intelligent energy holdings initiation of coverage · 2015-04-30 · intelligent energy listed in...

30 April 2015

Intelligent Energy Holdings is a research client of Edison Investment Research Limited

Intelligent Energy (IEH) has developed a high-power density fuel cell technology suitable for use in multiple sectors. IEH has an excellent record of providing technology for automotive companies, most notably for the Suzuki Burgman electric scooter. Management has diversified into the distributed power generation and consumer electronics markets to drive revenue growth over the years before mainstream adoption of fuel cell vehicles. Our analysis gives a valuation range of $700m to $1,604m.

Year end Revenue (US$m)

PTP* (US$m)

EPADR ($)

DPADR ($)

P/E (x)

Gross Yield (%)

09/14 20.7 (88.2) (2.3) 0.0 N/A N/A 09/15e 157.8 (112.2) (2.8) 0.0 N/A N/A 09/16e 359.5 (111.0) (2.8) 0.0 N/A N/A 09/17e 677.2 5.3 0.3 0.0 23.8 N/A

Note: Converted at £1/US$1.52 for the table above and throughout the note. Dividend yield excludes withholding tax. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws.

Successful entry into distributed power generation From March 2014 onwards IEH has used its long-established proprietary monitoring software to remotely manage back-up power generation assets for telecoms towers in India in a more efficient way than traditional operators. Short term, this activity is intended to generate a recurring revenue stream. The activity had already reached annualized revenues of £50m by end FY14. Strategically, the activity should create a market for IEH fuel cells, as it is likely that these will be substituted for existing diesel back-up generators as the diesel generators wear out. Creating a market for volume sales of fuel cells is expected to bring down production costs, thus encouraging the adoption of fuel cells in other markets.

First consumer product launched in Apple stores Since 2009 IEH has been working with a leading international consumer electronics device, OEM, to develop embedded fuel cell technology. This should be able to power energy-hungry, next-generation mobile devices without recourse to multiple recharges from the electricity grid in the course of a single day. IEH’s Upp device, which is an external fuel cell charger for mobile phones, launched in Apple stores in November 2014. It is intended to raise awareness of fuel cell charging and to help establish fuel distribution networks internationally. Our estimates assume modest adoption of the device. Widespread adoption, which is more likely in overseas regions where there is no electrical grid or frequent power outages, presents upside. Longer term, management expects the development program to result in a fully embedded technology, monetized on a royalty basis. The acquisition of BIC’s portable fuel cell and disposable fuel cartridge assets accelerates this program.

Valuation: Significant upside from royalties Our sum-of-the parts analysis gives a valuation range of $700m to $1,604m. This analysis assumes a single licence deal in FY17, but excludes any value associated with long-term royalties for the Motive or Consumer Electronics divisions.

Intelligent Energy Holdings Initiation of coverage

Electricity unplugged

Price US$7.14* Market cap US$269m

*priced as at 24 April 2015. *underlying GBP price converted at US$1.52

ADR/Ord conversion ratio 1:5 Net cash ($m) at 30 Sep 14 135

ADRs in issue 37.6m

Free float 66%

ADR Code INGYY

ADR exchange OTC

Underlying exchange LSE

Depository BNYM

Business description

Intelligent Energy develops efficient hydrogen fuel cell power systems for the distributed power and generation markets (DP&G division), global automotive (Motive division) and consumer electronics (CE division) markets.

Next events

Interims May 2015

Analysts

Anne Margaret Crow +44 (0)20 3077 5700

Roger Johnston +44 (0)20 3077 5722

[email protected]

Edison profile page

Alternative energy

http://www.edisoninvestmentresearch.co.uk/

Intelligent Energy Holdings | 30 April 2015 2

Investment summary

Company description: Proven hydrogen fuel cell technology Intelligent Energy listed in July 2014 at a share price of 340p. It is a fuel cell company, which is already embedding its technology into products at the request of global market leaders that have the power to shape consumer demand. The core fuel cell technology spans a wide power output range so it is applicable to multiple markets. It is currently being deployed in three non-correlated mass-market sectors that are set to benefit from long-term trends including low-pollution vehicles, mobile devices accessing cloud-based data and decentralization of power generation. Since its beginnings in 1995, IEH has focused on the automotive sector. This sector remains key for the group, but the revenues it generates are not predictable so management has diversified the group into the distributed power and generation and consumer electronics sectors.

Financials: Telecoms back-up power driving short-term growth The principal growth driver in the short term is the Distributed Power and Generation (DP&G) division. It did not begin generating revenues until March 2014, yet achieved an annualized revenue rate of around £50m by end FY14 from 10k telecoms towers. Management’s target is to have 125-135k telecoms towers under management in the medium term. Our estimates model a more conservative 80k by end FY17, supported by the agreement in principle with GTL to acquire the long-term power management rights over a 26k telecom tower estate in India, which was announced in February 2015. Similarly, although management’s target for the Consumer Electronics division is 3-4m unit sales of Upp devices annually medium term, our estimates model only 0.6m units in FY17. For FY15 and FY16 we assume that Motive division revenues will be derived solely from JDA agreements, as in FY14, with a Suzuki-sized (£45m, US$68.4m) licence fee landing in FY17. Any potential royalties for the Motive or Consumer Electronics divisions are expected to commence after the end of the period shown in our estimates.

Sensitivities: DP&G decouples business from auto sector The rate of adoption of fuel cell electric vehicles and associated IP royalties will be slow to take

off if manufacturers are unable to offer vehicles at sufficiently low price points or if there is insufficient investment in refuelling infrastructure.

The rate of adoption of fuel cells in the automotive and consumer electronics sectors may be affected by the development of higher-capacity rechargeable batteries.

A downward movement in the global oil price should not adversely affect the profitability of the DP&G division short to medium term as contracts are constructed to pass on fuel price movements. The adoption of fuel cells in the automotive sector is currently driven by legislation and adoption in the consumer electronics sectors by consumer convenience rather than any economic advantage gained by switching to hydrogen fuel.

Consumers may be resistant to paying for fuel cell cartridges when they can currently recharge their mobile devices for minimal cost.

Valuation: DP&G division alone underpins current levels Our sum-of-the parts analysis gives a valuation of US$700m with the more conservative growth rates adopted in our estimates. This rises to US$1,604m if management exceeds the medium-terms targets it has set itself. This higher level excludes any value associated with long-term royalties for the Motive or Consumer Electronics divisions, but does ascribe some value to the £45m (US$68.4m) potential licence fee modelled for FY17. We note that the base case value for the DP&G division alone (US$542m) is more than 100% higher than the current market cap.


Company description: Freedom from the grid

Intelligent Energy (IEH) designs and develops power-dense hydrogen fuel cell technologies intended for lower-cost, mass-market applications. It currently addresses three sectors through three dedicated divisions: Distributed Power and Generation (DP&G), Motive and Consumer Electronics. These three initial markets have the potential to grow quickly. Management intends to develop product for additional sectors such as aerospace and medical technology longer term. IEH listed on the London Stock Exchange in July 2014, raising £55m (gross, US$84m) at 340p/share.

Exhibit 1: History Date Event 1995 Advanced Power Sources spun out of Loughborough University with the aim of commercializing fuel cells. 2001 Newly formed Intelligent Energy acquires staff and IP of Advanced Power Sources. 2005 IEH introduces the ENV, a prototype electric motorcycle which was the world’s first purpose-built motorcycle powered by a fuel cell. 2007 Start of partnership with Suzuki Motor Corporation to develop fuel cells for a range of Suzuki vehicles. Suzuki Crosscage concept motorbike

shown at Tokyo Motor Show. 2009 Leading international consumer electronics device OEM signed a joint development agreement with IEH. 2009 Launch of Suzuki Burgman electric scooter at Tokyo Motor Show. 2011 Suzuki Burgman becomes the first and only fuel cell vehicle so far to achieve European Union Whole Vehicle Type Approval. 2012 Formation of 50:50 JV with Suzuki (SMILE) to develop and manufacture fuel cell engines for the automotive and other sectors. Non-exclusive

licence agreement giving Suzuki access to IP appropriate for smaller cars and motorbikes for use in its next generation of fuel cell vehicles. 2012 Start of five-year development program with a European premier car manufacturer 2013 SMILE establishes a ready-to-scale production line for its fuel cell systems which deployed IEH’s semi-automated production technology. Nov 2013 Upp presented at AfricaCom in Cape Town. Jan 2014 Upp presented at the Consumer Electronics Show in Las Vegas. Jan 2014 Framework agreement with Ascend Telecom. March 2014 Private equity placement and subscription for (and subsequent exercise of) warrants raising £54.4m with Singapore sovereign wealth fund GIC March 2014 15-year energy services agreement with Microqual. June 2014 Start of ongoing program of co-operation with second Japanese car manufacturer. July 2014 Listing on the London Stock Exchange raising £55m (gross). Nov 2014 Upp launched in Apple stores. Source: Edison Investment Research

Historically the group has generated its revenues from joint development agreements and technology licensing arrangements with major car manufacturers: Suzuki, a European premium car manufacturer and a second Japanese car manufacturer. The sector remains important as IEH continues to work with all three car manufacturers and is in discussions with other car manufacturers that do not have their own fuel cell technology. There is also potential to derive royalty revenues from licensing the fuel cell IP when fuel cell electric vehicles move into volume production.

However, since licence fees are inherently lumpy in nature and volume adoption of fuel cells in vehicles is not expected to occur until the end of the decade,1 management has decided to take control of its own destiny by diversifying into the distributed power and generation and consumer electronics sectors. From March 2014, the DP&G division has used the group’s proprietary AMBIS software to remotely manage back-up power generation assets for telecoms tower operators, initially in India. As the existing diesel generators wear out, IEH plans to replace them with its own-design fuel cells. This could create an opportunity to place tens of thousands of fuel cells in the field, reducing production costs and thus encouraging adoption of fuel cell technology in other sectors. IEH has also developed a miniaturized fuel cell for powering mobile electronics devices. This Upp device was launched by the Consumer Electronics division in Apple stores in late 2014.

The group employs more than 400 people, over 150 of whom are engineers. The main operating site is in Loughborough with ancillary offices in London, Japan, India and the US. The fuel cells for motive and distributed power generation applications are manufactured by the JV with Suzuki.

1 McKinsey: A portfolio of power-trains for Europe, 2010.


Technology: Industry-leading power densities A fuel cell combines hydrogen fuel with oxygen in the air to produce water, electrical energy and heat energy. IEH develops proton exchange membrane (PEM) fuel cells since these are robust, operate at temperatures below 100°C, are capable of delivering the highest power density and suitable for a range of outputs between a few watts and hundreds of kilowatts. PEM technology is therefore suitable for consumer electronics devices, domestic cars and motorcycles where, helpfully for IEH, customers are prepared to pay a premium for compactness. By contrast, power density is less important for buses and trucks and household or utility-scale power generation.

Exhibit 2: Fuel cell structure

Source: Fuel Cells 2000

Industry-leading power densities The key problem in designing fuel cells is the removal of the heat energy produced during the reaction of hydrogen and oxygen. If the heat is not removed the platinum catalyst clumps together and becomes less effective, the membrane degrades and production of electricity becomes less efficient. IEH has developed two types of fuel cells: air-cooled where heat is removed by the air flowing through the stack and evaporatively cooled where heat is removed by the water generated from the reaction between hydrogen fuel and oxygen. The two variants share common fabrication methodologies and base materials. Crucially the flow of fuel and coolant is controlled in real time using proprietary algorithms developed by IEH’s Asset Management and Business Information Service (AMBIS) team. This enables IEH to achieve higher power densities than competitive devices. We note that by using a core technology that can deliver a wide range of power outputs in multiple markets (IEH refers to this as “design once, deploy many times”), the group not only optimizes its return on the design investment, but will also potentially achieve economies of scale faster, accelerating adoption of fuel cell technology.

The air-cooled systems are available in 2W to 100W formats for consumer electronics applications and in 1kW and 2.5kW single-stack formats that can be combined for higher power applications such as back-up power supply. These offer a power density that is four times superior to the competition with regards to kW/kg and five times better with regards to kW/litre. The more complex evaporatively cooled variants are used in vehicles. A single evaporatively cooled fuel stack configuration can be used to output up to 100kW so is suitable for a two- or three-wheel vehicle. Premium cars typically require 100-200kW, so are powered by a combination of single stacks. By 2014 IEH had achieved a power density of 3.7kW/litre with this technology, compared with 3.0kW/litre achieved by both Toyota and Honda and even lower densities realized by competitors.


Design for volume manufacture IEH has always developed its technology with a view to eventually creating a product that would have a total cost of ownership comparable to conventional power sources. It has therefore focused on low part count design and on materials that are amenable to high-volume automated manufacture. Crucially IEH has opted to shift from the graphite customarily used for the flow field plates to stainless steel, since steel can readily be formed into the advanced architectures required for heat removal using standard production techniques such as sheet metal pressing. The manufacturing JV formed with Suzuki in 2012 has established a ready-to-scale production line for its fuel cell systems, which deploys IEH’s semi-automated production technology.

AMBIS proprietary engine monitoring software a key enabler The three market-facing divisions are supported by the Platform Support unit. The AMBIS software development and support team is part of this unit, complementing the fuel cell design and development activities. AMBIS software is essential for the high power density achieved by the fuel cells deployed in the Motive division. It is the key enabler for the group’s DP&G division in India, remotely monitoring and managing power-generation assets at telecoms towers. It is supporting the Upp roll-out by providing remote data gathering and analysis capabilities giving information on a user's location and energy usage, which is being used to create an effective fuel cartridge distribution network. Key members of the AMBIS team were involved in the development of engine health monitoring activity at Rolls-Royce. IEH has been developing in-house capability for over five years. The Platform Support operation is modelled as a cost.

Extensive patent portfolio The commercial offer is underpinned by an extensive IP portfolio of more than 1,000 granted or pending patents. These relate to the fuel cell power technologies, the components surrounding the fuel cell stack, the control technology for the stack and how it is manufactured.

Three divisions for complementary markets

Distributed Power and Generation (DP&G) Stressed grid drives rising demand for back-up power in India Management identified the back-up power market in India as attractive because the electric grid in India is under serious stress leaving critical infrastructure without power for substantial periods of time. Consequently, an estimated 70% of the telecom towers in India are without grid power for more than eight hours per day. To ensure continuity of signal transmission and thus protect revenues, telecom infrastructure operators install back-up batteries and diesel-fuelled power generators at the tower sites. Historically, diesel, which represents around 60% of tower operating costs, was subsidized by the government. The subsidy has been phased out and replaced with a fuel levy, imposing budget pressures on the tower operators, which are looking for ways to reduce the operating costs in the short term. Moreover, the Indian Department of Telecommunications has recommended licence fee rebates of up to 3% to tower operators using green energy, which includes fuel cells, in up to 50% of their towers. Wind and solar technologies do not give constant power output and so currently need to be complemented with back-up power in the form of a diesel-generator or fuel cells, combined with hydrogen generation equipment, to be usable.

The number of telecom towers in India is already almost 10 times greater than the number in the UK, with 400,000 towers in operation, a number that is expected grow to nearly 1m by 2017. To reach its medium-term target of 135k towers under management, IEH intends to establish itself in the Indian market and then pursue opportunities in other geographies where the grid is inadequate, eg China. It also intends to supply back-up generation power for other key infrastructure eg ATMs.


IEH active in India since 2011 Between July 2011 and July 2012, IEH undertook field trails in India giving site uptime of 99.95% and demonstrating the economic case for its fuel cell technology and business model. To create a captive market of sufficient scale, in January 2014 the group signed a framework agreement with Ascend Telecom to provide power for Ascend’s estate of more than 4,000 telecom towers across India (1% of the Indian market). In March 2014, IEH’s Indian subsidiary signed a 15-year energy services agreement with Microqual to provide energy services for telecom transmission equipment installed by Microqual in India. Microqual expects to install telecom equipment on 3,500-7,000 towers (1-2% of the Indian market).

During Q414 the division started providing power management services to GTL, a provider of services and infrastructure to the Indian telecommunications sector under an interim agreement. By the end of FY14, IEH had a total of 10,000 sites under management, the majority for GTL. Between July and September IEH demonstrated a 78% drop in power outage-related downtime and a 16% cut in fuel consumption. In February 2015, IEH announced an agreement in principle with GTL to acquire the long-term power management rights over a 26k telecom tower estate in India, increasing IEH’s sites under management from 10,000 to more than 26k towers. The proposed business acquisition cost is expected to be less than the site acquisition costs and recurring capital costs assumed in our financial model before this announcement. For the moment we assume they are equivalent. The division now has four customers under contract compared to three at the beginning of the year.

Monetisation: Four phases of increasing profitability Phase 1) Capex-intensive mode, eg Ascend: IEH purchases the energy-generating assets under an asset financing arrangement and is paid for providing power to the telecoms infrastructure operator. The DP&G division manages the maintenance and fuelling of the energy-generating assets. The field services are subcontracted to suitably skilled service providers which, in some instances, are the in-house field service divisions of the telecoms infrastructure operators. Contracts vary in nature and can range from revenues per kWh supplied or revenues depending on the volume of fuel used and the fuel price. In the latter case, the price/litre risk is taken by the end-customer so the profitability of this activity is not adversely affected by weaker diesel prices.

Phase 1 – capex-light mode, eg GTL: the energy-generating assets remain the property of the telecoms infrastructure operator. The DP&G division manages the maintenance and fuelling of the energy-generating assets and is remunerated in the same way as the capex-intensive mode.

Phase 2: the group improves the performance of the subcontractors and the delivery of power by monitoring the power assets with its AMBIS software. This analyses the history of power outages for each site so that it can predict how long an outage will last and therefore whether it is worthwhile powering up the diesel generators for a longer duration outage or whether it is more cost-effective to use batteries. It also reduces the number of site visits that need to be made and potentially extends the life of diesel engines from three to five years. Collectively, these activities reduce IEH’s costs, while the revenues from the telecoms operator remain the same as in Phase 1.

Phase 3: from CY Q215 onwards, management intends to substitute some diesel generators on those sites where IEH owns the power generation assets with fuel cells when the diesel generators need to be replaced. Following extensive in-house modelling, management is confident that the substitution with fuel cells can deliver at least a 15% improvement in total cost of ownership over a wide range of fuel price scenarios. The fuel cells deployed will be based on those developed for Suzuki and will be manufactured by the SMILE JV. Three to five fuel cells will be deployed at each tower site. The proportion of sites where there is a switch to fuel cells will depend on the price of diesel. If the diesel price reduces, towers need to be without power for a longer period of time each day for a switch to fuel cells to be economic.


Phase 4: from end FY15 onwards additional power will be generated at selected telecom tower sites where IEH owns the power generation assets for sale to third parties for applications such as water purification, potentially using technology produced by IEH’s partner Hydro Industries.

Competitive environment There are several other companies engaged in the manufacture of fuel cells for use as back-up power supplies for telecoms towers and other critical infrastructure, since high power density is not so critical for these applications. Several other companies also provide remote monitoring and control capability with the fuel cells. As far as we are aware, IEH is the only fuel cell company that is actively managing back-up power generation assets for telecoms operators.

Exhibit 3: Competitors in distributed power and generation sector Company Details AFC Energy Alkaline fuel cells for electricity generation in situations such as waste-to-gas transfer stations where hydrogen is cheaply

available. Altergy Systems Fuel cells providing back-up power for telecoms sites manufactured on a robotic assembly line. Ballard Power Systems Shipped more than 2,700 fuel cell systems for use as back-up power supplies. Customers include Nokia Siemens,

Motorola, Deutsche Telecom and Vodacom. Ceres Power Intends to enter the market through partnerships with a Japanese major, KD Navien and Cummins Power Generation. Electro Power Systems Fuel cells that consume hydrogen manufactured in situ by on its own hydrolysers. It has an installed base of 3,000kW.

Back-up systems to telecoms companies, operators of government communications networks, utilities and railways. FuelCell Energy Higher output distributed power systems fuelled by biogas for utilities, industrial operations, water treatment companies

and government organizations. Heliocentris Significant presence in the Middle East and Myanmar. Offers integrated energy management systems for telecoms sites.

Acquired fuel cell developer FutureE in June 2014 to substitute fuel-cells for back-up diesel generators. Hydrogenics Focusing on higher-power output systems combined with its own hydrolysers for grid support – fuel cells for back-up

power for telecoms sites in its portfolio. Plug Power ReliOn division, acquired in April 2014, has sold fuel cells for back-up and grid support applications at over 2,000 locations

globally. In January 2015 ReliOn won a contract to supply around 500 telecoms site in the south-eastern US with back-up power.

SFC Energy 30,000 fuel cells sold to date. Primary market is fuel cell-based hybrid solutions for remote oil and gas installations, but has highlighted telecom towers as a potential target market.

Source: Edison Investment Research

Motive

Green legislation driving demand for electric vehicles The key driver for the adoption of fuel cells in vehicles is the introduction of regulations reducing carbon emissions and particulate emissions from vehicles. The 2010 McKinsey report A portfolio of power-trains for Europe estimates that this requires a 95% decarbonization of the road transport sector, which cannot be achieved by making improvements to internal combustion engines and is unlikely to be fulfilled through the adoption of biofuels because of the volumes needed. It concludes that electricity-powered vehicles will be needed to meet carbon reduction targets, assuming of course that the electricity has been generated in a carbon-neutral manner.

Car manufacturers are introducing a variety of electric vehicles: fuel cell vehicles, plug-in hybrids (battery-powered electric motor plus internal combustion engine) and battery-powered vehicles. Battery-powered vehicles are more suitable for smaller cars and shorter trips because of the limited driving range (currently 100-200km for a medium-sized vehicle), while fuel cell electric vehicles offer comparable acceleration and range (around 600km) to internal combustion engine vehicles and are the lowest carbon solution for medium and larger cars and longer trips. A battery-powered vehicle currently requires six to 12 hours connected to the grid for a recharge with standard charging equipment. Even rapid charging equipment takes half an hour to charge a vehicle so a public electrical charging point would need to be several times larger than a conventional petrol station to be able to refuel the same number of vehicles per day. By contrast, a fuel cell-powered vehicle can be refuelled in a similar time to a petrol vehicle.


Four things are needed for fuel cell-powered vehicles to be widely adopted:

the vehicles need to be available commercially. This has happened. Examples include the Hyundai Tucson and the Toyota Mirai;

hydrogen refuelling stations needs to become widely available. Infrastructure roll-out has commenced. For example ITM Power has recently delivered a commercial electrolyzer-based refuelling system to Hyundai’s technical center in California and is currently building three large-scale, electrolyzer-based refuelling stations for deployment in London as part of the £31m EU-funded HyFive project and one for the city of Riverside in California;

the cost of fuel cell electric vehicles needs to reduce. According to CNBC, the Mirai will be priced at $57,500 in the US (before up to $13,000 in state subsidy) and €66,000 in Europe. The McKinsey report expects the cost of fuel cell systems to decrease by 90% by 2020 through economies of scale and incremental improvements in technology, but notes that the total cost of ownership of a fuel cell electric vehicle will not become comparable with that of a conventional vehicle until after 2025. We note that IEH is actively seeking to reduce the cost of the fuel cells used through its DP&G activity, where the volume substitution of fuel cells will help achieve the production cost savings associated with economies of scale more quickly; and

fuel cell technology must not be rendered obsolete by advances in battery technology that enable manufacture of battery-powered vehicles with adequate range at a price sufficiently low for volume adoption. The production of suitable batteries still appears to be several years away.

IEH active in the automotive sector since its formation IEH is currently engaged in development programs with three major car manufacturers: Suzuki, a European volume manufacturer of premium vehicles and a second Japanese car manufacturer.

Exhibit 4: Motive programs Suzuki EPCM JCM Technology validation Yes Yes Yes Joint development agreement Yes Yes Partial Option licence agreement Yes Yes Licence exercise Yes Royalties Long-term Source: Edison Investment Research

Monetisation: Progress from technology validation to royalties Initial engagement with a car manufacturer is normally through a joint development agreement. These typically extend for two to five years and may be followed by a licensing agreement. We assume that fuel cell cars will not move to volume production until after 2020, at which point the group will begin to receive royalties associated with the use of its IP. Until that point, the division is expected to generate revenues through a combination of JDAs, licence fees, the provision of engineering support and consultancy. Between July 2011 and July 2014 IEH received a total of £76.6m (US$116m) in revenues from these sources. This included £45m (US$68m) in licence fees from Suzuki. A total consideration of £22.6m (US$34.4m) is payable under the agreement with the European car manufacturer, which will be received in instalments as successive phases of the development program are completed. This manufacturer can exercise an option to license the IP on a non-exclusive basis. Potential fees from this main licence and sublicenses total up to £1,320m (US$2,006m). The program with the second Japanese car manufacturer has the scope to follow the same path as the program with Suzuki. IEH is in active discussions with multiple other car manufacturers.


Competitive environment Hyundai, Kia Motors, and the partnership groups of General Motors and Honda; Daimler, Ford and Renault-Nissan; and Toyota and BMW are developing their own fuel cell technology. This leaves a significant number of manufacturers that do not appear to have their own technology and must therefore either develop it or else license the technology from either a competitor (thus eroding key performance differentiators) or a third party. Development is costly. Suzuki had already spent an estimated $2.5bn on technology from General Motors before switching to IEH. Licensing the technology is not only a lower cost option but also offers a faster and lower-risk route. The third party options are limited. While Ballard Power Systems, Plug Power, Hydrogenics and Horizon Fuel Cell Technologies are involved in the sector, the first three only work with heavy vehicles where high power density is not so important, and Horizon focuses on range extenders for lightweight electric vehicles.

Consumer Electronics Demand in developed world driven by mobile download activity Operators of mobile phone networks, device manufacturers, developers of apps and consumers are united in a drive for increasingly function-rich devices that are continually accessing cloud-based software programs and data. This drive is being held back by the physical limitations of batteries. The energy demand of some smartphones when used intensively limits time between charging to only eight hours, less than the length of the average working day, obliging consumers to either reduce usage or modify their behavior so that they can recharge their devices more frequently. Device manufacturers are consequently very interested in fuel cell technology, as this presents potential for introducing future generations of devices with additional functionality. It also gives a long-term source of recurring revenues from selling fuel cartridges, essentially mimicking the business model of printer manufacturers, which derive the bulk of their revenues from ink sales.

Demand in developing world also linked to availability of grid Demand for off-grid charging is more pressing in the developing world. An estimated 1.5 billion people globally are off-grid, ie around one-fifth of the world’s population. An estimated 85% of these live in rural areas, primarily in sub-Saharan Africa and Southern Asia. In the absence of a fixed telecommunications structure in these regions, mobile devices are used more widely than fixed-line devices and are used for critical applications such as money transfer and payment services as well as being the primary source of news and data such as commodity prices. Consumers in these areas typically walk to the nearest small town to charge their mobile devices, paying 15c per charge. Many more people live in countries such as India where the grid is under stress and therefore experience extended power outages each day. Telcos have expressed an interest in the device because trials with Etisalat in Nigeria demonstrated that increased power availability results in 31% greater consumption of voice minutes and 37% for data, resulting in an uplift in ARPU.

IEH first consumer electronic product available in November 2014 In 2009 a leading international consumer electronics device, OEM, signed a joint development agreement with the group with the ultimate aim of replacing conventional mobile device batteries with miniature fuel cells. As a first step towards realizing this goal of this program, IEH has used its power-dense fuel cell technology to develop a USB charger for mobile devices that incorporates a small fuel cell and a replaceable, refillable fuel cartridge containing solid metal hydride fuel. This device provides charge for a mobile device independently of the grid and is known as the Upp. It is compatible with most hand-held mobile electronic devices with USB charging abilities and has been certified for carriage and usage on aircraft. A single fuel cartridge typically provides one week’s worth of energy for a smartphone and charges a phone as quickly as a conventional charger connected to the grid. A starter kit consisting of fuel cell and cartridge is available online for £149. A


replacement cartridge is £5.95. The physical device is accompanied by the Upp app. This provides the consumer with information on energy usage, charging and fuel status, and includes an automatic shut-off feature to conserve battery energy between charges. The app is available for both iOS and Android devices.

Strategic importance of Upp as a stepping stone Reception of the device in the developed world has been broadly positive. Editors are recommending it as an ecologically sound alternative to carrying back-up batteries when away from the grid for an extended period, although they are critical of the weight, size and cost per charge. In our opinion the real potential for Upp is the developing world, initially targeting the wealthiest segment of the population. IEH intends to launch Upp in Africa later this year. Moreover the Upp should be regarded as a stepping stone towards fully embedded fuel cells. Its real value is in alerting consumers to the concept of mobile devices powered by fuel cells. We note also that IEH has developed Upp in partnership with a global major, so it is not bearing the cost of launching the product single-handed. Significantly, IEH and its OEM partner have purchased key patents regarding the design of the interface between the fuel cartridge and the charger, thus ensuring that substitute fuel cartridges from unapproved third parties will not be compatible with the charger. This secures the future of the disposable razor blade business model based on generating revenues from replacement fuel cartridges rather than new generation mobile devices.

Exhibit 5: Evolution of Consumer Electronics offer

Source: Edison Investment Research, IEH

The next steps for IEH are to reduce the size and cost of the existing product so that it may be offered at a price point suitable for the mass market and to increase the power that can be transferred through the USB port so that the device may be used to provide multiple charges to tablet and low-power netbooks. Medium term the group intends to provide a disposable format cartridge containing chemical hydride fuel. Longer term, IEH and its OEM partner intend to replace external fuel cell chargers with embedded fuel cell technology. In September 2014 IEH was able to demonstrate a laptop powered by an embedded fuel cell supplied with fuel from an external cartridge. The ultimate goal is for the fuel cartridge to be embedded in the laptop as well, although this is dependent on the wider availability of more highly energy-dense fuels. This development program was accelerated through the acquisition of portable fuel cell and disposable fuel cartridge asset from Bic in February 2015 for an initial consideration of $13m plus a further $2m on completion and a potential $7m earnout. The deal provides IEH with fuel cell and disposable fuel cell cartridge IP, high volume and manufacturing IP, pilot production technologies for disposable fuel cartridges and planar fuel cells and market understanding. Management expects to launch the disposable cartridges in H116.

Phase 1: Refillable cartridge

Phase 2: Disposable cartridge

Phase 3: Embedded fuel cell, external cartridge

Phase 4: Embedded fuel cell and fuel


Monetisation: Path leads to royalties longer term In the short to medium term, the group intends to generate revenues through the sale of Upp devices and fuel cartridges, supplemented with the sale of refilled cartridges or disposable cartridges when these become available. This will provide a source of recurring revenues. Longer term, as consumer electronic device manufacturers move to an embedded fuel cell format, the group is expected to switch to a royalty-based payment structure.

Competitive position Exhibit 6: Competitors in consumer electronics sector Company Detail Horizon Fuel Cell Technologies MiniPak also sold as a Brunton-branded product. Available in Apple stores. Complementary hydrolyser and

LED light offered. myFC Not offering refillable format fuel cartridges. Aquafairy (under development) Japanese start-up partnering with established Japanese electronic parts supplier Rohm to develop a fuel cell

incorporating a disposable resin sheet made from calcium hydride, which releases hydrogen as required. Neah Power Systems (under development) Proprietary fuel cell technology based on silicon substrates that does not depend on using oxygen from the

atmosphere, making it suitable for applications in space or underwater. Point Source Power (under development) Focused on sales to rural dwellers in Kenya. Fuel cell is powered by the fumes from carbon cooking stoves

and is used to recharge mobile devices or power LED lighting, thus replacing kerosene lamps. Source: Edison Investment Research

Our analysis has identified two companies with competitive products already in the marketplace and three with products under development. In reality, the competition comes from portable solar charger/battery pack combinations (which require sunlight to work) or external battery packs rather than other fuel cell chargers. Battery packs such as the PowerGorilla can charge a smartphone more times than a single Upp refill and can also power a tablet, which the current version of the Upp cannot.

Management

Both the non-executive chairman Paul Heiden (appointed in September 2012) and the CEO, Dr Henri Winand (appointed in September 2006) have held senior roles at Rolls-Royce. This has shaped the way in which IEH has evolved, for example in creating a single core technology that is used in multiple applications, and a philosophy that informs the group’s structure of three divisions each serving a distinct market, but sharing a technology development and support team. It has influenced the way in which the AMBIS capability is used as a critical value-add tool and the DP&G division has been created to generate revenue from providing power as a service. The group financial officer, John Maguire (appointed in January 2012), was CFO of the mobile operator Etisalat Nigeria during its initial rapid-growth phase. This experience of the requirements of mobile phone operators in the developing world is invaluable in shaping the DP&G service offer.

Sensitivities

Volume adoption of fuel cell electric vehicles will be delayed if the vehicles are too expensive or if the refuelling infrastructure is undeveloped. Our estimates assume that IEH continues to receive JDA revenues from automotive manufacturers and treat any royalty revenues associated with volume adoption of fuel cell electric vehicles as upside.

A downward movement in the global oil price will not adversely affect the profitability of the DP&G division in the short to medium term as contracts are constructed to pass on fuel price movements. It is expected to reduce the number of towers where fuel cells are substituted for diesel generators. The adoption of fuel cells in the automotive sector is currently driven by legislation and adoption in the consumer electronics sectors by consumer convenience rather than any economic advantage gained by switching to hydrogen fuel.


IEH needs to establish an effective system for cartridge return and refill for the Consumer Electronics proposition to be successful.

Consumers may be resistant to paying for fuel cell cartridges when they can currently recharge their mobile devices for a minimal charge. They may opt to deal with increasingly short times between recharges by carrying a device charger or supplementary batteries with them, although this is not very convenient. This option is less viable in the developing world where the grid is down for significant periods or entirely absent. The option will become less attractive as subsequent generations of mobile devices consume ever-increasing amounts of power.

The rate of adoption of fuel cells in the automotive and consumer electronics sectors will potentially be affected by the development of higher-capacity rechargeable batteries.

Valuation: Market cap less than value of DP&G division

We use a sum-of-the parts analysis as the basis for our valuation. This excludes revenues from longer-term activities such as royalties from IP licensing in Motive and Consumer Electronics, which are treated as upside.

Exhibit 7: DP&G division Market

cap Year 2

EV/Sales Scenarios (m)

Base case

Mgmt. target

Aggreko £4,231m 2.7x Number of sites under management end FY17e 80 100 120 135 150 American Tower Corp £27,202m 10.5x Number of sites under management end FY16e 65 70 80 95 105 APR Energy £237m 2.7x FY16 revenues (£m) 211.2 221.8 253.4 295.7 327.4 Ashtead Group £5,919m 2.9x FY16 revenues (US$m) 321.0 337.1 385.2 449.5 497.6 Bharti Infratel £7,604m 5.4x Average EV/Sales for sample of peers 2.4 2.4 2.4 2.4 2.4 Cape £327m 0.6x Implied EV (£m) 516.4 542.4 619.6 723.1 800.6 Speedy Hire £386m 1.2x Net debt end FY16 (£m) (159.7)* (159.7) (159.7) (159.7) (159.7) Toromont Industries £1,386m 1.4x Implied market cap (£m) 356.7 382.7 459.9 563.4 640.9 United Rentals Inc £6,397m 2.7x Implied market cap (US$m) 542.2 581.6 699.1 856.3 974.1 Mean 2.4x Source: Edison Investment Research. Note: *Attributing all debt to the DP&G division. Shaded value excluded from mean. Prices at 24 April 2015.

Our analysis of a sample of listed peers engaged in the provision of power generation and other equipment to utilities and the construction sector and telecoms tower operators (American Tower) indicates that an EV/Sales ratio of 2.4x for Year 2 or FY16e is appropriate. Applying this multiple to a range of revenues extending from our base case for FY16e (£211.2m divisional revenues, US$321m) to FY16e revenues realisable if management achieves its target of 135k telecoms towers under management by end FY17 (£295.7m divisional revenues, US$449.5m) and beyond (150 sites) gives an implied market capitalization of between £357m/US$542m (base case as modelled in our estimates) to £641m/US$974m. This implies that the base case value, taking only the DP&G division, is more than 100% higher than the current market cap. (We note that the IEH share price, in common with those of other fuel cell companies, has declined as the crude oil price has declined.)

We adopt a similar process for determining the incremental value associated with the Motive and Consumer Electronics divisions. This time we apply the Year 2 EV/Sales multiple (2.6x) for a sample of listed companies involved in fuel cell development to a range of FY16e revenues, taking the level shown in our FY16e estimates as the base case for the Consumer Electronics division and extending the scenario to achieve sales of 5m Upps in FY17e, which is beyond the upper bound of management’s 3-4m unit target. Since we assume that the Motive division will receive a sizeable licence fee (c £45m, US$68m) every three years, we add one-third of this (£15m, US$23m) to our FY16 divisional revenues. Combining the incremental market capitalization associated with a range of outcomes for these two divisions with the implied market capitalization associated with the DP&G


division on its own gives a group valuation range of £461m/US$700m to £1,055m/US$1,604m. This analysis excludes any value associated with long-term licensing royalties for the Motive division.

Exhibit 8: Consumer Electronics and Motive divisions Market cap Year 2

EV/Sales Scenarios

Base case Mgmt. target Ballard Power Systems Inc £196m 2.8x Upp units FY17e (m) 0.6 2 4 5 Ceres Power Holdings £72m 64.5x Upp units FY16e (m) 0.2 1.2 1.6 2 FuelCell Energy £258m 1.2x CE revenues FY16e (£m) 15 81.3 108.4 135.4 Hydrogenics Corp £87m 1.6x Motive revenues FY16e (£m) 25.3 25.3 25.3 25.3 ITM Power £61m 7.2x Total revenues FY16e (£m) 40.3 106.6 133.7 160.7 Plug Powerc £310m 2.1x EV/Sales multiple 2.6x 2.6x 2.6x 2.6x SFC Energy £32m 0.6x Implied EV (£m) 104.0 275.0 344.9 414.5 Mean 2.6x Implied market cap* (£m) 104.0 275.0 344.9 414.5 Implied market cap* (US$m) 158.0 418.0 524.2 630.1 Source: Bloomberg, Edison Investment Research. Note: *Entire debt attributed to DP&G division, none attributed to Motive and Consumer Electronics divisions. Shading indicates exclusion from mean. Prices at 24 April 2015.

Financials

Our estimates reflect the crucial role the DP&G activity plays in bridging the gap between the receipt of licensing revenues from Suzuki in FY12 and FY13 and the development of IP royalties in the automotive sector.

Earnings Exhibit 9: Divisional analysis 2013 2014 2015e 2016e 2017e Number of telecom tower sites at year end (k) 0.0 10.0 35.0 65.0 80.0 DP&G revenues (£m) 0.0 4.9 91.8 211.2 335.0 One-off Motive licence revenues (£m) 8.0 0.0 0.0 0.0 45.0 Motive revenues (£m) 20.8 8.6 10.0 10.3 55.6 Number of Upps sold during year (k) 0.0 0.0 23.0 219.0 628.0 Consumer electronics revenues (£m) 0.0 0.0 2.0 15.0 55.0 Group revenues (£m) 20.8 13.6 103.8 236.5 445.5 DP&G EBITDA (£m) (1.4) (4.4) 7.7 46.7 99.6 DP&G EBITDA margin N/A N/A 8% 22% 30% Motive EBITDA (£m) 6.2 0.5 0.5 0.5 43.3 Motive EBITDA margin 30% 6% 5% 5% 78% Consumer electronics EBITDA (£m) (9.5) (10.1) (14.0) (16.0) (10.3) Consumer electronics EBITDA margin (%) N/A N/A N/A N/A N/A Platform Support EBITDA (£m) (18.7) (38.4) (33.5) (35.2) (37.0) Group EBITDA (£m) (23.4) (52.4) (39.4) (4.0) 95.6 Source: Edison Investment Research

Group FY14 FY14 revenues declined by £7.2m (US$10.9m) to £13.6m (US$20.7m). The previous year benefited from a £8.0m (US$12.1m) payment from Suzuki as the second part of a £45m (US$68m) one-off technology licence agreement. There was modest year-on-year growth in underlying revenues, £4.9m (US$7.5m) of which was generated from March onward by the newly formed DP&G division. EBITDA profit from the Motive division was substantially lower than the previous year because of the absence of any licence fee payments. EBITDA losses for both the DP&G division and Consumer Electronic division grew as the cost base of each was enlarged ahead of commercialization. Platform Support costs rose by £19.7m or US$30m (105%) reflecting higher levels of R&D, as well as £7.1m (US$10.8m) related to fund-raising costs and an IFRS2 £6.0m (US$9.1m) share-based payments charge. Adjusted EBITDA loss, which excludes one-off fund-raising costs and the share-based payments charge, widened by £16.0m (US$24.3m) to £39.4m (US$60m).


DP&G Management is targeting 125,000 to 135,000 sites in the medium term, some of which will be outside India. Our base case model, which we adopt in our forecasts, takes a more prudent view, with 80,000 sites under management by the end of FY17. We adopt management guidance of average annual revenue per site of £4,000-5,000 (US$6,080-7,600) with an average cost of acquiring power generation assets at £2,000/site (US$3,040), annual capital expenditure of £900 (US$1,368) for sites with diesel generators and £1,300 (US$1,976) for sites with fuel cells. In the medium term management expects that 50-55% of sites under management will be operating with fuel cell technology, even if there is a substantial reduction in diesel prices. Our model assumes that 10% of asset-owned sites have fuel cells by the end of FY17 and that 13% of all sites under management are on an asset-light basis. Management estimates that it can double average revenue per site by generating power for complementary activities at 33% of sites in the medium term. Our model assumes that during FY17 16% of sites are generating £8,000 (US$12,160) revenues pa. Management estimates that EBITDA margins of 50-55% may be achieved from sites that are generating power from complementary activities. Our model assumes a lower proportion of sites generating supplementary power for complementary activities, giving a divisional EBITDA margin of 30% in FY17.

Motive We model JDA revenues totalling c £10m (US$15.2m) each year, supplemented with one licence agreement equivalent in scale to the Suzuki agreement (£45m, US$68.4m) in FY17. We note that minimal capex will be required to operate the division. Our model shows a divisional EBITDA margin of 5% in FY16, which does not benefit from a licence fee payment, and 78% in FY17, which does.

Consumer electronics Noting that management is restricting production of the first version of the Upp to 30k units, holding back until disposable cartridges are available in H116, our estimates model only 23k unit sales this year and 219k in FY16. Management’s target is for annual sales of 3-4m units in the medium term. We model divisional capex requirements of £3-5m (US$4.6-7.6m) during the period covered by our estimates, plus £1.7m (US$2.6m) investment in intangible assets each year relating to patent protection. The division is expected to remain loss-making throughout the period covered by our estimates at this level of market penetration. Our model shows that modest divisional operating profits are achievable in FY18 if the number of Upps sold during the year reaches 1.9m. This investment in a division that is loss-making for several years seems reasonable if we take the approach that the primary goal of the division is to generate royalties from embedded fuel cells longer term, which we estimate could generate divisional profits in excess of £100m (US£152m), with royalties at around $3/unit.

Group earnings FY15-17e Our estimates show revenues rising to £444.5m (US$675.6m) by FY17, with most of the growth generated from the DP&G division. Given the cautious growth trajectory assumed in our model, IEH is not expected to become profitable until FY17. The big hike in profitability shown in FY17 is partly attributable to our assumption that the Motive division will secure a major licence deal in that year, contributing an estimated £42.8m (US$65.1m) to group profits. Stripping that out, IEH would generate an estimated £52.8m (US$80.3m) EBITDA in FY17.

Cash flow and balance sheet The balance sheet was strengthened through a private equity placement in March and subscription for warrants (which were exercised before July 2014) with Singapore’s sovereign wealth fund, GIC, which raised £54.4m (US$82.7m), the placing associated with the IPO, which raised £55.0m


(US$83.6m, gross), and the conversion of all outstanding £30.2m (US$45.9m, nominal value) of convertible loan notes to equity at the time of the IPO. Following these financing activities in FY14, IEH finished the year with £88.9m (US$135.1m) cash and short-term deposits and no debt.

Looking forward, the capital expenditure associated with the acquisition of telecoms tower power generation assets accounts for a high proportion of cash outflow. Any increase in cash consumption linked to DP&G expansion is matched to revenue generation and expected to be partially funded by asset finance (included in long-term borrowings in Exhibit 10). If DP&G continues to add telecoms sites at the rate modelled in our estimates, we assume that management will seek to raise additional finance to keep cash balances at healthy levels. We model this as £70.0m (US$106.4m) short-term debt in 2016, although management has expressed a preference for raising this through a placing.


Exhibit 10: Financial summary US$m 2013 2014 2015e 2016e 2017e Year end 31 December IFRS IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue 31.7 20.7 157.8 359.5 677.2 Cost of Sales (20.5) (15.0) (98.0) (219.8) (358.5) Gross Profit 11.2 5.7 59.8 139.8 318.8 EBITDA (35.6) (79.7) (59.9) (6.0) 145.4 Operating Profit (before amort and except) (40.5) (64.8) (101.1) (86.7) 41.9 Amortization of acquired intangibles 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 (10.7) 0.0 0.0 0.0 Share based payments (0.0) (9.1) (3.9) (3.9) (3.9) Operating Profit (40.6) (84.6) (105.0) (90.5) 38.0 Net Interest (0.8) (6.0) (11.1) (24.4) (36.6) Share of losses from JVs and exceptionals (3.8) 0.0 0.0 0.0 0.0 Pre Tax Profit (norm) (45.2) (88.2) (112.2) (111.0) 5.3 Pre Tax Profit (FRS 3) (45.2) (90.6) (116.1) (114.9) 1.4 Tax 13.4 17.3 5.8 5.8 5.8 Profit After Tax (norm) (31.8) (70.9) (106.5) (105.3) 11.1 Profit after tax (FRS 3) (31.8) (73.3) (110.4) (109.2) 7.2 Average Number of Shares Outstanding (m) 134.4 153.4 188.1 188.1 188.1 EPADR - normalized (US$) (1.2) (2.3) (2.8) (2.8) 0.3 EPADR - normalized fully diluted (US$) (1.2) (2.3) (2.8) (2.8) 0.3 EPADR - (IFRS) (US$) (1.2) (2.4) (2.9) (2.9) 0.2 Dividend per ADR (US$) 0.00 0.00 0.00 0.00 0.00 Gross Margin (%) 35.3 27.4 37.9 38.9 47.1 EBITDA Margin (%) N/A N/A N/A N/A 21.5 Operating Margin (before GW and except) (%) N/A N/A N/A N/A 6.2 BALANCE SHEET Fixed Assets 42.1 57.6 125.6 187.1 225.9 Intangible Assets 20.2 22.3 37.2 35.1 33.4 Tangible Assets 8.0 10.5 63.7 127.2 167.6 Deferred tax assets 13.9 24.8 24.8 24.8 24.8 Current Assets 70.6 163.4 56.4 103.4 184.6 Stocks 2.3 6.3 13.2 23.2 29.7 Debtors 14.9 16.8 31.8 58.2 78.9 Cash and short-term deposits 48.1 135.1 6.3 16.8 70.8 Current tax assets 5.3 5.2 5.2 5.2 5.2 Current Liabilities (13.1) (26.7) (35.1) (154.8) (173.9) Creditors (13.1) (26.7) (35.1) (48.4) (67.5) Short term borrowings 0.0 0.0 0.0 (106.4) (106.4) Long Term Liabilities (32.1) 0.0 (59.1) (153.1) (242.9) Long term borrowings (28.2) 0.0 (59.1) (153.1) (242.9) Other long term liabilities (4.0) 0.0 0.0 0.0 0.0 Net Assets 67.5 194.3 87.8 (17.5) (6.4) CASH FLOW Operating Cash Flow (35.5) (77.0) (69.4) (25.3) 141.1 Net Interest (0.1) 0.4 (11.1) (24.4) (36.6) Tax 5.0 5.8 5.8 5.8 5.8 Capex (7.6) (10.4) (99.2) (146.0) (146.1) Acquisitions/disposals 0.0 1.7 (14.0) 0.0 0.0 Equity financing 2.3 164.7 0.0 0.0 0.0 Dividends 0.0 0.0 0.0 0.0 0.0 Forex 0.1 (0.0) 0.0 0.0 0.0 Net Cash Flow (35.8) 85.3 (187.9) (189.9) (35.8) Opening net debt/(cash) 45.4 (19.9) (135.1) 52.9 242.7 HP finance leases initiated 0.0 0.0 0.0 0.0 0.0 Other 101.1 29.9 0.0 0.0 0.0 Closing net debt/(cash) (19.9) (135.1) 52.9 242.7 278.5 Source: Edison Investment Research. Note:*$106.4m additional finance assumed as short-term debt for the purposes of the model.


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CAGR metrics Profitability metrics Balance sheet metrics Sensitivities evaluation EPS 13-17e N/A EPS 15-17e N/A EBITDA 13-17e N/A EBITDA 15-17e N/A Sales 13-17e 115% Sales 15-17e 107%

ROCE 14 N/A Avg ROCE 13-17e N/A ROE 14 N/A Gross margin 14 27% Operating margin 14 N/A Gr mgn / Op mgn 14 N/A

Gearing 14 N/A Interest cover 14 N/A CA/CL 14 6.1x Stock days 14 111 Debtor days 14 297 Creditor days 14 470

Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices

Management team Non-Executive Chairman: Paul Heiden Chief Executive Officer: Dr. Henri Winand Paul was appointed in September 2012. Former roles include group FD of Rolls-Royce and chief executive of FKI. He is also a non-executive director of London Stock Exchange Group and Meggitt. Until recently he was also the chairman of Talaris Topco, a company owned by the Carlyle Group and United Utilities.

Henri joined the board as chief executive in September 2006. He was previously VP of corporate venturing at Rolls-Royce. He is a governing board member of the European Union’s Fuel Cell Hydrogen Joint Undertaking (FCHJU) and a member of the UK government’s Green Economy Council, advising the secretaries of state for DECC, DEFRA and BIS.

Chief Financial Officer: John Maguire Non-Executive Director: Michael Muller John was appointed in January 2012. He joined the group from Etisalat Nigeria, where he was CFO of the mobile operator. He was previously CFO at FTSE 250 Thus Group for eight years and before that worked in a number of senior finance positions, including VP of finance for Japan and Asia at Cable & Wireless, based in Tokyo. John is also a non-executive director of Jee, a subsea engineering and training company.

Michael is the chief technology officer of ARM Holdings. He was one of the founding members of ARM when it was created as a joint venture between Apple and Acorn in 1990. He occupied the post of marketing director and changed roles in 1996 to become executive VP of business development before becoming chief technology officer in 2000.

Principal shareholders (%) Meditor European Master Fund 14.6 GIC Private 11.6 Evolution Placements Corporation 11.4 Norges Bank 6.7 Yukos International UK BV 6.4 Schroder Investment Management 6.0 UBS AG 4.2 DNB Asset Management 4.1 Royalton Percy LLC 3.7

Companies named in this report AFC Energy (AFC:LN); Ballard Power Systems (BLDP:US); Ceres Power (CWR:LN) FuelCell Energy Inc (FCEL:US); Heliocentris (H2FA:GR); Hydrogenics Corp. (HYGS:US); myFC (MYFC:NASDAQ OMX Stockholm) Neah Power Systems ( OTCBB:NPWZ), Plug Power Inc. (PLUG:US); SFC Energy (F3C:GR); Suzuki Motor Corporation (7269:JP); Toyota Motor Corporation (7203:JP).

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