AFC ENERGY PLC 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. Upon the publication of this announcement via a Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.
12 April 2019
AFC Energy PLC
('AFC Energy' or the 'Company')
Unaudited Preliminary Results
AFC Energy (AIM: AFC), the leading alkaline fuel cell power company is pleased to announce unaudited preliminary results for the year ended 31 October 2018.
FY18 Highlights
· Development of new high-power density alkaline fuel cell technology with potential use in applications where space and weight are key considerations, opening opportunities for early revenue generation through licensing or joint development in existing markets
· Concluded funded engineering study for deployment of fuel cell system in Australia at Southern Oil's Gladstone refinery
· Continuing joint development with De Nora with further improvements in electrode longevity and performance whilst reducing cost
· Completed global tender process and chose Advanced Plastics to be our flow plate mass manufacturing partner
· Successfully developed EV charging solution and installed a demonstration unit at our Dunsfold facilities
· Completed detailed 'Go to market' studies confirming addressable markets, distribution strategy, product benchmarking and resources required
· Invited to join the Hydrogen Council and actively participating in the debate to promote the Hydrogen economy and develop long term strategic relationships with like-minded global industrial companies
· Commenced engagement with international industrial partners to discuss joint product development and market initiatives
· Operating loss of £ 5.0 million (2017: £ 5.5 million)
· Cash reserves at 31 October 2018 of £ 2.6 million (2017: £ 6.7 million)
Post Period Highlights
· Arranged a £ 4 million convertible loan facility to fund working capital and develop the Company's commercial strategy
· Improved liquidity by raising a further £813,000 in an equity placement
Adam Bond, CEO of AFC Energy, commented: 'Progress has been made in a number of areas; new technology, product development, manufacturing readiness, commercial footprint and financing. The high-power density alkaline fuel cell technology complements our existing technology opening opportunities where space and weight influence the purchasing decision. This new technology also has the possibility to be monetised in the short term through joint development cost sharing and licensing agreements. Our manufacturing readiness is built around our industrial partners starting with De Nora, with whom we have now selected an electrode pairing, and welcoming Advanced Plastics as our mass manufacturing partner for flow plates.
Our commercial activity continues to grow, both through prospecting and market studies. The latter has identified several addressable markets over and above our Chlor Alkali base principally in off grid applications traditionally dominated by diesel generators. Our product development work has seen the installation of an EV charging demonstration unit at our Dunsfold facilities which has commanded much attention and demonstrated the role fuel cells can play in building a truly emissions free environment. Finally, the fundraising concluded provides us with £ 4.8 million which together with existing cash reserves funds the continued development of our technology base, range of products, manufacturing readiness and commercial presence.'
For further information, please contact:
AFC Energy plc Adam Bond (Chief Executive Officer) | +44 (0) 20 3697 1209 |
| Cantor Fitzgerald Europe - Nominated Adviser and Joint Broker David Foreman Richard Salmond | +44 (0) 20 7894 7000 |
| M C Peat & Co LLP - Joint Broker Charlie Peat | +44 (0) 20 7104 2334 |
| TUVA Partners - Public Relations Julian Tanner | +44 (0) 7733 717 995 |
About AFC Energy
AFC Energy plc is commercialising a scalable alkaline fuel cell system, to provide clean electricity for on and off grid applications. The technology, pioneered over the past ten years in the UK, is in the process of being deployed in industrial gas plants for grid generation, as an alternative to diesel generators for localised power, in energy storage systems and as the power source for local electricity needs.
Chairman's report
My second year as Chairman of AFC Energy has seen substantial change and progress as the company begins marketing its fuel cell technology as well as identifying new addressable market sectors and applications of our technology outside our target markets. Despite these positive developments, certain potential commercial opportunities have developed slower than we had hoped and we, like many others, are being hindered with the current economic and political uncertainties, including Brexit that exist. However, I am pleased that AFC has secured a further £4m of funding to part finance our commercial strategy.
The transition from the development phase to the commercial phase is always a challenging one for technology companies. In the case of AFC Energy this has necessitated a product re-engineering over a three-year period. Our technology in 2015 was functional and delivered the proof of concept. However, as we have stated before, the technology was not ready for commercial manufacture, with both component longevity and cost issues hampering the potential commercial exploitation.
ENGINEERING FOCUS
Through a successful three-year re- engineering programme, AFC Energy has significantly reduced the bill-of-material costs while increasing the lifetime of electrode components to acceptable commercial levels. Under the direction of the board, the past 12 months have seen the scientists and engineers at AFC Energy work diligently in the finalisation of product design in preparation for manufacturing. We now believe that we have a product that is manufacturing ready and our engineering team is currently designing a containerised solution to enable rapid cost-effective deployment for off grid applications. We also have the partners to see us into volume manufacture.
COMMERCIAL STRATEGY
We have identified several target off-grid diesel replacement markets to complement our existing target to supply the grid using vented hydrogen from chlor-alkali plants and other industrial processes. Our focus on the year ahead is to monetise our technology through sharing joint development costs and technology licensing. We have already announced our negotiations with Southern Oil who are making major modifications to one of their re-refinery plants in Australia. We have delivered the engineering study contracted with the aim to negotiate the delivery of our fuel cell system to them once they have concluded the technical specifications of the plant.
Our commercial strategy will be conducted in three phases:
1. Joint development cost sharing and technology licensing to industrial manufacturing partners for global roll-out.
2. Commercial trial sites directly supported by AFC Energy across target sectors to mitigate risk and provide an engineering learning base.
3. Appoint regional distribution partners who know the markets and customers and have the financial capacity to fund deployment and sales coverage.
This approach will enable us to focus on the core R&D strength of AFC Energy while ensuring that our product manufacturing remains asset-light and partner-driven.
Traditionally, the principal target application for our fuel cells has been in the generation of electricity for grid systems. We envisaged that these will typically be located at either chlor-alkali plants or oil refineries, where hydrogen is a by-product of other processes. According to the Fuel Cell & Hydrogen Energy Association, the waste or by-product hydrogen represents over 100,000 MW of power that could be used to generate electricity through fuel cells.
We announced in 2018 that we would also be targeting the market for static auxiliary power and seeking to displace the current generation of polluting diesel gensets. This is a market that is worth in excess of $20bn today with very strong growth forecast, yet the emissions from diesel gensets cause serious illnesses and premature deaths. In the UK alone, the Government estimates that 23,500 people die prematurely each year through air pollution related illnesses. In the city of Gurugram in India for example, where diesel gensets are extensively used, 30% of the diesel particulate is from diesel gensets, according to the Centre for Science and Education report from June 2018. It is our belief that growing awareness of the scale of the pollutant problem from diesel gensets will lead to their rejection by developed and developing countries alike and replacement with clean efficient hydrogen fuel cells. AFC Energy is in the vanguard of this movement.
In 2018 we defined a new market for AFC Energy; the fuel cell powered Electric Vehicle (EV) charging station. Developed in house by our own engineering team, the AFC Energy CH2ARGE is the world's first integrated EV charging station. A proof of concept system has been built at our facility in Dunsfold, Surrey, and this was demonstrated in January this year. It also opens a substantial new market opportunity for us as the global numbers of EVs on the road is expected to mushroom to hundreds of millions over the next decade. The growth in EVs alone will exceed the ability of most national grids to support the recharging demands, and supplementary auxiliary power will be required in high density locations. Given that this supplementary power must be both clean and dependable, fuel cells would be the ideal solution to this challenge.
MANAGEMENT
We are pleased that the role of CFO (non-board) has now been taken by Graeme Lewis, who replaces Richard Dunkley and who brings significant relevant experience from senior finance roles in the distribution of diesel combustion products globally.
At the board, we have bid farewell to Eugene Tenenbaum as well as Richard Tuffill as they stepped down during 2018 and I would like to personally thank them for their service and contribution to AFC Energy. We welcome to the board Percy Hayball who has been appointed as a non-executive director and is a representative of Ervington Investments Limited, which originally invested in AFC Energy in 2012 and has supported it since then.
FUNDING
The financial markets are extremely risk averse in this period of Brexit uncertainty and, as a pre-revenue company, like many of our peers, we have witnessed this uncertainty first-hand. To counter-balance the macro political and economic uncertainties, we have focused on building long term relationships with industrial partners which will demonstrate their belief in the commercial future of our technology. Going forward, through these relationships we expect to share product development and distribution costs lowering funding requirements. To conclude these actions, we have arranged a convertible loan facility for up to £4 million and an equity placement of £ 0.8 million to finance working capital and pursue our strategy to commercialise our fuel cell technology.
FUTURE
This has been another challenging year for our employees and on behalf of the Board I thank them for their dedication and commitment to serving the scientific and commercial needs of our company. They have and will be the driving force for the future success of our business.
The role of the management team and the board of directors is to lead and commercialise what is now a proven and fit for manufacture product and execute on a sales and marketing strategy to bring this product to world. After 10 years of painstaking diligence, and sometimes frustrating R&D the technology work and the markets are calling for our product.
Today we can state that we have engineered the right product to take to market, we have the right people on board to make this happen and we have identified the right market opportunities to build a successful and profitable company.
JOHN RENNOCKS
Chairman
12 April 2019
Chief executive officers report
The three key criteria for the commercial success of AFC Energy are our ability to have the:
· Right product
· At the right price
· For the right markets
In 2018 we saw strong progress on all these fronts.
The commercialisation of the fuel cell has required a multi-year re-engineering approach to deliver a product that can both provide the efficiency in operation demanded by customers and the reduction in build costs to make the CAPEX affordable. Very significant progress was made in 2018 on the engineering front and the year culminated with the construction of a prototype commercial pilot recharging station for electric vehicles.
AFC Energy has also progressed its commercial relationships with the announcement of negotiations to deploy in Australia, the development of plans for a diesel displacement pilot and the identification of other opportunities to monetise our intellectual property and know how.
Commercial and engineering progress has been matched by the development of the market during 2018; alongside the existing markets to sell electricity to the grid and the use of fuel cells to reduce emissions by replacing diesel gensets, we saw the evolution of EV charging as a new and sizeable premium priced application of fuel cells.
ENGINEERING PROGRESS
The first half of 2018 saw completion of the detailed engineering work on the individual flow plates and finalisation of stack design specifications. The new stack design operates a single multi-dimensional plate that is better positioned to optimise fuel cell operation and lowers cost to manufacture and assemble. The engineering of the new plates and stack necessitated the extensive testing of small stacks with a variety of alternative plate designs.
A specification for the mass manufacture of the plates was issued to three companies in October 2018 and in March 2019, and a preferred manufacturer was identified, Advanced Plastics. AFC Energy has successfully, with Advanced Plastics, conducted prototype manufacturing and plastic welding of the plates, removing a lot of the risks to commercial operation and are now finalising quality assurance and control procedures. Upon successful completion of this phase a contract with Advanced Plastics as preferred mass manufacturer will be agreed.
The re-engineering of the flow plates also required redesign of the cartridge and specifically the gas inlet and outlet ports. This work was completed in early March. Adjustments to manifolds, tie bars and location of fluid nozzles were also considered necessary and have now been completed. Throughout 2018 the engineering and design work has necessitated an iterative process through the stages of concept, prototypes and final manufacturing specifications. This work is now completed.
DE NORA
The relationship with De Nora continues to evolve ahead of the commencement of manufacturing and AFC Energy now has a reliable source of electrodes that have both longevity and economy.
The result of the joint development work has seen progress in both the longevity and cost-efficiency of electrodes. Electrode pairs that were proven for a two-year lifecycle at the end of 2017 have now been engineered as large-scale electrodes with a tested two-year lifecycle and our target is to achieve four-year lifecycle electrodes in the short term. Solid progress has been made towards this target in 2018 through further electrode optimisation activities conducted between De Nora and AFC Energy.
De Nora has proven to be a highly reliable and contributory partner to the engineering success of AFC Energy. Following the successful trials in 2017 and 2018, AFC Energy is looking to move ahead with an Electrode Manufacturing Agreement with De Nora for the volume supply of the optimised electrodes. Looking towards the future, discussions have begun on new joint research objectives for the next generation of electrodes.
CUSTOMER DEMAND
In July 2018 we announced an engineering study to scope the customer needs in order to deliver our first commercially operating fuel cell in Australia. The plant will use an AFC Energy fuel cell system to convert surplus hydrogen from the refinery into electricity for use at the Southern Oil Refinery in Queensland. Given that world-wide hydrogen waste is calculated by the Fuel Cell & Hydrogen Energy Association to be in excess of 100,000 MW - or enough to power the UK twice over - this project demonstrates how surplus hydrogen from an industrial process can commercially deliver electricity to the grid. AFC Energy expects to agree final terms and deliver a fuel cell system to Southern Oil's Gladstone refinery once they have finished the design of their plant modifications and confirmed the volume of hydrogen available for the fuel cell system.
The Middle East showed renewed interest in alkaline fuel cells during the year. AFC Energy's technology has enabled us to be shortlisted for a series of potential deployments in the region.
The use of fuel cells to displace diesel gensets has turned from a potential market to an addressable opportunity. A static auxiliary power market that is forecast to be worth $20bn by 2021 is under pressure to change as regulators take steps against diesel emissions. AFC Energy is well-placed to enter this market and is working with our partners to use fuel cells in place of diesel gensets for a major construction project in Surrey.
NEW MARKET OPPORTUNITY
The primary target markets for AFC Energy's products - sell electricity to the grid using vented hydrogen and static power systems to displace diesel gensets - were joined during 2018 by a new market opportunity; the charging of electric vehicles. The EVs, as they are known, are about to spiral in numbers from the two to three million in the world today, to 100 million by 2030 and over 400 million in 2040, according to forecasts by Bloomberg New Energy Finance. Charging these vehicles will require the building of significant new power station infrastructure.
The confluence of massive energy demand and under-provision of grid supply provides fuel cells in general, provides AFC Energy the opportunity to develop hydrogen powered recharging systems. These will operate to provide supplementary power to the grid or directly where demand is concentrated, such as refuelling at supermarkets or sports stadiums.
AFC Energy has taken the initiative in this new market and has developed a prototype hydrogen powered EV charging system.
High Power Density Alkaline Fuel Cell
In response to growing customer and partner interest in a higher power density iteration of AFC Energy's alkaline fuel cell,research time has been invested over the past 18 months in the design and development of a solid membrane fuel cell which exhibits all the benefits of the incumbent alkaline system, whilst reflecting a materially higher power density as exhibited by other membrane fuel cells in the market today.
The new technology has potential use in applications where space and weight of power generation are important considerations and dictate choice of power generation technology. To this end, the new system is entirely complementary to the existing liquid electrolyte system.
The new alkaline fuel cell platform will enable quicker response times, far greater power density facilitating reduced system weight, smaller volume and footprint whilst still maintaining high efficiency all whilst being able to accept lower grade hydrogen fuel sources as compared with alternative membrane technologies on the market today.
This fuel cell system will open up new markets for AFC Energy where high-power density and reduced weight, volume and footprint is beneficial to customers' needs. The technology will also be able to integrate into AFC Energy's Electric Vehicle recharging and e-mobility solutions as well as supporting smaller scale off-grid power generation and system backup.
AFC Energy has developed a large portfolio of know how around the new system, much of which has the potential to be transferable to other applications such as alkaline water electrolysis. Initial testing has been completed using the anion exchange membrane in non-core fields and discussions are underway with potential partners to jointly commercialise elements of the technology in applications unrelated to fuel cells.
HYDROGEN ECONOMY
A major and enduring challenge to the success of fuel cells has been in the availability and cost of hydrogen. The economics of fuel cells can make sense for premium priced off-grid applications with today's costs and where the concept of the Hydrogen economy is supported by government policy and markets. With downward legislative pressure on emissions at point of use from conventional technologies and an increasing need for energy storage it is likely that the applicability of fuel cells will broaden. As the use of intermittent renewables increases and the drive to de-carbonise the public electricity supply matures, it is expected that new sources of hydrogen such as electrolysis will gather pace, fulfilling hydrogen on demand functionality and driving development of innovative storage solutions. Together, the emerging Hydrogen economy model coupled with environmental drivers is likely to widen the demand for fuel cells in the near future.
OUTLOOK
We believe, confirmed by the regulatory support provided by many governments, that hydrogen fuel cells will become an important and growing part of the energy infrastructure of the world. Three forces are aligned to accelerate this inevitability:
· The growing lobby to eliminate diesel from auxiliary power systems
· The emergence of new markets such as EV charging and datacentre backup power that demand clean energy sources
· The innovation in hydrogen energy storage and distribution
Already countries such as Australia, South Korea and Japan have committed to a strong hydrogen programme. Major companies such as Hitachi, Shell, Mitsubishi, Bosch, BMW and Toyota see hydrogen as a key component of their futures. But perhaps most important is the cohort of hugely innovative technology companies that are turning to hydrogen as the fuel of the future.
In August 2018, AFC Energy became a supporting member of the Hydrogen Council, the global initiative of leading energy, transport and industry companies that fosters the energy transition to clean hydrogen energy. AFC Energy is now in discussions with several members of the Hydrogen Council about potential strategic partnering with particular interest coming from Japanese industrials due to the low cost and scalability of AFC Energy's fuel cell solutions.
FINANCIAL OVERVIEW
AFC Energy's EU grant-funded projects have completed.
Overall expenditure on research and development qualifying for R & D tax credits was £1.5 million (2017: £1.6 million), demonstrating our continued commitment to develop the fuel cell system. An operating loss to 31 October 2018 of £5.0 million (2017: £5.5 million) has been recorded.
Cash balances at 31 October 2018, excluding restricted cash, were £2.6 million (2017: £6.7 million). Continued tight control on spend has reduced cash outlays on operating activities to £4.6 million from £4.7 million with the main saving being in wages and salaries without compromising ongoing product development projects. Cash outflows were further reduced by £0.6 million through the receipt of EU grant funding which had not been collected at 31 October 2017 and a further £0.6 million has been collected after 31 October 2018 for the R and D tax credits due at the year end. Expenditure on fixed assets includes £92,000 spent to protect our intellectual property and a further £97,000 principally on equipment supporting the flow plate productivity improvements and test benches to demonstrate product reliability.
On 11 April 2019 a three-year £4 million convertible loan facility was concluded with an institutional investor and the following day an equity placement raised £ 0.8 million which are described in more detail in note 24 Post balance sheet events. Based on internal cash forecasts management believe that this provides sufficient time to conclude certain commercial negotiations and pursue our strategy of commercialising our fuel cell.
ADAM BOND
Chief Executive Officer
12 April 2019
Directors' Report
The Directors present their report together with the audited financial statements for the year ended 31 October 2018. The comparative period was from 1 November 2016 to 31 October 2017. Information required under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 has been included within the Directors' Report and accounts.
PRINCIPAL ACTIVITY AND REVIEW OF BUSINESS DEVELOPMENTS
The principal activity of AFC Energy plc (or 'the Company') is the development of fuel cells.
Reviews of operations, business developments and current projects are included in the Chairman's Statement, the Strategic Report and Operational Review.
RESULTS AND DIVIDEND
The results for the year are set out in the Statement of Comprehensive Income.
No dividends were paid in the year. The Directors do not intend to declare a dividend in respect of the year.
BOARD CHANGES
Details of changes to the membership of the Board are disclosed within the 'Directors' Interests and their Remuneration.
CAPITAL STRUCTURE
Details of the Company's share capital are disclosed in note 17 to the financial statements.
Shareholder funds have been used for the development and testing of industrial scale fuel cell systems than can compete with conventional electricity generation technologies.
On 8 April 2019, the Company was aware of the following holdings of 3% or more in the Company's issued share capital:
Approximate | |||||||
percentage of the | |||||||
Number | Company's issued | ||||||
of shares | share capital | ||||||
Ervington Investments Limited | 39,610,494 | 10.11% | |||||
Schroder Investment Management Limited Interactive Investor Services Nominees | 33,000,000 27,178,282 | 8.42% 6.93% | |||||
Barclays Direct Investing Nominees | 25,345,250 | 6.47% | |||||
Hargreaves Lansdown (Nominees) Limited (15942) | 23,028,431 | 5.87% | |||||
Interactive Investor Services Nominees Ltd | 18,695,045 | 4.77% | |||||
Hargreaves Lansdown (Nominees) Limited (VRA) | 17,725,704 | 4.52% | |||||
Mr. Eugene Shvidler | 14,432,737 | 3.79% | |||||
Hargreaves Lansdown (Nominees) Limited (HLNOM) | 14,655,151 | 3.74% | |||||
HSDL Nominees Limited | 13,276,827 | 3.39% | |||||
HSBC Client Holding Nominee Ltd <731504> | 12,084,232 | 3.08% |
FINANCIAL INSTRUMENTS
Financial instruments are disclosed in note 22.
POLITICAL AND CHARITABLE DONATIONS
Charitable donations in the year amounted to £nil (2017: £nil).
INFORMATION DISCLOSED IN THE STRATEGIC REPORT
The following matters required to be disclosed in this Report under the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 are covered in the Strategic Report: the key performance indicators and the principal risks.
PAYMENTS TO CREDITORS
The Company's policy is to settle the terms of payment with its suppliers when agreeing the terms of each transaction, either by accepting the suppliers' terms or by making the suppliers aware of alternative terms, and to abide by the agreed terms. Trade creditors of the Company at 31 October 2018 represented 31 days (2017: 26 days) of annual purchases.
LIABILITY INSURANCE FOR COMPANY OFFICERS
The Company maintains Directors' and Officers' liability insurance cover for its Directors and officers to the extent permitted under the Companies Act 2006.
RESEARCH AND DEVELOPMENT
The Company invests substantially in research and development and makes claims under the Government's R&D tax credit scheme. In the year to 31 October 2018, relevant qualifying expenditure was £ 1,5 million (2017: £1,6 million).
GOING CONCERN
The Company had unrestricted cash of £ 2,6 million at 31 October 2018 (2017: £6.7 million).
The Directors have prepared a cash flow forecast for the period ending 30 April 2019 (the 'forecast'). During this period, the Company will focus on concluding commercial negotiations with industrial partners. A 36-month £ 4 million convertible loan facility has been arranged to provide working capital through the period. Drawdowns from the facility are limited to £ 500,000 in any sixty-day period and require the consent of the lender either if
1. the share price falls below 2 pence, or
2. the number of shares available to issue is less than 125% of the number that would be converted at the prevailing market price when the drawdown is notified.
Subject to maintaining the share price above the floor and receiving shareholder approval to allot share the Forecast indicates that there are sufficient cash resources to meet the financial obligations as they fall due for a period of at least twelve months from the date of approval of these financial statements.
A future fundraising, not included in the Forecast described above, will be necessary to fund future commercial growth.
POST-BALANCE SHEET EVENTS
On 11 April 2019, a £ 4 million convertible loan facility was signed for a period of 36 months from the signing date with a further six-month period, post the expiry date of the facility, to repay any outstanding amounts. The facility can be drawn down in £ 25,000 principal increments at the Company's discretion provided that,
1. the total amount drawn down in any one 60-day period does not exceed £ 500,000,
2. the total amount repayable does not exceed £ 4 Million,
3. the volume weighted average price of the three previous trading days is greater than 2 pence, and
4. the headroom to allot non pre-emptive shares is 125% of the number of shares that would be required to convert at the time of the drawdown.
The draw down will be 90% of the principal amount and outside these parameters draw down will be by mutual consent.
The principal amount is convertible at the lender's discretion at the lower of market price at draw down and the volume weighted average price of the three previous trading days at the time of conversion.
Early redemption can be made at the request of the Company at 105% of the principal amount. In the case of a change in control or default then the draw down amounts are redeemed at 105% and 120% of the principal amount respectively.
An acceptance fee of £ 200,000 was settled by the issue of shares in the Company and a further fee of 5% is payable on draw downs.
On 12 April 2019 the Company issued 27,108,334 shares and raised £ 0.8 million.
AUDITOR
A resolution to reappoint the Auditor of the Company, Grant Thornton UK LLP, will be proposed at the forthcoming Annual General Meeting. Grant Thornton UK LLP have expressed their willingness to continue as Auditor of the Company.
This report was approved by the Board on 11 April 2019 and signed on its behalf by
adam bond
Chief Executive Officer
Unaudited Statement of Comprehensive Income
FOR THE YEAR ENDED 31 OCTOBER 2018
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
Note | £ | £ | |||||
EU Grant income | 387 | 230,610 | |||||
Cost of sales | (28,988) | (397,113) | |||||
Gross loss | (28,601) | (166,503) | |||||
Other income | 21,516 | 51,947 | |||||
Administrative expenses | (4,953,042) | (5,395,552) | |||||
Operating loss | 5 | (4,960,127) | (5,510,108) | ||||
Finance cost | 8 | 672 | (853) | ||||
Loss before tax | (4,959,455) | (5,510,961) | |||||
Taxation | 9 | 634,438 | 585,902 | ||||
Loss for the financial year and total comprehensive loss attributable to owners of the Company | (4,325,017) | (4,925,059) | |||||
Basic loss per share | 10 | (1.10)p | (1.36)p | ||||
Diluted loss per share | 10 | (1.10)p | (1.36)p |
All amounts relate to continuing operations.
The notes below form part of these financial statements.
Unaudited Statement of Financial Position
AS AT 31 OCTOBER 2018
31 October 2018 | 31 October 2017 | ||||
Note | £ | £ | |||
Assets | |||||
Non-current assets | |||||
Intangible assets | 11 | 442,686 | 382,202 | ||
Property and equipment | 12 | 292,996 | 315,244 | ||
Investment | 13 | - | - | ||
735,682 | 697,446 | ||||
Current assets | |||||
Inventory | 14 | 163,720 | 162,993 | ||
Other receivables | 15 | 1,544,588 | 1,608,466 | ||
Cash and cash equivalents | 16 | 2,552,068 | 6,676,775 | ||
Restricted cash | 16 | 265,774 | 109,582 | ||
4,526,151 | 8,557,816 | ||||
Total assets | 5,261,833 | 9,255,262 | |||
Capital and reserves attributable to owners of the Company | |||||
Share capital | 17 | 391,698 | 391,298 | ||
Share premium | 17 | 45,506,524 | 45,494,404 | ||
Other reserve | 2,908,021 | 3,084,204 | |||
Retained deficit | (44,487,129) | (40,559,556) | |||
Total equity attributable to Shareholders | 4,319,114 | 8,410,350 | |||
Current liabilities | |||||
Trade and other payables | 19 | 641,547 | 536,166 | ||
641,547 | 536,166 | ||||
Non-current liabilities | |||||
Trade and other payables | 19 | - | 7,574 | ||
Provisions | 20 | 301,172 | 301,172 | ||
301,172 | 308,746 | ||||
Total equity and liabilities | 5,261,833 | 9,255,262 |
The notes below form part of these financial statements.
These financial statements were approved and authorised for issue by the Board on 11 April 2019.
JOHN RENNOCKS ADAM BOND
Chairman Chief Executive Officer
AFC Energy plc
Registered number: 05668788
Unaudited Statement of Changes in Equity
FOR THE YEAR ENDED 31 OCTOBER 2018
Share | Share | Other | Retained | Total | |||
Capital | Premium | Reserve | Deficit | Equity | |||
Note | £ | £ | £ | £ | £ | ||
Balance at 31 October 2016 | 310,014 | 37,843,613 | 3,234,492 | (36,486,151) | 4,901,968 | ||
Comprehensive loss for the year | - | - | - | (4,925,059) | (4,925,059) | ||
Issue of equity shares | 81,284 | 7,650,791 | - | - | 7,732,075 | ||
Equity-settled share-based payments | - | - | (150,288) | 851,654 | 701,366 | ||
Transactions with owners | 81,284 | 7,650,791 | (150,288) | 851,654 | 8,433,441 | ||
Balance at 31 October 2017 | 391,298 | 45,494,404 | 3,084,204 | (40,559,556) | 8,410,350 | ||
Comprehensive loss for the year | - | - | - | (4,325,017) | (4,325,017) | ||
Issue of equity shares | 17 | 400 | 12,120 | - | - | 12,520 | |
Equity-settled share-based payments | 18 | - | - | (176,183) | 397,444 | 221,261 | |
Transactions with owners | 400 | 12,120 | (176,183) | 397,444 | 221,261 | ||
Balance at 31 October 2018 | 391,698 | 45,506,524 | 2,908,021 | (44,487,129) | 4,319,114 |
Share capital is the amount subscribed for shares at nominal value.
Share premium represents the excess of the amount subscribed for share capital over the nominal value of these shares net of share issue expenses.
Other reserve represents the charge to equity in respect of equity-settled share-based payments.
Retained deficit represents the cumulative loss of the Company attributable to equity Shareholders.
The notes below form part of these financial statements.
Unaudited Cash Flow Statement
FOR THE YEAR ENDED 31 OCTOBER 2018
31 October 2018 | 31 October 2017 | ||||||
Note | £ | £ | |||||
Cash flows from operating activities | |||||||
Loss before tax for the year | (4,959,455) | (5,510,961) | |||||
Adjustments for: | |||||||
Amortisation of intangible assets Depreciation of property and equipment Depreciation of decommissioning asset | 11 12 12 | 31,117 87,536 31,365 | 27,215 53,858 139,121 | ||||
Impairment of intangible asset investment | - | 7,104 | |||||
Loss/(Profit) on disposal of tangible assets | - | 2,214 | |||||
Equity-settled share-based payment expenses | 18 | 221,262 | 701,367 | ||||
Payment of shares in lieu of cash | - | 75,983 | |||||
Interest received | 8 | (8,952) | (2,578) | ||||
R&D tax credits receivable | (173,832) | ||||||
Cash flows from operating activities before changes in working capital and provisions | (4,597,127) | (4,680,510) | |||||
R&D tax credits received | - | 759,732 | |||||
Decrease/(Increase) in restricted cash | (156,193) | 2,496 | |||||
(Increase)/Decrease in inventory | (726) | (12,061) | |||||
Decrease in other receivables | 698,315 | 987,497 | |||||
Decrease in trade and other payables | 97,806 | (757,967) | |||||
Cash absorbed by operating activities | (3,957,925) | (3,700,813) | |||||
Cash flows from investing activities | |||||||
Purchase of plant and equipment | 12 | (96,653) | (120,111) | ||||
Additions to intangible assets | 11 | (91,601) | (72,064) | ||||
Proceeds of disposal of tangible assets | - | 231 | |||||
Interest received | 8 | 8,952 | 2,578 | ||||
Net cash absorbed by investing activities | (179,302) | (189,366) | |||||
Cash flows from financing activities | |||||||
Proceeds from the issue of share capital | 12,520 | 8,079,381 | |||||
Costs of issue of share capital | - | (423,289) | |||||
Net cash from financing activities | 12,520 | 7,656,092 | |||||
Net (decrease)/increase in cash and cash equivalents | (4,124,707) | 3,765,913 | |||||
Cash and cash equivalents at start of year | 6,676,775 | 2,910,862 | |||||
Cash and cash equivalents at end of year | 16 | 2,552,068 | 6,676,775 |
The notes below form part of these financial statements.
Notes Forming Part of the Financial Statements
1. CORPORATE INFORMATION
AFC Energy plc ('the Company') is a public limited company incorporated in England & Wales and quoted on the Alternative Investment Market of the London Stock Exchange.
The address of its registered office is Unit 71.4 Dunsfold Park, Stovolds Hill, Cranleigh, Surrey GU6 8TB.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
AFC Energy Plc (the company) is a company incorporated in the United Kingdom. The financial information in this announcement, which was approved by the Board of Directors on 12 April 2019, does not constitute the Company's statutory financial statements for the years ended 31 October 2018 or 2017 but is derived from these accounts.
The financial information for 2017 is derived from the statutory accounts for 2017, which have been delivered to the Register of Companies. The auditor has reported on the 2017 accounts; their report was (a) unqualified, (b) did not include any reference to any matter to which the auditor drew attention by way of emphasis of matter, and (c) and did not contain statements under section 498(2), (3) or (4) of the Companies Act 2006.
The statutory accounts for 2018 will be finalised on the basis of the unaudited financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of companies following the Company's annual general meeting. The audit report is expected to include reference to a material uncertainty relating to going concern to which the auditor will draw attention by way of emphasis. The Company expects to publish its statutory accounts before the end of April 2019.
The financial statements of AFC Energy plc have been prepared in accordance with International Financial Reporting Standards ('IFRSs'), International Accounting Standards ('IASs') and International Financial Reporting Interpretations Committee ('IFRIC') interpretations (collectively 'IFRSs') as adopted for use in the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared on a going concern basis notwithstanding the trading losses being carried forward and the expectation that the trading losses will continue for the near future as the Company transitions from research and development to commercial operations.
The Company currently consumes cash resources and will continue to do so until sales revenues are sufficiently high to generate net cash inflows. Management have engaged external consultants to evaluate the price competitiveness of their technology compared to existing solutions and identify the resources required and the routes to market to commercialise their fuel cells. Based upon these recommendations' management have prepared and reviewed five-year financial projections aligned with ongoing technological, operational and commercial strategies. During the initial period of commercialisation there will be negative cash flows dependent upon the speed at which revenue grows. Therefore, the Company continues to be dependent upon securing additional funding, either through the injection of capital from share issues, the sale of licenses to commercially exploit the intellectual property in defined markets, appointment of well-funded channel partners to finance commissioning, project finance for build and operate plants, and trade finance. During the current year day to day financing requirements have been met through the cash reserves brought forward from the previous period.
At 31 October 2018 unrestricted cash resources were £ 2.6 million and on 11 December 2018 £ 0.6 million was received in respect of the research and development tax credit claimed for the financial year ending on 31 October 2017. A £ 4 million convertible loan facility with an institutional investor was concluded on 11 April 2019 to fund working capital and a further £ 0.8 million was raised by an issue of 27,108,334 shares on April 12 which are described in more detail in note 24 Post balance sheet events. In addition, the Directors anticipate receiving commitments for further funding from new and existing shareholders. The Directors have reasonable expectation that sufficient funding exists to meet payment obligations as and when they fall due although there can be no certainty that shareholders approve sufficient non pre-emptive share allotment authority to the Directors nor that certain stock market conditions are maintained.
The director's have made due and careful enquiries considering all uncertainties including receiving
1. shareholder approval to allot shares to satisfy the conversion obligations of the convertible loan, and
2. lender approval to draw down the convertible loan if the share price falls below 2 pence
The director's have considered the above two uncertainties and note that they are events outside of the contol of the Group. These events indicate a material uncertainity which may cast significant doubt about the Groups ability to continue as a going concern.
The directors' expect that taking into account current cash resources and financial forecasts including measures that can be taken to continue to reduce expenditure and the funds raised from the convertible loan facility, the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of at least twelve months from the date of this report). Thus, the Directors believe that it is reasonable to continue to adopt the going concern basis in preparing the annual report and financial statements. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.
The accounting policies set out below have, unless otherwise stated, been applied consistently in these financial statements.
Judgements made by the Directors in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 3.
a. Standards, Amendments and Interpretations to Published Standards not yet Effective
At the date of authorisation of these financial statements, the IASB and IFRIC have issued the following standards and interpretations, which are effective for annual accounting periods beginning on or after the stated effective date. These standards and interpretations are not effective for and have not been applied in the preparation of these financial statements:
• IFRS 9 Financial Instruments is effective from 1 January 2015. This standard includes requirements for recognition and measurement, derecognition and hedge accounting.
• IFRS 15 Revenue from contracts with customers. The new standard will replace IAS 18 Revenue and IAS 11 Construction contracts. It will become effective for accounting periods on or after 1 January 2018 at the earliest.
• IFRS 16 Leases is effective from 1 January 2019. Management has not yet analysed the input to the financial statements upon adoption.
The Company expects no impact from the adoption of IFRS 9. As the Company is not currently revenue generating, there would be no impact relating to the adoption of IFRS 15 on the current financial position. The Company will determine the effects of the adoption of IFRS 16 in future periods.
b. Capital Policy
The Company manages its equity as capital. Equity comprises the items detailed within the principal accounting policy for equity and financial details can be found in the statement of financial position. The Company adheres to the capital maintenance requirements as set out in the Companies Act.
c. Grants
The Company participates in two projects, ALKAMMONIA and POWER-UP, which receive funding from the European Union ('EU'). These grants are based on periodic claims for qualifying expenditure incurred by all the entities participating in each project consortium. The Company acts as coordinator for the projects and submits claims and receives funding on behalf of the other participants in each project consortium. Grant funds of other participants are paid over to them as soon as they are received and only the grant funding relating specifically to the Company's activities is reflected in the statement of comprehensive income. The qualifying expenditure is shown in the statement of comprehensive income as cost of sales. Grants, including grants from the EU, are recognised in the statement of comprehensive income in the same period as the expenditure to which the grant relates.
d. Other Income
Other income represents sales by the Company of waste materials.
e. Development Costs
Development expenditure does not meet the strict criteria for capitalisation under IAS 38 and has been recognised as an expense. Expenditure on and relating to the Company's alkaline fuel cell system installed at Stade in Germany under the EU funded POWER-UP project has been considered to be development expenditure to date, as the module is the first of its kind that has been produced.
f. Foreign Currency
The financial statements of the Company are presented in the currency of the primary economic environment in which it operates (the functional currency) which is pounds sterling. In accordance with IAS 21, transactions entered into by the Company in a currency other than the functional currency are recorded at the rates ruling when the transactions occur. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date.
g. Inventory
Inventory is recorded at the lower of cost and net realisable value. Cost comprises purchase cost plus production overheads.
h. Other Receivables
Other receivables arise principally through the provision by the Company of activities associated with grant-funded projects. They also include other types of contractual monetary assets. These assets are initially recognised at fair value and are subsequently measured at amortised cost less any provision for impairment.
i. Loans and Other Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
The Company's loans and receivables include cash and cash equivalents. These include cash in hand, and deposits held at call with banks.
j. Property and Equipment
Property and equipment are stated at cost less any subsequent accumulated depreciation and impairment losses.
Where parts of an item of property and equipment have different useful lives, they are accounted for as separate items of property and equipment.
Depreciation is charged to the statement of comprehensive income within cost of sales and administrative expenses on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
• Leasehold improvements 1 to 3 years
• Fixtures, fittings and equipment 1 to 3 years
• Vehicles 3 to 4 years
• Decommissioning asset life of the lease
Expenses incurred in respect of the maintenance and repair of property and equipment are charged against income when incurred. Refurbishment and improvement expenditure, where the benefit is expected to be long lasting, is capitalised as part of the appropriate asset.
The useful economic lives of property, plant and equipment and the carrying value of tangible fixed assets are assessed annually and any impairment is charged to the statement of comprehensive income.
k. Intangible Assets
Expenditure on research activities is recognised in the statement of comprehensive income as an expense as incurred. Expenditure in establishing a patent is capitalised and written off over its useful life.
Other intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and impairment losses.
Amortisation of intangible assets is charged using the straight-line method to administrative expenses over the following period:
• Patents 20 years
Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness and any impairment is charged to the statement of comprehensive income.
l. Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and call deposits with major banking institutions realisable within three months. Restricted cash is €300,000 held in escrow to support a bank guarantee in favour of Air Products GmbH relating to contractual obligations by the Company in relation to the Stade site in Germany.
m. Other Financial Liabilities
The Company classifies its financial liabilities as:
Trade and Other Payables
These are initially recognised at invoiced value. These arise principally from the receipt of goods and services. There is no material difference between the invoiced value and the value calculated on an amortised cost basis or fair value.
Deferred Income
This is the carrying value of income received from a customer in advance which has not been fully recognised in the statement of comprehensive income pending delivery to the customer. The carrying value is fair value.
n. Leases
Finance Leases
Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property. Capitalised leased assets are depreciated over the estimated useful life of the asset. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected in the statement of comprehensive income.
Operating Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
o. Financial Assets
All of the Company's financial assets are loans and receivables and investments. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets at fair value and comprise trade and other receivables and cash and cash equivalents. Investments are accounted for at cost less impairment.
p. Financial Instruments
Financial assets and liabilities are recognised on the balance sheet when the Company becomes a party to the contractual provisions of the instrument.
• Cash and cash equivalents comprise cash held at bank and short-term deposits
• Receivables are recognised initially at fair value and subsequently held at amortised cost less an allowance for any uncollectable amounts when the full amount is no longer considered receivable
• Trade payables are not interest bearing and are stated at their nominal value
• Equity instruments issued by the Company are recorded at the proceeds received except where those proceeds appear to be less than the fair value of the equity instruments issued, in which case the equity instruments are recorded at fair value. The difference between the proceeds received and the fair value is reflected in the share-based payments reserve.
q. Share-Based Payment Transactions
The fair value of options and warrants granted is recognised as an employee expense with a corresponding increase in Other Reserve. The fair value of the expense is estimated at grant date using the Black-Scholes option valuation model considering the terms and conditions upon which they were granted and a Log normal Monte Carlo stochastic model for market conditions. The expense accrues from the grant date until the options and warrants have unconditionally vested. Where vesting is dependent upon market or non-market performance criteria the vesting period is estimated at the grant date and, in the case of non-market performance criteria, is revised annually. When an option or warrant is exercised the balance is transferred to share capital with excess value going to the premium account whereas those that lapse are transferred to retained earnings. Where options or warrants are amended by the introduction of new schemes and the absorption of earlier schemes by agreement between the Company and the beneficiary the net difference in valuation is charged to earnings in the appropriate period.
r. Provisions
Provisions are recognised when the Company has a present obligation as a result of a past event and it is probable that the Company will be required to settle the obligation. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the balance sheet date and are discounted to present value where the effect is material.
s. Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or recoverable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date together with any adjustment to tax payable in respect of previous years.
Deferred tax assets are not recognised due to the uncertainty of their recovery.
t. R&D Tax Credits
The Company's research and development activities allow it to claim R&D tax credits from HMRC in respect of qualifying expenditure; these credits are reflected in the statement of comprehensive income in administrative expenses or in the taxation line depending on the nature of the credit.
u. Pension Contributions
The Company operates a defined contribution pension scheme which is open to all employees and makes monthly employer contributions to the scheme in respect of employees who join the scheme. These employer contributions are currently capped at 3% of the employee's salary and are reflected in the statement of comprehensive income in the period for which they are made.
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION AND UNCERTAINTY
In the preparation of the financial statements, management makes certain judgements and estimates that impact the financial statements. While these judgements are continually reviewed, the facts and circumstances underlying these judgements may change, resulting in a change to the estimates that could impact the results of the Company. In particular:
Income Taxes and Withholding Taxes
The Company believes that its receivables for tax recoverable are adequate for all open audit years based on its assessment of many factors, including experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgements about future events. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact income tax expense in the period in which such determination is made.
Capitalisation of Development Expenditure
The Company uses the criteria of IAS 38 to determine whether development expenditure should be capitalised. After assessing these, management has concluded that, until the Company's fuel cell system is proven to be commercially deployable, it would not be appropriate to capitalise development expenditure. Consequently, all development expenditure has been charged to the statement of comprehensive income during the year ended 31 October 2018.
Share-Based Payments
Certain employees (including Directors and senior Executives) of the Company receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ('equity-settled transactions').
The fair value is determined using the Black-Scholes valuation model and a Log-normal Monte Carlo stochastic model for market conditions. Both are appropriate considering the effects of the vesting conditions, expected exercise period and the dividend policy of the Company.
The cost of equity-settled transactions is accrued, together with a corresponding increase in equity over the period the directors expect the performance criteria will be fulfilled. For market performance criteria this estimate is made at the time of grant considering historic share price performance and volatility. For non-market performance criteria an estimate is made at the time of grant and reviewed annually thereafter considering progress on the operational objectives set, future plans and budgets.
Expected volatility has been based on the 3.5-year historical volatility of share price. Vesting requirements are three years for the exercise of warrants and options, except for 500,000 options granted which vest in two years. Certain options granted to Directors are also subject to performance conditions.
Decommissioning Provision
The Company has set-up a decommissioning provision for the removal of the plant and equipment installed at the Stade site in Germany, the cost of which is based on estimates.
4. SEGMENTAL ANALYSIS
Operating segments are determined by the chief operating decision maker based on information used to allocate the Company's resources. The information as presented to internal management is consistent with the statement of comprehensive income. It has been determined that there is one operating segment, the development of fuel cells. In the year to 31 October 2018, the Company operated mainly in the United Kingdom and in Germany. All non-current assets are located in the United Kingdom.
5. OPERATING LOSS
This has been stated after:
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Amortisation/Impairment of intangible assets | 31,117 | 34,319 | |||||
Depreciation of property and equipment | 87,536 | 53,858 | |||||
Depreciation of decommissioning asset | 31,365 | 139,121 | |||||
R&D expenditure eligible under the Government's R&D tax credit scheme | 1,479,209 | 1,634,019 | |||||
Equity-settled share-based payment expense | 221,261 | 701,367 | |||||
Foreign exchange differences | (14,933) | 54,543 | |||||
Auditor's remuneration - audit | 37,900 | 34,900 | |||||
Auditor's remuneration - corporation tax services | 6,700 | 5,000 | |||||
Auditor's remuneration - R&D tax credit services | 25,000 | 19,500 |
6. STAFF NUMBERS AND COSTS, INCLUDING DIRECTORS
The average numbers of employees in the year were:
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
Number | Number | ||||||
Support, operations and technical | 26 | 28 | |||||
Administration | 6 | 6 | |||||
32 | 34 |
The aggregate payroll costs for these persons were:
£ | £ | ||||||
Wages and salaries (including Directors' emoluments) | 1,625,140 | 1,814,778 | |||||
Social security | 208,665 | 186,337 | |||||
Employer's pension contributions | 30,858 | 34,087 | |||||
Equity-settled share-based payment expense | 220,953 | 701,367 | |||||
2,085,616 | 2,736,569 |
7. DIRECTORS' REMUNERATION
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Wages and salaries | 489,160 | 446,210 | |||||
Social security | 80,019 | 69,566 | |||||
Equity-settled share-based payment expense | 203,048 | 599,062 | |||||
Other compensation | 350,063 | 341,138 | |||||
Company pension contributions | 1,625 | 650 | |||||
1,123,915 | 1,456,626 | ||||||
The emoluments of the Chairman | 50,000 | 37,186 | |||||
The emoluments of the highest-paid Director | 558,414 | 977,326 | |||||
Company pension contributions of highest-paid Director | - | - |
The remuneration, details of share options and interests in the Company's shares of each Director are shown in the Directors' Report.
8. FINANCe COST
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Interest on finance lease | 2,547 | 3,541 | |||||
Bank charges | 5,733 | (110) | |||||
Bank interest receivable | (8,952) | (2,578) | |||||
(672) | 853 |
9. TAXATION
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
Recognised in the statement of comprehensive income | £ | £ | |||||
R&D tax credit - current year | (493,316) | (499,389) | |||||
R&D tax credit - prior year | (141,122) | (86,513) | |||||
Total tax credit | (634,438) | (585,902) | |||||
Reconciliation of effective tax rates | |||||||
Loss before tax | (4,959,455) | (5,510,961) | |||||
Tax using the domestic rate of corporation tax of 19% (2017: 19.41%) | (942,296) | (1,069,678) | |||||
Effect of: | |||||||
R&D tax credit - prior year | (141,122) | (86,513) | |||||
Expenses not deductible for tax purposes | 72,918 | 153,958 | |||||
R&D allowance | (365,365) | (365,435) | |||||
Tax credit on losses surrendered | (493,316) | (482,896) | |||||
Depreciation in excess of capital allowances | 10,886 | ||||||
Losses surrendered for research and development | 646,414 | 646,538 | |||||
Unutilised losses carried forward | 588,329 | 607,238 | |||||
Fixed asset differences | - | ||||||
Total tax credit | (634,438) | (585,902) |
10. LOSS PER SHARE
The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary Shareholders of £4,325,017 (2017: loss of £4,925,059) and a weighted average number of shares in issue for the year.
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
Basic loss per share (pence) | (1.10)p | (1.36)p | |||||
Diluted loss per share (pence) | (1.10)p | (1.36)p | |||||
Loss attributable to equity Shareholders | £4,325,017 | £4,925,059 | |||||
Number | |||||||
Weighted average number of shares in issue | 391,464,872 | 362,584,646 |
Diluted earnings per share
As set out in note 18, there are share options and warrants outstanding as at 31 October 2018 which, if exercised, would increase the number of shares in issue. However, 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.
11. INTANGIBLE ASSETS
2018 | 2017 | ||||||
Patents | Patents | ||||||
£ | £ | ||||||
Cost | |||||||
Balance at 1 November | 588,512 | 516,448 | |||||
Retirements | - | - | |||||
Additions | 91,601 | 72,064 | |||||
Balance at 31 October | 680,113 | 588,512 | |||||
Amortisation | |||||||
Balance at 1 November | 206,310 | 171,991 | |||||
Retirements | - | - | |||||
Charge for the year Impairment | 31,117 | 27,215 7,104 | |||||
Balance at 31 October | 237,427 | 206,310 | |||||
Net book value | 442,686 | 382,202 |
12. PROPERTY AND EQUIPMENT
Leasehold | Decommissioning | Fixtures, fittings | ||||
improvements | Asset | and equipment | Motor vehicles | Total | ||
£ | £ | £ | £ | £ | ||
Cost | ||||||
At 31 October 2016 | 337,462 | - | 1,163,905 | 17,994 | 1,519,361 | |
Additions | - | 301,172 | 120,111 | - | 421,283 | |
Disposals | - | - | (82,927) | - | (82,927) | |
At 31 October 2017 | 337,462 | 301,172 | 1,201,089 | 17,994 | 1,857,717 | |
Additions | - | - | 96,653 | - | 96,653 | |
Disposals | - | - | - | - | - | |
At 31 October 2018 | 337,462 | 301,172 | 1,297,742 | 17,994 | 1,954,370 | |
Depreciation | ||||||
At 31 October 2016 | 337,462 | - | 1,083,019 | 9,496 | 1,429,977 | |
Charge for the year | - | 139,121 | 47,860 | 5,998 | 192,979 | |
Disposals | - | - | (80,483) | - | (80,483) | |
At 31 October 2017 | 337,462 | 139,121 | 1,050,396 | 15,494 | 1,542,473 | |
Charge for the year | - | 31,365 | 85,036 | 2,500 | 118,901 | |
Disposals | - | - | - | - | - | |
At 31 October 2018 | 337,462 | 170,486 | 1,135,432 | 17,994 | 1,661,374 | |
Net Book Value | ||||||
At 31 October 2018 | - | 130,696 | 162,310 | - | 292,996 | |
At 31 October 2017 | - | 162,051 | 150,693 | 2,500 | 315,244 |
The Company has set-up a decommissioning asset for the removal of the plant and equipment installed at the Stade site in Germany and for dilapidations associated with the leasehold premises at Dunsfold in the UK, the cost of which is based on estimates.
13. INVESTMENT
As at 31 October 2018 the Company held 340,500 shares representing 24.0% (2017: 340,500 shares representing 24.0%) of the share capital of Waste2Tricity Ltd (a company registered in England & Wales) and exercises no significant influence over the activities of the Company. In the view of the Directors, this investment has no value currently and has been recognised at cost less impairment. No revenue was recognised in the period under the licence agreements with Waste2Tricity Limited and Waste2Tricity International (Thailand) Limited.
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Investment in Waste2Tricity Ltd | - | - |
14. INVENTORY
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Inventory | 163,720 | 162,993 |
15. OTHER RECEIVABLES
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Current: | |||||||
R&D tax credits receivable | 1,133,827 | 499,389 | |||||
EU grants receivable | 106,642 | 724,815 | |||||
Other receivables | 304,120 | 375,782 | |||||
1,544,588 | 1,599,986 | ||||||
Non-current: | |||||||
Other receivables | - | 8,480 | |||||
- | 8,480 | ||||||
1,544,588 | 1,608,466 |
There is no significant difference between the fair value of the receivables and the values stated above.
16. CASH AND CASH EQUIVALENTS
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Cash at bank | 1,357,328 | 984,588 | |||||
Bank deposits | 1,460,861 | 5,692,187 | |||||
2,552,068 | 6,676,775 |
Cash at bank and bank deposits consist of cash. There is no material foreign exchange movement in respect of cash and cash equivalents.
Restricted cash, not included in cash and cash equivalents, is €300,000 held in escrow to support a bank guarantee in favour of Air Products GmbH relating to contractual obligations by the Company in relation to the Stade site in Germany.
17. ISSUED SHARE CAPITAL
Ordinary shares | Share premium | Total | ||||||
Number | £ | £ | £ | |||||
At 31 October 2017 | 391,298,205 | 391,298 | 45,494,404 | 45,885,702 | ||||
Issue of shares on 24 May 2018 Equity based payments exercised | 400,000 | 400 | 12,120 192,818 | 12,520 192,818 | ||||
At 31 October 2018 | 391,698,205 | 391,698 | 45,699,342 | 46,091,040 | ||||
All issued shares are fully paid.
The Company considers its capital and reserves attributable to equity Shareholders to be the Company's capital. In managing its capital, the Company's primary long-term objective is to provide a return for its equity Shareholders through capital growth. Going forward the Company will seek to maintain a gearing ratio that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Company to meet its working capital needs. The Company's commercial activities are at an early stage and management considers that no useful target debt to equity gearing ratio can be identified at this time.
Details of the Company's capital are disclosed in the statement of changes in equity.
There have been no other significant changes to the Company's management objectives, policies and processes in the year nor has there been any change in what the Company considers to be capital.
18. Share options, warrants and SAYE
18a. SHARE OPTIONS
Weighted | |||||||
average remaining | |||||||
Number of options | Exercise price | contractual life | |||||
At 31 October 2016 | 11,905,000 | 3.13-51p | 7.1 yrs | ||||
Options granted in the year | - | - | |||||
Options exercised in the year | - | - | |||||
Options lapsed in the year | (1,840,000) | 17.5-35.75p | |||||
At 31 October 2017 | 10,065,000 | 3.13-51p | 6.3 yrs | ||||
Options granted in the year | 4,455,000 | 8 - 8.8p | |||||
Options exercised in the year | |||||||
Options lapsed in the year | (1,190,000) | 24 - 41p | |||||
At 31 October 2018 | 13,330,000 | 3.13 - 51p | 5.5 yrs |
18b. WARRANTS
Weighted | |||||||
average remaining | |||||||
Number of warrants | Exercise price | contractual life | |||||
At 31 October 2016 | 6,947,800 | 3.13-24p | 3.1 yrs | ||||
Warrants exercised in the year | (350,000) | 3.13p | |||||
Warrants lapsed in the year | (1,954,000) | 24p | |||||
At 31 October 2017 | 4,643,800 | 3.13-24p | 2.1 yrs | ||||
Warrants exercised in the year | (400,000) | 3.13p | |||||
Warrants lapsed in the year | |||||||
At 31 October 2018 | 4,243,800 | 3.13 - 24p | 1.1 yrs |
18c. SAYE
During the year the Company operated a share save scheme.
Weighted | |||||||
average remaining | |||||||
Number of SAYE | Exercise price | contractual life | |||||
At 31 October 2016 | 1,318,082 | 12-22p | 1.3 yrs | ||||
SAYE issued during the year | - | - | |||||
SAYE lapsed/cancelled during the year | (726,148) | 18.6-22p | |||||
SAYE exercised during the year | - | - | |||||
At 31 October 2017 | 591,934 | 12-22p | 0.6 yrs | ||||
SAYE issued during the year | |||||||
SAYE lapsed/cancelled during the year | (384,198) | 12 - 22p | |||||
SAYE exercised during the year | |||||||
At 31 October 2018 | 207,736 | 12p | 0.5 yrs |
18d. EQUITY-SETTLED SHARE-BASED PAYMENTS CHARGE
Share Options
Amount | |||||||
Average | Average | Average | Average | Average | Average | expensed | |
grant date | expected | risk-free | dividend | implied | fair value | in the 2018 | |
Option price | share price | volatility | interest rate | yield | option life | per option | accounts |
(p) | (p) | (p.a.) | (p.a.) | (p.a.) | (years) | (p) | £ |
3.13 8.8 | 3.13 6.58 | 113.8% 81.2% | 4.4% 0.8% | 0% 0% | 1.0 2.0 | 2 2.2 | - 7,974 |
10 | 10 | 46% | 4.4% | 0% | 1.5 | 2.5 | - |
17 | 17 | 80% | 1.5% | 0% | 1.5 | 9.48 | - |
17.5 | 18.75 | 188% | 4.4% | 0% | 1.5 | 14.07 | - |
24 | 23.75 | 188% | 4.4% | 0% | 1.5 | 17.80 | - |
20.75 | 20 | 214.8% | 4.4% | 0% | 1.0 | 15 | - |
32 | 31.75 | 243% | 4.4% | 0% | 1.5 | 24 | - |
34 | 34 | 80% | 1.5% | 0% | 1.5 | 18.96 | - |
35.75 | 35.75 | 124.7% | 1.5% | 0% | 1.5 | 21.8 | - |
39.25 | 39.25 | 80% | 1.5% | 0% | 1.5 | 21.89 | - |
41 | 41 | 80% | 1.5% | 0% | 1.5 | 22.86 | - |
51 | 58 | 75% | 2.1% | 0% | 1.5 | 32.00 | 202,101 |
Total charge for the year (2017: £686,431) | 210,075 |
Warrants
Amount | |||||||
Average | Average | Average | Average | Average | Average | Expensed | |
grant date | expected | risk-free | dividend | implied | fair value | in the 2018 | |
Warrant price | share price | volatility | interest rate | yield | option life | per option | Accounts |
(p) | (p) | (p.a.) | (p.a.) | (p.a.) | (years) | (p) | £ |
3.13 | 3.13 | 113.8% | 4.4% | 0% | 1.0 | 2 | - |
24 | 23.75 | 188% | 4.4% | 0% | 1.5 | 17.8 | - |
Total charge for the year (2017: £nil) | - |
SAYE
Amount | |||||||
Average | Average | Average | Average | Average | Average | Expensed | |
grant date | expected | risk-free | dividend | implied | fair value | in the 2018 | |
SAYE price | share price | volatility | interest rate | yield | option life | per option | Accounts |
(p) | (p) | (p.a.) | (p.a.) | (p.a.) | (years) | (p) | £ |
22 | 27.50 | 124.7% | 1.5% | 0% | 1.5 | 21.69 | - |
18.6 | 23.25 | 137.5% | 1.5% | 0% | 1.5 | 19.24 | |
12 | 15.00 | 78.6% | 0.7% | 0% | 1.0 | 8.4 | |
Total charge for the year (2017: £14,936) | 11,187 | ||||||
Total equity-settled share-based payment charge for the year (2017: £701,367) | 221,262 | ||||||
19. TRADE AND OTHER PAYABLES
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Current liabilities: | |||||||
Trade payables | 232,349 | 199,604 | |||||
Related parties | 3,240 | 1,039 | |||||
Deferred income | 28,187 | - | |||||
Finance lease liability | 7,574 | 10,844 | |||||
Other payables | 229,837 | 173,996 | |||||
Accruals | 140,360 | 150,683 | |||||
641,547 | 536,166 | ||||||
Non-current liabilities: | |||||||
Finance lease liability | - | 7,574 | |||||
- | 7,574 |
20. PROVISIONS
2018 | 2017 | ||||||
Decommissioning provision | Decommissioning provision | ||||||
£ | £ | ||||||
Non-current liabilities: | |||||||
Balance at 1 November | 301,172 | - | |||||
Addition | - | 301,172 | |||||
Utilisation | - | - | |||||
Balance at 31 October | 301,172 | 301,172 |
The Company has set-up a decommissioning provision associated with a commitment to remove the plant and equipment installed at the Stade site in Germany at a future date.
21. Operating lease commitments
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Non-cancellable operating leases are as follows: | |||||||
Within one year | 144,979 | 74,470 | |||||
Between one and five years | 403,778 | - | |||||
Greater than five years | - | - | |||||
548,756 | 74,470 |
The lease commitments relate to accommodation and a vehicle.
22. FINANCIAL INSTRUMENTS
In common with other businesses, the Company is exposed to risks that arise from its use of financial instruments. This note describes the Company's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.
Principal Financial Instruments
The principal financial instruments used by the Company, from which financial instrument risk arises, are as follows:
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Loans and receivables: | |||||||
Cash and cash equivalents | 2,707,103 | 6,676,775 | |||||
Other receivables | 1,544,588 | 1,608,466 | |||||
Fair value through profit and loss: | |||||||
Total financial assets | 4,251,691 | 8,285,241 | |||||
Other payables | 641,547 | 543,740 | |||||
Provisions | 301,172 | 301,172 | |||||
Total financial liabilities | 942,719 | 844,912 |
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into three levels based on the degree to which the fair value is observable as defined by IFRS 7:
• Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets and liabilities;
• Level 2 fair value measurements are those derived from inputs, other than quoted prices included within Level 1, that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.
No financial instruments have been transferred between Levels during the year.
General Objectives, Policies and Processes
The Board has overall responsibility for the determination of the Company's risk management objectives and policies and, while retaining ultimate responsibility for them, it has delegated part of the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company's finance team. The Board receives reports from the financial team through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce ongoing risk as far as possible without unduly affecting the Company's competitiveness and flexibility. Further details regarding these policies are set out below.
Credit Risk
Credit risk arises principally from the Company's other receivables and cash and cash equivalents. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk equals the carrying value of these items in the financial statements as shown below:
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Other receivables | 1,544,588 | 1,608,466 | |||||
Cash and cash equivalents | 2,707,103 | 6,676,775 |
The Company's principal other receivables arose from: a) annual payments for various services held as pre-payments b) VAT receivable from UK and German tax authorities c) an R&D tax credit d) grant funding receivable from the EU. Credit risk with cash and cash equivalents is reduced by placing funds with banks with acceptable credit ratings and government support where applicable and on term deposits with a range of maturity dates. At the year end, most cash was temporarily held on short-term deposit.
Liquidity Risk
Liquidity risk arises from the Company's management of working capital and the amount of funding required for the development programme. It is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. The Company's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.
The principal liabilities of the Company are trade and other payables in respect of the ongoing product development programme. Trade payables are all payable within two months. The Board receives cash flow projections on a regular basis as well as information on cash balances.
Interest Rate Risk
The Company is exposed to interest rate risk in respect of surplus funds held on deposit and, where appropriate, uses fixed interest term deposits to mitigate this risk.
Fair Value of Financial Liabilities
Year ended | Year ended | ||||||
31 October 2018 | 31 October 2017 | ||||||
£ | £ | ||||||
Trade and other payables | 641,547 | 543,740 | |||||
Provisions | 301,172 | 301,172 |
There is no difference between the fair value and book value of trade and other payables and provisions.
The Company does not enter into forward exchange contracts or otherwise hedge its potential foreign exchange exposure. The Board monitors and reviews its policies in respect of currency risk on a regular basis.
23. CAPITAL COMMITMENTS
The Company had no capital commitments outstanding at 31 October 2018 (2017: £nil).
24. POST-BALANCE SHEET EVENTS
On 11 April 2019, a £4 million convertible loan facility was signed for a period of 36 months from the signing date with a further six-month period, post the expiry date of the facility, to repay any outstanding amounts. The facility can be drawn down in £25,000 principal increments at the Company's discretion provided that,
1. the total amount drawn down in any one 60-day period does not exceed £500,000,
2. the total amount repayable does not exceed £4 million,
3. the volume weighted average price of the three previous trading days is greater than 2 pence, and
4. the headroom to allot non pre-emptive shares is 125% of the number of shares that would be required to convert at the time of the drawdown.
The draw down will be 90% of the principal amount and outside these parameters draw down will be by mutual consent.
The principal amount is convertible at the lender's discretion at the lower of market price at draw down and the volume weighted average price of the three previous trading days at the time of conversion.
Early redemption can be made at the request of the Company at 105% of the principal amount. In the case of a change in control or default then the draw down amounts are redeemed at 105% and 120% of the principal amount respectively.
An acceptance fee of £200,000 was settled by issue of shares and a further fee of 5% is payable on draw downs.
On 12 April 2019 the Company issued 27,108,334 shares and raised £ 0.8 million.
25. ULTIMATE CONTROLLING PARTY
There is no ultimate controlling party.
26. RELATED PARTY TRANSACTIONS
During the year ended 31 October 2018:
£293,750 was invoiced by iProcess Engineering & Consulting Ltd (a company registered in England & Wales) for consultancy services in respect of the services of Jim Gibson as a Director of AFC Energy plc (2017: £191,917). Mr. Gibson is also a Director and Shareholder of iProcess Engineering & Consulting Ltd. At 31 October 2018, the sum owing to iProcess Engineering & Consulting Ltd was £nil (2017: £25,500) and an amount payable of £ 972 (2017: £ nil).
At 31 October 2018, the amount receivable from Adam Bond was £nil (2017: £103,639) and an amount payable of £ 2,268 (2017: £100,000). Adam has repaid to the Company all outstanding taxation remitted by the Company in previous years to HMRC on Adam's behalf in relation to different tax jurisdictions between the UK and Australia and, following Board approval, as a result of meeting certain performance conditions, the Company has paid Adam a £100,000 bonus that had been accrued.
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AFC Energy plc published this content on 12 April 2019 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 12 April 2019 07:02:05 UTC
