Final Results

RNS Number : 6706G

Proton Power Systems PLC

31 May 2017

 

   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 2016

Highlights:

● + 191% increase in sales in 2016 to £1,989k compared to 2015 sales of £684k. There is clear

    momentum in our business with a resulting increase in enquiries and the sales pipeline. The

    Group has delivered the orders in the year and also the opening order book of £0.5m to be

    delivered in Q1 2017.

● Strategic Partnership with Deutsche Bahnbau for stationary power solutions to deliver

    22 systems to the market in year 1.

● Won £0.5m order for Orkney Island "Surf and Turf" stationary power project.

● Delivered the FCREEV to Magna Steyr for demonstration at the Geneva Road Show.

● Operating loss increases by 42% to £7,582k following further investment in manufacturing

    and development capabilities.

● Following the year end, existing loan agreements have been extended to 2019. A further

    €8m facility has also been agreed. This together with our secured and planned commercial

    contracts provide the financial strength for our growth plans. The target is for cash flow

    positivity by 2019.

● Cash burn from operating activities increased by 53% from £4.5m in 2015 to £6.9m in 2016.

    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

    capability. The cash burn is expected to reduce in 2017 as we deliver on our order backlog.

● Won the funding project to introduce an automated assembly machine to produce 8,000

    systems in one shift. This will further reduce our product cost and will allow us to meet the

    demand and bring our technology quicker to the market.

● Delivery of fuel cell eco-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 for 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.

-     Ends   -

For further information:

Proton Power Systems plc

Dr Faiz Nahab, CEO

Achim Loecher, FD                              Tel: [phone]

Ian Peden, Chairman                           Tel: [phone]

www.protonpowersystems.com

Stockdale Securities Limited

Nominated adviser and broker                       Tel.: [phone]

Antonio Bossi / David Coaten                         www.stockdalesecurities.com

A copy of the annual report for the year ended 31 December 2016 is available from

the company´s 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 27 June 2017.

Chairman and Deputy CEO's statement

We are pleased to report our results for the year ended 31 December 2016.

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:

·      + 191% increase in sales in 2016 to £1,989k compared to 2015 sales of £684k. There is clear momentum in our business with a resulting increase in enquiries and the sales pipeline. The Group has delivered the orders in the year and also the opening order book of £0.5m to be delivered in Q1 2017.

·      Strategic Partnership with Deutsche Bahnbau for stationary power solutions to deliver 22 systems to the market in year 1.

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

·      Delivered the FCREEV to Magna Steyr for demonstration at the Geneva Road Show.

·      Operating loss increases by 42% to £7,582k following further investment in manufacturing and development capabilities.

·      Following the year end, existing loan agreements have been extended to 2019. A further €8m 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 2019.

·      Cash burn from operating activities increased by 53% from £4.5m in 2015 to £6.9m in 2016. 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 reduce in 2017 as we deliver on our order backlog.

·      Won the funding project to introduce an automated assembly machine to produce 8,000 systems in one shift. This will further reduce our product cost and will allow us to meet the demand and bring our technology quicker to the market.

·      Delivery of fuel cell eco-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 for 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.

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.

View to the future

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

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

Most of the automotive supply industry is now in a change mode from conventional to electric drive trains with batteries and fuel cells. Know-how can be generated in house which will require years of R&D work or can be acquired via M&A. The current time pressure does not allow long lasting R&D projects.

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

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

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

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

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

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

A changing brand in Stationary, Mobility and Maritime markets.

The Company began as Magnet Motor, opening its factory in 1980. The technology and application roadmap went from the world's first triple hybrid fork lift truck to a fuel cell ship. After that we 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.

Proton Stationary for businesses and people

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

Proton 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 billion worldwide. The mobility sector sees many future challenges with emission free to automated driving with the vehicle becoming a power source itself. The FCREEV demonstrator delivered to Magna for the Geneva road show again shows Proton Power's capability in the sector.

Proton Maritime

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

Power Solutions are becoming tailor-made

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

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

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

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

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

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 increased by 191% to £1,989,000 (2015: £684,000), mainly due to the delivery of 22 systems under the Deutsche Bahnbau 7 year frame agreement.

The operating loss for the year was £7,582,000 which, when added to net finance costs of £6,117,000 and the non-cash loss arising from the change in the fair value of the embedded derivative on the shareholder loans of £5,799,000 resulted in a total loss of £19,498,000. Excluding the fair value loss on the embedded derivative and the exchange loss, this was in line with management expectations.

The Group secured further loan funding in 2016 of €10,000,000 from Mr Falih Nahab, with a further €8,000,000 agreed in 2017.

Cash burn from operating activities increased by 55% from £4,452,000 in 2015 to £6,906,000 in 2016.

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.

Ian Peden FCMA Executive Chairman & Deputy Chief Executive Officer

Consolidated income statement

for the year ended 31 December 2016

	Note		2016		2015 (Restated)
			£'000		£'000
Revenue	4		1,989		684
Cost of sales			(4,094)		(1,182)
Gross loss			(2,105)		(498)
Other operating income			113		79
Administrative expenses			(5,590)		(4,926)
Operating loss			(7,582)		(5,345)
Finance income	9		2		788
Finance costs	10		(6,119)		(1,695)
Fair value loss on embedded derivatives			(5,799)		(2,920)
Loss for the year before tax	5		(19,498)		(9,172)
Tax	8		-		-
Loss for the year after tax			(19,498)		(9,172)
Loss per share (expressed as pence per share)
Basic	11		(3.0)		(1.4)
Diluted	11		(3.0)		(1.4)

Consolidated statement of comprehensive income

for the year ended 31 December 2016

						2016				2015
						£'000				£'000
Loss for the year						(19,498)				(9,172)
Other comprehensive income / (expense)
Items that may not be reclassified to profit and loss
Exchange differences on translating foreign operations						(122)				28
Total other comprehensive  income / (expense)						(122)				28
Total comprehensive expense for the year						(19,620)				(9,144)
Attributable to owners of the parent						(19,620)				(9,144)

Group and Company Balance sheets

as at 31 December 2016

			Group		Company
	Note	2016	2015	2016	2015
		£'000	£'000	£'000	£'000
Assets
Non-current assets
Intangible assets	12	125	129	-	-
Property, plant and equipment	13	941	778	-	-
Investment in subsidiary undertakings	14	-	-	-	-
		1,066	907	-	-
Current assets
Inventories	15	1,043	692	-	-
Trade and other receivables	16	381	296	111	75
Cash and cash equivalents	17	2,467	614	17	2
		3,891	1,602	128	77
Total assets		4,957	2,509	128	77
Liabilities
Current liabilities
Trade and other payables	18	2,172	1,480	240	181
Borrowings	19	2,662	2,084	7	1,757
		4,834	3,564	247	1,938
Non-current liabilities
Borrowings	19	35,813	21,104	35,813	21,104
Embedded derivatives on convertible interest	20	15,341	9,542	15,341	9,542
		51,154	30,646	51,154	30,646
Total liabilities		55,988	34,210	51,401	32,584
Net liabilities		(51,031)	(31,701)	(51,273)	(32,507)
Equity
Equity attributable to equity holders of the parent Company
Share capital	22	9,712	9,708	9,712	9,708
Share premium		18,346	18,334	18,346	18,334
Merger reserve		15,656	15,656	15,656	15,656
Reverse acquisition reserve		(13,862)	(13,862)		-
Share option reserve		1,518	1,244	1,518	1,244
Foreign translation reserve		6,569	6,102	-	-
Capital contributions reserves		1,161	1,002	-	-
Accumulated losses
At 1 January 2016		(69,885)	(60,300)	(77,449)	(68,148)
Loss for the year attributable to the owners		(19,498)	(9,172)	(19,056)	(9,301)
Other changes in retained earnings		(748)	(413)	-	-
Total equity		(51,031)	(31,701)	(51,273)	(32,507)

Group statement of changes in equity

for the year ended 31 December 2016

	Share Capital	Share Premium	Merger Reserve	Reverse Acquisition Reserve	Share Option Reserve	Foreign Translation Reserve	Capital Contribution Reserves	Accumulated Losses	Total Equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2015	9,695	18,298	15,656	(13,862)	971	5,598	1,065	(60,300)	(22,879)
Share based payments	-	-	-	-	273	-	-	-	273
Proceeds from share issues	13	36	-	-	-	-	-	-	49
Currency translation differences	-	-	-	-	-	476	(63)	(413)	-
Transactions with owners	13	36	-	-	273	476	(63)	(413)	322
Loss for the year	-	-	-	-	-	-	-	(9,172)	(9,172)
Other comprehensive income:
Currency translation differences	-	-	-	-	-	28	-	-	28
Total comprehensive income for the year	-	-	-	-	-	28	-	(9,172)	(9,144)
Balance at 31 December 2015	9,708	18,334	15,656	(13,862)	1,244	6,102	1,002	(69,885)	(31,701)
Balance at 1 January 2016	9,708	18,334	15,656	(13,862)	1,244	6,102	1,002	(69,885)	(31,701)
Share based payments	-	-	-	-	274	-	-	-	274
Proceeds from share issues	4	12	-	-	-	-	-	-	16
Currency translation differences	-	-	-	-	-	589	159	(748)	-
Transactions with owners	4	12	-	-	274	589	159	(748)	290
Loss for the year	-	-	-	-	-	-	-	(19,498)	(19,498)
Other comprehensive income:
Currency translation differences	-	-	-	-	-	(122)	-	-	(122)
Total comprehensive income for the year	-	-	-	-	-	(122)	-	(19,498)	(19,620)
Balance at 31 December 20165	9,712	18,346	15,656	(13,862)	1,518	6,569	1,161	(90,131)	(51,031)

Company statement of changes in equity 

	Share Capital	Share Premium	Merger Reserve	Share Option Reserve	Accumulated Losses	Total Equity
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2015	9,695	18,298	15,656	971	(68,148)	(23,528)
Proceeds from share issues	13	36	-	-	-	49
Share based payments	-	-	-	273	-	273
Transactions with owners	13	36	-	273	-	322
Loss for the year	-	-	-	-	(9,301)	(9,301)
Total comprehensive expense for the year	-	-	-	-	(9,301)	(9,301)
Balance at 31 December 2015	9,708	18,334	15,656	1,244	(77,449)	(32,507)
Balance at 1 January 2016	9,708	18,334	15,656	1,244	(77,449)	(32,507)
Proceeds from share issues	4	12	-	-	-	16
Share based payments	-	-	-	274	-	274
Transactions with owners	4	12	-	274	-	290
Loss for the year	-	-	-	-	(19,056)	(19,056)
Total comprehensive expense for the year	-	-	-	-	(19,056)	(19,056)
Balance at 31 December 2016	9,712	18,346	15,656	1,518	(96,505)	(51,273)

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 2016

			Group		Company
		Year ended 31 December		Year ended 31 December
		2016	2015	2016	2015
		£'000	£'000	£'000	£'000
Cash flows from operating activities
Loss for the year		(19,498)	(9,172)	(19,056)	(9,301)
Adjustments for:
Depreciation and amortisation		282	238	-	-
Impairment of investment		-	-	6,435	5,165
Interest income		(2)	(8)	(28)	(22)
Interest expense		2,450	1,695	2,445	1,692
Share based payments		290	273	195	273
Movement in inventories		(351)	(380)	-	-
Movement in trade and other receivables		(85)	45	(36)	28
Movement in trade and other payables		692	776	59	10
Movement in fair value of embedded derivatives		5,799	2,920	5,799	2,920
Effect of foreign exchange rates		3,517	(839)	4,043	(873)
Net cash (used in) / generated from operations		(6,906)	(4,452)	(144)	(108)
Interest paid		-	-	-	-
Net cash (used in) / generated from operating activities		(6,906)	(4,452)	(144)	(108)
Cash flows from investing activities
Capital contribution to subsidiaries		-	-	(6,435)	(5,165)
Purchase of intangible assets		(62)	(91)	-	-
Purchase of property, plant and equipment		(236)	(360)	-	-
Interest received		2	8	-	22
Net cash used in investing activities		(296)	(443)	(6,435)	(5,143)
Cash flows from financing activities
Proceeds from issue of loan instruments		8,947	5,245	6,578	5,245
Proceeds from issue of new shares		16	8	16	8
Net cash generated from financing activities		8,963	5,253	6,594	5,253
Net increase/(decrease) in cash and cash equivalents		1,761	358	15	2
Effect of foreign exchange rates		172	(4)	-	-
Opening cash and cash equivalents		534	180	2	-
Closing cash and cash equivalents		2,467	534	17	2

Notes to the financial statements

1.             General information

Proton Power Systems plc ("the Company") and its subsidiaries (together "the Group") design, develop, manufacture and test fuel cells and fuel cell hybrid systems as well as the related technical components. The Group's design, research and development and production facilities are located in Germany.

The Company is a public limited liability company incorporated and domiciled in the UK. The address of its registered office is: St Ann's Wharf, 112 Quayside, Newcastle upon Tyne, NE1 3DX. The Company's initial public offering took place at the Alternative Investment Market of the London Stock Exchange on 31 October 2006 and its shares are listed on this exchange.

Directors

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

as follows:

Ian Peden FCMA Chairman 2,3,4 (has relinquished the role of Deputy CEO from 1 June 2017 but will continue to act as chairman of the Company)

Faiz Nahab Chief Executive 1,6

Thomas Melczer Business Development Director6 (resigned 2 August 2016)

Achim Loecher Non-Executive Director (resigned as Group Finance Director and became

Non-Executive Director on 2 August 2016) 5

Helmut Gierse Non-Executive Director 5

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 preliminary announcement on 30 May 2017.

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

The auditors have reported on the 2016 and 2015 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 2016 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 to meet its day-to-day working capital requirements. The Group has a loan with Roundstone Properties of €16,500,000. The redemption dates of this loan were extended by Roundstone Properties Limited 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

On 20 April 2017 it was agreed with Roundstone Properties Limited that repayment of these loans be extended to 31 December 2019.

On 7 April 2016 the Group replaced its €10m loan facility with Mr Falih Nahab with a new loan facility of €20m with Mr Falih Nahab. As at 31 December 2016, €15,760,000 had been drawn on this facility. The  redemption date of this loan was December 2018, however, subsequent to the year end it was also agreed that this loan facility would be increased by a further €8m to €28m.

On 20 April 2017 it was agreed with Mr Falih Nahab that repayment of these loans be extended to 31 December 2019.

Cash flow forecasts demonstrate that the committed facilities from Mr Falih Nahab enable the Company and the Group to meet its cash requirements for the period up to July 2018. 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.

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

	2016	2015
	£'000	£'000
Germany	1,769	472
Rest of Europe	120	121
Rest of the world	100	91
	1,989	684

Sales to Deutsche Bahn represented 73.6% of the Group's revenue in 2016 (2015: Siemens AG 49.5%).

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 (2015: loss) on the fair value of the embedded derivative of £5,799,000 (2015: £2,920,000) and the associated impact on the balance sheet.

5.             Loss for the year before tax

	2016	2015
	£'000	£'000
Loss on ordinary activities before taxation is stated
after charging
Depreciation and amortisation	282	238
Hire of other assets - operating leases	281	223
Pension contributions	73	68
Change in fair value of embedded derivatives	5,799	2,920
Foreign exchange losses	3,778	-
after crediting
Foreign exchange gains	-	(752)
Amortisation of grants from public bodies	(22)	(98)

 

6.             Auditors' remuneration

	2016	2015
	£'000	£'000
Audit services
Fees payable to the Company's auditor for the audit of the parent Company and consolidated financial statements	41	40
Fees payable to the Company's auditor and its associates for other services:
Other services	-	-
	41	40

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:

	2016	2015
Development and construction	56	48
Administration and sales	23	28
	79	76

The aggregate payroll costs of these persons were as follows:

				Group
			2016	2015
			£'000	£'000
Wages and salaries			3,716	2,802
Share based payments			274	273
Social security costs			643	515
Other pension costs			73	68
			4,706	3,658

There are no staff, or direct wages specific to the Company. Share based payments charge to the non-executive Directors of the Company is £230,000 (2015: £135,000)

Share based payments

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

		Group		Company
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Share options	274	273	194	139
Shares	16	41	16	41
	290	314	210	180

The cost of these options to the Group is being charged over a two year period from the date of grant at which point they become exercisable.

At 31 December 2016 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:

	2016		2015
	Number	Weighted average exercise price	Number	Weighted average exercise price
		£		£
Opening balance	81,245,000	0.049	63,285,000	0.043
Granted	-	-	19,800,000	0.068
Exercised	-	-	(300,000)	(0.030)
Forfeited	(3,555,000)	(0.081)	(1,540,000)	(0.038)
Closing balance	77,690,000	0.048	81,245,000	0.049

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 5 months (2015: 9 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:

	2016	2015
	£'000	£'000
Tax reconciliation
Loss before tax	(19,498)	(9,172)
Expected tax credit at 20% (2015: 20.25%)	(3,900)	(1,857)
Effects of different tax rates on foreign subsidiaries	(589)	(399)
Expenses not deductible for tax purposes	1,650	900
Tax losses carried forward	2,839	1,356
Tax charge	-	-

9.             Finance income

				Group
			2016	2015
			£'000	£'000
Interest			2	8
Exchange gain on shareholder loans			-	780
			2	788

10.           Finance costs

				Group
			2016	2015
			£'000	£'000
Interest			2,450	1,695
Exchange loss on shareholder loans			3,669	-
			6,119	1,695

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.

	2016		2015
	Basic	Diluted	Basic	Diluted
	£'000	£'000	£'000	£'000
Loss attributable to equity holders of the Company	(19,498)	(19,498)	(9,172)	(9,172)
Weighted average number of Ordinary shares in issue (thousands)	643,250	643,250	642,377	642,377
Effect of dilutive potential Ordinary shares from  share options and convertible debt (thousands)	-	-	-	-
Adjusted weighted average number of Ordinary shares	643,250	643,250	642,377	642,377
	Pence per share	Pence per share	Pence per share	Pence per share
Loss per share (pence per share)	(3.0)	(3.0)	(1.4)	(1.4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12.           Intangible assets - Group

	Goodwill	Copyrights, trademarks and other intellectual property rights	Development costs	Total
	£'000	£'000	£'000	£'000
Cost
At 1 January 2015	2,126	265	1,275	3,666
Exchange differences	-	(16)	(68)	(84)
Additions	-	91	-	91
Transfers	-	42	-	42
Disposals	-	(130)	(108)	(238)
At 31 December 2015	2,126	252	1,099	3,477
At 1 January 2016	2,126	252	1,099	3,477
Exchange differences	-	43	174	217
Additions	-	62	-	62
Transfers	-	-	-	-
Disposals	-	-	-	-
		-
At 31 December 2016	2,126	357	1,273	3,756
Accumulated Amortisation
At 1 January 2015	2,126	205	1,271	3,602
Exchange differences	-	(18)	(68)	(86)
Charged in year	-	65	-	65
Disposals	-	(125)	(108)	(233)
At 31 December 2015	2,126	127	1,095	3,348
At 1 January 2016	2,126	127	1,095	3,348
Exchange differences	-	24	174	198
Charged in year	-	81	4	85
Disposals	-	-	-	-
At 31 December 2016	2,126	232	1,273	3,631
Net book value
At 31 December 2016	-	125	-	125
At 31 December 2015	-	125	4	129
At 1 January 2015	-	60	4	64

 

Self-developed intangible assets in the amount of £62,000 (2015: £133,000) 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.

13.           Property, plant and equipment - Group

	Leasehold property improvements	Technical equipment & machinery	Office & other equipment	Self-constructed plant & machinery	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 1 January 2015	510	1,187	690	185	2,572
Exchange differences	(30)	(64)	(47)	(12)	(153)
Additions	34	133	70	123	360
Transfers	(4)	115	22	(175)	(42)
Disposals	(12)	(813)	(543)	-	(1,368)
At 31 December 2015	498	558	192	121	1,369
At 1 January 2016	498	558	192	121	1,369
Exchange differences	80	104	35	14	233
Additions	20	117	89	10	236
Transfers	-	94	5	(99)	-
Disposals	-	-	-	-	-
At 31 December 2016	598	873	321	46	1,838
Accumulated Depreciation
At 1 January 2015	230	1,051	619	-	1,900
Exchange differences	(13)	(58)	(44)	-	(115)
Charge for year	37	92	44	-	173
Disposals	(12)	(813)	(542)	-	(1,367)
At 31 December 2015	242	272	77	-	591
At 1 January 2016	242	272	77	-	591
Exchange differences	40	55	14	-	109
Charge for year	43	112	42	-	197
Disposals	-	-	-	-	-
At 31 December 2016	325	439	133	-	897
Net book value
At 31 December 2016	273	434	188	46	941
At 31 December 2015	256	286	115	121	778
At 1 January 2015	280	136	71	185	672

 

 

 

 

 

 

 

 

 

 

 

 

 

14.           Investment in subsidiary undertaking

			2016	2015
Company			£'000	£'000
Shares in Group undertaking
Cost
At beginning of year			56,922	51,757
Additions			6,435	5,165
At end of year			63,357	56,922
Impairment
At beginning of year			56,922	51,757
Charge for the year			6,435	5,165
At end of year			63,357	56,922
Net book value
At end of year			-	-

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

Following a review of the Company's assets the Board has concluded that there are sufficient grounds for its investment in the subsidiary undertakings to be subject to an impairment review under IAS 36. In arriving at the charge (2015: charge) in the year of £6,435,000 (2015: £5,165,000) the Board has determined the recoverable amount on a value in use basis using a discounted cash flow model.

15.           Inventories

		Group		Company
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Finished goods	142	112	-	-
Work in progress	195	-	-	-
Consumable stores	-	-	-	-
Raw materials	706	580	-	-
	1,043	692	-	-

The cost of inventories sold during 2016 is £2,568,254 (2015: £641,014). It includes £321,897 impairment loss slow moving finished goods and goods anticipated to be sold at a loss (2015: nil).

16.           Trade and other receivables

		Group		Company
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Trade receivables	241	261	-	-
Other receivables	120	20	11	9
Amounts due from Group companies	-	-	93	55
Prepayments and accrued income	20	15	7	11
	381	296	111	75

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

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

				Group
			2016	2015
			£'000	£'000
Not more than three months (all denominated in Euros)			228	116

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

17.           Cash and cash equivalents

		Group		Company
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Cash at bank and in hand	2,467	614	17	2
Bank overdraft (19)	-	(80)	-	-
	2,467	534	17	2

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

18.           Trade and other payables

		Group		Company
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Trade payables	822	526	-	1
Other payables	583	489	-	-
Accruals and deferred income	767	465	240	180
	2,172	1,480	240	181

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

19.           Borrowings

		Group		Company
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Bank overdraft	-	80	-	-
Loans
Current	2,662	2,004	7	1,757
Non-current	35,813	21,104	35,813	21,104
Current and total borrowings	38,475	23,188	35,820	22,861

During 2014 the Group and Company entered into a new loan agreement with Roundstone Properties Limited which combined all existing Roundstone Properties Limited's loans and provided total facilities of €16,500,000. The loans under this facility were repayable on 6 May 2017 and carry interest at 10% per annum. Roundstone Properties Limited has the option to convert accrued interest and outstanding interest at any time into Ordinary shares in the Company at 2p per share. This facility was fully utilised during 2014.

On 14 December 2014 the Group and Company entered into a loan agreement with Mr Falih Nahab which provided facilities of €10,000,000. The loan was originally repayable on 13 December 2017 and carries interest at 10% per annum. Mr Falih Nahab has the option to convert accrued interest and outstanding interest at any time into Ordinary shares in the Company at 2p per share. On 7 April 2016 the Group replaced its €10m loan facility with Mr Falih Nahab with a new loan facility of €20m with Mr Falih Nahab on the same terms. At 31 December 2016 total advances under this facility were €15,760,000. Subsequent to the year end it was also agreed that this loan facility would be increased by a further €8m to €28m. Mr Falih Nahab is the brother of Mr Faiz Nahab, a Director of the Company and both are treated as related parties..

These instruments were classified as a debt host instrument with an embedded derivative being the conversion feature. The embedded derivative has been fair valued and the residual value of the instrument had been recognised as debt. The debt has subsequently been measured at amortised cost.

On 24 July 2013 the Group and Company entered into a new loan agreement with Roundstone Properties Limited providing €2,383,841. The loan is unsecured and carries interest at LIBOR plus 2% per annum. Interest is to be rolled up and repaid at the termination of the agreement. The Company has the option to repay interest annually.

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

On 20 April 2017 it was agreed with Roundstone Properties Limited and Mr Falih Nahab that repayment of these loans be further extended to 31 December 2019.

During 2013 Roundstone Properties Limited provided short-terms loans directly to SPower Holdings GmbH of €335,000. The loans are interest free and repayable on demand.

The Directors consider that the carrying amount of borrowings approximates to their fair value.

20.           Embedded derivatives on convertible interest

		Group		Company
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Embedded derivatives on convertible interest	15,341	9,542	15,341	9,542

The embedded derivatives relate to the conversion features attached to convertible interest as disclosed under note 19. The derivatives are initially recognised at fair value and fair valued at each subsequent accounting reference date.

21.           Deferred income tax - Group

Deferred tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related benefit through future taxable profits is probable. The Group has not recognised deferred income tax assets of £14,494,000 (2015: £10,339,000) in respect of losses amounting to £6,865,000 (2015: £3,661,000) and €58,237,000 (2015: €49,751,000).

22.           Share capital

The share capital of Proton Power Systems plc consists of fully paid Ordinary shares with a par value of £0.01 (2015: £0.01) and Deferred Ordinary shares with a par value of £0.01. All Ordinary shares are equally eligible to receive dividends and the repayment of capital and represent one vote at the shareholders' meeting of Proton Power Systems plc. Deferred Ordinary shares have no rights other than the repayment of capital in the event of a winding up. None of the parent's shares are held by any company in the Group.

On 18 January 2016 448,505 Ordinary shares of 1p each were issued each at a price of 3.625p per share in settlement of a supplier's invoice.

Details of share options in issue are given in Note 7.

The number of shares in issue at the balance sheet date is 643,270,377 (2015: 642,821,872) Ordinary shares of 1p each (2015: 1p each) and 327,963,452 (2015: 327,963,452) Deferred Ordinary shares of 1p each.

Proceeds received in addition to the nominal value of the shares issued during the year have been included in share premium, less registration and other regulatory fees and net of related tax benefits.

	2016				2015
	Ordinary shares		Deferred ordinary shares		Ordinary shares		Deferred ordinary shares
	No. '000	£'000	No. '000	£'000	No. '000	£'000	No. '000	£'000
Shares authorised, issued and fully paid
At the beginning of the year	642,822	6,428	327,963	3,280	641,518	6,415	327,963	3,280
Share issue	448	4	-	-	1,304	13	-	-
	643,270	6,432	327,963	3,280	642,822	6,428	327,963	3,280

 

 

 

 

 

 

 

 

 

 

 

 

 

23.           Commitments

Neither the Group nor the Company had any capital commitments at the end of the financial year, for which no provision has been made. Total future lease payments under non-cancellable operating leases are as follows:

	2016		2015
	Land and buildings	Other	Land and buildings	Other
Group	£'000	£'000	£'000	£'000
Operating leases payable:
Within one year	333	-	223	-
In the second to fifth years inclusive	638	-	211	-
After more than five years	-	-	-	-
	971	-	434	-

24.           Related party transactions

During the year ended 31 December 2016 the Group and Company entered into the following related party transactions:

		Group		Company
	Year ended 31 December		Year ended 31 December
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
(Expenses) / Income
Roundstone Properties Limited effective loan interest	(1,362)	(1,317)	(1,362)	(1,317)
Falih Nahab effective loan interest	(1,018)	(339)	(1,018)	(339)
Roundstone Properties Limited other loan interest	(64)	(36)	(64)	(36)
Thomas Melzcer	(70)	3	-	-
Helmut Gierse	(16)	(20)	(16)	(20)
Team B Partners LLP	-	(4)	-	(4)
IJP Business & Finance Services Limited	(122)	(95)	(122)	(95)

The amount relating to Thomas Melzcer is a director loan balance and accrued interest which was written off during the year.

At 31 December 2016 the Group and Company had the following balances with related parties:

		Group		Company
	Year ended 31 December		Year ended 31 December
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Amounts due (to) / from
Roundstone Properties Limited borrowings and embedded derivatives (see Notes 19 and 20)	(33,072)	(24,104)	(30,703)	(24,104)
Roundstone Properties Limited interest accrual	(172)	(108)	(172)	(108)
Roundstone Properties Limited bank guarantee	(177)	(368)	-	-
Roundstone Properties Limited loans to SPower GmbH	(286)	(247)	-	-
Falih Nahab	(20,451)	(8,299)	(20,451)	(8,299)
Thomas Melzcer	-	62	-	-
Team B Partners LLP	-	-	-	-
IJP Business & Finance Services Limited	-	-	-	-

Further borrowings were drawn down during the year which contained embedded derivatives. In accordance with IAS 39 these have been fair valued.

During the year the Company made capital contributions to Proton Motor Fuel Cells GmbH of £6,435,000 (2015: £5,165,000) and to SPower Holdings GmbH of £nil (2015: £nil).

25.           Risk management objectives and policies

The Group's activities expose it to a variety of financial risks:

§  foreign exchange risk (note 26);

§  credit risk (note 27); and

§  liquidity risk (note 28).

The Group's overall risk management programme focuses on the unpredictability of cash flows from customers and seeks to minimise potential adverse effects on the Group's financial performance. The Board has established an overall treasury policy and has approved procedures and authority levels within which the treasury function must operate. The Directors conduct a treasury review at least monthly and the Board receives regular reports covering treasury activities. Treasury policy is to manage risks within an agreed framework whilst not taking speculative positions.

The Group's risk management is co-ordinated at Proton Motor Fuel Cell GmbH in close co-operation with the Board of Directors, and focuses on actively securing the Group's short to medium term cash flows by minimising the exposure to financial markets.

26.           Foreign currency sensitivity

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro and Sterling.

The Group does not hedge either economic exposure or the translation exposure arising from the profits, assets and liabilities of Euro business.

Euro denominated financial assets and liabilities, translated into Sterling at the closing rate, are as follows:

	Year ended 31 December 2016		Year ended 31 December 2015
	€'000	£'000	€'000	£'000
Financial assets	3,295	2,813	1,207	889
Financial liabilities	(65,300)	(55,741)	(43,794)	(32,272)
Short-term exposure	(62,005)	(52,928)	(42,587)	(31,383)

The following table illustrates the sensitivity of the net result for the year and equity with regard to the parent Company's financial assets and financial liabilities and the Sterling/Euro exchange rate. It assumes a +/- 23.58% change of the Sterling/Euro exchange rate for the year ended at 31 December 2016 (2015: 12.87%). This percentage has been determined based on the average market volatility in exchange rates in the previous 12 months. The sensitivity analysis is based on the parent Company's foreign currency financial instruments held at each balance sheet date.

If the Euro had strengthened against Sterling by 23.58% (2015: 12.87%) then this would have had the following impact:

			Year ended 31 December 2016	Year ended 31 December 2015
			£'000	£'000
Net result for the year			(12,481)	(4,039)
Equity			(12,481)	(4,039)

If the Euro had weakened against Sterling by 23.58% (2015: 12.87%) then this would have had the following impact:

			Year ended 31 December 2016	Year ended 31 December 2015
			£'000	£'000
Net result for the year			12,481	4,039
Equity			12,481	4,039

Exposures to foreign exchange rates vary during the year depending on the value of Euro denominated loans. Nonetheless, the analysis above is considered to be representative of Group's exposure to currency risk.

27.           Credit risk analysis

Credit risk is managed on a Group basis. Credit risk arises from cash and deposits with banks, as well as credit exposures to customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of 'A' are accepted. If customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board.

No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties. The Directors do not consider there to be any significant concentrations of credit risk.

The Group's maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the balance sheet date, as summarised below:

		Group		Company
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Cash and cash equivalents	2,467	534	17	2
Trade and other receivables	363	281	104	64
Short-term exposure	2,830	815	121	66

The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Group's policy is to deal only with creditworthy counterparties.

The Group's management considers that all the above financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past due.

None of the Group's financial assets are secured by collateral or other credit enhancements.

In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.

28.           Liquidity risk analysis

Prudent liquidity risk management includes maintaining sufficient cash and the availability of funding from an adequate amount of committed credit facilities. The Group maintains cash to meet its liquidity requirements.

The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly.

As at 31 December 2016, the Group's liabilities have contractual maturities which are summarised below:

		Within 6 months	6 to 12 months	1 to 5 years
		£'000	£'000	£'000
Trade payables		823	-	-
Other short term financial liabilities		461	-	-
Borrowings and embedded derivatives on convertible loans		2,662	-	35,813

This compares to the maturity of the Group's financial liabilities in the previous reporting period as follows:

		Within 6 months	6 to 12 months	1 to 5 years
		£'000	£'000	£'000
Trade payables		526	-	-
Other short term financial liabilities		464	-	-
Borrowings and embedded derivatives on convertible loans		2,004	-	21,104

The above contractual maturities reflect the gross cash flows, which may differ to the carrying values of the liabilities at the balance sheet date. Borrowings and embedded derivatives on convertible loans have been combined as they relate to the same instruments. Contractual maturities have been assumed based on the assumption that the lender does not convert the loans into equity before the repayment date.

29.           Financial instruments

The assets of the Group and Company are categorised as follows:

As at 31 December 2016		Group			Company
	Loans and receivables	Non-financial assets / financial assets not in scope of IAS 39	Total	Loans and receivables	Non-financial assets / financial assets not in scope of IAS 39	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Intangible assets	-	125	125	-	-	-
Property, plant and equipment	-	941	941	-	-	-
Investment in subsidiary	-	-	-	-	-	-
Inventories	-	1,043	1,043	-	-	-
Trade and other receivables	363	18	381	104	7	111
Cash and cash equivalents	2,467	-	2,467	17	-	17
	2,830	2,127	4,957	121	7	128
As at 31 December 2015		Group			Company
	Loans and receivables	Non-financial assets / financial assets not in scope of IAS 39	Total	Loans and receivables	Non-financial assets / financial assets not in scope of IAS 39	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Intangible assets	-	129	129	-	-	-
Property, plant and equipment	-	778	778	-	-	-
Investment in subsidiary	-	-	-	-	-	-
Inventories	-	692	692	-	-	-
Trade and other receivables	281	15	296	64	11	75
Cash and cash equivalents	614	-	614	2	-	2
	895	1,614	2,509	66	11	77

The liabilities of the Group and Company are categorised as follows:

As at 31 December 2016		Group					Company
	Financial liabilities at amortised cost	Financial liabilities valued at fair value through the income statement	Liabilities not within the scope of IAS 39	Total	Financial liabilities at amortised cost	Financial liabilities valued at fair value through the income statement	Liabilities not within the scope of IAS 39	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Trade and other payables	1,653	-	519	2,172	240	-	-	240
Borrowings	38,475	-	-	38,475	35,820	-	-	35,820
Embedded derivatives on convertible loans	-	15,341	-	15,341	-	15,341	-	15,341
	40,128	15,341	519	55,988	36,060	15,341	-	51,401

As at 31 December 2015		Group					Company
	Financial liabilities at amortised cost	Financial liabilities valued at fair value through the income statement	Liabilities not within the scope of IAS 39	Total	Financial liabilities at amortised cost	Financial liabilities valued at fair value through the income statement	Liabilities not within the scope of IAS 39	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Trade and other payables	1,375	-	105	1,480	181	-	-	181
Borrowings	23,188	-	-	23,188	22,861	-	-	22,861
Embedded derivatives on convertible loans	-	9,542	-	9,542	-	9,542	-	9,542
	24,563	9,542	105	34,210	23,042	9,542	-	32,584

Fair values

Management believe that the fair value of trade and other payables and borrowings is approximately equal to book value.

IFRS 13 sets out a three-tier hierarchy for financial assets and liabilities valued at fair value. These are as follows:

§  Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;

§  Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and

§  Level 3 - unobservable inputs for the asset or liability.

The embedded derivatives fall within the fair value hierarchy level 2.

30.           Capital management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, provide returns for shareholders and benefits to other stakeholders and to maintain a structure to optimise the cost of capital. The Group defines capital as debt and equity. In order to maintain or adjust the capital structure, the Group may consider: the issue or sale of shares or the sale of assets to reduce debt.

The Group routinely monitors its capital and liquidity requirements through leverage ratios consistent with industry-wide borrowing standards. There are no externally imposed capital requirements during the period covered by the financial statements.

		Group		Company
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Total liabilities	55,988	34,210	51,401	32,584
Less: cash and cash equivalents	(2,467)	(614)	(17)	(2)
Adjusted net debt	53,521	33,596	51,384	32,582

31.           Ultimate controlling party

The Directors consider Roundstone Properties Limited to be the Ultimate Controlling Party. Dr. Faiz Nahab is connected to Roundstone Properties Limited.

 

END

 

 

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