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Annual Financial Report

21 Apr 2023 18:03

RNS Number : 1252X
AFC Energy Plc
21 April 2023
 

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.

 

21 April 2023

 

 

AFC Energy PLC

("AFC Energy" or the "Company")

 

Final Results for year ended 31 October 2022

 

AFC Energy (AIM: AFC), a leading provider of hydrogen power generation technologies, is pleased to announce its results for the year ended 31 October 2022 ("FY 2022"). 

 

Adam Bond, Chief Executive of AFC Energy, said:

 

"At the start of 2022, we announced a new strategy of technology acceleration. This led to a year of unprecedented progress with multiple successful field deployments for two new product platforms. In addition, we successfully met the first milestone, confirmed post year end, in our agreement with ABB E-mobility, validating performance of AFC Energy's new S+ Series fuel cell technology. This validation importantly resulted in ABB E-mobility making a follow-on investment post year end of £2m, in addition to their initial £2 million payment received earlier in the year.

 

"Our present strategy is focused on displacing diesel generators at off-grid locations, initially in the construction sector where we made great strides in 2022, and we also see significant follow-on opportunities in the EV charging, maritime and critical power back-up sectors.

 

"Since the period end, we have launched our new ammonia cracking technology platform and received a first order for our new 50kVA H-Power S Series Generator from ACCIONA.

 

"The technical and commercial successes of 2022 have set the stage for a successful 2023 and, given the high level of commercial enquiries for rentals of H-Power Towers, we are excited about the year ahead."

 

Highlights:

 

· Revenue and deferred revenue increased by 266% to £2.2m (2021: £0.6m)

£2.0 million non-refundable payment from ABB received.

ABB deferred revenue of £1.4m (£2.0m less the fair value of the warrants granted), will be earned as a discount over the sale to ABB of the first 10 S+ Series units

Net loss after tax of £16.4m (2021: £9.4m)

 

· Strong balance sheet with £40.2m (2021: £55.4m) of cash as at period end

· First field deployments of S Series (air cooled) H-Power Tower launched in March 2022

Four successful field trials on construction sites in the UK and Spain

Initial rental revenues recognised in FY 2022, with balance to fall in FY 2023

 

· Successful on time delivery of the first 100kW S+ Series (liquid cooled) fuel cell stacks for validation by ABB 

 

· Flex fuel strategy vindicated by first Methanol Fuel Tower deployment

First Methanol Fuel Tower generated hydrogen alongside H-Power Tower field deployment in Spain

 

· Successful completion of first Extreme E contract, to deliver off-grid power for the e-SUV race series, with successful completion of second contract post year end

Two season collaboration provided essential operational data in wide range of extreme climates

 

· Significant growth in skilled work force and improved facilities with 73 new hires

 

· Strengthened Board with appointment of Monika Biddulph as Non-executive Director with a focus on ESG

Further strengthened post-period end with appointment of Peter Dixon-Clarke as CFO

 

· Established ESG Board committee to deliver a suite of enhanced policies and procedures and produce first carbon footprint review

 

Post Period Developments

 

· On 23 March 2023, launch of new advanced ammonia cracker technology platform with near term commercial partnerships being explored with European utilities, green and blue ammonia producers, ship owners, and heavy plant and equipment manufacturers

 

· On 29 March 2023, ABB made a follow on investment of £2m into AFC Energy following validation of the Company's new S+ Series fuel cell technology

 

· On 17 April 2023, ACCIONA signed an order for the first 50 kVA H-Power S Series Generator for delivery in the second half of 2023

Comprised of a 30kW air cooled fuel cell and 45kWh battery storage system

Initially rented for a six-month period with option to buy at a pre-agreed price or extend

 

Outlook

 

· Expecting growing revenue from system rentals and hydrogen sales with an already contracted pipeline of deployments and growing pipeline of prospective H-Power Tower rentals

· Growing interest in new H-Power S Series Generator deployments from new and existing companies

Evidence of traction from plant hire business this year following early H-Power Tower field deployments in 2022 and growth in resultant customer enquiries

Next development cycle will incorporate feedback from field trials including increasing output to c.30kW and reducing production costs

 

· Near-term focus remains on construction sector, initially through system rentals before transitioning to sales to plant hire businesses

Sales to plant hire businesses should see an acceleration of revenues versus existing H-Power generator rentals

Expecting momentum on EV and maritime during 2023 based on the development of the S+ Series (liquid cooled) generator

 

Key Financials

 

 

FY 2022

£,000s

FY 2021

£,000s

Revenue from Customer Contracts

582

592

Deferred Revenue

1,600

214

Revenue plus deferred revenue

2,182

806

Gross Profit

115

16

Loss after Tax

(16,446)

(9,378)

Closing Cash Balance

40,220

55,375

 

 

 For further information, please contact:

 

AFC Energy plc

Adam Bond (Chief Executive Officer) 

 

 

+44 (0) 14 8327 6726

investors@afcenergy.com

Peel Hunt LLP Nominated Adviser and Joint Broker

Richard Crichton / Tom Ballard / Georgia Langoulant

+44 (0) 207 418 8900

 

Zeus Joint Broker

David Foreman / James Hornigold (Investment Banking)

Dominic King (Corporate Broking) / Rupert Woolfenden (Sales)

 

 

+44 (0) 203 829 5000

FTI Consulting Financial PR Advisors

Ben Brewerton / Nick Hennis / Dhruv Soni

+44 (0) 203 727 1000

afcenergy@fticonsulting.com

 

 

 

 

Chairman's Statement

 

The increased focus on emissions targets and energy security, combined with the recent ban on Russian diesel, continues to drive momentum for displacing diesel with clean fuels, such as hydrogen. This year, AFC Energy has continued to deliver on its role in the energy transition through accelerated development and validation of its products, most notably those displacing diesel generators at off-grid construction locations with follow-on applications for additional sectors.

 

Our decision to focus on the construction sector, due to its high usage of off-grid diesel, has delighted customers and delivered first revenue from our new S Series H-Power Towers, along with a growing pipeline for 2023 and beyond. In addition to the immediate opportunities in construction, electric vehicle charging and maritime remain attractive for medium and longer-term opportunities. The continued investment in our "flex fuel" capability, supported by the growing level of incoming enquiries, means we are well positioned to benefit as these markets develop.

 

We have continued to review the effectiveness of our Board and committees and, accordingly, appointed Dr Monika Biddulph at the beginning of the year. Monika has a strong scientific background combined with a focus on Environmental, Social and Governance matters and therefore is board sponsor of the ESG Committee. In recognition of the central role technology plays in our development, we have a Technical Advisory Board chaired by Dr Gerry Agnew, a Non-Executive Director, with access to suitable and independent advisers from within the hydrogen sector. Gerry also chairs the Remuneration Committee and, this year, offered consultations with several institutional shareholders on the structure of the remuneration policy. We also saw the retirement of our Chief Financial Officer, Graeme Lewis, and his replacement by Peter Dixon-Clarke, who joined the Board on 1 December 2022. I wish to thank Graeme for his support and contribution to the Company over his time here and wish him well in his retirement.

 

The Board has increased its focus on ESG reporting and this year finalised the committee structures required to deliver on our enhanced policies and procedures. The outcomes from this work have included our first carbon footprint review as well as the establishment of three employee led committees, focusing on: Environment; Diversity & Inclusion; and Social & Employee Wellbeing. More on this is provided later in this report.

 

I would particularly like to thank our employees for their role in the technical and commercial successes of 2022. They, along with continued support from our partners, customers and investors have set the stage for a prosperous 2023 as we all transition towards a clean hydrogen future.

 

 

Chief Executive Officer's Report

 

Successful customer H-Power Tower deployments on construction sites, delivery of our first S+ Series stacks with ABB and growing H-Power Tower rental revenues laid the foundation for what was a successful 2022. The scene is now set for industry to accelerate its transition away from diesel.

 

2022 emphasised the importance global energy policy plays in driving not only sectoral decarbonisation, but also its criticality in impacting wider macro-economic inflation and energy independence. Within this environment of uncertainty, the role of hydrogen has continued to grow with vast commitments being made to the zero emission fuel across Europe and more recently in the United States, under the Biden Government's Inflation Reduction Act.

 

AFC Energy has continued to successfully deliver on its milestones for the year further supporting the transition and displacement of diesel generators from today's off-grid power market. Successful field deployments this financial year included our new S Series H-Power Tower Generator across multiple construction sites in Europe and the UK and more recently, by delivering, on time, our first S+ Series H-Power Generator stacks for validation by ABB in October. These customer deployments and validations are an important strategic milestone and drive: revenue; industry awareness; and technological validation.

 

Important strides were also made in delivery of our fuel processing division highlighting the work undertaken in accelerating our first ammonia cracking technology platform recently announced, alongside the field deployment of our Methanol Fuel Tower in Spain.

 

This is the most rapid technological progress in the Company's history and highlights the importance of having a quality team with years of experience in disciplined product development lifecycles.

 

18-months ago we took six discreet "ideas" and, enabled by the proceeds of our 2020 and 2021 equity placings and contribution from ABB, accelerated a number of these programmes to deliver working systems utilising:

· S Series air cooled fuel cell stacks (2.5 kW)

· S Series modules (incorporating the above 2.5 kW stack plus balance of plant)

· S Series 10 kW H-Power Tower (incorporating four 2.5 kW modules)

· S+ Series liquid cooled fuel cell stacks (providing cumulative power of 100 kW)

· Ammonia Cracking Technology

· Methanol Fuel Tower

 

This is an extraordinary amount of work put in by the development and engineering teams within a single financial year and I wish to thank them all most sincerely for their efforts and focus in delivering such an ambitious target.

 

The first S Series H-Power Tower deployment was in August 2022 where our partner, ACCIONA, deployed the system at its off-grid construction compound north of Cadiz in Spain. The H-Power Tower, replaced the on-site diesel generator on a multiyear road development project for the whole of its three-month trial, highlighting the role our product will play in continuing to reduce greenhouse gas emissions by displacing diesel.

 

Following the successful deployment, we received powerful feedback from Miguel Paris Torres, Head of ACCIONA's Construction R&D Centre, when he said in an interview:

 

"I think hydrogen is the most feasible and realistic technology to satisfy in a sustainable way the power needs not only from the construction site compounds but also from the heavy construction machinery used in the construction projects. Our partnership with AFC Energy is very important for us because we are convinced that AFC Energy is a key technological partner that will help us adopt and implement the use of hydrogen gensets as an essential tool for the decarbonisation of our construction activities. What I like … most about AFC technology [is] its modularity, easy size of scalability and compactness. And what I like more about the field trial today is that we've managed to achieve the target of not using for the entire duration of the pilot the former polluting diesel genset that was powering the site before we started the trial."

 

Customer feedback of this quality from an industry leader in construction takes significant resource and investment to achieve and cements the value generated in our technology platform and customer relationship throughout 2022. As a follow-on to the initial H-Power Tower deployment, ACCIONA requested that we initiate the deployment of our first methanol Fuel Tower to generate on-site hydrogen to fuel our S Series fuel cell modules and in April 2023, ACCIONA confirmed its first order of AFC Energy's next generation 50kVA hydrogen generator, incorporating a new 30kW H-Power Generator and 45kWh battery storage module. The new 50kVA power generator is a step towards displacing ACCIONA's considerable incumbent internal fleet of 30 - 80 kVA diesel generators and more generally, targets a significant proportion of the existing diesel generator market as a "sweet spot" for mass deployment.

 

Following on from the success at ACCIONA, subsequent deployments took place with: Keltbray at its M621 project in Leeds; the Mace Dragados Joint Venture at its HS2 development project at Euston Station; and Kier at its bereavement centre development in Plymouth. For each of these deployments, we rented our H-Power Tower along with providing the hydrogen to site. Initial revenue from these rentals was recognised in the 2022 financial year, with the balance to be recognised in the 2023 financial year.

 

We have focused on construction as the ideal use case for diesel displacement and early deployments for a number of reasons, including:

· Increasing cost of diesel (particularly following the removal of the red diesel subsidy)

· Higher cost of Stage V emission compliant (a requirement to operate in low emission zones) generators

· ESG standards set by contractors, their shareholders and procurement agencies

· Higher weightings given to construction tenders to adoption of low emission technologies

· The recent ban on importing Russian diesel into Europe

 

We are continuing to receive interest for further deployments, from both existing and new customers and finishing the current production run of H-Power Towers during the spring of 2023 will see up to 10 of our fleet of H-Power Towers deployed in the field simultaneously this year. As this run is expected to complete soon, we've already started the next development cycle, which will benefit from the customer feedback we are receiving. Based on the feedback received, we plan to focus on two things. The first of these will be an increase in the power output by building on the existing modular platform, albeit with a change to the form factor so it looks more like a generator and less like a tower. The second will be the value engineering aimed at halving the production costs, relative to the existing H-Power Towers.

 

On 15 November 2021, we signed both a Sale and Development agreement and Warrant agreement with ABB E-mobility (ABB), Europe's leading supplier of Electric Vehicle (EV) charging infrastructure. Under the agreement we agreed to develop and supply a 200 kW liquid cooled system (S+ Series) to support EV charging in grid constrained environments. Shortly after signing, ABB made a £2.0 million non-refundable payment towards initial development costs, at which point the first tranche, of 3.4 million warrants, granted under the Warrant agreement vested.

 

Throughout 2022, substantial effort was placed into delivering on the first milestone, being 100 kW of fuel cell stacks for third party validation by ABB. This was duly delivered on schedule in October for independent validation, with operational field-testing taking place in Germany. Witnessed by ABB, the testing exceeded target performance with over 100 kW of cumulative power delivered from the stacks throughout the validation period - a significant Company milestone. These stacks will provide the basis of scaled liquid cooled system deployments and revenue growth.

 

Just as important as the validation above, was the use of cutting-edge manufacturing to provide a pathway to being one of the lowest cost offerings amongst liquid cooled stacks in the market today. We share with ABB a strong focus on reducing the Total Cost of Ownership (TCO) and both look to the US Department of Energy guidelines as one of the suitable benchmarks for low cost fuel cell technology. Regular contact with ABB ensures that development stays on course in addition to highlighting new deployment opportunities, particularly for displacing diesel backup power.

 

We continue to see accelerated advancements in our fuel cell technology in a large part due to support from shareholders and partners such as ABB. We wish to acknowledge their support of our wider commercial outcomes. With the 200 kW liquid cooled power generator, we expect to be able to compete favourably in the fields of electric vehicle charging, in addition to temporary power applications. Importantly, the 200 kW S+ Series will also form the basis of future data centre and maritime deployments and so opens up multiple new market opportunities due to its high power density, small footprint and forecast profile to enhanced cost reduction.

 

Following the success of the first season in 2021, we renewed the contract to deliver sustainable off-grid power to Extreme E's offroad, all electric racing championship in 2022. Season 2 saw deployments in Saudi Arabia, Italy, Chile and Uruguay over a wide range of climatic conditions. We delivered power to charge the fleet of electric SUVs at every race, exceeding the power generated for Season 1. By the end of Season 2 our system had travelled 48,000 miles across several continents much of it exposed to the high seas on board the St. Helena, the dedicated race logistics vessel.

 

After two successful seasons with Extreme E, and with a growing demand in time and resources, we made the decision not to proceed with the Championship in 2023. The data we've gained over the wide range of environments and climates and prospective customers we've met whilst showcasing our zero-emission technology have been invaluable and we wish Extreme E every success for its third season and beyond.

 

A key area of investment during the year has been in the field of fuel conversion, a new division within AFC Energy. Although only recently launched, we have witnessed an accelerated drive to release our new ammonia cracking technology platform which seeks to unlock the challenges of ammonia as a hydrogen fuel carrier across multiple AFC Energy target markets, including maritime. The rate of progress seen in designing, prototyping and building our first scale ammonia cracker reactors is driven by customer need and supports the saleability of our fuel cell systems with upstream fuel conversion technology. We have also taken possession of new ammonia crackers to facilitate parallel commissioning and validation and we look forward to seeing them in operation later this year.

 

Methanol reforming development activity has also been evidenced with the first of our new methanol Fuel Towers deployed in Spain alongside ACCIONA in late 2022, equally highlighting the potential for green methanol to play its role in supporting the decarbonisation of industry.

 

Work on the AlkaMem membrane technology continues in conjunction with industry experts in both fuel cell and electrolyser fields. The decision was taken during the year that with the short-term demand for products in the field and the necessary focus on the S and S+ Series, that the work on the AlkaMem platform would be decelerated on commercial grounds.

 

Outlook

 

For 2023, we expect to see growing revenue from system rentals and hydrogen sales with an already contracted pipeline of deployments and growing pipeline of prospective rentals. This rental model is consistent with the incumbent diesel generator hire market and is one with which customers are familiar. The transition to our sales revenues exceeding rental revenues is expected to be led by sales to plant hire businesses with established market positions.

 

We see growing appetite for our S Series Generator in the construction sector with temporary power following closely behind. In addition, and consistent with our announced focus on electric vehicle charging in grid constrained environments and our Approval in Principle level certification from DNV, global advisors to the international maritime industry, we still see growing opportunities in these markets for our S+ Series Generator and expect to see more announcements during 2023.

 

We enter 2023 with a sense of optimism that, with a gradual decline in geopolitical and sector-based uncertainty, together with AFC Energy's continued delivery of its technical and commercial milestones, we will evidence the accelerating transition away from diesel towards new, clean solutions. I wish to thank all our employees, shareholders and partners for their support and efforts in 2022 and eagerly await the successes expected throughout 2023.

 

 

Chief Financial Officer's Report

 

The three themes that characterised the financial year ended 31 October 2022 were:

· First revenue recognised from H-Power Tower deployments

· Increased investment in product research and development

· Continued strong cash levels

 

Following its announcement in March 2022, AFC Energy deployed its first H-Power Tower, just five months later, to the Spanish construction group, ACCIONA, at one of its sites north of Cadiz.

 

The H-Power Tower is aimed at displacing diesel generators at off-grid sites, making it well suited to the construction sector. In total, H-Power Towers were deployed to three different construction customers during the year, collectively generating initial revenue of £41,000 from a combination of rental income and sales of the related hydrogen.

 

Outside of the H-Power Tower, the balance of revenue was generated from continued support of the Extreme E racing series, giving total revenue for the year of £0.6 million (2021: £0.6 million), which generated a gross profit of £0.1 million (2021: £0.0 million) and a net loss after tax of £16.4 million (2021: £9.4 million).

 

The £1.6 million of deferred revenue relates mainly to the ABB contract, where the £2.0 million initial payment, less the fair value of the warrants granted, will be earned as a discount to ABB over the sales of the first 10 units, up to pre-agreed value per unit.

 

The year saw increased investment in the engineering and operational capability required to manufacture and deploy the H-Power Tower to a growing number of customer validation sites. Based on the early stage in the product development lifecycle during the year (both in terms of economic and technical feasibility), we still expense all of our research and development expenditure to operating costs.

 

Within the £9.0 million (2021: £3.0 million) of qualifying R&D spend, the £3.7 million (2021: £2.0 million) payroll balance relates almost entirely to our Fuel Cell and Fuel Conversion departments, whilst materials of £4.7 million (2021: £1.0 million) includes both third party consultancy and tangible items.

 

Within non-qualifying expenditure, other items of £4.3 million (2021: £3.2 million) relate mainly to other employment costs of £0.8 million (2021: £1.2 million) and other administrative expenses of £2.4 million (2021: £1.8 million).

 

A summary of the cash deployed in the year is set out in the table below:

 

£'m

Net loss before tax

(19.5)

Non-cash items

4.1

(15.4)

R&D tax credits received

0.5

Working capital movement

2.1

(12.8)

Investing activities

(2.6)

Financing activities

0.2

(15.2)

Opening cash

55.4

Closing cash

40.2

 

Cash movements relating to the income statement are discussed above. The working capital movement is primarily driven by the first £2.0 million ABB payment, of which £1.4 million was held as deferred income at the year end. Of the £2.6 million (2021: £1.9 million) of investing activities, £2.0 million related to leasehold improvements, primarily to the development and manufacturing facilities, £0.4 million related to fixtures, fittings and computers and the £0.3 million balance to intangible assets, mainly patent expenses.

 

Based on the above, the annual "cash burn" was £11.2 million (2021: £7.3 million). This is based on operating costs (Note 6) of £19.8 million less materials of £5.1 million and total non-cash items of £3.5 million and is an indication of the annual cash spend on fixed overheads. It equates to £0.9 million (2021: £0.6 million) per month.

At the end of the year the Company had deferred revenue of £1.4 million in respect of the ABB Sale & Development Agreement. This comprised the £2.0 million received during the year, less the £0.6 million of fair value allocated to the Warrant Agreement signed on the same day as the Sale & Development Agreement.

 

 

Following the year end, on 28 March 2023, the Sale & Development Agreement was revised by both parties. Under the revised agreement, ABB will have a pre-agreed discount for a defined term to be spread over the purchases of the first ten eligible 200kW fuel cell systems, the first of which will be purchased under the revised contract, with the subsequent nine at ABB's option. 

 

The £2.0 million balance, from the £4.0 million under the original contract, will be used for the purchase of issued shares in AFC Energy. This balance was received on 5 April 2023 and the shares issued and admitted for trading shortly thereafter. The cash value of the original contract therefore remains unchanged at £4.0 million.

 

2023 has already seen continued, and growing, deployments of the H-Power Tower. This has continued to be on a rental basis, the best model for new market entry, with rentals expected to convert to hardware sales in due course.

 

Statement of comprehensive income

For the year ended 31 October 2022

 

 

 

 

 

Note

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Revenue from customer contracts

5

582

592

Cost of sales

(467)

(577)

Gross profit

115

16

 

Other income

 

22

 

25

Operating costs 6

(19,749)

(10,450)

Operating loss

(19,612)

(10,409)

Finance cost 10

 

(19)

 

(52)

Bank interest receivable 10

143

19

Loss before tax

(19,488)

(10,442)

Taxation 11

3,042

1,063

Loss for the financial year and total comprehensive loss attributable to owners of the Company

 

(16,446)

 

(9,378)

Basic loss per share (pence) 12

 

(2.24)

 

(1.33)

Diluted loss per share (pence) 12

(2.24)

(1.33)

 

 

All amounts relate to continuing operations. There was no other comprehensive income in the period (2021: £nil).

Statement of financial position

As at 31 October 2022

 

AFC Energy plc Registered number: 05668788

 

 

 

Note

 

 

31 October 2022

£000s

 

 

31 October 2021

£000s

Assets

Non-current assets

Intangible assets

13

311

746

Right-of-use assets

14

976

884

Tangible fixed assets

15

3,282

2,269

4,569

3,899

Current assets

Inventory

16

43

661

Receivables

17

1,160

1,015

Income tax receivable

4,075

1,581

Cash and cash equivalents

18

40,220

55,375

Restricted cash

18

612

612

46,110

59,243

Total assets

50,679

63,142

Current liabilities

Payables

19

3,644

1,696

Lease liabilities

20

298

322

3,942

2,018

Non-current liabilities

Lease liabilities

20

698

584

Provisions

21

301

654

999

1,238

Total liabilities

4,941

3,256

Capital and reserves attributable to owners of the Company

Share capital

22

735

734

Share premium

22

116,487

116,448

Other reserve

4,073

2,456

Retained deficit

(75,557)

(59,752)

Total equity attributable to shareholders

45,738

59,886

Total equity and liabilities

50,679

63,142

Statement of changes in equity

For the year ended 31 October 2022

 

 

Share Capital

£000s

Share Premium

£000s

Other Reserve

£000s

Retained

Loss

£000s

Total

£000s

Balance at 1 November 2020

676

81,418

1,513

(50,583)

33,024

 

Loss after tax for the year

 

-

 

-

 

-

 

(9,378)

 

(9,378)

Issue of equity shares Exercise of share options

Equity settled share-based payments

58

35,030

-

-

35,088

- Lapsed or exercised in the period

-

-

 (209)

209

-

- Charged in the period

-

-

1,152

-

1,152

Balance at 31 October 2021

734

116,448

2,456

(59,752)

59,886

 

Loss after tax for the year

-

-

-

(16,446)

(16,446)

Issue of equity shares

1

39

-

-

40

Equity settled share-based payments

- Lapsed or exercised in the period

-

-

(641)

641

-

- Charged in the period

-

-

1,682

-

2,258

Fair value of warrants accounted for as equity

-

-

576

-

-

Balance at 31 October 2022

735

116,487

4,073

(75,557)

45,738

 

Share capital is the amount subscribed for shares at nominal value.

 

Share premium represents the excess of the amount subscribed for share capital over the nominal value of these shares net of share issue expenses.

 

Other reserve represents the charge to equity in respect of unexercised equity-settled share-based payments and warrants granted.

 

Retained deficit represents the cumulative loss of the Company attributable to equity shareholders.

Cash flow statement

For the year ended 31 October 2022

 

 

 

 

Note

31 October 2022

£000s

31 October 2021

£000s

Cash flows from operating activities

Loss before tax for the year

(19,488)

(10,442)

Adjustments for:

Amortisation of intangible assets

13

473

110

Impairment of intangible assets

13

294

Depreciation of right-of-use assets

14

379

302

Depreciation of tangible assets

15

994

448

Impairment of tangible assets

15

255

Loss on disposal of property and equipment

15

126

4

Depreciation of decommissioning asset

-

31

Equity settled payments

23

1,682

1,152

Interest received

(143)

(19)

Lease finance charges

33

37

Cash flows from operations

 

(15,395)

(8,377)

R&D tax credits received

546

-

(Increase)/decrease in restricted cash

-

(342)

(Increase)/decrease in inventory

618

(411)

Decrease/(increase) in receivables

(145)

(489)

(Decrease)/increase in payables

1,948

459

(Decrease)/increase in provision

(353)

353

Cash absorbed by operating activities

 

(12,781)

(8,807)

Purchase of plant and equipment

15

(2,388)

(1,812)

Additions to intangible assets

13

(334)

(87)

Interest received

10

151

19

Net cash absorbed by investing activities

 

(2,571)

(1,880)

Proceeds from the issue of share capital

-

36,000

Costs of issue of share capital

-

(1,348)

Proceeds from the exercise of options

40

437

Proceeds from grant warrants

24

576

-

Lease interest paid

20

(38)

(37)

Lease payments

20

(381)

(292)

Net cash from financing activities

 

197

34,760

Net (decease)/increase in cash and cash equivalents

(15,155)

24,074

Cash and cash equivalents at start of year

55,375

31,301

Cash and cash equivalents at end of year

18

40,220

55,375

 

Notes forming part of the financial statements

1. Corporate information

AFC Energy plc (the Company) is a public limited company incorporated in England & Wales and quoted on the Alternative Investment Market of the London Stock Exchange. The principal activity of the Company is the development of fuel cell and fuel processing technology and allied equipment.

The address of its registered office is Unit 71.4 Dunsfold Park, Stovolds Hill, Cranleigh, Surrey GU6 8TB.

2. Basis of preparation and accounting policies

These results are audited, however the financial information does not constitute statutory accounts as defined under section 434 of the Companies Act 2006. The financial information for the year ended 31 October 2022 has been derived from the Company's statutory accounts for that year. The auditors' report on the statutory accounts for the year ended 31 October 2022 was unqualified and did not contain statements under section 498 of the Companies Act 2006.

Going concern

The financial statements of AFC Energy plc have been prepared in accordance with UK Adopted International Accounting Standards (IASs).

The financial statements have been prepared on a going concern basis notwithstanding the trading losses being carried forward and the expectation that the trading losses will continue for the near future as the Company transitions from research and development to commercial operations.

The directors are required to assess whether it is appropriate to prepare the financial statements on a going concern basis. In making this assessment the directors need to be satisfied that the Company can meet its obligations as they fall due for at least 12 months from the date of this report.

The directors make their assessment based on a cash flow model prepared by management which sets out expected cash flows through to 30 April 2024. Extending the period beyond the minimum 12 months from the date of this report provides additional comfort when making the assessment.

Downside sensitivities have been applied to the cash flows primarily related to an overspend of product development costs (for both materials and internal labour) and an under-recovery of R&D tax credits.

Having concluded that the Company remains a going concern, these financial statements have therefore been prepared on that basis.

The accounting policies set out below have, unless otherwise stated, been applied consistently in these financial statements.

Judgements made by the Directors in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 3.

Standards, amendments and interpretations to published standards not yet effective

Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for 31 October 2022 reporting periods and have not been early adopted by the Company. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

Amendments to International Financial Reporting Standards (IFRSs) that are mandatorily effective for the current year

In the current year, the Company has applied the following amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatory:

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for Interest Rate Benchmark reform - phase 2 (effective for periods beginning on or after 1 January 2021)

IFRS 16 Amendment for COVID-19 related Rent Concessions beyond 30 June 2021 (effective for periods beginning on or after 1 April 2021)

These standards have not had a material impact on the entity in the current reporting period.

New and revised IFRSs in issue but not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for 30 October 2022 reporting periods and have not been early adopted by the Company. These standards are expected neither to have a material impact on the entity in the current or future reporting periods nor on foreseeable future transactions:

IFRS 3 Amendments to references to the Conceptual Framework Current (effective for periods beginning on or after 1 January 2022)

IAS 16 Amendments to Property, Plant and Equipment - Proceeds before intended Use Current (effective for periods beginning on or after 1 January 2022)

IAS 37 Amendments to Onerous Contracts - Cost of Fulfilling a Contract (effective for periods beginning on or after 1 January 2022)

Annual Improvements to IFRS Standards 2018-2020, affecting IFRS 1, IFRS 9, IFRS 16, IFRS 41 (effective for periods beginning on or after 1 January 2022)

IAS 1 Classification of Liabilities as Current or Non-Current (effective for periods beginning on or after 1 January 2024)

IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting Policies from significant to material (effective for periods beginning on or after 1 January 2023)

IAS 8 Amendments to Definition of Accounting Estimates (effective for periods beginning on or after 1 January 2023)

IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for periods beginning on or after 1 January 2023)

Capital policy

The Company manages its equity as capital. Equity comprises the items detailed within the principal accounting policy for equity and financial details can be found in the statement of financial position. The Company adheres to the capital maintenance requirements as set out in the Companies Act 2006.

Revenue recognition

To determine whether to recognise revenue, a five-step process is followed:

Identifying the contract with a customer;

Identifying the performance obligations;

Determining the transaction price;

Allocating the transaction price to the performance obligations; and

Recognising revenue as the performance obligations are satisfied. Revenue is generated from complex contracts covering the

Sale of goods and parts;

Sale of services and maintenance; and

Short-term rental contracts.

and may be either for single or multiple contracts. Multiple contracts are accounted for as a single contract where one or more of the following criteria are met:

The contracts were negotiated as a single commercial package;

Consideration of one contract depends upon the other contract; and

Some or all the goods and services comprise a single performance obligation.

The contract terms are analysed to determine if they represent performance obligations individually, or in combination with other promises. Performance obligations in the contracts are analysed between either distinct physical goods and services delivered or service level agreements. The transaction price of the performance obligations is based upon

the contract terms taking into account both cash and non-cash consideration. Non-cash consideration is valued at fair value taking into consideration contract terms and known arm's length pricing where available. In the event there are multiple performance obligations in a contract, the price is allocated to the performance obligations based on a suitable indicator of fair value.

Revenue is recognised either at a point in time or over time, as the performance obligations are satisfied by transferring the promised goods or services to customers. Contract liabilities are recognised for consideration received in respect of unsatisfied performance obligations and the Company reports these amounts as Deferred revenue in the notes to the statement of financial position.

Similarly, if a performance obligation is satisfied in advance of any consideration, a contract asset or a receivable is recognised in the statement of financial position.

Rental as service and long-term service contracts - Revenue is recognised over time, based on outputs provided to the customer, because this is the most accurate measurement of the satisfaction of the performance obligation as it matches the consumption of the benefits obtained by the customer. The customer is simultaneously receiving and consuming the benefits as the Company performs its obligations. Revenue can comprise a fixed rental charge and a variable charge related to the usage of assets or other services (including pass-through fuel).

Sale (standard products) contracts - Revenue from standard products will be recognised at a point in time only when the performance obligation has been fulfilled and ownership of the goods has transferred, which is typically at site or factory acceptance, which is the official handover of control of the goods to the customer.

During the product build, deposits and progress payments will be reflected in the balance sheet as Deferred revenue.

Costs incurred on projects to date will not be included in the statement of comprehensive income but will be accumulated on the balance sheet as work in progress (as they are considered recoverable) and transferred to cost of sales once the revenue applicable to those costs can be recognised in the accounts. Should costs exceed anticipated revenues, a provision will be recognised and the surplus costs expensed as an onerous contract with immediate effect.

Sale (customised products) contracts - Revenues for customised contracts (i.e. contracts with no alternative use for the contract deliverable) will be recognised over time according to how much of the performance obligation has been satisfied. This is measured using the input method, comparing the extent of inputs towards satisfying the performance obligation with the expected total inputs required. Any changes in expectation are reflected in the total inputs figure as they become known. The progress percentage obtained is then applied to the revenue associated with that performance obligation.

Combination of contracts - contracts are combined and accounted for as a single contract if the contracts are entered into at or near the same time with the same customer or if one or more of the following are met; contracts negotiated as a single package; consideration of one contract depends on another; or some of the goods or services are a single performance obligation.

Other income

Other income represents sales by the Company of waste materials.

Development costs

Identifiable non-recurring engineering and design costs and other prototype costs incurred to develop a technically and commercially feasible product are assessed. In accordance with IAS 38 Development costs and capitalised if they meet all of the criteria required as below:

technical feasibility of completing the asset for use or sale;

intention to complete the asset for use or sale;

ability to use or sell the asset;

generation of probable future economic benefits;

availability of adequate technical and financial resources; and

ability to measure the attributable expenditure reliably.

Foreign currency

The financial statements of the Company are presented in the currency of the primary economic environment in which it operates (the functional currency) which is pounds sterling. In accordance with IAS 21, transactions entered into by the Company in a currency other than the functional currency are recorded at the rates ruling when the transactions occur.

At each Statement of Financial Position date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the date of the Statement of Financial Position.

Inventory

Inventory is recorded at the lower of actual cost and net realisable value, applying the FIFO methodology.

Work in progress comprises direct labour, direct materials and direct overheads. Direct Labour will be allocated on an input basis that reflects the consumption of those resources in the production process.

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash balances and bank overdrafts that form an integral part of the Company's cash management process. They are recorded in the SFP and valued at fair value.

Restricted cash represents bank deposit accounts where disbursement is dependent upon certain contractual performance conditions.

Other receivables

These assets are initially recognised at fair value and are subsequently measured at amortised cost less any provision for impairment.

Tangible fixed assets

Property and equipment are stated at cost less any subsequent accumulated depreciation and impairment losses.

Where parts of an item of property and equipment have different useful lives, they are accounted for as separate items of property and equipment.

Depreciation is charged to the Statement of Comprehensive Income within cost of sales and administrative expenses on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:

 

Years

Decommissioning asset

 

Fixtures, fittings and equipment

1 to 3 years

Computer equipment

3 years

Manufacturing and test stands

3 years

Motor vehicles

3 to 4 years

Demonstration equipment

3 to 10 years

Rental fleet

3 to 10 years

 

Expenses incurred in respect of the maintenance and repair of property and equipment are charged against income when incurred. Refurbishment and improvement expenditure, where the benefit is expected to be long lasting, is capitalised as part of the appropriate asset.

The useful economic lives of tangible fixed assets are reviewed annually and any revision is accounted for as a change in accounting estimate and the net book value of the asset, at the time of the revision, is depreciated over the remaining revised economic life of the asset.

Right-of-use assets

At inception each contract is assessed as to whether it conveys the right to control the use of an identified asset, and obtain substantially all the economic benefits from use of the asset, for a period of time in exchange for consideration. In this instance the contract should be accounted for as a lease. The Company recognises a right-of-use asset and a lease liability at the lease commencement date.

The right-of-use assets comprises the corresponding lease liability, lease payments made before the commencement date, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. The lease liability is initially measured at the present value of the lease payments and discounted using the interest rate implicit in the lease or, if that rate cannot be determined, the incremental borrowing rate is used. The lease liability continues to be measured at amortised cost using the effective interest method. It is remeasured when there is a change in the future lease payments. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset.

At lease commencement date, a right-of-use and lease liability are recognised on the Statement of Financial Position. The right-of-use asset is measured at cost, which comprises the initial measurement of the lease liability, any initial direct costs incurred, an estimate of costs to dismantle and remove the asset at the end of the lease term and any lease payments made in advance of the lease commencement date.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in- substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.

After initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

Short-term leases and low value assets have been accounted for using the practical expedients set out in IFRS 16 and the payments are recognised as an expense in profit or loss on a straight-line basis over the lease term.

The Company has elected not to recognise right-of-use assets and lease liabilities for leases of less than 12 months and leases of low value assets. These largely relate to short-term rentals of equipment. The lease payments associated with these leases are expensed on a straight-line basis over the lease term.

Intangible assets

The useful economic lives of intangible fixed assets are reviewed annually and any revision is accounted for as a change in accounting estimate and the net book value of the asset, at the time of the revision, is amortised over the remaining revised economic life of the asset.

Other intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and impairment losses.

Amortisation of intangible assets is charged using the straight-line method to administrative expenses over the following periods:

 

 

Years

Development costs

5 years

Patents

10 to 20 years

Commercial rights

5 years

 

The useful economic lives of intangible fixed assets are reviewed annually and any revision is accounted for as a change in accounting estimate and the net book value of the asset, at the time of the revision, is amortised over the remaining revised economic life of the asset.

Impairment testing of intangible assets and property, plant and equipment

At each Statement of Financial Position date, the carrying amounts of the assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). In assessing whether an impairment is required, the carrying value of the asset is compared with its recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal (FVLCD) and value in use (VIU).

Financial instruments

Financial instruments are measured on initial recognition at fair value, plus, in the case of financial instruments other than those classified as fair value through profit or loss (FVTPL), directly attributable transaction costs. Financial instruments are recognised when the Company becomes a party to the contracts that give rise to them and are classified as amortised cost, fair value through profit or loss or fair value through other comprehensive income, as appropriate. The Company considers whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives are separated from the host contract if the host contract is not measured at fair value through profit or loss and when the economic characteristics and risks are not closely related to those of the host contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

In the periods presented the Company does not have any financial assets categorised as FVTPL or FVOCI.

Financial assets at amortised cost

A financial asset is measured at amortised cost if it is held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding and is not designated as FVTPL. Financial

assets classified as amortised cost are measured subsequent to initial recognition at amortised cost using the effective interest method. Cash, restricted cash, trade receivables and certain other assets are classified as and measured at amortised cost.

Financial liabilities

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss.

Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in net earnings when the liabilities are derecognised as well as through the amortisation

process. Borrowing liabilities are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date. Accounts payable and accrued liabilities and leases liabilities are classified as and measured at amortised cost.

Impairment of financial assets

A loss allowance for expected credit losses is recognised in the Statement of Comprehensive Income for financial assets measured at amortised cost. At each balance sheet date, on a forward-looking basis, the Company assesses the expected credit losses associated with its financial assets (such as trade receivables and contract assets) carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The expected credit losses are required to be measured through a loss allowance at an amount equal

to the 12-month expected credit losses (expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date) or full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument). A loss allowance for full lifetime expected credit losses is required for a financial instrument if the credit risk of that financial instrument has increased significantly since initial recognition.

Derecognition of financial assets and liabilities

A financial asset is derecognised when either the rights to receive cash flows from the asset have expired or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party. If neither the rights to receive cash flows from the asset have expired nor the Company has transferred its rights to receive cash flows from the asset, the Company will assess whether it has relinquished control of the asset or not. If the Company does not control the asset then derecognition is appropriate. A financial liability is derecognised when the associated obligation is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of Comprehensive Income.

Share-based payment transactions

The fair value of options granted under the Employee Option Plan is recognised as an employee benefits expense, with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted:

Including any market performance conditions (e.g., the entity's share price)

Excluding the impact of any service and non-market performance vesting conditions (e.g., profitability, sales growth targets and remaining an employee of the entity over a specified time period)

Including the impact of any non-vesting conditions (e.g., the requirement for employees to save or hold shares for a specific period of time)

The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.

Modifications after the vesting date to terms and conditions of equity-based payments which increase the fair value are recognised over the remaining vesting period. If the fair value of the revised equity-based payments is less than the original valuation, then the original valuation is expensed as if the modification never occurred.

Where there are unapproved share option plans, a provision for the employer's share of National Insurance Contributions is estimated based on the intrinsic value of the exercisable options at the reporting period date. A charge is recorded in the Statement of Comprehensive Income and the liability is included within provisions.

Provisions

Provisions are recognised when the Company has a present obligation as a result of a past event and it is probable that the Company will be required to settle the obligation. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the Statement of Financial Position date and are discounted to present value where the effect is material.

Provisions include onerous contracts (see later under section 3) where, if unavoidable costs of meeting a contract exceed the expected revenue, a provision is recognised immediately through profit and loss.

Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or recoverable on the taxable income for the year, using tax rates enacted or substantively enacted at the Statement of Financial Position date together with any adjustment to tax payable in respect of previous years.

Deferred tax assets are not recognised due to the uncertainty of their recovery.

R&D tax credits

The Company's research and development activities allow it to claim R&D tax credits from HMRC in respect of qualifying expenditure; these credits are reflected in the statement of comprehensive income in the taxation line.

 

Pension contributions

The Company operates a defined contribution pension scheme which is open to all employees and makes monthly employer contributions to the scheme in respect of employees who join the scheme. These employer contributions were capped at 5% of the employee's salary and are reflected in the statement of comprehensive income in the period for which they are made.

3. Critical accounting judgements and key sources of estimation uncertainty

In the preparation of the financial statements, management makes certain judgements and estimates that impact the financial statements. While these judgements are continually reviewed, the facts and circumstances underlying these judgements may change, resulting in a change to the estimates that could impact the results of the Company. In particular:

Critical accounting judgements

The following are the judgements made by management in applying the accounting policies of the Company that have the most significant effect on the financial statements:

Customer contracts and revenue recognition

Customer contracts typically include the provision of goods or services related to the provision of off-grid power generated from the conversion by fuel cells of hydrogen to electricity.

Customer agreements can be complex, involve multiple legal documents and have a duration covering multiple accounting periods including different performance obligations and payment terms designed to manage cash flow rather than the underlying arm's length transaction price. Management use judgement to identify the specific performance obligations and allocate the total expected revenue to the identified performance obligations. These judgements are made based on the interpretation of key clauses and conditions within each customer contract.

Project reviews covering cost forecasts and technical progress are monitored periodically to ensure that any potential losses are recognised immediately in the accounts in accordance with IAS 37.

Capitalisation of development expenditure

The Company uses the criteria of IAS 38 to determine whether development expenditure should be capitalised. Management identifies separately non-recurring engineering, design costs and prototype costs incurred to develop demonstration units used in marketing activities and customer trials. Management believe that the Development Expenditure will continue to support marketing and customer trials for the foreseeable future. This assessment relies upon judgements about future customer behaviour taking in to account the feedback received from prospective customers and future product improvements which influence the economic useful life and residual value of said assets.

For the current year, all development costs have been expensed as they do not yet meet all six of the criteria set out within the policy (see section 2) on development costs.

Key source of estimation uncertainty

Share-based payments

Certain employees (including Directors and senior Executives) of the Company receive remuneration in the form of share-based payment, whereby employees render services as consideration for equity instruments (equity-settled transactions).

The fair value is determined using either the Black-Scholes valuation model or a Log-normal Monte Carlo stochastic model for market conditions. Both are appropriate for considering the effects of the vesting conditions, expected exercise period and the dividend policy of the Company.

The cost of equity-settled transactions is accrued, together with a corresponding increase in equity over the period the directors expect the performance criteria will be fulfilled. For market performance criteria this estimate is made at the time of grant considering historic share price performance and volatility. For non-market performance criteria an estimate is made at the time of grant and reviewed annually thereafter considering progress on the operational objectives set, plans and budgets.

The estimation uncertainty relating to share-based payments is not at risk of material change in future years other than in relation to management's estimate of the extent to which the non-market and service conditions will be met.

Onerous contracts

Throughout the year, the performance of each open contract is reviewed and expected cost of delivering that contract is compared to the expected revenue from doing so. Where the expected costs suggest a loss, the contract is treated as

an onerous contract and a provision is recognised immediately through the profit and loss. No such provisions were made.

Estimates

Warrant valuation

6.8 million warrants were granted during the year to ABB E-mobility on the same day, 15 November 2021, that the Company signed the Sale and Development Agreement.

As the warrant vesting conditions were dependent on performance conditions within the Sale and Development contract, the two contracts were considered to be linked and therefore accounted as a single contract (meaning that the contract value of the Sale and Development agreement was reduced by the fair value of the warrants, which have been accounted for as equity and so not charged to the Statement of Comprehensive Income).

The fair value is determined using the Black-Scholes valuation model with the Monte Carlo model used for inputs around likelihood of exercise. The main area of uncertainty relates to the inputs to the Black-Scholes model, particularly around the assumptions concerning the exercise period and timing of any potential exercise. This is because the start of the exercise period) (i.e. the point the warrants vest) is subject to performance, and therefore not fixed in time at the point of grant (which is the valuation date). Changing the assumptions around timing could have a material impact on the valuation. Level 1 inputs have been used where suitable but management inputs have also been taken into account. See also note 24.

4. Segmental analysis

Operating segments are determined by the chief operating decision maker based on information used to allocate the Company's resources. The information as presented to internal management is consistent with the Statement of Comprehensive Income. It has been determined that there is one operating segment, the development of fuel cells. In the year to 31 October 2022, the Company operated mainly in the United Kingdom. All non-current assets are in the United Kingdom.

Revenue for the period was all generated from fuel cell systems.

5. Revenue

 

 

Revenue from contracts with customers

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Rental revenue

225

576

Other revenue

357

16

582

592

Being

Cash consideration

367

315

Consideration in kind

215

277

582

592

The majority of the other revenue relates to sales of hydrogen to the rentee of the fuel cell generators.

 

Unsatisfied performance obligations were:

 

 

Total

£000s

 

 

Within one year

£000s

 

 

Within 2 to 5 years

£000s

31 October 2021 1

148

148

-

31 October 2022

96

96

-

 

1 During the year, revenue was only recognised in relation to rental as a service. The company had also entered into a contract to deliver products. At the balance sheet date, the contract had not commenced, and no revenue has been recognised.

The aggregate amount of the transaction price allocated to contracts that are fully unsatisfied as of 31 October 2022 was £96,000 (2021: £354,000). The Company expects to recognise these revenues within the next twelve months.

The consideration in kind relates to marketing services received from the customer and fair valued in accordance with the contract.

6. Operating costs

The operating costs consist of:

 

 

 

 

Note

Qualifying R&D spend 31 October

2022

£000s

 

Indirect 31 October

2022

£000s

 

Year ended 31 October

2022

£000s

Qualifying R&D spend 31 October

2021

£000s

 

Indirect 31 October

2021

£000s

 

Year ended 31 October

2021

£000s

Materials

4,654

451

5,105

1,003

34

1,037

Payroll (excluding Directors)

3,660

1,247

4,907

1,767

220

1,987

8,314

1,698

10,012

2,770

254

3,024

Directors costs 9

-

1,642

1,642

-

1,900

1,900

Other employment costs

251

796

1,047

17

1,196

1,212

Occupancy costs

-

772

772

27

245

272

Other administrative expenses 7

440

2,310

2,750

75

1,743

1,818

9,005

7,218

16,223

3,100

5,127

8,226

Amortisation of intangible assets 13

-

474

474

-

110

110

Depreciation of right-to-use

assets 14

-

379

379

-

302

302

Depreciation of tangible fixed

assets 15

-

994

994

-

480

480

Less depreciation of rental asset

charged to cost of sales 15

-

(218)

(218)

-

(98)

(98)

Consideration in kind 5

-

215

215

-

278

278

Share based payment 23

-

1,682

1,682

-

1,152

1,152

9,005

10,744

19,749

3,100

7,351

10,450

 

The values disclosed as qualifying R&D spend form the total R&D expenditure incurred by the Company during the year.

 

Occupancy costs include: repair & maintenance, utilities and lease payments. In the prior year the information technology costs were classified within occupancy costs but have been reclassified in the current year into other administration expenses to better reflect the nature of the costs.

Fees paid to the auditors included within the operating costs were:

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Audit

244

136

Other assurance services

9

12

7. Other administration expenses

 

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Professional fees

889

596

Audit and tax costs

312

155

Information technology

753

342

Travel & entertainment

486

224

Insurance

260

162

Other

50

339

2,750

1,818

In the prior year the information technology costs were classified within occupancy costs but have been reclassified in the current year into other administration expenses to better reflect the nature of the costs.

8. Employee numbers and costs, including directors

The average numbers of employees in the year were:

 

Year ended 31 October 2022

Number

 

Year ended 31 October 2021

Number

Support, operations and technical

77

36

Directors

7

6

84

42

The aggregate payroll costs for these persons were:

Year ended 31 October 2022

£000s

Year ended 31 October 2021

£000s

Wages and salaries

5,961

3,108

Social security

392

684

Employer's pension contributions

196

95

6,549

3,887

Equity-settled share-based payment expense

1,682

1,152

8,231

5,039

9. Directors' costs

 

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Wages and salaries

1,380

1,538

Accrual for holidays

37

-

Other compensation

77

107

Company pension contributions

50

44

1,544

1,689

Social security

98

211

1,642

1,900

 

 

Year ended 31 October 2022

Directors' emoluments £000s

 

Year ended 31 October 2021

£000s

Wages and salaries

1,380

1,538

Other compensation

77

107

Company contributions to defined contribution pension schemes

50

44

1,507

1,689

Adam Bond is the only director ever to have exercised options or warrants (see below).

 

 

Year ended 31 October 2022

Highest paid director £000s

 

Year ended 31 October 2021

£000s

Wages and salaries

538

775

Other compensation

43

88

Company contributions to defined contribution pension schemes

16

13

597

876

Adam Bond realized £133,000 from exercising in full options that vested earlier in the year at value £241,000. He did not exercise any options in the previous year.

The highest paid director received remuneration of £581,000 (2021: £863,000) excluding pension contributions and LTIP.

10.  Net finance cost

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Lease Interest

38

37

Exchange rate differences

(21)

2

Bank charges

2

13

Total finance cost

19

52

Bank interest receivable

(143)

(19)

Net finance cost

(124)

33

11.  Taxation

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Recognised in the statement of comprehensive income

R&D tax credit - current year

(3,050)

(1,034)

R&D tax credit - prior year

8

(30)

Total tax credit

(3,042)

(1,063)

 

Reconciliation of effective tax rates

 

Loss before tax

 

 

 

(19,488)

 

 

 

(10,442)

Tax using the domestic rate of corporation tax of 19% (2021: 19%)

(3,703)

(1,984)

 

Effect of:

Change in unrecognised deferred tax resulting from tax losses

1,767

1,354

Timing differences not deductible for tax purposes

(101)

(165)

Depreciation in excess of capital allowances

299

148

R&D enhanced deduction on qualifying R&D expenditure

(2,259)

(766)

R&D rate adjustment on surrendered losses

947

380

R&D tax credit - prior year

8

(30)

Total tax credit

(3,042)

(1,063)

Potential deferred tax assets have not been recognised but are set out below:

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Property, plant and equipment, and intangible assets

(187)

(95)

Share based payments

477

39

Losses carried forward

12,037

9,595

Unrecognised net deferred tax assets

12,327

9,539

The cumulative tax losses in the amount of £47.6 million (2021: £37.8 million) that are available indefinitely for offsetting against future taxable profits have not been recognised as the Directors consider that it is unlikely that they will be realised in the foreseeable future.

The 2021 Finance Act increased the UK corporation tax rate to 25% from 1 April 2023, which will affect any future tax charges.

The tax reconciliation for the prior year has been re-presented to reflect the reconciliation in the current year where 'change in unrecognised deferred tax resulting from tax losses' has been disclosed separately from other reconciling items.

12.  Loss per share

The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary shareholders and a weighted average number of shares in issue for the year.

 

 

Year ended 31 October 2022

 

 

Year ended 31 October 2021

Basic loss per share (pence)

(2.24)

(1.33)

Diluted loss per share (pence)

(2.24)

(1.33)

Loss attributable to equity shareholders £000s

(£16,446)

(£9,378)

Weighted average number of shares in issue 000s

734,745

706,413

Diluted earnings per share

As set out in note 23, there are share options and warrants (accounted for under IFRS 2: Share based payments) outstanding as at 31 October 2022 which, if exercised, would increase the number of shares in issue. Given the losses for the year, there is no dilution of losses per share in the year ended 31 October 2022 nor the previous year.

 

13.  Intangible assets

 

 

Development

costs

 

 

Patents

 

Commercial

rights

 

Intangible

assets

£000s

£000s

£000s

£000s

Cost

 

 

 

 

As at 1 November 2020

229

800

121

1,150

Additions

-

86

-

86

31 October 2021

229

886

121

1,236

Additions

-

334

-

334

As at 31 October 2022

229

1,220

121

1,570

Amortisation

As at 1 November 2020

28

344

9

381

Charge for the year

46

40

24

110

As at 31 October 2021

74

384

33

491

Intangible: Impairment

121

173

-

294

Charge for the year

34

422

18

474

As at 31 October 2022

229

979

51

1,259

Net book value 31 October 2020

201

456

112

769

Net book value 31 October 2021

155

504

88

747

Net book value 31 October 2022

-

241

70

311

 

 

The commercial rights include the global preferential rights to integrate the HiiRoc plasma-based technology which were acquired by an initial payment in shares of £100k and future payments in kind through the provision of technical support.

The impairment charge relates to certain expenses capitalised during the development of the L-Series and now considered impaired due to the development of the S-Series.

14.  Right-of-use assets

Buildings

£000s

Costs

As at 1 November 2020

1,415

As at 31 October 2021

1,415

Additions

470

As at 31 October 2022

1,885

Depreciation

31 October 2020

228

Charge for the year

302

31 October 2021

530

Charge for the year

379

As at 31 October 2022

909

Net Book Value

As at 31 October 2020

248

As at 31 October 2021

884

As at 31 October 2022

976

15.  Tangible fixed assets

De-

Fixtures,

Demon-

Leasehold

commissioning

fittings and

Motor

stration

Sub-

improvements

Asset

equipment

vehicles

equipment

Total

£000s

£000s

£000s

£000s

£000s

£000s

Costs

As at 31 October 2020

222

300

1,486

18

327

2,353

Additions

736

-

81

-

295

1,112

Disposals

-

-

(13)

-

(13)

Transfers

-

-

(214)

-

(214)

As at 31 October 2021

958

300

1,340

18

622

3,238

Additions

1,620

-

241

-

-

1,861

Disposals

(8)

-

-

-

(118)

(126)

As at 31 October 2022

2,570

300

1,581

18

504

4,973

Depreciation

1 November 2020

222

234

1,310

18

54

1,838

Charge for the year

80

31

42

-

144

297

Disposals

-

-

(10)

-

-

(10)

Transfers

-

-

(98)

-

-

(98)

As at 1 November 2021

302

265

1,244

18

198

2,027

Charge for the year

444

20

83

-

69

616

Impairment

-

-

-

-

67

67

As at 31 October 2022

746

285

1,327

18

334

2,710

Net Book Value

1 November 2020

-

66

176

-

273

515

31 October 2021

655

35

96

-

424

1,211

As at 31 October 2022

1,824

15

254

-

170

2,263

 

 

 

Sub- Total

 

Rental asset

 

Computer equipment

Manufacturing and test stands

 

Assets in construction

 

 

Total

£000s

£000s

£000s

£000s

£000s

£000s

Costs

1 November 2020

2,353

423

-

-

-

2,776

Additions

1,112

280

70

351

-

1,813

Disposals

(13)

-

-

-

-

(13)

Transfers

(214)

-

129

85

-

-

31 October 2021

3,238

703

199

436

-

4,576

Additions

1,861

-

119

2

406

2,388

Disposals

(126)

-

-

-

-

(126)

31 October 2022

4,973

703

318

438

406

6,838

 

Depreciation

1 November 2020

1,838

-

-

-

-

1,838

Charge for the year

297

98

39

45

-

479

Disposals

(10)

-

-

-

-

(10)

Transfers

(98)

-

47

51

-

-

31 October

2,027

98

86

96

-

2,307

Charge for the year

616

218

71

89

-

994

Impairment

67

188

-

-

-

255

31 October 2022

2,710

504

157

185

-

3,556

Net Book Value

1 November 2020

515

423

-

-

-

938

31 October 2021

1,211

605

113

340

-

2,269

31 October 2022

2,263

199

161

253

406

3,282

 

The Company has set-up a decommissioning asset for the removal of the plant and equipment installed at the Stade site in Germany and for dilapidations associated with the leasehold premises at Dunsfold in the UK, the cost of which is based on estimates. No decision has been taken about the date when the plant will be decommissioned.

 

16.  Inventory

 

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Raw materials

173

453

Work in progress

-

208

Provision

(130)

-

Inventory

43

661

 

Inventory expensed as cost of sales during the year was £nil (2021 £nil). During the year, £488,000 of brought forward inventory was written off as research and development costs on projects that did not subsequently meet the anticipated level of commerciality.

17.  Receivables

 

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Accounts receivable

142

299

VAT receivables

401

229

Other receivables

303

154

Prepayments

314

333

1,160

1,015

There is no significant difference between the fair value of the receivables and the values stated above.

Given the value of VAT receivables for the current year, it has been reclassified as a separate line item, with the balance remaining within other receivables.

18.  Cash and cash equivalents

 

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Cash at bank

285

119

Bank deposits

39,935

55,256

40,220

55,375

Cash at bank and bank deposits consist of cash. There is no material foreign exchange movement in respect of cash and cash equivalents.

Restricted cash of £612,000 (2021: £612,000) is not included within cash and cash equivalents and is held in escrow to support bank guarantees provided under contracted obligations to suppliers and customers.

19.  Payables

 

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Current liabilities:

Trade payables

445

353

Deferred revenue

1,600

214

Other payables

349

144

Accruals

1,250

985

3,644

1,696

Included in Accruals as of 31 October 2022 is an amount of £514,000 in relation to bonuses (2021: £507,000).

Deferred revenue under the ABB contract is reduced by the fair value of the warrants granted on the same day, 15 November 2021, as the two contracts are considered to be linked. Also see note 24 for information on the warrants granted.

20.  Lease liabilities

 

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Opening position

906

260

Cash flows

-

-

- Repayment

(419)

(330)

Non-cash

-

-

- Additions

471

939

- Interest expense

38

37

996

906

 

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Lease liabilities less than 12 months

298

322

Lease liabilities more than 12 months

698

584

996

906

 

The Company has a number of leases, which are mainly of five years in duration and have break clauses after two, or three, years. Leases are renewed, as opposed to being extended, and are granted outside of the 1954 Act, and therefore do not have security of tenure.

 

21.  Provisions

National Insurance on unapproved share

options

£000s

 

 

Decommissioning

provision

£000s

Total

£000s

Balance at 1 November 2020

-

(301)

(301)

Addition

(353)

-

(353)

Balance at 31 October 2021

(353)

(301)

(654)

Utilisation

353

-

353

Balance at 31 October 2022

-

(301)

(301)

The prior year provision for National Insurance related to options granted outside of the approved EMI scheme. No further grants of similar options were made during the current year and, as the EMI options are marked-to-market and the relevant market benchmark is lower than the exercise price, no provision is required.

The Company has set up a decommissioning provision for the Stade site in Germany, the cost of which is based on estimates. Various scenarios have been considered which estimate the range of costs to be from £35,000 to £420,000 dependent upon agreements reached with the lessor.

22.  Issued share capital

 

 

 

Ordinary shares

 

 

 

Price

 

 

Share Capital

 

 

Share premium

 

 

Cost of issue

 

Total share premium

£000s

£000s

£000s

£000s

£000s

1 November 2021

734,484,668

-

734

119,718

(3,269)

116,448

Exercise of options 14 March 2022

60,000

9,240

-

9

-

9

Exercise of options 5 July 2022

110,000

12,320

-

12

-

12

Exercise of PSP award 21 July 2022

583,169

583

1

-

-

1

Exercise of options 26 July 2022

60,000

9,240

-

9

-

9

Exercise of options 7 September 2022

53,334

8,213

-

8

-

8

31 October 2022

735,351,171

39,596

735

119,756

(3,269)

116,487

All issued shares are fully paid other than some shares which were issued during the year without payment of the nominal face value of 0.1 pence per share required by the relevant legislation. The Company will work to remediate this issue and processes have been modified to prevent this happening in future.

The Company considers its capital and reserves attributable to equity shareholders to be the Company's capital. In managing its capital, the Company's primary long-term objective is to provide a return for its equity shareholders through capital growth. Going forward the Company will seek to maintain a gearing ratio that balances risks and returns at an acceptable level and to maintain a sufficient funding base to enable the Company to meet its working capital needs. The Company has no debt, other than property leases, and therefore a target debt to equity ratio is not relevant at the time.

Share premium is shown before the permitted deduction of cost of issue. After such deduction the value equals £116,487,000.

Details of the Company's capital are disclosed in the statement of changes in equity.

There have been no other significant changes to the Company's management objectives, policies and processes in the year nor has there been any change in what the Company considers to be capital.

In November 2021 the Company granted 6.8 million warrants to ABB (see note 24)

23.  Share based payments

Share based payment charge:

 

2022

£000s

2021

£000s

Employee Share Option Plan

1,593

1,090

Warrants

70

62

SAYE

19

-

1,682

1,152

 

Employee share option plan

The establishment of the Employee Share Option Plan was approved by the Board on 1 August 2018 and amended on 10 October 2018. The Plan is designed to attract, retain and motivate employees. Under the Plan, participants can be granted options which vest unconditionally or conditional upon achieving certain performance targets. Participation in the Plan is solely at the Board's discretion and no employee has a contractual right to participate in the Plan or to receive any guaranteed benefits.

Options are granted under the Plan for no consideration and carry no dividend nor voting rights. When exercisable, each option is convertible into one ordinary share.

Set out below are summaries of options granted under the Plan:

 

 

Average exercise price per share

option (£)

2022

 

 

Number of options 2022

 

Average exercise price per share

option (£)

2021

 

 

Number of options

2021

1 November 2021

0.35

14,952,167

0.30

14,420,835

Granted during the year

0.01

7,708,317

0.62

1,600,000

Exercised during the year

0.05

(866,503)

0.22

(718,668)

Lapsed during the year

0.21

(1,945,548)

0.33

(350,000)

31 October 2022

0.24

19,848,433

0.35

14,952,167

Vested and exercisable at 31 October

 

11,700,637

 

9,630,501

 

Share options outstanding at the end of the year have the following expiry dates and exercise prices.

 

 

 

 

 

Grant date

 

 

 

 

Expiry date

 

 

 

 

Exercise price (£)

 

 

 

Share options

2022

 

 

 

Share options

2021

07 November 2012

07 November 2022

0.3575

95,000

95,000

02 December 2013

01 December 2023

0.34

120,000

120,000

17 July 2015

17 July 2025

0.22

6,000,000

6,000,000

10 September 2018

01 August 2024

0.088

216,667

266,667

15 October 2018

15 October 2024

0.088

2,500,000

2,500,000

31 December 2019

20 April 2030

0.1635

2,750,000

2,750,000

20 April 2020

20 April 2030

0.154

820,500

1,720,500

24 June 2021

28 June 2031

0.617

1,000,000

1,500,000

19 November 2021

19 November 2031

0.001

2,971,582

-

04 July 2022

04 July 2032

0.19

215,000

-

15 July 2022

15 July 2032

0.001

3,159,684

-

19,848,433

14,952,167

 

The table below sets out the inputs used in determining the fair value of the grants of options per the previous table as well as the expense recognised in the accounts in the current year. The grants in the previous table are linked below based on the exercise price and grant date.

 

 

Exercise price (pence)

 

 

 

 

Grant date

 

Average

grant date share

price (pence)

 

Average expected volatility (per annum)

 

Average risk-free interest rate (per annum)

 

Average dividend

yield (per annum)

 

Average implied option life (years)

 

Average fair value per option (pence)

 

Amount expensed in

2022

£000s

16.35

31 December 2019

16.35

95.5%

0.54%

0%

2

8.1

74

61.7

24 June 2021

63.5

106.8%

0.18%

0%

3

41.8

116

0.001

19 November 2021

53.8

76%

0.05%

0%

0.4

0.43

698

0.001

19 November 2021

53.8

76%

0.35%

0%

1.4

0.42

472

0.001

19 November 2021

53.8

76%

0.05%

0%

3

0.45

167

0.19

04 July 2022

19

95%

1.83%

0%

3

11.4

3

0.001

15 July 2022

20.7

95%

1.76%

0%

3

12.7

27

0.001

15 July 2022

20.7

95%

1.76%

0%

3

16.6

36

Total charge for the year (2021: £ 1,089,887)

 

1,593

Three grants were made on 19 November 2021. The first two, of the three disclosed above, related to the Transitional LTIP, and was made in two tranches. The first tranche had a risk-free rate of 0.05% whilst the second tranche had a rate of 0.35%. The third, of the three above, related to the PSP LTIP and had a risk free rate of 0.05%.

SAYE

 

Average exercise  price per option (£)

2022

 

 

Number of options 2022

Average exercise price per option (£)

2021

 

 

Number of options

2021

1 November

-

-

-

Granted during the year

0.2

2,007,400

-

-

31 October

0.2

2,007,400

-

-

Vested and exercisable at 31 October

-

-

-

-

 

 

 

 

 

Grant date

 

 

 

 

Expiry date

 

 

 

 

Exercise price (£)

 

 

 

Share options

2022

 

 

 

Share options

2021

03 August 2022

31 March 2026

0.2

2,007,400

-

2,007,400

-

 

 

 

Exercise price (pence)

 

 

 

 

Grant date

 

Average grant date share price

(pence)

 

Average expected volatility (per annum)

 

Average risk-free interest rate (per annum)

 

Average dividend yield (per annum)

 

Average implied option life (years)

 

Average fair value per option (pence)

 

Amount expensed in 2022 (£000's)

0.2048

03 August

2022

 

0.256

 

95%

 

2.93%

 

0%

 

3.08

 

17.7

 

19

Total charge for the year (2021: £ nil)

 

 

 

19

24.  Financial instruments

Warrants

The Board has the discretion to award warrants from time to time to third parties. Typically, warrants are granted and vest upon certain performance targets. Grant of warrants is solely at the Board's discretion.

Warrants are granted for no consideration and carry no dividend nor voting rights. When exercisable, each warrant is convertible into one ordinary share.

Set out below are summaries of warrants granted under the Plan:

 

 

Average exercise price per

warrant (£)

2022

 

 

Number of warrants

2022

 

Average exercise price per

warrant (£)

2021

 

 

Number of warrants

2021

01 November

0.51

8,900,000

0.18

5,400,000

Granted during the year

0.59

6,802,720

0.77

5,000,000

Exercised during the year

-

-

0.19

(1,500,000)

31 October

0.54

15,702,720

0.51

8,900,000

Vested and exercisable at 31 October

4,001,300

600,000

 

 

 

Warrant price (pence)

 

 

 

 

Grant date

 

Average

grant date share

price (pence)

 

Average expected volatility (per annum)

 

Average risk-free interest rate (per annum)

 

Average dividend

yield (per annum)

 

Average implied warrant life

(years)

 

Average fair

value per warrant

(pence)

 

 

Amount expensed in

2022 (£)

19.5

13 October 2020

18.56

102.76%

(0.02)%

0.0%

1

7.01

70

Total charge for the year

70

The total charge for the prior year was £62,100.

 

 

 

Warrant price (pence)

 

 

 

 

Grant date

 

Average

grant date share

price (pence)

 

Average expected volatility (per annum)

 

Average risk-free interest rate (per annum)

 

Average dividend

yield (per annum)

 

Average implied warrant life

(years)

 

Average fair

value per warrant

(pence)

 

 

Accounted as equity in

2022 (£)

58.8

15 November 2021

58.8

59.1%

0.65%

0.0%

2

6.3

215

58.8

15 November 2021

58.8

59.1%

0.65%

0.0%

2

11.3

192

58.8

15 November 2021

58.8

59.1%

0.65%

0.0%

2

9.9

169

Accounted as equity

576

 

The warrant life is two years from the date of vesting. The first tranche of 3.4 million warrants have fully vested. Under the revised agreement signed on 28 March 2023, ABB will invest the £2.0 million balance into newly issued share capital, which means that the original milestones 1 and 2 will no longer apply and so the related warrants will not vest and therefore expire in due course.

Further information on the ABB transaction is provided under post balance sheet events within the Directors' Report.

Warrants outstanding at the end of the year have the following expiry dates and exercise prices.

 

 

Grant date

 

Expiry date

 

Exercise price (£)

Warrants

2022

Warrants

2021

09 September 2019

09 September 2029

0.05

900,000

900,000

19 October 2020

13 October 2021

0.195

1,000,000

1,000,000

19 October 2020

13 April 2022

0.21

1,000,000

1,000,000

19 October 2020

13 October 2022

0.23

1,000,000

1,000,000

13 January 2021

13 March 2025

0.77

5,000,000

5,000,000

15 November 2022

04 February 2024

0.59

3,401,360

-

15 November 2022

24 months after vesting

0.59

1,700,680

-

15 November 2022

24 months after vesting

0.59

1,700,680

-

15,702,720

8,900,000

 

Vesting is conditional on the meeting of the milestones 1 and 2.

 

In common with other businesses, the Company is exposed to risks that arise from its use of financial instruments.

This note describes the Company's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

Principal financial instruments

The principal financial instruments used by the Company, from which financial instrument risk arises, are as follows:

 

 

 

 

Note

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Financial instruments held at amortised cost:

Cash and cash equivalents 18

40,220

55,375

Receivables 17

445

453

Total financial assets held at amortised cost

41,380

56,390

Payables

19

2,044

1,482

Total financial liabilities held at amortised cost

2,044

1,482

 

VAT receivables and prepayments have been removed from financial assets and deferred income from financial liabilities.

 

Financial instruments that are measured subsequent to initial recognition at fair value are grouped into three levels based on the degree to which the fair value is observable as defined by IFRS 7:

Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 fair value measurements are those derived from inputs, other than quoted prices included within Level 1, that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

Other than the ABB warrants, granted on 15 November 2021, which also incorporate managements inputs to the fair valuation, all financial instruments are Level 1 and none have been transferred between Levels during the year.

General objectives, policies and processes

The Board has overall responsibility for the determination of the Company's risk management objectives and policies and, while retaining ultimate responsibility for them, it has delegated part of the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company's finance team. The Board receives reports from the financial team through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

The overall objective of the Board is to set policies that seek to reduce ongoing risk as far as possible without unduly affecting the Company's competitiveness and flexibility. Further details regarding these policies are set out below.

Credit risk

Credit risk arises principally from the Company's other receivables and cash and cash equivalents. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk equals the carrying value of these items in the financial statements as shown below:

 

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Receivables

1,160

1,015

Cash and cash equivalents

40,220

55,375

The Company's principal other receivables arose from:

a) customers, and

b) trade and other receivables

Credit risk with cash and cash equivalents is reduced by placing funds with banks with acceptable credit ratings and government support where applicable and on term deposits with a range of maturity dates. At the year end, most cash were temporarily held on short-term deposit. The credit risk provision is estimated on a case by case basis taking into account public information of the counterparty and payment history and no loss is expected. No expected credit loss accrual has been made as at 31 October 2021 and 2020 as they are estimated to be de minimis.

Liquidity risk

Liquidity risk arises from the Company's management of working capital and the amount of funding required for the development programme. It is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. The Company's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.

The principal liabilities of the Company are trade and other payables in respect of the ongoing product development programme. Trade payables are all payable within two months. The Board receives cash flow projections on a regular basis as well as information on cash balances.

See also note 20, which sets out the lease liabilities for less than 12 months and more than 12 months.

Interest rate risk

The Company is exposed to interest rate risk in respect of surplus funds held on deposit and, where appropriate, uses fixed interest term deposits to mitigate this risk.

 

Fair value of financial instruments

 

 

Year ended 31 October 2022

£000s

 

Year ended 31 October 2021

£000s

Receivables

445

453

Cash and cash equivalents

40,220

55,375

Trade and other payables

(2,044)

(1,482)

38,621

54,346

There is no difference between the fair value and book value of financial instruments.

The Company does not enter forward exchange contracts or otherwise hedge its potential foreign exchange exposure. The Board monitors and reviews its policies in respect of currency risk on a regular basis.

 

25.  Related party transactions

There were no transactions with any related parties during the year ended 31 October 2022 (2021: £nil) other than key management compensation.

 

26.  Ultimate controlling party

There is no ultimate controlling party.

 

27.  Post balance sheet events

 

ABB E-mobility

On 28 March 2023, ABB E-mobility confirmed that AFC Energy had successfully validated its first cumulative 100kW liquid cooled fuel cell. As a result of this, the Sale and Development Agreement, signed on 15 November 2021, was revised such that:

ABB will have a pre-agreed discount, to be spread over the purchases of the first ten fuel cell systems, the first of which would be purchased under the revised contract with the subsequent nine at ABB's option; and

the payment of the remaining £2.0 million, of the £4.0 million, to be used for the purchase of issued shares in AFC Energy

 

The £2.0m balance, was received on 5 April 2023 and the shares issued and admitted for trading shortly thereafter. The shares are of the same class and have the same voting rights as those already in issue. The cash value of the original contract therefore remains unchanged at £4.0 million.

ACCIONA

On 18 April 2023, ACCIONA signed an order for the first 50kVA H-Power S Series Generator for delivery in the second half of 2023. The system will comprise a 30kW fuel cell and 45kWh battery energy storage system. The system will initially be rented for a six-month period, following which ACCIONA has the option to buy the system at a pre-agreed price or extend the rental.

 

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END
 
 
FR PPUGUCUPWGMG
Date   Source Headline
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29th Mar 20237:05 amRNSABB E-mobility Follow On Investment
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