REG - Ceres Power Holdings - Final Results
Ceres Power Holdings plc - Final results for the year ended 30 June 2019
REVENUE DOUBLES FOR FOURTH CONSECUTIVE YEAR
Horsham UK, 2 October 2019 - Ceres Power Holdings plc ("Ceres Power", "Ceres", the "Company" of the "Group") (AIM: CWR.L), a global leader in fuel cell technology and engineering, announces its final results for the year ended 30 June 2019.
Financial Highlights
· Revenue and other operating income up 133% to £16.4 million with higher margin license activity delivering an improved gross margin of 75%
· Net cash used in operating activities down significantly to £3.1 million from £9.5 million, reflecting improved operating loss reduced 33% to £7.9 million from £11.9 million
· Equity-free cash outflow1 up slightly to £11.9 million from £10.9 million. £9.0 million invested, largely on new CP2 manufacturing facility in UK
· Raised £77.1 million of new equity in the year from strategic partners and financial institutions. Cash and short-term investments of £71.3 million at 30 June 2019
Commercial and Operational Highlights
· First product launch with Japan's Miura Co. using Ceres' SteelCell® in a combined heat and power (CHP) system for commercial use
· Strategic partnerships signed with both Bosch and Weichai including equity investment and licensing agreements
· SteelCell® reached a key milestone of 60% net efficiency, twice that of a conventional gas engine and greater than that of a centralised megawatt-scale gas turbine
· £8.0 million investment in new blueprint manufacturing facility (CP2) in Redhill, UK on track for production from January 2020, creating 60 new skilled jobs
Current Trading
· New system licence and joint development agreement worth £8.0 million over two years signed with Doosan post year end
· Completed joint development with Weichai of a prototype 30kW range extender system for electric buses targeting the Chinese market
· Strong order book of £28.4 million and pipeline2 worth more than £50 million (as at report date)
1 Equity free cash outflow is the net change in cash and cash equivalents in the year (£1.2 million) less net cash generated from financing activities (£76.8 million) add the movement in short-term investments (£63.7 million).
2 Order book is the contracted commercial revenue and grant income scheduled to be realised in future years. Pipeline is contracted revenue and other income which management estimate is contingent upon options not under the control of Ceres.
Phil Caldwell, Chief Executive Officer of Ceres Power, commented:
"2019 was a milestone year for Ceres, which saw us double revenue for the fourth year running through significant license deals and secure our first commercial product launch in Japan later this year, while also approaching first production at our new UK reference manufacturing facility.
"We now have license agreements in place with four of the world's largest engineering and power companies. Bosch and Weichai have chosen not only to partner with us but have invested in significant equity stakes, aligning them to the future success of our business and ensuring that Ceres is well-capitalised to deliver against its strategy.
"Global awareness of the role that fuel cells can play in tackling climate change and improving air quality is growing rapidly. The talent of our team and the quality of our customer partnerships give us increased confidence in the future prospects of Ceres and its long-term value to shareholders."
Presentation
A presentation of the results for analysts and institutional investors will take place at 09.00am today at the offices of Powerscourt, 1 Tudor Street, London EC4Y 0AH. A replay will be available on www.cerespower.com later in the day.
For further information, please contact:
Ceres Power Holdings plc
Elizabeth Skerritt
Tel: +44 (0)1403 273 463
Investec Bank PLC (NOMAD & Joint Broker)
Jeremy Ellis / Patrick Robb
Tel: +44 (0)207 597 5970
Berenberg (Joint Broker)
Ben Wright / Mark Whitmore
Tel: +44 (0) 203 207 7800
Powerscourt
Peter Ogden / James White
Tel: +44 (0) 20 7250 1446
About Ceres Power
Ceres Power (http://www.cerespower.com/) is a world leader in low cost, next generation fuel cell technology for use in distributed power products that reduce operating costs, lower CO2, SOx and NOx emissions, increase efficiency and improve energy security. The Ceres Power unique patented SteelCell® technology generates power from widely available fuels such as natural gas and future fuels such as hydrogen enabling a transition from low to zero carbon power generation at high efficiency. The SteelCell® is manufactured using standard processing equipment and conventional materials such as steel, meaning that it can be mass produced at an affordable price. Ceres Power offers its partners the opportunity to develop power systems and products using its unique technology and know-how, as well as the opportunity to manufacture the SteelCell® in volume.
Chairman's Statement
2019 marked an inflection point for Ceres, when plans and potential began to translate into tangible delivery and measurable gains. Our close links with two of the world's major players in engine manufacture developed into two significant commercial licences and a commitment to form a manufacturing joint venture with Weichai in China.
Successful capital raising also ensured that our investment plans are fully funded, freeing us to concentrate on the growth of the business. We also widened our partner portfolio and, with our Japanese partner Miura Co. Ltd, will reach the first commercialisation of our technology in Q4 2019.
Market potential
Ceres is playing a leading role in providing technology that cuts emissions and air pollution, for transportation, industry, data centres and everyday living. The SteelCell® solid oxide fuel cell's capability to deliver much more efficient power than centralised generation, and with minimal emissions, comes to market as both governments and industry recognise climate change as a clear and present danger.
The UK Government is the first G20 country to legislate towards meeting a net-zero emissions target by 2050, and the EU is debating following suit. In Japan, there are now more than 300,000 ENE-Farm domestic energy units installed, heated and powered by fuel cells and, at next year's Tokyo Olympics, there will be a fleet of 100 fuel-cell-powered buses to transport spectators.
The Korean Government has announced a target of 15GW of stationary fuel cell capacity by 2040, and to put 80,000 hydrogen fuel cell electric vehicles (FCEVs) on its roads within the next three years. China, with its targets to reduce emissions and to counter considerable issues over air pollution in their cities, also has an active programme for new electric vehicles, including buses.
These types of measures, in territories that are focus areas for Ceres, come in addition to a myriad of urban and national targets, controls, incentives and penalties worldwide. Their effects can be seen driving new low-carbon, low-pollutant strategies. For example, Volkswagen has announced that its final generation of combustion engines will roll off the line in 2026 signalling the end of its internal combustion engine era.
During the year, the industry saw an increased level of investment in fuel cell technology, led by corporates with financial institutions following, as was the case with Ceres Power. The fuel cell market is projected to reach US$25 billion by 2025.
Operational activity
During FY2019, we continued to strengthen our relationships with leading global OEMs.
In particular, our relationships with Weichai, one of the world's leading automotive companies, and Bosch became even stronger. In Japan, we provide the fuel cell system for Miura's new 4.2kW CHP system, to be launched later this year; and in Korea, just after the close of the financial year, we added Doosan, one of the world's largest producers of fuel cell systems, to our partner portfolio. We also continue development projects with Cummins and Honda.
Each of these collaborations brings new learning and insight, and during the year we were delighted to appoint Dr Haoran Hu from Weichai to the Board as a Non-Executive Director. Ceres will benefit from his wealth of experience in the power and technology sectors, and his distinguished record of commercialising technology.
ESG
As our business grows, we are determined to manage our growth while focusing on environmental, social and governance (ESG) issues. As a business rooted in environmental improvement, this comes naturally to us. For the first time, we are reporting our progress against the UN's Sustainable Development Goals (SDGs), and have defined our own ESG policy, which can be found on the Ceres website.
Conclusion
This excellent year is once again the product of the powers of our people: their drive to innovate, their passion for challenge and their commitment to bring to market ever-more sustainable solutions. We attracted many new professionals to our team during the year and will create a further 60 high-skilled manufacturing roles as we open our new £8 million fuel cell manufacturing facility in early 2020 in Redhill, UK.
I thank everyone for their contribution, along with all our commercial partners, as we look forward to even greater things in FY2020.
ALAN AUBREY
CHAIRMAN
Chief Executive's review
We can look back on FY2019 with a great deal of pride. The collective effort of our teams, the strength of our technology and the important foundations laid in previous years all combined to see us double our revenues - an achievement we have now recorded for four successive years.
This progress has been broadly based. Commercially, we continue to attract new partners in new dynamic territories, such as South Korea, and to deepen relationships with world-class manufacturers who will give our technology the global platform it deserves.
Operationally, we are scaling up, and the fit-out of our new Redhill manufacturing reference facility is on schedule to commence production in January 2020. Technologically our R&D continues to find measurable ways in which our products can deliver even more.
As a result, we finished the year with revenues and other income up by 133% to £16.4 million. The Group also has a strong order book of £28.4 million, a pipeline worth more than £50 million and an investment programme that is fully funded with £71.3 million of cash, cash equivalents and short-term deposits at the year end.
Market dynamics
Just as climate change and its threats are now being recognised by governments worldwide, so fuel cell technology is regarded as a key asset in mitigating the causes of climate change and air pollution.
Our SteelCell® product is a solid oxide fuel cell (SOFC) - a technology that has multiple applications providing decentralised electricity for offices, homes and powering datacentres as well as for electric vehicles.
With its key attributes of conversion efficiency, versatility and exceptionally competitive production cost, SteelCell® met with notable success during the year in becoming a technology of choice with world-class OEMs. Critically, Ceres Power also has firm relationships in the main territories where SOFC technology is growing rapidly: these include Japan, China, the US, the EU and, perhaps the most active market for fuel cells, South Korea.
Excellent commercial progress
Ceres' growth strategy is driven by licensing our technology to global OEM partners, and generating royalties as those partners achieve full-scale commercialisation. We therefore benefit from an asset-light business model with a favourable margin.
Our success is directly linked to that of our licensees, and our teams can regularly be found on-site at customers' sites in Germany, China, Japan and Korea, helping to implement technology transfer and drive application development.
During the year, we achieved significant steps forward in our commercial deals with four licensees:
− Bosch. We had been working with Robert Bosch through a joint development agreement (JDA) in the previous financial year, and in FY2019 we strengthened that relationship with a Collaboration and Licence Agreement. This provides significant staged revenues to Ceres from the date of contract signing in August 2018 to the end of 2020, amounting to around £20 million.
Bosch also made a £9 million strategic equity investment during the year, becoming a 4% shareholder in Ceres, aligning them to the future success of the business.
The collaboration injects momentum and resources as we develop our technology, while also establishing low-volume production of our SteelCell® technology at Bosch in Germany - the precursor to a potential scale-up to high volume production.
− Weichai Power. This major Chinese automotive and equipment manufacturer has a market cap in excess of US$10 billion, and among multiple interests, its output includes some 600,000 engines a year.
In December 2018, we were proud to finalise a long-term strategic collaboration with Weichai that was initially announced in May 2018. The landmark deal includes a licence agreement, a joint development agreement worth £9 million to Ceres, and a commitment to form a JV to invest in a new high-volume fuel cell manufacturing facility. The licence agreement will generate technology transfer payments of up to £30m for Ceres, separate from ongoing future royalties.
Following a successful technology transfer and the licensing of system-level technology, we announced in September 2019 that the combined team has produced a first prototype 30kW SteelCell® range extender system for demonstration in an electric city bus utilising widely available compressed natural gas fuel.
This successfully marks the completion of the initial joint development agreement between Ceres and Weichai and our teams are now focused on developing the next stage system to go on bus field trials in 2020. Following these field trials, Weichai and Ceres intend to establish a fuel cell manufacturing joint venture in Shandong Province, China to manufacture SteelCell® SOFC systems.
Like Bosch, Weichai is also a direct investor in Ceres Power; raising its shareholding in the business to 20%, bringing its total equity investment to £48.1 million.
− Miura Co., Ltd. Japan's largest industrial boiler manufacturer has been working with Ceres since 2016 to develop an SOFC CHP unit for the commercial market. Operating on the main gas supply and capturing heat as hot water, the overall efficiency of the system reaches 90%, delivering both major energy savings and a lower carbon footprint. This product will have a soft market launch in Q4 2019, marking a milestone for Ceres as the first commercialisation of our SteelCell® technology.
− Doosan. Immediately following the financial year-end, Doosan Corporation signed a two-year collaboration and licensing agreement with Ceres. Doosan has established itself as a world leader in the fuel cell industry and the agreement with Ceres brings solid oxide technology to its current fuel cell portfolio. Doosan's existing stationary fuel cell business exceeded 1 trillion won (c. $850 million) in orders for the first time in 2018. The deal is worth £8 million to Ceres over two years and marks our entry into the progressive Korean market with the potential to expand the partnership to new applications and manufacturing.
We continued to make good progress with leading players Cummins and Honda in joint development programmes. Separately, there was a participant change to a Ceres programme funded by the UK's Advanced Propulsion Centre (APC). Our original planned partner Nissan chose not to proceed for its own business reasons, but we were pleased to announce that Weichai has come on board in their place. The project focuses on our fuel cell technology for EVs and, in particular, larger commercial vehicles.
Technology
As a technology licensing company, we are judged on our capacity to innovate. In essence, this requires us to excel in two areas. Firstly, we must continually mature and refine the products we have already created and ensure our licensees are getting the very best from them. Secondly, we must break new ground, applying restless and rigorous R&D maintaining our leading position in SOFC.
Our R&D team continues to develop the next generation (V6) of our core technology, with a focus on reducing manufacturing stages and increasing power density, whilst reducing cost. We are also engineering the next design of our 5kW stacks, as well, utilising our capabilities in energy conversion technology.
Operations
Our strategy is not for Ceres Power to become a mainstream fuel cell manufacturer, but an asset-light creator and licensor of our technology. However, a certain manufacturing scale is required to service our partners, and to define and prove processes that they can then replicate on a much greater scale - such as our current technology transfer programme with Bosch in Bamberg, Germany.
To meet these needs, which require more than we can service with our existing R&D lines in Horsham, we have installed the UK's first SOFC manufacturing blueprint plant in Redhill, UK. CP2 will have an initial capacity of 2MW per year - sufficient to meet our near-term needs, and act as a reference design for our partners - who will typically be looking to install volumes 100 times that capacity per site, using our licensing model. CP2 is on track to commence fuel cell production in January 2020.
Strong financials
The business achieved excellent commercial growth of revenue and other income of 133% in the reporting year, driven principally by licence revenues from our main partners.
We expect licence fees to represent a high proportion of our revenues over time, which is significant as they deliver excellent gross margins. This period, a higher proportion of license activity delivered gross margin of 74%, substantially ahead of our target of maintaining margins above 50%.
We also successfully raised £77.1 million of new equity from strategic partners and via a private placing with institutions during the year. This leaves us in the strong position of being fully-funded for our investment plans and frees the management team to focus on growing the business.
However, we are also looking to grow sustainably, striking a careful balance between targeting profitability and making essential investments for our long-term future - such as in the new CP2 facility, additional talent and further R&D. Our underlying operational cash outflow has reduced significantly, reflecting our increasing revenues and the careful balance we are striking.
Our people
During the year we welcomed around 70 new professionals into the business, predominantly technicians and engineers. We have now doubled our workforce since 2017 to 240, a figure that includes 30 different nationalities and a positive gender split.
I would like to place on record my thanks to this exceptional team, who have excelled on every front: from serving the needs of our main licensees, here in the UK and away on-site; to the design, project management and build of CP2; to the performance increases achieved with our technology and achieving high quality manufacturing of fuel cells for our partners; to attracting new licensees including, at the close of the year, the global leader Doosan.
Outlook
We are absolutely focused on the needs and expectations of our licensees, for whom operational excellence, added value and robust delivery are key. Alongside this, we are aware and prepared for the challenges of scaling up, launching CP2, and not only refining our technology but adapting it for further and future applications.
We are proud to be setting the pace and standards for SOFC technology and playing our part in addressing the major challenges of climate change and air quality and look forward to extending our technology to a widening portfolio of global partners and applications.
PHIL CALDWELL
CHIEF EXECUTIVE OFFICER
Consolidated statement of profit and loss and other comprehensive income
for the year ended 30 June 2019
Note
2019
£'000
2018
£'000
Revenue
2
15,300
6,329
Cost of sales
(3,804)
(3,097)
Gross profit
11,496
3,232
Other operating income
1,065
680
Operating costs
3
(20,485)
(15,854)
Operating loss
(7,924)
(11,942)
Finance income
552
57
Loss before taxation
(7,372)
(11,885)
Taxation credit
2,538
1,961
Loss for the financial year and total comprehensive loss
(4,834)
(9,924)
Loss per £0.10 ordinary share expressed in pence per share:
- basic and diluted
4
(3.43)p
(9.78)p
All activities relate to the Group's continuing operations and the loss for the financial year is fully attributable to the owners of the parent.
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated statement of financial position
as at 30 June 2019
Note
2019
£'000
2018
£'000
Assets
Non-current assets
Property, plant and equipment
9,769
2,197
Other intangible assets
5
1,322
47
Other receivables
741
-
Total non-current assets
11,832
2,244
Current assets
Inventories
1,403
1,400
Contract assets
722
-
Other assets
1,497
1,630
Derivative financial instruments
28
8
Current tax receivable
2,292
1,900
Trade and other receivables
4,204
3,151
Short-term investments
6
63,700
-
Cash and cash equivalents
6
7,567
6,395
Total current assets
81,413
14,484
Liabilities
Current liabilities
Trade and other payables
(2,365)
(1,734)
Contract liabilities
(3,061)
-
Other liabilities
(1,838)
(2,556)
Derivative financial instruments
(66)
(5)
Provisions
(158)
-
Total current liabilities
(7,488)
(4,295)
Net current assets
73,925
10,189
Non-current liabilities
Other liabilities
(323)
-
Provisions
(992)
(851)
Total non-current liabilities
(1,315)
(851)
Net assets
84,442
11,582
Equity attributable to the owners of the parent
Share capital
7
15,277
10,163
Share premium
179,116
107,445
Capital redemption reserve
3,449
3,449
Merger reserve
7,463
7,463
Accumulated losses
(120,863)
(116,938)
Total equity
84,442
11,582
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated cash flow statement
for the year ended 30 June 2019
2019
£'000
2018
£'000
Cash flows from operating activities
Loss before taxation
(7,372)
(11,885)
Adjustments for:
Finance income
(552)
(57)
Depreciation of property, plant and equipment
1,025
1,170
Amortisation of intangibles
13
-
Net foreign exchange losses/(gains)
67
(29)
Net change in fair value of financial instruments at fair value through profit or loss
42
(3)
Share-based payments
909
920
Operating cash flows before movements in working capital and provisions
(5,868)
(9,884)
Increase in trade, other receivables and assets
(1,412)
(2,319)
Increase in inventories
(3)
(805)
(Decrease)/increase in trade, other payables and liabilities
(559)
1,636
Increase in contract assets
(722)
-
Increase in contract liabilities
3,061
-
Increase in provisions
299
23
Net cash used in operations
(5,204)
(11,349)
Taxation received
2,146
1,866
Net cash used in operating activities
(3,058)
(9,483)
Investing activities
Purchase of property, plant and equipment
(7,693)
(1,454)
Capitalised development expenditure
(1,288)
(47)
Movement in short-term investments
(63,700)
14,000
Finance income received
193
57
Net cash generated (used in)/generated from investing activities
(72,488)
12,556
Financing activities
Proceeds from issuance of ordinary shares
77,926
135
Expenses from issuance of ordinary shares
(1,141)
-
Net cash generated from financing activities
76,785
135
Net increase in cash and cash equivalents
1,239
3,208
Exchange (losses)/gains on cash and cash equivalents
(67)
29
Cash and cash equivalents at beginning of year
6,395
3,158
Cash and cash equivalents at end of year
7,567
6,395
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated statement of changes in equity
for the year ended 30 June 2019
Share
capital
£'000
Share
premium
£'000
Capital redemption reserve
£'000
Merger
reserve
£'000
Accumulated losses
£'000
Total
£'000
At 1 July 2017
10,124
107,349
3,449
7,463
(107,934)
20,451
Comprehensive income
Loss for the financial year
-
-
-
-
(9,924)
(9,924)
Total comprehensive loss
-
-
-
-
(9,924)
(9,924)
Transactions with owners
Issue of shares, net of costs
39
96
-
-
-
135
Share-based payments
-
-
-
-
920
920
Total transactions with owners
39
96
-
-
920
1,055
At 30 June 2018
10,163
107,445
3,449
7,463
(116,938)
11,582
Comprehensive income
Loss for the financial year
-
-
-
-
(4,834)
(4,834)
Total comprehensive loss
-
-
-
-
(4,834)
(4,834)
Transactions with owners
Issue of shares, net of costs
5,114
71,671
-
-
-
76,785
Share-based payments
-
-
-
-
909
909
Total transactions with owners
5,114
71,671
-
-
909
77,694
At 30 June 2019
15,277
179,116
3,449
7,463
(120,863)
84,442
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the consolidated financial statements
for the year ended 30 June 2019
1. Basis of preparation
The consolidated financial statements of the Group are prepared on a going concern basis, in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, the IFRS Interpretations Committee (IFRS-IC) interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared on a historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments and financial instruments classified as fair value through the profit or loss.
The financial information contained in this final announcement does not constitute statutory financial statements as defined by in Section 434 of the Companies Act 2006. The financial information has been extracted from the financial statements for the year ended 30 June 2019 which have been approved by the Board of Directors, and the comparative figures for the year ended 30 June 2018 are based on the financial statements for that year.
The financial statements for 2018 have been delivered to the Registrar of Companies and the 2019 financial statements will be delivered after the Annual General Meeting on 4 December 2019.
The Auditor has reported on both sets of accounts without qualification, did not draw attention to any matters by way of emphasis without qualifying their report, and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.
The Directors confirm that, to the best of their knowledge, this condensed set of consolidated financial statements has been prepared in accordance with the AIM Rules.
Going Concern
Having reviewed the Group's forecast income and expenditure, performing appropriate sensitivity and scenario analyses, and after making appropriate enquiries, the Directors have a reasonable expectation that the Group and Company have adequate resources to progress their established strategy. Accordingly, they continue to adopt the going concern basis in preparing these financial statements.
New standards and amendments applicable for the reporting period
The Group has adopted the following new standard with a date of initial application of 1 July 2018.
- IFRS15 'Revenue from Contracts with Customers' - for further details on the impact of adoption of this standard please refer to note 2, 'Revenue and direct costs'.
- IFRS9 'Financial Instruments' - IFRS 9 replaces the previous guidance relating to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 from 1 July 2018 resulted in no changes in existing accounting policies. The adoption of IFRS 9 had no impact on the opening balance sheet of the Group.
Critical accounting estimates and judgements
Revenue from customer contracts - note 2
There are significant management judgements and estimates when classifying, valuing and recognising revenue in relation to customer contracts.
Customer contracts typically include engineering services, access to or sale of technology hardware and licenses. Revenue is allocated to these key components based on initial cost estimates to deliver the obligations under the contract and established margins for the different components. Management has established a range of margins to apply to contract components where the costs can be reliably estimated. Given the sometimes complex and long-term nature of customer contracts, these forecast cost estimations and margins are considered a significant area of judgement when valuing and allocating revenue to key components.
In determining the revenue recognition for license components of customer contracts, judgements must be made as to the nature of the licenses (right to access or right to use) and the number and timing of performance obligations associated with those licences. These judgements are made based on the interpretation of key clauses and conditions within each customer contract.
Revenue for engineering services is recognised based on the percentage of completion method and is measured based on the total contract costs at each reporting period compared to the estimated total contract costs to deliver the service over the contract life. The assessment of the total project costs to deliver the contracted service are updated during the term of the contract by project managers and are subject to internal reviews, including comparison to previous forecasts and past experience.
Material differences in the amount of revenue in any given period may result if the judgements or estimates prove to be incorrect or if management's estimates change on the basis of development of the business or market conditions. To date there have been no material differences arising from these judgements and estimates.
Capitalisation and amortisation of development costs - note 5
When determining the criteria for starting, and subsequently ceasing, the capitalisation of development costs as an internally generated asset, IAS 38 requires that strict criteria are met; in particular, that it is probable that future economic benefits will result from the development asset.
Management's view has always been that this probability threshold needed to be sufficiently high, such that development costs would not be capitalised before the Group could demonstrate the inflow of future economic benefits from significant "go-to-market" licence contracts with customers.
Following the successful agreement of contracts with Robert Bosch and Weichai Power in September and December 2018 respectively, management believes that this threshold of probability has been met. As a result, from 1 January 2019 management has put in place processes to review and assess all customer and internal development programme expenditure to ascertain whether it is appropriate to capitalise development costs under IAS 38.
Determining when capitalisation should commence and cease is a critical judgement, as is the basis for amortising the capitalised costs.
Within the Group there is an established Technology and Product Development Process with gated milestones that assesses the technology and product viability and maturity. Until a programme has passed the required milestone gate, all expenditure is deemed "Research" and expensed as incurred. Expenses incurred after the milestone gate is passed are capitalised within the parameters set out in the accounting policy. Once a programme has passed the milestone gate, confirming a production design version is approved or development activities are completed, the capitalisation of costs is stopped and further expenditure is expensed.
Management assess the period of amortisation over the deemed useful life of each asset to ensure that the amortisation cost is matched by the inflow of future economic benefits expected to be received from customers in the form of license and royalty income.
2. Revenue and direct costs
The Group adopted IFRS 15 with a date of initial application of 1 July 2018. The revenue recognition accounting policy applied in preparation of the results for the current financial year reflects the application of IFRS 15 and is detailed below. The Group has elected to adopt the standard using the cumulative effect transition method. Under this transition method, the new standard has been applied as at the date of initial application without restatement of comparative amounts. There is no cumulative impact on the opening balance of equity as at 1 July 2018 as a result of the initial application of the new standard. The comparative information has not been adjusted and therefore continues to be reported under IAS 18, 'Revenue Recognition'.
The Group's revenue is disaggregated by geographical market, major product/service lines, and timing of revenue recognition:
Geographical market
2019
£'000
2018
£'000
Europe
10,543
610
Asia
4,451
4,314
North America
306
1,405
15,300
6,329
Major product/service lines:
2019
£'000
2018
£'000
Engineering services and provision of technology hardware
7,888
5,420
Licenses
7,412
909
15,300
6,329
Timing of transfer of goods and services:
2019
£'000
2018
£'000
Products and services transferred at a point in time
7,057
1,229
Products and services transferred over time
8,243
5,100
15,300
6,329
The contract assets and liabilities as of 1 July 2018 and 30 June 2019 are as follows:
30 June 2019
1 July 2018
£'000
£'000
Trade receivables
2,404
1,744
Contract assets - accrued income
306
709
Contract assets - deferred costs
416
625
3,126
3,078
Contract liabilities - deferred income
(3,061)
(933)
Provision for loss making contracts
(65)
-
Provision for warranties
(93)
-
(3,219)
(933)
The contract assets - accrued income - primarily relate to consideration for work completed but not billed at the reporting date. The contract assets are transferred to trade receivables when the rights become unconditional.
The contract assets - deferred costs - relate to the cost to provide hardware to customers under evaluation agreements. The cost is deferred and recognised on a straight-line basis over the period of access as the customers preferred technology performance attributes are verified under the agreement.
The contract liabilities - deferred income - primarily relate to the advance consideration received from customers. There are no significant financing components associated with deferred income.
Revenue recognised in the current year that was included in the contract liabilities - deferred income - balance at the beginning of the period was £664,000.
There were no significant amounts of revenue recognised in the year ended 30 June 2019 arising from performance obligations satisfied in previous periods.
Significant changes in the contract assets and the contract liabilities balances during the period are as follows:
Contract assets
Contract liabilities
2019
£'000
2019
£'000
Revenue recognised that was included in the contract liability balance at the beginning of the period
664
Increases due to cash received, excluding amounts recognised as revenue during the period
(2,792)
Transfers from contract assets recognised at the beginning of the period to receivables
(709)
Increases as a result of changes in the measure of progress
306
The revenue expected to be recognised in future years for evaluation and development, supply and licence agreements in respect of performance obligations that are unsatisfied (or partially unsatisfied) at the year end is:
2020
2021
2022
£'000
£'000
£'000
Evaluation, development, supply and licence agreements
13,005
4,480
245
The above analysis excludes revenue which is contracted but contingent upon milestones or decision criteria which are at the customers' discretion.
Changes in accounting policies
The Group adopted IFRS 15 using the cumulative effect transition method with a date of initial application of 1 July 2018. The comparative information has not been adjusted and therefore continues to be reported under IAS 18, 'Revenue Recognition'. There is no cumulative impact on the opening balance of equity as at 1 July 2018 as a result of the initial application of the new standard.
Consolidated statement of financial position
The impact of adopting IFRS 15 on the consolidated statement of financial position for the year ended 30 June 2019 compared to the revenue determined in accordance with IAS 18 is as follows:
Impact of changes in accounting policies
As reported
£'000
Adjustments
£'000
Balances without adoption of IFRS 15
£'000
Current assets
Inventories
1,403
416
1,819
Contract assets
722
(722)
-
Other assets
1,497
306
1,803
Derivative financial instruments
28
-
28
Current tax receivable
2,292
-
2,292
Trade and other receivables
4,204
-
4,204
Short-term investments
63,700
-
63,700
Cash and cash equivalents
7,567
-
7,567
Total current assets
81,413
-
81,413
Liabilities
Current liabilities
Trade and other payables
(2,365)
(2,365)
Contract liabilities
(3,061)
3,061
-
Other liabilities
(1,838)
(3,061)
(4,899)
Derivative financial instruments
(66)
-
(66)
Provisions
(158)
-
(158)
Total current liabilities
(7,488)
(7,488)
Other than the impact noted above on adopting IFRS 15, there were no further changes to the consolidated statement of financial position for the year ended 30 June 2019.
Consolidated statement of profit and loss and other comprehensive income
There is no impact on the consolidated statement of profit and loss and other comprehensive income as a result of the adoption of IFRS 15 for the year ended 30 June 2019 compared to the revenue determined in accordance with IAS 18.
Consolidated cash flow statement
The impact of adopting IFRS 15 on the consolidated cash flow statement for the year ended 30 June 2019 compared to the revenue determined in accordance with IAS 18 is as follows:
Impact of changes in accounting policies
As reported
£'000
Adjustments
£'000
Balances without adoption of IFRS 15
£'000
Operating cash flows before movements in working capital and provisions
(5,868)
-
(5,868)
Increase in trade, other receivables and assets
(1,412)
(306)
(1,718)
Increase in inventories
(3)
(416)
(419)
(Decrease)/increase in trade, other payables and liabilities
(559)
3,061
2,502
Decrease in contract assets
(722)
722
-
Increase in contract liabilities
3,061
(3,061)
-
Increase in provisions
299
-
299
Net cash used in operations
(5,204)
-
(5,204)
Other than the impact noted above on adopting IFRS 15, there were no further changes to the consolidated cash flow statement for the year ended 30 June 2019.
3. Loss before taxation
2019
£'000
2018
£'000
Operating costs are split as follows:
Research and development costs
13,799
11,422
Administrative expenses
4,618
3,430
Commercial expenses
2,068
1,002
20,485
15,854
4. Loss per share
On 7 August 2018 Ceres Power Holdings plc completed a 1-for-10 share consolidation, where every ten existing ordinary shares of £0.01 each in the Company were consolidated into one ordinary share of £0.10 each. The basic and diluted loss per share for the prior year has been adjusted to represent the £0.10 ordinary share capital structure so it is comparable to the current year share capital.
Basic and diluted loss per £0.10 ordinary share of 3.43p for the financial year ended 30 June 2019 (2018: 9.78p (adjusted)) is calculated by dividing the loss for the financial year attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. Given the losses during the year, there is no dilution of losses per share in the year ended 30 June 2019 or in the previous year.
The loss for the financial year ended 30 June 2019 was £4,834,000 (2018: £9,924,000) and the weighted average number of £0.10 ordinary shares in issue during the year ended 30 June 2019 was 140,956,490 (2018: 101,483,381 (adjusted)).
5. Intangible assets
Research and development
Expenditure incurred on research and development is distinguished as relating to a research phase or development phase with reference to the Group's technology and product development process.
All research phase expenditure is recognised in the Consolidated Statement of Profit and Loss and Other Comprehensive Income as an expense when incurred (see note 3).
Development phase expenditure is capitalised from the point that all of the following conditions are met:
· the product or process under development is technically and commercially feasible;
· the Group intends to and has the technical ability and sufficient resources to complete the development;
· future economic benefits are probable; and
· the Group can measure reliably the expenditure attributable to the asset during its development.
Development phase activities involve a plan or design for the production of new or substantially improved products or processes in relation to the Group's core fuel cell and system technology and intellectual property. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads and capitalised borrowing costs, if appropriate.
Capitalisation of development phase activities continues until the point at which the product or process under development meets its originally mandated technical specification. For product and process development, this is at the point where the production design version is approved or the development is completed.
Subsequent expenditure is capitalised where it enhances the functionality of the asset and demonstrably generates an enhanced economic benefit to the Group. All other subsequent expenditure on the product or process is expensed as incurred.
Where development activities are funded through Government Grants and the cost of those activities is capitalised under this policy, the grants received are considered Capital Grants and are presented as deferred income and recognised in the Consolidated Statement of Profit and Loss and Other Comprehensive Income as other operating income on a basis consistent with the depreciation or amortisation of the asset over its estimated useful life.
Subsequent to recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives and the estimated useful lives are reviewed and adjusted as appropriate, at each balance sheet date. Intangible assets which are not yet available for use are tested for impairment at each balance sheet date.
2019
£'000
2018
£'000
Cost
At 1 July
47
-
Additions from internal developments in relation to manufacturing site
187
47
Additions from customer and internal development programmes
1,101
-
At 30 June
1,335
47
Accumulated amortisation
At 1 July
-
-
Charge for the year
13
-
At 30 June
13
-
Net book value
13
-
At 30 June
1,322
47
The following useful lives are used in the calculation of amortisation:
Capitalised development 2 - 7 years
The capitalised development intangible relates to the design, development and configuration of the Company's core fuel cell and system technology and manufacturing processes. Amortisation of capitalised development commences once the development is complete and is available for use.
6. Cash, cash equivalents and short-term investments
Cash and cash equivalents
Cash and cash equivalents includes cash at bank and in hand, pooled money market funds and short-term deposits with an original maturity of less than or equal to one month, reduced by overdrafts to the extent that there is a right of offset against other cash balances.
Short-term investments
These include short-term bank deposits with an original maturity greater than one month and less than or equal to 12 months.
2019
£'000
2018
£'000
Cash at bank and in hand
1,502
3,828
Money market funds
6,065
2,567
Cash and cash equivalents
7,567
6,395
Short-term bank deposits greater than one month
63,700
-
71,267
6,395
The Group places surplus funds of no more than £8 million per institution into pooled money market funds and bank deposits with durations of up to 12 months. During the year the Group's treasury policy restricted investments in short-term sterling money market funds to those which carry short-term credit ratings of at least two of AAAm (Standard & Poor's), Aaa/MR1+ (Moody's) and AAA V1+ (Fitch) and deposits with banks with minimum long-term rating of A/A-/A3 and short-term rating of F-1/A-2/P-2 for banks which the UK Government holds less than 10% ordinary equity.
Interest rate type
2019
£'000
2018
£'000
Interest rate risk profile of the Group's financial assets:
Cash at bank and in hand
Floating
1,502
3,828
Money market funds
Floating
6,065
2,567
Short-term bank deposits greater than one month
Fixed and floating
63,700
-
71,267
6,395
During the year the fixed rate short-term bank deposits in pounds sterling had terms of between 32 days and 12 months and earned interest of between 0.75% and 1.28%. Floating rate cash deposits, money market funds and other bank deposits earned interest based on relevant UK LIBID-related equivalents. The credit quality of financial assets has been assessed by reference to external credit ratings.
7. Share capital
2019
2018
Number £0.01 Ordinary shares
Number £0.10 Ordinary shares
£'000
Number £0.01 Ordinary shares
£'000
Allotted and fully paid
At 1 July
1,016,269,193
-
10,163
1,012,419,929
10,124
Allotted £0.01 Ordinary shares on exercise of employee share options
6,041,441
-
60
3,849,264
39
27 July 2018 - Allotted £0.01 Ordinary
shares on cash placing
260,952,296
-
2,609
-
-
7 August 2018 - 1-for-10 share
consolidation
(1,283,262,930)
128,326,293
-
-
-
Allotted £0.10 Ordinary shares on
exercise of employee share options
-
926,155
93
-
-
Allotted £0.10 Ordinary shares on cash
placing (see below)
-
23,517,364
2,352
-
-
At 30 June
-
152,769,812
15,277
1,016,269,193
10,163
On 27 July 2018, the Company completed the allotment of 260,952,269 ordinary £0.01 shares for gross cash consideration of £39,352,000. The allotment was in respect of the Weichai Power strategic investment, announced via the Regulatory News Service (RNS) on the 16 May 2019, for 128,326,275 ordinary £0.01 shares, and the placing of 132,625,994 ordinary £0.01 shares to existing and new institutional investors.
On 20 July 2018, at a General Meeting of the Company, the shareholders approved the issue of an option to Weichai Power, subject to the previously described subscription being completed, allowing it to subscribe for up to an additional 182,115,100 ordinary £0.01 shares in the Company, but not more than 20% of the issued share capital of the Company, at a price of £0.1645 per share and subject to certain commercial documents being signed and conditions being met.
On 7 August 2018, Ceres Power Holdings plc completed a 1-for-10 share consolidation, where every ten existing ordinary shares of 1p each in the Company were consolidated into one ordinary share of 10p each. All outstanding equity instruments, including employee share options and the aforementioned Weichai Power option, were amended as a result of this consolidation.
Following the share consolidation, the Company completed the following allotments:
· 5,973,660 ordinary £0.10 shares to Robert Bosch GmbH for cash consideration of £9,008,279 on 25 September 2018;
· 663,740 ordinary £0.10 shares to Weichai Power for cash consideration of £1,000,920 on 5 October 2018; and
· The exercise of the option issued to Weichai Power, 16,879,964 ordinary £0.10 shares for cash consideration of £27,767,541 on 14 December 2018.
During the year 6,041,441 ordinary £0.01 shares were allotted for cash consideration of £308,000 and 926,155 ordinary £0.10 shares for cash consideration of £489,000 on the exercise of employee share options (2018: 3,849,264 ordinary £0.01 shares for cash consideration of £135,000).
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR FSMFWFFUSEFS
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