Itm Power Regulatory News (ITM)

31 Jan 2006 07:01

ITM Power PLC31 January 2006 Embargoed until 0700hrs, 31 January 2006 ITM POWER PLC ('ITM' or 'the Company') Interim Results for the six months ended 31 October 2005 Highlights: * Research and development activities have exceeded expectations: o ITM successfully achieved the first milestone set out at the time of the IPO: the production and demonstration of a 20w flexible fuel cell stack o Operation of ITM's proprietary hydrophilic membrane in an electrolyser for in excess of 500 hours without evidence of failure or degradation of the membrane * Yorkshire Forward awarded ITM £800,000 development grant for expansion of laboratory and workshop space in Sheffield * Loss after tax £900,000 - within the planned expenditure budget * New Chief Financial Officer and Company Secretary appointed * Agreement with Heriot Watt University for ITM to fund a PhD student to research the production of hydrocarbons from renewable resources Stephen Massey, Chairman commented: "The main focus of our current R&D programmeis to continue to develop the technology that will allow the production ofhydrogen at a cost that is competitive with fossil fuels. ITM believes thatunless hydrogen can be produced cost competitively with existing fuels, it willbe difficult for the hydrogen economy to evolve". "ITM's strategy is to continue to generate value for shareholders by creating anexpanding portfolio of intellectual property, fundamental to the development ofthe hydrogen economy that can be licensed to generate revenue. We believe thatthe advances we continue to achieve have great potential value. I am verypleased with the Company's progress to date and look forward to what I believewill be another successful full year for ITM." For further information please contact: Jim Heathcote Gemma Chandler Tim LinacreITM Power Plc Tavistock Communications Panmure Gordon & CoTel: 01799 532860 Tel: 020 7920 3150/ 07787 510 630 Tel: 020 7459 3600 or visit www.itm-power.com Chairman's statement I am pleased to report on the activities of ITM for the six months to 31 October2005. Results During the six months under review there was an operating loss of £1.1 million,compared with £700,000 in the same period last year. This reflects the increasedlevel of research and development activity which has taken place at ourSheffield facilities during 2005. The increased activity has required additionaltechnical staff, equipment and space, the expenditure on which was in line withbudget. At the end of the period, there was a further increase in activity, andextra staff and space have been added to the Sheffield facility, which willresult in a further increase in operating costs during the second half year.This increase, which is also in line with budget, will be mitigated by theexpected receipt of the £800,000 grant awarded by Yorkshire Forward during thefirst half of the Financial Year. The loss after tax for the period amounted to£900,000 compared with £500,000 in the same period in 2004. Capital expenditure on facilities and test equipment amounted to £400,000. Atthe end of the period, net current assets were £6.9 million, of which £6.8million was in cash and short term deposits - which is considered a satisfactoryposition from which to achieve ITM's future technical milestones. Energy overview The strong price of oil during the relatively low demand months of the summerwas ominous and suggests there is now little scope to bring on additional spareproduction capacity. The "Peak Oil" theory, about the impending historic peak inoil production, continues to gain supporters as the evidence in its favourmounts. This was highlighted in a recent report by the Kuwait Oil Company that Burgan,the world's second largest oil field, had passed peak production. This news,together with the reported declining production profiles of countries outsidethe Middle East and Russia, highlights growing concerns that future supplies ofenergy will be dependent on a small number of fields in politically unstablegeographic areas. The impact of Hurricane Katrina was important for two reasons; firstly, ithighlighted the fragility of the United States oil production capabilities andsecondly, the devastation of New Orleans raised awareness that increasing carbondioxide levels may have reached dangerous levels as global temperatures rise andthe climate changes. It is apparent that the need for a successor to fossil fuels as our primaryenergy source is becoming more urgent and that the atmospheric impact of anysuccessor must be minimal. It is our belief that the ability to make costcompetitive hydrogen from renewable energy sources is a critical step for thefuture of the worldwide energy economy. Review I am pleased to report that during the half year in review, progress in ourresearch and development activities has exceeded expectations as we continue topursue fundamental R&D in fuel cell and electrolyser science. In the last few months we have made a number of significant announcements: * In June 2005, ITM successfully achieved the first milestone set out at the time of the IPO: the production and demonstration of a 20w flexible fuel cell stack, which has the potential use for both military and civilian applications. The device operates using two liquids, which enables operation in polluted environments, at high altitudes, as well as under water. * In October 2005, ITM announced significant progress in its development of durable modular electrolysers, which could enable the realisation of cost competitive hydrogen fuel as an alternative to hydrocarbons. ITM operated its proprietary hydrophilic membrane in an electrolyser for a period in excess of 500 hours without evidence of failure or degradation of the membrane. Since the period end, ITM has announced further longevity test results of the new Mark IV electrolyser, which was operated for a period of 1,000 hours without evidence of failure or degradation of the membrane. * In August 2005, ITM updated the market further on the ITM-DTI alcohol fuel cell programme, which potentially significantly broadens ITM's intellectual property portfolio. The DTI provided ITM with funding to research, develop and patent additional materials specifically designed to operate with methanol as the fuel. ITM tested their low cost materials as direct methanol fuel cells in both acid and alkaline forms, which was important because alkaline conditions allow for the use of lower cost, non-platinum catalysts, such as palladium. * In September 2005, the European Patent Office formally allowed ITM's core patent application on electrochemical cells using hydrophilic polymers. 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. * In July 2005, ITM was delighted to report that Yorkshire Forward, the Regional Development Agency responsible for sustainable economic and regeneration of Yorkshire and Humber area, had awarded ITM a £800,000 development grant to encourage ITM to expand its laboratory and workshop space in Sheffield. The award of this grant has enabled ITM to expand into the adjacent building. * Finally, ITM concluded an agreement with Heriot Watt University for ITM to fund a PhD student to research the production of hydrocarbons by combining hydrogen produced electrolytically from renewable resources (or electricity) and carbon dioxide recovered from the atmosphere. ITM will own the intellectual property resulting from the agreement and has already filed a patent application covering the use of renewable hydrogen and waste carbon dioxide to permanently sequester carbon dioxide in commercially valuable products such as bitumen. Recent developments Since the period end, we have announced several further developments. InNovember 2005, we announced we had filed a patent application on compositemembranes. These new membranes may be a significant advance as there is reasonto believe they may help solve important hydration control issues in operatingfuel cells. Using two membrane materials, which establish and maintain twodifferent pH levels at the electrodes, may increase the electrochemicalpotential of the hydrogen/oxygen reaction above 1.23 volts. At the same time, we announced the filing of an additional patent applicationinvolving a composite membrane with an electronic control grid inside themembrane. By adjusting the voltage applied to the grid we have developed a newway of controlling the ion flow through the membrane, and thus the power outputof the fuel cell. We believe that the potential impact of this technology couldbe comparable to the development of the early electronic transistors. In early January 2006, we announced the early completion of the milestones thatwere set out in the prospectus at the time of the IPO and, as reported above,the extension of our electrolyser durability testing to in excess of 1,000hours. Board and staff To enable further acceleration of ITM's technical development activity, we haverecently recruited a further 10 new staff to our technical and support team. In August 2005, Gervas Steele resigned from the Board as a non-executive director to pursue other business interests. In June 2005, John Wreford announced his intention to retire from the Board as Finance Director. John intends to step down from the Board on 31 January 2006. I am delighted to reportthat we have appointed Marcus Scott as Chief Finance Officer to undertake thefinancial planning and Company Secretariat duties of the Company. Previously,Marcus was Chief Finance Officer at Antenova, which develops and sells novelwireless applications to major blue chip organisations. In July 2005, 6,818,181 existing ordinary shares were successfully placed withexisting and new investors on behalf of the founders of ITM: John Wreford, DrJon Lloyd and Dr Donald Highgate. John's sale, of part of his interest in ITM,was to fund his retirement. The total shares placed represented 7.4 per cent ofthe issued share capital of the Company and were placed at a price of 88 penceper share. Mr Wreford, Dr Lloyd and Dr Highgate have all agreed not to sell anyfurther shares for a period of twelve months. I would like to take this opportunity to welcome the new recruits to ITM and tothank John Wreford for his contributions to our growth and wish him a long andhappy retirement. On behalf of the Directors, I would also like to thank all ofour staff for their hard work and commitment during the last six months. Outlook During the next year, the main focus of our technical programme is to continueto develop the technology that will allow the production of hydrogen at a costthat is competitive with fossil fuels. ITM believes that unless hydrogen can beproduced cost competitively with existing fuels, it will be difficult for thehydrogen economy to evolve. ITM believes that the advent of the low cost modular electrolyser will be thekey contributor to realising the hydrogen economy, because such electrolyserscould provide low cost on-site generation of hydrogen using the existingelectricity network. This reduces the need for new methods of storage anddistribution. The electrolyser could effectively simultaneously solve the costand infrastructure problems that have blocked the general adoption of hydrogenas a fuel. ITM's strategy is to continue to generate value for shareholders by creating anexpanding portfolio of intellectual property, fundamental to the development ofthe hydrogen economy that can be licensed to generate revenue. We believe thatthe advances we continue to achieve have great potential value. I am verypleased with the Company's progress to date and look forward to what I believewill be another successful full year for ITM. Stephen MasseyChairman31 January 2006 Interim Results for the Six Months to 31 October 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)Results for the six months ended 31 October 2005 Six months Six months ended 31 ended 31 Year ended October 2005 October 2004 30 April 2005 (unaudited) (unaudited) (audited) £ £ £Administrative expenses - Research and development (718,951) (355,368) (930,525)- Share option charges - - (175,000)- Other (391,123) (374,781) (745,938) ----------- ----------- ----------- (1,110,074) (730,149) (1,851,463)Other operating income 40,178 30,000 241,306 ----------- ----------- -----------Operating loss (1,069,896) (700,149) (1,610,157) Interest receivable and similar income 161,080 161,441 346,461 ----------- ----------- -----------Loss on ordinary activities before taxation (908,816) (538,708) (1,263,696) Tax on loss on ordinary activities 30,000 24,000 58,108 ----------- ----------- -----------Loss on ordinary activities after taxation, being retained loss for the financial period (878,816) (514,708) (1,205,588) =========== =========== ===========Loss per share Basic and diluted (1.0p) (0.6p) (1.3p) =========== =========== =========== There are no recognised gains or losses for the current financial period andpreceding financial periods other than as stated in the profit and loss account. CONSOLIDATED BALANCE SHEET (UNAUDITED)31 October 2005 As at 31 As at 31 October October As at 30 2005 2004 April 2005 (unaudited) (unaudited) (audited) £ £ £FIXED ASSETS Tangible assets 673,596 128,223 396,481 ----------- ----------- -----------CURRENT ASSETS Debtors 393,352 371,452 464,500Investments - short term deposits 6,553,155 8,601,308 7,550,000Cash at bank and in hand 206,749 40,177 193,469 ----------- ----------- ----------- 7,153,256 9,012,937 8,207,969 ----------- ----------- -----------CREDITORS: amounts falling due within one year (261,931) (182,630) (161,799) ----------- ----------- -----------NET CURRENT ASSETS 6,891,325 8,830,307 8,046,170 ----------- ----------- -----------TOTAL ASSETS LESS CURRENT LIABILITIES, BEING NET ASSETS 7,564,921 8,958,530 8,442,651 =========== =========== =========== CAPITAL AND RESERVES Called up share capital 4,594,663 4,593,712 4,593,713Share premium account 8,102,986 8,102,850 8,102,850Merger reserve (1,972,820) (1,972,820) (1,972,820)Profit and loss account (3,159,908) (1,765,212) (2,281,092) ----------- ----------- -----------EQUITY SHAREHOLDERS' FUNDS 7,564,921 8,958,530 8,442,651 =========== =========== =========== CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)Results for the six months ended 31 October 2005 Six months Six months ended 31 ended 31 Year ended October October 30 April 2005 2004 2005 (unaudited) (unaudited) (audited) £ £ £ Net cash outflow from operations (780,101) (692,904) (1,355,823) ----------- ----------- -----------Returns on investments and servicing of finance Interest received 161,080 55,233 121,503 ----------- ----------- -----------Taxation Research and development tax credit - - 43,555 ----------- ----------- -----------Capital expenditure and financial investment Purchase of tangible fixed assets (365,630) (38,289) (383,212) ----------- ----------- -----------Net cash outflow before management of liquid resources and financing (984,651) (675,960) (1,573,977) ----------- ----------- -----------Management of liquid resources Cash withdrawn from (placed on) term deposits 996,845 (8,325,832) (7,274,524) ----------- ----------- ----------- Financing Issue of ordinary share capital (net of expenses) 1,086 9,126,562 9,126,563 ----------- ----------- ----------- Increase in cash 13,280 124,770 278,062 =========== =========== =========== 1. Loss per share The loss per ordinary share and diluted loss per share are equal because shareoptions are only included in the calculation of diluted earnings per share iftheir issue would decrease the net profit per share or increase the net loss pershare. The calculation is based on information in the table shown below. Six months Six months ended 31 ended 31 Year ended October October 30 April 2005 2004 2005 (unaudited) (unaudited) (audited) £ £ £ Loss (£) (878,816) (514,708) (1,205,588) =========== =========== ===========Weighted average number of shares 91,877,761 87,253,433 89,501,418 =========== =========== =========== 2. Reserves and reconciliation of movement in shareholders' funds Called up Share Profit and share premium Merger loss Shareholders' capital account reserve account funds £ £ £ £ £ At 1 May 2005 4,593,713 8,102,850 (1,972,820) (2,281,092) 8,442,651Issue of shares 950 136 - - 1,086Retained loss for the period - - - (878,816) (878,816) ----------- ----------- ----------- ----------- -----------At 31 October 2005 4,594,663 8,102,986 (1,972,820) (3,159,908) 7,564,921 =========== =========== =========== =========== =========== 3. Basis of interim figures This interim financial information does not constitute statutory financialstatements within the meaning of section 240 of the Companies Act 1985. Thefinancial information for the six months ended 31 October 2005 and 31 October2004 has not been audited. The information relating to the year ended 30 April2005 is an extract from the audited financial statements for that year on whichthe auditors gave an unqualified audit report and did not contain a statementunder s237(2) of the Companies Act 1985. A copy of those financial statementshas been filed with the Registrar of Companies. INDEPENDENT REVIEW REPORT TO ITM POWER PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 31 October 2005 which comprises the profit and lossaccount, the balance sheet, the cash flow statement and related notes 1 to 3. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company, in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare also responsible for ensuring that the accounting policies and presentationapplied to the interim figures are consistent with those applied in preparingthe preceding annual accounts except where any changes, and the reasons forthem, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with United Kingdom auditing standards and thereforeprovides a lower level of assurance than an audit. Accordingly, we do notexpress an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 October 2005. Deloitte & Touche LLPChartered AccountantsCambridge This information is provided by RNS The company news service from the London Stock Exchange