AFC Energy Regulatory News (AFC)

13 February 2013

AFC Energy PLC

("AFC", "AFC Energy", or the "Company")

Final Results and Notice of AGM

AFC Energy (AIM: AFC), the industrial fuel cell power company, is pleased to announce its results for the year ended 31 October 2012.

 FY12 Highlights

·; Generated first electrical power with Beta system using industrially produced hydrogen

·; Partnered with Industrial Chemicals Ltd ("ICL") for installation of up to 1MW (megawatt) of AFC Energy fuel cell systems

·; Awarded up to €6 million from the European Union ("EU") to support the ICL project

·; Awarded up to €2 million from the EU to support a research project for the development of ammonia-fed alkaline fuel cell systems

·; Extended the life of fuel cells beyond three months in the laboratory

·; Completed development of the Beta+ cartridge technology and established three operational demonstration systems based on the Beta+ technology

·; Created a dedicated production facility and a team that has already produced cartridges which are currently under long-term test

·; Further increased activity on protection of intellectual property and registration of patents

·; Received two further positive independent technical reviews from the Centre for Process Innovation ("CPI")

·; Secured an £8.7 million investment from Ervington Investments Ltd ("Ervington"), a company beneficially owned by Roman Abramovich

·; Cash as at 31 October 2012 £10.94 million (31 October 2011: £5.97million)

Post Period Highlights

·; Extended the life of fuel cells beyond six months in the laboratory

·; Established a research relationship with Lancaster University

·; Acquired asset and intellectual property of Diverse Energy plc ("Diverse Energy"), to complement AFC Energy's EU funded ammonia-fed fuel system project

Tim Yeo, Chairman of AFC Energy, commented: "AFC Energy continues to make excellent technical progress. The results from both our laboratory and field trials give the Board confidence in the Company's future prospects. The addition of the Industrial Chemicals project, supported by the EU, provides us with a great opportunity to exhibit our first commercial scale installation. Electrode production is beginning to increase from our new facility and our new staff have integrated well into the AFC Energy team. Add to this, the securing of the medium term financial future with the investment from Ervington and it has been a great year for AFC Energy. The Board looks forward to further technical progress and commercial success in the coming months and years."

Notice of AGM

AFC Energy also today gives notice that its Annual General Meeting will be held at the Clarke Suite, Chelsea Football Club, Stamford Bridge, Fulham Road, London SW6 1HS at 2pm on Friday 12 April 2013.

The Annual Report and Accounts and Notice of AGM will be sent to shareholders in early March and will be available for download from the Company's website, www.afcenergy.com, in accordance with AIM Rule 20.

For further information, please contact:

About AFC Energy

Founded in 2006, AFC Energy plc is re-engineering proven alkaline fuel cell technology to reduce the cost of electricity. Alkaline fuel cells have been used on US and Russian manned space missions for decades to provide electrical power and drinking water. By using modern materials, design tools and manufacturing processes at scale, AFC Energy is developing fuel cells that will compete with conventional technologies such as turbines for electrical power generation. Today, AFC Energy is pursuing opportunities in several sectors where hydrogen is readily available including the chlorine, clean coal and waste-to-energy industries as well as applications for distributed/back-up power. For further information, please visit our website: www.afcenergy.com.

Chairman's Statement

Market Background

The deployment of fuel cell systems has continued to grow strongly over the past twelve months, with strong progress in particular in the US and South Korea. Stationary industrial power shipments rose from 8,300 units in 2010(equivalent to 35MW) to 16,100 units in 2011 (equivalent to 85MW)*. Further growth is confidently expected through 2012 and beyond, bolstered by increasing interest from other countries like Germany and Japan who are keen to accelerate the use of renewable energy.

There have been some high-profile adopters of the technology; both Apple and Ebay for example, have installed fuel cell systems at data centres in the US. Coca-Cola is also using fuel cells to provide combined heat and power. The year also saw the development in South Korea of the world's largest fuel cell plant to date - an 11.2MW facility in Daegu.

Subsidies and beneficial feed-in tariffs remain an important part of the equation currently - notably in South Korea - with governments recognising the need to accelerate and incentivise the development and installation of alternative energy systems. This provides an opportunity in the short-term of course, but the longer-term challenge is to develop systems which are economic in their own right, which will be vital when markets develop and grow.

AFC Energy has had this longer-term perspective in mind throughout the development process to date. The Board believes that the choice of materials used, their recyclability and the overall design of the system will ensure that once volume production commences, the cost of electricity will be truly competitive against incumbent technologies. This will make AFC Energy very different from other fuel cell companies.

Company Overview

It has been a year of marked technological progress, aided by ongoing results from our trials at AkzoNobel's chlorine plant in Bitterfeld and we remain extremely grateful to them for their continued support in many areas.

We commenced generating electrical power in late 2011 and the performance of the fuel cell units has improved as successive iterations of the Beta+ system have been trialled in Germany during 2012. Importantly, the units can be fully monitored and stopped/started remotely, meaning that our development team are able to minimise their time away from our laboratory in Dunsfold.

We announced in May that we had extended the fuel cell electrode life to over three months in the laboratory and this was extended to six months in early 2013 as incremental modifications are made to the system. We are achieving greater power density with greater longevity and are close to the optimum combination for full commerciality.

We were again pleased to receive two further independent reviews of our progress from the CPI, which are covered in more detail in the Operating Review. However, an even more significant endorsement of our technology was the commercial agreement with ICL to install a fuel cell facility at their newly commissioned chlorine facility in Essex, which we announced in June.

This will be the world's largest alkaline fuel cell energy generation system and the two companies were notified in November 2012 that an EU grant of up to €6 million had been earmarked, providing four years' financial support for the project, which is expected to commence in April 2013.

Another important milestone was the opening of our pilot production plant at Dunsfold. This was important for two reasons. Firstly, it is a vital step towards developing fully automated, in-line production. Secondly, with assembly moving over to a dedicated production team, it frees up the technical team to focus even more on system development.

Once again, the AFC Energy technical team, led by Gene Lewis, are to be congratulated for the rapid progress made over the last year.

The Company has remained steadfast in managing its cash resources prudently through the year and decided in October 2012 to agree an investment of £8.7 million by Ervington Investments, resulting in them holding 15 per cent of the enlarged issued share capital of the Company. Ervington's ultimate beneficial owner is Roman Abramovich.

AFC Energy's cash resources at the end of October were £10.94 million (2011: £5.97 million), putting the Company in an extremely strong position to execute its growth strategy from this point.

Our Partners

In terms of commercial impact, the Company is focused, in the near-term, on driving delivery into its initial target market of the chlor-alkali industry and will be working ever more closely with both AkzoNobel and ICL to achieve this in 2013.

Medium-term opportunities in other areas remain substantial.

Since 2009 Waste2Tricity Ltd ("W2T") has had a licence option from AFC Energy to deploy fuel cells on municipal waste to energy projects in the UK. We announced in April 2012 a commercialisation agreement with W2T which will result in AFC Energy receiving a non-refundable fee of £1 million over 4 years of which £150,000 was received in the year just ended.

W2T is working on projects which, if successfully brought to fruition, could offer AFC an exciting opportunity in the medium term once volume production has commenced.

Elsewhere, the Company continues to work closely with Linc Energy with a view towards deployment of fuel cells in underground coal gasification, as well as with a number of other parties for other applications.

While the Company is focused predominantly on large-scale industrial applications, we have always believed there are opportunities for deployment on a smaller scale - for example at up to the 50kw level - for use in primary, back-up or temporary power systems. In November 2012 we were therefore pleased to announce the acquisition of certain assets and intellectual property from Diverse Energy Ltd and at the same time a further EU grant of up to €1.96 million for the development of ammonia fed alkaline fuel cells. Ammonia is easily converted into hydrogen, via catalytic "cracking", and Diverse Energy have been able to gain traction in delivering small-scale systems into the mobile phone mast power market within Africa.

Management and Board

There were four changes at Board level during the year.

Sir John Sunderland joined the Board on 8th March 2012 as a non-executive director, effectively replacing Simon Hunt who decided to stand down as from the AGM due to conflicts of business interests. Sir John's extensive business experience is already proving to be a valuable asset to the Company.

Adam Bond joined the Board on June 1st as Linc Energy's representative, replacing David Smith. At Linc Energy, Adam is responsible for the execution and deployment of the company's clean energy, Underground Coal Gasification ("UCG") to Gas to Liquids ("GTL") projects around the globe and he is very familiar with AFC Energy.

Summary and Prospects

2011 was by far the most successful year in the history of fuel cells and further strong growth in the industry worldwide is expected in 2012 and beyond. Right now, there is very strong growth occurring in the South Korean market and AFC Energy is actively pursuing its interests there. The global marketplace is already big and this is before any significant interest from China, for example. Notwithstanding the current "dash for (shale) gas", driven by perceived lower cost and improved availability, governments and industries across the world must increasingly look to reduce their carbon footprint further and faster.

I would like to thank all Board members and the ever-growing team of hard-working and enthusiastic people at AFC Energy for their efforts as well as our partners and suppliers for their support.

Also, a word of thanks to our shareholders for both their support and patience. The path we are treading may sometimes seem very long, but we will not cut corners to try to arrive at our destination more quickly only to find we have taken the wrong path! We are developing a product and a company that we believe will be substantial and every step must therefore be measured and in the right direction.

There is no question that alkaline (and indeed other) fuel cell technologies work. However, history shows us that smart design, reliability and lower cost are the necessary attributes of a market-leading product and AFC Energy has made very substantial progress in 2012 towards achieving this. From a technological, managerial and financial standpoint, the Company has never been in such a strong position and its commercial position is strengthening all the time. The coming year promises to be a very exciting one for AFC Energy.

Tim Yeo

Chairman

13 February 2013

Operating Review

2012 has been a year of great progress for AFC Energy. Since joining as CEO at the end of 2011, my belief in the potential of the Company has only been strengthened. It is clear that AFC Energy is built on unique technology with a considerable global opportunity.

We have embarked on an ambitious strategy to become a leading hydrogen fuel cell energy supply company for industrial and utility-scale applications.We believe our technology will continue to develop into one of the lowest cost, most efficient fuel conversion mechanisms available.

2012 saw the Company take great strides towards that goal both in development and commercial terms. We have seen markedly increased activity from many interested future customers that understand the potential of AFC Energy's technology and are seeking to apply it to their own needs.

There are three key areas where it is clear AFC Energy is in a far stronger position than it was 12 months ago. We:

- have seen rapid technical progress;

- have moved closer to realising our commercialisation ambitions; and

- are on a significantly stronger financial footing, enabling us to execute our growth and investment strategies.

Technical Progress

Once again, the Company has made significant progress in the technical development of an efficient and robust fuel cell system.

We have made several technical advances in electrode life and power performance, as a result of extensive laboratory and in-field testing at AkzoNobel's Bitterfeld plant, as well as making strategic progress in other areas.

Since the year-end:-

- We have extended the electrode life in the laboratory to over 6 months and we are focused on further developing electrode life towards 12 months and beyond where we believe we will have a product that is economic globally in all target markets

- Power output from our electrodes has now escalated by over 60% when compared to that being achieved at the start the previous fiscal year. This is in-line with the technical plan created for the Company

- We have announced a technical partnership with Lancaster University to add high quality resource and capacity in the required areas

This has been a milestone year for AFC Energy. Early on in the fiscal year we produced our first industrial energy at AkzoNobel. Whilst the actual performance of the system remains commercially confidential, AkzoNobel continue to offer us every support and encouragement. We have run a number of different tests on the systems in Germany. Longevity and power output are important but factors such as cycling and maintenance techniques are also being assessed. We also look beyond the fuel cell itself at possible factors to consider in terms of performance, so assessing environmental conditions has proven interesting in development terms.

We began our initial EU funded project - Project LASER-CELL. AFC Energy is leading a group of companies who are all interested in developing innovative high-volume production technologies which can be used to manufacture alkaline fuel cell components, The project is due to run for three years and will run in parallel with the Company's current development programme. The project is supported by a €1.4 million grant, of which the Company's share is €0.4 million.

We strengthened our development team at Dunsfold with the addition of renowned fuel cell scientist Naveed Akhtar early on in the year and have further strengthened the team by the addition of three highly qualified scientists. We continue to resource globally for these posts, attracting the highest possible calibre of candidates which has allowed us to create a wonderfully multinational team.

As our development team continued to deliver our technical milestones, our plans for expanded production took shape. An initial production facility was funded and commissioned within the fiscal year and within the budget allocated for it, which allows the Company to produce up to 20,000 fuel cell electrodes per year using hand crafted processing. A production team of skilled fuel cell professionals was employed under the leadership of Nick Yeomans, our new production manager. This has allowed the development team to refocus on the next steps for the technology and we have already seen the benefits of this.

Our funding success at the EU level has continued and we have two new projects earmarked for funding - Power Up and Alkammonia.

Power Up will provide significant funding for our scaled up, commercial demonstration project with Industrial Chemicals Ltd. This project builds on our successful AkzoNobel development work. It focuses on delivering a commercially sized module with a larger balance-of-plant capable of supplying many more cartridges than our Beta+ test systems. Our initial four modules will be delivered as the project progresses. The other notable technical development within the Power Up programme is that it includes funding for the delivery of our first scaled-up, automated production line.

Alkammonia allows us to continue to develop our knowledge of different hydrogen supply feedstocks for integration with our fuel cell system. Initial laboratory tests have indicated that our technology will integrate well with an ammonia fed system. This project will expand our knowledge in the area and lead to an initial integrated system design.

The addition of Diverse Energy's IP and technical know-how will further aid our speed of development in this area.

Our programme has once again been assessed externally. The Company has continued to commission independent reviews of its progress from Dr Jon Helliwell, Project Manager, Fuel Cell Applications at the CPI, which independently benchmark the progress of our technology. The CPI carried out reviews in January and August 2012 and the key highlights from the latter review are listed:

The Company:

The following is an extract from the summary of this report:

The pace of development within AFC Energy appears to be accelerating and the company has clearly moved a long way from a proof of concept phase into demonstration and production. The company is delivering on both its technology road map and its commercial business plan.

The company still faces challenges moving forward. In exactly the same way as it is amassing data to demonstrate the robustness of its technology, it needs to build up further financial data that demonstrates the low cost of its technology and the low total cost of ownership. It has made a good start in this area by establishing a robust cost system.

The establishment of a dedicated production capability, with all the disciplines entailed, will greatly facilitate this task. The author strongly believes that the company is applying exactly the same discipline and rigour to the financial and economic aspects of its technology as to its technical aspects, so he fully expects to see this data develop as the company progresses along its road map.

In conclusion, the author still strongly believes that the company will achieve its technical and commercial objectives and this belief has been strengthened by the very positive developments made since his last review.

Over the coming 12 months we will continue to focus on the delivery of the milestones in our technical plan, whilst also adding a production scale-up element to our thinking, in order to prepare for our initial mass production line.

Financial Highlights

In 2012, AFC Energy delivered its highest annual revenue through a combination of licence income, sales to commercial customers and grant income, the first of these representing £0.26 million of the overall total of £0.36 million. All but £0.03 million of this was in the UK.

The operating loss fell by £0.2 million to £3.79 million as a consequence of increased revenue, lower depreciation/impairment and lower share based payments charges offsetting a modest rise in own and EU funded R&D expenditure, mainly resulting from increased technical and production staffing and system and cartridge builds.

We have continued to keep administrative costs under tight control and to look creatively at how to maximise the impact of its assets, including cash resources. Examples of this in the year include:

- Outsourcing of basic accounting and payroll functions, saving an annualised £50,000 p.a.

- Carefully selected strategic investment in capital assets, notably investment of £180,000 in a pilot scale production facility at Dunsfold. The facility enables the increased production of fuel cells with full cartridge assembly to meet our growing commercial activities and in-house expansion programme. It provides a prudent low cost interim step between small-scale and fully automated high volume in-line production, and will also act as a demonstration facility for discussions with manufacturing partners.

- The development of re-cycling programmes for fuel cell components to reduce purchase costs and environmental impact.

The Board has maintained its policy of continually reviewing cash balances and forward requirements and seeking to ensure that an adequate funding horizon is maintained. During the year the outflow from operating and investing activities was £3.32 million, against £3.31 million in the previous year. This included the repayment in full with interest of the £150,000 loan granted to Waste2Tricity in 2009. The projected cash balance as at 31 October 2012 gave the Company a funding horizon until mid-2013. The Board was therefore very pleased to accept an investment of £8.27 million net on 10 October 2012 from Ervington Investments at 26.6 pence per share for a 15 per cent share in the Company. The resultant cash balance of £10.94 million at 31 October ensures that we have adequate financial resources to continue operations for the foreseeable future.

It was pleasing to note that a comprehensive review of the Company's patent portfolio at the year-end confirmed the existing assessment of its value. The current patent portfolio will under-pin the commercial fuel cell systems and will be important in ensuring that we maximise the tax advantages of the forthcoming Patent Box regime.

Looking ahead, we expect a modest further increase in its staffing to support development and deployment of our commercial system. Even after entering into the collaboration with Lancaster, we also expect to invest in further cell testing capacity, to meet the increasing demand for test stands, driven by the rapidly lengthening time each cell is on test. Finally, we envisage investing in the first in-line production capacity.

Intellectual Property

AFC Energy continues to generate intellectual property as a result of its research and development activities. The Company regularly reviews this intellectual property to determine its value and the best way to protect it.

 I reported last year that we had strengthened our technical team with the appointment of further world-class fuel cell expertise. This move has borne fruit, and in January 2013 AFC Energy was delighted to report that it had made significant advances in the field of low cost alkaline fuel cells. The Company is currently pursuing 23 families of patents, including one acquired from Diverse Energy, with 10 filed since the last annual report and others in preparation.

 AFC Energy endeavours to anticipate future technical developments in the field of alkaline fuel cells and to apply for patent protection for inventions which are likely to be incorporated in future generations of its products.

Health and Safety

The health and safety of our employees and those we work with is regularly reviewed by and on behalf of the Board.

Commercial Outlook

At the beginning of 2012 we set out five clear targets aligned with the commercial and technical aims of the Company to help us achieve our goal of developing our technology into one of the lowest cost, most efficient fuel conversion mechanisms available. These five goals were to:

1. Deliver on our set of defined goals for the fuel cell system trials with AkzoNobel;

2. Transfer electrode production from technical staff to manufacturing staff;

3. Expand, in a controlled way, the number of 'partner' customers. Where we have existing relationships we either progress them or move on;

4. Gain experience of more hydrogen production methods and integration requirements; and

5. Position the Company to access other international markets.

It is pleasing to report that all of the above targets were achieved with excellent progress across all aspects of the business.

The Company remains on track to commercialise its low cost alkaline fuel cell systems and since the last annual report has continued to make, what in fuel cell terms is, rapid development. We have now demonstrated in our own facilities that our electrodes can last beyond six months.

These results are of significance since the first industrial applications that we have identified require a minimum of three months' electrode life to be economic. At six months longevity these applications have the potential to generate significant revenues in places such as South Korea where subsidies are available for electricity generation and here AFC Energy is pursuing a strategy to advance potentially lucrative opportunities with industrial partners.

At six months longevity, new commercial opportunities are also opened up in additional territories such as Germany, where the company is already carrying out long term longevity trials with AkzoNobel, one of the world's largest chemicals groups.

Partners

AkzoNobel

In January 2012 the Company announced that it had commenced a comprehensive programme of trials with AkzoNobel, using two commercial-scale fuel-cell systems. These systems have been generating electricity using industrially produced hydrogen. Although, for commercial reasons, we have not been publicising many of the details relating to these trials, we are very pleased with the overall progress that has been made. We are building up data to give us a comprehensive understanding of the practicalities of industrial operation as well as using them to confirm laboratory results and to inform our future development.

Longevity and power output remain just two of a number of factors being investigated. The cycling of fuel cells in an industrial environment i.e. the switching on and off of the systems given the hydrogen flow and the chemical plant's operating conditions offers us insights as to the robustness of our system. We have also undertaken replacement cartridge trials both in terms of local repair of individual components and time taken to effect a complete cartridge change. Other operational considerations such as environmental conditions and maximising hydrogen usage have also seen a number of tests.

AkzoNobel remain fully supportive of the programme and acknowledge the progress being made. As Ton Manders, head of Process Optimisation and Engineering commented to a group of investment analysts last year "AFC has made huge progress in the system and electrode development in the last year... electricity generation is the most efficient use of hydrogen we produce... there is a higher than 50% chance of multiple unit roll-out across all Akzo plants within 5 years."

ICL

I mentioned last year that we planned to increase the number of customers in a controlled way. We have been very selective about which projects to pursue. In addition to these trials with AkzoNobel the Company is now working with ICL in the UK. ICL have built Europe's newest chlor-alkali plant and it has been designed to operate in conjunction with AFC Energy's fuel cell system.

The project is part of ICL's integrated energy generation plan and is the largest fuel cell system announced for installation in the UK to date and is believed to be the largest alkaline fuel cell system announced anywhere in the world.

AFC Energy's low cost alkaline fuel cell system will be installed in stages at the ICL owned and operated chemical facility and is eventually expected to generate approximately 1MW (one megawatt of power, enough energy to power 500 homes). The chlor-alkali plant will manufacture chlorine and caustic soda that have a range of uses including in household cleaning products, detergents and water treatment.

Hydrogen produced as a waste by-product in ICL's chlor-alkali process will be used to generate power using AFC Energy's fuel cell system. Without this fuel cell system, waste hydrogen would typically be discharged into the atmosphere. Instead, ICL will be able to reduce dependence on the national grid for its energy needs by creating economic value from its hydrogen.

AFC Energy was delighted to announce in November 2012 that with the support of ICL and others it had been awarded, subject to contract, €6million by way of an EU grant funding to support the demonstration of this fuel cell system and the development and installation of an associated automated electrode production line. We expect the project to commence formally during Spring 2013. If concluded satisfactorily, AFC Energy will coordinate the project and expects its direct share of the project funding to be up to €3 million with the balance to be received by the other project partners. The project is expected to create a significant number of UK jobs in the long term and the stationary fuel cell industry is forecast to create 500,000 jobs globally over the next decade according to Fuel Cell Today.

Installations such as the 1MW facility planned for ICL are also aimed at showcasing AFC Energy's alkaline fuel cell system and will act as reference sites which prospective customers can visit to see working fuel cell systems, at scale, in an industrial environment. At the end of the grant funded demonstration period it is intended that AFC Energy will continue provide electrical power to ICL under an ESCO (Energy Supply Company) model whereby ICL will provide its hydrogen and purchase power under long-term contracts. AFC Energy will own, operate and maintain the fuel cell systems. This is the first example we have of the ESCO model in operation.

The ESCO model is our preferred future route to market. Instead of selling the fuel cell system we, or a facilities management company on our behalf, owns and operates the system in return for a "toll fee" for the electricity produced. It is our belief that this model, which is widely used elsewhere in industry, will yield the greatest return to the Company and therefore generate the greatest shareholder value. It means that as electrode life and power output increases over time, operating costs will diminish giving the opportunity for margins to increase. The models show that a quick return on investment can be expected from sales of electricity generated and in some applications, the water and heat produced by the fuel cell system may also have a considerable value, opening up an additional source of revenue. We believe this model is attractive to chlorine manufacturers from the feedback we have received and will facilitate a more rapid market penetration.

Waste2Tricity

AFC Energy continues to work with other partners to open other channels to market. The Company took a 25% stake in W2T in June 2009. W2T assisted Air Products plc in pulling together various elements of its 350,000MT/year waste-to-energy plant in Teesside, which received funding during the year. The plant remains a potential demonstration opportunity for AFC Energy's alkaline fuel cell technology alongside conventional generating technologies.

In March 2012 AFC Energy received full repayment of a £152,500 loan and associated interest made to W2T in 2009 and in April 2012 Waste2Tricity exercised its option to purchase an exclusive UK licence for the Company's fuel cell technology for use in the conversion of waste into electricity. AFC Energy will receive, subject only to the achievement of system performance, a non-refundable appointment fee of £1 million payable in stages over four years, the first £150,000 instalment of which has been received.

W2T also has a conditional right of first refusal regarding the supply of AFC Energy's fuel cells to further territories in Europe and North America and Thailand for use in projects where hydrogen is derived from the gasification of municipal solid waste. AFC Energy and W2T will continue to work together to target and develop waste-to-energy opportunities as they arise.

Linc Energy

We continue to work with Linc Energy (ASX: LNC), a 10 per cent shareholder in AFC Energy and our partner for clean power generation in the underground coal gasification market. Whilst opportunities to facilitate further demonstrations for this market segment have been limited during the year, we are currently working together on the next steps in our plans.

Ervington Investments

We were delighted to welcome the investment from Roman Abramovich's Ervington Investments, further strengthening AFC Energy's balance sheet, providing the Company with additional cash resources to execute its long term growth strategy and invest in its low cost fuel cell technology over the next several years. It is a ringing endorsement of AFC Energy's innovative technology and its strategy to become a leading hydrogen fuel cell energy supply company for industrial and utility-scale applications.

Ervington are excited by the potential of our low cost hydrogen fuel cells which are cleaner and more efficient than technologies that use combustion to generate energy like gas-fired power stations. Ervington's support not only enables us to take full advantage of our commercialisation plans expeditiously but will also provide us with high level access to energy users and potential partners globally.

Pilot production plant

Another important aspect of commercialisation is the ability to manufacture electrodes as economically as possible.

Last year we reorganised the way our fuel cells were to be manufactured, to meet the growing demand as we move towards full commercialisation. A year ago electrodes were manufactured by our research and development staff in small numbers. In March 2012, the Company announced that it was investing in a fuel cell pilot production plant at Dunsfold Park and this opened on 14 September 2012.

The new facility not only enables the increased production of fuel cells with full cartridge assembly to meet AFC Energy's increasing commercial activities and in-house expansion programme, but also allows the research and development staff to maximise their focus on the continued development of what is fundamental to our business - its technology. At full production, the plant, in its current configuration, has the capability of producing up to 20,000 fuel cell electrodes a year.

The plant, which has been delivered within a budget of £180,000, provides an interim step between small-scale and fully automated high volume in-line production. Licensed manufacture at larger scales remains AFC Energy's intended manufacturing route for full-scale commercial deployment. The pilot line is operating well and we are manufacturing electrodes of uniform consistency. We have also been assessing the suitability of off-the-shelf automated manufacturing equipment.

We have recruited a dedicated production manager and a team of experienced fuel cell production technicians to staff the unit. In the longer term, the Company expects there to be many more jobs in fuel cell production as the fuel cell industry grows and AFC Energy begins exporting its products around the world.

Reusable parts lower the cost of production

When our cartridges reach the end of their life in the field they are returned to AFC Energy. Owing to the materials selected by AFC Energy in the design of the cartridge, the majority of the components can be reused or recycled. The new production plant includes the facility to dismantle used cartridges and to reuse components back into the production process. Components that are not reused are returned to our suppliers or other recycling partners for reclaiming and reuse. The ease of reuse and recycling of cartridge components significantly reduces the ongoing cost and material demand for producing new cartridges over the lifetime of a fuel cell system and AFC Energy also believes it will be well placed to meet potential new legislation regarding reuse and recycling of materials.

Multiple feedstocks

A key factor in the wide deployment of AFC Energy's systems will be their ability to be used with many different energy feedstocks.

Ammonia is one of those important hydrogen sources. It has a high energy density and can be very easily converted to hydrogen by heating it in the presence of a catalyst - a process known as "cracking". AFC Energy's alkaline fuel cell system enables the efficient use of the hydrogen liberated by cracking, giving it the potential to be more economic than other fuel cell types.

AFC Energy's alkaline fuel cells also have the advantage of being able to tolerate ammonia traces in the fuel stream - recently confirmed by AFC Energy's own initial laboratory-based trials using hydrogen with higher residual ammonia concentrations. These tests show that power systems derived from the integration of ammonia with alkaline fuel cells do not require an expensive clean-up process. Ammonia fed alkaline fuel cell systems are also far more efficient than known current diesel alternatives and the only emissions from this process are water and nitrogen. Ammonia fuelled systems are suited for both industrial and small scale back-up and off-grid power solutions.

In December 2012 the Company announced that it had been awarded, subject to contract, a EU grant of up to €1.96 million for the launch of its Alkammonia project to develop ammonia fed alkaline fuel cell systems. The project is coordinated by AFC Energy and its direct share of the project funding is expected to be up to €0.64 million.

In addition to the EU grant, and also in December, AFC Energy acquired specific assets, including equipment and intellectual property, of Diverse Energy. Diverse Energy gained a track record in being able to deliver small scale ammonia fed fuel cell systems into the mobile phone mast power market, specifically within Africa. AFC Energy expects to use the equipment, knowledge and systems understanding developed by Diverse Energy to accelerate its speed to market for ammonia fed systems.

Ian Williamson

Chief Executive Officer

13 February 2013

Statement of Comprehensive Income

for the year ended 31 October 2012

All amounts relate to continuing operations.

Statement of Financial Position

as at 31 October 2012

Statement of Changes in Equity

for the year ended 31 October 2012

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 credit to equity in respect of equity-settled share-based payments.

Retained earnings represent the cumulative loss of the Company attributable to equity Shareholders.

Cash Flow Statement

for the year ended 31 October 2012

Notes to the Final Results for the year ended 31 October 2012

1. Basis of preparation and accounting policies

Financial information in this results statement does not comprise statutory accounts for the purpose of section 435 of the Companies Act 2006 and has been extracted from the statutory accounts for the period to 31 October 2012.

The statutory accounts for the year to 31 October 2011 have been filed with the Registrar of Companies and those for the year to 31 October 2012 will be filed on or before 30 April 2013. The auditors reported on those accounts; their report was unqualified and did not contain any statements under the Companies Act 2006. The statutory accounts for the year ended 31 October 2012 will be finalised on the basis of the financial information presented by the directors in this announcement and will be delivered to the Registrar of Companies.

Whilst the information in this statement has been prepared in accordance with recognition and measurement criteria of IFRSs, this statement in itself does not give sufficient information to comply with IFRSs.

2. Segmental analysis

A segment is a distinguishable component of the Company that is engaged in providing products or services in a particular business sector (business segment) or in providing products or services in a particular economic environment (geographic segment), which is subject to risks and rewards that are different in those other segments. The Company operated in the year in one business segment, the development of fuel cells, and in two principal geographic segments, the United Kingdom and Germany. German revenue was derived from one customer (£27,498). All of the gross profit was derived in the UK. All assets and liabilities were in the UK at the year end.

3. Operating loss

4. Financial income

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 £3,794,325 (2011: loss of £3,990,440) and a weighted average number of shares in issue for the year.

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. Stock and work in progress

7. Trade and other receivables

There were no trade and other receivables that were past due or considered to be impaired. The trade and other receivables balances are categorised as loans and other receivables. There is no significant difference between thefair value of the trade and other receivables and the values stated above.

8. Cash and cash equivalents

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

9. Trade and other payables