RNS Number : 0826N
Ceramic Fuel Cells Limited
26 August 2011
Friday 26 August 2011
Ceramic Fuel Cells Limited, (AIM / ASX: CFU) a leading developer of high efficiency and low emission electricity generation products for homes and other buildings, today announces its preliminary results for the year ended 30 June 2011.
The full results are available at www.cfcl.com.au.
Highlights in the period and year to date:
Building Sales
-- Orders for 206 BlueGen(R) units: moving from field trials to commercial sales
-- Order for up to 200 integrated mCHP products confirmed
-- 16 energy utility customers
-- Plus commercial sales channels in four markets
BlueGen(R) Product Approvals
-- UK: first and only fuel cell product approved under MCS and eligible for the UK Feed-in Tariff
-- Australia: approved for installation as an ordinary gas appliance
Increasing Sales Revenue
-- 81 percent increase from last year, to AUD 3.6 million in FY11
Manufacturing & Supply Chain
-- Volume plant operating in Germany
-- Unit costs falling
Sales
Supportive market settings in Western Europe
-- Energy policy is evolving quickly in 2011 in several markets
-- Germany is phasing out nuclear power, creating a significant opportunity for low emission energy products
-- More reliance on intermittent renewable power also increases the need for flexible and controllable distributed power generation
-- Ceramic Fuel Cells is focusing current resources to build sales in existing markets
-- As revenue and scale grows, the Company will enter new markets - e.g. North America
-- Large sales potential in many global markets: enquiries from Asia (especially China), Middle East, South Africa, Central and Eastern Europe, Russia, North America and South America (Brazil)
BlueGen(R) sales
-- BlueGen modular power and heat generator provides power and hot water
-- The Company continues to increase sales of BlueGen units to energy companies and other foundation customers
-- Orders for 206 BlueGen units: up from 51 at the same time last year
-- Highlights:
-- In July 2011 the Company's first BlueGen distributor in Germany, sanevo Lizenz-GmbH & Co. KG (sanevo), placed an initial order for 100 BlueGen units to be delivered in the first year, with a target minimum order of 500 units for delivery in the second year and a target of 2000 units over years three and four. This is the Company's largest BlueGen order to date.
-- Follow on order for 25 units from Ausgrid in Australia, to be installed in Newcastle as part of Australia's largest Smart Grid project.
-- 39 customers in nine countries
BlueGen(R) Distribution
Ceramic Fuel Cells has made sales of BlueGen units directly to early customers, but in larger volumes the Company's strategy is to sell BlueGen units through a network of distributors and to outsource the sale, installation and service of BlueGen units.
During the financial year the Company secured distribution agreements in several important markets:
-- Germany: in July 2011 the Company appointed sanevo as its first BlueGen distributor in Germany. Provided sanevo orders agreed minimum numbers of BlueGen units during 2012 to 2014, sanevo has exclusive rights to distribute BlueGen to commercial and residential customers in the German States of Baden-Wurttemberg and Bavaria, and in Austria. Ceramic Fuel Cells retains full rights to sell BlueGen units to utilities and energy service companies. Based in Offenbach, near Frankfurt, sanevo has gained experience and reputation in marketing and selling innovative small scale power and heating products in Germany through more than 120 qualified sales partners.
-- The Netherlands: in July the Company also appointed Zestiq B.V as its first BlueGen distributor in The Netherlands. Zestiq is part of the consortium of innovative companies which in April installed a BlueGen in a 17th century canal house "De Groene Bocht" in the centre of Amsterdam. Zestiq and its partners will market and sell BlueGen units to small commercial and residential customers in The Netherlands. The units will be installed and maintained by the service company of Eneco, Eneco Installatie Bedrijven.
-- United Kingdom: in May 2011 the Company appointed RES On-Site Limited, part of the RES Group, as a non-exclusive distributor in the United Kingdom. RES On-Site will target the commercial microgeneration energy market throughout the UK. RES On-Site holds MCS (Microgeneration Certification Scheme) installer accreditations in a wide range of technologies and is adding the microCHP accreditation to this and so will provide installation and after-sales service for BlueGen products.
-- Australia: the Company is working with distributors Hills Holdings Limited and Harvey Norman Commercial division, to market BlueGen units to commercial customers such as Governments and Councils, commercial buildings, hotels, property developers, architects and schools and educational facilities.
BlueGen(R) Product Approvals
During the financial year the Company's operations and engineering teams invested significant time and resources in having BlueGen approved under regulatory regimes in several markets.
-- Germany: BlueGen received full CE safety approval in April 2010. This allows BlueGen products to be installed in homes and buildings in Europe. This is a full "type" approval for all BlueGen products - not just a "prototype" approval for field trial units. In Germany BlueGen was approved by BAFA in August 2010, meaning BlueGen customers are eligible to receive the CHP bonus payable on all electricity generated by BlueGen.
-- United Kingdom: the Government introduced a feed in tariff in April 2010. To be eligible for the feed in tariff, all microgeneration products must be certified under the Microgeneration Certification Scheme ("MCS").
During the June quarter BRE Global, an independent, third-party approvals organisation, completed the technical assessment of BlueGen and confirmed that the Company has met all of the requirements under the MCS standard.
On 25 August the Company announced that BlueGen has received final MCS product and factory accreditation. BlueGen is the first fuel cell product to receive MCS certification and be eligible for the UK feed in tariff.
BlueGen customers are now able to use their BlueGen to export electricity into the National Grid and earn revenue during the process. The feed in tariffs are 10.5 pence per kilowatt hour of electricity generated, plus an additional 3.1 pence per kilowatt hour of electricity exported to the grid.
-- Australia: in August 2011 BlueGen was certified by the Australian Gas Association (AGA) for installation as a gas appliance in Australia. After rigorous testing and evaluation for compliance, AGA has certified the BlueGen to a new safety standard for fuel cell appliances. BlueGen is the first product to comply with this new standard in Australia.
BlueGen is now certified as a "Type A" gas appliance, which allows BlueGen units to be installed by a licensed and trained plumber / gasfitter as for any other typical gas appliance in Australia. BlueGen has also been certified for both indoor and outdoor installations. Previously the installation of BlueGen was restricted as a "Type B" appliance, meaning that the respective State Technical Regulator was required to inspect and approve each installation.
In Australia there is currently no feed in tariff for fuel cell products. The Company is continuing to lobby State Governments on this, and in the meantime BlueGen is being marketed to commercial customers who can use all the power on-site.
-- North America: the Company is working towards receiving safety approval for a version of BlueGen modified to meet North American requirements. The Company is making good progress and approval is expected by the end of the year.
Integrated mCHP product (power, hot water and space heating)
In parallel with the BlueGen product, the Company's Gennex(R) fuel cell module is also used in integrated micro combined heat and power (mCHP) units in Germany, France and the United Kingdom. In these products, Ceramic Fuel Cells supplies the core Gennex fuel cell module and related components to a local appliance manufacturing partner, which integrates the fuel cell module with a boiler into an integrated product to provide power, hot water and space heating for homes.
The Company has received an order for up to 200 mCHP units from German energy service provider EWE. This is the largest order the Company has received, with total revenue of up to EUR 4.9 million over two years. EWE plans to install a total of 55 integrated units by 31 December 2011. Subject to these units meeting agreed performance targets, and to further funding approval from the German Government, the Company expects EWE will then order a further 145 units for delivery in 2012.
In France, the Company is developing the next generation of an integrated mCHP unit for the French market in partnership with BDR Thermea. This unit is undergoing testing for CE approval, and will then be operated with GDF-Suez.
The Company has also developed and will shortly deploy two integrated mCHP units in the UK that represent the next generation of an integrated product for the UK market. This development is being undertaken in partnership with E.ON UK. In December 2010 E.ON UK also ordered three BlueGen units. The Company is in ongoing discussions with E.ON UK about further sales and the next stage of product deployment.
Product Performance
As at 25 August 2011, 90 BlueGen and integrated mCHP units are installed at sites in Europe, Japan, USA and Australia. In aggregate, these units have been operating for more than 300,000 hours (the equivalent of more than 34 years of collective operation).
All of these BlueGen and integrated units have achieved starting electrical efficiency of 60 percent or more, demonstrating repeatable high performance in many different real world conditions. Over time the electrical efficiency gradually reduces and the thermal output of the fuel cell stack increases. Electrical efficiency is also affected by how the BlueGen unit is operated: efficiency will be lower if the power output of the unit is modulated or reduced.
The Company is taking several steps to mitigate the risk of variable product performance in early BlueGen units. As part of the BlueGen-net system, the Company has developed a sophisticated on-line system for monitoring the performance of each BlueGen unit and integrated mCHP product. This system automatically detects when the unit is performing outside pre-set parameters and allows the Company's product support engineers to remotely diagnose faults and in some cases correct faults remotely, without the cost of a site visit. Through this system the Company is building up a rich database on the real world performance of the units, which feeds back into ongoing improvements in the design, manufacturing and installation of the products.
The Company also continues to make progress to improve the lifetime and robustness of the fuel cell system, including 'cycling' the unit on and off, and this work will continue in order to deliver a consistent and commercially acceptable level of performance.
Marketing
The Company has invested in additional resources and product related marketing activities to support the deployment of products and increase sales.
-- www.bluegen.info: a new 'global' multi-language BlueGen website informing potential customers about the benefits of BlueGen and showcasing real-life examples;
-- www.bluegen.net: providing existing customers remote monitoring and performance reporting capabilities through a web-based portal; and
-- Developing new marketing collateral and interactive tools promoting the features and benefits of BlueGen for the Company's strategic markets.
The Company's BlueGen product has recently been recognised by several international awards:
-- In May 2011, BlueGen won both the 2010-11 'CEO Award' - Dupont Australia and New Zealand's most prestigious innovation award - as well as the 'Design for a Sustainable Future' award, one of seven categories at the biennial DuPont Australia & New Zealand Innovation Awards.
-- In June 2011 the Company also won the Microgeneration UK 2011 Technical Innovation Award for its BlueGen product.
Manufacturing and Supply Chain
During the financial year the Company entered into a volume supply agreement with HC Starck for the supply of fuel cell components. Over the last few months the Company has been working with HC Starck to ensure that they can increase their production capacity to meet our forecast demand for cells, whilst maintaining our high quality standards. As part of this work the Company has assigned several of its senior technical staff to work at HC Starck's plant in Germany, to help them meet the required cell performance standards. This work is continuing.
The Company is also in ongoing discussions with HC Starck about the investment required by them to increase production capacity to meet the Company's future demand requirements. In order to mitigate the risk of relying on a single supplier of cells, the Company continues to make fuel cell components at its pilot manufacturing site in Melbourne.
During the year the Company has also focused on reducing the unit costs of the BlueGen product. The costs of components used to make BlueGen units are sensitive to economies of scale. In recognition of this, the Company is seeking to move from ordering components in lots of 100, to lots of 1,000 in order to reduce unit costs. This is expected to reduce the current BlueGen product cost by approximately 20 per cent. Increasing economies of scale are not without some risk as many processes are required to change to accommodate volume increases, however the Company works closely with its supply chain partners to mitigate this risk.
The Company is increasing production of fuel cell stacks and the assembly of BlueGen units at the Company's plant in Heinsberg, Germany. We have commenced hiring additional staff to ramp up production there and are putting in place appropriate senior management to manage these increasing production levels.
During June 2011 the Heinsberg plant was audited and certified by Kiwa Gastec under the CE Surveillance Audit programme. The objective of this programme is to ensure that the Company is manufacturing the BlueGen product in compliance with the CE approval previously granted.
New Directors
The Board recently appointed two additional non-executive directors to add financial and operational expertise as the Company scales up its operations.
In May the Board appointed German-based Dr Roman Dudenhausen, who has extensive experience in strategic advice, marketing and innovation in the German energy industry. Based in Essen, Dr Dudenhausen is CEO and co-founder of conenergy ag, a leading independent service provider to the German energy Industry. Dr Dudenhausen is also a director of electric vehicle maker mia electric Gmbh.
In early July the Board also appointed Ms Janine Hoey as a non-executive director and member of the Audit Committee. Ms Hoey has had extensive experience in commercial, operations and finance roles in the clean energy and airline industries over the last 20 years. Based in Melbourne, Ms Hoey currently holds an executive role with Pacific Hydro Pty Ltd as the General Manager Group Operations and Commercial.
Financial Results
Year to 30 June 2011 (unaudited FY11 results)
-- Revenue from Operations: AUD 3.6 million (increase of 81 percent from FY10)
-- Net operating cash outflow: AUD 19.2 million (increase of 10 percent from FY10)
-- Operating costs: AUD 27 million (increase of 25 percent from FY10)
-- Net loss: AUD 21.1 million (increase of 8 percent from FY10)
-- Cash balance at 30 June 2011: AUD 19 million
Revenue
The Group's business revenues increased during the period by 81 percent to AUD 3,681K (GBP 2,293K). Revenue in the current year is derived primarily from the sale of BlueGen and integrated mCHP units whereas last year the majority of revenue was derived from payments from partners under product development agreements.
The number of units recognised in revenue this year was 61 compared to 9 units last year.
Other Income
Other Income in the current year was AUD 4,284K (GBP 2,669K). This primarily related to funds received by the Company in the settlement of a legal action taken against the Group's former treasury advisor.
Expenses
Research and Product Development expenses were AUD 15,127K (GBP 9,424K) which includes the manufactured cost of units that were recognised in revenue and also a provision for warranty claims. Expenditure on R&PD project activities increased during the year by AUD 1,589K (GBP 990K) with a focus on increasing the performance and lifetime of the fuel cell stack.
General and Administration expenses were AUD 10,281K (GBP 6,405K) which was an increase of AUD 1,362K (GBP 849K) over last year. This increase arose primarily from an increase in depreciation and amortisation charge of AUD 1,100K (GBP 685K) relating to the commencement of production in the German plant from the start of the year. In addition to this the expense relating to the employee share scheme increased by AUD 228K (GBP 142K).
Sales and marketing expenses were AUD 1,640K (GBP 1,022K) which was AUD 694K (GBP 432K) lower than last year. Sales and support activities were restructured during the year to focus on the German, Netherlands and UK markets.
A foreign exchange loss on translation of AUD 2,094K (GBP 1,305K) arose during the year relating to the translation of cash balances held in foreign currencies back to Australian dollars. The Australian Dollarappreciated 17.7 percent against the pound sterling and 6.1 percent against the euro across the year.
Net Loss After Tax
The net loss for the year was AUD 21,176K (GBP 13,193K), an increase of AUD 1,525K (GBP 950K) over the prior year.
The main reasons for the increased loss are outlined above and can be summarised as:
GBP AUD ('000) Equivalent Higher sales revenue 1,648 1,027 Higher sundry income principally from a legal settlement 4,030 2,511 Reduced foreign exchange loss on translation in the current year 1,262 786 Offset by: Increased operating expenses 5,538 3,450 Impairment charge recovered last year 2,927 1,824 The net loss represents a loss of 1.82 cents per share (1.13 pence) compared to 1.91 cents (1.19 pence) last year.
Cashflow and Balance Sheet
The Group's net cash outflow from operations for the year was AUD 19,300K (GBP 12,024K), an increase of 12 percent over last year. As the Group commences the commercial rollout of its BlueGen product its level of working capital requirement is increasing. Inventory at year end has increased from AUD 1,081K (GBP 673K) in the prior year to AUD 5,131K (GBP 3,197) this year as a result of holding component parts to produce BlueGen units (and holding fully completed units).
Cash outflow from investing activities was AUD 1,360K (GBP 847K) which was AUD 2,519K (GBP 1,569K) lower than last year. This reduction reflects the completion of the building programme at the plant in Germany.
Cash inlow from financing activities amounted to AUD 28,962K (GBP 18,043K). This arose from the issue of equity that raised a net AUD 28,886K (GBP 17,996K).
At 30 June 2011 the Group had cash of AUD 19,057K (GBP 11,873K) which was held on deposit with banks. Of this amount AUD 3,204K (GBP 1,996K) was pledged as security for bank guarantees and is unavailable for use by the CFCL Group.
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