Ceres Power Holdings plc : Revised Business Strategy and Proposed Fundraise

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29 November 2012

Ceres Power Holdings plc

REVISED BUSINESS STRATEGY

PROPOSED FIRM PLACING AND PLACING AND OPEN OFFER

CAPITAL REORGANISATION

BOARD CHANGES

AND NOTICE OF GENERAL MEETING

Ceres Power Holdings plc ("Ceres" or the "Company"), a leading developer of clean, efficient, cost-effective fuel cell technology for use in distributed generation and other applications, today announces its intention to pursue an alternative strategy for the development of the Group's business together with a proposed equity issue to raise £3,300,000 (before expenses).

Definitions for all terms defined in this announcement are provided at the end of this announcement.

Highlights

·      The new business strategy is to focus on the development and commercialisation of Ceres' existing core fuel cell and fuel cell module ('FCM') technology platform

·      Under this alternative business model, Ceres would offer its technology (through components including cells, stacks and FCMs) together with technical support to a wide range of Original Equipment Manufacturers ('OEM') and Ceres would expect to earn revenues from a combination of development licenses, on-going fees for services and royalties on OEM mass market product sales

·      Proposed Firm Placing to raise £2,650,000 and Placing and Open Offer to raise £650,000 to raise a total of £3,300,000 (before expenses)

·      Issue price for the Firm Placing and Placing and Open Offer of 1 pence per New Ordinary Share

·      Open Offer Entitlement for Qualifying Shareholders of 49 Open Offer Shares for every 65 Existing Ordinary Shares

·      Appointment of Alan Aubrey as Non-Executive Chairman and Steve Callaghan, Michael Bretherton and Robert Trezona, as Non-Executive Directors with effect from, and conditional on, Admission  

Revised Business Strategy

Following the Company's announcement on 4 October 2012 that it had been unsuccessful in securing the required funding for its micro-Combined Heat and Power ('m-CHP') product business going forward, the Board announces its intention to pursue an alternative strategy for the business.  This alternative strategy will involve the restructuring of the business together with a capital raising of £3.30 million (before expenses). The capital raising is to be implemented by way of the Firm Placing and Placing and Open Offer to fund its planned expenditure, led principally by equity support from IP Group plc and ORA Capital Partners Limited.  The revised business strategy will see a resizing of the Group's activities and a focus on the continued development and commercialisation of Ceres' core fuel cell and fuel cell module ('FCM') technology platform, rather than developing and selling complete m-CHP products.

Under this alternative business model, Ceres will offer its technology (through components including cells, stacks and FCMs) to customers to be incorporated into their own products for multiple mass market applications, including m-CHP. Ceres would expect to earn revenues from a combination of development licenses, on-going fees for services and royalties on partners' mass market product sales. The core fuel cell and FCM technology is considered by the Board to be suitable for m-CHP in territories including Europe, South Korea, Japan and North America, and may also be used as the basis of products such as vehicle auxiliary power, telecoms base station power and larger scale distributed generation. To implement the revised business model, the Group is refocusing the size and scope of the business to maintain the necessary core technology, system integration and pilot-scale cell manufacturing capability, but it will no longer maintain the capability to design, develop and sell complete m-CHP products.

During the last 12 months, the Group has made substantial improvements in performance, durability and manufacturing quality of the core fuel cell technology and addressed the technical issues that arose in the 2011 in-home m-CHP field trials. The core fuel cell technology has been independently assessed by an internationally-renowned solid oxide fuel cell ('SOFC') expert. This step-change in the capability of the fuel cell and FCM technology platform gives the Board confidence regarding the application of Ceres' technology across a broad range of market and product applications, including residential m-CHP.

The Board believes that focusing the Group's resources on the development and commercialisation of the Ceres core fuel cell and FCM technology platform is the best way for the Group to achieve value for shareholders.

Proposed Firm Placing and Placing and Open Offer

In order to finance the implementation of this new strategy and the continued development and commercialisation of the technology, the Board is proposing to raise £3.30 million (before expenses) through the issue of 265,000,000 New Ordinary Shares through a Firm Placing and 65,000,000 New Ordinary Shares through a Placing and Open Offer, all at 1 pence per New Ordinary Share, which represents a discount of 49 per cent to the closing price of 1.975 pence on 28 November 2012. Together with the existing cash resources in the business and the anticipated receipt of a UK Government R&D tax credit, this will provide funding for not less than 12 months' operations.

The proposed raise of £3.30 million is being led by IP Group plc ('IP Group') and ORA Capital PartnersLimited ("ORA"). Upon Admission, IP Group through its wholly owned subsidiary IP2IPO Limited will hold between 25.83% and 29.95% of the Enlarged Issued Share Capital (depending on take up by Qualifying Shareholders of Open Offer Entitlements), and ORA through its subsidiary ORA (Guernsey) Limited together with parties deemed to be acting in concert with ORA will hold between 25.83% and 29.95% of the Enlarged Issued Share Capital (depending on take up by Qualifying Shareholders of Open Offer Entitlements). The Board believes that the Group will benefit from IP Group and ORA's access to growth capital and their experience in helping grow, develop and commercialise new technologies such as Ceres' core cell and FCM technology platform.

In the event that Shareholders do not approve the proposed Fundraise, the Board of Directors will have no choice but to immediately implement an orderly wind down of the Group's operations.

Board Changes

Brian Count will step down as Non-Executive Chairman and as a Non-Executive Director, David Pummell will step down as Chief Executive Officer and as an Executive Director and John Nicholas will step down as a Non-Executive Director, in each case with effect from Admission.  Mike Lloyd has agreed to continue in office as a Non-Executive Director following Admission.  In addition, Rex Vevers and Phil Whalen have agreed to remain as Executive Directors following Admission to assist in the management of the Group going forward until new Executive Directors are appointed to the Board.

The Board has resolved to appoint Alan Aubrey as Non-Executive Chairman and each of Steve Callaghan, Michael Bretherton and Robert Trezona as Non-Executive Directors with effect from, and conditional on Admission. Steve Callaghan, a turnaround specialist, will work with Alan Aubrey and the Executive Directors whilst the Board recruits a permanent Chief Executive Officer.

Alan Aubrey, and Robert Trezona are appointees of IP2IPO Limited and Michael Bretherton is an appointee of ORA (Guernsey) Limited.

Capital Reorganisation

In order to effect the Fundraise, the Company proposes to implement the Capital Reorganisation. This will involve each Existing Ordinary Share being subdivided into and redesignated as 1 New Ordinary Share of 1 pence and 1 Deferred Share of 4 pence. The New Ordinary Shares will have the same rights and benefits as the Existing Ordinary Shares. The Deferred Shares will not be listed, will be effectively valueless and it is intended that all the Deferred Shares will be surrendered for no value and/or cancelled in due course. 

General Meeting

For the purposes of effecting the Fundraise, the Resolutions will be proposed at the General Meeting to be held at Macfarlanes LLP, 20 Cursitor Street, London EC4A 1LT at 11.00 a.m. on 17 December 2012. The following is a summary of the Resolutions which will be proposed at the General Meeting:

·        Resolution 1 (to be proposed as a special resolution): to sub-divide each Existing Ordinary Share into 1 New Ordinary Share and 1 Deferred Share, and to adopt amended Articles of Association to reflect the creation of, and to set out the rights in relation to, the Deferred Shares;

·        Resolution 2 (to be proposed as an ordinary resolution): to authorise the Directors under section 551 of the Act to allot shares up to an aggregate nominal amount of £3,300,000 for the purposes of the Fundraise. If passed, this authority will expire on 17 March 2014; and

·        Resolution3 (to be proposed as a special resolution): to disapply the pre-emption rights provisions of sections 570 and 573 of the Act in respect of the allotment of equity securities pursuant to the Fundraise. If passed, this authority will expire on 17 March 2014.

A circular will be sent to Shareholders which sets out further detail on the proposed Firm Placing and Placing and Open Offer and will contain the notice convening the General Meeting for the purpose of considering the Resolutions.

The Group is dependent on the completion of the Fundraise so that it can continue to meet its planned expenditure to further develop the Group's core technology. In the event that the Resolutions are not passed at the General Meeting and the Fundraise is not completed, the Board will immediately wind down the Group's operations culminating in the liquidation of each company in the Group.  The amount that Shareholders could receive in respect of their current shareholdings in the event of wind down and liquidation is uncertain but Shareholders should be aware that depending on certain aspects of such a process they could receive little or no value for their current shareholdings. Shareholders should be aware that the Board has commenced the process of reducing the Group's operations, being the first stage in the process of preparing the Group's business for a potential orderly wind down.

Brian Count, Chairman of Ceres commented:

"Ceres has made substantial technical progress in the last 12 months, particularly in durability and reliability. As a result of the recent successful test results, the Board believes that the alternative strategy of focusing on developing the low cost, compact fuel cell module technology platform, and leveraging the expertise and access to capital of IP Group plc, should enable the commercial potential of the Group's technology to be exploited across a broad range of product applications, customers and territories."

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Notes to editors:

Ceres Power is a leading developer of clean, efficient, cost