Ceramic Fuel Cells Limited Half Yearly Report -4-

For the half-year ended 31 December 2013

 
                                                                       Half-year 
                                           Notes             2013            2012 
                                                                $               $ 
 
 
 Cash Flows from Operating Activities 
 Receipts from customers 
  (inclusive of goods and services 
  tax)                                                  4,460,820       4,940,759 
 Payments to suppliers and employees 
  (inclusive of goods and services 
  tax)                                               (16,120,985)    (14,346,414) 
                                                  ---------------  -------------- 
                                                     (11,660,165)     (9,405,655) 
 Grant receipts (repayments)                             (27,659)               - 
 Other receipts                                           412,928         363,596 
 Income tax refunds received 
  (taxes paid)                                          4,022,582               - 
 Net cash inflow (outflow) from 
  operating activities                                (7,252,314)     (9,042,059) 
                                                  ---------------  -------------- 
 
 
 Cash Flows from Investing Activities 
 Payments for plant and equipment                       (148,924)       (151,353) 
 Proceeds from disposal of plant 
  and equipment                                         1,973,572             270 
 Decrease (increase) in security 
  deposits (including restricted 
  cash equivalents)                                        14,189          49,157 
                                                  ---------------  -------------- 
 Net cash inflow (outflow) from 
  investing activities                                  1,838,837       (101,926) 
                                                  ---------------  -------------- 
 
 
 Cash Flows from Financing Activities 
 Proceeds from issue of shares                          4,197,227      11,625,282 
 Proceeds from sale of forfeited 
  employee shares                                          23,363               - 
 Share issue costs                                        (6,234)       (539,314) 
 Forfeited employee shares disposal 
  costs                                                     (146)               - 
 Proceeds from borrowings - convertible 
  loan notes                                              339,041               - 
 Convertible loan note issue 
  costs                                                  (86,890)               - 
 Repayment of borrowings - finance 
  lease                                                 (172,192)       (133,764) 
 Interest received                                         33,336         109,413 
 Interest paid on borrowings 
  - convertible loan notes                              (300,591)               - 
 Interest paid on borrowings 
  - finance lease                                        (33,990)        (36,497) 
 Net cash inflow (outflow) from 
  financing activities                                  3,992,924      11,025,120 
                                                  ---------------  -------------- 
 
 Net increase (decrease) in cash 
  and cash equivalents                                (1,420,553)       1,881,135 
 Cash and cash equivalents at 
  the beginning of the half-year                       10,010,131       6,621,759 
 Effects of exchange rate changes 
  on cash and cash equivalents                            444,891         120,878 
                                                  ---------------  -------------- 
 Cash and cash equivalents at 
  the end of the half-year                     5        9,034,469       8,623,772 
                                                  ===============  ============== 
 
 

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013

Note 1. Basis of Preparation of Half-Year Report

This condensed consolidated interim financial report for the half-year reporting period ended 31 December 2013 has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001. Accounting Standard AASB 134 is fully compliant with International Financial Reporting Standard IAS 34 Interim Financial Reporting.

This condensed consolidated interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2013 and any public announcements made by Ceramic Fuel Cells Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

The financial report has been prepared on a going concern basis.

Going Concern

Over the life of the Group it has incurred substantial operating losses and is yet to become cashflow positive at an operational level. The Directors are mindful of this and continue to closely monitor the level of the Company's cash resources.

The Group has commercialised its fuel cell technology into products and has begun to make sales, but it has not yet achieved sales and production levels that allow the Group to generate positive operating cashflow or profits. The Company is thus reliant on the further raising of capital (debt or equity) in order to enable it to continue its research and product development and to implement its sales and production strategies.

These factors represent uncertainty about the ability of the Group to continue as a going concern. The Directors have considered these factors and believe it is appropriate to prepare the financial statements on a going concern basis given the following strategies:

Operational and business strategies

The Company continues its focus on increasing the number of sales orders received and intends to produce to order rather than to anticipated sales demand. It also continues to make significant inroads in reducing the cost per unit.

During this reporting period, the Company announced that the Governments in the German states of Saxony and Hesse had established funding programmes to support the deployment and development of mCHP's. These are in addition to the Government of North-Rhine Westphalia (NRW)'s funding programme. Whilst uptake of these programmes is often slowed by bureaucracy, it is anticipated that they will assist the Company in meeting its sales targets and will assist in reducing the net price of a BlueGEN unit for the end user.

Management and the Board's recent focus had been to secure orders and deliver and install the products in order to convert these orders into revenue and cashflow. Management and the Board are taking steps to increase sales more quickly by implementing more aggressive marketing and pricing strategies.

The Company continues to take measures to reduce the unit cost of the BlueGEN. These measures include: outsourcing production of components to high quality, lower cost, specialist manufacturers, and undertaking cost-down engineering work.

Financing strategies

The Company has been successful in raising funds in the past and in December 2013 raised $5.8M (GBP3.3M) before expenses via a Share Purchase Plan and an Overseas Offer. A$4.2M (GBP2.4M) of this was received in December and A$1.6M (GBP0.9M) in early January 2014.

The Company was also successful in selling the assets of its UK Powder Plant in December 2013 for GBP1.2M (A$1.9M). The powder produced by the plant was no longer being used by the Company and hence a decision was made to realise a surplus asset. This amount was received in December 2013.

Notes to the Consolidated Financial Statements

For the half-year ended 31 December 2013 (continued)

As previously mentioned, the Company is currently pursuing several funding options to strengthen its balance sheet and to allow it to continue its research and product development programme whilst it implements its sales and production strategies. As advised to the market, the Board has approved a fundraising of at least GBP3 million pounds to occur during March 2014, GBP1 million of which will be contributed by the Company's Chairman, Alasdair Locke. Discussions with prospective parties are significantly advanced and further details of the capital raise will be announced to the market in the near future. This capital raise will require approval by shareholders at an Extraordinary General Meeting. Depending on the amount of capital raised and the success of both the Company's sales programme and its restructuring activities, a further capital raise is likely to be required in the second half of CY2014.

The Heinsberg capital expansion programme is on hold until further capital is raised.

The Managing Director is in the process of restructuring the Company to drive down its costs significantly and to focus on larger volume sales orders rather than individual unit sales. An example of this is the order received from Avilos (referred to previously). Securing sales such as these will assist in reducing inventory and provide working capital to sustain the research and product development activities and to enable the Company to produce to order rather than hold high inventory levels.