RNS Number : 5357K
Ceramic Fuel Cells Limited
31 July 2013
31 July 2013
Cashflow Report for the June Quarter
Ceramic Fuel Cells Limited (AIM / ASX: CFU), today released its quarterly cashflow report for the period ended 30 June 2013.
Highlights
-- Successful capital raising of GBP 5.0m (AUD 7.6m)
-- Increased sales volume - 48 units sold this quarter bringing the total for the year as a whole to 147
-- Expansion of sales channels -- Large capacity furnace ramp-up nearing finalisation with excellent results. -- Cash position at 30 June 2013 AUD 10.0m (GBP 6.0m)
-- Ceramic Fuel Cells will release its preliminary results for the year ended 30 June 2013 by 31 August 2013
Operational Review
Introduction
CFU makes small scale generators that use proprietary fuel cell technology to convert natural gas into electricity and heat for homes and small commercial buildings. CFU has commercialised its technology into products and is now focused on selling these products to commercial customers in Europe.
During the quarter the Company successfully completed a GBP 5.0m (AUD 7.6m) fund raising. This was completed in May and resulted in the issue of GBP 4.3m (AUD 6.6m) of convertible loan notes and GBP 0.7m (AUD 1.0m) of ordinary shares. In addition to this the company also received AUD 5.2m (GBP 3.1) of funds in June 2013 in relation to a tax credit arising from its Australian research and development activities undertaken in fiscal year 2012.
Market Developments and Sales
The Government in the German state of North Rhine Westphalia (NRW) has established a funding program of up to EUR250 million to support deployment of large and small scale CHP. The programme is due to run until the end of 2017. Within this programme a significant amount has been specifically set aside for innovative and highlyefficient
mCHP technologies less than 50kW electrical output, which the Company's products have been classed as. In mid March 2013 the Company's units were approved for a capital subsidy under the programme. The subsidy is paid to commercial customers who receive an amount of between EUR9,000 and EUR13,000 per unit, dependent on the size of their business.
mCHP technologies less than 50kW electrical output, which the Company's products have been classed as. In mid March 2013 the Company's units were approved for a capital subsidy under the programme. The subsidy is paid to commercial customers who receive an amount of between EUR9,000 and EUR13,000 per unit, dependent on the size of their business.
The NRW subsidy is in addition to the German Federal Government feed-in tariff for mCHP products.
The Company believes that these measures can bring the net price of a BlueGen unit down to a level where commercial customers, with an appropriate level of energy use, can achieve a payback period of between 5 and 7 years. As such, we expect this subsidy programme to be a significant driver of sales in the future.
use, can achieve a payback period of between 5 and 7 years. As such, we expect this subsidy programme to be a significant driver of sales in the future.
In response to this opportunity the Company has been seeking to expand both its direct and indirect sales channels during the quarter.
The Company's sales channel strategy, in regards to indirect sales, is to grow distribution through partnering with utilities, installers and established distribution companies.
In March 2013 the Company entered into a letter of intent to form a strategic partnership with Alliander AG, a distribution grid operator in Germany. As a first step in this arrangement, up to 600 BlueGen systems are to be installed across Alliander's regional grids in Germany by 2015.
Under this arrangement Alliander has announced an initial promotion in relation to the first 100 units to be installed in the City of Heinsberg. Alliander will augment the existing government feed-in tariff and state capital subsidy discussed above with an additional feed-in tariff amount of 10 Euro cents per kWh (capped at EUR5,000 over the life of the unit) and an additional upfront capital subsidy of up to EUR4,000 per unit (depending on the customer's electricity usage profile). This is expected to make a highly attractive investment return for customers participating in the promotion.
of Heinsberg. Alliander will augment the existing government feed-in tariff and state capital subsidy discussed above with an additional feed-in tariff amount of 10 Euro cents per kWh (capped at EUR5,000 over the life of the unit) and an additional upfront capital subsidy of up to EUR4,000 per unit (depending on the customer's electricity usage profile). This is expected to make a highly attractive investment return for customers participating in the promotion.
In May 2013 the company entered into a distribution partnership with Novogaz SA, a subsidiary of Holdigaz Group. Under the agreement, the two partners will join forces in distributing BlueGen units to the growing market for micro CHP's in the French-speaking part of Switzerland. This move increases the cooperation between the two partners that started in 2010 when BlueGen units and integrated systems were installed in a field testing exercise.
.
The Company is also in the process of growing its direct sales force in both Germany and the UK. Unfortunately this growth was constrained during the quarter due to the requirement to complete the funding exercise discussed above. The Company plans to further increase its sales force which, in turn, is expected to generate increased sales growth.
Sales volume increased during the final quarter of the year to 48 units. This compared to only 9 units in the previous quarter which had been negatively impacted by delays in the announcement of the capital subsidy to be granted to the Company's units under the NRW scheme discussed above. This had had the effect of delaying purchasing decisions by customers as they awaited the implementation of the scheme.
As a result of this delay and the resulting poor third quarter of sales, the overall sales volume for the year at 147 was slightly down on last year's result of 169 units.
Unit sales booked to revenue
-----------------------------------------
Quarter Qtr unit FY unit
sales sales
------ ------------ --------- --------
FY11 61
-------------------- --------- --------
September
2011 8
------------------- --------- --------
December
2011 59
------------------- ---------
March 2012 26
------------------- ---------
FY12 June 2012 76 169
------ ------------ --------- --------
September
FY13 2012 47
------ ------------ ---------
December
2012 43 147
------------------- ---------
March 2013 9
------------------- ---------
June 2013 48
------------------- --------- --------
In the UK the Company is focusing on a number of key market sectors. One of these is the social housing sector(1) where the benefits of using BlueGen are particularly strong. Earlier this year the company signed a distribution agreement with iPower Energy Limited ("iPower") an Energy services company (ESCo) operating in this sector. In late March the two companies received the go ahead for the first housing association project. This project involves participating tenants of Housing Solutions, a housing association located in Maidenhead, England. In the initial phase 10 BlueGen units are being deployed with each unit serving on average 5 flats. The tenants in the project will benefit from cheaper, lower carbon electricity and will be guaranteed a minimum discount of 10% against the best locally available standard electricity price. (Many tenants are likely to be paying higher than the standard electricity price in the area and therefore the effective discount will be greater).
iPower expects to replicate this project model with other housing associations across the UK. (1) In the UK this sector accounts for approximately 4.0 million dwellings or 17.5% of the UK housing stock of approximately 22.8 million dwellings as at 31 March 2011 (
source: Dept of Communities and Local Government
).
Manufacturing
The Company has built an assembly plant in Heinsberg, Germany, to manufacture fuel cell stacks, the core of the Gennex fuel cell module, and to assemble complete BlueGen units. The individual fuel cell components are shipped to the Heinsberg plant (together with other components) to be assembled into fuel cell stacks.
Since late December 2012 the Company has been working with the supplier of its large capacity furnace to increase the yield of the furnace to the level required by CFU. During March 2013 the Company started to use the furnace for production again and during the June quarter the furnace was taken through a phased ramp-up process. The testing and ramp-up work have now been largely completed and the results have been excellent. The Company expects to have a combined capacity of approximately 30 fuel cell stacks per week or 1,500 fuel cell stacks per year, based on current operating procedures.
The plant's production throughput can be increased above 1,500 units per year without additional capital spending, by operational efficiencies (such as improving processes and production flow, reducing furnace cycle times, loading and unloading times, robot optimisation), more flexible work practices (the plant is currently operating on a single shift); and by continuing to outsource the manufacturing and assembly of components and sub-assemblies. Modest investments in multiple tooling will also increase production levels.
times, loading and unloading times, robot optimisation), more flexible work practices (the plant is currently operating on a single shift); and by continuing to outsource the manufacturing and assembly of components and sub-assemblies. Modest investments in multiple tooling will also increase production levels.
To further increase production (funds permitting) the Company intends to make further capital expenditures to increase furnace capacity to around 3,000 - 3,500 stacks per year. It is expected that this capital expenditure would be approximately AUD1.5m (GBP 0.9m)
In June 2013 the plant in Heinsberg successfully completed its annual review for ISO 9001 and CE accreditation.
Financial Review
June Quarter Cash Flows
Net operating cash outflow for the June quarter was AUD 1.1 (GBP 0.6m). This includes the receipt of AUD 5.2m (GBP 3.1m) in relation to a tax credit arising from the Company's Australian research and development activities undertaken in fiscal year 2012. If this amount was to be excluded then the net operating cash outflow for the quarter would have been AUD 6.2m (GBP 3.7m) which compares favourably to AUD 6.6m (GBP 4.0m) in the previous quarter
Net investing cash flows for the quarter were an outflow of AUD 0.2m (GBP 0.1m).
Net financing cash flows for the quarter were an inflow of AUD 6.9m (GBP 4.1m). In May 2013 the company received AUD 7.0m (GBP 4.6m), net of costs, in relation to the issue of ordinary shares and convertible loan notes as discussed above. A further AUD 0.3m (GBP 0.2m) will be received as part of this fund raising in the next quarter.
Cash on hand at 30 June 2013 was AUD 10.0m (GBP 6.0m).
Refer to link for quarterly cashflow report.
http://www.rns-pdf.londonstockexchange.com/rns/5357K_-2013-7-31.pdf
