AFC Energy Regulatory News (AFC)

17 Mar 2008 07:01

AFC Energy Plc17 March 2008 17 March 2008 AFC Energy plc("AFC Energy" or "the Company") Preliminary results to 31 October 2007 AFC Energy develops low-cost fuel cells for industries that produce wastehydrogen as a by-product. This hydrogen is used by AFC Energy's fuel cells toproduce clean electricity. AFC Energy's fuel cells use reduced levels of precious metal and the Company hasa clear route to commercialisation by selling fuel cells directly to theend-user. Akzo Nobel is AFC Energy's first customer. HIGHLIGHTS • Successful admission to AIM, raising proceeds of £3 million before expenses • Contract won with Akzo Nobel to provide financial support for fuel cell development and commitment to purchase fuel cell systems • Development of fully scaled single cell prototype that will be used in the 3.5kW, 50kW and 200kW systems • Delivery of first fuel cells to Akzo Nobel scheduled for August 2008 Gerard Sauer, Chief Executive, AFC Energy said: "The IPO of AFC Energy has given the Company greater visibility amongstindustrial companies looking to reduce their energy costs. "We are experiencing increasing interest from potential customers who are keento use our fuel cells to produce clean electricity from their hydrogen thatwould otherwise be vented off into the atmosphere. "As AFC Energy moves into a production phase ahead of delivery of our first fuelcells to Akzo Nobel, we continue to make technological improvements to drivedown the cost of our fuel cell components." For further information please visit www.afcenergy.com or contact: AFC Energy plc 01483 276726Gerard Sauer, Chief Executive Blue Oar Securities 020 7448 4400Shane Gallwey / Andrew Raca / Jerry Keen Madano Partnership 020 7593 4000Mark Way / Graham Moonie CHAIRMAN'S STATEMENT It is a pleasure to report our first full year results, to 31 October 2007,which were in line with our forecasts at the time of admission to AIM. Introduction In a year of highly satisfactory progress, the Company secured its firstcontract with Akzo Nobel. During the year, Akzo Nobel made on-account paymentsto AFC Energy to cover part of the development costs of our technology. AFCEnergy will begin shipping its fuel cells to Akzo Nobel during August 2008. The Company has a strong technical team to complete the development of its fuelcells and begin the first shipments. Group strategy The Company is focused on developing fuel cells for industrial companies thatproduce hydrogen as a by-product from their activities. The hydrogen iscurrently vented off and released into the atmosphere. By taking our fuel cells to this energy source and capturing the hydrogen, wewill be able to provide these companies with a method of generating electricityin an environmentally friendly manner. Customers will then be able to sell thiselectricity or reduce their own energy costs by using the electricitythemselves. Payback for AFC Energy's fuel cells therefore is approximately twoyears. In order to ensure timely execution of AFC Energy's budgeted developmentplans, the Company intends to raise additional funds in the coming months. Tothis end shareholders are being asked at the Company's AGM on 10 April 2008 toauthorise the directors to issue and allot shares for cash. Market opportunity With mounting pressure to expand renewable energy sources there are anincreasing number of companies developing different types of fuel cells fordifferent markets and different applications. AFC Energy targets industries thatproduce waste hydrogen. The directors estimate that the chlor-alkali industryalone has approximately 3,000 MW per annum of generating capacity. Companies in this sector often use electrolysis as part of their own operation,a reverse of the process that AFC Energy uses in its own fuel cells.Consequently the adoption and management of our systems by a customer isrelatively easy and familiar to them. In addition, installing our fuel cellsinto large single sites within a controlled environment provides greaterefficiencies than, for example, installing fuel cells into individualresidential locations. This is more costly and vulnerable to misuse. Employees We are grateful to every employee, all of whom have worked incredibly hardduring our first full year as a listed company. The work ethic at AFC Energy hasbeen a major factor in our ability to achieve all our milestones within thistargeted timeframe. We have also strengthened the board during the year and welcomed Otto Carlisleas Technical Director. In addition, it is intended that Mitchell Field beproposed at the AGM for appointment to the board. Otto has responsibility forthe development of our fuel cells and ensuring that AFC Energy meets all aspectsof its agreement with Akzo Nobel, and Mitchell has substantial businessexperience from which we hope to benefit. Tim Yeo 17 March 2008Chairman OPERATING AND FINANCIAL REVIEW Introduction AFC Energy is involved in the cost engineering of an existing technology, notthe development of a new one. This is an important point of differentiation forthe Company. Our focus is to produce alkaline fuel cells at a commercial pricepoint. Consequently, it has been essential for us to hire the right calibre people whounderstand the connection between product development and cost engineering. Thesuccessful IPO and listing of the Company has allowed us to expand our team andaccelerate our product development, enabling us to complete our cellconfiguration and testing work in our own labs. Tests run in parallel by SurreyUniversity have confirmed our results and show that we can manufacture our cellsand all their components at the cost we projected, using technology that iscurrently available. This is a major step forward in the commercialisation offuel cells. TECHNOLOGY DEVELOPMENT AFC's technological objectives During the year, the majority of our work has been concentrated on the electrodedevelopment and the final system design with repeatability and reliability ofproduct our main priority. We have set the performance criterion for the electrode at a modest 100mA/cm2.Our aim, central to our business plan, is to achieve this target output at theset production price, based on a production rate of 1,000kW per annum. The AFC Energy team has a strong background in production engineering, which hasbeen the key to developing the Company's strong manufacturing control processes.We have a very tightly defined programme plan and have been able to stick withthis throughout our current workload and projections, meeting all the milestonesset out in the Admission Document. Summary of development programme Milestone Description Target Completion 1 Small scale single cell 500 hours operation May 2007 - ACHIEVED 2 First scaled single cell operation August 2007 - ACHIEVED 3 Scaled single cell 500 hours operation October 2007 - ACHIEVED 4 First prototype system operation January 2008 - ACHIEVED 5 System operation 500 hours February 2008 - ACHIEVED 6 Delivery of multiple systems to customer August 2008 Catalyst AFC Energy's core technology is the production of a non-precious metal catalystat a price point that makes commercial sense. We have achieved notable successwith the development of this technology and have also established a reliablyreproducible cathode and anode substrate to complement it. Work on the catalyst is still ongoing as we finalise processes and combinationsand at the same time test it for longevity and mechanical strength. We will alsocarry out further research to explore the possible application of our technologyin the chlorate industry. This work will attract funding under the EU FP7programme, which AFC Energy will investigate in the next few months. Electrode An integral part of the development of the electrode is to balance the desiredoutput against the cost of manufacture, the catalytic loading and the bindervolume and the electrode conductor material. This process is now well on the waywith clearly defined pathways to apply, test and confirm a series of performancesteps. Tests already undertaken have produced, in many cases, better thanprojected results. Work is still ongoing and we are well on course to completethis within the timeframe set for these tasks to be finalised. Reduced complexity of the fuel cell Reducing the complexity of the fuel cell system is an essential requirement andprimary objective in the development of a reliable and cost-effective product.Our design departments have sought to minimise the number of components to beassembled, to reduce the electrical and mechanical losses in the peripheralsystems, to develop the components for automated assembly and to ensure bydesign that components that are being serviced cannot be assembled incorrectly.This demonstrates AFC Energy's recognition of the importance of product designto company profitability. Testing and validation Surrey University works alongside AFC Energy to help the Company achieve itstargets, and provides independent validation reports on half-cell testingprogress and electrode analysis. This has contributed greatly to the successfulcompletion of our programme so far, and the Company expects to continue itsrelationship with Surrey University. In addition the appointment of Gasketel as our after-sales service partner inGermany strengthens our development plans and further underlines our commitmentto Akzo Nobel. AFC Energy is considering extending its single cell testprogramme to Gasketel in Germany for third party validation. AKZO NOBEL First prototype The first commercial application of our system and its technology will be atAkzo Nobel's chlor-alkali plant in Bitterfeld, Germany. We will install a unit comprising five 3.5kW systems and integrate this unitwith the factory's own control and safety systems. This arrangement will allowfor the in-house and remote monitoring of system up-time, efficiency ofconversion, temperatures, reliability, and interface aspects. We have agreedsafety controls to comply with Akzo Nobel's in-house requirements and willshortly receive full HAZOP certification of our system. 50kW system In line with its agreement with Akzo Nobel, AFC Energy has started the ProductDesign Specification of the 50kW system, which will be based around the currentelectrode and cartridge frame design. Modelling of the 50kW system is underwayin preparation for the final system design. FINANCIAL HIGHLIGHTS The company was successfully admitted to AIM in April 2007 raising £3 millionbefore expenses. The Company incurred direct and administrative costs ofapproximately £2 million in the year, as it consolidated its team of technicalexperts tasked with the development and testing of the company's products andtheir commercialisation. Monthly payments have been received from Akzo Nobel,our first customer. We have delivered on time the various development programmemilestones outlined in the Admission Document. The Company's net assets at 31 October 2007 were £2.948 million and the cashbalance was £2.128 million. COMMERCIAL OUTLOOK Chlorate industry We have also identified a very large opportunity within the chlorate industry aswell as the chlorine industry. This sector is at least as large as thechlor-alkali industry and currently does not use any of the hydrogen produced inits processes. There are more contaminants in their hydrogen which will providean additional technical challenge for the AFC team. Our product, with its unique electrode design and cost structure, is ideallysuited to providing a novel solution to this industry, allowing them to recovera large cost element rather than almost completely losing the value of thehydrogen produced. Power and water applications During the year we explored other interesting avenues for our product, combiningpower generation with the production of potable water. We have commissionedElement Energy to carry out a study on our behalf that will further define thisspace. We received an order for three thousand 3.5 kW systems from the Indonesiangovernment but the internal political situation is such that it may be a whilebefore this order is formally ratified. Until the order is confirmed, with thereceipt of an initial payment, AFC Energy will not be allocating any resourcesto this opportunity. Revenue sharing model We are currently working on the last phase of our future business model, wherewe provide our customers in the chlorine industry with a complete leasingsolution. AFC Energy will install and maintain its equipment on site, inexchange for a long-term contract to share the revenue generated by theconversion of excess hydrogen to electric power. This model is highly attractiveas it allows AFC to benefit from any rise in electricity prices in the future,and at the same time provides us with a regular income. Chlor-alkali industry We continue to discuss opportunities with a number of major players in thechlor-alkali industry, mostly larger by size and volume of hydrogen producedthan Akzo Nobel, with a view to building on our existing customer base. We are in active discussions and look forward to updating shareholders aboutthese opportunities in due course. Gerard Sauer 17 March 2008 Chief Executive Officer INCOME STATEMENT Year ended 31 Period from 9 October January to 31 October 2007 2006 Note £ £ Revenue - - Direct expenses (116,228) - Gross loss (116,228) - Administrative expenses (1,840,802) (617,158)analysed as:Administrative expenses (1,562,298) (605,612)Equity-settled share-based payments 12 (278,504) (11,546)Operating loss 2 (1,957,030) (617,158) Financial income 3 90,158 14,013Financial expense 4 - (27)Net financial income 90,158 13,986 Loss before tax (1,866,872) (603,172) Taxation 5 155,294 60,679 Loss for the year attributable to equity holders (1,711,578) (542,493) Basic loss per share 6 (2.1)p (1.2)p Diluted loss per share 6 (2.1)p (1.2)p All amounts relate to continuing operations. Note 2007 2006 BALANCE SHEET £ £ Non-current assetsIntangible assets 7 298,874 287,051Property and equipment 8 472,601 152,184 771,475 439,235Current assetsTrade and other receivables 9 461,567 114,735Cash and cash equivalents 10 2,128,350 396,244 2,589,917 510,979 Total assets 3,361,392 950,214 Equity and liabilities Equity attributable to ordinary shareholdersShare capital 11 87,683 70,000Share premium 4,825,189 1,334,935Other reserve 290,050 11,546Retained earnings (2,254,071) (542,493)Total equity 2,948,851 873,988 Current liabilitiesTrade and other payables 13 412,541 76,226 412,541 76,226 Total equity and liabilities 3,361,392 950,214 These financial statements were approved and authorised for issue by the Boardon 17 March 2008. GERARD SAUER SIMON WALTERSChief Executive Officer Finance Director CASH FLOW STATEMENT Note Year ended 31 Period from 9 October January to 31 October 2007 2006 £ £ Cash flows from operating activitiesLoss before tax for the year (1,866,872) (603,172)Adjustments for:Depreciation and amortisation 145,275 44,154Equity-settled share-based payment expenses 12 278,504 11,546Interest paid - 27Interest received (90,158) (14,013)Cash flows from operating activities before changes in working capital (1,533,251) (561,458)and provisions Increase in trade and other receivables (191,538) (54,056)Increase in trade and other payables 336,315 76,226Cash absorbed by operating activities (1,388,474) (539,288) Cash flows from investing activitiesInvestment in plant and equipment 8 (452,592) (184,207)Acquisition of patents 7 (24,923) (299,182)Net cash absorbed by investing activities (477,515) (483,389) Cash flows from financing activitiesProceeds from the issue of share capital 3,507,937 1,404,935Interest paid - (27)Interest received 90,158 14,013Net cash from financing activities 3,598,095 1,418,921 Net increase in cash and cash equivalents 1,732,106 396,244Cash and cash equivalents at start of period 396,244 -Cash and cash equivalents at 31 October 10 2,128,350 396,244 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share Share Other Retained Total Capital Premium Reserve Earnings EquityFor the year ended 31 October 2007 £ £ £ £ £Balance at 9 January 2006 - - - - -Loss after tax for the period - - - (542,493) (542,493) Total recognised income and - - - (542,493) (542,493)expense for the periodIssue of equity shares 7,000 1,397,935 - - 1,404,935Capitalisation issue 63,000 (63,000) - - -Equity-settled share-based - - 11,546 - 11,546paymentsBalance at 31 October 2006 70,000 1,334,935 11,546 (542,493) 873,988 Balance at 1 November 2006 70,000 1,334,935 11,546 (542,493) 873,988Loss after tax for the year - - - (1,711,578) (1,711,578) Total recognised income and (1,711,578) (1,711,578)expense for the yearShares issued in the year 17,683 4,015,731 - - 4,033,414Share issue expenses - (525,477) - - (525,477)Equity-settled share-based 278,504 - 278,504paymentsBalance at 31 October 2007 87,683 4,825,189 290,050 (2,254,071) 2,948,851 Share capital is the amount subscribed for shares at nominal value. Share premium represents the excess of the amount subscribed for share capitalover the nominal value of these shares net of share issue expenses. Other reserve represents the credit to equity in respect of equity-settledshare-based payments. Retained losses represent the cumulative loss of the Company attributable toequity shareholders. Notes forming part of the financial statements 1 Basis of preparation and accounting policies These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs and IFRIC interpretations) as adopted bythe European Union and also in accordance with the Companies Act 2006. 2 Operating loss (2006: loss) Year ended 31 Period ended 31 October October 2007 2006 £ £ This has been stated after charging: Depreciation of property and equipment 132,175 32,023 Amortisation of intangible assets 13,100 12,131 Equity-settled share-based payment expense 278,504 11,546 Auditors' remuneration - audit 20,000 20,000 Auditors' remuneration - other services 52,286 - 3 Financial income Year ended 31 Period ended 31 October October 2007 2006 £ £ Bank interest receivable 90,158 14,013 90,158 14,013 4 Financial expense Year ended 31 Period ended 31 October October 2007 2006 £ £ Bank interest payable - 27 - 27 5 Taxation Year ended 31 Period ended 31 October October 2007 2006 Recognised in the income statement £ £ Research and development tax credit 155,294 60,679 Total tax credit 155,294 60,679 Reconciliation of effective tax rates Loss before tax (1,866,872) (603,172) Tax using the domestic rate of corporation tax of 30% (560,062) (180,952) Effect of: Expenses not deductible for tax purposes 89,561 8,667 Research and development allowance (97,058) (37,924) Research and development tax credit 155,294 53,095 Depreciation in excess of capital allowances (24,536) (6,248) Losses surrendered for research and development 291,176 - Unutilised losses carried forward 300,919 102,683 Total tax credit for the year 155,294 60,679 6 Loss per share The calculation of the basic loss per share is based upon the net loss after taxattributable to ordinary shareholders of £1,711,578 (2006: loss of £542,493) anda weighted average number of shares in issue for the year of 80,067,752 (2006:45,144,125). Year ended 31 Period ended 31 October October 2007 2006 Basic loss per share (2.1)p (1.2)p Loss attributable to equity shareholders £1,711,578 £542,493 Number Number Weighted average number of shares in issue 80,067,752 45,144,125 Diluted earnings per share The diluted loss per share is the same as the basic loss per share, as the lossfor the year has an anti-dilutive effect. 7 Intangible assets 2007 2006 Patents Patents £ £ Cost Balance at 1 November 2006 299,182 - Additions 24,923 299,182 Balance at 31 October 2007 324,105 299,182 Amortisation Balance at 1 November 2006 12,131 - Charge for the year 13,100 12,131 Balance at 31 October 2007 25,231 12,131 Net book value 298,874 287,051 8 Property and equipment Leasehold Fixtures, fittings and improvements equipment Total £ £ £ Cost At 9 January 2006 - - - Additions 62,208 121,999 184,207 At 31 October 2006 62,208 121,999 184,207 At 1 November 2006 62,208 121,999 184,207 Additions 64,384 388,208 452,592 At 31 October 2007 126,592 510,207 636,799 Depreciation At 9 January 2006 - - - Charge for the period 9,090 22,933 32,023 At 31 October 2006 9,090 22,933 32,023 At 1 November 2006 9,090 22,933 32,023 Charge for the year 41,085 91,090 132,175 At 31 October 2007 50,175 114,023 164,198 Net book value At 31 October 2007 76,417 396,184 472,601 At 31 October 2006 53,118 99,066 152,184 There are no assets held under finance leases. No assets have been revalued. 9 Trade and other receivables 2007 2006 £ £ Trade receivables 20,289 - Other receivables 267,185 114,735 Prepayments 174,093 - 461,567 114,735 10 Cash and cash equivalents 2007 2006 £ £ Cash at bank 86,226 396,244 Bank deposits 2,042,124 - 2,128,350 396,244 Cash at bank and bank deposits consist of cash. There is no material foreignexchange movement in respect of cash and cash equivalents. 11a Authorised share capital Number Number £ £ 2007 2006 2007 2006 Ordinary Shares of 0.1p 700,000,000 70,000,000 700,000 700,000 On 23 March 2007, the authorised share capital of the Company was changed from70,000,000 ordinary shares of 1p each to 700,000,000 ordinary shares of 0.1peach. 11b Issued share capital Number £ At 9 January 2006 - - Issue of shares 7,000,000 70,000 At 31 October 2006 7,000,000 70,000 At 1 November 2006 7,000,000 70,000 Issue of shares on 13 February 2007 1 449,982 4,500 Issued shares at 23 March 2007 7,449,982 74,500 Converted to ordinary shares of 0.1p on 23 March 2007 74,499,820 74,500 Issue of shares on 24 April 2007 2 13,183,034 13,183 At 31 October 2007 87,682,854 87,683 1 449,982 ordinary shares with a par value of 1.0p per share were issued at£2.23p per ordinary share by way of a sale to private investors. Proceeds fromthe issue amounted to £1,003,460. 2 13,183,034 ordinary shares with a par value of 0.1p per share were issued at23p per ordinary share in connection with the Company's admission to theAlternative Investment Market ("AIM"). Proceeds from the issue amounted to£3,029,954, together with associated costs of issue amounting to £525,477. 12a Share options Number of Exercise options price (p) At 9 January 2006 - - Options granted in period 490,000 100 Options lapsed in period (70,000) 100 At 31 October 2006 420,000 100 At 1 November 2006 420,000 100 Amendment to share options following share sub-division on 23 4,200,000 10 March 2007 Options granted in the year 3,179,660 22-23 At 31 October 2007 7,379,660 12b Warrants Number of Exercise warrants price (p) At 1 November 2006 - - Warrants granted in the year 4,039,980 10-22 At 31 October 2007 4,039,980 12c Equity-settled share-based payments charge Share options Option price Average grant Average Average Average Average Average Amount (p) date share expected risk-free dividend implied fair value expensed price volatility interest yield option life per option in the 2007 (p) (pa) rate (pa) (years) (p) accounts (pa) £ 10 9 46% 4.4% 0.0% 3.5 2.5 39,402 22 20 46% 4.4% 0.0% 3.5 6 39,225 23 21 46% 4.4% 0.0% 3.5 6 2,008 Adjustment for changes in assumptions in respect of vesting conditions - Total charge for the year (2006: £11,546) 80,635 Warrants Warrant price Average grant Average Average Average Average Average Amount (p) date share expected risk-free dividend implied fair value expensed price volatility interest yield warrant life per in the 2007 (p) (pa) rate (pa)) (years) accounts (pa) warrant (p) £ 10 20 46% 4.4% 0.0% 3.5 10 100,563 22 20 46% 4.4% 0.0% 3.5 6 97,306 Adjustment for changes in assumptions in respect of vesting conditions - Total charge for the year (2006: £nil) 197,869 Total equity-settled share-based payment charge (2006: £11,546) 278,504 The weighted average fair value of the options over 490,000 ordinary sharesgranted in the period to 31 October 2006, as estimated at the date of the grant,was £122,500. The fair value of options granted to employees during the periodto 31 October 2006 was measured on the basis of the exercise price of theCompany's shares at the date of the grant. 13 Trade and other payables 2007 2006 £ £ Trade payables 207,615 40,976 Deferred income 111,219 - Other payables 27,613 12,333 Accruals 66,094 22,917 412,541 76,226 Publication of non-statutory accounts The financial information contained in this preliminary statement does notconstitute accounts as defined by section 240 of the Companies Act 1985. Thefinancial information for the preceding period is based on the statutoryaccounts for the period from incorporation on 9 January 2006 to 31 October 2006.Those accounts, upon which the auditors issued an unqualified opinion, have beendelivered to the Registrar of Companies. Copies of the interim statement may be obtained from the Company Secretary, AFCEnergy plc, Unit 71.4 Dunsfold Park, Stovolds Hill, Cranleigh, Surrey GU6 8TBand can be accessed from the company's website at www.afcenergy.com. -ends- This information is provided by RNS The company news service from the London Stock Exchange