Final Results
Proton Power Systems PLC
25 June 2007
PROTON POWER SYSTEMS ANNOUNCES ITS RESULTS
FOR YEAR ENDED 31 DECEMBER 2006
The board of Proton Power Systems (PPS) are pleased to announce the preliminary
results for the year ended 31 December 2006. The Company floated on AIM on 31st
October 2006 and was formerly known as Future Power Systems plc.
Highlights for year ended 31 December 2006:
• Successful listing on AIM on 31 October 2006 raising £4.9m
• Loss £1.8 million, as the company disbursed the new funding in the
commercialisation of the business and after paying the costs of the listing
(2005: loss of £833k)
• Entered into key OEM relationships, broadening the application of its
fuel cell technology. Of note are the agreements for the supply of :
• joint development Agreement with US military applications developer
• a demonstration UPS electric fuel cell system
Highlights Post Listing
• Post listing order intake 30% higher than forecast
•first contract under a €2.5 million purchase and procurement agreement
with L-3 Communications
•development of a street cleaning vehicle in Switzerland
•first fuel cell bus in the Czech Republic
•the first fuel cell driven harbour ferry in Hamburg, Germany
•extension to a purchase and cooperation agreement to provide fuel cell
stacks to a leading international energy systems manufacturer
•Relocating the Company to an integrated single site facility which will
achieve significant scale of production
Commenting on the results, Bernard Robinson, Chairman said,
'The Group has made good progress over the last year and is ahead of where we
anticipated. We have established a number of strategic OEM partnerships that
will broaden the application of our hybrid system and fuel the Group's growth.
The forthcoming strengthening of our operational infrastructure with the move to
new premises will provide the structure we need to move towards significant
scale production.'
'Our progress is highlighted by the recent order for the volume supply of fuel
cell modules for Auxiliary Power Units (APUs). This is a major achievement for
the Group and a major event in the fuel cell market, as we believe it is the
first volume order scaling up to hundreds of units.'
Notes to Editors
PPS, through its subsidiary Proton Motor Fuel Cell GmbH ('PM') has developed and
produced a standard fuel cell module, fuelled by hydrogen integrated with an
energy storage system to create a hybrid electric fuel cell system capable of
providing power during peak demand situations. The market focus is on industrial
applications where 'back-to-base' refueling occurs, on site, at the end of each
shift or work period.
The Group has identified opportunities to replace lead-acid batteries with their
PEM fuel cell systems and has identified niche markets in the materials handling
and mass-transportation sectors where hybrid electric fuel cell systems offer
considerable advantages over conventional engine technology and fuel cell only
drive systems. The Group has identified two initial market segments in which the
Directors believe the advantages of hybrid electric fuel cell systems will lead
to economic benefits for the end user - forklift trucks and buses. In most
cases, vehicles operate within a defined radius or return to central points of
operation.
The many advantages over current commercial alternatives include lower fuel
consumption, longer periods between refueling, shorter refueling, consistent
levels of power delivery and zero harmful emissions.
PM's technology development has been undertaken with the key objectives of
multiple applications and volume production.
PPS was admitted to trading on AIM on October 31,
For further Information contact:
Proton Power Systems +49 8151 26 86 422
Joachim Kroemer j.kroemer@proton-motor.de
Company website: www.protonpowersystems.com
Media:
Gavin Anderson & Company +44 207 554 1400
Ken Cronin/Marie Cairney
Nomad
Bell Lawrie A division of Brewin Dolphin Securities +44 141 221 7733
Alan Stewart
Chairman and Chief Executive's report
Strategy
The Group aims, through its wholly owned subsidiary, Proton Motor, to become the
highest quality and lowest attainable cost, designer, developer and producer of
high volume, environmentally friendly, zero CO2 emission fuel cells and fuel
cell hybrid systems to a wide range of customers in the niche 'back to base'
refuelling transportation and commercial and industrial stationary applications
market sectors and to satisfy customer needs at a price/value relationship
unmatched by competitors.
Overview
We are pleased to report our results for the year ended 31 December 2006 which
incorporate two months post listing on the Alternative Investment Market of the
London Stock Exchange ('AIM') and hence, the first part-year of Proton Power
Systems operating as a public company.
From a customer and supplier standpoint, the transition from private company to
plc and subsequent listing on AIM and re-launch of the Company has given
existing and potential customers and suppliers the comfort and confidence
necessary for them to recognise the Company as a major and serious player in the
niche 'back to base' refuelling transportation and commercial and industrial
stationary equipment fuel cell markets and to both place and receive further
orders with/from the Company.
Post-listing major focus and priority has been given to the location of suitable
premises within the Starnberg/Munich, Germany travel to work area in which to
consolidate and integrate the five existing small workshops, research and
development, test laboratories and offices and which is capable of future
modular expansion with minimum disruption to ongoing production.
Significant focus and priority has also been given to researching the cost and
availability of suitable research, development test and production facilities
and equipment which will enable the company to drive down unit costs and improve
competitiveness.
Finance
The out-turn for the year was a loss of £1.8m which was marginally better than
anticipated and also reflects the write off of the fees associated with the AIM
listing together with the repayment of debt and the commencement of investment
in production and other facilities.
It is worth noting that the financial statements have been prepared using
International Financial Reporting Standards ('IFRS'), which requires the
combination of Proton Power Systems plc and Proton Motor Fuel Cell GmbH to be
recognised as a 'reverse acquisition'. This has the effect of eliminating the
goodwill which would otherwise arise on acquisition such that the net assets of
the Group are £2.185m compared to £21.056m net assets of the Company. Whilst the
accounting treatment is correct it does not, in the Board's view, reflect the
commercial reality of the Group's market capitalisation of £25m on Admission to
AIM as it does not reflect the value of the goodwill within the Group.
Outlook
The market for the Company's products is steadily but surely moving from 'supply
push' to 'demand pull'.
Post listing, the rate of order intake was some 30% higher than was forecast and
this trend has continued.
The Company recently received its first order and letter of intent for the
volume supply of fuel cell modules for Auxiliary Power Units (APUs) which is a
major achievement for the Company and a major event in the fuel cell market, as
the Company believes it is the first volume order scaling up to hundreds of
units. Customer confidentiality prevents further disclosure at this stage.
Unit costs and hence price are absolutely key to the up-scaling of volume and
the Company's strategy of upfront investment in research, development,
production and test facilities and people are key to improving cost
competitiveness and achieving cost leadership.
On behalf of the Board we would take this opportunity to thank the Proton Motor
team and our advisors for their hard work and effort and our customers and
suppliers for their confidence and support throughout the year.
Operating and financial review
Group activities
The Group has developed a standard hydrogen fuel cell module which is designed
to enable it to provide customers with complete hydrogen fuel cells and fuel
cell hybrid systems that can be integrated into their product range. The Group's
fuel cell modules can been combined into stacks to meet the power needs of
particular applications from 5kW to 150kW.
2006 overview
2006 saw the creation of the Company as the holding company of Proton Motor Fuel
Cell GmbH ('Proton Motor') and its listing on the Alternative Investment Market
of the London Stock Exchange. During that process the Company raised £4.9m of
new finance.
In February 2006 Proton Motor entered into a licensing and joint development
agreement with a US military applications developer in respect of a perpetual,
world-wide license for the use of Proton Motor's fuel cell system in military
applications.
Proton Motor has also entered into other key OEM relationships which are
broadening the application of its fuel cell technology. Of particular note are
the agreements for the supply of:
• the first fuel cell bus in the Czech Republic;
• a demonstration UPS electric fuel cell system; and
• the first fuel cell driven harbour ferry in Hamburg, Germany.
The Board has already identified that the future economic exploitation of Proton
Motor's technology is dependent upon improving the process and increasing the
scale of production of fuel cells and fuel cell hybrid systems and steps have
already been taken to relocate the Company to premises with sufficient space to
integrate its existing small workshops and R&D and offices under one roof on a
single site capable of modular expansion with minimum/no disruption to
production. Such a move is the cornerstone for future expansion and reducing the
cost of Proton Motor's fuel cells and fuel cell hybrid systems and is imperative
to gain competitive advantage.
Strategy
Sales strategy
Although Proton Motor has been historically reliant on a small number of key
customers, it has established strong relationships with key OEMs in its target
market. The Group anticipates expanding this customer base as volume
manufacturing capability increases. The Directors believe that effective
execution with their OEM partners should enable Proton to be recognised as a
global fuel cell technology platform.
Attractive primary markets and applications for the Group's fuel cell system,
identified by the Group, generally display the following characteristics:
• potential material volume sales;
• 'back-to-base' refuelling or stationary applications;
• existing power generation technology applications with notable
disadvantages, for example:
•slow recharge time of battery technology as well as additional working
capital infrastructure where continuous battery use is required;
•combustion engines emit harmful emissions and noise pollution; and
•external electric power is generally delivered by overhead cables, for
example trolley buses, and has geographical and logistical limitations;
and
• need to reduce industrial emissions;
Manufacturing strategy
To date, the Group's fuel cell modules and fuel cell hybrid systems have been
produced in relatively small volumes, on a project-by-project basis, largely
utilising a combination of semi-automated processes and manual assembly.
However, Proton Motor's technology development has been undertaken with the key
objective of designing and manufacturing fuel cells and fuel cell hybrid systems
for volume production. In order to seek to achieve this, the Directors have:
• identified target markets and commercial applications;
• established key commercial partnerships within these target markets;
• designed the Group's fuel cells and fuel cell hybrid systems to meet the
engineering requirements for volume manufacturing;
• established quality control procedures;
• reviewed, risk assessed and secured supplier and component manufacturing
relationships;
• identified and assessed major commercial factors, such as cost,
availability, robustness and durability of components; and
•secured and properly documented necessary regulatory and operational approvals
for each application.
Market and competitive environment
The Board believes the growth in the fuel cell market will be determined by the
following factors:
• the ongoing depletion of fossil fuel reserves;
• current and future air quality regulation;
• growing industry and consumer demand for alternative sources of energy;
• the potential long term competitiveness of the auto and transportation
industries; and
• energy security concerns.
Two initial market segments (forklift trucks and buses) have been identified,
which the Board believes, would benefit from the advantages of fuel cell hybrid
systems.
Forklift trucks
In 2003, batteries for use in battery powered mobile manufacturing, warehousing
and other ground handling equipment, primarily electric industrial forklift
trucks generated more than US$1.5 billion in worldwide sales. In 2004, the
global market for sales of material handling vehicles was in excess of
approximately 700,000 units and it is anticipated that battery powered
forklifts' share of the material handling market will steadily increase. The
Directors believe that fuel cell conversion could be applicable to approximately
20 per cent of this market. The Directors also believe that this battery-powered
segment offers an immediately addressable market for hybrid electric fuel cell
systems.
Buses
Global bus production has reached approximately 240,000 units per annum. The
Directors believe that one of the first markets where a fuel cell hybrid system
could achieve significant penetration is the local bus sector - those buses
operating in built up areas and moving relatively short distances from base. The
Directors have estimated that approximately 25 per cent of this market could be
addressed by a fuel cell solution with an average cost per application of
approximately €25,000 and a total market value of approximately €1.5 billion per
annum.
Competitive advantages
The Directors are confident that Proton's technology brings the following
distinct combination of characteristics to the power systems market:
• zero harmful emissions;
• lower fuel consumption than comparable commercial alternatives;
• no recharge requirement, unlike batteries;
• silent operation;
• a standard fuel cell module for use in multiple applications; and
• a reliable, robust and durable technology.
Future prospects
The Group's principal objective is to establish a volume manufacturing facility
based upon solid sales orders. This will enable the Group to achieve an
economically viable unit cost for its fuel cells and fuel cell hybrid systems.
Initially, the Group will invest in increased operational and sales
infrastructure appropriate to its ongoing growth. The Directors believe that the
advanced stage of commercialisation of the Group's technology, coupled with the
Group's existing partnerships, will enable the business to firmly establish
itself as a leading, global, fuel cell and fuel cell hybrid system provider as a
result of:
• the standard design of the Group's modular technology, designed to be
suitable for a variety of commercial/industrial applications;
• a focused strategy on niche industrial applications for market entry
with flexibility to allow further access to secondary markets;
• over 160 man years of combined experience and application in fuel cell
and fuel cell hybrid system technology presently in the Group;
• production processes to be developed in parallel with the development of
the Group's technology; and
• the Group's established quality control processes.
Consolidated income statement
for the year ended 31 December 2006
2006 2005
£'000 £'000
Continuing operations
Revenue 1,057 264
Cost of sales (1,030) (842)
-------------------
Gross profit/(loss) 27 (578)
Other operating income 12 195
Administrative expenses (1,836) (436)
--------------------
Operating loss (1,797) (819)
Finance income 8 1
Finance costs (11) (15)
-------------------
Loss for the year attributable to equity holders of the
Company (1,800) (833)
===================
Loss per share (expressed as pence per share)
Basic (6.8) (3.3)
===================
Diluted (6.8) (3.3)
===================
Consolidated balance sheet
as at 31 December 2006
2006 2005
£'000 £'000
Non-current assets
Intangible assets 99 7
Property, plant and equipment 55 87
Investment in subsidiary - -
------------------------
154 94
Current assets
Inventories 21 -
Trade and other receivables 956 30
Cash and cash equivalents 1,886 17
------------------------
2,863 47
------------------------
Total assets 3,017 141
========================
Capital and reserves
Ordinary shares 1,570 93
Share premium 4,735 3,153
Merger reserve 15,656 -
Reverse acquisition reserve (13,862) -
Share based payments reserve 147 -
Foreign translation reserve 30 -
Capital contributions 916 936
Retained earnings (7,007) (5,269)
------------------------
Total equity 2,185 (1,087)
========================
Current liabilities
Trade and other payables 832 1,228
------------------------
Total liabilities 832 1,228
========================
Total equity and liabilities 3,017 141
========================
Statement of changes in equity
Attributable to equity holders of the Company
Share
Reverse Based Capital
Share Share Merger Acquisition Payments Translation Contribution Retained Total
Capital Premium Reserve Reserve Reserve Reserve Reserve Earnings Equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at
1 January 57 2,692 - - - - 963 (4,563) (851)
2005
Loss for the - - - - - - - (833) (833)
year
Currency
translation
difference (1) (71) - - - 23 (27) 99 23
Proceeds
from
share issues 37 537 - - - - - - 574
--------------------------------------------------------------------------------------------------------
Balance at
31
December
2005 93 3,158 - - - 23 936 (5,297) (1,087)
---------------------------------------------------------------------------------------------------------
Balance at
1 January
2006 93 3,158 - - - 23 936 (5,297) (1,087)
Loss for
the year - - - - - - - (1,800) (1,800)
Currency
translation
differences (2) (68) - - - 7 (20) 90 7
Share based
payments
credit - - - - 147 - - - 147
Proceeds
from
share issues 329 4,924 - - - - - - 5,253
Share issue
costs - (335) - - - - - - (335)
Reverse
acquisition
(see below) 1,150 (2,944) 15,656 (13,862) - - - - -
--------------------------------------------------------------------------------------------------------
Balance at
31 December
2006 1,57 4,735 15,656 (13,862) 147 30 916 (7,007) 2,185
========================================================================================================
Share premium account
On Admission to the Alternative Investment Market of the London Stock Exchange
the Company issued 6,190,863 shares at 80p, generating £4,952,690. Costs
directly associated with the issue of the new shares totalled £335,000 and 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 during the year. The merger reserve represents the
difference between the nominal value of the share capital issued by the Company
and their fair value at 31 October 2006, the date of the acquisition.
Reverse acquisition reserve
The reverse acquisition reserve arises as a result of the method of accounting
for the acquisition of Proton Motor Fuel Cell GmbH by the Company. In accordance
with IFRSs the acquisition has been accounted for as a reverse acquisition.
Cash flow statement
for the year ended 31 December 2006
2006 2005
£'000 £'000
Cash flows from operating activities
Net cash used in operations (2,299) (844)
Interest received 6 -
Interest paid (60) (13)
--------------------
Net cash used in operating activities (2,353) (857)
====================
Cash flows from investing activities
Capital contribution to subsidiary - -
Cost of acquisition of subsidiary (138) -
Purchase of intangible assets (98) -
Purchase of tangible assets (9) (55)
--------------------
Net cash used in investing activities (245) (55)
====================
Cash flows from financing activities
Proceeds from issue of share capital 3,644 574
Increase in loan balances 1,195 249
Loan repayments (372) -
Reduction in other financial assets - 75
--------------------
Net cash generated from financing activities 4,467 898
=====================
Net increase/ (decrease) in cash and cash equivalents 1,869 (14)
Opening cash and cash equivalents 17 31
--------------------
Closing cash and cash equivalents 1,886 17
====================
Cash generated from operating activities
2006 2005
£'000 £'000
Loss for the period (1,800) (833)
Adjustments for:
Depreciation and amortisation 44 115
Negative goodwill credit (198) -
Interest income including loan waivers (57) (189)
Interest expenses 60 13
Share based payment 147 -
--------------------
Operating loss before changes in net working capital (1,804) (894)
Inventories (21) -
Receivables (454) 88
Payables (20) (38)
--------------------
Net cash used in operations (2,299) (844)
====================
Loans were received during the year of £1.195 million. On 31 October 2006,
£1.045 million of the loans outstanding was converted into ordinary shares at
80p per share and the balance was repaid.
Notes to the financial statements
1. Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European
Union, International Financial Reporting Interpretations Committee (IFRIC)
interpretations and those parts of the Companies Act 1985 applicable to
companies reporting under IFRS.
The accounting policies are set out in the full annual financial statements and
are consistent with those included in the Admission Document.
The financial information included in this document does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The financial information is derived from the consolidated financial statements
for the year ended 31 December 2006. Proton Power Systems Plc has not previously
prepared statutory financial statements. The financial statements for 2006 on
which the auditors issued an unqualified report which did not contain a
statement under Section 237 (2) or (3) of the Companies Act 1985 were approved
by the Board of Directors on 19 June 2007, subject to clarification of one
accounting issue resolved on 22 June2007, and will be delivered to the Registrar
of Companies in due course. The comparative figures for 2005 represent the
accounts of the legal subsidiary and have been included in these financial
statements on a proforma basis.
The Board of Proton Power Systems plc approved the release of this preliminary
announcement on 22 June 2007.
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