Transforming
the way in which
industries of today
produce energy
for tomorrow
Annual Report & Accounts 2017
WELCOME
Introducing
AFC Energy plc
AFC Energy plc (“AFC Energy” or the “Company”) is a next
generation energy company that will deliver zero-emission
electricity wherever and whenever it is needed.
This future of clean low-cost power will be achieved by harnessing the
reliability of fuel cells together with the increasing availability of hydrogen
as a fuel source. The Company is poised to lead this transition through
its world-leading technology where it has amassed a decade of research
and development to create the most efficient Alkaline Fuel Cells ever.
Tomorrow’s energy today
AFC Energy produces generating units that can be either used
for large-scale electricity production, co-located in commercial or
business premises, or integrated into bespoke application units.
Our purpose
To deliver clean, affordable, dependable
and available energy.
Our difference
The Company is ready to deliver after refining its
production processes, forging strategic alliances,
and planning the manufacturing approach.
Our market
The market is also ready for us – energy reliability and clean
energy availability are ever more critical and require the
on-site power generation that AFC Energy can deliver.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
How we will achieve our goals
Production ready
AFC Energy is at the crossroads
of core technology development
and manufacturing production.
The Company benefits from
strategic alliances and cooperative
research programmes that
are accelerating its route
to manufacturing.
See page 14 P
Focused business model
AFC Energy focuses on a product
architecture that will provide low-cost
electricity for static power systems
from 10kW to multi-MW applications.
These will be targeted at industrial,
construction and back-up power
applications that are currently often
served by fossil-fuelled generators.
See page 06 P
Global applicability
A modular scalable design that is
applicable to many static energy
requirements globally.
See page 09 P
Deep technology
At its heart AFC Energy is a world-
leading energy technology
company with a deep research
and development pedigree
and strong intellectual property.
Our Alkaline Fuel Cells are the
most efficient in the world with
an energy conversion rate of
greater than 60%.
See page 18 P
Alkaline Fuel Cell development
Electrical power history
1882
First thermal power
stations open in New
York and London
1941
Solar cell invented
1831
First electric
generator invented
1878
First hydroelectric
generating plant
1839
William Gove
invents the fuel cell
1800
Volta
invents the
battery
1801
Concept of the
fuel cell first
demonstrated
Fuel cell history
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
Our strategic priorities
Our focused strategic priorities allow us to meet
our targets and look beyond to new horizons.
Modular units
Industry partnerships
Embedded technology
Commercialisation
Deep technology development
Read more on page 08 P
1958
Solar panels used
for satellites
1954
First nuclear
power plant
2006
Construction begins
on ITER, first nuclear
fusion reactor
2018
1959
Tractor becomes
the first fuel cell
vehicle
1969
Alkaline fuel cells
in Lunar Landing
Module
1990
Fuel cells launched
for static power
2008
Honda FCX Clarity
becomes the first
modern fuel cell
vehicle
2016
Generation 2 fuel cell
system developed by
AFC Energy
1960s
Fuel cells used
in Gemini space
programme
GE invents the
PEM fuel cell
1980
US Navy uses fuel
cells in submarines
2006
AFC Energy formed
2015
240kW fuel cell
power plant
commissioned by
AFC Energy
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
0101
One cell, many markets
AFC Energy had developed a standardised
10kW fuel cell unit that can be applied across
many markets.
Electricity grid generation,
stabilisation and load
balancing applications
See page 11
Micro-grid applications across
housing estates, commercial
developments and campuses
See page 10
Construction sites and other
applications where temporary
heat and light are required
Datacentres and buildings
for emergency back-up power
Embedded power for single
application systems
See page 13
Contents
Strategic Report
Chairman’s statement
Operational review
P Our business model
P Delivering our strategic priorities
P Market dynamics
P Commercial deployment
P Strategic partnerships
P Mutually beneficial partnerships
P Technology development
P Sustainable world
P Managing our risks
Governance
Introduction to governance
Board of Directors
Directors’ interests
and their remuneration
Directors’ report
Statement of Directors’ responsibilities
Financial statements
Independent Auditor’s report
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Cash flow statement
Notes forming part
of the financial statements
Company information
Appendix
Our technology
02
04
06
08
09
10
14
16
18
20
22
24
26
28
31
33
34
37
38
39
40
41
55
56
Conversion of hydrogen
energy storage from
renewables
See page 13
Visit our website at
www.afcenergy.com
02
CHAIRMAN’S STATEMENT
Transition to production
Corporate governance
AFC Energy has strengthened its corporate
governance with the appointments of
Lisa Jordan and Joe Mangion as Non-
Executive Directors.
See page 24 P
Commercialisation
2017 saw AFC Energy successfully raise
£8.1 million in anticipation of its move into
commercialisation of its fuel cell product.
AFC Energy will be specifically targeting the
displacement of diesel power generators.
Partnerships
AFC Energy has entered into a series of
technology and market partnerships
to accelerate its move into commercial
production.
See page 14 P
“The advent of the ‘hydrogen economy’ will
bring with it the liberation of energy to be
on demand and on-location that will bring
clean and affordable power to the world.
Our determination is that AFC Energy will
be a central and key part of that new
energy economy.”
John Rennocks
Chairman
This is my first Chairman’s Statement for AFC
Energy, and I am delighted to have joined the
Company at this critical point in its history. Three
years ago, AFC Energy outlined a plan that would
take the Company’s technology out of the lab and
begin the transition into commercial production.
I am pleased to state that this plan has been
accomplished and that in 2018 the Company
expects to see the initial commercialisation of
our energy systems through engagement with
key customers.
Back in 2015, our plan required an initial
scale-up of AFC Energy’s fuel cell system and
delivery of a 240kW proof-of-concept power
plant; the development of a Generation
2 fuel cell system that could deliver over
1,000 continuous hours of operation; and the
preparation for commercialisation of the fuel
cells through automation of manufacturing
and collaboration with partners.
Today, with the support of our key strategic
partners such as Industrie De Nora (“De Nora”),
these technology milestones have been
achieved and the Company stands ready to
move from proof-of-concept to commercial
production status.
Alongside the technical achievements, over
the past year AFC Energy has also enhanced its
financial funding position, key management and
governance arrangements. These changes have
taken place to strengthen the Company as it
emerges from being a predominantly
R&D-focused organisation to one that is
set to become fully commercial.
In March 2017, AFC Energy successfully raised
£8.1 million through a placement, subscription
and open offer. As part of this fundraise, the
Company welcomed Schroder Investment
Management Limited on the shareholder register.
The Company was also pleased by our existing
shareholders’ support, with the open offer to
existing shareholders being over-subscribed
by 57%.
In key management, AFC Energy has strengthened
its executive management team with the
appointments of Jim Gibson as Chief Operating
Officer and Richard Tuffill as Chief Financial Officer.
Both have brought considerable experience to
the Company from the energy and engineering
industries and will prepare the Company well
for the commercialisation phase it is entering.
Further, the Board has been strengthened with
the appointments of Lisa Jordan and Joe Mangion
in recent months as Non-Executive Directors,
both of whom bring further broad experience
to the Company and enable it to further improve
its governance arrangements.
The timing of the move into production could
not be better; the world is crying out for stable,
reliable, affordable and clean energy. Whether
it is an office complex that fears a utility outage,
a construction site, a datacentre or a remote
village that has never experienced reliable
electrical power; all share the same fundamental
need for clean, reliable and affordable energy.
The Company remains focused on the industrial
application of fuel cells to provide power for grid
electricity systems. Since the predominant source
of hydrogen today derives from the chlor-alkali
industry where the gas is a by-product in the
manufacture of chlorine, our strategy has been
to seek out chlor-alkali manufacturers and look
to partner with them and co-locate the fuel cells
next to the source of hydrogen production.
At the same time, new sources of hydrogen
are coming on stream where the fuel can be
produced from ammonia, bio-methane or water.
These new sources lend themselves to the
on demand production of hydrogen and that in
turn opens the potential of deploying a combined
solution for an integrated hydrogen and fuel
cell system for temporary or back-up power,
or for applications that are far removed from
connections to the grid.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 One of the immediate opportunities that presents
itself is to utilise AFC Energy’s clean running fuel
cell as an alternative to back-up power from
diesel generation. The generation of power from
diesel generation has issues associated with noise
and cleanliness of generation as well as selling
on this power at many multiples of the cost of
production. Information from UK Government
reports indicate that diesel particulate pollution
may be a contributory factor in the deaths of
29,000 Britons a year. Despite these drawbacks,
the global diesel generator market is forecast
to be worth around £17 billion by 2020 and
is growing at 4.5% per annum according to
research from Global Data.
We therefore believe that this is a prime
opportunity for AFC Energy’s technology in
offering a cleaner, quieter and more economical
solution to diesel power generation around
the globe.
In the longer term, we see the evolution of fuel
cells across other energy applications. Since
the first deployment of electricity-generating
units in the 1880s the developed world has
adopted the same centralised model for power
generation and distribution. In recent years, with
the advances in renewable electricity generation
technologies, energy storage, and increasing
demand-side management, this centralised model
is being challenged. The advent of the “hydrogen
economy” will bring with it the liberation of
energy to be on demand and on-location that will
bring clean and affordable power to the world.
Our determination is that AFC Energy will be a
central and key part of that new energy economy.
2017 has been a particularly busy year for
AFC Energy and I would like to thank all the
staff, partners and contractors working with
the Company, in addition to my fellow Board
members and shareholders, for their continued
support. In particular, I would like to express my
appreciation to Eugene Shvidler, Mitchell Field and
Tim Yeo, all of whom retired from the Board during
2017 as long-standing Non-Executive Directors of
AFC Energy, and I wish them well for the future.
John Rennocks
Chairman
6 March 2018
03
A year of progress
AFC Energy’s achievements this year saw significant
improvements with its product design coupled with
strengthening partner relationships.
February
Fundraising
Successful fundraising of
£8.1 million and welcomed
Schroder Investment Management
Limited to the register as the
single largest investor in the
investment round.
See page 02 P
May
Covestro deployment
Covestro Deutschland AG
(“Covestro”) and AFC Energy
to partner on engineering and
integration for a 1MW fuel cell
deployment that will use surplus
hydrogen from Covestro's
German operations.
See page 11 P
July
Announces fuel-cell
micro-grid for Dunsfold,
Surrey
Commenced engineering and
design for up to a 1MW fuel cell
system that could power 2,600
homes in a new residential
and industrial development
in Dunsfold, Surrey.
See page 10 P
April
De Nora partnership
AFC Energy extended its
partnership with De Nora for
electrode development and
collaboration. The partnership
has demonstrated an increased
working lifecycle of the cells
from months to years.
See page 14 P
June
Strengthens corporate
governance
Appoints John Rennocks to the
Board as Non-Executive Chairman,
Richard Tuffill as Chief Financial
Officer and Lisa Jordan as
Non-Executive Director.
See page 24 P
September
Reduces fuel cell stack
costs by 30%
Re-engineering of fuel cell stack
leads to an 88% reduction in
nickel which contributes to a 30%
reduction in the manufacturing
cost of the fuel cell stack.
See page 18 P
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Strategic Report 04
OPERATIONAL REVIEW
AFC Energy’s commercial future
cell plant to one of the world’s largest chlorine
manufacturers, utilising by-product hydrogen as
feedstock to the fuel cell. This initial phase of work
has been completed and we are now evaluating
the outcome from this work. This evaluation will
also consider other locations as appropriate for
such a facility. We believe that this is a model for
the deployment of AFC Energy fuel cells across
the developed world.
The scalability of the product from 10kW to multiple
MWs and low cost of electricity produced also
means that AFC Energy’s fuel-cell system is suited
to many different applications from single back-up
power source, to office or industrial complexes
or integrated as part of a suite of solutions. That
said, we consider that the AFC Energy technology
represents a clean, lower cost alternative to power
generation by diesel generators. This market,
estimated to be worth over £17 billion by 2020,
is ideal for conversion to a cleaner, lower-cost
power generation technology.
As we move into this exciting commercial
phase, we will also be looking to our marketing
and branding strategies, and prioritising the
international reach of AFC Energy through
new partnerships.
Financial overview
AFC Energy’s EU grant-funded projects are
nearing completion, and hence grant income
from these projects was lower in 2017 at
£0.2 million (2016: £1.0 million). Correspondingly,
with the lower level of activity on these EU-funded
projects than the previous year, cost of sales
was also similarly lower.
Overall expenditure on research and development
qualifying for R&D tax credits was £1.6 million
(2016: £2.7 million), demonstrating our continued
commitment to developing the Company’s fuel
cell system.
An operating loss to 31 October 2017 of
£5.5 million (2016: £6.3 million) has been recorded.
Cash balances at 31 October 2017, excluding
restricted cash, were £6.7 million (2016: £2.9 million).
I would like to thank all of the staff, partners and
contractors working with AFC Energy, together
with the EU’s FCH JU, and the Board, for their
continued support.
This report was approved by the Board
on 6 March 2018.
Product finalisation
During the past year we have enhanced the
operating basis for our fuel cell, engineered the
changes to enable these enhancements to be
realised and validated our design enhancements
through a controlled testing regime. This revised
fuel cell system – flow plates, electrodes
and cartridge – has built upon the previous
generation of 10kW units and continues the
modular approach that allows us to create
power plant solutions that can scale to multi-
MW requirements.
We have also successfully introduced a new
electrode that derives from our strategic
partnership with De Nora. This delivers benefits
both from a far greater lifetime of the electrode,
but also in a reduction in the material costs of
manufacture. We judge our progress in product
development based on the acronym of P.L.A.C.E.
– standing for Power, Longevity, Availability, Cost
and Efficiency. Against each of these metrics,
we have made significant and continued
progress during 2017 and now possess the
technology platform to deliver a product with
the performance criteria that the market wants,
the build costs to make them competitive and
the low operational cost that customers demand.
Manufacturing preparation
AFC Energy’s technology and engineering
team has made major strides throughout
2017 in preparing the way for the commercial
manufacture of the Company’s fuel cells. This
has included modification of the flow plates
that hold the electrodes and, most importantly,
modification to the electrode itself. Here, we
have been able to remove a significant amount
of nickel from the electrode plate substrate to
significantly lower costs and most importantly
to allow the finalisation and certification of
components within the manufacturing process.
The result is that AFC Energy is primed and now
ready for commercial manufacture.
Outlook
With the product technology defined and
internal manufacturing process demonstrated,
the final challenge is the commercialisation and
marketing to customers. To address this, we are
taking three routes to market; the direct sales
to customers, the indirect channel through
partners and the embedded model where
the fuel cells are the power component in
a bespoke integrated solution.
We have learned a great amount through refining
the technology for manufacturing both through
our rigorous internal testing, and our external
partnerships. This has enabled us to enhance
the manufacturability of our fuel cell while also
optimising its operational performance.
Our fuel cell is an ideal power generator for
grid-scale applications. During the past year we
have continued our discussions with Covestro
in Germany with a view to the supply of a fuel
Adam Bond
Chief Executive Officer
6 March 2018
Operational highlights
P Our business model
P Delivering our strategic priorities
P Market dynamics
P Commercial deployment
P Strategic partnerships
P Mutually beneficial partnerships
P Technology development
P Sustainable world
P Managing our risks
06
08
09
10
14
16
18
20
22
The most exciting phase in the journey of any
technology company is the juncture when the
years of painstaking research and development
metamorphose into a commercial business.
AFC Energy has reached that point after a highly
successful 2017 that saw huge progress across
fundamental technology research, product
development, manufacturing preparation
and creation of strategic partnerships.
Consequently, the Company faces the future
with a robust technology platform, a strong
go-to-market strategy and a market that is
open and receptive to its products.
In 2017 we completed our three-year plan with
the deliverables we promised. These included the
enhancement of the 10kW fuel cell system design
to support scaling-up of this modular design basis,
technical milestones to demonstrate the longevity
and reliability required for power plant application,
and the strategic partnerships to underpin the
future commercial manufacturing and supply of
fuel cells. With these targets met, AFC Energy can
now begin the commercial exploitation of the
intellectual property that it has created. While we
will continue our focus on the development of the
core alkaline fuel cell science, the time has come
to take the product to market.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 05
Commercialisation is underpinned by our Industrial Metrics “P.L.A.C.E.”
Power
Each AFC Energy fuel cell cartridge is designed to have a nameplate
power output of 10kWe.
Longevity
Achieved forecast electrode longevity of greater than a year
and now targeting two to four-year electrode lifetime.
Availability
Achieving >90% and targeting >95%.
Cost
Cost reductions enabled by electrode and cartridge design savings, increased
longevity of cells and tolerance of lower quality hydrogen sources confirms
our long-term target to deliver electricity at a levelised cost of less than
US$ 0.10kWh (excluding the cost of hydrogen which varies from project
to project).
Efficiency
AFC Energy’s fuel cells are the most efficient of all Alkaline Fuel Cells,
and we are already delivering a 60% conversion efficiency.
Our three-year commercialisation path
In December 2014, AFC Energy’s commercialisation strategy was updated
to deliver technical and commercial progression over a three-year window.
Year
Focus
Commitments
Progress Delivered/in-progress
1
2015
Build and
commission
world’s largest
Alkaline Fuel
Cell power plant
• Construction, installation and
commissioning of 240kW
power plant.
• Upscale fuel cell stack
from 9 to 101 cells.
• Deliver 11 technical/project
milestones announced in
December 2014.
• Develop Generation 2 fuel
cell system
• Operate fuel cell stacks for
> one month.
2
2016
Delivery
of second
generation
fuel cell and
initiation of
commercial
pipeline
R • 204kW produced from industrial scale fuel cell plant
in Germany.
testing >1.3MWh
R • Aggregate power dispatched to the grid during
• In excess of 10kW power generated from multiple
fuel cell stacks operating at the plant, against a
10kW design rating.
R • Automation of start up, operation and shutdown fully
• Fuel cell system reviewed and signed off by German
demonstrated through AFC Energy's proprietary software
engineers for safety and robustness of design.
R • Delivered Generation 2 fuel cell system which operated
for greater than 1,000 hours.
• Complete design/engineering for
10kW and 1MW fuel cell systems.
R • Basic design and engineering completed on
10kW system.
• Advance contracts for pilot
and commercial power
plant opportunities.
• Entry into strategic partnerships
in support of accelerated
commercialisation strategy.
R • Initiated and advanced dialogue for several commercial
fuel cell opportunities.
R • Joint Development Agreement with De Nora
• Strategic engineering partnership with plantIng GmbH.
3
2017
Fuel cell
deployment
• Deliver commercial fuel cell
system in collaboration with
De Nora.
R • The new De Nora electrodes have been successfully
tested in the fuel cell and shown to have a lifecycle of
greater than two years.
• Power Project Evaluation
and Deployment.
R • Engineering studies completed for potential fuel cell
deployment opportunities.
• Long term goal of 1GW capacity
installed or under development
by 2020.
R • We continue to make progress in building scalable fuel
cell solutions and the long-term ambition of a 1GW
capacity fuel cell system remains in place.
R Completed
R Ongoing development
O Not complete
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Strategic Report
06
OPERATIONAL REVIEW continued
Our business model
Our ambition is to become the standard electrical power generation
unit for static applications across multiple markets globally. Our belief
is that the fuel cell, and the alkaline fuel cell specifically, will be the energy
building block of the future as it is adopted as the safe, clean and reliable
approach to power generation. As the company with the most affordable,
advanced, efficient and proven Alkaline Fuel Cell system, AFC Energy is
in prime position to lead the market and benefit from its rapid expansion.
Our strategic priorities
Strengths
Modular units
Industry
partnerships
Embedded
technology
1. Strong research
& development
progress
2. World-leading
3. Sound financial
industrial
partners
backing &
resources
4. Experienced
leadership &
management
team
5. Commercial
pipeline with
existing &
targeted
partners
6. Intellectual
property
ownership
Commercialisation
Business activities
Deep technology
development
o m m e r c ial deploym
e
n
t
Our purpose
Deliver clean,
affordable,
dependable and
available energy
C
I
n
d
u
s
t
r
y
p
a
r
t
n
e
r
s
hip
s
s
e
R
t
n
e
m
p
o
el
v
e
e arch & d
Opportunities and market forces
• Lower hydrogen
costs
• More robust fuel
cell technology
• Embedded market
opportunity
See page 10 for our strategy in action P
• Diesel displacement
strategy
• Global fuel
cell demand
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
07
Strengths
Targeted sources of income
Business activities
Opportunities and market forces
While the initial business
model will see sales and leases
to customers, the AFC Energy
longer-term business model will
see the Company manufacture,
install, own and maintain the
fuel cells.
Roll out will initially be focused
on the deployment of fuel
cells within the chlor-alkali
industry. At the same time,
the Company will target the
diesel power market where
AFC Energy will seek to offer
the clean lower-cost alternative
to polluting diesel units in
operation in both permanent
and temporary applications.
The route to market will
include direct sales, indirect
sales through partners and
distributors and embedded
systems where the AFC
Energy fuel cell would form
the power unit of an integrated
system designed to deliver
a single application.
Customer sales
revenue
Direct sales of modular fuel cells to provide
power sources in the 10kW to multi-MW
range.
Usage revenue
Maintenance
revenue
Licence revenue
Grant income
Primary initial route to market to generate
sales revenues. Prospects already identified.
Revenues deriving from application
usage of the fuel cells. This will include
provision of power, heat and water services
where AFC Energy will be paid for the
service delivered.
Longer-term evolution for the business model.
AFC Energy will provide lifetime services
to installed fuel cells. This will include
maintenance contracts and cartridge
replacement sales. These services will
generate long-term annuity revenues
throughout the anticipated 20 year-plus
lifecycle of the fuel cell systems.
Accumulative revenue stream based
on installed capacity.
AFC Energy will review opportunities to
licence its fuel cell technology. This will be
predominantly focused on markets with
long sales cycles and high capital costs that
would be uneconomic for AFC Energy to
enter directly.
Uncertain and to a degree opportunistic
revenue stream, but could prove to
be significant.
The strategic value of AFC Energy’s
technology development to the future of
energy means that the Company qualifies for
external funding through EU and UK project
grants. This funding enables us to broaden
and accelerate our innovation cycles. This
continues to be a focus for AFC Energy to
help fund core R&D.
Overhead costs
recovery
Grant funding for specific projects can also
enable the recovery of a proportion of
overhead costs.
Relatively minor but valued income stream.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Strategic Report 08
OPERATIONAL REVIEW continued
Delivering our strategic priorities
We are focused on the development of a standardised fuel-cell system which is based on
our own deep research and development, while leveraging the expertise of strategic partners.
As commercial deployment of the technology comes closer, our priorities have now expanded
to include both the industrial market and embedded-application opportunities for our fuel cells.
Strategic priority
2017 progress
2018/19 goals
1
Modular units
Build a standardised
power generation unit
that can be used in multi-
MW scalable deployments
2
Industry
partnerships
Engage in mutually
beneficial partnerships to
accelerate development
and commercialisation
3
Embedded
technology
Seek opportunities for
the embedding of fuel
cell units into appliances
4
Commercialisation
Deploy fuel cell units
into commercial markets
10kW design now completed.
Adoption of new electrodes has
significantly advanced the development
of the standardised fuel cell unit and
enables multi-year longevity.
Complete the development
of a fully productised fuel
cell unit based on the current
10kW design.
Partnerships on electrodes and hydrogen
production systems have assisted
product development.
Partnerships for embedding the
fuel cell units will accelerate the
commercial deployment.
Build an ecosystem of supply
chain and manufacturing
partners for the development
and manufacture of embedded
fuel cell appliances.
Identification and progression of several
commercial opportunities for integration
of the fuel cell unit into stationary
off-grid appliances.
Extend embedded appliances
strategy across a tightly
defined product offering
that requires a clean,
low cost power source.
Commercial opportunities identified
and advanced with initial engineering
work underway.
Deployment of first AFC
Energy fuel cell system.
Affordability of the standardised unit and
resulting levelised cost of electricity has
been improved by cost reductions, such as
an 88% reduction in nickel usage as well as
the increased electrode lifecycle.
5
Deep technology
deployment
Continue the research and
development investment
Focused significant extension of fuel
cell lifecycle towards two years.
Increased energy conversion
towards over 60%.
Progress further product
improvements, including
four-year electrode lifecycle,
increased energy conversion
factor, decreased fuel cell
unit costs.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 09
Market dynamics
The fuel cell has the potential to change the core architecture of electrical power as
we know it today. As we emerge from a global hydrocarbon economy based on central
power generation and fossil fuel consumption, the future will be dominated by clean
electrical energy. The fuel cell is the power unit that could provide much of that electrical
energy where requirements dictate a distributed “at point of consumption” delivery.
It is clear the world needs to transition from a hydrocarbon to
a hydrogen economy. We believe AFC Energy is the vanguard to
deliver the fuel cell technology that will power this transformation.
The COP 21 Paris Agreement in 2015 was signed
by 195 countries and called for action to be taken
for the global temperature rise to be held below
the critical 2oC. While this focuses on the use
of renewable energies to decarbonise, it is also
clear that hydrogen has a major role to play as
a clean fuel that can be used to buffer the energy
generated by renewables.
The widespread adoption of hydrogen is now in
prospect as both a storage medium and a direct
energy source for fuel cells. In addition to its
value as a clean replacement to hydrocarbons,
the hydrogen fuel cell is also ideal for off-grid
applications for countries and regions yet to
provide a reliable electricity network.
The potential of the fuel cell has been
recognised since it was first invented in
1839 and despite its use in powering the
space shuttle, it has disappointed many by
not finding widespread commercial application.
The reasons are multiple but can be summarised
by two essential issues:
1. Fuel cell membranes were easily contaminated
and proved unreliable in operation. This meant
that very high purity, and therefore very high
cost, hydrogen was required and even then
had poor conversion rates.
2. Fuel cells needed to be fed with stored or piped
hydrogen which added a cost to the hydrogen
delivery mechanism and in turn meant higher
fuel cost.
These obstacles are the challenges that
AFC Energy has strived to overcome during
the past decade.
Through the use of an Alkaline Fuel Cell
technology rather than, for example, a proton
exchange membrane, we have been able to
overcome the contamination issue. This has led to
AFC Energy fuel cells being able to use hydrogen
from a wider range of sources and with lower
purity requirements. In operation, this means that
the fuel cells work more reliably, have a longer
lifecycle and work at higher conversion rates.
Today, AFC Energy is able to demonstrate at its UK
test facilities cartridge lifecycles of over two years
and conversion rates of 60%.
The availability of hydrogen has also improved.
The traditional source of hydrogen as a by-
product of the production of chlorine has been
supplemented with hydrogen production from
ammonia, water and other approaches. These
new technologies offer the promise of on demand
hydrogen production where a feedstock can be
“cracked” as needed to provide hydrogen to power
the fuel cell, which reduces the logistics barrier.
The emergence of robust Alkaline Fuel Cells
coupled with new sources of low-cost hydrogen
enables huge uptake for the technology across
diverse markets. We believe that these will be
initially focused on vented hydrogen and diesel
displacement but quickly spread into micro-grid
and grid support applications.
World energy demands are set to rise through
population growth, rise in GDP and the provision
of electricity to the one billion that have no access
today, with the Independent Energy Agency
predicting a 16% growth in energy requirements
by 2050.
With the world still relying on fossil fuels for
82% of energy production against 14% from
renewables and 4% from nuclear, the contribution
from renewables will need to increase by three
to five times, and that will require energy storage
mediums. The storage of hydrogen is a common
industrial practice and therefore enables this
availability for hydrogen conversion through
the fuel cell.
It is clear the world needs to transition from a
hydrocarbon to a hydrogen economy. We believe
AFC Energy is the vanguard to deliver the fuel cell
technology that will power this transformation.
The challenge
The opportunity
200%
Projected global electricity
demand increase by 20501
16%
Growth in energy
requirements by 20502
1bn
People worldwide with no
access to electricity
100%
Reduction in pollution
compared to fossil fuels
Our response
1. We partner with industries that
produce hydrogen as a by-product
of other processes and organisations
that generate low-cost hydrogen
through the cracking of methane,
ammonia and water.
2. The hydrogen is fed
straight into the AFC
Energy fuel cell.
3. Water and heat produced
as a by-product can be
sold for beneficial impact.
4. The clean energy produced
can be sold to the internal
and/or the external grid or
used on demand.
1. International Energy Agency, Hydrogen and Fuel Cell Roadmap, 2015.
2. Independent Energy Agency.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Strategic Report
10
OPERATIONAL REVIEW continued
Commercial deployment
AFC Energy has continued to expand its relationships with potential
customers around the world as it nears commercial production.
These include deployments of AFC Energy’s fuel cells for applications
in Europe, the Middle East and South Korea. In addition, AFC Energy
has initiated new potential customer relationships in the static power
markets that are currently served by diesel generators.
Dunsfold Park
AFC Energy is working with The Rutland Group, a property development
company, to support the creation of a new 2,600-home mixed-use
residential development on a brown-field site in Dunsfold, Surrey.
Sustainable clean energy
• The completion of this development will see clean power used throughout the site, including receiving
electricity from AFC Energy fuel cells
• An on-site anaerobic digestion plant will provide the source of the hydrogen for the fuel cells,
through the cracking of bio-methane that has been generated by the decomposition of
food waste.
1MW fuel cell deployment
• AFC Energy plans to install an initial 1MW fuel cell system to provide power to
the development, increasing to multiple megawatt fuel cell systems over time
• The location of the residential development, adjacent to the existing business
park and to AFC Energy’s existing facilities, will enable the Company to
monitor and optimise the fuel cell system technology.
What next?
• The housing development project has been approved by the
Local Authority and is awaiting formal confirmation from the UK
Government, which is expected during the first half of 2018
• The first homes are expected to be completed in 2021
• AFC Energy will be working closely with The Rutland
Group on the design, integration and installation of
the fuel cell system.
“The potential to turn food
waste into bio-methane, then
into hydrogen and then into
electricity is an extremely
exciting initiative, and The
Rutland Group, working with
AFC Energy, is determined
to make this vision a reality.”
Jim McAllister
Chief Executive Officer
of The Rutland Group
March 2018
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 11
Covestro, Germany
AFC Energy has undertaken an initial engineering scoping study for the
application of a 1MW fuel cell application at the Covestro Industrial Park
in Brunsbuttel, Germany. The application being considered envisages
the fuel cell utilising excess hydrogen from the chlor-alkali facility.
Preparations for deployment
• Engineering work was commenced in April 2017 and was primarily undertaken by AFC Energy
and plantIng with input from Covestro as required
• Covestro are reviewing additional hydrogen sources at other sites that will enable a 1MW fuel
cell application.
What next?
• Once the hydrogen source and site location are confirmed the scoping study
will be reviewed for a final time taking account of site specific characteristics
• The output of the scoping study will form the basis for entering into
a front-end engineering study which in turn will provide the basis for
a final investment decision.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Strategic Report 12
OPERATIONAL REVIEW continued
Commercial deployment continued
Our objective is to combine AFC Energy’s standardised fuel cell technology and other
technologies, with emerging sources of hydrogen to provide integrated fuel cell solutions.
Innovation in hydrogen production
A major, determining factor in the success of fuel cells has been the availability
of hydrogen. Traditionally, low-cost hydrogen can be found at chemical plants for
chlorine production where hydrogen is a by-product of the chlor-alkali process.
This source of hydrogen has been a focus for AFC Energy, and a central component
of its fuel cell deployment strategy has been to co-locate them at chlor-alkali plants.
Today, a number of new initiatives are promising to deliver low-cost
hydrogen through other processes that could be used to power fuel
cells. The new processes also have the critical characteristic of producing
hydrogen on demand using a feedstock that can be easily transported.
The advantage of these approaches is that it would enable fuel cells
to be located at the point of need rather than co-located at a chemical
production facility.
Hydrogen production from ammonia
Ammonia has a high hydrogen and energy content and so is a
good fuel source for fuel cells. AFC Energy is investigating means of
“cracking” ammonia so that hydrogen can be produced on demand.
Commercial ammonia crackers exist on the market and a number of
innovative companies are testing new approaches. In addition to the
benefits of producing hydrogen on demand, ammonia crackers are
environmentally clean as the only by product is nitrogen.
As a feedstock, ammonia is readily available because it is one of the
most highly produced inorganic chemicals. There are also numerous
large-scale ammonia production plants worldwide, making it available
and affordable in all major markets.
Hydrogen production from bio-methane
Bio-methane has recently become a major focus for energy production
with a number of countries restricting the use of landfill for food
waste and insisting on its treatment in anaerobic digester systems.
The methane produced by these systems can be used to generate
hydrogen through a cracking process.
Given the portability of anaerobic digesters and the global availability
of food waste, this approach to hydrogen production could provide
a source for fuel cells in many developing countries as well as in the
developed world.
CH4
CH4 cracker
NH3
NH3 cracker
Waste food
anaerobic
digester
Hydrogen production from water
The electrolysis of water to produce hydrogen is well understood but
in practice has proven to be an inefficient and an expensive means
of production. AFC Energy has had early discussions with a company
that is investigating innovative techniques to generate hydrogen on
demand from water without the need for electrolysis, and the potential
exists to integrate the systems.
A breakthrough in the efficient production of hydrogen from water
would provide a global solution to the generation of on demand power.
Hydrogen production from solid particulates
A range of substances are being investigated to provide a means
of hydrogen production from a solid in powder form where
the hydrogen is trapped in the porous surface and released on
demand through a chemical reaction.
These solid particle approaches would enable a solid fuel approach
to the production of hydrogen which would potentially be highly
stable and transportable.
H 0
Proprietary
hydrogen
generator
H2O solution
Solid
particulates
Transportation
On-demand
hydrogen production
Storage
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 13
Embedded fuel cell appliances
Historically, fuel cells have mainly been designed for static power or automotive
applications. A third market is emerging for the use of fuel cells as the embedded
power source in a turnkey application system that can be located where required
to provide a specific service.
Incorporated within a simple structure, such as a shipping container,
the modular AFC Energy fuel cell would be integrated with a hydrogen
generator and the application that requires power. The potential applications
are widespread but might include emergency lighting and power,
atmospheric water production, or electricity storage for grid stabilisation.
In all cases, the application would benefit from integration of AFC Energy’s
known and existing modularised 10kW fuel cell stack and not involve
development of bespoke fuel cell systems.
Emergency light and power
Integrated units to provide light and power would benefit the
construction industry as well as proving invaluable in disaster
management. The integrated hydrogen production and fuel
cell combination would mean that the light and power unit
could be delivered on a truck or by helicopter to provide
an immediate solution.
Atmospheric water production
Companies have developed systems for the production of drinking
water through the capture of atmospheric water vapour. This would
allow the reliable production of power and water for disaster relief,
military operations or outdoor events where clean water and grid
power are absent.
Hydrogen
production
system
Hydrogen
production
system
Water vapour collector
Mineral
additives
Water tank
Clean
drinking
water
Grid storage
Electricity grids globally lack storage facilities
outside of pumped-hydro and some early
battery schemes. The increasing deployment
of renewable electricity generation means
that power generation has become
unpredictable and requires storage to
balance supply and demand. An embedded
hydrogen production and fuel cell system
would enable excess power supply to be
used to produce hydrogen, which would
then be used to produce electricity during
times of excess demand.
Energy generation
from renewables and
excess grid power
Power
to grid
Hydrogen
production
system
H2 storage
Ruggedised container unit
for military applications
Embedded fuel cells could provide the
basis for military operations to power
bases and field hospitals. The robustness
of the fuel cell and use of new hydrogen
production systems for the generation
of on demand hydrogen could provide
the rapid and reliable power source that
the military demands.
Marine applications
The marine industry currently uses battery
and photovoltaics to provide on-board
auxiliary power including the desalination
required for clean water. An embedded
fuel cell system would be able to provide
these requirements and could be directly
integrated into the desalination system
while producing power for auxiliary needs.
Hydrogen
production
system
Light
Power
Water
Hydrogen
production
system
Propulsion &
auxiliary power
Desalination
system
Clean
water
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Strategic Report 14
OPERATIONAL REVIEW continued
Strategic partnerships
The transformation of AFC Energy from a research & development
company to fully fledged commercial fuel cell manufacturer
cannot be completed in isolation. AFC Energy has built a series
of partnerships with industry-leading suppliers to accelerate its
emergence as a commercial manufacturer.
De Nora
Enhancing electrode longevity and efficiency.
Through the partnership with De Nora, AFC Energy has been able to extend electrode lifetimes
from months to two years, with the target being four years. This has been a crucial step in the
transition towards a commercially marketable product.
Partnership overview
• De Nora is the world’s leading supplier of electrodes to the chlor-alkali industry – the process
by which a salt solution is electrolysed to produce chlorine gas. A by-product of this process
is hydrogen gas that can be used to power fuel cells
• AFC Energy has signed a Joint Development Agreement (JDA) with De Nora for the enhancement
of the efficiency and longevity of AFC Energy’s fuel cells. Under the terms of the JDA,
De Nora has been working with AFC Energy to find ways to materially improve the
performance characteristics of AFC Energy’s fuel cell technology
• The JDA has already resulted in a very substantive leap in fuel cell performance where the
new electrode technology has demonstrated the potential for a two-year lifecycle with
energy conversion efficiency maintained at 60% in internal tests
• Based on the success to date, AFC Energy and De Nora agreed on a next phase of
the JDA in April 2017 which will see both companies commit further resources
and funding for fuel cell performance enhancement. This phase of the JDA has
predominantly focused on the integration of the best performing electrodes
from the initial phase into AFC Energy’s fuel cell stack. This is intended to
create a reference electrode pairing for the fuel cell stack capable of
warranted mass-manufacture
• As part of the scale-up process, all technology improvements
derived from the JDA will be tested and validated at AFC
Energy’s test facility in Stade, Germany.
What next?
• Longevity testing at AFC Energy's Stade facility in
Germany of the new electrode and stack design
• AFC Energy and De Nora aim to put in place
a manufacturing agreement for the supply
of De Nora electrodes for deployment in
AFC Energy projects.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 15
“The potential of Alkaline Fuel Cells as a sustainable
source of power for our world is enormous, and
over the past year De Nora and AFC Energy have
mastered many of the identified technical
challenges to bring a solid value proposition
to market.”
Luca Buonerba
Chief Marketing and
Business Development
Officer of De Nora
March 2018
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Strategic Report 16
OPERATIONAL REVIEW continued
Mutually beneficial partnerships
AFC Energy has continued to progress the requirements
of the POWER-UP and ALKAMMONIA EU-funded projects.
Project POWER-UP
The world’s largest Alkaline Fuel Cell as proof of concept.
The POWER-UP project completed at the end of June 2017 and we have delivered the majority of
outcomes agreed with the EU when originally awarded the grant in 2013. As at 31 October 2017,
the Company was compiling the final POWER-UP project reports to submit to the Fuel Cell and
Hydrogen Joint Undertaking (“FCH JU”).
Highlights
• Project proved the scalability and manufacturability of Alkaline Fuel Cells
• Built world’s largest Alkaline Fuel Cell as proof of concept
• Electricity successfully dispatched and sold to the power grid
• Delivered conversion efficiency at 56% in a trial production environment
• Increased manufacturing capacity by 1,375% against a target of 12%
• Proved a 100% success rate in the reconditioning of electrode plates and recovery
of catalyst materials.
What next?
• Facility at Stade is being modified, as required, to enable the operation
of the enhanced stack and cartridge design
• Large-scale electrodes will be operated in the enhanced stack and
cartridge design at Stade
• Electricity generated continues to be sold into the power grid.
100%
Success rate in the reconditioning
of electrode plates and recovery
of catalyst materials
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 17
Project ALKAMMONIA
Project to examine use of ammonia as hydrogen source for fuel cells.
The ALKAMMONIA project has continued with the bulk of work required for AFC Energy’s delivery
of a small-scale system completed (as announced during the course of 2016). Due to delays with
the certification and delivery of the ammonia cracker, in consultation with the FCH JU, the project
has been extended into 2018 to allow key project deliverables to be successfully completed.
We look forward to updating the market on this project over the coming months.
Highlights
• Project to examine the use of cracked ammonia as hydrogen source for fuel cells
• Enables standalone energy system where ammonia is converted to hydrogen that
then generates electricity through the fuel cell
• Creates stable, low-cost and readily available fuel source for global deployments
in off-grid applications
• Completed engineering design in 2017
• Project extended until June 2018.
What next?
• Fuel cell stack testing using cracked ammonia fuel source to commence
at AFC Energy facilities.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Strategic Report 18
OPERATIONAL REVIEW continued
Technology development
2017 was an eventful and fruitful year in the development of
AFC Energy’s technology. Efforts focused on the refinement of
the fuel cell for manufacturing production, build cost reduction
and application deployment.
Fuel cell stack redesign
To prepare for the manufacturing phase, the
Company has completed an entire redesign
of the 10kW fuel cell stack operated previously
at the Stade plant in Germany. This redesigned
product incorporated observations from
operating the plant in Stade and to allow for
the implementation of the new De Nora JDA
electrodes while maintaining compatibility
with the existing plant configuration. The
changes enhance the operation of the 10kW fuel
cell stack and will assist the future manufacture
while lowering costs.
De Nora JDA electrodes
Electrodes developed under the JDA with
De Nora were successfully incorporated into
the fuel cell design and provide a far greater
longevity before requiring replacement.
Current testing indicates a longevity of over
two years in continuous operation before
replacement is possible. We are seeking to
extend the lifecycle to four years, which will
significantly lower the operational costs of the fuel
cell stacks, allowing a target cost of 3 years
5
2
Industry/background experience
Energy/Engineering
Political/Regulatory
Business Development
Financial
6 (85%)
3 (43%)
5 (71%)
4 (57%)
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Governance 28
DIRECTORS' INTERESTS AND THEIR REMUNERATION
Introduction
The Company is committed to maintaining high standards of corporate governance and has taken steps to comply with the principles of best practice
in so far as it can be applied practically given the size of the Company and the nature of its operations. Since it is not a requirement for companies which
have securities listed on the AIM market of the London Stock Exchange to comply with the disclosure requirements of the Directors’ Remuneration Report
Regulations 2013 or to comply with the UKLA Listing Rules and the disclosure provisions under schedule 8 to SI 2008/410 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008, certain disclosures are not included.
Directors and their interests
The Directors who served during the year and during the period up until the signing of these financial statements were:
John Rennocks
Adam Bond
Jim Gibson
Richard Tuffill
Mitchell Field
Lisa Jordan
Joe Mangion
Eugene Shvidler
Eugene Tenenbaum
Tim Yeo
Non-Executive Chairman (appointed 8 June 2017)
Chief Executive Officer
Chief Operating Officer (appointed 6 February 2017)
Chief Financial Officer (appointed 8 June 2017)
Non-Executive (resigned 5 December 2017)
Non-Executive (appointed 8 June 2017)
Non-Executive (appointed 5 December 2017)
Non-Executive (resigned 8 June 2017)
Non-Executive
Non-Executive (resigned 5 December 2017)
In accordance with the Company’s Articles of Association, a Director appointed since the last Annual General Meeting must stand for re-appointment at
the first Annual General Meeting after such appointment. Consequently, John Rennocks, Lisa Jordan and Joseph Mangion offer themselves for re-election.
Further, any Director who was not elected or re-elected at either of the two preceding Annual General Meetings must stand for re-appointment at the Annual
General Meeting. Adam Bond, Eugene Tenenbaum and James Gibson were previously elected or re-elected at either of the two preceding Annual General
Meetings and therefore are not required to stand for re-appointment. Richard Tuffill will resign as a Director prior to the Annual General Meeting.
On 31 October 2017 the beneficial interests of Directors and their families in the equity share capital of the Company were:
John Rennocks
Adam Bond
Jim Gibson
Richard Tuffill
Mitchell Field
Lisa Jordan
Eugene Tenenbaum
Tim Yeo
On 31 October 2017 the Directors’ interests over share capital of the Company were:
Number of
Ordinary shares
of 0.1p
2017
Number of
Ordinary shares
of 0.1p
2016
–
3,000,000
90,000
–
3,311,132
–
–
927,272
–
2,750,000
90,000
–
2,894,810
–
–
877,272
Tim Yeo
Mitchell Field
1 November
2016
1,100,000
1,000,000
350,000
750,000
Adam Bond
6,000,000
Options/
Warrants
granted in
year
Options/
Warrants
exercised/
lapsed in
year
31 October
2017
–
–
1,100,000
1,000,000
(350,000)
–
–
750,000
–
–
–
–
–
Note:
1 Warrants/Options exercisable from/after 14 April 2013 are subject to achievement of performance conditions.
None of the other Directors had a direct interest over share capital during the reporting period.
Exercise
price
£0.031
£0.240
£0.031
£0.240
Date from
which
exercisable1
Expiry
date
18/04/2012
14/04/2013
17/04/2019
13/04/2020
18/04/2012
14/04/2013
17/04/2019
13/04/2020
Type
Warrant
Warrant
Warrant
Warrant
Unapproved
Option
–
6,000,000
£0.510
17/07/2015
17/07/2025
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
29
Directors’ remuneration
The remuneration policy has been designed to ensure that Executive Directors receive appropriate incentive and reward given their performance,
responsibility and experience. When assessing this, the Remuneration Committee seeks to ensure that the policy aligns the interests of the Executive Directors
with those of shareholders. The Company’s remuneration policy for Executive Directors is to:
• Consider the individual’s experience and the nature, complexity and responsibilities of their work to set a competitive salary that attracts and
retains management of the highest quality
• Link individual remuneration packages to the Company’s long-term performance through long-term share-based plans
• Provide post-retirement benefits through payment into defined contribution pension schemes
• Provide employment-related benefits including company car and medical insurance.
The remuneration of the Non-Executive Directors is determined by the Executive members of the Board in consultation with the Chairman, based on a review
of current practices in other equivalent companies. The Non-Executive Directors do not receive any pension payments, nor do they participate in any of the
bonus schemes. Remuneration is based on a fixed fee, plus a separate fee for any additional consulting services.
Name
John Rennocks
Adam Bond
Jim Gibson
Richard Tuffill
Mitchell Field
Lisa Jordan
Eugene Shvidler
Eugene Tenenbaum
Tim Yeo
Share-based
payment
expense
£
Other
compensation
£
Company
pension
contributions
£
–
599,062
–
–
–
–
–
–
–
–
95,572
199,917
3,282
11,400
–
–
–
30,967
–
–
–
650
–
–
–
–
–
Salary
£
37,186
300,000
–
51,705
13,600
7,975
6,792
12,667
16,286
Total
2017
£
37,186
994,634
199,917
55,637
25,000
7,975
6,792
12,667
47,253
Total
2016
£
–
1,334,852
–
–
25,000
–
11,200
11,200
56,575
Directors’ service contracts
John Rennocks’ services as Chairman and Non-Executive Director are provided under a service agreement with the Company dated 7 June 2017 for an
indefinite term, subject to a minimum of three months’ notice. Under this agreement, John is entitled to a Director’s fee of £50,000 per annum, plus,
during the initial six months and up to a maximum of 30 days during this period, an additional fee of £1,000 per day for undertaking additional duties
outside of the normal time expectations set out in the service agreement.
Adam Bond’s services as Chief Executive Officer and Director are provided under a service agreement with the Company dated 1 January 2016. Under
this agreement, Adam is entitled to a salary of £300,000 per annum plus payment or receipt of other benefits including a housing allowance, private
medical insurance and a company car. In addition, £46,250 of his other compensation was settled during the year through the issuance of 250,000 shares
in the Company. As part of Adam’s contract with the Company, in 2015 he was granted 6,000,000 share options with an exercise price of £0.51 per share.
These options have performance conditions attached to them; 3,000,000 of the options will only vest if specific operational targets for energy output are
met, and the remaining options will only vest if the share price achieves and sustains targeted amounts with equal portions vesting at share prices of £1.00,
£1.50 and £2.00. In accordance with IFRS 2 (Share-Based Payment), the Company recognises as an employee expense the fair value of options granted
to employees. The fair value is determined using an appropriate pricing model, and the resulting expense is recognised over the period in which the
performance and/or service conditions are fulfilled ending on the date on which the employee becomes fully entitled to the award. During the year the
Company recorded a non-cash expense of £599,062 relating to the options granted to Adam. The vesting conditions for the options have not been reached
and hence Adam has not received any cash benefit from the options in the year. Further details are contained in notes 2, 3 and 18. After the year-end,
Adam has repaid to the Company all outstanding taxation remitted by the Company in previous years to HMRC on Adam’s behalf in relation to different tax
jurisdictions between the UK and Australia. Also, after the year-end, and following Board approval as a result of meeting certain performance conditions,
the Company has paid Adam a £100,000 bonus that was accrued for in the previous year.
Jim Gibson’s services as Chief Operating Officer and Director are provided under an agreement between the Company and iProcess Engineering
& Consulting Ltd. Under this agreement Jim is paid a daily fee for his services.
Richard Tuffill’s services as Chief Financial Officer and Director are provided under a service contract with the Company dated 1 June 2017 for an indefinite
term, subject to a minimum of three months’ notice. Under this agreement, Richard is entitled to a salary of £130,000 per annum plus payment of other
benefits including private medical insurance and a car allowance.
Mitchell Field’s services as a Non-Executive Director were provided under the terms of a letter of appointment dated 17 October 2013 for an indefinite term,
subject to a minimum of six months’ notice. Under this agreement, Mitchell was entitled to a Director’s fee of £13,600 per annum. Additional consultancy
services were provided under an agreement between the Company and Richards & Appleby Ltd dated 17 October 2013.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Governance
30
DIRECTORS' INTERESTS AND THEIR REMUNERATION continued
Directors’ service contracts continued
Lisa Jordan’s services as a Non-Executive Director are provided under a service agreement with the Company dated 7 June 2017 for an indefinite term,
subject to a minimum of three months’ notice. Under this agreement, Lisa is entitled to a Director’s fee of £20,000 per annum.
Eugene Shvidler’s services as a Non-Executive Director were provided under the terms of a letter of appointment, dated 17 October 2013, for an indefinite
term, subject to a minimum of six months’ notice. Under this agreement, Eugene was entitled to a Director’s fee of £11,200 per annum. Additional
consultancy services were provided under an agreement between the Company and Eugene dated 17 October 2013. During the year to 31 October 2017
Eugene did not charge the Company for any consultancy services.
Up until 30 August 2017, Eugene Tenenbaum’s services as a Non-Executive Director were provided under the terms of a letter of appointment, dated
17 October 2013, for an indefinite term, subject to a minimum of six months’ notice. Additional consultancy services were provided under an agreement
between the Company and Eugene dated 17 October 2013. During the year to 31 October 2017 Eugene did not charge the Company for any consultancy
services. From 1 September 2017, Eugene’s services as a Non-Executive Director are provided under a service agreement with the Company dated
1 September 2017 for an indefinite term, subject to a minimum of three months’ notice, which replaced all previous agreements. Under this agreement,
Eugene is entitled to a Director’s fee of £20,000 per annum.
Up until 30 August 2017, Tim Yeo’s services as Chairman (prior to his resignation as Chairman on 8 June 2017) and Non-Executive Director were
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 were provided under an agreement between the Company and Locana Corporation (London) Ltd dated 1 January 2012.
From 1 September 2017, Tim’s services as a Non-Executive Director were provided under a service agreement with the Company dated 1 September 2017
for an indefinite term, subject to a minimum of one month’s notice, which replaced all previous agreements. Under this agreement, Tim was entitled to
a Director’s fee of £20,000 per annum.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
DIRECTORS’ REPORT
31
The Directors present their report together with the audited financial statements for the year ended 31 October 2017. The comparative period was from
1 November 2015 to 31 October 2016. Information required under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 has
been included within the Directors’ Report and accounts.
Principal activity and review of business developments
The principal activity of AFC Energy plc (or the “Company”) is the development of fuel cells.
Reviews of operations, business developments and current projects are included in the Chairman’s Statement, the Strategic Report and Operational Review.
Results and dividend
The results for the year are set out in the statement of comprehensive income on page 37.
No dividends were paid in the year. The Directors do not intend to declare a dividend in respect of the year.
Board changes
Details of changes to the membership of the Board are disclosed within the “Directors and their interests” section on page 28.
Capital structure
Details of the Company’s share capital are disclosed in note 17 to the financial statements.
Shareholder funds have been used for the development and testing of industrial scale fuel cell systems that can compete with conventional electricity
generation technologies.
On 5 March 2018, the Company was aware of the following holdings of 3% or more in the Company’s issued share capital:
Ervington Investments Ltd
Schroder Investment Management Ltd
Barclays Direct Investing Nominees Ltd (CLIENT1)
Interactive Investor Services Nominees (SMKTNOMS)
Lynchwood Nominees Ltd
Hargreaves Lansdown (Nominees) Ltd (15942)
Interactive Investor Services Nominees Ltd (SMKTISAS)
Hargreaves Lansdown (Nominees) Ltd (VRA)
Mr Eugene Shvidler
Hargreaves Lansdown (Nominees) Ltd (HLNOM)
Financial instruments
Financial instruments are disclosed in note 22.
Political and charitable donations
Charitable donations in the year amounted to £nil (2016: £nil).
Approximate
percentage of the
Number Company’s issued
share capital
of shares
39,610,494
33,000,000
24,973,313
24,646,509
21,910,982
18,941,474
16,200,775
15,488,421
14,432,737
12,698,486
10.12%
8.43%
6.38%
6.30%
5.60%
4.84%
4.14%
3.96%
3.69%
3.25%
Information disclosed in the Strategic Report
The following matters required to be disclosed in this Report under the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008 are covered in the Strategic Report on pages 4 to 5 and 22 to 23 respectively: the key performance indicators and the principal risks.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Governance
32
DIRECTORS’ REPORT continued
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 2017
represented 26 days (2016: 28 days) of annual purchases.
Liability insurance for Company officers
The Company maintains Directors’ and Officers’ liability insurance cover for its Directors and officers to the extent permitted under the Companies Act 2006.
Research and development
The Company invests substantially in research and development and makes claims under the Government’s R&D tax credit scheme. In the year to
31 October 2017, relevant qualifying expenditure was £1,634,019 (2016: £2,653,241).
Going concern
The Company had unrestricted cash of £6,676,775 at 31 October 2017.
The Directors have prepared a cash flow forecast (the “Forecast”) for the period ending 30 April 2019. During this period, the Company will focus on product
and commercial development and the Forecast indicates that it will have sufficient cash resources to meet its obligations as they fall due for a period of at
least 12 months from the date of approval of these financial statements. Consequently, the Directors believe that it is appropriate to prepare the financial
statements on a going concern basis.
The Forecast includes a contingency in respect of unforeseen product development activities, should they become necessary. In addition, certain identified
discretionary and non-essential activities can be cancelled to provide a further cash buffer.
A future fundraising, not included in the Forecast described above, will be necessary to enable the Company to meet the costs of commercial deployment
in order to deliver its growth potential. The Directors are confident in the ability of the Company to raise additional funds through the market, or at the project
level as deemed appropriate at the time.
Post-balance sheet events
Details of post-balance sheet events are provided in note 24 to the financial statements.
Auditor
A resolution to reappoint the Auditor of the Company, Grant Thornton UK LLP, will be proposed at the forthcoming Annual General Meeting.
Grant Thornton UK LLP have expressed their willingness to continue as Auditor of the Company.
This report was approved by the Board on 6 March 2018 and signed on its behalf by
Adam Bond
Chief Executive Officer
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
33
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
• 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 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.
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 a 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.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Governance
34
INDEPENDENT AUDITOR’S REPORT
To the members of AFC Energy plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of AFC Energy plc for the year ended 31 October 2017 which comprise the Statement of Comprehensive Income,
Statement of Financial Position, Statement of Changes in Equity, Cash Flow Statement, and notes to the financial statements, including a summary of significant
accounting policies. 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.
In our opinion the company financial statements:
• give a true and fair view of the state of the company’s affairs as at 31 October 2017 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the company in
accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied
to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Who we are reporting to
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.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s
ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements
are authorised for issue.
Overview of our audit approach
• overall materiality: £241,000, which represents 5% of the company's loss before taxation at the planning stage. We decided not to adjust materiality for
final numbers as the difference was considered to be immaterial;
• the key audit matter identified was going concern.
Key audit matters
The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact and the extent
of management judgement.
h
g
H
i
t
c
a
p
m
i
t
n
e
m
e
t
a
t
s
Going concern
l
i
a
c
n
a
n
fi
l
a
i
t
n
e
t
o
P
w
o
L
Grant income
Operating expenses
Low
Extent of management judgement
High
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the company financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters
included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the company financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
35
Key audit matters
How the matter was addressed in the audit
Going concern
The financial statements are prepared on a going concern basis in
accordance with International Accounting Standard (IAS) 1: ‘Presentation
of Financial Statements’. As the Directors’ assessment of the company’s
ability to continue as a going concern requires judgement, we identified
going concern as a significant risk requiring special audit consideration.
The company in previous years has entered into arrangements where
grant income will be received in line with the development costs incurred
in respect of the hydrogen fuel cell technology. In the 2017 financial year
the grant funding utilised has been significantly exhausted, the company is
reliant on fundraising to maintain its operations until commercial revenues
can be generated.
Our audit work included, but was not restricted to:
• We considered the Directors’ plans in relation to its going concern
assessment along with its cash flow forecasts covering the coming
12 months from approval of the financial statements, taking into account
any relevant events subsequent to the year-end through discussion at
Audit Committee;
• We have provided challenges on these forecasts to ensure
management’s judgements are reasonable and performed sensitivity
over the cash flow inputs; and
• We have determined whether the financial statements contained
sufficient disclosure in relation to going concern.
The company's accounting policy on going concern is shown in note 2
to the financial statements.
Key observations
The company’s Directors’ have forecast that the company will have
sufficient cash flow for a period of at least 12 months from approval of
the financial statements. As such the Directors have prepared the financial
statements on a going concern basis. We consider that the company’s
disclosures regarding going concern (included in note 2 to the financial
statements) appropriately describe the assumptions used by the Directors
to determine the going concern status of the company.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our work and in evaluating
the results of that work.
We determined materiality for the audit of the company financial statements as a whole to be £241,000, which is 5% of loss before tax at the planning stage.
We decided not to adjust materiality for final numbers as the difference was considered to be immaterial. This benchmark is considered the most appropriate
because the company is in the development stage of its product and expenses all related costs.
Materiality for the current year is lower than the level that we determined for the year ended 31 October 2016. This reflects the decrease in the company’s
expenditure resulting from improvements made in the efficiency of the company’s operations.
We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of financial statement materiality.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements.
Overall materiality
25%
75%
Tolerance for potential uncorrected misstatements
Performance materiality
We also determine specific materiality of £1 for Directors' remuneration and related party transactions due to being material in nature.
We determined the threshold at which we will communicate misstatements to the Audit Committee to be £12,000. In addition we will communicate
misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements 36
INDEPENDENT AUDITOR’S REPORT continued
To the members of AFC Energy plc
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the company's business, its environment and risk profile and
in particular included:
• planning meetings with management to gain an update on the business during the year, as well as leveraging our knowledge of the business from past audits;
• after planning discussions with management we undertook specific procedures to enable us to evaluate management’s use of the going concern assumption.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report set out on pages 2 to 33,
other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information
is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements
or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with
the financial statements; and
• the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
Matter on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material
misstatements in the strategic report or the Directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; 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.
Responsibilities of Directors for the financial statements
As explained more fully in the Directors’ responsibilities statement 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, and for such internal control as the Directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the company financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Christopher Smith
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
6 March 2018
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 October 2017
37
EU grant income
Cost of sales
Gross loss
Other income
Administrative expenses
Operating loss
Finance cost
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 41 to 54 form part of these financial statements.
Year ended
31 October 2017
£
Note
Year ended
31 October 2016
£
230,610
(397,113)
967,606
(1,883,650)
(166,503)
(916,044)
51,947
(5,395,552)
146,479
(5,561,096)
(5,510,108)
(6,330,661)
(853)
(148,233)
(5,510,961)
(6,478,894)
585,902
822,830
(4,925,059)
(5,656,064)
5
8
9
10
10
(1.36)p
(1.36)p
(1.86)p
(1.86)p
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements
38
STATEMENT OF FINANCIAL POSITION
As at 31 October 2017
Assets
Non-current assets
Intangible assets
Property and equipment
Investment
Current assets
Inventory
Other receivables
Cash and cash equivalents
Restricted cash
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
Non-current liabilities
Trade and other payables
Provisions
Total equity and liabilities
The notes on pages 41 to 54 form part of these financial statements.
These financial statements were approved and authorised for issue by the Board on 6 March 2018.
John Rennocks
Chairman
Richard Tuffill
Chief Financial Officer
AFC Energy plc
Registered number: 05668788
31 October 2017
£
Note
31 October 2016
£
11
12
13
14
15
16
16
17
17
382,202
315,244
–
344,457
89,384
–
697,446
433,841
162,993
1,608,466
6,676,775
109,582
150,932
2,595,963
2,910,862
112,077
8,557,816
5,769,834
9,255,262
6,203,675
391,298
45,494,404
3,084,204
(40,559,556)
310,014
37,843,613
3,234,492
(36,486,151)
8,410,350
4,901,968
19
536,166
1,295,904
536,166
1,295,904
19
20
7,574
301,172
308,746
5,803
–
5,803
9,255,262
6,203,675
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 October 2017
39
Balance at 1 November 2015
Comprehensive loss for the year
Issue of equity shares
Equity-settled share-based payments
Transactions with owners
Balance at 31 October 2016
Comprehensive loss for the year
Issue of equity shares
Equity-settled share-based payments
Transactions with owners
Balance at 31 October 2017
Note
Share
Capital
£
289,904
–
20,110
–
Share
Premium
£
33,947,857
–
3,895,756
–
Other
Reserve
£
2,207,441
–
–
1,027,051
Retained
Deficit
£
(30,830,087)
(5,656,064)
–
–
Total
Equity
£
5,615,115
(5,656,064)
3,915,866
1,027,051
20,110
3,895,756
1,027,051
–
4,942,917
310,014
37,843,613
3,234,492
(36,486,151)
4,901,968
17
18
–
81,284
–
–
7,650,791
–
–
–
(150,288)
(4,925,059)
–
851,654
(4,925,059)
7,732,075
701,366
81,284
7,650,791
(150,288)
851,654
8,433,441
391,298
45,494,404
3,084,204
(40,559,556)
8,410,350
Share capital is the amount subscribed for shares at nominal value.
Share premium represents the excess of the amount subscribed for share capital over the nominal value of these shares net of share issue expenses.
Other reserve represents the charge to equity in respect of equity-settled share-based payments.
Retained deficit represents the cumulative loss of the Company attributable to equity shareholders.
The notes on pages 41 to 54 form part of these financial statements.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements
40
CASH FLOW STATEMENT
For the year ended 31 October 2017
Cash flows from operating activities
Loss before tax for the year
Adjustments for:
Amortisation of intangible assets
Impairment of intangible assets
Depreciation of property and equipment
Depreciation of decommissioning asset
Loss/(Profit) on disposal of tangible assets
Equity-settled share-based payment expenses
Payment of shares in lieu of cash
Interest received
R&D tax credits receivable
Loss on derivative financial investment
Cash flows from operating activities before changes in working capital and provisions
R&D tax credits received
Decrease/(Increase) in restricted cash
(Increase)/Decrease in inventory
Decrease in other receivables
Decrease in trade and other payables
Cash absorbed by operating activities
Cash flows from investing activities
Purchase of plant and equipment
Additions to intangible assets
Proceeds of disposal of tangible assets
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
Derivative financial asset
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of year
31 October 2017
£
Note
31 October 2016
£
(5,510,961)
(6,478,894)
11
11
12
12
18
8
27,215
7,104
53,858
139,121
2,214
701,366
75,983
(2,578)
(173,830)
–
(4,680,508)
759,731
2,495
(12,061)
987,497
(757,967)
64,240
–
108,368
–
(40,750)
1,027,051
326,632
(3,415)
(104,291)
149,687
(4,951,372)
927,121
(20,972)
68,489
862,377
(371,852)
(3,700,813)
(3,486,209)
12
11
8
(120,111)
(72,064)
231
2,578
(81,424)
(70,287)
40,750
3,415
(189,366)
(107,546)
8,079,381
(423,289)
–
3,600,000
(11,000)
1,159,172
7,656,092
4,748,172
3,765,913
2,910,862
1,154,417
1,756,445
Cash and cash equivalents at end of year
16
6,676,775
2,910,862
The notes on pages 41 to 54 form part of these financial statements.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
41
1. Corporate information
AFC Energy plc (the “Company”) is a public limited company incorporated in England & Wales and quoted on the Alternative Investment Market
of the London Stock Exchange.
The address of its registered office is Finsgate, 5-7 Cranwood Street, London, EC1V 9EE.
2. Basis of preparation and accounting policies
The financial statements of AFC Energy plc have been prepared in accordance with International Financial Reporting Standards (“IFRSs”), International
Accounting Standards (“IASs”) and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations (collectively “IFRSs”) as adopted
for use in the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The Directors have prepared a cash flow forecast (the “Forecast”) for the period ending 30 April 2019. During this period, the Company will focus on product
and commercial development and the Forecast indicates that it will have sufficient cash resources to meet its obligations as they fall due for a period of at least
12 months from the date of approval of these financial statements. Consequently, the Directors believe that it is appropriate to prepare the financial statements
on a going concern basis.
The Forecast includes a contingency in respect of unforeseen product development activities, should they become necessary. In addition, certain identified
discretionary and non-essential activities can be cancelled to provide a further cash buffer.
A future fundraising, not assumed in the Forecast described above, will be necessary to enable the Company to meet the costs of commercial deployment in
order to deliver its growth potential. The Directors are confident in the ability of the Company to raise additional funds through the market, or at the project level
as deemed appropriate at the time.
The accounting policies set out below have, unless otherwise stated, been applied consistently in these financial statements.
Judgements made by the Directors in the application of these accounting policies that have significant effect on the financial statements and estimates
with a significant risk of material adjustment in the next year are discussed in note 3.
a. Standards, amendments and interpretations to published standards not yet effective
At the date of authorisation of these financial statements, the IASB and IFRIC have issued the following standards and interpretations, which are effective for
annual accounting periods beginning on or after the stated effective date. These standards and interpretations are not effective for and have not been applied
in the preparation of these financial statements:
• IFRS 9 Financial Instruments is effective from 1 January 2015. This standard includes requirements for recognition and measurement, derecognition
and hedge accounting
• IFRS 15 Revenue from contracts with customers. The new standard will replace IAS 18 Revenue and IAS 11 Construction contracts. It will become effective
for accounting periods on or after 1 January 2018 at the earliest
• IFRS 16 Leases is effective from 1 January 2019. Management has not yet analysed the input to the financial statements upon adoption.
The Company expects no impact from the adoption of IFRS 9. As the Company is not currently revenue generating, there would be no impact relating
to the adoption of IFRS 15 on the current financial position. The Company will determine the effects of the adoption of IFRS 16 in future periods.
b. Capital policy
The Company manages its equity as capital. Equity comprises the items detailed within the principal accounting policy for equity and financial details
can be found in the statement of financial position. The Company adheres to the capital maintenance requirements as set out in the Companies Act.
c. Grants
The Company participates in two projects, ALKAMMONIA and POWER-UP, which receive funding from the European Union (“EU”). These grants are based on
periodic claims for qualifying expenditure incurred by all the entities participating in each project consortium. The Company acts as coordinator for the projects
and submits claims and receives funding on behalf of the other participants in each project consortium. Grant funds of other participants are paid over to them
as soon as they are received and only the grant funding relating specifically to the Company’s activities is reflected in the statement of comprehensive income.
The qualifying expenditure is shown in the statement of comprehensive income as cost of sales. Grants, including grants from the EU, are recognised in the
statement of comprehensive income in the same period as the expenditure to which the grant relates.
d. Other income
Other income represents sales by the Company of waste materials.
e. Development costs
Development expenditure does not meet the strict criteria for capitalisation under IAS 38 and has been recognised as an expense. Expenditure on and relating
to the Company’s alkaline fuel cell system installed at Stade in Germany under the EU-funded POWER-UP project has been considered to be development
expenditure to date, as the module is the first of its kind that has been produced.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements
42
NOTES FORMING PART OF THE FINANCIAL STATEMENTS continued
2. Basis of preparation and accounting policies continued
f. Foreign currency
The financial statements of the Company are presented in the currency of the primary economic environment in which it operates (the functional currency),
which is pounds sterling. In accordance with IAS 21, transactions entered into by the Company in a currency other than the functional currency are recorded
at the rates ruling when the transactions occur. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates
prevailing at the balance sheet date.
g. Inventory
Inventory is recorded at the lower of cost and net realisable value. Cost comprises purchase cost plus production overheads.
h. Other receivables
Other receivables arise principally through the provision by the Company of activities associated with grant-funded projects. They also include other
types of contractual monetary assets. These assets are initially recognised at fair value and are subsequently measured at amortised cost less any provision
for impairment.
i. Loans and other receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial
measurement, loans and receivables are carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses
are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
The Company’s loans and receivables include cash and cash equivalents. These include cash in hand, and deposits held at call with banks.
j. Property and equipment
Property and equipment are stated at cost less any subsequent accumulated depreciation and impairment losses.
Where parts of an item of property and equipment have different useful lives, they are accounted for as separate items of property and equipment.
Depreciation is charged to the statement of comprehensive income within cost of sales and administrative expenses on a straight-line basis over the
estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
• Leasehold improvements
• Fixtures, fittings and equipment
• Vehicles
• Decommissioning asset
1 to 3 years
1 to 3 years
3 to 4 years
life of the lease
Expenses incurred in respect of the maintenance and repair of property and equipment are charged against income when incurred. Refurbishment and
improvement expenditure, where the benefit is expected to be long-lasting, is capitalised as part of the appropriate asset.
The useful economic lives of property, plant and equipment and the carrying value of tangible fixed assets are assessed annually and any impairment
is charged to the statement of comprehensive income.
k. Intangible assets
Expenditure on research activities is recognised in the statement of comprehensive income as an expense as incurred. Expenditure in establishing a patent
is capitalised and written off over its useful life.
Other intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and impairment losses.
Amortisation of intangible assets is charged using the straight-line method to administrative expenses over the following period:
• Patents
20 years
Useful lives are based on the management’s estimates of the period that the assets will generate revenue, which are periodically reviewed for continued
appropriateness and any impairment is charged to the statement of comprehensive income.
l. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with major banking institutions realisable within three months. Restricted cash is
€125,000 held in escrow to support a bank guarantee in favour of Air Products GmbH relating to contractual obligations by the Company in relation to
the Stade site in Germany.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 43
2. Basis of preparation and accounting policies continued
m. Other financial liabilities
The Company classifies its financial liabilities as:
Trade and other payables
These are initially recognised at invoiced value. These arise principally from the receipt of goods and services. There is no material difference between the
invoiced value and the value calculated on an amortised cost basis or fair value.
Deferred income
This is the carrying value of income received from a customer in advance which has not been fully recognised in the statement of comprehensive income
pending delivery to the customer. The carrying value is fair value.
n. Leases
Finance leases
Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at
the inception of the lease at the fair value of the leased property. Capitalised leased assets are depreciated over the estimated useful life of the asset.
Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are reflected in the statement of comprehensive income.
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made
under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
o. Financial assets
All of the Company’s financial assets are loans and receivables and investments. Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are included in current assets at fair value and comprise trade and other receivables
and cash and cash equivalents. Investments are accounted for at cost less impairment.
p. Financial instruments
Financial assets and liabilities are recognised on the balance sheet when the Company becomes a party to the contractual provisions of the instrument.
• Cash and cash equivalents comprise cash held at bank and short-term deposits
• Receivables are recognised initially at fair value and subsequently held at amortised cost less an allowance for any uncollectable amounts when the full
amount is no longer considered receivable
• Trade payables are not interest bearing and are stated at their nominal value
• Equity instruments issued by the Company are recorded at the proceeds received except where those proceeds appear to be less than the fair value of the
equity instruments issued, in which case the equity instruments are recorded at fair value. The difference between the proceeds received and the fair value is
reflected in the share-based payments reserve.
q. Share-based payment transactions
The 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 the Black-Scholes 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 statement of comprehensive income on the date of cancellation.
r. Provisions
Provisions are recognised when the Company has a present obligation as a result of a past event and it is probable that the Company will be required to settle
the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at
the balance sheet date and are discounted to present value where the effect is material.
s. Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent
that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or recoverable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance
sheet date together with any adjustment to tax payable in respect of previous years.
Deferred tax assets are not recognised due to the uncertainty of the timing of their recovery.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements
44
NOTES FORMING PART OF THE FINANCIAL STATEMENTS continued
2. Basis of preparation and accounting policies continued
t. R&D tax credits
The Company’s research and development activities allow it to claim R&D tax credits from HMRC in respect of qualifying expenditure; these credits
are reflected in the statement of comprehensive income in administrative expenses or in the taxation line depending on the nature of the credit.
u. Pension contributions
The Company operates a defined contribution pension scheme which is open to all employees and makes monthly employer contributions to the scheme
in respect of employees who join the scheme. These employer contributions are currently capped at 3% of the employee’s salary and are reflected in the
statement of comprehensive income in the period for which they are made.
3. Critical accounting judgements and key sources of estimation and uncertainty
In the preparation of the financial statements management makes certain judgements and estimates that impact the financial statements. While these
judgements are continually reviewed, the facts and circumstances underlying these judgements may change, resulting in a change to the estimates that
could impact the results of the Company. In particular:
Useful lives and impairment of intangible assets
Intangible assets are amortised 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, an impairment
value of £7,104 has arisen with respect to intangible assets during the year and subsequent to 31 October 2017 (2016: £nil).
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 that, until the Company’s fuel cell system is proven to be commercially deployable, it would not be appropriate to capitalise development
expenditure. Consequently, all development expenditure has been charged to the statement of comprehensive income during the year ended
31 October 2017.
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.
Decommissioning Provision
The Company has set up a decommissioning provision for the removal of the plant and equipment installed at the Stade site in Germany, and for
dilapidations associated with the leasehold premises at Dunsfold in the UK, the cost of which is based on estimates.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
45
4. Segmental analysis
Operating segments are determined by the chief operating decision maker based on information used to allocate the Company’s resources. The information
as presented to internal management is consistent with the statement of comprehensive income. It has been determined that there is one operating
segment, the development of fuel cells. In the year to 31 October 2017, the Company operated mainly in the United Kingdom and in Germany.
All non-current assets are located in the United Kingdom.
5. Operating loss
This has been stated after:
R&D tax credit receivable
Amortisation/Impairment of intangible assets
Depreciation of property and equipment
Depreciation of decommissioning asset
R&D expenditure eligible under the Government’s R&D tax credit scheme
Equity-settled share-based payment expense
Foreign exchange differences
Auditor’s remuneration – audit
Auditor’s remuneration – corporation tax services
Auditor’s remuneration – R&D tax credit 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
Employer’s pension contributions
Equity-settled share-based payment expense
Year ended
31 October 2017
£
Year ended
31 October 2016
£
–
34,319
53,858
139,121
1,634,019
701,366
54,543
34,900
5,000
19,500
(59,487)
64,240
238,414
–
2,653,241
1,027,051
(334,898)
30,900
3,500
19,500
Year ended
31 October 2017
Number
Year ended
31 October 2016
Number
28
6
34
£
37
6
43
£
1,814,778
186,337
34,087
701,366
1,983,582
239,738
37,976
1,027,051
2,736,568
3,288,347
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements
46
NOTES FORMING PART OF THE FINANCIAL STATEMENTS continued
7. Directors’ remuneration
Wages and salaries
Social security
Equity-settled share-based payment expense
Other compensation
Company pension contributions
The emoluments of the Chairman
The emoluments of the highest-paid Director
Company pension contributions of highest-paid Director
Year ended
31 October 2017
£
Year ended
31 October 2016
£
446,211
69,566
599,062
341,138
650
444,468
65,113
821,002
295,827
2,504
1,456,627
1,563,801
37,186
56,575
994,634
1,334,852
–
–
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 30.
8. Finance cost
Loss on derivative financial instrument
Interest on finance lease
Bank charges
Bank interest receivable
9. Taxation
Recognised in the statement of comprehensive income
R&D tax credit – current year
R&D tax credit – prior year
Total tax credit
Reconciliation of effective tax rates
Loss before tax
Tax using the domestic rate of corporation tax of 19.41% (2016: 20.00%)
Effect of:
R&D tax credit – prior year
Expenses not deductible for tax purposes
R&D allowance
Tax credit on losses surrendered
Depreciation in excess of capital allowances
Losses surrendered for research and development
Unutilised losses carried forward
Fixed asset differences
Total tax credit
Year ended
31 October 2017
£
Year ended
31 October 2016
£
–
3,541
(110)
(2,578)
149,687
1,961
–
(3,415)
853
148,233
Year ended
31 October 2017
£
Year ended
31 October 2016
£
(499,389)
(86,513)
(613,732)
(209,098)
(585,902)
(822,830)
(5,510,961)
(6,478,894)
(1,069,678)
(1,295,779)
(86,513)
153,958
(365,435)
(482,896)
10,886
646,538
607,238
–
(209,098)
209,151
(478,253)
(613,452)
4,920
846,141
697,625
15,915
(585,902)
(822,830)
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
47
9. Taxation continued
The amount of the unused tax losses for which no deferred tax asset was recognised at 31 October 2017 was £23,884,000 (31 October 2016: £20,757,000).
The related deferred tax asset, calculated at 19%, of £4,538,000 (31 October 2016: calculated at 20%, £4,151,000) will be recognised in the financial statements
when the trend of future profits has been established.
10. Loss per share
The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary shareholders of £4,925,059 (2016: loss of £5,656,064) 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 2017
Year ended
31 October 2016
(1.36)p
(1.36)p
£4,925,059
(1.86)p
(1.86)p
£5,656,064
Number
Number
362,584,646
304,858,560
Diluted earnings per share
As set out in note 18, there are share options and warrants outstanding as at 31 October 2017 which, if exercised, would increase the number of shares
in issue. However, the diluted loss per share is the same as the basic loss per share, as the loss for the year has an anti-dilutive effect.
11. Intangible assets
Cost
Balance at 1 November
Retirements
Additions
Balance at 31 October
Amortisation
Balance at 1 November
Charge for the year
Impairment
Balance at 31 October
Net book value
2017
Patents
£
516,448
–
72,064
2016
Patents
£
445,927
–
70,521
588,512
516,448
171,991
27,215
7,104
107,751
64,240
–
206,310
171,991
382,202
344,457
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements
48
NOTES FORMING PART OF THE FINANCIAL STATEMENTS continued
12. Property and equipment
Leasehold Decommissioning
asset
£
improvements
£
Fixtures, fittings
and equipment
£
Motor vehicles
£
Total
£
Cost
At 31 October 2015
Additions
Disposals
At 31 October 2016
Additions
Disposals
At 31 October 2017
Depreciation
At 31 October 2015
Charge for the year
Disposals
At 31 October 2016
Charge for the year
Disposals
At 31 October 2017
Net book value
At 31 October 2017
At 31 October 2016
337,462
–
–
337,462
–
–
–
–
–
–
301,172
–
1,321,278
81,424
(238,797)
1,163,905
120,111
(82,927)
17,994
–
–
17,994
–
–
1,676,734
81,424
(238,797)
1,519,361
421,283
(82,927)
337,462
301,172
1,201,089
17,994
1,857,717
289,532
47,930
–
337,462
–
–
–
–
–
–
139,121
–
1,267,279
54,537
(238,797)
1,083,019
47,860
(80,483)
3,595
5,901
–
9,496
5,998
–
1,560,406
108,368
(238,797)
1,429,977
192,979
(80,483)
337,462
139,121
1,050,396
15,494
1,542,473
–
–
162,051
–
150,693
80,886
2,500
8,498
315,244
89,384
The Company has set up a decommissioning asset for the removal of the plant and equipment installed at the Stade site in Germany, and for dilapidations
associated with the leasehold premises at Dunsfold in the UK, the cost of which is based on estimates.
13. Investment
As at 31 October 2017 the Company held 340,500 shares representing 23.2% (2016: 230,000 shares representing 17.5%) of the share capital of Waste2Tricity Ltd
(a company registered in England & Wales). In the view of the Directors this investment has no value currently and has been recognised at cost less impairment.
No revenue was recognised in the period under the licence agreements with Waste2Tricity Ltd and Waste2Tricity International (Thailand) Ltd.
Investment in Waste2Tricity Ltd
14. Inventory
Inventory
Year ended
31 October 2017
£
Year ended
31 October 2016
£
–
–
Year ended
31 October 2017
£
Year ended
31 October 2016
£
162,993
150,932
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
15. Other receivables
Current:
R&D tax credits receivable
EU grants receivable
Other receivables
Non-current:
Other receivables
There is no significant difference between the fair value of the receivables and the values stated above.
16. Cash and cash equivalents
Cash at bank
Bank deposits
49
Year ended
31 October 2017
£
Year ended
31 October 2016
£
499,389
724,815
375,782
673,219
1,409,642
513,102
1,599,986
2,595,963
8,480
8,480
–
–
1,608,466
2,595,963
Year ended
31 October 2017
£
Year ended
31 October 2016
£
984,588
5,692,187
1,137,819
1,773,043
6,676,775
2,910,862
Cash at bank and bank deposits consist of cash. There is no material foreign exchange movement in respect of cash and cash equivalents.
Restricted cash, not included in cash and cash equivalents, is €125,000 held in escrow to support a bank guarantee in favour of Air Products GmbH
relating to contractual obligations by the Company in relation to the Stade site in Germany.
17. Issued share capital
At 31 October 2016
Issue of shares on 25 January 2017
Issue of shares on 9 March 2017
Issue of shares on 22 August 2017
At 31 October 2017
All issued shares are fully paid.
Number
Ordinary Shares
£
Share Premium
£
Total
£
310,013,943
250,000
80,684,262
350,000
310,014
250
80,684
350
37,843,613
46,000
7,564,453
40,338
38,153,627
46,250
7,645,137
40,688
391,298,205
391,298
45,494,404
45,885,702
The Company considers its capital and reserves attributable to equity shareholders to be the Company’s capital. In managing its capital, the Company’s
primary long-term objective is to provide a return for its equity shareholders through capital growth. Going forward the Company will seek to maintain
a gearing ratio that balances risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Company to meet its
working capital needs. The Company’s commercial activities are at an early stage and management considers that no useful target debt to equity gearing
ratio can be identified at this time.
Details of the Company’s capital are disclosed in the statement of changes in equity.
There have been no other significant changes to the Company’s management objectives, policies and processes in the year nor has there been any change
in what the Company considers to be capital.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements
50
NOTES FORMING PART OF THE FINANCIAL STATEMENTS continued
18a. Share options
At 31 October 2015
Options granted in the year
Options exercised in the year
Options lapsed in the year
At 31 October 2016
Options granted in the year
Options exercised in the year
Options lapsed in the year
At 31 October 2017
18b. Warrants
At 31 October 2015
Warrants exercised in the year
Warrants lapsed in the year
At 31 October 2016
Warrants exercised in the year
Warrants lapsed in the year
At 31 October 2017
18c. SAYE
During the year the Company operated a share save scheme.
At 31 October 2015
SAYE issued during the year
SAYE lapsed/cancelled during the previous year correction
SAYE lapsed/cancelled during the year
SAYE exercised during the year
At 31 October 2016
SAYE issued during the year
SAYE lapsed/cancelled during the year
SAYE exercised during the year
At 31 October 2017
Number of options
Weighted
average remaining
contractual life
Exercise price
13,855,000
–
(1,220,000)
(730,000)
11,905,000
–
–
(1,840,000)
3.13-51p
–
3.13-20.75p
17-34p
3.13-51p
–
–
17.5-35.75p
7.7 yrs
7.1 yrs
10,065,000
3.13-51p
6.3 yrs
Number of warrants
Weighted
average remaining
contractual life
Exercise price
6,947,800
–
–
6,947,800
(350,000)
(1,954,000)
3.13-24p
–
–
3.13-24p
3.13p
24p
4.1 yrs
3.1 yrs
4,643,800
3.13-24p
2.1 yrs
Number of SAYE
Weighted
average remaining
contractual life
Exercise price
571,347
399,537
488,714
(141,516)
–
1,318,082
–
(726,148)
–
18.6-22p
12p
18.6-22p
22p
–
12-22p
–
18.6-22p
–
1.3 yrs
1.3 yrs
591,934
12-22p
0.6 yrs
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
18d. Equity-settled share-based payments charge
Share options
Option price
(p)
3.13
10
17
17.5
24
20.75
32
34
35.75
39.25
41
51
Total charge for the year (2016: £920,821)
Warrants
Warrant price
(p)
3.13
24
Total charge for the year (2016: £nil)
SAYE
SAYE price
(p)
22
18.6
12
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)
3.13
10
17
18.75
23.75
20
31.75
34
35.75
39.25
41
58
113.8%
46%
80%
188%
188%
214.8%
243%
80%
124.7%
80%
80%
75%
4.4%
4.4%
1.5%
4.4%
4.4%
4.4%
4.4%
1.5%
1.5%
1.5%
1.5%
2.1%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
1.0
1.5
1.5
1.5
1.5
1.0
1.5
1.5
1.5
1.5
1.5
1.5
2
2.5
9.48
14.07
17.80
15
24
18.96
21.8
21.89
22.86
32.00
Average
grant date
share price
(p)
3.13
23.75
Average
expected
volatility
(p.a.)
113.8%
188%
Average
risk-free
interest rate
(p.a.)
4.4%
4.4%
Average
dividend
yield
(p.a.)
0%
0%
Average
implied
option life
(years)
1.0
1.5
Average
fair value
per option
(p)
2
17.8
Average
grant date
share price
(p)
27.50
23.25
15.00
Average
expected
volatility
(p.a.)
124.7%
137.5%
78.6%
Average
risk-free
interest rate
(p.a.)
Average
dividend
yield
(p.a.)
Average
implied
option life
(years)
Average
fair value
per option
(p)
1.5%
1.5%
0.7%
0%
0%
0%
1.5
1.5
1.0
21.69
19.24
8.4
Total charge for the year (2016: £106,230)
Total equity-settled share-based payment charge for the year (2016: £1,027,051)
51
Amount
expensed
in the 2017
accounts
£
–
–
–
–
–
–
–
2,819
–
40,491
44,059
599,062
686,431
Amount
expensed
in the 2017
accounts
£
–
–
–
Amount
expensed
in the 2017
accounts
£
–
8,127
6,808
14,935
701,366
Expected volatility has been based on the 3.5 year historical volatility of share price. Vesting requirements are three years for the exercise of warrants
and options, except for 500,000 options granted which vest in two years. Certain options granted to Directors are also subject to performance conditions.
Adam Bond received 6,000,000 options on 17 July 2015 with vesting conditions that include market and non-market based conditions. Under the
market-based conditions vesting is contingent on the average share price of the Company reaching certain targets. Under non-market based conditions
vesting is contingent on the Company’s fuel cell system installed at Stade in Germany reaching certain output of wattage targets and the Company
entering into commercial contracts.
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 for non-market based conditions and a Log-normal Monte Carlo stochastic
model for market conditions. Both are appropriate considering the effects of the vesting conditions, expected exercise period and the dividend policy of
the Company.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements
52
NOTES FORMING PART OF THE FINANCIAL STATEMENTS continued
19. Trade and other payables
Current liabilities:
Trade payables
Amounts due to related parties
Amounts due under finance leases
Other payables
Deferred income
Accruals
Non-current liabilities:
Amounts due under finance leases
20. Provisions
Non-current liabilities:
Balance at 1 November
Addition
Utilisation
Balance at 31 October
Year ended
31 October 2017
£
Year ended
31 October 2016
£
199,604
1,039
10,844
173,996
–
150,683
357,118
–
16,246
677,211
105,727
139,602
536,166
1,295,904
7,574
7,574
5,803
5,803
2017
2016
Decommissioning Decommissioning
provision
£
provision
£
–
301,172
–
301,172
–
–
–
–
During the current year, the Company has set up a decommissioning provision associated with a commitment to remove the plant and equipment installed
at the Stade site in Germany at a future date, and for dilapidations associated with the leasehold premises at Dunsfold in the UK.
21. Operating lease commitments
Non-cancellable operating leases are as follows:
Within one year
Between one and five years
Greater than five years
The lease commitments relate to accommodation and a vehicle.
Year ended
31 October 2017
£
Year ended
31 October 2016
£
74,470
–
–
74,470
80,836
11,717
–
92,553
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
53
22. Financial instruments
In common with other businesses, the Company is exposed to risks that arise from its use of financial instruments. This note describes the Company’s
objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these
risks is presented throughout these financial statements.
Principal financial instruments
The principal financial instruments used by the Company, from which financial instrument risk arises, are as follows:
Loans and receivables:
Cash and cash equivalents
Other receivables
Fair value through profit and loss:
Total financial assets
Other payables
Provisions
Total financial liabilities
Year ended
31 October 2017
£
Year ended
31 October 2016
£
6,676,775
1,608,466
8,285,241
543,740
301,172
844,912
2,910,862
2,595,963
5,506,825
1,301,707
–
1,301,707
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into three levels based on the degree to which the fair
value is observable as defined by IFRS 7:
• Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets and liabilities
• Level 2 fair value measurements are those derived from inputs, other than quoted prices included within Level 1, that are observable either directly
(i.e. as prices) or indirectly (i.e. derived from prices) and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable
market data.
No financial instruments have been transferred between Levels during the year.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Company’s risk management objectives and policies and, while retaining ultimate
responsibility for them, it has delegated part of the authority for designing and operating processes that ensure the effective implementation of the
objectives and policies to the Company’s finance team. The Board receives reports from the financial team through which it reviews the effectiveness
of the processes put in place and the appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce ongoing risk as far as possible without unduly affecting the Company’s competitiveness
and flexibility. Further details regarding these policies are set out below.
Credit risk
Credit risk arises principally from the Company’s other receivables and cash and cash equivalents. It is the risk that the counterparty fails to discharge
its obligation in respect of the instrument. The maximum exposure to credit risk equals the carrying value of these items in the financial statements
as shown below:
Other receivables
Cash and cash equivalents
Year ended
31 October 2017
£
Year ended
31 October 2016
£
1,608,466
6,676,775
2,595,963
2,910,862
The Company’s principal other receivables arose from: a) annual payments for various services held as pre-payments b) VAT debtors receivable from UK and
German tax authorities c) an R&D tax credit d) grant funding receivable from the EU. Credit risk with cash and cash equivalents is reduced by placing funds
with banks with acceptable credit ratings and government support where applicable and on term deposits with a range of maturity dates. At the year-end,
most cash was temporarily held on short-term deposit.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements
54
NOTES FORMING PART OF THE FINANCIAL STATEMENTS continued
22. Financial instruments continued
Liquidity risk
Liquidity risk arises from the Company’s management of working capital and the amount of funding required for the development programme. It is the
risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. The Company’s policy is to ensure that it will always have
sufficient cash to allow it to meet its liabilities when they become due.
The principal liabilities of the Company are trade and other payables in respect of the ongoing product development programme. Trade payables are all
payable within two months. The Board receives cash flow projections on a regular basis as well as information on cash balances.
Interest rate risk
The Company is exposed to interest rate risk in respect of surplus funds held on deposit and, where appropriate, uses fixed interest term deposits to mitigate
this risk.
Fair value of financial liabilities
Trade and other payables
Provisions
Year ended
31 October 2017
£
Year ended
31 October 2016
£
543,740
310,172
1,301,707
–
There is no difference between the fair value and book value of trade and other payables and provisions.
The Company does not enter into forward exchange contracts or otherwise hedge its potential foreign exchange exposure. The Board monitors and reviews
its policies in respect of currency risk on a regular basis.
23. Capital commitments
The Company had no capital commitments outstanding at 31 October 2017 (2016: £nil).
24. Board changes and post-balance sheet events
On 5 December 2017, Joe Mangion was appointed by the Company as a Non-Executive Director, and Tim Yeo and Mitchell Field retired as
Non-Executive Directors.
25. Ultimate controlling party
There is no ultimate controlling party.
26. Related party transactions
During the year ended 31 October 2017:
£315 was invoiced by Richards and Appleby Ltd (a company registered in England & Wales) for reimbursement of expenses incurred in respect of the services
of Mitchell Field as a Director of AFC Energy plc (2016: £nil). Mr. Field is also a Director and shareholder of Richards and Appleby Ltd. At 31 October 2017,
the sum owing to Richards and Appleby Ltd was £nil (2016: £nil).
£30,967 was invoiced by Locana Corporation (London) Ltd (a company registered in England & Wales) for consultancy services in respect of the services of
Tim Yeo as a Director of AFC Energy plc (2016: £40,200). Mr. Yeo is also a Director and shareholder of Locana Corporation (London) Ltd. At 31 October 2017,
the sum owing to Locana Corporation (London) Ltd was £nil (2016: £3,350).
£191,917 was invoiced by iProcess Engineering & Consulting Ltd (a company registered in England & Wales) for consultancy services in respect of the
services of Jim Gibson as a Director of AFC Energy plc (2016: £nil). Mr. Gibson is also a Director and shareholder of iProcess Engineering & Consulting Ltd.
At 31 October 2017, the sum owing to iProcess Engineering & Consulting Ltd was £25,500 (2016: £nil).
At 31 October 2017, Adam Bond owed £103,639 (2016: £132,799) to the Company, which has been fully repaid after the year-end.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017
55
Bankers
Barclays Bank PLC
40/41 High Street
Chelmsford
Essex
CM1 1BE
Auditor
Grant Thornton UK LLP
30 Finsbury Square
London
EC2P 2YU
Solicitors
Memery Crystal LLP
44 Southampton Buildings
London
WC2A 1AP
Registrars
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
COMPANY INFORMATION
Directors
John Rennocks
Adam Bond
Jim Gibson
Richard Tuffill
Lisa Jordan
Joe Mangion
Eugene Tenenbaum
Company Secretary
Richard Tuffill
Registered Office
Finsgate
5–7 Cranwood Street
London
EC1V 9EE
Registered in England: 05668788
Principal Place of Business
Unit 71.4 Dunsfold Park
Stovolds Hill
Cranleigh
Surrey
GU6 8TB
Joint Broker
Peat & Co
118 Piccadilly
London
W1J 7NW
AIM Nominated Adviser
and Joint Broker
Cantor Fitzgerald Europe
One Churchill Place
Canary Wharf
London
E14 5RB
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Financial statements
56
OUR TECHNOLOGY
How does it work?
Highly fuel efficient, environmentally acceptable power generation
Why Alkaline Fuel Cells (“AFCs”)? A fuel cell hosts and facilitates the controlled
chemical reaction of hydrogen and oxygen (from the air) to produce an electrical
current. The direct conversion of chemical potential energy to electrical energy in a
single step means that fuel cells are highly efficient. With their potential for up to 65%
electrical efficiency, AFCs have the scope to be the most efficient of all fuel cell types.
Electrode
• Acceptance of lower grade hydrogen at industry standard
• Significant reduction in electrode failure rate
• Underlying chemistry – no material change
• Ongoing initiatives to remove nickel from substrate –
significant cost saving Catalyst recovery and recycling.
Stack
• Material reconfiguration of stack architecture and design
• 10% increase in power output per stack due to decreased
parasitic losses
• Significant redesign of flow plates
• Reuse of all non-sealing stack components.
Inputs
Hydrogen
Oxygen
Outputs
Water
ELECTRICITY
Heat
Balance of Plant
• Enhanced air treatment, inlet and exhaust systems
• Hydrogen recirculation initiative commenced
• Improvements to system control for remote monitoring
• Optimisation of inverter interface with grid in collaboration
with Siemens.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 57
Why Alkaline Fuel Cells?
The benefits of Alkaline Fuel Cells (“AFCs”)
AFC Energy has developed an alkaline fuel cell system which converts
hydrogen into power. Its technology has the potential to be a catalyst
in transforming the way today's industries produce energy for tomorrow.
Available hydrogen
Hydrogen can be generated by
renewable energy (such as wind and
solar PV) in significant, sustainable
quantities. By-products or vented
hydrogen sources include: bio-mass,
glass production, hydrocarbon
processing and chlor-alkali facilities.
Vented hydrogen arises as a by-
product of many chemical processes,
for example, the manufacture of
chlorine can result in the generation
of excess quantities of hydrogen.
Water and heat as
by-products
AFC by-products consist of water
and heat. The production of water is
seen as a benefit in specific regions
around the world, while the heat
produced may be captured and
used on site or in a local end-user’s
industrial process. This generates
heat load, has the potential to further
reduce both the end-user’s energy
requirements from the grid and their
potential carbon emissions.
Quiet and clean at point
of generation
AFCs have few moving parts.
Small electrical pumps and
blowers move gases and
liquids around the system.
Therefore, it is quiet compared
to traditional technologies.
Low lifetime cost
of ownership
We aim to reduce the cost of
ownership through a lower
operating temperature (i.e. below
100°C) with consequential use
of more affordable materials.
Additionally, we have the ability
to recycle the materials we use
in our fuel cell system.
Operating Temperature °C Electrical Efficiency %
Alkaline
<100
65
Polymer Electrolyte Membrane
<120
Up to 55
Phosphoric Acid
120-150
40
Molten Carbonate
600-700
Up to 55
Solid Oxide
500-1000
Up to 60
Source: www.afcenergy.com/technology/technology-overview/; power.cummins.com; www.corporate.man.eu
What makes our Alkaline Fuel Cells different?
The key differentiator for fuel cells, generally,
is the high fuel efficiency. AFCs are at the
top of the range in this regard. AFCs utilise
a liquid electrolyte in the system.
Our liquid electrolyte facilitates lower
operating temperatures of c. 60oC,
versus hundreds or thousands of degrees
Celsius for other fuel cell technologies.
We therefore have more flexibility to use
standard and lower-cost industrial materials
across the entire fuel cell system – this allows
ease of manufacture of modular skids and a
lightweight overall unit, lowering capital and
operating expenditure.
A key objective has been to design the AFC
Energy fuel cell system for re-use or recycling,
so that 80% is re-usable, making our systems
more environmentally attractive whilst
reducing the levelised cost of electricity
through re-use.
1
2
All of which contribute to
lower cost and competitive
advantage
There is scope to integrate our Alkaline
Fuel Cells with alkaline electrolysers (which
generate hydrogen), which could form a
“green” integrated hydrogen generation/
conversion technology platform.
This gives us greater flexibility
to integrate with parallel
technology
Our simple modular design basis for the fuel
cell cartridges and balance of plant allow for
volume scale up (from kW to MW), utilising
the same standard 10kW fuel cell “building
block” for each power plant. The modular
approach assists with the standardisation of
the manufacturing and assembly processes,
streamlines procurement, disassembly
and recycling, and simplifies power plant
construction, operation and maintenance.
More efficient at all levels
of utilisation
An AFC does not burn fuel like an internal
combustion engine or turbine so it does not
need to drive pistons or turbines. Avoiding this
intermediate mechanical step and having
a direct conversion route to electricity is
what makes an AFC so efficient. An AFC is
also “scalable” without impacting efficiency.
The low operating temperature results in
quicker start-up times and the use of lower-
cost construction materials.
3
This enables us to provide
scalable solutions to our
prospective customers
AFCs offer the highest electrochemical
efficiency of all fuel cells.
Our AFCs have the capacity to operate
on lower-grade industrial hydrogen
– we are working to ensure they can
accept hydrogen from industrial facilities,
with limited required purification.
This allows more affordable and a broader
range of available feedstock – all of which
improve the viability and market potential
of our Alkaline Fuel Cells.
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Appendix 58
NOTES
AFC ENERGY PLC ANNUAL REPORT & ACCOUNTS 2017 Design & production
www.carrkamasa.co.uk
AFC Energy plc
Unit 71.4 Dunsfold Park
Stovolds Hill
Cranleigh
Surrey GU6 8TB
T: 01483 276726
www.afcenergy.com