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Transforming
power
Annual Report & Accounts
for the year ended 31 October 2012
AFC Energy plc
Unit 71.4 Dunsfold Park
Stovolds Hill
Cranleigh
Surrey GU6 8TB
Tel: 01483 276726
Fax: 01483 266839
www.afcenergy.com
Stock Code: AFC
We are the leading developer
of low-cost alkaline fuel-cell
systems using hydrogen to
produce clean electricity.
Electricity
Our aim is to become
one of the lowest cost
generators of electricity
on an industrial scale.
Overview
Highlights
Chairman’s Statement
our Business
operational Review
Technical Progress
Financial overview
Strategic overview
1
2
4
8
10
14
18
Governance
Board of Directors
Directors’ Report
Financials Statements
Statement of Comprehensive Income
Statement of Financial Position
26
28
Statement of Directors’ Responsibilities 33
Statement of Changes in Equity
Independent Auditor’s Report
34
Cash Flow Statement
notes forming part of the
Financial Statements
Company Information
35
36
37
38
39
52
S
T
n
E
T
n
o
C
We have launched our
new website, visit:
www.afcenergy.com
www.afcenergy.com
Highlights
£10.94m
Cash (at 31st October 2012)
£8.7m
investment from
Ervington Investments
€8m
Earmarked EU funding
www.afcenergy.com
In the space of 12 months, we
have moved further than many
companies have gone in decades.
Ian Williamson
Chief Executive Officer
Read more – Operational Review P8
Technical
• Generated first electrical power with Beta system using industrially produced hydrogen
• Extended the life of fuel cells beyond three months in the laboratory
• Completed development of the Beta+ cartridge technology and established
three operational demonstration systems based on the Beta+ technology
• Created a dedicated production facility and a team that has already produced
cartridges which are currently under long-term test
• Received two further positive independent technical reviews from the
Centre for Process Innovation (“CPI”)
Post-period Highlight
• Extended the life of fuel cells beyond six months in the laboratory
• Established a research relationship with Lancaster University
Commercial
• Partnered with Industrial Chemicals Ltd (“ICL”) for installation of up to
•
1MW (megawatt) of AFC Energy fuel cell systems
Increased the protection of our intellectual property by filing further patents.
In 2012 the number of filed patent families grew by almost 50% to 16
Post-period Highlights
• Opened a South Korean sales office staffed by a team from Intralink, our sales
channel partners
• Acquired assets and intellectual property of Diverse Energy Limited (“Diverse
Energy”), to complement AFC Energy’s EU funded ammonia-fed fuel system project
Financial
• Secured an £8.7m investment from Ervington Investments Ltd (“Ervington”),
a company beneficially owned by Roman Abramovich
• Cash as at 31 October 2012 £10.94m (31 October 2011: £5.97million)
Post-period Highlights
• Awarded up to €6m from the European Union (“EU”) to support the ICL project
• Awarded up to €2m from the EU to support a research project for the
development of ammonia-fed alkaline fuel cell systems
1
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012Overview
Chairman’s Statement
The company has never been
in such a strong position.
Tim Yeo
Chairman
Market Background
The deployment of fuel cell systems
has continued to grow strongly over
the past twelve months, with strong
progress in particular in the US and
South Korea. Stationary Industrial Power
shipments rose from 8,300 units in
2010 (equivalent to 35MW) to 16,100
units in 2011 (equivalent to 85MW)*.
Further growth is confidently expected
through 2012 and beyond, bolstered by
increasing interest from other countries
like Germany and Japan who are keen to
accelerate the use of renewable energy.
There have been some high-profile
adopters; both Apple and Ebay, for
example, have installed fuel cell systems
at data centres in the US. Coca-Cola
is also using fuel cells to provide
combined heat and power. The year also
saw the development in South Korea of
the world’s largest fuel cell plant to date
– an 11.2MW facility in Daegu.
Subsidies and beneficial feed-in
tariffs remain an important part of the
equation currently – notably in South
Korea – with governments recognising
the need to accelerate and incentivise
the development and installation of
alternative energy systems. This provides
an opportunity in the short-term of
course, but the longer-term challenge is
to develop systems which are economic
in their own right, which will be vital
when markets develop and grow.
AFC Energy has had this longer-term
perspective in mind throughout the
development process to date. The Board
believes that the choice of materials used,
their recyclability and the overall design of
the system will ensure that once volume
production commences, the cost of
electricity will be truly competitive against
incumbent technologies. This will make
AFC Energy very different from other fuel
cell companies.
Overview
It has been a year of marked
technological progress, aided by
ongoing results from our trials at
AkzoNobel’s chlorine plant in Bitterfeld
and we remain extremely grateful to
them for their continued support in
many areas.
We commenced generating electrical
power in late 2011 with the Beta
system in Germany. Throughout 2012
we have successfully tested improved
iterations. Importantly, the units can be
fully monitored and stopped/started
remotely meaning our development
team are able to minimise their time
away from our laboratory in Dunsfold.
We announced, in May, that we had
extended the fuel cell electrode life to
over three months in the laboratory and
this was extended to six months in early
2013. We are achieving greater power
density with greater longevity and are
closer to the optimum combination for
full commerciality.
We were again pleased to receive
two further independent reviews of
our progress from the CPI, which
is covered in more detail in the
Operational Review. However, an
even more significant endorsement of
our technology was the commercial
agreement with ICL to install a fuel cell
facility at their newly commissioned
chlorine facility in Essex, which we
announced in June.
This will be the world’s largest alkaline
fuel cell energy generation system and
the two companies were notified in
November 2012 that a European Union
grant of up to €6m had been earmarked,
providing four years’ financial support
for the project, which is expected to
commence in April 2013.
Another important milestone was the
opening of our pilot production plant
at Dunsfold. This was important for two
reasons. Firstly, it is a vital step towards
developing fully automated, in-line
production. Secondly, with assembly
moving over to a dedicated production
team, it frees up the technical team to
focus even more on system development.
Once again, the AFC Energy technical
team, led by Gene Lewis are to be
congratulated for the rapid progress
made over the last year.
* Fuel Cell Today
2
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 The Company has remained steadfast in
managing its cash resources prudently
through the year and decided in
October 2012 to agree an investment
of £8.7m by Ervington Investments,
resulting in them holding 15% of the
enlarged issued share capital of the
company. Ervington’s ultimate beneficial
owner is Roman Abramovich.
AFC Energy’s cash resources at the end
of October were £10.94m (2011: £5.97m)
putting the company in an extremely
strong position to execute its growth
strategy from this point.
Our Partners
In terms of commercial impact, the
company is focused in the near-term
on driving delivery into its initial target
market of the chlor-alkali industry and
will be working ever more closely with
both AkzoNobel and ICL to achieve
this in 2013.
Medium-term opportunities in other
areas remain substantial.
Since 2009, Waste2tricity Ltd (“W2T”)
has had a licence option from AFC
Energy to deploy fuel cells on municipal
waste to energy projects in the
UK. We announced in April 2012 a
commercialisation agreement with W2T
which will result in AFC Energy receiving
a non-refundable fee of £1m over 4 years
of which £150,000 was received in the
year just ended.
W2T is working on projects which,
if successfully brought to fruition,
could offer AFC Energy an exciting
opportunity in the medium term, once
volume production has commenced.
Elsewhere, the company continues to
work closely with Linc Energy with a
view towards deployment of fuel cells
in underground coal gasification (UCG)
as well as a number of other parties for
other applications.
While the company is focused
predominantly on large-scale industrial
applications, we have always believed
there are opportunities for deployment
on a smaller scale for use in primary,
back-up or temporary power systems.
In November 2012, we were therefore
pleased to announce the acquisition of
certain assets and intellectual property
from Diverse Energy Ltd and at the
same time a further EU grant of up to
€1.96m for the development of ammonia
fed alkaline fuel cells. Ammonia is easily
converted into hydrogen, via catalytic
“cracking”, and Diverse Energy has been
able to gain traction in delivering small-
scale systems into the mobile phone
mast power market within Africa.
Management and Board
There were four changes at Board level
during the year.
Sir John Sunderland joined the Board
on 8th March 2012 as a Non-Executive
Director, effectively replacing Simon
Hunt who decided to stand down
as from the AGM due to conflicts of
business interests. Sir John’s extensive
business experience is already proving
to be a valuable asset to the Company.
Adam Bond joined the Board on 1st
June as Linc Energy’s representative,
replacing David Smith. At Linc, Adam
is responsible for the execution and
deployment of the company’s clean
energy, Underground Coal Gasification
(UCG) to Gas to Liquids (GTL) projects
around the globe and he is very familiar
with AFC Energy.
Summary and Outlook
2011 was by far the most successful year
in the history of fuel cells and further
strong growth in the industry worldwide
is expected in 2012 and beyond.
Right now, there is very strong growth
occurring in the South Korean market
and AFC Energy is actively pursuing its
interests there. The global marketplace
is already big and this is before any
significant interest from China, for
example. Notwithstanding the current
“dash for (shale) gas”, driven by perceived
lower cost and improved availability,
governments and industries across the
world must increasingly look to reduce
their carbon footprint further and faster.
I would like to thank all Board members
and the ever-growing team of hard-
working and enthusiastic people at AFC
Energy for their efforts as well as our
partners and suppliers for their support.
Also, a word of thanks to our
shareholders for both their support
and patience. The path we are treading
may sometimes seem long, but we will
not cut corners to try to arrive at our
destination more quickly only to find
we have taken the wrong path. We are
developing a product and a company
that we believe will be substantial and
every step must therefore be measured
and in the right direction.
There is no question that alkaline (and
indeed other) fuel cell technologies
work. However, history shows us that
smart design, reliability and lower
cost are the necessary attributes of a
market-leading product and AFC Energy
has made very substantial progress in
2012 towards achieving this. From a
technological, managerial and financial
standpoint, the Company has never
been in such a strong position and its
commercial position is strengthening all
the time. The coming year promises to
be a very exciting one for AFC Energy.
Tim Yeo
Chairman
1 March 2013
www.afcenergy.com
3
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012Overview
Revolutionary
Fuel cells that will displace conventional
power generation
Fuel cells convert fuel directly into electricity. Alkaline fuel cells are
the oldest and most effective of all fuel cell chemistries achieving
up to 60% electrical efficiency. AFC Energy is re-engineering this
effective technology using modern materials and catalysts readily
available today. Our systems are aimed at the distributed and
industrial power generation markets which are recognised as the
fastest growing sectors for fuel cell applications.*
• More efficient – at all levels of utilisation
They do not burn a fuel like in an internal combustion engine or
turbine so they do not need to drive pistons or blades. The avoiding
of this intermediate mechanical step and having a direct conversion
route to electricity is what makes fuel cells so efficient. They are
‘scaleable’ without impacting efficiency unlike many of the world’s
existing power production technologies.
• Quiet and clean at point of generation
A fuel cell has very few moving parts. Small electrical pumps and
blowers move gases and liquids around the system. Therefore, it is
quiet compared to traditional technologies. Its two main exhausts
are water and oxygen scrubbed air.
• Produce water rather than consume it
An AFC Energy fuel cell which is continuously fed hydrogen will
chemically react the hydrogen with scrubbed air to produce water,
heat and electricity. This production of water is seen as a benefit in
specific regions around the world.
4
* Fuel Cell Today
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Our Business
The production of low-cost electricity that is competitive against mainstream
forms of electricity generation has enormous market potential from a wide range
of industrial settings, sectors and regions.
Solid
Gas
Regions
We are focused on those markets where:
hydrogen is easily available and possibly free as a waste product from the manufacturing process...
Chlor-alkali
Hydrogen is a by product of chlorine manufacture. Around 15% is
wasted and the remainder typically has low value. Alkaline fuel cells
powered from this hydrogen are chemically compatible with chlorine
manufacture. Using AFC Energy’s alkaline fuel cell systems both
electrical costs and carbon emissions can be reduced by up to 20%.
1%
77
of world electricity
consumption
manufacturing
sites in Europe
625
MW of waste
hydrogen in
Europe
Energy from Waste (EfW)
Hydrogen can be generated economically from domestic and
commercial waste – due to its high hydrocarbon content. AFC
Energy’s alkaline fuel cell systems have the potential to generate c.
40% more electrical power from the same waste, lowering carbon
emissions by the same amount.
1.3
billion t/Yr
amount of MSW*
worldwide
40%
more power
than a turbine
140
£/MW revenue from
a double ROC*
qualified plant
Natural and Bio-gas
Natural gas and bio-gas are predominantly methane which is
hydrogen-rich. Hydrogen is released using a standard industrial
process known as reforming (SMR). Developments in this field
are leading to improving economics for the reforming process at
smaller-scale steam methane.
70%
efficiency of SMR
process for H2
production
48%
of H2 today
produced by
SMR globally
104
number of
bio-gas plants
in the UK
Coal Gasification
Coal can be gasified either underground or at the surface to
produce hydrogen and carbon dioxide (which is captured, ready for
storage if available). AFC Energy’s alkaline fuel cell systems enable
the cleaner, more efficient use of coal for electricity generation as
well as providing water required for the gasification process.
85%
of energy content
of coal recovered
1.5
trillion tonnes
estimated coal
reserves if accessed
with UCG
50%
expected power
efficiency with
fuel cells
Others
There are many other sources of hydrogen:
• Ammonia
• Electrolysers
• Chemical processes
• Algae/bacteria
• Blast furnace gas
1
atomic number
of hydrogen
90%
of the atoms in the
universe are H2
-253
oC boiling point
of H2 (degrees
centigrade)
...and regions that offer attractive subsidies for electricity that is generated from fuel cells.
South Korea
Financial incentives paid for electricity generated from fuel cells
makes South Korea a particularly attractive target market for
AFC Energy fuel cell systems.
250
$/MW market
value of power
from a fuel cell
11.2
MW installation
of the worlds
largest fuel cell
power plant
10%
portion of
renewable energy
to be supplied
by 2022
Germany
In the EU, Germany continues to champion the introduction
of fuel cells. Long term support for combined heat and
power solutions is available which doubles the value of the
power supplied.
5,905
number of bio-gas
plants in Germany
(2010)
51
€/MW CHP
bonus for
fuel cells
1.4
billion € support for
H2 and fuel cells
up to end 2016
* MSW - Municipal Solid Waste
** ROC - Renewable Obligation Certificate
5
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012Overview Our Business continued
Our journey to commercialisation
y
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Commercial installations
• Optimisation of manufacturing
and scale up
• Identify sales channel and
manufacturing partners
Commercial demonstration & early adopter
• Value engineering
• Process optimisation
• Supply chain development
• Automation of manufacturing
Prototype field trials
Next generation field trials
• System integration
• Hazop analysis
Proof of concept
• Prototype development
Technology concept
Time
Revenue Growth
Our business model
• Funded projects
• Market positioning partners
• Development revenue
• Licence revenue
External agency funding makes our shareholder capital
work harder. AFC Energy look to fit our development
needs within defined funding rules. This allows projects to
be delivered earlier and with less call on internal financial
resources for capital items.
• Overhead coverage
Many agencies fund direct time spent on key technical
research, development and demonstration. A portion of
overhead recovery is also permitted. This dramatically
improves our monthly cash burn rates.
Our initial licence revenues were obtained this year.
Our work with partners in this area is designed to seed
opportunities for our fuel cells in markets which have a
longer sales/delivery process such as Waste-to-Energy.
Working in this way minimises our sales costs and helps
deliver market recognition earlier.
6
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
Our progress on the journey
Opening of South Korea office through appointment
of Intralink.
Identify and engage European commercial partners
2013/14
Commercial Partners
Industrial Chemicals project earmarked EU funding for largest
alkaline fuel cell installation in the world.
Semi/full automation of production process
Upgrading of our technology and cartridge configuration led to
our first commercial system becoming part of the AkzoNobel trial.
First licence revenue flows from the W2T UK agreement, first
industrial power generated
2013
ICL
2012
AkzoNobel
The larger Beta system was developed using results from these
trials. The system was tested in-house and then deployed to
AkzoNobel, Germany.
2011
Beta System
Our 3.5kW Alpha system was field tested and proven at both
AkzoNobel, Germany and Linc Energy, Australia.
2009
Alpha System
• Manufacturing partners
• Customer sales
• Licence revenue
• Capital sales revenues
Our work with manufacturing partners is just
beginning. AFC Energy is currently developing
both its supply chain and its equipment for
manufacturing automation. Our philosophy
remains that the redeployment of process
equipment from other industries will offer
the highest integrity product for the lowest
investment. Once our production line has been
fully mapped out and proven we will engage
with preferred production companies for
licensed manufacture.
Although, in the longer term, we wish to retain ownership of our fuel
cell systems it may be prudent to engage with some of our partners
to sell our systems as we continue our development. This additional
revenue will help support the company during this initial phase.
• Electricity, heat & water revenues via an ESCo model
An Energy Services Company (“ESCo”) is AFC Energy’s supply
method of choice. We believe this will reduce decision time, especially
in mature industries, and allow the Company to take advantage of the
expected longer term growth in global energy prices.
• Hybrid
Our Hybrid offering will merge the concepts outlined above. We will
obtain an initial advance payment for the system and also engage
with our partner on a long term basis via an ESCo arrangement.
7
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012Overview Opportunity
8
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Operational Review
It is clear that AFC Energy is built
on unique technology with a
considerable global opportunity.
Ian Williamson
Chief Executive Officer
2012 has been a year of great progress
for AFC Energy. Since joining as CEO
at the end of 2011, my belief in the
potential of the Company has only been
strengthened. It is clear that AFC Energy
is built on unique technology with a
considerable global opportunity.
There are three key areas where it is
clear AFC Energy is in a far stronger
position than it was 12 months ago. We:
• have seen rapid technical progress;
• have moved closer to realising our
commercialisation ambitions; and
• are on a significantly stronger
financial footing, enabling us to
execute our growth and
investment strategies.
We have embarked on an ambitious
strategy to become a leading hydrogen
fuel cell energy supply company for
industrial and utility-scale applications.
We believe our technology will continue
to develop into one of the lowest cost,
most efficient fuel conversion
devices available.
2012 saw the Company take great
strides towards that goal both in
development and commercial terms.
We have seen markedly increased
activity from many interested future
customers that understand the potential
of AFC Energy’s technology and are
seeking to apply it to their own needs.
Operational
Review
Technical
Progress
Financial
Overview
Strategic
Overview
Sections
P10
P14
P18
9
6 months
Electrode longevity in laboratory
60%
Increase in electrode power
output in the field
20,000
Electrode production
capacity delivered
Our electrode power
output and longevity
performance is in line
with our technology
development plan.
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012Overview Technology
10
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Operational Review
1
Technical
Progress
Once again, the Company
has made significant
progress in the technical
development of an efficient
and robust fuel cell system.
Once again, the Company has made
significant progress in the technical
development of an efficient and robust
fuel cell system.
We have made several technical
advances in electrode life and power
performance, as a result of extensive
lab and in-field testing at AkzoNobel’s
Bitterfeld plant, as well as making
strategic progress in other areas.
Since the year-end:
We have extended the electrode life in the
laboratory to over six months and we are
focused on further developing electrode
life towards 12 months and beyond where
we believe we will have a product that is
economic globally in all target markets.
Power output from our electrodes
has now escalated by over 60% when
compared to that being achieved at the
start the previous fiscal year. This is in-
line with the technical plan created for
the Company.
We have announced a technical
partnership with Lancaster University
to add high quality resource and
capacity in the required areas.
We have shipped our initial test Beta+
system to Industrial Chemicals Ltd for
feedstock assessment whilst we await
the finalising of the EU funding and
begin the build programme for the
large scale system.
Partnerships
This has been a milestone year for AFC
Energy. In early 2012 we produced our
first industrial energy at AkzoNobel
from a Beta+. Whilst the actual
performance of the system remains
commercially confidential, AkzoNobel
continued to offer us every support and
encouragement. We have run a number
of different tests on the systems in
Germany. Longevity and power output
are important but factors such as cycling
and maintenance techniques are also
being assessed. We also look beyond
the fuel cell itself at possible factors to
consider at performance so assessing
environmental conditions has proven
invaluable in development terms.
Strengthened Development Team
We strengthened our development
team at Dunsfold with the addition of
renowned fuel cell scientist Naveed
Akhtar early on in the year and have
futher strengthened the team with
the addition of three highly qualified
scientists. We continue to resource
globally for these posts, attracting the
highest possible calibre of candidates
which has allowed us to create a
wonderfully multinational and
talented team.
Expanded Production
As our development team continued
to deliver our technical milestones,
our plans for expanded production
AkzoNobel and
AFC Energy
Driving fuel cells to
commercial reality
AFC Energy has two Beta+ test systems
installed at AkzoNobel, Bitterfeld. Primarily
for electrode and cartridge development,
the systems have been in continuous use
this year. Factors such as power output,
longevity, system cycling and maintenance
techniques have all been tested. The
programme is on track to deliver its goals.
70,000
m3/day H2 produced at Bitterfeld
100MW
if all used for power via a fuel cell
Equates to c. 20% reduction in
plant power consumption
11
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012Overview Operational Review continued
1
Technical
Progress
continued
The pace of development
within AFC Energy appears
to be accelerating.
Dr Jon Helliwell, CPI
took shape. An initial production
facility was funded and commissioned
within the fiscal year and within the
budget allocated for it, which allows
the Company to produce up to 20,000
fuel cell electrodes per year using hand
crafted processing. A production team
of skilled fuel cell professionals was
employed under the leadership of Nick
Yeomans, our new production manager.
This has allowed the development team
to refocus on the next steps for the
technology and we have already seen
the benefits of this.
Funded Projects – Underway
We also began our initial EU funded
project – Project LASER-CELL.
AFC Energy is leading a group of
companies who are all interested in
developing innovative high-volume
production technologies which can
be used to manufacture alkaline
fuel cell components. The project is
due to run for three years and will
run in parallel with the Company’s
current development programme.
The Company’s work in this area is
supported by a €1.4m grant.
Funded Projects – Earmarked
Our funding success at the EU level
has continued and we have two new
projects earmarked for funding –
Power Up and Alkammonia.
• Power Up will provide significant
The Company:
funding for our scaled up, commercial
demonstration project with ICL.
This project builds on our successful
AkzoNobel development work. In this
project we will be delivering our first
full scale commercial system capable
of supplying enough power for up
to 500 homes. The system will be
delivered in stages over the period of
the project.
• Alkammonia allows us to continue to
develop our knowledge of different
hydrogen supply feedstocks for
integration with our fuel cell system.
Initial laboratory tests have indicated
that our technology will integrate
well with ammonia fed systems. This
project will expand our knowledge
in the area and lead to an initial
integrated system design.
The addition of Diverse Energy’s IP and
technical know-how will further aid our
speed of development in this area.
Programme Assessment
Our programme has once again been
assessed externally. The Company has
continued to commission independent
reviews of its progress from Dr Jon
Helliwell, Project Manager, Fuel
Cell Applications at the CPI, which
independently benchmark the progress
of our technology. The CPI carried out
reviews in January and August 2012 and
the following are the key highlights from
the latter review:
• Completed its Beta cartridge test
programmes at Dunsfold and
Bitterfeld;
• Completed development of the
Beta+ cartridge technology;
• Established three operational
demonstration systems based
on the Beta+ technology;
• Created a dedicated production
facility and a team that has already
produced cartridges that are
currently under long-term test;
• Developed these systems to
the point at which they can be
interrogated and operated (started/
stopped) with ease, even from a
remote location;
• Supported successful operation of
three Beta+ systems simultaneously;
• Ran the Beta+ demonstration
systems for a combined total of
several thousand hours; and
• Continued to build a very strong
relationship with its first key
customer, AkzoNobel.
The following is an extract from
the summary of this review:
12
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
Overview
CPI Progress Report
aspects, so he fully expects to see
this data develop as the Company
progresses along its road map.
In conclusion, the author still
strongly believes that the Company
will achieve its technical and
commercial objectives and this
belief has been strengthened by the
very positive developments made
since his last review.
Dr Jon Helliwell
Project Manager,
Fuel Cell Applications,
CPI Innovation
August 2012
The pace of development within
AFC Energy appears to be
accelerating and the Company
has clearly moved a long way from
a proof of concept phase into
demonstration and production.
The Company is delivering on both
its technology road map and its
commercial business plan.
The Company still faces challenges
moving forward. In exactly the
same way as it is amassing data
to demonstrate the robustness of
its technology, it needs to build
up further financial data that
demonstrates the low cost of its
technology and the low total cost of
ownership. It has made a good start
in this area by establishing a robust
cost system.
The establishment of a dedicated
production capability, with all
the disciplines entailed, will
greatly facilitate this task. The
author strongly believes that the
Company is applying exactly the
same discipline and rigour to the
financial and economic aspects of
its technology as to its technical
Our funding success
at the EU level has
continued and we
have two new projects
earmarked for funding.
Diverse Energy’s IP and
technical know-how
will further aid our
speed of development
in this area.
www.afcenergy.com
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
13
Economy
14
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
Operational Review continued
Overview
2
Financial
Overview
In 2012, AFC Energy
delivered its highest
annual revenue.
The Company has
adequate financial
resources to continue
its operations for the
foreseeable future.
Outsourcing of basic
accounting and payroll
functions, saving an
annualised £50k p.a.
In 2012, AFC Energy delivered its
highest annual revenue through a
combination of licence income, sales
to commercial customers and grant
income, the first of these representing
£0.26m of the overall total of £0.36m.
All but £0.03m of this was in the UK.
The loss fell by £0.2m to £3.79m as a
consequence of increased revenue,
lower depreciation and lower share-
based payments charges offsetting
a modest rise in own and EU funded
R&D expenditure, mainly resulting
from increased technical and
production staffing and system
and cartridge builds.
The Company has continued to keep
administrative costs under tight
control and to look creatively at how
to maximise the impact of its assets,
including cash resources. Examples of
this in the year include:
• Outsourcing of basic accounting
and payroll functions, saving an
annualised £50k p.a.
• Carefully selected strategic
investment in capital assets, notably
investment of £180k in a pilot scale
production facility at Dunsfold.
The facility enables the increased
production of fuel cells with full
cartridge assembly to meet AFC
Energy’s growing commercial
activities and in-house expansion
programme. It provides a prudent
low cost interim step between
small-scale and fully automated
high volume in-line production,
and will also act as a demonstration
facility for discussions with
manufacturing partners.
• The development of re-cycling
programmes for fuel cell
components to reduce purchase
costs and environmental impact.
• The loan of certain fully depreciated
capital assets to the Lancaster
University to support the programme
of technical collaboration announced
on 30 January 2013.
The Board has maintained its policy
of continually reviewing cash balances
and forward requirements and seeking
to ensure that an adequate funding
horizon is maintained. During the
year, the cash outflow from operating
and investing activities was £3.32m,
against £3.31m in the previous year.
This included the repayment in full
with interest of the £150k loan granted
to W2T in 2009. The projected cash
balance as 31 October 2012 gave the
Company a funding horizon to mid-2013.
The Board was therefore very pleased
to accept an investment of £8.7m
on 10 October 2012 from Ervington
Investments Ltd (whose ultimate
beneficial owner is Roman Abramovich)
at 26.6 pence per share for a 15% share
in the Company.
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
15
Operational Review continued
2
Financial
Overview
continued
The Company is applying
exactly the same discipline
and rigour to the financial
and economic aspects of
its technology.
Jon Helliwell, CPI
AFC Energy expects
to see modest staffing
increases, further
investment in cell
testing and in-line
production.
The Company is
currently pursuing
23 families of patents.
The resultant cash balance of £10.94m at
31 October ensures that the Company
has adequate financial resources
to continue its operations for the
foreseeable future.
It was pleasing to note that a
comprehensive review of the Company’s
patent portfolio at the year-end
confirmed the existing assessment of
its value. The current patent portfolio
will underpin the commercial fuel
cell systems and will be important in
ensuring that the Company maximises
the tax advantages of the forthcoming
Patent Box regime.
Looking ahead, AFC Energy expects
a modest further increase in its
staffing to support development
and deployment of its commercial
system. Even after entering into the
collaboration with Lancaster University,
it also expects to invest in further cell
testing capacity, to meet the increasing
demand for test stands, driven by the
rapidly lengthening time each cell is on
test. Finally, it envisages investing in
the first in-line production facility.
Intellectual Property
AFC Energy continues to generate
intellectual property as a result of its
research and development activities.
The Company regularly reviews this
intellectual property to determine its
value and the best way to protect it.
The Company reported last year that
it had strengthened its technical team
with the appointment of further world-
class fuel cell expertise. This move has
borne fruit, and in January 2013, AFC
Energy was delighted to report that
it had made significant advances in
the field of low cost alkaline fuel cells.
The Company is currently pursuing
23 families of patents, including one
acquired from Diverse Energy, with 11
filed since the last annual report and
others in preparation. AFC Energy
endeavours to anticipate future
technical developments in the field of
alkaline fuel cells and to apply for patent
protection for inventions which are likely
to be incorporated in future generations
of its products.
16
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Sales
Loss
Cash at Year End
£0.36m
£3.99m
£3.79m
£10.94m
£5.97m
£0.04m
2011
2012
2011
2012
2011
2012
Highest annual revenue
through a combination
of licence income, sales
to commercial customers
and grant income.
Loss down by £0.2m
to £3.79m.
£10.94m
Cash
(at 31st October 2012)
£8.7m
investment from
Ervington Investments
€8m
Earmarked EU funding
Number of patents filed
16
11
2011
2012
17
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012Overview Strategy
18
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Operational Review continued
3
Strategic
Overview
Last year, we set out five clear
targets to help us develop
one of the lowest cost, most
efficient fuel conversion
mechanisms available.
We have now
demonstrated in our
own facilities that our
electrodes can last
beyond six months.
At six months’
longevity, new
commercial
opportunities are
also opened up.
At the beginning of 2012, we set out
five clear targets aligned with the
commercial and technical aims of the
Company to help us achieve our goal
of developing our technology into one
of the lowest cost, most efficient fuel
conversion mechanisms available.
These five goals were:
1. Existing Partners
Deliver on our set of defined goals
for the fuel cell system trials with
AkzoNobel;
2. Pilot production plant
Transfer electrode production from
technical staff to manufacturing staff;
3. New Partners
Expand, in a controlled way, the number
of ‘partner’ customers. Where we have
existing relationships we either progress
them or move on;
4. Multiple feedstocks
Gain experience of more hydrogen
production methods and integration
requirements; and
5. International Markets
Position the Company to access
other international markets.
It is pleasing to report that all of
the above targets were achieved
with excellent progress across all
aspects of the business.
The Company remains on track to
commercialise its low cost alkaline fuel
cell systems and since the last annual
report has continued to make, what in
fuel cell terms is, rapid development.
We have now demonstrated in our own
facilities that our electrodes can last
beyond six months.
These results are of significance since
the first industrial applications that
we have identified require a minimum
of three months’ electrode life to be
economic. At six months’ longevity,
these applications have the potential to
generate significant revenues in places
such as South Korea where support
is available for electricity generation
and here AFC Energy is pursuing a
strategy to advance potentially lucrative
opportunities with industrial partners.
At six months’ longevity, new
commercial opportunities are also
opened up in additional territories such
as Germany, where the Company is
already carrying out long term longevity
trials with AkzoNobel, one of the world’s
largest chemicals groups.
Ervington Investments – enabling
delivery of our strategy
We were delighted to welcome the
investment from Roman Abramovich’s
Ervington Investments, further
strengthening AFC Energy’s balance
sheet, providing the Company with
additional cash resources to execute
19
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012Overview
Operational Review continued
3
Strategic
Overview
continued
AFC Energy has made huge
progress in the system and
electrode development ...there is a
higher than 50% chance of multiple
roll-out units across Akzo plants
within 5 years. Ton Manders, AkzoNobel
its long term growth strategy and invest
in its low cost fuel cell technology over the
coming years. It is a ringing endorsement
of AFC Energy’s innovative technology and
its strategy to become a leading hydrogen
fuel cell energy supply company for
industrial and utility-scale applications.
Ervington is excited by the potential of
our low cost hydrogen fuel cells which are
cleaner and more efficient than technologies
that use combustion to generate energy
like gas-fired power stations. Ervington’s
support not only enables us to take full
advantage of our commercialisation
plans expeditiously but will also provide us
with high level access to energy users and
potential partners globally.
Investor focus
We value all investors. In order to
improve our communication channels
we have refocused our public relations
activities through Luther Pendragon,
improved and re-launched our website
and are working with Proactive Investors
to enhance news flow beyond the words
contained in announcements we make.
We continued to hold open days for
investors to visit AFC Energy’s premises
as we understand the desire for
information concerning the Company’s
plans and it will be our intention to
continue to hold similar events in the
future. We look forward to continuing to
delivering further real progress on AFC
Energy’s drive to commercialisation.
1. Existing Partners
AkzoNobel
In January 2012, the Company
announced that it had commenced a
comprehensive programme of trials
with AkzoNobel, using two commercial-
scale fuel-cell systems. These systems
have been generating electricity
using industrially produced hydrogen.
Although, for commercial reasons, we
have not been publicising many of the
details relating to these trials, we are
very pleased with the overall progress
that has been made. We are building
up data to give us a comprehensive
understanding of the practicalities of
industrial operation as well as using
them to confirm laboratory results and
to inform our future development.
Longevity and power output remain
just two of a number of factors being
investigated. The cycling of fuel cells
in an industrial environment (i.e. the
switching on and off of the systems
given the hydrogen flow and the
chemical plant’s operating conditions)
offers us insights as to the robustness
of our system. We have also undertaken
replacement cartridge trials both
in terms of local repair of individual
components and time taken to effect
a complete cartridge change. Other
operational considerations such
as environmental conditions and
maximising hydrogen usage have also
seen a number of tests.
The majority of the
components can be
reused or recycled.
The Company has
refocused its public
relations activities,
improved and re-
launched its website
and is working to
enhance news flow.
www.afcenergy.com
20
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
Overview
The pilot production
plant is operating
well and we are
manufacturing
electrodes of
uniform consistency.
As electrode life
and power output
increases over time,
operating costs
will diminish giving
the opportunity for
margins to increase.
AkzoNobel remains fully supportive of
the programme and acknowledge the
progress being made. As Ton Manders,
head of Process Optimisation and
Engineering, commented to a group
of investment analysts last year, “AFC
Energy has made huge progress in the
system and electrode development in
the last year... electricity generation is
the most efficient use of hydrogen we
produce... there is a higher than 50%
chance of multiple unit roll-out across all
Akzo plants within 5 years.”
2. Pilot production plant
Another important aspect of
commercialisation is the ability
to manufacture electrodes as
economically as possible.
Last year we reorganised the way our
fuel cells were to be manufactured, to
meet the growing demand as we move
towards full commercialisation. A year
ago electrodes were manufactured
by our research and development
staff in small numbers. In March 2012,
the Company announced that it was
investing in a fuel cell pilot production
plant at Dunsfold Park and this opened
on 14 September 2012.
and development staff to maximise their
focus on the continued development of
what is fundamental to our business –
the technology. At full production, the
plant, in its current configuration, has
the capability of producing up to 20,000
fuel cell electrodes a year.
The plant, which has been delivered
within a budget of £180,000, provides
an interim step between small-scale
and fully automated high volume in-line
production. Licensed manufacture at
larger scales remains AFC Energy’s
intended manufacturing route for full-
scale commercial deployment.
The pilot line is operating well and
we are manufacturing electrodes
of uniform consistency. We have
also been assessing the suitability
of off-the-shelf automated
manufacturing equipment.
We have recruited a dedicated
production manager and a team of
experienced fuel cell production
technicians to staff the unit. In the
longer-term, the Company expects
there to be many more jobs in fuel cell
production as the fuel cell industry
grows and AFC Energy begins exporting
its products around the world.
The new facility not only enables the
increased production of fuel cells
with full cartridge assembly to meet
AFC Energy’s increasing commercial
activities and in-house expansion
programme, but also allows the research
Reusable parts lower the cost
of production
When our cartridges reach the end of
their life in the field they are returned
to AFC Energy. Owing to the materials
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
21
Operational Review continued
3
Strategic
Overview
continued
AFC Energy will coordinate
the Power Up project and
expects its direct share of
the project funding to be
up to €3m.
selected by AFC Energy in the design
of the cartridge, the majority of the
components can be reused or recycled.
The new production plant includes the
facility to dismantle used cartridges
and to reuse components back into
the production process. Components
that are not reused are returned to our
suppliers or other recycling partners for
reclaiming and reuse. The ease of reuse
and recycling of cartridge components
significantly reduces the ongoing cost
and material demand for producing new
cartridges over the lifetime of a fuel cell
system and AFC Energy also believes it
will be well placed to meet potential new
legislation regarding reuse and recycling
of materials.
3. New Partners
ICL
I mentioned last year that we planned
to increase the number of customers
in a controlled way. We have been
very selective about which projects
to pursue. In addition to these trials
with AkzoNobel, the Company is now
working with ICL in the UK. ICL have
built Europe’s newest chlor-alkali plant
and it has been designed to operate in
conjunction with AFC Energy’s fuel
cell system.
The project is part of ICL’s integrated
energy generation plan and is the largest
fuel cell system announced for installation
in the UK to date and is believed to be the
largest alkaline fuel cell system announced
anywhere in the world.
AFC Energy’s low cost alkaline fuel cell
system will be installed in stages at
the ICL-owned and operated chemical
facility and is eventually expected to
generate approximately 1MWe (one
megawatt of power, enough energy to
power 500 homes). The chlor-alkali plant
will manufacture chlorine and caustic
soda that have a range of uses including
in household cleaning products,
detergents and water treatment.
Hydrogen produced as a waste by-
product in ICL’s chlor-alkali process
will be used to generate power using
AFC Energy’s fuel cell system. Without
this fuel cell system, waste hydrogen
would typically be discharged into the
atmosphere. Instead, ICL will be able
to reduce dependence on the national
grid for its energy needs by creating
economic value from its hydrogen.
AFC Energy was delighted to announce
in November 2012 that with the support
of ICL and others it had been awarded,
subject to contract, €6.1m by way of
an EU grant funding to support the
demonstration of this fuel cell system
and the development and installation
of an associated automated electrode
production line. We expect the project to
commence formally during Spring 2013.
If concluded satisfactorily, AFC Energy
will coordinate the project and expects
ICL and AFC Energy
Installing large scale
commercial fuel cells
With the help of an EU grant, AFC Energy
will collaborate with ICL to deliver the largest
Alkaline fuel cell system in the world. ICL
recently commissioned the first new chlorine
plant in Europe for many years. It has been
specifically designed to incorporate AFC
Energy’s fuel cells. The project’s primary
purpose is to scale up the balance of plant to
a commercial offering, introduce automate
manufacture and demonstrate the ESCo
contractual arrangements.
phase planned installation
4
1MW
500
power generated
homes can be powered by the facility
22
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
Overview
its direct share of the project funding
to be up to €3m with the balance to be
received by the other project partners.
The project is expected to create a
significant number of UK jobs in the long
term and the stationary fuel cell industry
is forecast to create 500,000 jobs
globally over the next decade according
to Fuel Cell Today.
Installations such as the 1MW facility
planned for ICL are also aimed at
showcasing AFC Energy’s alkaline fuel
cell system and will act as reference sites
which prospective customers can visit to
see working fuel cell systems, at scale, in
an industrial environment. At the end of
the grant funded demonstration period it
is intended that AFC Energy will continue
to provide electrical power to ICL under
an ESCo model whereby ICL will provide
its hydrogen and purchase power under
long-term contracts. AFC Energy will
own, operate and maintain the fuel cell
systems. This is the first example we have
of the ESCo model in operation.
The ESCo model is our preferred
future route to market. Instead of selling
the fuel cell system we, or a facilities
management company on our behalf,
owns and operates the system in
return for a “toll fee” for the electricity
produced. It is our belief that this
model, which is widely used elsewhere
in industry, will yield the greatest return
to the Company and therefore generate
the greatest shareholder value. It means
that as electrode life and power output
increases over time, operating costs
will diminish giving the opportunity for
margins to increase. The models show
that a quick return on investment can
be expected from sales of electricity
generated and in some applications, the
water and heat produced by the fuel cell
system may also have a considerable
value, opening up an additional
source of revenue. We believe
this model is attractive to chlorine
manufacturers from the feedback
we have received and will facilitate a
more rapid market penetration.
4. Multiple feedstocks
A key factor in the wide deployment
of AFC Energy’s systems will be their
ability to be used with many different
energy feedstocks.
Ammonia is one of those important
hydrogen sources. It has a high energy
density and can be very easily converted
to hydrogen by heating it in the
presence of a catalyst – a process known
as “cracking”. AFC Energy’s alkaline
fuel cell system enables the efficient use
of the hydrogen liberated by cracking,
giving it the potential to be more
economic than other fuel cell types.
AFC Energy’s alkaline fuel cells also
have the advantage of being able to
tolerate ammonia traces in the fuel
stream – recently confirmed by AFC
Energy’s own initial laboratory-based
trials using hydrogen with higher
residual ammonia concentrations. These
tests show that power systems derived
from the integration of ammonia with
alkaline fuel cells do not require an
expensive clean-up process. Ammonia-
fed alkaline fuel cell systems are also far
more efficient than known current diesel
alternatives and the only emissions from
this process are water and nitrogen.
Ammonia-fuelled systems are suited for
both industrial and small scale back-up
and off-grid power solutions.
In December 2012, the Company
announced that it had been awarded,
subject to contract, a EU grant of up to
€1.96m for the launch of its Alkammonia
project to develop ammonia fed
alkaline fuel cell systems. The project
is coordinated by AFC Energy and its
direct share of the project funding is
expected to be up to €0.64m.
In addition to the EU grant, and also
in December, AFC Energy acquired
specific assets, including equipment
and intellectual property, of Diverse
Energy. Diverse Energy gained a track
record in being able to deliver small
scale ammonia-fed fuel cell systems
into the mobile phone mast power
market, specifically within Africa. AFC
Energy expects to use the equipment,
knowledge and systems understanding
developed by Diverse Energy to
accelerate its speed to market for
ammonia-fed systems.
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
23
Operational Review continued
3
Strategic
Overview
continued
AFC Energy is pleased to
announce that it has opened
a South Korean sales office
staffed by a team from Intralink,
our sales channel partners.
AFC Energy’s system
enables the efficient
use of hydrogen
liberated by cracking
ammonia, making it
more economic than
other fuel cells.
W2T exercised its
option to purchase an
exclusive UK licence for
use in the conversion
of waste to electricity.
5. International Markets
We have made good progress in a
number of international markets. We have
specifically focused on Europe and the Far
East. AFC Energy is pleased to announce
that it has opened a South Korean sales
office. The office will be staffed by a team
from Intralink, a specialist sales company
who have a track record in delivering
initial markets and partners to western
companies in Asia. The partnership will
help AFC Energy establish a firm presence
in the region, maximise its reach and
seize on the potentially substantial market
opportunity there.
We have continued to gain credibility
within a European context and the
earmarking of two EU grants is an
acknowledgement of the progress that
has been made and interest there is
in the further development of our fuel
cell systems.
In addition, AFC Energy continues to
work with other partners to open other
channels to market. The Company took
a 25% stake in W2T in June 2009. W2T
assisted Air Products plc in pulling
together various elements its 350,000t/
year waste-to-energy plant in Teesside,
which received funding during the
year. The plant remains a potential
demonstration opportunity for AFC
Energy’s alkaline fuel cell technology
alongside conventional generating
technologies. In March 2012, AFC Energy
received full repayment of £152,500 loan
and associated interest made to W2T in
2009 and, in April 2012, W2T exercised
its option to purchase an exclusive
UK licence for the Company’s fuel cell
technology for use in the conversion of
waste into electricity. AFC Energy will
receive a non-refundable appointment
fee of £1m payable in stages over 4
years, the first £150,000 instalment of
which has been received. W2T also has a
conditional right of first refusal regarding
the supply of AFC Energy’s fuel cells
to further territories in Europe, North
America and Thailand for use in projects
where hydrogen is derived from the
gasification of municipal solid waste. AFC
Energy and W2T will continue to work
together to target and develop waste-to-
energy opportunities as they arise.
We continue to work with Linc Energy
(ASX:LNC), a 10% shareholder in AFC
Energy and our partner for clean power
generation, in the underground coal
gasification market. Whilst opportunities
to facilitate further demonstrations for
this market segment have been limited
during the year, we are currently working
together on the next steps in our plans.
Ian Williamson
Chief Executive Officer
1 March 2013
24
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
Overview
Responsibility
25
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Board of Directors
Tim Yeo
Non-Executive Chairman
Tim Yeo has been MP for South Suffolk since 1983. He held various Ministerial posts under Margaret
Thatcher and John Major, including Minister of State at the Department of the Environment.
Between 1998 and 2005 he was a member of the Shadow Cabinet, shadowing a record seven
different departments. Between 2005 and 2010 he was Chair of the Environmental Audit Committee
and, since 2010, he has been the chairman of the ECC Select Committee. Tim holds a number of non-
executive directorships in the energy and transport sectors, including Groupe Eurotunnel SA and
TMO Renewables Limited. He was appointed chairman of AFC Energy in 2007.
Ian Williamson
Chief Executive Officer
Ian has significant experience within the industrial gas sector with Air Products particularly centred on
the manufacture, provision, distribution and commercial sale of hydrogen. He is very well known in the
industry and his external positions include being the President of the European Hydrogen Association
and a Director of the UK Hydrogen and Fuel Cell Association. He has also been a Vice President of
PATH (the Partnership for the Transition to Hydrogen) and a Director of CENEX (the UK’s Centre of
Excellence for Low Carbon and Fuel Cell Technologies). Ian also led Air Products’ new venture into
the renewable energy market and was instrumental in obtaining planning permission for the proposed
49.9MW advanced gasification power plant being built on Teesside.
Ian Balchin
Deputy Chairman & Chief Strategy Officer
Ian has 27 years experience of commercialising early stage technologies. Ian was CEO of Stanelco
plc for five years during which time the company acquired Biotec Holdings in Germany, which
Ian chaired and led to profitability. Prior to this Ian held senior management positions at AEA
Technology, including Director of New Ventures. Ian is also a director of Waste2Tricity, a leading
exponent of energy from waste, and has interests in a range of businesses focused on materials
and material processing.
David Marson
Finance Director & Company Secretary
David has been working with the Company since November 2008 as financial management consultant
helping to improve its financial systems and business processes. He has an extensive track record in the
financial and operational management of small and medium sized technology-based businesses, having
worked at AEA Technology plc where he held various senior roles as a divisional General Manager
and as divisional Finance Director. In this period he was instrumental in the spin-out of a number of
successful ventures, including Forensic Alliance Ltd, now a part of LGC Forensics, and Synexus Ltd, the
clinical trials patient recruitment organisation. He also held a number of non-executive directorships,
including Benitec Ltd, a bio-technology start-up company now listed on ASX.
Gene Lewis
Technical Director
Dr Gene Lewis joined the Company in November 2008 as Chief Technical Officer, having
previously worked at Ceres Power where he was instrumental in the development of their solid
oxide fuel cell technology. Gene’s leadership skills and his background in fuel cell material
science and engineering have significantly strengthened the technical team. Gene has overseen
AFC Energy’s technical programme since February 2009.
26
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
Governance
Adam Bond
Non-Executive Director
Adam is currently President Clean Energy at Linc Energy, where he is responsible for the
execution and deployment of the company’s clean energy, Underground Coal Gasification
(UCG) to Gas to Liquids (GTL) projects around the globe. Prior to joining Linc Energy, Adam held
positions with the British Government as Project Director, Lead Negotiator and Commercial Lead
for the United Kingdom’s first carbon capture and storage programme. He was also instrumental
in the design of the commercial framework for delivery of the United Kingdom’s offshore
electricity transmission network.
Mitchell Field
Non-Executive Director
Mitchell, who lives in Wales, owns Richards and Appleby Ltd, which is engaged in the
manufacture, sales and distribution of branded toiletries and cosmetics. Among these
are Leighton Denny, and several well-known heritage brands, including ‘Cyclax’ which
formerly held the Royal Warrant from Her Majesty the Queen. His principal role is sales and
marketing, dealing with blue-chip companies in the UK and exporting to over 60 companies
internationally. Mitchell has other investments and manages interests in fashion, property,
import/export and general trading.
Sir John Sunderland
Non-Executive Director
Sir John has a distinguished career spanning more than 40 years in leadership roles, including as
the former chief executive and later as chairman of Cadbury Schweppes plc, where he steered the
confectionery and beverage company through a period of major change and growth. He retired
as chairman of Cadbury in 2008 after 40 years with the company. He is currently a non-executive
director of Barclays Bank plc, an adviser to CVC Capital Partners and chairman of the management
board of Merlin Entertainment Group. From 2004 to 2006, he served as President of the
Confederation of British Industry. He is a Fellow of the Royal Society of Arts and was knighted in the
Queen’s Birthday Honours 2006, for services to business. He is the Chancellor of Aston University.
Eugene Shvidler
Non-Executive Director
Eugene worked at Russian oil major OAO Sibneft from 1996 through 2005, initially as senior vice
president and, from 1998, as president of the company. Eugene is a graduate of the I. M. Gubkin
Moscow Institute of Oil and Gas with a Masters in applied mathematics and he received an MBA
and Masters in International Taxation from Fordham University in New York. He is currently non-
executive Chairman of Highland Gold Mining Ltd, an AIM-quoted company, and is a member of
the Board of Evraz plc, a FTSE 100-listed company.
Eugene Tenenbaum
Non-Executive Director
Eugene served as head of corporate finance for OAO Sibneft in Moscow from 1998 through
2001. In 1994, he joined Salomon Brothers where he worked until 1998. Prior to that, he spent
five years in corporate finance with KPMG in Toronto, Moscow and London. He was an auditor
at PriceWaterhouse in Toronto from 1987 until 1989. Eugene is a chartered accountant and holds
a bachelors degree in commerce and finance from the University of Toronto. He has numerous
other directorships; notably, he is a member of the boards of Chelsea FC plc, Evraz plc (a FTSE
100-listed company) and Highland Gold Mining Ltd (an AIM-quoted company).
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
27
Directors’ Report
The Directors present their report together with the audited financial statements for the year ended 31 October 2012.
The comparative period was from 1 November 2010 to 31 October 2011.
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 and the
Operating and Financial Review.
Results and dividend
The results for the year are set out in the Statement of Comprehensive Income on page 35.
No dividends were paid in the year. The Directors do not intend to declare a dividend in respect of the year.
Principal risks and uncertainties
The major risk faced by the business relates to the technical progress in development of the commercial fuel cell system.
Financial risks include the risk of additional development expenditure being required to produce a commercial product.
The Company’s approach to the management of these risks is described in the Operating and Financial Review.
Key performance indicators
Given the nature of the business and that the Company is in the development phase of its products, the Directors are of the
opinion that analysis using financial KPIs is not appropriate for an understanding of the development, performance or position
of the business at this time. However, the Directors constantly review overall expenditure compared to budget and the
Company’s cash position. At 31 October 2012, the Company’s cash balance was in line with the target set.
2012
£
2011
£
10,935,449
5,968,429
Cash and cash equivalents at the year end
Directors and their interests
The Directors who served during the year were:
Tim Yeo
Ian Balchin
Ian Williamson
Dr Gene Lewis
David Marson
Adam Bond
Mitchell Field
Simon Hunt
David Smith
Sir John Sunderland
Non-Executive Chairman
Deputy Chairman and Chief Strategy Officer
Chief Executive Officer
Technical Director
Finance Director
Non-Executive (appointed 1 June 2012)
Non-Executive
Non-Executive (resigned 11 April 2012)
Non-Executive (resigned 31 May 2012)
Non-Executive (appointed 8 March 2012)
A Director appointed during or after the year must stand for re-appointment at the first Annual General Meeting after such
appointment. Accordingly Adam Bond, and both Eugene Shvidler and Eugene Tenenbaum who were appointed after the year end,
offer themselves for re-election. In addition, Ian Balchin, Gene Lewis and David Marson are required to retire by rotation in accordance
with the Company’s Articles of Association and, being eligible, offer themselves for re-election.
28
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 On 31 October 2012 the beneficial interests of Directors and their families in the equity share capital of the Company were:
Tim Yeo
Ian Balchin
David Marson
Dr Gene Lewis
Mitchell Field
Sir John Sunderland
Adam Bond
Ian Williamson
Number of Ordinary
shares of 0.1p
2012
Number of Ordinary
shares of 0.1p
2011
777,272
50,000
50,000
10,000
2,144,810
370,270
–
–
377,272
50,000
50,000
10,000
2,210,027
–
–
–
On 31 October 2012 the Directors’ interests over share capital of the Company were:
Options/
Warrants
granted
in year
Options/
Warrants
exercised
in year
31 October
2012
Exercise
price
–
–
–
–
–
–
–
–
–
–
400,000
1,100,000
–
–
–
–
–
–
–
–
–
–
–
1,000,000
1,500,000
2,306,000
500,000
586,000
1,000,000
1,954,000
350,000
750,000
500,000
500,000
£0.031
£0.240
£0.031
£0.240
£0.031
£0.240
£0.031
£0.240
£0.031
£0.240
£0.320
£0.320
Date from
which
exercisable1
Expiry
date
18/04/2012
17/04/2019
14/04/2013 13/04/2020
18/04/2012
17/04/2019
14/04/2013 13/04/2020
18/04/2012
17/04/2019
14/04/2013 13/04/2020
Type
Warrant
Warrant
Warrant
Warrant
Warrant
Warrant
18/04/2012
17/04/2019
EMI option
14/04/2013 13/04/2020
18/04/2012
17/04/2019
14/04/2013 13/04/2020
Warrant
Warrant
Warrant
08/11/2013
07/11/2021
EMI option
08/11/2014
07/11/2021
EMI option
Tim Yeo
Ian Balchin
David Marson
1 November
2011
1,500,000
1,000,000
1,500,000
2,306,000
500,000
586,000
Dr Gene Lewis
1,000,000
1,954,000
350,000
750,000
–
–
500,000
500,000
Mitchell Field
Ian Williamson
Note:
1 Warrants/Options exercisable from/after 14 April 2013 are subject to achievement of performance conditions.
Adam Bond and Sir John Sunderland had no interest over share capital during the reporting period.
29
GovernanceAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Directors’ Report continued
Directors’ remuneration
Name
Tim Yeo
Ian Williamson
Ian Balchin
David Marson (see note 25)
Dr Gene Lewis
Adam Bond (see note 25)
Mitchell Field (see note 25)
Sir John Sunderland (see note 25)
Note:
Salary
£
26,500
246,154
125,000
–
121,328
–
–
–
Share-based
payment
expense
£
37,361
Other
compensation1
£
33,500
Bonus
£
–
–
–
–
–
–
–
–
80,487
86,154
21,894
73,003
–
28,020
–
16,077
2,389
63,397
3,777
8,333
75,000
13,808
Total
2012
£
97,361
342,718
213,543
85,291
198,108
8,333
103,020
13,808
Total
2011
£
104,290
–
309,110
105,062
232,575
–
59,050
–
1 Other compensation includes private medical insurance, company car, benefits and consultancy fees.
Directors’ service contracts
Tim Yeo’s services as a Chairman and Non-Executive Director are provided under a service agreement with the Company dated
1 January 2012 for an indefinite term, subject to a minimum of six months’ notice. Additional consultancy services are provided
under an agreement between the Company and Locana Corporation (London) Ltd dated 1 January 2012.
Ian Williamson’s services are provided under a service agreement with the Company dated 7 November 2011 for an indefinite
term, subject to six months’ notice by either party.
Ian Balchin’s services are provided under a service agreement with the Company dated 17 February 2011 for an indefinite term,
subject to twelve months’ notice by the Company and six months’ notice by the Executive.
David Marson’s services are provided under an agreement between the Company and Hudson Raine Ltd dated 8 June 2011,
subject to three months’ notice by either party (see also note 25).
Dr Gene Lewis’s services are provided under a service agreement with the Company dated 3 June 2011 for an indefinite term,
subject to twelve months’ notice by either party.
Adam Bond’s services as a Non-Executive Director are provided under an agreement between the Company and Linc Energy Ltd
dated 23 May 2012, subject to a minimum of six months’ notice (see also note 25).
Mitchell Field’s services as a Non-Executive Director are provided under the terms of a Non-Executive letter dated 10 April 2008
for an indefinite term, subject to a minimum of six months’ notice (see also note 25).
Sir John Sunderland’s services as a Non-Executive Director are provided under an agreement between the Company and John
Sunderland Associates Ltd dated 8 March 2012, subject to a minimum of six months’ notice (see also note 25).
Eugene Shvidler’s services as a Non-Executive Director are provided under the terms of a letter of appointment, dated
10 January 2013, for an indefinite term, subject to a minimum of six months’ notice.
Eugene Tenenbaum’s services as a Non-Executive Director are provided under the terms of a letter of appointment, dated
10 January 2013, for an indefinite term, subject to a minimum of six months’ notice.
Board changes
Details of changes to the membership of the Board are disclosed within the ‘Directors and their interests’ section on page 28.
30
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Capital structure
Details of the Company’s share capital are disclosed in notes 17 and 18 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 1 March 2013, the Company was aware of the following holdings of 3% or more in the Company’s issued share capital:
Ervington Investments Limited
Age of Reason Foundation
Linc Energy
TD Direct Investing Nominees (Europe) Limited
Barclayshare Nominees Limited
Eturab Trade Corporation
Hargreaves Lansdown (Nominees) Limited
Harry Epstein
LR Nominees Limited
Political and charitable donations
Charitable donations in the year amounted to nil (2011: nil).
Number
of shares
32,594,782
22,602,420
22,000,705
13,158,093
11,079,729
8,500,000
7,429,201
7,000,000
6,771,818
Approximate percentage
of the Company’s
issued share capital
(14.893%)
(10.35%)
(10.08%)
(6.03%)
(5.07%)
(3.89%)
(3.40%)
(3.21%)
(3.10%)
Corporate governance
The Directors seek, as far as is considered appropriate having regard to the size and nature of activities of the Company, to
comply with the Combined Code on Corporate Governance applicable to listed companies. The Board is assisted in this regard
by a number of committees with delegated authority.
The Company’s organisational structure has clearly documented and communicated levels of responsibility, delegated authority
and reporting procedures. The professionalism and competence of employees is maintained through recruitment, performance
appraisal, written job descriptions and personal training and development plans. The Board supports the highest levels of
commitment and integrity from employees. Expected standards of behaviour are set out in the Staff Handbook, a copy of which
is given to all employees.
Audit Committee
The Company’s Audit Committee members during the financial year were Mitchell Field (chairman), Tim Yeo, Simon Hunt (to
11 April 2012) and Sir John Sunderland (from 12 April 2012). The Committee meets at least twice a year, on dates linked to the
Company’s financial calendar, and at any other time when it is appropriate to discuss audit, accounting or control issues.
The Committee’s principal responsibilities are:
• to monitor the integrity of the financial statements of the Company, reviewing the annual and interim financial statements
to ensure that they present a balanced assessment of the Company’s position;
• to review accounting policies;
• to review with management and the Company’s external Auditor the effectiveness of internal controls;
• to oversee the publication of reserve and resource statements to ensure compliance with best practice under AIM rules;
• to review with the Company’s external Auditor the scope and results of their audit; and
• to oversee the relationship with the Auditor.
The Auditor attends meetings of the Committee except when their appointment or performance is being reviewed. Executive
Directors attend as and when appropriate.
31
GovernanceAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Directors’ Report continued
Remuneration Committee
The Remuneration Committee’s members during the financial year were Simon Hunt (chairman – to 11 April 2012), Sir John
Sunderland (Chairman – from 12 April 2012), Tim Yeo, and Mitchell Field. The Committee reviews the performance of the Executive
Directors and sets the scale and structure of their remuneration and the basis of their service agreements. In determining
remuneration, the Committee seeks to enable the Company to attract and retain Executives of the highest calibre. In doing
so, the Committee takes advice as appropriate from external advisers on executive remuneration. The Committee also makes
recommendations to the Board concerning allocation of share options to employees. No Directors participate in discussions or
decisions concerning their own remuneration. This Committee is also responsible for nominating candidates, for the approval of
the Board, to fill either Executive or Non-Executive vacancies or additional appointments to the Board. The Committee retained
independent search consultants in respect of the appointment of the Chief Executive Officer with effect from November 2011.
Details of the Directors’ remuneration, service agreements and their interests in the share capital of the Company are disclosed
in the Directors’ Report.
AIM Rules Compliance Committee
The AIM Rules Compliance Committee comprises Tim Yeo, Mitchell Field and Sir John Sunderland and meets as appropriate.
The Committee monitors internal procedures, resources and controls to enable the Company to comply with AIM rules.
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 2012 represented 36 days (2011: 44 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.
Financial risk management objectives
These are detailed in note 21 to the financial statements.
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 2012, relevant expenditure totalled £1,452,382 (2011: £1,429,164).
Going concern
The Company raised £8,288,777 after expenses in October 2012. The Directors are satisfied that the Company has sufficient
resources to continue its operations and to meet its commitments for the foreseeable future.
Post-balance sheet events
Details of post-balance sheet events are provided in note 23 to the financial statements.
Relations with Shareholders
The Board attaches great importance to maintaining good relationships with Shareholders. The Board regards the Annual
General Meeting as an opportunity to communicate directly with investors, who are encouraged to attend and participate.
Auditor
A resolution to reappoint the Auditor of the Company, Jeffreys Henry LLP, will be proposed at the forthcoming Annual General
Meeting. Jeffreys Henry LLP have expressed their willingness to continue as Auditor of the Company.
This report was approved by the Board of Directors on 1 March 2013.
David Marson
Company Secretary
32
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Statement of Directors’ Responsibilities
The Directors are responsible for the maintenance and
integrity of the Company’s website (www.afcenergy.com) and
legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Statement of disclosure to Auditor
So far as the Directors are aware, there is no relevant audit
information (as defined by section 418 of the Companies Act
2006) of which the Company’s Auditor is unaware, and each
Director has taken all the steps that he ought to have taken
as Director in order to make himself aware of any relevant
audit information and to establish that the Company’s Auditor
is aware of that information. This confirmation is given and
should be interpreted in accordance with section 418 of the
Companies Act 2006.
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
International Financial Reporting Standards.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law the
Directors have elected to prepare the financial statements in
accordance with International Financial Reporting Standards
as adopted for use in the European Union. The financial
statements are required by law to give a true and fair view of
the state of affairs of the Company and of the profit or loss
of the Company for that period. In preparing those financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors confirm that they have complied with the above
requirement in preparing the financial statements.
The Directors are responsible for keeping adequate
accounting records which disclose with reasonable accuracy
at any time the financial position of the Company and enable
them to ensure that the financial statements comply with
the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
33
GovernanceAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Independent Auditor’s Report
to the Shareholders of AFC Energy plc
We have audited the financial statements of AFC Energy plc for
the year ended 31 October 2012 which comprise the Statement
of Comprehensive Income, the Statement of Financial Position,
the Cash Flow Statement, the Statement of Changes in Equity
and the related notes. The financial reporting framework that
has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the Company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than
the Company and the Company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors
and Auditors
As explained more fully in the Statement of Directors’
Responsibilities set out on page 33, the Directors are
responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices
Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting
policies are appropriate to the Company’s circumstances and
have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates
made by the Directors; and the overall presentation of
the financial statements.
In addition, we read all financial and non-financial information
in the Chairman’s Statement, the Operating and Financial
Review and the Directors’ Report to identify material
inconsistencies with the audited financial statements. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
• give a true and fair view of the state of the Company’s
affairs as at 31 October 2012 and of its loss for the year
then ended;
• have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
• have been prepared in accordance with the requirements
of the Companies Act 2006.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
• the information given in the Directors’ Report for the
financial year for which the financial statements are
prepared is consistent with the financial statements.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• adequate accounting records have not been kept; or
• the financial statements are not in agreement with the
accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Jonathan Isaacs
(Senior statutory Auditor)
1 March 2013
for and on behalf of
Jeffreys Henry LLP
Statutory Auditor
Chartered Accountants & Registered Auditors
Finsgate
5–7 Cranwood Street
London
EC1V 9EE
34
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Financial Statements
Statement of Comprehensive Income
for the year ended 31 October 2012
Revenue
Cost of sales
Gross profit
Other income
Administrative expenses
Analysed as:
Administrative expenses
Equity-settled share-based payments
Operating loss
Financial income
Loss before tax
Taxation
Loss for the financial year and total comprehensive
loss attributable to owners of the Company
Basic loss per share
Diluted loss per share
All amounts relate to continuing operations.
The notes on pages 39 to 51 form part of these financial statements.
Year ended
31 October 2012
£
Year ended
31 October 2011
£
Note
357,367
27,498
329,869
4,071
35,468
27,498
7,970
3,996
(4,569,182)
(4,402,158)
(3,980,578)
(588,604)
(4,235,242)
(3,711,686)
(690,472)
(4,390,192)
79,887
44,930
(4,155,355)
(4,345,262)
361,030
354,822
(3,794,325)
(3,990,440)
(2.05)p
(2.05)p
(2.26)p
(2.26)p
18c
5
8
9
10
10
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
35
Statement of Financial Position
as at 31 October 2012
Assets
Non-current assets
Intangible assets
Property and equipment
Investment in associate
Current assets
Inventory and work in progress
Trade and other receivables
Cash and cash equivalents
Total assets
Capital and reserves attributable to owners of the Company
Share capital
Share premium
Other reserve
Retained deficit
Total equity attributable to Shareholders
Current liabilities
Trade and other payables
Total equity and liabilities
Note
31 October 2012
£
31 October 2011
£
11
12
13a
14
15
16
17
17
19
207,512
820,345
2,500
1,030,357
127,019
677,448
10,935,449
11,739,916
149,498
824,264
2,500
976,262
138,952
691,974
5,968,429
6,799,355
12,770,273
7,775,617
217,299
27,221,606
2,409,089
(17,515,430)
12,332,564
183,339
18,966,789
1,820,485
(13,721,105)
7,249,508
437,709
437,709
526,109
526,109
12,770,273
7,775,617
The notes on pages 39 to 51 form part of these financial statements.
These financial statements were approved and authorised for issue by the Board on 1 March 2013.
Tim Yeo
Chairman
David Marson
Finance Director
AFC Energy plc
Registered number: 05668788
36
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
Financial Statements
Statement of Changes in Equity
for the year ended 31 October 2012
Balance at 1 November 2010
Loss after tax for the year
Total recognised in income and expense
for the year
Issue of equity shares
Share issue expenses
Equity-settled share-based payments
Balance at 31 October 2011
Loss after tax for the year
Total recognised in income and expense
for the year
Issue of equity shares
Share issue expenses
Equity-settled share-based payments
Share
Capital
£
173,339
–
–
Share
Premium
£
Other
Reserve
£
Retained
Loss
£
Total
Equity
£
15,044,217
1,130,013
(9,730,665)
6,616,904
–
–
–
–
–
–
(3,990,440)
(3,990,440)
(3,990,440)
(3,990,440)
–
–
–
3,999,822
(67,250)
690,472
10,000
3,989,822
(67,250)
–
–
–
690,472
183,339
18,966,789
1,820,485
(13,721,105)
7,249,508
–
–
33,960
–
–
–
–
8,678,977
(424,160)
–
–
–
–
–
588,604
(3,794,325)
(3,794,325)
(3,794,325)
(3,794,325)
–
–
–
8,712,937
(424,160)
588,604
Balance at 31 October 2012
217,299
27,221,606
2,409,089
(17,515,430)
12,332,564
Share capital is the amount subscribed for shares at nominal value.
Share premium represents the excess of the amount subscribed for share capital over the nominal value of these shares
net of share issue expenses.
Other reserve represents the credit to equity in respect of equity-settled share-based payments.
Retained earnings represent the cumulative loss of the Company attributable to equity Shareholders.
37
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Cash Flow Statement
for the year ended 31 October 2012
Note
31 October 2012
£
31 October 2011
£
Cash flows from operating activities
Loss before tax for the year
Adjustments for:
Depreciation and amortisation
Impairment of plant and equipment
Impairment of intangible assets
Equity-settled share-based payment expenses
18c
(4,155,355)
(4,345,262)
456,832
–
1,611
588,604
(79,887)
377,258
30,000
191,379
690,472
(44,930)
(3,188,193)
(3,101,083)
354,822
32,667
(88,400)
258,076
(40,516)
149,625
(2,889,104)
(2,733,898)
12
11
8
(438,583)
(73,956)
79,887
(432,652)
8,712,937
(424,160)
8,288,777
4,967,020
5,968,429
16
10,935,449
(577,796)
(43,094)
44,930
(575,960)
3,999,822
(67,250)
3,932,572
622,713
5,345,716
5,968,429
Finance income
Cash flows from operating activities before
changes in working capital and provisions
Corporation tax received
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Cash absorbed by operating activities
Cash flows from investing activities
Purchase of plant and equipment
Acquisitions of patents
Interest received
Net cash absorbed by investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
Costs of issue of share capital
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at 31 October
38
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
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 IASB issued improvement to IFRSs (2011), an omnibus
of amendments to its IFRS standards. The amendments
have been adopted as they become effective for annual
periods on or after 1 January 2011. They include:
The address of its registered office is Finsgate, 5–7 Cranwood
Street, London, EC1V 9EE.
2. Basis of preparation and accounting policies
These consolidated 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 as
issued by the International Accounting Standards Board and
with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS.
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. New and amended standards adopted by the Company
• Improvements to IFRS (issued in May 2010).
• Revised IAS 24 ‘Related Party Disclosures’ (effective for
accounting periods beginning on or after 1 January 2011).
This revision has not yet been endorsed for use in the EU.
• IFRS 1 First-time Adoption of International Financial
Reporting Standards (amendment) – Severe Hyperinflation
and removal of Fixed Dates for First-time adopters has an
effective date for annual periods beginning on or after
1 July 2011. This provides further guidance on how an
entity should resume presenting IFRS financial statements
when its functional currency ceases to be subject to
severe hyperinflation. Early adoption of these standards is
permitted. The adoption of this will have no effect on the
financial statements of the company.
• IFRS 7 ‘Financial instruments: disclosures (amendment)’
is effective for annual periods beginning on or after
1 July 2011. The amendments requires additional
quantitative and qualitative disclosures relating to transfers
of financial assets, where financial assets are derecognised
in their entirety, but where the entity has a continuing
involvement in them and where financial assets are not
derecognised in their entirety. The adoption of this will
have no effect on the financial statements of the Company.
• Amendment to IFRIC 14 ‘Prepayments of a Minimum
Funding Requirement’ (effective for accounting periods
beginning on or after 1 January 2011). This amendment
has not yet been endorsed for use in the EU.
IFRS 1 First time adoption of International Financial
Reporting Standards
IFRS 3 Business combinations
IFRS 7 Financial instruments: disclosures
IAS 1 Presentation of financial statements
IAS 27 Consolidated and separate financial statements
IFRIC 13 Customer loyalty programmes
IAS 34 Interim Financial Reporting
There is no impact from the adoption of the above amendments
on the Company’s financial position or performance.
b. Standards, amendments and interpretations to
published standards not yet effective
At the date of authorisation of these consolidated 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
consolidated financial statements:
• IFRS 1 ‘First-time Adoption of International Financial
Reporting Standards (amendment) – government loans’
has an effective date for annual periods beginning on or
after 1 January 2013. This requires an entity to measure
government loans with a below-market rate of interest at
fair value prospectively to loans entered into on or after
the date of transition to IFRSs. Early adoption of these
standards is permitted. The adoption of this will have no
effect on the financial statements of the company.
• IFRS 9 ‘Financial Instruments’ (effective for accounting
periods beginning on or after 1 January 2013). This
standard has not yet been endorsed for use in the EU.
• IFRS 10 Consolidated Financial Statements, IFRS 11 Joint
Arrangements, IFRS 12 Disclosures of Interests with
Other Entities (none of which have yet been endorsed
for use in EU), along with related amendments to IAS 27
Separate Financial Statements and IAS 28 Investments in
Associates and Joint Ventures will have an effective date
of 1 January 2013. Early adoption of these standards is
permitted, but only if all five are early adopted together.
The Company does not expect the adoption of this to have
a significant impact on its financial position and performance.
• IFRS 11 Joint Arrangements is effective from 1 January 2013.
The core principle of the standard is that a party to a joint
arrangement determines type of joint arrangements in
which it is involved by assessing the rights and obligations
and accounts for those rights and obligations in accordance
with the type of joint arrangement. Joint ventures now
must be accounted for using the equity method. Joint
operator which is a newly defined term recognises its
assets, liabilities, revenues and expenses and relative
shares thereof. The adoption of this will have no effect
on the financial statements of the company.
39
Financial StatementsAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
Notes forming part of the Financial Statements
continued
2. Basis of preparation and accounting policies
continued
• IFRS 12 Disclosures of Interests with Other Entities is
effective from 1 January 2013. It requires increased
disclosure about the nature, risks and financial effects of
an entity’s relationship with other entities along with its
involvement with other entities. The adoption of this will
have no effect on the financial statements of the company.
• IFRS 13 Fair Value Measurement is effective from
1 January 2013. It defines fair value, sets out in a single
IFRS a framework for measuring fair value and requires
disclosures about fair value measurements. It includes a
three-level fair value hierarchy which priorities the inputs
in a fair value measurement.
• IAS 12 ‘Income taxes (amendment) – Deferred taxes:
recovery of underlying assets’, is effective for annual
periods beginning on or after 1 January 2012. It introduces
a rebuttable presumption that deferred tax on investment
properties measured at fair value will be derecognised
on a sale basis, unless an entity has a business model
that would indicate the investment property will be
consumed in the business. If consumed a use basis would
need to be adopted. The amendments also introduce
the requirement that deferred tax on non-depreciable
assets measured using the revaluation model in IAS 16
should always be measured on a sale basis. The adoption
of this interpretation will have no effect on the financial
statements of the Company.
• IAS 19 ‘Employee benefits’ is effective for annual periods
beginning on or after 1 January 2013. It changes a
number of disclosure requirement for post-employment
arrangements and restricts the options available on how to
account for defined benefit pension plans. The amendment
will have no effect on the Company.
The Company expects no impact from the adoption of the
above amendments on its financial position or performance.
c. 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.
d. Revenue
Revenue is recognised to the extent that it is probable that
the economic benefits will flow to the Company and the
revenue can be reliably measured. Revenue is measured at the
fair value of the consideration received, excluding discounts,
rebates, and other sales taxes or duty. Revenue arising from
the provision of services is recognised when and to the
extent that the Company obtains the right to consideration in
exchange for the performance of its contractual obligations.
Licence income is recognised in accordance with the
substance of the agreement. When a licencee has the right to
use certain technology for a specified period of time, this is
usually on a straight-line basis over the life of the agreement in
accordance with IAS 18. Revenue based grants are recognised
in the profit and loss account in the same period as the
expenditure to which the grant relates.
e. Development costs
Development expenditure does not meet the strict criteria
for capitalisation under IAS 38 and has been recognised as
an expense.
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 and work in progress
Inventory is recorded at the lower of cost and net realisable
value. A prior year reclassification has been made to reclass
inventory previously shown within other receivables. Work
in progress is valued at cost, less the cost of work invoiced
on incomplete contracts and less foreseeable losses. Cost
comprises purchase cost plus production overheads.
h. Trade and other receivables
Trade and other receivables arise principally through
the provision by the Company of goods and services to
customers (trade debtors). 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.
Leases in which the Company assumes substantially all the risks
and rewards of ownership of the leased asset are classified as
finance leases. Leased assets acquired by way of finance lease are
40
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 stated at an amount equal to the lower of their fair value and the
present value of the minimum lease payments at inception of the
lease, less accumulated depreciation and impairment losses.
Depreciation is charged to the income statement 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
– Fixtures, fittings and equipment
– Vehicles
1 to 3 years
1 to 3 years
3 to 4 years
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 income statement.
k. Intangible assets
Expenditure on research activities is recognised in the income
statement as an expense as incurred.
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 income statement.
l. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and
call deposits with major banking institutions realisable
within 12 months.
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 respect of the order for five systems which has not been
fully recognised in the Income Statement 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 or, if lower, at the present value of
the minimum lease payments. 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 profit or
loss. Capitalised leased assets are depreciated over the shorter
of the estimated useful life of the asset and the lease term, if
there is no reasonable certainty that the Company will obtain
ownership by the end of the lease term.
Operating leases
Operating lease rentals are charged to the Income Statement
on a straight-line basis over the lease term.
o. Financial assets
All of the Company’s financial assets are loans and
receivables. 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.
p. Share-based payment transactions
The Company awards share options and warrants to certain
Directors and employees to acquire shares of the Company.
The fair value of options and warrants granted is recognised as
an employee expense with a corresponding increase in equity.
The fair value is measured at grant date and spread over the
period during which the Directors and employees become
unconditionally entitled to the options or warrants. The fair
value of the options and warrants granted is measured using a
binomial option valuation model, taking into account the terms
and conditions upon which the options and warrants were
granted. The amount recognised as an expense is adjusted to
reflect the actual number of share options and warrants that
vest only where vesting is dependent upon the satisfaction
of service and non-market vesting conditions or where the
vesting periods themselves are amended by the introduction
of new schemes and the absorption of earlier schemes by
agreement between the Company and the relevant Directors
and employees. Where options or warrants granted are
cancelled, all future charges arising in respect of the grant are
charged to the income statement on the date of cancellation.
q. Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event and it is probable that the
Group 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.
41
Financial StatementsAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
Notes forming part of the Financial Statements
continued
2. Basis of preparation and accounting policies
continued
r. Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement
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.
3. Significant accounting estimates and judgements
Carrying values of property and equipment
The Company monitors internal and external indicators
of impairment relating to its property and equipment.
Management has considered whether any indicators of
impairment have arisen over certain assets relating to these
assets. After assessing these, management has concluded that
no impairment has arisen during the year and subsequent to
31 October 2012 (2011: £30,000).
Useful lives and impairment of intangible assets,
and property and equipment
Intangible assets, and property and equipment are amortised
or depreciated over their useful lives. 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. After undertaking
a comprehensive review of intangible assets with its
patent attorneys, , management has concluded that partial
impairment has arisen with respect to intangible assets with a
gross book value of £6,761 during the year and subsequent to
31 October 2012. This has resulted in an impairment charge of
£1,611 to the Statement of Comprehensive Income in the year
to 31 October 2012 (2011: £191,379).
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 past 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 it would not be
appropriate to capitalise development expenditure incurred
during the year ended 31 October 2012.
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 an appropriate pricing model.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, over the period in
which the performance and/or service conditions are fulfilled,
ending on the date on which the relevant employees become
fully entitled to the award (‘the vesting date’). The cumulative
expense recognised for equity-settled transactions at each
reporting date until the vesting date reflects the extent to
which the vesting period has expired and the Company’s
best estimate of the number of equity instruments that will
ultimately vest. The profit or loss charge or credit for a period
represents the movement in cumulative expense recognised
as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately
vest, except for awards where vesting is conditional upon a
market condition, which are treated as vesting irrespective of
whether or not the market condition is satisfied, provided that
all other performance and/or service conditions are satisfied.
Where the terms of an equity-settled award are modified, the
minimum expense recognised is the expense as if the terms
had not been modified. An additional expense is recognised
for any modification which increases the total fair value of the
share-based payment arrangement, or is otherwise beneficial
to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as
if it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately.
However, if a new award is substituted for the cancelled
award, and designated as a replacement award on the date
that it is granted, the cancelled and new awards are treated as
if they were a modification of the original award, as described
in the previous paragraph.
4. Segmental analysis
A segment is a distinguishable component of the Company
that is engaged in providing products or services in a
particular business sector (business segment) or in providing
products or services in a particular economic environment
(geographic segment), which is subject to risks and
rewards that are different in those other segments. The
Company operated in the year in one business segment, the
development of fuel cells, and in two principal geographic
segments, the United Kingdom and Germany. German
revenue was derived from one customer (£27,498). All of the
gross profit was derived in the UK. All assets and liabilities
were in the UK at the year end.
42
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 5. Operating loss
This has been stated after charging:
Depreciation/Impairment of property and equipment
Research and Development expenditure
Amortisation/Impairment of intangible assets
Equity-settled share-based payment expense
Foreign exchange differences
Auditor’s remuneration – audit
Auditor’s remuneration – tax
Auditor’s remuneration – other services
6. Staff numbers and costs, including Directors
The average numbers of employees in the year were:
Support, operations and technical
Administration
The aggregate payroll costs for these persons were:
Wages and salaries (including Directors’ emoluments)
Social security
Equity-settled share-based payment expense
7. Directors’ remuneration
Wages and salaries
Social security
Equity-settled share-based payment expense
Other compensation (see note 25)
The emoluments of the Chairman
The emoluments of the highest-paid Director
Year ended
31 October 2012
£
Year ended
31 October 2011
£
442,503
1,452,382
15,942
588,604
5,195
15,000
2,500
2,000
386,189
1,429,164
212,448
690,472
509
16,000
1,000
3,050
Year ended
31 October 2012
Number
Year ended
31 October 2011
Number
24
5
29
£
1,768,889
183,738
588,604
2,541,231
21
5
26
£
1,121,323
129,553
536,854
1,787,730
Year ended
31 October 2012
£
Year ended
31 October 2011
£
518,982
65,907
345,599
251,373
1,181,861
323,333
35,745
425,818
152,685
937,581
97,361
104,290
342,718
309,110
The remuneration, details of share options and interests in the Company’s shares of each Director are shown in the Directors’
Report on pages 28 to 32.
43
Financial StatementsAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 8. Financial income
Bank interest receivable
Loan interest receivable
Total interest receivable
9. Taxation
Recognised in the income statement
Research and development tax credit – current year
Total tax credit
Reconciliation of effective tax rates
Loss before tax
Tax using the domestic rate of corporation tax of 24.8% (2011: 26.7%)
Effect of:
Expenses not deductible for tax purposes
Research and development allowance
Research and development tax credit
Depreciation in excess of capital allowances
Losses surrendered for research and development
Unutilised losses carried forward
Total tax credit for the year
Year ended
31 October 2012
£
Year ended
31 October 2011
£
79,380
507
79,887
43,425
1,505
44,930
Year ended
31 October 2012
£
Year ended
31 October 2011
£
361,030
361,030
354,822
354,822
(4,155,355)
1,030,527
(4,345,262)
1,160,185
147,504
(411,404)
361,030
39,228
771,597
483,604
361,030
186,110
(348,630)
354,822
72,090
730,217
520,398
354,822
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 £3,794,325
(2011: loss of £3,990,440) and a weighted average number of shares in issue for the year.
Basic loss per share (pence)
Diluted loss per share (pence)
Loss attributable to equity Shareholders
Weighted average number of shares in issue
Year ended
31 October 2012
(2.05)p
(2.05)p
(3,794,325)
Year ended
31 October 2011
(2.26)p
(2.26)p
(3,990,440)
Number
185,298,945
Number
176,599,336
Diluted earnings per share
The diluted loss per share is the same as the basic loss per share, as the loss for the year has an anti-dilutive effect.
44
Notes forming part of the Financial StatementscontinuedAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 11. Intangible assets
Cost
Balance at 1 November
Additions
Balance at 31 October
Amortisation
Balance at 1 November
Charge for the year
Impairment
Balance at 31 October
Net book value
For details of impairment charge, see note 3.
12. Property and equipment
Cost
At 31 October 2010
Additions
At 31 October 2011
Additions
At 31 October 2012
Depreciation
At 31 October 2010
Charge for the year
Impairment
At 31 October 2011
Charge for the year
At 31 October 2012
Net Book Value
At 31 October 2012
At 31 October 2011
2012
Patents
£
440,806
73,956
514,762
291,308
14,331
1,611
307,250
207,512
Leasehold
improvements
£
Fixtures, fittings
and equipment
£
184,009
32,188
216,197
–
216,197
157,070
21,268
–
178,337
18,241
196,578
19,619
37,860
1,254,278
545,608
1,799,886
438,583
2,238,469
648,560
334,921
30,000
1,013,481
424,262
1,437,743
800,726
786,404
2011
Patents
£
397,712
43,094
440,806
78,860
21,069
191,379
291,308
149,498
Total
£
1,438,286
577,796
2,016,083
438,583
2,454,666
805,630
356,189
30,000
1,191,819
442,503
1,634,321
820,345
824,264
For details of impairment charge, see note 3. There are no assets held under finance leases.
13a. Investment in Associate
The Company acquired 25% of the share capital of Waste2Tricity Ltd (W2T) (a company registered in England & Wales) on
17 June 2009 for £2,500 by converting £2,500 of the £150,000 loan provided to W2T under an agreement of February 2009.
The loan plus accrued interest was repaid in full on 2 March 2012.
The Company’s share of the results of its associate was as follows:
Revenue
Profit/(loss)
Assets
Liabilities
Year ended
31 October 2012
£
Year ended
31 October 2011
£
237,500
108,962
34,047
2,334
12,500
(5,951)
3,932
76,113
45
Financial StatementsAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 13b. Loan to Associate
Loan to W2T at 1 November, including accrued interest
Loan interest receivable
Loan repayment
Loan at 31 October
14. Inventory and work in progress
Inventory
Work in progress
15. Trade and other receivables
Corporation Tax receivable
Other receivables
Year ended
31 October 2012
£
Year ended
31 October 2011
£
151,980
507
152,487
–
150,475
1,505
–
151,980
Year ended
31 October 2012
£
Year ended
31 October 2011
£
58,275
68,744
127,019
42,710
96,242
138,952
Year ended
31 October 2012
£
Year ended
31 October 2011
£
361,030
316,418
677,448
354,822
337,974
691,974
There were no trade and other receivables that were past due or considered to be impaired. The trade and other receivables
balances are categorised as loans and other receivables. There is no significant difference between the fair value of the trade
and other receivables and the values stated above.
16. Cash and cash equivalents
Cash at bank
Bank deposits
Year ended
31 October 2012
£
Year ended
31 October 2011
£
10,185,449
750,000
10,935,449
738,821
5,229,608
5,968,429
Cash at bank and bank deposits consist of cash. There is no material foreign exchange movement in respect of cash and
cash equivalents.
46
Notes forming part of the Financial StatementscontinuedAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 17. Issued share capital
At 31 October 2010
Issue of shares on 4 July 20111
At 31 October 2011
Issue of shares on 1 May 20122
Issue of shares on 2 August 20123
Issue of shares on 16 October 20124
At 31 October 2012
Number
173,339,207
9,999,555
183,338,762
1,115,000
250,000
32,594,782
217,298,544
Ordinary shares
£
Share premium
£
173,339
10,000
183,339
1,115
250
32,595
217,299
15,044,217
3,922,572
18,966,789
33,785
7,575
8,213,457
27,221,606
Total
£
15,217,556
3,932,572
19,150,128
34,900
7,825
8,246,052
27,438,905
1 9,999,555 ordinary shares with a par value of 0.1p per share were issued at 40.00p per ordinary share by way of a placing to Linc Energy
and to a group of investors.
2 1,115,000 options and warrants were exercised on 1 May 2012 at an exercise price of 3.13p per ordinary share.
3 250,000 options were exercised on 2 August 2012 at an exercise price of 3.13p per ordinary share.
4 32,594,782 ordinary shares with a par value of 0.1p per share were issued at 26.60p per ordinary share on 16 October 2012 by way
of a placing to Ervington Investments.
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 Company 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.
18a. Share options
At 31 October 2010
Options lapsed in the year
At 31 October 2011
Options granted in the year
Options exercised in the year
Options lapsed in the year
At 31 October 2012
18b. Warrants
At 31 October 2010
At 31 October 2011
Warrants exercised in the year
Warrants lapsed in the year
At 31 October 2012
Number of
options
11,400,000
(370,000)
11,030,000
1,375,000
(965,000)
(1,200,000)
10,240,000
Number of
warrants
11,956,000
11,956,000
(400,000)
(10,000)
Weighted
average
remaining
contractual life
6.62 yrs
5.69 yrs
6.58 yrs
Weighted
average
remaining
contractual life
8.87 yrs
7.87 yrs
Exercise
price
3.13–24p
17.5–24p
3.13–24p
32p
3.13p
3.13–24p
3.13–32p
Exercise
price
3.13–30p
3.13–30p
3.13p
24p
11,546,000
3.13–30p
6.75 yrs
47
Financial StatementsAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 18c. Equity-settled share-based payments charge
Share options
Average
grant date
share price
(p)
Average
expected
volatility
(p.a.)
Average
risk-free
interest rate
(p.a.)
Average
dividend
yield
(p.a.)
Average
implied
option life
(years)
Average fair
value per
option
(p)
Amount
expensed in the
2012 accounts
£
9
20
21
14
3.13
18.75
23.75
20
31.75
46%
46%
46%
46%
113.8%
188%
188%
214.8%
243%
4.4%
4.4%
4.4%
4.4%
4.4%
4.4%
4.4%
4.4%
4.4%
0%
0%
0%
0%
0%
0%
0%
0%
0%
3.5
3.5
3.5
3.5
3.0
3.5
3.5
3.0
3.5
2.5
6
6
2
2
14.07
17.80
15
24
Adjustments – prior year
Adjustments for expected leavers on current options – 10%
Total charge for the year (2011: £254,041)
Average
grant date
share price
(p)
Average
expected
volatility
(p.a.)
Average
risk-free
interest rate
(p.a.)
Average
dividend
yield
(p.a.)
Average
implied
option life
(years)
Average fair
value per
option
(p)
Amount
expensed in the
2012 accounts
£
20
20
3.13
23.75
23.75
46%
46%
113.8%
188%
188%
4.4%
4.4%
4.4%
4.4%
4.4%
0%
0%
0%
0%
0%
3.5
3.5
3.0
3.5
3.5
10
6
2
17.8
17.64
Option
price (p)
10
22
23
23
3.13
17.5
24
20.80
32
Warrants
Warrant
price
(p)
10
22
3.13
24
30
Adjustment for performance conditions (non-market)
Adjustments – prior year
Adjustments for expected leavers on current warrants – 0%
Total charge for the year (2011: £436,430)
Total equity-settled share-based payment charge (2011: £690,472)
–
–
–
–
(13,869)
(61,662)
(27,630)
(166,440)
(110,746)
(3,058)
63,988
319,417
–
–
–
(422,469)
(5,890)
–
159,172
–
269,187
588,604
Expected volatility has been based on the historical volatility of share price returns over one year to the date of grant of the
options and warrants. Vesting requirements are three years for the exercise of warrants and options, except for 500,000
options granted to Ian Williamson which vest in two years. Certain options and warrants granted to directors are also subject to
performance conditions.
The fair value of services received in return for share options and other share-based incentives granted is measured by reference
to the fair value of share options and incentives granted. This estimate is based on a Black-Scholes model, adjusted for non-
vesting market-related conditions, which is considered most appropriate considering the effects of the vesting conditions,
expected exercise period and the dividend policy of the Company.
48
Notes forming part of the Financial StatementscontinuedAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 19. Trade and other payables
Trade payables
Deferred income
Other payables
Accruals
20. Operating lease commitments
Non-cancellable operating leases are as follows:
Within one year
Between one and five years
Greater than five years
Year ended
31 October 2012
£
Year ended
31 October 2011
£
185,365
68,744
75,223
108,377
437,709
322,241
96,242
36,075
71,550
526,109
Year ended
31 October 2012
£
Year ended
31 October 2011
£
56,129
37,768
–
93,897
89,081
90,672
–
179,753
The lease commitments relate to accommodation and three vehicles.
21. 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. The significant
accounting policies regarding financial instruments are disclosed in note 2 and the significant accounting estimates and
judgements are set out in note 3.
Principal financial instruments
The principal financial instruments used by the Company, from which financial instrument risk arises, are as follows:
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Year ended
31 October 2012
£
Year ended
31 October 2011
£
677,448
10,935,449
437,709
734,684
5,968,429
526,109
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 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 overleaf.
49
Financial StatementsAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Notes forming part of the Financial Statements
continued
21. Financial instruments continued
Credit risk
Credit risk arises principally from the Company’s trade and 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:
Trade and other receivables
Cash and cash equivalents
Year ended
31 October 2012
£
Year ended
31 October 2011
£
677,448
10,935,449
734,684
5,968,429
The Company’s principal trade and other receivables arose from: a) annual payments for various services held as pre-payments
b) a VAT debtor and c) an R&D tax credit. Credit risk with cash and cash equivalents is reduced by placing funds with a range of
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, following maturity of term deposits.
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 Company raised £8.2m net of costs in October 2012 to provide additional financial resources.
The principal liabilities of the Company are trade and other payables in respect of the ongoing product development
programme. Trade and other payables are all payable within two months with the exception of the payment in advance noted
above. 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 uses fixed interest term deposits
to mitigate this risk.
Fair value of financial liabilities
Trade and other payables
Year ended
31 October 2012
£
Year ended
31 October 2011
£
437,709
526,109
There is no difference between the fair value and book value of trade and other payables.
Currency risk
The Company does not enter into forward exchange contracts or otherwise hedge its potential foreign exchange exposure.
The Board considers that this exposure is not currently material. The Board monitors and reviews its policies in respect of
currency risk on a regular basis. At 31 October 2012 the Company held no monetary assets or liabilities in currencies other
than the functional currency of the operating units involved (2011: nil).
22. Capital commitments
The Company had capital commitments of £2,219 for water purification equipment outstanding at 31 October 2012 (2011: £30,014).
23. Board changes and post-balance sheet events
Board changes during the year are reported under ‘Directors and their interests’. Eugene Shvidler and Eugene Tenenbaum
were appointed as Non-Executive Directors of the Company on 10 January 2013.
24. Ultimate controlling party
There is no ultimate controlling party.
50
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 25. Related party transactions
During the year ended 31 October 2012:
£63,397 (plus VAT) was invoiced by Hudson Raine Ltd (a company registered in England & Wales) for the services of David
Marson, including as a Director and Company Secretary of AFC Energy plc (2011: £69,618). Mr Marson is also a Director and
Shareholder of Hudson Raine Ltd. At 31 October 2012, the sum owing to Hudson Raine Ltd was £23,664 (2011: nil).
£23,425 (plus VAT) was invoiced by Cornerstone Capital Ltd (a company registered in England & Wales) for the services of Simon
Hunt as a Director of AFC Energy plc (2011: £31,417). Mr Hunt is also a Director and Shareholder of Cornerstone Capital Ltd. At
31 October 2012, the sum owing to Cornerstone Capital Ltd was nil (2011: nil).
£146,000 (plus VAT) was invoiced by Cranwood Management Ltd (a company registered in England & Wales) for consultancy
services. The company is owned by Adam White (2011: £139,000). Members of Mr White’s family are nominated beneficiaries of
the Age of Reason Foundation, which is a major Shareholder in the Company. At 31 October 2012, the sum owing to Cranwood
Ltd was nil (2011: nil).
£75,000 (plus VAT) was invoiced by Richards and Appleby Ltd (a company registered in England & Wales) for the services
of Mitchell Field as a Director of AFC Energy plc (2011: £15,319). Mr Field is also a Director and Shareholder of Richards and
Appleby Ltd. At 31 October 2012, the sum owing to Richards and Appleby Ltd was £52,083 (2011: nil).
£20,000 was invoiced by Linc Energy Ltd (a company registered in Australia) for the services of David Smith and Adam Bond
as a Directors of AFC Energy plc (2011: £1,667). Linc Energy Ltd is a major shareholder in the Company. At 31 October 2012
the amount owing to Linc Energy Ltd was nil (2011: £1,667).
£33,500 (plus VAT) was invoiced by Locana Corporation (London) Ltd (a company registered in England & Wales) for consultancy
services. (2011: nil). Mr Yeo is also a Director and Shareholder of Locana Corporation (London) Ltd. At 31 October 2012, the sum
owing to Locana was nil (2011: nil).
£13,808 (plus VAT) was invoiced by John Sunderland Associates Ltd (a company registered in England & Wales) for the services
of Sir John Sunderland as a Director of AFC Energy plc (2011: nil). Sir John Sunderland is also a Director and Shareholder of John
Sunderland Associates Ltd. At 31 October 2012, the sum owing to John Sunderland Associates Ltd was nil (2011: nil).
£2,200 (plus VAT) was invoiced by Kirkpatrick & Hopes Ltd (a company registered in England & Wales) for consultancy services
(2011: nil). Mrs P Williamson was a Director and Shareholder of Kirkpatrick & Hopes Ltd. At 31 October 2012, the sum owing to
Kirkpatrick & Hopes Ltd was nil (2011: nil).
£152,500 was received from W2T (a company registered in England & Wales) in full repayment, with associated interest, of a
loan made to W2T in 2009. A further £150,000 was received as the first instalment of a non-refundable appointment fee of £1m
payable under the terms of a Commercialisation Agreement with W2T announced on 11 April 2012. The total sum received from
W2T in the year ended 31 October 2012 was £302,000 (2011: nil). The sum owing to W2T at 31 October 2012 was nil (2011:
nil). The Shareholders in W2T include Age of Reason Foundation, Adam White, Eturab Corporation, Ervington Investments
and Ian Balchin. Members of the White family are nominated beneficiaries of the Age of Reason Foundation. The Age of
Reason Foundation, Eturab Corporation and Ervington Investments are substantial Shareholders in AFC Energy. Ian Balchin’s
shareholding in W2T was granted in lieu of payment for work done for W2T before he was employed by AFC Energy.
51
Financial StatementsAFC ENERGY PLC Report & Accounts for the year ended 31 October 2012 Principal place of business
Unit 71.4 Dunsfold Park
Stovolds Hill
Cranleigh
Surrey
GU6 8TB
Tel: 01483 276726
Fax: 01483 266839
Auditor
Jeffreys Henry LLP
Finsgate
5-7 Cranwood Street
London
EC1V 9EE
Solicitors
Eversheds LLP
1 Wood Street
London
EC2V 7WS
Registrars
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6ZY
Company Information
Directors
Tim Yeo
Ian Williamson
Ian Balchin
Adam Bond
Mitchell Field
Dr Gene Lewis
David Marson (Company Secretary)
Eugene Shvidler
Sir John Sunderland
Eugene Tenenbaum
Registered office
Finsgate
5-7 Cranwood Street
London
EC1V 9EE
Registered in England: 05668788
Broker
Peat & Co
11-12 St James’s Square
London
SW1Y 4LB
NOMAD
Allenby Capital Limited
32 Davies Street
Mayfair
London
W1K 4ND
Bankers
Barclays Bank PLC
40/41 High Street
Chelmsford
Essex
CM1 1BE
52
AFC ENERGY PLC Report & Accounts for the year ended 31 October 2012
We are the leading developer
of low-cost alkaline fuel-cell
systems using hydrogen to
produce clean electricity.
Electricity
Our aim is to become
one of the lowest cost
generators of electricity
on an industrial scale.
Overview
Highlights
Chairman’s Statement
our Business
operational Review
Technical Progress
Financial overview
Strategic overview
1
2
4
8
10
14
18
Governance
Board of Directors
Directors’ Report
Financials Statements
Statement of Comprehensive Income
Statement of Financial Position
26
28
Statement of Directors’ Responsibilities 33
Statement of Changes in Equity
Independent Auditor’s Report
34
Cash Flow Statement
notes forming part of the
Financial Statements
Company Information
35
36
37
38
39
52
S
T
n
E
T
n
o
C
We have launched our
new website, visit:
www.afcenergy.com
www.afcenergy.com
A
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p
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&
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3
1
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t
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r
2
0
1
2
Transforming
power
Annual Report & Accounts
for the year ended 31 October 2012
AFC Energy plc
Unit 71.4 Dunsfold Park
Stovolds Hill
Cranleigh
Surrey GU6 8TB
Tel: 01483 276726
Fax: 01483 266839
www.afcenergy.com
Stock Code: AFC