REG - AFC Energy Plc - Annual Financial Report
26/03/2024 07:15
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240326:nRSZ2396Ia&default-theme=true
RNS Number : 2396I AFC Energy Plc 26 March 2024
THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO
CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER ARTICLE 7 OF THE EU
REGULATION 596/2014 AS IT FORMS PART OF THE UK LAW BY VIRTUE OF THE EUROPEAN
UNION (WITHDRAWAL) ACT 2018 ("MAR"). UPON THE PUBLICATION OF THIS ANNOUNCEMENT
VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN
THE PUBLIC DOMAIN.
26 March 2024
AFC Energy PLC
("AFC Energy" or the "Company")
Final Results for year ended 31 October 2023
AFC Energy (AIM: AFC), a leading provider of hydrogen power generation
technologies, is pleased to announce its results for the year ended 31 October
2023 ("FY 2023"). The results are included below and copies are available at
www.afcenergy.com
(https://url.uk.m.mimecastprotect.com/s/uAxSCGwmyiJgm2SKNHZz?domain=afcenergy.com)
.
Highlights:
· 2023 strategy focussed on market penetration with key agreements
signed to expand distribution channels for the fuel cell division, resulting
in a £27m orderbook(( 1 )) for 30kW S Series H-Power Generators and
ancillary equipment
· Signed first Heads of Terms with Speedy Hire for the formation of
Speedy Hydrogen Solutions
o 50:50 joint venture with AFC Energy executed after year end
o Initial order commitment of £2.0m with first year projected orders of
£4.7m
· Signed exclusive distribution agreement with TAMGO, an entity wholly
owned by the Zahid Group, focussed on key markets in Saudi Arabia, the Middle
East and Northern Africa (MENA) region
· Signed first order from Acciona for 30kW H-Power Generator and 45kWh
battery energy storage system following successful H-Power Tower trial in
2023
· Modest revenue of £0.2m (2022: £0.6m) due to focus on market
penetration which led to material growth in current customer orderbook
o 200kW S+ Series generator (ABB) deferred revenue of £1.4m (2022: £1.6m)
o Loss after tax of £17.5m (2022: £16.4m)
· Receipt of first S+ Series fuel cell stacks from 3(rd) party contract
manufacturer for ABB's initial 200kW H-Power Generator
· Completed strategic supplier qualification for all key H-Power
Generator components - positioning for scale up with each selected on ability
to deliver +1,000 generators worth of components per annum
· Significant qualifying R&D investment in 2023 of £8.5m (2022:
£9.0m), with £4.1m R&D tax credits received (2022: £0.5m)
· Engineered and built world's largest modular ammonia cracker
currently in operation (commissioned December 2023)
· Grant award of £4.3m from the UK Government under its red diesel
scheme which aims to displace diesel in the construction, quarrying and mining
sectors
· Strong balance sheet with £27.4m of cash at period end (2022:
£40.2m)
Post Period Developments
· Completed design and engineering on 30kW H-Power Generator, with
successful Factory Acceptance Testing complete
· S Series fuel cell operation cost reductions achieved
o Reduced £/kW capital cost of H-Power Generator by 50% since 2023 H-Power
Tower
o Achieved 16% improvement in fuel efficiency, which will drive material
savings for customers' total cost of ownership versus prior year measurement
· Company's first third party Attestation of Conformity for CE Mark
from TUV SUD for 30kW H-Power Generator
· Next generation ammonia cracker on test and delivering material
improvements in performance
Outlook
· 2024 is focussed on delivery. Targeting sales to Speedy Hydrogen
Solutions and Acciona initially to meet growth in UK and European construction
demand
o First customer hires through Speedy Hydrogen Solutions
o Delivery of first 50kVA H-Power Generator to Acciona
· Receipt and delivery of first orders from TAMGO to meet the
accelerated growth in Saudi offgrid power demand
· 200kW S+ Series generator, part funded by ABB, currently in build and
test phase with first operation targeted for H1 2024
· Confirmation of manufacturing partners for scaled H-Power production
· Ammonia cracker validation and announcement of first development and
deployment partners
1 As at the date of publication, comprising committed and uncommitted elements within existing contracts
Adam Bond, Chief Executive of AFC Energy, said:
"Validation of (i) our H-Power Generator business model, (ii) customer demand,
(iii) technology and (iv) route to market were all key aims of 2023. Twelve
months later, our contracted order book, multiple routes to market and
successful product deployments highlight the tangible successes achieved by
AFC Energy over the year.
Never before has customer pull to displace diesel generators been stronger,
driven by Government policy, tendering requirements, carbon reduction
commitments and emissions based regulations. Together with our new
distribution partners, including Speedy Hire and TAMGO, we are confident of
the Company's robust commercialisation strategy.
We continue to target further capital cost reductions, manufacturing scale up
partners and newly announced international dealerships during 2024, giving us
confidence in delivering contracted customer deployments and revenue growth.
Together with our fuel processing division's market leading modular ammonia
cracking technology and the partners we are currently in discussion with who
have expressed interest in the technology, we continue to believe the true
value of this technology platform is not yet reflected in the Company's value
and as a Board, we are reviewing options to capitalise on this unrealised
value.
We are well placed to build on the foundations set in 2023 and look forward to
the successful deliveries of our new H-Power Generators into the hands of
customers throughout the remainder of the 2024 calendar year."
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 / Georgia Langoulant / Brian Hanratty
Zeus - Joint Broker +44 (0) 203 829 5000
David Foreman / James Hornigold (Investment Banking)
Dominic King (Corporate Broking) / Rupert Woolfenden (Sales)
RBC Capital Markets - Joint Broker +44 (0) 20 7653 4000
Matthew Coakes / Teri Su
Eduardo Famini / Jack Wood
FTI Consulting - Financial PR Advisors +44 (0) 203 727 1000
Ben Brewerton / Tilly Abraham / Evie Taylor afcenergy@fticonsulting.com
About AFC Energy
AFC Energy plc is a leading provider of hydrogen energy solutions, to
provide clean electricity for on and off grid power applications. The
Company's fuel cell technology is targeting near term commercial deployment
across the construction and temporary power markets with longer term
opportunities in electric vehicle charging, maritime and data centres as part
of a portfolio approach to the decarbonisation of society's growing
electrification needs. The Company's proprietary ammonia cracking technology
further highlights emerging opportunities across the distributed hydrogen
production market with a focus on hydrogen's role in supporting the
decarbonisation of hard to abate industries.
Chair's Report
Leading the transition
COP 28 was held in Dubai in 2023 and renewed the focus on the global need to
decarbonise and the opportunities this is creating. AFC Energy was represented
by our CEO, Adam Bond, and with hydrogen high on the COP agenda, there was a
lot of interest in our technology and products. It was also a great backdrop
for the fuel cell and then fuel processing announcements we made around the
time.
Strategic development
The construction sector remains our primary commercial focus due to its
reliance on diesel generators and the growing pressure to displace diesel when
tendering for contracts.
To this end, the joint venture announced with Speedy Hire combines perfectly
their marketing and logistical
strength with our hydrogen fuelled equipment and technical expertise.
The first H-Power Generator passed factory acceptance testing in March 2024
and I'm delighted to report that feedback has already been very positive,
particularly from the potential JV customers that have visited.
The Board
Graeme Lewis retired as chief financial officer and resigned as a director
from the board on 30 November 2022. I wish to thank Graeme for his service and
wish him well in retirement.
Taking over from Graeme, Peter Dixon-Clarke joined us on 1 December 2022,
bringing with him his considerable fund raising and transactional experience
from across the energy sector.
Jim Gibson resigned on 9 June 2023, and I wish to thank him for his five years
of service. Jim's duties as chief operating officer have been shared amongst
the existing C-suite.
This year saw the retirement of Joe Mangion as nonexecutive and chair of the
Audit Committee on 31 July 2023. I wish to thank Joe for his six-years of
service and wish him well in his retirement.
Taking over from Joe on 1 August 2023, I'm delighted to welcome Duncan Neale
to the Board. Duncan has both the breadth and depth of experience in the role
and in the energy sector that will serve the Company well as we look to scale.
Environmental, Social and Governance (ESG)
A great deal of focus has understandably been on the important role that the
Company's products can play in decarbonising the environment. However, as we
grow and start to manufacture in volume, we need to take further steps
ourselves as a company.
I am pleased that Monika Biddulph has taken on leading ESG activity for the
Board, and especially pleased by the way that this has been embraced by all
our employees.
Our employees
I would like to thank our employees for their continued commitment to what has
been a milestone year.
Chief Executive Officer's Report
Displacing diesel
The 2023 financial year saw the global hydrogen market grow with over half a
trillion US dollars of new projects in the pipeline to support industry's
decarbonisation commitments.
In recognition of how this rapidly expanding industry is evolving, and the
growing importance of decarbonised
ammonia as a hydrogen carrier in the facilitation of global trade, we have
commenced consideration of standalone divisions within AFC Energy reflecting
both the consumption (fuel cells) and production (fuel conversion or ammonia
cracking) of hydrogen. This delineation would reflect the fact that whilst
there is a clear overlap in technologies where ammonia cracking can facilitate
fuel cell deployments, there is also a growing number of stand alone enquiries
for the cracker technology that gives rise to a value proposition that perhaps
is not currently reflected in the value of AFC Energy.
Across our fuel cell division, in the 2023 financial year, ten first
generation 10kW H-Power Towers were successfully deployed to customer sites
predominantly in the construction sector. The aim of these deployments was to:
· validate the operation of the S Series fuel cell technology in the
form of generators;
· validate the plant hire business model for the UK construction
market;
· validate the pain points and drivers for uptake of hydrogen powered
fuel cell generators;
· obtain valuable customer feedback to build into subsequent H-Power
Generator platforms;
· generate nominal revenue from the weekly rental of H-Power Towers;
and
· validate a contractual order book of new generator orders.
The success of these first generation trials evidenced industry demand for our
zero emission generators, which was the impetus behind our initial Heads of
Agreement with Speedy Hire signed in July 2023 (which was subsequently
converted to a joint venture in the form of Speedy Hydrogen Solutions post
year end) and first commercial orders from Acciona and Speedy Hydrogen
Solutions (post year end). These partnerships provided valuable insights that
informed the 30kW generator product which, post year end, culminated in
delivery of the Company's first Factory Acceptance Test (announced in March
2024) and its first independent Attestation of Conformity for CE Mark from
global certification agency, TUV SUD (March 2024) - both massive achievements
for the Company.
This strategy has proven highly successful and whilst not reflected in the
earned revenue in the 2023 financial year, can be evidenced in the order book
of £27m as at the date of this report highlighting both committed and
uncommitted orders on existing contracts for S Series generators derived from
customer contracts including Acciona and Speedy Hydrogen Solutions. This order
book would not have been possible without the investment of time and resources
throughout 2023.
In parallel with customer deployments was a programme of cost reduction that
successfully represented a 50% fall in component and material costs brought
about by engineering and scaled component procurement. This cost down approach
to the H-Power Generator platform has continued to evidence further value
enhancements into 2024, including the confirmation of a robust and globally
diversified supply chain across all key components positioning AFC Energy well
for manufacturing scale up.
The growing displacement of the global diesel generator market represents a
US$20bn per annum opportunity which, through tightened regulation and emission
standards, corporate sustainability targets, and rising costs of compliance,
makes AFC Energy's H-Power Generator an increasingly viable alternative to
support industry's roadmap to a decarbonised future.
The vast adoption of diesel generation by industry, whether for prime or
backup power, creates a sizeable
prize to chase, however our immediate focus remains on the construction market
with its immediate decarbonisation challenges.
Throughout this overview, a theme resonates with all our partners, that the
time to displace diesel is now and whilst it will take time to transition from
the material sunk cost in diesel generators in the market today, the pressure
to find alternative off-grid power solutions is imminent.
Our fuel conversion division has also reached new milestones during the course
of the year culminating in the launch of the world's largest modular, scalable
ammonia cracker platform in late 2023. Much of 2023 was spent in the design,
engineering and build phase of this platform, including the launch of the
Company's next generation ammonia cracker which is designed for low cost,
efficient production of hydrogen at the point of demand. Since launch, we have
hosted many visitor groups from across the Globe to the site, reflecting
industry's growing interest in ammonia adoption as a clean and sustainable
fuel of the future.
Speedy Hydrogen Solution ("SHS") Joint Venture
SHS, our new joint venture with Speedy Hire, signed in November 2023, is a
market first and aligns perfectly with our stated business model of selling
H-Power Generators wholesale to plant hire companies for onward rental to the
construction sector and temporary power markets.
The UK construction market is aggressively moving towards the displacement of
diesel generators with high profile projects such as HS2 stating there will be
no diesel generators on site by 2029. Speedy Hire and SHS are aiming to step
into this void with viable alternative technologies that include hydrogen
fuelled generators.
Since announcement of our first Heads of Terms with Speedy Hire in July 2023,
market demand for the H-Power Generators has exceeded expectations and will
surpass first year orders based on current business model projections.
Post year end, SHS committed to an initial £2.0m purchase of generators from
AFC Energy. The generators are to be delivered during the first six months of
calendar year 2024, with the intention of increasing orders for the first full
year (12 months ended 31 October 2024) up to £4.7m. The initial focus of
orders is on the S Series air-cooled fuel cell platform sized at 30kW.
The generators are exclusively available for hire, via Speedy Hire, to its
customers, in the UK and Ireland. This exclusivity will apply for an initial
three-year period subject to an annual minimum order quantity which increases
each year.
Speedy's customers have already shown strong interest and established a
growing pipeline of demand, driven particularly by changing tender
requirements and emission regulations, where UK infrastructure and
construction projects are targeting the removal of diesel generators by as
early as 2029.
TAMGO distribution agreement
In September 2023, we announced the signing of an exclusive distribution
agreement with Saudi Arabia's The Machinery Group LLC, which trades as TAMGO.
TAMGO is an approved vendor to many of Saudi Arabia's largest infrastructure
and mining projects including NEOM, Red Sea Global and Qiddiya. In a number of
these projects, the target of displacing diesel generators is within the
current decade, and so presents a near-term growth trajectory further
supporting our business model of partnering with dealers and plant hire
businesses which provide immediate access to global markets in a timely cost
efficient manner, enabling the Company to meet the accelerated path to
decarbonisation many construction projects are on.
TAMGO are marketing both our S Series (air cooled) and S+ Series (liquid
cooled) H-Power Generators to end customers in the industrial and off-grid
power markets in the Kingdom of Saudi Arabia and a further 16 countries in the
MENA and surrounding region. Several client proposals have already been
submitted to Saudi companies seeking to adopt hydrogen as part of their
off-grid power solution.
TAMGO will provide local customer support with on the ground maintenance and
servicing of our generators, along with engineering, design, commissioning and
logistics support direct to customers.
We continue to believe this region presents unprecedented growth potential for
the H-Power Generator platform with additional benefits of working with a
partner with strong pedigree in localised manufacturing capability within the
Saudi market. This positions AFC Energy and TAMGO to create a market leading
positioning for our technology within the MENA region.
ACCIONA
In April 2023, having hosted our first 10kW H-Power Tower trial in 2022,
ACCIONA was the first to sign a lease for our new 30kW H-Power Generator for a
six-month period with an option to purchase the system at a pre-agreed price.
As part of the agreement, a battery storage unit will be harmonised for
operation with the fuel cell generator, providing a total 50kVA nameplate
generator package. The combined system is expected to undergo factory
acceptance testing shortly with deployment to Spain thereafter.
ABB E-mobility (ABB)
In March 2023, we announced the successful operation and validation of our
first high-power density, liquid cooled fuel cell stacks with ABB E-mobility.
The stacks, referred to as the "S+" Series (as distinct from the Company's "S"
Series air cooled technology), were delivered to Germany for successful
independent validation in October 2022.
Since then, our engineers have been designing and testing the 200kW generator
packaging and, following receipt of our new 140kW (gross) fuel cell stacks in
2023 and long lead component ordering, we are nearing initial operation of the
200kW H-Power system. This is a landmark moment for our latest, complementary
liquid cooled generator technology allowing us to now achieve nameplate fuel
cell ratings from 10kW (air cooled) through to in excess of 100kW (liquid
cooled).
Following successful validation of the S+ Series technology with ABB
E-mobility and their funding of this development, we entered into an agreement
with ABB establishing a pipeline for the purchase of their first ten 200kW S+
Series fuel cell generators over a defined term. The first of these systems
will be purchased from AFC Energy as part of the revised contract, with the
subsequent nine at ABB's option. ABB also invested a further £2m into AFC
Energy giving them a total equity stake of just over 2% in the Company.
Fuel Processing - Modular Ammonia Cracker
Ammonia has continued to gain international importance as a clean hydrogen
carrier fuel with the announcement of billions of dollars in new ammonia
production plant investment during 2023. With global hydrogen trade expected
to be facilitated through the shipping of clean ammonia at scale, the
importance of ammonia cracking and the reproduction of hydrogen at the point
of demand from ammonia, is also growing in importance.
AFC Energy remains at the forefront of distributed ammonia cracking technology
with the launch, during March 2023, of the Company's latest generation ammonia
cracker reactor technology, and subsequently (post year-end), its first, and
the world's largest, modular, scalable ammonia cracker facility here in the
UK. Delivery of the pilot cracker facility was the culmination of two years of
technology development, design, engineering and build before announcing the
commissioning of the 400kg per day facility in December 2023. It is being used
to validate and test the design, engineering, components, operation and safety
aspects of the technology.
The plant has been designed to produce fuel cell grade hydrogen with power
consumed locally at a fraction of the power consumed by an equivalent sized
electrolyser. This makes it an ideal source of distributed hydrogen, whether
used in stationary or maritime applications.
Demand for such applications is growing rapidly with the Hydrogen Council, in
collaboration with McKinsey, forecasting that 400 out of the 660 million tons
of hydrogen needed for carbon neutrality by 2050 will be transported over long
distances, with ammonia expected to account for about 45% of that 660 million
tons.
To meet this demand, there is already a well-established supply chain for
ammonia, which enables a lower barrier to its adoption globally as a hydrogen
carrier fuel. However, the lack of commercially available ammonia cracking
technologies within the existing value chain presents an enormous opportunity
for AFC Energy.
During 2024, AFC Energy will be working to design and engineer a containerised
ammonia cracker platform, including purification technology, to enable mobile
units to produce hydrogen at the point of consumption. The containerised
cracker platform, will be a standalone product capable of being sold to
hydrogen consumers, positioning AFC Energy at the forefront of this emerging
global market.
As an initial step in the commercialisation of this technology, we have signed
our first Letter of Intent in 2023 with the trading arm of one of Europe's
largest energy companies to market the potential for ammonia and green ammonia
as a hydrogen carrier fuel based on a perceived demand for modular crackers
from its customers. This is in addition to the growing list of customer
enquiries wishing to explore the potential for networked hydrogen production
through ammonia cracking across Europe.
The ammonia cracker technology platform is an exciting and key part of the
global value chain and the strides forward made during 2022 and 2023 continues
to position AFC Energy at the forefront of this technology.
Outlook
The 2024 financial year is all going to be about delivery. Delivery of our
first 30kW H-Power Generators to Speedy Hire (through SHS) and its customers.
Delivery of our first 50kVA H-Power Generator to ACCIONA. Delivery of first
orders from TAMGO across the Saudi and MENA regions.
To achieve this, we have continued to focus on the securing of our supply
chain, with component qualification taking place across most of 2023. We are
also focussing on scaling up our manufacturing capabilities to meet the
growing demand for our generators. We plan to do this through a combination of
strategic partnerships within our sub-assembly supply chain and a modest
investment into our on-site assembly capabilities. This will ensure effective
management of working capital.
Work on the liquid cooled generator for ABB continues, with initial testing
expected to complete within 2024, to be followed by CE marking prior to
shipping. In the meantime, early pre-ordering of the 200kW H Power Generator
is available with active marketing of the system already underway with TAMGO
for the Saudi market.
We continue to see interest in our hydrogen power generators from global
distributors and plant hire businesses and so collaborative working with this
sector to support decarbonisation requirements of their customers will also be
an important part of 2024.
The Board also intends to explore options to both demonstrate and unlock the
material unrecognised value of our ammonia cracking technology to the benefit
of shareholders through industry partnerships and other strategic avenues.
Chief Financial Officer's Report
Financial highlights for the 2023 financial year were:
· £27.4m closing cash position;
· £8.5m of qualifying R&D investment;
· £4.1m of R&D tax credits received; and
· £4.3m UK Government Grant awarded.
Result for the year
After revenue of £0.2m (2022: £0.6m) the Company produced a loss after tax
of £17.5m (2022: £16.4m) for the 2023 financial year.
This loss was driven by operating costs of £20.0m (2022: £19.7m) offset by
interest earned of £0.5m (2022: £0.1m) and R&D tax credits of £2.1m
(2022: £3.0m).
Of the £20.0m of operating costs, £4.7m (2022: £5.1m) related to R&D
materials, £9.6m (2022: £7.6m) to staff costs and £5.7m (2022: £7.0m) to
other administrative expenses.
Of the administrative expenses, £2.4m (2022: £3.5m) related to non-cash
items, mainly depreciation and share based payments.
The reduction of expected R&D tax credits, from £3.0m to £2.1m, is due
to the changes in UK Government legislation, effective 1 April 2023, which
reduced the value of the uplift from 130% to 86%, as well as reducing the
recovery rates and tightening definitions around qualifying expenditure.
Strong closing cash position of £27.4m
A summary of the cash flow for the 2023 financial year is set out within the
table below:
Cash flow summary £'m
Net loss before tax (19.6)
Non-cash items 2.2
R&D credits received 4.1
Working capital movement 0.2
(13.1)
Investing activities (1.2)
Financing activities 1.5
(12.8)
Opening cash 40.2
Closing cash 27.4
Operational cash burn (i.e., before investing or financing activities) of
£13.1m equated to an average of £1.1m per month, suggesting a cash runway,
at similar expenditure levels, of 24-months beyond the end of the 2023
financial year. This cash runway will reduce in proportion to the rate at
which the Company scales up its commercial and manufacturing capabilities.
£8.5m of qualifying R&D investment
£8.5m (2022: £9.0m) of the Company's R&D invested is expected to qualify
under the UK Government's R&D tax credit scheme. This was deployed as
follows:
Qualifying R&D expense £'m
Materials 3.3
Staff costs 4.7
Other costs 0.5
8.5
The £8.5m was deployed approximately 40%, 25% and 35% across each of the
Company's three value streams, being: air cooled generators; liquid cooled
generators; and fuel processing respectively.
In the case of air cooled generators, the investment funded the customer
driven evolution from the 10kW H-Power Tower to the 30kW H-Power Generator,
the success of which culminated in the JV with Speedy Hire.
In the case of liquid cooled generators, the investment funded the customer
driven evolution from the 100kW fuel cell laboratory test to the 200kW
generator unit, currently undergoing laboratory testing.
In the case of fuel processing, the investment funded construction of our
pilot modular ammonia cracker. This has been designed to a scale equivalent to
a 1MW electrolyser, meaning an output of 400kg of hydrogen per day to fuel
cell purity, and currently undergoing a series of onsite field tests to prove
out the economics and useability.
The Company has assessed each of the three value streams against the six tests
set out within the accounting standard that need to be met before the related
investment can be capitalised as intangible assets.
Based on the above assessment, the Company has concluded that for the 2023
financial year the amounts invested should still be expensed as operating
costs. For the 2024 financial year that is expected to change, due to the
continued progress during that year.
Receipt of £4.1m in R&D tax credits
Of the £4.1m (2022: £0.5m) received, £1.1m related to the 2021 financial
year and £3.0m to the 2022 financial year.
The Company received two years' worth of R&D tax credits during the 2023
financial year because it accelerated submission of its 2022 corporation tax
return. The full value of the £3.0m claim, lodged in July 2023, was received
in September 2023.
Award of a £4.3m UK Government Grant
In July 2023, the Company announced the award of a UK Government Grant worth
up to £4.3m to the Company.
The grant was awarded by the Department for Energy Security and Net Zero under
its Red Diesel Replacement scheme, which aims to displace diesel in the
construction, quarrying and mining sectors.
The grant will reimburse 50% of eligible costs of the next generation air
cooled and liquid cooled fuel cell generators. First receipts under the grant
will occur during the 2024 financial year and will be recorded in the
Statement of Comprehensive Income as other income.
The developments must culminate in a field trial for both the air cooled and
liquid cooled generators, alongside a hybrid battery, at one, or more, of the
quarries. If the field trials are delayed beyond the March 2025 closing date
then there is a high risk of under recovery.
No recoveries were made under this grant during the 2023 financial year. The
first claim has now been made and receipt expected in due course.
ABB E-mobility (ABB)
During the 2023 financial year, the Sale & Development agreement with ABB
was revised by both parties. Under the revised agreement, ABB has, for a
pre-agreed total and defined term, a discount to be spread over the purchases
of the first ten eligible fuel cell systems.
The total cash value of the original contract was £4.0m and this remained
unchanged after the revision, with £2.0m having been received in the 2022
financial year and the £2.0m balance received in the 2023 financial year in
return for the purchase of newly issued shares in the Company.
Joint venture (JV) with Speedy Hire
The commercial elements of the JV are covered within the CEO report.
Whilst the plan to enter into the JV was announced during the 2023 financial
year, the contracts were not completed until after it.
In terms of JV funding, initial investments become unconditional on signing of
the contract, with future cash injections conditional on certain pre-agreed
operational milestones set out within the JV agreement.
Subsequent injections are to be funded in the form of commercial
interest-bearing loan notes, issued in equal share by each of the partners.
Payment is expected to be made from the existing cash resources of each
company, with the option to seek external debt at a suitable point in the
future.
To maintain exclusivity in the UK and Ireland, a minimum order of H-Power
Generators has been agreed between the partners. This quantity increases
annually and is phased over three years, being the minimum term of the
exclusivity agreement.
Going concern
To deliver on the Company's intention to capitalise on its growing market
opportunities it needs to scale up its manufacturing output and continue
investing in research and development, both of which will require additional
funding.
Whilst the Board recognises the challenges of fundraising in the current
economic climate, it is confident that when the Company chooses to seek
additional funding that it will be available. This view is based primarily on
the:
· recent technical successes of both the fuel cell and fuel processing
teams;
· UK Government requirements for construction tenders to include a
non-diesel solution for onsite electricity generation;
· growing levels of interest expressed by the construction market in
the recent joint venture with Speedy Hire plc;
· positive feedback from external advisors; and
· growing levels of institutional engagement, in both the fuel cell and
fuel processing value streams, particularly following recent site visits.
This is further discussed in the notes to the accounts.
Outlook
At the end of February 2024, the Company held £18.0m of cash balances. Of the
£9.4m of outflow since the end of the 2023 financial year, nearly half
related to capital purchases, inventory build-up of £2.6m and other working
capital. The average monthly cash outflow from operations therefore remained
consistent with Board expectations at £1.3m per month.
The 2024 financial year has started strongly with successful factory
acceptance testing of the first 30kW H-Power Generator in March and the
growing pipeline of orders driven by the JV with Speedy Hire.
Statement of comprehensive income
For the year ended 31 October 2023
Year ended 31 October 2023 Year ended 31 October 2022
Note £000 £000
Revenue from customer contracts 5 227 582
Cost of sales (294) (467)
Gross (loss)/profit (67) 115
Other income 41 22
Operating costs 6 (19,994) (19,749)
Operating loss (20,020) (19,612)
Finance income 11 512 143
Finance costs 11 (53) (19)
Loss before tax (19,561) (19,488)
Taxation 12 2,086 3,042
Loss for the financial year and total comprehensive loss attributable to the
owners of the company
(17,475) (16,446)
Basic loss per share (pence) 13 (2.36) (2.24)
Diluted loss per share (pence) 13 (2.36) (2.24)
All amounts relate to continuing operations. There was no other
comprehensive income in the year (2022: £nil).
Statement of financial position
As at 31 October 2023
AFC Energy Plc
Registered number: 05668788
Year ended 31 October 2023 Year ended 31 October 2022
Note £000 £000
Assets
Non-current assets
Intangible assets 14 264 311
Right-of-use assets 15 1,097 976
Tangible fixed assets 16 3,756 3,282
5,117 4,569
Current assets
Inventory 17 178 43
Trade and other receivables 18 1,231 1,160
Income tax receivable 12 2,088 4,075
Cash and cash equivalents 19 27,366 40,220
Restricted cash 19 258 612
31,121 46,110
Total assets 36,238 50,679
Current liabilities
Payables 20 3,728 3,644
Lease liabilities 21 477 298
4,205 3,942
Non-current liabilities
Lease liabilities 21 647 698
Provisions 22 301 301
948 999
Total liabilities 5,153 4,941
Capital and reserves attributable to the owners of the company
Share capital 23 746 735
Share premium 23 118,520 116,487
Other reserve 3,779 4,073
Retained loss (91,960) (75,557)
Total equity attributable to shareholders 31,085 45,738
Total equity and liabilities 36,238 50,679
Statement of changes in equity
For the year ended 31 October 2023
Share capital Share premium Other reserve Retained loss Total
£000 £000 £000 £000 £000
Balance at 1 November 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 year - - (641) 641 -
- Charged in the year - - 1,682 - 1,682
Fair value of warrants accounted for as equity
- - 576 - 576
Balance at 31 October 2022 735 116,487 4,073 (75,557) 45,738
Loss after tax for the year - - - (17,475) (17,475)
Issue of equity shares 10 1,990 - - 2,000
Equity-settled share-based payments
- Lapsed or exercised in the year 1 43 (1,072) 1,072 44
- Charged in the year - - 778 - 778
Fair value of warrants accounted for as equity
- - - - -
Balance at 31 October 2023 746 118,520 3,779 (91,960) 31,085
Share capital is the amount subscribed for shares at the 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 2023
Year ended 31 October 2023 Year ended 31 October 2022
Note £000 £000
Cash flows from operating activities
Loss before tax for the year (19,561) (19,488)
Adjustments for:
Amortisation of intangible assets 14 110 473
Impairment of intangible assets 14 - 294
Loss on disposal of intangible assets 14 1 -
Depreciation of right-of-use assets 15 455 379
Depreciation of tangible fixed assets 16 1,084 974
Impairment of tangible fixed assets 16 - 255
Loss on disposal of property and equipment 34 126
Depreciation of decommissioning asset 16 15 20
Equity-settled payments 24 778 1,682
Interest receivable (428) (143)
Lease finance charges 69 33
Cash flows from operations (17,443) (15,395)
R&D tax credits received 4,073 546
Decrease in restricted cash 354 -
(Increase)/decrease in inventory (135) 618
(Increase) in receivables (109) (145)
Increase in payable 121 1,948
(Decrease) in provisions - (353)
Cash absorbed by operating activities (13,139) (12,781)
Purchase of plant and equipment 16 (1,607) (2,388)
Additions to intangible assets 14 (63) (334)
Interest received 11 428 151
Net cash absorbed by investing activities (1,242) (2,571)
Proceeds from the issue of share capital 2,000 -
Proceeds from the exercise of options 45 40
Proceeds from the grant of warrants 25 - 576
Lease interest paid 21 (69) (38)
Lease payments 21 (449) (381)
Net cash from financing activities 1,527 197
Net increase/(decrease) in cash and cash equivalents
(12,854) (15,155)
Cash and cash equivalents at the start of the year 40,220 55,375
Cash and cash equivalents at the end of the year 19 27,366 40,220
Notes forming part of the financial statements
1. Corporate information
AFC Energy Plc (the Company) is a public limited company incorporated in
England & Wales. The address of the registered office is Unit 71.4,
Dunsfold Park, Cranleigh, Surrey, GU6 8TB. The Company is quoted on the AIM
Market of the London Stock Exchange with the ticker symbol LSE:AFC.
The principal activity of the Company is the development of fuel cell and fuel
processing technology and equipment.
2. Basis of preparation
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 2023 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 2023
was unqualified with a material uncertainty relating to going concern 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 to medium future as the
Company transitions from predominantly undertaking research and development to
a more commercial basis.
In line with normal practice, and prior to signing this report, 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.
As part of this assessment, the Directors reviewed the Company's forecast cash
position through to the end of the 2025 financial year. This was based on the
agreed budget for the 2024 financial year and the forecast for the 2025
financial year. As the period goes beyond the 12 months required it provides
additional information when making the assessment. To reach the end of 2025
with positive cash would require at least £7 million of additional funding,
however this amount would not be enough for the Company to scale up at its
preferred rate.
In addition, the Board reviewed possible downside scenarios to establish the
resilience of the Company's cash reserves and identified the impact of
continuing high levels of cost inflation, particularly on employee
remuneration and supply chain, combined with delays of sales receipts as a
particular risk.
Based on this assessment, and the Company's intention to capitalise on its
growing market opportunities by scaling up its manufacturing output and
continuing to invest in research and development, the Board has concluded that
additional funding will be required to deliver on these plans.
Whilst the Company is a going concern, the fact that the additional funding
required has not yet been sought and secured indicates the existence of a
material uncertainty that may cast significant doubt on the Company's ability
to continue as a going concern.
Whilst the Board recognises the challenges of fundraising in the current
economic climate, it is confident that when the Company does choose to seek
additional funding that it will be available. This view is based primarily
on the:
· recent technical successes of both the fuel cell and fuel processing
teams;
· UK Government requirements for construction tenders to include a
non-diesel solution for onsite electricity generation;
· growing levels of interest expressed by the construction market in the
recent joint venture with Speedy Hire plc;
· positive feedback from external advisors; and
· growing levels of institutional engagement, in both the fuel cell and
fuel processing value streams, particularly following recent site visits.
Based on the above, the Directors have concluded that the Company remains a
going concern and 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.
Judgments 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
The following amendments to the accounting standards, issued by the IASB and
endorsed by the UK, were adopted by the Company from 1 November 2022 with no
material impact on the Company's results, financial position or disclosures:
· Amendments to IFRS 3 Updating a Reference to the Conceptual
Framework.
· Amendments to IAS 16 Property, Plant and Equipment: Proceeds before
Intended Use.
· Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a
Contract.
· Amendments to Annual improvements 2018-2020 - IFRS 9 - Fees in the
'10 per cent' Test and IFRS 16 - Lease incentives.
· Amendments to IAS 12 International Tax Reform - Pillar Two Model
Rules.
The following standard and amendments issued by the IASB have been endorsed by
the UK and have not been adopted by the Company:
· IFRS 17 - Insurance contracts (effective from the year ending 30 June
2024) is ultimately intended to replace IFRS 4. Based on a preliminary
assessment, management believes that the adoption of IFRS 17 will not have a
significant impact on the Company's results or financial position.
· Amendments to IAS 12 - Income taxes (effective from the year ending
30 June 2024) requires an entity to recognise deferred tax on initial
recognition of particular transactions to the extent that the transaction
gives rise to equal amounts of deferred tax assets and liabilities. The
proposed amendments would apply to transactions such as leases and
decommissioning obligations for which an entity recognises both an asset and a
liability. Management believes that the adoption of these amendments will not
have a significant impact on the Company's results and financial position.
There are a number of other amendments and clarifications to IFRSs, effective
in future years, which are not expected to significantly impact the Company's
results or financial position.
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.
Complex contracts include competing priorities such as financial targets,
support capabilities, and delivery schedules. A complex contract will have
multiple independent issues which must all be negotiated individually.
Revenue is generated from complex contracts covering the:
· Sale of goods and parts,
· Sale of services and maintenance, and
· Short-term rental contracts which may be either single or multiple
contracts. Multiple contracts are accounted for as a single contract where
one or more of the following criteria are met:
o The contracts were negotiated as a single commercial package,
o Consideration of one contract depends upon the other contract, or
o Some or all the goods and services comprise a single performance
obligation.
The promises in each contract are analysed to determine if these 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 considering 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 the relative costs of fulfilling each
obligation plus a margin.
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 its customers. Deferred revenue is recognised for consideration
received in respect of unsatisfied performance obligations and the Company
reports these amounts as payables in the statement of financial position.
Similarly, if a performance obligation is satisfied in advance of any
consideration, 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 costs where pass-through refers to the
variable charge, for example Hydrogen.
Sale (standard products) contracts
Revenue from standard products will be recognised at a point of time only when
the performance obligation has been fulfilled and ownership of the goods has
transferred, which is typically factory or site acceptance test, which is the
official handover of control of the goods to the customer. As the products
are not deemed to be bespoke, there are alternative uses to the Company as the
products would be able to be resold to other customers.
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 anticipated costs exceed anticipated revenues, a provision will be
recognised and the surplus costs expensed with immediate effect.
Sale (customised products) contracts
Revenues for customised contracts 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. The revenue should be recognised over a
point in time as the products under these contracts would be bespoke and
therefore not have an alternative use. These contracts would have an
enforceable right to payment for performance completed to date.
Other income
Other income represents sales of waste materials and government contracts, and
the accounting policy follows IFRS 15 for point-in-time revenue recognition.
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 average cost 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 statement of
financial position and valued at amortised cost.
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/or operating expenses on a straight-line basis over the estimated
useful lives of each part of an item of plant, machinery and equipment. The
estimated useful lives are as follows:
Decommissioning asset Life of the lease
Plant, machinery 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 the use of that asset, for a period in exchange for
consideration. If so, the contract should be accounted for as a lease and
the Company should recognise a right-of-use asset, and related lease
liability, at the lease commencement date.
The right-of-use asset 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 to 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 are 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 operating
expenses over the following periods:
Development costs 5 years
Patents 10 to 20 years
Commercial rights 5 years
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.
Receivables are initially recognised at transaction price. 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 after 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 lease
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) carried at amortised cost.
The expected loss rates are based on the historical credit losses adjusted to
reflect current and forward-looking information on economic factors affecting
the ability of the customers to settle the receivables.
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 Share Option Plan, the
Employee Performance Share Plan and the Save-As-You-Earn scheme are 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 Company'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 for a specified time)
* Including the impact of any non-vesting conditions (e.g., the
requirement for employees to save or hold shares for a specific period)
The total expense is recognised over the vesting period, which is the period
over which all 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.
The fair value of warrants issued is also recognised as a share-based payment
expense with a corresponding increase in equity.
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 note 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.
Tax due for the current and prior periods is recognised as a liability, to the
extent that it has not yet been settled, and as an asset if the amounts
already paid exceed the amount due. The benefit of a tax loss which can be
carried back to recover current tax of a prior period is recognised as an
asset.
Current tax assets and liabilities are measured at the amount expected to be
paid to/ recovered from taxation authorities, using the rates/laws that have
been enacted or substantively enacted by the balance sheet date.
A deferred tax asset is recognised for deductible temporary differences,
unused tax losses and unused tax credits to the extent that it is probable
that taxable profit will be available against which the deductible temporary
differences can be utilised, unless the deferred tax asset arises from the
initial recognition of an asset or liability other than in a business
combination which, at the time of the transaction, does not affect accounting
profit or taxable profit.
The carrying amount of deferred tax assets are reviewed at the end of each
reporting period and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow the benefit of part or
all of that deferred tax asset to be utilised. Any such reduction is
subsequently reversed to the extent that it becomes probable that sufficient
taxable profit will be available.
A deferred tax asset is recognised for an unused tax loss carry forward or
unused tax credit if, and only if, it is considered probable that there will
be sufficient future taxable profit against which the loss or credit carry
forward can be utilised.
The Company does not currently recognise a deferred tax asset, as near-term
taxable profits, against which to offset the asset, are not considered
probable.
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 are
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.
The amount recognised in the period is the contribution payable in exchange
for services rendered by employees during the period.
3. Critical accounting judgments and key sources of estimation uncertainty
In the preparation of the financial statements, management makes certain
judgments and estimates that impact the financial statements. While these
judgments are continually reviewed, the facts and circumstances underlying
these judgments may change, resulting in a change to the estimates that could
impact the results of the Company. In particular:
Critical accounting judgments
The following are the judgments 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 uses judgment
to identify the specific performance obligations and allocate the total
expected revenue to the identified performance obligations. These judgments
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 believes that the Development Expenditure will continue
to support marketing and customer trials for the foreseeable future. This
assessment relies upon judgments 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 note 2) on
development costs.
Following the end of the financial year, the Company's Technical Advisory
Board (TAB) reviewed the 38 technical and commercial projects that had
incurred expenses during the financial year. Of these, 17 were classified as
research projects and therefore unable to be capitalised under IAS 38. Eight
projects were commercial in nature and expenses were therefore treated as cost
of sales. Two projects were discontinued and thus did not qualify for
capitalisation. Four projects did not demonstrate future economic
benefits. One project was not completed due to lack of budget, one project
was out-of-scope for intangible assets and to be assessed under IAS 16
Tangible Assets and one project was deemed not to be below the threshold to
warrant capitalisation. There was an inability to accurately measure the
cost reliably for four projects.
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 Monte Carlo model for market-based 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-based 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-based performance criteria 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.
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 2023, 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 31 October 2023 Year ended 31 October 2022
Revenue from contracts with customers £000 £000
Rental revenue 137 225
Other revenue 90 357
227 582
Being:
Cash consideration 161 367
Consideration in kind 66 215
227 582
One customer (FY22: one customer) accounted for more than 10% of revenue:
Year ended 31 October 2023 Year ended 31 October 2022
£000 % £000 %
Customer A 130 57.1 475 81.6
The majority of the other revenue relates to sales of hydrogen to the rentee
of the fuel cell generators.
Unsatisfied performance obligations were:
Within two to five years
Within one year
Total
£000 £000 £000
31 October 2022 96 96 -
31 October 2023 - - -
The aggregate amount of the transaction price allocated to contracts that are
fully unsatisfied as of 31 October 2023 was £Nil (2022: £96,000).
The consideration in kind relates to marketing services received from the
customer and fair valued in accordance with the contract.
6. Operating costs
Year ended 31 October 2023 Year ended 31 October 2022
Qualifying R&D Spend Qualifying R&D Spend
Indirect Total Indirect Total
Note £000 £000 £000 £000 £000 £000
Product development costs
Materials 3,349 1,330 4,679 4,654 451 5,105
3,349 1,330 4,679 4,654 451 5,105
Payroll costs
Payroll (excluding directors) 4,361 2,329 6,690 3,660 1,247 4,907
Directors' costs 151 1,744 1,895 - 1,642 1,642
Other employment costs 220 813 1,033 251 796 1,047
4,732 4,886 9,618 3,911 3,685 7,596
Other administrative expenses
Occupancy costs 214 670 884 - 772 772
Other administrative expenses 192 2,178 2,370 440 2,310 2,750
406 2,848 3,254 440 3,082 3,522
Non-cash costs
Amortisation of intangible assets - 110 110 - 474 474
Depreciation of right-of-use assets - 455 455 - 379 379
Depreciation of tangible fixed assets
- 1,099 1,099 - 994 994
Less depreciation of rental asset charged to cost of sales
- (65) (65) - (218) (218)
Consideration in kind - 66 66 - 215 215
Share-based payments charge - 778 778 - 1,682 1,682
- 2,443 2,443 - 3,526 3,526
8,487 11,507 19,994 9,005 10,744 19,749
7. Other employment costs
Year ended 31 October 2023 Year ended 31 October 2022
£000 £000
External consultants 521 161
Recruitment costs 375 704
Private Healthcare and Life Insurance 108 101
Other 29 81
1,033 1,047
8. Other administrative expenses
Year ended 31 October 2023 Year ended 31 October 2022
£000 £000
Professional fees 619 889
Audit and tax costs 237 312
Information technology 750 753
Travel & entertainment 177 486
Insurance 417 260
Other 170 50
2,370 2,750
Fees paid to the auditors included within the operating costs were:
Year ended 31 October 2023 Year ended 31 October 2022
£000 £000
Audit 218 244
Other assurance services 17 9
9. Employee numbers and costs, including directors
The average number of employees in the year were:
Year ended 31 October 2023 Year ended 31 October 2022
£000 £000
Support, operations and technical 113 77
Directors 7 7
120 84
The aggregate payroll costs for directors and employees were:
Year ended 31 October 2023 Year ended 31 October 2022
£000 £000
Wages and salaries 7,290 5,961
Social security 1,000 392
Employers' pension contributions 295 196
8,585 6,549
Equity-settled share-based payments expense 778 1,682
9,363 8,231
10. Directors' costs
Year ended 31 October 2023 Year ended 31 October 2022
Directors' emoluments £000 £000
Short-term employee benefits:
Wages and salaries including bonuses 1,526 1,380
Accrual for untaken holiday 1 37
Other compensation 73 77
Social security 278 98
1,878 1,592
Post-employment benefits:
Defined contribution pension plans 46 50
1,924 1,642
Share-based payments 629 1,474
Total remuneration 2,553 3,116
Social security and accrued holiday pay are included in the table above and
reconcile to note 9.
Aggregate gains made by directors on the exercise of share options and
warrants was £129,225.
Year ended 31 October 2023 Year ended 31 October 2022
Highest paid director £000 £000
Wages and salaries 601 538
Other compensation 44 43
645 581
Employers' pension contributions 16 16
661 597
11. Net finance income/(cost)
Year ended 31 October 2023 Year ended 31 October 2022
£000 £000
Lease interest (69) (38)
Exchange rate differences 22 21
Bank charges (6) (2)
Total finance cost (53) (19)
Bank interest receivable 512 143
Net finance income 459 124
12. Taxation
Year ended 31 October 2023 Year ended 31 October 2022
£000 £000
Recognised in the statement of comprehensive income
R&D tax credit - current year 2,088 3,050
R&D tax credit - prior year (2) (8)
Total tax credit 2,086 3,042
Reconciliation of effective tax rates
Loss before tax (19,561) (19,488)
Tax using the domestic rate of corporation tax at 22.52% (2022: 19%)
4,405 3,703
Effect of:
Change in unrecognised deferred tax resulting from tax losses
(2,443) (1,767)
Non-deductible items (43) 101
Depreciation in excess of capital allowances (6) (299)
R&D enhanced deduction on qualifying R&D expenditure
1,959 2,259
R&D rate adjustment on surrendered losses (1,784) (947)
R&D tax credit - prior year (2) (8)
Total tax credit 2,086 3,042
Potential deferred tax assets have not been recognised but are set out below:
Year ended 31 October 2023 Year ended 31 October 2022
£000 £000
Property, plant and equipment and intangible assets
431 (187)
Share-based payments 57 477
Other differences 11 -
Losses carried forward 14,389 12,037
Unrecognised deferred tax assets 14,888 12,327
The cumulative tax losses in the amount of £57.6 million (2022: £47.6
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.
13. 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 31 October 2023 Year ended 31 October 2022
Basic loss per share (pence) (2.36) (2.24)
Diluted loss per share (pence) (2.36) (2.24)
Loss attributable to equity shareholders £000 (£17,475) (£16,446)
Weighted average number of shares in issue 741,451 734,745
Diluted earnings per share
As set out in note 24, there are share options and warrants (accounted for
under IFRS 2: Share based payments) outstanding as at 31 October 2023 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 2023 nor the previous year.
14. Intangible assets
Total intangible assets
Development costs Commercial rights
Patents
£000 £000 £000 £000
Cost
At 1 November 2021 229 886 121 1,236
Additions - 334 - 334
At 31 October 2022 229 1,220 121 1,570
Additions - 63 - 63
Disposals (229) - - (229)
At 31 October 2023 - 1,283 121 1,404
Amortisation
At 1 November 2021 74 384 33 491
Charge for the year 34 422 18 474
Impairment charge 121 173 - 294
At 31 October 2022 229 979 51 1,259
Charge for the year - 70 40 110
Disposals (229) - - (229)
At 31 October 2023 - 1,049 91 1,140
Net book value
At 31 October 2022 - 241 70 311
At 31 October 2023 - 234 30 264
15. Right-of-use assets
Buildings
£000
Cost
At 1 November 2021 1,415
Additions 470
At 31 October 2022 1,885
Additions 576
Disposals (476)
At 31 October 2023 1,985
Depreciation
At 1 November 2021 530
Charge for the year 379
At 31 October 2022 909
Charge for the year 455
Disposals (476)
At 31 October 2023 888
Net book value
At 31 October 2022 976
At 31 October 2023 1,097
16. Tangible fixed assets
Plant, machinery and equipment
Total tangible fixed assets
Leasehold improvements Decommissioning Asset Assets under construction
£000 £000 £000 £000 £000
Cost
At 1 November 2021 958 300 3,318 - 4,576
Additions 1,620 - 362 406 2,388
Disposals (8) - (118) - (126)
At 31 October 2022 2,570 300 3,562 406 6,838
Additions 985 - 334 288 1,607
Disposals (9) - (25) - (34)
At 31 October 2023 3,546 300 3,871 694 8,411
Depreciation
At 1 November 2021 302 265 1,740 - 2,307
Charge for the year 444 20 530 - 994
Impairment charge - - 255 - 255
At 31 October 2022 746 285 2,525 - 3,556
Charge for the year 648 15 436 1,099
Disposals - - - - -
At 31 October 2023 1,394 300 2,961 - 4,655
Net book value
At 31 October 2022 1,824 15 1,037 406 3,282
At 31 October 2023 2,152 - 910 694 3,756
17. Inventory
31 October 2023 31 October 2022
£000 £000
Raw materials 185 173
Work-in-progress 405 -
Provision (412) (130)
Inventory 178 43
Inventory expensed as cost of sales during the year was £nil (2022 £nil).
During the year, £412,000 (2022: £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.
18. Receivables
31 October 2023 31 October 2022
£000 £000
Trade receivables 107 142
VAT receivables 383 401
Other receivables 217 303
Prepayments 524 314
1,231 1,160
There is no significant difference between the fair value of the receivables
and the values stated above.
19. Cash and cash equivalents
31 October 2023 31 October 2022
£000 £000
Cash at bank 303 285
Bank deposits 27,063 39,935
27,366 40,220
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 £258,000 (2022: £612,000) is not included within cash and
cash equivalents and is held in escrow to support bank guarantees provided
under contractual obligations to suppliers and customers.
20. Payables
31 October 2023 31 October 2022
£000 £000
Trade payables 931 445
Deferred revenue 1,423 1,600
Other payables 416 349
Accruals 958 1,250
3,728 3,644
Included in Accruals as of 31 October 2023 is an amount of £690,000 in
relation to bonuses (2022: £514,000).
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.
21. Lease liabilities
Changes in liabilities arising from financing activities:
Year ended 31 October 2023 Year ended 31 October 2022
£000 £000
Opening position 996 906
Cash flows
Repayment (516) (419)
Non-cash
Additions 575 471
Interest expense 69 38
1,124 996
31 October 2023 31 October 2022
£000 £000
Lease liabilities less than 12 months 477 298
Lease liabilities more than 12 months 647 698
1,124 996
All of the Company's leases are for the occupancy of the campus at Dunsfold
Park and are disclosed as 'Buildings' in note 15. A number of buildings are
occupied under licences and these have not been recognised as right-of-use
assets. Of the leases recognised as right-of-use assets, the Company has a
commitment on one lease until February 2027 with a break clause in February
2025. The Company has a commitment on one lease until November 2025 with no
break clauses. Two leases were renewed in January 2023 until January 2026
with no break clauses.
Leases are renewed as opposed to being extended and are granted outside of the
1954 Act. They therefore do not have security of tenure.
22. Provisions
National insurance on unapproved share options
Decommissioning provision
Total
£000 £000 £000
Balance at 1 November 2021 353 301 654
Utilisation (353) - (353)
Balance at 31 October 2022 - 301 301
Additions - - -
Utilisation - - -
Balance at 31 October 2023 - 301 301
23. Issued share capital
Share premium before costs of issue Share premium net of costs of issue
Ordinary shares Share capital Costs of issue
Price
£ £000 £000 £000 £000
At 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 - 9
At 1 November 2022 735,351,171 - 735 119,756 (3,269) 116,487
Issue of shares
5 April 2023 10,000,000 2,000,000 10 1,990 - 1,990
Exercise of options
1 June 2023 10,000 - - - - -
Exercise of warrants
14 June 2023 900,000 44,325 1 43 - 43
Exercise of PSP award
22 September 2023 255,136 255 - - - -
746,516,307 - 746 121,789 (3,269) 118,520
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 costs of issue.
After such deduction the value equals £118,520,000.
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.
24. Share-based payments
Share-based payment charge:
31 October 2023 31 October 2022
£000 £000
Employee Share Option Plan 48 193
Employee Performance Share Plan 612 1,400
Warrants - 70
SAYE 118 19
778 1,682
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 conditionally 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 price per share option Average exercise price per share option
2023 2022
Number of options Number of options
2023 2022
£
At 1 November 0.35 13,717,167 0.35 14,952,167
Granted during the year 0.16 2,125,000 0.19 215,000
Exercised during the year 0.09 (10,000) 0.14 (283,334)
Lapsed during the year 0.17 (2,861,667) 0.35 (1,166,666)
Amended during the year:
Options at original exercise price
0.62 (1,000,000) - -
Options at rebased exercise price
0.11 1,000,000 - -
At 31 October 0.32 12,970,500 0.35 13,717,167
Vested and exercisable at 31 October 9,630,500 11,700,637
Share options outstanding at the end of the year have the following expiry
dates and exercise prices:
Share options 2023 Share options 2022
Grant date Expiry date Exercise price
£
07 November 2012 07 November 2022 0.3575 - 95,000
02 December 2013 01 December 2023 0.3400 120,000 120,000
17 July 2015 17 July 2025 0.2200 6,000,000 6,000,000
10 September 2018 01 August 2024 0.0880 190,000 216,667
15 October 2018 15 October 2024 0.0880 2,500,000 2,500,000
31 December 2019 20 April 2030 0.1635 - 2,750,000
20 April 2020 20 April 2030 0.1540 820,500 820,500
24 June 2021* 28 June 2031 0.6170 - 1,000,000
09 June 2023* 28 June 2031 0.1000 500,000 -
09 June 2023* 28 June 2031 0.1250 500,000 -
09 June 2023 28 June 2031 0.1526 1,500,000 -
04 July 2022 04 July 2032 0.1900 215,000 215,000
27 April 2023 27 April 2033 0.0188 625,000 -
12,970,500 13,717,167
* Award amended by Deed of Variation in 2023.
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 grant date share price Average expected volatility per annum Average risk-free interest rate per annum Average dividend yield per annum Average implied option life in years Average fair value per option
Amount expenses in 2023
Exercise price
Grant date
£ £ £ £000
31 December 2019 0.1635 0.1635 95.50% 0.54% 0.00% 2.0 0.8100 -
04 July 2022 0.1900 0.1900 95.00% 1.83% 0.00% 3.0 0.1140 8
27 April 2023 0.1880 0.1882 78.00% 3.82% 0.00% 3.0 0.0990 11
09 June 2023 0.1000 0.1682 72.00% 4.51% 0.00% 0.7 0.0791 3
09 June 2023 0.1000 0.1682 72.00% 4.51% 0.00% 0.9 0.0825 3
09 June 2023 0.1250 0.1682 72.00% 4.51% 0.00% 1.7 0.0817 9
09 June 2023 0.1250 0.1682 72.00% 4.51% 0.00% 1.9 0.0847 3
09 June 2023 0.1530 0.1682 72.00% 4.51% 0.00% 2.7 0.0856 3
09 June 2023 0.1530 0.1682 72.00% 4.51% 0.00% 2.9 0.0883 8
Total charge for the year (2022: £193,000) 48
Performance Share Plan
The establishment of the Performance Share Plan was approved by the Board on 1
September 2021. The Plan is designed to attract, retain and motivate
employees. Under the Plan, participants can be granted options which vest
unconditionally or conditionally 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. Award holders are not required to make payment for the
grant of an award unless the board determines otherwise.
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 price per share option Average exercise price per share option
2023 2022
Number of options Number of options
2023 2022
£
At 1 November 0.001 6,131,266 - -
Granted during the year 0.001 4,664,000 0.001 7,493,317
Exercised during the year 0.001 (255,136) 0.001 (583,169)
Lapsed during the year 0.001 (2,939,226) 0.001 (778,882)
At 31 October 0.001 7,600,904 0.001 6,131,266
Vested and exercisable at 31 October - -
Share options outstanding at the end of the year have the following expiry
dates and exercise prices:
Share options 2023 Share options 2022
Grant date Expiry date Exercise price
£
19 November 2021 19 November 2031 0.001 620,970 2,971,582
12 July 2022 12 July 2032 0.001 2,315,934 3,159,684
1 June 2023 1 June 2033 0.001 4,664,000 -
7,600,904 6,131,266
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 grant date share price Average expected volatility per annum Average risk-free interest rate per annum Average dividend yield per annum Average implied option life in years Average fair value per option
Amount expenses in 2023
Exercise price
Grant date
Pence Pence Pence £000
19 November 2021 0.001 53.80 76.00% 0.05% 0.00% 0.40 0.43 -
19 November 2021 0.001 53.80 76.00% 0.35% 0.00% 1.40 0.42 205
19 November 2021 0.001 53.80 76.00% 0.05% 0.00% 3.00 0.45 133
15 July 2022 0.001 20.70 95.00% 1.76% 0.00% 3.00 12.70 91
15 July 2022 0.001 20.70 95.00% 1.76% 0.00% 3.00 16.60 119
01 June 2023 0.001 17.91 74.00% 4.29% 0.00% 3.00 8.79 29
01 June 2023 0.001 17.91 74.00% 4.29% 0.00% 3.00 10.92 35
Total charge for the year (2022: £1,400,000) 612
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 risk-free 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
Save-as-you-earn (SAYE) 'Sharesave' schemes are open to all eligible
employees. The SAYE schemes allows eligible employees to commit to making a
deduction from salary on a monthly basis over three years. At the end of the
three-year period, employees can purchase the Company's ordinary shares of 0.1
pence each ("Ordinary Shares") using the funds saved.
The first AFC Energy SAYE scheme was launched in August 2022 at an exercise
price of 20.48 pence per Ordinary Share, representing a 20% discount to the
closing market price of the Ordinary Shares prior to the scheme being launched
on 3 August 2022.
The second AFC Energy SAYE scheme was launched in September 2023 at an
exercise price of 14.304 pence per Ordinary Share, representing a 20% discount
to the closing market price of the Ordinary Shares prior to the scheme being
launched on 6 September 2022.
The discounts to the closing market prices are in line with the limits of the
SAYE scheme as defined by HMRC.
Average exercise price per option 2023 Average exercise price per option 2022
Number of options 2023 Number of options 2023
Pence £
01 November 20.48 2,007,400 - -
Granted during the year 14.30 1,937,201 20.48 2,007,400
31 October 17.44 3,944,601 20.48 2,007,400
Vested and exercisable at 31 October - - - -
Exercise price Share options 2023 Share options 2022
Pence
Grant date Expiry date
03 August 2022 31 March 2026 20.480 2,007,400 2,007,400
19 October 2023 30 April 2027 14.304 1,937,201 -
Average grant date share price Average expected volatility per annum Average risk-free interest rate per annum Average dividend yield per annum Average implied option life in years Average fair value per option
Amount expenses in 2023
Exercise price
Grant date
Pence Pence Pence £000
03 August 2022 20.480 25.60 95.00% 2.93% 0.00% 3.08 17.700 115
19 October 2023 14.304 13.97 73.00% 4.72% 0.00% 3.03 7.060 3
Total charge for the year (2022: £19,000) 118
25. Financial instruments
Warrants
While the Board issues share options to employees, the Board has the
discretion to award warrants from time to time to non-employees, such as
non-executive directors and 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 exercise price per warrant 2023 Average exercise price per warrant 2022
Number of warrants 2023 Number of warrants 2022
£ £
01 November 0.540 15,702,720 0.51 8,900,000
Granted during the year - - 0.59 6,802,720
Exercised during the year* 0.049 (900,000) - -
Lapsed during the year 0.210 (3,000,000) - -
31 October 0.670 11,802,720 0.54 15,702,720
Vested and exercisable at 31 October 3,101,300 4,001,300
The warrants exercised during the year all relate to a serving non-executive
director and are discussed further within the Remuneration Committee Report.
Average grant date share price Average expected volatility per annum Average risk-free interest rate per annum Average dividend yield per annum Average implied warrant life in years Average fair value per warrant
Amount expenses in 2023
Warrant price
Grant date
Pence Pence Pence £000
13 October 2020 19.5 18.56 102.76% (0.02)% 0.00% 1 7.01 -
Total charge for the year (2022: £70,000) -
Average grant date share price Average expected volatility per annum Average risk-free interest rate per annum Average dividend yield per annum Average implied warrant life in years Average fair value per warrant
Accounted as equity in 2023
Warrant price
Grant date
Pence Pence Pence £000
15 November 2021 58.8 58.8 59.1% 0.65% 0.00% 2 6.3 -
15 November 2021 58.8 58.8 59.1% 0.65% 0.00% 2 11.3 -
15 November 2021 58.8 58.8 59.1% 0.65% 0.00% 2 9.9 -
Accounted as equity (2022: £576,000) -
In the case of the ABB warrants, the warrant life is two years from the date
of vesting. The first tranche of 3.4 million warrants have fully vested and
expired on 4 February 2024 without having been exercised. 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.
Warrants outstanding at the end of the year have the following expiry dates
and exercise prices.
Exercise price Warrants 2023 Warrants 2022
Grant date Expiry date
09 September 2019 09 September 2029 0.050 - 900,000*
19 October 2020 13 October 2021 0.195 - 1,000,000*
19 October 2020 13 April 2021 0.210 - 1,000,000*
19 October 2020 13 October 2022 0.230 - 1,000,000*
13 January 2021 13 March 2025 0.770 5,000,000 5,000,000*
15 November 2021 04 February 2024 0.590 3,401,360 3,401,360
15 November 2021 24 months after vesting 0.590 1,700,680 1,700,680
15 November 2021 24 months after vesting 0.590 1,700,680 1,700,680
11,802,720 15,702,720
* These warrants represent share-based payments which
have been accounted for under IFRS 2 and disclosures have been made which are
required for share based payments and can be found in note 24.
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 31 October 2023 Year ended 31 October 2022
Note £000 £000
Financial instruments held at amortised cost:
Cash and cash equivalents 19 27,366 40,220
Receivables 18 324 445
Total financial assets held at amortised cost 27,690 41,380
Payables 20 2,304 2,044
Leases 21 1,124 996
Total financial liabilities held at amortised cost 3,428 3,040
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.
VAT receivables and prepayments have been removed from financial assets and
deferred revenue 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 31 October 2023 Year ended 31 October 2022
£000 £000
Cash and cash equivalents 27,366 40,220
Receivables 324 445
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 2023 and 2022 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.
The following table shows the Company's financial liabilities by relevant
maturity grouping based on contractual maturities. The amounts included in
the analysis are contractual, undiscounted cashflows.
Total contracted cash flows
Less than one year One to two years Two to five years Carrying amount
31 October 2023 £000 £000 £000 £000 £000
Trade payables 2,304 - - 2,304 2,304
Lease liabilities 518 518 151 1,187 1,124
Total financial liabilities 2,822 518 151 3,491 3,428
Total contracted cash flows
Less than one year One to two years Two to five years Carrying amount
31 October 2022 £000 £000 £000 £000 £000
Trade payables 2,044 - - 2,044 2,044
Lease liabilities 328 308 423 1,059 996
Total financial liabilities 2,372 308 423 3,103 3,040
See also note 21, 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.
26. Related party transactions
There were no transactions with any related parties during the year ended 31
October 2023 (2022: £Nil) other than key management compensation, details of
which can be found in note 10.
27. Ultimate controlling party
There is no ultimate controlling party.
28. Events occurring after the end of the reporting
period
Details of the following events since the financial year end are provided as
follows:
· launch of Speedy Hydrogen Solutions, a joint venture with Speedy Hire
plc, the near-term financial impact of which will be an investment by the
Company into the JV of £0.625m;
· build and commission of modular ammonia to hydrogen cracking plant,
the near-term financial impact of which will not be material;
· acquisition of certain UK mobile hydrogen storage and distribution
assets from Octopus Hydrogen, the near-term financial impact of which, along
with some other post year end capital purchases, will be less than £1.0m;
· attestation of conformity of CE Mark, the near-term financial impact
of which will not be material; and
· first factory acceptance test of 30kW generator, the near-term
financial impact of which will not be material.
None of the above are considered to be adjusting events.
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)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR DZGZFMKKGDZZRecent news on AFC Energy
See all newsREG - AFC Energy Plc - AGM Results and Appointment of SID
AnnouncementREG - AFC Energy Plc - Block Listing Return
AnnouncementREG - AFC Energy Plc - Notice of Capital Markets Event
AnnouncementREG - AFC Energy Plc - Notice of 2024 AGM
AnnouncementREG - AFC Energy Plc - Annual Financial Report
Announcement