Shell PLC — Annual Report 2016

Sep 30, 2016

A fresh approach to our business

Annual Report for the year ended 30 September 2016

About Intelligent Energy

Intelligent Energy Holdings plc delivers clean energy solutions for the distributed energy, diesel replacement, automotive and aerial drone markets. Working with international companies, Intelligent Energy aims to embed its fuel cell stack technology into applications across its target market sectors. With its principal facility and headquarters in Loughborough, UK, the Company also operates in Japan, India, China, Singapore, France and the US. Intelligent Energy Holdings plc is listed on the London Stock Exchange (LSE: IEH.L).

Go online to find out more www.intelligent-energy.com/investors

We operate in a dynamic,

forward-thinking environment. As such it is vital we understand our marketplace and respond accordingly.

We have reshaped our organisation to maximise commercial opportunities, achieve revenues and build the business.

Find out more about how we plan to achieve this overleaf.

Martin Bloom

Group Chief Executive Officer

Strategic report

Building the business	02
Business at a glance	04
Into the marketplace	06
Chairman's statement	08
Group Chief Executive Officer's review	09
Our technology strengths	10
Risk management	14
Principal risks and uncertainties	15
Chief Financial Officer's review	18
Corporate responsibility	21

Governance

Chairman's introduction to governance	26
Board of Directors	28
Directors' report	29
Corporate governance report	33
Audit & Risk Committee report	37
Nomination Committee report	41
Directors' remuneration report	43
Statement of Directors' responsibilities	57

Financial statements

Independent auditor's report	58
Consolidated income statement	59
Consolidated statement of
comprehensive income	59
Statement of financial position	60
Consolidated statement of changes in equity 61
Company statement of changes in equity	62
Statement of cash flows	63
Notes to the annual financial statements	64
Shareholder information

Company and shareholder information 97

Strategic report

Building the business

No longer a business with multiple divisions across different platforms, the organisation is now structured with a rapid lab-to-market delivery platform, so as to monetise our world-class technology.

The revised strategy will be about outcomes, especially commercial outcomes.

Martin Bloom

Group Chief Executive Officer

Accelerated communication

Business at a glance

Intelligent Energy delivers clean energy solutions for its target markets through the development and manufacture of modular air cooled fuel cell stacks and systems.

Below: Hydrogen Fuel Cell Drone, utilising AC10

Right: AC64 lightweight Fuel Cell Stack.

technology.

Where we operate

With headquarters in the UK, we have a representation in the following locations around the world:

Loughborough, UK HQ, main facility

Bangalore, India

Operation of the Group's Indian power management business, via Essential Energy, our wholly owned subsidiary company in India

Singapore Regional Representation

Shanghai, China Regional Representation Japan Yokohama – SMILE joint venture

Osaka – Commercial Office

USA San Jose, California – Commercial Office

Research Centres

Loughborough, UK Grenoble, France Merritt Island, FL, USA

Governance

£91.8m Revenue

-£33.4m

Adjusted EBITDA1 2014/15: -£46.2m

-£82.7m

Profit/(loss) after tax 2014/15: -£42.8m

£20.6m Net cash2

2014/15: £24.2m

-£51.3m Exceptional items and

impairments3 2014/15: £0.0m

• 1 EBITDA is a non-statutory measure often used by investors as a proxy for cash and to calculate the value of a business. The Company uses adjusted EBITDA (Earnings before Interest, impairment charges, Tax, Depreciation, Amortisation, share of joint venture results, equity fundraising costs and IFRS2 sharebased payment charges) as an indicator of trading profitability and a proxy for operating cashflow, before any cash movements relating to investment, tax, funding and changes in working capital. It is not an IFRS measure, and not therefore shown in the Group income statement. Please see note 7 of the financial statements for a reconciliation of adjusted EBITDA to EBITDA and operating loss.
• 2 Cash is defined as cash and cash equivalents and shortterm deposits.
• 3 Exceptional items and impairments include £48.6m of non-cash accounting charges and £2.7m of cash restructuring costs.

Financial highlights Operational highlights

• Launched and are implementing a revised corporate strategy, focused on commercialising Intelligent Energy's proven technology and generating revenues in the short term:
• Operating business refocused on air cooled fuel cell technology with a power output from 1W to 20kW
• Changing the culture of the business with much greater commercial and results based focus
• Commercial team strengthened
• Increased emphasis on sales opportunities relating to manufacture and sale of existing reference designs
• Simplified the structure and internal systems of the Company, including a unified Commercial, Delivery and Design function
• Monthly cash burn reduced by more than 50 per cent
• Continued and ongoing Joint Development Agreement activity with Suzuki
• Demonstration of fuel cell applications for drones and hand held devices
• Continued successful operation of the interim power management agreement with GTL for 27,000 Indian telecoms sites:
• 7 sites currently being powered by Intelligent Energy's fuel cells (generating 49.632 MWh of fuel cell powered electricity as at 31 October 2016)
• Site power availability of close to 100 per cent

Into the marketplace

The energy market is fragmented, offering many opportunities. As companies move towards hybrid systems, they are more willing to invest in and adopt new technologies.

Our place in the energy ecosystem

Stationary Power

Back-up power and diesel replacement, initially for telecom towers, but also for a range of other sectors

India is not the only channel for sales of product

We are pursuing opportunities in a number of countries

Distributed Energy

Global opportunities for hydrogen fuel cells as an element in hybrid and portable systems

Part of global climate change initiatives, supported by a growing financing ecosystem

A desire, by increasing numbers of global multinational corporations, to reduce their carbon footprint directly and throughout their supply chains

Our technology provides a unique solution

Fuel cells offer extended flight times and quick refuelling

Fuel cells are a natural solution for drone manufacturers moving into larger drones with heavier payloads

We recently exhibited at InterDrone in Las Vegas and successfully demonstrated our technology

Drones Suzuki, Automotive and Japan

Suzuki has been critical to the development of our technology and the relationship is good

Our expertise with Suzuki opens up a range of opportunities in the motive sector, for range extenders and prime power

Japan is also potentially a large market for our products and technologies

Opportunities

Understanding where we fit

• Intelligent Energy is not just a technology company but also an energy equipment company
• More significantly, the world is adopting hydrogen technologies at an increasing pace
• We need to understand where in the energy ecosystem we fit and where we can compete
• The key is to find markets where revenues are likely to scale rapidly
• After 25 years, we now have mature technologies that are commercially ready

Images:

Stationary Power: 305 Fuel Cell Power System for Back up and Stationary applications. Distributed Energy: AC64 Lightweight Fuel Cell Stack. Drones: Hydrogen Fuel Cell Drone, utilising AC10 technology. Suzuki, Automotive and Japan: Suzuki Burgman Fuel Scooter, utilising our AC64 stack technology.

Market review

Intelligent Energy is focused on the commercialisation of its technology and product delivery to its customers and partners across its key market sectors.

Stationary Power

Intelligent Energy's stationary power fuel cell systems are targeted at the diesel replacement and back-up power markets; initially for telecom towers, but also for a range of other sectors. Following successful demonstration and initial roll-out at seven sites in India, other opportunities are being actively pursued in a number of countries.

Distributed Energy

There are clear opportunities for Intelligent Energy's hydrogen fuel cells as part of hybrid and portable renewable systems, driven by global climate change initiatives and the desire by a growing number of multinational corporations to reduce their carbon footprint both directly and throughout their supply chains together with the need for localised power.

Drones

Intelligent Energy's fuel cells provide a unique solution in providing extended flight times to aerial drones presently restricted by the limitations of batteries. Flight durations of more than double that provided by batteries are possible and fuel cells provide a natural solution for manufacturers moving to larger drones and heavier payloads.

Automotive

The principal focus of Intelligent Energy's automotive activity is the continued success of its partnership with the Suzuki Motor Corporation. Suzuki has been critical to the development of our air-cooled automotive technology and the extensive experience gained has opened up a range of opportunities for the two companies. Our products are targeted at range extender and prime power applications, both in the potentially large market of Japan and beyond.

Trends

A number of global trends across Intelligent Energy's target markets have emerged in recent years, as increased awareness of the capabilities of clean fuel cell power along with government initiatives across the globe have become key drivers for growth.

An industry report1 published in July 2016 predicts that the global fuel cell market will be worth \$25.5 billion by 2024, with stationary fuel cells expected to exceed \$16.5 billion. This is consistent with a growing trend away from centralised to distributed power generation.

California is moving rapidly to a status as a hydrogen economy and developments highlight the emerging opportunities there, as in Japan and parts of Western Europe. Fuel cell light duty vehicles only began to enter the market in 2015 in California, parts of Europe and Japan, but those sales, combined with fuel cell bus deployments and a continued growth in fuel cell powered materials handling in the US, have seen the growth of fuel cell shipments for transportation applications. Action by government, for example, the European Union's transport focused commitment to an 80 per cent carbon emissions reduction, should positively impact growth in the sector as should legislation in the US such as the Clean Air Act and California's ZEV Action Plan.

The use of commercial Unmanned Aerial Vehicles (UAVs) has grown significantly in recent years and according to the FAA (Federal Aviation Administration) there will be seven million drones sold in 2020 in the United States alone. Itis also estimated that by 2025 the market for electric drones will reach a total of \$4.5 billion. However, a key feature that has not kept pace with technological advances is that of flight time, due to the limitations of traditional battery technology. For commercial use, drones need to offer better flight times and range. A longer flight time coupled with a quick refuel opens a wide range of new commercial possibilities, such as UAVs for inspection of offshore platforms, search and rescue, high quality aerial photography, precision agriculture, parcel delivery and much more.

A further key opportunity for fuel cell systems exists in the field of microgrids. Whilst still in their infancy, microgrids are localised power grids that operate in synchrony with, or independently from, the main grid. They are poised to play a strategic role in the future landscape of electricity distribution with the market for microgrids2 estimated to reach \$35 billion by 2022.

Cost effective electric power is a challenge without access to a strong utility grid. The use of generator sets alone to produce power does so at much higher costs than that provided by a utility company. Recently a model has emerged that combines cost effective renewable energy from wind or solar with conventional diesel or gas fuelled generation and also incorporates energy storage. These hybrid microgrids, as they are becoming known, typically incorporate diesel 'gensets' and batteries; they are also a natural fit for hydrogen fuel cell systems, which can substantially further reduce environmental footprints whilst also offering increased energy storage capability.

1. http://www.marketsandmarkets.com/Market-Reports/micro-grid-electronics-market-917.html

^1. https://globenewswire.com/news-release/2016/07/19/857160/0/en/Fuel-Cell-Market-size-worth-USD-25-5-Billion-by-2024-Global-Market-Insights-Inc.html

Chairman's statement

While still very aware of the significant challenges ahead, the Board is encouraged by the recent positive developments in the hydrogen economy and remains positive about the prospects and opportunities for the Company's technology and products.

Paul Heiden

Non-executive Chairman

Chairman's introduction to governance Page 26

The past year has been difficult and disappointing for Intelligent Energy. However, under the leadership of our new Group Chief Executive Officer, Martin Bloom, we have entered the new financial year in a clearer position, with a re-focused commercial strategy, together with a path towards core revenue growth. The Company had over £20 million of cash in the bank as at 30 September 2016 and is now operating under a more streamlined and cost efficient organisational structure.

Restructuring and fundraising

In March 2016, the Company's strategic and operational plans had to be reset as a consequence of a lack of commercial progress and difficulties in refinancing the business.

Following an extensive review the Company announced a revised strategy, which concentrated more on short-term revenue growth from core product, a major restructuring, reducing cash burn by more than half, and a significant fundraising.

A £30 million fundraising was achieved through the issue of 13.0 per cent Senior Secured Convertible Loan Notes 2019, which were irrevocably secured from the Company's largest shareholder, Meditor European Master Fund Limited ("Meditor"). The funding terms negotiated with Meditor were, in the opinion of the Directors, the best possible for the Company in the circumstances, taking into account prevailing market conditions. Without such funding the Company would no longer have been a going concern and the Board would therefore have had little option other than to place the Company into administration.

Board changes

Dr Henri Winand stepped down from his position of Chief Executive Officer on 9 June 2016, following completion of the fundraising process. I would like to acknowledge Dr Winand's extraordinary commitment and dedication as CEO of the Intelligent Energy business over the last decade.

Having previously been an Independent Non-executive Director of the Company since 2012, Martin Bloom was appointed to the role of interim Group Chief Executive Officer on 9 June 2016. With effect from 21 November 2016, Mr Bloom will be appointed to this role on a permanent basis. He has significant experience in building high-growth energy technology companies and strong international connections in the energy sector.

Dr Philip Mitchell stood down from his position on the Board as Non-executive Director on 1 July 2016. Dr Mitchell was instrumental in the inception of fuel cell technology during the 1980s at a predecessor business and the Company has been able to benefit hugely from his wealth of leadingedge technological expertise. The Company has retained an on-going direct and important contribution from Dr Mitchell through planned consultancy activity in support of Mr Bloom.

Commercialisation strategy

Since taking on the role of Group Chief Executive Officer, Mr Bloom has focused on continuing to commercialise the Company's technology and core revenue building opportunities. Under this new leadership, and a re-focused strategy that was presented to shareholders and analysts

on 21 September 2016, the core business is now focused on Air Cooled (AC) fuel cell technology, with a power output from sub 1W to 20kW.

Further details regarding the Company's revised strategy can be found on pages 02 and 03 of the Strategic report.

Outlook

While still very aware of the significant challenges ahead, the Board is encouraged by the recent positive developments in the hydrogen economy and remains positive about the prospects and opportunities for the Company's technology and products.

Paul Heiden

Non-executive Chairman 18 November 2016

Group Chief Executive Officer's review

My objective is to prioritise delivering revenues and building the business. The revised strategy is all about outcomes, especially commercial outcomes.

Martin Bloom

Group Chief Executive Officer

I was excited to take on the interim Group Chief Executive Officer role for Intelligent Energy back in June and I am delighted to have now been permanently appointed to this role with effect from 21 November 2016.

Since June, I have undertaken a thorough review of the business and the opportunities that might exist for us to start accelerating market deployment of our technologies. Some good progress has been made in this regard, working under the more focused strategic direction that I have introduced. There remains a great deal of work ahead and I am very much looking forward to the challenge.

Strategic focus

As previously announced, we reviewed our strategy during the year. This reflected a lack of commercial traction across a variety of applications and an eventual funding envelope that necessitated Intelligent Energy having to focus upon those technologies which were closest to being ready to be brought to market and deliver revenue growth.

Having secured additional funding, the Company has launched its revised strategy and believes the most appropriate way to deliver shareholder value, given current markets, is to continue to commercialise the business with a focus on driving revenue growth from a simplified operating base.

Focus on Air Cooled technology

The UK business is now focused on Air Cooled (AC) fuel cell commercial opportunities with a power requirement of sub 1W to 20kW. It is the intention to grow this business in FY16/17 from its restructured base and to continue to reduce cash burn from the current run rates over the course of this financial year.

Four important developments have been carried out as part of the revised strategy to focus Intelligent Energy on commercial outcomes:

• 1. Instigation of a much more focused approach. The implementation of a change of culture across the business and the creation of a more focused executive decision-making body will speed up the process from the laboratory to the market.
• 2. Creation of a new Product Delivery function. This will accelerate the market deployment of the Company's technologies and take those technologies which are closest to market to the point of manufacture.

3. Simplification of the Company

systems. Over the last few months Intelligent Energy has been reviewing its processes and systems with a view to streamlining and simplifying the way the newly resized business operates. Going forward, the Company will adhere to a continuous improvement programme to ensure it remains operationally aligned to delivering the revised strategy.

4. Commercial team strengthened. The Company has recruited additional people with different skill sets and track records to deliver commercial outcomes and is increasing its resources in the US, Japan, China and India. These are potentially lucrative markets for Intelligent Energy where there is already an existing customer base.

Consequently, the Company will move to selling its core fuel cell stack products and systems to customers, while only co-developing projects under a JDA model in selective cases where it makes sense to do so. Intelligent Energy has enough manufacturing capacity for at least the next year to meet demand and will continue to protect its intellectual property portfolio. The Company believes there is demand for its fuel cell stacks and modules and the Company will target markets where its technology can be incorporated into commercial products.

Outlook

As I outlined at the Analyst and Investor Day in September, we know we have the technology, people and know-how to deliver future growth for the core fuel cell business, so the next steps are all about commercialisation. My objective is to prioritise delivering revenues and building the business. The revised strategy is all about outcomes, especially commercial outcomes.

Martin Bloom

Group Chief Executive Officer 18 November 2016

Governance

Our technology strengths

AC64 fuel cell stack

Focusing on Air Cooled technology

Our strategy is to bring to market our air cooled technologies. The technology roadmap continues to focus on driving performance improvements and cost reduction, to support the commercial objectives of the business.

Dr Chris Dudfield Chief Technology Officer

AC fuel cell technology

Intelligent Energy's Air-Cooled systems are field proven in demanding applications. The modular nature of our systems allows for precise scaling sub 1W to 20kW to meet customer power and form factor requirements, providing clean DC power in a lightweight and robust package. Our AC fuel cell systems utilise low power fans to provide cooling and the oxidant supply for operation; heat from the fuel cell stack is conducted to cooling plates and removed through airflow channels, resulting in a simplified and cost effective power solution. These systems can be applied across a wide range of portable, stationary power, UAV and automotive applications.

Financial statements

Additional stack technology capability

Intelligent Energy's proprietary and patented high performance Evaporatively Cooled (EC) fuel cell system provides reliable power generation up to 100kW and beyond.

EC power systems are designed utilising modular architecture that can be quickly modified to suit our customers' final application, form factor and power duty requirements. The EC system has been refined and proven in automotive and aerospace applications.

Whilst not core focus for the business at present, we continue to maintain our core expertise, know-how and IP for this technology.

IP

Intelligent Energy continues to be an intellectual property rich company with over 25 years in R&D, resulting in 900 + patents granted (and over 900 patents pending) across more than 450 patent families.

Our technology strengths continued

Right: AC64 fuel cell stack

AC64 fuel cell stack

The AC64 air cooled fuel cell runs on hydrogen and ambient air to produce clean DC power in a simple, cost-effective, robust and lightweight package.

The modularity of our proprietary product design allows for scaling across 500W to 2.7kW per fuel cell stack to meet precise customer power and form factor requirements. Furthermore, up to 20kW power output can be delivered with proprietary designs that integrate multiple stacks into a single fuel cell system.

For UAVs and other mass-sensitive applications, Intelligent Energy offers a new AC64 lightweight advanced prototype with reduced mass. This builds on the proven cell configuration of the standard stack. By the substitution of lighter materials the mass of the stack has been reduced by more than 60 per cent.

AC64 Stack Features

Robust metal fuel cell construction

28W per cell rated output

Cell count from 24 to 96 cells per stack

Standard 72-cell product configuration: 630W/kg, 640W/L

NEW lightweight advanced prototype configuration ready for customer evaluation: 1840W/kg, 620W/L

Ideal for hybridisation with battery and/or supercapacitors

Proven durability and reliability

for application environments Multiple configuration options

Range of stack options to fit different application requirements

Low thermal and acoustic signature

AC64 Stack Applications

Automotive Gen4 fuel cell system utilising AC64 technology

Stationary Power 305 Fuel Cell Power System for Back up and Stationary applications

Range Extender Suzuki Burgman Fuel Scooter, utilising our AC64 stack technology

Hydrogen Powered UAVs Hydrogen Fuel Cell Drone, utilising AC64 technology

AC10 fuel cell stack

The air-cooled AC10 fuel cell stack runs on hydrogen and oxygen from the air to produce clean DC power in a lightweight and power-dense package.

The AC10 stack can be readily integrated into customers' systems with minimal balance-of-plant components.

The modularity of our proprietary AC10 product design allows power systems to be scaled across 9W to 210W and configured to meet specific voltage, current and form factor requirements. Furthermore, up to 1kW can be delivered with proprietary designs that integrate multiple stacks into a single fuel cell system.

For UAVs and other mass sensitive applications Intelligent Energy offers a new AC10 advanced prototype with reduced mass. By the substitution of lighter materials the mass of the stack has been reduced by 50 per cent.

AC10 Stack Features

Robust metal fuel cell construction

3.2W per cell output

Cell count from 4 to 100 cells per stack

Readily integrates with key balance-ofplant including fuel supply, control and cooling system, power electronics and buffer battery

Standard 65-cell product configuration: 770W/kg, 680W/L

NEW advanced prototype lightweight configuration ready for customer evaluation: 1670W/kg, 870W/L

Proven compatibility with chemical hydrogen generator or pressurised gas storage

Output voltage configurable to match product requirements

Multiple configuration options including parallel and series connections

Low thermal and acoustic signature

AC10 Stack Applications

Portable Power AC10 Lightweight Fuel Cell Stack

Hydrogen-Powered UAVs Hydrogen Fuel Cell Drone, utilising AC10 technology

Risk management

Risk management involves the identification, evaluation, monitoring and, where appropriate, the mitigation of risks. It is the responsibility of the Group's Board of Directors to ensure that effective and relevant risk frameworks and internal control systems are in place. The Board is also responsible for setting the risk appetite of the Group.

A key objective of the Board and its senior management team is to safeguard and increase the value of the business and the net assets of the Group. Achievement of these objectives requires the development of policies and appropriate internal control frameworks to ensure the Group's resources are managed properly and that any key risks are identified and, where possible, mitigated. It should be noted that the Company's risk management framework can only help to mitigate certain risks, rather than eliminate them entirely. Some of the risks identified will also be, to a greater or lesser extent, beyond the Company's influence or control. As the Group is developing new, complex and innovative technologies, and is operating in developing markets, some future risks may, as yet, be unknown.

As outlined in other sections of this Annual Report, in the second half of the financial year a large-scale restructuring of the business was undertaken. This, coupled with the appointment of Martin Bloom to the position of Group Chief Executive Officer in June 2016, led to a revised strategy being adopted.

The Company's approach to risk management has developed during the past year, as a consequence of the restructuring and revised strategy for the business, and is reviewed on a periodic basis by the Audit & Risk Committee. Work is currently being undertaken to ensure the risk frameworks and risk registers that had previously been implemented remain relevant and focused and that they continue to serve the needs of the business. At an operational level, each business function will continue to be responsible for maintaining its own risk registers, via processes co-ordinated by the Company Secretary. These registers will then be used as tools for identifying and evaluating risks and where appropriate introducing additional mitigations to reduce risk to an acceptable level for the business.

In order for the Board to discharge its responsibilities with respect to risk management, internal audits have been conducted (by B. M. Howarth Limited, which the Company appointed to provide internal audit services) on different parts of the Group's activities in accordance with an audit plan which was approved by the Audit & Risk Committee on behalf of the Board. This internal audit plan is reviewed annually and key findings are presented to the Audit & Risk Committee twice per year. See page 40 of the Audit & Risk Committee report for further details regarding the internal audit process.

The Company has reviewed the amendments made in 2014 to the UK Corporate Governance Code ('UK Code') in relation to risk management and internal control. At this stage in the Company's development, and taking into account the large-scale restructuring that has recently taken place within the business, the Board has decided not to incorporate these changes into its risk management and internal control policies and procedures for the 2015/16 financial year.

A summary of the known principal risks and uncertainties that could impact on the Group's performance is shown overleaf. The content of this table is not intended to be an exhaustive list of all the risks and uncertainties that may arise within the Group.

Principal risks and uncertainties

A summary of the principal risks and uncertainties that could impact on the Group's performance is shown below together with details of the mitigating actions that are being taken.

Risk category	Description	Mitigation
Funding and commercial strategy	The Directors recognise that the short-term trading and commercialisation of the Group's fuel cell technology provides some challenges. The Group meets its day to day working capital requirements through its cash resources. As at 30 September 2016, we had a cash balance of £20.6m. The current trading position of the Group and its forecast development plans result in cash consumption for at least the next year. While it is expected that the Group will exit the current financial year with cash on its balance sheet, the cash position thereafter will depend on the future trading and/or any further action taken with respect to the Company's cost base. The exact nature and evolution of these are, by their nature, uncertain. Further details in relation to going concern can be seen on page 20 of the Chief Financial Officer's review.	We undertake regular cash flow forecasting within the business. The Group has now been restructured, with costs and cash burn reduced by more than half during the 2015/16 financial year, and a re-focused approach on the delivery of short-term commercial opportunities. The Company has the ability to realise value from its intellectual property portfolio, which has the potential to be a significant store of value. We also maintain close relationships with the Company's key shareholders.
Technology	As our technology is innovative and complex, projects and programmes may not be delivered on time, or on budget. They may not achieve the expected performance criteria, or could experience product deficiencies/defects whilst in-the-field. Such delays could create the impression that our fuel cell technology is not suitable or ready for the particular markets in which the Company is now focusing.	Our prime focus is to deliver the Company's technology to customers. We also place a huge importance on making continual improvements, in order to maintain a technological advantage over our competitors, within both the fuel cell industry and the wider power supply markets. We operate via strict project management control frameworks to ensure that project, technology and testing milestones are adhered to and that any delays or performance issues can be controlled. We employ highly skilled engineers and technicians who are at the forefront of developments within the fuel cell industry. We believe they have the knowledge and technical product expertise to deliver our existing technological capabilities within our chosen markets.

Strategic report

Principal risks and uncertainties continued

Risk category	Description	Mitigation
Competitive markets	Material markets for fuel cell technology may never develop, or develop more slowly and on a much smaller level than is anticipated. The Company's ability to secure customer contracts may be slower than expected to materialise, or may never materialise at the required levels. In addition, fuel cells may never be as competitive as other competing technologies in providing alternative power sources, such as solar/wind power, other fuel cell providers, or the existing diesel powered solution. Commercialisation of fuel cell products and technologies also depends upon the achievement of a suitable total cost of ownership of these products. We may be unable to supply our technology at volume and via a cost-effective solution. Our commercialisation strategy relies, in part, on the expansion of the business in parts of the world which are perhaps less well developed than the UK or US. The costs, risks, operational challenges and competition associated with entering, and then maintaining, a foothold in such markets may be higher than expected, or delay the roll-out of our technology.	A significant amount of work is being carried out within the business to understand where in the energy ecosystem we fit, and where our technology is best placed to compete. The key will be to find markets where revenues are likely to scale rapidly. As part of this strategy we will be looking for opportunities to 'seed the market' with our technology, in order that potential customers can see what our products can offer to them and the benefits they can realise. The Directors believe this will lead to an on-going sales pipeline over time. The development of cost effective manufacturing techniques, coupled with volume increases, will help to drive down the up-front costs that are currently associated with our technology and allow us to compete more easily with alternative sources of power. Where appropriate, we employ personnel who have strong international backgrounds. An added focus has been placed on ensuring that we have the right commercial and technical expertise in parts of the world where we see the biggest potential opportunities, namely Japan, China and India.
Operational	As part of our commercialisation strategy we will be looking to undertake in-house, low volume manufacturing and fuel cell stack assembly at our facility in Loughborough, UK, to meet initial customer orders. As demand increases, we may experience problems in being able to supply the volumes required, or suffer from a reduction in fuel cell stack performance, reliability and/or durability. We may not be able to reduce production costs to a sufficient level. As demand for our fuel cell products increases over time, we will need to find alternative solutions in relation to the manufacture and assembly of our fuel cell stacks, via the use of contract manufacturers. There is a risk that third party providers cannot be identified, taking into account the challenges and risks associated with introducing a new technology to the market, at volume. The use of such third party contract manufacturers to produce our fuel cells at volume may also lead to quality/performance issues for the product.	We have the benefit of being able to call on our highly skilled and experienced in-house engineers and technicians who are based in Loughborough, UK; they have an in-depth knowledge of manufacturing and stack assembly for fuel cells, can resolve problems quickly and have the ability to make calculated and real-time improvements to the production line processes that we will operate. A significant amount of stack manufacturing experience has recently been gained via the production of the Company's 'Upp' product. Several of the engineers and technicians who worked on these production lines with our contract manufacturers in the Far East are still working for us, in order that we can learn the lessons from the past. We will be using our production line in Loughborough. It has been successfully used in the past for the small scale manufacture and assembly of stacks for Suzuki, as well as our own in-house development, testing and prototype requirements. In time, and subject to commercial growth being achieved, we are planning to develop long-term relations with key suppliers and contract manufacturers, to ensure they provide reliable, flexible and scalable solutions.

Risk category	Description	Mitigation
IP/cyber	We are dependent on proprietary technology underpinned by intellectual property ("IP"). There is a risk that we may not be able to obtain, maintain, defend, or enforce those IP rights. We may also be exposed to litigation in the future in respect of IP infringement or product liability claims. There can be no assurances that any currently pending or future patent will be granted, the Group's patent applications will not be challenged by third parties, where patents have been issued to the Group others will not be able to design around such patents to create a competing technology or product, competitors will not develop similar products which are not within the scope of the Group's patents and our IT systems can fully prevent a loss of IP through a cyber-attack. As we begin to commercialise and deploy our technology in the marketplace, the technology itself will likely become more visible to competitors and others.	We register our IP rights where appropriate to aid enforcement and to protect against infringement challenges, where appropriate. We regularly look to extend our technology capabilities through continuous research activities and proprietary knowledge. IP boundaries and ownership rights are an integral part of all contracts the Company has already entered into, or may do so in the future, with potential customers and partners. We have specialist in-house IP capabilities to oversee all IP activity, including the management of external IP service providers. We have an IT security framework and roadmap in place, which highlights the highest cyber risks. As new cyber risks develop the roadmap and priorities adjust accordingly.
Key personnel	The success of our business strategy is dependent on our ability to attract and retain key personnel. The loss of these individuals, or the inability to recruit sufficiently qualified and experienced replacements, may make it difficult for the business to meet its objectives. Taking into account the current financial constraints placed on the Company, and the large-scale restructure that took place earlier this year, the Directors believe there is an additional risk of key employees leaving the business at the current time.	We maintain regular contact with recruitment bodies to understand trends in the labour market and also frequently review staff turnover rates. We are aware of the need to create a structured and meaningful success-based incentive programme for our employees, in order to retain key personnel and assist in the recruitment of the best talent. We believe this risk will begin to decline as the business starts to gain more commercial traction, thus providing a more secure business for employees to work in.
Legal and regulatory	Our growth strategy involves operating in fast growing economies around the world, where there may be different and/or additional legal, regulatory and accounting compliance frameworks. There is a risk that the Company may fail to adhere to such obligations.	External advisers are sourced locally, where deemed relevant, to ensure legal, regulatory and accounting compliance. We also employ relevant personnel who have strong international backgrounds and who understand the local markets, cultures/customs and market practices in which we operate.

The principal risks and uncertainties stated above do not include completion of the GTL transaction. Whilst a successful completion of the GTL transaction may assist in the development of our fuel cell technology and reduce manufacturing costs as volumes increase, the Company's core business is not materially dependant on the completion of this particular contract.

The Audit & Risk Committee notes the recent guidance published by the Financial Reporting Council (FRC) in relation to the need for companies to consider a broad range of factors when determining the principal risks and uncertainties facing the business. At the present time, the Company does not consider Brexit and climate change to be amongst its principal risks and uncertainties but will keep the situation under review.

Chief Financial Officer's review

Revenue in the year ahead is expected to be a mix of existing JDAs and air cooled fuel cell sales, which are forecast to reduce but not eliminate the Company's net cash burn.

John Maguire

Chief Financial Officer

Group Financial Summary

As a result of lower than originally expected commercial traction, constrained funding and a slower than expected evolution of the market, the Company entered into a restructuring programme during the year which included a reappraisal of the carrying values of certain assets and a revised strategy.

As part of the restructuring process, the divisional structure of the Company's three customer facing segments and a platform support segment were replaced by unified commercial, deployment and design functions in the core fuel cell business. In addition, new development activity on the evaporatively cooled fuel cell platform covering a 20kW – 200kW power range ceased, while the current capability has been maintained.

Consequently, while the business was reported as four segments in 2014/15, it is reported in 2015/16 as a unified core fuel cell division and a separate Essential Energy branded business in India, which has been providing power management services for telecoms towers. Consequently the results (and the prior year numbers) are presented on this new reporting basis.

Overall, at a consolidated financial level, while revenue grew from £78.2m in 2014/15 to £91.8m in 2015/16, the impact of the restructuring was such that losses attributable to shareholders increased from £42.8m to £82.7m. This included the de-recognition of the deferred tax asset, impairments to other assets and restructuring costs which in total comprised £51.3m (2014/15 £0.0m). This represents a one-time, non-cash accounting charge of £48.6m and a cash cost of £2.7m to the income statement. It reflects, with reference to the deferred tax assets, uncertainty as to future profits and, in relation to the impairment of the carrying value of assets and IP, less certainty of commercial traction for specified activities in the short term.

Within these headline numbers, the segmental position was as follows:

• The Essential Energy business, through the interim contract arrangements with GTL, (which are renewed on a monthly basis), saw revenue expansion year on year, due to the full year effect of 27,000 sites being serviced and exchange rate movements. This was delivered, as expected under the interim arrangements, at low margins, resulting in negative EBITDA for the year once central EE costs were accounted for.
• The core fuel cell segment recorded revenue in the year relating to AC fuel cell joint development agreements. While the JDAs generated incremental margin in their own right, costs relating to running the business and further development of fuel cell technology meant that the fuel cell segment continued to be EBITDA negative.
• With respect to the balance sheet, negative EBITDA and investment activities represent a consumption of cash in the business, at an average of £2.4m per month for H1, including R&D tax credits of £5.4m. Restructuring of the business in H2 reduced the underlying cash burn to an estimated £1.1m by September 2016, incurring one off cash costs of £2.5m in H2. The cash burn for the year was partly offset by the gross proceeds of £30m from the issue of a convertible loan note, the full terms of which were approved by shareholders in a general meeting on 9 June 2016. Cash balances at 30 September 2016 were £20.6m (£24.2m 30 September 2015).

Consolidated income statement

Revenue and gross margin

Revenue for the year was £91.8m (2014/15: £78.2m). £85.1m (2014/15 £72.2m) was recorded in the Essential Energy segment for the provision of power management related

services to GTL in India for a portfolio of c27,000 telecoms towers. The year on year growth in revenue of £12.9m reflected the full year effect of the interim contract, an increase in the number of customers using the towers and a £2.5m increase resulting from the impact of exchange rate movements. £6.7m (2014/15 £6.0m) of revenue was recorded in the fuel cell technology segment. This related to Joint Development activity with automotive customers and an emerging markets mobile hand set OEM.

Over 99 per cent of revenue in the year related to activity for customers based outside the UK.

The Company's gross margin is stated after deducting cost of sales which includes fuel costs in the Essential Energy segment, labour costs, materials and direct facilities costs used in delivering contracted revenue-earning joint development projects. Gross margin for the year was £1.8m (2014/15: £2.3m) and in percentage terms, 2 per cent of revenue (2014/15: 3 per cent). The low gross margins reflected the nature of the interim subcontract arrangements with GTL within the Essential Energy segment, which as previously disclosed generates minimal margins. The Company continues discussions with GTL in relation to Essential Energy.

Research and development

In the year, R&D expenditure amounted to £9.6m (2014/15: £19.1m). £1.0m of restructuring costs were recorded in H2 within this total, and R&D spend is now focused on AC fuel cells and their applications. R&D costs mainly comprise staff costs, outsourced services and material costs related to fuel cell research and development. The overall decrease year on year of £9.5m reflected the impact of the restructuring programme in the second half of 2015/16. An average of 60 (2014/15: 105) directly employed staff have been engaged in R&D over the course of the year, and post the restructuring this had reduced to 31 staff as at

30 September (31 were so engaged in the fuel cell segment and none in the Essential Energy segment).

Operations and application engineering

Operating costs in the year amounted to £44.5m (2014/15: £24.9m). £25.1m of non-cash impairment charges and £0.9m of other restructuring charges were recorded within this, reflecting the implementation of the restructuring programme and impairment of those assets which do not directly relate to the focus on relevant AC fuel cell applications. Excluding restructuring and impairments the decrease in costs year on year reflects lower headcount, with an average of 151 directly employed staff in the year (2014/15: 215), and post the restructuring this had reduced to 111 (74 in the fuel cell segment and 37 in the Essential Energy segment). Activities covered include application engineering, solutions development, supplier management, logistics, facilities and IT.

Administration costs

Administration costs in the year amounted to £7.6m (2014/15: £12.1m). This included £0.8m of restructuring charges. Administration costs comprise commercial and corporate activities, including sales, marketing, HR, finance, legal and procurement. An average of 116 (2014/15: 116) directly employed staff have been engaged in this area over the course of the year, and post the restructuring this had reduced to 52 staff (31 in the fuel cell segment and 21 in the Essential Energy segment).

Adjusted EBITDA

EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) is a nonstatutory measure that is widely used as an indicator of trading profitability and a proxy for a company's operating cash flow, before any cash movements relating to investment, tax, funding and changes in working capital. It is not an IFRS measure, and therefore not shown in the Group income statement.

For Intelligent Energy, adjusted EBITDA is measured as revenue less cost of sales less R&D and Operations and Application Engineering costs and Administration costs, adjusted for depreciation, amortisation, impairment, one off fundraising costs and the IFRS 2 share-based payments charge, which is predominantly non cash based. On this measure, adjusted EBITDA for the year was a loss of £33.4m (2014/15: loss £46.2m). The movement in adjusted EBITDA mainly reflected the net impact of the restructuring programme in the second half of 2015/16.

(Loss)/profit for the year

The loss for the year was £82.7m (2014/15 loss: £42.8m), being a reflection of the adjusted EBITDA reported above, and the following items:

The Group's share of the loss on joint ventures (details of which are set out below) accounted for under the equity method of £0.4m (2014/15: £0.8m), together with an impairment charge of £1.6m (2014/15 £0.0m).

Net interest charges of £2.7m (2014/15: £1.3m). The higher year on year interest reflects the issue of a £30m convertible loan note in May 2016.

An income tax debit of £18.1m (2014/15: credit £11.6m) reflects the net impact of R&D tax credits less the derecognition of a £21.9m deferred tax asset, due to uncertainty on the magnitude and timing of future profits.

Equity issue costs of £0.2m (2014/15: £0.3m) and an IFRS 2 share-based payments charge of £0.2m (2014/15: £2.3m).

Consolidated statement of financial position

Non-current assets

Property, plant and equipment at £2.8m (2015: £8.5m) represented additions of £1.4m in the year, offset by depreciation of £2.4m, impairments of £4.5m and foreign exchange of £0.2m. Impairments reflected assets directly related to the EC platform and leasehold improvements for properties that have been exited as part of the restructuring process. Intangible assets at £7.9m (2015: £27.0m) reflected additions of £3.2m, a contingent consideration adjustment of £3.0m, amortisation of £2.3m, impairment of £16.9m and foreign exchange of £0.1m. Intangible assets primarily represent the Group's intellectual property patent portfolio of over 1,000 patents, including patents pending. The impairments relate primarily to patents that do not immediately support expected short-term revenue opportunities.

Page 58

Financial statements

Investments using the equity method

The Group accounts for joint ventures using the equity method, and includes the carrying value of its share of the net assets of joint ventures in the statement of financial position. Joint ventures at 30 September 2016 comprise IE CHP and SMILE FC System Corporation. In the year, the carrying value of the joint ventures moved from £1.1m to £0.0m, mainly reflecting Intelligent Energy's share of net costs. In addition, during the year, the Company exited its stake in Aquapurum, and IE CHP joint venture has been wound down after the balance sheet date.

Current assets

Inventory at £1.6m (2015: £5.3m) was lower year on year, due to an impairment provision of £4.1m. This reflected uncertainty on the conversion of inventory into profitable opportunities.

Trade and other receivables at £7.8m (2015: £11.5m) was lower year on year by £3.7m. The cash and short-term deposits balance at £20.6m (2015: £24.2m) represents the funding of EBITDA losses in the year, adjusted for movements in working capital, together with capital investment, interest movements and the proceeds from the issue of convertible loan notes.

Chief Financial Officer's review continued

Current liabilities

Trade and other payables at 30 September 2016 were £8.4m (2015: £14.2m), a reduction of £5.8m.

Convertible loan notes

Intelligent Energy Holdings plc issued secured convertible loan notes in May 2016 for £30.0m, with a coupon rate of 13 per cent payable quarterly in arrears which are due to mature in May 2019. Issue costs of £2.8m, primarily relating to an arrangement fee, were paid from the gross proceeds. The loan note is a compound financial instrument and for accounting purposes was split into a debt component (£20.7m at 30 September 2016) and an equity component of £5.4m (net of deferred tax).

The loan note can convert into shares at the holder's discretion up to maturity at 8p per ordinary share. Full conversion would represent 375m new ordinary shares, compared to the current issued share capital of the Company of 206.2m ordinary shares.

Commitments

At 30 September 2016, outstanding purchase orders amounted to £3.4m (2015: £6.2m).

Going concern

The Directors recognise that the short-term trading and commercialisation of the Group's fuel cell technology provides some challenges. The Group meets its day to day working capital requirements through its cash resources. The Directors have prepared detailed cash forecasts for the next 18 months, which indicate that the Group will be able to operate within these available resources. However, the current trading position of the Group and its forecast development plans result in cash consumption for at least the next year. While it is expected that the Group will exit the current financial year with cash on its balance sheet the cash position thereafter will depend on future trading and/or any further action taken with respect to the Company's cost base. The exact nature and evolution of these are by their nature uncertain.

After careful consideration, and the modelling of foreseeable sensitivities and remedial actions available to the Company, the Directors believe that the Company can manage its position in a way which allows it to fulfil its appropriate commitments and settle its obligations as they fall due without recourse to additional funding. This position is not impacted materially by the delivery or non-delivery of the long-term GTL contract in India, the outcome of which would not negatively materially impact the cash flows of the Group.

The Directors' forecasts assume the business will secure a significant level of revenues that are not presently contracted. If these future revenues are not secured as the Directors envisage, then the Directors' position is subject to i) the business taking the above mentioned actions on the Company's cost base and on ii) the continuation of JDA revenues, for the foreseeable future. Despite the business having a track record over many years of securing JDA revenues, the achievement of forecast levels are uncertain. Given the above circumstances, it is possible that the Group could have a shortfall in cash and require additional funding during the forecast period.

The above factors result in a material uncertainty which may cast significant doubt on the Company's and Group's ability to continue as a going concern and that it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Company and Group were unable to continue as a going concern. The unqualified report of the auditors includes an emphasis of matter in this respect.

Despite this, the Directors believe that the track record of the business in securing JDA activity, the options available to the Group from trading activities and the ability to realise value from the IP portfolio mean that the Directors consider that the Company will have sufficient funds to pay its debts as they fall due for the foreseeable future. It is on this basis that the Directors, in their opinion, consider that the Company remains a going concern and the financial statements have been prepared on that basis.

Outlook

The Group exited 2015/16 with £20.6m cash at bank and an underlying cash burn, defined as EBITDA less capex (but excluding interest on the convertible loan note), estimated at £1.3m a month. Including interest on the convertible loan note averaged on a monthly basis, this is c£1.6m a month. Revenue in the year ahead is expected to be a mix of JDAs and air cooled fuel cell related sales, which are forecast to reduce but not eliminate the Company's net cash burn. Separately, discussions continue with respect to the funding of the GTL long-term power management contracts in India. If these discussions cease there is expected to be no material negative impact on the current trading prospects of the core fuel cell business. Should they complete successfully, Intelligent Energy would expect to have a minority stake in the ongoing business.

Key Performance Indicators

The financial Key Performance Indicators ("KPIs") of the business are revenue, adjusted EBITDA and cash. The non-financial KPIs that will be tracked and reported in the year ahead are the number of patent families, number of fuel cell stacks sold and MW of fuel cell capacity sold.

John Maguire Chief Financial Officer 18 November 2016

Corporate responsibility

Feature:

Understanding our macro environment

On 5 October 2016 the two key thresholds needed for the Paris Climate Change Agreement to become legally binding were met. Over 55 Parties accounting for more than 55 per cent of global greenhouse gas emissions ratified the agreement as adopted at the UN climate conference in December 2015 (COP21).

Patricia Espinosa, Executive Secretary of the UN Framework Convention on Climate Change (UNFCCC), said: "This is a truly historic moment for people everywhere" – "The entry into force of the Paris Agreement is more than a step on the road. It is an extraordinary political achievement which has opened the door to a fundamental shift in the way the world sees, prepares for and acts on climate change through stronger action at all levels of government, business, investment and civil society".

Launch of the Agreement's governing body, known as the CMA, also took place at the annual UN climate conference, COP22, in Marrakesh, in November 2016. Given the importance of such an event, Martin Bloom, CEO, represented Intelligent Energy at the Sustainable Innovation Forum at this year's C0P22 conference.

Intelligent Energy is at the forefront of development and deployment of key enabling fuel cell technologies for a future hydrogen society.

We are committed to demonstrating the role its products can play in the national Climate Action Plans of the signatories, as well as the broader societal and health benefits that are offered within cities, regions, companies, and to individuals.

The contribution of Intelligent Energy's products to the goal of stabilising greenhouse gases is clearly visible through its activities in India where a small fleet of fuel cells is being trialled as replacements for diesel generator sets used in telecom tower back-up power. Seven sites are currently operational, three of which are off grid providing power 24/7.

• One site has now passed its first anniversary and the total fleet exceeds 46,000 run hours.
• Tower up time of almost 100 per cent.
• Total clean energy produced of 49.6MWh.
• Estimated diesel saving of around 64,000 litres.
• 183 tonnes of CO2 emission eliminated.

The above information is correct as at 31 October 2016.

The above example illustrates how Intelligent Energy's fuel cells as an element in a hybrid system, will inevitably play a part of global climate change initiatives actioned under COP21. Intelligent Energy's fuel cell products coupled with a growing financing ecosystem, whereby multinational corporations must reduce their carbon footprint, will herald a change in the way businesses and organisations view energy solutions. Intelligent Energy hereby reaffirms its commitment to the goal of stabilising greenhouse gases at levels that avoid "dangerous anthropogenic interference with the climate system".

Martin Bloom Group Chief Executive Officer

Corporate responsibility continued

Assisting with building the hydrogen economy and contributing to global carbon reduction programmes are at the forefront of our commitment to responsibility.

The environment

During the course of the 2015/16 financial year, the business was re-audited twice against its ISO 14001 environmental standard, the last one being in August 2016. The BSI audit team concluded that the Company continued to fulfil the standards and audit criteria identified and therefore its environmental business management systems continue to achieve their intended outcomes. Corrective actions with respect to nonconformities raised at the last assessment were reviewed; it was concluded that improvement measures had been effectively implemented. No new non-conformances were identified during the latest assessment.

During the first quarter of 2017, the business is planning to complete the next stage of its environmental ISO improvement programme. During a 'readiness to review' assessment, the certificating body (BSI) will obtain information, review and evaluate the organisation's readiness for transition to ISO 14001:2015.

A 'readiness assessment' will be carried out as part of this process. Output coming from the assessment will confirm the 'readiness' position of the Company, together with any non-conformances and observations. An implementation plan will then be agreed within the business.

Financial statements

Energy Savings Opportunity Scheme

During 2015/16 the business has been working with CMR Consultants Limited to ensure that it complies with the Energy Savings Opportunity Regulations ("ESOS"), which came into force in July 2014 to help deliver the EU's 20 per cent improvement in energy efficiency commitments. The ESOS Regulations require qualifying organisations to measure energy consumption, evaluate energy efficiency, identify management opportunities, store data and provide a notification to the Environment Agency of compliance.

The Intelligent Energy business has complied with the requirements of the ESOS Regulations throughout the course of the past year. A report was submitted to the Environment Agency on 12 January 2016, within the required timescales. Various additional energy efficiency improvements and cost/CO2 savings have been identified within the head office site based in Loughborough, UK.

Greenhouse gas emissions

This is the third Greenhouse gas ('GHG') emissions report produced by the Company. Data has been prepared for the reporting period of 1 October 2015 to 30 September 2016, in accordance with the principles and requirements of the Greenhouse Gas Protocol, Revised Edition, ISO 14064 Part 1 and DEFRA guidance on how to measure and report on Greenhouse Gas Emissions 2013.

All emission sources have been reported as required under the Companies Act 2006 (Strategic report and Directors' reports) Regulations 43 – See Companies Act 2006 (Strategic report and Directors' reports) Regulations 2013 paragraph 18.

These sources fall within the Company's consolidated financial statements. The Company does not have responsibility for any emission sources that are not included in its consolidated statements. In compiling the Company's GHG data, the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) has been used, together with the Company's own GHG reporting procedure and emission factors from the UK Government's GHG Conversion Factors.

All material emissions from within the organisational and operational scope and boundaries of the Company are reported. These reported emissions cover all entities over which the Company had financial control as of 30 September 2016. Emissions from entities and assets acquired or disposed of during the reporting period (i.e. disposed of before 30 September 2016, or acquired after 1 October 2015) are not accounted for within the reported GHG data.

The Company has seen an overall decrease of 16 per cent in its total GHG emissions for the 2016 reporting year, when compared to 2015; this can be attributed, in part, to a number of structural changes within the business over the last 12 months, which resulted in less energy consumption at our Loughborough site. For example, the square metre size of our Loughborough facility reduced by 34.4 per cent during the period and the number of employees within the Group fell by 52 per cent.

Even though we have seen an overall significant reduction in our GHG emissions, our intensity measurement for tonnes of CO2 e per employee has actually increased by 73 per cent. This suggests that whilst the number of employees has reduced significantly, our energy consumption has not decreased proportionally. This is because we have on-going operations, particularly in the test areas and clean rooms at our Loughborough site, where we are using energy irrespective of the number of employees in the Group. The majority of the areas we have located at our Loughborough site relates to office space.

The Company continues to work with its landlord (at the Loughborough site) and via the Energy Savings Opportunities Scheme to identify and carry out improvements to reduce its level of GHG emissions.

Global GHG Emissions data for period 1 October 2015 to 30 September 2016:

Emissions Sources	2016 Tonnes CO2 e1	2015 Tonnes CO2 e
Combustion of fuel and operation of facilities	52.5 tonnes2	61 tonnes
Electricity, heat and steam purchased for own use	1,949 tonnes3	2,325 tonnes
Company's chosen intensity measurement: Emissions reported above normalised to tonnes per £1,000 turnover	0.02 (down 33%)	0.03
Emissions reported above normalised to tonnes per employee4	9.80 (up 73%)	5.65

1 CO2 e – carbon dioxide equivalent, this figure includes greenhouse gases in addition to carbon dioxide.

2 It is to be noted that there are only limited combustion activities relating to heating activities at Intelligent Energy's main Loughborough, UK, site. The main heating requirement is fulfilled by a centralised combined heat and power plant located within the grounds of Loughborough University. Therefore, the attributable Scope 1 emissions related to combustion activities are relatively small. The emissions associated with the air conditioning and refrigeration equipment used on the site have been calculated from the service records detailing actual top-up quantities, using the guidance provided in Annex C of the DEFRA Environmental Reporting Guidelines.

3 The Scope 2 emissions include emissions in relation to electricity usage at Intelligent Energy's Loughborough, UK, site. In addition, the emissions related to the heat supplied to the Company by the centralised combined heat and power plant, located within the grounds of Loughborough University, are also included.

4 The total number of employees for the last reporting year (as at 30 September 2015) was reported as 422. This has decreased substantially to 204 as at 30 September 2016.

Corporate responsibility continued

Health & Safety

The Company recognises and accepts its responsibilities in being able to provide a safe and healthy working environment for its employees to work in, whether located at the Head Office site in Loughborough, UK, or one of its subsidiary offices outside the UK.

As part of this commitment, during August 2016 the Company achieved successful re-certification of its OHSAS 18001 Occupational Health & Safety certification through the British Standards Institution ('BSI'). This certification gives recognition to the Health & Safety management system implemented within the main Loughborough, UK, Head Office site and also provides a framework for the Company to set and review objectives to deliver its overall goal of continuous Health & Safety improvements.

During the past year, various Health & Safety improvement initiatives have been undertaken, under the guidance of the Company's specialist Health & Safety manager, who is based within the Loughborough, UK, Head Office site. Specific improvement initiatives that have been or are now in the process of taking place include reviewing legal compliance to 'The Control of Noise at Work regulations 2005', 'Dangerous Substances & Explosive Atmospheres Regulations 2002 (DSEAR)', 'Display Screen Equipment regulations 1992 (as amended 2002)', and 'The Energy Savings Opportunity Scheme Regulations 2014 ("ESOS")'. A legal compliance register has been developed during 2016 and continues to be reviewed on a regular timescale in-line with business developments and forms the basis for ensuring relevant legal compliance.

For 2017, plans are being drawn up to increase employee engagement in driving a Health & Safety focus through ongoing training initiatives, a management systems review and the Health & Safety Committee.

Following on from the business restructuring process that took place earlier this year, additional specific training initiatives have been identified in order to ensure the business continues to comply with its legal Health & Safety responsibilities; such initiatives will be incorporated into overall Health & Safety training plans for 2017, alongside specific and on-going training for employees who regularly work within high-risk areas of the business.

Elsewhere within the organisation, continuous improvements are also being made to review policies and procedures in line with business practices. Key Performance Indicators (and processes to record the relevant statistics necessary to collate KPI scores accurately) have been developed; certain Health & Safety statistics are now collated from across the Group and not just the UK. These KPI statistics are shared with the senior management team, Health & Safety Committee and the employees on a regular basis.

Employee engagement, consultation and development

The Company attaches significant importance to good employee relations, employee engagement and employee development. We recognise our responsibilities for the fair treatment and equality of opportunity of all current and future employees in accordance with legislation applicable to the territories in which the business operates.

During the year our internal communication mechanisms have been reviewed and updated to ensure that they remain effective in the new business structure. Notably, we have placed more focus on the cascade of information through the business to ensure updates are given in a timely manner, that they are relevant to teams and individuals and that there is the opportunity for two-way communication. We continue to hold regular Employee Updates at our Head Office in Loughborough, UK where members of the Executive, different departments and individuals provide updates on current initiatives and projects and share Companywide and local achievements, challenges and goals. Unless site-specific, the content of these meetings is then shared with the rest of the business via a variety of delivery channels.

All employees have the opportunity to take part in a regular Company-wide employee opinion survey. With the most recent survey having a response rate of over 84 per cent, the survey provides valuable feedback on what is working well and future areas for improvement.

To foster good employee relations, senior members of the management team also meet on a regular basis in a forum with employee representatives. This forum provides an opportunity for management to share information on upcoming initiatives and for employees to give their feedback. It also provides an opportunity for employees to raise suggestions and concerns so that these can be discussed and responded to.

Governance

Financial statements

Intelligent Energy is committed to ensuring that its employees have the appropriate level of knowledge, skills and competencies for their current and any potential future role within the Company. Employees are actively encouraged to engage in personal and professional development to help them achieve their full potential. Programmes cover a range of technical, Health & Safety, compliance, interpersonal and leadership training. The Group also supports further educational programmes. As well as formal training programmes, the Company actively encourages employees to further their development through on the job training such as job-shadowing, project-work, coaching and mentoring.

We continue to actively promote professional body membership, STEM activities (promotion of Science, Technology, Engineering and Mathematics to inspire young people), Community Outreach and charitable events.

Diversity and employment

Intelligent Energy is committed to actively promoting equality and diversity and eliminating discrimination in all aspects of its employment and business. We aim to develop an environment that is free from discrimination where all individuals are able to freely contribute their skills and are encouraged to develop to their full potential.

The table below provides a breakdown of employees by gender as at 30 September 2016 in relation to:

• the number of persons who were Directors of the Company;
• the number of persons who were senior managers of the Company; and
• the total number of employees in the Company.

Supplier code of conduct

We are committed to ensuring that thirdparty suppliers involved in our supply chain processes operate to certain standards, which include the safe and fair treatment of employees around the world and trying to minimise our environmental impact.

To achieve this, we require our suppliers to abide by a code of conduct to facilitate the sourcing of products and services from suppliers that share our values and ethics in relation to labour, Health & Safety, business ethics, the environment, modern slavery and human trafficking (see further details below), management systems and anti-bribery and corruption standards. At Intelligent Energy, we believe that good workplace standards are important elements in developing a successful business.

Anti-slavery and human trafficking

The Company is strongly opposed to the exploitation of workers and does not tolerate forced labour, or labour which involves physical, verbal or psychological harassment, or intimidation of any kind. Further, the Company will not accept human trafficking or the exploitation of children and young people in the business and undertakes to enforce all possible steps to ensure that these high standards are maintained. In compliance with the Modern Slavery Act 2015, which came into force in October 2015 (and applies to financial years ending on or after 31 March 2016), the Company will shortly be publishing an anti-slavery and human trafficking statement, which will be available to view at www.intelligent-energy.com/investors/ governance.

Number of males % Number of females % Directors 6 85.71 1 14.29 Senior managers1 11 100 0 0 Employees 143 76.88 43 23.12 Total 160 78.43 44 21.57

1. Senior employees are classed as members of the Company's Executive Leadership team (other than Martin Bloom and John Maguire, who are counted within the Directors numbers shown above, as they are Executive Directors of the Company) and other senior employees who were Directors of subsidiary companies within the Group as at 30 September 2016.

The Strategic report set out on pages 02 to 25 was approved by the Board of Directors and signed on its behalf by:

Nicholas Heard

Company Secretary 18 November 2016

Chairman's introduction to governance

The Board remains committed to making improvements to the high standards of corporate governance and internal control required to ensure that the Company can seek to deliver on its strategic vision.

Paul Heiden

Non-executive Chairman

Dear shareholder

As the Company's shares are admitted to the standard listing segment (rather than the premium listed segment) of the Official List of the Financial Conduct Authority, the provisions of the UK Corporate Governance Code (the 'UK Code') are not applicable to the Company. However, the Directors have considered the principles and provisions of the UK Code when setting the Company's corporate governance policies.

The Board believes that it is imperative for the Company to operate a robust system of corporate governance and internal control, as it seeks to evolve and grow the business. As Intelligent Energy develops its vision and strategy for the coming years, sound governance will be critical for effective stewardship and risk management.

During the past year, the Board has overseen intense activity with regard to the Company's on-going funding position, together with a large-scale restructuring of the business, the appointment of a new Group Chief Executive Officer and the communication of a revised strategy.

As Chairman, I take responsibility for ensuring that the corporate governance standards that have been developed within the Company in the two year period post listing in July 2014 are maintained and updated. It is also important to ensure that we continue to improve our governance and internal control procedures in order to ensure that our governance framework remains both relevant and focused towards achieving the Company's strategic goals.

Under my leadership, the Board will continue to direct the material activities of the Group, as well as determining its values and standards from an ethical, operational and commercial perspective. The corporate governance report on pages 33 to 36, the Audit & Risk Committee report on pages 37 to 40, the Nomination Committee report on pages 41 to 42 and the Directors' remuneration report on pages 43 to 56 describe how the Company seeks to meet the principles of good governance.

All Non-executive Directors who are currently serving on the Board constructively challenge the Executive Directors and members of the senior management team. The composition of the Board is key to its continued effectiveness; I believe that, with the benefit of the changes made to its composition in June and July 2016, the Board continues to have the diversity and mix of skills, experience, independence and knowledge of the business to enable us to discharge our responsibilities successfully.

During the past year, as part of our on-going governance activity the Company was awarded British Standards 10500 certification for its anti-bribery management systems. The two-stage assessment process commenced in September 2015 and was completed during the first quarter of 2016.

The Board and each of its three Committees undertook internal performance evaluations to review their effectiveness during the course of the past year. The results of these evaluations were shared amongst the entire Board; during the next few months we will give consideration to carrying out a similar exercise during 2017.

On 3 July 2016, the civil market abuse regime in the UK changed and the majority of the requirements under the European Union's Market Abuse Regulation (MAR) have now come into effect, which means that all EU states will operate under one set of market abuse rules. The Company has carried out a thorough review of its policies and procedures in this area to ensure on-going compliance with the new regulation. Amongst other things, this has included the adoption of a new share dealing policy.

Under guidance from the Audit & Risk Committee, a review has also recently been carried out of the Company's non-audit services policy, in light of the new regulations that came into force in June 2016 regarding EU audit reform. As a result of this, a new policy was adopted. A review of the Audit & Risk Committee's terms of reference is also currently taking place to ensure that new EU Audit Reform legislation is adhered to regarding matters such as audit tendering and independence.

Throughout the year, our three Committees of Audit & Risk, Remuneration and Nomination have continued to play an important part in the governance arrangements of the Board. On the appointment of Martin Bloom as Group Chief Executive Officer on 9 June 2016, I took on the role of Chair of the Nomination Committee and Martin stepped down from his membership of all three Committees. I also became a member of the Remuneration Committee. Further details of the Board's Committee memberships can be seen overpage.

Paul Heiden Non-executive Chairman 18 November 2016

Committee Chair Zarir J. Cama Independent Non-executive Director

Members:

	Meetings
Name	attended
Zarir J. Cama (Chair)	3/3
Paul Heiden1	1/1
Michael Muller	3/3
Dr Caroline Brown	3/3

Board composition

(as at 30 September 2016)

The Committees

(as at 30 September 2016)

Committee Chair Dr Caroline Brown Non-executive Director

	Meetings
Name	attended
Dr Caroline Brown (Chair)	5/5
Michael Muller	3/5
Zarir J. Cama	5/5

Audit & Risk

Satisfactory dialogue and reporting to shareholders

1. Paul Heiden was appointed as a member of the Remuneration Committee on 30 September 2016.

Non-executive Chairman

Members:

Committee Chair Paul Heiden

	Meetings
Name	attended
Paul Heiden (Chair with effect
from 8 June 2016)	1/1
Michael Muller	1/1
Dr Caroline Brown	1/1
Zarir J. Cama	1/1
Flavio Guidotti	1/1

Board of Directors

Paul Heiden Non-executive Chairman

Date of appointment: 28 September 2012

Skills and experience:

Chartered accountant, with extensive experience at the most senior levels of industry within the UK, EU and US in a career which has spanned a range of engineering, manufacturing and technology companies.

Other current appointments:

• Senior Independent Director of the
• London Stock Exchange Group plc. • Senior Independent Director of
• Meggitt plc.
• Non-executive Chairman of
• A-Gas Limited.

Previous appointments:

• Chief Executive Officer of FKI plc.
• Group Finance Director of Rolls-Royce plc.
• Director of an Industrial Business at
• Rolls-Royce plc.
• Chairman of Talaris Topco plc (a
• company owned by the Carlisle Group).
• Non-executive Director of United Utilities, Bunzl plc and Filtrona plc.

Dr Caroline Brown Independent Non-executive Director

Date of appointment: 2 May 2014

Skills and experience:

Experience in the senior management of early-stage companies and divisions of FTSE 100 groups in the energy and technology sectors. First Class degree and PhD in Chemistry from the University of Cambridge and a Masters of Business Administration from the Cass Business School. A Fellow of the Chartered Institute of Management Accountants and a Chartered Director.

Other current appointments:

• Non-executive Director of Luceco plc.
• Non-executive Director of Hydrodec Group plc.
• Previous appointments:
• Non-executive Director of WSP Group plc.
• Non-executive Director of Bridge
• Energy ASA. • Non-executive Director of Mirland Development Corporation plc.
• Chief Financial Officer for a range of companies in diverse sectors and a corporate finance adviser to governments and companies with banks including Merrill Lynch, UBS and HSBC.

Martin Bloom Group Chief Executive Officer and Executive Director

Date of appointment:

22 June 2012 as an Independent Non-executive Director and 9 June 2016 as Chief Executive Officer

Skills and experience:

Significant experience in building high-growth technology companies across a range of sectors. Strong connections in Asia, particularly Chinese businesses, institutions and Government organisations. As Chairman of ReneSola, Mr Bloom helped this company to list on AIM London and then the New York Stock Exchange, steering the company through rapid growth to become a \$1.5 billion turnover business in just a few years.

Other current appointments:

• Non-executive Director of ReneSola Limited (formerly Chairman until March 2016).
• Non-executive Chairman of MayAir Group plc.
• Non-executive Director of Green and Smart Holdings plc.
• Previous appointments:
• Non-executive Director of Starcom PLC.

Zarir J. Cama

Independent Non-executive Director

Date of appointment: 22 June 2012

Skills and experience:

High-level experience of the banking industry spanning a career of nearly 50 years with particular knowledge of Asia and the Middle East.

Other current appointments:

• Non-executive Director of HSBC Private Banking Holdings (Suisse) SA.
• Non-executive Director of Tata Capital Plc. • Non-executive Director of Tata Capital Pte
• Ltd Singapore and two of its subsidiaries.
• Non-executive Director of Quintessence Fragrances Limited.
• Director of I.B. Tauris & Co Limited. Previous appointments:
• Group Chief Executive of HSBC India and Malaysia together with significant other positions held over the years in Asia, the Middle East and Europe, including Group General Manager of HSBC Holdings plc.

John Maguire Chief Financial Officer and Executive Director

Date of appointment: 20 January 2012

Skills and experience:

Board-level experience of listed and unlisted technology-rich companies, working in both the African and Asian markets during initial rapid growth phases. Chartered Accountant, having trained with Ernst & Young.

Other current appointments:

• Non-executive Director of Jee Limited. Previous appointments:

• Chief Financial Officer of Etisalat Nigeria. • Chief Financial Officer of THUS Group plc. • Vice President Finance Japan and Asia, at Cable & Wireless.

Flavio Guidotti Non-executive Director

Date of appointment: 15 July 2005

Skills and experience:

An independent business adviser with over 30 years' business experience, working within the investment banking sector. CPA qualified and holds a degree in Business Administration from the Universidad Católica Argentina, Buenos Aires, where he has been Professor of General Management and Business Strategy for over 10 years.

Other current appointments:

• Managing Partner of Explotación San Pedro S.H.
• Investment advisor to OSDIPP, a health insurance entity for employees of the private oil industry in Argentina.

Previous appointments:

• Account Manager, Corporate Banking at Banque Européenne pour l'Amérique Latine (at the time a Fortis affiliate). • Manager, Corporate Banking at
• Royal Bank of Canada.
• Held several managerial positions at a regional level with ExxonMobil.
• Senior Advisor to the President
• of the Central Bank of Argentina.

Michael Muller

Senior Independent Non-executive Director

Date of appointment: 22 June 2012

Skills and experience:

Unique experience in building a partnership-based business – thus enabling a broad ecosystem of thousands of companies that collaborate together to create innovative technology solutions.

Other current appointments:

• Chief Technology Officer of
• ARM Holdings plc. • Director of Cambridge Innovation
• Capital plc.
• Previous appointments:
• A founding member of ARM Limited when it was created as a joint venture in 1990 between Apple and Acorn. 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.

Key to Committee membership

• Remuneration
• Committee

Nomination Committee

Governance

Financial statements

The Company has taken out an insurance policy in respect of those liabilities for which the Directors may not be indemnified. Neither the indemnity nor the insurance provides cover in the event that a Director is proved to have acted dishonestly or fraudulently.

Annual General Meeting

The AGM of the Company will be held at the offices of Pinsent Masons LLP, 30 Crown Place, Earl Street, London, EC2A 4ES, at 2.00pm, on 30 March 2017. The Company will be sending the notice convening its AGM to shareholders by separate mail to the Annual Report (at least 20 working days before the meeting, in accordance with best practice corporate governance guidelines). The notice of AGM will include full details of the resolutions to be proposed, together with explanatory notes in relation to such resolutions.

Fundraising activities

Towards the end of March 2016, the Company was in need of funding, as it had failed to make the expected progress in implementing its strategic plans in 2015 and in the first quarter of 2016. Following an extensive review, in April 2016 the Company announced the proposed material restructuring of its business. The objective of this restructuring was to focus the business on, what the Directors believed to be, the Company's material growth opportunities, whilst at the same time substantially and sustainably reducing the Company's cost base and cash burn.

During this period, the Company explored multiple options to secure financing to provide it with sufficient working capital to continue as a going concern. Despite numerous discussions with potential funding providers, the Board believed that only one credible option existed to provide the quantum of funding required and within the timescales that were available, in order to ensure the Company could continue as a going concern.

Directors' report

The corporate governance report on pages 33 to 36, the Chief Financial Officer's review on pages 18 to 20 and the corporate responsibility section of the Strategic report on pages 02 to 25, are each incorporated by reference into this Directors' report.

Future business developments and outlook

The Board's assessment and evaluation of future developments and the outlook for the Company's business is included within the Strategic report.

Directors

The names of the Directors of the Company as at the date of this report, together with their biographical details, are given on page 28. As stated elsewhere within this Annual Report, Dr Henri Winand resigned from the Board on 9 June 2016 and Dr Philip Mitchell resigned from the Board on 1 July 2016. There were no other persons who, at any date during the year ended 30 September 2016, were Directors of the Company.

The statement of Directors' responsibilities in relation to the consolidated financial statements is set out on page 57. Details of the Directors' service contracts are set out in the Directors' remuneration report on page 49.

Appointment and removal of Directors

The Company's articles of association ('Articles') give the Directors the power to appoint and replace other Directors. Under the terms of reference of the Nomination Committee, any appointment must be recommended by the Nomination Committee for approval by the Board.

Taking into account the best practice provisions of the UK Corporate Governance Code, the Board has determined that all Directors will stand for re-election on an annual basis.

In accordance with subscription agreements between the Company and each of Meditor European Master Fund Limited ('Meditor'), Evolution Placements Corporation ('EPC') and Yukos International UK B.V. ('Yukos BV'), each of Meditor, EPC and Yukos BV are entitled to appoint one person to be a Non-executive Director of the Company, subject to that person satisfying any relevant requirements of the London Stock Exchange and to the shareholder in question holding shares and/or current share options equal to 10 per cent, or more, of the Company's share capital on a fully diluted basis. Each of these shareholders are entitled to remove any person it so appoints and, in the event that a person it appointed ceases to be a Director, to appoint another person in his or her place. If Meditor, EPC or Yukos BV ceases to hold 10 per cent or more of the Company's share capital on a fully diluted basis, it will procure the resignation of any person it has appointed as a Director of the Company within a reasonable period of receipt of written notice from the Company requiring it to do so.

Flavio Guidotti was appointed to the Board as a Non-executive Director by EPC under the appointment rights summarised above. Neither Meditor nor Yukos BV has appointed a Director to the Board (and Yukos BV does not currently hold the requisite number of shares in order to make an appointment).

Beneficial interests in significant contracts

None of the Directors has a material interest in any contract of significance to which the Company or any of its subsidiaries were party during the financial year ended 30 September 2016.

Director authorities

The Directors are responsible for managing the business of the Company and exercise their powers in accordance with the Articles, directions given by shareholder resolution and any statutes and regulations.

Insurance and indemnities

The Directors have the benefit of an indemnity from the Company in respect of its liabilities incurred as a result of their office. This indemnity is provided under the Company's Articles and satisfies the indemnity provisions of the Companies Act 2006 (the 'Act').

Directors' report continued

In May 2016, the Company announced that it had agreed terms in relation to a £30.0 million gross fundraising through the issue of 13.0 per cent Senior Secured Convertible Loan Notes 2019 ("Convertible Loan Notes"), which were irrevocably secured from the Company's largest shareholder, Meditor European Master Fund Limited ("Meditor"). The funding terms negotiated with Meditor were, in the opinion of the Directors, the best possible for the Company in the circumstances, taking into account prevailing market conditions. Without funding from Meditor the Company would no longer have been a going concern and the Board would therefore have had little option other than to place the Company into administration.

Further details in relation to the funding and the terms of the Convertible Loan Notes are set out in the table to the right.

Convertible Loan Notes

Under the terms of the £30.0 million fundraising process, Meditor permitted the Company to seek additional qualifying investors to subscribe for up to a maximum of £14,999,999 in aggregate of the Convertible Loan Notes, and agreeing that, to the extent such additional subscribers could be found, those subscriptions would reduce the Convertible Loan Notes taken up by Meditor by the corresponding amount.

As a result of this process, Meditor subscribed for £25,638,293 of the Convertible Loan Notes and other qualifying investors (which included EPC and Royalton Percy LLP) subscribed for a total of £4,361,707 Convertible Loan Notes.

The Convertible Loan Notes have the following principal terms:

Nominal value:	£30.0 million issued at par.
Interest rate:	13.0 per cent per annum, payable quarterly in arrears on the principal amount outstanding.
Conversion Right:	Conversion price of 8 pence (such that £100 of nominal value of the Convertible Loan Notes would result in the issuance of 1,250 new ordinary shares), exercisable at any time during the term at the Convertible Loan Note holders' discretion. Conversion price to be adjusted in customary manner for any sub-divisions or consolidations of the ordinary shares and for
	other specified corporate events.
Term:	3 years from the date of issue (17 May 2019).
Security:	Secured by way of an equitable charge over the Company's shares in its principal subsidiary, Intelligent Energy Limited.
	The approval of the holders of a majority by value of the Convertible Loan Notes is required for certain actions in relation to this security.
Transferability:	Freely transferable, subject to any such transfer not breaching applicable securities laws.

As noted above, the Convertible Loan Notes are capable of being converted, at the option of the Convertible Loan Note holders, into ordinary shares in the Company, at a conversion price of 8.0 pence per new ordinary share at any time up until 17 May 2019.

In return for leading the fundraising, Meditor received an arrangement fee of £2,250,000 ("Arrangement Fee"). As part of this agreement with the Company (and subject to the conversion rights receiving shareholder approval which was granted at the General Meeting held on 9 June 2016), Meditor agreed to reinvest £1,125,000 ("Subscription Funds") of the Arrangement Fee by way of a subscription for 14,062,500 new ordinary shares ("Reinvestment Shares") at a subscription price of 8.0 pence. The Company received the Subscription Funds from Meditor on 13 June 2016 and the 14,062,500 Reinvestment Shares were issued to Meditor on 21 June 2016.

As at 30 September 2016, Meditor held 41,991,316 ordinary shares (representing 20.36 per cent of the Company's issued share capital) and £25,638,293 of the Convertible Loan Notes.

On 29 July 2016, the Company applied to The Channel Islands Securities Exchange Authority Limited for the Convertible Loan Notes to be admitted to the Official List of The Channel Islands Securities Exchange Authority Limited. This application was granted and admission of the Convertible Loan Notes to dealing on the Channel Islands Stock Exchange became effective on 29 July 2016.

Capital structure

The table below shows details of the Company's issued ordinary share capital, as at 30 September 2015 and 30 September 2016.

	30 September 2015	30 September 2016
Ordinary shares of 5 pence each	188,325,451	206,239,331

The Company has a single class of shares, being ordinary shares of 5 pence each; full details of the rights accorded to the holders of these ordinary shares are set out in the Articles. Holders of the ordinary shares also have the rights accorded to them under United Kingdom Company Law, including the right to receive the Company's Annual Report and financial statements, attend and speak at general meetings, appoint proxies and exercise voting rights. Each ordinary share carries the right to one vote at general meetings of the Company. All ordinary shares currently in issue are fully paid.

During the 2015/16 financial year, a total of 17,913,880 new ordinary shares were issued and allotted, in relation to the following matters:

• As referred to on page 30, 14,062,500 ordinary shares (the Reinvestment Shares) were allotted and issued to Meditor on 21 June 2016;
• 2,180,292 ordinary shares were allotted and issued to participants of the 2013 Management Incentive Plan ("2013 MIP") in relation to the tranche 2 entitlement, via the Company's Employee Benefit Trust on or around 21 June 2016. By way of background to this allotment and issue, awards under the Company's 2013 MIP were granted to approximately 30 selected employees (the "MIP Participants") on 7 March 2014 and these awards crystallised upon the Company's IPO on 9 July 2014 (the "IPO"). In line with the terms of the 2013 MIP, these awards had no further related performance conditions (other than continued employment with the Group as at the relevant vesting date) and in effect therefore became contractual commitments of the Company with effect from the time of the IPO itself. Tranche 1 of the 2013 MIP awards vested immediately upon the IPO;
• Tranche 2 vested on the first anniversary of the IPO (being 9 July 2015) and tranche 3 (as noted below) vested on the second anniversary of the IPO (being 9 July 2016). The delivery of the ordinary shares to the 2013 MIP participants in relation to tranche 2 was delayed due to regulatory restrictions that were unconnected to the 2013 MIP, but which had the effect of delaying the delivery of those ordinary shares to the MIP Participants. Further details in relation

to the 2013 MIP can be found in the Company's Prospectus that was published in July 2014; and

• 1,671,088 ordinary shares were allotted and issued to MIP Participants in relation to tranche 3 of the 2013 MIP, via the Company's Employee Benefit Trust, on or around 18 July 2016.

Outstanding share options and awards

The Company operates the following share schemes: the Intelligent Energy Limited Share Option Scheme of 2001 (as amended on 1 August 2003) and the Intelligent Energy Holdings plc Share Option Scheme of 2009.

Share options were granted to certain Directors, employees and former employees. All outstanding options are within their exercise period. Exercise periods vary with the last expiring on 1 August 2017. As at 30 September 2016, a total of 82,500 share options remained outstanding in relation to the 2001 and 2009 Schemes.

The operation of the 2013 MIP has now concluded (save for the completion of a small number of administrative steps in relation to former employees). As at 30 September 2016, a total of 300,000 HMRC 2013 MIP approved share options remained outstanding, with an option price of 100 pence per share and an expiry date of 6 April 2017.

Shareholder agreements and transfer restrictions

From time to time, the Company will enter into confidentiality arrangements with proposed counterparties to potential significant transactions, pursuant to which such counterparties (who may from time to time include existing shareholders in the Company) will agree not to trade in the Company's shares pending the announcement (or discontinuance) of that transaction.

With the exception of the above, there are no specific restrictions on the size of a holding or the transfer of ordinary shares and the Directors are not aware of any other agreements between holders of the Company's ordinary shares that may result in restrictions on the transfer of securities or on voting rights.

Substantial shareholdings

As at 30 September 2016 and 17 November 2016 (being the latest practicable date prior to the publication of this document), the Company has been advised of the following substantial interests in the ordinary share capital of the Company, as detailed in the table below.

Dividend policy

The Company is primarily seeking to achieve capital growth for its shareholders and it is the Board's intention during the current phase of the Company's development to retain any distributable profits. Accordingly, the Directors do not anticipate paying a dividend in the foreseeable future. However, if the Company were to receive significant, upfront payments (related to the sale of access to IP) from its customers and partners which were in excess of the projected capital requirements of the Group at such time, the Board would consider whether it would be appropriate to recommend a special dividend or another return of value to shareholders. In the long term, the Directors intend to follow a progressive dividend policy in respect of excess profits over and above what is required to fund the development of the Group.

Substantial shareholdings

	Holding as at 30 September		Holding as at 17 November
Shareholder	2016	%	2016	%
Meditor Capital Management	41,991,316	20.36	41,991,316	20.36
GIC	21,784,928	10.56	21,784,928	10.56
Evolution Placements Corporation	21,390,096	10.37	21,390,096	10.37
Yukos International UK BV	11,573,017	5.61	11,573,017	5.61
Hargreaves Lansdown Asset Management	7,961,149	3.86	8,085,135	3.92
Royalton Percy	6,850,000	3.32	6,900,000	3.35

Directors' report continued

Acquisition of the Company's own shares

The Companies Act 2006 and the Company's Articles permit shareholders to give authority to the Company to purchase its own shares. At the AGM to be held on 30 March 2017, the Directors will seek approval from shareholders to grant an authority to the Company to authorise the purchase of its own shares pursuant to sections 693 and 701 of the Companies Act, 2006. If approved, the authority shall, unless varied, revoked or renewed, expire at the end of the Company's next AGM after the resolution is passed or, if earlier, at the close of business on 30 June 2018. The Directors have no present intention of exercising all or any of the powers conferred by that authority (assuming it is granted) and would only exercise those powers if it is considered to be in the interests of shareholders generally.

Articles of association

The Company's Articles came into effect upon the Company's IPO on 9 July 2014. No amendments have been made since this date.

Financial instruments

Information about the use of financial instruments by the Company and its subsidiaries is given in note 29 to the financial statements.

Research and development activities

Further information with regard to the research and development activities of the Company during the 2015/16 financial year can be found within the Technology section of the Strategic report on pages 10 to 13.

Employees

Further details in relation to employment policies, employee involvement, consultation and development, are shown on pages 24 and 25 of the corporate responsibility section of the Strategic report.

Greenhouse gas reporting

The Directors are required to report on greenhouse gas emissions data in accordance with the UK mandatory reporting requirements as set out under the Companies Act 2006 (Strategic and Directors' reports) Regulations 2013. Further details are shown on page 23 of the corporate responsibility section of the Strategic report.

Political donations

The Company made no political donations during the financial year ended 30 September 2016 (2015: nil).

Going concern

The status of the Company as a going concern is addressed in the Chief Financial Officer's review on page 20.

International Financial Reporting Standards

The financial statements included within the Company's Annual Report have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

Independent auditor

Each Director at the date of approval of this Annual Report and financial statements confirms that, so far as they are aware, there is no relevant audit information of which the Company's auditor is unaware, and that they have taken all steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.

KPMG LLP has expressed its willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the forthcoming AGM.

Approved by the Board of Directors and signed on its behalf by:

Nicholas Heard

Company Secretary 18 November 2016

Governance

Corporate governance report

Governance responsibilities of the Board

Duties and responsibilities of the Board are confirmed via a schedule of matters reserved for its decision. This schedule was adopted by the Board in October 2014 and is based on best practice corporate governance procedures; a copy of this document is shown on the Company's website at www.intelligent-energy. com/investors/governance. Such matters reserved for the Board include, amongst other things, responsibility for the overall leadership and strategic aims and objectives of the Company, capital structure, financial reporting, internal controls, approval of material contracts and major investments, Board membership and corporate governance.

Board composition

The Board maintains a balance of Executive and Non-executive Directors that is effective for the promotion of corporate objectives, the protection of the interests of all shareholders and stakeholders and for the governance of the Company as a whole.

Several changes were made earlier this year with regard to Board composition. Dr Henri Winand resigned from his position as Chief Executive Officer on 9 June 2016 and was replaced by Martin Bloom (who up until that date had been a member of the Board as an Independent Non-executive Director). Dr Philip Mitchell also stepped down from the Board as a Non-executive Director on 1 July 2016 (although he continues to provide an on-going direct and important contribution to the business via consultancy activity in support of Martin Bloom).

At the end of the financial year to 30 September 2016, the Board was comprised of a Non-executive Chairman, two Executive Directors and four Non-executive Directors (three of which are classed as independent in accordance with the provisions of the UK Corporate Governance Code (the "UK Code")). Further information with regard to the composition of the Board can be seen on page 28.

Non-executive Directors

The Non-executive Directors have a range of experience, skills and backgrounds which enable them to make a valuable contribution to the Company and provide independent judgement and constructive challenge to the Board. They have a key role to play in setting strategy, scrutinising the performance of management in meeting agreed goals and objectives and monitoring the reporting of performance. They satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and maintained. They are responsible for determining appropriate levels of remuneration of Executive Directors and have a prime role to play in appointing and, where necessary, removing Executive Directors, and in succession planning.

Non-executive Director independence

The UK Code states that at least half the Board, excluding the chairman, should comprise non-executive directors determined by the Board to be independent. A smaller company should have at least two independent non-executive directors.

The Chairman is presumed under the UK Code not to be independent. However, consideration has been given to the independence of the Company's other Non-executive Directors. The Board considers that, as at the end of the financial year to 30 September 2016, three of the Non-executive Directors are independent, being Dr Caroline Brown, Zarir J. Cama and Michael Muller. Flavio Guidotti, the remaining Non-executive Director, is not considered to be independent (when considered under the UK Code).

Flavio Guidotti was appointed as a Nonexecutive Director of the Company in 2005 in accordance with the terms of a subscription agreement between the Company and one of its largest shareholders, Evolution Placements Corporation ('EPC') and therefore cannot be classed as independent under the provisions of the UK Code. This agreement entitles EPC to appoint one person to be a Non-executive Director of the Company, subject to that person satisfying any relevant requirements of the London Stock Exchange and to EPC (and its connected parties) holding shares and/ or current share options equal to 10 per cent, or more, of the Company's share capital on a fully diluted basis.

The role of the Chairman and Group Chief Executive Officer

There is a clear division of responsibilities at the head of the Company between the running of the Board and the executive responsibilities for the running of the Company's business. No one individual has unfettered decision-making powers. The division of responsibilities between the Chairman and Group Chief Executive Officer is set out in writing and was agreed by the Board; a copy of this document is shown on the Company's website at www.intelligentenergy.com/investors/governance.

Paul Heiden, as Chairman, is responsible for leading and managing the Board and ensuring it operates effectively. He promotes a culture of openness, encouraging all Board members to involve themselves in debate and apply sufficient challenge regarding major proposals, thus contributing to an effective decision-making process. He also fosters relationships between the Nonexecutive Directors and the Executive Directors. He ensures that shareholder views are discussed at Board level and that communication with shareholders and other stakeholders is effective.

With effect from 9 June 2016, Martin Bloom, as Group Chief Executive Officer, became responsible for running the Company's business in close collaboration and support of the executive management team. His role includes providing leadership to the executive management team, developing proposals and formulating strategy for the Board to consider in relation to matters reserved for its judgement and implementing any Board approved actions.

Corporate governance report continued

Attendance of Directors at meetings

The table below shows the attendance of Directors at meetings of the Board, Audit & Risk Committee, Remuneration Committee and Nomination Committee during the financial year ended 30 September 2016.

	Board1			Audit & Risk Committee2		Remuneration Committee1, 2		Nomination Committee1, 2
	Number eligible to attend	Number attended	Number eligible to attend	Number attended	Number eligible to attend	Number attended	Number eligible to attend	Number attended
Paul Heiden	11	10	–	–	1	1	1	1
Martin Bloom4	11	11	4	2	2	2	–	–
Dr Henri Winand3	7	7	–	–	–	–	–	–
John Maguire	11	11	–	–	–	–	–	–
Michael Muller	11	11	5	3	3	3	1	1
Zarir J. Cama	11	10	5	5	3	3	1	1
Dr Caroline
Brown	11	11	5	5	3	3	1	1
Flavio Guidotti	11	11	–	–	–	–	1	1
Dr Philip Mitchell5	8	8	–	–	–	–	–	–

1. In addition, ad hoc meetings are held from time to time which are attended by at least a quorum of Directors/Committee members and are convened to deal with specific items of business that are not pre-scheduled into the annual Board and Committee meeting calendar.

2. Other Directors, who are not members of the relevant Committee, are invited to attend by invitation depending on the nature of the business being discussed.

3. Dr Henri Winand resigned from the Board on 9 June 2016. The above information therefore relates to Dr Winand's attendance in the period from 1 October 2015 to 8 June 2016. 4. Martin Bloom was appointed as Group Chief Executive Officer of the Company on 9 June 2016. Mr Bloom's attendance at the Audit & Risk Committee, Remuneration Committee and Nomination Committee

meetings relates to the period from 1 October 2015 to 8 June 2016 when he held the position of Independent Non-executive Director. 5. Dr Philip Mitchell resigned as a Non-executive Director on 1 July 2016. The above information therefore relates to Dr Mitchell's attendance in the period from 1 October 2015 to 1 July 2016.

The role of the Senior independent Non-executive Director

Michael Muller was appointed as Senior independent Non-executive Director ("Senior Independent Director") in January 2014. The role of the Senior Independent Director is to provide a sounding board for the Chairman, to serve as a focal point to assist in resolving shareholder concerns which have not been resolved by the Chairman or Group Chief Executive Officer, or in circumstances where a shareholder considers that communication with either of these Directors would be inappropriate. The Senior Independent Director also oversees the assessment of the effectiveness of the Chairman's performance, and is available for the other Non-executive Directors to raise any issues or concerns.

Directors' conflicts of interest

The Chairman and the Non-executive Directors are permitted to serve as Directors of non-group companies provided it does not impinge upon their required time commitment to the Company. The Directors are required to declare any directorships for non-group companies or other appointments which could give rise to actual or potential conflicts of interest.

The Directors have a duty to avoid a direct or indirect interest which conflicts, or may possibly conflict, with the interests of the Company, unless that conflict has been approved by the Board. The articles of association of the Company give the Directors power to approve conflicts of interest, subject to certain conditions, such as, the meeting being quorate without the Director in question participating and/or that the relevant Director does not participate in the vote. No conflicts of interest were declared during the financial year ended 30 September 2016.

Annual re-election of Directors

In accordance with best practice corporate governance policies, the Board has decided that all relevant Directors will stand for re-election on an annual basis.

The Chairman is of the opinion that each Director's performance continues to be effective and that they demonstrate commitment to the role; therefore, the Chairman recommends a vote in favour of each of the resolutions to be put forward at the AGM in relation to the re-election of a Director.

Board support

The Company Secretary, in accordance with guidance from the Chairman, ensures that the Board and each of its Committees receive the necessary information to operate efficiently. All Directors have access to the services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Company Secretary is also responsible for advising the Board, through the Chairman, on all matters of governance and best practice. The Company Secretary also acts as Secretary to the Audit & Risk Committee, Remuneration Committee and the Nomination Committee.

The Directors may take independent professional advice on any matter at the Company's expense, if they deem it necessary, in order to carry out their responsibilities effectively.

Board performance evaluation

The effectiveness of the Board and its Committees is vital to the success of the Company. A formal internal performance evaluation process has been carried out during the past year in accordance with best practice corporate governance principles to help assess both Board and Committee performance. This evaluation process, which was the first one to be carried out by the Board, was completed via the use of online questionnaires which were completed anonymously by each Director. The results of each evaluation were then presented to the Board as a whole, together with appropriate follow-up actions. Taking into account the changes that have recently been made to the Board and the wider structural changes that have taken place generally within the business, the Board will discuss the merits of conducting a further evaluation process during the course of 2017.

As part of the Board's annual meeting calendar, and in accordance with best practice corporate governance principles, time is set aside for the Chairman to hold meetings with the Non-executive Directors, without the Executive Directors being present and for the Non-executive Directors (led by Michael Muller, the Board's Senior Independent Director) to meet without the Chairman present, at least annually.

Under the relevant terms of reference for the Committees of the Board, the Audit & Risk Committee is required to meet at least four times per year, the Remuneration Committee two times and the Nomination Committee once.

Shareholder engagement

The Board values the views of the Company's shareholders and recognises their interest, as owners of the business, in strategy and performance, Board membership and quality of management.

The Board and management team actively seek regular dialogue with the market. To date, this has been achieved through a variety of formats including one-to-one and group meetings, speaker slots at conferences, calls, emails and visits to the Company's head office in Loughborough, UK.

The engagement of the Company's material shareholders was sought as part of the funding process earlier this year, which led to the creation of £30.0 million of Convertible Loan Notes (further details of which can be found on page 30 of the Directors' report). This was then put to the vote of all shareholders via a General Meeting, which was held on 9 June 2016.

An analyst and investor day was also held at the Company's head office location in Loughborough, UK, on 21 September 2016. Analysts and key shareholders were invited to attend a presentation made by Martin Bloom, Group Chief Executive Officer, and John Maguire, Chief Financial Officer, in relation to the Company's strategy.

During the year, and taking into account the reduced size of the Company following the restructuring that took place in May 2016, the Board decided to cease its relationship with UBS as the Company's joint stockbroker. Stifel Nicolaus Europe Limited, who were appointed as the Company's joint stockbroker in April 2015, remain in place as the Company's sole stockbroker.

The Board receives updates on market perceptions from key employees and external advisers who have regular shareholder interaction during the course of the year. The Chairman ensures that shareholder views are discussed at Board meetings and that communication with shareholders and other stakeholders continues to be effective.

The Company's AGM is used to formally communicate with investors. The Group Chief Executive Officer makes a presentation at this meeting with regard to the Company's activities during the last year. The Chairman, Group Chief Executive Officer and the Chairs of each Board Committee are also available to answer relevant questions. Separate resolutions are proposed on each substantial issue so that they can be given proper consideration. Details of all proxy votes lodged on all resolutions prior to the meeting are published on the Company's website as soon as possible after the AGM.

In addition to the communication channels mentioned above, other formal communication channels include the Annual Report and financial statements, regulatory news announcements and press releases in response to events or routine reporting obligations. This is further supported by the provision of information to shareholders on the Company's website, in particular the Investors section at www.intelligent-energy. com/investors. All information reported to the market via a regulatory information service also appears on the Company's website as soon as is practicable.

Corporate governance report continued

The Company maintains ongoing relations with analysts and investors through phone calls and meetings. Shareholder meetings are conducted by at least one of the Chairman, Group Chief Executive Officer, or Chief Financial Officer; these meetings have occurred in a number of different locations around the world to reflect the international nature of the Company's shareholder base. During the year, senior management has travelled to meet both investors and potential investors in amongst other places the EU, Asia and the US.

Internal control and risk management

Further details regarding internal control and the risk management framework within the Company are detailed on pages 37 to 40 of the Audit & Risk Committee report and the introduction to risk management on page 14. The Company's principal risks and uncertainties are detailed on pages 15 to 17.

Anti-bribery & corruption

The Company takes very seriously its responsibilities under applicable anti-bribery and corruption legislation including the UK's Bribery Act 2010 and has implemented appropriate measures to ensure compliance. As part of the Company's anti-bribery and corruption policy all employees (whether based in the UK or overseas) are required to complete online training, designed to clearly communicate employee responsibilities and likely consequences of non-compliance. All employees are also required to undertake regular refresher courses. As part of the induction process, all new UK and overseas employees are required to take part in this online training and confirm their understanding of the policy in force.

To further support the Company's anti-bribery and corruption stance the Company achieved certification to British Standards 10500 during 2016; this provides an enhanced anti-bribery management system framework for the business to work to, and helps to strengthen and enhance existing internal controls.

The Company operates an independent and externally facilitated whistleblowing hotline, details of which are made available to all employees. The Company Secretary acts as the Company's whistleblowing officer and any matters raised via this hotline are thoroughly investigated; regular reporting updates are also provided to the Audit & Risk Committee.

Audit & Risk Committee report

The Audit & Risk Committee plays a central role in the review of Intelligent Energy's financial reporting, risk management and internal control processes.

Dr Caroline Brown

Audit & Risk Committee Chair, Independent Non-executive Director

Committee members

(as at 30 September 2016)

Name	Meetings attended
Dr Caroline Brown (Chair)	5/5
Michael Muller	3/5
Zarir J. Cama	5/5

Purpose and aim

The Audit & Risk Committee ('Committee') is responsible for reviewing a wide range of matters and its key responsibilities are listed below. The Board of Directors has delegated to the Committee responsibility for overseeing the financial reporting, internal control and risk management frameworks within the Company. This Committee is also responsible for making recommendations to the Board in relation to the appointment of both the Company's external and internal auditors.

Committee meetings

Members of the Committee are independent Non-executive Directors who are free from any relationships or circumstances which are likely to affect, or could appear to affect, the Committee members' judgement. In consideration of the relevant guidance contained within the UK Corporate Governance Code ("UK Code") at least one member of the Committee has recent and relevant financial experience and at the present time it is the Board's opinion that the existing Committee members do currently have competence relevant to the sector in which the Company operates.

The Group Chief Executive Officer, Chief Financial Officer, other senior employees of the Group and representatives of both the external and internal auditors are also invited to attend meetings of the Committee where this is considered appropriate. Nicholas Heard, the Company Secretary, is Secretary to the Committee. Other members of the Board also attend Committee meetings by invitation.

The Committee meets as appropriate but at least four times per year. During the financial year ended 30 September 2016, the Committee met five times. Details of Director attendance at Committee meetings held during the financial year ended 30 September 2016 are shown to the left and can also be found on page 34 of the corporate governance report.

Responsibilities of the Committee

Full details of the Committee's roles and responsibilities are set out in its terms of reference, which are available on the Company's website at www.intelligentenergy.com, or from the Company Secretary at the Registered Office. The Committee will ensure that it regularly reviews the terms of reference by which it operates.

The key responsibilities of the Committee are listed below:

• Monitor the integrity of the financial statements of the Company, reviewing all significant financial reporting issues and all judgements which they contain. This includes the annual and half-yearly financial statements, trading/business updates and any other formal announcement relating to the Company's financial performance
• The categorisation, monitoring and overall effectiveness of the Company's risk assessment and internal control processes

• Monitor and review the effectiveness of the Company's internal audit function in the context of the overall risk management systems

• Review and assess the annual internal audit programme

• Consider and make recommendations to the Board, to be put to shareholders for approval at the Annual General Meeting ('AGM'), in relation to the appointment, re-appointment or removal of the Company's external auditor
• Oversee the relationship with the external auditor including recommendations on its remuneration, approval of its terms of engagement and assessing annually its independence and objectivity
• Review and approve the annual external audit plan and ensure that it is consistent with the scope of the audit engagement
• Review the adequacy and security of the Company's arrangements for its employees and contractors to raise concerns in confidence about possible wrongdoing in financial reporting or other matters. The Committee is responsible for regularly reviewing any matters that have been raised and for ensuring that arrangements are in place to allow for proportionate and independent investigation, as well as appropriate follow up action
• Report to the Board on how it has discharged its responsibilities

Committee activities during the year

During the financial year ended 30 September 2016, the key items for discussion at Committee meetings were as follows:

• Review of the draft full and half-year financial statements, the Annual Report and the draft year-end/half-year results announcements
• The independence, objectivity and effectiveness of the external auditor
• The appropriateness of the non-audit services provided by the external auditor and the potential impact of such services on their independence

Strategic report Governance

Audit & Risk Committee report continued

• Review of the Committee's non-audit services policy in light of the new regulations that came into force in June 2016 regarding EU Audit Reform. As a result of this, a revised non-audit services policy was adopted. Further details on this are included within the section titled 'non-audit services' on page 39.
• Review of the Committee's terms of reference (in the period post year end) to ensure compliance with new legislation regarding EU Audit Reform, in relation to matters such as audit tendering and independence
• Scope and work of the external audit programme
• Consideration of the external auditor engagement letter and audit fees
• Scope and work of the internal audit programme and review of internal audit reports produced by B.M. Howarth Limited, the external firm appointed by the Company to carry out the internal audit function
• Keeping abreast of progress being made in the development of risk management policies within the business, together with regular reviews of the risk register and other internal control mechanisms
• Review of matters raised under the Company's whistleblowing policy and agreement of appropriate actions/outcomes
• Review and approval of the Group's annual insurance renewal programme
• Accounting and regulatory updates, to include corporate governance matters. The Committee notes a number of new accounting standards and amendments to existing standards. Further details in relation to these changes, in particular IFRS 9, IFRS 15 and IFRS 16, can be found at note 3.2 to the annual financial statements on page 65.

During the past year an internal performance evaluation has been carried out by the Committee to review its own performance (at the same time as the process was conducted for the Board as a whole, the Remuneration Committee and the Nomination Committee). The results of all evaluations have been fed back to the Board. Consideration will be given by the Board to carry out a further internal performance evaluation (to include the Committees of the Board) during the course of 2017.

Primary areas of accounting judgement and estimate reviewed by the Committee

In order to discharge its responsibilities in relation to accounting and financial reporting integrity, the Committee carefully considers the key judgements applied in preparation of the consolidated financial statements. The Committee's review included consideration of the following key accounting judgements in relation to the financial statements for the year ended 30 September 2016:

• Valuation of non-current assets and impairment testing

Impairment of certain specific property, plant and equipment, patent intangible assets, 305 development intangible, interests in joint ventures and goodwill have been recognised due to a refocusing of the business.

The value in use basis has been used to determine the recoverable amount of non-current assets. There is a high level of uncertainty in respect of this estimation. The Committee has reviewed the assumptions used in estimating the recoverable amount and the disclosures made in relation to the impairment recognised and has confirmed they are appropriate at this point in time.

• Going concern

The Group's business activities, together with the factors likely to affect its future development and position, are reviewed by the Committee at each reporting period in order to obtain assurance that the financial statements of the Company should be prepared on a going concern basis.

The going concern assumption has been assessed by the Committee through review of business plans, forecasts and sensitivities. The Committee has confirmed they are satisfied that the going concern assumption is appropriate. However the Committee also acknowledged that certain events or circumstances exist that may cast significant doubt on the Group's ability to continue as a going concern and that, therefore, there exists a material uncertainty.

Further details in relation to going concern can be seen on page 20 of the Chief Financial Officer's review.

• Deferred tax assets

The recognition of deferred tax assets relating to the carry forward of unused tax losses and unused tax credits requires the assessment of the extent to which it is probable that future taxable profits will be available against which the unused tax losses and tax credits can be utilised. Given the history of tax losses of the Group, it is required that there is convincing other evidence that sufficient taxable profits will be available against which the unused tax losses or unused tax credits can be utilised. This requires judgement on the part of the Directors.

Following the restructuring and refocusing of the business during the year, there is an increased level of uncertainty as to whether there will be sufficient future UK taxable profits to utilise the accumulated tax losses. The Committee is satisfied that until such time as significant commercial traction is being generated, the utilisation of the accumulated tax losses is not supported by convincing evidence and therefore the deferred tax asset has been de-recognised in the year.

• Net realisable value of inventory

The realisable value is a judgement based on the future activities of the business. Through review of appropriate analysis and forecasts the Committee is satisfied that the carrying value of inventories is appropriately stated at the lower of cost and net realisable value.

• Fair value of convertible loan notes

The Group has issued convertible loan notes during the year. These convertible loan notes comprise both a liability and an equity element. The equity element is calculated as the net proceeds receivable after deducting the liability element of the convertible loan notes.

The liability element of the convertible loan notes is calculated by discounting the cash flows of the instruments at an interest rate that would be available in the market for an equivalent financial liability. The Committee has confirmed the estimates and accounting are appropriate.

• Principal versus agent

The Directors have assessed the arrangements in place with customers for power management services in the Indian business and determined that the Group is acting as principal in all such arrangements. The assessment has considered the exposure of the Group to the risks and rewards associated with selling the goods and services, including the responsibility for the services, the latitude in establishing prices charged to the customer, the credit risk for amounts receivable from the customer and the arrangement for settlement of consideration due from the customer. This assessment confirms that the Group is acting on its own account in contracting with its customers in return for the consideration receivable and therefore all consideration receivable for the goods and services supplied to the customer is recognised as revenue. The Committee has confirmed this approach to revenue recognition is appropriate.

Financial reporting

The review of financial reporting and performance of the external auditor is a primary role of the Committee, as is reporting to the Board on the appropriateness of the half-year and annual financial statements concentrating on, amongst other matters:

• The quality and acceptability of accounting policies and practices
• The clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements
• Material areas in which significant judgements have been applied or discussions held with the external auditor
• Recommendation to the Board on whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy

External auditor

KPMG LLP has been the Company's external auditor since September 2012. In accordance with the Auditing Practices Board's Ethical Standards for Auditors, the lead audit partner will be rotated every five years. The existing lead audit partner took on responsibility for the Company's external audit during 2015.

The Committee notes the legislative changes made recently to the UK Code in light of the EU Audit Reform, regarding external audit and audit tendering, which came into effect in the UK on 17 June 2016. The maximum duration of an engagement for which an auditor can be appointed and reappointed annually before a tender process is required, is 10 successive accounting years. However, a company is permitted to extend the maximum duration of an audit engagement by a further 10 years on the basis of one or more tender processes for an accounting year up to and including that following the conclusion of the 10 year maximum duration. If therefore the external auditor has been reappointed following a tender process for the accounting year following the conclusion of that 10 year maximum duration, the maximum duration of continuous audit engagement is potentially 20 years.

Taking the above into account, the Company will need to have completed an external audit tendering process by September 2022 at the latest. The Committee remains satisfied with the quality, integrity, independence and effectiveness of the work undertaken by KPMG LLP as the Company's external auditor. Accordingly, it is not proposed to put the external audit work of the Company out to tender at the present time but this matter will be kept under review by the Committee, as necessary.

The Committee considers the costeffectiveness, independence and objectivity of the external auditor on a regular basis, agrees their levels of remuneration and reviews the extent of non-audit services they provide.

Committee meetings are attended by the external auditor at the invitation of the Committee Chair in order to ensure full communication of matters relating to the audit, including adequacy of controls and any material judgement areas.

The performance of the external auditor is reviewed on an annual basis by the Committee, including the level of service provided. Based on this review, the Committee has concluded that, at the present time, the external auditor is operating effectively and that KPMG LLP continues to prove effective in this role. Therefore, a resolution proposing the re-appointment of KPMG LLP as the Company's external auditor will be proposed at the 2017 AGM, together with a further resolution to grant the Board authority to approve their remuneration.

Non-audit services

As mentioned in the section entitled 'Committee activities during the year' on pages 37 and 38, the Committee has recently undertaken a review of its non-audit services policy in light of EU Audit Reform. As a result of this, the Committee adopted a revised non-audit services policy on 30 September 2016; a copy of the revised policy can be viewed on the Company's website at www. intelligent-energy.com. The policy specifically sets out the non-audit services that cannot be supplied to the Company by its external auditor and those that could, in theory, be supplied but require prior approval from the Committee. For non-audit services that are classed as 'clearly trivial' the Chief Financial Officer of the Company has the authority to commission such services, if the value of these services is not greater than £2,000 for each particular matter, or a cumulative value of £10,000 within a particular financial year.

During the year ended 30 September 2016, the only non-audit service provided by the external auditor was in relation to a tax audit of the Company's Indian subsidiary, Essential Energy India Private Limited and iXBRL accounts tagging. A breakdown of the fees earned by the external auditor for audit and non-audit services can be found in note 10 to the consolidated financial statements. The Committee does not consider that the non-audit services provided in the period give rise to any conflict of interest or breach of independence of the external auditor.

Audit & Risk Committee report continued

Internal control and risk management

The Committee has overall responsibility for frameworks in relation to internal control and risk management within the business, and for reviewing the effectiveness of such frameworks on a regular basis. Such systems can only be designed to manage and not eliminate risk.

The Company's Executive Directors and senior management team have been delegated day-to-day responsibilities for maintaining adequate internal control and risk management systems, via processes co-ordinated by the Company Secretary.

The Company has in place systems and procedures for exercising control and managing risk, which include the following:

• The formulation and deployment of Company accounting policies and procedures
• Policies governing the maintenance of accounting records, transaction reporting and key financial control procedures
• The safeguarding of assets from inappropriate use or from loss and fraud, and ensuring that liabilities are identified and managed
• Regular operational review meetings which include, as necessary, reviews of internal financial reporting issues and financial control monitoring
• Ongoing training and development of appropriately qualified and experienced financial reporting personnel
• The identification, evaluation, analysis, mitigation and review of risks via the introduction of appropriate risk management policies and risk registers

The Company's approach to risk management has developed during the past year, as a consequence of the restructuring and revised strategy for the business, and has been reviewed on a periodic basis by the Committee.

Work is currently being undertaken to ensure the risk frameworks and risk registers that had previously been implemented prior to the restructure remain relevant and focused and that they continue to serve the needs of the business.

The Committee has reviewed the changes made to the UK Code in relation to risk management, which took effect for financial reporting years beginning on or after 1 October 2014. Whilst the Company considers the principles of the UK Code, when setting its governance policies, the Committee has (as for the previous financial year) decided not to adopt these new risk management principles for the 2015/16 financial reporting year. This decision was based on the fact that the Company is still in the process of developing and embedding its core risk management processes (including to take into account the recent restructuring and of the revised strategic direction for the business), as well as on factors such as the Company's standard listed status. The Committee will continue to monitor progress in relation to risk management in order that these new UK Code principles can gradually be adopted over a period of time.

Earlier in the year, the Committee approved both a revised Treasury policy and a Delegated Approval Matrix to take account of the recent restructuring and the revised approval authorities within the business.

Internal audit

Towards the end of 2014, and following a thorough tender process, B. M. Howarth Limited were appointed as the external firm to provide the Company with internal audit services.

During the course of the 2015/16 financial year, internal audits have been carried out within various areas of the business, including purchasing and procurement, treasury and banking, fixed assets, creditors and accruals and various aspects of the Group's operations in India. The internal auditor is required to present the results of their findings to the Committee twice per year.

The internal audit programme for the financial year ending 30 September 2017 was agreed by the Committee at its meeting held on 30 September 2016 and will focus on various areas of the business, together with a follow-up review of some matters arising from previous audits.

Dr Caroline Brown

Audit & Risk Committee Chair, Independent Non-executive Director 18 November 2016

Nomination Committee report

The Nomination Committee regularly reviews the structure, size and composition of the Board and the membership of the Board Committees to ensure they have an appropriate balance of skills, experience, independence, diversity and relevant knowledge.

Paul Heiden

Committee members (as at 30 September 2016)

of business.

on 8 June 2016.

Nomination Committee Chair, Non-executive Chairman

Name Meetings attended Paul Heiden (Chair)1 1/1 Michael Muller 1/1 Dr Caroline Brown 1/1 Zarir J. Cama 1/1 Flavio Guidotti 1/1 Additional ad-hoc meetings were also held during the course of the year, which were not pre-scheduled into the annual Board and Committee meeting calendar, to discuss specific matters

1. Paul Heiden became Chairman of the Committee

Purpose and aim

The Nomination Committee ('Committee') has overall responsibility for ensuring that the Board and its Committees have the appropriate balance of skills, experience, independence and knowledge of the Company to enable them to discharge their respective duties and responsibilities effectively. It is also responsible for making recommendations to the Board on all new appointments to the Board. The Committee's key responsibilities are shown below.

Committee meetings

In accordance with the Committee's terms of reference, a quorum is two members. The majority of the members of the Committee are independent Non-executive Directors of the Company, being Michael Muller, Dr Caroline Brown and Zarir J. Cama. The Chairman of the Board, Paul Heiden, is Chair of the Committee; this is in accordance with the best practice governance recommendations of the UK Corporate Governance Code ("UK Code"), which states that the Chairman of the Board or an independent Non-Executive Director should Chair the Committee. In the event that the Committee were to discuss the appointment of a successor to the Chairmanship of the Board, an alternative Chairman of the Committee would be agreed between the remaining Committee members. The Group Chief Executive Officer, other senior employees and external advisers are also invited to attend meetings of the Committee from time to time, where this is considered appropriate. Nicholas Heard, the Company Secretary, is secretary to the Committee.

The Committee meets as appropriate, but at least once per year. During the financial year ended 30 September 2016, the Committee held one pre-scheduled meeting in accordance with the Board and Committee meeting calendar. The Committee also held other additional ad hoc meetings during the year to consider the appointment of Martin Bloom as interim Group Chief Executive Director, as well as other specific matters of business. Details of Directors' attendance at Committee meetings held during the financial year ended 30 September 2016 are shown to the left and can also be found on page 34 of the corporate governance report.

Responsibilities of the Committee

Full details of the Committee's roles and responsibilities are set out in its terms of reference, which were agreed by the Board shortly before the Company's listing on the London Stock Exchange in July 2014. These are available on the Company's website at www.intelligent-energy.com, or from the Company Secretary at the Registered Office. The key responsibilities of the Committee are listed below:

• Regularly review the structure, size and composition (including the required skills, knowledge, experience and diversity) of the Board (as well as the membership of its Committees) and make recommendations to the Board with regard to any changes.
• Give full consideration to succession planning regarding the Board, taking into account the challenges and opportunities facing the Company and the skills and expertise that will be needed in the future to address these.

Nomination Committee report continued

• Keep under review the Executive and Non-executive leadership needs of the Company with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace
• Identifying and nominating for the approval of the Board candidates to fill Board vacancies in relation to both Executive Director and Non-executive Director roles, as and when they arise.
• Before an appointment is made by the Board, evaluate the balance of skills, knowledge, experience and diversity of the Board, and, in light of the results of such evaluation, prepare a description of the role and capabilities required for a particular appointment.

Committee activities during the year

During the financial year ended 30 September 2016, the key items for discussion at both the scheduled and ad hoc Committee meetings were as follows:

• Working closely with the Board, carrying out an assessment of the Company's requirements in relation to the role of Group Chief Executive Officer within the business; following this, the Committee made its recommendation to the Board for Martin Bloom to be appointed as interim Chief Executive Officer to succeed Dr Henri Winand in this position.
• Review of Non-executive Director independence and length of tenure.

• Review of the balance of skills, experience, diversity and knowledge on the Board.

• Review membership of each of the Board's committees, taking into account the resignation of Martin Bloom from each of the three committees in June 2016 (following his appointment as interim Group Chief Executive Officer). As a result of this review, the Committee recommended to the Board that Paul Heiden be appointed to the position of Chair of the Committee on 8 June 2016. The Committee subsequently also recommended that Mr Heiden also be appointed as a member of the Remuneration Committee, with effect from 30 September 2016. Prior to making the latter recommendation the Committee took note of the best practice corporate governance recommendations of the UK Code, which state that in smaller companies (which the Company is classed as, for the purposes of the UK Code), the Chairman of the Board may be a member of, but not Chair the Remuneration Committee.

• Additional consideration was given by the Committee in relation to membership of the Audit & Risk Committee, taking into account the latest additions that have recently been made to the UK Code in this area. The UK Code now includes an additional statement regarding Audit & Risk Committee membership, confirming that audit committees as a whole should have competence relevant to the sector in which the Company operates. After a review, the Committee concluded that no further changes are required to the membership of the Audit & Risk Committee at the present time and that, in the opinion of the Committee, the existing members do currently have competence relevant to the sector in which the Company operates.
• Consideration of succession planning in relation to both Executive Directors and Non-executive Directors.

• Review of the Committee's terms of reference and the number of times the Committee is currently required to meet as a minimum each year (which is once). Following this review, the Committee determined that no changes were currently required to the existing terms of reference and that these were in-line with best practice. The minimum number of times the Committee is required to meet each year was also considered to be appropriate but will be kept under review. The Committee will continue to hold additional ad hoc meetings through the year as may be necessary, depending on any circumstances that occur.

During the past year, an internal performance evaluation has been carried out by the Committee (at the same time as the process was conducted for the Board as a whole, the Remuneration Committee and the Audit & Risk Committee). The results of all evaluations were fed back to the Board. The Board will give consideration to carrying out a further evaluation during the course of 2017.

Paul Heiden

Nomination Committee Chair, Non-executive Chairman 18 November 2016

Directors' remuneration report

The Board has delegated to the Remuneration Committee responsibility for overseeing the remuneration of the Company's Executive Directors and other senior employees.

Zarir J. Cama

Remuneration Committee Chair, Independent Non-executive Director

Committee members

(as at 30 September 2016)

Name	Meetings attended1
Zarir J. Cama (Chair)	3/3
Michael Muller	3/3
Paul Heiden2	1/1
Dr Caroline Brown	3/3

1. Additional ad hoc meetings were also held during the course of the year, which were not pre-scheduled into the annual Board and Committee meeting calendar, to discuss specific matters of business.

2. Paul Heiden was appointed as a member of the Remuneration Committee on 30 September 2016.

Purpose and aim

The Remuneration Committee ('Committee') has overall responsibility for the remuneration policy for all Executive Directors and the Company's Chairman. It is also responsible for recommending and monitoring the level and structure of remuneration for senior management. The Committee ensures that the remuneration policy is aligned to the Company's long-term strategic goals. Additionally, it ensures that the remuneration policy attracts, retains and motivates Executive Directors and senior management of the quality required to run the Company successfully, without paying more than is necessary, having regard for the views of shareholders and other stakeholders.

Committee meetings

All members of the Committee are independent Non-executive Directors who are free from any relationships or circumstances which are likely to affect, or could appear to affect, the Committee members' judgement. Martin Bloom (Group Chief Executive Officer), other members of the Board, Lauren Gurney, HR Business Partner, and external advisers are also invited to attend meetings of the Committee where this is considered appropriate. They are not present when their own remuneration is discussed. Nicholas Heard, the Company Secretary, is Secretary to the Committee.

The Committee meets as appropriate but at least two times per year. During the financial year ended 30 September 2016, the Committee held three pre-scheduled meetings in accordance with the Board and Committee meeting calendar. Details of Director attendance at Committee meetings held during the financial year ended 30 September 2016 are shown above and can also be found on page 34 of the corporate governance report.

Responsibilities of the Committee

Full details of the Committee's roles and responsibilities are set out within its terms of reference, as agreed by the Board. These are available on the Company's website at www.intelligent-energy.com, or from the Company Secretary at the Registered Office. The Committee will ensure that it regularly reviews the terms of reference by which it operates.

The key responsibilities of the Committee are listed below:

• determine the Group's policy on the remuneration of senior executives and specific remuneration packages for Executive Directors and the Chairman;
• recommend and monitor the level and structure of remuneration for senior management;
• when setting remuneration policy for Directors, review and have regard to pay and employment conditions across the Group especially when determining annual salary increases;
• obtain reliable, up to date information about remuneration in other companies of comparable scale and complexity;
• approve the design of, and determine targets for, any performance-related pay schemes operated by the Company and approve the total annual payments made under such schemes;
• review the design of all share incentive plans for approval by the Board and shareholders;
• ensure that contractual terms on termination and any payments made are fair to the individual and the Company, that failure is not rewarded and that the duty to mitigate loss is appropriately recognised; and
• oversee any major changes in employee benefits structures throughout the Group.

Directors' remuneration report continued

Statement from the Chair of the Remuneration Committee

On behalf of the Board, I am pleased to present our Directors' remuneration report for the year ended 30 September 2016. This report is presented in two sections:

• The Directors' remuneration policy this sets out our remuneration policy for Directors which was approved at the 2015 Annual General Meeting on 27 February 2015. The Committee believes that the policy approved at the 2015 AGM remains appropriate. Accordingly, shareholder approval will not be sought for a new policy and the policy approved at the 2015 AGM will continue to apply in 2017.
• The annual report on remuneration this provides details of the amounts earned by Directors in respect of the financial year ended 30 September 2016 and how the Directors' remuneration policy will be operated for the financial year commencing 1 October 2016. This will be subject to an advisory vote at the 2017 Annual General Meeting.

Our approach to remuneration

Our remuneration policy for Executive Directors is formulated to ensure that the policy is aligned with best practice while continuing to enable the Company to attract the right calibre of executives.

Remuneration decisions in respect of the year ended 30 September 2016

The year ending 30 September 2016 has seen a significant restructuring of the Company. Our remuneration decisions reflect that.

As reported in last year's Directors' remuneration report, Executive Directors' bonuses for the year ending 30 September 2015 were conditional on a further performance condition relating to fundraising activities. Since that condition was not met, no bonuses were paid to the Executive Directors in respect of the year ending 30 September 2015.

Bonuses for the year ending 30 September 2016 were based on stretching financial and strategic measures. Reflecting corporate performance in the year, no bonuses have been earned for the year ended 30 September 2016.

Taking into account the fundraising position in the first half of the year, no long-term incentive awards were granted during the financial year ended 30 September 2016.

On 9 June 2016 Dr Henri Winand stepped down as Chief Executive Officer; the associated remuneration arrangements are outlined on page 53. On the same date Martin Bloom was appointed Group Chief Executive Officer on an interim basis. Details of the interim remuneration arrangements for Mr Bloom are set out on page 51.

On 1 July 2016 the fees for Non-executive Directors were reduced to those paid prior to the Company's Admission to the London Stock Exchange in July 2014. The reduced fees are outlined on page 52.

Remuneration in the year commencing 1 October 2016

With effect from 21 November 2016 Martin Bloom will be appointed as permanent Group Chief Executive Officer. Mr Bloom's salary for 2016/2017 has been set at £350,000, the same as Dr Winand's salary for 2015/2016. This has been set taking into account Mr Bloom's level of seniority and existing knowledge of the Company. Mr Bloom also has significant experience in the clean energy sector, particularly in the Far East, which is seen as a key area of potential commercial growth for the business. In setting the salary level, the Committee has also considered the total remuneration package. Bonus and long-term incentive opportunities are currently significantly restricted by cash constraints and the dilutive effect that utilising new issue shares would create. The length of the notice period, pension contributions and relocation allowance were also taken into account by the Committee. Although our Directors' remuneration policy as approved by shareholders permits us to set notice periods of up to 12 months, Mr Bloom's notice period has been set at six months. In connection with his permanent appointment, the Remuneration Committee has agreed to award Mr Bloom a one-off relocation payment of £7,500.

The Chief Financial Officer's salary and the Non-executive Directors' fees for the year commencing 1 October 2016 will remain at the same level as for the previous year. As is the case for the Group Chief Executive Officer, the current climate has significantly restricted incentive opportunities for the Chief Financial Officer.

In order to align Executive Director and employee focus with shareholder interests, we plan to operate a share-based bonus scheme during the financial year commencing 1 October 2016 in which the Executive Directors and approximately 140 other employees will participate. The bonus opportunity will be subject to a performance condition based on a stretching revenue target for the current year. Any bonus payable would be awarded wholly in shares, which would be subject to a further deferral period of two years before vesting. In designing this scheme and in particular the quantum of the maximum opportunity of awards, the Committee sought feedback from a number of its key shareholders. The proposed awards for the Executive Directors are set out on page 52.

The Committee does not intend to offer Executive Directors any other bonuses, share plans or other elements of variable award in respect of the year commencing 1 October 2016.

Approval

The Directors' remuneration report has been approved by the Board.

Zarir J. Cama

Remuneration Committee Chair, Independent Non-executive Director 18 November 2016

Governance

Financial statements

Directors' remuneration policy

Introduction

The remuneration policy has been developed to ensure that the Company is able to attract and retain the right calibre of executives to drive business performance. The components of remuneration reflect that Intelligent Energy is a high-growth company and reward should be linked to the performance of the business. Performance measures enable executives to share in the success of the Company through the ability to earn larger awards where stretching performance targets are achieved.

Directors' remuneration policy

The Company's Directors' remuneration policy was approved by shareholders on 27 February 2015 at the 2015 Annual General Meeting. The policy is set out below, except that: (1) we have not repeated the charts illustrating the application of the policy in 2014/2015, as these are historic; (2) we have updated date-specific references; (3) we have removed sections detailing matters which are no longer relevant (including the Intelligent Energy 2013 Management Incentive Plan (the 'MIP') as all awards under that plan have now vested); and (4) we have updated the table of service agreements to reflect Board changes. The full policy as approved at the 2015 Annual General Meeting is set out on pages 42 to 49 of the 2013/2014 report and accounts which are available at www.intelligent-energy.com.

Executive Directors

Component	Purpose and link to strategy	Operation	Maximum opportunity	Performance measures
Base Salary	Core element of fixed remuneration reflecting the individual's role and experience.	Salaries are usually reviewed annually. Salary levels are determined taking into account a range of factors, which may include (but are not limited to): • Underlying Company performance. • Role, experience and individual performance. • Competitive salary levels and market forces. • Pay and conditions elsewhere in the Group.	Whilst there is no maximum salary level, salary increases will normally be in line with the typical level of increase awarded (in percentage of salary terms) to other employees in the Group. Salary increases above this level may be awarded in certain circumstances, such as: • Where an Executive Director has been promoted or has had a change in scope or responsibility.	n/a
			• To reflect an individual's development or performance in a role (e.g. a newly appointed Executive Director being moved to be aligned with the market over time).
			• Where there has been a change in market practice.
			• Where there has been a change in the size and/or complexity of the business.
			Such increases may be implemented over such time period as the Remuneration Committee deems appropriate.
Benefits	To provide broadly market-competitive benefits as part of the total remuneration package.	Executive Directors receive benefits in line with market practice, and these include private medical insurance and life insurance. Other benefits may be provided based on individual circumstances. These may include relocation expenses, expatriate allowances and travel expenses.	Although the Remuneration Committee does not consider it appropriate to set a maximum benefits level, they are set at a level which the Remuneration Committee considers appropriate based on individual circumstances.	n/a

Directors' remuneration report continued

Component	Purpose and link to strategy	Operation	Maximum opportunity	Performance measures
Retirement benefits	To provide an appropriate level of retirement benefit (or cash allowance equivalent).	Executive Directors are eligible to participate in the Company's defined contribution Group personal pension plan. In appropriate circumstances, such as where contributions exceed the annual or lifetime allowance, Executive Directors may take a taxable cash allowance instead of contributions to a pension plan.	Pension contributions (and/or cash allowance) are currently provided at the level of 4.5 per cent of salary for the Chief Executive Officer and 3 per cent of salary for the Chief Financial Officer. The Remuneration Committee proposes to review the level of retirement benefit provision with the intention to increase the level of contribution/cash allowance, but subject to a maximum of 15 per cent of salary.	n/a
All-employee share plans	To create alignment with the Group and promote a sense of ownership.	The Company has adopted and proposes to operate a tax qualifying, all-employee Sharesave Plan in which the Executive Directors are eligible to participate by making monthly savings contributions over a period of three or five years linked to the grant of an option over the Company's shares with an option price which can be at a discount of up to 20 per cent to the market value of shares at grant.	The limit on participation under the Sharesave Plan will be that set in accordance with the applicable tax legislation from time to time. The contribution limit as at 30 September 2016 is £500 per month.	Not subject to performance measures, in line with HMRC practice.
Annual bonus and Deferred Bonus Plan ('DBP')	Annual bonus The Executive Directors' annual bonus arrangement rewards Executive Directors for achieving financial and strategic targets in the relevant year by reference to operational targets and individual objectives. DBP Provides a retention element through share ownership and direct alignment with shareholders' interests.	Annual bonus Performance measures and targets are reviewed annually and pay-out levels are determined by the Remuneration Committee after the year end, based on performance against the targets. The Remuneration Committee has discretion to amend the pay-out should any formulaic output not reflect the Remuneration Committee's assessment of overall business performance. The application of clawback to annual bonus awards is summarised below this table. 50 per cent of any bonus earned is deferred into a share award under the DBP. DBP Awards under the DBP will be granted as a contingent award of shares or the grant of a nil-cost option, in either case vesting after a period of two years. Awards may be settled in cash at the election of the Remuneration Committee. Deferral of any bonus is subject to a de minimis limit of up to £25,000. Awards under the DBP may be granted on the basis that the number of shares shall be increased to reflect dividends paid over the vesting period, or the Remuneration Committee may make a cash payment equal to those dividends on release of the shares. The application of malus and clawback	Annual bonus Maximum bonus opportunity for Executive Directors is 100 per cent of annual base salary.	Annual bonus Performance measures and targets are set annually reflecting the Company's strategy and aligned with key financial, strategic and/or individual targets. Stretching targets are required for maximum pay-out. At least 50 per cent of the bonus will be assessed against financial performance measures which may include revenue or profit or other key financial performance metrics of the Company. The balance of the bonus may be assessed against non-financial strategic measures and/or individual performance. Financial metrics Up to 20 per cent of the maximum potential will be earned for "threshold" performance (the minimum level of performance resulting in a payment). Up to 50 per cent of the maximum potential will be earned for "on-target" performance and 100 per cent for "maximum" performance. Non-financial or individual metrics Vesting of any non-financial element of the bonus opportunity will apply on a scale between 0 per cent and 100 per cent based on the Remuneration Committee's assessment of the extent to which the relevant target has been met. DBP Deferred shares are not subject to any additional performance conditions after the application of the performance condition which determines the amount of bonus earned.

Component	Purpose and link to strategy	Operation	Maximum opportunity	Performance measures
Performance Share Plan ('PSP')	To incentivise Executive Directors, and to deliver genuine performance-related pay, with a clear line of sight for Executives and direct alignment with shareholders' interests.	Long-term incentive awards are granted under the PSP. Awards under the PSP will typically be granted as a contingent award of shares or the grant of a nil-cost option, in either case vesting subject to the satisfaction of performance targets. Awards may be settled in cash (or granted as a right to a cash amount) at the election of the Remuneration Committee. Awards under the PSP may be granted	The usual maximum award level under the PSP in respect of any financial year for Executive Directors is awards over shares with a value of 150 per cent of salary. The absolute maximum under the rules of the PSP in respect of any financial year for Executive Directors is awards over shares with a value of 300 per cent of salary. Awards above the usual maximum (but subject to the 300 per cent absolute maximum) may be made in circumstances including, but not limited to, recruitment.	Relevant performance measures are set that reflect underlying business performance. Performance measures and their weighting where there is more than one measure are reviewed annually to maintain appropriateness and relevance. At least 50 per cent of an award will be based on financial measures with the balance of an award based on financial and/or strategic measures.
		on the basis that the number of shares shall be increased to reflect dividends paid over the vesting period, or the Remuneration Committee may make a cash payment equal to those dividends on release of the shares. The vesting of awards will be subject to the achievement of specified performance conditions, over a period of at least three years.		For threshold levels of performance 25 per cent of the award will vest, rising to 100 per cent of the award vesting for maximum performance. Below threshold performance, the award will not vest.
		The application of malus and clawback to PSP awards is summarised below this table.

Information supporting the policy table

Performance measures

Performance measures for the annual bonus and PSP awards are selected to reflect the Company's strategy. Stretching performance targets are set each year by the Remuneration Committee taking into account a number of different factors. Reflecting the current stage of growth of the Company, a significant focus of the measures will be related to revenue growth and the commercialisation of the Group's products.

The Remuneration Committee retains the discretion to adjust or set different performance measures or targets where it considers it appropriate to do so (for example, to reflect a change in strategy, a material acquisition and/or a divestment of a Group business or a change in prevailing market conditions and to assess performance on a fair and consistent basis from year to year).

Application of clawback and malus to variable remuneration

For up to three years following the payment of an annual bonus award, the Remuneration Committee may require the repayment of some or all of the award if there is a material misstatement or restatement of audited financial results, if the individual has committed gross misconduct or if information comes to light which, had it been known at the relevant time, would have affected a decision as to the extent to which that award would have vested.

The Remuneration Committee has the right to reduce, cancel or impose further conditions on unvested PSP and DBP shares in circumstances including where there has been: a material misstatement of audited financial results; a material failure of risk management, a material breach of applicable Health & Safety regulations or serious reputational damage to the Company. In addition, for up to three years following the vesting of a PSP or DBP award the Remuneration Committee may require the repayment of some or all of an exercised award (or may reduce or cancel a vested but unexercised award) if there is a material misstatement or restatement of audited financial results, if the individual has committed gross misconduct or if information comes to light which, had it been known at the relevant time, would have affected a decision as to the extent to which that award would have been granted or would have vested.

Operation of the DBP, PSP and Sharesave Plan

The DBP, PSP and Sharesave Plan will be operated by the Remuneration Committee in accordance with the relevant plan rules, including the ability to adjust the number of shares subject to awards and the option price in the event of a variation of share capital, demerger, special dividend, distribution or any other corporate event which may affect the value of an award.

Directors' remuneration report continued

Early vesting of awards

As described on page 50, awards may vest earlier than anticipated in "good leaver" circumstances.

In the event of a change of control of the Company or other relevant corporate event (such as a demerger, delisting, special dividend or other event which may affect the value of an award), awards under the DBP and PSP may vest early as follows:

• DBP: awards would vest early on the occurrence of a change of control or other relevant corporate event in accordance with the rules of the DBP.
• PSP: awards would vest early on the occurrence of a change of control or other relevant corporate event in accordance with the rules of the PSP. The Remuneration Committee shall determine the extent of vesting taking into account the extent to which the relevant performance condition has been satisfied. Such vesting would ordinarily be on a time pro-rata basis although the Remuneration Committee has the discretion not to apply time pro-rating.

Options under the Sharesave Plan will vest early in the event of a change of control in accordance with the rules of the Sharesave plan. Awards under any other all-employee share plan operated by the Company would also be expected to vest early on the occurrence of a change of control.

Purpose and link to strategy	Operation	Other items
To enable the Company to attract and retain Non-executive Directors of the required calibre by	The Chairman is paid an all-inclusive fee for all Board responsibilities.	Non-executive Directors may be eligible to receive benefits such as travel and other reasonable
offering market competitive rates	Non-executive Directors receive a basic fee	expenses.
	and additional fees for holding the office of Senior Independent Director or chairmanship of a Board committee.	The Non-executive Directors do not participate in the Company's share plans, incentive schemes or pension plans.
	The Chairman's fee is determined by the Remuneration Committee and the fees of the other Non-executive Directors are determined by the Board.
	Fees are based on the level of fees paid to Non-executive Directors serving on the Board of similar-sized UK listed companies and the time commitment and contribution expected for the role.
	Overall fees paid to Non-executive Directors will remain within the limits set by the Company's Articles of Association.

Policy for the remuneration of employees more generally

The Company aims to provide a remuneration package that is competitive in an employee's country of employment and which is appropriate to promote the long-term success of the Company. The Company intends to apply this policy fairly and consistently and does not intend to pay more than is necessary to attract and motivate staff. In respect of Executive Directors, a greater proportion of the remuneration package is "at risk" and determined by reference to performance conditions. The Company's Sharesave Plan encourages share ownership by qualifying employees in the UK and enables them to share in the value created for shareholders.

Approach to recruitment remuneration

When hiring a new Executive Director, the Remuneration Committee will typically align the remuneration package with the above policy.

When determining appropriate remuneration arrangements, the Remuneration Committee may include other elements of pay which it considers are appropriate and necessary to recruit and retain the individual. However, this discretion is capped and is subject to the limits referred to below:

• Base salary will be set at a level appropriate to the role and the experience of the Director being appointed. This may include agreement on future increases up to a market rate, in line with increased experience and/or responsibilities, subject to good performance, where it is considered appropriate.

• Pension and benefits will only be provided in line with the above policy.

• The Remuneration Committee will not offer non-performance related incentive payments (for example a 'guaranteed sign-on bonus'). Other elements may be included in the following circumstances:

• An interim appointment being made to fill an Executive Director role on a short-term basis;
• If exceptional circumstances require that the Chairman or a Non-executive Director takes on an executive function on a short-term basis;
• If an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long-term incentive award for that year as there would not be sufficient time to assess performance. Subject to the limit on variable remuneration set out below, the quantum in respect of the months employed during the year may be transferred to the subsequent year so that reward is provided on a fair and appropriate basis;
• If the Director will be required to relocate in order to take up the position, it is the Company's policy to allow reasonable relocation, travel and subsistence payments, in line with the Company relocation policy. Any such payments will be at the discretion of the Remuneration Committee.
• The Remuneration Committee may also alter the performance measures, performance period and vesting period of the annual bonus or PSP, if the Remuneration Committee determines that the circumstances of the recruitment merit such alteration. The rationale will be clearly explained in the following Directors' remuneration report.

• The maximum level of variable remuneration which may be granted (excluding 'buyout' awards as referred to below) is 400 per cent of salary.

The Remuneration Committee may make payments or awards in respect of hiring an employee to 'buyout' remuneration arrangements forfeited on leaving a previous employer. In doing so, the Remuneration Committee will take account of relevant factors including any performance conditions attached to the forfeited arrangements and the time over which they would have vested. The Remuneration Committee will generally seek to structure buyout awards or payments on a comparable basis to the remuneration arrangements forfeited. Any such payments or awards are excluded from the maximum level of variable remuneration referred to above. 'Buyout' awards will ordinarily be granted on the basis that they are subject to forfeiture or clawback in the event of departure within 12 months of joining the Company, although the Remuneration Committee will retain discretion not to apply forfeiture or clawback in appropriate circumstances.

Any share awards referred to in this section will be granted as far as possible under the Company's existing share plans. If necessary and subject to the limits referred to above, recruitment awards may be granted outside these plans.

Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue in accordance with their terms.

Fees payable to a newly appointed Chairman or Non-executive Director will be in line with the policy in place at the time of appointment.

Service contracts (as at 30 September 2016)

Each Executive Director has a service contract with the Company which may be terminated by the Company or Director by giving the notice period stated in the below table. While the Remuneration Committee's policy is for the service contract of any newly appointed Executive Director to have a notice period of not more than 12 months, the Remuneration Committee retains discretion to set an initial notice period of up to 24 months reducing to 12 months after the initial 12 months of employment.

Details of the Directors' service contracts (or letter of appointment in the case of a Non-executive Director), notice periods and, where applicable, expiry dates, are set out in the table below:

Name	Original appointment date1	Re-appointment date	Expiry2	Notice period
Paul Heiden	28 September 2012	28 September 2015	27 September 2018	Three months
Martin Bloom	9 June 20163	–	–	Six months
John Maguire	20 January 2012	–	–	Twelve months
Michael Muller	22 June 2012	22 June 2015	21 June 2018	Three months
Zarir J. Cama	22 June 2012	22 June 2015	21 June 2018	Three months
Flavio Guidotti	15 July 2005	–	–	Three months4
Dr Caroline Brown	2 May 2014	–	1 May 2017	Three months

1. The original appointment dates shown above confirm, other than in the case of Martin Bloom, the original date of appointment for each Director to the Company's Board. Revised letters of appointment were then signed by the Chairman and each of the Non-executive Directors on 9 July 2014, being the date of the Company's Admission to the London Stock Exchange. The commencement date shown above for John Maguire confirms his original appointment date as an Executive Director of the Company; Mr Maguire then signed a new service agreement on 19 June 2014, ahead of the Company's Admission to the London Stock Exchange.

2. The continued appointment of each Director remains subject to annual shareholder re-election at the Company's Annual General Meeting in accordance with best practice corporate governance principles.

3. Martin Bloom was originally appointed as a Non-executive Director of the Company on 22 June 2012. The commencement date shown above relates to Mr Bloom's appointment as an Executive Director of the Company.

4. Flavio Guidotti was appointed as Non-executive Director on 15 July 2005, but subject to the terms of a subscription agreement between Evolution Placements Corporation ('EPC') and the Company dated 21 October 2005. The Company may not serve notice to Mr Guidotti without the consent of EPC, unless he has committed a material breach of his duties to the Company, or EPC ceases to have the right to nominate a person for election to the Board of the Company.

Directors' remuneration report continued

Payments for loss of office

The principles on which the determination of payments for loss of office will be approached are set out below:

	Policy
Payment in lieu of notice	Each Executive Director's service contract contains provision for payment in lieu of notice at the discretion of the Company. Such payment would consist of basic salary for the notice period (or the balance of the notice period if relevant) and may also include benefits for the relevant period.
Annual bonus	This will be at the discretion of the Remuneration Committee on an individual basis and the decision as to whether or not to award a bonus in full or in part will be dependent on a number of factors, including the circumstances of the individual's departure and their contribution to the business during the bonus period in question. Any bonus amounts paid will be pro-rated for time in service during the bonus period and will be paid at the usual time (although the Remuneration Committee retains discretion to pay the bonus earlier in appropriate circumstances).
DBP	The extent to which any unvested award will vest will be determined in accordance with the rules of the DBP. If a participant leaves due to death, ill-health, injury, disability, the sale of his employer or any other reason at the discretion of the Remuneration Committee, the Remuneration Committee shall determine whether any unvested awards he holds will vest at cessation or at the normal vesting date. Unvested awards will lapse if the participant leaves for any other reason. If a participant leaves for one of the "good leaver" reasons referred to above, awards which have already vested at the date of cessation may be exercised during such period as the Remuneration Committee determines.
PSP	The extent to which any unvested award will vest will be determined in accordance with the rules of the PSP. Unvested awards will normally lapse on cessation of employment. However, if the participant leaves due to death, illness, injury, disability, sale of his employer or any other reason at the discretion of the Remuneration Committee, the Remuneration Committee shall determine whether the award will vest at cessation or at the normal vesting date. In either case, the extent of vesting will be determined by the Remuneration Committee taking into account the extent to which the performance condition is satisfied and, unless the Remuneration Committee determines otherwise, the period of time elapsed from the date of grant to the date of cessation. Awards may then be exercised during such period as the Remuneration Committee determines. If a participant leaves for one of the "good leaver" reasons referred to above, awards which have already vested at the date of cessation may be exercised for such period as the Remuneration Committee determines.
Mitigation	Where appropriate the Remuneration Committee would have regard to the departing Director's duty to mitigate loss.
Other payments	Payments may be made (in the event of a loss of office) under the Sharesave Plan which is governed by its rules and the legislation relating to such tax qualifying plans. There is no discretionary treatment for leavers under this scheme. In appropriate circumstances, payments may also be made in respect of accrued holiday, outplacement and legal fees. Where a buy-out award is made, the leaver provisions would be determined at the time of the award.

The Remuneration Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation), or by way of settlement or compromise of any claim arising in connection with the termination of a Director's office or employment.

Existing contractual arrangements

The Remuneration Committee retains discretion to make any remuneration payment or payment for loss of office outside the policy in this report:

• Where the terms of the payment were agreed before the policy came into effect.
• Where the terms of the payment were agreed at a time when the relevant individual was not a Director of the Company and, in the opinion of the Remuneration Committee, the payment was not in consideration of the individual becoming a Director of the Company.
• To satisfy contractual commitments under legacy remuneration arrangements.

For these purposes, "payment" includes the satisfaction of awards of variable remuneration. In relation to an award over shares, the terms of the payment are agreed at the time the award is granted.

Statement of consideration of employment conditions elsewhere in the Group

The Remuneration Committee does not formally consult with employees as part of its process when determining Directors' pay. However, the Remuneration Committee is kept informed of general decisions made in relation to employee pay and related issues. As noted in the Directors' remuneration policy table, the level of salary increases of employees within the wider Group is considered when setting base salary for the Directors.

Statement of consideration of shareholder views

The Remuneration Committee considers shareholder feedback received on remuneration matters, as well as any additional comments received during any other meetings with shareholders.

Financial statements

Annual report on remuneration

The following part of the remuneration report is subject to audit, other than the elements explaining the application of the remuneration policy for 2017.

"Single figure" of remuneration

The table below details the total remuneration receivable by each Director for the financial years ended 30 September 2016 and 30 September 2015. Where necessary, further explanation of the values provided is included in the footnotes to the table or the additional information that follows it.

		Salary and fees £'000	Taxable benefits £'0001	Annual bonus £'000	LTIP £'000	Pension £'0002	Total remuneration £'000
Non-executive Chairman
	2015/2016	137	–	–	–	–	137
Paul Heiden	2014/2015	150	–	–	–	–	150
Executive Directors
	2015/2016	243	–	–	–	12	255
Dr Henri Winand3	2014/2015	350	1	–4	–	17	368
	2015/2016	137	12	–	–	3	152
Martin Bloom5	2014/2015	53	–	–	–	–	53
	2015/2016	275	2	–	–	8	285
John Maguire	2014/2015	275	2	–4	–	8	285
Non-executive Directors
	2015/2016	51	–	–	–	–	51
Michael Muller	2014/2015	53	–	–	–	–	53
	2015/2016	43	–	–	–	–	43
Dr Philip Mitchell6	2014/2015	79	–	–	–	–	79
	2015/2016	51	–	–	–	–	51
Zarir J Cama	2014/2015	53	–	–	–	–	53
	2015/2016	44	57	–	–	–	101
Flavio Guidotti	2014/2015	45	52	–	–	–	97
	2015/2016	51	–	–	–	–	51
Dr Caroline Brown	2014/2015	53	–	–	–	–	53

1. In the "single figure" of remuneration table, the value in the "benefits" column is the taxable value of benefits received in the year. These are medical insurance, for Flavio Guidotti, taxable travel allowance

and for Martin Bloom temporary travel and accommodation expenses for the period of his interim appointment as Group Chief Executive Officer during the financial year.

1. The pension figure represents the cash value of Company pension contributions paid to the Executive Directors' Group Personal Pension Plan or as a cash allowance.

2. Dr Henri Winand stepped down from the Board on 9 June 2016. In the table above, his remuneration for 2015/2016 is for the period to the date on which he stepped down from the Board. Information in relation to other payments made or to be made to Dr Winand after that date is set out on page 53.

3. As noted in the 2014/2015 Directors' remuneration report the bonuses for Dr Henri Winand and John Maguire for 2014/15 were conditional upon a further performance condition relating to the Company's fundraising activities and were therefore not included in the 2014/2015 single figure table above. The performance condition was not satisfied and no bonus was earned for 2014/2015.

4. Martin Bloom was appointed Group Chief Executive Officer on 9 June 2016. His salary and fees for 2015/2016 represent his fees as a Non-executive Director in the period to 8 June 2016 and his salary as an Executive Director in the period from and including 9 June 2016.

5. Dr Philip Mitchell stepped down from the Board on 1 July 2016. In 2014/2015 and 2015/2016 Dr Philip Mitchell served as a Non-executive Director and also provided consultancy services to the Company. The fees referred to above represent both his fees as a Non-executive Director and as a consultant, in the case of 2015/2016 until the date on which he stepped down from the Board. As disclosed on 9 June 2016, Dr Mitchell will continue to provide consultancy services to the Company.

2015/2016 annual bonus

The annual bonus performance measures for Dr Henri Winand and John Maguire for 2014/2015 were based on delivery of financial targets, successful fundraising rounds and other personal measures. No bonuses were earned in the year by any Executive Director.

Long-term incentives vesting in 2015 and 2016

As disclosed in the Directors' remuneration report for the year ending 30 September 2014, on 7 March 2014, awards under the Company's 2013 Management Incentive Plan (the 'MIP') were granted to 31 selected employees, including Dr Henri Winand and John Maguire.

The MIP awards vested as a result of Admission with one third vesting on Admission, one third vesting on the first anniversary of Admission and the final third vesting on the second anniversary of Admission. Because the second and third tranches of the awards were not subject to any further performance conditions, all three tranches of the awards were included in the "single figure" of remuneration table for 2013/2014 and no long-term incentives vested in the year ended 30 September 2016. The second tranche of the MIP vested on 9 July 2015 and the shares were delivered to participants in June 2016. The third tranche of the MIP vested on 9 July 2016 and the shares were delivered to participants in July 2016. The treatment of Dr Henri Winand's MIP awards on his stepping down from the Board is set out on page 54.

Long-term incentives granted in the year ended 30 September 2016

No long-term incentive awards were granted in 2015/2016.

Directors' remuneration report continued

Implementation of the Directors' remuneration policy in the financial year commencing 1 October 2016

Base salary and fees

Base salaries are reviewed annually with effect from 1 October.

On 1 July 2016 the Non-executive Directors' fees were reduced to the level they were at prior to Admission to the London Stock Exchange in July 2014.

The Executive Directors' salaries and the Non-executive Directors' fees for 2015/2016 and 2016/2017 are shown below.

	2015/2016 base salary/fee	2016/2017 base salary/fee
Paul Heiden (Non-executive Chairman)	£150,000	£100,000
Dr Henri Winand (Chief Executive Officer to 9 June 2016)	£350,000	N/A
Martin Bloom (Group Chief Executive Officer from 9 June 2016)1	£350,000	£350,000
John Maguire (Chief Financial Officer)	£275,000	£275,000
Non-executive Director (basic fee)	£45,000	£40,000
Additional fee for holding the office of Senior Independent Director	£8,000	£6,000
Additional fee for holding the office of Chair of the Remuneration Committee or of the Audit & Risk Committee2	£8,000 (per Committee)	£6,000 (per Committee)

1 Martin Bloom's base salary for 2015/2016 was set at the level of £210,000 to reflect an anticipated commitment of three days per week and was, therefore, the same, pro-rata, as Dr Henri Winand's full time salary. However, the actual time commitment required was significantly in excess of three days per week and Mr Bloom's remuneration was adjusted to reflect this additional time commitment, representing a full time equivalent salary of £350,000 per annum.

2 Paul Heiden has waived the fee payable for chairing the Nomination Committee.

Annual bonus and Deferred Bonus Plan

For the financial year ending 30 September 2017, the Group Chief Executive Officer and Chief Financial Officer will each be eligible to earn a bonus on the following basis:

Operation	Opportunity	Performance measures
The whole of any bonus earned will be delivered in the form of an award over shares	The maximum opportunity will be an award over shares1 as follows:	100 per cent based on Group revenue targets.
under the Company's Deferred Bonus Plan, which will ordinarily vest, subject to continued	Group Chief Executive Officer: 250,000 shares
employment, at the end of a further two year period.	Chief Financial Officer: 150,000 shares
No bonus will be paid in cash.

1 In accordance with the shareholder approved Directors' remuneration policy, the value of the shares over which the award can vest will not exceed 100 per cent of salary, unless otherwise approved by shareholders.

The Committee considers that future Group revenue targets are matters which are commercially sensitive; they would provide Intelligent Energy's competitors with insight into the Company's business plans and expectations and should therefore remain confidential to the Company. However, the Committee will disclose targets and performance against these retrospectively when they are no longer considered to be commercially sensitive.

Long-term incentives

Taking into account that the Company is focusing on the implementation of its revised strategy as announced on 21 September 2016, the Committee does not currently propose to grant awards under the Company's 2014 Performance Share Plan to the Executive Directors during 2016/2017. However, the Committee will keep this under review. Any awards granted to Executive Directors will be in accordance with the Directors' remuneration policy as approved at the 2015 AGM and will be fully disclosed in the 2016/2017 Directors' remuneration report.

Governance

Financial statements

Company. In accordance with the applicable regulations, payments pursuant to those consultancy arrangements are not included in this report. Dr Henri Winand receives payment in lieu of notice equal to his basic salary, which, in accordance with his service contract, will be paid in monthly

instalments up to May 2017. These monthly instalments are subject to a reduction equivalent to any other income received by Dr Winand after an initial six month period. A payment of £14,808 in lieu of accrued but untaken annual leave was also paid upon termination. In addition, a payment of £15,750 was made to the Company's Group Pension Plan in respect of pension contributions that would have been made during the notice period. The Company also made a payment of £2,975 in respect of Dr Winand's legal fees relating to his stepping down from the Board. The treatment of Dr Winand's awards under the MIP is set out on page 54.

Save as noted below no payments were made during the financial year ended 30 September 2016 to any person who was not a Director when

As announced on 9 June 2016, following his stepping down from the Board, Dr Philip Mitchell continues to provide consultancy services to the

Payments made to former Directors during the financial year ended

Shareholding guidelines

30 September 2016

the payment was made but who had previously been a Director.

Dr Henri Winand: Termination remuneration arrangements

The Remuneration Committee has adopted a guideline that Executive Directors will be required to acquire shares (within a five year period from Admission or, if later, from date of appointment) with a value equal to 150 per cent of base salary and that 50 per cent of any after-tax shares acquired on the vesting of an award under the Company's 2014 Performance Share Plan must be retained until the guideline is met. Only unfettered shares count towards this guideline (i.e. shares owned outright by the Executive Director or his spouse) or shares subject to awards under the Company's share plans which have vested (on a net of tax basis). For these purposes, the value of the shares is the value at the date of acquisition or, in the case of shares subject to vested share awards, the value of the shares at vesting.

There are no shareholding guidelines that apply to the Non-executive Directors.

Martin Bloom was appointed as an Executive Director on an interim basis on 9 June 2016. Mr Bloom will be appointed permanent Group Chief Executive Officer with effect from 21 November 2016. These shareholding guidelines apply to Mr Bloom with effect from the date of his permanent appointment.

John Maguire does not currently meet the guidelines but this year he has made considerable progress towards achieving the required shareholding within the five year time period.

Statement of Directors' shareholdings and share interests

Shareholdings

The interests of the Directors and relevant connected persons in the Company's ordinary shares as at 30 September 2016 are shown in the table below:

	Shares held by the Director and relevant connected persons as at 30 September 2016 (or if earlier, date of termination)1
Paul Heiden (Non-executive Chairman)	415,441
Dr Henri Winand (Chief Executive Officer to 9 June 2016)	370,903
Martin Bloom (Group Chief Executive Officer from 9 June 2016)	Nil
John Maguire (Chief Financial Officer)	381,844
Michael Muller (Independent Non-executive Director)	Nil
Dr Philip Mitchell (Non-executive Director to 1 July 2016)	1,245,834
Zarir J. Cama (Independent Non-executive Director)	20,000
Flavio Guidotti (Non-executive Director)	26,002,5962
Dr Caroline Brown (Independent Non-executive Director)	Nil

1. A breakdown of vested and unvested shares where the performance conditions have been met is shown below in the section 'Interests in the Company's share plans'. There are currently no unvested share awards where the performance conditions have not been met.

2. The ordinary shares in which Flavio Guidotti is interested are comprised of 21,390,096 ordinary shares held by Evolution Placements Corporation, 4,000,000 ordinary shares held by shareholders of Evolution Placements Corporation (Flavio Guidotti is an investment and business adviser to the shareholders of Evolution Placements Corporation) and 612,500 ordinary shares held by Prismoy International S.A. (a Company of which Flavio Guidotti is the beneficial owner).

Directors' remuneration report continued

Interests in the Company's share plans

The Directors held the following awards under the Company's share plans as at 30 September 2016 (or if earlier, date of termination). The performance measures applying to these awards have been met.

The tables below do not include the face value of the shares at the date of grant as, at the time that the awards were granted, the shares did not have a face value.

Dr Henri Winand
Plan	Date of grant	Type of award	Number of shares	Exercise price (pence)	Date from which exercisable	Expiry date
		Tax qualifying option (tranche 1)	10,000	100		Lapsed on 9 June 2016
		Tax qualifying option (tranche 2)	10,000	100		Lapsed on 9 June 2016
2013 Management Incentive Plan	7 March 2014	Tax qualifying option (tranche 3)	10,000	100		Lapsed on 9 June 2016
		Share award (tranche 2)	577,923	0	The award vested on 9 July 20151
		Share award (tranche 3)	577,923	0	The award vested on 9 July 20161

1 Dr Winand was permitted to retain tranches 2 and 3 of the MIP award. In accordance with the rules of the MIP, tranche 2 was delivered in June 2016. Reflecting that the associated tranche 3 tax qualifying option lapsed on his cessation of employment, the number of shares increased to 584,982. The vested tranche 3 shares were delivered in July 2016.

John Maguire
Plan	Date of grant	Type of award	Number of shares	Exercise price (pence)	Date from which exercisable	Expiry date
		Tax qualifying option (tranche 1)	10,000	100	9 July 2014	6 April 2017
		Tax qualifying option (tranche 2)	10,000	100	9 July 2015	6 April 2017
2013 Management Incentive Plan	7 March 2014	Tax qualifying option (tranche 3)	10,000	100	9 July 2016	6 April 2017
		Share award (tranche 2)	180,135	0		The award vested on 9 July 20151
		Share award (tranche 3)	180,135	0		The award vested on 9 July 20162

1 The award vested on 9 July 2015. In accordance with the MIP rules, the shares were delivered to John Maguire in June 2016.

2 The award vested on 9 July 2016. The vested shares were delivered in July 2016.

Flavio Guidotti
			At 30 September	Exercised during the		At 30 September	Exercise price	Date from which
Plan	Date of grant	Type of award	2015	year	Lapsed	2016	(pence)	exercisable	Expiry date
Intelligent	30 March 2011	Share option	115,000	–	(115,000)	–		150 30 March 2011	27 June 2016
Energy Holdings
plc 2009 Share
Option Scheme

Governance

Financial statements

The following sections of the annual report on remuneration are not subject to audit.

Performance graph

The graph below shows the total shareholder return ('TSR') performance for the Company's shares in comparison to the FTSE All-Share Index for the period since Admission (9 July 2014) until 30 September 2016. The FTSE All-Share Index was chosen as the index against which to compare the Company's TSR performance because, in the opinion of the Directors, it illustrates the Company's TSR performance against a broad equity market index of UK companies. The graph shows the value, by the end of the 2016 financial year, of £100 invested in the Company's shares on Admission compared with £100 invested at that time in the FTSE All-Share Index.

Historical Chief Executive Officer remuneration outcomes

The table below shows details of the total remuneration, annual bonus and LTIP vesting (as a percentage of the maximum opportunity) for the Chief Executive Officer for the years ending 30 September 2014, 30 September 2015 and 30 September 2016. Note that as regards the year ended 30 September 2014, this relates to the whole year and so is not directly comparable to the period used for TSR purposes in that year in the preceding chart.

	Year ended 30	Year ended 30	Year ended 30 September 20161
	September 2014	September 2015	Dr Henri Winand	Martin Bloom
Total remuneration	6,214,0002	368,000	255,000	115,000
Annual bonus as a percentage of maximum opportunity	0%	0%	0%	N/A
LTIP vesting as a percentage of maximum opportunity	N/A3	N/A	N/A	N/A

1. Dr Henri Winand stepped down as Chief Executive on 9 June 2016 and Martin Bloom was appointed Group Chief Executive with effect from that date.

2. The total remuneration received by Dr Henri Winand in the year ended 30 September 2014 includes the total value of the MIP award. The value of the MIP award is calculated based on the share price when the award crystallised. Dr Winand has since suffered the decline in value of this award in line with that shown in the TSR performance graph.

3. On vesting of the MIP, each participant was entitled to share in a "MIP Pool" based on value realised by shareholders as calculated in accordance with the rules of the MIP. Accordingly, it is not possible to express the value derived as a percentage of the maximum opportunity.

Change in Chief Executive Officer remuneration compared to the change in remuneration of the wider workforce

The table below illustrates the change in the Chief Executive Officer's salary, benefits and bonus between 2014/2015 and 2015/2016 compared to the average percentage change for all UK-based employees. UK-based employees have been selected as the comparator group reflecting that the Chief Executive Officer and Chief Financial Officer are UK-based.

	Salary	Benefits	Bonus
Chief Executive Officer1	N/A2	1,300%3	0%
UK-based employees	-5.86%4	5.2%	-45%

1. Dr Henri Winand stepped down as Chief Executive Officer on 9 June 2016 and Martin Bloom was appointed Group Chief Executive Officer with effect from that date. Salary and benefits for the year ending 30 September 2016 are based on the aggregate of Dr Winand's remuneration for the period to 9 June 2016 and Mr Bloom's remuneration for the period from 9 June 2016 to year end.

2. Dr Henri Winand's annual salary for 2015/2016 was £350,000, the same as for 2014/2015. Martin Bloom was appointed on a salary of £210,000 to reflect an anticipated commitment of three days per week and was, therefore, the same, pro-rata, as Dr Henri Winand's full time salary. However, the actual time commitment required was significantly in excess of three days per week and Mr Bloom's remuneration was adjusted to reflect this additional time commitment, representing a full time equivalent salary of £350,000.

3. The increased value of benefits is due to Martin Bloom receiving temporary travel and accommodation expenses during his interim appointment as Group Chief Executive Officer, in addition to the usual private healthcare benefit offered to all employees.

4. The reduction in the UK salary bill for 2015/16 was caused by the change in mix of salary levels following restructuring, not by individuals' salaries being reduced.

Directors' remuneration report continued

Relative importance of spend on pay

The following table sets out the percentage change in distributions to shareholders by way of dividend and share buyback and the overall expenditure on pay (as a whole across the organisation). The change in the average number of employees is also shown.

	Year ended 30 September 2015	Year ended 30 September 2016	Percentage change
Dividends and share buybacks	£nil	£nil	N/A
Overall expenditure on pay	£29.6 million	£20.2 million	-31.8%
Average number of employees	436	327	-25%

Consideration by the Directors of matters relating to Directors' remuneration

Advisers

During the year ended 30 September 2016, Deloitte LLP was appointed by the Remuneration Committee to provide independent advice in relation to the Committee's consideration of matters relating to Directors' remuneration. Deloitte's fees for advice provided to the Remuneration Committee during the year ended 30 September 2016 were £10,500. Fees were charged on a time and materials basis and included advice to the Company during the year in relation to share plans and senior management remuneration.

Deloitte LLP is a member of the Remuneration Consultants' Group and voluntarily operates under its code of conduct in its dealing with the Remuneration Committee. The Remuneration Committee continued to review the appointment of Deloitte LLP and is satisfied that all advice received was objective and independent.

Shareholder approval of the Company's Directors' remuneration report

At the Company's Annual General Meeting held on 26 February 2016, the votes in respect of the Directors' remuneration report for the year ending 30 September 2015 were as follows.

Resolution	Votes for	% for	Votes against	% against	Votes withheld
To approve the Directors' remuneration report	49,346,749	79.89	12,420,550	20.11	28,649,201

At the Company's Annual General Meeting held on 27 February 2015, the votes in respect of the Directors' remuneration policy were as follows.

Resolution	Votes for	% for	Votes against	% against	Votes withheld
To approve the Directors' remuneration policy	77,260,860	100	200	0	5,268,073

External appointments

John Maguire serves as a Non-executive Director of Jee Limited, a company outside the Intelligent Energy Group, from which he received a fee of £6,300 in the year, which he retained.

Martin Bloom was appointed as an Executive Director on an interim basis in June 2016. He will be appointed permanent Group Chief Executive Officer with effect from 21 November 2016. Accordingly, in the Directors' remuneration report for the year ending 30 September 2017, we will report on the Board's approach to his external appointments.

Governance

Financial statements

Statement of Directors' responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and applicable law and have elected to prepare the Parent Company financial statements on the same basis.

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable;
• state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic report, Directors' report, Directors' remuneration report and Corporate governance statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• the Strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

Martin Bloom

Group Chief Executive Officer 18 November 2016

John Maguire

Chief Financial Officer 18 November 2016

Independent auditor's report

To the members of Intelligent Energy Holdings plc

We have audited the financial statements of Intelligent Energy Holdings plc for the year ended 30 September 2016 set out on pages 59 to 95. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ('IFRSs') as adopted by the EU and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditor

As explained more fully in the Directors' responsibilities statement set out on page 57, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org. uk/auditscopeukprivate

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 30 September 2016 and of the Group's loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulations.

Emphasis of matter – Going concern

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2.1 to the financial statements concerning the Group's and the Parent Company's ability to continue as a going concern. The Group incurred a net cash outflow from operating activities of £26.3 million during the year ended 30 September 2016 and, at that date, the Group had net cash of £20.6 million. The Group forecasts further cash outflows in the next 12 months. These conditions, along with the other matters explained in note 2.1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt on the Group's and the Parent Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group and the Parent Company were unable to continue as a going concern.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

• the part of the Directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements and the part of the Directors' remuneration report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Anthony Hambleton (Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 31 Park Row Nottingham NG1 6FQ 18 November 2016

Consolidated income statement

for the year ended 30 September 2016

	Notes	2016 £m	2015 £m
Revenue	7	91.8	78.2
Cost of sales	8	(90.0)	(75.9)
Gross profit		1.8	2.3
Research and development costs	8	(9.6)	(19.1)
Operating costs	8	(44.5)	(24.9)
Administration costs	8	(7.6)	(12.1)
Operating loss		(59.9)	(53.8)
Analysed as:
Operating loss before exceptional items		(32.1)	(53.8)
– Exceptional items	9	(27.8)	–
Operating loss after exceptional items		(59.9)	(53.8)
Finance income	12a	0.7	0.4
Finance cost	12b	(3.4)	(1.7)
Share of loss of joint ventures accounted for using the equity method – net of income tax	20	(0.4)	(0.8)
Joint venture exceptional impairment charge	9	(1.6)	–
Gain on disposal of joint venture	13	–	1.5
Loss before tax		(64.6)	(54.4)
Income tax (including exceptional charge of £21.9m (2015: Nil))	14	(18.1)	11.6
Loss for year attributable to owners of the Company		(82.7)	(42.8)
Earnings per share (expressed in pence per share)	15
Basic and diluted earnings per share		(42.8)	(22.7)

All of the loss for the year is attributable to the owners of the Company and all activities relate to continuing operations.

The accompanying notes are an integral part of the financial statements.

Consolidated statement of comprehensive income

for the year ended 30 September 2016

	2016 £m	2015 £m
Loss for the year	(82.7)	(42.8)
Other comprehensive income:
Items that are or may be subsequently reclassified to profit or loss
Exchange gain on retranslation of foreign operations	0.5	0.2
Comprehensive expense for the year attributable to owners of the Company	(82.2)	(42.6)

All of the comprehensive expense for the year relates to continuing operations.

Statement of financial position

at 30 September 2016

		Group		Company
		2016	2015	2016	2015
	Notes	£m	£m	£m	£m
Non-current assets
Property, plant and equipment	17	2.8	8.5	–	–
Intangible assets	18	7.9	27.0	–	–
Investments accounted for using the equity method	20	–	1.1	–	–
Investments in subsidiaries and joint ventures	20	–	–	10.1	16.1
Deferred tax asset	14	–	21.9	–	–
Tax receivable	14	–	0.4	–	–
Trade and other receivables	22	–	0.9	–	–
		10.7	59.8	10.1	16.1
Current assets
Inventories	21	1.6	5.3	–	–
Trade and other receivables	22	7.8	11.5	24.3	213.7
Current tax receivable	14	3.0	4.2	–	–
Short-term deposits	23	–	0.6	–	–
Cash and cash equivalents	24	20.6	23.6	0.1	0.1
		33.0	45.2	24.4	213.8
Total assets		43.7	105.0	34.5	229.9
Current liabilities
Trade and other payables	25	(8.4)	(14.2)	(1.0)	(1.1)
Finance lease	28	(0.3)	–	–	–
Derivative financial instruments	29	–	(0.1)	–	–
		(8.7)	(14.3)	(1.0)	(1.1)
Non-current liabilities
Deferred tax liability	14	(1.8)	–	(1.7)	–
Provisions	26	–	(3.0)	–	–
Liability component of convertible loan notes	27	(20.7)	–	(20.7)	–
Finance lease	28	(0.3)	–	–	–
		(22.8)	(3.0)	(22.4)	–
Total liabilities		(31.5)	(17.3)	(23.4)	(1.1)
Net assets		12.2	87.7	11.1	228.8
Equity attributable to owners of the Company
Equity share capital	30	10.3	9.4	10.3	9.4
Share premium	31	223.3	222.9	223.3	222.9
Other reserves	31	41.1	35.2	12.9	7.5
Retained earnings		(262.5)	(179.8)	(235.4)	(11.0)
Total equity		12.2	87.7	11.1	228.8

The accompanying notes are an integral part of the financial statements. The financial statements on pages 59 to 95 were approved by the Board of Directors on 18 November 2016 and signed on its behalf by:

Paul Heiden John Maguire

Non-executive Chairman Chief Financial Officer

Company registered number: 05104429

Consolidated statement of changes in equity

for the year ended 30 September 2016

			Other reserves
	Equity share capital £m	Share premium £m	Equity component of convertible loan notes £m	Capital reserve £m	Merger reserve £m	Currency translation reserve £m	Retained earnings £m	Total equity £m
Balance at 1 October 2014	9.4	222.7	–	7.5	29.3	(1.8)	(139.3)	127.8
Loss for the year	–	–	–	–	–	–	(42.8)	(42.8)
Other comprehensive expense	–	–	–	–	–	0.2	–	0.2
Total comprehensive expense for the year	–	–	–	–	–	0.2	(42.8)	(42.6)
Shares issued (net of issue costs)	–	0.2	–	–	–	–	–	0.2
Share-based payment transactions	–	–	–	–	–	–	2.3	2.3
Total transactions with owners,
recognised directly in equity	–	0.2	–	–	–	–	2.3	2.5
Balance at 1 October 2015	9.4	222.9	–	7.5	29.3	(1.6)	(179.8)	87.7
Loss for the year	–	–	–	–	–	–	(82.7)	(82.7)
Other comprehensive income	–	–	–	–	–	0.5	–	0.5
Total comprehensive
income/(expense) for the year	–	–	–	–	–	0.5	(82.7)	(82.2)
Shares issued	0.9	0.4	–	–	–	–	–	1.3
Issue of convertible loan notes (net of
deferred tax of £1.9m) (note 27)	–	–	5.4	–	–	–	–	5.4
Share-based payment transactions	–	–	–	–	–	–	0.2	0.2
Share purchase	–	–	–	–	–	–	(0.2)	(0.2)
Total transactions with owners,
recognised directly in equity	0.9	0.4	5.4	–	–	–	–	6.7
Balance at 30 September 2016	10.3	223.3	5.4	7.5	29.3	(1.1)	(262.5)	12.2

Company statement of changes in equity

for the year ended 30 September 2016

			Other reserves
			Equity component
	Equity share	Share	of convertible	Capital	Retained
	capital	premium	loan notes	reserve	earnings	Total
Balance at 1 October 2014	£m 9.4	£m 222.7	£m –	£m 7.5	£m (14.6)	£m 225.0
Profit for the year	–	–	–	–	1.3	1.3
Total comprehensive income for the year	–	–	–	–	1.3	1.3
Shares issued	–	0.2	–	–	–	0.2
Share-based payment transactions	–	–	–	–	2.3	2.3
Total transactions with owners,
recognised directly in equity	–	0.2	–	–	2.3	2.5
Balance at 30 September 2015	9.4	222.9	–	7.5	(11.0)	228.8
Loss for the year	–	–	–	–	(224.4)	(224.4)
Total comprehensive income for the year	–	–	–	–	(224.4)	(224.4)
Shares issued	0.9	0.4	–	–	–	1.3
Issue of convertible loan notes	–	–	5.4	–	–	5.4
Share-based payment transactions	–	–	–	–	0.2	0.2
Share purchase	–	–	–	–	(0.2)	(0.2)
Total transactions with owners,
recognised directly in equity	0.9	0.4	5.4	–	–	6.7
Balance at 30 September 2016	10.3	223.3	5.4	7.5	(235.4)	11.1

Statement of cash flows

for the year ended 30 September 2016

		Group		Company
		2016	2015	2016	2015
	Notes	£m	£m	£m	£m
Operating activities
Loss before tax		(64.6)	(54.4)	(224.6)	1.3
Net financing expense		2.7	1.3	1.7	–
Gain on disposal of joint venture		–	(1.5)	–	(1.5)
Share of joint venture losses		0.4	0.8	–	–
Joint venture impairment		1.6	–	7.0	–
Operating loss		(59.9)	(53.8)	(215.9)	(0.2)
Adjustment for:
Depreciation and impairment of property, plant and equipment	17	6.9	3.2	–	–
Amortisation and impairment of intangible assets	18	19.2	1.8	–	–
Equity settled share-based payments	32	0.2	2.3	–	–
Working capital adjustments:
Decrease/(increase) in inventories		3.7	(1.2)	–	–
Decrease/(increase) in trade and other receivables		4.0	(0.4)	189.4	0.8
Decrease in trade and other payables		(5.5)	(3.4)	(0.1)	(3.3)
Taxation received		5.1	4.8	–	–
Net cash outflow from operating activities		(26.3)	(46.7)	(26.6)	(2.7)
Investing activities
Net interest (paid)/received		(0.1)	0.1	–	–
Finance lease capital repayment		(0.1)	–	–	–
Proceeds on disposal of joint venture		–	1.5	–	1.5
Sale of short-term deposits	23	0.6	42.2	–	–
Purchase of property, plant and equipment	17	(0.6)	(4.8)	–	–
Purchase of intangible assets	18	(3.2)	(14.6)	–	–
Investment in joint venture	20	(0.7)	(0.5)	(0.7)	–
Net cash (outflow)/inflow from investing activities		(4.1)	23.9	(0.7)	1.5
Financing activities
Interest paid on convertible loan notes		(1.0)	–	(1.0)	–
Issue of ordinary share capital	30	1.1	0.2	1.1	0.2
Issue of convertible loan notes	27	27.2	–	27.2	–
Net cash inflow from financing activities		27.3	0.2	27.3	0.2
Decrease in cash and cash equivalents		(3.1)	(22.6)	–	(1.0)
Effect of foreign exchange rates on cash and cash equivalents		0.1	0.1	–	–
Cash and cash equivalents at beginning of period	24	23.6	46.1	0.1	1.1
Cash and cash equivalents at year-end	24	20.6	23.6	0.1	0.1

Notes to the annual financial statements

1. Authorisation of financial statements

The financial statements of Intelligent Energy Holdings plc and its subsidiaries (the "Group") for the year ended 30 September 2016 were authorised for issue by the Board of Directors on 18 November 2016 and the statement of financial position was signed on the Board's behalf by Paul Heiden and John Maguire. Intelligent Energy Holdings plc is a listed public limited company incorporated and domiciled in England and Wales.

2. Basis of preparation

The financial statements have been prepared under a "going concern" basis, in accordance with International Financial Reporting Standards as adopted by the European Union as they apply to the financial statements of the Group and Parent Company for the year ended 30 September 2016 and applied in accordance with the Companies Act 2006.

The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 30 September 2016 and have, unless stated otherwise, been applied consistently and to all periods presented in these financial statements. The financial statements have been prepared on a historical cost basis, except where measurement of balance at fair value is required, as explained below.

The financial statements are presented in Sterling and all values are rounded to the nearest one hundred thousand pounds except when otherwise indicated.

No separate income statement is presented for Intelligent Energy Holdings plc as permitted by section 408 of the Companies Act 2006.

2.1 Going concern

The Group's business activities, together with the factors likely to affect its future development and position, are set out in the Group Chief Executive Officer's review section of the Strategic report on page 09. The financial position of the Group, its cash flows and liquidity position are described in the Chief Financial Officer's review on pages 18 to 20. In addition, note 29 to the financial statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.

The Directors recognise that the short-term trading and commercialisation of the Group's fuel cell technology provides some challenges. The Group meets its day to day working capital requirements through its cash resources. The Directors have prepared detailed cash forecasts for the next 18 months, which indicate that the Group will be able to operate within these available resources. However, the current trading position of the Group and its forecast development plans result in cash consumption for at least the next year. While it is expected that the Group will exit the current financial year with cash on its balance sheet the cash position thereafter will depend on future trading and/or any further action taken with respect to the Company's cost base. The exact nature and evolution of these are by their nature uncertain.

After careful consideration, and the modelling of foreseeable sensitivities and remedial actions available to the Company, the Directors believe that the Company can manage its position in a way which allows it to fulfil its appropriate commitments and settle its obligations as they fall due without recourse to additional funding. This position is not impacted materially by the delivery or non-delivery of the long-term GTL contract in India, the outcome of which would not negatively materially impact the cash flows of the Group.

The Directors' forecasts assume the business will secure a significant level of revenues that are not presently contracted. If these future revenues are not secured as the Directors envisage, then the Directors' position is subject to i) the business taking the above mentioned actions on the Company's cost base and on ii) the continuation of JDA revenues, for the foreseeable future. Despite the business having a track record over many years of securing JDA revenues, the achievement of forecast levels are uncertain. Given the above circumstances, it is possible that the Group could have a shortfall in cash and require additional funding during the forecast period.

The above factors result in a material uncertainty which may cast significant doubt on the Company's and Group's ability to continue as a going concern and that it may therefore be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Company and Group were unable to continue as a going concern. The unqualified report of the auditors includes an emphasis of matter in this respect.

Despite this, the Directors believe that the track record of the business in securing JDA activity and the options available to the Group from trading activities and the ability to realise value from the IP portfolio mean that the Directors consider that the Company will have sufficient funds to pay its debts as they fall due for the foreseeable future. It is on this basis that the Directors, in their opinion, consider that the Company remains a going concern and the financial statements have been prepared on that basis.

3. Changes in accounting policy and disclosures

3.1. New standards, amendments and interpretations adopted by the Group

No new standards and amendments are applicable to the Group for the year ending 30 September 2016.

3.2. New standards, amendments and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 October 2015 and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group except the following set out below:

• IFRS 9, 'Financial instruments'. This standard replaces IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model. The Group is yet to assess the full impact of IFRS 9 which becomes effective for accounting periods beginning on or after 1 January 2018. The standard is subject to endorsement by the European Union.
• IFRS 15, 'Revenue from contracts with customers'. This standard replaces IAS 18, 'Revenue' and IAS 11 'Construction contracts' and related interpretations. It establishes principles for reporting the nature, amount and timing of revenue arising from an entity's contracts with customers. The Group is yet to assess the full impact of IFRS 15 which becomes effective for accounting periods beginning on or after 1 January 2018. The standard is subject to endorsement by the European Union.
• IFRS 16, 'Leases'. This standard replaces IAS 17 'Leases'. It requires lessees to recognise a lease liability reflecting future lease payments and a 'right-to-use asset' for virtually all lease contracts. The Group is yet to assess the full impact of IFRS 16 which becomes effective for accounting periods beginning on or after 1 January 2019. The standard is subject to endorsement by the European Union.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

4. Basis of consolidation

The Group financial statements consolidate the financial statements of Intelligent Energy Holdings plc and the entities it controls (its subsidiaries) and equity account for the Group's interest in associate and joint ventures drawn up to 30 September each year. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control comprises power over the investee; exposure, or rights, to variable returns from involvement with the investee; and the ability to use power over the investee to affect the amount of the investor's returns. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting year as the Parent Company and are based on consistent accounting policies. All inter-company balances and transactions, including unrealised profits arising from them, are eliminated.

4.1 Joint arrangements

A joint arrangement is an arrangement over which the Group and one or more third parties have joint control. These joint arrangements are in turn classified as:

• Joint ventures whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities; and
• Joint operations whereby the Group has rights to the assets and obligations for the liabilities relating to the arrangement.

Associates

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 per cent of the voting power of another entity.

Application of the equity method to associates and joint ventures

Associates and joint ventures are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group's investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group's share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group's share of losses exceeds its interest in an equity accounted investee, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee.

Joint operations

Where the Group is a party to a joint operation, the consolidated financial statements include the Group's share of the joint operations' assets and liabilities, as well as the Group's share of the entity's profit or loss and other comprehensive income, on a line-by-line basis.

Notes to the annual financial statements continued

5. Significant accounting estimates and judgements

5.1 Significant accounting estimates and judgements

The preparation of financial statements requires the Directors to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the statement of financial position date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual outcomes could differ from those estimates. The key sources of estimation uncertainty are as follows:

5.1.1 Contract revenues

The Group measures revenues on provision of engineering services contracts using the stage of completion method, to ascertain the appropriate revenue to recognise during a contract. Estimating the stage of completion is measured by reference to the contract cost incurred as a percentage of total estimated cost.

5.1.2 Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted and the cost of cash-settled share awards with employees by reference to fair value. Estimating fair value requires the determination of the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate inputs to the valuation model including the expected life of the option, volatility, forfeiture and dividend yield and making assumptions about them. Subsequent revaluation of the cash-settled liability requires further estimation of fair value at settlement or reporting date. The assumptions and models used are disclosed in note 32.

5.1.3 Impairment of non-financial assets

Impairment of certain specific property, plant and equipment, patent intangible assets, 305 development intangible, interests in joint ventures and goodwill have been recognised (see note 9) due to a refocusing of the business.

The Group tests goodwill for impairment annually or more frequently if there are indications that goodwill might be impaired. Additionally, the Group assesses whether there is any indication of impairment of its property, plant and equipment, other intangible assets and other non-current assets at each reporting period end. The funding position and decrease in market capitalisation of the Group at the half year reporting date on 31 March 2016 was considered to be such an indication and an impairment review was performed at that date, which has been reassessed and reconfirmed at the 2016 full year end.

The value in use basis has been used to determine the recoverable amount of non-current assets. There is a high level of uncertainty in respect of this estimation. However the Directors consider the estimation of the recoverable amount is appropriate at this point in time.

5.1.4 Deferred tax assets

The recognition of deferred tax assets relating to the carry forward of unused tax losses and unused tax credits requires the assessment of the extent to which it is probable that future taxable profits will be available against which the unused tax losses and tax credits can be utilised. Given the history of tax losses of the Group, it is required that there is convincing other evidence that sufficient taxable profits will be available against which the unused tax losses or unused tax credits can be utilised. This requires judgement on the part of the Directors.

The Directors have therefore assessed whether, in their opinion, the recovery of the deferred tax assets is probable, and whether convincing evidence exists to justify this assessment. This assessment is based on the forecasts for the business, which are in turn based in part on known advances in the commercial viability of the Group's businesses. Given the refocus of the business as detailed in note 9 there is an increased level of uncertainty as to whether there will be sufficient future UK taxable profits to utilise the accumulated tax losses. Accordingly the Directors have concluded that until such time as significant commercial traction is being generated, the utilisation of the accumulated tax losses is not supported by convincing evidence and therefore the deferred tax asset has been de-recognised in the year.

5.1.5 Fair value of convertible loan notes

The Group has issued convertible loan notes during the year. These convertible loan notes comprise both a liability and an equity element. The equity element is calculated as the net proceeds receivable after deducting the liability element of the convertible loan notes.

The liability element of the convertible loan notes is calculated by discounting the cash flows of the instruments at an interest rate that would be available in the market for an equivalent financial liability. The estimation of this interest rate requires judgement on the part of the Directors.

5.1.6 Net realisable value of inventory

Inventories are stated at the lower of cost and net realisable value. The realisable value is a judgement based on the future activities of the business. The Directors have concluded that a write down of the carrying value of inventories is appropriate as detailed in note 9.

5.2 Significant judgements in applying the accounting policies

5.2.1 Principal versus agent

The Directors have assessed the arrangements in place with customers for power management services in the Indian business and determined that the Group is acting as principal in all such arrangements. The assessment has considered the exposure of the Group to the risks and rewards associated with selling the goods and services, including the responsibility for the services, the latitude in establishing prices charged to the customer, the credit risk for amounts receivable from the customer and the arrangement for settlement of consideration due from the customer. This assessment confirms that the Group is acting on its own account in contracting with its customers in return for the consideration receivable and therefore all consideration receivable for the goods and services supplied to the customer is recognised as revenue.

5.2.2 Classification of joint arrangements

The classification of the Group's joint arrangements has been assessed and it has been determined that all such arrangements are joint ventures. The assessment has considered the rights and obligations on the Group which arise from the contractual arrangements with the joint arrangement partner and joint arrangement vehicle. It has been assessed that all such agreements grant the Group rights to the joint arrangement's net assets. This conclusion is based on: each arrangement being formed through a separate legal entity; the terms of the contractual agreements with the other joint arrangement partners, which do not change the rights and obligations established by the legal entity; and the output is supplied to other parties and not solely the joint venture parties.

6. Summary of significant accounting policies

The accounting policies which follow set out the significant policies which apply in preparing the financial statements for the year ended 30 September 2016.

6.1 Revenue recognition

The Group generates revenues principally through the provision of power generation and power management services (power management), consultancy for technology and product advancement (provision of engineering services) and the sale of access to our intellectual property. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and receivable revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods and services supplied, stated net of discounts, rebates, value added tax and other sales taxes or duty. The following criteria must also be met before revenue is recognised:

Provision of engineering services

Consultancy for technology and product advancement revenue is recognised by reference to the stage of completion. Stage of completion is measured by reference to the cost of labour hours and materials incurred to date as a percentage of total estimated cost of labour hours and materials for each contract. Past experience has shown costs incurred to be the best measure of progress. Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses recognised are recoverable. When contracts are extended or combined the total consideration receivable is merged, and the revenue recognised over the full revised contract.

Power management

Power management revenue represents the amounts earned from the supply of power management services and excludes sales taxes. Revenue is recognised as the service is delivered in accordance with the contractual arrangements. Revenue is accrued or deferred at the statement of financial position date depending on the date of the most recent invoice issued and the contractual terms.

Access to intellectual property

Where elements of contract revenue can be separately identifiable, these revenues are spread across the substantive delivery period for those elements. Where multiple element contracts are entered into and the constituent parts do not stand alone, all revenues are spread over the period of the contract.

Sale of goods

Fuel cell and hydrogen generation product revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on dispatch of the goods.

Public body funded work

Project work is undertaken for public bodies where such work is of benefit to the Group's ongoing research and development activities. The Group measures revenues on such contracts using the stage of completion method, to ascertain the appropriate revenue to recognise during a contract. The stage of completion is measured by reference to the cost incurred as a percentage of total estimated cost.

6.2 Interest in joint ventures

The Group has a contractual agreement with Suzuki Motor Corporation, which represents a joint venture, through another entity SMILE FC System Corporation, a company incorporated in Japan.

Investments in joint ventures are accounted for using the equity method. The investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the Group's share of the profit or loss of the investee after the date of acquisition. Financial statements of the joint ventures are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies used into line with those of the Group; to take into account fair values assigned at the date of acquisition, and to reflect impairment losses where appropriate. Adjustments are also made in the Group's financial statements to eliminate the Group's share of unrealised gains and losses on transactions between the Group and its joint ventures. The Group ceases to use the equity method on the date from which it no longer has joint control over or significant influence in the joint venture.

When the Group's share of losses exceeds its interest in an equity accounted investee, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has legal or constructive obligations or made payments on behalf of an investee.

Notes to the annual financial statements continued

6. Summary of significant accounting policies continued

6.3 Business combinations and goodwill

Business combinations are accounted for using the purchase method of accounting. The cost of acquisition is the consideration given in exchange for the identifiable net assets. This consideration includes any cash paid plus the fair value at the date of exchange of assets given, liabilities incurred or assumed and equity instruments issued by the Group. The acquired net assets are initially recognised at fair value. Where the Group does not acquire 100 per cent ownership of the acquired company, a non-controlling interest is recorded as the minority's proportion of the fair value of the acquired net assets.

Any adjustment to the fair values is recognised within 12 months of the acquisition date. Goodwill on acquisition comprises the excess of the fair value of the consideration for investments in subsidiaries over the fair value of the identifiable net assets acquired. Any goodwill and fair value adjustments are recorded as assets and liabilities of the acquired company for the purposes of consolidation and are recorded in the local currency of that company. The costs of integrating and reorganising acquired businesses are charged to the post-acquisition income statement.

Goodwill is carried at cost less accumulated impairment losses. The Group's goodwill is reviewed on an annual basis at each statement of financial position date, or more frequently if there is an indication that the goodwill is impaired, to determine whether events or changes in circumstances exist that indicate that the carrying amount may not be recoverable. If such an indication exists, the asset's recoverable amount is estimated. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. An impairment loss is recognised in the income statement for the amount by which the asset's carrying amount exceeds its recoverable amount.

6.4 Investment in subsidiaries and joint ventures

In its separate financial statements the Company recognises its investments in subsidiaries and joint ventures at cost. The investment is reviewed on an annual basis to determine whether the carrying amount is recoverable. In the event that the carrying amount is irrecoverable, provision is made to reduce the amount of the investment to the recoverable amount.

6.5 Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended including own labour costs where used. Depreciation is provided on all property, plant and equipment, other than land, on a straight-line basis over its expected useful life, to its residual value as follows:

• plant, machinery and equipment: 2 to 5 years
• office equipment, fixtures and fittings: 3 to 5 years

Depreciation commences when the asset is fully constructed and operational with no depreciation charged on assets under the course of construction.

The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset is included in the income statement in the period of derecognition.

6.6 Impairment of assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.

Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit.

Impairment losses on continuing operations are recognised in the income statement. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement unless the asset is carried at a re-valued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

6.7 Intangible assets

Intangible assets acquired separately from a business are carried initially at cost. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Intangible assets with a finite life have no residual value and are amortised on a straight-line basis over their expected useful lives as follows:

• patents: 15 to 20 years
• development expenditure: 5 to 15 years
• software: 3 to 5 years

Amortisation commences when the asset is fully constructed and operational with no amortisation charged on assets under the course of construction.

Patents

Patents have been granted on intellectual property rights for a period of 15 to 20 years by the relevant government agencies in countries where patents are applied for. Each patent application is carried at cost less accumulated amortisation and accumulated impairment losses. The carrying values of patents are reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Patent renewal fees are taken to the income statement in the year in which they are incurred.

Development costs

Expenditure on internally developed intangible assets, excluding development costs, is taken to the income statement in the year in which it is incurred (research costs are expensed as incurred). Expenditure relating to clearly defined and identifiable development projects is recognised as an intangible asset only after all the following criteria are met: the project's technical feasibility and commercial viability can be demonstrated; the availability of adequate technical and financial resources and an intention to complete the project have been confirmed; and the correlation between development costs and future revenues has been established. Development expenditure for a new product which represents an entry into a new market is only recognised as an intangible asset from after the date that a first commercial customer order is received, as in the opinion of the Directors it is not until this time that commercial viability is established.

During the period of development, the asset is tested for impairment annually. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future sales. During the period in which the assets are not yet in use they are tested for impairment annually.

Research and development costs recognised as an expense in the income statement have been disclosed separately below gross profit, as these costs are not directly related to sales activity.

6.8 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing each product to its present location and condition, as follows:

• Raw materials and goods for resale: purchase cost on a first-in, first-out basis.
• Work in progress and finished goods: cost of direct materials and labour plus attributable overheads based on a normal level of activity, excluding borrowing costs.
• Net realisable value is based on estimated selling price less any further costs expected to be incurred to completion and disposal. Obsolete and defective inventory is impaired to its estimated recoverable amount.

6.9 Trade and other receivables

Trade receivables, which generally have 30 to 90 day terms, are recognised and carried at the lower of their original invoiced value and recoverable amount. Where the time value of money is material, receivables are carried at discounted cost. Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being less than likely.

6.10 Trade and other payables

Trade and other payables are stated at cost. Trade payables are non-interest bearing.

6.11 Cash and cash equivalents and short-term deposits

Cash and cash equivalents includes cash in hand, deposits held with banks and other short-term highly liquid investments with original maturities of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

The Group considers all bank deposits with original maturity dates of greater than three months and maturing in less than one year to be short-term deposits.

6.12 Financial assets

The classification of financial assets depends on the purpose for which the financial assets were acquired and is determined at initial recognition.

Notes to the annual financial statements continued

6. Summary of significant accounting policies continued

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the statement of financial position date. These are classified as non-current assets. "Accounts receivable", "cash and cash equivalents" and "short-term deposits" are classified as "Loans and receivables".

Loans and receivables are measured initially at fair value and then subsequently measured at amortised cost.

Interest income is recognised as it accrues using the effective interest rate basis.

6.13 Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, net of directly attributable transaction costs.

Subsequent measurement

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method (EIR). Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance cost in the income statement.

De-recognition of financial assets and liabilities

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.

Compound financial instruments

Compound financial instruments issued by the Group comprise convertible loan notes denominated in Sterling that can be converted to ordinary shares at the option of the holder, when the number of shares to be issued is fixed and does not vary with changes in fair value.

The liability component of compound financial instruments is initially recognised at the fair value of a similar liability that does not have an equity conversion option. The equity component is initially recognised at the difference between the fair value of the compound financial instruments as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.

Interest related to the financial liability is recognised in the income statement. On conversion, the financial liability is reclassified to equity and no gain or loss is recognised in the income statement.

6.14 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

6.15 Share-based payments

Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ("equity-settled transactions") and in the form of cash or other assets for amounts based on the price of the Company's equity instruments ("cash-settled transactions").

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted, and is recognised as an expense in the income statement over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. The fair value is determined using appropriate valuation models relevant to the structure of the scheme and include the Black-Scholes model and the Monte-Carlo model, further details of which are given in note 32.

In valuing equity-settled transactions, no account is taken of any service and performance conditions, other than performance conditions linked to the price of the shares of the Company (market conditions). Any other conditions which are required to be met in order for an employee to become fully entitled to an award, like market performance conditions, are taken into account in determining the grant date fair value.

The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

Financial statements

At each statement of financial position date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous statement of financial position date is recognised in the income statement, with a corresponding entry in equity.

Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative.

For cash-settled share awards the services received from employees are measured at fair value and recognised in the income statement as an expense over the vesting period with recognition of a corresponding liability. The fair value of the liability is re-measured at each reporting date and at the date of settlement with changes in fair values recognised in the income statement.

6.16 Leases

Leases where the lessor retains a significant portion of the risks and benefits of ownership of the asset are classified as operating leases and rentals payable are charged in the income statement on a straight-line basis over the lease term.

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in current and non-current liabilities as appropriate. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Assets acquired under finance lease are depreciated over the shorter of the useful life of the asset and the lease term.

6.17 Foreign currency translation

The Group and Parent Company financial statements are presented in Sterling, which is the Group's functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the statement of financial position date. All differences are taken to the income statement.

The assets and liabilities of foreign operations are translated into Sterling at the rate of exchange ruling at the statement of financial position date. Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the date of the transactions). The resulting exchange differences are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

6.18 Provisions

Provision for contingent consideration is recognised when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.

Provisions are measured as the present value of the expenditures expected to be required to settle the obligation. The increase in the provision due to passage of time is recognised as interest expense.

6.19 Segment reporting

The Group is organised into two business segments of Fuel Cell Technology and Indian Power Management (Essential Energy). This is based upon the simplification of the Group's internal organisation and management structure following the business reorganisation during the year and is the primary way in which the Chief Operating Decision Maker (CODM) is provided with financial information. The Directors believe that the CODM is the Board of Directors.

Segment revenue and segment EBITDA (earnings before interest, tax, depreciation, amortisation and share of joint venture results) are the revenue and profitability measures provided to the CODM and used in monitoring and managing performance of each segment.

Assets and liabilities are reported by the business segments to the CODM.

Notes to the annual financial statements continued

6. Summary of significant accounting policies continued

6.19 Income taxes

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the statement of financial position date. Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions: where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; in respect of taxable temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the statement of financial position date. Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income tax is recognised in the income statement.

Research and development tax credit

Claims for tax credits in respect of research and development expenditure incurred are recognised when amounts due can be estimated with a high level of certainty.

6.20 Finance Bill 2013 research and development "above the line" credit

The Group is claiming research and development expenditure credits on qualifying costs under the legislation in the Finance Bill 2013. The credit is recognised in cost of sales in the period in which the related costs for which the credit is intended to compensate are incurred.

6.21 Pensions and other post-retirement benefits

The Group operates a Defined Contribution scheme. This is a pension scheme that has an agreed contribution rate from the employee and employer. Contributions are known and agreed in advance. The scheme consists of a grouping of individual pension contracts. Each employee owns their own contract, which benefits from the discount available to the Group, in which they can plan and save towards an optimum pension income in their retirement.

6.22 Exceptional items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

7. Operating segments

The Group complies with IFRS 8 Operating Segments which requires operating segments to be identified and reported upon that are consistent with the level at which results are regularly reviewed by the entity's Chief Operating Decision Maker. The Chief Operating Decision Maker for the Group is the Intelligent Energy Holdings plc Board of Directors. Information on Fuel Cell Technology and Essential Energy is the primary basis of information reported to the Intelligent Energy Holdings plc Board of Directors. The performance of these elements of the business are assessed on a non-IFRS measure being EBITDA (earnings before interest, tax, depreciation, amortisation and share of joint venture results).

The Group is strategically organised as two separate businesses: 'Fuel Cell Technology' focusing on hydrogen fuel cell applications across a range of industries and 'Essential Energy' which focuses on power management for telecom towers in India. The Group was reorganised during the year into this structure, previously being organised as four business units of Consumer Electronics, Motive, Distributed Power and Generation and Platform Support. The comparative disclosures for 2015 have been restated to the current segmental basis.

	Essential	Fuel Cell
2016	Energy £m	Technology £m	Group £m
Revenue from external sales	85.1	6.7	91.8
EBITDA (Segment profit measure)	(2.5)	(31.3)	(33.8)
Depreciation, amortisation and impairment			(26.1)
Operating loss			(59.9)
Net financing cost			(2.7)
Share of loss of joint ventures			(0.4)
Joint venture impairment			(1.6)
Loss before tax			(64.6)
Income tax			(18.1)
Loss for the year			(82.7)

Financial statements

2015 Essential Energy £m Fuel Cell Technology £m Group £m Revenue from external sales 72.2 6.0 78.2 EBITDA (Segment profit measure) (2.5) (46.3) (48.8) Depreciation and amortisation (5.0) Operating loss (53.8) Net financing cost (1.3) Share of loss of joint ventures (0.8) Gain on disposal of joint venture 1.5 Loss before tax (54.4) Income tax 11.6 Loss for the year (42.8)

Other segmental disclosures

		2016			2015
	Essential Energy £m	Fuel Cell Technology £m	Group £m	Essential Energy £m	Fuel Cell Technology £m	Group £m
Depreciation and amortisation	0.2	4.5	4.7	0.1	4.9	5.0
Goodwill impairment	–	5.9	5.9	–	–	–
Other intangible impairment	–	11.0	11.0	–	–	–
Property, plant and equipment impairment	1.4	3.1	4.5	–	–	–
Restructuring costs	–	2.7	2.7	–	–	–
Total assets	5.6	38.1	43.7	6.3	98.7	105.0
Additions to non-current assets	0.7	3.9	4.6	0.9	21.2	22.1
Total liabilities	11.3	20.2	31.5	7.6	9.7	17.3

Major customers

One customer represented in excess of 10 per cent of the Group's total revenue during the year (2015: One customer). Essential Energy revenue includes £85.0 million (2015: £71.9 million) from a single customer.

Geographical information

The Group's country of domicile is the United Kingdom. Revenues are attributed to customers based on the customer's location.

	Revenue from external sales
	2016	2015
	£m	£m
United Kingdom	–	0.1
Europe, Middle East and Africa ('EMEA')	0.9	0.8
India	85.1	72.2
Asia-Pacific	5.8	5.1
	91.8	78.2

The total of non-current assets located in the UK is £8.8 million (2015: £34.2 million) and the total of such non-current assets located in other countries is £1.9 million (2015: £3.7 million).

Analysis of revenue by revenue stream

	2016	2015
	£m	£m
Provision of engineering services	6.7	5.9
Power management	85.1	72.2
Sale of goods	–	0.1
	91.8	78.2

Notes to the annual financial statements continued

7. Operating segments continued

Adjusted EBITDA

The Company uses adjusted EBITDA (earnings before interest, impairment charges, tax, depreciation, amortisation, share of joint venture results, equity fundraising costs and IFRS 2 share-based payment charges) as an indicator of trading profitability and a proxy for operating cashflow, before any cash movements relating to investment, tax funding and changes in working capital. It is not an IFRS measure, and not therefore shown in the Group income statement.

	2016	2015
	£m	£m
EBITDA	(33.8)	(48.8)
Share-based payment charge	0.2	2.3
Equity fundraising cost	0.2	0.3
Adjusted EBITDA	(33.4)	(46.2)

8. Expenses by nature
	2016 £m	2015 £m
Cost of fuel	85.2	70.8
Depreciation, amortisation and impairment	26.1	5.0
Staff costs (note 11)	20.5	27.3
Inventory write-down	4.1	1.5
Consultancy, contractors and outsourced services	2.9	7.9
Legal and professional costs	2.7	2.7
Facilities and services	2.6	4.0
Operating lease charge	2.1	1.9
Travel and subsistence	1.6	2.6
Costs of inventories recognised as an expense	1.0	2.9
Materials and consumables used for research and development	1.0	2.2
Marketing	0.5	1.2
Share-based payments	0.2	2.3
Equity fundraising costs	0.2	0.3
Research and development expenditure credit	(0.2)	(0.4)
Capitalised staff costs	(0.1)	(1.7)
Other expenses	1.3	1.5
Total cost of sales, research and development costs, operating costs and administration costs	151.7	132.0

9. Exceptional charges

The Group has implemented a material restructuring of its business during the year. The objective is to focus the Group on the most immediate and material market opportunities, while substantially and sustainably reducing the costs and cash burn of the business.

The Company plans to maintain its core high power technology Intellectual Property portfolio, know-how and expertise appropriate for motive and high power distributed energy applications. However, further investment and development would only be made when profitable and scalable opportunities arise in lockstep with the deployment of refuelling infrastructures. As part of this restructuring, and to align the business with this revised focus there has been a simplification of the organisational structure, a reduction of the number of jobs across several locations in which the Group operates and the closure of some office locations.

The intention of the restructuring is to focus the business on existing tangible commercial opportunities whilst preserving the Group's core capability to provide best of class, fuel cell based, power solutions to customers in its target markets.

Financial statements

Exceptional charges have been recognised within the reported results as follows:

	2016 £m	2015 £m
Exceptional research and development costs
Restructuring costs	1.0	–
Exceptional operating costs
Inventory write-down	3.7	–
Property, plant and equipment impairment	4.5	–
Intangible asset impairment	16.9	–
Restructuring costs	0.9	–
	26.0	–
Exceptional administration costs		–
Restructuring costs	0.8	–
Total exceptional costs charged within operating loss	27.8	–
Exceptional joint venture charge
Joint ventures impairment	1.6	–
Exceptional taxation charge
Deferred tax asset de-recognition	21.9	–
Total exceptional charges	51.3	–

An exceptional charge of £3.7 million has been recognised during the year to write-down the carrying value of inventory to its net realisable value. This charge arises from a refocus of the business following the reorganisation of the Company announced in April 2016. The charge arises against inventory relating to consumer electronic raw materials and finished goods.

As a result of the reorganisation of the business during the year an impairment of specific property, plant and equipment assets of £4.5 million, specific patent intangible assets of £9.3 million, 305 development intangible of £1.7 million, goodwill of £5.9 million and joint ventures of £1.6 million have been impaired as a result of the re-focusing on specific market opportunities as detailed above.

In addition, in light of the changes to the business, there is increased uncertainty over the ability to utilise the historic taxable trading losses and currently the Directors consider that there is not sufficient convincing evidence, at this time, to enable the recognition of a deferred tax asset. Therefore the deferred tax asset relating to trading losses has been de-recognised, resulting in an exceptional tax charge of £21.9 million in the year.

An impairment review has been performed at 30 September 2016 which has confirmed the carrying value of the remaining £10.7m of non-current assets is supported on a value in use basis.

Restructuring costs of £2.7 million have been incurred during the year in relation to employee severance and office closures.

The total cash outflow during the year in respect of exceptional charges was £2.5 million (2015: £nil).

10. Auditor's remuneration

	2016	2015
	£m	£m
Auditor's remuneration
Audit of the Parent Company and consolidated financial statements	0.1	0.1
Other services
– Audit of subsidiaries pursuant to legislation	0.1	–
– Other assurance services	–	–
– Due diligence services – Initial public offering/fundraising	–	0.1
	0.2	0.2

Notes to the annual financial statements continued

11. Employees and Directors' emoluments

(a) Employee benefit expense

	2016 £m	2015 £m
Wages and salaries	18.2	23.8
Social security costs	1.9	2.9
Pension contributions	0.4	0.6
Staff costs	20.5	27.3
Equity settled share-based payments (note 32)	0.2	2.3
Total employee benefit expense	20.7	29.6

The monthly average number of employees, including Directors, during the year was as follows:

	2016	2015
	Number	Number
Research and development	60	105
Operations and application engineering	151	215
Corporate and commercial	116	116
	327	436

(b) Directors' emoluments

The aggregate emoluments of the Directors of the Company are set out below:

	2016	2015
	£m	£m
Aggregate emoluments	1.1	1.3
Aggregate amounts receivable under long-term incentive plans	0.1	2.6
Compensation in respect of loss of office	0.4	–
Company contributions to money purchase pension schemes	–	–
	1.6	3.9

Two Directors (2015: Two) are accruing benefits under a company money purchase pension scheme.

Detailed disclosures of Directors' emoluments are shown in the Directors' remuneration report on page 51 and details of Directors' interests in share options and awards are shown on page 54 which form part of the financial statements.

12(a). Finance income

	2016 £m	2015 £m
Gain on derivative	0.1	–
Interest receivable	0.1	0.4
Other finance income	0.5	–
	0.7	0.4

Other finance income relates to the expiry of obligations from convertible loan notes issued in prior years.

12(b). Finance cost

	2016	2015
	£m	£m
Interest payable on bank overdrafts	0.2	0.2
Interest on convertible loan notes	2.3	–
Other finance costs	0.9	1.0
Fair value charge on derivative financial liability	–	0.1
Unwinding of discount on provisions	–	0.4
	3.4	1.7

Other finance costs relates to impairment of a financial asset.

13. Gain on disposal of joint venture

The Company disposed of its investment in IE LEV Limited on 28 February 2014 with the recognition of a gain of £1.0 million in the year ended 30 September 2014. Deferred contingent consideration of £1.5 million from the sale of the investment was received during 2015 which was previously recognised at a fair value of £nil due to the uncertainty associated with this amount. This has been recognised as a gain in the prior year. In total a gain of £2.5 million has been realised on the sale of the investment.

14. Income tax

(a) Tax (credited)/charged in the consolidated income statement

	2016	2015
	£m	£m
Current income tax
Research and development tax credit in respect of the current year	(3.0)	(4.6)
Foreign income tax	–	0.2
Research and development tax credit in respect of prior years	(0.7)	(1.6)
Total current income tax	(3.7)	(6.0)
Deferred tax
Origination and reversal of temporary differences	21.8	(6.8)
Adjustments to prior years	–	1.2
Total deferred tax	21.8	(5.6)
Income tax charge/(credit) reported in the consolidated income statement	18.1	(11.6)

(b) Factors affecting current tax credit

The tax assessed on the loss before tax for the year is higher (2015: lower) than the standard rate of corporation tax in the UK of 20 per cent (2016: 20.5 per cent). The differences are reconciled below:

	2016 £m	2015 £m
Loss before tax	(64.6)	(54.4)
Loss before tax multiplied by standard rate of
corporation tax in the UK of 20 per cent (2015: 20.5 per cent)	(12.9)	(11.2)
Expenses not deductible for tax purposes	3.5	0.7
Non-taxable income	–	(0.3)
R&D enhanced super deduction net of research and development tax credit in respect of current year	(1.2)	(1.8)
Foreign income tax	(0.1)	0.2
Effect of share of loss of equity-accounted investees	0.4	0.2
Adjustments in respect of prior years	(0.7)	(0.4)
De-recognition of deferred tax asset previously recognised	21.9	–
Current year losses net of recognition of tax effect of previously unrecognised tax losses	7.2	1.0
	18.1	(11.6)

(c) Deferred tax

Group

Deferred tax assets and liabilities are attributable to the following:

	Assets Liabilities						Net
	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m
Accelerated capital allowances	–	–	(0.1)	(1.3)	(0.1)	(1.3)
Other timing differences	–	0.7	(1.7)	–	(1.7)	0.7
Tax losses carried forward	–	22.5	–	–	–	22.5
Net deferred tax asset/(liability)	–	23.2	(1.8)	(1.3)	(1.8)	21.9
Offset	–	(1.3)	–	1.3	–	–
	–	21.9	(1.8)	–	(1.8)	21.9

Notes to the annual financial statements continued

14. Income tax continued

Movement in deferred tax balances during the year:

	Balance at beginning of year £m	Recognised in income statement £m	Recognised in equity	Balance at end of year
2016			£m	£m
Accelerated capital allowances	(1.3)	1.2	–	(0.1)
Other timing differences	0.7	(0.5)	(1.9)	(1.7)
Tax losses carried forward	22.5	(22.5)	–	–
Net deferred tax asset/(liability)	21.9	(21.8)	(1.9)	(1.8)
2015
Accelerated capital allowances	(1.2)	(0.1)	–	(1.3)
Other timing differences	0.9	(0.2)	–	0.7
Tax losses carried forward	16.6	5.9	–	22.5
Net deferred tax asset	16.3	5.6	–	21.9

The unrecognised deferred tax asset comprises the following:

	2016	2015
	£m	£m
Losses	26.4	2.0
Unrecognised deferred tax asset	26.4	2.0

The recognition of deferred tax assets relating to the carry forward of unused tax losses and unused tax credits requires the assessment of the extent to which it is probable that future taxable profits will be available against which the unused tax losses and tax credits can be utilised. Given the history of tax losses of the Group, it is required that there is convincing other evidence that sufficient taxable profits will be available against which the unused tax losses or unused tax credits can be utilised.

The Directors have therefore assessed whether, in their opinion, the recovery of the deferred tax assets is probable, and whether convincing evidence exists to justify this assessment. This assessment is based on the forecasts for the business, which are in turn based in part on known advances in the commercial viability of the Group's businesses. Given the refocus of the business as detailed in note 9 there is an increased level of uncertainty as to whether there will be sufficient future UK taxable profits to utilise the accumulated tax losses. Accordingly the Directors have concluded that until such time as significant commercial traction is being generated, the utilisation of the accumulated tax losses is not supported by convincing evidence and therefore the deferred tax asset has been de-recognised in the year.

There are no temporary differences associated with unremitted earnings of foreign subsidiaries.

Company

Movement in deferred tax balances during the year:

	Balance at beginning of year £m	Recognised in income statement £m	Recognised in equity £m	Balance at end of year £m
2016
Other timing differences	–	0.2	(1.9)	(1.7)
Net deferred tax asset/(liability)	–	0.2	(1.9)	(1.7)
2015
Other timing differences	–	–	–	–
Net deferred tax asset	–	–	–	–

Financial statements

trade's nature or conduct. The Group will continue to claim research and development tax relief where it is eligible to do so. Future tax charges will be affected by government changes to the standard rate of corporation tax in the UK. The Chancellor has announced that the rate of corporation tax will decrease to 19 per cent from 1 April 2017 and to 17 per cent from 1 April 2020.

These rates were enacted at the statement of financial position date and the rate reduction has been reflected in the financial statements in accordance with IAS 12.

The trading losses referred to above will be available for offset against future profits of the same trade, assuming there is no major change in the

Recognised and unrecognised deferred tax assets and liabilities at 30 September 2015 have been calculated at the 20 per cent tax rate and at the 20 per cent, 19 per cent and 17 per cent tax rates at 30 September 2016 depending on the timing of reversal of timing differences.

15. Earnings per share

(d) Factors which may affect future tax charges

Earnings per share is based on the Group's profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the year.

	2016	2015
Earnings per share
– Basic (pence)	(42.8)	(22.7)
– Diluted (pence)	(42.8)	(22.7)
Loss for the financial year (£ million)	(82.7)	(42.8)
Weighted average number of shares used:
– Issued ordinary shares at beginning of year	188,325,451	188,112,899
– Effect of ordinary shares issued during the year	4,998,481	60,871
Basic weighted average number of shares	193,323,932	188,173,770

The impact of share options, share warrants and potential ordinary shares associated with the convertible loan notes has an antidilutive impact on the earnings per share.

467,678 share options (2015: 1,471,179), 1,869,784 share awards (2015: 4,298,646), and 375,000,000 potential ordinary shares in relation to the convertible debt (2015: nil) were excluded from the weighted-average number of ordinary shares used in the calculation of the diluted earnings per share because their effect would have been antidilutive.

16. Profit/(loss) attributable to members of the Parent Company

The loss of the Parent Company for year ended 30 September 2016 was £224.4 million (2015: profit of £1.3 million).

Notes to the annual financial statements continued

17. Property, plant and equipment

	Office equipment,	Plant, machinery
	fixtures	and
Group	and fittings £m	equipment £m	Total £m
Cost:
At 1 October 2014	2.1	14.2	16.3
Additions	0.4	4.4	4.8
At 1 October 2015	2.5	18.6	21.1
Additions	1.0	0.4	1.4
Disposals	–	(1.3)	(1.3)
Transfer to inventory	–	(0.5)	(0.5)
At 30 September 2016	3.5	17.2	20.7
Depreciation and impairment:
At 1 October 2014	1.5	7.9	9.4
Depreciation charge for the year	0.4	2.8	3.2
At 1 October 2015	1.9	10.7	12.6
Depreciation charge for the year	0.3	2.1	2.4
Impairment charge	0.2	4.3	4.5
Disposals	–	(1.3)	(1.3)
Transfer to inventory	–	(0.5)	(0.5)
Foreign exchange	0.1	0.1	0.2
At 30 September 2016	2.5	15.4	17.9
Net book value:
At 30 September 2016	1.0	1.8	2.8
At 30 September 2015	0.6	7.9	8.5
At 1 October 2014	0.6	6.3	6.9

The cost of plant, machinery and equipment at 30 September 2016 includes £0.3 million (2015: £3.8 million) of assets in the course of construction.

Office equipment, fixtures and fittings includes assets under non cancellable finance leases with a net book value of £0.7m. (2015: £nil).

The details relating to the impairment charged during the year are set out in note 19.

The Company does not hold any property, plant and equipment.

Financial statements

18. Intangible assets

	Development	Software	Patents	Goodwill	Total
Group	£m	£m	£m	£m	£m
Cost:
At 1 October 2014	–	3.1	5.2	11.5	19.8
Additions	2.0	1.0	14.3	–	17.3
At 1 October 2015	2.0	4.1	19.5	11.5	37.1
Additions	–	–	3.2	–	3.2
Contingent consideration adjustment	–	–	(3.0)	–	(3.0)
At 30 September 2016	2.0	4.1	19.7	11.5	37.3
Amortisation and impairment:
At 1 October 2014	–	1.5	1.2	5.6	8.3
Amortisation charge for the year	–	0.9	0.9	–	1.8
At 1 October 2015	–	2.4	2.1	5.6	10.1
Amortisation charge for the year	0.3	0.7	1.3	–	2.3
Impairment charge	1.7	–	9.3	5.9	16.9
Foreign exchange	–	–	0.1	–	0.1
At 30 September 2016	2.0	3.1	12.8	11.5	29.4
Net book value:
At 30 September 2016	–	1.0	6.9	–	7.9
At 30 September 2015	2.0	1.7	17.4	5.9	27.0
At 1 October 2014	–	1.6	4.0	5.9	11.5

The details relating to the impairment charged during the year are set out in note 19.

The Company does not hold any intangible assets.

19. Impairment testing of goodwill and other assets

The carrying value of goodwill acquired through business combinations is tested annually for impairment or whenever events or changes in circumstances indicate the carrying value may not be recoverable. All other assets across the Group have a defined life and are amortised over a fixed period. The carrying value of these assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Allocation of goodwill

The statement of financial position of the Group is reviewed by the Chief Operating Decision Maker (CODM), which is defined as being Intelligent Energy Holdings plc's Board of Directors, at a Group level.

As detailed in note 7 the Group is organised into two segments following the reorganisation of the Group, being 'Fuel Cell Technology' and 'Essential Energy', and this is the level at which the results of the business are reviewed by the CODM and are the cash-generating units (CGUs) at which impairment testing is performed. The recoverable amount of each CGU has been determined based on value in use calculations. All goodwill is allocated to the Fuel Cell Technology segment.

Impairment

The Group has undertaken a reorganisation of the business during the year which triggered an impairment review resulting in an impairment of goodwill and other assets as detailed below and in note 9. Impairments within each segment are as follows:

	Essential Energy £m	Fuel Cell Technology £m	Group £m
Goodwill impairment	–	5.9	5.9
Intangible assets impairment	–	11.0	11.0
Property, plant and equipment impairment	1.4	3.1	4.5
	1.4	20.0	21.4

Impairments have been recognised in respect of certain specific intangible and property, plant and equipment assets as a result of the refocus of the business from the reorganisation in the year. The impairment of goodwill has been recognised on the basis of the estimated recoverable amount of the Fuel Cell Technology segment at 31 March 2016 of £13m. Following the development of the strategy for the reorganised business in the second half of the 2015/16 financial year, the impairment review performed at 30 September 2016 has indicated a value in use for the Fuel Cell Technology segment higher than the carrying value of assets in that segment. However in accordance with IAS 36 the impairment of goodwill has not been reversed.

Notes to the annual financial statements continued

19. Impairment testing of goodwill and other assets continued

Period of projected cash flows

The Directors have used a five-year forecast period with an assumed long-term growth rate after 2021 of 2 per cent per annum.

The Group Chief Executive Officer's review on page 09 sets out the outlook for the Group. The Directors expect to benefit from these opportunities to move towards positive cash flow.

Discount rate

Future cash flows are discounted at a pre-tax rate of 17.9 per cent (2015: 14.6 per cent).

Research and development costs are based on the estimated investments required by the business to complete the research and development phases of each product line currently in progress. In each case senior management has estimated the total cost of labour, materials and capital expenditure necessary to start full production.

Raw material and production costs are based on estimated product cost structures. The costs are based on current raw material and production costs, synergies in mass production and the effect of learning during manufacture.

Conclusion

The Directors have confirmed that the recoverable amount of the segments supported their carrying values and the assumptions used in estimating the value in use are appropriate.

The carrying value of investments and receivables recognised in the Parent Company have been considered as part of the review and an impairment has been recognised against amounts owed by subsidiary undertakings using a recoverable amount calculated on a value in use basis.

20. Investments

	Group		Company
	2016	2015	2016	2015
	£m	£m	£m	£m
Subsidiary undertakings	–	–	10.1	9.9
Joint ventures	–	1.1	–	6.2
	–	1.1	10.1	16.1

Investment in joint ventures	Group £m	Company £m
At 1 October 2014	1.4	6.2
Investment in Aquapurum Private Limited	0.5	–
Joint venture losses	(0.8)	–
At 1 October 2015	1.1	6.2
Investment in SMILE	0.7	0.7
Joint venture losses	(0.4)	–
Impairment	(1.6)	(6.9)
Foreign exchange	0.2	–
At 30 September 2016	–	–

		Company
	2016	2015
Investment in subsidiaries	£m	£m
At 1 October	9.9	7.6
Capital contribution arising from share-based payments	0.2	2.3
At 30 September	10.1	9.9

Financial statements

(a) Subsidiary undertakings

Details of the subsidiary undertakings at 30 September 2016 are as follows:

Subsidiary	Country of incorporation	Proportion of voting rights and shares held	Nature of business
Intelligent Energy Limited England and Wales		100%	Development and commercialisation of fuel cell based energy solutions.
Intelligent Energy India Private Limited	India	100%	To represent Intelligent Energy Holdings plc and its Group companies by promoting technical/financial collaborations, partnerships and joint ventures between the Group and companies in India.
Essential Energy India Private Limited	India	100%2	Trading company to support the Group's activities in India.
Essential Energy (Operations) India Private Limited	India	100%2	Trading company to support the Group's activities in India.
E2 Energy Services Private Limited	India	100%2	Trading company to support the Group's activities in India.
Intelligent Energy Inc	USA	100%1	Fuel processing system development and partnering activities in the USA including marketing the Group's fuel cell power systems in the USA.
IE Japan Limited	Japan	100%	To represent Intelligent Energy Holdings plc and its Group companies by promoting technical/financial collaborations, partnerships and joint ventures between the Group and companies in Japan.
Intelligent Energy Holdings (Singapore) PTE Limited	Singapore	100%	Trading company to support the Group's activities in Asia.
E2S Holdings PTE	Singapore	100%2	Trading company to support the Group's activities in Asia.
IES Energy PTE	Singapore	100%2	Trading company to support the Group's activities in Asia.
Advanced Power Sources Limited	England and Wales	100%1	Dormant
Intelligent Energy (Proprietary) Limited	England and Wales	100%1	Dormant
MESO Fuel Inc	USA	100%1	Dormant
Pacific Shelf 1813 Limited	England and Wales	100%1	Dormant

1 Includes indirect holdings of 100 per cent via Intelligent Energy Limited.

2 Includes indirect holding of 100 per cent via Intelligent Energy Holdings (Singapore) PTE Limited.

(b) Joint ventures

Details of joint ventures at 30 September 2016 are as follows:

Name of entity	Place of business/ Country of incorporation	% of ownership interest	Nature of the relationship	Measurement method
SMILE FC System Corporation	Japan	50%	Jointly controlled entity whose principal activity is the manufacture, evaluation and improvement of air-cooled fuel cells, to be supplied to the Suzuki Motor Corporation.	Equity

All joint ventures detailed above are private limited companies and there is no quoted market price available for their shares.

Notes to the annual financial statements continued

20. Investments continued

Aggregated summarised financial information of the jointly controlled entities at 30 September 2016:

	2016 £m	2015 £m
Summarised balance sheets
Current assets
Cash and cash equivalents	–	0.9
Other current assets	3.7	2.8
Total current assets	3.7	3.7
Non-current assets	0.2	0.4
Current liabilities	(0.9)	(0.4)
Non-current liabilities	–	(1.2)
Net assets	3.0	2.5
	2016 £m	2015 £m
Summarised statements of comprehensive income
Revenue	1.3	0.5
Pre tax loss from continuing operations	(3.0)	(2.0)
Income tax	–	0.1
Total comprehensive income	(3.0)	(1.9)

Reconciliation of aggregated summarised financial information:

Reconciliation of the aggregated summarised financial information presented to the carrying amount of the interest in the joint ventures:

	2016 £m	2015 £m
Joint ventures' net assets at 30 September	3.0	2.5
Interest in joint ventures at 50 per cent	1.5	1.2
Unrealised profit adjustment	–	(0.1)
Impairment	(1.5)	–
Investment in joint ventures	–	1.1

Due to the ongoing losses within SMILE FC System Corporation the investment remaining in both the Group and Company financial statements was impaired to £nil in the year. As a result the Group's share of the loss for this entity of £0.2 million, arising subsequent to the recognition of the impairment, is not recognised in the Group's income statement for the current year.

The Company's investment in IE-CHP (UK & Eire) Limited was diluted during the year from an equity stake of 50 per cent to 26 per cent due to additional investment from other joint venture parties. As a result this investment changed from a joint venture entity to an associate investment. IE-CHP (UK & Eire) Limited changed its name to Vanilla Energy Limited during the year and has commenced members voluntary liquidation.

On 22 July 2016 the Company disposed of its investment in its joint venture entity, Aquapurum Water Private Limited, with a nil gain or loss.

There are no contingent liabilities relating to the Group's interest in the joint ventures.

21. Inventories

	Group
	2016 £m	2015 £m
Raw materials	1.6	2.8
Finished goods	–	2.5
	1.6	5.3

The difference between purchase price or production cost of inventories and their replacement cost is not material. The cost of inventories recognised as an expense and included in the income statement amounted to £1.0 million (2015: £2.9 million). The Group recognised an inventory write-down of £4.1 million in the current year (2015: £1.5 million within the Fuel Cell Technology segment).

Financial statements

22. Trade and other receivables

		Group		Company
	2016	2015	2016	2015
	£m	£m	£m	£m
Trade receivables	4.1	3.3	–	–
Less: Provision for impairment of trade receivables	(0.1)	(0.3)	–	–
Trade receivables (net)	4.0	3.0	–	–
Amounts owed by subsidiary undertakings	–	–	240.0	213.7
Less: Provision for impairment of amounts owed by subsidiary undertakings	–	–	(215.7)	–
Amounts owed by joint ventures	0.2	0.4	–	–
Other receivables	0.8	1.6	–	–
Prepayments and accrued income	2.8	6.5	–	–
Current trade and other receivables	7.8	11.5	24.3	213.7
Non-current: other receivables	1.9	1.9	–	–
Less: Provision for impairment of non-current receivables	(1.9)	(1.0)	–	–
Non-current receivables (net)	–	0.9	–	–
Total trade and other receivables	7.8	12.4	24.3	213.7

Trade receivables are non-interest bearing and are generally on 30 to 90 days' terms.

Non-current other receivables at 30 September 2016 and 30 September 2015 comprise a loan due from a third party with an effective interest rate of 18 per cent.

Prepayments and accrued income includes accrued revenue relating to payments not yet received on long-term engineering services projects and power management contracts as follows.

	2016	2015
	£m	£m
At 1 October	5.2	0.9
(Decrease)/increase in accrued revenue during the year	(3.6)	4.3
At 30 September	1.6	5.2

As at 30 September, the analysis of trade receivables that were past due but not impaired is as follows:

		Not past	Less than	30 to 60	Over 60
	Total	due	30 days	days	days
	£m	£m	£m	£m	£m
2016	4.0	0.6	1.3	0.1	2.0
2015	3.0	1.3	0.1	0.3	1.3

The credit quality of trade receivables that are neither past due nor impaired is assessed by reference to historical information relating to counterparty default rates.

As at 30 September the aged analysis of receivables impaired is as follows:

	Total	3–6 months	Over 6 months
	£m	£m	£m
2016	2.0	–	2.0
2015	1.3	1.3	–

The movement on the Group provision for impairment of receivables are as follows:

	2016 £m	2015 £m
At 1 October	1.3	–
Utilisation of provision	(0.3)	–
Provision for receivables impairment	1.0	1.3
At 30 September	2.0	1.3

The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Group does not hold any collateral as security.

Notes to the annual financial statements continued

22. Trade and other receivables continued

The carrying value of the Group's trade and other receivables are denominated in the following currencies:

	2016 £m	2015 £m
UK Pound	3.3	4.4
Indian Rupee	4.5	8.0
	7.8	12.4

Company

The carrying value of trade and other receivables equate to their fair value. Amounts owed by subsidiary undertakings are denominated in UK Pounds, are interest free and due on demand. No amounts are past due. However amounts receivable from subsidiary undertakings have been impaired by £215.7 million to a recoverable amount of £24.3 million based on a value in use calculation.

23. Short-term deposits

	Group		Company
	2016	2015	2016	2015
	£m	£m	£m	£m
Short-term bank deposits	–	0.6	–	–

The effective interest rate on short-term deposits at the prior year end was 0.45 per cent and these deposits had an average maturity of 92 days. Short-term bank deposits included restricted bank deposits of £0.6 million at 30 September 2015, held as security in relation to trading activities in India.

24. Cash and cash equivalents

	Group		Company
	2016	2015	2016	2015
	£m	£m	£m	£m
Bank current account	20.6	23.6	0.1	0.1

Cash at bank earns interest at floating rates based on bank deposit rates. Deposits are made for varying periods dependent on the cash requirements of the Group. The Group only deposits cash surpluses with major banks in line with the Group's treasury policy.

25. Trade and other payables

	Group			Company
	2016	2015	2016	2015
	£m	£m	£m	£m
Trade payables	1.0	1.3	–	–
Amounts owed to subsidiary undertakings	–	–	0.2	–
Other payables	2.4	0.5	0.7	1.1
Accruals and deferred income	5.0	12.4	0.1	–
	8.4	14.2	1.0	1.1

Trade and other payables are stated at cost. Trade payables are non-interest bearing and are normally settled on 30 to 60 days' terms.

Included within accruals and deferred income are the following amounts relating to deferred revenue from customer prepayments received on long-term projects.

	2016	2015
	£m	£m
At 1 October	1.4	1.3
(Decrease)/increase in deferred revenue during the year	(0.4)	0.1
At 30 September	1.0	1.4

Financial statements

26. Provisions

	Contingent consideration
	£m
At 1 October 2015	3.0
Reassessment of liability	(3.0)
At 30 September 2016	–

Contingent consideration was payable in relation to the assets acquired from Société Bic (S.A.) ('BIC'). The liability has been re-assessed following the reorganisation of the Group and the reduction credited to intangible assets.

27. Convertible loan notes

Group and Company

	£m
Carrying amount of liability
Proceeds from issue of convertible notes (30,000,000 notes at £1 par value)	30.0
Transaction costs	(2.8)
Net proceeds	27.2
Amount classified as equity (net of transaction costs of £0.7m)	(7.3)
Interest expense (note 12b)	2.3
Interest paid	(1.0)
At 30 September 2016	21.2
Current	0.5
Non-current	20.7

The Company issued 30 million 13 per cent secured, convertible and redeemable loan notes at a par value of £30 million on 17 May 2016. The loan notes mature three years from the issue date at their nominal value of £30 million or can be converted into shares at the holder's option at any date up to maturity at the rate of 8 pence per share. Any unconverted loan notes at maturity become payable on demand. Interest at 13 per cent per annum is payable on a quarterly basis. The interest charged during the year is calculated by applying an effective interest rate of 30.3 per cent on the liability component. The loan notes are secured by way of an equitable charge over the Company's shares in its principal subsidiary, Intelligent Energy Limited.

28. Finance lease liabilities

£m Gross finance lease liabilities – minimum lease payments No later than 1 year 0.3 Later than 1 year and no later than 5 years 0.4 0.7 Future finance charges on finance lease liabilities (0.1)		2016	2015
			£m
			–
			–
			–
			–
	Present value of finance lease liabilities	0.6	–

The present value of finance lease liabilities is as follows:

	2016	2015
	£m	£m
No later than 1 year	0.3	–
Later than 1 year and no later than 5 years	0.3	–
	0.6	–

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

Notes to the annual financial statements continued

29. Financial instruments

Group

Capital management

The Directors consider the capital of the business to be the share capital and reserves of the Group. Due to the stage of development of the Group's technology, the Group manages capital requirements through raising equity share capital or convertible loan notes. The requirement to raise equity share capital or convertible loan notes is determined by reference to projected cash flows that are reviewed regularly.

Risks

Interest rate risk. At 30 September 2016 the Group holds convertible loan notes with a fixed interest rate of 13 per cent per annum. The Group holds financial assets attracting interest receivable as detailed in notes 22, 23 and 24.

Foreign currency risk. The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

Foreign exchange risk arises when future commercial transactions or recognised assets and liabilities are denominated in a currency that is not the entity's functional currency. Management has set up a policy to require Group companies to manage their foreign exchange risk against their functional currency. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group will seek to use forward contracts, transacted by Group treasury.

The Group has implemented a treasury risk management policy to hedge certain anticipated cash flows in each major foreign currency for the subsequent 12 months. At 30 September 2016 the Group holds no foreign exchange forward contracts (30 September 2015: notional principal amount outstanding of JPY190.4 million). The change in the fair value of this derivative is recognised in net finance costs in the income statement.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group's foreign operations will be managed primarily through borrowings denominated in the relevant foreign currencies.

At 30 September 2016 the Group has no foreign currency borrowings (2015: none).

At 30 September 2016, if the UK pound had weakened/strengthened by 10 per cent against the US Dollar, Japanese Yen, Indian Rupee and Euro with all other variables held constant, post-tax loss for the year would have been £0.6 million higher/£0.5 million lower (2015: £0.5 million higher/£0.4 million lower), mainly as a result of foreign currency exchange gains/losses on Indian Rupee denominated trading.

Credit risk. The Group's credit risk is predominantly with major multinational original equipment manufacturing companies, based in Europe and Japan and a major telecommunications provider in India. Concentration of credit risk arises from a major customer in India and from cash funds that are placed with a number of the major UK clearing banks. The Group only places cash deposits with banks with investment credit rating in accordance with the Group's treasury policy. The Group seeks to diversify exposure such as ensuring that concentration of funds with an individual bank at any time does not exceeding pre-determined limits as set out in the Group's treasury policy.

The carrying amount of the financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows:

	2016	2015
	£m	£m
Trade and other receivables	7.8	12.4
Short-term deposits	–	0.6
Cash and cash equivalents	20.6	23.6
	28.4	36.6

Accounting classifications and fair values

When measuring the fair value of an asset or liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation technique as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value of the derivative financial liability was fair valued using forward exchange rates that are quoted in an active market and falls within Level 2 of the fair value hierarchy.

All other financial assets/liabilities are recorded in the consolidated statement of financial position at amortised cost with carrying value being a reasonable approximation of fair value.

information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
The following tables show the carrying amounts and fair values of financial assets and financial liabilities. They do not include fair value

	Carrying amount
30 September 2016	Loans and receivables £m	Other financial liabilities £m	Total £m
Financial assets not measured at fair value
Trade and other receivables excluding prepayments and accrued income	5.0	–	5.0
Cash and cash equivalents	20.6	–	20.6
	25.6	–	25.6
Financial liabilities not measured at fair value
Trade and other payables excluding accruals and deferred income	–	3.4	3.4
Liability component of convertible loan notes	–	20.7	20.7
	–	24.1	24.1

	Carrying amount
30 September 2015	Loans and receivables £m	Other financial liabilities £m	Liabilities at fair value through profit and loss £m	Total £m
Financial assets not measured at fair value
Trade and other receivables excluding prepayments and accrued income	5.9	–	–	5.9
Short-term deposits	0.6	–	–	0.6
Cash and cash equivalents	23.6	–	–	23.6
	30.1	–	–	30.1
Financial liabilities not measured at fair value
Trade and other payables excluding accruals and deferred income	–	1.8	–	1.8
Provisions	–	3.0	–	3.0
Financial liabilities measured at fair value
Derivative financial liability	–	–	0.1	0.1
	–	4.8	0.1	4.9

The book value of the financial assets and financial liabilities not measured at fair value is in all cases considered to be fair value.

Liquidity risk

The Group maintains adequate liquid funds to match contractual cash flows, with any surplus funds being placed on short-term interest-bearing deposit. The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements.

		Contractual cash flows
	Carrying	On	Less than	4 to 12	1 to 2	2 to 3
	amount	demand	3 months	months	years	years	Total
30 September 2016	£m	£m	£m	£m	£m	£m	£m
Trade and other payables	(3.4)	–	(3.4)	–	–	–	(3.4)
Finance lease liability	(0.6)	–	(0.1)	(0.2)	(0.3)	(0.1)	(0.7)
Convertible loan notes	(20.7)	–	(0.5)	(2.9)	(3.9)	(32.9)	(40.2)
	(24.7)	–	(4.0)	(3.1)	(4.2)	(33.0)	(44.3)

			Contractual cash flows
30 September 2015	Carrying amount £m	On demand £m	Less than 3 months £m	2 to 5 years £m	Total £m
Trade and other payables	(1.8)	–	(1.8)	–	(1.8)
Provisions	(3.0)	–	–	(4.6)	(4.6)
	(3.8)	–	(1.8)	(4.6)	(6.4)

The holders of the convertible loan notes have the option to convert the loan notes into shares at any point during the period up to maturity in May 2019. The £30 million principal of the convertible loan notes payable in May 2019 included in the above contractual cash flows will arise only if the redemption option is applied by the bondholders.

Notes to the annual financial statements continued

29. Financial instruments continued

Company

(a) Accounting classifications and fair values

The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. They do not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

		Carrying amount
	Loans and receivables	Other financial liabilities	Total
30 September 2016	£m	£m	£m
Financial assets not measured at fair value
Trade and other receivables	24.3	–	24.3
Cash and cash equivalents	0.1	–	0.1
	24.4	–	24.4
Financial liabilities not measured at fair value
Trade and other payables excluding accruals and deferred income	–	0.9	0.9
Liability component of convertible loan notes	–	20.7	20.7
	–	21.6	21.6

		Carrying amount
30 September 2015	Loans and receivables £m	Other financial liabilities £m	Total £m
Financial assets not measured at fair value
Trade and other receivables	213.7	–	213.7
Cash and cash equivalents	0.1	–	0.1
	213.8	–	213.8
Financial liabilities not measured at fair value
Trade and other payables excluding accruals and deferred income	–	(1.1)	(1.1)

The book value of the financial assets and financial liabilities not measured at fair value is in all cases considered to be fair value.

(b) Liquidity risk

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements.

				Contractual cash flows
30 September 2016	Carrying amount £m	On demand £m	Less than 3 months £m	4 to 12 months £m	1 to 2 years £m	2 to 3 years £m	Total £m
Trade and other payables	(0.9)	–	(0.9)	–	–	–	(0.9)
Convertible loan notes	(20.7)	–	(0.5)	(2.9)	(3.9)	(32.9)	(40.2)

			Contractual cash flows
	Carrying	On	Less than	2 to 5
	amount	demand	3 months	years	Total
30 September 2015	£m	£m	£m	£m	£m
Trade and other payables	(1.1)	–	(1.1)	–	(1.1)

The holders of the convertible loan notes have the option to convert the loan notes into shares at any point during the period up to maturity in May 2019. The £30 million principal of the convertible loan notes payable in May 2019 included in the above contractual cash flows will arise only if the redemption option is applied by the bondholders.

30. Issued share capital

	2016	2015
Issued, called up and fully paid
– number	206,239,331	188,325,451
– £ million	10.3	9.4

Holders of the ordinary shares (of 5p nominal value each) are entitled to receive dividends and other distributions and to attend and vote at any general meeting.

Shares were allotted during the period since 1 October 2015 as follows:

	Shares of 5p
	each
Issue of new share capital	14,062,500
MIP share award	3,851,380

The issue of ordinary shares during the year generated additional gross funds of £1.1 million (2015: £0.2 million) for the business.

31. Reserves

Equity share capital

The balance classified as share capital relates to the nominal value of shares on issue of the Company's equity share capital, comprising 5p ordinary shares.

Share premium

The balance classified as share premium relates to the aggregate net proceeds less nominal value of shares on issue of the Company's equity share capital.

Other reserves

Equity component of convertible loan notes

The Company has issued convertible loan notes with equity and liability elements. The convertible loan note proceeds, after deducting the liability element, is deemed to be the equity element and has been accounted for in reserves.

Merger reserve

The balance classified as other reserves relates to the acquisitions of Advanced Power Sources Limited and Intelligent Energy Limited, as recommended by section 612 of the Companies Act 2006.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operations.

32. Share-based payment plans

An equity-settled total share-based payment expense of £0.2 million (2015: £2.3 million) has been recognised in the year.

The Company has issued a number of share-based payment plans to employees including share options and share awards as described below.

2001 and 2009 Share Option Schemes

The exercise price of the options are fixed and determined on the date of the grant. The option holders have the option to purchase ordinary shares at the option price between the exercise dates. The fair value of the options is estimated at the grant date using a Black-Scholes model, taking into account the terms and conditions upon which the options were granted. The contractual life of each option granted is varied. The schemes are equity-settled share-based payments and there are no cash settlement alternatives.

The 2009 Share Option Scheme is subject to specific performance criteria being met.

Notes to the annual financial statements continued

32. Share-based payment plans continued

The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, the share options during the year in relation to the 2001 and 2009 Share Option Schemes:

	2016 No.	2016 WAEP pence	2015 No.	2015 WAEP Pence
Outstanding at 1 October	312,500	133	2,970,600	92
Exercised during the year	–	–	(212,552)	80
Expired during the year	(230,000)	150	(2,445,548)	88
Outstanding at 30 September	82,500	84	312,500	133
Exercisable at 30 September	82,500	84	312,500	133

At 30 September 2015, the weighted average remaining contractual life for the 2001 and 2009 scheme share options outstanding is 0.54 years (2015: 0.98 years). There were no options granted during the current or prior year under the 2001 or 2009 schemes.

The range of exercise prices for options outstanding under these schemes at the end of the year was 80p to 90p (2015: 80p to 150p). The weighted average share price at the date of exercise was 89p. The share price at 30 September 2016 was 12p.

The Group has taken advantage of the exemption in IFRS 1 in respect of equity-settled awards so as to apply IFRS 2 only to those equity-settled awards granted after 7 November 2002.

The following inputs were used in a Black-Scholes model to estimate the value of the options at grant date for the 2001 and 2009 share-based payment plans:

Dividend yield (%)	–
Expected volatility (%)	40%
Risk-free interest rate (%)	0.77%
Expected life of option (years)	2 to 8.5
Weighted average share price (£)	1.00
Model used:	Black-Scholes

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

2013 Management Incentive Plan

The Company introduced the HM Revenue & Customs approved 2013 Management Incentive Plan ('MIP') during 2013.

The purpose of the MIP is to provide participants with an opportunity to participate directly in the growth of the value of the Company by receiving the MIP award. This allows the participants to share in a pool of value, "the MIP Pool", which is linked to the growth in the value of the Company's shares. Participants receive shares and share options in the Company if the Company is sold, taken over or is floated on a stock exchange ('Exit Event').

Awards were granted to employees under the MIP on 7 March 2014. The admission to the London Stock Exchange in July 2014 was an Exit Event under the conditions of the MIP. The size of the MIP Pool was determined by reference to 16 per cent of the difference between the Offer Price of £3.40 and £2.30. Each participants' share of the MIP Pool was converted into the number of shares (awarded in the form of a) MIP Share Options and b) MIP Share Awards) determined by reference to the Offer Price with the MIP Award vesting as follows:

• One third on the date that the Company's shares are floated on the stock exchange;
• One third on the first anniversary of the date of flotation; and
• One third on the second anniversary of the date of flotation.

During the year ended 30 September 2014 810,000 share options were granted and 5,446,133 shares were awarded to the MIP scheme participants.

MIP Share options

The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, the share options during the year in relation to the MIP:

	2016 No.	2016 WAEP pence	2015 No.	2015 WAEP Pence
Outstanding at 1 October	650,000	100	810,000	100
Granted during the year	–	–	–	–
Forfeited	(350,000)	100	(160,000)	100
Outstanding at 30 September	300,000	100	650,000	100
Exercisable at 30 September	300,000	100	270,000	100

One third of the granted share options (270,000 options) vested on 9 July 2014 on listing of the Company on the London Stock Exchange. 190,000 of the remaining options vested on 9 July 2015 and 190,000 vested on 9 July 2016.

At 30 September 2016, the weighted average remaining contractual life for the MIP share options outstanding is 0.5 years (2015: 1.5 years). The weighted average fair value of options granted under the MIP, determined by the Monte-Carlo valuation model, was 110p per option.

The expected life of the options is based on historical data and the scheme rules option expiry date of April 2017. It is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. The MIP scheme is equity-settled and the fair value is measured at the grant date.

MIP Share awards

The following table illustrates the number (No.) and weighted average fair value (WAFV) at grant date of shares awarded, forfeited and vested in relation to the MIP:

	2016 No.	2016 WAFV Pence	2015 No.	2015 WAFV Pence
At 1 October	1,869,784	104	4,298,646	104
Forfeited	(149,283)	104	(290,924)	104
Vested	(1,720,501)	–	(2,137,938)	–
At 30 September	–	–	1,869,784	104

Share awards were granted on 7 March 2014. On admission of the Company to the London Stock Exchange on 9 July 2014 the first tranche of the share award vested with the MIP participants. Part of the first tranche of the share award was modified by the Company issuing a reduced number of 1,147,487 shares and settling a number of share awards in cash instead of facilitating sales of ordinary shares under the award.

2,137,938 of the share awards vested on 9 July 2015 and 1,720,501 share awards vested on 9 July 2016.

The following inputs were used in a Monte-Carlo model to estimate the value of the options and share awards at grant date for the MIP share-based payment plans:

Dividend yield (%)	–
Grant date	7 March 2014
Expected volatility (%)	39.24%
Risk-free interest rate (%)	1.09%
Expected life of option (years)	3
Share price at grant date (£)	2.50
Model used:	Monte Carlo Algorithm

Sharesave plan

A sharesave plan was implemented during the prior year eligible to all UK employees. Employees participate by making monthly saving contributions over a period of three years, linked to the grant of an option over the Company's shares with an option price at a 20 per cent discount to the market value of the share at grant. 508,679 options were granted under the scheme of which 423,501 have been forfeited subsequently.

Notes to the annual financial statements continued

33. Commitments

Energy Management Business transaction

On 30 September 2015 the Group signed an agreement to acquire GTL Limited's ("GTL") energy management business to provide efficient and economical energy to over 27,400 telecom towers in India ("Energy Management Business"). The transaction involves the acquisition of long-term power management contracts for telecom towers up to 2025.

Discussions are ongoing with debt and equity investors. However currently there is no certainty as to the outcome of these discussions. Under the circumstance in which the transaction does not proceed the India business would continue as a power management company which is not expected to materially impact negatively on the cash flows of the Group.

Should the transaction complete it is envisaged that Intelligent Energy will hold a minority equity stake in the enlarged Indian business.

Operating lease commitments – Group as lessee

The Group has entered into commercial leases on several properties, and items of office and laboratory equipment. These leases have an average duration of between less than one year and six years. The property leases all contain an option for renewal, with such options being exercisable before the expiry of the lease term at rentals based on market prices at the time of exercise. There are no restrictions placed upon the lessee by entering into these leases.

Future minimum rentals payable under non-cancellable operating leases as at 30 September are as follows:

	2016	2015
	£m	£m
Within one year	1.1	1.7
After one year but not more than five years	2.2	4.8
After five years	–	–
	3.3	6.5

During the year, £2.1 million (2015: £1.9 million) was recognised as an operating lease expense. This was made up of minimum lease payments for equipment of £0.1 million (2015: £0.1 million) and for property of £2.0 million (2015: £1.8 million).

34. Off-statement of financial position arrangements

The Group enters into operating lease arrangements for the hire of buildings and plant and equipment, these arrangements are a cost effective way of obtaining the short-term benefit of these assets. There are no other material off-statement of financial position arrangements.

35. Related-party transactions

Group and Company

During the year the Group and Company entered into transactions, in the ordinary course of business, with other related parties being subsidiary companies.

Transactions entered into, and trading balances outstanding at 30 September with other related parties, are as follows:

	Sales to related party £m	Purchases from related party £m	Amounts owed by related party £m	Amounts owed to related party £m
Subsidiaries – Company
2016	–	–	240.0	–
2015	–	–	213.2	–
Joint ventures – Group and Company
2016	1.0	–	0.4	–
2015	0.7	–	0.4	–

The amount owed by related-party subsidiaries refers to the intercompany debt with Intelligent Energy Limited. As detailed in note 22 a provision for impairment of amounts receivable from Intelligent Energy Limited of £215.7 million (2015: £nil) has been recognised during the year within the income statement of the Parent Company.

The sales and amounts owed by related-party joint ventures refers to the development contract with SMILE FC System Corporation.

Financial statements

Terms and conditions of transactions with related parties

The related-party transactions were made on terms equivalent to those that prevail in arm's length transactions.

Intelligent Energy Holdings plc, a Company registered in England and Wales, is the ultimate parent entity and controlling party in the Group.

Key management compensation

Key management personnel are deemed to be the Directors of the Company. The compensation paid or payable to key management for employee services is shown below:

	2016	2015
	£m	£m
Salaries and other short-term employee benefits	1.1	1.3
Termination benefits	0.4	–
Share-based payments	0.1	2.6
Total	1.6	3.9

Notes

Company and shareholder information

As at 30 September 2016, there were 615 holders of ordinary shares of £0.05 each in the capital of the Company. Their shareholdings are analysed below.

Shareholdings

Balance ranges	Total number of shareholders	% of holders	Total number of shares	% of issued share capital
1–5,000	180	29.27	334,562	0.16
5,001–50,000	261	42.44	5,613,735	2.72
50,001–100,000	54	8.78	3,842,162	1.86
100,001–500,000	72	11.71	15,772,933	7.65
500,001 and above	48	7.80	180,675,939	87.61
Totals	615	100.00	206,239,331	100.00

Company information

Directors Paul Heiden Non-executive Chairman

Martin Bloom Group Chief Executive Officer

John Maguire Chief Financial Officer

Michael Muller Senior Independent Non-executive Director

Dr Caroline Brown Independent Non-executive Director

Zarir J. Cama Independent Non-executive Director

Flavio Guidotti Non-executive Director

Company Secretary Nicholas Heard

Registered Office

Charnwood Building Holywell Park Ashby Road Loughborough Leicestershire LE11 3GB

Registered Number 05104429

Website

www.intelligent-energy.com

Auditor KPMG LLP St Nicholas House 31 Park Row Nottingham

NG1 6FQ Legal adviser

Pinsent Masons LLP 30 Crown Place London EC2A 4ES

Principal bankers

Barclays Bank PLC 5/6 High Street Hitchin Hertfordshire SG5 1BJ

Stockbroker

Stifel Nicolaus Europe Limited 150 Cheapside London EC2V 6ET

Registrar

Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA

Registrar services

Any enquiries relating to shareholdings on the share register, for example transfers of shares, change of name or address, lost share certificates, should be sent to the Registrar at the address shown below. Alternatively, call the shareholder helpline, also shown below.

A number of shareholder services can be accessed online at www.shareview.co.uk including a variety of "how to" guides and the portfolio service, which gives shareholders access to more information on their investments, such as balance movements and indicative share prices.

The shareholder helpline number is 0371 384 2030 or +44 121 415 7047 (if calling from overseas). Lines are open 8.30am to 5.30pm Monday to Friday, excluding public holidays. Calls may be recorded and randomly monitored for security and training purposes.

Stock symbols

Intelligent Energy Holdings plc ordinary shares trade under the following stock symbols:

• London Stock Exchange: IEH

• New York Stock Exchange (ADR): INGYY

ADRs

Any enquiries relating to ADRs should be sent to the depositary:

The Bank of New York Mellon Depositary Receipts PO Box 43006 Providence, RI 02940-3006 USA

Telephone (US): 1 877 283 5786 Telephone (International): +1 201 680 6825 Email: sharerelations@bnymellon.com Website: www.bnymellon.com/shareowner

Forward-looking statements

Certain sections of this Annual Report contain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report. Such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

www.intelligent-energy.com

Intelligent Energy Holdings plc

(Incorporated in England and Wales as a limited company under the Companies Act 2006 with registered number 5104429)

Registered office: Charnwood Building, Holywell Park, Ashby Road, Loughborough, LE11 3GB, UK

© Intelligent Energy Holdings plc – December 2016