RNS Number:9355I
Clean Air Power Limited
14 September 2006
For Immediate Release 14th September 2006
Clean Air Power Ltd
("Clean Air Power" or "the Company")
Interim Results
for the six months to 30th June 2006
Clean Air Power Ltd (AIM:CAP) the developer of Dual-FuelTM combustion technology
for heavy-duty diesel engines today announces its results for the 6 month period
ended 30 June 2006.
Highlights
* Successful IPO on AIM, raising #10.6m (gross proceeds)
* Launch of the Genesis Dual-FuelTM system in May 2006
* Genesis product now available on Mercedes and DAF Euro III platforms
* Successful conversion of Mercedes truck completed for Tesco trial and
subsequently delivered in July
* Successful conversion of DAF truck delivered to Warburtons bakers
* New intellectual property granted in key commercial regions
* Product creating interest due to the significant reduction in emissions
and CO2 - in addition to the original strong financial drivers
* Revenues #1.6m (#2.0m for 6 months to June 2005)
* Gross margin 44% versus 35% for 6 months to June 2005
* Operating loss (excluding share-based payments charge of #0.3m) #1.4m
(#1.5m for 6 months to June 2005 )
* Losses after tax #1.4m (excluding share-based payments charge of #0.3m
and reorganisation expenses of #0.2m) (#1.7m for 6 months to June 2005 )
Commenting on the results, John Pettitt, Chief Executive of Clean Air Power
said:
"The first half of 2006 has been a very exciting and productive time for Clean
Air Power.
The main focus has been on the development of new products and improved cost
control. This has resulted in the launch of our new Genesis product in May and
an improvement in the bottom line result before exceptional items compared with
last year."
For further details please contact:
Clean Air Power Tel: +44 (0) 1494 527110
John Pettitt, Chief Executive
Peter Rowse, Finance Director
Buchanan Communications Tel: +44 (0)20 7466 5000
Charles Ryland/Ben Willey/Ben Romney
Outlook
2006 continues to be an exciting year for Clean Air Power. Since our admission
to AIM in February the Company's plans for increased commercialisation of its
technology are progressing well.
The Company is ideally placed to take advantage of two significant and high
profile global issues, increasing fossil fuel cost and growing concern over
harmful emissions and CO2. Clean Air Power technology delivers a marked
improvement in both of these areas and has been proven on over 1,600 trucks
worldwide. Some of these Dual-FuelTM vehicles have run for more than seven years
and some have completed more than 1,000,000 km running on Dual-FuelTM systems.
Since the completion of our first Genesis conversion on a DAF truck for
Warburtons in May, we have also developed a new Mercedes variant of our product,
initially for supply to Tesco plc. Tesco began trialing the vehicle in July 2006
and the trial is expected to be completed in November, with results being
presented around the end of the year. We believe the trial will provide Tesco
with a positive confirmation of the reliability and cost savings produced by our
technology. If successful we anticipate further sales of the Genesis product to
Tesco and other operators as a result.
The ultimate goal of the Company is to enter into an agreement with a
manufacturer and these plans can be described as being in their early stages.
We have recruited new staff to strengthen both the sales and engineering teams
as Clean Air Power drives forward to develop its commercial and technological
expertise.
Financial Review
During the six months to 30 June 2006 Clean Air Power implemented its new
commercial strategy. The original core product range had reached the end of its
life cycle in most markets and new products have been launched to widen the
potential markets. The new products were not launched until May and June,
accordingly the year to date revenue of #1.569m is lower than the #1.993m
achieved in the same period of 2005.
The 2006 gross margin to date of 44% shows a significant improvement on the 35%
achieved up until June 2005. The improvement is driven by the heavier weighting
of the component business in the mix. This factor coupled with careful expense
control produced an operating loss (before a share based payments charge of
#0.301m) of #1.416m which compares favourably with the #1.526m loss from the
same period in 2005 despite the lower sales level.
A non cash expense relating to the implementation of Financial Reporting
Standard No. 20 (FRS20) and resulting share-based payments charge of #0.301m was
incurred. Additionally reorganisation expenses of #0.196m contributed to the
overall net loss of #1.902m compared with #1.698m at June 2005. The Company's
reorganisation is now complete, consequently further charges relating to group
reorganisation are not expected. However, in accordance with FRS20 further P&L
charges relating to share based payments are expected in the future.
Discounting the two items listed above the adjusted net result of #1.405m
compares favourably with the #1.698m from 2005.
Operational Review
Dual FuelTM Vehicle Systems
'Genesis' Development
Clean Air Power's patented Dual-FuelTM technology allows a heavy duty diesel
truck engine to run on a combination of both diesel and natural gas, thereby
generating significant cost savings for the operator whilst considerably
reducing emissions and CO2.
The original application of this technology in trucks was carried out in
partnership with a single engine manufacturer. This route to market provided
certain engineering benefits but meant that Clean Air Power was commercially
restricted to the markets and operators where this manufacturer had a presence.
The 'Genesis' product was designed to address this commercial restriction. It is
designed to be generic and is ultimately adaptable to fit any Euro III engine
thereby rendering a much wider market accessible to the Company. In May of 2006
the first 'Genesis' model was completed. Warburtons, the national bakery
company, who have a large fleet of heavy duty trucks, took delivery of the
'Genesis' truck in the first week of June 2006.
Clean Air Power is actively marketing the Genesis product and have now produced
a demonstration model to allow potential customers to gain a first hand
experience of a Dual-FuelTM truck.
Genesis Target Markets
Clean Air Power is also targeting major supermarkets, logistics companies, local
authorities and haulage firms for its 'Genesis' product. We believe these types
of organisation will appreciate the financial benefits of converting their
vehicles to gas whilst also understanding that they will be making a positive
environmental impact.
We also believe that there are opportunities in Europe where certain markets
have more mature natural gas infrastructures or a more beneficial natural gas
versus diesel price differential. Our target markets include Germany, Italy and
the Netherlands.
Tesco Trial
A very important achievement for the Company is the successful conversion of a
Mercedes Axor truck for Tesco. This conversion project enjoyed the support and
cooperation of both Tesco and Mercedes. On completion of the conversion Tesco
began a trial of the vehicle which will run from mid-July until the end of
November. It's objective is to assess the operational effectiveness, potential
cost savings and environmental impact of the Dual-FuelTM truck.
We have reason to be optimistic concerning the outcome of the trial based on our
track record of our technology on its previous platforms.
OEM Developments
The 'Genesis' system has been specifically developed to be an after market retro
fitted product which can be installed without the need for formal cooperation of
the engine manufacturers.
Our strategic goal is to work with vehicle and engine manufacturers to reach an
agreement licensing the Dual FuelTM technology to them and developing it further
with their full cooperation. In this way the benefits of our technology can be
maximised. The Company is actively pursuing this route to market although we
recognise that we are in the early stages of this process.
The strategy involves encouraging the engine manufacturers to adopt our
technology in partnership with a combination of interested parties. Truck
operators, environmental bodies and governments would all benefit from the
widespread adoption of our Dual FuelTM technology. By demonstrating the benefits
of our technology to these parties we expect to enlist their support thereby
building a compelling proposition for the manufacturers.
Australia
We have some excellent potential opportunities in Australia. The market enjoys
active government support, with the benefits of a Clean Air Power product being
well recognised within the industry. There are also plans to improve the
availability of natural gas by improving the country's gas infrastructure.
Existing Dual-FuelTM operators are achieving significant savings and we are in
active discussions with some of Australia's largest fleet operators regarding
trials of our product.
Intellectual Property Developments
The Company holds 35 patents covering various aspects of its technology. During
2006 two significant new patents were granted relating to areas of technology
the Company believes will be useful as we develop our future product ranges. The
first covers the application of homogeneous charge compression ignition (HCCI)
to the patented Dual-FuelTM system. HCCI is a technology that will be used to
reduce emissions from internal combustion engines in the future.
The second, entitled "Gas-Fueled, Compression Ignition Engine with Maximized
Pilot Ignition Intensity" covers Clean Air Power's MicropilotTM technology.
Micropilot, characterized as the use of high-energy ultra-low quantities of
diesel to ignite a charge of natural gas, has been demonstrated to dramatically
reduce emissions from Dual-FuelTM engines. This technology is an integral part
of the solution offered by Clean Air Power to enable diesel engines to operate
on clean natural gas and meet the emissions and performance challenges of the
future.
Components Business
Clean Air Power manufactures a number of the components that are used in the
Company's Dual-FuelTM Technology. The Company also sells these components for
spark ignited gas engines and certain other applications. Global demand for
these engines is increasing as part of the overall shift towards alternative
fuels. With sales mainly in Europe and the USA, strong margins and a customer
base including international OEMs, this is an important supplement to the
overall Clean Air Power business. We expect to strengthen our sales force to
develop further opportunities for this area of our business.
Sales in the first half of 2006 for our components generated revenue of #0.642m,
approximately 41% of total revenue. This level of sales compares favourably with
the #0.418m achieved in the first half of 2005 and demand remains strong in this
area.
Emissions Reduction Business
This area of our business provides solutions to very large stationary diesel
engines such as those used in pumping stations. Our current market is mainly in
the US and we provide a service whereby the emissions from large stationary
diesel engines are reduced, usually in response to the requirements of local
legislation.
Sales in the first half of 2006 of #0.166m in 2006 are approximately in line
with the same point in 2005 (#0.120m) and we remain very confident regarding the
revenues for the second half of the year since we are in the process of
delivering a #0.6m contract which is scheduled to be delivered before the end of
2006. Considering that total revenues from this business in 2005 were #0.280m,
this contract provides an excellent growth opportunity.
Consolidated Profit & Loss Account
for the 6 Months Ended 30 June 2006
Unaudited Unaudited
6 Months Ended 6 Months Ended
30 June 2006 30 June 2005
#'000 #'000
Turnover 1,569 1,993
Cost of Sales (880) (1,289)
Gross Profit 689 704
Administrative Expenses (2,105) (2,230)
Share Based Payment Charge (301) -
Operating Loss (1,717) (1,526)
Reorganisation Expenses (196) -
Loss Before Interest (1,913) (1,526)
Interest receivable 120 9
Interest payable (109) (181)
Loss on Ordinary Activities Before Taxation (1,902) (1,698)
Taxation - -
Loss on Ordinary Activities After Taxation (1,902) (1,698)
Basic and Diluted Loss Per Share (8.1p) (10.4p)
Consolidated Statement of Total Recognised Gains & Losses
for the 6 Months Ended 30 June 2006
Unaudited Unaudited
6 Months Ended 6 Months Ended
30 June 2006 30 June 2005
#'000 #'000
Loss for the Period (1,902) (1,698)
Currency Translation Differences on Foreign
Currency Net Investments 622 (1,461)
Total Gains & Losses Recognised (1,280) (3,159)
Consolidated Balance Sheet as at 30 June 2006
Unaudited Unaudited
6 Months Ended 6 Months Ended
30 June 2006 30 June 2005
#'000 #'000
Fixed Assets
Intangible Fixed Assets 330 -
Tangible Fixed Assets 179 325
509 325
Current Assets
Stocks 870 1,314
Debtors: Due Within One Year 445 545
Other Assets 162 50
Cash at Bank and in Hand 7,656 748
9,133 2,657
Creditors: Due Within One Year (1,736) (2,145)
Notes Payable: Due Within One Year - (1,910)
Net Current Assets/(Liabilities) 7,397 (1,398)
Notes Payable: Due After More Than One Year - (144)
Preference Shares - (1,946)
Net Assets/(Liabilities) 7,906 (3,163)
Capital and Reserves
Called Up Share Capital 15 5
Share Premium 8,982 -
Other Reserves 34,052 27,451
Profit and Loss Account (35,143) (30,619)
Equity Shareholders Funds 7,906 (3,163)
Consolidated Cash Flow Statement
for the Six Months Ended 30 June 2006
Unaudited Unaudited
6 Months Ended 6 Months Ended
30 June 2006 30 June 2005
#'000 #'000
Net Cash Outflow from Operating Activities (1,807) (1,377)
Returns on Investment & Servicing of Finance
Interest Received 120 9
Interest Paid (70) (104)
Group Reorganisation Cost (196) -
Capital Expenditure
Payments to Acquire Fixed Assets (405) (12)
Proceeds from Sale of Fixed Assets - 13
Net Cash Outflow Before Financing (2,358) (1,471)
Financing
Issue of Ordinary Shares 10,587 -
Share Issue Costs (1,599) -
Proceeds from Notes Payable - 1,262
Payments on Notes Payable (137) (101)
Increase/(Decrease) in Cash 6,493 (310)
Reconciliation of Operating Loss to Net Cash Flow from Operating Activities
Unaudited Unaudited
6 Months Ended 6 Months Ended
30 June 2006 30 June 2005
#'000 #'000
Operating Loss (1,717) (1,526)
Depreciation 127 140
Share Based Payment Charge 301 -
(Increase)/ Decrease in Stocks 272 465
(Increase)/ Decrease in Other Assets 180 (328)
(Increase)/ Decrease in Debtors (43) 61
Increase/ (Decrease) in Creditors (1,070) (629)
Other Non-cash Movements 143 440
Net Cash outflow from Operating Activities (1,807) (1,377)
Reconciliation of Net Cash Flow to Movement in Net Funds
Unaudited Unaudited
6 Months Ended 6 Months Ended
30 June 2006 30 June 2005
#'000 #'000
Increase/(Decrease) in Cash 6,493 (310)
Issued Debt - (1,262)
Payments on Notes Payable 137 101
Change in Net Funds Resulting from Cashflow 6,630 (1,471)
Foreign Exchange Translation Differences (65) (98)
Conversion of Debt to Equity 3,391 144
Net Funds at Beginning of Period (2,300) 119
Net Funds at End of Period 7,656 (1,306)
The above schedule excludes from debt convertible preference shares valued at
#21.845m, #1.946m and #3.498m at 31st December 2004, 30th June 2005 and 31st
December 2005 respectively. No preference shares remain at 30 June 2006.
Notes to the accounts:
1 Group Reorganisation
Under a group reorganisation on 27th February 2006 the Company acquired the
whole of the share capital of Clean Air Power Inc. and Clean Air Power Ltd. (the
UK registered entity) in exchange for shares. The reorganisation has been
accounted for in accordance with the principles of merger accounting set in the
Financial Reporting Standard No. 6 (FRS6). The interim results have been
prepared as if Clean Air Power Inc. and Clean Air Power Ltd. had been owned and
controlled by the Company throughout the periods ended 30th June 2005 and 30th
June 2006.
2 Basis of preparation
The interim consolidated financial information of the Group is prepared under
the historical cost convention, and in accordance with United Kingdom Generally
Accepted Accounting Practice. The interim financial information contained in
this statement does not constitute statutory accounts as defined under section
240 of the Companies Act 1985. The interim financial information is unaudited
but has been reviewed by the auditors. The information has been prepared on the
basis of the accounting policies set out in the statutory accounts for Clean Air
Power Inc. (adjusted where applicable for UK GAAP compliance) and Clean Air
Power Ltd. (UK) for the year ended 31 December 2005. The statutory accounts for
Clean Air Power Inc. (which were prepared in accordance with Generally Accepted
Accounting Standards in the US) and Clean Air Power Ltd. (UK) were audited and
an unqualified opinion was issued on each.
The Board of directors approved the Interim Report on 14 September 2006.
3 US to UK GAAP Conversion
The Clean Air Power Inc. financial information is originally prepared in
accordance with US GAAP. However, since Clean Air Power Ltd. will be publishing
future results in sterling the information has been translated on a proforma
basis for consistency and ease of comparison as the company progresses.
The 2005 information has been translated at an average $US to # rate of 1.87462
for the Profit and Loss account and Cashflow Statement and a closing $US to #
rate of 1.80480 for the balance sheet.
The main adjustment to the Clean Air Power Inc. financial information is due to
the application of the requirements of Financial Reporting Standard No. 25
(FRS25) to the convertible promissory notes.
4 Accounting Policies
The accounting policies used are consistent with those applied in the latest
published accounts of the individual group entities. The following policies are
applicable for the first time in these statements, and will be applied in the
Group's full year consolidated results.
Share-based payments
Equity settled transactions
The cost of equity-settled transactions with employees is measured by reference
to the fair value at the date at which they are granted and is recognised as an
expense over the vesting period, which ends on the date on which the relevant
employees become fully entitled to the award. Fair value is determined by using
an appropriate pricing model. In valuing equity-settled transactions, no account
is taken of any vesting conditions, other than conditions linked to the price of
the shares of the company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and management's
best estimate of the achievement or otherwise of non-market conditions number of
equity instruments that will ultimately vest or in the case of an instrument
subject to a market condition, be treated as vesting as described above. The
movement in cumulative expense since the previous balance sheet date is
recognised in the income statement, with a corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new award is
designated as replacing a cancelled or settled award, the cost based on the
original award terms continues to be recognised over the original vesting
period. In addition, an expense is recognised over the remainder of the new
vesting period for the incremental fair value of any modification, based on the
difference between the fair value of the original award and the fair value of
the modified award, both as measured on the date of the modification. No
reduction is recognised if this difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on
the date of cancellation, and any cost not yet recognised in the income
statement for the award is expensed immediately. Any compensation paid up to the
fair value of the award at the cancellation or settlement date is deducted from
equity, with any excess over fair value being treated as an expense in the
income statement.
Financial Assets and Liabilities
Interest bearing loans and borrowings
All loans and borrowings are initially recorded at fair value net of issue costs
associated with the borrowing.
Interest bearing bank loans and overdrafts are are recorded at the proceeds
received, net of direct issue costs. Finance charges, including premiums payable
on settlement or redemption and direct issue costs, are accounted for on an
amortised cost basis and charged to the Profit and Loss Account using the
effective interest method and are added to the carrying amount of the instrument
to the extent that they are not settled during the period in which they arise.
Capital instruments
Capital instruments issued by the company are recorded at the proceeds received,
net of direct issue costs.
Capital instruments are all instruments that are issued by the Company as a
means to raising finance, including shares, debentures, debt instruments and
options and warrants that give the holder the right to subscribe for or to
obtain capital instruments. An equity instrument is any contract that evidences
a residual interest in the assets of an entity after deducting all of its
liabilities. All equity instruments are included in shareholders funds. Other
instruments are classified as financial liabilities if they contain a
contractual obligation to transfer economic benefits. The finance costs incurred
in respect of a capital instrument, other than equity shares, are charged to the
Profit and Loss Account over the term of the instrument at a constant percentage
rate to the carrying value.
Preference Shares have been classified as liabilities in accordance with FRS 25.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and
accumulated impairment losses.
Intangible assets acquired separately from a business are carried initially at
cost. Expenditure on internally developed intangible assets, excluding
development costs, is taken to the income statement in the year in which it is
incurred. Development expenditure is recognised as an intangible asset only
after its technical feasibility and commercial viability can be demonstrated.
Intangible assets with a finite life are amortised on a straight line basis over
their expected useful lives, as follows:
* development expenditure - 2 to 3 years.
The carrying value of intangible assets is reviewed for impairment whenever
events or changes in circumstances indicate the carrying value may not be
recoverable. In addition, the carrying value of capitalised development
expenditure is reviewed for impairment annually before being brought into use.
5 Turnover and Segmental Analysis
The revenue for the 6 month period to 30 June 2006 is broken down as follows:-
Vehicle Components Emissions Product Support Other Total
Conversions Reduction
UK 288 - - 103 - 391
USA 34 358 166 188 - 746
Australia 97 73 - 20 - 190
Rest of 25 205 - - - 230
Europe
Rest of - 6 - 6 - 12
World
444 642 166 317 - 1,569
The revenue for the 6 month period to 30 June 2005 is broken down as follows:-
Vehicle Components Emissions Product Support Other Total
Conversions Reduction
UK 884 142 - 1,026
USA 19 175 120 188 130 632
Australia 71 55 - 4 - 130
Rest of - 184 - 1 - 185
Europe
Rest of - 4 - 16 - 20
World
974 418 120 351 130 1,993
6 Loss Per Share
The basic and diluted loss per share has been calculated on the following basis:
Unaudited Unaudited
6 months ended 6 months ended
June 2006 June 2005
Loss for the period(#'000) (1,902) (1,698)
Weighted average no.of shares 23,376,479 16,318,479
Basic and diluted loss per share (8.1p) (10.4p)
The basic and diluted loss per share are the same because losses have been
incurred which result in all potentially dilutive shares being treated as
anti-dilutive.
7 Dividend Policy
In accordance with the company's policy as set out in its admission document the
company does not propose to declare a dividend.
8 Registered Office
Copies of this statement are available at the registered office of Clean Air
Power Ltd. at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
Independent Review report to Clean Air Power Ltd
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2006 which comprises the Consolidated Profit and
Loss Account, Consolidated Balance Sheet, Consolidated Cash Flow Statement,
Consolidated Statement of Total Recognised Gains and Losses and the related
notes 1 to 8. We have read the other information contained in the interim report
and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company having regard to guidance contained in
Bulletin 1999/4 'Review of interim financial information' issued by the Auditing
Practices Board. To the fullest extent permitted by the law, we do not accept or
assume responsibility to anyone other than the company, for our work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report as required by the AIM Rules
issued by the London Stock Exchange.
Review work performed
We conducted our review having regard to the guidance contained in Bulletin 1999
/4 'Review of interim financial information' issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Standards on Auditing (UK and Ireland) and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
Ernst & Young LLP
Manchester
14 September 2006
This information is provided by RNS
The company news service from the London Stock Exchange
END
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