365.L Regulatory News (365)

VPhase plc

 ("VPhase" or "the Group")

 Consolidated Interim Financial Statements

for the six months ended 30 June 2012

VPhase plc (AIM:VPHA), a leading developer of energy saving products for residential and commercial properties, today reports its Interim Results for the six months ended 30 June 2012.

Highlights

·; Revenue up 227% to £658,000 (2011: £201,000)

·; Overheads reduced to £993,000 (2011: £1,180,000)

·; Loss reduced to £805,000 (2011: £1,082,000)

·; March - signed agreement with Australian distributor worth a minimum of £12.4 million over five years subject to their meeting the minimum contractual volumes to retain exclusivity

·; May - Colin Black appointed as NED and Chair of the Audit Committee

After the period end:

·; August - entered into a factoring agreement with the Group's principal banker providing up to £500,000 of debt finance

·; September - signed agreement with Cypriot distributor worth a minimum of £630,000 over three years, subject to their meeting the minimum contractual volumes to retain exclusivity

·; Considerable progress made in product development, with VX2 and VX5 products due to be launched in November 2012

Vanda Murray OBE, Non-executive Chairman of VPhase, commented: "This has been a period of considerable progress for VPhase and the Board is pleased that the growth in revenue demonstrates the significantly increasing demand for our product. We are excited about the new products that are about to be launched, following a period of intensive R&D, and with a robust order book and our growing partnerships with blue chip names, VPhase is poised for future growth."

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Chief Executive's Statement

The first six months of 2012 have shown excellent growth with turnover increasing 227% to £658,000 (2011: £201,000) all of which was derived from product sales (2011: £156,000). The Group is pleased to report strong demand from the Social Housing sector as a result of our sales and marketing focus in this area and the number of positive trials that have been carried out. In total the Group has 85 trials either completed or underway and now has a number of orders in progress.

Overseas the Group has seen significant interest. In March it signed an exclusive supply agreement with Energy Homes Solutions pty Limited ("EHS") in Australia, for the supply and installation of its VPhase VX1 product. This arrangement runs for an initial five year period during which EHS are committed to taking product worth a minimum of £12.4 million. The volumes are not spread evenly but scale up over the term of the agreement. Failure by EHS to meet the minimum quantities in any year of the agreement would enable the Group to terminate the agreement. EHS has taken the contracted £28,000 of product in Q2, and has already taken a further £182,000 in Q3 which is in excess of the contract volumes and they are seeing a rapid increase in demand.

On 24 September the Group's subsidiary VPhase Smart Energy Limited entered into an exclusive distribution arrangement with Saem Electrical & Mechanical Services Ltd ("Saem") for the supply and distribution of its VPhase VX1 product in Cyprus. Under the arrangement, which is for an initial period of three years (then continuing unless terminated by either party) Saem agrees to purchase a minimum quantity of the VX1 product in each year of the agreement. The agreement anticipates achieving minimum volumes to a value of £630,000 over the initial 3 year period.

In addition, the Group is continuing discussions relating to Holland, Poland, Malta, and other overseas territories.

Another area of good growth for VPhase is in the solar PV market where installers have begun to recognise that the installation of voltage optimisation at the same time as solar PV gives added benefits for the home owner and is the best time for them to fit voltage optimisation as the marginal costs of installation are at their lowest. The Board intends to further penetrate this sector in the coming months.

Gross margins have eased from 39%, however 2011 was distorted by the Shell Springboard award and net product margins eased in the period from 33% to 29% as the effect of volume pricing on recent larger-scale orders came through. Since July 2012 manufacturing by one of our volume manufacturing sub-contractors has commenced, which the Board anticipates will improve margins by around 6% in a full year.

Overheads have been contained below the previous year's level at £993,000 (2011: £1,180,000). £112,000 of this is through capitalisation of development costs in accordance with IAS38 in relation to new products. The loss before tax is £277,000 lower than 2011 at £805,000 (2011: £1,082,000).

The Group is making progress, along with its competitors, in raising the profile of voltage optimisation under the Green Deal. There have been a number of meetings with the Department of Energy and Climate Change and the Building Research Establishment, looking at how voltage management and optimisation can be included in the Green Deal and as part of the SAP Energy Assessors Programme. The Board will update shareholders once a decision has been reached.

The Group continues to lobby strongly that voltage optimisation is an energy efficient technology that should have equal terms with other energy efficient technologies and be rated at 5% VAT when installed in the end consumer's home.

Net cash utilisation in the period was £133,000 per month (2011: £187,000 per month), an improvement on the corresponding period in 2011 as cash has been generated from increasing sales. The cash balance at the end of June was £1.35 million and, subsequent to the half year period end, as previously announced, the Group has entered into a factoring agreement with HSBC initially providing debt finance of up to £0.5 million. This provides us with the financing for our working capital during the current growth phase.

The Group has just launched an extended warranty for its product, whereby consumers can now extend their warranty term of five years to ten years for a payment of £50. This further emphasises our confidence in the longevity of the VPhase VX1.

I am delighted to announce that the Group's VX2 and VX5 products are now in the final stages of being CE marked and that their supply chain is being established. It is expected that sales will commence in November 2012. These products, along with their associated 6 way and 16 way distribution boards, extend the footprint of products available and the markets open to the Group as the VX5 now gives it the opportunity to enter the light commercial segment including shops and offices that use single phase supply.

As previously announced, Nick Moss stood down as a non-executive director for the Group having been with us since 2007 and Colin Black joined the Board as a non-executive director and as Chairman of the Audit Committee.

Outlook

There has been substantial progress in the first six months of this year and a notable acceleration in demand for our product UK and overseas. Despite the difficult economic conditions, the business continues to show growth although the larger opportunities remain difficult to convert which will impact on the Group's ability to achieve market expectations. Sales in social housing and overseas continues setting a firm base from which to further grow in subsequent years.

The Board looks forward to updating shareholders with progress at the end of the year.

Rick Smith

Chief Executive Officer

24 September 2012

Unaudited consolidated income statement

The Group has no items to be recognised in the "Consolidated statement of comprehensive income" and consequently this statement has not been shown.

All revenue and costs originate from continuing activities.

The notes are an integral part of these unaudited Consolidated Interim Financial Statements.

Unaudited consolidated statement of financial position

The notes are an integral part of these unaudited Consolidated Interim Financial Statements.

Unaudited consolidated statement of changes in equity

Unaudited consolidated statement of changes in equity (continued)

Unaudited consolidated statement of cash flows

Cash flows from operating activities

These notes are an integral part of these unaudited Consolidated Interim Financial Statements.

Notes to the Consolidated Interim Financial Statements

1 Nature of operations and general information

VPhase plc ("the Company") and its subsidiaries (together "the Group") develop products that provide energy efficiency solutions to certain identified problems in the energy market.

VPhase plc is incorporated in England and Wales. The address of the registered office is Castlefield House, Liverpool Road, Castlefield, Manchester, M3 4SB. The Group trades through a number of subsidiaries, whose place of business is Capenhurst Technology Park, Capenhurst, Chester, CH1 6EH. VPhase plc's shares are listed on the AIM Market of the London Stock Exchange.

VPhase plc's Consolidated Interim Financial Statements are presented in pounds sterling (£), which is also the functional currency of the parent company.

2 Basis of preparation

These Consolidated Interim Financial Statements are for the six months ended 30 June 2012. They have not been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2011.The financial information set out in these Financial Statements does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The consolidated statement of financial position as at 31 December 2011 and the consolidated income statement, consolidated statement of cash flows, consolidated statement of changes in equity and associated notes for the year then ended have been extracted from the Group's Financial Statements as at 31 December 2011. Those Financial Statements have received an unqualified report from the auditors and have been delivered to the Registrar of Companies. The 2011 statutory accounts contained no statement under section 498(2) or section 498(3) of the Companies Act 2006.

The Consolidated Interim Financial Statements for the period ended 30 June 2012 have not been audited or reviewed in accordance with International Standard on Review Engagement 2410 issued by the Auditing Practices Board.

The Consolidated Interim Financial Statements have been approved by the Board of Directors on 24September 2012.

These financial statements have been prepared under the historical cost convention.

 The Group, together with its ultimate Parent Company, has sufficient financial resources to continue to operate for the foreseeable future and with the growing demand and interest in the product the Group has a sound platform for generating future sales. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.

The Group's forecasts and projections, which have been prepared for the period to 31 December 2015 and taking account of reasonably possible changes in performance in relation to sales volumes and the ability of the Group to factor its debtors show that the Group should be able to operate within the level of its current cash resources.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group Financial Statements.

These Consolidated Interim Financial Statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2011.

3 Segment analysis

The business of the Group comprises one segment, energy efficiency, and as such no segmental information is provided. The Group operates entirely within the United Kingdom.

4 Loss per ordinary share

The calculation of the basic loss per ordinary share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period.

Reconciliations of the loss and weighted average number of shares used in the calculations are set out below:

The share options and warrants in issue are anti-dilutive in respect of the basic loss per share calculation and have therefore been excluded in the above calculations.

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