Proton Mtr Pwr Regulatory News (PPS)

7 May 2015

Proton Power Systems plc

("Proton Power" or the "Company")

Final results

Proton Power Systems plc (AIM: PPS), the designer, developer and producer of fuel cells and fuel cell electric hybrid systems, today announces its results for the year ended 31 December 2014

Highlights:

· Fuel cell products available for go to market solutions from 3kW to 75kW for stationary, mobile and maritime applications

· Further investment has been made in setting up our manufacturing capability for up to 200 systems per annum in a single shift to meet our future demand expectations

· Completion of the development and successful testing of the new PM400 (25kW) fuel cell stack which is the basis of all our target markets

· The new PM Module S25 has been developed which can provide 25kW and is scalable in parallel operation for high power stationary applications

· Achievement of significant cost reductions for production of fuel cell stacks and systems reducing the cost per kW

· Collaboration with the Austrian government and integration companies for light duty vehicle fuel cell systems

· Successful finalisation of a special maritime feasibility study for a customer in Asia and starting the development project which is now planned for 2016 delivery

· Preparation of projects with international logistics providers for a battery/fuel cell delivery truck

· Preparing detailed plans with European bus manufacturers for a cost reduced hybrid electric bus with fuel cell range extender with our 25kW HyRange Solution for both bus and truck applications in Germany, Austria, Switzerland and France

· World record round trip from Munich to Berlin and back to Munich with our own Smith Newton vehicle equipped with Hybrid Battery/Fuel Cell System

· Containerised energy solution deployed with fuel cell Uninterruptable Power Supply system

· SPower is now fully integrated into the Proton Power organisation optimizing the working processes, with combined sales and technical teams for stationary power supply solutions with products selling in the market for UPS systems, solar storage systems and fuel cell systems for stationary power demand. Complete solutions are now offered in our go to market strategy.

· Successful development and testing of a 10kVA Solar Battery Storage System

Ian Peden, Chairman of Proton Power, commented: "The group has been investing and proving Fuel Cell solutions for 21 years, resulting in a very strong technical and financial base for the long term. Fuel Cell technology creates electricity from hydrogen while it does not emit carbon dioxide. Hydrogen as a substance is easily stored which makes it the ideal energy source for the future. Hydrogen related businesses globally are currently estimated at $58 billion and this market is estimated to grow dramatically in the future. The group is ready and strategically positioned to roll out solutions to the world markets. For over 20 years we have focused on Stationary, Mobile and Maritime solutions and we look to the future with great confidence."

- Ends -

For further information:

A copy of the annual report for the year ended 31 December 2014 is available from the companies website (www.protonpowersystems.com) and will be posted to shareholders shortly, together with notice of annual general meeting to be convened at the offices of Westhouse Securities, 110 Bishopsgate, London, EC2N 4AY at 11:00 a.m. on 3 June 2015.

Chairman and CEO's statement

We are pleased to report our results for the year ended 31 December 2014.

Business development

The Group is pleased to report the following achievements in 2014:

· Fuel cell products available for go to market solutions from 3kW to 75kW for stationary, mobile and maritime applications

· Further investment has been made in setting up our manufacturing capability for up to 200 systems per annum in a single shift to meet our future demand expectations

· Completion of the development and successful testing of the new PM400 (25kW) fuel cell stack which is the basis of all our target markets

· The new PM Module S25 has been developed which can provide 25kW and is scalable in parallel operation for high power stationary applications

· Achievement of significant cost reductions for production of fuel cell stacks and systems reducing the cost per kW

· Collaboration with the Austrian government and integration companies for light duty vehicle fuel cell systems

· Successful finalisation of a special maritime feasibility study for a customer in Asia and starting the development project which is now planned for 2016 delivery

· Preparation of projects with international logistics providers for a battery/fuel cell delivery truck

· Preparing detailed plans with European bus manufacturers for a cost reduced hybrid electric bus with fuel cell range extender with our 25kW HyRange Solution for both bus and truck applications in Germany, Austria, Switzerland and France

· World record round trip from Munich to Berlin and back to Munich with our own Smith Newton vehicle equipped with Hybrid Battery/Fuel Cell System

· Containerised energy solution deployed with fuel cell Uninterruptable Power Supply system

· SPower is now fully integrated into the Proton Power organisation optimizing the working processes, with combined sales and technical teams for stationary power supply solutions with products selling in the market for UPS systems, solar storage systems and fuel cell systems for stationary power demand. Complete solutions are now offered in our go to market strategy.

· Successful development and testing of a 10kVA Solar Battery Storage System

The world has identified hydrogen fuel cell applications as a core technology for transport and power supply of the future.

Companies like Toyota and VW/Audi are investing heavily in fuel cell technology and Proton Power Systems is leading the development in applications that will enhance our quality of life for a sustainable future. We all need to redesign how we produce and consume energy and clean energy is becoming a must in industrialized societies.

We see strong interest and growing demand for various applications we offer and we continue to improve the operational performance with significant reductions in cost per kW. Our costs for fuel cell systems have dropped significantly and the technology and products are robust and reliable.

We are offering complete systems and solutions to our customers from 3kW to 75kW (in parallel operation >25kW) for maritime, stationary and mobile applications. It is essential to provide the customer with a full turnkey proposition that starts with consulting, simulation, packaging study, integration testing and final rollout with after care services and support. 

The Group now has a complete portfolio of solutions across its market segments and our strategy is to sell directly in Europe and to establish licensing partners to manufacture solutions for the three target market applications: mobile, stationary and maritime systems in Asia Pacific. The Group provides support to its customers from first feasibility to simulation up to complete solutions with integration and after sales service. Benefits for our customers are:

· A fast integration process

· Fuel cell know how, we have the knowledge, capability and experience

· Continuous cost reductions evolution based on existing Proton Power technology.

Asia Pacific, as a target market, which is suffering severe pollution problems will require commitment from governments to take remedial action to improve the situation. We believe that the significant pollution problems in Asia will drive the demand for clean power applications for us in the near future. This will drive our technology. Therefore, China is an important market and we have established representatives in China to support our expectations. We see "Made in Germany" technology as highly respected with high demand within China. We started our first maritime project for AUVs in China and have ongoing discussions with major Chinese based companies for bus applications. We expect our first project for electric hybrid bus systems based on our fuel cell and hybrid technology in 2015.

Furthermore, we are seeing good progress in the market introduction of our products and solutions in Europe and are in discussion with several European bus manufacturers and logistic companies. We will launch our next electric battery fuel cell bus on the road with a bus manufacturer in the second half of 2015. For this project, we have applied to NOW in Germany (national hydrogen association) for specific funding.

Talks are also underway with a large international logistic company for electric battery fuel cell logistic vehicles, with a first test vehicle integration for Germany planned for 2015. Another collaboration project, funded by the Austrian Government is under progress with an Austrian based automotive supplier. We will be supplying our Range Extender System to be integrated in a passenger van.

Within the stationary power market, we see very positive interest for complete high power systems with electrolysers, hydrogen storage, re-powering with our fuel cell and connection to the load via our UPS systems. There is also strong interest in the containerised solutions the Group offers for large solar and wind parks from Europe, Africa and China. The Group is currently working with different suppliers in Europe for the supply of electrolysers. Our modular fuel cell design based on our 25kW modules allows us to provide high power delivery up to several megawatts.

We have achieved our development targets for 2014: systems have been tested in depth, reliability and the lifetime in use for our fuel cell stacks is now proven for the market.

As the Group sees the increased market demand we will continue our investment with our manufacturing capability and we are now ready to assemble up to 200 systems per annum based on one shift for mobile or stationary applications.

The Group's product strategy includes:

· Modular stationary power of 5kW, 25kW and >50kW for IT, Smart Grid (Solar-and Windparks) and industrial applications

· A modular Range Extender (HyRange) for light duty commercial vehicles and city buses of 8kW and 25kW/50kW or 75kW

· Maritime modular fuel cell systems of 25kW and above for high power applications

A. Fuel cell stack production and development:The Group designs and manufactures fuel cell stacks which is at the heart of all fuel cell applications. During 2014, the Group further improved the existing stack design (PM200) with 8kW and successfully completed the development of the new stack design (PM400) which generates 30kW to 60kW of net power. The Group now has the full complement for 3kW to 60kW solutions.

1. PM200 fuel cell stack generation (3kW to 8kW)

We continue our cost reduction activities within this successful range. We have improved the reliability for prolonged operational activity for our customers.

2. PM400 fuel cell stack generation (up to 60kW)The PM400 platform was further extended to a power range of 60kW. We have continued to improve the operational performance with significant reductions in cost per kW. This product forms the basis of all our target market segments, namely mobile applications (buses and light duty vehicles), maritime applications (tourist/ferry boats and auxiliary power supply) and stationary applications in our UPS and smart grid product range.

B. Systems:

The Group offers complete systems and solutions to its customers. It is essential to provide the customer with a full turnkey proposition that starts with consulting, simulation, packaging study, integration testing and final rollout with after care services and support. The modular approach for the fuel cell products allows the utilisation of similar components for different market segments.

1. Mobility - buses and light duty vehicles

During the year the Group has completed the development of the HyRange 25 system. This generates a powerful 25kW for buses and light duty vehicles. The product is modular so can be utilised in parallel creating a system of up to 75kW. This product will address our target markets specifically in Asia which is suffering severe pollution problems. We are also making good progress for our solutions in Europe, and we are in discussions with several bus manufacturers and logistic companies.

2. Mobility - maritime segment

In the maritime sector we have built on our successful implementation of the Alsterwasser tourist boat system in Hamburg. It has been in continuous day-to-day operation since 2008 and has transported over 60,000 passengers. Based on this successful project, we are receiving request for concepts for different types of boats powered by fuel cell systems, including:

· yachts;

· underwater AUVs;

· tourist boats.

We expect increased adoption of fuel cell technology for maritime applications as demand for quiet and emission free operation is growing and the technology has shown reliability in day-to-day operations.

The feasibility study with Chinese ship builders is on the way to being finalized in the first half of 2015. As it is a very complex system, it has taken more time than expected. Within the framework of the project, we will also design a unique storage solution for liquid gas which is a unique solution within the industry. A follow up order for the development of the solution is expected.

The market for AUVs worldwide is large and fast growing.

3. Stationary segment

The Group is seeing growing demand for safe power specifically in data centres, telecom and grid applications. The combination of fuel cell products and UPS allows a complete solution. These can be delivered as single components, in cabinets or containerised. Standardised fuel cell modules allow scalable power usage for high power applications. Each 25kW can be used in parallel for higher power demand. We have developed the PM Module 25, an outdoor energy container with 5kW or 25kW output as options, which was introduced to the market in late summer 2014. The container can provide UPS power with significant backup times.

We are working with a semi-conductor manufacturer to utilise their processed hydrogen for their own internal power requirements. This is a complex manufacturing process we have developed a turnkey solution to utilise wasted hydrogen that would normally be released into the environment into electrical energy. We are seeing significant market demand for these turnkey solutions. There is large worldwide demand for similar applications. We are planning a first test application in the second half of 2015.

AREVA presented our PM Module 5 together with their electrolyser and LOHC Hydrogen storage device. The plan is to use a special application of our module together with their system. In the future, such a system can be used for energy storage to balance grids and repower on demand.

We have released a new 10kW battery solar storage system during 2014, which, in connection with a solar system, allows the generation of enough power for a family home or small business. It makes the household nearly independent from grid power supply. Although the markets for solar storage has developed more slowly than we expected, we now see large demand for those applications in the near future, based on rising energy cost and the requirement for clean energy generation and storage.

Finance

Turnover increased by 27% to £1,411,000. The operating loss for the year was £6,181,000 which, when added to net finance costs of £1,261,000 and the non-cash loss arising from the change in the fair value of the embedded derivative on the shareholder loan of £2,696,000 resulted in a total loss of £10,138,000 (2013: £9,267,000). Excluding the fair value loss on the embedded derivative, this was in line with management expectations.

The Group secured further loan funding in 2014 of €5,550,000 from Roundstone Properties Limited and €500,000 from Mr Falih Nahab. It also received grant funding of €135,000 from the German Government.

The total funds raised financed the working capital for the year. The Company continues to be interested in involving other investors alongside Roundstone Properties Limited in this exciting opportunity.

Outlook

Proton Power has made great progress in 2014 and is seeing significant interest for our solutions in all of our market segments, and our objective is to expand volume manufacturing with industrial partners based on licensing agreements. The Board can proudly state, that Proton Power now has technically proven products and a go to market solution portfolio. Also, we have in place enhanced production facilities and continue to expand our worldwide sales and marketing activities. The unique know how and positioning of Proton Power underlines the high expectation of business development. Together with continuous cost reductions, driving down the cost per kW is our foundation for growth and success of our technology in the world markets.

Targets for 2015 are:

· First orders from Asia Pacific for our products and solutions

· Orders for buses with our new HyRange system in Europe

· Orders for HyRange systems for logistic vehicles

· Further strengthening of our product platform

· Growing capability with our team with highly qualified staff.

The Directors are confident with the outlook of the business and has secured future finance to meet future commitments.

On behalf of the Board we would like to take this opportunity to thank the Proton Power team, shareholders and our advisors for their hard work and effort as well as our customers and suppliers for their confidence and support throughout the year.

Consolidated income statement

for the year ended 31 December 2014

Consolidated statement of comprehensive income

Balance sheets

as at 31 December 2014

Statements of changes in equity

Statements of changes in equity 

Share premium

Costs directly associated with the issue of the new shares have been set off against the premium generated on issue of new shares.

Merger reserve

The merger reserve of £15,656,000 arises as a result of the acquisition of Proton Motor Fuel Cell GmbH and represents the difference between the nominal value of the share capital issued by the Company and its fair value at 31 October 2006, the date of the acquisition.

Reverse acquisition reserve

The reverse acquisition reserve (Group only) arises as a result of the method of accounting for the acquisition of Proton Motor Fuel Cell GmbH by the Company. In accordance with IFRS 3 the acquisition has been accounted for as a reverse acquisition.

Share option reserve

The Group operates an equity settled share-based compensation scheme. The fair value of the employee services received for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. At each balance sheet date the Company revises its estimate of the number of options that are expected to vest. The original expense and revisions of the original estimates are reflected in the income statement with a corresponding adjustment to equity. The share option reserve represents the balance of that equity.

Statements of cash flows

for the year ended 31 December 2014

Notes to the financial statements

1. General information

Proton Power Systems plc ("the Company") and its subsidiaries (together "the Group") design, develop, manufacture and test fuel cells and fuel cell hybrid systems as well as the related technical components. The Group's design, research and development and production facilities are located in Germany.

The Company is a public limited liability company incorporated and domiciled in the UK. The address of its registered office is: St Ann's Wharf, 112 Quayside, Newcastle upon Tyne, NE1 3DX. The Company's initial public offering took place at the Alternative Investment Market of the London Stock Exchange on 31 October 2006 and its shares are listed on this exchange.

2. Summary of significant accounting policies

The Board approved this preliminary announcement on 6 May 2015.The financial information included in this preliminary announcement does not constitute the Group's statutory accounts for the years ended 31 December 2014 or 31 December 2013. Statutory accounts for the year ended 31 December 2013 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2014 will be delivered to the Registrar of Companies following the Company's annual general meeting.

The auditors have reported on the 2014 and 2013 accounts; their report was unqualified and included an emphasis of matter in respect of going concern.

These financial statements for the year ended 31 December 2014 have been prepared under the historical cost convention except for embedded derivative financial instruments, which are stated at their fair value.

The accounting policies used are consistent with those contained in the Group's last annual report and accounts for the year ended 31 December 2014.

The financial information included in this preliminary announcement has been prepared in accordance with EU endorsed International Financial Standards ('IFRS'), IFRS IC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

Until such time as the Group achieves operational cash inflows through becoming a volume producer of its products to a receptive market it will remain dependent on its ability to raise cash to fund its operations from existing and potential shareholders and the debt market. The Group has historically been dependent on the continuing financial support of its main investor, Roundstone Properties Limited ("Roundstone") to meet its day-to-day working capital requirements. The group has a loan with Roundstone for €2,383,000 which is due for repayment in July 2016. During the year, the group combined certain other existing loans with Roundstone Properties Limited into a new loan agreement to provide total facilities of €16,500,000, repayable in May 2017.Roundstone has provided the directors with a letter of support as follows "It is Roundstone Properties Limited's intention to provide financial support to ensure the continued trading of Proton Power Systems plc and its subsidiaries for the next twelve months. At this point in time there has been no indication of circumstances which would lead to withdrawing the support".

Roundstone Properties Limited, is registered in the British Virgin Islands ("BVI") and as such is not subject to the requirement for have publicly available audited accounts. Roundstone is a related party of the group.In December 2014, a further loan agreement was entered into with Falih Nahab to provide €10,000,000, repayable in December 2017. As at 31 December 2014, €500,000 had been drawn on this facility. Mr Falih Nahab has provided the directors with a letter of support as follows "It is my intention to provide financial support to ensure the continued trading of Proton Power Systems plc and its subsidiaries for the next twelve months. At this point in time there has been no indication of circumstances which would lead to withdrawing the support".Mr Falih Nahab, is a private individual based in Jordan and as such is unable to produce financial information to support his ability to fund the debt facility. Mr Falih Nahab is a related party.Due to the lack of audited accounts or other available financial information, the directors are unable to confirm that either Roundstone or Falih Nahab have the ability to provide such support. This condition indicates the existence of a material uncertainty which may cast significant doubt upon the Group and the Company's ability to continue as a going concern. However, the directors firmly believe that the Group and Company remain a going concern on the grounds that Roundstone has supported the Group and the Company extensively in recent years, that funding has been agreed by Falih Nahab for at least the next 12 months, and that the Directors have no reason to doubt that Roundstone or Falih Nahab will not continue to provide funding.

3. Critical accounting estimates and judgements

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below.

Recognition of development costs

Self developed intangible assets are recognised where the Group can estimate that it is probable that future economic benefits will flow to the entity. See Note 10.

Impairment of goodwill

The carrying value of goodwill must be assessed for impairment annually, or more frequently if there are indications that goodwill might be impaired. This requires an estimation of the value in use of the cash generating units to which goodwill is allocated. Value in use is dependent on estimations of future cash flows from the cash generating unit and the use of an appropriate discount rate to discount those cash flows to their present value.

Classification and fair value of financial instrumentsThe Group uses judgement to determine the classification of certain financial instruments, in particular convertible loans advanced during the year. Judgement is applied to determine whether the instrument is a debt, equity or compound instrument and whether any embedded derivatives exist within the contracts.

Judgements have been made regarding whether the conversion feature meets the "fixed for fixed" test in each instrument. In the case of each instrument it is deemed it is not met on the basis that the loan is in Euros and shares are in Sterling.

The Group uses valuation techniques to measure the fair value of these financial instruments. In applying these valuation techniques, management use estimates and assumptions that are, as far as possible, consistent with observable market data. Where applicable market data is not observable, management uses its best estimate about the assumptions that market participants would make. These

estimates may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date.

4. Segmental information

The Group has adopted the requirements of IFRS8 'Operating segments'. The standard requires operating segments to be identified on the basis of internal financial information about components of the Group that are regularly reviewed by the Chief Operating Decision Maker ('CODM') to allocate resources to the segments and to assess their performance. The CODM has been identified as the Board of Directors. The Board considers the business from a product/services perspective.

Based on an analysis of risks and returns, the Directors consider that the Group has only one identifiable operating segment, green energy.

All non-current assets are located in Germany.

Revenue from external customers

Siemens AG represented 49.0% of the Group's revenue in 2014 (2013: 40.8%).

The results as reviewed by the CODM for the only identified segment are as presented in the financial statements with the exception of the revaluation loss (2013: loss) on the fair value of the embedded derivative of £2,696,000 (2013: £3,543,000) and the associated impact on the balance sheet.

5. Loss for the year before taxation

6. Auditors' remuneration

7. Staff numbers and costs

The monthly average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:

The aggregate payroll costs of these persons were as follows:

Share based payments

The Group has incurred an expense in respect of share options during the year issued to employees as follows:

Details of share options granted during 2014 are disclosed in the Annual Report. The cost of these options to the Group is being charged over a two year period from the date of grant at which point they become exercisable.

At 31 December 2014 the Group operated a single share option scheme ("SOS"). The SOS allows the Company to grant options to acquire shares to eligible employees. Options granted under the SOS are unapproved by HM Revenue & Customs. The maximum number of shares over which options may be granted under the SOS may not be greater than 10 per cent of the Company's issued share capital at the date of grant when added to options or awards granted in the previous 10 years. The exercise of options can take place at any time after the second anniversary of the date of grant. Options cannot, in any event, be exercised after the tenth anniversary of the date of grant.

All share-based employee remuneration will be settled in equity. The Group has no legal or constructive obligation to repurchase or settle options. Share options and weighted average exercise price are as follows for the reporting periods presented:

The fair values of options granted were determined using the Black-Scholes valuation model. Significant inputs into the calculation include a weighted average share price and exercise prices. Furthermore, the calculation takes into account future dividends of nil and volatility rates of between 50% and 94%, based on expected share price. Risk-free interest rate was determined between 2.130% and 5.125% for the various grants of options. It is assumed that options granted under the SOS have an average remaining life of 2 months (2013: 7 months).

The underlying expected volatility was determined by reference to the historical data, of the Company. No special features inherent to the options granted were incorporated into measurement of fair value.

Directors' remuneration

The remuneration of key management of the Group was as follows:

The Group has no key management other than Directors.

8. Taxation

Due to losses within the Group, no expenses for tax on income were required in either the current or prior periods.

The tax on the Group's loss before tax differs from the theoretical amounts that would arise using the weighted average tax rate applicable to losses of the Companies as follows:

9. Loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has two categories of dilutive potential ordinary shares, share options and convertible debt; however, these have not been included in the calculation of loss per share because they are anti dilutive for these periods.

10. Intangible assets - Group

Self-developed intangible assets in the amount of £28,000 (2013: £65,000) are recognized in the reporting year, because the prerequisites of IAS 38 have been fulfilled.

The amortisation charge above is recognized in the administrative expenses in the income statement.

As self-developed intangible assets are not material to the Group financial statements no impairment test has been performed.

There are no individually significant intangible assets.

10. Intangible assets - Group

Goodwill relates to SPower Group and is tested annually for impairment or more frequently if there are indications that goodwill might be impaired. Goodwill is tested for impairment by estimating future cash flows from the cash generating units to which goodwill has been allocated and discounting these cash flows to their present value. Each unit to which goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. The key assumptions in this calculation are in respect of discount rates used and the change in cash flows. Management estimates discount rates using pre-tax rates that reflect the current market assessments of the time value of money and the risks specific to the cash generating unit.

Cash flows are estimated using the most recent budget information for the year to December 2015 and the latest forecasts up to December 2019, which has been approved by the Board and extrapolates perpetuity cash flows based on an estimated growth rate of 2%. The pre-tax discount rate used to discount the forecast cash flows is 15%.

The Directors consider the assumptions adopted in calculating the cash flows to be reasonable given current market conditions and expectations for the future performance of the business.

Based on the latest forecasts the goodwill has been impaired in full.

Amortisation and impairment charges are recognised within administrative expenses.

11. Property, plant and equipment - Group

12. Investment in subsidiary undertaking