Intelligent Energy : Results for six months ended 31 March 2016

(LSE: IEH; ADR: INGYY)

31 May 2016

INTELLIGENT ENERGY HOLDINGS PLC: RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2016

POST HALF YEAR FINANCING AND RESTRUCTURING TO PROVIDE A MORE FOCUSED BUSINESS

Intelligent Energy Holdings plc, the energy technology group ('Intelligent Energy', 'IE', the 'Group' or the 'Company') announces its unaudited financial results for the six months ended 31 March 2016.

SUMMARY FINANCIAL PERFORMANCE

*Balance sheet carrying values have been reviewed at the half year in the light of the refocusing of the business

· Funding

o On 23 May 2016, the Company announced that it has completed its £30.0 million gross fundraising through Convertible Loan Notes, delivering £27.2m of net funding

· Resulting impairments and de-recognitions linked to restructuring

o De-recognition of a £21.9m non-cash accounting entry deferred tax asset

o £23.9m of non-cash related impairments and inventory write downs of which £14.8m relates to intangible assets

· GTL transaction status

o The previously announced acquisition of the operations, maintenance and energy management business of GTL Limited in India remains conditional on securing additional GTL funding.

o The Company continues in its discussions to secure separate financing for the consummation of the GTL transaction but there no guarantee that the transaction will be completed, either in its previously envisaged form or at all.

SELECTED OPERATIONAL HIGHLIGHTS FOR THE HALF YEAR

· Interim power management agreement with GTL for 27,000 Indian telecoms sites operated successfully

o Continued operation of seven fuel cell reference sites deployed during the half year.

o With generation of over 20 MWh of fuel cell powered electricity.

o With over 25,000h of operation.

o Resulting in site availability increased from 99.3% to 99.997% when compared with diesel operated sites

· Continued delivery of existing Joint Development arrangements with Automotive OEMs

· Joint Development Agreement worth £5.25m over 24 months signed with an emerging smartphone manufacturer relating to embedded fuel cell technology

· Signature of a Letter of Intent signed with a drone OEM

STRATEGIC FOCUS AND OUTLOOK

· Bulk of restructuring announced in April is expected to complete in June. This involves:

o Removal of divisional structure and creation of simplified organisation including reduced business support functions.

o Restructuring charges of £3.4m are expected to be recorded in the 2 half

· Refocus the business on short to medium term air cooled fuel cell technology applications

o Focus activities on a series of standardised products based on the Company's core air cooled fuel cell technology targeted towards nearer term commercial opportunities for highly distributed power applications.

o EC technology - development 'on hold' until scalable and profitable opportunities arise

· Rationale for technology refocus - commonality of components, building on experience

o The Company's air cooled fuel cell technology benefits from a relatively small and simple set of components surrounding the core fuel cell stack. The Company also has experience in production ramp up and technology transfer to industrial partners in relation to the air cooled technology. This experience provides increased credibility with potential customers as the Company furthers its development and licensing strategy for its technology.

Dr. Henri Winand, Chief Executive Officer of Intelligent Energy Holdings plc, commented:

'It has been a difficult time for everyone associated with Intelligent Energy and we have taken some hard decisions for the long term future of the Company. However, we have successfully raised the funds needed to complete the necessary restructuring of the business, and support our refocused strategy. The Board strongly recommends that all shareholders vote to support this at the forthcoming General Meeting'.

With a refocused strategy to capitalise upon the demand for small to medium sized applications to power off-grid devices and a materially reduced and sustainable cost base, there is a path in place toward building a viable long term business.'

Presentation and webcasts

Today, there will be a 9.30am BST presentation and webcast in London for analysts and investors.

Link to webcast -http://edge.media-server.com/m/p/uarnqanh

Teleconferencing Number and Access Code(Please begin placing your calls at least 5-10 minutes before the conference call commences):

Participants, Local - London, United Kingdom: +44(0)20 3427 1912

Participants, Local - New York, United States of America: +1 646 254 3367

Confirmation Code: 5649036

A copy of the presentation will be made available from 9.00am today on the Intelligent Energy website under 'Latest

Downloads' athttp://www.intelligent-energy.com/investors/reports-presentations.

In additional, at a date to be announced, an investor day will be held to brief analysts and investors on the Company's

outlook and prospects.

Enquiries:

FINANCIAL REVIEW

Consolidated income statement

Revenue and gross margin

Revenue for the half year was £43.9m (2014/15: £27.4m).

£40.9m of revenue was recorded in DP&G (2014/15 £23.7m) representing an expansion of the interim power management contract with GTL to cover 27,000 telecom towers in India, compared to 10,000 such towers in the comparator period.

£3.0m of revenue was delivered from the Motive division (2014/15: £3.6m). Revenue was derived from OEM joint development and public body funded project related activity only, with the expectation that this will develop in future periods into further licencing and royalty opportunities, some of which are already contracted as options or agreed royalties based on the volume of production at the time. This latter aspect of Motive's revenue stream is expected to be variable and difficult to predict in terms of when such opportunities, which are expected to be material in revenue and margin terms, might occur.

For the half year, CE generated £0.0m of revenue (2014/15: £0.1m). This was clearly disappointing and not in line with the original internal expectations for this line of business. As a result of the proposed restructuring announced on 4 April 2016, the focus for portable fuel cell devices will be embedded devices and drone range extenders using the Company's AC platform: traction is being gained in this arena, with the previously announced £5.25m joint development agreement signed in the half year that is expected to contribute revenue and margin in the second half. A Letter of Intent signed with a drone/UAV OEM is expected to convert into a revenue generating JDA in the second half of the year.

Gross margin represents revenue less cost of sales. Cost of sales in the period reflects fuel costs in the DP&G division, labour costs, materials and direct facilities costs used in delivering contracted revenue-earning projects. . Gross margin for the half year was £1.3m (2014/15: £1.6m) and in percentage terms, 3% of revenue (2014/15: 6%). The reduction in the percentage gross margin year on year reflected additional revenue in DP&G being incurred under a low margin interim agreement basis with GTL.

Research and development

In the half year, R&D expenditure amounted to £10.6m (2014/15: £10.3m). R&D costs mainly comprise staff costs, outsourced services and material costs related to fuel cell research and development, covering both air cooled and evaporatively cooled technology.

Operations and application engineering

Operations and Application Engineering expenditure in the half year amounted to £30.4m (2014/15: £12.7m). The increase relates to one off non-cash impairment charges relating to equipment and inventory.

Administration costs

Administration costs in the half year amounted to £4.5m, (2014/15: £6.1m), the reduction year on year mainly reflecting cost control and lower activity levels. Administration costs comprise commercial and corporate activities, including sales, marketing, HR, finance, legal and procurement.

Adjusted EBITDA

EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) is a non-statutory measure that is widely used as an indicator of trading profitability and a proxy for a company's operating cashflow, before any cash movements relating to investment, tax, funding and changes in working capital. It is not an IFRS measure, and not therefore shown in the Group income statement.

For Intelligent Energy, adjusted EBITDA is measured as revenue less cost of sales less R&D and Operations and Application Engineering costs and administration costs, adjusted to exclude impairment charges, depreciation, one off fund raising costs and the IFRS 2 share based payments charge, which is predominantly non cash based. On this measure, adjusted EBITDA for the year was a loss of £21.6m (2014/15: loss £23.7m). The movement in EBITDA reflects lower operating costs excluding impairment charges.

Non cash exceptional charges have been recognised within the reported results as follows:

(Loss)/profit for the year

The loss for the half year was £67.3m (2014/15 loss: £21.4m), being a reflection of the operating loss of £44.2m (2014/15 H1 loss of £27.5m including non-cash impairment and inventory write-down charges of £23.0m (2014/15 H1 £0m), and the following items:

The Group's share of the loss on joint ventures accounted for under the equity method and impairment of £1.3m (2014/15: £0.4m).

Net finance costs of £0.4m (2014/15: £0.9m).

An income tax charge of £21.4m (2014/15: credit £5.9m) reflects the net impact of R&D tax credits and the de-recognition of a £21.9m, non-cash accounting entry,deferred tax asset on the statement of financial position at 30 September 2016. The unrecognised deferred tax asset at 31 March 2016 is estimated at £29.4m.

Consolidated statement of financial position

Non-current assets

Property, plant and equipment at £3.0m (Sept 2015: £8.5m) represented additions of £0.7m in the half year, offset by

depreciation of £1.8m, and impairment of £4.5m. The non-cash impairment charge reflects the revised focus of the business on air cooled fuel cell platforms. Intangible assets at £10.1m (Sept 2015: £27.0m) reflected additions of £2.2m, amortisation of £1.4m, non-cash impairment of £14.8m and a reduction in contingent consideration payable of £3.0m. The non-cash impairment reflected the revised commercialisation priorities of the business, including de-recognition of goodwill of £5.9m.

Investments using the equity method

The Group accounts for joint ventures using the equity method, and include the carrying value of its share of positive net assets in the statement of financial position. Joint ventures comprise IE CHP, Aquapurum Water in India and SMILE FC System Corporation. In the year, the carrying value of the joint ventures moved from £1.1m to £0.0m, reflecting trading losses and non-cash impairment of the remaining carrying values to reflect either their potential disposal or uncertainty on future prospects.

Current assets

Inventory at £1.2m (Sept 2015: £5.3m) was lower primarily to reflect a revised view of the recovery value of CE related inventory items. Inventory includes material used for fuel cell applications across the business.

Trade and other receivables at £8.0m (Sept 2015: £11.5m) were lower by £3.5m. The cash and short term deposits balance at £9.7m (Sept 2015: £24.2m) represents the funding of EBITDA losses in the year, adjusted for movements in working capital, together with capital and other investments and interest movements.

Current liabilities

Current liabilities at 31 March 2016 were £11.2m (Sept 2015: £14.3m).

Commitments

At 30 September 2015, outstanding purchase orders amounted to £6.2m (Sept 2015 £6.2m).

Going Concern

The Group meets its day to day working capital requirements through its cash resources. The Company has agreed the terms of a £30m gross fundraising, with net proceeds of £27.2m from this fundraising after issue costs, through the issue of convertible loan notes. Pursuant to the terms of the fundraising, the Company's largest shareholder, Meditor, subscribed for £25,638,293 of the Convertible Loan Notes. In accordance with the terms of the subscription agreement, certain other qualifying investors elected to participate in the fundraising and subscribed for £4,361,707 Convertible Loan Notes. The additional subscribers for the Convertible Loan Notes included Evolution Placements Corporation (who have subscribed for £2,050,000 Convertible Loan Notes) and Royalton Percy LLC (who have subscribed for £526,707 Convertible Loan Notes).

Subject to the passing of the Resolutions at the General Meeting ('GM'), the convertible loan notes shall be capable of being converted at the option of the loan note holders into ordinary shares in the company at a conversion price of 8 pence per new ordinary share at any time up until 17 May 2019.

In the event that the Resolutions are not passed by 30 June 2016, the Company will still retain the £30.0 million gross funding. However, in order to compensate for the inability to convert the Convertible Loan Notes, the principal to be repaid under the Convertible Loan Notes would increase from £30.0 million to £42.0 million and the interest rate would increase (with retrospective effect from the date of issue of the Convertible Loan Notes) from 13.0 per cent. per annum to 18.2 per cent per annum.

The Company has received irrevocable undertakings from its three largest shareholders, representing 37.8% of the ordinary shares, that they will vote in favour of the resolutions that they are eligible to participate in, at the GM planned for 9th June 2016. The Directors therefore believe a positive outcome in that vote will be forthcoming, which will confirm the terms of the convertible loan notes. In the event that the shareholders do not pass the resolutions needed at the General Meeting on 9th June, then the Board believes that the Company would not be able to meet the resultant level of increased payments and would therefore no longer be a going concern. In this circumstance, the Board would have little option other than to place the Company into administration immediately. This is a material uncertainty regarding the Company's ability to continue as a going concern. The Company's interim consolidated financial statements do not include the adjustments that would result if the Group is unable to continue as a going concern.

While the current position of the Group results in it being cash consumptive, the current cash position, the convertible loan funding, and the options available to the Group from trading, potential trading activities and the ability to realise value from the IP portfolio, mean that the Directors consider that the Company will have sufficient funds to pay its debts as they fall due for the foreseeable future. On this basis and taking into account the expectation that a positive outcome in the vote for the resolutions in the GM relating to the terms of the convertible loan note, the Directors in their opinion consider that the Group is a going concern and therefore the financial statements have been prepared on that basis.

Forward-looking statements

Certain statements made in this announcement are forward-looking. 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. The Company believes that expectations and assumptions with respect to these forward-looking statements are reasonable. 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 forward-looking statements.

Principal risks

The Company considers strategic, operational and financial risks and identifies actions to mitigate those risks. These risk profiles are updated at least annually. The principle risks and uncertainties for the remaining six months of the financial year are consistent with the Group's risks as set out in pages 28-31 of the 2015 Annual Report. In particular the Group would like to draw attention to a principle risk regarding the need to raise additional funds to meet its growth and shareholder return aspirations. In the event that the shareholders do not pass the resolutions needed at the General Meeting on 9th June, then the Board believes that the Company would not be able to meet the resultant level of increased payments and would therefore no longer be a going concern. In this circumstance, the Board would have little option other than to place the Company into administration immediately.

Intelligent Energy Holdings plc

Condensed consolidated interim income statement

All of the loss for the period is attributable to the owners of the Company and all activities relate to continuing operations.

All of the comprehensive expense for the period relates to continuing operations.

Condensed consolidated interim statement of financial position

Notes to the condensed interim financial statements

1. General information

Intelligent Energy Holdings plc ('the Company') and its subsidiaries (together, 'the Group') are an energy technology business which develops advanced, power-dense hydrogen fuel cell technologies providing highly efficient and clean power generation. The Group works with a range of international companies towards the aim of embedding its technologies in mass market applications.

The company is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered office is Charnwood Building, Holywell Park, Ashby Road, Loughborough, England.

These condensed interim financial statements were approved for issue on 27 May 2016.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2015 were approved by the board of directors on 27 November 2015 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 489 of the Companies Act 2006.

These condensed consolidated interim financial statements have not been audited or reviewed by auditors pursuant to the Auditing Practices Board's Guidance on Financial Information.

2. Basis for preparation

These condensed interim financial statements for the six months ended 31 March 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting', as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 30 September 2015, which have been prepared in accordance with IFRSs as adopted by the European Union.

Going concern basis

The Group meets its day to day working capital requirements through its cash resources. The Company has agreed the terms of a £30m gross fundraising, with net proceeds of £27.2m from this fundraising after issue costs, through the issue of convertible loan notes. Pursuant to the terms of the fundraising, the Company's largest shareholder, Meditor, subscribed for £25,638,293 of the Convertible Loan Notes. In accordance with the terms of the subscription agreement, certain other qualifying investors elected to participate in the fundraising and subscribed for £4,361,707 Convertible Loan Notes. The additional subscribers for the Convertible Loan Notes included Evolution Placements Corporation (who have subscribed for £2,050,000 Convertible Loan Notes) and Royalton Percy LLC (who have subscribed for £526,707 Convertible Loan Notes).

Subject to the passing of the Resolutions at the General Meeting ('GM'), the convertible loan notes shall be capable of being converted at the option of the loan note holders into ordinary shares in the company at a conversion price of 8 pence per new ordinary share at any time up until 17 May 2019.

In the event that the Resolutions are not passed by 30 June 2016, the Company will still retain the £30.0 million gross funding. However, in order to compensate for the inability to convert the Convertible Loan Notes, the principal to be repaid under the Convertible Loan Notes would increase from £30.0 million to £42.0 million and the interest rate would increase (with retrospective effect from the date of issue of the Convertible Loan Notes) from 13.0 per cent. per annum to 18.2 per cent per annum.

The Company has received irrevocable undertakings from its three largest shareholders, representing 37.8% of the ordinary shares, that they will vote in favour of the resolutions that they are eligible to participate in, at the GM planned for 9th June 2016. The Directors therefore believe a positive outcome in that vote will be forthcoming, which will confirm the terms of the convertible loan notes. In the event that the shareholders do not pass the resolutions needed at the General Meeting on 9th June, then the Board believes that the Company would not be able to meet the resultant level of increased payments and would therefore no longer be a going concern. In this circumstance, the Board would have little option other than to place the Company into administration immediately. This is a material uncertainty regarding the Company's ability to continue as a going concern. The Company's interim consolidated financial statements do not include the adjustments that would result if the Group is unable to continue as a going concern.

While the current position of the Group results in it being cash consumptive, the current cash position, the convertible loan funding, and the options available to the Group from trading, potential trading activities and the ability to realise value from the IP portfolio, mean that the Directors consider that the Company will have sufficient funds to pay its debts as they fall due for the foreseeable future. On this basis and taking into account the expectation that a positive outcome in the vote for the resolutions in the GM relating to the terms of the convertible loan note, the Directors in their opinion consider that the Group is a going concern and therefore the financial statements have been prepared on that basis.

3. Accounting policies

The accounting policies applied in these condensed interim financial statements are consistent with those in the previous financial year except as described below:

· Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.

· Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

A number of new standards and amendments and revisions to existing standards have been published and are mandatory for the Group's future accounting periods. They have not been adopted early in these condensed consolidated financial statements. None of these are expected to have a significant impact on the consolidated financial statements when adopted except as disclosed below:

· IFRS 9, 'Financial instruments'. This standard replaces IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model. The Group is yet to assess the full impact of IFRS 9 which becomes effective for accounting periods beginning on or after 1 January 2018. The standard is subject to endorsement by the European Union.

· IFRS 15, 'Revenue from contracts with customers'. This standard replaces IAS 18, 'Revenue' and IAS 11 'Construction contracts' and related interpretations. It establishes principles for reporting the nature, amount and timing of revenue arising from an entity's contracts with customers. The Group is yet to assess the full impact of IFRS 15 which becomes effective for accounting periods beginning on or after 1 January 2018. The standard is subject to endorsement by the European Union.

· IFRS 16, 'Leases'. This standard replaces IAS 17 'Leases'. It requires lessees to recognise a lease liability reflecting future lease payments and a 'right-to-use asset' for virtually all lease contracts. The Group is yet to assess the full impact of IFRS 16 which becomes effective for accounting periods beginning on or after 1 January 2019. The standard is subject to endorsement by the European Union.

4. Judgments and estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 September 2015, with the exception of the following:

Income taxes

Changes in estimates are required in determining the provision for income taxes (see note 3).

Share based payments

Share based payment charges are recognised in relation to deferred bonus plans with estimates made at 30 September 2015 in relation to bonus earned for the year ended on that date. The re-estimation of amounts payable under this plan has resulted in a £0.2 million reversal of the share based payment charge during the period.

Impairment of non financial assets

An impairment of certain specific property, plant and equipment, patent intangible assets, 305 development intangible, interests in joint ventures and goodwill have been impaired (see note 6) due to a refocusing of the business.

The Group tests goodwill for impairment annually or more frequently if there are indications that goodwill might be impaired. Additionally, the Group assesses whether there is any indication of impairment of its property, plant and equipment, other intangible assets and other non current assets at each reporting period end. The funding position and decrease in market capitalisation of the Group is considered to be such an indication. An impairment review at 31 March 2016 has therefore been performed.

The cost of restructuring the business, as announced on 4 April 2016 (see note 21), has not been recognised in these financial statements and therefore, in accordance with IAS 36, any one-time costs and benefits of the reorganisation are not taken into account in calculating value in use. The value in use basis has been used to determine the recoverable amount of non current assets. There is a high level of uncertainty in respect of this estimation. However the Directors consider the estimation of the recoverable amount is appropriate at this point in time.

Deferred tax assets

The recognition of deferred tax assets relating to the carry forward of unused tax losses and unused tax credits requires the assessment of the extent to which it is probable that future taxable profits will be available against which the unused tax losses and tax credits can be utilised. Given the history of tax losses of the Group, it is required that there is convincing other evidence that sufficient taxable profits will be available against which the unused tax losses or unused tax credits can be utilised. This requires judgement on the part of the directors.

The directors have therefore assessed whether, in their opinion, the recovery of the deferred tax assets is probable, and whether convincing evidence exists to justify this assessment. This assessment is based on the forecasts for the business, which are in turn based in part on known advances in the commercial viability of the Group's businesses. Given the refocus of the business as detailed in note 21 there is an increase level of uncertainty as to whether there will be sufficient future UK taxable profits to utilise the accumulated tax losses. Accordingly the directors have concluded that until such times as significant commercial traction is being generated, the utilisation of the accumulated tax losses is not supported by convincing evidence and therefore the deferred tax asset has been de-recognised in the period.

Net realisable value of inventory

Inventories are stated at the lower of cost and net realisable value. The realisable value is a judgement based on the future activities of the business. The directors have concluded that a write down of the carrying value of inventories is appropriate as detailed in note 6.

5. Operating segments

The Group complies with IFRS 8 'Operating Segments' which requires operating segments to be identified and reported upon that are consistent with the level at which results are regularly reviewed by the entity's chief operating decision maker. The chief operating decision maker for the Group is the Intelligent Energy Holdings plc Board of Directors. Information on the divisions is the primary basis of information reported to the Intelligent Energy Holdings plc Board of Directors. The performance of the divisions is assessed on a non-IFRS measure being EBITDA (earnings before interest, tax, depreciation, amortisation, and share of joint venture results).

The Group is strategically organised as three externally facing business units: Motive which focuses on fuel cell technology application in vehicles, Distributed Power and Generation which focuses on the provision of power management services, and Consumer Electronics which focuses on the mass market application of portable energy and miniaturisation of fuel cell technology. These business units are supported by Platform Support which undertakes research and development activities and back office support functions.

For the six months ended 31 March 2016 there was no inter-segment revenue.

For the six months ended 31 March 2015 there was no inter-segment revenue.

8. Adjusted EBITDA

The Company uses adjusted EBITDA (earnings before interest, tax, depreciation, amortisation, impairment charges, share of joint venture results, equity fundraising costs and IFRS 2 share based payment charges) as an indicator of trading profitability and a proxy for operating cash flow, before any cash movements relating to investment, tax funding and changes in working capital. It is not an IFRS measure, and not therefore shown in the Group income statement.

9. Finance income / (cost)

Other finance income for the six months ended 31 March 2016 relates to the expiry of obligations from convertible loan notes issued in prior years. Other finance costs for the six months ended 31 March 2016 relates to impairment of a financial asset (2015: £1.0m).

10. Taxation

11. Share-based payment plans

A total equity settled share-based payment expense of £0.1m has been recognised in the period (six months ended 31 March 2015: £1.9 million). The charge arises from schemes implemented in prior periods in respect of the 2001 and 2009 Share Option Schemes, the 2013 Management Incentive Plan and the 2014 Sharesave scheme as detailed in the Annual Report for the year ended 30 September 2015.

12. Earnings per share

Earnings per share is based on the Group's profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the period.

The impact of share options, share warrants and potential ordinary share awards have an antidilutive impact on the earnings per share for the six month period ended 31 March 2016 and 31 March 2015 and therefore were excluded from the weighted-average number of ordinary shares used in the calculation of diluted earnings per share.

13. Property, plant and equipment

14. Intangible assets

15. Short-term deposits

Short-term bank deposits include restricted bank deposits of £0.4 million at 31 March 2016 (30 September 2015: £0.6m, 31 March 2015: £3.5 million), held as security in relation to trading activities in India and are pledged until the maturity of the associated contract. On 28 April 2016 restricted bank deposits have reduced to £0.018m.

16. Cash and cash equivalents

17. Provisions

Contingent consideration is payable in relation to the assets acquired from Société Bic (S.A.) ('BIC') based on forecast future relevant product sales. The estimate of the amount payable has been reduced with an equal and opposite reduction in the associated intangible asset cost.

18. Share Capital

19. Financial risk management and financial instruments

Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.

The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 30 September 2015. There have been no changes in the risk management processes or in any risk management policies since the year end.

Financial instruments

Fair value estimation

Financial instruments are classified as follows: level 1 instruments are those valued using unadjusted quoted prices in active markets for identical instruments; level 2 instruments are those valued using techniques based significantly on observable market date; level 3 instruments are those valued using information other than observable market data.

Derivative financial assets at March 2016 comprise forward foreign exchange contracts. These derivatives have been fair valued using forward exchange rates that are quoted in an active market and falls within level 2 of the fair value hierarchy.

There have been no transfers between valuation levels and no changes in valuation techniques during the period.

20. Related party transactions

There have been no significant related party transactions during the period requiring disclosure.

21. Events occurring after the reporting period

Business Restructuring

Following an extensive review, the Group proposes to implement a material restructuring of its business. The objective is to focus the Group on the most immediate and material market opportunities, while substantially and sustainably reducing the costs and cash burn of the business.

These opportunities are primarily based on the Group's class leading and power dense sub 1W to 20kW air cooled fuel cell technologies which are targeted towards small to medium-sized, highly distributed applications to power a range of off-grid devices. These include small embedded devices to medium auxiliary power units and range extenders for a range of end markets including drones and motive applications, but with continued focus on Distributed Power and Generation (DP&G) systems (currently operating in India with over 20MWh of clean electricity generated to date).

The Company plans to maintain its core high power technology Intellectual Property portfolio, know-how and expertise appropriate for motive and high power DP&G applications. However, further investment and development would only be made when profitable and scalable opportunities arise in lockstep with the deployment of refuelling infrastructures.

As part of this proposed restructuring, and to align the business with this revised focus, there will be a number of changes across the Group. The proposals include the simplification of the organisational structure, the reduction of the number of jobs across several locations in which the Group operates and the closure of some office locations. It is envisaged that the majority of the proposed job reductions would take place in the UK.

Consequently, the Group is proposing a reduction of circa 200 jobs. This proposed restructuring is expected to reduce costs and cash burn rapidly and significantly. Thus, the Group has commenced a period of consultation with its employees.

In parallel with this process, the Group also plans to review the scope of some existing and target contracts to ensure that over time they individually (and collectively) align with the Company's revised commercial focus.

The intention of the proposed restructuring is to focus the business on existing tangible commercial opportunities whilst preserving the Group's core capability to provide best of class, fuel cell based, power solutions to customers in its target markets.

The related cost of the proposed restructure is currently estimated at £3.4m. Given the announcement of this restructure subsequent to the end of the reporting period the cost of the restructuring will be recognised in the H2 2015/16 results.

Funding

The Group meets its day to day working capital requirements through its cash resources. The Company has agreed the terms of a £30m gross fundraising, with net proceeds of £27.2m from this fundraising after issue costs, through the issue of convertible loan notes. Pursuant to the terms of the fundraising, the Company's largest shareholder, Meditor, subscribed for £25,638,293 of the Convertible Loan Notes. In accordance with the terms of the subscription agreement, certain other qualifying investors elected to participate in the fundraising and subscribed for £4,361,707 Convertible Loan Notes. The additional subscribers for the Convertible Loan Notes included Evolution Placements Corporation (who have subscribed for £2,050,000 Convertible Loan Notes) and Royalton Percy LLC (who have subscribed for £526,707 Convertible Loan Notes).

Subject to the passing of the Resolutions at the General Meeting ('GM'), the convertible loan notes shall be capable of being converted at the option of the loan note holders into ordinary shares in the company at a conversion price of 8 pence per new ordinary share at any time up until 17 May 2019.

In the event that the Resolutions are not passed by 30 June 2016, the Company will still retain the £30.0 million gross funding. However, in order to compensate for the inability to convert the Convertible Loan Notes, the principal to be repaid under the Convertible Loan Notes would increase from £30.0 million to £42.0 million and the interest rate would increase (with retrospective effect from the date of issue of the Convertible Loan Notes) from 13.0 per cent. per annum to 18.2 per cent per annum.

The Company has received irrevocable undertakings from its three largest shareholders, representing 37.8% of the ordinary shares, that they will vote in favour of the resolutions that they are eligible to participate in, at the GM planned for 9th June 2016. The Directors therefore believe a positive outcome in that vote will be forthcoming, which will confirm the terms of the convertible loan notes. In the event that the shareholders do not pass the resolutions needed at the General Meeting on 9th June, then the Board believes that the Company would not be able to meet the resultant level of increased payments and would therefore no longer be a going concern. In this circumstance, the Board would have little option other than to place the Company into administration immediately. This is a material uncertainty regarding the Company's ability to continue as a going concern. The Company's interim consolidated financial statements do not include the adjustments that would result if the Group is unable to continue as a going concern.

While the current position of the Group results in it being cash consumptive, the current cash position, the convertible loan funding, and the options available to the Group from trading, potential trading activities and the ability to realise value from the IP portfolio, mean that the Directors consider that the Company will have sufficient funds to pay its debts as they fall due for the foreseeable future. On this basis and taking into account the expectation that a positive outcome in the vote for the resolutions in the GM relating to the terms of the convertible loan note, the Directors in their opinion consider that the Group is a going concern and therefore the financial statements have been prepared on that basis.

Statement of directors' responsibilities

The directors confirm to the best of their abilities that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

By order of the Board

Henri Winand

27 May 2016

Chief Executive Officer

John Maguire

27 May 2016

Chief Financial Officer