Fuel Cell Developer IdaTech Releases Preliminary Results for 2008

IdaTech plc (AIM: IDA), an advanced fuel cell product  company operationally headquartered in Bend, Oregon, USA, today announces its Preliminary Results for the 12 months ended 31 December 2008.

Financial highlights:

• Sales increased 16.8% to US$5.9m
• Product revenue increased two and a half times to US$2.4m
• Increased investment in R&D up 24.7% to US$12.0m (2007: US$ 9.7 million)
• Operating loss for the year to 31 December 2008 was US$21.9m (2007 : US$16.3m) due to planned investment in operations, R & D and sales

Operational highlights:

o Significant contract signed in October 2008 with ACME Telepower (“ACME”) for 10,000 5 kW units Potential for up to 30,000 units in total over 4 years
• Commenced the development of two systems under the ACME agreement
  o Direct hydrogen systems:
      Since the end of 2008
      Built a number of prototypes
      Prototypes currently operating successfully
      Deliveries for Q2 2009 on schedule
  o Natural Gas fueled systems:
      Development schedule on track
      On time for Q1 2010 shipments to ACME
      Significant technological and system design advances
• 83 ElectraGenTM units delivered (an increase of 2.5 times over 2007)
• 9 iGenTM Industrial units delivered to key potentially high growth customers
• The number of telecommunications companies IdaTech is certified with doubled to 10
• 35 unit order from US telecommunications company in December, all now deployed and working  in the field

Commenting on the results Harol Koyama, Chief Executive Officer of IdaTech, said:

“Much was achieved towards our long term goals in 2008.  During the year IdaTech’s technology received huge validation from ACME who placed a 10,000 unit order for a 5kW natural gas fuel cell system.  These units are to be delivered in 2009 and 2010, predominantly for the market in India, with the possibility of further orders totaling 20,000 units.  This contract is highly important, as it validates a mass market for the Company’s products and will establish a base production platform for low cost, high volume fuel cell products and components which IdaTech believes will help early adoption. 

During 2008, IdaTech continued to differentiate itself with its ability to make hydrogen onsite and as needed from liquid fuel using its proprietary reformer technology.  By the end of the year, IdaTech doubled the number of telecommunications companies it is certified with to ten.  Five of these are from the top ten, ranked by global revenue. 

The advances that IdaTech has made have resulted in product simplification and performance improvements at significantly reduced overall cost.  The systems delivered under the ACME Agreement will be the first to benefit from these changes; these will be followed by the next generation ElectraGenTM and iGenTM products.”

Chairman’s Statement

IdaTech made good progress towards its long term goals in what was a challenging year due to the worldwide economic downturn.  The key objectives of IdaTech during the year were to increase the number of units sold into commercial field deployments, increase the number of customers with whom IdaTech’s products are certified and drive down costs.

In 2008, revenue derived from product sales increased 2.5  times to US$2.4 million over that in 2007, with 83 ElectraGenTM units and 9 iGenTM sold (2007 : 32 and nil respectively) the vast majority within Latin America and North America.  In addition, IdaTech doubled the number of customers with whom it is qualified as a certified vendor to ten.

In October 2008, IdaTech entered into an agreement for a large scale order with the Indian ACME Telepower Group (“ACME”) for the development and delivery of 10,000 units commencing 2009 with a possibility for a further two orders of 10,000 each for delivery between 2011 and 2013.  The successful delivery of a contract of this size inevitably carries significant cost and specification challenges.  Notwithstanding these challenges, IdaTech has made huge steps forward during the year.

Financial Overview

The prior period reported in the financial statements consists of a long period of account from 13 July 2006 to 31 December 2007.  In order to present a meaningful overview of the Group’s activities the following financial overview compares the results for 2008 with the unaudited proforma results for the year to 31 December 2007.

Total sales increased 16.8% to US$5.9 million in 2008 compared with the unaudited proforma result for the year to 31 December 2007 of US$5.1 million.  The increase in product sales of US $1.4 million over that in 2007 was offset by a decrease in project related revenue of US$0.4 million as IdaTech concentrated  its focus on the ACME Agreement in the latter part of 2008.  

The operating loss for the year to 31 December 2008 was US$21.9 million (2007 US$16.3 million) as a result of the planned investment in operations, research and development and sales.  Cash flow utilised by operations increased to US$18.1 million in the year (2007 US$13.6 million after a tax receipt of $0.3m).

Funding

IdaTech’s majority shareholder, Investec, has indicated its intention to provide financial support for the Company for at least 12 months from the date of signing these financial statements.  As a result of this support, these financial statements have been prepared on a going concern basis.  The Board believes additional funding will be needed in order to reach cash breakeven.  Further details are included in note 2 to these preliminary results.

People

On behalf of the Board, I would like to thank everyone at IdaTech for their hard work, dedication and ability to rise to the numerous challenges that faced the Company in 2008

With the skill and experience within the Group, IdaTech is very well placed to take advantage of the significant opportunities that will arise over the next few years.

Chief Executive’s Business Review

Strategy

Despite the current global recession, IdaTech made significant progress achieving further commercial penetration and developing a more focused approach to achieve mass adoption of its fuel cell products. The Group’s approach to capturing the opportunity in its critical power markets is twofold: continue to lay the foundation for mass commercial adoption of IdaTech’s ElectraGen™ line of fuel cell products, and execute against the large scale commercial contract with ACME in India.

Achieving adoption.
 
During 2008, IdaTech continued to differentiate itself with its ability to make hydrogen onsite and as needed from liquid fuel using its proprietary reformer technology.  The Group has found that this is a key competitive advantage and an enabler to early adoption of its fuel cell products.  By the end of the year, IdaTech doubled the number of telecommunication companies it is certified with to ten.  Five of these are from the top ten, ranked by global revenue.  The Company also signed a national sales agreement with a top US telecommunication operator and began its first significant deployments in the USA.  IdaTech is now certified in the USA, Mexico, Guatemala, Spain, Italy, UK and France. Certification by a telecommunications operator is a major commercial milestone which enables the Group’s products to be sold throughout the telecommunication network.

The ACME Agreement. 

In October 2008, the Company signed a contract with ACME to develop and deliver up to 10,000 5kW fuel cell systems.  ACME is a leading provider of comprehensive passive infrastructure solutions to wireless telecommunication operators in India.  These systems are for deployment principally in India by 2010 with a possible two additional 10,000 unit orders.  If successful, this contract will be highly important as it will validate a mass market for the Group’s products and will establish a base production platform for low cost, high volume fuel cell products and components which IdaTech believes will help early adoption.  The advances that IdaTech has made to date have resulted in product simplification and performance improvements at significantly reduced overall cost.  The systems delivered under the ACME Agreement will be the first to benefit from these changes; these will be followed by the next generation ElectraGenTM and iGenTM products.

While IdaTech’s commercial efforts remain squarely focused on these two strategies, the Group continues to drive development in advanced diesel based fuel cell systems and industrial applications for metal membrane hydrogen production, prioritising resources and deliverables as necessary.

ACME Agreement and Update

The Agreement is a three party contract between IdaTech, ACME and Ballard Power Systems Inc. (“Ballard”). Under the Agreement, IdaTech will supply ACME with an initial 310 hydrogen fuel cell systems in 2009.  In 2010 IdaTech will sell natural gas reformed fuel cell systems to ACME which will incorporate an IdaTech specially designed natural gas reformer.  The fuel cell stacks will be supplied by Ballard. The Agreement is subject to IdaTech and Ballard demonstrating certain design and performance criteria for the systems ahead of full deployment in early 2010.

ACME intends to deploy the systems throughout its key markets in India, principally as long duration backup power for base stations of its telecommunication customers. The systems will provide ACME’s customers with a more economic, reliable and environmentally acceptable product and will take advantage of the anticipated build out over the next three years of over 200,000 new base stations throughout India.

The ACME Agreement provides validation of the Group’s key competitive advantages which include its proprietary multi-fuel reforming and systems integration capabilities. IdaTech's ability to reform a variety of commonly available fuels to produce hydrogen on site and as needed, enables IdaTech's products to overcome the so called hydrogen barrier, the difficulties in supplying and managing compressed hydrogen gas which has previously been one of the key factors which has deterred the mass adoption of fuel cells.

The prototype of the hydrogen system has been running for six weeks and the five long-test units have been built and are commencing design validation testing.  Shipments are expected to commence at the end of the second quarter and be complete by the end of 2009.

The development of the Natural Gas system is on schedule and is expected to be ready for shipment at the beginning of 2010 as planned. 

The initial 310 systems deliverable under the ACME Agreement will be built at IdaTech’s manufacturing facility in Tijuana, Mexico.  which is currently being expanded and upgraded.  These improvements will be used to produce the next generation ElectraGenTM systems once the hydrogen systems have been produced and shipped by the end of 2009.

IdaTech is in the process of establishing a manufacturing facility in the Delhi region of India to produce the natural gas fuelled systems.  This factory will benefit from proximity to the customer and the competitive supply chain that India offers and a flexible and skilled work force.   The production facility will be established in the second half of 2009 and will be fully operational by the end of that year.  This facility will be based on a similar model to that used in Tijuana, which was successfully completed on schedule and budget in 2007 at a low capital cost.  The Indian facility’s capacity will be 4-5 times larger than that of Tijuana, giving the ability to produce approximately 10,000 units per annum.  IdaTech anticipates using this production facility as an additional platform for IdaTech's low cost manufacturing of fuel cell systems.  IdaTech will continue to produce systems at its Mexican facility for its non-Indian business.

Commercial Update

ElectraGenTM

The ElectraGen™ is IdaTech’s primary family of fuel cell products with 5kW and 3kW power outputs.  In 2008, IdaTech secured an additional five vendor qualifications, bringing the total as at the end of the year to ten. IdaTech continued to distribute its products through its global channel partner network as well as directly to the end user telecommunication companies. The Group’s focus was on those customers and geographies, such as North America, Latin America and South Africa, where IdaTech can demonstrate a compelling value proposition and where the Group believes there is significant potential for early market adoption. 

As well as seeding the market with a number of telecommunication companies this year, the Group sold 83 ElectraGenTM systems, substantially more than the 32 in the previous year.  Of these, 70 were sold to six key telecommunication companies in North America and Latin America for commercial field deployment which IdaTech believes may produce larger scale deployments in 2009 and 2010.  These systems are providing power in remote and difficult locations, some of which have never had backup capability before.  Of the 83 systems, 94% were fully integrated reformed products using a methanol-water mix as a fuel, further demonstrating the preference for IdaTech’s fuel reforming technology.

As previously announced, IdaTech is also targeting deployments in which there are incentives for fuel cells.  The United States currently provides a tax incentive for fuel cell deployments, which was recently extended until 2016.  During the year, the Group secured a national sales agreement with a major US telecommunications operator and won an order for 35 ElectraGen™ XTi systems which were successfully shipped to Florida to support sites at risk from hurricanes. 

In Europe, IdaTech is participating in a German Government sponsored program, the National Program for Innovation through its German distributor, b+w Electronics GmbH (“b+w”).  In September 2008, IdaTech received an order from b+w for 30 direct hydrogen systems, 18 of which will be sold to b+w under this program in 2009.

At the end of the year, IdaTech had received orders for 32 ElectraGenTM systems which were not yet shipped (2007 nil).

iGenTM

The iGenTM Industrial is a compact certified 250W integrated fuel cell and reformer system for charging batteries in industrial applications. It is designed to work with battery packs and renewable energy systems such as solar and wind power in challenging environments.

The iGenTM Industrial product is currently under trial in a number of applications such as traffic signaling and portable traffic signage.  Once these trials are completed, IdaTech expects iGen™ sales to increase and the Group will continue to drive the larger scale commercialisation of the product.  In total 9 iGenTM systems were sold (2007 nil). 

Technical Development

The focus of the technical development during the year has been on advancing IdaTech’s proprietary core competences in multi-fuel reforming, purification, integration and control technologies.  In these areas, IdaTech has made a number of significant advancements which will be incorporated into the natural gas product developed under the ACME agreement and into the next generation ElectraGenTM and iGenTM products, due for launch in 2011.  These will enable IdaTech to produce more robust and significantly more cost effective integrated fuel cell systems.  The first of these products to be launched will be the natural gas fuelled system for deployment in early 2010 under the ACME contract.

Hydrogen System for ACME

Development on the hydrogen system under the ACME Agreement commenced in the second half of the year.  The hydrogen system is due for launch at the end of the first half of 2009 and remains on target.  A prototype has been successfully running for two months and units for long term testing are being assembled.

Natural Gas System development for ACME

The development of the natural gas system also commenced in the second half of the year.  This product is due for launch in the first quarter of 2010 and the development remains on target to meet that due date.  This product has significant cost and specification challenges which are being addressed by incorporating the technological advances in natural gas reforming, purification, integration and control technologies made in the year.  Additionally the system will benefit from  a drive to simplify significantly the product, a reduction in the number of components used, the use of the supply chain to assemble modules and the ability to purchase in quantities 1,000 times greater than previously possible.

ElectraGenTM and iGenTM

A 24V version of the ElectraGenTM was released at the beginning of the year in order to meet the demands of IdaTech’s customers in North and Latin America.  Due to the ACME Agreement, the development of the next generation of these products was deferred until the second half of 2009.  By leveraging the technical advances made in the ACME program, the Group will effectively accelerate a generation of ElectraGenTM and iGenTM product development, resulting in a lower cost, more robust version of these products by 2011.

Stack Development

Prior to the ACME Agreement, IdaTech had entered into supply contracts with Ballard to supply their fuel cell stacks to IdaTech for incorporation into the next generation of ElectraGenTM and iGenTM products.  IdaTech continues to seek the best technology for its products in order to bring greater value to its customers and shareholders.   The Ballard stack was selected as it met all of IdaTech’s technical requirements at a lower overall cost.

IdaTech’s own internal stack research, development and production capability continues to give the Group the ability both to evaluate outsourced stacks, and develop its own stack in order to remain on the leading edge of an evolving technology.  These stacks will be evaluated as part of the development of the next generation of products and enables IdaTech to focus on the fuel reforming, purification, controls and integration requirements of these products, areas where the Group has successfully differentiated itself.

Third Party Developments

In 2007, IdaTech successfully delivered a dual fuel (diesel and military) integrated system to the US Army.  During 2008, the second phase of this project was partially delivered; completion was deferred until 2009 which allowed IdaTech to concentrate upon delivering the ACME Agreement.  This resulted in a deferral of approximately US$0.5m of revenue  into 2009.  The project will re-commence in the second quarter of 2009.

During the year IdaTech continued to deliver two private commercial development contracts worth US$1.4m.  Of this, US$1.3 million derived from the three year agreement, awarded at the end of 2006, with a large Japanese company to develop a palladium metal membrane system based on IdaTech’s patented HyPuriumTM metal membrane for potential future applications of industrial scale hydrogen purification.  This contract continues into 2009 and the other contract was successfully concluded in 2008.

Financial Overview

As noted in the Chairman’s statement, the prior period for statutory reporting purposes consists of a long period of account (13 July 2006 to 31 December 2007).  The following financial overview compares the audited results for the year to 31 December 2008 with those of the unaudited proforma results for the year ended 31 December 2007.

Revenue for 2008 was US$5.9 million (2007 : US$5.1 million) of which US$2.4 million was from the sale of products in the ElectraGenTM and iGenTM ranges (2007 product revenue US$1.0 million).  This reflected increased product sales in 2008.  Revenue from development contracts, derived from Government and industrial customers was US$3.4 million, down from US$3.7 million in 2007 due to the deferral of $0.5million project revenue from 2008 to 2009 in order to focus the research and development resource on the fulfillment of the ACME agreement.

A gross loss of US$3.3million (2007 profit of US$0.4 million) was recorded.  This loss arose as a result of the transition of production to Tijuana, Mexico from Bend, USA and a change in the revenue mix, with a decrease in project related revenue which attracts a higher margin than product sales, which increased significantly over the prior year level.

The operating loss for 2008 was US$21.9 million (2007 : US$16.3 million).  This anticipated increase arose following an expansion in capability in the key areas of research and development and in sales, with the addition of a net 12 employees during the year (2007 : 14 net gain).  In addition, the manufacturing facility in Tijuana Mexico expanded to support the growing sales volumes in the second half of 2008.   

For the year to 31 December 2008 research costs including the amortisation of intangible assets of US$ 2.4 million were US$12.0 million (before deducting tax credits of US$1.8 million).  For the year to 31 December 2007 research costs were US$9.7 million including amortisation of intangible assets of US$2.1 million (before deducting tax credits of US$1.6 million).  The vast majority of this increase was due to the increase in headcount in 2008 (and the full year costs of those hired in 2007) which rose by 20% to broaden and deepen the resources available, the incorporation of a long term testing group and the commencement in October 2008 of the hydrogen and natural gas system developments for ACME.

Sales, general and administrative expenses were US$ 0.1 million higher at US$10.8 million in the year ended 31 December 2008 compared with 2007.  There was a minor decrease in sales and marketing related expenses of $0.1million.  The costs of setting up the office in Malaysia and the resultant increase in headcount were offset by reduced advertising expenses, travel expenses and consultant costs. Expenditure on trade shows fell in 2008 compared with 2007 but this was offset by an increase in investment in demonstration equipment. General and administrative expenses increased by US$0.2 million as a result of the costs associated with entering into the ACME agreement.

Cash flow utilised by operations increased to US$ 18.1 million in the year (2007 US$13.6 million after a tax receipt of $0.3 million) principally as a result of the planned increase in overheads, funding the gross loss and the build up of inventory.

The principal changes in the balance sheet are the increases in inventory, accounts receivable and borrowings.  Inventory increased US$1.6 million to support the order backlog of 32 ElectraGenTM systems as well as the ACME systems development and third party contract work.

Accounts receivable increased by $0.6million.  Trade receivables increased by US$0.7 million as a result of the shipment of a 35 unit order in December, which were not due for payment by the end of the year.

During the year, IdaTech drew upon its loan facility with Investec, its principal shareholder.  At the end of the year, US$7 million had been drawn.

Funding and going concern

These financial statements have been prepared on a going concern basis as Investec, IdaTech’s main shareholder, has indicated its willingness to fund the business for at least one year after the approval of these financial statements.  Further details are disclosed in the note 2 to these preliminary results.

Current funding is via debt and it is the intention of IdaTech to seek additional equity to fund its operations until breakeven and not to draw upon this debt finance further than is absolutely necessary.  Although the timing of this is yet to be finalised, it is highly likely IdaTech will seek to raise additional funds over the next 12 months.

Outlook

As previously announced, IdaTech plans to sell 310 hydrogen systems under the ACME agreement. Full deployment of systems for ACME is due to commence in early 2010 and in preparation for these shipments, IdaTech will complete the production facilities in Mexico and India.  In addition to the sales under the ACME agreement, IdaTech expects to ship 150-200 systems from organic sales growth, targeting customer accounts which will increase adoption and establish the base for large scale growth.  During the year, IdaTech will continue to expand its sales network and seek to gain certification by additional telecommunication customers.

In 2009, IdaTech expects iGenTM will conclude some of its initial field trials, leading to higher volume deployments.
 
There are regional incentives for fuel cells despite the difficult current economic climate.  The funding underlying the German Government sponsored program National Innovation Program is due to be finalised in 2009.  IdaTech and its partner, b+w, will benefit from this scheme.

At the end of 2008, the US Federal Government extended the tax incentive scheme for fuel cells to 2016 and increased the incentive to US$ 3,000 per kilowatt or 30%, whichever is higher.  Additionally, the US American Recovery and Reinvestment Act of 2009 has incentives for alternative energy.

During the initial phase of the ACME agreement in 2009, management intends to pursue third party development efforts selectively.  As resources become available from the ACME project, third party contracts, which align with the product development strategy of the business, will be pursued.

Notwithstanding the financial downturn and ongoing uncertainty, the Board believes that the developments made by IdaTech over the last year have significantly improved its prospects for the future.

Editors Note: The Full Set of Results for IdaTech are available to download from: http://www.fuelcelltoday.com/online/financials

Source: IdaTech