Proton Mtr Pwr Regulatory News (PPS)

Proton Power Systems plc

("Proton" or the "Company")

Final results for the year 2018

Proton Power Systems plc (AIM: PPS), the designer, developer and producer of fuel cells and fuel cell electric hybrid systems with zero carbon footprint, announces its results for the year ended 31 December 2018.

Highlights:

· Completion of the generation four stack module.

· Ramping up manufacturing capabilities in order to be able to produce up to 1,000 fuel cells per year.

· The funding project to introduce an automated assembly machine to produce annually up to 5,000 fuel cells was further pursued in 2018 with expected delivery of the machine in Q2 2019. This will further reduce our product cost and will allow us to meet increasing demand and bring our technology quicker to the market.

· Strengthening our organisation capability within the areas of manufacturing and sales applications.

· In Q2 2018 delivery a fuel cell system for the backup power supply on a railway switching station. These fuel cell systems were designed according to the specification of German Rail (Deutsche Bahn), securing the technology approval of the German Rail Authority (Eisenbahn Bundesamt).

· In Q4 2018 Proton Power signed a joint venture agreement to establish Clean Logistics GmbH, a company registered in Hamburg, Germany, which has the objective of building heavy duty trucks purely run on fuel cell hybrid systems, using hydrogen fuel cells in the range of 75 - 150kW. Proton owns 33.33% of the share capital of Clean Logistics. This Joint Venture will focus on the development, design, construction and sale of heavy duty trucks driven by emission free fuel cell hybrid systems. For that purpose, the Joint Venture applied for financial aid from the German federal programmes of alternative fuels and clean transportation to take the Joint Venture through its prototype development stage during 2019 and is seeking additional funding to be used to support orders of up to 1,000 vehicles by the end of 2021. Proton Power is providing its new Generation 4 fuel cell for inclusion in the trucks but does not have any material financial commitments to the Joint Venture.

· In Q1 2019 Proton Power and Skoda Electric a.s. in the Czech Republic signed a letter of intent with the objective of entering into a cooperation to develop, sell and service fuel cell electric buses using Proton's modular HyRange® systems. The first prototype buses shall be brought into operation for European bus operators with an initial target of at least 10 vehicles by the first quarter of 2020.

· In Q1 2019 Proton Power received a confirmed order from ebe EUROPA in Memmingen, Germany, for 15 hydrogen powered fuel cells of 60kW of generating capacity each. The ultimate customers are four city councils in Germany (Frankfurt am Main, Mainz, Muenster and Wiesbaden). The total value of the order is EUR 4.1 million, with secured payment conditions including a further eight years warranty. It is expected that the 15 fuel cells will be delivered within the 12 months from April 2019.

· In May 2019 Proton Power received a confirmed order for a value of €630K to provide a 150kw fuel cell package. This is to participate in a project in line with the Paris agreement to reduce CO2 emission through the use of renewable energies for production of hydrogen and the providing of further power through Hydrogen Fuel cells, in order to avoid overloading the power grid.

· Inspite of the sales decrease the operating loss, excluding interest, foreign exchange and non-cash embedded derivative movements, was reduced by 13% from £5,751k to £5,015k, as the result of cost discipline in line with budget monitoring.

· Following the year end, a further €6.62m loan facility has been agreed to ensure operational financing into 2020.

- Ends -

For further information:

A copy of the annual report for the year ended 31 December 2018 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 7 June 2019.

Chairman's statement

We are pleased to report our results for the year ended 31 December 2018.

Overview:

Proton Power Systems plc ("Proton Power") has made further progress this year in proving its technology, building on its strategic co-operations and 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. A marked strengthening of industry and consumer demand for alternative sources of energy has been evident in the period under review. Proton Power´s technology offer is maturing to be commensurate with this demand and is in line with the continuing commercialisation process of the group. This is further evidenced by the substantial order intake in Q1 2019, whilst the potential sales order pipeline is strong as at the date of this report, with Proton Power submitting tender bids for potential order values of a magnitude higher than that received in Q1 2019.

Highlights:

· Completion of the generation four stack module.

· Ramping up manufacturing capabilities in order to be able to produce up to 1,000 fuel cells per year.

· The funding project to introduce an automated assembly machine to produce annually up to 5,000 fuel cells was further pursued in 2018 with expected delivery of the machine in Q2 2019. This will further reduce our product cost and will allow us to meet increasing demand and bring our technology quicker to the market.

· Strengthening our organisation capability within the areas of manufacturing and sales applications.

· In Q2 2018 delivery a fuel cell system for the backup power supply on a railway switching station. These fuel cell systems were designed according to the specification of German Rail (Deutsche Bahn), securing the technology approval of the German Rail Authority (Eisenbahn Bundesamt).

· In Q4 2018 Proton Power signed a joint venture agreement to establish Clean Logistics GmbH, a company registered in Hamburg, Germany, which has the objective of building heavy duty trucks purely run on fuel cell hybrid systems, using hydrogen fuel cells in the range of 75 - 150kW. Proton owns 33.33% of the share capital of Clean Logistics. This Joint Venture will focus on the development, design, construction and sale of heavy duty trucks driven by emission free fuel cell hybrid systems. For that purpose, the Joint Venture applied for financial aid from the German federal programmes of alternative fuels and clean transportation to take the Joint Venture through its prototype development stage during 2019 and is seeking additional funding to be used to support orders of up to 1,000 vehicles by the end of 2021. Proton Power is providing its new Generation 4 fuel cell for inclusion in the trucks but does not have any material financial commitments to the Joint Venture.

· In Q1 2019 Proton Power and Skoda Electric a.s. in the Czech Republic signed a letter of intent with the objective of entering into a cooperation to develop, sell and service fuel cell electric buses using Proton's modular HyRange® systems. The first prototype buses shall be brought into operation for European bus operators with an initial target of at least 10 vehicles by the first quarter of 2020.

· In Q1 2019 Proton Power received a confirmed order from ebe EUROPA in Memmingen, Germany, for 15 hydrogen powered fuel cells of 60kW of generating capacity each. The ultimate customers are four city councils in Germany (Frankfurt am Main, Mainz, Muenster and Wiesbaden). The total value of the order is EUR 4.1 million, with secured payment conditions including a further eight years warranty. It is expected that the 15 fuel cells will be delivered within the 12 months from April 2019.

· In May 2019 Proton Power received a confirmed order for a value of €630K to provide a 150kw fuel cell package. This is to participate in a project in line with the Paris agreement to reduce CO2 emission through the use of renewable energies for production of hydrogen and the providing of further power through Hydrogen Fuel cells, in order to avoid overloading the power grid.

· Inspite of the sales decrease the operating loss, excluding interest, foreign exchange and non-cash embedded derivative movements, was reduced by 13% from £5,751k to £5,015k, as the result of cost discipline in line with budget monitoring.

· Following the year end, a further €6.62m loan facility has been agreed to ensure operational financing into 2020.

Board and Governance:

The Proton Power group Board is functioning well and interacting effectively with executive management contributing a good balance of skills and experience. The corporate governance framework which the group operates, including board leadership and effectiveness, board remuneration, and internal control is based upon practices which the board believes are proportionate to the size, risks, complexity and operations of the business and is reflective of the group's values. Of the two widely recognised formal codes, the Board decided in 2018 to adhere to the Quoted Companies Alliance's (QCA) Corporate Governance Code ("QCA Code") for small and mid-size quoted companies (revised in April 2018 to meet the new requirements of AIM Rule 26). Within the context of Corporate and social responsibility the Group has a continuing commitment to act ethically, to comply with all relevant regulations, and to contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. This is continuously monitored by the Executive Management and evaluated annually by the Chairman, as it is regarded that motivated and committed staff members will provide maximum value to the Group´s activities.

Finance:

· A 26% decrease in sales in 2018 to £822k compared to 2017 sales of £1,115k. Sales in 2018 include the follow up order from Deutsche Bahnbau, received in August 2017 for a total value of £178k, which was delivered in Q2 2018.

· Inspite of the sales decrease the operating loss, excluding interest, foreign exchange and non-cash embedded derivative movements, was reduced by 13% from £5,751k to £5,015k, as the result of cost discipline in line with budget monitoring.

· Following the year end, a further €6.62m loan facility has been agreed to ensure operational financing into 2020.

· Cash burn from operating activities increased by 5% to a level of £5.8m in 2018, from £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.

Outlook

In the year ahead we are focused on progressing the maturity of the group technology offer, ramping up production capacity and exploiting the current potential sales pipeline. The current outlook at the end of 2018 looking into 2019 is more optimistic than that as prevalent at the end of 2017.

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

Consolidated income statement

for the year ended 31 December 2018

Consolidated statement of comprehensive income

for the year ended 31 December 2018

Group and Company balance sheets

as at 31 December 2018

Group and Company statements of changes in equity

for the year ended 31 December 2018

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.

Group and Company statements of cash flows 

for the year ended 31 December 2018

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 in England and Wales, 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:

Dr. Faiz Nahab Chief Executive1,3

Helmut Gierse Chairman2

Sebastian Goldner Chief Technical Officer and Chief Operations Officer (appointed 20 February 2018)

Roman Kotlarzewski Chief Financial Officer and Company Secretary4,6

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

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 7 May 2019. The financial information included in this announcement does not constitute the Group´s statutory accounts for the years ended 31 December 2018 or 31 December 2017. Statutory accounts for the year ended 31 December 2017 have been delivered to Companies House. The statutory accounts for the year ended 31 December 2018 will be delivered to Companies House following the Company´s annual general meeting.

Basis of preparation

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

On 8 April 2019 it was announced that Roundstone Properties Ltd, a company controlled by the Nahab family, has transferred all its 596,279,682 shares held in Proton Power Systems plc to SFN Cleantech Investment Ltd. Additionally Roundstone Properties Ltd has transferred to SFN Cleantech Investment Ltd all loans receivable from the Company. As both entities Roundstone Properties Ltd and SFN Cleantech Investment Ltd are controlled by the Nahab family, there has been, therefore, no change in ultimate control.

The Group also has a loan facility with Mr. Falih Nahab of €34.5m, of which €30.3m were drawn down at the year end. Subsequent to the 2018 year end it was agreed that this loan facility would be increased by a further €6.6m to €41.1m.

The repayment date for all loans is to be extended to 31 December 2020. As such the loans are held as non-current borrowings in the financial statements.

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 June 2020. 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 instruments

The 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.

The 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.

Determining residual values and useful economic lives of intangible fixed assets and property, plant & equipment

The Group depreciates property, plant & equipment and amortises intangible fixed assets over their estimated useful lives. The estimation of the useful lives of assets is based on historic performance as well as expectations about future use and therefore requires estimates and assumptions to be applied by management.

Judgement is applied by management when determining the residual values of property, plant & equipment and intangible fixed assets. When determining the residual value management aim to assess the amount that the Group would currently obtain for the disposal of the asset, if it were already of the condition expected at the end of its useful economic life.

The carrying amount of group intangible fixed assets at the reporting date was £72k (2017: £89k) and the carrying amount of group property, plant & equipment at the reporting date was £1,203k (2017: £1,048k).

Inventory provisions

In accordance with IAS 2 the Group regularly reviews its inventory to ensure it is carried at the lower of cost or net realisable value. The management constantly reviews slow moving and obsolete items arising from changes in the product mix demanded by customers, reductions in overall volumes, supplier failures and strategic resourcing decisions. Obsolescence provisions are calculated based on current market values and future sales of inventories. If this review identifies significant levels of obsolete inventory, this obsolescence is charged to the income statement as an impairment. The total inventory provision included in the balance sheet at the reporting date was £167k (2017: £350k).

Share-based payments

Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

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 Deutsche Bahn Baugruppe and Devinn s.r.o. represented 40.0% of the Group's revenue in 2018 (2017: Arcola Energy Ltd 41.1%).

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 (2017: loss) on the fair value of the embedded derivative of £19,891,207 (2017: £3,199,000) 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 (2017: £1,000)

Share based payments

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

No share options were granted during 2018 as disclosed in the Directors' report on page 12.

At 31 December 2018 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 (2017:5 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 £29,000 (2017: £30,000) 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