 in the fuel cell segment and 21 in the Essential Energy segment). Adjusted EBITDA EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) is a non-statutory measure that is widely used as an indicator of trading profitability and a proxy for a company's operating cash flow, before any cash movements relating to investment, tax, funding and changes in working capital. It is not an IFRS measure, and therefore not shown in the Group income statement. For IE, adjusted EBITDA is measured as revenue less cost of sales less R&D and Operations and Application Engineering costs and Administration costs, adjusted for depreciation, amortisation, impairment, one off fund raising costs and the IFRS 2 share based payments charge, which is predominantly non cash based. On this measure, adjusted EBITDA for the year was a loss of £33.4m (2014/15: loss £46.2m). The movement in adjusted EBITDA mainly reflected the net impact of the restructuring program in the second half of 2015/16. (Loss)/profit for the year The loss for the year was £82.7m (2014/15 loss: £42.8m), being a reflection of the adjusted EBITDA reported above, and the following items: The Group's share of the loss on joint ventures (details of which are set out below) accounted for under the equity method of £0.4m (2014/15: £0.8m), together with an impairment charge of £1.6m (2014/15 £0.0m). Net interest charges of £2.7m (2014/15: £1.3m). The higher year on year interest reflects the issue of a £30m convertible loan note in May 2016. An income tax debit of £18.1m (2014/15: credit £11.6m) reflects the net impact of R&D tax credits less the derecognition of a £21.9m deferred tax asset, due to uncertainty on the magnitude and timing of future profits. Equity issue costs of £0.2m (2014/15: £0.3m) and an IFRS 2 share based payments charge of £0.2m (2014/15: £2.3m). Consolidated statement of financial position Non-current assets Property, plant and equipment at £2.8m (2015: £8.5m) represented additions of £1.4m in the year, offset by depreciation of £2.4m, impairments of £4.5m and foreign exchange of £0.2m. Impairments reflected assets directly related to the EC platform and leasehold improvements for properties that have been exited as part of the restructuring process. Intangible assets at £7.9m (2015: £27.0m) reflected additions of £3.2m, a contingent consideration adjustment of £3.0m, amortisation of £2.3m, impairment of £16.9m and foreign exchange of £0.1m. Intangible assets primarily represent the Group's intellectual property patent portfolio of over 1,000 patents, including patents pending. The impairments relate primarily to patents that do not immediately support expected short term revenue opportunities. Investments using the equity method The Group accounts for joint ventures using the equity method, and includes the carrying value of its share of the net assets of joint ventures in the statement of financial position. Joint ventures at 30 September 2016 comprise IE CHP and SMILE FC System Corporation. In the year, the carrying value of the joint ventures moved from £1.1m to £0.0m, mainly reflecting IE's share of net costs. In addition, during the year, the Company exited its stake in Aquapurum, and IE CHP joint venture has been wound down after the balance sheet date. Current assets Inventory at £1.6m (2015: £5.3m) was lower year on year, due to an impairment provision of £4.1m. This reflected uncertainty on the conversion of inventory into profitable opportunities. Trade and other receivables at £7.8m (2015: £11.5m) was lower year on year by £3.7m. The cash and short term deposits balance at £20.6m (2015: £24.2m) represents the funding of EBITDA losses in the year, adjusted for movements in working capital, together with capital investment, interest movements and the proceeds from the issue of convertible loan notes. Current liabilities Trade and other payables at 30 September 2016 were £8.4m (2015: £14.2m), a reduction of £5.8m. Convertible loan notes Intelligent Energy Holdings plc issued secured convertible loan notes in May 2016 for £30.0m, with a coupon rate of 13 per cent payable quarterly in arrears which are due to mature in May 2019. Issue costs of £2.8m, primarily relating to an arrangement fee, was paid from the gross proceeds. The loan note is a compound financial instrument and for accounting purposes was split into a debt component (£20.7m at 30 September 2016) and an equity component of £5.4m (net of deferred tax). The loan note can convert into shares at the holder's discretion up to maturity at 8p per ordinary share. Full conversion would represent 375m new ordinary shares, compared to the current issued share capital of the Company of 206.2m ordinary shares. Commitments At 30 September 2016, outstanding purchase orders amounted to £3.4m (2015 £6.2m). Going concern 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. The Directors have prepared detailed cash forecasts for the next 18 months, which indicate that the Group will be able to operate within these available resources. However, 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 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. After careful consideration, and the modelling of foreseeable sensitivities and remedial actions available to the Company, the Directors believe that the Company can manage its position in a way which allows it to fulfil its appropriate commitments and settle its obligations as they fall due without recourse to additional funding. This position is not impacted materially by the delivery or non-delivery of the long term GTL contract in India, the outcome of which would not negatively materially impact the cashflows of the Group. The Directors forecasts assume the business will secure a significant level of revenues that are not presently contracted. If these future revenues are not secured as the Directors envisage, then the Directors position is subject to i) the business taking the above mentioned actions on the Company's cost base and on ii) the continuation of JDA revenues, for the foreseeable future. Despite the business having a track record over many years of securing JDA revenues, the achievement of forecast levels are uncertain. Given the above circumstances, it is possible that the Group could have a shortfall in cash and require additional funding during the forecast period. The above factors result in a material uncertainty which may cast significant doubt on the Company's and Group's ability to continue as a going concern and that it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Company and Group were unable to continue as a going concern. The unqualified report of the auditors includes an emphasis of matter in this respect. Despite this, the Directors believe that the track record of the business in securing JDA activity, the options available to the Group from trading activities and the ability to realise value from the IP portfolio mean that the Directors consider that the Company will have sufficient funds to pay its debts as they fall due for the foreseeable future. It is on this basis that the Directors, in their opinion, consider that the Company remains a going concern and the financial statements have been prepared on that basis. Outlook The Group exited 2015/16 with £20.6m cash at bank and an underlying cash burn, defined as EBITDA less capex (but excluding interest on the convertible loan note), estimated at £1.3m a month. Including interest on the convertible loan note averaged on a monthly basis, this is c£1.6m a month. Revenue in the year ahead is expected to be a mix of JDAs and air cooled fuel cell related sales, which are forecast to reduce but not eliminate the Company's net cash burn. Separately, discussions continue with respect to the funding of the GTL long term power management contracts in India. If these discussions cease there is expected to be no material negative impact on the current trading prospects of the core fuel cell business. Should they complete successfully, IE would expect to have a minority stake in the ongoing business. |
Forward-looking statements
Certain statements made in this announcement are, or may be, forward-looking statements. These represent expectations for the Company's business, and involve risks and uncertainties. The Company has based these forward-looking statements on current expectations and projections about future events. However, because they involve known and unknown risks, uncertainties and other factors, which in some cases are beyond the Company's control, actual results or performance may differ materially from those expressed or implied by such statements. No reliance should be placed on such forward-looking statements. Without limitation to the foregoing, nothing in this announcement is intended to constitute (or should be construed as) a profit forecast for the financial year 2016/17.
Intelligent Energy Holdings plc
Consolidated income statement
Notes | 2016 | 2015 | |
£m | £m | ||
Revenue | 1 | 91.8 | 78.2 |
Cost of sales | 3 | (90.0) | (75.9) |
Gross profit | 1.8 | 2.3 | |
Research and development costs | 3 | (9.6) | (19.1) |
Operating costs | 3 | (44.5) | (24.9) |
Administration costs | 3 | (7.6) | (12.1) |
Operating loss | (59.9) | (53.8) | |
Analysed as: | |||
Operating loss before exceptional items | (32.1) | (53.8) | |
- Exceptional items | 4 | (27.8) | - |
Operating loss after exceptional items | (59.9) | (53.8) | |
Finance income | 0.7 | 0.4 | |
Finance cost | (3.4) | (1.7) | |
Share of loss of joint ventures accounted for using the equity method - net of income tax | (0.4) | (0.8) | |
Joint venture exceptional impairment charge | (1.6) | - | |
Gain on disposal of joint venture | - | 1.5 | |
Loss before tax | (64.6) | (54.4) | |
Income tax (Including exceptional charge of £21.9m (2015: Nil) | (18.1) | 11.6 | |
Loss for year attributable to owners of the Company | (82.7) | (42.8) | |
Earnings per share (expressed in pence per share) | 5 | ||
Basic and diluted earnings per share | (42.8) | (22.7) |
Consolidated statement of comprehensive income
2016 | 2015 | |||||||
£m | £m | |||||||
Loss for the year | (82.7) | (42.8) | ||||||
Other comprehensive income; | ||||||||
Items that are or may be subsequently reclassified to profit or loss | ||||||||
Exchange gain on retranslation of foreign operations | 0.5 | 0.2 | ||||||
Comprehensive expense for the year attributable to owners of the Company | (82.2) | (42.6) | ||||||
Consolidated statement of financial position
Group | |||
Notes | 2016 | 2015 | |
£m | £m | ||
Non-current assets | |||
Property, plant and equipment | 6 | 2.8 | 8.5 |
Intangible assets | 7 | 7.9 | 27.0 |
Investments accounted for using the equity method | - | 1.1 | |
Investments in subsidiaries and joint ventures | - | - | |
Deferred tax asset | - | 21.9 | |
Tax receivable | - | 0.4 | |
Trade and other receivables | - | 0.9 | |
10.7 | 59.8 | ||
Current assets | |||
Inventories | 1.6 | 5.3 | |
Trade and other receivables | 7.8 | 11.5 | |
Current tax receivable | 3.0 | 4.2 | |
Short term deposits | - | 0.6 | |
Cash and cash equivalents | 20.6 | 23.6 | |
33.0 | 45.2 | ||
Total assets | 43.7 | 105.0 | |
Current liabilities | |||
Trade and other payables | (8.4) | (14.2) | |
Finance lease | (0.3) | - | |
Derivative financial instruments | - | (0.1) | |
(8.7) | (14.3) | ||
Non current liabilities | |||
Deferred tax liability | (1.8) | - | |
Provisions | - | (3.0) | |
Liability component of convertible loan notes | 9 | (20.7) | - |
Finance lease | (0.3) | - | |
(22.8) | (3.0) | ||
Total liabilities | (31.5) | (17.3) | |
Net assets | 12.2 | 87.7 | |
Equity attributable to owners of the Company | |||
Equity share capital | 10.3 | 9.4 | |
Share premium | 223.3 | 222.9 | |
Other reserves | 41.1 | 35.2 | |
Retained earnings | (262.5) | (179.8) | |
Total equity | 12.2 | 87.7 | |
Consolidated statement of changes in equity
Other reserves | |||||||||
Equity | |||||||||
Equity | component of | Currency | |||||||
share | Share | convertible | Capital | Merger | translation | Retained | Total | ||
capital | premium | loan notes | reserve | reserve | reserve | earnings | equity | ||
£m | £m | £m | £m | £m | £m | £m | £m | ||
Balance at 1 October 2014 | 9.4 | 222.7 | - | 7.5 | 29.3 | (1.8) | (139.3) | 127.8 | |
Loss for the year | - | - | - | - | - | - | (42.8) | (42.8) | |
Other comprehensive expense | - | - | - | - | - | 0.2 | - | 0.2 | |
Total comprehensive expense for the year | - | - | - | - | - | 0.2 | (42.8) | (42.6) | |
Shares issued (net of issue costs) | - | 0.2 | - | - | - | - | - | 0.2 | |
Share-based payment transactions | - | - | - | - | - | - | 2.3 | 2.3 | |
Total transactions with owners, recognised directly in equity | - | 0.2 | - | - | - | - | 2.3 | 2.5 | |
Balance at 1 October 2015 | 9.4 | 222.9 | - | 7.5 | 29.3 | (1.6) | (179.8) | 87.7 | |
Loss for the year | - | - | - | - | - | - | (82.7) | (82.7) | |
Other comprehensive income | - | - | - | - | - | 0.5 | - | 0.5 | |
Total comprehensive income/(expense) for the year | - | - | - | - | - | 0.5 | (82.7) | (82.2) | |
Shares issued | 0.9 | 0.4 | - | - | - | - | - | 1.3 | |
Issue of convertible loan notes (net of deferred tax of £1.9m) (note 27) | - | - | 5.4 | - | - | - | - | 5.4 | |
Share-based payment transactions | - | - | - | - | - | - | 0.2 | 0.2 | |
Share purchase | - | - | - | - | - | - | (0.2) | (0.2) | |
Total transactions with owners, recognised directly in equity | 0.9 | 0.4 | 5.4 | - | - | - | - | 6.7 | |
Balance at 30 September 2016 | 10.3 | 223.3 | 5.4 | 7.5 | 29.3 | (1.1) | (262.5) | 12.2 | |
Consolidated statement of cash flows
Group | ||||
Notes | 2016 | 2015 | ||
£m | £m | |||
Operating activities
Loss before tax | (64.6) | (54.4) | ||
Net financing expense | 2.7 | 1.3 | ||
Gain on disposal of joint venture | - | (1.5) | ||
Share of joint venture losses | 0.4 | 0.8 | ||
Joint venture impairment | 1.6 | - | ||
Operating loss | (59.9) | (53.8) | ||
Adjustment for: | ||||
Depreciation and impairment of property, plant and equipment | 6 | 6.9 | 3.2 | |
Amortisation and impairment of intangible assets | 7 | 19.2 | 1.8 | |
Equity settled share-based payments | 0.2 | 2.3 | ||
Working capital adjustments: | ||||
Decrease/(increase) in inventories | 3.7 | (1.2) | ||
Decrease/(increase) in trade and other receivables | 4.0 | (0.4) | ||
Decrease in trade and other payables | (5.5) | (3.4) | ||
Taxation received | 5.1 | 4.8 | ||
Net cash outflow from operating activities | (26.3) | (46.7) | ||
Investing activities | ||||
Net interest (paid)/received | (0.1) | 0.1 | ||
Finance lease capital repayment | (0.1) | - | ||
Proceeds on disposal of joint venture | - | 1.5 | ||
Sale of short term deposits | 0.6 | 42.2 | ||
Purchase of property, plant and equipment | (0.6) | (4.8) | ||
Purchase of intangible assets | 7 | (3.2) | (14.6) | |
Investment in joint venture | (0.7) | (0.5) | ||
Net cash (outflow)/inflow from investing activities | (4.1) | 23.9 | ||
Financing activities | ||||
Interest paid on convertible loan notes | (1.0) | - | ||
Issue of ordinary share capital | 1.1 | 0.2 | ||
Issue of convertible loan notes | 9 | 27.2 | - | |
Net cash inflow from financing activities | 27.3 | 0.2 | ||
Decrease in cash and cash equivalents | (3.1) | (22.6) | ||
Effect of foreign exchange rates on cash and cash equivalents | 0.1 | 0.1 | ||
Cash and cash equivalents at beginning of period | 23.6 | 46.1 | ||
Cash and cash equivalents at year-end | 20.6 | 23.6 | ||
Notes forming part of the preliminary financial statements
Basis for preparation
The financial information presented within this document does not comprise the statutory accounts of Intelligent Energy Holdings plc for the financial years ended 30 September 2016 and 30 September 2015 but represents extracts from them. These extracts do not provide as full an understanding of the financial performance and position, or financial and investing activities, of the Company as the complete Annual Report.
The statutory accounts for the financial year ended 30 September 2016 have been reported on by the Company's auditor and will be delivered to the registrar of companies in due course. The report of the auditor was (i) unqualified, (ii) drew attention by way of emphasis without qualifying their report to a material uncertainty in respect of going concern and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The Annual Report, including the auditor's report, will shortly be available for download at www.intelligent-energy.com.
(a) Significant accounting policies
The accounting policies applied in these financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 30 September 2016.
(b) Judgments and estimates
In preparing these financial statements, management necessarily makes judgments and estimates that have a significant effect on the values recognised in the financial statements. Changes in the assumptions underlying these judgments and estimates could result in a significant impact to the financial statements.
The significant judgments made by management in applying the Group's accounting policies and key sources of estimation uncertainty are the same as those applied to the consolidated financial statements as at and for the year ended 30 September 2016.
1 Operating segments
The Group complies with IFRS 8 Operating Segments which requires operating segments to be identified and reported upon that are consistent with the level at which results are regularly reviewed by the entity's Chief Operating Decision Maker. The Chief Operating Decision Maker for the Group is the Intelligent Energy Holdings plc Board of Directors. Information on Fuel Cell Technology and Essential Energy is the primary basis of information reported to the Intelligent Energy Holdings plc Board of Directors. The performance of these elements of the business are assessed on a non-IFRS measure being EBITDA (earnings before interest, tax, depreciation, amortisation and share of joint venture results).
The Group is strategically organised as two separate businesses: 'Fuel Cell Technology' focusing on hydrogen fuel cell applications across a range of industries and 'Essential Energy' which focuses on power management for telecom towers in India. The group was reorganised during the year into this structure, previously being organised as four business units of Consumer Electronics, Motive, Distributed Power and Generation and Platform Support. The comparative disclosures for 2015 have been restated to the current segmental basis.
2016 | EssentialEnergy | Fuel Cell Technology | Group | ||
£m | £m | £m | |||
Revenue from external sales | 85.1 | 6.7 | 91.8 | ||
EBITDA (Segment profit measure) | (2.5) | (31.3) | (33.8) | ||
Depreciation, amortisation and impairment | (26.1) | ||||
Operating loss | (59.9) | ||||
Net financing cost | (2.7) | ||||
Share of loss of joint ventures | (0.4) | ||||
Joint venture impairment | (1.6) | ||||
Loss before tax | (64.6) | ||||
Income tax | (18.1) | ||||
Loss for the year | (82.7) |
2015 | Essential Energy | Fuel Cell Technology | Group | ||
£m | £m | £m | |||
Revenue from external sales | 72.2 | 6.0 | 78.2 | ||
EBITDA (Segment profit measure) | (2.5) | (46.3) | (48.8) | ||
Depreciation and amortisation | (5.0) | ||||
Operating loss | (53.8) | ||||
Net financing cost | (1.3) | ||||
Share of loss of joint ventures | (0.8) | ||||
Gain on disposal of joint venture | 1.5 | ||||
Loss before tax | (54.4) | ||||
Income tax | 11.6 | ||||
Loss for the year | (42.8) |
Other segmental disclosures
2016 | 2015 | |||||
Essential Energy | Fuel Cell Technology | Group | Essential Energy | Fuel Cell Technology | Group | |
£m | £m | £m | £m | £m | £m | |
Depreciation and amortisation | 0.2 | 4.5 | 4.7 | 0.1 | 4.9 | 5.0 |
Goodwill impairment | - | 5.9 | 5.9 | - | - | - |
Other intangible impairment | - | 11.0 | 11.0 | - | - | - |
Property, plant and equipment impairment | 1.4 | 3.1 | 4.5 | - | - | - |
Restructuring costs | - | 2.7 | 2.7 | - | - | - |
Total assets | 5.6 | 38.1 | 43.7 | 6.3 | 98.7 | 105.0 |
Additions to non current assets | 0.7 | 3.9 | 4.6 | 0.9 | 21.2 | 22.1 |
Total liabilities | 11.3 | 20.2 | 31.5 | 7.6 | 9.7 | 17.3 |
2 Adjusted EBITDA
The Company uses adjusted EBITDA (earnings before interest, impairment charges, tax, depreciation, amortisation, share of joint venture results, equity fund raising costs and IFRS 2 share based payment charges) as an indicator of trading profitability and a proxy for operating cashflow, before any cash movements relating to investment, tax funding and changes in working capital. It is not an IFRS measure, and not therefore shown in the Group income statement.
| ||
2016 | 2015 | |
£m | £m | |
EBITDA | (33.8) | (48.8) |
Share based payment charge | 0.2 | 2.3 |
Equity fund raising cost | 0.2 | 0.3 |
Adjusted EBITDA | (33.4) | (46.2) |
3 Expenses by nature
2016 | 2015 | |
£m | £m | |
Cost of fuel | 85.2 | 70.8 |
Depreciation, amortisation and impairment | 26.1 | 5.0 |
Staff costs (note 11) | 20.5 | 27.3 |
Inventory write-down | 4.1 | 1.5 |
Consultancy, contractors and outsourced services | 2.9 | 7.9 |
Legal and professional costs | 2.7 | 2.7 |
Facilities and services | 2.6 | 4.0 |
Operating lease charge | 2.1 | 1.9 |
Travel and subsistence | 1.6 | 2.6 |
Costs of inventories recognised as an expense | 1.0 | 2.9 |
Materials and consumables used for research and development | 1.0 | 2.2 |
Marketing | 0.5 | 1.2 |
Share based payments | 0.2 | 2.3 |
Equity fund raising costs | 0.2 | 0.3 |
Research and development expenditure credit | (0.2) | (0.4) |
Capitalised staff costs | (0.1) | (1.7) |
Other expenses | 1.3 | 1.5 |
Total cost of sales, research and development costs, operating costs and administration costs | 151.7 | 132.0 |
4 Exceptional charges
The Group has implemented a material restructuring of its business during the year. The objective is to focus the Group on the most immediate and material market opportunities, while substantially and sustainably reducing the costs and cash burn of the business.
The Company plans to maintain its core high power technology Intellectual Property portfolio, know-how and expertise appropriate for motive and high power distributed energy applications. However, further investment and development would only be made when profitable and scalable opportunities arise in lockstep with the deployment of refuelling infrastructures. As part of this restructuring, and to align the business with this revised focus there has been a simplification of the organisational structure, a reduction of the number of jobs across several locations in which the Group operates and the closure of some office locations.
The intention of the restructuring is to focus the business on existing tangible commercial opportunities whilst preserving the Group's core capability to provide best of class, fuel cell based, power solutions to customers in its target markets.
Exceptional charges have been recognised within the reported results as follows:
2016 | 2015 | |
£m | £m | |
Exceptional research and development costs | ||
Restructuring costs | 1.0 | - |
Exceptional operating costs | ||
Inventory write-down | 3.7 | - |
Property, plant and equipment impairment | 4.5 | - |
Intangible asset impairment | 16.9 | - |
Restructuring costs | 0.9 | - |
26.0 | - | |
Exceptional administration costs | ||
Restructuring costs | 0.8 | - |
Total exceptional costs charged within operating loss | 27.8 | - |
Exceptional joint venture charge | ||
Joint ventures impairment | 1.6 | - |
Exceptional taxation charge | ||
Deferred tax asset de-recognition | 21.9 | - |
Total exceptional charges | 51.3 | - |
An exceptional charge of £3.7 million has been recognised during the year to write-down the carrying value of inventory to its net realisable value. This charge arises from a refocus of the business following the reorganisation of the Company announced in April 2016. The charge arises against inventory relating to consumer electronic raw materials and finished goods.
As a result of the reorganisation of the business during the year an impairment of specific property, plant and equipment assets of £4.5 million, specific patent intangible assets of £9.3 million, 305 development intangible of £1.7 million, goodwill of £5.9 million and joint ventures of £1.6 million have been impaired as a result of the re-focussing on specific market opportunities as detailed above.
In addition, in light of the changes to the business, there is increased uncertainty over the ability to utilise the historic taxable trading losses and currently the Directors consider that, there is not sufficient convincing evidence, at this time, to enable the recognition of a deferred tax asset. Therefore the deferred tax asset relating to trading losses has been de-recognised resulting in an exceptional tax charge of £21.9 million in the year.
An impairment review has been performed at 30 September 2016 which has confirmed the carrying value of the remaining £10.7m of non-current assets is supported on a value in use basis.
Restructuring costs of £2.7 million have been incurred during the year in relation to employee severance and office closures.
The total cash outflow during the year in respect of exceptional charges was £2.5 million (2015: £nil).
5 Earnings per share
Earnings per share is based on the Group's profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the year.
2016 | 2015 | |
Earnings per share - Basic (pence) | (42.8) | (22.7) |
- Diluted (pence) | (42.8) | (22.7) |
Loss for the financial year (£ million) | (82.7) | (42.8) |
Weighted average number of shares used: | ||
- Issued ordinary shares at beginning of year | 188,325,451 | 188,112,899 |
- Effect of ordinary shares issued during the year | 4,998,481 | 60,871 |
Basic weighted average number of shares | 193,323,932 | 188,173,770 |
The impact of share options, share warrants and potential ordinary shares associated with the convertible loan notes has an antidilutive impact on the earnings per share.
467,678 share options (2015: 1,471,179), 1,869,784 share awards (2015: 4,298,646), and 375,000,000 potential ordinary shares in relation to the convertible debt (2015: nil) were excluded from the weighted-average number of ordinary shares used in the calculation of the diluted earnings per share because their effect would have been antidilutive.
6 Property, plant and equipment
Office | Plant, | ||
equipment, | machinery | ||
fixtures | and | ||
Group | and fittings | equipment | Total |
£m | £m | £m | |
Cost: | |||
At 1 October 2014 | 2.1 | 14.2 | 16.3 |
Additions | 0.4 | 4.4 | 4.8 |
At 1 October 2015 | 2.5 | 18.6 | 21.1 |
Additions | 1.0 | 0.4 | 1.4 |
Disposals | - | (1.3) | (1.3) |
Transfer to inventory | - | (0.5) | (0.5) |
At 30 September 2016 | 3.5 | 17.2 | 20.7 |
Depreciation and impairment: | |||
At 1 October 2014 | 1.5 | 7.9 | 9.4 |
Depreciation charge for the year | 0.4 | 2.8 | 3.2 |
At 1 October 2015 | 1.9 | 10.7 | 12.6 |
Depreciation charge for the year | 0.3 | 2.1 | 2.4 |
Impairment charge | 0.2 | 4.3 | 4.5 |
Disposals | - | (1.3) | (1.3) |
Transfer to inventory | - | (0.5) | (0.5) |
Foreign exchange | 0.1 | 0.1 | 0.2 |
At 30 September 2016 | 2.5 | 15.4 | 17.9 |
Net book value: | |||
At 30 September 2016 | 1.0 | 1.8 | 2.8 |
At 30 September 2015 | 0.6 | 7.9 | 8.5 |
At 1 October 2014 | 0.6 | 6.3 | 6.9 |
The cost of plant, machinery and equipment at 30 September 2016 includes £0.3 million (2015: £3.8 million) of assets in the course of construction. Office equipment, fixtures and fittings includes assets under non-cancellable finance leases with a net book value of £0.7m. (2015: £nil).
7 Intangible assets
Group | Development | Software | Patents | Goodwill | Total |
Cost: | £m | £m | £m | £m | £m |
At 1 October 2014 | - | 3.1 | 5.2 | 11.5 | 19.8 |
Additions | 2.0 | 1.0 | 14.3 | - | 17.3 |
At 1 October 2015 | 2.0 | 4.1 | 19.5 | 11.5 | 37.1 |
Additions | - | - | 3.2 | - | 3.2 |
Contingent consideration adjustment | - | - | (3.0) | - | (3.0) |
At 30 September 2016 | 2.0 | 4.1 | 19.7 | 11.5 | 37.3 |
Amortisation and impairment: | |||||
At 1 October 2014 | - | 1.5 | 1.2 | 5.6 | 8.3 |
Amortisation charge for the year | - | 0.9 | 0.9 | - | 1.8 |
At 1 October 2015 | - | 2.4 | 2.1 | 5.6 | 10.1 |
Amortisation charge for the year | 0.3 | 0.7 | 1.3 | - | 2.3 |
Impairment charge | 1.7 | - | 9.3 | 5.9 | 16.9 |
Foreign exchange | - | - | 0.1 | - | 0.1 |
At 30 September 2016 | 2.0 | 3.1 | 12.8 | 11.5 | 29.4 |
Net book value: | |||||
At 30 September 2016 | - | 1.0 | 6.9 | - | 7.9 |
At 30 September 2015 | 2.0 | 1.7 | 17.4 | 5.9 | 27.0 |
At 1 October 2014 | - | 1.6 | 4.0 | 5.9 | 11.5 |
8 Impairment testing of goodwill and other assets
The carrying value of Goodwill acquired through business combinations is tested annually for impairment or whenever events or changes in circumstances indicate the carrying value may not be recoverable. All other assets across the Group have a defined life and are amortised over a fixed period. The carrying value of these assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
Allocation of goodwill
The statement of financial position of the Group is reviewed by the Chief Operating Decision Maker (CODM), which is defined as being Intelligent Energy Holdings plc's Board of Directors, at a group level.
As detailed in note 1 the Group is organised into two segments following the reorganisation of Group being 'Fuel Cell Technology' and 'Essential Energy' and this is the level at which the results of the business are reviewed by the CODM and are the cash generating units (CGU's) at which impairment testing is performed. The recoverable amount of each CGU is has been determined based on value-in-use calculations. All goodwill is allocated to the Fuel Cell Technology segment.
Impairment
The Group has undertaken a reorganisation of the business during the year which triggered an impairment review resulting in an impairment of goodwill and other assets as detailed below and in note 9. Impairments within each segment are as follows:
EssentialEnergy | Fuel Cell Technology | Group | |||
£m | £m | £m | |||
Goodwill impairment | - | 5.9 | 5.9 | ||
Intangible assets impairment | - | 11.0 | 11.0 | ||
Property, plant and equipment impairment | 1.4 | 3.1 | 4.5 | ||
1.4 | 20.0 | 21.4 |
Impairments have been recognised in respect of certain specific intangible and property, plant and equipment assets as a result of the refocus of the business from the reorganisation in the year. The impairment of goodwill has been recognised on the basis of the estimated recoverable amount of the Fuel Cell Technology segment at 31 March 2016 of £13m. Following the development of the strategy for the reorganised business in the second half of the 2015/16 financial year, the impairment review performed at 30 September 2016 has indicated a value-in-use for the Fuel Cell Technology segment higher than the carrying value of assets in that segment. However in accordance with IAS 36 the impairment of goodwill has not been reversed.
Period of projected cash flows
The directors have used a five-year forecast period with an assumed long term growth rate after 2021 of 2% per annum. The directors expect to benefit from opportunities to move towards positive cash flow.
Discount rate
Future cash flows are discounted at a pre-tax rate of 17.9% (2015: 14.6%).
Research and development costs are based on the estimated investments required by the business to complete the research and development phases of each product line currently in progress. In each case senior management has estimated the total cost of labour, materials and capital expenditure necessary to start full production.
Raw material and production costs are based on estimated product cost structures. The costs are based on current raw material and production costs, synergies in mass production and the effect of learning during manufacture.
Conclusion
The Directors have confirmed that the recoverable amount of the segments supported their carrying values and the assumptions used in estimating the value in use are appropriate.
9 Convertible loan notes
£m | |
Carrying amount of liability | |
Proceeds from issue of convertible notes (30,000,000 notes at £1 par value) | 30.0 |
Transaction costs | (2.8) |
Net proceeds | 27.2 |
Amount classified as equity (net of transaction costs of £0.7m) | (7.3) |
Interest expense (note 12b) | 2.3 |
Interest paid | (1.0) |
At 30 September 2016 | 21.2 |
Current | 0.5 |
Non-current | 20.7 |
The Company issued 30 million 13 per cent. secured convertible and redeemable loan notes at a par value of £30 million on 17 May 2016. The loan notes mature three years from the issue date at their nominal value of £30 million or can be converted into shares at the holder's option at any date up to maturity at the rate of 8 pence per share. Any unconverted loan notes at maturity become payable on demand. Interest at 13 per cent per annum is payable on a quarterly basis. The interest charged during the year is calculated by applying an effective interest rate of 30.3 per cent on the liability component. The loan notes are secured by way of an equitable charge over the Company's shares in its principal subsidiary, Intelligent Energy Limited.
10 Commitments
Energy Management Business transaction
On 30 September 2015 the Group 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"). The transaction involves the acquisition of long term power management contracts for telecom towers up to 2025.
Discussions are ongoing with debt and equity investors. However currently there is no certainty as to the outcome of these discussions. Under the circumstance in which the transaction does not proceed the India business would continue as a power management company which is not expected to materially impact negatively on the cash flows of the group.
Should the transaction complete it is envisaged that Intelligent Energy will hold a minority equity stake in the enlarged Indian business.
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