AFC Energy Regulatory News (AFC)

AFC Energy Quarterly Newsletter - March 2017

Dear Shareholder,

I am pleased to provide an overview of the Company's activities for the quarter ended 31st March 2017.

Highlights

· Strategic positioning for 2017

· Successful £8.1m Fundraising with New Institutions welcomed to the Share Register

· Strengthening of Balance Sheet and Cash Position

· Technology further enhanced through De Nora Collaboration

· Delivery of First Commercial Fuel Cell Order

· Strengthened Leadership Team

Strategic Positioning for 2017

In AFC Energy's recent Annual Report and Accounts for the year ended 31 October 2016, I referenced the three year window set back in December 2014 when I first became Chief Executive. The three year window represented a structured and transparent progression of AFC Energy's fuel cell technology platform which, in broad terms, sought to:

· deliver the Company's first industrial scale plant in 2015;

· incorporate refinements to the technology in 2016 in the form of the Gen2 programme which we then took further by entering into a Joint Development Agreement (JDA) with Industrie De Nora; and

· position the Company to take full advantage of a greatly improved fuel cell technology platform and drive deployment opportunities in 2017.

The collaboration AFC Energy is undertaking in conjunction with De Nora is going extremely well and the progress made, particularly as regards the longevity of the fuel cell life (without material losses in power during that time) are very significant for AFC Energy and has the potential to establish performance levels from the fuel cells that will set a new baseline in terms of operation.

I have released an RNS in conjunction with this quarterly newsletter updating shareholders on progress made with De Nora since the signing of the JDA in August 2016. The results are extremely exciting to say the least.

The collaboration with De Nora is expected to continue throughout the course of this year and we expect to make further announcements to update the market in this regard going forwards.

With regards projects and business development, it's important to remain cognisant of AFC Energy's business model of not only being a technology company but also a developer of fuel cell projects in conjunction, at least in the short term, with our project partners. Traditionally, the Company has looked to develop projects in accordance with standard industry progression and practice; that is:

1. Execution of Memorandum of Understandings with project partners.

2. Undertaking of preliminary engineering and design through scoping studies.

3. Conduct Front End Engineering and Design (FEED).

4. Engineering, Procurement and Construction.

Typically, the completion of steps (2) and (3) represents a break point where each party will review planning, operating and economic performance indicators prior to stepping forward on to the subsequent phase.

With regards the collaboration with Peel Environmental and the Protos project, we are already in the second phase of this development roadmap and in active discussions to confirm hydrogen availability and supply terms before completing engineering concept designs for the first phase of this project. Once this is complete, we expect to commence FEED studies which will include permitting, consenting and financing activities.

In addition to Protos, I am pleased to report that AFC Energy has also, in the past quarter, commenced dialogue on three further fuel cell deployment opportunities in the UK, all of which seek to deliver on numerous Government policies and objectives. The UK is becoming a meaningful and a short-term commercial deployment opportunity for the Company and indeed, the sector. As a proud UK-based organisation, AFC Energy seeks to remain at the forefront of this emerging sector.

In addition to the UK, we are also commencing a full Scoping Study next month at a second German facility owned by a German-based multinational conglomerate. This work is being conducted confidentially for the moment, but reinforces the potential market that also exists on mainland Europe for AFC Energy's activities, even in a post BREXIT environment.

Finally, whilst we remain in discussions with a number of emerging commercial deployment opportunities both in Asia and the Middle East, I would like to highlight to shareholders that the announcement AFC Energy made last year of our ability to accept lower grade hydrogen is already giving rise to new project opportunities for the Company. In the past quarter, we have received a number of hydrogen gas specifications from existing petro-chemical facilities, including some of the largest plants of their kind in the world, where an opportunity exists to accept hydrogen from the industrial / chemical plant. This reinforces in my mind the growing opportunity to collaborate with large petro-chemical plants to not only create value from waste or surplus hydrogen sources, but to also mitigate their exposure to rising power prices and indeed, Government policy as regards carbon pricing.

2017 was always designed to be the year when AFC Energy positioned itself to capitalise on its hard efforts over the past two years in particular in upscaling its technology platform, and we are starting to see the value AFC Energy can bring not only to our partners and industry, but also to our shareholders.

We are looking forward to another year of significant progress and development.

Successful £8.1 million Fundraising & New Institutional Shareholder

In February 2017, AFC successfully raised a total of £8.1m (before costs) through a placing and subscription, and open offer to existing investors.

This consisted of a placing and subscription to raise £6m plus an Open Offer to existing shareholders to raise an additional £2.1m. I'm very pleased to welcome Schroder Investment Management (Schroders) onto the register as the largest single investor in the Company's £6m placement. Schroders invested a £3.3m into AFC Energy, representing 8.441% of the total shareholding.

I was also very pleased to confirm that the Open Offer to our existing shareholders was oversubscribed by 56.9%.

We at AFC acknowledge the importance of creating sustained long-term shareholder value, which ultimately hinges on commercialisation of the technology and maintaining a broad-based competitive advantage over other clean energy technologies.

Strong Cash Position

AFC Energy's full year results to October 2016 were in line with broker expectations with an operating loss before tax of £6.3m, against a forecast loss of £6.9m and an actual loss of £8.6m in FY 2015. Significantly net cash was strong at £2.9m, which has subsequently been boosted by the recent £8.1m fundraising. At present, I can confirm AFC Energy has cash at bank of £9.1m and is forecast to receive further cash installments during the next nine months of approximately £2m from existing EU grant funding programmes and UK R&D tax credits.

Delivery of First Commercial Orders

Powerhouse Energy's order confirmation for its first small-scale fuel cell system builds on a relationship with the company that spans several years. The G3-UHt ultra-high temperature gasification demonstration unit has cleared UK customs and has been delivered to its initial recommissioning site near Manchester.  Following the successful commissioning of the facility, a small-scale AFC Energy system will be installed to demonstrate the production of power from the hydrogen stream generated from the gasification unit. We look forward to providing further updates on Powerhouse Energy's progression over the coming months.

Strengthened Leadership Team

AFC Energy has strengthened its executive management team with the recent appointments of Richard Tuffill as Chief Financial Officer and Jim Gibson as Chief Operating Officer.

Richard has over 13 years' experience in senior management within the energy sector, including several years as CFO of Horizon Nuclear Power, a UK energy company developing a new generation of nuclear power stations. Richard has also previously held senior management positions at RWE nPower and Innogy in the finance function. He has significant experience in the power and energy sectors and is a fantastic recruit to the management team at AFC Energy.

Jim has almost 30 years' experience in operations management and business development roles for the engineering contracting sector. Jim spent 23 years at Foster Wheeler, including as Commercial Director (APAC) and MD of Global Sales & Marketing and has most recently spent two years as Head of Process Technologies & Business Development (APAC) for ThyssenKrupp Industrial Solutions and is a member of the Institute of Chemical Engineers.

Both Richard and Jim's clarity and experience in understanding of the needs of the not only the power market, but also our potential customers in the chemicals and industrial sectors go a long way to ensuring the relevance and positioning of AFC Energy in a commercial operating market.

Richard and Jim were present at the recent General Meeting, where I had the pleasure of introducing them to shareholders and welcoming Jim to the Board.

I look forward to the opportunity of meeting you all at the upcoming AGM on the 25th April.

Yours sincerely,

Adam Bond

Chief Executive Officer

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The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ('MAR). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.