Proton Mtr Pwr Regulatory News (PPS)

Proton Power Systems plc

("Proton" or the "Company")

Final results for the year 2017

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 2017.

Highlights:

· 44% decrease in sales in 2017 to £1,115k compared to 2016 sales of £1,989k. The Group delivered 22 systems in 2016 in connection with the DB Bahnbau Gruppe GmbH contract. The subsequent follow up order from DB Bahnbau Gruppe GmbH was received in August 2017 for a total value of £149k, for delivery in Q2 2018.

· Delivered £0.5m order for Orkney Island "Surf and Turf" stationary power project.

· Operating loss excluding exchange and embedded derivative movement decreased by 24% from £7,582k to £5,751k.

· Following the year end, a further €6.5m loan facility has been agreed to ensure operational financing into 2019.

· Cash burn from operating activities decreased by 20% from £6.9m in 2016 to £5.5m in 2017. Cash flow is our key financial performance target and our objective is to achieve a positive cash flow in the shortest time possible. Current contracts are quoted with up-front payments reducing reliance on working capital as we continue to invest in our manufacturing and development capability.

· The funding project to introduce an automated assembly machine to produce annually up to 5,000 fuel cells was further pursued in 2017 with expected delivery of the machine in Q4 2018. This will further reduce our product cost and will allow us to meet the demand and bring our technology quicker to the market.

· Further standardisation of our product for bespoke CleanTech Power Solutions. This strategy shift has accelerated deployment in our target markets with simplification and cost reduction.

- Ends -

For further information:

Helmut Gierse, Chairman

Roman Kotlarzewski, Group FD Tel: +49 (0) 89 1276265-81

Sebastian Goldner, Director Customer Project Management and Service

Manfred Limbrunner, Director Sales and Marketing www.protonpowersystems.com

Stockdale Securities Limited

Nominated adviser and broker Tel: +44 (0) 20 7601 6100

Antonio Bossi / David Coaten www.stockdalesecurities.com

A copy of the annual report for the year ended 31 December 2017 is available on the company´s website (www.protonpowersystems.com) and has been posted to the shareholders, together with a notice of the annual general meeting to be held at Stockdale Securities Limited, 7th Floor, 100 Wood Street, London, EC2V 7AN at 12.00pm on Friday 8 June 2018.

Chairman's statement

We are pleased to report our results for the year ended 31 December 2017.

Proton Power has made further progress this year in proving its technology, building on our strategic co-operations and our sales pipeline. Further investment in our manufacturing capability has put us in a stronger strategic position to capitalise in the marketplace and to deliver financial performance. We have strengthened our organisation to be able to deliver complete power supply solutions. We add value with our fuel cell expertise and with our system and solution know-how.

Highlights:

· 44% decrease in sales in 2017 to £1,115k compared to 2016 sales of £1,989k. The Group delivered 22 systems in 2016 in connection with the DB Bahnbau Gruppe GmbH contract. The subsequent follow up order from DB Bahnbau Gruppe GmbH was received in August 2017 for a total value of £149k, for delivery in Q2 2018.

· Delivered £0.5m order for Orkney Island "Surf and Turf" stationary power project.

· Operating loss excluding exchange and embedded derivative movement decreased by 24% from £7,582k to £5,751k.

· Following the year end, a further €6.5m loan facility has been agreed to ensure operational financing into 2019.

· Cash burn from operating activities decreased by 20% from £6.9m in 2016 to £5.5m in 2017. Cash flow is our key financial performance target and our objective is to achieve a positive cash flow in the shortest time possible. Current contracts are quoted with up-front payments reducing reliance on working capital as we continue to invest in our manufacturing and development capability.

· The funding project to introduce an automated assembly machine to produce annually up to 5,000 stack modules was further pursued in 2017 with expected delivery of the machine in Q4 2018. This will further reduce our product cost and will allow us to meet the demand and bring our technology quicker to the market.

· Further standardisation of our product for bespoke CleanTech Power Solutions. This strategy shift has accelerated deployment in our target markets with simplification and cost reduction.

Proton Power is playing a crucial part in shaping the Hydrogen World of the future. Its evolution from Magnet Motor Fuel Cell manufacturer to a premium CleanTech Power Solutions service provider is unique.

Proton Power's pioneering spirit results in consistent focus on the future and forms the basis for the powerful forces that will drive the next 100 years of progress and the Hydrogen World of tomorrow and beyond.

View to the future

The world is committed to protecting the environment. Cities and governments, pushed by the European Commission, must reduce inner-city pollution drastically. China fights against smog in its big cities. After Diesel Gate in the US and Europe, electric vehicles with batteries are on the move. All this is generating a market for clean transport and energy. Based on that development, the world market for fuel cell products and solutions is more active than ever.

Beside pure battery solutions, hydrogen fuel cells are in focus. Companies like Toyota, Hyundai, and Daimler are pushing the technology forward. Fuel cells provide benefits such as fast refuelling and long range of operation. Hydrogen is reproducible and can make use of surplus energy from wind and solar power. Europe has put major funding programmes in place to set up a hydrogen infrastructure. The same is now happening in Japan, Korea and China. The Chinese government is fully committed to fuel cell technology with major regulatory and funding support.

Most of the automotive supply industry is now in a change mode from conventional to electric drive trains with batteries and fuel cells. Know-how can be generated in house which will require years of R&D work or can be acquired via M&A.

All this is very promising. Fuel cell know-how has a major value and will be used in mobile as well as stationary power applications. The experts for fuel cell technology are rare. Those expert companies are only a handful of players worldwide.

Proton Power has long lasting experience in applications like buses, trucks, passenger vehicles, stationary power, ships and fork lifts. With less than 100 people it is relatively small but regarding IP and experience a very powerful company. Proton Power is developing its own fuel cell stacks. Systems are designed from first simulation, prototype up to final solution for volume manufacturing. Proton Power is cooperating with German, European and China based companies in the field of fuel cell technology.

The business is organized into three business units - stationary, mobile and maritime.

Stationary fuel cell units can replace diesel generators in telecoms, data centers and eco-houses. Proton Power has a seven-year cooperation agreement with its major customer, DB Bahnbau Gruppe GmbH, to replace old diesel back-up generators used to power track signals when there is disruption to the main power supply. The benefits for the end user are that these new units require less maintenance than the old polluting generators that were prone to algae build-up in the diesel tank, which is causing high maintenance cost. It is also possible to monitor the Proton Power system remotely, which again saves time and manpower.

Mobile applications of the Proton Power technology will be seen in the public transport and logistics arena. Proton Power was the first company to develop a hybrid range extender battery/fuel cell system. This technology permits the usage of both systems in an optimised way with long lifetime expectation. In the meantime, the range extender concept is adopted by the industry especially for heavy duty vehicle applications.

Constantly evolving to stay a decisive step ahead has always formed the basis for Proton Power's thinking and actions as a company. The Company is looking two or three decades into the future and considering today the CleanTech Power Solution concepts of tomorrow.

A changing brand in Stationary, Mobility and Maritime markets.

The Company began as Magnet Motor, opening its factory in 1980. The technology and application roadmap went from the world's first triple hybrid fork lift truck to a fuel cell ship. After that we have developed the triple hybrid Skoda bus in 2008. Containerised power solutions completed the application portfolio. All those applications are powered via our own fuel cell stacks, with a robust design for a long lifetime. The Company established operations close to Munich area and was one of the first German designers and manufacturers of fuel cells. International growth is now planned by looking for good partners with the same vision.

The ongoing "Dieselgate" situation and the COP21 targets present the industry as a whole but in particular the automotive, industry with a huge challenge.

Proton Stationary for businesses and people

This market includes back up power for telecoms and data centre installations which has an estimated value of €8 billion for the European market alone. Buildings are also becoming an interesting growing market as evidenced by the installation of the autonomous ecosystem in Switzerland.

Proton Mobility

This market includes city buses, airport vehicles, trucks, off-road vehicles to fork lift trucks. This market's size is estimated at over €20 billion worldwide. The mobility sector sees many future challenges with emission free to automated driving with the vehicle becoming a power source itself. The FCREEV demonstrator delivered to Magna for the Geneva road show again shows Proton´s capability in the sector.

Proton Maritime

Building on the success with our tourist ship in Hamburg, Proton sells the know-how capability to partners to evolve this market. Proton delivered the first feasibility study for an underwater vessel. Proton, again, clearly demonstrates capability within the technology.

Power Solutions are becoming tailor-made

CleanTech Power Solutions will become more diverse and more flexible. That is why at Proton Power we are making our offering of products and services bespoke to customer requirements based on our standard suite of CleanTech products aimed at each market sector in a scalable modular approach. As power requirements increase our approach allows users to simply add additional modules all controlled from our unique software. This shift towards modular standardisation results in accelerated deployment in our target markets with simplification and cost reduction.

In 2017 the Group initiated a new development program to design the fourth generation of fuel cell systems. The new fourth-generation high efficiency stacks and fuel cell systems will be completed in 2018. The new lighter weight and higher integration single stack modular designs cover power ranges from 2 up to 16 kW steps in the lower power class (PM200) and from 15 to 75 kW in 7.5 kW steps in the upper power class (PM400). Both power classes are available not just for stationary, but also for logistic, automotive, rail and maritime applications.

With these fourth-generation fuel cell stacks and systems the Group has set up strategic partnerships with electrical drive train manufacturers and vehicle OEMs. The systems can be used in combination with a battery to a hybrid drive train for electric driven light duty vehicles or inner city buses. We also expect growing demand in the near future from truck manufacturers for municipality maintenance vehicles. Additionally operation as a Range Extender is possible. A Range Extender is continuously charging the battery based on a hydrogen fuel cell. The benefits are a significant increase in their range of operation and support for air-conditioning or heating devices with zero emissions. The Group has carried out extensive testing in vehicles which proves the benefit of range extension based on the combination of a battery and a fuel cell system.

Also offered are multi stack systems for power demands beyond 100 kW for larger trucks, trains, ships and larger stationary applications.

In 2017, in order to meet the worldwide increase in demand for fuel cell systems, the Group initiated a program to ramp up manufacturing capabilities in order to be able to produce up to 1,000 fuel cells per year. In the second step, an automated fuel cell manufacturing line will be installed by the end of 2018, to increase manufacturing capacity further up to 5,000 fuel cells per year.

Market Drivers

At the November 2015 conference in Paris (COP 21) hosted by the United Nations, 196 countries vowed to take actions designed to limit global warming. Many businesses and corporations have pledged their support for the world effort. This global event engaged a lot of corporate leaders and we believe that neither countries nor companies take these kinds of public pledges lightly. Indeed, on top of polishing their public image, companies are being good citizens of the world when they pitch in with initiatives like reducing greenhouse gas emissions, increasing their use of renewable energy, and being more energy efficient.

Coming out of Paris we now have legislation with targets for countries and businesses which are held accountable to the public. When insurance companies are pricing this into business premiums, CO2 emissions are starting to have an impact on businesses' and economies' profitability. 

From a purely business standpoint, considerations of where and how to build facilities (or alter existing ones) to lessen climate risk have moved up the risk management priority list. Such moves are the main market drivers for Proton Power's CleanTech power solutions and the new Hydrogen world and zero emissions. These market drivers underpin the confidence the Directors and shareholders have in Proton Power's technology to be a real game changer for society.

Finance

Turnover decreased by 44% to £1,115,000 (2016: £1,989,000), mainly due to the delivery of 22 systems under the DB Bahnbau Gruppe GmbH 7 year frame agreement in 2016, whilst the first follow up order from DB Bahnbau Gruppe GmbH in 2017 was not received until August of that year, with delivery anticipated in Q2 2018.

The operating loss for the year was £5,751,000 (2016: £7,582,000) which, when added to net finance costs of £3,127,000 (2016: £2,448,000), the non-cash movement arising from the change in the fair value of the embedded derivative on the shareholder loan of £3,199,000 (2016: £5,799,000) and the exchange loss £1,655,000 (2016: £3,669,000) resulted in a total loss of £13,732,000 (2016: £19,498,000). Excluding the fair value loss on the embedded derivative and the exchange loss, this was in line with management expectations.

The loan funding facility amounting to €28,000,000 in 2017 from Mr Falih Nahab, has been uplifted by a further €6,500,000 in 2018 to a total of €34,500,000.

Cash burn from operating activities decreased by 20% from £6,906,000 in 2016 to £5,537,000 in 2017.

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.

I personally thank all our customers who believe in us, our committed employees and our shareholders who have the vision to invest in our mission.

Consolidated income statement

for the year ended 31 December 2017

Consolidated statement of comprehensive income

for the year ended 31 December 2017

Group and Company balance sheets

as at 31 December 2017

Group and Company statements of changes in equity

for the year ended 31 December 2017

Company statement 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.

Group and Company statements of cash flows

for the year ended 31 December 2017

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.

Directors

The Directors who held office during the year and up to the date of approval of this report were as follows:

Helmut Gierse Chairman2

Sebastian Goldner Director Customer Project Management and Service (appointed 20 February 2018)

Roman Kotlarzewski Group Finance Director and Company Secretary4,6 (appointed 10 August 2017)

Achim Loecher Non-Executive Director (resigned 21 November 2017)

Manfred Limbrunner Director Sales and Marketing5 (appointed 20 February 2018)

Dr. Faiz Nahab Chief Executive1,3

Ian Peden Non-Executive Director (resigned 23 March 2018)

1 Chairman of the Remuneration Committee.

2 Chairman of the Audit Committee.

3 Chairman of the Nominations Committee.

4 Member of the Remuneration Committee.

5 Member of the Audit Committee.

6 Member of the Nominations Committee.

2. Summary of significant accounting policies

The Board approved this announcement on 29 May 2018.

The financial information included in this announcement does not constitute the Group´s statutory accounts for the years ended 31 December 2017 or 31 December 2016. Statutory accounts for the year ended 31 December 2016 have been delivered to Companies House. The statutory accounts for the year ended 31 December 2017 will be delivered to Companies House following the Company´s annual general meeting.

Basis of preparation

These financial statements for the year ended 31 December 2017 have been prepared under the historical cost convention with the exception of embedded derivative financial instruments, which are stated at 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 2016.

The consolidated financial statements of the Group and the financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) as adopted by the European Union and with those parts of the Companies Act 2006 applicable to those companies under IFRS.

The consolidated financial statements and the financial statements of the Company have been prepared under the historical cost convention and in accordance with IFRS interpretations (IFRS IC) except for embedded derivatives which are carried at fair value through the income statement and on the basis that the Group continues to be a going concern.

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 loans with Roundstone of €2.4m and €16.5m. The redemption dates of this loan were extended by Roundstone in April 2017 as follows:

· €2.4m to 31 December 2019

· €16.5m to 31 December 2019

The Group also has a loan facility with Mr. Falih Nahab of €28m, of which €23.25m were drawn down at the year end. This facility is also due for repayment in December 2019.

Cash flow forecasts demonstrate that the committed facilities from Mr Falih Nahab enable the Company and the group to meet its cash requirements for the period up to May 2019. The Company and Group are also able to defer discretionary spend during this period to provide further cash flow headroom, should this be required.

At this point in time there has been no indication of circumstances which would lead to Mr Falih Nahab withdrawing this 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 available financial information, the Directors are unable to confirm that Falih Nahab has 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 Falih Nahab has supported the Group and the Company in recent years and that funding has been agreed by Falih Nahab for at least the next 12 months.

The financial statements do not include the adjustments that would result if the Group or Company was unable to continue as a going concern.

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 12.

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 property, plant and equipment is located in Germany.

Revenue from external customers

Sales to Arcola Energy Ltd represented 41.1% of the Group's revenue in 2017 (2016: Deutsche Bahn 73.6%).

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 (2016: loss) on the fair value of the embedded derivative of £3,199,000 (2016: £5,799,000) and the associated impact on the balance sheet.

5. Loss for the year before tax

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:

There are no staff, or direct wages specific to the Company. Share based payments charge to the non-executive Directors of the Company is £1,000 (2016: £253,000)

Share based payments

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

Details of share options granted during 2017 are disclosed in the Directors' report on page 12. 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 2017 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 15 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 98%, based on expected share price. Risk-free interest rate was determined between 0.640% and 5.125% for the various grants of options. It is assumed that options granted under the SOS have an average remaining life of 5 months (2016:5 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.

8. Tax

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. Finance income

10. Finance costs

11. 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.

12. Intangible assets - Group

Self-developed intangible assets in the amount of £30,000 (2016: £62,000) are recognised in the reporting year, because the prerequisites of IAS 38 have been fulfilled.

Amortisation and impairment charges are recognised within administrative expenses.

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.

The company does not hold any intangible assets.

13. Property, plant and equipment - Group

The company does not hold any property, plant and equipment.

14. Investment in subsidiary undertakings

On 31 October 2006 the Company acquired the entire share capital of Proton Motor Fuel Cell GmbH, a company incorporated in Germany. The cost of investment comprises shares issued to acquire the Company valued at the listing price of 80p per share, together with costs relating to the acquisition and subsequent capital contributions made to the subsidiary.

Following a review of the Company's assets the Board has concluded that there are sufficient grounds for its investment in the subsidiary undertakings to be subject to an impairment review under IAS 36. In arriving at the charge in the year of £6,376,000 (2016: £6,435,000) the Board has determined the recoverable amount on a value in use basis using a discounted cash flow model.

15. Inventories

The cost of goods sold during 2017 is £1,976,000 (2016: £2,568,000). It includes £164,000 impairment loss for slow moving finished goods and goods anticipated to be sold at a loss (2016: £322,000).

16. Trade and other receivables

The Directors consider that the carrying amount of trade and other receivables approximates to their fair values.

In addition some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows:

The Directors consider that trade and other receivables which are not past due or impaired show no risk of requiring impairment.

17. Cash and cash equivalents

The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair values.

18. Trade and other payables

The Directors consider that the carrying amount of trade and other payables approximates to their fair values.

19. Borrowings