Last checked at 17 Mar 2009 07:00
17/03/09
AFC Energy PLC
('AFC Energy' or the 'Company')
Preliminary Results for the year ended 31 October 2008
AFC Energy PLC (AIM: AFC), the low-cost fuel cell company, today announces its preliminary results for the year ended 31 October 2008.
Highlights of the year
Successful conversion of hydrogen into electricity using the AFC fuel cell system at first attempt. Significant technical progress was made during the year.
Share placing completed in May 2008 raising £4.4m before expenses.
Achievements to date
New management team in place, with the appointment of Ian Balchin as Managing Director and Terry Walsh as Commercial Director.
Technical Review completed which identified several areas to further improve system performance. Since year end, considerable progress has been made in each of the areas identified.
Outlook
Continuing to work closely with Akzo Nobel to complete the technical development of our fuel cell system.
Second commercial customer identified - Waste2Tricity, an early-stage renewable energy company - where the AFC fuel cell technology will be used to exploit any surplus hydrogen created by the waste-to-energy process.
Cash balance at 16 March 2009 of £2.9 million.
Ian Balchin, Managing Director commented:
"We continue to focus on optimising profitability and market share. Our objective is to develop an alkaline fuel cell system at a significantly lower cost than any other fuel cell systems, while also achieving high efficiency levels with a target conversion rate of 60%. Our work with both Akzo Nobel and Waste2Tricity clearly illustrates the potential application of the AFC Energy fuel cell system across a variety of industries."
Tim Yeo, Chairman added:
"The Company remains focused on its goal of developing fuel calls for industrial companies to generate electricity from the hydrogen that they produce as a by-product. With a new management team in place, the Company is clearly focused on generating income from the commercialisation of AFC Energy's uniquely placed technology."
For further information please visit www.afcenergy.com or contact:
| AFC Energy plc Tim Yeo, Chairman Ian Balchin, Managing Director Simon Walters, Finance Director | 01483 276726 |
| Blue Oar Securities Shane Gallwey / Toby Gibbs / Matt Marchant | 020 7448 4400 |
|
Pelham Public Relations Chelsea Hayes/ Tara Owen-Smith | 020 7337 1523 |
Chairman's Statement
The Company remains focused on its goal of developing fuel cells for industrial companies to generate electricity from the hydrogen that they produce as a by-product.
Introduction
It is a pleasure to report the Company's second full-year results since our shares were admitted to AIM in April 2007. During the year to 31 October 2008 the Company has continued to work closely with Akzo Nobel ('Akzo'), our first commercial customer, to complete the technical development of our fuel cell system. A successful share placing was completed in May 2008 which raised £4.4m before expenses. In addition there have been a number of Board and management changes.
Strategy
The Company remains focused on its goal of developing fuel cells for industrial companies to generate electricity from the hydrogen that they produce as a by-product. We believe that the need for this type of low-carbon electricity generation is even greater and more urgent than when the Company was formed and that the commercial rewards for success in this field will be considerable.
In pursuit of this objective, significant technical progress was made during the year and the fuel cell was successfully operated. The decision was made in August not to proceed immediately with the planned delivery of the fuel cell system to Akzo. Our approach continues to enjoy the support of Akzo and more details are contained in the Operating and Financial Review.
In addition to meeting our contractual commitments to Akzo, the Company is actively seeking additional customers from within the chlorine and chlorate industries and has strengthened the management resources available for this purpose. Since the end of the financial year the Company has also announced an association with Waste2Tricity, a newly-formed company which is developing methods of generating electricity from waste. The Company has agreed in principle to sell a licence to Waste2Tricity which will allow the latter to use AFC Energy fuel cell technology to exploit any surplus hydrogen created by the waste-to- energy process.
Finance
The Company's cash requirement has continued in line with expectations. Strenuous efforts are made to keep this to the minimum level consistent with maintaining technical development at a pace which will achieve our goal of delivering a working fuel cell system to Akzo during 2009.
The Company was pleased to welcome a number of new institutional and private investors at the time of the share placing. Though the performance of the share price since then has obviously been disappointing, part of the fall has been a reflection of wider market movements and the current perception of the fuel cell sector with many investors. We remain grateful for the continued support of our shareholders.
Management and Board
I am pleased to welcome Ian Balchin, who joined the Company (but not the Board) as Managing Director in October 2008, and Terry Walsh, who joined the Company in September 2008 and was subsequently appointed Commercial Director. Both Ian and Terry bring extensive relevant industry experience to AFC Energy and their appointments have significantly strengthened the Company's management.
The Company's Board was also strengthened by the appointment of Mitchell Field in April 2008 as a Non- Executive Director. I am grateful to Mitchell and the other Directors for their considerable contributions.
Since I last reported, Gerard Sauer and Otto Carlisle left AFC Energy to pursue other interests and Brian Wilson stepped down as a Non-Executive Director. I am grateful to all three for their work on behalf of AFC Energy in the early stages of its development.
In addition, Dr Gene Lewis, who has considerable experience of the fuel cell industry, joined the Company in November 2008 and is a valuable addition to our senior technical team.
I am grateful to all the Company's employees for their continued efforts on behalf of shareholders and customers alike.
Tim Yeo
Chairman
16 March 2009
Operating and Financial Review
Our principal objective is to optimise profitability and market share by developing an alkaline fuel cell system at a significantly lower cost than any other fuel cell system.
Introduction
AFC Energy is engaged in the design and development of alkaline fuel cells, a proven technology developed to generate clean electricity from hydrogen.
Our principal objective is to optimise profitability and market share by developing an alkaline fuel cell system at a significantly lower cost than any other fuel cell system. To do this we have been developing improved processes, simplifying the design and reducing the number of components required for their manufacture.
Applications for fuel cells that generate electricity in situ offer the prospect of consistent 24-hour running without the need for inefficient, expensive and technically difficult hydrogen storage or transportation.
Technical progress
During the year, we tested our fuel cell system under operating conditions in the laboratory and it successfully converted hydrogen into electricity on its first attempt. Developing this system from concept to operation in a little under two years has been a major achievement.
In October 2008, shortly before I joined, the Company decided, in consultation with Akzo Nobel ('Akzo'), not to proceed, at that stage, with the delivery of its first fuel cell.
It was agreed between Akzo and AFC Energy that the electrical output and durability could be improved further to reach design targets.
In November the Company commenced a detailed nine-week technical review which identified several areas to further improve system performance.
These included:
- optimising electrode materials and fluid flow;
- further automation of the manufacturing processes used to fabricate the cells; and
- revised specifications for some of the components in the system.
I am pleased to report that since the year end, considerable progress has been made in each of these areas.
The technical development programme is now being managed by Dr Gene Lewis who joined the Company in November as Chief Technology Officer. Gene was previously with Ceres Power, where he was instrumental in the development of their solid oxide fuel cell technology.
Gene's leadership skills, as well as his background in fuel cell material science and engineering, will significantly strengthen the technical team. He and Terry Walsh - the latter recently appointed to the Board as Commercial Director - are actively developing a closer working relationship with Akzo.
Akzo continues to support the plan for us to deliver and install a fuel cell system to its Bitterfeld plant and to demonstrate the operation of the fuel cell with Akzo's industrially produced hydrogen. We have made significant progress since the year end towards delivery of this system.
Following installation at Bitterfeld, work will continue both at our headquarters and at Bitterfeld to ensure progressive improvements to system performance so as to achieve full target design. Akzo is active in R&D in a wide variety of areas and recognises the challenges inherent in AFC Energy's approach and is hugely supportive in seeing this project through to fruition.
In December an independent assessment of the fuel cell system was commissioned from the government-backed Centre for Process Innovation (CPI). The report noted our current stage of development and as part of its conclusions stated that "...[AFC Energy] has not only developed a fuel cell stack, it has developed a unique, low-cost balance of plant that allows those stacks to be assembled into robust, practical systems. The parallel development of the stack and system technology has ensured that the Company is in a good position to deliver systems that meet the needs of its customers and that make maximum utilisation of its stack technology. It is clear that the Company is putting the required investment into its technology in terms of people and equipment."
Financial highlights
The Company was admitted to AIM in April 2007 raising £3 million before expenses, and in May 2008 raised a further £4.4 million before expenses. We incurred direct and administrative costs of approximately £2.8 million in the year to 31 October 2008. Net assets at 31 October 2008 were £4.7 million and cash balances were £3.6 million. Since the year end, all aspects of the Company's operations have been reviewed and significant progress has been made to improve operational efficiency and reduce costs without adversely impacting the technical development programme.
Intellectual property
The Company continues to seek patent protection for its technology. Currently the Company is reviewing several novel catalyst developments that look like they can be patented.
Health and safety
Health and safety of our employees and those we work with is taken very seriously by the Company and regularly reviewed by the Board.
Commercial outlook
Our approach is leading towards development of a robust fuel cell system that is low-cost through its value-engineered design and is easy to maintain through its cartridge system of electrodes.
We are heading towards delivery of the first system for testing on site at Akzo. Following this we are planning to deliver a series of upgrades until commercial targets for electrical output and durability are achieved.
Our second commercial customer will be Waste2Tricity Limited ('W2T'), a company focused on the efficient conversion of municipal solid waste into electricity.
Within the next six months, W2T hopes to fund and commence the construction of a plant with a capacity of 50,000 tonnes or more and to begin generating electricity in three years' time. The first stage will use internal combustion engines to generate electricity whilst the second stage should generate sufficient hydrogen to use up to 12MW of AFC's fuel cells, depending upon successful demonstration.
Key terms of the agreement are:
- AFC Energy will receive a £1 million licence fee in return for granting W2T exclusivity for its fuel cells in the UK waste-to-energy market. This payment will be conditional on W2T successfully raising initial capital for its pilot plant;
- once AFC Energy's fuel cells are integrated in W2T's gasification system, AFC Energy will also receive follow-on royalty payments;
- AFC Energy will make a short-term, interest-bearing loan to W2T of up to £150,000 which is fully repayable by December 2010; and
- AFC Energy has the option to acquire 25% of the equity of W2T.
We are in discussions with a number of other potential customers and are targeting others to broaden the commercial base.
As AFC Energy develops its technology it remains capable of:
- manufacture using low-cost techniques;
- low-cost operation; and
- efficient electricity generation.
We look forward to reporting our continued progress.
I am grateful to all those working hard within the business and in support of it to meet the Company's objectives.
Ian Balchin
Managing Director
16 March 2009
Income Statement
| | Note | Year ended 31 October 2008 £ | Year ended 31 October 2007 £ |
| Revenue Direct Expenses | | - (303,035) | - (116,228) |
| Gross Loss Administrative expenses Analysed as: Administrative expenses Equity-settled share-based payments | 11c | (303,035) (2,807,480) (2,560,142) (247,338) | (116,228) (1,840,802) (1,562,298) (278,504) |
| Operating loss | 2 | (3,110,515) | (1,957,030) |
| Financial income | 4 | 150,320 | 90,158 |
| Loss before tax | | (2,960,195) | (1,866,872) |
| Taxation | | 308,427 | 155,294 |
| Loss for the year attributable to equity holders | | (2,651,768) | (1,711,578) |
| Basic loss per share Diluted loss per share | 5 5 | (2.51)p (2.51)p | (2.14)p (2.14)p |
All amounts relate to continuing operations.
Balance Sheet
| | Note | 31 October 2008 £ | 31 October 2007 £ |
| Assets Non-current assets Intangible assets Property and equipment | 6 7 | 307,852 504,458 812,310 | 298,874 472,601 771,475 |
| Current assets Work in progress Trade and other receivables Cash and cash equivalents | 8 9 | 123,740 592,055 3,610,204 | - 461,567 2,128,350 |
| | | 4,325,999 | 2,589,917 |
| Total assets | | 5,138,309 | 3,361,392 |
| Equity and Liabilities Equity attributable to ordinary shareholders Share capital Share premium Other reserve Retained loss | 10 | 127,683 8,940,379 537,388 (4,905,839) | 87,683 4,825,189 290,050 (2,254,071) |
| Total equity | | 4,699,611 | 2,948,851 |
| Current liabilities Trade and other payables | 12 | 438,698 | 412,541 |
| | | 438,698 | 412,541 |
| Total equity and liabilities | | 5,138,309 | 3,361,392 |
Cash Flow Statement
| | Note | 31 October 2008 £ | 31 October 2007 £ |
| Cash flows from operating activities Loss before tax for the year Adjustments for: Depreciation and amortisation Equity-settled share-based payment expenses Finance income Cash flows from operating activities before changes in working capital and provisions Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Cash absorbed by operating activities | 11c | (2,651,768) 293,473 247,338 (150,320) (2,261,277) (254,229) 26,157 (2,489,349) | (1,866,872) 145,275 278,504 (90,158) (1,533,251) (191,538) 336,315 (1,388,474) |
| Cash flows from investing activities Investment in plant and equipment Acquisition of patents Net cash absorbed by investing activities | 7 6 | (308,829) (25,478) (334,307) | (452,592) (24,923) (477,515) |
| Cash flows from financing activities Proceeds from the issue of share capital Costs of issue of share capital Interest received | | 4,400,000 (244,810) 150,320 | 4,033,414 (525,477) 90,158 |
| Net cash from financing activities | | 4,305,510 | 3,598,095 |
| Net increase in cash and cash equivalents Cash and cash equivalents at start of year | | 1,481,854 2,128,350 | 1,732,106 396,244 |
| Cash and cash equivalents at 31 October | 9 | 3,610,204 | 2,128,350 |
1. Basis of preparation and accounting policies
These financial statements have been prepared in accordance with International Financing Reporting Standards (IFRSs) and related interpretations, as adopted for use within the European Union and also in accordance with the Companies Act 1985.
2. Operating loss (2007: loss)
| This has been stated after charging: | | Year ended 31 October 2008 £ | Year ended 31 October 2007 £ |
| Depreciation of property and equipment Research and Development expenditure Amortisation of intangible assets Equity-settled share-based payment expense Auditors’ remuneration – audit Auditors’ remuneration – other services | | 276,972 1,288,107 16,500 247,338 18,000 3,965 | 132,175 647,057 13,100 278,504 20,000 52,286 |
3. Staff numbers and costs, including Directors
| The average number of employees in the year were: | | Year ended 31 October 2008 Number | Year ended 31 October 2007 Number |
| Support, operations and technical Administration | | 22 4 | 11 5 |
| | | 26 | 16 |
| The aggregate payroll costs for these persons were: | | £ | £ |
| Wages and salaries (including Directors’ emoluments) Social security Share-based payment expense | | 1,137,699 103,703 247,338 | 555,609 58,710 278,504 |
| | | 1,488,740 | 892,823 |
4. Financial Income
| | | Year ended 31 October 2008 £ | Year ended 31 October 2007 £ |
| Bank interest receivable | | 150,320 | 90,158 |
5. Loss per share
The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary shareholders of £2,651,768 (2007: loss of £1,711,578) and a weighted average number of shares in issue for the year of 105,545,868 (2007: 80,067,752).
| | | Year ended 31 October 2008 | Year ended 31 October 2007 |
| Basic loss per share (pence) Loss attributable to equity shareholders | | (2.51)p (2,651,768) Number | (2.14)p (1,711,578) Number |
| Weighted average number of shares in issue | | 105,545,868 | 80,067,752 |
Diluted earnings per share
The diluted loss per share is the same as the basic loss per share, as the loss for the year has an anti-dilutive effect
6. Intangible assets
| | | 2008 Patents £ | 2007 Patents £ |
| Cost Balance at 1 November 2007 Additions Balance at 31 October 2008 | | 324,105 25,478 349,583 | 299,182 24,923 324,105 |
| Amortisation Balance at 1 November 2007 Charge for the year | | 25,231 16,500 | 12,131 13,100 |
| Balance at 31 October 2008 | | 41,731 | 25,231 |
| Net book value | | 307,852 | 298,874 |
7. Property and equipment
| | Leasehold improvements £ | Fixtures, fittings and equipment £ | Total £ |
| Cost At 1 November 2006 Additions At 1 November 2007 Additions Disposals At 31 October 2008 | 62,208 64,384 126,592 20,400 - 146,992 | 121,999 388,208 510,207 288,429 (61,000) 737,636 | 184,207 452,592 636,799 308,829 (61,000) 884,628 |
| Depreciation At 1 November 2006 Charge for the year | 9,090 41,085 | 22,933 91,090 | 32,023 132,175 |
| At 1 November 2007 Charge for the year Disposals | 50,175 43,970 - | 114,023 233,002 (61,000) | 164,198 276,972 (61,000) |
| At 31 October 2008 | 94,145 | 286,025 | 380,170 |
| Net book value At 31 October 2008 At 31 October 2007 | 52,847 76,417 | 451,611 396,184 | 504,458 472,601 |
There are no assets held under finance leases. No assets have been revalued.
8. Trade and other receivables
| | | 2008 £ | 2007 £ |
| Trade receivables Other receivables Prepayments | | - 524,917 67,138 592,055 | 20,289 267,185 174,093 461,567 |
9. Cash and cash equivalents
| | | 2008 £ | 2007 £ |
| Cash at bank Bank deposits | | - 3,610,204 3,610,204 | 86,226 2,042,124 2,128,350 |
| Cash at bank and bank deposits consist of cash. There is no material foreign exchange movement in respect of cash and cash equivalents. | |||
10a. Authorised share capital
| | 2008 Number | 2007 Number | 2008 £ | 2007 £ |
| Ordinary Shares of 0.1p | 700,000,000 | 700,000,000 | 700,000 | 700,000 |
10b. Issued share capital
| | | Number | £ |
| At 1 November 2006 Issue of shares on 13 February 20071 At 23 March 2007 | | 7,000,000 449,982 7,449,982 | 70,000 4,500 74,500 |
| Converted to ordinary shares at 0.1p on 23 March 2007 Issue of shares on 24 April 20072 | | 74,499,820 13,183,034 | 74,500 13,183 |
| At 31 October 2007 | | 87,682,854 | 7,683 |
| At 1 November 2007 Issue of shares on 21 May 20083 | | 87,682,854 40,000,000 | 87,683 40,000 |
| At 31 October 2008 | | 127,682,854 | 127,683 |
11a.
Share options
| | | Number of options | Exercise price (p) |
| At 1 November 2007 Options granted in the year At 31 October 2008 | | 7,379,660 144,000 7,523,660 | 10-23 23 |
11b. Warrants
| | | Number of warrants | Exercise price (p) |
| At 1 November 2007 and 31 October 2008 | | 4,039,980 | 10-22 |
11c. Equity-settled share-based payments charge
Share options
| Option price (p) | Average grant date share price (p) | Average expected volatility (pa) | Average risk-free interest rate (pa) | Average dividend yield (pa) | Average implied option life (years) | Average fair value per option (p) | Amount expensed in the 2008 accounts £ |
| 10 | 9 | 46% | 4.4% | 0.0% | 3.5 | 25 | 35,213 |
| 22 | 20 | 46% | 4.4% | 0.0% | 3.5 | 6 | 111,418 |
| 23 | 21 | 46% | 4.4% | 0.0% | 3.5 | 6 | 7,715 |
| 23 | 14 | 46% | 4.4% | 0.0% | 3.5 | 2 | 1,973 |
| Adjustment for changes in assumptions in respect of vesting conditions | - | ||||||
| Total charge for the year (2007: £80,635) | 156,319 | ||||||
Warrants
| Warrant price (p) | Average grant date share price (p) | Average expected volatility (pa) | Average risk-free interest rate (pa) | Average dividend yield (pa) | Average implied warrant life (years) | Average fair value per warrant (p) | Amount expensed in the 2008 accounts £ |
| 10 | 20 | 46% | 4.4% | 0.0% | 3.5 | 10 | 46,259 |
| 22 | 20 | 46% | 4.4% | 0.0% | 3.5 | 6 | 44,760 |
| Adjustment for changes in assumptions in respect of vesting conditions | - | ||||||
| Total charge for the year (2007: £197,869) | 91,019 | ||||||
| Total equity-settled share-based payment charge (2007: £278,504) | 247,338 | ||||||
Expected volatility has been based on the historical volatility of share price returns over one year to the date of grant of the options and warrants. Vesting requirements are one year and three years for the exercise of warrants and options respectively. The weighted average contracted life is 3.5 years both for share options and warrants.
12. Trade and other payables
| | | 2008 £ | 2007 £ |
| Trade payables Deferred income Other payables Accruals | | 151,511 123,740 38,461 124,986 438,698 | 207,615 111,219 27,613 66,094 412,541 |
Publication of non-statutory accounts
The financial information contained in this preliminary statement does not constitute accounts as defined by section 240 of the Companies Act 1985. The financial information for the preceding period is based on the statutory accounts for the year from 1 November 2006 to 31 October 2007.
Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies.
Copies of the interim statement may be obtained from the Company Secretary, AFC Energy plc, Unit 71.4 Dunsfold Park, Stovolds Hill, Cranleigh, Surrey GU6 8TB and can be accessed from the company's website at www.afcenergy.com.
The Report and Accounts will be posted to shareholders on 24 March 2009 and is now available on the Company's website www.afcenergy.com.