New orders and trading update

    RNS Number : 6317Y
  Axeon Holdings Plc
  09 July 2008
   


    AXEON HOLDINGS PLC
    Delivering clean mobile power for electric vehicles, cordless power tools and mobile power applications

    New orders and first half 2008 trading update

    Axeon Holdings plc ("Axeon"), Europe's largest independent lithium-ion battery system supplier, is pleased to announce new orders worth
euro 2 million and to provide an update on trading for the six month period to end of June 2008 ahead of the announcement of its interim
results towards the end of September.

    Highlights
    *     First half revenue approximately £34 million - £5 million more than for the whole of 2007 and a 27% increase in revenue over the
second half of 2007 
    *     Management expect to meet market expectations for the full year
    *     Three new orders worth an aggregate of Euro 2 million for the Mobility segment received in the last month
    *     Growth in Power Tool and Mobility battery segments meeting management expectations
    *     Automotive 
    *     12 prototypes completed for 9 customers in Automotive segment, broadening the customer base
    *     In addition to the above, recent orders for prototype battery packs for the Automotive segment include: an HEV bus programme in
the US, a European HEV heavy machinery programme and a European EV bus programme, for delivery in the second half of 2008 and 2009 
    *     As previously announced, a long term supply agreement worth £17.3 million for a minimum of 1,000 vehicle batteries signed with
Allied Vehicles
    *     As previously reported the build up of automotive production batteries was slower than our original expectations, however we are
now producing to the revised customer schedule
    *     Working capital has increased as a result of rapidly rising revenue and order book and is being financed by partial utilisation of
cash raised at end of December 2007 as planned
    *     Order book for 2008 deliveries of batteries across the three segments stands unchanged at £74 million 

    Hamish Grant, Chief Executive Officer of Axeon, said:
    "Within the Automotive, Power Tool and Mobility markets in which we operate, our customers continue to forecast double digit growth
rates for demand of our battery products. The general macro economic changes of higher fuel prices and increasing policy action on reducing
automotive emissions is accelerating interest in our Lithium-ion EV and HEV battery technology. The increase in the number of customers
prototyping vehicles using our battery technology augers well for the future."  



    CONTACT
    Axeon Holdings plc    www.axeon.com
    Hamish Grant, CEO                                        Tel: [phone]
    David Campbell, CFO                                      Tel: [phone]

    Gavin Anderson & Co
    Ken Cronin / Robert Speed / Janine Brewis        Tel: [phone]

    Arbuthnot Securities 
    Antonio Bossi / John Prior                                Tel: + 44 (0)20 7012 2000



    First Half 2008 Trading UpDATE
    Introduction 
    Axeon will release its financial results for the first half of 2008 towards the end of September. This update provides a summary of
business performance in the first half of 2008 for each of our market segments of Automotive, Power Tool and Mobility.  
    Overall performance continues to be broadly in-line with market expectations. A relatively slower take up of production batteries in
Automotive has been offset by higher than expected revenues in Power Tool and in Mobility. The general economic conditions are increasing
interest in our Automotive EV and HEV batteries with increasing numbers of customers prototyping vehicles using our batteries.  
    We are delighted with the performance of the team at Axeon A.G. (acquired as Ristma in August 2007) and this business's contribution to
the group's results.  
    Automotive Batteries
    The production roll-out of Modec lithium-ion batteries has continued as planned. We are meeting our customers demand for production
batteries. We are on schedule with the planned development of a longer range lithium-ion pack for Modec. The pack is expected to come into
customer service towards the end of 2008.  
    We have previously reported on a significant supply agreement worth £17.3 million with Allied Vehicles to supply a minimum of 1,000
lithium-ion battery packs to power a range of zero-emission vehicles for their Zev Ltd subsidiary. Allied is building on its strong
relationship with Peugeot to provide a 3.5 tonne rated delivery vehicle based on the Peugeot Boxer, while the Peugeot Expert body shell
provides options for a 3 tonne rated delivery vehicle, an 8 seat minibus, and a taxi. Allied is also developing an electric 16 seat low
floor city bus. We remain on schedule to deliver the first production batteries during September 2008. Allied will be demonstrating some
vehicles powered by our battery packs at the British International Motor Show at London ExCel from 23 July to 3 August 2008. 
    Recent orders include:
    *     Agreement in May with a US customer for the supply of 5 prototype battery packs for an HEV Bus application which may lead to
production of several hundred batteries over 2009-2011. The 5 prototype systems are planned to be delivered between Q4 2008 and Q1 2009. The
vehicles will then undergo extensive road trials before volume production commitment.
    *     An order for an HEV prototype battery for a European heavy machinery manufacturer.  
    *     An order for a 66KWhr prototype battery for one of Italy's leading manufacturers of electric city buses. The prototype battery
will be delivered in late Q3 2008, and will then be evaluated for six months. If successful, the evaluation may lead to a production
programme in 2009. The manufacturer produces around 30 buses a year, with customers throughout Europe and North America and has an installed
fleet of several hundred vehicles.
    During the first half of the year we completed 12 prototype batteries for 9 different customers including packs for: 2 city cars, 1
electric scooter, 1 high performance sports car, 2 HEV for heavy machinery, 2 fork lift truck, 3 urban delivery vehicles and 1 city bus.
This keeps us on target to deliver between 20 - 30 prototype packs this year across 10 - 15 new customers.  
    The company now has two companies taking or committed to take Automotive production battery packs. The outstanding commitment for
production battery packs is currently approximately £35 million. These commitments are expected to be met over the next five years.  
    In our last trading update we identified that the rate of sales build up of electric vehicles would be slower than market expectations.
This was due to the difficulties of getting new electric vehicles to an automotive level of reliability and the need for customers to do
extended evaluations in order to satisfy themselves of the reliability and economic case. We remain cautious about the rate of sales build
up in 2008 and 2009, but believe that in the medium term the market may be bigger than previously expected.
    The rise in oil prices accelerates the economic case for electric vehicles and the general thrust of government and global policy is
moving in favour of electric and plug-in hybrid vehicles. Recent events include widespread commentary about the harmful economic and
environmental side effects of bio-fuels particularly in light of the Gallagher review earlier this week and the recent government
consultation on UK Renewable Energy policy.
    Power Tool Batteries
    The current order book for 2008 (including deliveries to date) stands at approximately £60.6 million a reduction of £2 million since
last reported. There are two key customers in this segment. One is showing strong order growth, while the other is showing a more mixed
pattern with strong growth across some product lines and weaker growth across more consumer orientated lines. There have been some limited
deferrals into 2009. Overall our customers are still forecasting growth of 10% - 15% p.a. and margins are meeting management expectations. 

    Mobile Batteries
    Across the three business segments mobile batteries shows the strongest rate of growth. The current order book for 2008 (including
deliveries to date) now stands at approximately £9.9 million an increase of £2.2 million since last reported. This segment covers a wide
variety of industrial, medical and leisure products with over 400 customers. Recent orders worth Euro 2 million across three programmes are
as follows:  
    The first order is for 90 power systems, including batteries, chargers, transducers and control systems. The complete systems will power
a new generation of coffee trolleys, to be deployed by a European train operator during 2008 and 2009. The 2.4KWhr lithium-ion batteries
have allowed the trolley manufacturer to add a coffee machine to the trolley, which was not possible with the previous battery cell
chemistry;
    The second order is a repeat order from an existing customer for 100,000 battery systems to be used in infusion pumps for medical
applications. There is growing demand for these products, particularly in the Far East. The order covers batteries and chargers and will be
delivered during 2009; and  
    The third order is a repeat order from an existing customer for 4,500 0.28kWh lithium-ion batteries for power-assisted electric
bicycles, to be produced during Q4 2008. Lithium-ion, which has replaced Nickel Metal Hydride for this application, provides a better energy
density and a longer cycle life at a lower price level.
     We have seen no slow down in customer enquiries or ordering during the first half of 2008. Growth in this segment is expected to exceed
30% this year and current indications remain in the range 15-25% p.a. over the next few years.
    Management and Staff
    As previously announced Mr Don Newton has joined as Group Technical Director and Mr Jim Ferguson as Group COO. They both bring relevant
expertise from larger organisations and the board looks forward to their contribution to the business.  John Blinkhorne has stepped down
from the board and is taking on new responsibilities leading overseas business development and relationships with key cell suppliers. Mr
Paul Johnston retired as a non-executive director at our AGM on 30th June 2008. Paul has had a long association with Axeon, initially as an
advisor to the company in its very early days and more recently as a non-executive director. The board would like to thank Paul for his
unstinting support for the business.
    In addition the company has made a number of appointments in marketing, finance and engineering to broaden the team. Professional
headcount is anticipated to rise from 87 to around 117 by the end of 2008. The majority of new staff are filling engineering roles to meet
the needs of the expanding customer base.

    Finance
    By the end of June 2008 revenues were more than £34 million exceeding revenue for the whole of 2007 by more than 5 million and a 27%
increase on the prior six month period ending December 2007.  
    At the end of 2007 we completed a placing to raise £12 million to provide working capital flexibility for the predicted rapid growth of
revenues during 2008. This rise in revenue has resulted in inventory and trade receivables increasing and cash balances reducing, so that
cash at the end of June has reduced to £4.8 million. This movement has been higher than management expectation by around £2 million due to
inventory build of raw materials partly required to meet the higher planned customer production in the second half of 2008 and partly due to
constraints in cell supply causing short term imbalances in other parts stock. Production plans show that cash will be higher at the year
end. 
    The Company has continued to invest heavily in both research and product development during the first half of 2008. The loss for the
first half of 2008 is therefore expected to be higher than in the first half of 2007. However the increasing balance of engineering work
relates to product development for specific customer programmes with production intent that is being capitalised and amortised over the
production life of the programmes.  
    Outlook
    The company has a strong order book and end customer demand is rising across most segments despite the general global economic slowdown.
We expect to meet market expectations for the full year. We have good visibility of forward orders for Power Tool and Mobility, but this is
less true in Automotive where the forward volumes remain relatively uncertain in the short term. However the increasing demand for
Automotive EV and HEV prototype programmes is a most encouraging pointer for the medium to longer term.
      


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