Itm Power Regulatory News (ITM)

31 Jul 2006 07:00

ITM Power PLC31 July 2006 Embargoed until 0700hrs, 31 July 2006 ITM POWER PLC ('ITM' or 'the Company') Full Year Results for the year ended 30 April 2006 Highlights: •Successfully completed all milestones set out at the time of the IPO - achieved earlier than expected •Successfully tested its low cost membrane technology in excess of 3,500 hours of operation without evidence of degradation. ITM's membrane technology has now reached 5,000 hours of operation without evidence of degradation. •Costs further reduced with the elimination of high cost platinum catalysts •Principal patents granted and IP portfolio increased •New demonstration facility at Sheffield laboratories •Raised £29.4m through placing of ordinary shares with institutional investors in May 2006 •Loss for the year increased from £1.2m to £1.9m in line with budget •Capital expenditure increased due to the additional test equipment and expansion to our laboratories in Sheffield •New development programme initiated to develop an electrolyser refuelling system for use in bi-fuel hydrogen-petrol internal combustion engine powered cars •New objectives introduced in addition to milestones set out in January 2006 •Appointment of new non executive director and electrolyser business development officer Stephen Massey, Chairman commented: "Over the past two years, we have built asolid foundation as a platform to underpin the route to commercialisation. Weremain on track to achieve the first of our new technical milestones by October2006 and we will continue to progress with development plans within our targetmarkets. We also hope to announce further results on our hydrogen technologiesand remain focused with increasing emphasis on the commercialisation of ITM'stechnology. I am confident that ITM is in a strong position to achieve itsbusiness objectives through strong science, people and finances." For further information please contact: Gemma Chandler Simon Hudson/ Clemmie CarrITM Power Plc Tavistock CommunicationsTel: 01799 532 860 Tel: 020 7920 3150Mob: 07921 057712 or visit www.itm-power.com Chairman's Statement I am pleased to report the full year results for the year ended 30 April 2006.On behalf of the Board, I would like to thank our existing shareholders fortheir continued support and welcome the new shareholders resulting from theplacing in May 2006. World Energy Review Over the past year, concern about the ability of oil and other fossil fuels tomeet our increasing energy demands has doubled. In addition, evidence thatfossil fuels are perceived to be altering the global climate through greenhousegas emissions has also been widely recognised. ITM believes that there is no primary energy shortage, but there is a technologygap. The amount of energy mankind consumes in a day is roughly equivalent to 10seconds of sunlight hitting the earth. In fact, renewable energy, which includeswind, wave solar and hydro, is so abundant that it far exceeds our capabilitiesto effectively use it. Historically, this enormous amount of renewable energyhas not been utilised because there has been no economic system for convertingit into a storable fuel. The solution lies in the development of a costeffective sustainable energy system. To achieve this, issues of performance,capital cost, running costs, efficiency and disposal costs all need to beconsidered. Efficiency alone is not sufficient and we believe our technologyoffers an overall cost effective and practical solution to these issues. Financials The operating loss for the year increased from £1.2m to £1.9m, in line withbudget. Capital expenditure increased due to the additional test equipment andexpansion of our laboratories in Sheffield. Additionally, we have strengthenedthe scientific and technical team at our laboratories as well as strengtheningour management and corporate team at our head office in Cambridge. At the year end, the Company held cash at the bank and on deposit of £5.4m.Subsequent to the year end, the Company raised £29.4m through placing ofordinary shares with institutional investors. The strengthened balance sheetenables ITM to take the next steps on the road to commercialisation throughdeveloping larger prototypes, conducting field trials, establishing agreementswith complementary third parties, while protecting the Company's intellectualproperty. ITM maintained tight control over cash expenditures during the year in reviewand we will continue to monitor budgets carefully. Our costs will graduallyincrease over the next year to support accelerated development and engineeringactivity. The Board is not recommending payment of a dividend in accordance with thedividend policy stated at the time of the IPO. Review I am pleased to report that during the year in review, ITM Power hassuccessfully completed all the milestones set out at the time of the IPO; thesewere achieved earlier than expected. The major focus of our work was todetermine the cost and durability of electrolysers prior to embarking oncommercial negotiations. This was in order to assess commercial viability and tofile patents on the additional IP necessary to protect our core technologies.ITM successfully tested its low cost membrane technology in excess of 3,500hours of operation without evidence of degradation. Since the end of thefinancial year we have surpassed 5,000 hours without degradation. Furthermore,to add to these successes, ITM has further reduced costs with the elimination ofhigh cost platinum catalysts. Given low cost input electricity, these combinedtechnological advances can enable electrolysers to produce hydrogen costcompetitively with petrol in Europe. We are reviewing the best availablehydrogen storage systems that are compatible with our electrolysers. During the past two years, ITM has devoted considerable effort to itselectrolyser programme, because it has become apparent to the Company that theabsence of a low cost, durable electrolyser is a major obstacle to theimplementation of a sustainable energy system. Electrolysers couldsimultaneously address the availability and cost of hydrogen fuel as well as theinfrastructure that will enable the adoption of fuel cells. Other significant research & development achievements arising during the year inreview include: •In September 2005, the European Patent Office formally allowed ITM's core patent application on electrochemical cells using hydrophilic polymers and the patents were granted on 21 December 2005. The application covers both low cost materials and novel manufacturing processes used separately or in a combination to produce membrane electrode assemblies for use in fuel cells and electrolysers. The core patent has also been granted in Australia, Eurasia and South Africa. We have also increased our IP portfolio through 1 new patent granted and 7 new patents filed. We have a total of 19 active patent applications. •In November 2005, ITM announced it had filed patent applications on both the invention of a composite membrane of enhanced properties (including specifically an acid / alkaline laminate) and on the use of control grids to act directly and control the electrical activity within a fuel cell. This technology has the potential to improve the efficiency of both fuel cells and electrolysers and offers a unique route to controlling the output from fuel cells. Research on the composite membranes continues to yield encouraging results. •In April 2005, the BOC Foundation awarded ITM Power a grant and assisted in the establishment of a high-level expert research committee to investigate the application of the Company's electrolyser technology to optimise the capture and use of renewable energy sources such as wind and solar power. Both parties are pleased to continue the collaboration for a further year with the objective of continuing the work of defining test and evaluation procedures. •In October 2005, ITM announced that it had concluded an agreement with Heriot Watt University to fund research on the production of tertiary hydrocarbons by combining electrolytic hydrogen from renewable sources and carbon dioxide recovered from the atmosphere. Initial results indicated that it was possible to create hydrocarbons having molecular weights significantly greater than alcohol. ITM filed a patent application covering the use of 'renewable' hydrogen and 'waste' carbon dioxide to permanently sequester carbon dioxide in commercially valuable products e.g. bitumen. Preliminary results on the production of liquid hydrocarbons using electrolytic hydrogen appear very encouraging. •In April 2006, ITM built a demonstration facility at its Sheffield premises in which its electrolyser technology is used to convert renewable electricity into clean (carbon free) hydrogen. The hydrogen is stored and reconverted into: (a) Low voltage electricity using an ITM fuel cell equipped with a proprietaryITM electronic controller as would typically be required to drive electronicequipment. A DVD player is used in our demonstration. (b) Mains voltage electricity using a generator (modified by ITM to run onhydrogen) which is demonstrated powering lighting, heating and refrigerationequipment and small electric motors. (c) Heat using a commercially available gas hob (modified by ITM to run on hydrogen). (d) Refrigeration using a commercially available gas fridge modified by ITM These demonstrations represent a firm basis for seeking commercially viableapplications of ITM's technology because the relevant equipment is already wellestablished and in many cases is available 'off the shelf'. Recent Developments As the scientific work continues, we are also moving into the engineering anddevelopment phase to produce devices suitable for field trial testing. ITM'sinitial focus is to establish market led relationships that link energyproducers with consumers. We will work either independently or in third partycollaborations to develop prototypes and conduct field trials in preparation forcommercialisation. We intend to continue to expand and protect our intellectualproperty base, including a growing portfolio of trade marks and designs. Ourobjective is to maximise income potential by controlling key processes andimportant aspects of the storage and use of sustainable energy. Since the year end, we have initiated a development programme in one of ourtarget markets. ITM announced on 5 July 2006 it had agreed to commission TheUniversity of Hertfordshire to develop a refuelling system for bi-fuelhydrogen-petrol internal combustion engine powered cars. A low cost ITMelectrolyser will be applied to provide the hydrogen refuelling system. Thevehicle will be able to operate using hydrogen before automatically switching topetrol. Half of all cars in the USA travel only 25 miles a day (Source:Scientific American, April 2006), for that reason, we have decided to set arange of 25 miles running on hydrogen as an initial objective for the vehicle. In addition to our commercial plans we have expanded the scope of our work andhave introduced new objectives in addition to those milestones set out inJanuary 2006. Milestones set out in January 2006: •Electrolyser: a 5kW electrolyser stack for delivery by December 2006 (designed for assembly into 20kW modules) •Electrolyser: a 25kW electrolyser stack for delivery by December 2007 (designed for assembly into 100kW modules) •Fuel Cell: a 4W fuel cell prototype module together with the rapid refueling cartridge and output power conditioning electronics necessary to operate electronic devices by December 2006 •Fuel Cell: a 20W, 2-liquid fuel cell stack engineered to •pre-production standard, including fuel supply cassette •and interface electronics, by December 2007 •Production the development of 'production ready' cell modules made Process •by a fully engineered 'one-step' production route for delivery by December 2007 Additional objectives now include: Pressure Hydrogen storage will always be an issue due to the large volumes of gas neededto compete with liquid fuels. Increasing the pressure of a gas reduces itsvolume. I am pleased to report that we have begun testing our electrolysers withthe initial objective of achieving an electrolyser operating pressure of 75 barby the end of 2007. This would be compatible with gas mains pressure. ITM'sobjective is to achieve this in the following stages: Objective date Target PressureDecember 2006 20 barJune 2007 50 barDecember 2007 75 bar Fuel cells It has always been the belief of ITM that unless hydrogen fuel was readilyavailable, the adoption of solid polymer fuel cells would be severely limited.Following the success of our electrolyser programme, we now propose to apply thesame design philosophy to fuel cells. We have begun development work using ourlow cost materials and processes with the objective of developing low cost anddurable hydrogen / oxygen fuel cells. The availability of a low costelectrolyser and low cost fuel cell will represent a valuable commercialopportunity. The 250W hydrogen/oxygen fuel cell that was completed in December 2005 (as apart of the IPO milestone objectives set in June 2004) achieved a power densityof 160mW/cm2. On the basis of this power density this device was costed atapproximately $2000/kW which was considered to be uncompetitive. Fuel cell capital costs can be reduced by a number of routes including increasedpower density. We now plan to demonstrate fuel cell operation with a powerdensity of 360mW/cm2 by the end of October 2006. The technology which will bedeveloped in this fuel cell programme will be costed on the basis of productionvolumes for a 10kW device, but only demonstrated in smaller devices between 100Wand 500W. The October 2006 device will reflect an equivalent cost of $900/kW. Our future objectives are to apply the wide range of technological optionsavailable to ITM to achieve high power production devices with the followingcost base: Objective date Target Device Costing ($/kW)December 2006 700June 2007 500December 2007 250 Board and Staff In August 2005, Gervas Steele resigned from the Board as a non-executivedirector to pursue other business interests. In January 2006, John Wrefordretired from the Board as Finance Director. Marcus Scott joined ITM in November2005 as Chief Financial Officer to undertake the financial planning and CompanySecretariat duties of the Company. I am delighted to welcome Roger Putnam to the Board as non executive director.Roger joined the Board on 15 May 2006. He is the former Chairman of Ford ofBritain, and currently President of the Society of Motor Manufacturers andTraders and a member of the Government's Energy Review Partnership. Roger'swealth of experience in management, sales and marketing within global businessesand his relationships within government and industry is already provinginvaluable to ITM. I am also delighted to welcome Professor Marcus Newborough to the Company,Marcus was appointed after the period in review, as Electrolyser BusinessDevelopment Officer. Marcus's experience and skill in interfacing betweenmultiple energy systems and electrolysers will be invaluable in the strategicplanning and commercialisation of ITM's electrolyser technology. We are currently recruiting and strengthening the technical team in Sheffieldand building a new commercial team in Cambridge. I would like to take this opportunity to welcome the new members of staff to ITMand thank all our staff for their hard work during the year. Outlook Over the past two years, we have built a solid foundation as a platform tounderpin the route to commercialisation. We remain on track to achieve the firstof our new technical milestones by October 2006 and we will continue to progresswith development plans within our target markets. We also hope to announcefurther results on our hydrogen technologies and remain focused with increasingemphasis on the commercialisation of ITM's technology. I am confident that ITMis in a strong position to achieve its business objectives through strongscience, people and finances. Stephen Massey Chairman 31 July 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNTYear ended 30 April 2006 Note Year ended Year ended 30 April 2006 30 April 2005 (audited) (audited) £ £ Administrative expenses - research anddevelopment (1,608,044) (930,525)- share option charges - (175,000)- other (901,462) (745,938) -------- ------- (2,509,506) (1,851,463) Other operating income 361,678 241,306 -------- ------- OPERATING LOSS (2,147,828) (1,610,157) Interest receivable - bank interest 290,212 346,461 -------- ------- LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (1,857,616) (1,263,696) Tax on loss on ordinary activities 1 208 58,108 -------- ------- LOSS FOR THE FINANCIAL YEAR (1,857,408) (1,205,588) ======== ======= LOSS PER ORDINARY SHAREBasic and diluted 2 (2.0p) (1.3p) ======== ======= All activities derive from continuing operations. There are no recognised gains or losses for the current financial year orpreceding financial year other than as stated above. Therefore no statement oftotal recognised gains and losses are presented in this financial information. CONSOLIDATED BALANCE SHEETYear ended 30 April 2006 Note Year ended Year ended 30 April 2006 30 April 2005 (audited) (audited) £ £ FIXED ASSETSTangible assets 827,402 396,481 -------- ------- CURRENT ASSETSDebtors 594,203 464,500Investments - cash on deposit 5,400,000 7,550,000Cash at bank and in hand 62,564 193,469 -------- ------- 6,056,767 8,207,969 -------- -------CREDITORS: amounts falling due (293,440) (161,799)within one year -------- ------- NET CURRENT ASSETS 5,763,327 8,046,170 -------- ------- TOTAL ASSETS LESS CURRENT LIABILITIES,BEING NET ASSETS 6,590,729 8,442,651 ======== ======= CAPITAL AND RESERVESCalled up share capital 3 4,598,513 4,593,713Share premium account 3 8,103,536 8,102,850Merger reserve 3 (1,972,820) (1,972,820)Profit and loss account 3 (4,138,500) (2,281,092) -------- ------- EQUITY SHAREHOLDERS' FUNDS 3 6,590,729 8,442,651 ======== ======= CONSOLIDATED CASH FLOW STATEMENT Year ended 30 April 2006 Note Year ended Year ended 30 April 2006 30 April 2005 (audited) (audited) £ £ Net cash outflow from operating activities 4 (1,910,873) (1,355,823) Returns on investments and servicing offinance 189,832 121,503 Taxation 58,316 43,555 Capital expenditure and financialinvestment (641,660) (383,212) -------- ------- Net cash outflow before management ofliquid resources and financing (2,304,385) (1,573,977) Management of liquid resources 2,150,000 (7,274,524) Financing 5,486 9,126,563 -------- ------- (Decrease) increase in cash 5 (148,899) 278,062 ======== ======= NOTES TO THE FINANCIAL INFORMATION 1. tax on loss on ordinary activities In 2005, tax receivable arose from research and development tax credits claimed.For 2006, the group did not qualify to claim these tax credits. 2. loss per ordinAry share The calculations of earnings per share are based on the following losses andnumber of shares: Basic and diluted Year ended Year ended 30 April 2006 30 April 2005 (audited) (audited) £ £ Retained loss for the financial period (1,857,408) (1,205,588) ======== ======= Weighted average number of ordinary sharesfor basic loss per share 91,899,614 89,501,418 ======== ======= FRS 14 requires presentation of diluted earnings per share when a company couldbe called upon to issue shares that would decrease net profit or increase netloss per share. For a loss making company with outstanding share options, thenet loss per share would be decreased by the exercise of options, and hence noadjustment has been made to the diluted loss per share as presented. 3. RESERVES AND RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS Called up share Share premium Merger reserve Profit and loss Shareholders' capital account account funds £ £ £ £ £ At 1 May 2005 4,593,713 8,102,850 (1,972,820) (2,281,092) 8,442,651Retainedloss for theyear - - - (1,857,408) (1,857,408) Shares issuedin the year 4,800 686 - - 5,486(net ofExpenses) -------- -------- -------- -------- ----------At 30April 4,598,513 8,103,536 (1,972,820) (4,138,500) 6,590,7292006 ======== ======== ======== ======== ========== 4. RECONCILIATION OF OPERATING LOSS TO OPERATING CASH FLOWS Year ended Year ended 30 April 2006 30 April 2005 (audited) (audited) £ £ Operating loss (2,147,828) (1,610,157)Depreciation Charge 210,739 73,610Loss on disposal of fixed assets - 10,455Increase in debtors (87,431) (35,004)Increase in creditors 113,647 30,273UITF 17 charge - 175,000 --------- ---------Net cash outflow from operating activities (1,910,873) (1,355,823) ========= ========= 5. ANALYSIS AND RECONCILIATION OF NET FUNDS 1 May 2005 Cash flow 30 April 2006 £ £ £ Cash at bank and in hand 193,469 (130,905) 62,564Bank overdraft - (17,994) (17,994) -------- (148,899)Current asset investments 7,550,000 (2,150,000) 5,400,000 --------- -------- ---------Net funds 7,743,469 (2,298,899) 5,444,570 ========= ======== ========= Year ended Year ended 30 April 2006 30 April 2005 (audited) (audited) £ £ (Decrease) increase in cash in the year (148,899) 278,062Cash (inflow) outflow from (decrease) increasein liquid resources (2,150,000) 7,274,524 --------- --------- Change in net funds resulting from cash flows (2,298,899) 7,552,586Net funds at beginning of year 7,743,469 190,883 --------- ---------Net funds at end of year 5,444,570 7,743,469 ========= ========= 6. FINANCIAL INFORMATION The financial information set out in the announcement does not constitutestatutory financial statements for the years ended 30 April 2005 or 30 April2006 within the meaning of section 240 of the Companies Act 1985, but is derivedfrom these statutory accounts, which have been reported on by the Company'sauditors. Statutory accounts for the year ended 30 April 2005 have beendelivered to the Registrar of Companies and those for 2006 will be deliveredfollowing the Company's Annual General Meeting. The auditors have reported onthose accounts; their reports were unqualified and did not contain adversestatements under section 237(2) or (3) of the Companies Act. The financial information is prepared on the basis of accounting policies asstated in the previous year. Copies of the announcement will be available for collection from the Company'shead office at Orkney House, Great Chesterford Court, Great Chesterford, SaffronWalden, CB10 1PF. 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