Chairman's Statement

We are pleased to report our results for the year ended 31 December 2023.

Overview

Proton Motor Power Systems plc ("Proton Motor") has made further progress this year in proving and maturing its technology and wide product offering, and building up capacity to deliver complete zero-emission power supply solutions for stationary, heavy duty transport, marine and rail applications

The Company's focus is now on achieving economies of scale by increasing production capacity, and seeking strategic partnerships to provide new channels to market.

Highlights

·      Total order intake in 2023 of £2,512k (2022: £2,653k), including a mix of repeat and new customer orders, supporting current and future revenue.

·      At the year end the production backlog was £2,471k (2022: £2,659k). Fulfilment of this backlog will result in deliveries of varying configurations of fuel cell systems and also service maintenance charges to customers both in 2024 and 2025.

·      There was a notable shift in demand during the year to stationary applications which comprised 96% of order intake in 2023 (2022: 59%). Notable orders announced throughout the year included:

o  DB Bahnbau Gruppe, part of Deutsch Bahn AG for an indoor emergency power unit including HyCabinet S24 with 3 HyModule S8s

o  Redexis HyShelter a combined heat and power source from renewable onsite hydrogen production for an Iberostar hotel in Majorca

o  University Stuttgart a HyShelter 215 Power as combined heat and power source from renewable onsite hydrogen

·      Sales in 2023 were £2,122k (2022: £2,088k), representing an annual increase of 1.7%%.

·      The number of system sales in 2023 increased by 83% to 42 (2022: 23 system sales).

·      The operating loss in 2023 was £10,368k (2022: £10,542k), resulting principally from further investment in the technical development area, staff and infrastructure.

·      Progress in the delivery of the new production facility with production planned to commence from the new facility in 2025.

Cash utilisation from operating activities has increased during the period to £9,959k (2022: £9,056k) in-line with increased investment in staff and technology development and in preparation for our move to new premises. Cash flow is the Group's key financial performance target and our objective is to achieve positive cash flow in the shortest time possible by increasing sales and reducing costs. Current contracts are quoted with up-front payments, reducing reliance on working capital as we continue to invest in our manufacturing capability. The cash position as of 31 December 2023 was £2,741k (31 December 2022: £2,720k).

Post year end developments included:

·      Introduction of the new HyModule S4 fuel cell system in early 2024, a smaller version of our S8 zero-emission heat and power generator to replace diesel and gas alternatives.

·      A restructuring programme to match the business plan for the new year, based on a headcount of 93. The Board continues to monitor the Company's cost structure to ensure that this remains aligned with growth expectations in the short to medium term.

·      During the period to June 2024, the Company utilised the loan facility it has in place with its principal shareholder, as announced on 20 June 2023, in excess of its limit by approximately €6 million. This was necessitated by the decision to accelerate payments on sums due for the new production facility and the delayed receipt of a payment due from a customer.

·      A new shareholder loan facility of up to €12 million to ensure operational and investment financing from July 2024 to the end June 2025 has been entered into.

·      Order intake during the first five months of 2024 to the end of May was lower than expected at £0.5 million (same period in 2023: £1.4 million) and this is likely to be reflected in lower sales for the full year.

Proton Motor Power Systems plc continues to make progress in its strategy to commercialise its comprehensive suite of hydrogen fuel cell systems, covering all the key application markets of stationary, heavy-duty transport, marine and rail. This includes a focus on developing near-term sales from existing customers, moving them from product testing to regular repeat orders, development of new customers relationships, and initiation of strategic partnerships to provide new channels to market.

The Company's strategy is to meet expected fuel cell demand, and to invest in additional production capacity and sales and marketing, in order to grow volumes and reap the benefit of economies of scale.

Operations

Central to meeting supply is the investment Proton is making through a new and far more efficient production facility, having signed a 15-year lease on a new and larger premise in 2022. The Company hosted various clients and media at an introduction ceremony for the new facility in August and is currently making good progress with its move from the existing facility. Requisite planning permission is anticipated to be received in summer 2024 to permit the installation of hydrogen storage facilities, which, once installed, will enable production to start at the new facility in 2025.

Much of the focus for 2023 was on planning for the move across to the new facility. This included planning for the installation of the stacking robot, which will be installed shortly, and progressing regulatory approvals for hydrogen storage and infrastructure.

On the sales side, the Company's strategy is to develop near-term sales through existing customers, as they transition from testing and approvals to commercial orders and developing the customer base, via targeted marketing initiatives at industry events and direct engagement. With a number of customers having now been through the testing period for the Company's products, we are already seeing the number of repeat orders grow, as reflected in 2023 sales. We would expect to see further repeat order as additional clients gain comfort and understanding of the technology. In addition, in February the Company signed an MOU with WILO SE, through which it expects to derive synergies from access to WILO's extensive distribution and customer network, while cooperating with them on decentralised and decarbonised energy supply.

Results & Financing

The Company delivered results for the year in line with budget. This saw revenue of £2.1m and an operating loss of £10.4m. Proton ended the year with cash of £2.7m, reflecting the continued support of our principal shareholder, with whom it was agreed to further extend the loan facility by €17.5m during the year. This ensures operational financing for the Company in 2024. The principal on the new facility is not convertible and interest is charged at EURIBOR +3%.

The revenue line reflects a 40% increase in system sales to £2m, offset by lower revenue from maintenance activities. This is an encouraging change, reflecting a further development of the Company's customer base. In terms of quantity, the increase in systems sales represents the delivery of 42 systems in 2023, compared to 23 in the prior year, and an increase in megawatt terms of 40% to 0.7MW.

The operating loss for the period is the result of an increase in operational expenses, on the back of the increase in headcount, sales and marketing expenditure, and additional development costs, which were not capitalised.

The Company ended the year with a sales order backlog of £2.5m. This was supported by an order intake for the year of £2.5m, from a combination of existing and new customers, representing a total of 42 systems of varying sizes.

The order intake included a further 15 systems from GKN Hydrogen Germany, 18 systems from UMSTRO and 3 systems from WILO SE, among other orders. The order of a further 15 systems from GKN Hydrogen Germany, brings the total number of systems ordered by the company to 46. These additional systems were successfully delivered in November 2023.

Towards the end of the year, the Company secured a grant from the German Ministry for Economics and Climate to help develop modular renewable and self-sufficient energy supply using hydrogen technology, as part of a consortium, which includes GKN Hydrogen. The basis of the grant is to match the Company's investments by 50%, over a period of 36 months. In addition to the financial benefit, working within the consortium will help support and develop existing customer and developer relationships.

Market Outlook

Hydrogen as a zero-emission energy carrier will undoubtedly play a major role in the success of the energy transition, and a significant number of hydrogen generation projects are in development. Fuel cells represent the most efficient way of using hydrogen to create electricity for transport and stationary applications.

In transport, experience has confirmed the Company's long-held view that fuel cells are best for heavy duty applications such as trucks, ships and rail.

What we are seeing currently is earlier adoption across the stationary application market. This alone represents a very significant and growing opportunity, on the back of the increasing need for back-up power, critical power systems and off-grid solutions. Much of this market is currently served by diesel generators, which are highly polluting and expensive to run and maintain, making fuel cells an attractive alternative, with identical usability characteristics.

Adoption will inevitably take time, as customers need to get comfortable and gain confidence in the technology.  That said, we are increasingly seeing repeat orders, from multiple blue-chip clients that have now gone through that process. That includes companies such as DB Bahnbau Gruppe GmbH, a subsidiary of Deutsche Bahn AG, Germany's leading full-service provider for rail infrastructure.

Board and Management

I agreed to assume the role of Chairman in May 2024, to fill the vacancy created by the retirement of longstanding chairman Mr. Helmut Gierse, and to assist the Company in its search for suitable strategic partnerships. I have over 20 years' experience of Climate Technology investments, including helping the Company in 2007 negotiate to bring in its current main shareholder.

The Board would like to thank Mr. Helmut Gierse for the tremendous contribution he has made to the business over the last 15 years and wish him a healthy and long retirement.

During the year, Mr Manfred Limbrunner, a long standing senior member of Proton Motor, assumed the role of Director of Investor Relations and Communications. This is a key role in the development of the business, as it seeks to widen its shareholder base and expands its pipeline of opportunities, through sales, marketing and wider communication.

Outlook

The Company has a diverse range of products covering stationary, heavy duty transport, marine and rail which it will continue to maintain and develop in line with market demand.

Reflecting the increasing interest in liquid cooled fuel cell technology and combined heat and power applications, the Company introduced the HyModule S4 system in January. This is a smaller version of the Company's S8 product, aimed at competing directly in the diesel and natural gas generator market, for those looking for a "plug and play" emission free alternative for combined heat and power applications. It is a product that is in-line with the Company's near-term focus on the stationary market, in response to market demand, which we look forward to developing further over the coming years.

Proton Motor is also looking forward to progressing several grant funding options to support its near and longer term strategy and technology development. These initiatives will also support existing relationships, including among the existing customer base, forming part of the Company's drive to grow it sales pipeline.

We are encouraged to witness market adoption taking place as customers seek solutions to meet emission reduction and energy storage targets and the wishes of their investors and customers, and discover the benefits of Proton's track record as one of Europe's longest established fuel cell development companies.

Proton Motor is well placed to take advantage of the opportunities that lay ahead.

Ali Naini

Non-Executive Chairman

27 June 2024

Strategic Report

Business review

Proton Motor Power Systems plc ("Proton Motor") and its subsidiaries' (the "Group") principal activity is the development and production of hydrogen low temperature proton exchange membrane ("PEM") fuel cells and fuel cell systems and hybrid systems through its German subsidiary Proton Motor Fuel Cell GmbH ("PM").

A low temperature PEM fuel cell is a device that converts the chemical energy of a hydrogen and an oxidant into electric and thermal power, with only water as a by- product. In principle, its functionality is like a combustion engine, but without any harmful emissions and does not require recharging as long as an ongoing hydrogen source is available. Operating fuel cells in combined heat and power mode increases the system efficiency significantly.

Fuel cell engines are widely regarded as a potential alternative to internal combustion engines, power from fossil fuels and battery technology. Fuel cell engines produce no noxious gases and pure hydrogen fuel cells produce no harmful emissions such as carbon dioxide. There are a number of types of fuel cell, classified by the type of electrolyte used, including alkali, molten carbonate, PEM, phosphoric acid, and solid oxide. Proton Motor has selected a PEM-based fuel cell as the Directors believe that, based on the PEM's start/stop capability, dynamic operation and life time, it is the only technology able to meet the demands of the market which the Group has specified for its intended commercial applications.

Proton Motor has made further progress this year in proving its technology, building up capacity. The Group sees a strong market trend to focus on hydrogen as a renewable energy carrier to manage the energy transmission process, especially in stationary applications for combined power and heat generation, autonomous power supply, power to power applications and emergency power supply, where a strong market ramp up is expected over the coming years. Also, for the transition of the transport sector from combustions engines (based on fossil energy carriers) to an emission free transport sector with electric drive trains, hydrogen-based fuel cells in combination with a battery will play an important role, given the likelihood of bottlenecks caused by electricity infrastructure. In all of the above sectors and applications, the Group has significant know-how in fuel cell stacks, systems and applications.

Over the years, different applications provide good examples of Proton Motor's in-depth know-how. These include: back-up power solutions (e.g for tetra radio stations, railway control centres or road tunnels) outdoor (HyShelter®) and indoor (HyCabinet) solutions for heat & power generation up to 215 kVA power output and autonomous power supply solutions based on a fuel cell battery hybrid solution (e.g. HyShelter® with up to 180 kW output power. In the mobility markets, the Company has also built a high level of knowledge, based on the different solutions created, including: HyRange® 43 fuel cell systems for the integration into garbage collecting trucks from E-Trucks Europe, the HyRail® fuel cell system for a rail milling machine for the Austrian company Linsinger and HyShip® inside the maritime project ZEUS from Fincantieri.

In addition to developing application and a customer specific driven sales approach, the customer base for the standardized stationary fuel cell systems HyModule® and HyFrame® has also developed. The Group´s long term customers, GKN Hydrogen, Umstro and Ostermeier, regularly order these types of fuel cell systems and integrate them in their applications.  

The Group continues to see an increase in the potential order sizes from the market. To be prepared for this, Proton Motor will be expanding its production capacity to several thousand stacks, fuel cell systems and turnkey solution per year. To facilitate this, Proton has signed a lease agreement for new production site, near its headquarters in Puchheim. It is expected that the process of moving to the new facilities will gather pace, once the application to build the hydrogen storage tanks is approved, later in the summer, with the start of production from the new facility then planned for 2025.  

The Group has always recognised the commercial importance and value of protecting its intellectual property ("IP") and, therefore, the need to protect it wherever possible by way of patents and trademarks. The Group's key IP portfolio comprises a mixture of granted patents, patent applications, trademarks, confidential information and know-how.

The Group undertakes comprehensive business planning to define long-term strategic objectives and goals. Annual budgets and operational plans are prepared utilising financial and non-financial Key Performance Indicators ("KPIs"). Business performance is measured by KPIs which include monitoring of actual against budget and rolling forecasts, and R&D project status. These are reported to the Board on a quarterly basis and to executive management on a monthly basis.

The Company began as Magnet Motor, opening its factory in 1996. The technology and application roadmap went from the world's first triple hybrid forklift truck to the world's first fuel cell ship. After that Proton Motor developed the triple hybrid Skoda bus in 2008. Turnkey power solutions completed the application portfolio. All those applications are powered via our own fuel cell stacks HyStack®, with a robust design for a long lifetime. The Company established operations close to the Munich area and was one of the first German designers and manufacturers of fuel cells.  

View to the future

The world is committed to protecting the environment. European cities and governments, supported by the European Commission, must reduce inner-city pollution drastically. Society and the economy have to switch to renewable energy sources, such as wind and solar, and combustion manufacturing industry and supply chains must be transformed towards clean technology. Renewable energy sources are only available on a fluctuating basis and therefore much more power capacity is required to be installed, than the average of demand, resulting in the need for a long term and loss free energy storage solutions and a transportable energy carrier, with hydrogen being the only possibility. In this regard fuel cells will become the ideal consumer for hydrogen. China fights against smog in its big cities. After Dieselgate in the US and Europe, electric vehicles with batteries are on the move, but electric grid restrictions have become apparent. Supply constraints on fossil fuels, due to military conflicts, such as in Ukraine, have also strengthened the need for hydrogen strategies in Europe.  All this is generating a market demand for a clean power supply in all markets. Based on that development, the world market for fuel cell products and solutions is more active than ever.

Besides pure battery solutions, hydrogen fuel cells are in focus. Corporations such as Toyota, Hyundai, Bosch and Cellcentric are pushing the technology forward. Hydrogen powered fuel cells provide benefits such as fast refuelling and long range of operation. Hydrogen is reproducible and can be a store of surplus energy from wind and solar power. Europe has put major funding programmes in place to set up hydrogen infrastructure and manufacturing of hydrogen technology. The same is now happening in Japan, Korea and China. The Chinese government is fully committed to fuel cell technology with major regulatory and funding support.

Proton Motor has deep experience in applications for stationary power solutions, heavy duty vehicles, such as buses and trucks, ships, rail machines and material handling. With 93 staff members , it is a relatively small but regarding IP and experience a powerful company. Proton Motor has developed and continues to develop its own fuel cell stacks. Systems are designed from first simulation, prototype up to final solution for volume manufacturing. Proton Motor is cooperating with German and European based companies in the field of fuel cell technology.

Market drivers

The Board believes that growth in the fuel cell market will be determined by the following factors:

·      United Nations Framework Convention on Climate Change ("UNFCCC") COP legalisation on climate change;

·      Strengthening competitiveness on cleantech technology in Europe and making Europe more independent from Asia

·      Current and future air quality regulation;

·      Growing industrial and consumer demand for alternative sources of energy;

·      The potential long term competitiveness of the auto and transportation industries;

·      Energy security concerns;

·      Expansion of renewable energy sources and therefore the need of energy storage;

·      Limitations of purely battery powered systems and electrical infrastructure constraints;

·      Renewable energy storage systems in industrial buildings and private residencies.

·      Discussions regarding hydrogen as an energy storage for green energy (power to gas);

·      A growing global demand for transportation;

·      Increasingly urgent demands for healthy breathable air in urban centres and for action to mitigate the adverse effects of climate change;

·      The growing availability and the compelling economics of cleaner fuels; and

·      Increasing political commitment to hydrogen on an EU, national and regional level.

Increasing political commitment to hydrogen as an energy source:

European Union (EU)

·      The EU originated European Clean Hydrogen Alliance (ECH2A) was announced as part of the New Industrial Strategy for Europe, which was launched on 8 July 2020 within the context of the hydrogen strategy for a climate-neutral Europe.

·      The European Clean Hydrogen Alliance aims at an ambitious deployment of hydrogen technologies by 2030, bringing together renewable and low-carbon hydrogen production, demand in industry, mobility and other sectors, and hydrogen transmission and distribution. With the alliance, the EU wants to build its global leadership in this domain, to support the EU's commitment to reach carbon neutrality by 2050. https://www.ech2a.eu/

·      Proton Motor has been participating in the ECH2A founding process.

·      Proton Motor is already participating in the EU REVIVE project. REVIVE stands for 'Refuse Vehicle Innovation and Validation in Europe'. The project has been running from the beginning of 2018. The objective of REVIVE is to significantly advance the state of development of fuel cell refuse trucks, by integrating fuel cell powertrains into 15 vehicles and deploying them across 8 sites in Europe. It aims to deliver substantial technical progress by integrating fuel cell engines from three suppliers into a mainstream DAF chassis, and developing effective hardware and control strategies to meet highly demanding refuse truck duty cycles.

·      Proton Motor is also participating in the EU StasHH Project. The consortium operating together as "StasHH" (Standard-Sized Heavy-Duty Hydrogen) comprising 11 fuel cell module suppliers, 9 original equipment manufacturers and 5 research, test, engineering and/or knowledge institutes and will standardise physical dimensions, flow and digital interfaces, test protocols and safety requirements of the fuel cell modules that can be stacked and integrated in heavy duty applications like forklifts, buses, trucks, trains, ships, and construction equipment. The consortium received €7.5 million funding from the European Union, through the "Fuel Cells and Hydrogen Joint Undertaking" (FCH JU), in order to kickstart the adoption of fuel cells in the heavy duty sector. The total budget for the StasHH mission is €15.2 million.

Federal Republic of Germany

Germany is a prime market for the Group. On 3 June 2020 Germany´s coalition government presented a €130 billion (£114 billion) fiscal stimulus package over two years. This package includes the following elements with regard to the role of hydrogen:

·      The 'national fuel cell strategy' will support the hydrogen industry.  The goal is to make Germany a global champion in the hydrogen industry. By 2030, Germany plans to install 30 Gigawatt of electrolysers to produce green hydrogen from offshore and onshore alternative energy. Additionally, the German government is seeking to support the shift from fossil energy to hydrogen in all types of industrial processes.

·      Since 2023 Proton Motor has participated in the German funded project MarrakEsH. The consortium consists of universities and institutes, the industrial companies Infineon Technologies, Würth and GKN Hydrogen as partners. The target of the project is to develop a modular, renewable, and self-sufficient energy supply based H2 technology. Proton Motor will design a new HyModule® product with a power output of around 12 kW, as an extension of the current available HyModule® product line.

United Kingdom

·      UK (November 2020): 5GW of low carbon H2 production by 2030 & £240m into a Net Zero Hydrogen Fund (part of the UK government's 10-point plan for a Green Industrial Revolution).

Company Strategy and product offering

Proton Motor's vision is to revolutionise the energy industry through clean technology innovations, aligning with EU climate goals to pave the way for a sustainable and green future. Guided by strategic goals, the Company endeavours to achieve the following objectives:

Vision: PM's vision is to create a clean world for the next generations while being economically successful and creating new added value in Europe.

Mission: As a team, PM develops, produces, and distributes emission-free, sustainable, and reliable system solutions in-line with market needs. PM has built up and will extend long-term relationships with its customers and suppliers. As quality is important to PM, it establishes high standards in purchasing, production, service and maintenance.

Strategic goals: With the vision of a sustainable future, Proton Motor aims to deploy fuel cell systems across various market sectors, ensuring widespread adoption of its cutting-edge technology. The company focuses currently with its standard Hy brand products on the stationary market with spillover effects into the mobility markets (heavy-duty, rail and maritime) with customizable systems to tailor solutions to needs of volume customers, ensuring maximum customer focus and fastest time to market. Central to the strategy is cost-effective manufacturing and superior performance parameters, even with current low production volumes that, it is hoped, will soon grow exponentially and will dramatically reduce costs. Prioritizing sustainability throughout the lifecycle of its products minimizes environmental impact while maximizing long-term value for customers.

Strategy: To achieve these goals, Proton Motor allocates a significant portion of resources to further development, leveraging innovations to reduce costs and enhance performance. Its flexibility allows the company to adapt swiftly to evolving market demands, ensuring that solutions remain at the forefront of technological advancements. Rapidly expanding production capacities to meet growing demand, Proton Motor focuses on penetrating the market quickly to secure significant market shares across various sectors. High levels of standardization, digitization and automation drive overall market growth, while collaborating with other industry players fosters innovation and progress. The company's strategy involves developing concrete use cases for current and future customers, collaborating on concepts integrating battery systems, and other complementary technologies. While reaching breakeven is the company's main objective, the initial focus is on market penetration.

Operative Concept: Operationally, Proton Motor is implementing concrete development activities, and made an application in 2024 to participate in Innovation Fund projects and executing specific projects with customers. Pilot projects serve as winning new customers, preparing the market, informing strategic decisions, and refining offerings. Governmental affairs, marketing and sales efforts are aligned with strategic objectives, ensuring effective communication of the value proposition to target markets.

In securing financing for its initiatives, Proton Motor is now actively engaging with investors and governmental funding programs. This holistic approach to the Company's strategy positions Proton Motor as a leader in the Cleantech sector, poised to drive meaningful change and make a lasting impact on the energy and industrial landscape.

Product offering

Proton Motor has demonstrated and validated a wide range of fuel-cell based zero-emission propulsion and energy systems. The Company maintains an active exchange, with national and international customers, in various applications and markets. Proton Motor has developed and extensively validated its core technology, the fuel cell stacks HyStack^® 200 - and HyStack^® 400 - which together offer a modular power range from 4 kW to 50 kW. These are used in the market related products:

Fuel cell systems for stationary applications

For stationary systems, the current product range includes emergency power systems for numerous industrial applications, e.g. for secure telecommunications (BDBOS), road tunnels or railway switching stations. Especially for the railway switching stations emergency power supply systems for indoor use, with 25 kVA and 50 kVA available. Autonomous energy systems, for residential houses/apartments, e.g. power generated by solar energy is stored as hydrogen and released as needed, power supply systems (on or off grid) with large power ratings (e.g. 90 kVA-220kVA) in containers, e.g. for grid-independent energy supply of transportable hydrogen filling stations (project performed together with Shell) in containers.

The stationary market seems to have the highest near-term market potential. Not only has Europe been the fastest growing market for stationary PEM Fuel Cells over the last ten years, in terms of global market volumes and growth, indications are that PEM Fuel Cells (using graphite Bipolar Plates (with a long lifetime) have the greatest potential within stationary applications. Global market value, in megawatt, is expected to increase from 1,787 megawatt in 2026 to 22,026 megawatt in 2032, while the global market for fuel cells is expected to grow significantly by 2032, from EUR 7.5 bn. in 2026 to EUR 69.9 bn. in 2032. Proton Motor is therefore prioritising the stationary market segment in the near and medium term.

Fuel cell drive system for mobility

For mobile fuel cell propulsion, the zero-emission propulsion systems developed and produced by Proton Motor are: designed and produced to meet the needs of specific customers and can combine with a battery system, forming a seamless solution.  In this sector Proton Motor offers the following product range: HyRange for the heavy-duty market, HyShip for the maritime market and HyRail for the rail market.

The possibility of the proposed system configuration offers a perfect combination of high performance, extended operating time, and fast refuelling, without the need of external battery charging. This setup could ensure continuous operation with minimal weight, storing all driving and heating energy in hydrogen and the battery only supplying peak power and storing breaking energy. The fuel cell hybrid system will then meet all performance requirements with zero emissions, quick refuelling, and lower costs compared to diesel or battery-only alternatives. It requires minimal maintenance and enables proactive servicing through online monitoring.

Proton Motor's technology spans various mobility sectors, including heavy duty vehicles, trains, and maritime vessels. Collaborations with leading shipbuilders, such as Fincantieri, demonstrate their commitment to sustainable transportation solutions.

Partnerships with customers for customised energy systems

Proton Motor offers customised system solutions, based on the modular system kit and the HyStack^® technology over its entire product range. Proton Motor is known for its mature and thoroughly validated fuel cell products and enjoys an excellent reputation (e.g. see follow up orders from GKN Hydrogen or DB Bahnbau Gruppe) in the industry for its customer orientated services in the areas of solution design, engineering, testing, integration, commissioning, servicing, and performance monitoring. The customised plant design process begins with a detailed concept development phase, defining key parameters including the application environment and use case, peak and average power requirements, system dimensions, range, duration, and operating cost targets. System design and manufacturing, followed by customer support for integration, commissioning, service- and maintenance complete the process. The customer will be trained in all supporting processes to reduce engineering and supporting Proton Motors efforts within recurring orders. Usually, negotiations for framework agreements and larger series orders result after the build-up of recurring orders.

Group activities

With the successful setting up of the production line for the standardized fuel cell systems HyModule® and HyFrame®, the Group has been focusing on selling these direct to customers or integrate this into the turnkey solutions HyCabinet and HyShelter®. At the end of January, at the HyVolution 2024 in Paris, the HyModule® S4 was presented to the market. With this additional system the Group extends the standardized fuel cell system product portfolio from 4kW to 40 kW. Through various customer projects, the offering of turnkey solutions was also extended by HyShelter® 87 and 215 and the HyCabinet S24 and S43 solution. With this, turnkey solutions of up to 215 kVA power output, with  400 VAC, can be offered as a standard for power and heat generation to the market.

For both HyShelter® versions orders are in house. A HyShelter® 87 will be supplied by mid of 2024 to the Spanish company Redexis, to supply an Imberostar hotel on the island Mallorca with green electricity and heat. A HyShelter 215 will be delivered to the University of Stuttgart in the third quarter of 2024 to be integrated into a pilot energy park, based fully on green hydrogen. In addition, the Group has increased the production of its HyModule® S8 and HyFrame® units, in response to regular orders from several customers, including GKN Hydrogen, Umstro, Ostermeier and H2PowerCell. 

The Group is also working to extend the power range of its fuel cell systems into the three-digit kilowatt power range, with the  product line HyScale® to be established in the second half of 2024. The HyScale® systems are designed as multistack consisting of up to four HyStack® 400 stacks. The first functional prototype has been tested successful in the Group's laboratories. With these HyScale® systems, stationary applications for autonomous power supply or power and heat generation into megawatt output power can be offered to the market.  

As part of the EU funded project REVIVE, in which Proton Motor has been a member of the project consortium since 2019, a HyRange® 43 fuel cell system for integration into a garbage truck has been designed. A HyStack®400, with 144 cells, is being integrated into the HyRange® 43 fuel cell system. The integration into the truck is being carried out together with the vehicle manufacturer, E-Trucks, from Belgium. The first system was delivered in 2020. Since then, E-Trucks have repeatedly ordered HyRange® 43 fuel cell systems in two designs. One design for mounting under the driver's cabin and the second is for mounting on the roof. In total, E-Trucks has ordered 21 HyRange® 43 systems, 14 of which have been delivered to date and are operating in garbage collecting trucks.

In October 2022, the Group signed a rental agreement for a new production facility in Fürstenfeldbruck, near to Proton Motor´s Puchheim headquarter. The new site will be used for the production and commissioning of fuel cell stacks, systems and containerized turnkey solutions. In October 2023 the Company filed the documents needed to gain building permission for the hydrogen storage tanks with the building department of the City of Fürstenfeldbruck. Currently the Group expects permission to be approved by mid of 2024. Post approval, construction on site will commence. The start of production from the facility is  planned for 2025. The automated fuel cell stack production robot will also be integrated in the new facility, as part of the construction phase. With this new site, Proton Motor will  have an immediate production capacity for up to 180 MW of fuel cell power, representing the manufacturing of up to 5,000 stacks, fuel cell systems and turnkey solutions per year.

Operational Strategy

Sales and growth strategy

The following table shows the concrete commercialisation strategy by PM:

The strategy is to start from the European market (DACH-Region, Benelux, Spain and France) as the initial market and address customers based in Europe (including UK).  As soon as European market penetration has stabilized, manufacturing capacity has increased and funding has progressed, the Company intends to address the wider world market. The commercialisation strategy is based on the following three phases:

Phase 1 - Market introduction until 2026: Market ramp-up in Europe, with the Hy brand product range, focused on the decentralized/local stationary fuel cell power plants market. This market is seeing earlier adoption and highest levels of traction. In this phase, Proton Motor will also target European customers that export their products worldwide, despite fulfilment taking place within Europe.  In this phase the first demonstrators with new customers and (end)users will be brought into the market and customers and (end)users will be trained (integration, start-up, service/maintenance) and supported. Additionally, adopters, planers and integrators will be trained so they can be seen as marketing multipliers in the market.

Phase 2 - Market Expansion 2027/28: Newly won customers and (end) users will lead to recurring orders with reduced necessary support from Proton Motor (integration, start-up, service/maintenance). Also, through the installed marketing multipliers the sales and marketing reach will be increased to win new customers which can then step by step lead (integration, start-up, service/maintenance) to additional opportunities. Expansion of the mobile fuel cell product offering will take place through further establishing Proton Motor's profile and competence in more complex and challenging markets: Road transport, rail and ships. Proton Motor expects demand growth in mobile applications to occur later, due to the more complex infrastructure challenges. These associated markets are still in a relatively early phase of development. The standard product portfolio will be increased in the stationary market to higher power system products and standard products in the early mobile markets. Start of partnering process with strategic partners/investors to expand product offerings towards fuel cell stacks, increasing volume and reducing costs which will lead to market acceleration. Leading also into stack manufacturing and JVs and system manufacturing licensing.

Phase 3 - Market growth >2029: Expected the start of exponential growth, on the back of renewable hydrogen being available in large quantities. This will be leading to increasing orders from existing and newly won customers in the stationary sector and recurring orders without the need of integration/startup support from Proton Motor, leading to new resources for further market ramp up. Mobility markets will grow as the refilling infrastructure is widely installed and hydrogen logistics established. Standardized fuel cell product offerings will be increased, and new markets will be analysed and potentially addressed as the profitability of Proton Motor is increased. This will lead to recurring orders without the need of integration/startup support from Proton Motor, leading to new resources for further market ramp up. Proton Motor envisages having established partnerships with one or more multinational strategic partners/investors, leading towards mass manufacturing partnerships/JVs of fuel cell stacks introducing the first offerings from the Hy brand product range outside of Europe by 2030. Target regions are North America and Middle East. Proton Motor's production strategy here is to grant system manufacturing licences (no licence for the HyStacks®) to non-European partners in the relevant sales regions as volumes increase and products become established.

Specific measures to realise the commercialisation strategy include the following steps:

(1) Reference projects and case studies, meaning the acquisition of reference users through our existing network of contacts, as well as via general contractors and the completion of a large numbers of demonstration projects in different European countries.

(2) Customers and partners, meaning presenting the complete Hy brand product range to potential OEMs and general contractors, with whom Proton Motor already has established business relationships as well as publications related to the Hy brand product range, to reach potential end customers (e.g. trade journals, conference presentations).

The initial marketing is based on a pull strategy. Proton Motor will present product information at international trade fairs, conferences and associated digital channels. Proton Motor will also attend regional trade fairs, as the regional context is an important reference point within the Proton Motor culture. Proton Motor will continue to be a member of various hydrogen economy trade bodies to promote hydrogen technologies. Furthermore, it will advertise its products in trade journals and raise awareness amongst the general public. Proton Motor also intends to give interested parties and potential end customers the opportunity to attend regular webinars, at which the Hy products will be described in more detail.

In the first two marketing phases listed above, Proton Motor is focusing on Europe, for the following reasons:

·      Existing market knowledge and intelligence. Europe is Proton Motor's home market. As part of this market study, a thorough analysis of the European market, including market segmentation and identification of target customer groups, has been conducted,

·      Market size and growth.  Europe is one of the strongest growth areas globally for fuel cells. Furthermore, it is expected that hydrogen prices will decrease.

·      Existing contractual agreements with multiple OEMs and system developers, most of which currently are best positioned to serve the European market.

·      Important suppliers for PM located mainly in Europe (e.g. Germany and Denmark)

·      In the third phase the USA, Middle East and Africa are identified as significant potential markets.

Manufacturing strategy

To date, the Group's HyStack® fuel cell stacks, fuel cell systems and  turnkey solutions have been produced in relatively small volumes, on a project-by-project basis, largely utilising a combination of semi-automated processes and manual assembly. In order to meet our manufacturing goals and achieve the market demand, the Directors have identified target markets and commercial applications, which include:

·      Establishing further key commercial partnerships within these target markets;

·      Designing the Group's fuel cells and fuel cell systems to meet the engineering requirements for volume manufacturing;

·      Switching over to a new and more cost-effective stack generation, which will lead to a decrease in production costs;

·      Establishing quality control procedures;

·      Installing professional commercial test benches to ensure high quality standards for the Group's fuel cells and fuel cell engines;

·      Building up a new electrical infrastructure for continuous testing;

·      Reviewing, risk assessed and secured supplier and component manufacturing relationships;

·      Identifying second source suppliers and addressed new suppliers for critical components;

·      Identifying and assessed major commercial factors, such as cost, availability, robustness and durability of components; and

·      Securing and properly documenting necessary regulatory and operational approvals for each application.

Competitive advantages

The Directors are confident that the Group's technology brings the following distinct combination of characteristics to the power systems market:

·      zero harmful emissions;

·      lower fuel consumption than comparable commercial alternatives;

·      silent operation;

·      standard fuel cell stack for use in multiple applications;

·      modular fuel cell systems for easy customer adoptions;

·      a reliable, robust and durable technology; and

·      successful integration of fuel cell technology into a hybrid system.

Principal risks and uncertainties

The management of the business and the execution of the Group's strategy are subject to a number of risks. The Board reviews these risks, as outlined in the Corporate Governance Statement, and puts in place policies to mitigate them.

s172(1) statement

The disclosures required for s172 reporting can be found on pages 12 and 17 of the financial statements.

Outlook

The Group's principal objective is to expand volume manufacturing, initially through the investment in new premises, and beyond that with industrial partners based on licence agreements and mutually beneficial cooperations, such as joint ventures. This will enable the Group to achieve a more economically competitive unit cost for its fuel cells and fuel cell hybrid systems. Also, the Group will utilize the sales channels of its industrial partners to address various markets and ensure growth of sales volume. The Directors believe that the advanced stage of commercialisation of the Group's technology, coupled with the Group's preferred partnerships, will enable the business to establish itself firmly as a leading, global, fuel cell, fuel cell hybrid system provider.

On behalf of the Board

Dr. Faiz Nahab                                                                                                 

Chief Executive Officer

27 June 2024