Proton Mtr Pwr Regulatory News (PPS)

Proton Power Systems plc

("Proton", "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 2015

Highlights:

· Strategic Partnership signed with Deutsche Bahnbau for stationary power solutions.

· The reduction in sales in 2015 to £684k compared to 2014 sales of £1,411k was due to the phasing of our Siemens order within the year. However, there is clear momentum in our business resulting in increased enquiries and sales pipeline. The Company has won significant orders in the year to add to a current strong order book of £1.8m to be delivered in 2016.

· After the year end we received a £1.3m order for emergency power solutions in outdoor cabinets to be delivered in 2016. This order is the most significant order Proton Power has received in its 21-year history. This will form the basis of future orders providing consistent year on year revenues as the technology rollout program over a 7-year frame contract is realised.

· Operating loss reduced by 26% from £6.2m in 2014 to £4.6m in 2015.

· Following the year end, existing loan agreements have been extended to 2018. A further €10m facility has also been agreed. This together with our secured and planned commercial contracts provides the financial strength for our growth plans. The target is for cash flow positivity by 2018.

· Cash burn from operating activities reduced by 6% from £4.8m in 2014 to £4.5m in 2015. Cashflow 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 capability. The cash burn is expected to further reduce in 2016 due to our high order backlog.

· Involved in over £15m of funding projects to introduce our technology to the market.

· Delivery of fuel cell system for Swiss housing complex.

· Delivery of fuel cell systems to repower LOHC Hydrogen.

· Installation of Proton Motor fuel cell powered electric charging station.

· Standardisation of our product topology which is used in offering bespoke CleanTech Power Solutions. This strategy shift has accelerated deployment in our target markets with simplification and cost reduction.

· Developed very strong relationships with many large multinational companies across Europe and Asia.

· We have strengthened our organisation capability with manufacturing and sales application experts.

Ian Peden, Chairman of Proton Power, commented: "The group has been providing CleanTech Hybrid Fuel Cell solutions for over 20 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 2015 is available from the companies website (www.protonpowersystems.com) and will be posted to shareholders shortly, together with a notice of annual general meeting to be held at 11th Floor, Beaufort House, 15 St Botolph Street, London EC3A 7BB at 11:00 a.m. on 1 June 2016.

Chairman and Deputy CEO's statement

We are pleased to report our results for the year ended 31 December 2015.

Proton Power has made significant progress this year in proven technology, strategic co-operations and building our sales pipeline for a rapid increase in our order book. Further investment in our manufacturing capability has put us in a very strong strategic position to capitalise in the marketplace 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:

· Strategic Partnership signed with Deutsche Bahnbau for stationary power solutions.

· The reduction in sales in 2015 to £684k compared to 2014 sales of £1,411k was due to the phasing of our Siemens order within the year. However, there is clear momentum in our business resulting in increased enquiries and sales pipeline. The Group has won significant orders in the year to add to a current strong order book of £1.8m to be delivered in 2016.

· Received a £1.3m order for emergency power solutions in outdoor cabinets to be delivered in 2016. This order is the most significant order Proton Power has received in its 21-year history. This will form the basis of future orders providing consistent year on year revenues as the technology rollout program over a 7-year frame contract is realised.

· Operating loss reduced by 26% from £6.2m in 2014 to £4.6m in 2015.

· Following the year end, existing loan agreements have been extended to 2018. A further €10m facility has also been agreed. This together with our secured and planned commercial contracts provides the financial strength for our growth plans. The target is for cash flow positivity by 2018.

· Cash burn from operating activities reduced by 6% from £4.8m in 2014 to £4.5m in 2015. Cashflow 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 capability. The cash burn is expected to further reduce in 2016 due to our high order backlog.

· Involved in over £15m of funding projects to introduce our technology to the market.

· Delivery of fuel cell system for Swiss housing complex.

· Delivery of fuel cell systems to repower LOHC Hydrogen.

· Installation of Proton Motor fuel cell powered electric charging station.

· Standardisation of our product topology which is used in offering bespoke CleanTech Power Solutions. This strategy shift has accelerated deployment in our target markets with simplification and cost reduction.

· Developed very strong relationships with many large multinational companies across Europe and Asia.

· We have strengthened our organisation capability with manufacturing and sales application experts.

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

A changing brand in Stationary, Mobility and Maritime markets.

In the expansion, realignment and constant development of its core technologies, Proton Power has consistently demonstrated deep market awareness. Proton Power has survived in the CleanTech Fuel Cell technology business when many companies failed in 2008 following the financial crash. In terms of technology design, Proton Power's CleanTech technology has always remained true to its vision and has driven this innovation forwards into the new hydrogen world. 

The drive for Proton Power to be a global pioneer in the new CleanTech world is being realized.

The Company began as Magnet Motor, opening its factory 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. Containerized 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 in the 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 oil crisis with diesel and now following the COP21 targets presents industry as a whole but in particular the automotive, industry with a huge challenge.

View to the future

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. To find ground-breaking answers, Proton Power is developing a clear vision of the future - a holistic blueprint for a future world of hydrogen focused on businesses, people and their individual power needs.

Energy is becoming emission-free.

The climate is changing, resources are becoming scarcer and more energy is coming from renewable sources.

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.

Mobility

Hydrogen Battery Hybrid zero emission vehicles from emission-free factories. This market includes city buses, airport vehicles, trucks, off-road vehicles to fork lift trucks. This market's size is estimated at over €20 bllion worldwide.

Maritime

Building on our success installing the tourist ship in Hamburg. Sell the know-how capability to partners to evolve this market.

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.

Connectivity is becoming second nature.

Everything will be connected in the future. The digital age continues to drive energy demands in the world. At Proton Power we have developed our technology to remotely monitor power requirements. That is why we are seizing the opportunities of digitalisation and converting data into digital intelligence to permanently improve lives in a CleanTech environment.

Market Drivers

The 2016 edition of the World Economic Forum's annual Global Risks Report lists "failure of climate-change mitigation and adaptation" as the greatest risk facing the world over the next 10 years. That was the collective judgment of 742 surveyed experts and decision makers drawn from business, academia, civil society, and the public sector.

Also, at the November 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.

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 to society.

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. 

Climate change is a probable contributing factor in certain extreme weather events. A report from the American Meteorology Society (AMS) that assessed 2014 weather events identified human-caused climate change as a partial or likely factor in California's wildfires, Argentina's heat wave, droughts in two African areas, and extreme rainfall and heat waves in Europe.

Therefore, CleanTech technology is being prioritised and required to provide zero emission energy solutions to a multi-billion market that is growing year on year. Proton Power is strategically positioned, after more than 20 years in the industry, to win a significant share.

Finance

Turnover decreased by 52% to £684,000 (2014: £1,411,000), due to the phasing of our Siemens order within the year.

The operating loss for the year was £4,565,000 (2014: £6,181,000) which, when added to net finance costs of £1,687,000 (2014: £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 £2,920,000 (2014: £2,696,000) resulted in a total loss of £9,172,000 (2014: £10,138,000). Excluding the fair value loss on the embedded derivative, this was in line with management expectations.

The Group secured further loan funding in 2015 of €7,220,000 from Mr Falih Nahab. It also received grant funding of €109,000 from the German Government.

Cash burn from operating activities reduced by 6% from £4,757,000 in 2014 to £4,452,000 in 2015.

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 2015

Consolidated statement of comprehensive income

for the year ended 31 December 2015

Balance sheets

as at 31 December 2015

Statements of changes in equity

for the year ended 31 December 2015

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 2015

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 2016. The financial information included in this preliminary announcement does not constitute the Group's statutory accounts for the years ended 31 December 2015 or 31 December 2014. Statutory accounts for the year ended 31 December 2014 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2015 will be delivered to the Registrar of Companies following the Company's annual general meeting.

The auditors have reported on the 2015 and 2014 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 2015 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 2015.

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 loans with Roundstone Properties Limited, of €2.4m and €16.5m, which were due for repayment in July 2016 and May 2017. The Group has a €10m loan facility with Mr Falih Nahab, of which €7.2m was drawn down at the year end. This facility was due for repayment in December 2017. The Group is dependent on the continuing financial support of Mr Falih Nahab, a related party of Mr Faiz Nahab to meet its day-to-day working capital requirements. 

The redemption dates of these loans were extended by Roundstone Properties Limited and Mr Falih Nahab in March 2016 as follows:

· €2.4m to 23 June 2018

· €16.5m; €5.6m to 30 September 2018 and €10.9m to 6 May 2018

· €10m to 31 March 2019

A further €10m facility repayable on 31 March 2019 was also agreed with Falih Nahab.

Mr Falih Nahab has indicated that he will continue to provide further support for at least the next 12 months.

After making these and other relevant enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and at least 12 months from the date of this report. For this reason, they have adopted the going concern basis in preparing the financial statements.

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 property, plant and equipment is located in Germany.

Revenue from external customers

Sales to Siemens AG represented 49.5% of the Group's revenue in 2015 (2014: 49.0%).

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 (2014: loss) on the fair value of the embedded derivative of £2,920,000 (2014: £2,696,000) 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:

Share based payments

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

At 31 December 2015 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 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 9 months (2014: 2 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

Details of Directors' remuneration are given in the audited section of the Remuneration report.

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

The Group has no key management other than Directors.

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. 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 £133,000 (2014: £28,000) 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.

Amortisation and impairment charges are recognised within administrative expenses.

11. Property, plant and equipment - Group

12. Investment in subsidiary undertaking