Ceramic Fuel Cells Regulatory News (CFU)

Market

Announcement

Wednesday 20 November 2013

 Managing Directors Report

Annual General Meeting held on Wednesday 20 November 2013

CASH MANAGEMENT

The management team has concentrated on rigorous cash management over the last year whilst balancing the need to satisfactorily service our external sales, marketing and manufacturing requirements. We are managing our relationships with our distributors and manufacturing partners, through all phases of the sales, installation and service period to minimise any impact on our cash flow. Any delay by our distributors will impact our revenue, so this remains a high priority as we take the company forward.

SALES

Following the company restructure from the beginning of 2013 we have focused our sales and marketing activities solely on Europe and specifically Germany, UK and Benelux.

Our approach has been to use a combination of direct and indirect sales resources to maximise penetration in the emerging markets for micro generation. In Germany this includes SME's, Stadtwerke and utilities.

In the UK we have focused on social housing, SME's, Esco's and local authorities with responsibility for schools and public amenity buildings.

Additional fiscal support has now been confirmed in Germany.

In addition to the NRW capital grant finally announced earlier this year, two other regions have now confirmed similar incentive schemes. They are Hesse and Saxony. One other is currently considering an introductory programme and we continue to lobby at high level in Germany for a federal support scheme.

We are now building sales and marketing resource. Our financial position in early 2013 seriously restricted our planned build up of sales and marketing resources. With limited funds available we are now establishing teams to address the selected markets.

And we consider the refocus and emphasis on marketing is beginning to deliver results.

We have recently announced a contract of 45 BlueGens for Ameland. The units form part of an energy supply scheme including solar and wind. The BlueGen units will operate as a virtual power station and support the variability of supply from the renewable plant.

In Germany over the last month an additional 20 units have been sold through our distribution and direct sales channels.

In the UK we have also recently received confirmation of a contract for 10 units with NGAWS. AWS (Affordable Warmth Solutions) is a subsidiary of National Grid and is focused on alleviating fuel poverty in the social housing sector. We have established a very good relationship with AWS and we are seeking to expand our activities in the coming months.

A new programme, BlueGens for free to the user, has great potential in the UK and we are working closely with a number of supporting organisations to develop this opportunity.

Refer to link for Accumulated NRW Applications graph and European Order Entry graph.http://www.rns-pdf.londonstockexchange.com/rns/4940T_-2013-11-20.pdf

PRODUCTION

We are putting major effort in to our cost reduction programme.

So far this year the team has achieved a 25% reduction in the base cost of the BlueGen unit and we are now working on a number of initiatives both internally and with our supply partners to secure further significant improvements.

It is a key objective to achieve a cost base that offers commercial viability without the need for fiscal incentives.

This is being achieved through volume production programmes, outsourcing to low cost, high quality suppliers, automation, continued evaluation of manufacturing process and value engineering based on experienced gained from the current 3.5 million operating hours.

In late 2012 we began working with CCTC in China to investigate and confirm improvements in the manufacturing of our product components. The exercise aimed to introduce significant reductions in the basic cost structure of our BlueGen product, thereby improving its marketability. Over the last year we are able to report that an excellent relationship has been established between our teams at all levels and we are confident that we will continue to successfully develop our manufacturing processes to achieve our strategic objectives.

As our order book grows, we need to liaise closely with our suppliers to manage the associated increase in production capacity. Our main objective going forward is to secure contractual order quantities that support the necessary investment in production capacity and the subsequent reduction in component cost. However, these large orders put pressure on our working capital, and we are concentrating on the efficient management of this process.

Our Heinsberg assembly plant is fully commissioned and the 4*4 Furnace fully operational.

Our research and development facility is retained in Melbourne and is concentrating on product improvements and future development opportunities.

HEALTH & SAFETY

We have 3 fully operational plants. Our research and development resources are retained in Melbourne together with administrative facilities. Our Heinsberg plant in Germany is the focus for manufacturing and assembly of the BlueGen product. We have also been operating our powder plant in Bromborough in the UK.

Throughout the last year CFCL has continued with an excellent safety record with a very limited number of LTI's for minor incidents. As the company continues to grow, the management and staff will concentrate on maintaining high standards for health and safety.

THE FUTURE - 2014

As always our major objective will be to significantly increase our sales results through direct and indirect channels. We will endeavour to expand our distribution partners at the earliest opportunity in order to minimise our direct sales overheads.

Equally important is for us to continue with our major objective of achieving a significant reduction of our unit costs.

As recently demonstrated, we have achieved some success in securing additional fiscal incentive support schemes in Germany. We will continue to develop our contacts with other regions and to continue our lobbying for Federal support.

The management team will continue to closely manage the company's cash and resources and ensure we are operating as efficiently as possible and able to take full advantage of our market position.

We expect to receive a further tax rebate against our research and development activities, in the next few weeks.

In order to take the company forward over the next couple of years it is necessary for us to secure additional funding, primarily as working capital. This will include inventory build up, some plant expansion and de-bottle necking at our Heinsberg facility and continued operational costs for the company.

In conclusion, I would also like to take the opportunity of thanking our investors for their support for the company. I think with continued support we can take full advantage of CFCL's technical lead in our selected markets and ultimately, successfully develop the company on a global basis.

Bob Kennett

Managing Director

-End-

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About Ceramic Fuel Cells Limited

Ceramic Fuel Cells Limited 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 Limited 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 Limited is also developing fully integrated power and heating products with leading energy companies E.ON UK in the United Kingdom and EWE in Germany. The company is listed on the London Stock Exchange AIM market and the Australian Securities Exchange (code CFU).

www.cfcl.com.au