Final Results

Embargoed Release: 07:00hrs Thursday 15th March 2007 Zenergy Power plc (`Zenergy' or the `Group') Preliminary Results for the Period from 15 July 2005 to 31 December 2006 Report from the Chairman of the Board It is with great pleasure that I present my first report on the Group since our successful flotation on the AIM market in August 2006. The period ended 31 December 2006 ("the Period") was a defining one for the Group which now comprises three of the world's leading high-temperature superconductor ("HTS") entities spanning Europe, North America and Australia. Throughout the Period, we met and surpassed our development milestones. We gained increasing commercial interest in our solutions and products from a range of industries looking to benefit from the economic advantages afforded by our technology through the better use of existing energy supplies, the creation of renewable energy sources and the development of more efficient intensive industrial processes. Overview The successful creation and consolidation of the Group The enlarged group of Zenergy Power plc has been created through the opportunistic consolidation of three pioneers in the field of high-temperature superconductivity. Following its initial acquisition of Germany based Trithor GmbH (`Trithor') in 2005, Zenergy moved swiftly to purchase SC Power Systems, Inc. (`SC Power') in the USA, together with its wholly owned subsidiary Australian Superconductors Pty Limited (`Australian Superconductors') in the first half of 2006. This amalgamation was achieved with great success and with a level of harmonious efficiency only conferred in instances where the merging assets are highly complementary and the end market opportunities so sizable. As a consequence, the Group owns and employs a powerful portfolio of proprietary patents for HTS materials, products and related industrial processes. 2006 was a year in which we successfully consolidated our global base and positioned the Group to expeditiously become a leading participant in the burgeoning worldwide market for highly energy efficient HTS materials, products and industrial solutions. High-Temperature Superconductors Commercial interest in superconductive materials derives from their unique capability to conduct electricity without any electrical resistance enabling the creation of a new class of electrical products and equipment that are highly energy efficient, lightweight and compact when compared with their copper based equivalents. Moreover, these products are capable of reducing the levels of waste and carbon emissions associated with the production, use and transfer of electrical energy. First discovered in 1911 in what was to prove to be one of the most significant scientific breakthroughs of the 20th century, superconductive materials, are often considered to be the fibre optics of electrical power. Since their initial discovery however, two major factors have prevented the widespread deployment of superconductive materials: 1. their need to be operated at prohibitively low temperatures; and 2. the lack of availability of low-cost industrial production processes. The first of these factors was addressed in 1987 with the development of a new breed of materials known as high-temperature superconductors ("HTS"). These new materials (`1st Generation') displayed the same resistance free conductive properties as standard 'low temperature materials' but could be operated at far higher temperatures similar to that of liquid nitrogen - a relatively inexpensive, safe and commonly available cryogen. This discovery substantially altered the economics for the use and adoption of superconductive materials, which became operable using standard conduction cooling technologies whilst still delivering power densities of over 100 times that of copper and with substantially reduced energy losses. Nonetheless, the 1st Generation of HTS materials remained inherently more expensive than copper and, whilst adaptable to high-value applications, has not enjoyed habitual commercial recognition. Two of the Group's subsidiaries, Australian Superconductors and Trithor, have historically operated using this 1st Generation HTS material, concentrating on developing groundbreaking products, industrial applications and environmental solutions. It is the intention of the Group however, to progressively incorporate the next generation of cheaper ("2nd Generation") HTS materials in its range of current commercial applications as and when such materials become available. Merged to expedite the development of this 2nd Generation of low cost HTS materials, capable of production on a mass scale, the Group has been developing its own proprietary lower-cost production techniques which we believe to be commercially advantageous over alternative processes being developed by other industry participants. Furthermore, it is the firm belief of the Board that the processes being developed by the Group's combined research teams will yield a 2nd Generation of HTS materials that will be made available to the mass market at a cost which is significantly lower than that of copper. We have to date invested over €40m into the research and development of our proprietary technologies and the Group is debt free. Positioning for future markets whilst generating near-term revenues Accordingly, during the Period we continued to generate commercial revenues from our products and solutions utilising 1st Generation materials, whilst furthering the development of our own 2nd Generation materials in readiness for mass adoption across a wider range of products and industries. The Group sees continued demand for applications and products employing 1st Generation materials as a result of their energy efficiency, weight and power density benefits. Nonetheless we believe that our lower cost 2nd Generation materials once available, will lead to mass adoption and commercialisation of HTS materials across a wide range of industries and applications. Consequently, the availability of 2nd Generation materials will have significant implications for the efficiency of the production, employment and distribution of electrical energy on a global basis. Conectus Consortium estimated in June 2002 that the global market for superconductor products is projected to grow to near US $5 billion by the year 2010 and to US $38 billion by 2020. Developing an enduring customer base and products We believe that the Group's advanced development of new low-cost production processes for 2nd Generation materials will give us cost and scalability advantages over alternative methods currently employed by other industry participants. With respect to industrial applications for such materials, we have conscientiously concentrated our efforts on responding directly to the demands of large consumers of electrical power for efficient, compact, environmentally friendly and cost effective energy products. Our efforts continue to converge on specific products and solutions in which the Group companies have a recognised dominion of expertise. During the Period, and in association with a number of our collaborators and potential customers, we made considerable progress on maturation of each of our fault current limiter, wind power generators, hydro power generators, induction heaters and linear motor projects. For this purpose, we have relied upon the relationships individually and historically forged by Trithor, SC Power and Australian Superconductors with a number of manufacturing, utility and power companies. These relationships, which have taken a number of years to nurture, have proven to be strong and enduring. In this regard, I am pleased to report that, to address the product needs of these potential customers, the synergistic and other related benefits which accrued from the consolidation of the Group companies cannot be overstated. Ground Breaking Hydro Power Project During the Period, and following an extensive collaboration, E.ON Wasserkraft GmbH elected to install the world's first high-temperature superconductor hydro-generator in its commercial hydroelectric power station based at Hirshaid in Bavaria, Germany. The development and installation of the 1.25MW hydro-generator, which is to be part funded by the European Commission, is expected to improve the economic return of renewable energy production by significantly increasing the generator's electrical efficiency. Zenergy's proprietary HTS materials and processes are at the core of the hydro-generator making it capable of energy conversion at efficiency levels in excess of 98%. The projected cost of the overall development and installation is set to be € 3.44 million, of which the European Commission is providing €1.85 million. Research and development Zenergy has been developing its own proprietary 2nd Generation low-cost mass production techniques over a period of many years. In October 2006, SC Power entered into a co-operative research and development agreement with Sandia National Laboratories (`SNL') which is jointly funded by the U.S. Department of Energy, and is projected to cost approximately $800,000. The project will focus on accelerating the development of advanced mass-production techniques for the Group's 2nd Generation materials. The support from the U.S. Department of Energy is demonstrative of the social, economic and environmental significance of the Group's research work. During the Period we were delighted to be chosen as the overall winner of the 2006 Frost & Sullivan European Product Innovation of the Year Award for our research and development work in the field of HTS materials. This prestigious award was gained in recognition of our innovative, advanced 2nd Generation materials for electrical power and magnet applications. The Board considers this to be of particular significance at a time when the Group is gaining encouraging commercial interest for these applications within the field of renewable energy production. Summary of Research Staff and our Patent Portfolio Zenergy has a leading research and development team boasting more than 21 employees with PhDs or advanced degrees, based in three countries and a patent portfolio comprising 18 patents and over 45 patent applications based on 20 patent families. Outlook The first months of 2007 have been auspicious for the HTS market as a whole as the benefits of the increased energy efficiency of HTS materials gained further credence. The Group's continuing research and development work forges successfully towards commercialisation and our patent portfolio continues to be strengthened. We believe that the demand for HTS materials and solutions will continue to grow as 2nd Generation materials become more widely recognised and are able to demonstrate their compelling cost and energy saving efficiencies. We continue to assess our market place for companies which possess potential synergistic or strategic value for our current product offerings, and will consider further acquisition opportunities which offer similar synergistic benefits to those already successfully integrated into the Group. 2007 Development Milestones To date we have constructed a global entity made up of worldwide experts in the field of superconductivity. Together they have been successful in accelerating our combined research and development programme with the specific aim of bringing to market commercial products in the shortest time possible. As a Group we remain commercially focused and in the coming year expect to achieve a number of technical milestones in the development of our products which - for the purposes of guidance - I detail below:- 1) Induction Heater: Construction and Test of an HTS Induction Heater leading to a launch product sale in Q3 2007; 2) Fault Current Limiter: Construction of a Distribution Voltage HTS Fault Current Limiter to be delivered and tested with a major national utility by Q4 2007; and 3) 2G HTS wire: A 10m all chemical 2G HTS wire delivered by Q4 2007. Appreciation The Period has been one of significant achievement for the Group which would not have been possible without the complete dedication and commitment of all of our employees. On behalf of the Board of Directors, I thank them sincerely for their extraordinary and continued efforts. I would also like to thank our shareholders for their continued support. I look forward to the Group fulfilling its objectives in the next year. Michael Fitzgerald Chairman 15 March 2007 Further information: Dr. Jens Müller Zenergy Power Plc + 49 22 26 90 60 200 Andrew Tan Hansard Group + 44 207 245 1100 www.hansardgroup.co.uk Preliminary Results for the period 15 July 2005 to 31 December 2006 Consolidated income statement for period ended 31 December 2006 Statutory Non statutory Non statutory reporting reporting reporting period period period Period 15 Year ended 31 Period 15 July 2005 to December July to 31 31 December December 2006 2006 2005 €000 €000 €000 Revenue 475 119 356 Cost of sales (370) (107) (263) Gross profit 105 12 93 Other operating income 709 667 42 Distribution expenses (667) (471) (196) Administrative expenses: - Equity settled share-based payment (542) (542) - expenses - Other admin expenses (1,831) (1,511) (320) Administrative expenses (2,373) (2,053) (320) Research & development expenses (2,716) (2,219) (497) Operating loss (4,942) (4,064) (878) Financial income 48 47 1 Financial expenses (40) (39) (1) Net financing costs 8 8 - Loss before tax (4,934) (4,056) (878) Taxation 12 12 - Loss for the period attributable to (4,922) (4,044) (878) equity holders of the Parent Earnings per share (Euros) Basic and fully diluted loss per (0.34) (0.21) (0.13) share Consolidated statement of recognised income and expense for period ended 31 December 2006 Statutory Non Non reporting statutory statutory period reporting reporting period period Period 15 Year ended Period 15 July 2005 to 31 December July to 31 31 December December 2006 2006 2005 €000 €000 €000 Foreign exchange translation (47) (47) - differences Net income recognised directly in (47) (47) - equity Loss for the period (4,922) (4,044) (878) Total recognised income and expense (4,969) (4,091) (878) Total recognised income and expense for (4,969) (4,091) (878) the period is attributable to the equity holders of the parent Consolidated balance sheet at 31 December Statutory Non statutory reporting reporting period period 2006 2005 €000 €000 Non-current assets Property, plant and equipment 1,155 750 Goodwill 1,415 170 Other intangible assets 2,122 45 4,692 965 Current assets Inventories 123 72 Trade and other receivables 532 352 Cash and cash equivalents 2,722 475 3,377 899 Total assets 8,069 1,864 Current liabilities Other interest-bearing loans and borrowings - (448) Trade and other payables (1,168) (293) (1,168) (741) Non current liabilities Deferred tax liabilities (750) - Total liabilities (1,918) (741) Net assets 6,151 1,123 Equity attributable to equity holders of the parent Share capital 532 1 Share premium 10,046 - Translation reserve (47) - Warrant reserve 200 - Capital and other reserves - 2,000 Retained earnings (4,580) (878) Total equity attributable to shareholders 6,151 1,123 Consolidated cash flow statement for period ended 31 December 2006 Statutory Non Non reporting statutory statutory period reporting reporting period period Period 15 Year ended Period 15 July 2005 to 31 December July to 31 31 December 2006 December 2006 2005 €000 €000 €000 Cash flows from operating activities Loss for the period (4,942) (4,064) (878) Adjustments for: Depreciation, amortisation and impairment 418 334 84 Foreign exchange losses (4) (4) - Financial income 48 47 1 Financial expense (15) (14) (1) Equity settled share-based payment 542 542 - expenses Taxation (1) (1) - Operating loss before changes in working (3,954) (3,160) (794) capital and provisions Increase in trade and other receivables (418) (98) (320) Increase in stock (13) (51) 38 Increase in trade and other payables 1,071 869 202 Net cash from operating activities (3,314) (2,440) (874) Cash flows from investing activities Acquisition of subsidiary, net of cash (501) (501) - acquired Acquisition of a business (1,025) - (1,025) Acquisition of property, plant and (643) (585) (58) equipment Development expenditure capitalised and (134) (118) (16) other intangible assets acquired Net cash from investing activities (2,303) (1,204) (1,099) Cash flows from financing activities Proceeds from the issue of share capital 1 - 1 Proceeds from the issue of loan notes 9,200 7,200 2,000 Listing expenses (858) (858) - Proceeds from new loan 447 - 447 Repayment of borrowings (448) (448) - Net cash from financing activities 8,342 5,894 2,448 Net increase in cash and cash equivalents 2,725 2,250 475 Cash and cash equivalents at start of - 475 - period Effect of exchange rate fluctuations on (3) (3) - cash held Cash and cash equivalents at 31 December 2,722 2,722 475 Notes Acquisitions of subsidiaries and businesses Acquisition of subsidiaries On 1 June 2006 Zenergy Power acquired SC Power Systems, Inc. (`SC Power'). SC Power was formed in 2004 to acquire the underlying business known as Australian Superconductors from Metal Manufacturers Limited. SC Power was owned by Jane Capital Partners, LLC (32,500 shares) Metal Manufacturers Limited (32,500 shares) and Woody Gibson (10,000 shares). On 7 December 2005 Metal Manufacturers shares were repurchased by SC Power and held in treasury stock. The repurchase was funded by a loan from Cloverleaf Holdings Limited of $560,000. Zenergy Power acquired 42,500 shares in SC Power in exchange for 28,111 Ordinary Shares credited as paid up to €63 per share. The remaining 32,500 shares in SC Power are held in treasury by SC Power. SC Power is effectively a wholly owned subsidiary of Zenergy Power. SC Power has a wholly owned subsidiary Australian Superconductors Pty Limited (`Australian Superconductors'). 23,867 of the Ordinary Shares issued were allotted to the former shareholders of SC Power. The remaining 4,244 shares were allotted to Cloverleaf Holdings Limited. These shares were allotted in recognition of the increase in value of SC Power since the date of the original loan provided by Cloverleaf Holdings Limited. In a separate private transaction, Cloverleaf Holdings Limited allotted the 4,244 shares by way of a call option to certain key management in Trithor GmbH. In the period to 31 December 2006 the subsidiaries contributed a net loss of € 1,140,000 to the consolidated net loss for the period. If the acquisition had occurred at the start of the period the net loss would have been €1,912,000. Effect of acquisitions The acquisitions had the following effect on the Group's assets and liabilities. Acquiree's Fair value Acquisition book adjustments amounts values €000 €000 €000 Acquiree's net assets at the acquisition date: Property, plant and equipment 183 - 183 Patents and Trademarks - 818 818 Development rights 1,247 1,247 Trade and other receivables 11 - 11 Cash and cash equivalents 286 - 286 Trade and other payables (13) - (13) Deferred tax liability - (785) (785) Net identifiable assets and liabilities 467 1,280 1,747 Goodwill on acquisition 1,276 Total consideration 3,023 Consideration paid in shares 2,236 Consideration satisfied in cash (Including 787 legal fees of €61,000) Cash (acquired) (286) Net cash outflow 501 Consideration paid in shares includes: 28,111 shares credited as paid up to €63 per share, €1,771,000 and €465,000 Series B loan notes issued in consideration for the loan provided by Cloverleaf Holdings Limited to enable SC Power to repurchase its own shares, Series B loan notes. Goodwill has arisen on the acquisition because the employees transferred were considered to be valuable to the Group for development of future intellectual property and customer relationships. A deferred tax liability at the US effective tax rate of 38% has been recognised in respect of the intangible assets, as the tax base of these assets is nil. Acquisition of businesses On 28 July 2005 the Company acquired an off the shelf company Johanna 55 Vermögensverwaltungsgellschaft mbH now renamed Trithor GmbH, with paid up share capital of €25,000. On 1 August 2005, Trithor GmbH acquired all the assets in `Original' Trithor GmbH a company engaged in superconducting technology and research activities for €1,086,000. The consideration was satisfied in cash; subsequently €61,000 was refunded from the liquidator as a net payment for trade and other receivables, advance customer payments and provisions for EU project funding. In the period from 15 July to 31 December 2006 the business contributed a net loss of €3,277,000 to the consolidated net loss for the period. (€2,433,000 in the year ended 31 December 2006 and €844,000 in the five months to December 2005). Effect of acquisition The acquisition had the following effect on the Group's assets and liabilities. Acquiree's Fair value Acquisition book amounts values adjustments €000 €000 €000 Acquiree's net assets at the acquisition date: Property, plant and equipment 2,947 (2,171) 776 Intangible assets 254 (224) 30 Inventories 149 (39) 110 Trade and other receivables 32 - 32 Advance customer payments (54) - (54) Provision for EU project funding (39) - (39) Net identifiable assets and liabilities 3,289 (2,434) 855 Goodwill on acquisition 170 Total consideration paid (Including legal 1,025 fees of €Nil) satisfied in cash Net cash outflow 1,025 Goodwill has arisen on the acquisition because the employees transferred were considered to be valuable to the Group for development of future intellectual property and customer relationships. Earnings per share Basic earnings per share The calculation of basic earnings per share at 31 December 2006 was based on the loss attributable to ordinary shareholders of €4,922,000 (Year ended 31 December 2006: €4,044,000, period 15 July to 31 December 2005: €878,000) and a weighted average number of Ordinary Shares outstanding during the period of 15,408,000 (Year ended 31 December 2006 19,493,000, period 15 July 2005 to 31 December 2005: 6,541,000), calculated as follows: Statutory Non statutory Non reporting reporting statutory period period reporting period Period 15 July Year ended 31 Period 15 2005 to 31 December July to 31 December 2006 December 2006 2005 Thousand of shares Issued ordinary shares at start of 38 41 32 period Shares issued in respect of the 11 16 - acquisition of SCP Effect of the 199:1 bonus issue on 7 9,844 11,351 6,509 August 2006 Effect of Series A loan notes 2,467 3,616 - Effect of Series B loan notes 364 534 - Effect of Series C loan notes 1,974 2,893 - Effect of Series D loan notes 710 1,042 - Weighted average number of ordinary 15,408 19,493 6,541 shares at 31 December Diluted earnings per share Share options and warrants have not been included in the calculation of fully diluted earnings per share since these are anti-dilutive. The instruments that could potentially dilute the basic earnings per share in the future, but were not included because they were antidilutive for the periods presented are: Statutory Non reporting statutory period reporting period 2006 2005 Thousand of shares Warrants in respect of the working capital facility 160 - from Cloverleaf Holdings Limited (issued 16 August 2006) Share options (issued on various dates from 1 March 1,320 - 2006 to 27 September 2006) Total potential dilutive instruments 1,480 - Basis of preparation The financial information set out in this preliminary results announcement does not constitute the Company's statutory accounts for the period 15 July 2005 to 31 December 2006 but is derived from those accounts. Those accounts have been prepared in accordance with International Financial Reporting Standards as adopted by the EU. In addition to the statutory reporting period the directors have elected to present results for the period from 15 July 2005 to 31 December 2005 and the year ended 31 December 2006, as the results for the period from 15 July 2005 to 31 December 2005 were previously included in the AIM Admission document, dated 16 August 2006. This announcement was approved by a Committee of the Board of Directors on 14 March 2007. Statutory accounts for the period 15 July 2005 to 31 December 2006 will be delivered to the registrar of companies following the Company's Annual General Meeting. The auditors have reported on those accounts; their report was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. -Ends- About Zenergy Group plc Zenergy Power plc is a global specialist manufacturer and developer of commercial applications for superconductive materials. Comprising three operating subsidiaries located in Germany (Trithor), USA (SC Power Systems) and Australia (Australian Superconductors), Zenergy is developing a number of energy efficient applications to be adopted in renewable energy power generation, energy distribution and large scale, energy intensive industrial processes. About superconductivity Superconductive materials are capable of conducting electricity without any resistance and were first discovered in 1911 in what was to prove to be one of the most significant scientific breakthroughs of the 20th century. The global HTS market is substantial and growing, with a number of market studies projecting multi-billion dollar markets for the application of HTS materials and products. The proliferation of the use of superconductor materials is largely being driven by the following key factors: (a) HTS materials are highly complementary to energy efficient technologies as a substitute for copper (b) HTS wires have power densities of over 100x that of copper (c) Current developments are leading to substantially reduced costs in the production of HTS wires and are targeting to be cheaper than copper over the next few years. (d) HTS applications deliver exceptional energy efficiencies and thus reduced power consumption and running costs (e) HTS technology is set to play a significant role in reducing CO2 emissions in line with international targets (f) HTS applications are capable of delivering vastly increased levels of power with increased reliability and reduced material usage
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