14.6.2004: Meldung: Stuart Energy Systems Corp.: Results for Fourth Quarter and Fiscal Year Ended March 31, 2004

Stuart Energy Reviews Results for Fourth Quarter and Fiscal Year Ended March 31, 2004
Thursday June 10, 7:00 am ET
Delivers 174% Revenue Growth, Achieves Positive Margins and Cuts Cash Utilization in Half

TORONTO -- June 10, 2004 - Stuart Energy Systems Corporation (TSX:HHO - News), a hydrogen infrastructure company, today announced its consolidated financial results for the fourth quarter and fiscal year ended March 31, 2004.

"In fiscal 2004, we effectively executed our growth strategy, delivered 174% revenue growth, transitioned to positive margins, reduced cash utilization by 49% and added $21.7 million to our balance sheet through a successful equity offering," commented Jon Slangerup, President and CEO of Stuart Energy.

Fourth quarter revenue of $5.8 million marked the sixth consecutive quarter of record sales revenue. This represented a 100% increase in sales from $2.9 million in the fourth quarter of the prior year. For fiscal 2004, total commercial sales increased to $17.9 million from $6.5 million in fiscal 2003. Approximately half of our sales growth was generated organically, with an equally strong contribution from the successful integration of Vandenborre Technologies. Revenue per employee was $106,000, an increase of 152% over the prior year.

"In addition to strong revenue growth, we currently have a record sales order backlog in excess of $20 million, backed by a robust sales pipeline," said Mr. Slangerup. "Our near-term business environment is very positive and we have confidence that our sales momentum will continue in fiscal 2005. Our line of sight is focused on continued market leadership and commercial sustainability."

Strong sales, improved operating performance and reduced product costs led to positive gross margins of 10% in the fourth quarter. This is the first time we have achieved positive gross margins since going public - an important milestone on our pathway to commercial sustainability. Gross margin is revenue less direct materials and labour, warranty provisions, commissions paid to outside agents and allocation of fixed indirect manufacturing costs.

"Our disciplined approach to managing costs enabled us to deliver significant year over year reduced cash utilization," commented George Kempff, Vice President, Finance. "Cash consumption in the fourth quarter was $4.4 million, representing a 68% reduction from the fourth quarter in fiscal 2003, and a 34% decrease compared to the third quarter of this year."

For fiscal 2004, cash utilization was $28.4 million, a 49% reduction from fiscal 2003. As of March 31, 2004, we had cash and short-term investments of $59.6 million, including $21.7 million in net proceeds raised from the public offering completed in the fourth quarter, compared to $42.3 million at December 31, 2003 and $66.3 million at March 31, 2003.

Net research and product development costs for the fourth quarter was $2.8 million, which was unchanged from the same period a year ago. For the year, research and product development costs declined 45% to $6.6 million compared to $11.9 million in the prior fiscal year. While gross research and product development costs decreased by 31%, government funding increased by 131% to $2.4 million.

The net loss for the fourth quarter was $7.8 million, or $0.24 per share, compared to $11.4 million, or $0.49 per share, in the fourth quarter of fiscal 2003. The net loss for fiscal 2004 was $37.4 million, including a one-time charge of $9.8 million related to the integration of Vandenborre Technologies, or $1.27 per share, compared to $34.1 million, or $1.59 per share for fiscal 2003.

Strategic and Corporate Development

"We entered fiscal 2005 on a strong strategic and competitive footing," commented Randall MacEwen, Vice President, Corporate Development. "Our platform for growth has been powerfully enhanced by our rapid and successful integration of Vandenborre Technologies, continued progress with our strategic alliances program, and the strengthening of our balance sheet from our follow-on public offering in Q4."

Integration of Vandenborre Technologies

We exceeded our integration objectives for fiscal 2004. We implemented a global organizational structure and brand strategy. Consistent with this strategy, we changed the name of our Belgian-based Vandenborre Hydrogen Systems subsidiary to Stuart Energy Europe, along with the designation of Stuart Energy USA, Stuart Energy India, Stuart Energy Russia and Stuart Energy China. In addition, we re-branded our Hydrogen Energy Station product line as the Stuart Energy Station (SES). The SES product naming reinforces and builds upon our strong Stuart Energy brand and is more representative of a wider range of alternative energy infrastructure solutions, including hydrogen and blended hydrogen and natural gas fuels.

We demonstrated our speed on technical integration by successfully delivering the first SES system incorporating technologies and expertise from both companies only four months after we closed the acquisition. We implemented an integration and synergies plan that is expected to yield annualized savings in excess of $7.5 million, including from product standardization, facilities rationalization, headcount reduction and streamlined business processes. Since the acquisition, we rationalized our facilities from five to two, and we reduced our consolidated workforce by over 35%.

Strategic Alliances Program

In addition to continued progress with our strategic partners Cheung Kong Infrastructure (CKI), Ford and Toyota, we entered into important, new partnerships during fiscal 2004.

* In June 2003, we entered into a development, marketing and sales agency agreement with Shell Hydrogen relating to the development and commercialization of our HomeFueler® product offering.
* In July 2003, we entered into a preferred supplier agreement for on-site water electrolysis hydrogen generation equipment with Linde Gas, yielding significant orders to date.
* In September 2003, we entered into a strategic alliance agreement with Dynetek Industries Ltd. relating to the supply of Dynetek"s stationary hydrogen storage systems for our SES product line.
* In October 2003, we entered into a joint cooperation agreement with Statkraft SF and Corporacion Energia Hidroelectrica de Navarra S.A. (EHN) to assess, demonstrate and develop advanced renewable energy based hydrogen production and distribution solutions. Both Statkraft and EHN have purchased initial SES equipment for evaluation and demonstration of vehicle and power applications.

Closing of Public Offering

In the fourth quarter, we completed a public offering of 8 million common shares at $3.00 per share for aggregate net proceeds of $21.7 million. National Bank Financial Inc. was the lead manager for the offering, and CIBC World Markets Inc. and RBC Dominion Securities Inc. were co-managers.

Sales and Marketing

"Fiscal 2004 was a strong year for delivering sales growth in each of our three target markets - industrial, power and transportation," stated Rob Campbell, Stuart Energy"s Vice President, Sales & Marketing. "We are particularly encouraged by the significant growth and increasing market demand for our industrial products, which is providing a solid commercial foundation for our aggressive expansion into the emerging energy markets. With sales order and lead activity increasing rapidly, we expect to see continued robust sales growth in fiscal 2005."

Stuart Energy Station (SES) product sales for fiscal 2004 were $11.7 million for the industrial market, or 65% of sales revenue, and $6.2 million for the power and transportation markets, or 35% of revenue.

Industrial Market

In the industrial market, we delivered 173% growth over fiscal 2003. Our preferred supplier arrangements with the world"s leading industrial gas companies, Air Liquide, Air Products, BOC and Linde, are proving to be productive sales channels. Together, these channels contributed 29% of our industrial sales for the year.

In fiscal 2004, we saw increased activity in the industrial utility market, the metallurgy market and heat-treating markets. In February 2004, we announced orders for SES systems for the industrial utility market totaling approximately $5.0 million. These SES systems provide a reliable source of high purity hydrogen for cooling generators and process requirements within power plants. The increased demand from the metallurgy and heat-treating markets is due, in part, to the pick-up in world steel markets, as hydrogen is used in the manufacture of steel. We also made significant gains in the high growth market of Asia-Pacific. Over the past year, we received orders for or delivered 15 industrial hydrogen generation plants in the Asia-Pacific region, aggregating approximately $10.3 million, including five plants in China and two plants in India.

"Based on industrial market growth, the increasing costs of natural gas, and our reduced product costs, the value proposition for our hydrogen infrastructure products has created an exciting growth opportunity for Stuart Energy. We are well positioned as the market leader for competitive hydrogen infrastructure alternatives with a strong brand and proven track record of performance," commented Mr. Campbell.

Energy Markets

We delivered or received orders for 14 SES systems for the energy markets during fiscal 2004. These systems were either SES-f (vehicle fueling stations) or SES-fp systems combining both fueling and power.

The power market is currently in the early stages of development and is largely a demonstration and validation market. It is likely that most of the SES systems for power will be coupled with transportation applications in the near future, enabling customers to fully leverage their hydrogen infrastructure capital investment.

During the year, one such fueling and power system was delivered to our strategic partner Cheung Kong Infrastructure Holding (CKI) in Hong Kong. The project was originally intended to provide back-up power only, but was expanded to include bus fleet fueling and other energy applications. The official opening of this station is expected this year, and will demonstrate the multi-use platform capabilities of the SES-fp system. We believe that the two primary pacing items for market adoption of hydrogen infrastructure in Hong Kong is the introduction of hydrogen vehicles as well as approval of required codes and standards, both of which are being addressed through our joint venture with CKI.

In an effort to educate local authorities on the use of hydrogen, Stuart Energy participated in a Hydrogen Technology Forum hosted in Hong Kong by the Hong Kong Polytechnic University and CKI. At the Forum, we profiled the Power Module of the SES system, highlighting hydrogen internal combustion engine (H2ICE) technology developed by our project partner, Ford Research and Advanced Engineering. These H2ICE Power Modules achieve nearly all of the environmental benefits of fuel cell generators, but at a fraction of the current cost. The same H2ICE technology is transferable to vehicle applications. For example, we are collaborating with CKI, Ford and other project partners to develop and deploy the world"s first H2ICE hybrid electric bus into the Asia-Pacific market. This bus is scheduled to be demonstrated in Hong Kong in early 2005.

During the year, we were very active in Europe with the Clean Urban Transport for Europe (CUTE) project. CUTE is the world"s largest fuel cell bus demonstration project, which is being hosted by nine European cities. The project is demonstrating 27 fuel cell powered regular service buses over a period of two years. We were chosen to provide hydrogen fueling infrastructure to four participating cities - Amsterdam, Barcelona, Porto, and Stockholm. Securing four of the five electrolysis-based stations highlighted our leadership position in providing on-site electrolytic hydrogen infrastructure to the transportation market.

Also in Europe, we delivered a SES-f to Sydkraft in Malmo, Sweden. Sydkraft is a major European utility that also supplies natural gas to Malmo"s bus fleet. This SES-f is capable of dispensing pure hydrogen or a blend of hydrogen and natural gas fuel. Sydkraft is using the SES-f to evaluate the technical, environmental and economic benefits of using blended fuel. To date, we have delivered four hydrogen/natural gas blended fuel stations to customers globally. We view blended fuel as a significant near term opportunity and we will continue to aggressively promote our SES-f solutions to this market.

Other near term markets for the SES-f include the vehicle demonstration market, in particular government funded projects in the United States, Canada, Europe, China and India. Included in these projects are various "Hydrogen Highway" and "Hydrogen Village" initiatives in which we are actively participating. For example, Jon Slangerup serves as a member of California Governor Schwarzenegger"s Hydrogen Highway Implementation Advisory Panel. The Advisory Panel is a key element in the development of the implementation plan for the California Hydrogen Highway Network.


During the year, we achieved measurable improvements in all aspects of our operations. The standardization of Vandenborre IMET® technology into most contracts was completed. This has resulted in the simplification of project management and provided many synergies that have been captured and capitalized upon. The improved execution of contracts has also resulted in positive margins being realized upon all contracts entered into and delivered during fiscal 2004.

Peter Wressell, Chief Operating Officer of Stuart Energy commented, "The integration of Vandenborre IMET® technology has resulted in commercially available products that deliver as much as a 300% increase in power density within the same product footprint. This product development exercise has also reduced the cost of our products by over 21%, while the characteristics of the product have been enhanced. We expect to see our costs decline further during the next year as a result of our continued efforts, with additional cost reductions expected as production volumes increase."

Product performance and quality improvements have yielded a 33% reduction in our accrual for warranty, as we saw the impact of our engineering work result in enhanced performance of units in the field.

The lead-time for a typical project delivery has decreased by 25%, which is largely driven by the adoption and management of our enterprise resource planning (ERP) system. In addition to the lead-time improvement, the ERP system has enabled us to reduce our supplier base, both product and non-product, by 59%. We intend to sign preferred supplier agreements with a number of companies during this year, which should provide additional cost reductions. Our ability to bring our production costs down, while driving improved product performance, has contributed to our direct margin improvements and has positively impacted our ability to sell products.

Review of Fiscal 2004 Milestones

Jon Slangerup stated, "Thanks to the outstanding performance of our global team, we achieved six of seven challenging corporate milestones in fiscal 2004. I am proud of our team and have full confidence that we have the strategy, expertise and products that ensures our continued success."

* Achieve triple-digit percentage growth in annual sales revenue. - ACHIEVED - We achieved sales revenue of $17.9M representing 174% growth from fiscal 2003.
* Achieve a 50% reduction in net cash burn excluding acquisition costs. - NOT ACHIEVED - We reduced annual net cash burn, excluding the inflow of net proceeds of approximately $21.7 million from our equity offering in the fourth quarter, by 49%. After adjusting fiscal 2003 cash burn to exclude acquisition costs, our cash burn reduction in fiscal 2004 was 37%. Based on softer than expected revenue and margin performance in the first half of fiscal 2004, we provided revised guidance that we would not achieve this milestone in November 2003. In the second half of fiscal 2004, we met our cash burn objectives, with a 52% improvement over cash burn in the second half of fiscal 2003, excluding acquisition costs.
* Accelerate market demand for our hydrogen infrastructure solutions by engaging significant hydrogen internal combustion engine (H2ICE) initiatives. - ACHIEVED - We successfully incorporated the H2ICE into the Power Module of the SES product line. The Power Module has been commercially sold in Asia-Pacific and North America. We initiated an important demonstration project with CKI, Ford and other project partners to develop and deploy the world"s first H2ICE hybrid electric bus into the Asia-Pacific market. This bus is scheduled to be deployed in Hong Kong in 2005.
* Engage strategic partnership relating to renewable hydrogen projects. - ACHIEVED - We entered into a joint cooperation agreement with Statkraft SF and Corporacion Energia Hidroelectrica de Navarra S.A. (EHN) to jointly assess, demonstrate and develop advanced renewable energy based hydrogen production and distribution solutions.
* Secure initial orders for commercialized Stuart Energy Stations in each of our three target markets: North America, Europe and Asia-Pacific. - ACHIEVED - We secured orders for or shipped 13 SES units in North America, 20 SES units in Europe, 15 SES units in Asia-Pacific and 3 SES units in other areas.
* Complete integration of Vandenborre Technologies. - ACHIEVED - In November 2003, we implemented the final phase of our integration and synergies plan. In total, the integration plan is expected to yield annualized savings in excess of $7.5 million from product standardization, facilities rationalization, headcount reduction and streamlined business processes.
* Introduce next generation Stuart Energy Station product line. - ACHIEVED - We introduced our next generation SES product line, which incorporates the best technologies and the expertise from our consolidated organization. This SES product line has increased reliability, reduced costs and higher efficiency.

Fiscal 2005 Milestones

* Achieve sales revenue growth in excess of 35%.
* Achieve positive gross margins in excess of 10%.
* Decrease cash utilization by at least 30%, excluding costs related to any acquisition or investment.
* Expand scale and improve performance of SES product portfolio.
* Engage additional strategic partnerships relating to renewable-based hydrogen projects.

Conference Call

A conference call will be held on Thursday, June 10, 2004 at 10:00 am (ET) to discuss our consolidated financial results for the fourth quarter and fiscal year ended March 31, 2004.

To access the conference call, participants may call 1-800-525-6384 five minutes prior to the start time. A simultaneous webcast can be accessed from our website at www.stuartenergy.com which will require that Windows Media Player or Real Player be installed prior to the call.

An archived webcast will be available for approximately three months at our website.

About Stuart Energy

Stuart Energy Systems Corporation (TSX:HHO - News) is the world"s leading developer and supplier of integrated hydrogen infrastructure solutions based on water electrolysis. Stuart Energy integrates its proprietary hydrogen generation technology with products from corporate partners to serve existing and emerging markets for industrial, distributed power generation and transportation applications. The Company"s website address is http://www.stuartenergy.com

Source: Stuart Energy Systems Corporation
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