Final Results
Ceres Power Holdings plc
30 September 2005
30 September 2005
Ceres Power Holdings plc
('Ceres' or 'the Company')
Preliminary Results for the year ended 30 June 2005
Operational highlights
Over the last year, the Group has been transformed, building on its leading
technology to become a well capitalised, AIM quoted company. It has established
key relationships with major corporations to access channels to market for
global energy opportunities.
Recent highlights include:
• Key relationships announced with British Gas and BOC.
• Recognised as a leader in low carbon technology by the UK Government.
• Admission to AIM, raising £15 million (after expenses) with high-quality
institutional support.
• £17 million in cash and short term investments at 30 June 2005.
• Operating cash outflow of £2.63 million.
• First commercial revenues generated.
• Patent granted in the US for core materials technology.
• Capability extended from cell to stack and end-user products.
• Cell power output for commercial application achieved two years ahead of
expectations.
• Manufacturing facility established for pilot scale production.
• Grant funded programmes with the DTI and Carbon Trust successfully
completed.
Chairman's Statement
Business Evolution
The year to June 2005 marked a major step in the development of Ceres Power, and
a transformation from its research and development roots to a business focused
on delivering finished products to market.
The Group's Admission to the Alternative Investment Market (AIM) of the London
Stock Exchange in November 2004 was of particular importance. Equally crucial
have been the series of technological breakthroughs, and the relationships built
with global corporations providing channels to market. Ceres Power now has the
technological excellence and the market opportunities to progress with
confidence.
The Admission to AIM attracted a significant number of prestigious institutions
which provided £15 million of funding after expenses. Whilst operations have
expanded and investment in technological development has continued, that funding
has remained untouched. There is a determination to keep costs tightly under
control, while investing in the required capabilities to secure and build
revenues.
We have transformed the Group into a dynamic business focused on product
engineering, commercial engagement and manufacturing. High quality staff have
been, and will continue to be, recruited to sustain this transformation.
The Group's robust financial position has assisted development of the business
in several important respects. Supply chain partnerships have been developed to
accelerate product commercialisation. Design and manufacturing capabilities have
been extended from individual fuel cells to stacks and products for market
applications. We have continued to invest in first-class resources to drive the
next phase of our business growth, and ensure the value of Ceres technology is
maximised.
Continued technical progress has demonstrated the tremendous market potential of
the unique Ceres Power fuel cell technology. A stream of technical innovations
has strengthened the Group's portfolio of intellectual property (IP), bolstered
its global business position, and attracted significant interest from potential
partners for a range of market applications.
The technical leadership of the Group has enabled the development of key
relationships with major corporations including British Gas and BOC. Under the
agreement with British Gas, announced since the year end, we have agreed to work
towards commercialisation of a natural gas fed combined heat and power (CHP)
unit incorporating a Ceres Power fuel cell system for the UK residential market.
Following successful completion of feasibility trials in September 2005, a
second phase of collaboration with BOC was announced to develop products for
specific off-grid applications fuelled by liquefied petroleum gas (LPG).
Ceres Power has completed several grant funded programmes from the Department of
Trade and Industry (DTI) and the Carbon Trust, achieving all defined milestones.
Work is now underway on two major new contracts, awarded by the DTI, to support
the development of core technology. Significantly, commercial revenues are now
being generated from product development contracts targeting specific market
applications.
Financial
Income for the year ended 30 June 2005 totalled £945,000, of which interest on
cash balances provided £508,000, income from grants was £366,000, and revenue
from development contracts was £71,000. In comparison, income during the 11
month period to 30 June 2004 was £492,000, reflecting a 92% increase during the
past year.
As the Group has grown, operating costs have risen by 67% from £2.15 million to
£3.59 million, in turn increasing the loss for the year to £2.65 million from
£1.66 million in the period to 30 June 2004. The physical expansion of the Group
into the adjoining facility has increased both establishment costs and the
depreciation charge associated with the investment in additional equipment. The
recruitment of additional highly qualified and experienced personnel to support
rapid growth has also led to increased costs.
Capital expenditure of £467,000, for facilities and equipment, has increased the
Group's in-house capacity and capability for product design and testing, and
enabled manufacturing process scale-up to commence.
The Group's liquidity position is strong with more than £17 million in cash and
short-term investments at 30 June 2005. The cash outflow from operating
activities during the year was £2.63 million, (excluding the fundraising at the
time of Admission to AIM) with cash outflows attributable to capital expenditure
totaling £338,000. There were cash inflows of £312,000 from the exercise of
share options and warrants in addition to cash inflows from development
contracts, government grants and interest income. With net funds of £14.6
million (after all related expenditure) from the placing, net cash inflow for
the year was £12.5 million.
Recognition
During the year, the Group received external endorsement of its leading position
from the fuel cell industry, government and the financial community. The Prime
Minister, Tony Blair, cited Ceres Power as 'a world leader' in his landmark
Climate Change speech. In a nationwide competition in 2003, Ceres Power won the
inaugural Carbon Trust award for being the company with the best low-carbon
innovation and the greatest commercial potential. The award of the Institute of
Materials, Minerals and Mining 2005 Gold Medal for 'industrial application of
its materials technology' placed Ceres Power alongside Airbus and Qinetiq as
previous winners. Such recognition has been important in securing key commercial
relationships, government support, and the backing of leading financial
institutions.
Intellectual Property
The Group places great emphasis on the expansion and protection of its portfolio
of intellectual property in order to defend its unique position, build brand
value, and extract greater financial returns from market development
opportunities. The grant of the core materials technology patent in the US,
unaltered and unopposed, having already been granted in the UK, is indicative of
the uniqueness and strength of Ceres technology. Further patent applications
have been granted and filed and others are being prepared, as are a number of
trademarks.
People
Ceres Power is built on the solid foundations of world-leading materials
technology and innovation. From its inception, the Group has been well
capitalised, driven by a strong commercial focus, and led by a highly motivated,
multidisciplinary management team. Andrew Baker has recently been appointed
Operations Director; he brings a wealth of experience in transforming innovative
technology into world-leading products within related global industries.
The very significant enhancements to the Group's product engineering and
manufacturing capabilities during the past year have positioned it for the next
steps towards mass-market commercial success.
Every one of our employees is a stakeholder in the business with a shareholding
and/or share options. I would like to thank all of them for the important
contributions that they have made and I am sure will continue to make to our
exciting progress.
Philip Holbeche
Chairman
Chief Executive's Review
Historical Overview
In the four years since Ceres Power was founded, we have successfully built on
its world-class technology to become a commercially focused, product company
based on a strong intellectual property portfolio. In the past year key
milestones have been achieved. Commercial revenues have been generated, the
Group's facilities have doubled in size, and high-profile endorsements from the
City, government and our industry partners have been received. This has been a
very good year for Ceres Power.
Strategy
The Group's strategy is to establish a series of specific relationships, each
with a defined market application and geographical focus, in a way that
maximises global commercial potential. A series of complementary relationships
are being developed with major corporations with direct access to well
established channels to end-users for Ceres Power products. The recently
announced business development partnerships with British Gas and BOC are
examples of this approach.
Ceres Power is a fuel cell systems business with world-leading core technology.
It has established strong in-house product engineering and systems integration
capabilities along with a network of external relationships with 'balance of
plant' component suppliers.
The Group's intended supply chain partnerships with volume manufacturers should
ensure the commercial availability of raw materials and components, and provide
the product assembly, distribution, installation and service capabilities
required for mass-market uptake.
Revenues should continue to grow through project-based product development
contracts for target market applications, as well as through scalable component
and sub-system manufacturing activities. In this way, the Group retains control
over the core fuel cell elements which are extremely IP-rich and likely to
command high and sustainable margins. Licensing and/or joint venture models may
also be employed by the Group, as appropriate, to exploit specific fields of use
where there is a clear business advantage in adopting these approaches.
Health, Safety and Environmental Management
Group operations have rapidly expanded over the past year with the hiring of
additional staff, commissioning of new facilities and acceleration of the pace
of development. There has been a corresponding emphasis on operational
excellence. We have rigorously implemented procedures to minimise potential
health and safety risks and impact on the working environment.
The systematic implementation of risk assessments, training programmes, and
operational procedures resulted in an exemplary health and safety record. I am
pleased to report that there have been no incidents resulting in serious
personal injuries, damage to assets, or adverse impact upon the wider community.
As we continue our rapid growth, the safety and well-being of our employees will
remain our first priority.
Operating Performance
A strong record of on-time and on-budget delivery of milestones for internal
development, government contracts and commercial partnerships has been
established, based on a technology road map guided by a clear understanding of
market requirements. This carefully managed approach will continue to be adopted
to grow the Group's business in line with evolving capabilities.
The Group has invested heavily across the business to establish a world-class
set of core capabilities, facilities and equipment. These investments have
enabled the recruitment of high calibre staff in core product development areas
and manufacturing, as well as key account management. We shall continue to place
great emphasis on design for manufacturing in order to reduce time-to-market and
achieve demanding product quality, cost, and delivery targets for internal
developments and commercial contracts.
As a result of an aggressive and successful technical development plan, key
objectives have been achieved during the past year, some well ahead of schedule.
Significant milestones have included:
• commercial engagement to develop products for mass-market
applications;
• first revenue generating commercial contracts successfully completed;
• pilot-scale fuel cell manufacturing facility officially opened;
• fuel cell size and power output for commercial application achieved
well ahead of expectations;
• robust stack design demonstrated; and
• multi-fuel capability established for propane, natural gas and
hydrogen.
Outlook
Building on a solid financial position and established market channel
relationships, the Group will now focus on the following areas:
• expanding and strengthening the Group's intellectual property
portfolio;
• increasing the throughput from volume cell and stack manufacturing
processes;
• designing, assembling and testing complete fuel cell products,
together with sustaining progress on cell and stack developments;
• progressing commercial engagements throughout the value chain;
• building the senior management team across key functions; and
• successfully delivering on current development contracts and securing
new engagements.
The growing international concerns regarding energy security, environmental
issues and competitiveness reinforce the positive business outlook for the
Group. It is ideally placed to exploit its unique technology and satisfy the
increasing demands for alternative energy solutions.
Over the past year the Group has enjoyed some very significant successes. I look
forward to reporting during the course of the year on developments and progress.
Peter Bance
Chief Executive Officer
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 June 2005
11 month
Year ended 30 period ended
June 2005 30 June 2004
Unaudited Audited
Note £'000 £'000
Turnover 71 -
Research and development costs (2,324) (1,455)
Administrative expenses (1,272) (699)
Other operating income 366 382
Operating loss (3,159) (1,772)
Interest receivable and similar income 508 110
Loss on ordinary activities before taxation (2,651) (1,662)
Tax on loss on ordinary activities - -
Loss for the financial year / period 6 (2,651) (1,662)
Loss per £0.05 ordinary share
- basic and diluted 3 (5.28)p (3.98)p
CONSOLIDATED BALANCE SHEET
as at 30 June 2005
2005 2004
Unaudited Audited
£'000 £'000
Note
Fixed assets
Tangible assets 1,302 1,181
Current assets
Debtors: amounts falling due after more than one
year 53 53
Debtors: amounts falling due within one year 263 194
Short term investments 15,600 4,400
Cash at bank and in hand 1,444 191
17,360 4,838
Creditors: amounts falling due within one year (471) (108)
Net current assets 16,889 4,730
Total assets less current liabilities 18,191 5,911
Creditors: amounts falling due after more than one
year (10) (14)
Net assets 18,181 5,897
Capital and reserves
Called up share capital 4 2,804 2,088
Share premium account 14,199 -
Merger reserve 7,463 7,463
Profit and loss account (6,285) (3,654)
Equity shareholders' funds 6 18,181 5,897
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2005
11 month
Year ended 30 period ended
June 2005 30 June 2004
Unaudited Audited
Note £'000 £'000
Net cash outflow from operating activities 5 (2,629) (1,673)
Returns on investments and servicing of finance
Interest received 508 110
Net cash inflow from returns on investments and servicing of 508 110
finance
Taxation - 172
Capital expenditure
Purchase of tangible fixed assets (338) (664)
Net cash outflow for capital expenditure (338) (664)
Net cash outflow before use of liquid resources and financing (2,459) (2,055)
Management of liquid resources
Increase in short-term deposits with banks (11,200) (3,400)
Financing
Issue of ordinary share capital 16,312 5,633
Expenses of share issue (1,400) (147)
Net cash inflow from financing 14,912 5,486
Increase in net cash 1,253 31
Reconciliation to net funds
Opening net funds 4,591 1,160
Increase in net cash 1,253 31
Movement in short term deposits 11,200 3,400
Closing net funds 17,044 4,591
Notes to the preliminary announcement
1. Basis of preparation
These preliminary results do not constitute statutory financial statements
within the meaning of Section 240 of the Companies Act 1985.
Results for the year ended 30 June 2005 have not been audited. The results for
the eleven month period to 30 June 2004 have been extracted from the statutory
financial statements of Ceres Power Limited that have been filed with the
Registrar of Companies and upon which the auditors reported without
qualification. The statutory accounts and audit report for the year ended 30
June 2005 have not yet been signed by the directors or the auditors
respectively.
2. Principal accounting policies
These preliminary results for the year ended 30 June 2005 have been prepared in
accordance with the accounting policies set out in the statutory financial
statements of Ceres Power Limited for the eleven month period ended 30 June
2004. The following additional accounting policies are applicable to the
preliminary results for the year ended 30 June 2005:
(a) Basis of consolidation
The consolidated financial statements of Ceres Power Holdings plc have been
presented under merger accounting rules. This means that the financial
statements of Ceres Power Holdings plc and its wholly owned subsidiary, Ceres
Power Limited, have been aggregated and presented as if the two companies have
always formed a group. Accordingly, although Ceres Power Holdings plc acquired
the entire issued share capital of Ceres Power Limited on 3 September 2004, the
results for both companies are reflected in the group financial statements for
the year ended 30 June 2005 and the comparative amounts are presented on the
same basis.
Intra-group transactions, profits / losses and balances are eliminated in full
on consolidation.
(b) Turnover
Revenue, which excludes value added tax and other sales taxes, represents the
invoiced value of services supplied. Amounts received or receivable under
development agreements are recognised as revenue when earned. Amounts received
or receivable in respect of milestone payments under agreements are recognised
as revenue when the specific conditions in the agreement have been met. All
costs relating to these development programmes are recorded as research and
development expenditure. As revenue represents contributions towards costs
incurred, no amounts have been allocated to cost of sales.
3. Loss per share
Basic and diluted loss per £0.05 ordinary share are calculated by dividing the
loss for the financial year / period attributable to ordinary shareholders by
the weighted average number of ordinary shares in issue during the year /
period.
The loss for the financial year ended 30 June 2005 is £2,650,602 (2004:
£1,661,863) and the weighted average number of £0.05 ordinary shares in issue
during the year ended 30 June 2005 is 50,232,830 (2004: 41,763,060).
The comparative figures have been restated to reflect the sub-division of shares
which took place on 13 July 2004, whereby each issued ordinary share of £1 was
sub-divided into 20 ordinary shares of £0.05 each. For the purpose of
calculating the loss per share, and in accordance with merger accounting
principles, the 41,763,040 ordinary shares of £0.05 each issued by the Company
to acquire Ceres Power Limited on 3 September 2004 are deemed to have been in
issue throughout the current and prior financial periods.
4. Called up share capital
2005 2004
Unaudited Audited
Number £'000 Number £'000
Authorised
Ordinary shares of £0.05 each 100,000,000 5,000 - -
Allotted, called up and not paid
Ordinary shares of £0.05 each 4,000 - - -
Allotted, called up and fully paid
Ordinary shares of £0.05 each 56,072,293 2,804 41,763,040 2,088
56,076,293 2,804 41,763,040 2,088
The Company was incorporated on 8 July 2004 with an authorised share capital of
£1,000 comprising 1,000 ordinary shares of £1 each. One ordinary share was
allotted nil paid on incorporation. As the Company was not incorporated as at 1
July 2004, no comparatives have been shown for authorised share capital.
On 13 July 2004, the Company sub-divided its existing issued and authorised
share capital into ordinary shares of £0.05 each and increased its authorised
share capital by 99,980,000 ordinary shares of £0.05 each.
On 3 September 2004, the Company issued 41,763,040 ordinary shares of £0.05 each
to the shareholders of Ceres Power Limited in consideration for the transfer to
the Company of the entire issued share capital in Ceres Power Limited. The
allotted, called up and fully paid share capital at 30 June 2004 represents the
shares issued by the Company to acquire Ceres Power Limited, which has been
recognised under the principles of merger accounting.
On 25 November 2004, the Company issued 13,333,333 ordinary shares of £0.05 each
on Admission to the Alternative Investment Market of the London Stock Exchange
for cash consideration of £16,000,000 (before issue expenses of £1,399,801).
Between 2 December 2004 and 27 June 2005, 819,113 ordinary shares of £0.05 each
were issued on the exercise of employee share options for cash consideration of
£248,931. An amount of £2,400 remained unpaid at 30 June 2005.
On 28 January 2005, the Company issued 500 ordinary shares of £0.05 each on the
exercise of warrants for cash consideration of £350.
On 11 March 2005, the Company issued 160,287 ordinary shares of £0.05 each on
the exercise of warrants for cash consideration of £65,397.
5. Net cash outflow from operating activities
Reconciliation of operating loss to net cash outflow from operating activities:
Year ended 30 11 month
June 2005 period ended
30 June 2004
Unaudited Audited
£'000 £'000
Operating loss (3,159) (1,772)
Depreciation charge (net of loss on disposals) 346 155
Share option compensation charge 20 26
(Increase) in debtors (67) (153)
Increase in creditors 231 71
Net cash outflow from operating activities (2,629) (1,673)
6. Reconciliation of movements in shareholders' funds
2005 2004
Unaudited Audited
£'000 £'000
Loss for the financial year / period (2,651) (1,662)
Proceeds of issue of ordinary share capital 16,315 5,633
Share issue costs (1,400) (147)
Share option compensation charge 20 26
Net change in shareholders' funds 12,284 3,850
Opening shareholders' funds 5,897 2,047
Closing shareholders' funds 18,181 5,897
Opening shareholders' funds of £5,897,000 relate to Ceres Power Limited and are
included in the Group's reserves under merger accounting principles.
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