Intelligent Energy Holdings PLC Trading update (9497A)

TIDMIEH

RNS Number : 9497A

Intelligent Energy Holdings PLC

30 March 2017

30 March 2017

INTELLIGENT ENERGY HOLDINGS PLC: TRADING UPDATE

Intelligent Energy Holdings plc, the energy technology group ("Intelligent Energy", "IE", the "Group" or the "Company"), provides the following update with respect to trading for the half year ending 31 March 2017, including the Company's high level financial estimates for the period. This announcement contains inside information.

 
 Financial KPI          2016/17 H1    2015/16 H1 
                          Forecast      Actual 
                         Unaudited     Unaudited 
                            GBPm         GBPm 
---------------------  ------------  ----------- 
  Revenue(1)               c. 19         43.9 
---------------------  ------------  ----------- 
  Adjusted EBITDA(2)       c. (9)       (21.6) 
---------------------  ------------  ----------- 
  Loss after tax(3)       c. (12)       (67.3) 
---------------------  ------------  ----------- 
  Cash(4)                  c. 13          9.7 
---------------------  ------------  ----------- 
 

(1) The revenue estimate includes GBP16.6m (2015/16 H1 GBP40.9m) from the Indian GTL interim contract, which ceased at 30 November 2016

(2) EBITDA is a non-statutory measure often used by investors as a proxy for cash and to calculate the value of a business. The Company uses adjusted EBITDA (Earnings before Interest, impairment charges, Tax, Depreciation, Amortisation, share of joint venture results, equity fund raising costs and IFRS2 share-based payment charges) as an indicator of trading profitability and a proxy for operating cashflow, before any cash movements relating to investment, tax, funding and changes in working capital. It is not an IFRS measure, and therefore not shown in the Group income statement

(3) Loss after tax in H1 2015/16 is after GBP23.9m of impairments and inventory write downs and the derecognition of a GBP21.9m deferred tax asset

   (4)        Cash is defined as cash and cash equivalents and short term deposits 

Key updates for the half year

-- Restructuring activities in the business are now complete. These have met the originally announced objectives of focusing the business on what the Directors believe to be the material growth opportunities, whilst substantially reducing the Company's cost base and cash burn and maintaining core capabilities. In particular:

o Product led commercial opportunities are now focused on the air cooled fuel cell platform in the 10W to 20kW range, with capability maintained in respect to evaporatively cooled technology in the 20kW to 100kW+ power range

o Indian based activities have been restructured during the half year to support fuel cell product sales on the same commercial model as the rest of the Group following the cessation of the interim energy management agreement with GTL at 30 November 2016

-- The interim contract contributed revenue of GBP16.6m in H1 (2015/16 H1 GBP40.9m) at a low gross margin

o Headcount has been reduced to 158 at 28 February 2017, from 381 at 31 March 2016

o EBITDA losses have more than halved from GBP21.6m in H1 2015/16 to an estimated GBP9m in H1 2016/17

o H1 2016/17 cash burn, including operating losses, working capital movements, loan interest and tax is estimated at an average of GBP1.3m per month, or GBP1.6m a month adjusting for the impact of R&D tax credits received in January 2017

-- A contract was signed in February 2017 with US-based Luxfer-GTM Technologies for the supply of up to 600 1kW fuel cell modules for use in their portable, zero-emission lighting towers as part of a growing strategic relationship in the development of a line of integrated fuel cell products

-- Showcase demonstrators of stationary power related fuel cell modules and systems have been deployed in Japan, China, India and the US

-- It was announced in the first half that the Group's fuel cell stacks will be used for a trial of Suzuki Burgman scooters with the Metropolitan Police in London in the summer of 2017

-- Paid for demonstrators of the Group's lightweight stack technologies have been delivered to drone market participants, including an announced relationship with PINC, the US-based supply chain management company. This segment is considered to have the ability to scale significantly for the Company

-- Continued improvement has been delivered in H1 with respect to the stack life, durability and efficiency of the Group's proprietary air cooled fuel cells, which are protected by c. 1,800 patents and patents pending. The Group's fuel cells continue to be considered as industry leading with respect to power output per unit volume and power output per unit weight

   --     Standardised product is now available for sale including: 

o AC 10 stack, up to 320w

o AC 64 stack, up to 2.7kW

o AC Fuel Cell module, up to 2kW

o AC Fuel Cell Power Unit, up to 4kW

Outlook

The Group continues to focus on progressing fuel cell product sales from the conversion of global pipeline opportunities. This is focused on a variety of segments relating to stationary power applications, as well as building on market traction for drones. Automotive related JDA activity is also continuing with Suzuki, and discussions are taking place with respect to potential JDAs with other parties. The strengthening of the commercial team on a regional basis is allowing the Company in particular to concentrate its efforts in the US, Japan, China and India, and further developments are expected. The exact scale, timing and margin profile of opportunities that are converted to signed contracts is, however, by its nature, uncertain.

Overall, IE believes that it possesses the technology and capability to produce product at the required price points to scale the business. The presence of its in house manufacturing capacity also means that IE can produce at volume without necessarily incurring significant incremental capex, with the target of scaling the business in this manner through to free cashflow positive. This is envisaged to take place within the next few years, subject to additional funding. . Critically, IE also believes that the requisite level of demand exists for its products, although it has taken longer for IE to deploy standardised product than first thought. Now that a series of standardised products are available, sales are expected to scale more rapidly.

Future Financing

The Group's challenge is to move an estimated cashburn of GBP1.6m per month after interest on the convertible loan notes, to a positive cashflow position over the next few years, from profitably growing the revenue line through product sales. While the prospect of further JDAs and license deals could shorten the period required, the time taken to secure such arrangements and their uncertain nature means that the Group must continue to plan its strategy on the core assumption that its cashflow will derive mainly from product sales. Consequently, additional funds will be required to bridge the period to the Group reaching a positive cashflow position from trading activities, notwithstanding the current pipeline activities, given the likely time taken for conversion.

In the context of raising additional funds, the Board, in consultation with advisors, has concluded that it is unlikely for the Company to be able to access capital markets in the usual manner to bridge the gap between the current cash position of the Company and growing profitable sales to the level where the Company is generating free cash flow.

It is also considered not possible to achieve cash generation through further cost reduction alone, or to materially reduce the R&D and operating cost base further without negatively impacting core capability. A major non-operating cost, of c. GBP1.2m per annum, or 7% of total non-financing cash costs, relates to being a listed company and complying with best practice corporate governance and Board structure. The Board believes that with restructuring complete and access to public market funding uncertain, this position should be subject to urgent review.

Consequently, the Board recognises that discussions are appropriate with the principal holders of the Convertible Loan Notes, who are also significant shareholders in the Company, as to their intent with respect to their current equity stakes and their loan note positions, as well as to their appetite and ability to participate in a further financing for the Company.

As part of these discussions, the Board and advisors will be urgently reviewing all other options available to the Company and the Group, whilst recognising the circumstances that the Company faces. It should be noted that constraints exist which include the security granted over the Group's intellectual property portfolio (as part of the refinancing of the Company in 2016) in favour of the holders of the Convertible Loan Notes and the need to obtain the consent of a majority (by value) of the holders of the Convertible Loan Notes before further debt is taken on by the Company that ranks ahead of (or pari passu with) the Company's obligations to the holders of the Convertible Loan Notes.

Whilst there are positive developments in the business, there can be no certainty over the outcome of these future funding discussions, or of the review of the options available to the Company and the Group, and further announcements will be made as appropriate in due course.

Enquiries:

   Intelligent Energy Holdings plc                                                 [phone] 

Martin Bloom Group Chief Executive Officer

John Maguire Chief Financial Officer

Forward-looking statements

Certain statements made in this announcement are, or may be, forward-looking statements. These represent expectations for the Company's business, and involve risks and uncertainties. The Company has based these forward-looking statements on current expectations and projections about future events. However, because they involve known and unknown risks, uncertainties and other factors, which in some cases are beyond the Company's control, actual results or performance may differ materially from those expressed or implied by such statements. No reliance should be placed on such forward-looking statements. Without limitation to the foregoing, nothing in this announcement is intended to constitute (or should be construed as) a profit forecast.

About Intelligent Energy

Intelligent Energy Holdings plc delivers clean energy solutions for the distributed energy, diesel replacement, automotive and aerial drone markets. Working with international companies, Intelligent Energy aims to embed its fuel cell stack technology into applications across its target market sectors.

With its principal facility and headquarters in Loughborough, UK, the Company also operates in Japan, India, China, Singapore, France and the US. Intelligent Energy Holdings plc is listed on the London Stock Exchange (LSE: IEH.L).

More information on Intelligent Energy is available at Twitter, YouTube and LinkedIn. Or visit http://www.intelligent-energy.com

This information is provided by RNS

The company news service from the London Stock Exchange

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March 30, 2017 02:01 ET (06:01 GMT)