REG - AFC Energy Plc - Final Results <Origin Href="QuoteRef">AFEN.L</Origin> - Part 2
24/03/2017 07:06
- Part 2: For the preceding part double click ID:nRSX3761Aa
by the Company of waste materials.
f. Development Costs
Development expenditure does not meet the strict criteria for capitalisation
under IAS 38 and has been recognised as an expense. Expenditure on and
relating to the Company's alkaline fuel cell system installed at Stade in
Germany under the EU funded POWER-UP project is considered to be development
expenditure to date, as the module is the first of its kind that has been
produced and has not yet operated at full power output for an extended
period.
g. Foreign Currency
The financial statements of the Company are presented in the currency of the
primary economic environment in which it operates (the functional currency)
which is pounds sterling. In accordance with IAS 21, transactions entered into
by the Company in a currency other than the functional currency are recorded
at the rates ruling when the transactions occur. At each balance sheet date,
monetary items denominated in foreign currencies are retranslated at the rates
prevailing at the balance sheet date.
h. Inventory and Work in Progress
Inventory is recorded at the lower of cost and net realisable value. Work in
progress is valued at cost, less the cost of work invoiced on incomplete
contracts and less foreseeable losses. Cost comprises purchase cost plus
production overheads.
i. Trade and Other Receivables
Trade and other receivables arise principally through the provision by the
Company of activities associated with grant-funded projects. They also include
other types of contractual monetary assets. These assets are initially
recognised at fair value and are subsequently measured at amortised cost less
any provision for impairment.
j. Loans and Other Receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. After initial
measurement, loans and receivables are carried at amortised cost using the
effective interest method less any allowance for impairment. Gains and
losses are recognised in profit or loss when the loans and receivables are
derecognised or impaired, as well as through the amortisation process.
The Company's loans and receivables include cash and cash equivalents. These
include cash in hand, and deposits held at call with banks.
k. Property and Equipment
Property and equipment are stated at cost less any subsequent accumulated
depreciation and impairment losses.
Where parts of an item of property and equipment have different useful lives,
they are accounted for as separate items of property and equipment.
Depreciation is charged to the statement of comprehensive income within cost
of sales and administrative expenses on a straight-line basis over the
estimated useful lives of each part of an item of property, plant and
equipment. The estimated useful lives are as follows:
· Leasehold improvements 1 to 3 years
· Fixtures, fittings and equipment 1 to 3 years
· Vehicles 3 to 4
years
Expenses incurred in respect of the maintenance and repair of property and
equipment are charged against income when incurred. Refurbishment and
improvement expenditure, where the benefit is expected to be long lasting, is
capitalised as part of the appropriate asset.
The useful economic lives of property, plant and equipment and the carrying
value of tangible fixed assets are assessed annually and any impairment is
charged to the statement of comprehensive income.
l. Intangible Assets
Expenditure on research activities is recognised in the statement of
comprehensive income as an expense as incurred. Expenditure in establishing a
patent is capitalised and written off over its useful life.
Other intangible assets that are acquired by the Company are stated at cost
less accumulated amortisation and impairment losses.
Amortisation of intangible assets is charged using the straight-line method to
administrative expenses over the following period:
· Patents 20 years
Useful lives are based on the management's estimates of the period that the
assets will generate revenue, which are periodically reviewed for continued
appropriateness and any impairment is charged to the statement of
comprehensive income.
m. Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and call deposits with major
banking institutions realisable within three months. Restricted cash is
E125,000 held in escrow to support a bank guarantee in favour of Air Products
GmbH relating to contractual obligations by the Company in relation to the
Stade site in Germany.
n. Other Financial Liabilities
The Company classifies its financial liabilities as:
• Trade and Other Payables
These are initially recognised at invoiced value. These arise principally from
the receipt of goods and services. There is no material difference between the
invoiced value and the value calculated on an amortised cost basis or fair
value.
• Deferred Income
This is the carrying value of income received from a customer in advance which
has not been fully recognised in the statement of comprehensive income pending
delivery to the customer. The carrying value is fair value.
o. Leases
Finance Leases
Finance leases, which transfer to the Company substantially all the risks and
benefits incidental to ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased property. Capitalised
leased assets are depreciated over the estimated useful life of the asset.
Lease payments are apportioned between the finance charges and reduction of
the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are reflected in the
statement of comprehensive income.
Operating Leases
Leases in which a significant portion of the risks and rewards of ownership
are retained by the lessor are classified as operating leases. Payments made
under operating leases are charged to the statement of comprehensive income on
a straight-line basis over the period of the lease.
p. Financial Assets
All of the Company's financial assets are loans and receivables and
investments. 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 at fair value and comprise trade and other
receivables and cash and cash equivalents. Investments are accounted for at
cost less impairment.
q. Financial Instruments
Financial assets and liabilities are recognised on the balance sheet when the
Company becomes a party to the contractual provisions of the instrument.
· Cash and cash equivalents comprise cash held at bank and short-term
deposits
· Receivables are recognised initially at fair value and subsequently held
at amortised cost less an allowance for any uncollectable amounts when the
full amount is no longer considered receivable
· Trade payables are not interest bearing and are stated at their nominal
value
· Equity instruments issued by the Company are recorded at the proceeds
received except where those proceeds appear to be less than the fair value of
the equity instruments issued, in which case the equity instruments are
recorded at fair value. The difference between the proceeds received and the
fair value is reflected in the share-based payments reserve.
r. Valuation of Derivative Financial Instrument
In 2014, the Company placed shares with Lanstead Capital L.P. and at the same
time entered into an equity swap agreement in respect of the subscriptions for
which consideration will be received monthly over an 18-month period as
disclosed in the notes to these financial statements. The amount receivable
each month was dependent on the Company's share price performance and gains
and losses arising on monthly settlements are reflected in the statement of
comprehensive income in administrative expenses. The financial instrument
closed in April 2016 and, hence, as at 31 October 2016, the financial
instrument had a zero value.
s. Share-Based Payment Transactions
The Company awards share options and warrants to certain Directors and
employees to acquire shares of the Company. The fair value of options and
warrants granted is recognised as an employee expense with a corresponding
increase in equity. The fair value is measured at grant date and spread over
the period during which the Directors and employees become unconditionally
entitled to the options or warrants. The fair value of the options and
warrants granted is measured using the Black-Scholes option valuation model,
taking into account the terms and conditions upon which the options and
warrants were granted. The amount recognised as an expense is adjusted to
reflect the actual number of share options and warrants that vest only where
vesting is dependent upon the satisfaction of service and non-market vesting
conditions or where the vesting periods themselves are amended by the
introduction of new schemes and the absorption of earlier schemes by agreement
between the Company and the relevant Directors and employees. Where options or
warrants granted are cancelled, all future charges arising in respect of the
grant are charged to the statement of comprehensive income on the date of
cancellation.
t. Provisions
Provisions are recognised when the Company has a present obligation as a
result of a past event and it is probable that the Company will be required to
settle the obligation. Provisions are measured at the present value of
management's best estimate of the expenditure required to settle the present
obligation at the balance sheet date and are discounted to present value where
the effect is material.
u. Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the statement of comprehensive income except to the extent
that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable or recoverable on the taxable income
for the year, using tax rates enacted or substantively enacted at the balance
sheet date together with any adjustment to tax payable in respect of previous
years.
Deferred tax assets are not recognised due to the uncertainty of their
recovery.
v. R&D Tax Credits
The Company's research and development activities allow it to claim R&D tax
credits from HMRC in respect of qualifying expenditure; these credits are
reflected in the statement of comprehensive income in administrative expenses
or in the taxation line depending on the nature of the credit.
w. Pension Contributions
The Company operates a defined contribution pension scheme which is open to
all employees and makes monthly employer contributions to the scheme in
respect of employees who join the scheme. These employer contributions are
currently capped at 3% of the employee's salary and are reflected in the
statement of comprehensive income in the period for which they are made.
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION AND
UNCERTAINTY
In the preparation of the financial statements management makes certain
judgements and estimates that impact the financial statements. While these
judgements are continually reviewed, the facts and circumstances underlying
these judgements may change, resulting in a change to the estimates that could
impact the results of the Company. In particular:
Useful Lives and Impairment of Intangible Assets
Intangible assets are amortised over their useful lives. Useful lives are
based on the management's estimates of the period that the assets will
generate revenue, which are periodically reviewed for continued
appropriateness. After undertaking a comprehensive review of intangible
assets, management has concluded that no impairment has arisen with respect to
intangible assets during the year and subsequent to 31 October 2016 (2015:
£nil).
Income Taxes and Withholding Taxes
The Company believes that its receivables for tax recoverable are adequate for
all open audit years based on its assessment of many factors, including past
experience and interpretations of tax law. This assessment relies on estimates
and assumptions and may involve a series of complex judgements about future
events. To the extent that the final tax outcome of these matters is different
from the amounts recorded, such differences will impact income tax expense in
the period in which such determination is made.
Capitalisation of Development Expenditure
The Company uses the criteria of IAS 38 to determine whether development
expenditure should be capitalised. After assessing these, management has
concluded that, until the Company's fuel cell system is proven to be
commercially deployable, it would not be appropriate to capitalise development
expenditure. Consequently, all development expenditure has been charged to the
statement of comprehensive income during the year ended 31 October 2016.
Share-Based Payments
Certain employees (including Directors and senior Executives) of the Company
receive remuneration in the form of share-based payment transactions, whereby
employees render services as consideration for equity instruments
("equity-settled transactions").
The fair value is determined using an appropriate pricing model.
The cost of equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the performance
and/or service conditions are fulfilled, ending on the date on which the
relevant employees become fully entitled to the award ("the vesting date").
The cumulative expense recognised for equity-settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting
period has expired and the Company's best estimate of the number of equity
instruments that will ultimately vest. The profit or loss charge or credit for
a period represents the movement in cumulative expense recognised as at the
beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance and/or service conditions are satisfied.
Where the terms of an equity-settled award are modified, the minimum expense
recognised is the expense as if the terms had not been modified. An additional
expense is recognised for any modification which increases the total fair
value of the share-based payment arrangement, or is otherwise beneficial to
the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested
on the date of cancellation, and any expense not yet recognised for the award
is recognised immediately. However, if a new award is substituted for the
cancelled award, and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they were a
modification of the original award, as described in the previous paragraph.
4. SEGMENTAL ANALYSIS
Operating segments are determined by the chief operating decision maker based
on information used to allocate the Company's resources. The information as
presented to internal management is consistent with the statement of
comprehensive income. It has been determined that there is one operating
segment, the development of fuel cells. In the year to 31 October 2016, the
Company operated mainly in the United Kingdom and in Germany. All non-current
assets are located in the United Kingdom.
5. OPERATING LOSS
This has been stated after:
Year ended Year ended
31 October 2016 31 October 2015
£ £
R&D tax credit receivable (59,487) (174,937)
Depreciation/Impairment of property and equipment 238,414 198,769
Amortisation/Impairment of intangible assets 64,240 79,522
R&D expenditure 2,914,050 3,475,657
Write off of Waste2Tricity investment and receivable - 558,983
Equity-settled share-based payment expense 1,027,051 216,202
Foreign exchange differences (334,898) 42,975
Auditor's remuneration - audit 30,900 30,000
Auditor's remuneration - corporation tax 3,500 9,500
Auditor's remuneration - R&D tax credit services 19,500 -
6. STAFF NUMBERS AND COSTS, INCLUDING DIRECTORS
The average numbers of employees in the year were:
Year ended Year ended
31 October 2016 31 October 2015
Number Number
Support, operations and technical 37 39
Administration 6 5
43 44
The aggregate payroll costs for these persons were:
£ £
Wages and salaries (including Directors' emoluments) 1,983,582 2,660,709
Social security 239,738 317,242
Employer's pension contributions 37,976 35,095
Equity-settled share-based payment expense 1,027,051 216,202
3,288,347 3,229,248
7. DIRECTORS' REMUNERATION
Year ended Year ended
31 October 2016 31 October 2015
£ £
Wages and salaries 379,355 978,656
Social security 65,113 131,225
Equity-settled share-based payment expense 821,002 170,001
Other compensation 295,827 48,149
Company pension contributions 2,504 1,844
1,563,801 1,329,875
The emoluments of the Chairman 56,575 57,346
The emoluments of the highest-paid Director (see below) 1,334,852 661,932
Company pension contributions of highest-paid Director - -
Adam Bond's services as Chief Executive Officer and Director during the period
were initially provided under a secondment agreement between the Company and
Linc Energy Ltd. The secondment agreement expired on 31 December 2015, at
which point he became an employee of the Company under a service agreement
dated 1 January 2016. During the year ended 31 October 2016, a portion of
Adam's remuneration was paid to him by Linc Energy Ltd. and recharged to the
Company. A further portion of his salary, totalling £91,250, was settled
during the year through the issuance of 500,000 shares in the Company.
Included in Adam's other compensation is a £100,000 bonus that has been
accrued for as a result of meeting certain performance conditions. The payment
of the bonus has not yet been claimed by Adam and is pending final Board
approval. During 2015, the Company remitted taxation to HMRC on Adam's behalf
in relation to different tax jurisdictions between the UK and Australia.
Management believes an amount of £187,000 to be recoverable. As part of Adam's
contract with the Company, in 2015 he was granted 6,000,000 share options with
an exercise price of £0.51 per share. These options have performance
conditions attached to them; 3,000,000 of the options will only vest if
specific operational targets for energy output are met, and the remaining
options will only vest if the share price achieves and sustains targeted
amounts with equal portions vesting at share prices of £1.00, £1.50 and £2.00.
In accordance with IFRS 2 (Share-Based Payment), the Company recognises as an
employee expense the fair value of options granted to employees. The fair
value is determined using an appropriate pricing model, and the resulting
expense is recognised over the period in which the performance and/or service
conditions are fulfilled ending on the date on which the employee becomes
fully entitled to the award. During the year the Company recorded a non-cash
expense of £821,002 relating to the options granted to Adam. The vesting
conditions for the options has not been reached and hence Adam has not
received any cash benefit from the options in the year. Further details are
contained in notes 2, 3 and 18.
8. FINANCe cost
Year ended Year ended
31 October 2016 31 October 2015
£ £
(Loss)/Gain on derivative financial instrument (149,687) 3,288,497
Interest on finance lease (1,961) -
Bank interest receivable 3,415 5,775
Total finance (cost)/income (148,233) 3,294,272
9. TAXATION
Year ended Year ended
31 October 2016 31 October 2015
Recognised in the statement of comprehensive income £ £
R&D tax credit - current year (613,732) (569,706)
R&D tax credit - prior year (209,098) -
Total tax credit (822,830) (569,706)
Reconciliation of effective tax rates
Loss before tax (6,478,894) (5,351,931)
Tax using the domestic rate of corporation tax of 20.00% (2015: 20.42%) (1,295,779) (1,092,864)
Effect of:
R&D tax credit - prior year (209,098) -
Expenses not deductible for tax purposes 209,151 659,518
Above the line tax credit - 185,396
R&D allowance (478,253) (450,148)
Tax credit on losses surrendered (613,452) (569,706)
Depreciation in excess of capital allowances 4,920 47,737
Losses surrendered for research and development 846,141 232,349
Unutilised losses carried forward 697,625 418,012
Fixed asset differences 15,915 -
Total tax credit (822,830) (569,706)
10. LOSS PER SHARE
The calculation of the basic loss per share is based upon the net loss after
tax attributable to ordinary Shareholders of £5,656,064 (2015: loss of
£4,782,225) and a weighted average number of shares in issue for the year.
Year ended Year ended
31 October 2016 31 October 2015
Basic loss per share (pence) (1.86)p (1.66)p
Diluted loss per share (pence) (1.86)p (1.66)p
Loss attributable to equity Shareholders (5,656,064) (4,782,225)
Number Number
Weighted average number of shares in issue 304,858,560 288,431,626
Diluted earnings per share
As set out in note 18, there are share options and warrants outstanding as at
31 October 2016 which, if exercised, would increase the number of shares in
issue. However, the diluted loss per share is the same as the basic loss per
share, as the loss for the year has an anti-dilutive effect.
11. INTANGIBLE ASSETS
2016 2015
Patents Patents
£ £
Cost
Balance at 1 November 445,927 748,113
Retirements - (401,166)
Additions 70,521 98,980
Balance at 31 October 516,448 445,927
Amortisation
Balance at 1 November 107,751 469,040
Retirements - (401,166)
Charge for the year 64,240 39,877
Balance at 31 October 171,991 107,751
Net book value 344,457 338,176
12. PROPERTY AND EQUIPMENT
Leasehold Fixtures, fittings
improvements and equipment Motor vehicles Total
£ £ £ £
Cost
At 31 October 2014 272,759 2,693,951 10,495 2,977,205
Transfers 45,852 (45,852) - -
Additions 18,851 - 17,994 36,845
Disposals - (1,326,821) (10,495) (1,337,316)
At 31 October 2015 337,462 1,321,278 17,994 1,676,734
Additions - 81,424 - 81,424
Disposals - (238,797) - (238,797)
At 31 October 2016 337,462 1,163,905 17,994 1,519,361
Depreciation
At 31 October 2014 240,104 2,117,457 10,203 2,367,764
Transfers 9,783 (9,783) - -
Charge for the year 39,645 194,882 3,887 238,414
Disposals - (1,035,277) (10,495) (1,045,772)
At 31 October 2015 289,532 1,267,279 3,595 1,560,406
Charge for the year 47,930 54,537 5,901 108,368
Disposals - (238,797) - (238,797)
At 31 October 2016 337,462 1,083,019 9,496 1,429,977
Net Book Value
At 31 October 2016 - 80,886 8,498 89,384
At 31 October 2015 47,930 53,999 14,399 116,328
13. INVESTMENT
As at 31 October 2016 the Company held 230,000 shares representing 17.5%
(2015: 230,000 shares representing 23%) of the share capital of Waste2Tricity
Ltd ("W2T") (a company registered in England & Wales). In the view of the
Directors this investment has no value currently and has been recognised at
cost less impairment. No revenue was recognised in the period under the
licence agreements with Waste2Tricity Limited and Waste2Tricity International
(Thailand) Limited.
Year ended Year ended
31 October 2016 31 October 2015
£ £
Investment in W2T - -
14. INVENTORY AND WORK IN PROGRESS
Year ended Year ended
31 October 2016 31 October 2015
£ £
Inventory 150,932 219,421
Work in progress - -
150,932 219,421
15. TRADE AND OTHER RECEIVABLES
Year ended Year ended
31 October 2016 31 October 2015
£ £
Current:
R&D tax credits receivable 673,219 718,023
EU grants receivable 1,409,642 2,513,395
Other receivables 513,102 226,922
2,595,963 3,458,340
There is no significant difference between the fair value of the receivables
and the values stated above.
16. CASH AND CASH EQUIVALENTS
Year ended Year ended
31 October 2016 31 October 2015
£ £
Cash at bank 1,137,819 675,603
Bank deposits 1,773,043 1,080,842
2,910,862 1,756,445
Cash at bank and bank deposits consist of cash. There is no material foreign
exchange movement in respect of cash and cash equivalents. Restricted cash,
not included in cash and cash equivalents, is E125,000 held in escrow to
support a bank guarantee in favour of Air Products GmbH relating to
contractual obligations by the Company in relation to the Stade site in
Germany.
17. ISSUED SHARE CAPITAL
Ordinary shares Share premium Total
Number £ £ £
At 31 October 2015 289,903,943 289,904 33,947,858 34,237,762
Issue of shares on 18 January 2016 18,000,000 18,000 3,571,000 3,589,000
Issue of shares on 21 January 2016 250,000 250 56,625 56,875
Issue of shares on 18 April 2016 190,000 190 28,785 28,975
Issue of shares on 19 May 2016 720,000 720 50,670 51,390
Issue of shares on 6 July 2016 250,000 250 34,125 34,375
Issue of shares on 19 August 2016 700,000 700 154,550 155,250
At 31 October 2016 310,013,943 310,014 37,843,613 38,153,627
All issued shares are fully paid.
The Company considers its capital and reserves attributable to equity
Shareholders to be the Company's capital. In managing its capital, the
Company's primary long-term objective is to provide a return for its equity
Shareholders through capital growth. Going forward the Company will seek to
maintain a gearing ratio that balances risks and returns at an acceptable
level and also to maintain a sufficient funding base to enable the Company to
meet its working capital needs. The Company's commercial activities are at an
early stage and management considers that no useful target debt to equity
gearing ratio can be identified at this time.
Details of the Company's capital are disclosed in the statement of changes in
equity.
There have been no other significant changes to the Company's management
objectives, policies and processes in the year nor has there been any change
in what the Company considers to be capital.
18a. SHARE OPTIONS
Weighted
average remaining
Number of options Exercise price contractual life
At 31 October 2014 7,980,000 3.13-35.75p 6.3 yrs
Options granted in the year 7,615,000 17-51p
Options exercised in the year (1,150,000) 3.13-24p
Options lapsed in the year (590,000) 32-41p
At 31 October 2015 13,855,000 3.13-51p 7.7 yrs
Options granted in the year - -
Options exercised in the year (1,220,000) 3.13-20.75p
Options lapsed in the year (730,000) 17-34p
At 31 October 2016 11,905,000 3.13-51p 7.1 yrs
18b. WARRANTS
Weighted
average remaining
Number of warrants Exercise price contractual life
At 31 October 2014 7,047,800 3.13-24p 5.1 yrs
Warrants exercised in the year 100,000 3.13p
Warrants lapsed in the year - -
At 31 October 2015 6,947,800 3.13-24p 4.1 yrs
Warrants exercised in the year - -
Warrants lapsed in the year - -
At 31 October 2016 6,947,800 3.13-24p 3.1 yrs
18c. SAYE
During the year the Company operated a share save scheme.
Weighted
average remaining
Number of SAYE Exercise price contractual life
At 31 October 2014 1,065,259 18.6-22p 2.2 yrs
SAYE issued during the year - -
SAYE lapsed/cancelled during the year (485,503) 18.6-22p
SAYE exercised during the year (8,409) 22p
At 31 October 2015 571,347 18.6-22p 1.3 yrs
SAYE issued during the year 399,537 12p
SAYE lapsed/cancelled during the previous year correction 488,714 18.6-22p
SAYE lapsed/cancelled during the year (141,516) 22p
SAYE exercised during the year - -
At 31 October 2016 1,318,082 18.6-22p 1.3 yrs
18d. EQUITY-SETTLED SHARE-BASED PAYMENTS CHARGE
Share Options
Amount
Average Average Average Average Average Average expensed
grant date expected risk-free dividend implied fair value in the 2016
Option price share price volatility interest rate yield option life per option accounts
(p) (p) (p.a.) (p.a.) (p.a.) (years) (p) £
3.13 3.13 113.8% 4.4% 0% 2.0 2 -
10 10 46% 4.4% 0% 2.5 2.5 -
17 17 80% 1.5% 0% 2.5 9.48 -
17.5 18.75 188% 4.4% 0% 2.5 14.07 -
24 23.75 188% 4.4% 0% 2.5 17.80 -
20.75 20 214.8% 4.4% 0% 2.0 15 -
32 31.75 243% 4.4% 0% 2.5 24 -
34 34 80% 1.5% 0% 2.5 18.96 9,552
35.75 35.75 124.7% 1.5% 0% 2.5 21.8 -
39.25 39.25 80% 1.5% 0% 2.5 21.89 40,489
41 41 80% 1.5% 0% 2.5 22.86 49,778
51 58 75% 2.1% 0% 2.5 32.00 821,002
Total charge for the year (2015: £210,779) 920,821
18d. EQUITY-SETTLED SHARE-BASED PAYMENTS CHARGE continued
Warrants
Amount
Average Average Average Average Average Average expensed
grant date expected risk-free dividend implied fair value in the 2016
Warrant price share price volatility interest rate yield option life per option accounts
(p) (p) (p.a.) (p.a.) (p.a.) (years) (p) £
3.13 3.13 113.8% 4.4% 0% 2.0 2 -
24 23.75 188% 4.4% 0% 2.5 17.8 -
Total charge for the year (2015: £nil) -
SAYE
Amount
Average Average Average Average Average Average expensed
grant date expected risk-free dividend implied fair value in the 2016
SAYE price share price volatility interest rate yield option life per option accounts
(p) (p) (p.a.) (p.a.) (p.a.) (years) (p) £
22 27.5 124.7% 1.5% 0% 2.5 21.69 50,511
18.6 23.25 137.5% 1.5% 0% 2.5 19.24 51,092
12 15 78.6% 0.7% 0% 2.0 8.4 4,627
Total charge for the year (2015: £5,423) 106,230
Total equity-settled share-based payment charge for the year (2015: £216,202) 1,027,051
Expected volatility has been based on the 3.5 year historical volatility of
share price. Vesting requirements are three years for the exercise of warrants
and options, except for 500,000 options granted which vest in two years.
Certain options and warrants granted to Directors are also subject to
performance conditions.
Adam Bond received 6,000,000 options on 17 July 2015 with vesting conditions
that include market and non-market based conditions. Under the market-based
conditions vesting is contingent on the average share price of the Company
reaching certain targets. Under non-market based conditions vesting is
contingent on the Company's fuel cell system installed at Stade in Germany
reaching certain output of wattage targets and the Company entering into
commercial contracts.
The fair value of services received in return for share options and other
share-based incentives granted is measured by reference to the fair value of
share options and incentives granted. This estimate is based on a
Black-Scholes model for non-market based conditions and a Log-normal Monte
Carlo stochastic model for market conditions. Both are appropriate considering
the effects of the vesting conditions, expected exercise period and the
dividend policy of the Company.
19. TRADE AND OTHER PAYABLES
Year ended Year ended
31 October 2016 31 October 2015
£ £
Current liabilities:
Trade payables 357,118 1,066,600
Deferred income 105,727 115,698
Finance lease liability 16,246 -
Other payables 677,211 319,483
Accruals 139,602 171,778
1,295,904 1,673,559
Non-current liabilities:
Finance lease liability 5,803 -
5,803 -
20. Operating lease commitments
Year ended Year ended
31 October 2016 31 October 2015
£ £
Non-cancellable operating leases are as follows:
Within one year 80,836 146,496
Between one and five years 11,717 69,260
Greater than five years - -
92,553 215,756
The lease commitments relate to accommodation and three vehicles.
21. FINANCIAL INSTRUMENTS
In common with other businesses, the Company is exposed to risks that arise
from its use of financial instruments. This note describes the Company's
objectives, policies and processes for managing those risks and the methods
used to measure them. Further quantitative information in respect of these
risks is presented throughout these financial statements. The accounting
policies regarding financial instruments are disclosed in note 2 and the
significant accounting estimates and judgements are set out in note 3.
Principal Financial Instruments
The principal financial instruments used by the Company, from which financial
instrument risk arises, are as follows:
Year ended Year ended
31 October 2016 31 October 2015
£ £
Loans and receivables:
Cash and cash equivalents 2,910,862 1,756,445
Trade and other receivables 2,595,963 3,458,340
Fair value through profit and loss:
Level 3 derivative financial instrument - 1,308,859
Total financial assets 5,506,825 6,523,644
Trade and other payables 1,301,707 1,673,559
Total financial liabilities 1,301,707 1,673,559
Financial instruments that are measured subsequent to initial recognition at
fair value are grouped into three levels based on the degree to which the fair
value is observable as defined by IFRS 7:
· Level 1 fair value measurements are those derived from unadjusted quoted
prices in active markets for identical assets and liabilities;
· Level 2 fair value measurements are those derived from inputs, other
than quoted prices included within Level 1, that are observable either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
· Level 3 fair value measurements are those derived from valuation
techniques that include inputs for the asset or liability that are not based
on observable market data.
The derivative financial instrument above, which was classified as a Level 3
derivative financial instrument, is the fair value of the equity swap with
Lanstead Capital L.P. ("Lanstead"), entered in October 2014. The equity swap
was for an 18-month period ending in April 2016. As at 31 October 2016, the
derivative financial instrument is closed and the value is £nil (2015:
£1,308,859).
In October 2014 the Company issued 22,000,000 new ordinary shares of 0.1p each
in the capital of the Company ("Ordinary Shares") at a price of 10p per share
to Lanstead for £2,200,000. The Company simultaneously entered into an equity
swap with Lanstead for 75% of these shares with a reference price of 13.3333
per share (the "Reference Price"). All 22,000,000 Ordinary Shares were
allotted with full rights on the date of the transaction. Of the subscription
proceeds of £2,200,000 received from Lanstead, £1,870,000 (85%) was invested
by the Company in the equity swap. Investment in the equity swap was a
condition of the placing with Lanstead.
To the extent that the Company's volume weighted average share price was
greater or lower than the Reference Price at each swap settlement, the Company
received greater or lower consideration calculated on a pro-rata basis i.e.
volume weighted average share price/Reference Price multiplied by the monthly
transfer amount.
£
Value in 2015 1,308,859
Losses recognised in profit and loss (149,687)
Settlements received (1,159,172)
Value in 2016 -
No financial instruments have been transferred between Levels during the
year.
General Objectives, Policies and Processes
The Board has overall responsibility for the determination of the Company's
risk management objectives and policies and, while retaining ultimate
responsibility for them, it has delegated part of the authority for designing
and operating processes that ensure the effective implementation of the
objectives and policies to the Company's finance team. The Board receives
reports from the financial team through which it reviews the effectiveness of
the processes put in place and the appropriateness of the objectives and
policies it sets.
The overall objective of the Board is to set policies that seek to reduce
ongoing risk as far as possible without unduly affecting the Company's
competitiveness and flexibility. Further details regarding these policies are
set out below.
21. FINANCIAL INSTRUMENTS continued
Credit Risk
Credit risk arises principally from the Company's trade and other receivables
and cash and cash equivalents. It is the risk that the counterparty fails
to discharge its obligation in respect of the instrument. The maximum exposure
to credit risk equals the carrying value of these items in the financial
statements as shown below:
Year ended Year ended
31 October 2016 31 October 2015
£ £
Trade and other receivables 2,595,963 3,458,340
Cash and cash equivalents 2,910,862 1,756,445
The Company's principal trade and other receivables arose from: a) annual
payments for various services held as pre-payments b) VAT debtors receivable
from UK and German tax authorities c) an R&D tax credit d) grant funding
receivable from the EU. Credit risk with cash and cash equivalents is reduced
by placing funds with a range of banks with acceptable credit ratings and
government support where applicable and on term deposits with a range of
maturity dates. At the year end, most cash was temporarily held on short-term
deposit, following maturity of term deposits.
Liquidity Risk
Liquidity risk arises from the Company's management of working capital and the
amount of funding required for the development programme. It is the risk that
the Company will encounter difficulty in meeting its financial obligations as
they fall due. The Company's policy is to ensure that it will always have
sufficient cash to allow it to meet its liabilities when they become due.
The principal liabilities of the Company are trade and other payables in
respect of the ongoing product development programme. Trade and other payables
are all payable within two months. The Board receives cash flow projections on
a regular basis as well as information on cash balances.
Interest Rate Risk
The Company is exposed to interest rate risk in respect of surplus funds held
on deposit and uses fixed interest term deposits to mitigate this risk.
Fair Value of Financial Liabilities
Year ended Year ended
31 October 2016 31 October 2015
£ £
Trade and other payables 1,301,707 1,673,559
There is no difference between the fair value and book value of trade and
other payables.
The Company does not enter into forward exchange contracts or otherwise hedge
its potential foreign exchange exposure. The Board monitors and reviews its
policies in respect of currency risk on a regular basis. At 31 October 2016
the Company held no monetary assets or liabilities in currencies other than
the functional currency of the operating units involved (2015: £nil).
22. CAPITAL COMMITMENTS
The Company had no capital commitments outstanding at 31 October 2016 (2015:
£nil).
23. BOARD CHANGES AND POST-BALANCE SHEET EVENTS
Board changes are reported under "Directors and their Interests". In March
2017, the Company undertook a placing, subscription and open offer, raising
approximately £8.1 million before expenses.
24. ULTIMATE CONTROLLING PARTY
There is no ultimate controlling party.
25. RELATED PARTY TRANSACTIONS
During the year ended 31 October 2016:
£nil was invoiced by Richards and Appleby Ltd (a company registered in England
& Wales) for the services of Mitchell Field as a Director of AFC Energy plc
(2015: £2,280). Mr. Field is also a Director and Shareholder of Richards and
Appleby Ltd. At 31 October 2016, the sum owing to Richards and Appleby Ltd was
£nil (2015: £4,780).
£65,392 was invoiced by Linc Energy Ltd (a company registered in Australia)
for the services of Adam Bond as Director of AFC Energy plc (2015: £212,438).
Linc Energy Ltd was, until 30 September 2015, a major Shareholder in the
Company. At 31 October 2016 the amount owing to Linc Energy Ltd was £nil
(2015: £42,761).
£40,200 (plus VAT) was invoiced by Locana Corporation (London) Ltd (a company
registered in England & Wales) for consultancy services (2015: £37,640). Mr.
Yeo is also a Director and Shareholder of Locana Corporation (London) Ltd. At
31 October 2016, the sum owing to Locana was £3,350 (2015: £3,350).
This information is provided by RNS
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