REG - AFC Energy Plc - Annual Financial Report
21/04/2023 18:15
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21 April 2023
AFC Energy PLC
("AFC Energy" or the "Company")
Final Results for year ended 31 October 2022
AFC Energy (AIM: AFC), a leading provider of hydrogen power generation
technologies, is pleased to announce its results for the year ended 31 October
2022 ("FY 2022").
Adam Bond, Chief Executive of AFC Energy, said:
"At the start of 2022, we announced a new strategy of technology
acceleration. This led to a year of unprecedented progress with multiple
successful field deployments for two new product platforms. In addition, we
successfully met the first milestone, confirmed post year end, in our
agreement with ABB E-mobility, validating performance of AFC Energy's new S+
Series fuel cell technology. This validation importantly resulted in ABB
E-mobility making a follow-on investment post year end of £2m, in addition to
their initial £2 million payment received earlier in the year.
"Our present strategy is focused on displacing diesel generators at off-grid
locations, initially in the construction sector where we made great strides in
2022, and we also see significant follow-on opportunities in the EV charging,
maritime and critical power back-up sectors.
"Since the period end, we have launched our new ammonia cracking technology
platform and received a first order for our new 50kVA H-Power S Series
Generator from ACCIONA.
"The technical and commercial successes of 2022 have set the stage for a
successful 2023 and, given the high level of commercial enquiries for rentals
of H-Power Towers, we are excited about the year ahead."
Highlights:
· Revenue and deferred revenue increased by 266% to £2.2m (2021:
£0.6m)
o £2.0 million non-refundable payment from ABB received.
o ABB deferred revenue of £1.4m (£2.0m less the fair value of the warrants
granted), will be earned as a discount over the sale to ABB of the first 10 S+
Series units
o Net loss after tax of £16.4m (2021: £9.4m)
· Strong balance sheet with £40.2m (2021: £55.4m) of cash as at
period end
· First field deployments of S Series (air cooled) H-Power Tower
launched in March 2022
o Four successful field trials on construction sites in the UK and Spain
o Initial rental revenues recognised in FY 2022, with balance to fall in FY
2023
· Successful on time delivery of the first 100kW S+ Series (liquid
cooled) fuel cell stacks for validation by ABB
· Flex fuel strategy vindicated by first Methanol Fuel Tower deployment
o First Methanol Fuel Tower generated hydrogen alongside H-Power Tower field
deployment in Spain
· Successful completion of first Extreme E contract, to deliver
off-grid power for the e-SUV race series, with successful completion of second
contract post year end
o Two season collaboration provided essential operational data in wide range
of extreme climates
· Significant growth in skilled work force and improved facilities with
73 new hires
· Strengthened Board with appointment of Monika Biddulph as
Non-executive Director with a focus on ESG
o Further strengthened post-period end with appointment of Peter
Dixon-Clarke as CFO
· Established ESG Board committee to deliver a suite of enhanced
policies and procedures and produce first carbon footprint review
Post Period Developments
· On 23 March 2023, launch of new advanced ammonia cracker technology
platform with near term commercial partnerships being explored with European
utilities, green and blue ammonia producers, ship owners, and heavy plant and
equipment manufacturers
· On 29 March 2023, ABB made a follow on investment of £2m into AFC
Energy following validation of the Company's new S+ Series fuel cell
technology
· On 17 April 2023, ACCIONA signed an order for the first 50 kVA
H-Power S Series Generator for delivery in the second half of 2023
o Comprised of a 30kW air cooled fuel cell and 45kWh battery storage system
o Initially rented for a six-month period with option to buy at a pre-agreed
price or extend
Outlook
· Expecting growing revenue from system rentals and hydrogen sales with
an already contracted pipeline of deployments and growing pipeline of
prospective H-Power Tower rentals
· Growing interest in new H-Power S Series Generator deployments from
new and existing companies
o Evidence of traction from plant hire business this year following early
H-Power Tower field deployments in 2022 and growth in resultant customer
enquiries
o Next development cycle will incorporate feedback from field trials
including increasing output to c.30kW and reducing production costs
· Near-term focus remains on construction sector, initially through
system rentals before transitioning to sales to plant hire businesses
o Sales to plant hire businesses should see an acceleration of revenues
versus existing H-Power generator rentals
o Expecting momentum on EV and maritime during 2023 based on the development
of the S+ Series (liquid cooled) generator
Key Financials
FY 2022 FY 2021
£,000s £,000s
Revenue from Customer Contracts 582 592
Deferred Revenue 1,600 214
Revenue plus deferred revenue 2,182 806
Gross Profit 115 16
Loss after Tax (16,446) (9,378)
Closing Cash Balance 40,220 55,375
For further information, please contact:
AFC Energy plc +44 (0) 14 8327 6726
Adam Bond (Chief Executive Officer) investors@afcenergy.com
Peel Hunt LLP - Nominated Adviser and Joint Broker +44 (0) 207 418 8900
Richard Crichton / Tom Ballard / Georgia Langoulant
Zeus - Joint Broker +44 (0) 203 829 5000
David Foreman / James Hornigold (Investment Banking)
Dominic King (Corporate Broking) / Rupert Woolfenden (Sales)
FTI Consulting - Financial PR Advisors +44 (0) 203 727 1000
Ben Brewerton / Nick Hennis / Dhruv Soni afcenergy@fticonsulting.com (mailto:afcenergy@fticonsulting.com)
Chairman's Statement
The increased focus on emissions targets and energy security, combined with
the recent ban on Russian diesel, continues to drive momentum for displacing
diesel with clean fuels, such as hydrogen. This year, AFC Energy has continued
to deliver on its role in the energy transition through accelerated
development and validation of its products, most notably those displacing
diesel generators at off-grid construction locations with follow-on
applications for additional sectors.
Our decision to focus on the construction sector, due to its high usage of
off-grid diesel, has delighted customers and delivered first revenue from our
new S Series H-Power Towers, along with a growing pipeline for 2023 and
beyond. In addition to the immediate opportunities in construction, electric
vehicle charging and maritime remain attractive for medium and longer-term
opportunities. The continued investment in our "flex fuel" capability,
supported by the growing level of incoming enquiries, means we are well
positioned to benefit as these markets develop.
We have continued to review the effectiveness of our Board and committees and,
accordingly, appointed Dr Monika Biddulph at the beginning of the year. Monika
has a strong scientific background combined with a focus on Environmental,
Social and Governance matters and therefore is board sponsor of the ESG
Committee. In recognition of the central role technology plays in our
development, we have a Technical Advisory Board chaired by Dr Gerry Agnew, a
Non-Executive Director, with access to suitable and independent advisers from
within the hydrogen sector. Gerry also chairs the Remuneration Committee and,
this year, offered consultations with several institutional shareholders on
the structure of the remuneration policy. We also saw the retirement of our
Chief Financial Officer, Graeme Lewis, and his replacement by Peter
Dixon-Clarke, who joined the Board on 1 December 2022. I wish to thank Graeme
for his support and contribution to the Company over his time here and wish
him well in his retirement.
The Board has increased its focus on ESG reporting and this year finalised the
committee structures required to deliver on our enhanced policies and
procedures. The outcomes from this work have included our first carbon
footprint review as well as the establishment of three employee led
committees, focusing on: Environment; Diversity & Inclusion; and Social
& Employee Wellbeing. More on this is provided later in this report.
I would particularly like to thank our employees for their role in the
technical and commercial successes of 2022. They, along with continued support
from our partners, customers and investors have set the stage for a prosperous
2023 as we all transition towards a clean hydrogen future.
Chief Executive Officer's Report
Successful customer H-Power Tower deployments on construction sites, delivery
of our first S+ Series stacks with ABB and growing H-Power Tower rental
revenues laid the foundation for what was a successful 2022. The scene is now
set for industry to accelerate its transition away from diesel.
2022 emphasised the importance global energy policy plays in driving not only
sectoral decarbonisation, but also its criticality in impacting wider
macro-economic inflation and energy independence. Within this environment of
uncertainty, the role of hydrogen has continued to grow with vast commitments
being made to the zero emission fuel across Europe and more recently in the
United States, under the Biden Government's Inflation Reduction Act.
AFC Energy has continued to successfully deliver on its milestones for the
year further supporting the transition and displacement of diesel generators
from today's off-grid power market. Successful field deployments this
financial year included our new S Series H-Power Tower Generator across
multiple construction sites in Europe and the UK and more recently, by
delivering, on time, our first S+ Series H-Power Generator stacks for
validation by ABB in October. These customer deployments and validations are
an important strategic milestone and drive: revenue; industry awareness; and
technological validation.
Important strides were also made in delivery of our fuel processing division
highlighting the work undertaken in accelerating our first ammonia cracking
technology platform recently announced, alongside the field deployment of our
Methanol Fuel Tower in Spain.
This is the most rapid technological progress in the Company's history and
highlights the importance of having a quality team with years of experience in
disciplined product development lifecycles.
18-months ago we took six discreet "ideas" and, enabled by the proceeds of our
2020 and 2021 equity placings and contribution from ABB, accelerated a number
of these programmes to deliver working systems utilising:
· S Series air cooled fuel cell stacks (2.5 kW)
· S Series modules (incorporating the above 2.5 kW stack plus balance
of plant)
· S Series 10 kW H-Power Tower (incorporating four 2.5 kW modules)
· S+ Series liquid cooled fuel cell stacks (providing cumulative power
of 100 kW)
· Ammonia Cracking Technology
· Methanol Fuel Tower
This is an extraordinary amount of work put in by the development and
engineering teams within a single financial year and I wish to thank them all
most sincerely for their efforts and focus in delivering such an ambitious
target.
The first S Series H-Power Tower deployment was in August 2022 where our
partner, ACCIONA, deployed the system at its off-grid construction compound
north of Cadiz in Spain. The H-Power Tower, replaced the on-site diesel
generator on a multiyear road development project for the whole of its
three-month trial, highlighting the role our product will play in continuing
to reduce greenhouse gas emissions by displacing diesel.
Following the successful deployment, we received powerful feedback from Miguel
Paris Torres, Head of ACCIONA's Construction R&D Centre, when he said in
an interview:
"I think hydrogen is the most feasible and realistic technology to satisfy in
a sustainable way the power needs not only from the construction site
compounds but also from the heavy construction machinery used in the
construction projects. Our partnership with AFC Energy is very important for
us because we are convinced that AFC Energy is a key technological partner
that will help us adopt and implement the use of hydrogen gensets as an
essential tool for the decarbonisation of our construction activities. What I
like … most about AFC technology is its modularity, easy size of
scalability and compactness. And what I like more about the field trial today
is that we've managed to achieve the target of not using for the entire
duration of the pilot the former polluting diesel genset that was powering the
site before we started the trial."
Customer feedback of this quality from an industry leader in construction
takes significant resource and investment to achieve and cements the value
generated in our technology platform and customer relationship throughout
2022. As a follow-on to the initial H-Power Tower deployment, ACCIONA
requested that we initiate the deployment of our first methanol Fuel Tower to
generate on-site hydrogen to fuel our S Series fuel cell modules and in April
2023, ACCIONA confirmed its first order of AFC Energy's next generation 50kVA
hydrogen generator, incorporating a new 30kW H-Power Generator and 45kWh
battery storage module. The new 50kVA power generator is a step towards
displacing ACCIONA's considerable incumbent internal fleet of 30 - 80 kVA
diesel generators and more generally, targets a significant proportion of the
existing diesel generator market as a "sweet spot" for mass deployment.
Following on from the success at ACCIONA, subsequent deployments took place
with: Keltbray at its M621 project in Leeds; the Mace Dragados Joint Venture
at its HS2 development project at Euston Station; and Kier at its bereavement
centre development in Plymouth. For each of these deployments, we rented our
H-Power Tower along with providing the hydrogen to site. Initial revenue from
these rentals was recognised in the 2022 financial year, with the balance to
be recognised in the 2023 financial year.
We have focused on construction as the ideal use case for diesel displacement
and early deployments for a number of reasons, including:
· Increasing cost of diesel (particularly following the removal of the
red diesel subsidy)
· Higher cost of Stage V emission compliant (a requirement to operate
in low emission zones) generators
· ESG standards set by contractors, their shareholders and procurement
agencies
· Higher weightings given to construction tenders to adoption of low
emission technologies
· The recent ban on importing Russian diesel into Europe
We are continuing to receive interest for further deployments, from both
existing and new customers and finishing the current production run of H-Power
Towers during the spring of 2023 will see up to 10 of our fleet of H-Power
Towers deployed in the field simultaneously this year. As this run is expected
to complete soon, we've already started the next development cycle, which will
benefit from the customer feedback we are receiving. Based on the feedback
received, we plan to focus on two things. The first of these will be an
increase in the power output by building on the existing modular platform,
albeit with a change to the form factor so it looks more like a generator and
less like a tower. The second will be the value engineering aimed at halving
the production costs, relative to the existing H-Power Towers.
On 15 November 2021, we signed both a Sale and Development agreement and
Warrant agreement with ABB E-mobility (ABB), Europe's leading supplier of
Electric Vehicle (EV) charging infrastructure. Under the agreement we agreed
to develop and supply a 200 kW liquid cooled system (S+ Series) to support EV
charging in grid constrained environments. Shortly after signing, ABB made a
£2.0 million non-refundable payment towards initial development costs, at
which point the first tranche, of 3.4 million warrants, granted under the
Warrant agreement vested.
Throughout 2022, substantial effort was placed into delivering on the first
milestone, being 100 kW of fuel cell stacks for third party validation by ABB.
This was duly delivered on schedule in October for independent validation,
with operational field-testing taking place in Germany. Witnessed by ABB, the
testing exceeded target performance with over 100 kW of cumulative power
delivered from the stacks throughout the validation period - a significant
Company milestone. These stacks will provide the basis of scaled liquid cooled
system deployments and revenue growth.
Just as important as the validation above, was the use of cutting-edge
manufacturing to provide a pathway to being one of the lowest cost offerings
amongst liquid cooled stacks in the market today. We share with ABB a strong
focus on reducing the Total Cost of Ownership (TCO) and both look to the US
Department of Energy guidelines as one of the suitable benchmarks for low cost
fuel cell technology. Regular contact with ABB ensures that development stays
on course in addition to highlighting new deployment opportunities,
particularly for displacing diesel backup power.
We continue to see accelerated advancements in our fuel cell technology in a
large part due to support from shareholders and partners such as ABB. We wish
to acknowledge their support of our wider commercial outcomes. With the 200 kW
liquid cooled power generator, we expect to be able to compete favourably in
the fields of electric vehicle charging, in addition to temporary power
applications. Importantly, the 200 kW S+ Series will also form the basis of
future data centre and maritime deployments and so opens up multiple new
market opportunities due to its high power density, small footprint and
forecast profile to enhanced cost reduction.
Following the success of the first season in 2021, we renewed the contract to
deliver sustainable off-grid power to Extreme E's offroad, all electric racing
championship in 2022. Season 2 saw deployments in Saudi Arabia, Italy, Chile
and Uruguay over a wide range of climatic conditions. We delivered power to
charge the fleet of electric SUVs at every race, exceeding the power generated
for Season 1. By the end of Season 2 our system had travelled 48,000 miles
across several continents much of it exposed to the high seas on board the St.
Helena, the dedicated race logistics vessel.
After two successful seasons with Extreme E, and with a growing demand in time
and resources, we made the decision not to proceed with the Championship in
2023. The data we've gained over the wide range of environments and climates
and prospective customers we've met whilst showcasing our zero-emission
technology have been invaluable and we wish Extreme E every success for its
third season and beyond.
A key area of investment during the year has been in the field of fuel
conversion, a new division within AFC Energy. Although only recently launched,
we have witnessed an accelerated drive to release our new ammonia cracking
technology platform which seeks to unlock the challenges of ammonia as a
hydrogen fuel carrier across multiple AFC Energy target markets, including
maritime. The rate of progress seen in designing, prototyping and building our
first scale ammonia cracker reactors is driven by customer need and supports
the saleability of our fuel cell systems with upstream fuel conversion
technology. We have also taken possession of new ammonia crackers to
facilitate parallel commissioning and validation and we look forward to seeing
them in operation later this year.
Methanol reforming development activity has also been evidenced with the first
of our new methanol Fuel Towers deployed in Spain alongside ACCIONA in late
2022, equally highlighting the potential for green methanol to play its role
in supporting the decarbonisation of industry.
Work on the AlkaMem membrane technology continues in conjunction with industry
experts in both fuel cell and electrolyser fields. The decision was taken
during the year that with the short-term demand for products in the field and
the necessary focus on the S and S+ Series, that the work on the AlkaMem
platform would be decelerated on commercial grounds.
Outlook
For 2023, we expect to see growing revenue from system rentals and hydrogen
sales with an already contracted pipeline of deployments and growing pipeline
of prospective rentals. This rental model is consistent with the incumbent
diesel generator hire market and is one with which customers are familiar. The
transition to our sales revenues exceeding rental revenues is expected to be
led by sales to plant hire businesses with established market positions.
We see growing appetite for our S Series Generator in the construction sector
with temporary power following closely behind. In addition, and consistent
with our announced focus on electric vehicle charging in grid constrained
environments and our Approval in Principle level certification from DNV,
global advisors to the international maritime industry, we still see growing
opportunities in these markets for our S+ Series Generator and expect to see
more announcements during 2023.
We enter 2023 with a sense of optimism that, with a gradual decline in
geopolitical and sector-based uncertainty, together with AFC Energy's
continued delivery of its technical and commercial milestones, we will
evidence the accelerating transition away from diesel towards new, clean
solutions. I wish to thank all our employees, shareholders and partners for
their support and efforts in 2022 and eagerly await the successes expected
throughout 2023.
Chief Financial Officer's Report
The three themes that characterised the financial year ended 31 October 2022
were:
· First revenue recognised from H-Power Tower deployments
· Increased investment in product research and development
· Continued strong cash levels
Following its announcement in March 2022, AFC Energy deployed its first
H-Power Tower, just five months later, to the Spanish construction group,
ACCIONA, at one of its sites north of Cadiz.
The H-Power Tower is aimed at displacing diesel generators at off-grid sites,
making it well suited to the construction sector. In total, H-Power Towers
were deployed to three different construction customers during the year,
collectively generating initial revenue of £41,000 from a combination of
rental income and sales of the related hydrogen.
Outside of the H-Power Tower, the balance of revenue was generated from
continued support of the Extreme E racing series, giving total revenue for the
year of £0.6 million (2021: £0.6 million), which generated a gross profit of
£0.1 million (2021: £0.0 million) and a net loss after tax of £16.4 million
(2021: £9.4 million).
The £1.6 million of deferred revenue relates mainly to the ABB contract,
where the £2.0 million initial payment, less the fair value of the warrants
granted, will be earned as a discount to ABB over the sales of the first 10
units, up to pre-agreed value per unit.
The year saw increased investment in the engineering and operational
capability required to manufacture and deploy the H-Power Tower to a growing
number of customer validation sites. Based on the early stage in the product
development lifecycle during the year (both in terms of economic and technical
feasibility), we still expense all of our research and development expenditure
to operating costs.
Within the £9.0 million (2021: £3.0 million) of qualifying R&D spend,
the £3.7 million (2021: £2.0 million) payroll balance relates almost
entirely to our Fuel Cell and Fuel Conversion departments, whilst materials of
£4.7 million (2021: £1.0 million) includes both third party consultancy and
tangible items.
Within non-qualifying expenditure, other items of £4.3 million (2021: £3.2
million) relate mainly to other employment costs of £0.8 million (2021: £1.2
million) and other administrative expenses of £2.4 million (2021: £1.8
million).
A summary of the cash deployed in the year is set out in the table below:
£'m
Net loss before tax (19.5)
Non-cash items 4.1
(15.4)
R&D tax credits received 0.5
Working capital movement 2.1
(12.8)
Investing activities (2.6)
Financing activities 0.2
(15.2)
Opening cash 55.4
Closing cash 40.2
Cash movements relating to the income statement are discussed above. The
working capital movement is primarily driven by the first £2.0 million ABB
payment, of which £1.4 million was held as deferred income at the year end.
Of the £2.6 million (2021: £1.9 million) of investing activities, £2.0
million related to leasehold improvements, primarily to the development and
manufacturing facilities, £0.4 million related to fixtures, fittings and
computers and the £0.3 million balance to intangible assets, mainly patent
expenses.
Based on the above, the annual "cash burn" was £11.2 million (2021: £7.3
million). This is based on operating costs (Note 6) of £19.8 million less
materials of £5.1 million and total non-cash items of £3.5 million and is an
indication of the annual cash spend on fixed overheads. It equates to £0.9
million (2021: £0.6 million) per month.
At the end of the year the Company had deferred revenue of £1.4 million in
respect of the ABB Sale & Development Agreement. This comprised the
£2.0 million received during the year, less the £0.6 million of fair value
allocated to the Warrant Agreement signed on the same day as the Sale &
Development Agreement.
Following the year end, on 28 March 2023, the Sale & Development Agreement
was revised by both parties. Under the revised agreement, ABB will have a
pre-agreed discount for a defined term to be spread over the purchases of the
first ten eligible 200kW fuel cell systems, the first of which will be
purchased under the revised contract, with the subsequent nine at ABB's
option.
The £2.0 million balance, from the £4.0 million under the original contract,
will be used for the purchase of issued shares in AFC Energy. This balance
was received on 5 April 2023 and the shares issued and admitted for trading
shortly thereafter. The cash value of the original contract therefore
remains unchanged at £4.0 million.
2023 has already seen continued, and growing, deployments of the H-Power
Tower. This has continued to be on a rental basis, the best model for new
market entry, with rentals expected to convert to hardware sales in due
course.
Statement of comprehensive income
For the year ended 31 October 2022
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Note
Revenue from customer contracts 5 582 592
Cost of sales (467) (577)
Gross profit 115 16
Other income 22 25
Operating (19,749) (10,450)
costs
6
Operating loss (19,612) (10,409)
Finance
cost
10 (19) (52)
Bank interest 143 19
receivable
10
Loss before tax (19,488) (10,442)
Taxation 3,042 1,063
11
Loss for the financial year and total comprehensive loss
attributable to owners of the Company
(16,446) (9,378)
Basic loss per share
(pence)
12 (2.24) (1.33)
Diluted loss per share (2.24) (1.33)
(pence)
12
All amounts relate to continuing operations. There was no other comprehensive
income in the period (2021: £nil).
Statement of financial position
As at 31 October 2022
AFC Energy plc
Registered number: 05668788
31 October 2022 31 October 2021
Note £000s £000s
Assets
Non-current assets
Intangible assets 13 311 746
Right-of-use assets 14 976 884
Tangible fixed assets 15 3,282 2,269
4,569 3,899
Current assets
Inventory 16 43 661
Receivables 17 1,160 1,015
Income tax receivable 4,075 1,581
Cash and cash equivalents 18 40,220 55,375
Restricted cash 18 612 612
46,110 59,243
Total assets 50,679 63,142
Current liabilities
Payables 19 3,644 1,696
Lease liabilities 20 298 322
3,942 2,018
Non-current liabilities
Lease liabilities 20 698 584
Provisions 21 301 654
999 1,238
Total liabilities 4,941 3,256
Capital and reserves attributable to owners of the Company
Share capital 22 735 734
Share premium 22 116,487 116,448
Other reserve 4,073 2,456
Retained deficit (75,557) (59,752)
Total equity attributable to shareholders 45,738 59,886
Total equity and liabilities 50,679 63,142
Statement of changes in equity
For the year ended 31 October 2022
Share Share Premium Other Reserve Retained Total
Capital
£000s £000s Loss £000s
£000s
£000s
Balance at 1 November 2020 676 81,418 1,513 (50,583) 33,024
Loss after tax for the year - - - (9,378) (9,378)
Issue of equity shares Exercise of share options 58 35,030 - - 35,088
Equity settled share-based payments
- Lapsed or exercised in the period - - (209) 209 -
- Charged in the period - - 1,152 - 1,152
Balance at 31 October 2021 734 116,448 2,456 (59,752) 59,886
Loss after tax for the year - - - (16,446) (16,446)
Issue of equity shares 1 39 - - 40
Equity settled share-based payments
- Lapsed or exercised in the period - - (641) 641 -
- Charged in the period - - 1,682 - 2,258
Fair value of warrants accounted for as equity - - 576 - -
Balance at 31 October 2022 735 116,487 4,073 (75,557) 45,738
Share capital is the amount subscribed for shares at nominal value.
Share premium represents the excess of the amount subscribed for share capital
over the nominal value of these shares net of share issue expenses.
Other reserve represents the charge to equity in respect of unexercised
equity-settled share-based payments and warrants granted.
Retained deficit represents the cumulative loss of the Company attributable to
equity shareholders.
Cash flow statement
For the year ended 31 October 2022
Note 31 October 2022 31 October 2021
£000s £000s
Cash flows from operating activities
Loss before tax for the year (19,488) (10,442)
Adjustments for:
Amortisation of intangible assets 13 473 110
Impairment of intangible assets 13 294
Depreciation of right-of-use assets 14 379 302
Depreciation of tangible assets 15 994 448
Impairment of tangible 15 255
assets
Loss on disposal of property and equipment 15 126 4
Depreciation of decommissioning asset - 31
Equity settled payments 23 1,682 1,152
Interest received (143) (19)
Lease finance charges 33 37
Cash flows from operations (15,395) (8,377)
R&D tax credits received 546 -
(Increase)/decrease in restricted cash - (342)
(Increase)/decrease in inventory 618 (411)
Decrease/(increase) in receivables (145) (489)
(Decrease)/increase in payables 1,948 459
(Decrease)/increase in provision (353) 353
Cash absorbed by operating activities (12,781) (8,807)
Purchase of plant and 15 (2,388) (1,812)
equipment
Additions to intangible 13 (334) (87)
assets
Interest 10 151 19
received
Net cash absorbed by investing activities (2,571) (1,880)
Proceeds from the issue of share capital - 36,000
Costs of issue of share capital - (1,348)
Proceeds from the exercise of options 40 437
Proceeds from grant warrants 24 576 -
Lease interest 20 (38) (37)
paid
Lease 20 (381) (292)
payments
Net cash from financing activities 197 34,760
Net (decease)/increase in cash and cash equivalents (15,155) 24,074
Cash and cash equivalents at start of year 55,375 31,301
Cash and cash equivalents at end of 18 40,220 55,375
year
Notes forming part of the financial statements
1. Corporate information
AFC Energy plc (the Company) is a public limited company incorporated in
England & Wales and quoted on the Alternative Investment Market of the
London Stock Exchange. The principal activity of the Company is the
development of fuel cell and fuel processing technology and allied equipment.
The address of its registered office is Unit 71.4 Dunsfold Park, Stovolds
Hill, Cranleigh, Surrey GU6 8TB.
2. Basis of preparation and accounting policies
These results are audited, however the financial information does not constitute statutory accounts as defined under section 434 of the Companies Act 2006. The financial information for the year ended 31 October 2022 has been derived from the Company's statutory accounts for that year. The auditors' report on the statutory accounts for the year ended 31 October 2022 was unqualified and did not contain statements under section 498 of the Companies Act 2006.
Going concern
The financial statements of AFC Energy plc have been prepared in accordance
with UK Adopted International Accounting Standards (IASs).
The financial statements have been prepared on a going concern basis
notwithstanding the trading losses being carried forward and the expectation
that the trading losses will continue for the near future as the Company
transitions from research and development to commercial operations.
The directors are required to assess whether it is appropriate to prepare the
financial statements on a going concern basis. In making this assessment the
directors need to be satisfied that the Company can meet its obligations as
they fall due for at least 12 months from the date of this report.
The directors make their assessment based on a cash flow model prepared by
management which sets out expected cash flows through to 30 April 2024.
Extending the period beyond the minimum 12 months from the date of this report
provides additional comfort when making the assessment.
Downside sensitivities have been applied to the cash flows primarily related
to an overspend of product development costs (for both materials and internal
labour) and an under-recovery of R&D tax credits.
Having concluded that the Company remains a going concern, these financial
statements have therefore been prepared on that basis.
The accounting policies set out below have, unless otherwise stated, been
applied consistently in these financial statements.
Judgements made by the Directors in the application of these accounting
policies that have significant effect on the financial statements and
estimates with a significant risk of material adjustment in the next year are
discussed in note 3.
Standards, amendments and interpretations to published standards not yet effective
Certain new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for 31 October 2022
reporting periods and have not been early adopted by the Company. These
standards, amendments or interpretations are not expected to have a material
impact on the entity in the current or future reporting periods and on
foreseeable future transactions.
Amendments to International Financial Reporting Standards (IFRSs) that are mandatorily effective for the current year
In the current year, the Company has applied the following amendments to IFRSs
issued by the International Accounting Standards Board (IASB) that are
mandatory:
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for
Interest Rate Benchmark reform - phase 2 (effective for periods beginning on
or after 1 January 2021)
• IFRS 16 Amendment for COVID-19 related Rent Concessions beyond 30
June 2021 (effective for periods beginning on or after 1 April 2021)
These standards have not had a material impact on the entity in the current
reporting period.
New and revised IFRSs in issue but not yet effective
Certain new accounting standards and interpretations have been published that
are not mandatory for 30 October 2022 reporting periods and have not been
early adopted by the Company. These standards are expected neither to have a
material impact on the entity in the current or future reporting periods nor
on foreseeable future transactions:
• IFRS 3 Amendments to references to the Conceptual Framework
Current (effective for periods beginning on or after 1 January 2022)
• IAS 16 Amendments to Property, Plant and Equipment - Proceeds
before intended Use Current (effective for periods beginning on or after 1
January 2022)
• IAS 37 Amendments to Onerous Contracts - Cost of Fulfilling a
Contract (effective for periods beginning on or after 1 January 2022)
• Annual Improvements to IFRS Standards 2018-2020, affecting IFRS 1,
IFRS 9, IFRS 16, IFRS 41 (effective for periods beginning on or after 1
January 2022)
• IAS 1 Classification of Liabilities as Current or Non-Current
(effective for periods beginning on or after 1 January 2024)
• IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting
Policies from significant to material (effective for periods beginning on or
after 1 January 2023)
• IAS 8 Amendments to Definition of Accounting Estimates (effective
for periods beginning on or after 1 January 2023)
• IAS 12 Deferred Tax related to Assets and Liabilities arising from
a Single Transaction (effective for periods beginning on or after 1 January
2023)
Capital policy
The Company manages its equity as capital. Equity comprises the items detailed
within the principal accounting policy for equity and financial details can be
found in the statement of financial position. The Company adheres to the
capital maintenance requirements as set out in the Companies Act 2006.
Revenue recognition
To determine whether to recognise revenue, a five-step process is followed:
• Identifying the contract with a customer;
• Identifying the performance obligations;
• Determining the transaction price;
• Allocating the transaction price to the performance obligations;
and
• Recognising revenue as the performance obligations are satisfied.
Revenue is generated from complex contracts covering the
• Sale of goods and parts;
• Sale of services and maintenance; and
• Short-term rental contracts.
and may be either for single or multiple contracts. Multiple contracts are
accounted for as a single contract where one or more of the following criteria
are met:
• The contracts were negotiated as a single commercial package;
• Consideration of one contract depends upon the other contract; and
• Some or all the goods and services comprise a single performance
obligation.
The contract terms are analysed to determine if they represent performance
obligations individually, or in combination with other promises. Performance
obligations in the contracts are analysed between either distinct physical
goods and services delivered or service level agreements. The transaction
price of the performance obligations is based upon
the contract terms taking into account both cash and non-cash consideration.
Non-cash consideration is valued at fair value taking into consideration
contract terms and known arm's length pricing where available. In the event
there are multiple performance obligations in a contract, the price is
allocated to the performance obligations based on a suitable indicator of fair
value.
Revenue is recognised either at a point in time or over time, as the
performance obligations are satisfied by transferring the promised goods or
services to customers. Contract liabilities are recognised for consideration
received in respect of unsatisfied performance obligations and the Company
reports these amounts as Deferred revenue in the notes to the statement of
financial position.
Similarly, if a performance obligation is satisfied in advance of any
consideration, a contract asset or a receivable is recognised in the statement
of financial position.
Rental as service and long-term service contracts - Revenue is recognised over
time, based on outputs provided to the customer, because this is the most
accurate measurement of the satisfaction of the performance obligation as it
matches the consumption of the benefits obtained by the customer. The customer
is simultaneously receiving and consuming the benefits as the Company performs
its obligations. Revenue can comprise a fixed rental charge and a variable
charge related to the usage of assets or other services (including
pass-through fuel).
Sale (standard products) contracts - Revenue from standard products will be
recognised at a point in time only when the performance obligation has been
fulfilled and ownership of the goods has transferred, which is typically at
site or factory acceptance, which is the official handover of control of the
goods to the customer.
During the product build, deposits and progress payments will be reflected in
the balance sheet as Deferred revenue.
Costs incurred on projects to date will not be included in the statement of
comprehensive income but will be accumulated on the balance sheet as work in
progress (as they are considered recoverable) and transferred to cost of sales
once the revenue applicable to those costs can be recognised in the accounts.
Should costs exceed anticipated revenues, a provision will be recognised and
the surplus costs expensed as an onerous contract with immediate effect.
Sale (customised products) contracts - Revenues for customised contracts (i.e.
contracts with no alternative use for the contract deliverable) will be
recognised over time according to how much of the performance obligation has
been satisfied. This is measured using the input method, comparing the extent
of inputs towards satisfying the performance obligation with the expected
total inputs required. Any changes in expectation are reflected in the total
inputs figure as they become known. The progress percentage obtained is then
applied to the revenue associated with that performance obligation.
Combination of contracts - contracts are combined and accounted for as a
single contract if the contracts are entered into at or near the same time
with the same customer or if one or more of the following are met; contracts
negotiated as a single package; consideration of one contract depends on
another; or some of the goods or services are a single performance obligation.
Other income
Other income represents sales by the Company of waste materials.
Development costs
Identifiable non-recurring engineering and design costs and other prototype
costs incurred to develop a technically and commercially feasible product are
assessed. In accordance with IAS 38 Development costs and capitalised if they
meet all of the criteria required as below:
• technical feasibility of completing the asset for use or sale;
• intention to complete the asset for use or sale;
• ability to use or sell the asset;
• generation of probable future economic benefits;
• availability of adequate technical and financial resources; and
• ability to measure the attributable expenditure reliably.
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 Statement of Financial Position date, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at the date of the
Statement of Financial Position.
Inventory
Inventory is recorded at the lower of actual cost and net realisable value,
applying the FIFO methodology.
Work in progress comprises direct labour, direct materials and direct
overheads. Direct Labour will be allocated on an input basis that reflects the
consumption of those resources in the production process.
Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents
comprise cash balances and bank overdrafts that form an integral part of the
Company's cash management process. They are recorded in the SFP and valued at
fair value.
Restricted cash represents bank deposit accounts where disbursement is
dependent upon certain contractual performance conditions.
Other receivables
These assets are initially recognised at fair value and are subsequently
measured at amortised cost less any provision for impairment.
Tangible fixed assets
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:
Years
Decommissioning asset
Fixtures, fittings and equipment 1 to 3 years
Computer equipment 3 years
Manufacturing and test stands 3 years
Motor vehicles 3 to 4 years
Demonstration equipment 3 to 10 years
Rental fleet 3 to 10 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 tangible fixed assets are reviewed annually and
any revision is accounted for as a change in accounting estimate and the net
book value of the asset, at the time of the revision, is depreciated over the
remaining revised economic life of the asset.
Right-of-use assets
At inception each contract is assessed as to whether it conveys the right to
control the use of an identified asset, and obtain substantially all the
economic benefits from use of the asset, for a period of time in exchange for
consideration. In this instance the contract should be accounted for as a
lease. The Company recognises a right-of-use asset and a lease liability at
the lease commencement date.
The right-of-use assets comprises the corresponding lease liability, lease
payments made before the commencement date, less any lease incentives received
and any initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses. The lease liability is
initially measured at the present value of the lease payments and discounted
using the interest rate implicit in the lease or, if that rate cannot be
determined, the incremental borrowing rate is used. The lease liability
continues to be measured at amortised cost using the effective interest
method. It is remeasured when there is a change in the future lease payments.
When the lease liability is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the right-of-use asset.
At lease commencement date, a right-of-use and lease liability are recognised
on the Statement of Financial Position. The right-of-use asset is measured at
cost, which comprises the initial measurement of the lease liability, any
initial direct costs incurred, an estimate of costs to dismantle and remove
the asset at the end of the lease term and any lease payments made in advance
of the lease commencement date.
Lease payments included in the measurement of the lease liability are made up
of fixed payments (including in- substance fixed), variable payments based on
an index or rate, amounts expected to be payable under a residual value
guarantee and payments arising from options reasonably certain to be
exercised.
After initial measurement, the liability will be reduced for payments made and
increased for interest. It is remeasured to reflect any reassessment or
modification, or if there are changes in in-substance payments.
When the lease liability is remeasured, the corresponding adjustment is
reflected in the right-of-use asset, or profit and loss if the right-of-use
asset is already reduced to zero.
Short-term leases and low value assets have been accounted for using the
practical expedients set out in IFRS 16 and the payments are recognised as an
expense in profit or loss on a straight-line basis over the lease term.
The Company has elected not to recognise right-of-use assets and lease
liabilities for leases of less than 12 months and leases of low value assets.
These largely relate to short-term rentals of equipment. The lease payments
associated with these leases are expensed on a straight-line basis over the
lease term.
Intangible assets
The useful economic lives of intangible fixed assets are reviewed annually and
any revision is accounted for as a change in accounting estimate and the net
book value of the asset, at the time of the revision, is amortised over the
remaining revised economic life of the asset.
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 periods:
Years
Development costs 5 years
Patents 10 to 20 years
Commercial rights 5 years
The useful economic lives of intangible fixed assets are reviewed annually and
any revision is accounted for as a change in accounting estimate and the net
book value of the asset, at the time of the revision, is amortised over the
remaining revised economic life of the asset.
Impairment testing of intangible assets and property, plant and equipment
At each Statement of Financial Position date, the carrying amounts of the
assets are reviewed to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of the
impairment loss (if any). In assessing whether an impairment is required, the
carrying value of the asset is compared with its recoverable amount. The
recoverable amount is the higher of the fair value less costs of disposal
(FVLCD) and value in use (VIU).
Financial instruments
Financial instruments are measured on initial recognition at fair value, plus,
in the case of financial instruments other than those classified as fair value
through profit or loss (FVTPL), directly attributable transaction costs.
Financial instruments are recognised when the Company becomes a party to the
contracts that give rise to them and are classified as amortised cost, fair
value through profit or loss or fair value through other comprehensive income,
as appropriate. The Company considers whether a contract contains an embedded
derivative when the entity first becomes a party to it. The embedded
derivatives are separated from the host contract if the host contract is not
measured at fair value through profit or loss and when the economic
characteristics and risks are not closely related to those of the host
contract. Reassessment only occurs if there is a change in the terms of the
contract that significantly modifies the cash flows that would otherwise be
required.
In the periods presented the Company does not have any financial assets
categorised as FVTPL or FVOCI.
Financial assets at amortised cost
A financial asset is measured at amortised cost if it is held within a
business model whose objective is to hold assets to collect contractual cash
flows and its contractual terms give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount
outstanding and is not designated as FVTPL. Financial
assets classified as amortised cost are measured subsequent to initial
recognition at amortised cost using the effective interest method. Cash,
restricted cash, trade receivables and certain other assets are classified as
and measured at amortised cost.
Financial liabilities
Financial liabilities are classified as measured at amortised cost or FVTPL. A
financial liability is classified as at FVTPL if it is classified as
held-for-trading, it is a derivative or it is designated as such on initial
recognition. Financial liabilities at FVTPL are measured at fair value and net
gains and losses, including any interest expense, are recognised in profit or
loss.
Other financial liabilities are subsequently measured at amortised cost using
the effective interest method. Gains and losses are recognised in net earnings
when the liabilities are derecognised as well as through the amortisation
process. Borrowing liabilities are classified as current liabilities unless
the Company has an unconditional right to defer settlement of the liability
for at least 12 months after the statement of financial position date.
Accounts payable and accrued liabilities and leases liabilities are classified
as and measured at amortised cost.
Impairment of financial assets
A loss allowance for expected credit losses is recognised in the Statement of
Comprehensive Income for financial assets measured at amortised cost. At each
balance sheet date, on a forward-looking basis, the Company assesses the
expected credit losses associated with its financial assets (such as trade
receivables and contract assets) carried at amortised cost. The impairment
methodology applied depends on whether there has been a significant increase
in credit risk. The expected credit losses are required to be measured through
a loss allowance at an amount equal
to the 12-month expected credit losses (expected credit losses that result
from those default events on the financial instrument that are possible within
12 months after the reporting date) or full lifetime expected credit losses
(expected credit losses that result from all possible default events over the
life of the financial instrument). A loss allowance for full lifetime expected
credit losses is required for a financial instrument if the credit risk of
that financial instrument has increased significantly since initial
recognition.
Derecognition of financial assets and liabilities
A financial asset is derecognised when either the rights to receive cash flows
from the asset have expired or the Company has transferred its rights to
receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party. If
neither the rights to receive cash flows from the asset have expired nor the
Company has transferred its rights to receive cash flows from the asset, the
Company will assess whether it has relinquished control of the asset or not.
If the Company does not control the asset then derecognition is appropriate. A
financial liability is derecognised when the associated obligation is
discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as the
derecognition of the original liability and the recognition of a new
liability. The difference in the respective carrying amounts is recognised in
the statement of Comprehensive Income.
Share-based payment transactions
The fair value of options granted under the Employee Option Plan is recognised
as an employee benefits expense, with a corresponding increase in equity. The
total amount to be expensed is determined by reference to the fair value of
the options granted:
• Including any market performance conditions (e.g., the entity's
share price)
• Excluding the impact of any service and non-market performance
vesting conditions (e.g., profitability, sales growth targets and remaining an
employee of the entity over a specified time period)
• Including the impact of any non-vesting conditions (e.g., the
requirement for employees to save or hold shares for a specific period of
time)
The total expense is recognised over the vesting period, which is the period
over which all of the specified vesting conditions are to be satisfied. At the
end of each period, the entity revises its estimates of the number of options
that are expected to vest based on the non-market vesting and service
conditions. It recognises the impact of the revision to original estimates, if
any, in profit or loss, with a corresponding adjustment to equity.
Modifications after the vesting date to terms and conditions of equity-based
payments which increase the fair value are recognised over the remaining
vesting period. If the fair value of the revised equity-based payments is less
than the original valuation, then the original valuation is expensed as if the
modification never occurred.
Where there are unapproved share option plans, a provision for the employer's
share of National Insurance Contributions is estimated based on the intrinsic
value of the exercisable options at the reporting period date. A charge is
recorded in the Statement of Comprehensive Income and the liability is
included within provisions.
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 Statement of Financial Position date and are discounted to
present value where the effect is material.
Provisions include onerous contracts (see later under section 3) where, if
unavoidable costs of meeting a contract exceed the expected revenue, a
provision is recognised immediately through profit and loss.
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
Statement of Financial Position 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.
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 the taxation line.
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 were
capped at 5% 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 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:
Critical accounting judgements
The following are the judgements made by management in applying the accounting
policies of the Company that have the most significant effect on the financial
statements:
Customer contracts and revenue recognition
Customer contracts typically include the provision of goods or services
related to the provision of off-grid power generated from the conversion by
fuel cells of hydrogen to electricity.
Customer agreements can be complex, involve multiple legal documents and have
a duration covering multiple accounting periods including different
performance obligations and payment terms designed to manage cash flow rather
than the underlying arm's length transaction price. Management use judgement
to identify the specific performance obligations and allocate the total
expected revenue to the identified performance obligations. These judgements
are made based on the interpretation of key clauses and conditions within each
customer contract.
Project reviews covering cost forecasts and technical progress are monitored
periodically to ensure that any potential losses are recognised immediately in
the accounts in accordance with IAS 37.
Capitalisation of development expenditure
The Company uses the criteria of IAS 38 to determine whether development
expenditure should be capitalised. Management identifies separately
non-recurring engineering, design costs and prototype costs incurred to
develop demonstration units used in marketing activities and customer trials.
Management believe that the Development Expenditure will continue to support
marketing and customer trials for the foreseeable future. This assessment
relies upon judgements about future customer behaviour taking in to account
the feedback received from prospective customers and future product
improvements which influence the economic useful life and residual value of
said assets.
For the current year, all development costs have been expensed as they do not
yet meet all six of the criteria set out within the policy (see section 2) on
development costs.
Key source of estimation uncertainty
Share-based payments
Certain employees (including Directors and senior Executives) of the Company
receive remuneration in the form of share-based payment, whereby employees
render services as consideration for equity instruments (equity-settled
transactions).
The fair value is determined using either the Black-Scholes valuation model or
a Log-normal Monte Carlo stochastic model for market conditions. Both are
appropriate for considering the effects of the vesting conditions, expected
exercise period and the dividend policy of the Company.
The cost of equity-settled transactions is accrued, together with a
corresponding increase in equity over the period the directors expect the
performance criteria will be fulfilled. For market performance criteria this
estimate is made at the time of grant considering historic share price
performance and volatility. For non-market performance criteria an estimate is
made at the time of grant and reviewed annually thereafter considering
progress on the operational objectives set, plans and budgets.
The estimation uncertainty relating to share-based payments is not at risk of
material change in future years other than in relation to management's
estimate of the extent to which the non-market and service conditions will be
met.
Onerous contracts
Throughout the year, the performance of each open contract is reviewed and
expected cost of delivering that contract is compared to the expected revenue
from doing so. Where the expected costs suggest a loss, the contract is
treated as
an onerous contract and a provision is recognised immediately through the
profit and loss. No such provisions were made.
Estimates
Warrant valuation
6.8 million warrants were granted during the year to ABB E-mobility on the
same day, 15 November 2021, that the Company signed the Sale and Development
Agreement.
As the warrant vesting conditions were dependent on performance conditions
within the Sale and Development contract, the two contracts were considered to
be linked and therefore accounted as a single contract (meaning that the
contract value of the Sale and Development agreement was reduced by the fair
value of the warrants, which have been accounted for as equity and so not
charged to the Statement of Comprehensive Income).
The fair value is determined using the Black-Scholes valuation model with the
Monte Carlo model used for inputs around likelihood of exercise. The main area
of uncertainty relates to the inputs to the Black-Scholes model, particularly
around the assumptions concerning the exercise period and timing of any
potential exercise. This is because the start of the exercise period) (i.e.
the point the warrants vest) is subject to performance, and therefore not
fixed in time at the point of grant (which is the valuation date). Changing
the assumptions around timing could have a material impact on the valuation.
Level 1 inputs have been used where suitable but management inputs have also
been taken into account. See also note 24.
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 2022, the
Company operated mainly in the United Kingdom. All non-current assets are in
the United Kingdom.
Revenue for the period was all generated from fuel cell systems.
5. Revenue
Year ended Year ended
31 October 2022 31 October 2021
Revenue from contracts with customers
£000s £000s
Rental revenue 225 576
Other revenue 357 16
582 592
Being
Cash consideration 367 315
Consideration in kind 215 277
582 592
The majority of the other revenue relates to sales of hydrogen to the rentee
of the fuel cell generators.
Unsatisfied performance obligations were:
Total Within one year Within 2 to 5 years
£000s £000s £000s
31 October 2021 1 148 148 -
31 October 2022 96 96 -
1 During the year, revenue was only recognised in relation to rental as a
service. The company had also entered into a contract to deliver products. At
the balance sheet date, the contract had not commenced, and no revenue has
been recognised.
The aggregate amount of the transaction price allocated to contracts that are
fully unsatisfied as of 31 October 2022 was £96,000 (2021: £354,000). The
Company expects to recognise these revenues within the next twelve months.
The consideration in kind relates to marketing services received from the
customer and fair valued in accordance with the contract.
6. Operating costs
The operating costs consist of:
Qualifying R&D spend Qualifying R&D spend
31 October
31 October
Indirect Year ended
Indirect 31 October Year ended
2022 31 October 31 October 2021
31 October
2021
£000s 2022 2022 £000s
2021
Note
£000s
£000s £000s £000s
Materials 4,654 451 5,105 1,003 34 1,037
Payroll (excluding Directors) 3,660 1,247 4,907 1,767 220 1,987
8,314 1,698 10,012 2,770 254 3,024
Directors - 1,642 1,642 - 1,900 1,900
costs
9
Other employment costs 251 796 1,047 17 1,196 1,212
Occupancy costs - 772 772 27 245 272
Other administrative expenses 7 440 2,310 2,750 75 1,743 1,818
9,005 7,218 16,223 3,100 5,127 8,226
Amortisation of intangible assets 13 - 474 474 - 110 110
Depreciation of right-to-use
assets - 379 379 - 302 302
14
Depreciation of tangible fixed
assets - 994 994 - 480 480
15
Less depreciation of rental asset
charged to cost of sales 15 - (218) (218) - (98) (98)
Consideration in - 215 215 - 278 278
kind 5
Share based - 1,682 1,682 - 1,152 1,152
payment 23
9,005 10,744 19,749 3,100 7,351 10,450
The values disclosed as qualifying R&D spend form the total R&D
expenditure incurred by the Company during the year.
Occupancy costs include: repair & maintenance, utilities and lease
payments. In the prior year the information technology costs were classified
within occupancy costs but have been reclassified in the current year into
other administration expenses to better reflect the nature of the costs.
Fees paid to the auditors included within the operating costs were:
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Audit 244 136
Other assurance services 9 12
7. Other administration expenses
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Professional fees 889 596
Audit and tax costs 312 155
Information technology 753 342
Travel & entertainment 486 224
Insurance 260 162
Other 50 339
2,750 1,818
In the prior year the information technology costs were classified within
occupancy costs but have been reclassified in the current year into other
administration expenses to better reflect the nature of the costs.
8. Employee numbers and costs, including directors
The average numbers of employees in the year were:
Year ended Year ended
31 October 2022 31 October 2021
Number Number
Support, operations and technical 77 36
Directors 7 6
84 42
The aggregate payroll costs for these persons were:
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Wages and salaries 5,961 3,108
Social security 392 684
Employer's pension contributions 196 95
6,549 3,887
Equity-settled share-based payment expense 1,682 1,152
8,231 5,039
9. Directors' costs
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Wages and salaries 1,380 1,538
Accrual for holidays 37 -
Other compensation 77 107
Company pension contributions 50 44
1,544 1,689
Social security 98 211
1,642 1,900
Year ended Year ended
31 October 2022 31 October 2021
Directors' £000s
emoluments
£000s
Wages and salaries 1,380 1,538
Other compensation 77 107
Company contributions to defined contribution pension schemes 50 44
1,507 1,689
Adam Bond is the only director ever to have exercised options or warrants (see
below).
Year ended Year ended
31 October 2022 31 October 2021
Highest paid £000s
director
£000s
Wages and salaries 538 775
Other compensation 43 88
Company contributions to defined contribution pension schemes 16 13
597 876
Adam Bond realized £133,000 from exercising in full options that vested
earlier in the year at value £241,000. He did not exercise any options in the
previous year.
The highest paid director received remuneration of £581,000 (2021: £863,000)
excluding pension contributions and LTIP.
10. Net finance cost
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Lease Interest 38 37
Exchange rate differences (21) 2
Bank charges 2 13
Total finance cost 19 52
Bank interest receivable (143) (19)
Net finance cost (124) 33
11. Taxation
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Recognised in the statement of comprehensive income
R&D tax credit - current year (3,050) (1,034)
R&D tax credit - prior year 8 (30)
Total tax credit (3,042) (1,063)
Reconciliation of effective tax rates
Loss before tax (19,488) (10,442)
Tax using the domestic rate of corporation tax of 19% (2021: 19%) (3,703) (1,984)
Effect of:
Change in unrecognised deferred tax resulting from tax losses 1,767 1,354
Timing differences not deductible for tax purposes (101) (165)
Depreciation in excess of capital allowances 299 148
R&D enhanced deduction on qualifying R&D expenditure (2,259) (766)
R&D rate adjustment on surrendered losses 947 380
R&D tax credit - prior year 8 (30)
Total tax credit (3,042) (1,063)
Potential deferred tax assets have not been recognised but are set out below:
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Property, plant and equipment, and intangible assets (187) (95)
Share based payments 477 39
Losses carried forward 12,037 9,595
Unrecognised net deferred tax assets 12,327 9,539
The cumulative tax losses in the amount of £47.6 million (2021: £37.8
million) that are available indefinitely for offsetting against future taxable
profits have not been recognised as the Directors consider that it is unlikely
that they will be realised in the foreseeable future.
The 2021 Finance Act increased the UK corporation tax rate to 25% from 1 April
2023, which will affect any future tax charges.
The tax reconciliation for the prior year has been re-presented to reflect the
reconciliation in the current year where 'change in unrecognised deferred tax
resulting from tax losses' has been disclosed separately from other
reconciling items.
12. Loss per share
The calculation of the basic loss per share is based upon the net loss after
tax attributable to ordinary shareholders and a weighted average number of
shares in issue for the year.
Year ended Year ended
31 October 2022 31 October 2021
Basic loss per share (pence) (2.24) (1.33)
Diluted loss per share (pence) (2.24) (1.33)
Loss attributable to equity shareholders £000s (£16,446) (£9,378)
Weighted average number of shares in issue 000s 734,745 706,413
Diluted earnings per share
As set out in note 23, there are share options and warrants (accounted for
under IFRS 2: Share based payments) outstanding as at 31 October 2022 which,
if exercised, would increase the number of shares in issue. Given the losses
for the year, there is no dilution of losses per share in the year ended 31
October 2022 nor the previous year.
13. Intangible assets
Development Commercial Intangible
costs Patents rights assets
£000s £000s £000s £000s
Cost
As at 1 November 2020 229 800 121 1,150
Additions - 86 - 86
31 October 2021 229 886 121 1,236
Additions - 334 - 334
As at 31 October 2022 229 1,220 121 1,570
Amortisation
As at 1 November 2020 28 344 9 381
Charge for the year 46 40 24 110
As at 31 October 2021 74 384 33 491
Intangible: Impairment 121 173 - 294
Charge for the year 34 422 18 474
As at 31 October 2022 229 979 51 1,259
Net book value 31 October 2020 201 456 112 769
Net book value 31 October 2021 155 504 88 747
Net book value 31 October 2022 - 241 70 311
The commercial rights include the global preferential rights to integrate the
HiiRoc plasma-based technology which were acquired by an initial payment in
shares of £100k and future payments in kind through the provision of
technical support.
The impairment charge relates to certain expenses capitalised during the
development of the L-Series and now considered impaired due to the development
of the S-Series.
14. Right-of-use assets
Buildings
£000s
Costs
As at 1 November 2020 1,415
As at 31 October 2021 1,415
Additions 470
As at 31 October 2022 1,885
Depreciation
31 October 2020 228
Charge for the year 302
31 October 2021 530
Charge for the year 379
As at 31 October 2022 909
Net Book Value
As at 31 October 2020 248
As at 31 October 2021 884
As at 31 October 2022 976
15. Tangible fixed assets
De- Fixtures, Demon-
Leasehold commissioning fittings and Motor stration Sub-
improvements Asset equipment vehicles equipment Total
£000s £000s £000s £000s £000s £000s
Costs
As at 31 October 2020 222 300 1,486 18 327 2,353
Additions 736 - 81 - 295 1,112
Disposals - - (13) - (13)
Transfers - - (214) - (214)
As at 31 October 2021 958 300 1,340 18 622 3,238
Additions 1,620 - 241 - - 1,861
Disposals (8) - - - (118) (126)
As at 31 October 2022 2,570 300 1,581 18 504 4,973
Depreciation
1 November 2020 222 234 1,310 18 54 1,838
Charge for the year 80 31 42 - 144 297
Disposals - - (10) - - (10)
Transfers - - (98) - - (98)
As at 1 November 2021 302 265 1,244 18 198 2,027
Charge for the year 444 20 83 - 69 616
Impairment - - - - 67 67
As at 31 October 2022 746 285 1,327 18 334 2,710
Net Book Value
1 November 2020 - 66 176 - 273 515
31 October 2021 655 35 96 - 424 1,211
As at 31 October 2022 1,824 15 254 - 170 2,263
Manufacturing
and test stands
Sub- Rental Computer equipment Assets in construction
Total asset
Total
£000s £000s £000s £000s £000s £000s
Costs
1 November 2020 2,353 423 - - - 2,776
Additions 1,112 280 70 351 - 1,813
Disposals (13) - - - - (13)
Transfers (214) - 129 85 - -
31 October 2021 3,238 703 199 436 - 4,576
Additions 1,861 - 119 2 406 2,388
Disposals (126) - - - - (126)
31 October 2022 4,973 703 318 438 406 6,838
Depreciation
1 November 2020 1,838 - - - - 1,838
Charge for the year 297 98 39 45 - 479
Disposals (10) - - - - (10)
Transfers (98) - 47 51 - -
31 October 2,027 98 86 96 - 2,307
Charge for the year 616 218 71 89 - 994
Impairment 67 188 - - - 255
31 October 2022 2,710 504 157 185 - 3,556
Net Book Value
1 November 2020 515 423 - - - 938
31 October 2021 1,211 605 113 340 - 2,269
31 October 2022 2,263 199 161 253 406 3,282
The Company has set-up a decommissioning asset for the removal of the plant
and equipment installed at the Stade site in Germany and for dilapidations
associated with the leasehold premises at Dunsfold in the UK, the cost of
which is based on estimates. No decision has been taken about the date when
the plant will be decommissioned.
16. Inventory
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Raw materials 173 453
Work in progress - 208
Provision (130) -
Inventory 43 661
Inventory expensed as cost of sales during the year was £nil (2021 £nil).
During the year, £488,000 of brought forward inventory was written off as
research and development costs on projects that did not subsequently meet the
anticipated level of commerciality.
17. Receivables
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Accounts receivable 142 299
VAT receivables 401 229
Other receivables 303 154
Prepayments 314 333
1,160 1,015
There is no significant difference between the fair value of the receivables
and the values stated above.
Given the value of VAT receivables for the current year, it has been
reclassified as a separate line item, with the balance remaining within other
receivables.
18. Cash and cash equivalents
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Cash at bank 285 119
Bank deposits 39,935 55,256
40,220 55,375
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 of £612,000 (2021: £612,000) is not included within cash and
cash equivalents and is held in escrow to support bank guarantees provided
under contracted obligations to suppliers and customers.
19. Payables
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Current liabilities:
Trade payables 445 353
Deferred revenue 1,600 214
Other payables 349 144
Accruals 1,250 985
3,644 1,696
Included in Accruals as of 31 October 2022 is an amount of £514,000 in
relation to bonuses (2021: £507,000).
Deferred revenue under the ABB contract is reduced by the fair value of the
warrants granted on the same day, 15 November 2021, as the two contracts are
considered to be linked. Also see note 24 for information on the warrants
granted.
20. Lease liabilities
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Opening position 906 260
Cash flows - -
- Repayment (419) (330)
Non-cash - -
- Additions 471 939
- Interest expense 38 37
996 906
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Lease liabilities less than 12 months 298 322
Lease liabilities more than 12 months 698 584
996 906
The Company has a number of leases, which are mainly of five years in duration
and have break clauses after two, or three, years. Leases are renewed, as
opposed to being extended, and are granted outside of the 1954 Act, and
therefore do not have security of tenure.
21. Provisions
National Insurance on unapproved share Total
options £000s
£000s Decommissioning
provision
£000s
Balance at 1 November 2020 - (301) (301)
Addition (353) - (353)
Balance at 31 October 2021 (353) (301) (654)
Utilisation 353 - 353
Balance at 31 October 2022 - (301) (301)
The prior year provision for National Insurance related to options granted
outside of the approved EMI scheme. No further grants of similar options were
made during the current year and, as the EMI options are marked-to-market and
the relevant market benchmark is lower than the exercise price, no provision
is required.
The Company has set up a decommissioning provision for the Stade site in
Germany, the cost of which is based on estimates. Various scenarios have been
considered which estimate the range of costs to be from £35,000 to £420,000
dependent upon agreements reached with the lessor.
22. Issued share capital
Total share premium
Ordinary Share Capital Share premium Cost of issue
shares
Price
£000s £000s £000s £000s £000s
1 November 2021 734,484,668 - 734 119,718 (3,269) 116,448
Exercise of options 14 March 2022 60,000 9,240 - 9 - 9
Exercise of options 5 July 2022 110,000 12,320 - 12 - 12
Exercise of PSP award 21 July 2022 583,169 583 1 - - 1
Exercise of options 26 July 2022 60,000 9,240 - 9 - 9
Exercise of options 7 September 2022 53,334 8,213 - 8 - 8
31 October 2022 735,351,171 39,596 735 119,756 (3,269) 116,487
All issued shares are fully paid other than some shares which were issued
during the year without payment of the nominal face value of 0.1 pence per
share required by the relevant legislation. The Company will work to remediate
this issue and processes have been modified to prevent this happening in
future.
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 to maintain a sufficient funding base to enable the Company to meet
its working capital needs. The Company has no debt, other than property
leases, and therefore a target debt to equity ratio is not relevant at the
time.
Share premium is shown before the permitted deduction of cost of issue. After
such deduction the value equals £116,487,000.
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.
In November 2021 the Company granted 6.8 million warrants to ABB (see note 24)
23. Share based payments
Share based payment charge:
2022 2021
£000s £000s
Employee Share Option Plan 1,593 1,090
Warrants 70 62
SAYE 19 -
1,682 1,152
Employee share option plan
The establishment of the Employee Share Option Plan was approved by the Board
on 1 August 2018 and amended on 10 October 2018. The Plan is designed to
attract, retain and motivate employees. Under the Plan, participants can be
granted options which vest unconditionally or conditional upon achieving
certain performance targets. Participation in the Plan is solely at the
Board's discretion and no employee has a contractual right to participate in
the Plan or to receive any guaranteed benefits.
Options are granted under the Plan for no consideration and carry no dividend
nor voting rights. When exercisable, each option is convertible into one
ordinary share.
Set out below are summaries of options granted under the Plan:
Average exercise Average exercise
price per share
price per share
Number of
Number of
option (£) options option (£) options
2022
2022 2021 2021
1 November 2021 0.35 14,952,167 0.30 14,420,835
Granted during the year 0.01 7,708,317 0.62 1,600,000
Exercised during the year 0.05 (866,503) 0.22 (718,668)
Lapsed during the year 0.21 (1,945,548) 0.33 (350,000)
31 October 2022 0.24 19,848,433 0.35 14,952,167
Vested and exercisable at 31 October 11,700,637 9,630,501
Share options outstanding at the end of the year have the following expiry
dates and exercise prices.
Share options Share options
Grant date Expiry date Exercise price (£) 2022 2021
07 November 2012 07 November 2022 0.3575 95,000 95,000
02 December 2013 01 December 2023 0.34 120,000 120,000
17 July 2015 17 July 2025 0.22 6,000,000 6,000,000
10 September 2018 01 August 2024 0.088 216,667 266,667
15 October 2018 15 October 2024 0.088 2,500,000 2,500,000
31 December 2019 20 April 2030 0.1635 2,750,000 2,750,000
20 April 2020 20 April 2030 0.154 820,500 1,720,500
24 June 2021 28 June 2031 0.617 1,000,000 1,500,000
19 November 2021 19 November 2031 0.001 2,971,582 -
04 July 2022 04 July 2032 0.19 215,000 -
15 July 2022 15 July 2032 0.001 3,159,684 -
19,848,433 14,952,167
The table below sets out the inputs used in determining the fair value of the
grants of options per the previous table as well as the expense recognised in
the accounts in the current year. The grants in the previous table are linked
below based on the exercise price and grant date.
Average Average expected volatility (per annum) Average risk-free interest rate (per annum) Average dividend Average implied option life (years) Average fair value per option (pence) Amount expensed in
Exercise price (pence) grant date share yield (per annum) 2022
price (pence) £000s
Grant date
16.35 31 December 2019 16.35 95.5% 0.54% 0% 2 8.1 74
61.7 24 June 2021 63.5 106.8% 0.18% 0% 3 41.8 116
0.001 19 November 2021 53.8 76% 0.05% 0% 0.4 0.43 698
0.001 19 November 2021 53.8 76% 0.35% 0% 1.4 0.42 472
0.001 19 November 2021 53.8 76% 0.05% 0% 3 0.45 167
0.19 04 July 2022 19 95% 1.83% 0% 3 11.4 3
0.001 15 July 2022 20.7 95% 1.76% 0% 3 12.7 27
0.001 15 July 2022 20.7 95% 1.76% 0% 3 16.6 36
Total charge for the year (2021: £ 1,089,887) 1,593
Three grants were made on 19 November 2021. The first two, of the three
disclosed above, related to the Transitional LTIP, and was made in two
tranches. The first tranche had a risk-free rate of 0.05% whilst the second
tranche had a rate of 0.35%. The third, of the three above, related to the PSP
LTIP and had a risk free rate of 0.05%.
SAYE
Average Average
exercise
exercise
price per price per
option (£)
option (£)
Number of
Number of
2022 options 2022 2021 options
2021
1 November - - -
Granted during the year 0.2 2,007,400 - -
31 October 0.2 2,007,400 - -
Vested and exercisable at 31 October - - - -
Share options Share options
Grant date Expiry date Exercise price (£) 2022 2021
03 August 2022 31 March 2026 0.2 2,007,400 -
2,007,400 -
Average grant date share price Average expected volatility Average risk-free Average dividend Average implied Average Amount expensed
(per annum) interest rate yield option life (years) fair value in 2022 (£000's)
Exercise price (pence) (pence) (per annum) (per annum) per option
(pence)
Grant date
0.2048 03 August
2022 0.256 95% 2.93% 0% 3.08 17.7 19
Total charge for the year (2021: £ nil)
19
24. Financial instruments
Warrants
The Board has the discretion to award warrants from time to time to third
parties. Typically, warrants are granted and vest upon certain performance
targets. Grant of warrants is solely at the Board's discretion.
Warrants are granted for no consideration and carry no dividend nor voting
rights. When exercisable, each warrant is convertible into one ordinary share.
Set out below are summaries of warrants granted under the Plan:
Average Average exercise price per
exercise price per
Number of warrant (£) Number of
warrant (£) warrants
warrants
2021
2022 2022 2021
01 November 0.51 8,900,000 0.18 5,400,000
Granted during the year 0.59 6,802,720 0.77 5,000,000
Exercised during the year - - 0.19 (1,500,000)
31 October 0.54 15,702,720 0.51 8,900,000
Vested and exercisable at 31 October 4,001,300 600,000
Average Average expected volatility (per annum) Average risk-free interest rate (per annum) Average dividend Average implied warrant life Average fair
Warrant price (pence) grant date share yield (per annum) (years) value per warrant Amount expensed in
price (pence) (pence) 2022 (£)
Grant date
19.5 13 October 2020 18.56 102.76% (0.02)% 0.0% 1 7.01 70
Total charge for the year 70
The total charge for the prior year was £62,100.
Average Average expected volatility (per annum) Average risk-free interest rate (per annum) Average dividend Average implied warrant life Average fair
Warrant price (pence) grant date share yield (per annum) (years) value per warrant Accounted as equity in
price (pence) (pence) 2022 (£)
Grant date
58.8 15 November 2021 58.8 59.1% 0.65% 0.0% 2 6.3 215
58.8 15 November 2021 58.8 59.1% 0.65% 0.0% 2 11.3 192
58.8 15 November 2021 58.8 59.1% 0.65% 0.0% 2 9.9 169
Accounted as equity 576
The warrant life is two years from the date of vesting. The first tranche of
3.4 million warrants have fully vested. Under the revised agreement signed on
28 March 2023, ABB will invest the £2.0 million balance into newly issued
share capital, which means that the original milestones 1 and 2 will no longer
apply and so the related warrants will not vest and therefore expire in due
course.
Further information on the ABB transaction is provided under post balance
sheet events within the Directors' Report.
Warrants outstanding at the end of the year have the following expiry dates
and exercise prices.
Warrants Warrants
Grant date Expiry date Exercise price (£) 2022 2021
09 September 2019 09 September 2029 0.05 900,000 900,000
19 October 2020 13 October 2021 0.195 1,000,000 1,000,000
19 October 2020 13 April 2022 0.21 1,000,000 1,000,000
19 October 2020 13 October 2022 0.23 1,000,000 1,000,000
13 January 2021 13 March 2025 0.77 5,000,000 5,000,000
15 November 2022 04 February 2024 0.59 3,401,360 -
15 November 2022 24 months after vesting 0.59 1,700,680 -
15 November 2022 24 months after vesting 0.59 1,700,680 -
15,702,720 8,900,000
Vesting is conditional on the meeting of the milestones 1 and 2.
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.
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 2022 31 October 2021
£000s £000s
Note
Financial instruments held at amortised cost:
Cash and cash 40,220 55,375
equivalents
18
Receivables 445 453
17
Total financial assets held at amortised cost 41,380 56,390
Payables 19 2,044 1,482
Total financial liabilities held at amortised cost 2,044 1,482
VAT receivables and prepayments have been removed from financial assets and
deferred income from financial liabilities.
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.
Other than the ABB warrants, granted on 15 November 2021, which also
incorporate managements inputs to the fair valuation, all financial
instruments are Level 1 and none 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.
Credit risk
Credit risk arises principally from the Company's 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 2022 31 October 2021
£000s £000s
Receivables 1,160 1,015
Cash and cash equivalents 40,220 55,375
The Company's principal other receivables arose from:
a) customers, and
b) trade and other receivables
Credit risk with cash and cash equivalents is reduced by placing funds with
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 were temporarily held on short-term deposit. The credit risk provision is
estimated on a case by case basis taking into account public information of
the counterparty and payment history and no loss is expected. No expected
credit loss accrual has been made as at 31 October 2021 and 2020 as they are
estimated to be de minimis.
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 payables are all
payable within two months. The Board receives cash flow projections on a
regular basis as well as information on cash balances.
See also note 20, which sets out the lease liabilities for less than 12 months
and more than 12 months.
Interest rate risk
The Company is exposed to interest rate risk in respect of surplus funds held
on deposit and, where appropriate, uses fixed interest term deposits to
mitigate this risk.
Fair value of financial instruments
Year ended Year ended
31 October 2022 31 October 2021
£000s £000s
Receivables 445 453
Cash and cash equivalents 40,220 55,375
Trade and other payables (2,044) (1,482)
38,621 54,346
There is no difference between the fair value and book value of financial
instruments.
The Company does not enter 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.
25. Related party transactions
There were no transactions with any related parties during the year ended 31
October 2022 (2021: £nil) other than key management compensation.
26. Ultimate controlling party
There is no ultimate controlling party.
27. Post balance sheet events
ABB E-mobility
On 28 March 2023, ABB E-mobility confirmed that AFC Energy had successfully
validated its first cumulative 100kW liquid cooled fuel cell. As a result of
this, the Sale and Development Agreement, signed on 15 November 2021, was
revised such that:
• ABB will have a pre-agreed discount, to be spread over the
purchases of the first ten fuel cell systems, the first of which would be
purchased under the revised contract with the subsequent nine at ABB's option;
and
• the payment of the remaining £2.0 million, of the £4.0 million,
to be used for the purchase of issued shares in AFC Energy
The £2.0m balance, was received on 5 April 2023 and the shares issued and
admitted for trading shortly thereafter. The shares are of the same class and
have the same voting rights as those already in issue. The cash value of the
original contract therefore remains unchanged at £4.0 million.
ACCIONA
On 18 April 2023, ACCIONA signed an order for the first 50kVA H-Power S Series
Generator for delivery in the second half of 2023. The system will comprise a
30kW fuel cell and 45kWh battery energy storage system. The system will
initially be rented for a six-month period, following which ACCIONA has the
option to buy the system at a pre-agreed price or extend the rental.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
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. END FR PPUGUCUPWGMGRecent news on AFC Energy
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