Final Results

Ceres Power Holdings plc 11 September 2007 11 September 2007 Ceres Power Holdings plc ('Ceres', 'Ceres Power' or 'the Group') Preliminary results for the year ended 30 June 2007 Ceres Power Holdings plc announces its preliminary results for the year ended 30 June 2007. Highlights •Integrated wall-mountable CHP Unit demonstrated •All milestones met on the CHP programme with British Gas •£0.6m contract secured with EDF Energy Networks for on-site power •New Product Facility fit-out completed •Machinery for cell manufacturing scale-up installed and being commissioned •Established supply chain for key balance of plant with global manufacturers •Brian Count, ex-Innogy plc CEO, appointed Non-Executive Director •43% increase in income from private and public sector contracts to £1.1m •£11.1m in cash and short term investments Results Summary 2007 2006 Unaudited Unaudited (as restated) £'000 £'000 Turnover 98 110 Other operating income 970 636 *Operating loss (4,709) (3,888) Interest income 597 630 *Adjusted Loss for the financial year (3,696) (3,180) **Adjusted loss per share (6.26)p (5.58)p Net cash outflow (2,879) (3,023) * calculated before share-based payments charge (operating loss and loss for the financial year including share-based payments are £5,879,000 (2006: £4,489,000) and £4,866,000 (2006: £3,781,000) respectively) ** Adjusted loss per share calculated before share-based payments charge (see note 4 to the preliminary financial information) Philip Holbeche, Chairman, commented: 'I am delighted to report that the Group has successfully demonstrated an integrated wall-mountable Combined Heat and Power (CHP) Unit that is capable of generating electricity and all of the central heating and hot water requirements of a typical home. Achievement of this important milestone is not only a significant step forward in the commercialisation of our unique technology but also represents an industry-leading position. We are now focusing on value engineering of the CHP Unit and the scale-up of core manufacturing processes' For further information contact: Philip Holbeche, Chairman Peter Bance, Chief Executive +44 (0) 1293 400 404 Ceres Power Patrick d'Ancona / Charlotte Kirkham +44 (0) 207 153 1531 M: Communications Chairman's Statement Business Transition There has been major progress in all aspects of the business during the year. The Group has made substantial technical advances and expanded its commercial relationships. The platform technology has been developed from a 1kW stack, to a Fuel Cell Module suitable for a range of market applications including an integrated wall-mountable Combined Heat and Power (CHP) Unit. A new Product Facility is completing its commissioning, and planning is under way for a major new plant (the 'Mother Plant') to manufacture fuel cells in substantial volumes. These various advances form the basis of Ceres Power's transition towards becoming a product business. The relationship with British Gas has continued to develop, with all milestones achieved to date on the residential CHP programme. The most recent announcement of the demonstration of an integrated wall-mountable CHP Unit, with the Ceres Fuel Cell Module at its heart, has shown that the Group has the capabilities required to design and build a product appropriate for the UK and overseas markets. The integrated CHP Unit runs off mains natural gas and utilises existing water, gas and electricity connections, ensuring that it will be straightforward to install. The focus is now on value engineering the CHP Unit and the scale-up of core manufacturing processes. The CHP Unit is capable of generating electricity and all of the central heating and hot water requirements of a typical home, substantially reducing carbon dioxide emissions through the much more efficient use of resources. The fuel cell technology at the core of the Unit can deliver high efficiency operation on multiple fuels, including mains natural gas, bottled gas/LPG, hydrogen, methane and biofuels. With increasing political and industrial interest in the development of micro-power generation options, the widespread uptake of residential fuel cell CHP units would greatly lessen the need for investment in power stations and the electricity grid infrastructure. EDF Energy Networks has awarded the Group a £0.6 million contract to design, build and evaluate energy security products for the UK residential market. The programme is expected to deliver initial prototype units for evaluation in 2008 and 2009. The product is designed to provide reliable back-up electricity from cylinder gas and it has wide applicability in the developed world and the affluent developing world. The physical expansion of the Group continued with the completion of a new Product Facility on the Crawley site. The facility will enable us to validate volume manufacturing processes before transfer to a mass manufacturing fuel cell plant on a separate site and to build prototype products for field trials. Planning for the 'Mother Plant' is being carried out currently and it is expected that commissioning of this new facility will begin in 2008 and that it will become operational during 2009. Industry Leadership The Group continues to play a leading role in placing fuel cells and micro-generation on the UK's energy agenda. We were extremely pleased to welcome the current British Prime Minister Gordon Brown to our Crawley operations in March 2007, when we were able to outline the potential benefits of widespread uptake of our CHP products. Financials The Group delivered a strong financial performance for the year. Income for the year ended 30 June 2007 totalled £1.67 million (2006: £1.38 million) of which interest on cash balances provided £597,000 (2006: £630,000). Income from private and public sector contracts totalled £1,068,000 (2006: £746,000), an increase of 43% over the prior year, and the first time that contract revenues have exceeded £1 million. The scaling-up of the capabilities of the Group is reflected in the increased operating expenditure (before share-based payments charges) which rose by 25% to £5,777,000, as a result of the recruitment of experienced personnel and the depreciation of additional equipment. The adjusted loss for the year (before share-based payments charges) increased by 16% to £3,696,000 (2006: £3,180,000). The Group's liquidity position continues to be robust with £11.1 million in cash and short term investments as at 30 June 2007. The net cash outflow for the year was £2.9 million (2006: £3 million). The Group has adopted the newly introduced accounting standard FRS 20, 'Share-based Payment', in line with current reporting standards and has changed its accounting policy with respect to equity-settled share-based payments provided to employees under the Company's share option scheme. This has resulted in a charge of £1,170,000 in the current year and a prior year charge of £601,000 for the year ended 30 June 2006. This charge has no impact on the Group's cash flow or net assets. People Ceres Power has continued to build its experienced and highly motivated team, with a recent focus on personnel with manufacturing expertise to build production capability. In addition, we were extremely pleased to welcome Brian Count as a non-executive director of the Group in March 2007. Dr Count was Managing Director of National Power in the UK and Chief Executive of Innogy and he provides insights into the nature and working of electricity markets, utility companies and government policy. The philosophy of the Group has always been to consider every employee as a valued member of the team, with an equity stake in the business and with the opportunity to build a satisfying and rewarding career. I wish to thank each of them for their important contributions to the enormous progress that has been achieved. Philip Holbeche Chairman Chief Executive's Review Business Environment The external environment for Ceres' products is becoming increasingly favourable as a result of a number of powerful drivers. Heightened consumer awareness of environmental issues coupled with higher energy bills are beginning to affect real spending decisions. Governments are implementing a wide range of regulatory and fiscal incentives on regional, national and international levels to encourage changes to current models of energy provision and to stimulate the uptake of more efficient and environmentally-friendly alternatives. Creating power at the point of use, or so-called 'micro-generation', is increasingly being seen as a compelling alternative to centralised generation, due to the inherent economic and environmental benefits, with high-efficiency fuel cell technology now recognised as a potentially key enabler. Corporations in a range of industries across the Group's supply chain are looking for new growth opportunities in this rapidly developing sector and attempting to position themselves to thrive in this emerging decentralised energy world. The Group is now well placed to commercialise its patented technology. Through the deployment of energy saving, low emission and cost-effective products the Group will have the ability to address a number of the key challenges facing consumers, businesses and governments worldwide. Business strategy The Group's business strategy remains driven by global market opportunities for alternative energy products which can reduce carbon emissions and address the issues of energy savings, energy security and fuel poverty. Products - Our product strategy is to focus on the development of CHP market applications based on the core Ceres' Fuel Cell Module. The compactness, cost-effectiveness and robustness of this module, together with its ability to operate on mains gas and cylinder fuels, provides an excellent platform for development of a range of closely related products for on-grid and off-grid applications both in the UK and overseas markets. Supply Chain - Development of strong supply chain partnerships is a vital element of the Group's strategy. A key focus of our commercial activities continues to be securing upstream relationships with volume suppliers of raw materials, balance of plant components and machines for manufacturing. We are confident that progress on these activities, with initial engagements secured with major companies, will minimise production risk as we make the transition to volume manufacturing. Manufacturing - The Group plans to establish its own mass manufacturing capability to produce the core fuel cells in volume and is partnering with other companies for the final assembly of CHP products. The Group is commissioning its Product Facility to produce limited numbers of complete prototypes and validate key manufacturing processes ahead of the planned scale-up into the volume fuel cell manufacturing plant. Intellectual Property - The Group's strategy is to register, protect and exploit its intellectual property assets which form the basis of its unique technology and product range. A significant IP portfolio has been developed in the form of patents, trademarks and know-how, covering a range of innovations spanning materials, product designs and manufacturing processes. Our background IP has enabled us to enter into supply chain and market channel relationships from a position of strength and so pave the way to maximise value capture. Channels to Market - By partnering with large energy companies with millions of customers, the Group is building the channels to get product to market in volume. We are pleased with the progress that has been achieved in our CHP programme with British Gas and we were delighted to announce a new relationship with EDF Energy Networks to design, build and evaluate home energy security products. Both these product variants also have major potential in overseas markets which we plan to exploit over time as part of our global market entry strategy. Business Operations Over the past year we have significantly de-risked the business by developing significant product and manufacturing capabilities. The Group has also achieved meaningful growth in income from contracts as a result of securing further commercial agreements and delivering on government programmes. The key achievements over the last twelve months have included: •Designed, built and demonstrated an industry-leading natural gas fed integrated wall-mountable combined heat and power unit capable of generating electricity and all of the central heating and hot water requirements of a typical UK home •Met all technical and commercial milestones for private and public contracts, delivering income in excess of £1 million •Secured a funded contract with EDF Energy Networks worth £600,000 to design and build energy security products for the UK residential market •Established supply chain relationships for all key balance of plant components with well-established volume manufacturers in Europe and the USA from industries including automotive and white goods •Secured and fitted-out a dedicated Product Facility to scale-up fuel cell manufacturing processes for mass production with all key machinery successfully installed and being commissioned We continue to invest in our operational capabilities to minimise development lead time, cost, and technical risk and to maximise the potential for value capture as part of our product commercialisation path. Outlook Building on the strong technical and commercial achievements of the past year, the Group is focusing on accelerating time to market and building an operational capability to scale the business. To deliver on this objective and secure the emerging commercial opportunities, the priorities for 2008 are as follows: •Value engineering of the CHP Unit, focusing on part count and cost reductions, performance improvements and optimisation of the product ergonomics in terms of size and weight •Validation of key mass manufacturing processes through statistical process trials in the Product Facility in preparation for volume scale-up •Completion of planning for the 'mother plant' and securing an appropriate site for the facility •Delivery of contract milestones under existing collaborative programmes with British Gas, EDF and other partners •Grow revenues with existing partners and establish new market channel relationships I look forward to reporting on further developments and progress over the coming year. Peter Bance Chief Executive Officer CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 June 2007 2007 2006 Note Unaudited Unaudited (as £'000 restated) £'000 Turnover 98 110 Research and development costs (4,922) (3,495) Administrative expenses (2,025) (1,740) Other operating income 970 636 Operating loss before share-based (4,709) (3,888) payments Share-based payments charge (1,170) (601) Operating loss (5,879) (4,489) Interest receivable and similar 597 630 income Loss on ordinary activities before (5,282) (3,859) taxation Tax credit on loss on ordinary 416 78 activities Loss for the financial year 7 (4,866) (3,781) Loss per £0.05 ordinary share - basic and diluted 4 (8.24)p (6.63)p CONSOLIDATED BALANCE SHEET as at 30 June 2007 2007 2006 Unaudited Unaudited Note £'000 £'000 Fixed assets Tangible assets 1,842 1,870 Current assets Debtors: amounts falling due 53 53 after more than one year Debtors: amounts falling due 628 554 within one year Short term investments 8 9,500 11,900 Cash at bank and in hand 1,642 2,121 11,823 14,628 Creditors: amounts falling due (788) (438) within one year Net current assets 11,035 14,190 Total assets less current 12,877 16,060 liabilities Net assets 12,877 16,060 Capital and reserves Called up share capital 5 2,981 2,925 Share premium account 15,594 15,137 Other reserve 7,463 7,463 Profit and loss account (13,161) (9,465) Shareholders' funds 7 12,877 16,060 CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 2007 2007 2006 Note Unaudited Unaudited £'000 £'000 Net cash outflow from operating activities 6 (3,894) (3,613) Returns on investments Interest received 597 630 Net cash inflow from returns on 597 630 investments Taxation 494 - Capital expenditure Purchase of tangible fixed assets (577) (1,099) Net cash outflow for capital expenditure (577) (1,099) Net cash outflow before management of (3,380) (4,082) liquid resources and financing Management of liquid resources Decrease in short term deposits with banks 2,400 3,700 Financing Issue of ordinary share capital 5 501 1,009 Net expenses of share issue - 50 Net cash inflow from financing 501 1,059 (Decrease) / increase in net cash (479) 677 Reconciliation to net funds Opening net funds 14,021 17,044 (Decrease) / increase in net cash (479) 677 (Decrease) in short term deposits (2,400) (3,700) Closing net funds 11,142 14,021 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. The results for the year to 30 June 2007 have not been audited. The statutory accounts and auditors' report for the year ended 30 June 2007 have not yet been signed by the directors or the auditors respectively. The results for the year ended 30 June 2006 have been extracted from the statutory financial statements for that year, that have been filed with the Registrar of Companies and upon which the auditors have reported without qualification. 2. Principal accounting policies These preliminary results for the year ended 30 June 2007 have been prepared in accordance with the accounting policies set out in the statutory financial statements of Ceres Power Holdings plc for the year ended 30 June 2006, with the exception of the adoption of Financial Reporting Standard (FRS) 20, 'Share-based Payment'. The adoption of FRS 20, constitutes a change in accounting policy. Therefore, the impact has been reflected as a prior year adjustment in accordance with FRS 20. Note 3 sets out the effect of adopting FRS 20. 3. FRS 20 Share-based Payments The Group is required to adopt FRS 20, 'Share-based Payment', for the first time for accounting periods commencing on or after 1 January 2006. In accordance with the transitional provisions of FRS 20, the Group is required to recognise an expense in respect of options granted after 7 November 2002 that were unvested as of 1 January 2006. This expense, which is calculated by reference to the fair value of the options granted, is recognised on a straight line basis over the performance period based on the Group's estimate of options that will eventually vest. The charge is then credited back to reserves. The adoption of this Standard has no effect on the Group's cash flow or net assets. Comparative figures for the year to 30 June 2006 have been restated to apply the provisions of FRS 20, increasing expenses and the loss for the year as shown below: 2007 2006 Unaudited Unaudited (as restated) £'000 £'000 Loss for the financial year (4,866) (3,781) Share-based payments charge 1,170 601 Adjusted loss for the financial year (3,696) (3,180) before FRS 20 Share-based Payments 4. Loss per share 2007 2006 Unaudited Unaudited (as restated) £'000 £'000 Loss per £0.05 ordinary share Loss for the financial year (4,866) (3,781) Share-based payments charge 1,170 601 Adjusted loss for the year before (3,696) (3,180) FRS 20 Share-based payments Weighted average number of shares 59,057,064 57,039,938 in issue Basic and diluted loss per share (8.24)p (6.63)p Adjusted basic and diluted loss (6.26)p (5.58)p per share before FRS 20 Share-based payments 5. Called up share capital 2007 2006 Number £'000 Number £'000 Authorised Ordinary shares of £0.05 each 100,000,000 5,000 100,000,000 5,000 Allotted, called up and fully paid Ordinary shares of £0.05 each 59,618,027 2,981 58,504,885 2,925 Between 11 October 2006 and 29 June 2007, the Company issued 205,525 ordinary shares of £0.05 each on the exercise of employee share options for cash consideration of £83,746. Between 18 July 2006 and 20 June 2007, 902,405 ordinary shares of £0.05 each were issued on the exercise of warrants for cash consideration of £417,023. During the year, a total of 5,212 ordinary shares of £0.05 each were issued as remuneration for services provided by a non-executive director. The value of the shares on the day of issue totalled £11,798. 6. Net cash outflow from operating activities Reconciliation of operating loss to net cash outflow from operating activities: 2007 2006 Unaudited Unaudited (as restated) £'000 £'000 Operating loss (5,879) (4,489) Depreciation charge 674 494 Loss on disposal of fixed assets - 1 Share-based payments charge 1,170 601 Share-based remuneration for services 12 - (Increase) in debtors (129) (213) Increase / (decrease) in creditors 258 (7) Net cash outflow from operating activities (3,894) (3,613) 7. Reconciliation of movements in shareholders' funds 2007 2006 Unaudited Unaudited (as restated) £'000 £'000 Loss for the financial year (4,866) (3,781) Proceeds of issue of ordinary share 513 1,009 capital Share-based payments charge 1,170 601 Share issue costs - 50 Net change in shareholders' funds (3,183) (2,121) Opening shareholders' funds 16,060 18,181 Closing shareholders' funds 12,877 16,060 8. Short term investments Short term investments comprise cash deposits at bank. This information is provided by RNS The company news service from the London Stock Exchange

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