Ceres Power Regulatory News (CWR)

30 Sep 2005 07:01

Ceres Power Holdings plc30 September 2005 30 September 2005 Ceres Power Holdings plc ("Ceres" or "the Company") Preliminary Results for the year ended 30 June 2005 Operational highlights Over the last year, the Group has been transformed, building on its leadingtechnology to become a well capitalised, AIM quoted company. It has establishedkey relationships with major corporations to access channels to market forglobal energy opportunities. Recent highlights include: • Key relationships announced with British Gas and BOC. • Recognised as a leader in low carbon technology by the UK Government. • Admission to AIM, raising £15 million (after expenses) with high-quality institutional support. • £17 million in cash and short term investments at 30 June 2005. • Operating cash outflow of £2.63 million. • First commercial revenues generated. • Patent granted in the US for core materials technology. • Capability extended from cell to stack and end-user products. • Cell power output for commercial application achieved two years ahead of expectations. • Manufacturing facility established for pilot scale production. • Grant funded programmes with the DTI and Carbon Trust successfully completed. Chairman's Statement Business Evolution The year to June 2005 marked a major step in the development of Ceres Power, anda transformation from its research and development roots to a business focusedon delivering finished products to market. The Group's Admission to the Alternative Investment Market (AIM) of the LondonStock Exchange in November 2004 was of particular importance. Equally crucialhave been the series of technological breakthroughs, and the relationships builtwith global corporations providing channels to market. Ceres Power now has thetechnological excellence and the market opportunities to progress withconfidence. The Admission to AIM attracted a significant number of prestigious institutionswhich provided £15 million of funding after expenses. Whilst operations haveexpanded and investment in technological development has continued, that fundinghas remained untouched. There is a determination to keep costs tightly undercontrol, while investing in the required capabilities to secure and buildrevenues. We have transformed the Group into a dynamic business focused on productengineering, commercial engagement and manufacturing. High quality staff havebeen, and will continue to be, recruited to sustain this transformation. The Group's robust financial position has assisted development of the businessin several important respects. Supply chain partnerships have been developed toaccelerate product commercialisation. Design and manufacturing capabilities havebeen extended from individual fuel cells to stacks and products for marketapplications. We have continued to invest in first-class resources to drive thenext phase of our business growth, and ensure the value of Ceres technology ismaximised. Continued technical progress has demonstrated the tremendous market potential ofthe unique Ceres Power fuel cell technology. A stream of technical innovationshas strengthened the Group's portfolio of intellectual property (IP), bolsteredits global business position, and attracted significant interest from potentialpartners for a range of market applications. The technical leadership of the Group has enabled the development of keyrelationships with major corporations including British Gas and BOC. Under theagreement with British Gas, announced since the year end, we have agreed to worktowards commercialisation of a natural gas fed combined heat and power (CHP)unit incorporating a Ceres Power fuel cell system for the UK residential market.Following successful completion of feasibility trials in September 2005, asecond phase of collaboration with BOC was announced to develop products forspecific off-grid applications fuelled by liquefied petroleum gas (LPG). Ceres Power has completed several grant funded programmes from the Department ofTrade and Industry (DTI) and the Carbon Trust, achieving all defined milestones.Work is now underway on two major new contracts, awarded by the DTI, to supportthe development of core technology. Significantly, commercial revenues are nowbeing generated from product development contracts targeting specific marketapplications. Financial Income for the year ended 30 June 2005 totalled £945,000, of which interest oncash balances provided £508,000, income from grants was £366,000, and revenuefrom development contracts was £71,000. In comparison, income during the 11month period to 30 June 2004 was £492,000, reflecting a 92% increase during thepast year. As the Group has grown, operating costs have risen by 67% from £2.15 million to£3.59 million, in turn increasing the loss for the year to £2.65 million from£1.66 million in the period to 30 June 2004. The physical expansion of the Groupinto the adjoining facility has increased both establishment costs and thedepreciation charge associated with the investment in additional equipment. Therecruitment of additional highly qualified and experienced personnel to supportrapid growth has also led to increased costs. Capital expenditure of £467,000, for facilities and equipment, has increased theGroup's in-house capacity and capability for product design and testing, andenabled manufacturing process scale-up to commence. The Group's liquidity position is strong with more than £17 million in cash andshort-term investments at 30 June 2005. The cash outflow from operatingactivities during the year was £2.63 million, (excluding the fundraising at thetime of Admission to AIM) with cash outflows attributable to capital expendituretotaling £338,000. There were cash inflows of £312,000 from the exercise ofshare options and warrants in addition to cash inflows from developmentcontracts, government grants and interest income. With net funds of £14.6million (after all related expenditure) from the placing, net cash inflow forthe year was £12.5 million. Recognition During the year, the Group received external endorsement of its leading positionfrom the fuel cell industry, government and the financial community. The PrimeMinister, Tony Blair, cited Ceres Power as "a world leader" in his landmarkClimate Change speech. In a nationwide competition in 2003, Ceres Power won theinaugural Carbon Trust award for being the company with the best low-carboninnovation and the greatest commercial potential. The award of the Institute ofMaterials, Minerals and Mining 2005 Gold Medal for "industrial application ofits materials technology" placed Ceres Power alongside Airbus and Qinetiq asprevious winners. Such recognition has been important in securing key commercialrelationships, government support, and the backing of leading financialinstitutions. Intellectual Property The Group places great emphasis on the expansion and protection of its portfolioof intellectual property in order to defend its unique position, build brandvalue, and extract greater financial returns from market developmentopportunities. The grant of the core materials technology patent in the US,unaltered and unopposed, having already been granted in the UK, is indicative ofthe uniqueness and strength of Ceres technology. Further patent applicationshave been granted and filed and others are being prepared, as are a number oftrademarks. People Ceres Power is built on the solid foundations of world-leading materialstechnology and innovation. From its inception, the Group has been wellcapitalised, driven by a strong commercial focus, and led by a highly motivated,multidisciplinary management team. Andrew Baker has recently been appointedOperations Director; he brings a wealth of experience in transforming innovativetechnology into world-leading products within related global industries. The very significant enhancements to the Group's product engineering andmanufacturing capabilities during the past year have positioned it for the nextsteps towards mass-market commercial success. Every one of our employees is a stakeholder in the business with a shareholdingand/or share options. I would like to thank all of them for the importantcontributions that they have made and I am sure will continue to make to ourexciting progress. Philip Holbeche ChairmanChief Executive's Review Historical Overview In the four years since Ceres Power was founded, we have successfully built onits world-class technology to become a commercially focused, product companybased on a strong intellectual property portfolio. In the past year keymilestones have been achieved. Commercial revenues have been generated, theGroup's facilities have doubled in size, and high-profile endorsements from theCity, government and our industry partners have been received. This has been avery good year for Ceres Power. Strategy The Group's strategy is to establish a series of specific relationships, eachwith a defined market application and geographical focus, in a way thatmaximises global commercial potential. A series of complementary relationshipsare being developed with major corporations with direct access to wellestablished channels to end-users for Ceres Power products. The recentlyannounced business development partnerships with British Gas and BOC areexamples of this approach. Ceres Power is a fuel cell systems business with world-leading core technology.It has established strong in-house product engineering and systems integrationcapabilities along with a network of external relationships with 'balance ofplant' component suppliers. The Group's intended supply chain partnerships with volume manufacturers shouldensure the commercial availability of raw materials and components, and providethe product assembly, distribution, installation and service capabilitiesrequired for mass-market uptake. Revenues should continue to grow through project-based product developmentcontracts for target market applications, as well as through scalable componentand sub-system manufacturing activities. In this way, the Group retains controlover the core fuel cell elements which are extremely IP-rich and likely tocommand high and sustainable margins. Licensing and/or joint venture models mayalso be employed by the Group, as appropriate, to exploit specific fields of usewhere there is a clear business advantage in adopting these approaches. Health, Safety and Environmental Management Group operations have rapidly expanded over the past year with the hiring ofadditional staff, commissioning of new facilities and acceleration of the paceof development. There has been a corresponding emphasis on operationalexcellence. We have rigorously implemented procedures to minimise potentialhealth and safety risks and impact on the working environment. The systematic implementation of risk assessments, training programmes, andoperational procedures resulted in an exemplary health and safety record. I ampleased to report that there have been no incidents resulting in seriouspersonal injuries, damage to assets, or adverse impact upon the wider community.As we continue our rapid growth, the safety and well-being of our employees willremain our first priority. Operating Performance A strong record of on-time and on-budget delivery of milestones for internaldevelopment, government contracts and commercial partnerships has beenestablished, based on a technology road map guided by a clear understanding ofmarket requirements. This carefully managed approach will continue to be adoptedto grow the Group's business in line with evolving capabilities. The Group has invested heavily across the business to establish a world-classset of core capabilities, facilities and equipment. These investments haveenabled the recruitment of high calibre staff in core product development areasand manufacturing, as well as key account management. We shall continue to placegreat emphasis on design for manufacturing in order to reduce time-to-market andachieve demanding product quality, cost, and delivery targets for internaldevelopments and commercial contracts. As a result of an aggressive and successful technical development plan, keyobjectives have been achieved during the past year, some well ahead of schedule.Significant milestones have included: • commercial engagement to develop products for mass-market applications; • first revenue generating commercial contracts successfully completed; • pilot-scale fuel cell manufacturing facility officially opened; • fuel cell size and power output for commercial application achieved well ahead of expectations; • robust stack design demonstrated; and • multi-fuel capability established for propane, natural gas and hydrogen. Outlook Building on a solid financial position and established market channelrelationships, the Group will now focus on the following areas: • expanding and strengthening the Group's intellectual property portfolio; • increasing the throughput from volume cell and stack manufacturing processes; • designing, assembling and testing complete fuel cell products, together with sustaining progress on cell and stack developments; • progressing commercial engagements throughout the value chain; • building the senior management team across key functions; and • successfully delivering on current development contracts and securing new engagements. The growing international concerns regarding energy security, environmentalissues and competitiveness reinforce the positive business outlook for theGroup. It is ideally placed to exploit its unique technology and satisfy theincreasing demands for alternative energy solutions. Over the past year the Group has enjoyed some very significant successes. I lookforward to reporting during the course of the year on developments and progress. Peter Bance Chief Executive Officer CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 June 2005 11 month Year ended 30 period ended June 2005 30 June 2004 Unaudited Audited Note £'000 £'000 Turnover 71 -Research and development costs (2,324) (1,455)Administrative expenses (1,272) (699)Other operating income 366 382Operating loss (3,159) (1,772)Interest receivable and similar income 508 110Loss on ordinary activities before taxation (2,651) (1,662)Tax on loss on ordinary activities - -Loss for the financial year / period 6 (2,651) (1,662) Loss per £0.05 ordinary share- basic and diluted 3 (5.28)p (3.98)p CONSOLIDATED BALANCE SHEET as at 30 June 2005 2005 2004 Unaudited Audited £'000 £'000 NoteFixed assets Tangible assets 1,302 1,181 Current assets Debtors: amounts falling due after more than one year 53 53 Debtors: amounts falling due within one year 263 194 Short term investments 15,600 4,400 Cash at bank and in hand 1,444 191 17,360 4,838 Creditors: amounts falling due within one year (471) (108) Net current assets 16,889 4,730 Total assets less current liabilities 18,191 5,911 Creditors: amounts falling due after more than one year (10) (14) Net assets 18,181 5,897 Capital and reserves Called up share capital 4 2,804 2,088 Share premium account 14,199 - Merger reserve 7,463 7,463 Profit and loss account (6,285) (3,654) Equity shareholders' funds 6 18,181 5,897 CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 2005 11 month Year ended 30 period ended June 2005 30 June 2004 Unaudited Audited Note £'000 £'000 Net cash outflow from operating activities 5 (2,629) (1,673) Returns on investments and servicing of finance Interest received 508 110Net cash inflow from returns on investments and servicing of 508 110finance Taxation - 172 Capital expenditure Purchase of tangible fixed assets (338) (664) Net cash outflow for capital expenditure (338) (664) Net cash outflow before use of liquid resources and financing (2,459) (2,055) Management of liquid resources Increase in short-term deposits with banks (11,200) (3,400) Financing Issue of ordinary share capital 16,312 5,633 Expenses of share issue (1,400) (147) Net cash inflow from financing 14,912 5,486 Increase in net cash 1,253 31 Reconciliation to net funds Opening net funds 4,591 1,160 Increase in net cash 1,253 31 Movement in short term deposits 11,200 3,400 Closing net funds 17,044 4,591 Notes to the preliminary announcement 1. Basis of preparation These preliminary results do not constitute statutory financial statementswithin the meaning of Section 240 of the Companies Act 1985. Results for the year ended 30 June 2005 have not been audited. The results forthe eleven month period to 30 June 2004 have been extracted from the statutoryfinancial statements of Ceres Power Limited that have been filed with theRegistrar of Companies and upon which the auditors reported withoutqualification. The statutory accounts and audit report for the year ended 30June 2005 have not yet been signed by the directors or the auditorsrespectively. 2. Principal accounting policies These preliminary results for the year ended 30 June 2005 have been prepared inaccordance with the accounting policies set out in the statutory financialstatements of Ceres Power Limited for the eleven month period ended 30 June2004. The following additional accounting policies are applicable to thepreliminary results for the year ended 30 June 2005: (a) Basis of consolidation The consolidated financial statements of Ceres Power Holdings plc have beenpresented under merger accounting rules. This means that the financialstatements of Ceres Power Holdings plc and its wholly owned subsidiary, CeresPower Limited, have been aggregated and presented as if the two companies havealways formed a group. Accordingly, although Ceres Power Holdings plc acquiredthe entire issued share capital of Ceres Power Limited on 3 September 2004, theresults for both companies are reflected in the group financial statements forthe year ended 30 June 2005 and the comparative amounts are presented on thesame basis. Intra-group transactions, profits / losses and balances are eliminated in fullon consolidation. (b) Turnover Revenue, which excludes value added tax and other sales taxes, represents theinvoiced value of services supplied. Amounts received or receivable underdevelopment agreements are recognised as revenue when earned. Amounts receivedor receivable in respect of milestone payments under agreements are recognisedas revenue when the specific conditions in the agreement have been met. Allcosts relating to these development programmes are recorded as research anddevelopment expenditure. As revenue represents contributions towards costsincurred, no amounts have been allocated to cost of sales. 3. Loss per share Basic and diluted loss per £0.05 ordinary share are calculated by dividing theloss for the financial year / period attributable to ordinary shareholders bythe weighted average number of ordinary shares in issue during the year /period. The loss for the financial year ended 30 June 2005 is £2,650,602 (2004:£1,661,863) and the weighted average number of £0.05 ordinary shares in issueduring the year ended 30 June 2005 is 50,232,830 (2004: 41,763,060). The comparative figures have been restated to reflect the sub-division of shareswhich took place on 13 July 2004, whereby each issued ordinary share of £1 wassub-divided into 20 ordinary shares of £0.05 each. For the purpose ofcalculating the loss per share, and in accordance with merger accountingprinciples, the 41,763,040 ordinary shares of £0.05 each issued by the Companyto acquire Ceres Power Limited on 3 September 2004 are deemed to have been inissue throughout the current and prior financial periods. 4. Called up share capital 2005 2004 Unaudited Audited Number £'000 Number £'000AuthorisedOrdinary shares of £0.05 each 100,000,000 5,000 - -Allotted, called up and not paidOrdinary shares of £0.05 each 4,000 - - -Allotted, called up and fully paidOrdinary shares of £0.05 each 56,072,293 2,804 41,763,040 2,088 56,076,293 2,804 41,763,040 2,088 The Company was incorporated on 8 July 2004 with an authorised share capital of£1,000 comprising 1,000 ordinary shares of £1 each. One ordinary share wasallotted nil paid on incorporation. As the Company was not incorporated as at 1July 2004, no comparatives have been shown for authorised share capital. On 13 July 2004, the Company sub-divided its existing issued and authorisedshare capital into ordinary shares of £0.05 each and increased its authorisedshare capital by 99,980,000 ordinary shares of £0.05 each. On 3 September 2004, the Company issued 41,763,040 ordinary shares of £0.05 eachto the shareholders of Ceres Power Limited in consideration for the transfer tothe Company of the entire issued share capital in Ceres Power Limited. Theallotted, called up and fully paid share capital at 30 June 2004 represents theshares issued by the Company to acquire Ceres Power Limited, which has beenrecognised under the principles of merger accounting. On 25 November 2004, the Company issued 13,333,333 ordinary shares of £0.05 eachon Admission to the Alternative Investment Market of the London Stock Exchangefor cash consideration of £16,000,000 (before issue expenses of £1,399,801). Between 2 December 2004 and 27 June 2005, 819,113 ordinary shares of £0.05 eachwere issued on the exercise of employee share options for cash consideration of£248,931. An amount of £2,400 remained unpaid at 30 June 2005. On 28 January 2005, the Company issued 500 ordinary shares of £0.05 each on theexercise of warrants for cash consideration of £350. On 11 March 2005, the Company issued 160,287 ordinary shares of £0.05 each onthe exercise of warrants for cash consideration of £65,397. 5. Net cash outflow from operating activities Reconciliation of operating loss to net cash outflow from operating activities: Year ended 30 11 month June 2005 period ended 30 June 2004 Unaudited Audited £'000 £'000Operating loss (3,159) (1,772)Depreciation charge (net of loss on disposals) 346 155Share option compensation charge 20 26(Increase) in debtors (67) (153)Increase in creditors 231 71Net cash outflow from operating activities (2,629) (1,673) 6. Reconciliation of movements in shareholders' funds 2005 2004 Unaudited Audited £'000 £'000 Loss for the financial year / period (2,651) (1,662)Proceeds of issue of ordinary share capital 16,315 5,633Share issue costs (1,400) (147)Share option compensation charge 20 26Net change in shareholders' funds 12,284 3,850Opening shareholders' funds 5,897 2,047Closing shareholders' funds 18,181 5,897 Opening shareholders' funds of £5,897,000 relate to Ceres Power Limited and areincluded in the Group's reserves under merger accounting principles. 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