Acta S.p.A. Business Update

Acta S.p.A. Business Update

Acta S.p.A, the clean energy products company, has announced the following update on its commercial activities and business outlook ahead of the Company's Interim Results that are expected to be announced on or around 22 September 2011.

Overall, the Company's core hydrogen product business is developing well, whilst its Italian photovoltaic business, as previously reported to the market, has been adversely impacted and delayed by legislative uncertainty within Italy due to the well publicised revisions to the feed-in tariff legislation and subsequent uncertainty over the interpretation and implementation of the "Cap" mechanism. The PV market situation remains uncertain although further Government announcements are expected shortly.

Hydrogen Electrolyser and Fuel Cell Activities
Within the Company's core products business, the hydrogen generator product line (water electrolyser) is developing ahead of expectations with positive test results and strong customer feedback.  The 1m3 stack unit, developed for back-up power systems and independent housing applications has been completed and Acta is developing commercial partnerships with system integrators and electrolyser manufacturers to address the back-up power and other markets.

The Company expects that commercial production of the stack and electrolyser units against orders will commence in the fourth quarter of 2011, with manufacture in significant volumes expected in 2012. This is ahead of management expectations. Sales of test units to back-up power system integrators and electrolyser manufacturers have already been made and the Company is now focussing its resources on the development of these partnerships through to initial order volumes over the summer months.  Certification of stack production processes under ISO 9001:2008 was completed in early July 2011.  The Company is currently reviewing the expansion of its manufacturing facilities, scheduled for late 2011 to early 2012, to enable it to meet the expected product demand in 2012.

Further development is required on the diesel enrichment product to improve the energy efficiency and commercial viability as the engine tests recently completed in Brazil have not produced technical results in line with the initial tests.  The ethanol reformer unit has demonstrated its technical feasibility and the refinement applies solely to this particular automotive application.  The Company will be undertaking additional development work on the automotive application to address its energy efficiency while the Company and its Brazilian partners remain in close contact and keen to pursue this application for the Brazilian truck market.

The Company's grant-funded activities continue to develop well with a total portfolio of grant-funded projects totalling €3.7 million scheduled for development during 2011 to 2014.  While these remain longer-term applications, the availability of Italian and European grant funding to support research in key areas of interest to the Company, allows Acta to offset much of the cost of its research activities over the coming years.

Photovoltaic Sector Activities
The approval of the new Italian feed-in tariff regime for renewable energy production (Conto Energia IV) has caused an increased level of activity in the EPC installation market to complete near-term projects before the introduction of the new Cap mechanism at the end of August 2011. In its EPC business, the Company is currently installing three of the four EPC projects initially sold to SPF Energy at the end of 2010, which were reconfirmed in May 2011, totalling 2.7MW, together with completing the handover of the 3MW EPC contract signed in 2010 with SPF Energy and the 1MW EPC project signed in 2010 with Tesla S.r.l. All these projects are expected to be fully completed within the current year.

The uncertainty around post August 2011 PV developments and the qualification of consents has reduced the outlook and expected sales value of consents for the development of large field-based projects such as those on which the Company has focused to date.

The new Cap mechanism requires the inscription of PV project authorisations in a "Register" maintained by the GSE (Gestore Servizi Energetici), and the allocation of the available feed-in tariff by the GSE to the inscribed projects, up to the limit of the Cap, primarily on the basis of date priority.  At the initial publication of the Register on 15 July 2011 it appeared that this mechanism had resulted in the vast majority of the available capacity under the Cap being allocated to old projects that originated during 2007 to 2009, which have since been suspended due to uncertainty over the legal validity of the "DIA" project authorisation obtained.  No projects originating since February 2010, which includes all of the project portfolio developed by the Company, had been included within the Cap for 2011.

However, immediately after publication of the Register, the GSE published a further announcement to the effect that the publication of the Register had contained "material errors" and that a revised register will be published in replacement.  No date has been indicated for the publication of the corrected register.  This outcome has created considerable uncertainty regarding the application of the Cap mechanism.

As the legislation currently stands, projects excluded from the 2011 Cap are eligible for inclusion in the Cap for either the first or the second six months of 2012, again on the basis of date priority.  The Board is waiting to see if the Company's project consents will be included in the publication of the corrected Register, failing which it believes that they will be included under one of the 2012 tariff Caps. Once the Board is able to ascertain the likely impact of the corrected Register and priority order of Company developed consents it will become clearer as to the ongoing outlook and value of the Company's PV business post August 2011.

The financial strategy of the Company has been to support the development of the core product business through the sale of PV project consents.  The Board is awaiting publication of the revised Register to assess the timing and value of sales of the project consents, and in the meantime is exploring additional sources of expansion finance through its current banking relationships to support the growth of the product sales and the expansion of the Company's production facilities. A further update will be provided in due course.

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