Ceramic Fuel Cells Regulatory News (CFU)

29 Feb 2008 07:01

Ceramic Fuel Cells Limited29 February 2008 For immediate release 29 February 2008 CERAMIC FUEL CELLS LIMITED INTERIM RESULTS FOR THE PERIOD ENDED 31 DECEMBER 2007 Ceramic Fuel Cells Limited (AIM, ASX: CFU), a global leader in fuel celldevelopment, today announces interim financial results for the six months ended31 December 2007. Financial Highlights: • Revenue of A$1.8m / £0.8m (H1 2006/7: A$2.5m / £1.1m) o 34% higher field trial income, offset by lower interest income • Net operating cash outflow of A$9.1m / £4.2m (H1 2006/7: A$7.7m /£3.6m) o Higher due to expanded operations, product development projects • Net loss of A$9.7m / £4.4m (H1 2006/7: A$7.9m / £3.7m) o UK and German manufacturing costs, staff option expensing, reducedinterest earnings and impairment charge on financial assets - offset by forexgain • Balance sheet: removed contingent liability of A$22.7m / £10.7m (grantagreement expired) • Total cash & financial assets at 31 December 2007: A$47.1m / £22.1m(31 December 2006: A$75.1m / £30m) Operational Highlights: • Signed further product development agreements o UK - E.On UK Ltd and Gledhill Water Storage Ltd o Benelux - Nuon and Remeha Group • NetGenPlus units received 'CE' safety approval and shipped to Europeanproduct development partners • Commissioned a plant in Bromborough, UK to make high quality ceramicpowder using the Company's proprietary processes • Continued improvements in fuel cell stack performance and lifetime • Two further patents granted for inventions covering increased stackperformance and lifetime Since the period end: • Entered the Japanese market with a partnership with the Paloma Group o World's most advanced market for fuel cell CHP units o Paloma Group services 10 million homes in Japan and is a leading worldproducer of gas appliances for residential and commercial applications • Volume Order from Nuon for 50,000 m-CHP units o 10,000 units per year for five years, from H2 2009 o Based on commercial m-CHP unit specifications • Fuel Cell module power output doubled from 1kW to 2kW • Commenced capital works on a volume fuel cell plant in Heinsberg,Germany o Initial capacity 10,000 units per year, in an existing leased building o Total project cost €12.4 million o Completion June 2009 o Off-take order from Nuon • Two further patents granted o Coating to protect steel from corrosion & chromium o Process for using hydrogen to remove sulfur from fuel Brendan Dow, Managing Director of Ceramic Fuel Cells, said: "CFCL continues to advance its business towards commercialisation on scheduleand on budget. It is our goal to be the first to reach mass market productionand the transformational developments announced earlier this week have given usgreat confidence of achieving this. We look forward to updating investors onfurther progress in the months ahead." There will be a presentation to analysts today at the Company's powder plant inMerseyside, UK. A webcast of the presentation will be available onwww.brr.com.au/cfu and on www.cfcl.com.au from Monday. For further information please contact: Ceramic Fuel CellsAndrew Neilson Tel: +61 419 950 771 Email: investor@cfcl.com.au Hogarth Partnership (PR for CFCL) Tel: +44 (0) 20 7357 9477Sarah MacLeod / Sarah Richardson / Vicky Watkins Libertas Capital (NOMAD for CFCL) Tel: +44 (0) 20 7569 9650Aamir Quraishi / Andrew Hardy About CFCL Ceramic Fuel Cells Limited is a world leader in developing solid oxide fuel cell(SOFC) technology which can provide reliable, energy efficient, high-quality,and low-emission electricity from widely available natural gas and renewablefuels. CFCL is developing SOFC products for small-scale on-site micro combinedheat and power (m-CHP) and distributed generation units that co-generateelectricity and heat for domestic use. CFCL is developing m-CHP products with leading appliance partners and utilitycustomers in Germany, France, the United Kingdom, Holland, and Japan. CFCL is listed on the London Stock Exchange AIM market and the AustralianSecurities Exchange (code CFU). www.cfcl.com.au REVIEW OF OPERATIONS Introduction During the period, Ceramic Fuel Cells continued to make progress across allareas of the business. We have now secured customers for our four key markets inEurope - the UK, Germany, France and The Netherlands - and more recently, haveconcentrated on building the forward order book by signing up a large customerfor the Japanese market. Earlier this week, we were delighted to announce our first commercial order fromNuon, The Netherlands' largest energy company to commence from 2009. This ordermarks a significant milestone towards the Company's commercialisation and tiesin well with our manufacturing plans: balancing supply with demand, this week wealso announced an investment of €12.4 million in the construction of the firstphase of our manufacturing facility. We have entered long term supply contractsfor fuel cell components with two leading ceramics manufacturers at agreed fixedprices to minimise costs whilst retaining our valuable intellectual propertyposition. With recent pronouncements from the EU regarding increased targets for thereduction of carbon emissions and contribution of energy from renewable sources,we believe that Ceramic Fuel Cells is well positioned to benefit from thegrowing market opportunity for clean and efficient energy production. Commercialisation and Market Development The first product to be powered by CFCL fuel cells will be a combined heat andpower (m-CHP) unit for the residential market. The unit will be connected to theexisting natural gas network, to provide high efficiency and low emission powerand heat for the home, as well as exporting excess power to the electricitynetwork. After conducting field trials in Australia, New Zealand and Germany from early2006 to mid 2007, the Company is now developing m-CHP products with leadingutility customers and appliance partners. Securing these agreements has been a significant achievement for the Company,validating the CFCL model of working in 'three-way' partnerships and allowingthe Company to move from field trials into product development, deployment andsales. Each project is a three way collaboration between the Company, a utilitycustomer and an appliance partner to design, develop, build and deploy fullyintegrated m-CHP units for homes in that market. During the half year the Company signed agreements with E.ON UK Ltd and GledhillWater Storage Ltd to develop m-CHP products for the United Kingdom. In July 2007CFCL also agreed to develop m-CHP products for Belgium, The Netherlands andLuxembourg, with Nuon NV and De Dietrich-Remeha Group. The Company is now developing m-CHP products with the following utilitycustomers and appliance partners in four key European markets: • Gaz de France and De Dietrich Thermique in France; • EWE and Bruns Heiztechnik in Germany; • E.ON UK and Gledhill Water Storage Ltd in the UK; and • Nuon and De Dietrich-Remeha Group in Holland. As part of these product development projects the CFCL prototype m-CHP system,called NetGenPlusTM, will be integrated with the appliance partner's highefficiency hot water heaters. During the half year the Company was awardedEuropean "CE" safety approval for its NetGenPlusTM units. The Company alsoshipped a NetGenPlusTM unit to its German partner Bruns Heiztechnik. After theend of the half year the Company shipped NetGenPlusTM units to its appliancepartners De Dietrich Thermique in France and Gledhill Water Storage Ltd in theUK. After the period end CFCL signed an agreement with Paloma Industries Ltd ofJapan to evaluate and develop m-CHP products for the Japanese market. Japan isthe largest market in the world for fuel cell m-CHP units. The Paloma Groupservices more than 10 million homes in Japan, and has significant manufacturingand sales operations across Asia, Oceania and the Americas. Paloma owns theRheem, Solahart and Raypak brands and is the largest hot water systemsmanufacturer in the United States. After the period end, CFCL secured a volume order from Nuon, its Dutch utilitypartner. On achievement of set performance targets, Nuon will order 50,000 m-CHPunits, to be delivered over a five year period from when CFCL's manufacturingplant is commissioned. Manufacturing During the half year CFCL continued to manufacture metal-ceramic fuel cellstacks at its upgraded facilities in Melbourne. The Company's GennexTM fuel cellmodules, comprising metal-ceramic stacks and new balance of plant components,are being integrated into NetGenPlus units for product development partners. During the half year the Company also completed the installation andcommissioning of its high quality ceramic powder plant in Bromborough, in theUnited Kingdom. In order to meet the rigorous performance specifications for its fuel cells andto reduce powder variation, CFCL developed its own proprietary process formaking ceramic powders. The process includes a patented reactor that allows theCompany to control the characteristics of the powder at a molecular level, tocreate a very high quality product. The plant at Bromborough has a current nominal capacity of 20 tonnes per annum.The plant has successfully produced zirconia powder required for the manufactureof many types of solid oxide fuel cell and a broad range of other products. TheCompany intends to use the powder produced at Bromborough to make its own fuelcells, and also to make other powder products for external customers. During the period the Company also continued work on its large scale fuel cellplant in Heinsberg, Germany. The total cost of Phase One of the manufacturingproject, including all plant and equipment and commissioning, is €12.4 million.The capacity of Phase One of the plant will be 10,000 2kW units per year, enoughto fulfil the Nuon order. The second phase of the project is to increasecapacity to 160,000 stacks per year within the existing building. The Company also developed partnerships with other global suppliers to establishsupply chain for volume manufacturing in Europe. After the end of the half year the Company finalised these negotiations andsigned long term fuel cell supply and co-operation agreements with each of H.C.Starck and CeramTec, leading German-based manufacturers of advanced ceramiccomponents. Under each of these agreements, the Company and the supplier willshare relevant intellectual property and technical expertise to continuallyimprove the performance of the supplier's cells, improve manufacturing processesand reduce unit costs. Each supplier has agreed to supply the Company with fuelcell components at fixed prices through to December 2011. The Company willcontinue to produce fuel cells at its Melbourne R&D and pilot manufacturingfacility to drive continued improvements in cell performance. Technical Achievements During the half year the Company continued to make technical improvements infuel cell lifetime and reliability which are the key metrics for commercial fuelcells. The Company continued to collaborate with the Julich Research Centre(Forschungszentrum Julich) in Germany, and other fuel cell industry leaders, onjoint development projects, including accelerated lifetime testing andmodelling. During the half year the Company was granted several further patents. Onepatent, for a fuel cell assembly design combining ceramic fuel cells and metalinterconnect plates, was granted in the United Kingdom, Germany, France andItaly. The second patent relates to an electrical collector which connects fuelcells to interconnect plates in a fuel cell stack. Both patents are designed toincrease the performance and lifetime of the fuel cell stack. Both patents havealready been granted in Australia, New Zealand and the United States andapplications are pending in Japan. As at the date of this report the Company had been granted 77 patents ininternational markets for 29 inventions. Financial Review The Group's revenues increased during the period however total 'Revenue fromcontinuing operations' was reduced due to a decrease in interest income. Thereduction in interest income was primarily due to the decrease in the averagelevel of funds invested during the period. As discussed above, the Group continues to advance its technology and productdevelopment objectives. Expenditure on research & product development activitiesduring the period increased by 6.7% to A$6.2m. Expenditure on sales and marketing of A$1.0m was in line with the correspondingprior period. Expenditure in the General and Administrative function area has increased fromA$3.3m to A$5.9m. The primary reasons for the increase were: • The establishment of the powder manufacturing plant in the UK and the fuel cell plant in Germany, which increased costs by A$0.8m. Activities at these sites were commenced after the end of the prior period; • The write-off associated with the expensing of employee share options increased by A$0.5m. This has arisen from an increase in the number of share options issued to employees as part of the Group's long-term incentive programme; • The taking up of an impairment charge of A$1.1m in relation to certain financial assets due to the current state of the debt securities markets. The current period includes a net foreign exchange gain of A$1.4m compared to aloss in the prior period of A$0.4m. These gains and losses arise predominantlyfrom the translation of foreign currency investments to Australian dollars. TheGroup's treasury investment policy is explained below. The net loss for the period of $9.7m was up by $1.8m from the equivalent periodin 2006 due largely to the activities associated with the development ofmanufacturing sites in the UK and Germany, an increased charge for the expensingof employee share options, a reduction in interest income arising from adecrease in the average level of funds invested and an impairment charge of$1.1m on certain financial assets. These changes were partially offset by a netforeign currency exchange gain of $1.4m, arising on the translation of foreigncurrency investments into Australian dollars. The loss for the period was lowerthan the Group's internal budgets. At 31 December 2007 the Group had Cash and Financial Assets amounting toA$46.1m. The Group invests these funds in accordance with its treasury investment policyand risk management programme. The Group operates internationally and holdsforeign currency funds that are intended to be used in the construction andoperation of its planned European businesses. As the Group holds its cash inseveral currencies to cover forecast expenditure, but reports its income inAustralian dollars, foreign exchange movements will affect the Company'sreported earnings. During the reporting period this exposure was principally toPounds Sterling and Euros. The Group's current policy is to not hedge this foreign currency translationrisk (other than the 'natural' hedge of holding cash in the same currency asexpected expenditure). In accordance with accounting standards the Group's financial assets are valuedat their fair value at reporting date. Temporary gains and losses arising fromthis revaluation are recognised directly in equity until the investment isrealised. During the half-year a net reduction in fair value of A$1.3m was takendirectly to equity. At 30 June 2007 the Financial Report disclosed a contingent liability inrelation to a grant received from the Australian federal government under the R&D Start Grant Programme. The maximum amount of this liability at that date was$22.7 million. The agreement with the Industry Research and Development Board (IR&D Board),which gave rise to this contingent liability, concluded on 31 December 2007. Assuch the associated contingent liability no longer exists as at the date of thisreport. Outlook The increasing prominence of clean energy generation on the public agenda,coupled with the significant progress we continue to make at CFCL, gives us realconfidence for the coming years. As a Company we have made impressive progress,and we believe we are a firm leader in developing a viable, cost effectivemethod of clean energy generation for the home. We now have the partnerships, manufacturing capacity and capability to drive theCompany to its next stage of development, and remain on track to significantlyincrease revenue generation from the second half of 2009. Consolidated Income Statements For the half-year ended 31 December 2007 Half-year Notes 2007 2006 $ $ Revenue from continuing operations 3 1,825,420 2,522,591 Other income 4 32,405 3,895Research & Product Development (6,161,372) (5,774,788)General & Administration 5(b) (5,871,186) (3,346,240)Sales & Marketing (988,224) (986,125)Net foreign exchange gain/(loss) 1,443,679 (359,958) --------- ---------Loss before income tax (9,719,278) (7,940,625) ------------- ------------- Income tax expense - - --------- ---------Loss for the half-year attributable tomembers of (9,719,278) (7,940,625)Ceramic Fuel Cells Limited --------- --------- Cents Cents ------- -------Earnings per share for loss attributable tothe ordinary equity holders of the company Basic and diluted earnings per share 7 (3.14) (2.57) -------- -------- The above consolidated income statements should be read in conjunction with theaccompanying notes. Consolidated Balance Sheets As at 31 December 2007 31 December 30 June Notes 2007 2007 $ $ASSETS Current AssetsCash and cash equivalents 1,627,174 3,484,004Trade and other receivables 771,895 379,070Financial assets 5(a) 3,376,751 8,641,403Other 471,801 378,799 ---------- ----------Total Current Assets 6,247,621 12,883,276 ---------- ---------- Non-Current Assets Financial assets 5(a) 41,055,703 48,067,849Plant and equipment 11,913,866 9,324,207Intangibles 1,000 1,000 ---------- ----------Total Non-Current Assets 52,970,569 57,393,056 ---------- ----------Total Assets 59,218,190 70,276,332 ---------- ---------- LIABILITIES Current LiabilitiesTrade and other payables 1,672,009 2,566,972Provisions 795,745 771,270Deferred revenue 294,460 370,879 ---------- ----------Total Current Liabilities 2,762,214 3,709,121 ---------- ---------- Non-Current LiabilitiesProvisions 339,713 224,195 ---------- ----------Total Non-Current Liabilities 339,713 224,195 ---------- ----------Total Liabilities 3,101,927 3,933,316 ---------- ----------Net Assets 56,116,263 66,343,016 ========== ==========EQUITY Contributed equity 185,663,354 185,660,994Reserves (254,492) 255,343Retained losses (129,292,599) (119,573,321) ---------- ----------Total Equity 56,116,263 66,343,016 ========== ========== The above consolidated balance sheets should be read in conjunction with theaccompanying notes. Consolidated Statements of Changes in Equity For the half-year ended 31 December 2007 Half-year 2007 2006 $ $Total equity at the beginning of the half-year 66,343,016 85,753,951 ---------- ---------- Changes in the fair value of financial assets (1,218,483) (222,927)Exchange differences on translation of foreignoperations (69,550) (25,911) ---------- ----------Net expense recognised in equity (1,288,033) (248,838) Loss for the half-year (9,719,278) (7,940,625) ---------- ----------Total recognised expense for the half-year (11,007,311) (8,189,463) ---------- ---------- Transactions with equity holders in their capacity asequity holders:Contributions of equity (net of transactioncosts) 2,360 (30,566)Employee share options 778,198 248,482 ---------- ---------- 780,558 217,916 ---------- ----------Total equity at the end of the half-year 56,116,263 77,782,404 ---------- ---------- Total recognised income/(expense) for thehalf-year is entirely attributable to members ofCeramic Fuel Cells Limited. The above consolidated statements of changes in equity should be read inconjunction with the accompanying notes. Consolidated Cash Flow Statements For the half-year ended 31 December 2007 Half-year 2007 2006 $ $Cash Flows from Operating ActivitiesReceipts from customers 653,631 599,177(inclusive of goods and services tax) ---------- ----------Payments to suppliers and employees (11,067,487) (10,041,584)(inclusive of goods and services tax) ---------- ---------- (10,413,856) (9,442,407)Interest received 1,270,574 1,679,956Other revenue 33,573 3,693 ---------- ----------Net cash inflow (outflow) from operatingactivities (9,109,709) (7,758,758) ---------- ---------- Cash Flows from Investing ActivitiesProceeds from sale of plant and equipment - 227Payments for plant and equipment (3,881,945) (3,091,180) Decrease/(increase) in security deposits 793 - ---------- ----------Net cash inflow (outflow) from investingactivities (3,881,152) (3,090,953) ---------- ---------- Cash Flows from Financing Activities Net proceeds from financial assets 11,215,206 3,183,866Proceeds from issue of shares 2,360 - Share issue costs - (30,566) ---------- ----------Net cash inflow (outflow) from financingactivities 11,217,566 3,153,300 ---------- ---------- Net decrease in cash and cash equivalents (1,773,295) (7,696,411) Cash and cash equivalents at the beginning ofthe half-year 3,484,004 11,367,347 Effects of exchange rate changes on cash andcash equivalents (83,535) (357,371) ---------- ----------Cash and cash equivalents at the end of thehalf-year 1,627,174 3,313,565 ========== ========== The above consolidated cash flow statements should be read in conjunction withthe accompanying notes. Notes to the Consolidated Financial Statements For the half-year ended 31 December 2007 Note 1. Basis of Preparation of Half-Year Report This general purpose financial report for the interim half-year reporting periodended 31 December 2007 has been prepared in accordance with Accounting StandardAASB 134 Interim Financial Reporting and the Corporations Act 2001. AccountingStandard AASB 134 is fully compliant with International Financial ReportingStandard IAS 34 Interim Financial Reporting. This interim financial report does not include all the notes of the typenormally included in an annual financial report. Accordingly, this report is tobe read in conjunction with the annual report for the year ended 30 June 2007and any public announcements made by Ceramic Fuel Cells Limited during theinterim reporting period in accordance with the continuous disclosurerequirements of the Corporations Act 2001. The accounting policies adopted are consistent with those of the previousfinancial year and corresponding interim reporting period. Note 2. Segment Information Primary reporting format - geographical segments Australia Europe Consolidated $ $ $Half-year 2007Segment revenue 114,337 231,093 345,430 --------- ---------Unallocated revenue and other income 1,512,395 ----------Total revenue and other income 1,857,825 ---------- Segment result (10,616,618) (984,218) (11,600,836) --------- ---------Unallocated revenue less unallocatedexpenses 1,881,558 ----------Loss before income tax (9,719,278) ------------ Half-year 2006Segment revenue 57,781 206,043 263,824 --------- ---------Unallocated revenue 2,262,662 ------------Total revenue and other income 2,526,486 ------------ Segment result (9,421,938) (421,391) (9,843,329) --------- ---------Unallocated revenue less unallocatedexpenses 1,902,704 ------------Loss before income tax (7,940,625) ------------ Notes to the Consolidated Financial Statements For the half-year ended 31 December 2007 (continued) Half-year 2007 2006 $ $Note 3. Revenue From continuing operationsSales revenueField trial income 331,093 247,106Licensing income 14,337 16,718 ---------- ---------- 345,430 263,824Other revenueInterest 1,479,990 2,258,767 ---------- ----------Total revenue from continuing operations 1,825,420 2,522,591 ========== ========== Note 4. Other Income Net gain on disposal of plant and equipment - 202Sundry income 32,405 3,693 ---------- ----------Total other income 32,405 3,895 ========== ========== 31December 30 June 2007 2007 $ $ Note 5. Financial Assets - Investments (a) Unlisted Securities Current assetsFinancial assets 3,376,751 8,641,403Non-current assetsFinancial assets 41,055,703 48,067,849 ---------- ---------- 44,432,454 56,709,252 ---------- ---------- Investments include the following revaluationsurplus/(deficit) (1,389,470) (170,987)(transferred to equity) as at reporting date: Unlisted, interest-bearing securities denominatedin:Australian dollars 9,429,895 12,050,768European euros 28,394,284 28,498,086UK pounds sterling 6,608,275 16,160,398 ------------- ------------ 44,432,454 56,709,252 ------------- ------------ Notes to the Consolidated Financial Statements For the half-year ended 31 December 2007 (continued) Note 5. Financial Assets - Investments (continued) The following table sets out the Group's exposure to interest rate risk,including the weighted average number of days to contractual repricing dates andthe expected maturity dates of the investment portfolio, as at reporting date: 31 December 2007 Currency Weighted Fixed interest rate maturing average number of days to interest rate reset 0 to 1 >1 to >2 to 3 >3 to 4 >4 to 5 >5 to 6 >6 to 7 Total year years years years years years yearsAustralian 31 - 4,823,042 - 4,606,853 - - - 9,429,895DollarsEuropean 58 2,350,661 5,086,154 6,209,028 3,341,137 - 11,407,304 - 28,394,284EurosUK Pounds 48 1,026,090 4,572,423 - - - 1,009,762 - 6,608,275Sterling Total 50 3,376,751 14,481,619 6,209,028 7,947,990 - 12,417,066 - 44,432,454 30 June 2007 Currency Weighted Fixed interest rate maturing Average number of days to interest rate reset 0 to 1 >1 to 2 >2 to 3 >3 to 4 >4 to 5 >5 to 6 >6 to 7 Total year years years years years years yearsAustralian 29 1,994,470 5,019,498 - - 5,036,800 - - 12,050,768DollarsEuropean 62 - 2,377,634 4,840,548 6,402,694 3,193,408 11,683,802 - 28,498,086EurosUK Pounds 49 6,646,932 8,330,463 - - - - 1,183,003 16,160,398Sterling Total 51 8,641,403 15,727,595 4,840,548 6,402,694 8,230,208 11,683,802 1,183,003 56,709,252 To fund the ongoing commercialisation plans of the business the directorscurrently intend to utilise the existing financial assets of the Group (throughthe maturing of, or sale of, investments within the investment portfolio) and totake other appropriate measures, that may be necessary to see the Group throughto becoming cashflow positive. (b) Impairment Charge As a result of the current state of the debt securities market the directorshave decided to treat the decrease in fair value of certain financial assets,that are likely to be sold before 30 June 2008, as an impairment in the value ofthose assets. The amount of the impairment charge included in General &Administrative Expenses is ($1,074,516). Notes to the Consolidated Financial Statements For the half-year ended 31 December 2007 (continued) Note 6. Contingent Liability At 30 June 2007 the Financial Report disclosed a contingent liability inrelation to a grant received from the Australian federal government under the R&D Start Grant programme. The maximum amount of this contingent liability at thatdate was $22.7million. The agreement with the Industry Research and Development Board (IR&D Board),which gave rise to this contingent liability, concluded on 31 December 2007.Accordingly, this contingent liability no longer exists as at reporting date. Half-year 2007 2006 Cents Cents Note 7. Earnings Per Share Basic and diluted earnings per share (3.14) (2.57) Number NumberWeighted average number of shares 309,743,170 309,505,559Weighted average number of shares used as thedenominatorin calculating basic and diluted earnings pershare $ $Earnings used in calculating basic and dilutedearnings per share (9,719,278) (7,940,625)Loss attributable to the ordinary equity holdersof the company There were no extraordinary items, nor net loss attributable to outside equityinterests, to be taken into account in determining earnings used in calculatingbasic and diluted earnings per share. Information concerning the classification of securities All options issued will be anti-dilutive until such time as the Group generatesprofits, rather than losses, hence all options have been excluded from thecalculation of diluted earnings per share. This information is provided by RNS The company news service from the London Stock Exchange