AFC Energy PLC
Annual
Report
For the year ended 31 October 2021
Contents
A Summary of 2021
STRATEGIC REPORT
Chairman’s report
Operational review
Strategy and business model
What does AFC Energy offer its customers
Target markets
Strategic Partners and Customers
Product development roadmap
Role of the Board and its sub-committees
Section 172 statement
Risk Management
GOVERNANCE REPORT
Audit and Risk Committee report
Nomination Committee report
Remuneration Committee report
ESG Committee report
Statement of directors’ responsibilities
Independent Auditors Report to the
Members of AFC Energy plc
FINANCIAL STATEMENTS
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Cash Flow Statement
4
8
11
16
19
20
24
26
28
31
32
35
38
40
47
58
60
68
69
70
71
Notes Forming Part of the Financial Statements
72
Purpose
To support the global
efforts to address climate
change
Mission
AFC Energy’s clean
energy fuel cell solutions
utilise a range of fuels
to offer best in class
performance and lowest
operating cost alternatives
to industrial diesel
generators and the use of
heavy fuel oil
A summary of 2021
Dec
2020
Announcement
of ABB
strategic
partnership
- global leader
in electrification
technologies,
for e-Mobility
and data centre
applications.
Mar
2021
Announcement of strategic
partnership with Mace - one
of the UK’s leading construction
contractors providing us with real
life data for on-site requirements
to support ongoing product
development.
Apr
2021
ABB strategic
investment and data
centre collaboration
agreement.
Dec
2021
Selection for
ZeroCoaster
bulk cargo
design - VARD
ZeroCoaster
design
incorporating
AEM maritime
solution with
ammonia storage
and cracker
awarded AiP from
DNV unlocking
potential for
the design’s
commercialisation
across maritime
sector.
2021
A growing list of international
partners in target markets
2022
Announcement
of strategic
collaboration
with Ricardo
- global leader
in the creation
of innovative
engineering and
design solutions
with strong
credentials
across the
transportation
and energy
sectors.
Announcement
of MoU with
Altaaqa
Alternative
Solutions -
leading diesel
generator
hire business
discussing
exclusive
dealership for
the Saudi and
MENA regions.
Apr
2021
Announcement
of Urban-
Airports
partnership
- rental of fuel
cell systems in
2022 for charging
ground-based
infrastructure
in and around
eVTOL facilities in
Coventry, UK.
Sep
2021
Jan
2021
4
Jan
2021
Extreme E fuel cell
system unveiled
- successful on-time
deployment of fuel cell
technology charging
all-electric eSUV
globally televised race
series in Saudi Arabia,
Senegal, Greenland
and Sardinia.
May
2021
Presentation
of technology
to HRH Prince
William.
Dec
2021
Hybrid Fuel Cell (“HFC”)
technology platform -
developed and confirmed
within the S Series range.
Initial procurement
programme for
semi-automated
manufacturing
equipment for mass
production of S Series
fuel cell system.
2021
Field
demonstrated technology
2022
Opening of
AEM fuel cell
test facility.
Feb
2021
Aug
2021
Delivery of
system
to ABB -
successful
integration and
testing of AFC
Energy L Series
fuel cell system
with ABB energy
storage and rapid
electric vehicle
(“EV”) charging
infrastructure.
First prototype
S Series stack
build completed.
Initiated and
commissioned
commercial scale
ammonia cracker with
AFC Energy’s alkaline fuel
cell technology platforms.
Dec
2021
5
Strategic Report Apr
2021
Broadened skills and
experience of Board -
appointment of new Non-Executive
Chairman to the Board,
Mr Gary Bullard.
Dec
2021
Appointment
of Dr Monika
Biddulph as
Non-Executive
director (post
year-end)
Appointment
of Chief
Technology
Officer,
Dr David
Harvey.
May
2021
Appointment
of Chief
Commercial
Officer,
Mark Bailey.
Feb
2021
Appointment
of Chief
Engineer
and Product
Officer, Dr
Mike Rendall.
Growing and
strengthening team
2022
Strong statement of financial
position with £55.4 million
unrestricted cash
2022
Nov
2020
Cancellation
of convertible
loan facility.
Apr
2021
Fundraise
of £36
million.
Sep
2021
Appointment
of Peel Hunt as
broker and Nomad.
2021
2021
6
Strategic
Report
7
AFC ENERGY PLC
Chairman’s report
Gary Bullard
I am delighted to present
my first report as Chairman
of AFC Energy PLC. At this
time of global uncertainty,
the role of the Board to
grow a business which
contributes to the wider
society has never been
clearer. By growing and
sustaining a financially
strong and environmentally
responsible business over
the long term, with a clear
mission and purpose, we can
make not only a positive and
significant contribution to
our clients and people, but
also to the economy and
wider society.
Following the successful fundraise, we have
the financial strength to take a longer-term
view of our business strategy, the underlying
product development plans and processes
considering the feedback we have been
receiving from our customers, strategic
partners and operational deployments. The
message has been clear, in our target diesel
generator applications, our customers want
both a high-power density fuel cell with
flexible choice of fuel and for this reason
we have refocused our time and investment
to deliver our solid membrane suite of
solutions.
8
8
Strategic Development
In 2021, we undertook a thorough review of both
our own and our customers’ strategic objectives
which demonstrated the benefits of the ongoing
product development strategy to improve power
density and fuel flexibility. Marine applications
offer the largest value creation opportunity but
is an industry seeking to maximise permitted
timelines. Nevertheless, power density and
fuel flexibility targets are key performance
requirements common to our more immediately
addressable markets such as EV charging
and temporary power. Through this further
diversification we are reducing our dependence
on specific applications which will build a more
balanced portfolio of products resilient to
specific market and regulatory changes.
Operational Improvement
During the year, the business has focused on
its product development process to provide
our customers and strategic partners with
competitive technical and economic offerings
and our investors with enhanced returns.
The lean start-up strategy we are adopting
enables us constantly to evaluate and update
our assumptions on our end user needs.
Combined with traditional project management
disciplines we believe this offers the quickest
and most cost-effective process to deliver value
creating solutions.
Our Response to the Pandemic
Our primary concern has been to ensure the
health and safety of our staff, customers and
suppliers. This year has been no less challenging
than the previous one with tight deadlines,
against a backdrop of social distancing and
remote working. Our employees, have risen to
the challenge to support our projects, both in
our offices and in remote locations around the
world, despite the challenges posed by the
COVID-19 pandemic. These challenges have not
gone away, as we have seen this Christmas with
the Omicron variant, but on behalf of the Board,
I would like to thank the staff and management
team for their professionalism, dedication and
understanding during this time.
The Board
In line with the recommendations in the QCA
Corporate Governance code, an independent
review of the effectiveness and performance
of the Board has been conducted. This is the
first externally facilitated review since listing
on AIM in 2007. Several recommendations
were made which we are in the process of
implementing, including increasing the number
of Independent Directors to broaden the skills
and experience of the Board. Post year-end
we appointed Dr Monika Biddulph who has
extensive experience in product development
in a technology setting. We have also consulted
with external advisors on the independence of
the existing Non-Executives and can confirm
that they meet the requirements set out in the
code. I believe that the Independent Directors’
skills and experience cover research, product
development, commercial and finance which
reflects the skills we need at this point in time in
our development.
Environment, Societal and
Governance Role
The Board is committed to high standards of
public reporting and has begun to put a formal
ESG reporting framework in place to support
investors in measuring the positive impact
the company has on the wider society and in
successfully future proofing itself. Post year end
in December, an ESG Board sub-committee was
formed by Monika Biddulph, supported by Jim
Gibson from the executive team. We have begun
to review our internal management information
to align them with the wider responsibilities
that we all have towards our society, so that we
can deliver the commitments we make. In the
ESG statement we set out our policy and a self-
assessment of where we stand today.
Last year we began to take actions to align
remuneration with our stakeholder objectives.
During the year we have adopted a new
remuneration policy described in more detail
in the remuneration committee report. In brief,
our policy is to attract and retain the best
talent in the sector by offering competitive
remuneration packages which reward long term
shareholder value creation. This policy has been
successful in attracting staff at all levels, whose
knowledge and experience have enabled us to
widen our focus in terms of size of addressable
markets whilst also enabling us to increase our
time investment in the development of our
technology and allied products.
Investor Communications
The COVID-19 pandemic also directly affected
how we communicated with our shareholders
during the period. The Board remains
committed to regular communication with
the market and our investors and is keen to
resume its investor day activities as pandemic
restrictions are lifted.
Financial Performance
Our successful fundraise provides us with a
robust platform. Careful use of this funding prior
to year-end meant that we ended the year with
an unrestricted cash balance of £55.4 million
(2020: £31.3 million). This strong cash position
supported our decision to accelerate the S
Series development.
9
Strategic Report The operating loss for the year was £10.4 million
(2020: £4.6 million), whilst cash absorbed
by operations and investing activities was
£10.7 million (2020: £4.1 million). This directly
reflected our increased investment in our
facilities, growing in quality and quantity our
team and product roadmap.
Our commercial strategy has been successful in
placing systems with customers and strategic
partners. Their input and feedback have
confirmed the robustness and versatility of our
systems, integration with other complementary
carbon reduction solutions and our ability to
support our product in arduous locations and
climates. Our product development roadmap is
being developed by listening to our customers
and strategic partners, who have confirmed the
importance of power density and fuel flexibility as
distinguishing features with competing systems.
Dividends
Given the need to use our existing cash
headroom to increase headcount, continue
product development and to fulfil key customer
orders in support of our “Go to Market” strategy,
the Board will, as in previous years, not pay
a dividend.
Looking Ahead
The regulatory platform and political will
to address climate change has never been
stronger which can only help drive transition
away from traditional technologies. During the
coming year I expect to see us take advantage
of these favourable environments, reaping the
benefits of focusing our time and investment
in those matters important to our end users,
underwritten by the breadth of skills and
experience we are bringing into the business at
all levels.
Gary Bullard
8 March 2022
10
AFC ENERGY PLC AFC ENERGY PLC
Operational review
Adam Bond
We are pleased that
AFC Energy successfully
continued during the year
to make large strides into its
goal of displacing pollutant
diesel generators for off-
grid power as part of the
global transition to Net Zero.
Whilst the macro environment highlights
a range of uncertainties affecting capital
markets, including geopolitical challenges
in Europe, post pandemic recoveries,
increasing inflationary pressures on
business and consumers, and uncertain
supply chains, one constant that remains,
is a universal policy and environmental
necessity to reduce greenhouse gases and
instigate policy objectives that are fully
aligned with this outcome. For AFC Energy,
this could not be more consistent with
our business strategy and the increasing
importance placed on hydrogen, and
especially hydrogen carriers, as the world
transitions away from diesel.
April 2022 marks the end of the United
Kingdom’s long held subsidy on the use
of red diesel. This subsidy, currently
valued at 46.81p per litre (versus white
diesel), has long had a negative effect on
the temporary power and construction
industry’s motivations to transition away
from generator sets. With the playing
field now beginning to level from this
year, the interest in non-diesel on site
power generation is growing, driven by
cost factors overlaid with increasing ESG
obligations of users.
https://www.gov.uk/government/news/cop-26-ends-with-
global-agreement-to-speed-up-action-on-climate-change
Further, in respect to Electric Vehicles (“EV"),
many of the largest car manufacturers are now
working together to make all new car sales zero
emission by 2040 globally and 2035 in leading
markets. This initiative is supported by countries
and cities who are setting similarly ambitious
petrol and diesel car phase out dates. However,
from 30 May, new legislation in the UK means
that home-based EV charging will be prevented
during peak hours to avoid overloading the
national electricity grid and placing it under undue
stress during peak demand. This opens further
the opportunity to support grid constrained
environments through adoption of AFC Energy
fuel cell technology as the country, and indeed,
global EV deployment begins to outpace
grid upgrades.
These and other policy commitments, continue to
provide the regulatory platform that will underpin
the growth of our business and accelerate the
speed at which our future customers will transition
away from traditional fossil fuel solutions in off-
grid power generation.
Flex Fuelling Strategy
A challenge now all too familiar across the
Hydrogen industry is the gas’s low energy density
by volume (versus incumbent fuels) and therefore,
its associated cost of transportation and storage in
off-grid locations.
AFC Energy has long held the view that for
hydrogen fuel cells to be effective in decarbonising
the off-grid power market, adoption of hydrogen
carrier fuels must take a clear and transparent role
in lowering the total cost of ownership (TCO) and
therefore, cost of power.
Ammonia, or more accurately, green ammonia, was
one such hydrogen carrier fuel which delivered
on this challenge with the propensity to work
seamlessly in an alkaline fuel cell environment
relative to incumbent PEM based technologies.
11
Strategic Report
To this end, we have continued to move ahead in
the receipt of commercial scale ammonia crackers
during the year, able to liberate hydrogen from
base ammonia feedstock, but we are also now
reviewing opportunities to drive further
leading-edge innovation in the development of
novel and scalable ammonia cracker technology
with broader use cases alongside integration
with our fuel cell technology. These scalable
crackers will have potential for adoption in large-
scale, heavy-duty applications such as maritime
environments, whilst also supporting traditional
stationary genset displacement for zero emission
off-grid power.
In engaging with the market however, it became
increasingly apparent that ammonia, whilst
being the world’s most energy dense chemical
without a carbon molecule, may not always be
the preferred choice in all applications with some
end users preferring green methanol as its primary
feedstock of choice. For this reason, to maximise
and leverage our new power dense S series fuel
cell technology, AFC Energy took the view during
the year that it will develop, within the S Series, a
variant fuel cell technology known as the “Hybrid
Fuel Cell”, or “HFC”. The HFC adopts most of the
same architecture as the alkaline S Series system
but can utilise both methanol and hydrogen as its
primary feedstock.
Through this innovation, AFC Energy is furthering
its “fuel flex” strategy with a unique capability to
provide customers with off-grid power solutions
fuelled by green hydrogen, green ammonia
or green methanol, in a fully integrated and
modular format.
This strategy not only makes us one of the most
flexible fuel cell offerings in the market today,
but by leveraging both low cost and readily
available hydrogen carrier fuels such as ammonia
and methanol, gives us an advantage on a pure
cost basis relative to other fuel cell technologies
that require traditional high cost 99.999%
grade hydrogen.
12
The fuel flex strategy increasingly embraced
by AFC Energy and its partners is a unique
selling point which has driven strong growth in
commercial interest in our product range over the
past twelve months.
Strategic Partners
This year has been marked by the contribution
made by our strategic partners. Valuable
operational feedback has been received from both
the real-life challenges experienced with Extreme
E and through the extensive ABB validation
processes conducted during the 2021 year.
The commercial relationship with ABB has
continued to grow in 2021, with not only their
first investment into AFC Energy made during
the year, but also through the work conducted
in the development of the fully integrated fuel
cell high power EV charging system designed
for ABB’s global customer base. The strength
of collaboration between ABB and AFC Energy
saw the partnership further expand in 2021 to
incorporate ABB’s data centre offering where
many of their hyperscale data centre customers
are now looking to displace diesel backup
generators from all sites. It was AFC Energy’s fuel
flex approach which was the key driver in ABB’s
decision to partner with AFC Energy in this market.
A large amount of work also went into ABB’s first
£4 million commercial order of an S Series fuel
cell system which, whilst announced after year
end, was the result of many months of dialogue
which highlighted where ABB sees AFC Energy’s
technology platforms best deployed across its
customer base.
ABB’s first 200kW system order is sized to
meet not only the demands of their e-Mobility
customers, producing up to 4.8MW of clean
electricity per day, but also to meet the
requirements of ABB’s data centre and potentially
marine customers, thereby maximising the value of
the system order across the ABB verticals.
AFC ENERGY PLC Key amongst our partners announced in the
temporary power and construction industry are
Altaaqa Alternative Solutions ("Altaaqa"), one of
the world's largest distributors of diesel generators
based out of Saudi Arabia, and MACE, one of the
UK's leading construction contractors.
We are progressing well on discussions with
Altaaqa for a dealership agreement across the
Saudi and MENA regions based on their strong
focus on transitioning away from fossil fuels in
remote power. Altaaqa's current market leading
multi gigawatt fossil-based power generator
business across Saudi Arabia and surrounding
regions fits very well with our aspirations for
targeting the Gulf region for fuel cell deployment.
Work has also been continuing constructively
with MACE with the two companies undertaking
several work programmes since March, including
engagement with regulatory bodies, multiple site
measurement and assessments of power needs
(considering variable power loads from cranes) in
advance of system deployment during 2022.
Whilst these discussions take time, they are a
valuable input into our product development
plans as they give us first-hand insight as to the
operating and regulatory needs and concerns
of end users which we in turn can build into
our designs.
An example of this has been ACCIONA and Jülich
who have been engaging with AFC Energy on
our new product portfolio expected for release
in 2022. Due to previously communicated delays
on each site, an opportunity has arisen to review
product deployment for each site with a particular
interest in the new S Series systems which are
expected for early deployment in 2022. These
changes in delivery demonstrate the importance
of power density and flexible fuelling to end users
who have been willing to delay their timelines to
leapfrog to a solution better suited to their needs.
Customer Led Product Development
As highlighted above, customers and partners are
becoming increasingly aware of the challenges
hydrogen presents as a viable gaseous fuel
in remote off-grid environments, highlighting
the importance of hydrogen carrier fuels such
as ammonia and methanol, and AFC Energy's
ability to leverage its technology to capitalise on
such fuels.
This, coupled with AFC Energy's unique approach
to system integration of both upstream fuelling
technology (such as ammonia crackers) and fuel
cell power generators, continues to highlight
and raise awareness of the role we expect to
play in disrupting the US$20 billion a year diesel
generator market.
With news of AFC Energy's recent success in
being integrated into the >1MW maritime market,
we are now confident of our abilities to capitalise
not only on the sizeable stationary power market,
but increasingly on, arguably, the largest market
for our fuel cell platforms, international shipping.
Technology and Product Range
AFC Energy's technology and product roadmap
was for many years dominated by the L Series,
liquid electrolyte technology which continues
to be in full operation as part of the Extreme E
racing series. The L Series platform has highlighted
the possibilities of alkaline fuel cells and their
fuel flexing capability across both hydrogen
and ammonia.
With the incorporation of anion exchange
membrane technology and its potential through
the S Series fuel cell to drive down costs, increase
energy density and reduce overall system footprint
relative to the L Series, customers now have a
choice on technology platforms.
The S Series platform is being accelerated through
the ABB sale agreement, across each of the
13
Strategic Report "air cooled" and "liquid cooled" platforms with
early delivery of a 100kW liquid cooled system,
and a 200kW liquid cooled system deployment,
integrated with an ammonia cracker. It is this
product platform which will form the basis of all
larger scale, high power dense systems expected
to be delivered across the S Series where ammonia
or methanol are considered the low-cost hydrogen
carriers of choice, including both data centres
and maritime.
Strengthened Contracted Revenue and
Pipeline
Commercial agreements currently worth
£5.0 million (at the time of this statement,
including post year end contracts) reflect an
increase from last year. Throughout the course
of 2022, we expect this to further increase as
commercial interest in our technology continues to
rise in off-grid power systems.
Commercial agreements for 2022 are expected
to take several forms, including outright fuel cell
system sales or leases, funded customer product
development programmes and engineering fees.
Through our strategic partnership with ABB, we
are engaging with several e-Mobility and data
centre customers across the US and Europe
and see the first £4 million order placed by ABB
in December 2021 as a true sign of the market
demand for zero emission off-grid power solutions
fuelled by hydrogen and hydrogen carrier fuels.
ABB took the early decision that its product
demand was to be focussed on the S Series AEM
fuel cell system and that across its portfolio of use
cases, it was the highest energy density system
that would provide the greatest go to market
opportunity. The £4 million order received from
ABB last month therefore highlights not only an
early product sale of the S Series platform, but also
fast-tracked development that will provide ABB
with the operating data upon which to package
fuel cell systems for client deployment.
The product range was augmented during 2021
with work undertaken on a heavy-duty maritime
product configuration, with a revised product
roadmap developed highlighting the renewed
customer interest in the S Series fuel cell system.
This roadmap builds on several new products
designed in 2021 which we expect to see released
during 2022.
Investment into Staffing and Scaled Up
Manufacturing
With the proceeds from our capital raises in 2020
and 2021, AFC Energy has maintained an influx
of high-quality engineering, commercial, research
and manufacturing teams required to deliver the
business plan over the coming years.
The engineering team moved into new
offices as part of the upgrade to local aircraft
hangar facilities at the head office in Surrey
over the summer, with the remainder of the
hangar installation now being developed for
manufacturing scale up.
A mapping of the semi-automated scale up
infrastructure required for stack deployment has
been made and the first pieces of machinery have
arrived on site for acceptance and commissioning.
These semi-automated assembly lines will facilitate
the build and delivery of the next few years’ worth
of fuel cell stacks for customer deployment.
14
AFC ENERGY PLC The size of the off-grid power market, both in
stationary and mobile applications, should not be
under-valued and, when considered in the light of
the maritime market alone, which is measured in
thousands of megawatts, we continue to believe
the strength in AFC Energy's addressable markets
is weighted heavily towards its technology's ability
to accept low grade / low cost hydrogen with a
focus on that derived from hydrogen carrier fuels
such as ammonia and going forwards, methanol,
discussed in more detail below.
With the introduction of the AEM and HFC
S Series systems, AFC Energy is now confident
that it affords maximum optionality to its
customers in fuelling in a unique way for fuel cell
technology. We expect to leverage this "fuel flex"
approach to all our commercial partners and
customers and believe with this market offering,
and the power density we expect to achieve from
our S Series platforms, that 2022 will see many
new opportunities emerge for the Company to
capitalise on its leading position to displace diesel
generators within the next decade.
Outlook
The alignment of policy and regulatory drivers,
coupled with increased product performance and
early scale up of manufacturing, positions AFC
Energy well for another strong year in 2022.
Adam Bond
8 March 2022
Our relationship with ABB is now seeing regular
customer engagement on AFC Energy’s product
offerings across multiple verticals and with new
product releases made in the maritime and
temporary power markets during 2021, we are
seeing strong growth in interest across these hard
to abate markets.
The fuel flex strategy AFC Energy remains our key
market differentiator and one we are leveraging
to good effect with our pipeline of projects
and customers.
15
Strategic Report
Strategy and business model
We collaborate with all stakeholders to ensure that our technology and product roadmaps
meet their short and long-term needs in setting our strategy and when making operational
decisions especially product roadmaps.
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We have developed a three-pillar strategy applying the feedback received from our
strategic partners designed to deliver an integrated technology solution offering high
power density and flexible fuelling solutions.
Integrated energy
solutions
Fuel conversion and
filtration technologies
Fuel cell
technologies
16
AFC ENERGY PLC
Key to delivering shareholder value are our partnerships with leading global OEMs and
distribution partners who are best placed to know and understand their customer needs.
AFC Energy’s strategy is to manufacture its fuel cells with key assembly, commissioning and
logistics hubs remaining internal whilst outsourcing component manufacture. Significant
investment has been made to our Dunsfold site by upgrading the facilities to provide
sufficient capacity to assemble systems and provide testing, factory acceptance and
commissioning facilities.
With our strategic partners we will focus on joint product development projects that
generate an early source of revenues and validate our understanding of our customers, their
requirements and how our systems perform in real life applications.
We benefit from
Our partners benefit from
• Being able to test product
• Training and familiarisation of staff
assumptions with minimal resources
• Proactive contribution to the
• Receive end user input to the
design process
design process
• Real life performance
• Minimises over-engineered solutions
evaluation
• Raise customer and market
• De risks early adoption and
awareness
• De-risks investment in
manufacturing equipment and
facilities.
accelerates substitution of obsolete
technology.
Progress is measured by regular review at Board and project team levels by setting targets
for key performance indicators, covering at the corporate level.
Customer and staff well-being
health and safety performance
Scale up
managing headcount growth to
increase team skills and experience
Financial continuity
control cash burn
Operational delivery
project and product performance
targets, manufacturing and technology
readiness levels
17
Strategic Report Health and safety
Onsite hours
Near miss
Injuries
Scale up (average headcount)
Support, operations and technical staff
Administration staff
Financial
Operating loss
Liquidity (Unrestricted cash and cash equivalents)
Cash absorbed by operating and investing activities
Year ended
31 October 2021
£
Year ended
31 October 2020
£
78,508
33,327
2
1
36
6
1
1
24
6
£10,408,566
£4,606,212
£55,375,366
£31,301,467
£10,685,232
£4,057,404
The financial performance metrics have been chosen to measure our ability to continue to develop
our portfolio of products, scale up production and convert opportunities into revenue whilst ensuring
we have sufficient funding to grow the business.
Metrics and targets for on time and in budget delivery are set for each specific project.
The Board take into consideration KPIs when assessing senior executive variable remuneration and
have determined that the performance overall this year has been on target.
Management Information Systems have been upgraded to an Enterprise Resource Planning system
which integrates financial and cost accounting, customer relationship management, project
management and manufacturing control. A continuous improvement exercise is underway to align
reporting with operational, financial and ESG objectives whilst streamlining underlying workflows.
18
AFC ENERGY PLC
What does AFC Energy offer its customers?
The unique selling point of our fuel cell platforms has been the ability to accept low-grade hydrogen
from green ammonia and green methanol which other fuel cells are unable to achieve without high-
cost gas clean up technology. This has the direct benefit of lowering the total cost of ownership of
AFC Energy’s systems. The acceleration of the S Series fuel cell development programme has been
made to meet the requirements of our customers identified in our field testing to provide the same
level of power from a smaller system footprint in addition to a lower cost of ownership. We are also
different because we offer a fully integrated solution covering fuel cells, fuel conversion systems
and control systems which allows our customers to choose the fuel that best meets their needs in
whatever application wherever in the world.
A completely integrated Fuel Cell solution that reduces costs, increases efficiency, and contributes to
a greener future.
Ammonia
Cracker
Methanol
Reformer
Fuel
Flexibility
Fuel Conversion
Systems
Integrator
Power
Density
Sustainable
power
POWER
No emissions
Low total cost
of ownership
Small footprint
19
Fuel conversion systemsFuel CellAMMONIAHYDROGENMETHANOLControl SystemStrategic Report Target markets
Maritime
Opportunity
Why is
ammonia
important
• IMO’s GHG Strategy (2018) commits
• Significantly more energy dense than
the industry to a 50% reduction in GHG
emissions by 2050.
• World Bank (2021) confirm dominant
role of ammonia and H2 in meeting GHG
reduction targets.
• DNV GL (2019) confirm that green
ammonia is likely to represent 25% of
maritime fuel by 2050.
• Given ship operational longevity,
decarbonisation targets in 2050 need to
be capable of being met today.
• Brokers forecast market size of $13.2 billion
per annum for new engines and $287
billion retrofit market.
hydrogen.
• No CO2 footprint.
• Low-cost alternative that can utilise existing
port infrastructure.
• Market sentiment already strongly in
favour with large ship operators supporting
ammonia.
• Early partner collaborations resulted from
inability to find alternative supplier of fuel
cells that could meet their specification for
ammonia for long haul cargo ships.
Why AFC Energy
• New S Series fuel cell forecast to provide highest energy density of all ammonia accepting fuel cells.
• No need for high-cost gas clean up unlike PEM fuel cells.
• Fuel cells are capable of being retrofitted or installed in new build marine applications.
• AFC Energy cracker technology key to unlocking global ammonia maritime market.
• By integrating our ammonia cracking technology with our fuel cell we aim to position ourselves as the
preferred supplier in this market for larger ships
https://www.imo.org/en/MediaCentre/HotTopics/Pages/Reducing-greenhouse-gas-emissions-from-ships.aspx.
20
Data centres
Opportunity
Why fuel
cells?
• Data Centres and networks currently consume
• Hyperscale data centre owners have pledged
up to 2% of world’s overall power.
to reach net-zero.
• The scale is huge.
− Data Centre annual power demand: 450Twh.
− UK annual power generation: 325 Twh.
• Generally, this pledge is set to 2030 –
meaning 20GW of possible diesel transition
over this time.
• 5G, Internet of Things, Autonomous Vehicles
will all contribute to increased data centre
demand.
• Backup power from diesel generators will no
longer be tolerated or accepted.
• Fuel cells offer a high efficiency alternative
− 2019 investment: $244 billion
for prime and backup power.
− 2025 projected investment: $432 billion
• 20GW of diesel gensets currently back up
world’s data centres with replacement value of
£32 billion.
• Market size does not consider new Data
Centres.
Why AFC Energy
• No need to store high cost, high purity hydrogen fuel on-site as for PEM fuel cells.
• Fuel cells deliver zero GHG emissions, consistent with corporate pledges.
• Partnership with world leader ABB to provide energy solutions to hyperscale data centre owners.
21
EV charging
Opportunity
Why fuel
cells?
• ‘Grid-constrained’ areas heavily reliant on
diesel generators for their power output.
• Demand for faster charging solutions puts
further strain on grid and opportunities for
premium pricing.
• Fuel cells deliver zero GHG emissions,
consistent with corporate pledges.
• The IEA’s recently published Global EV
Outlook shows that whilst only 10 million
vehicles were on the road at the end of
2020, this could rise to anywhere between
145 million and 230 million by 2030.
• This exponential increase will put the
existing network under huge strain, whilst
also risking ‘grid challenged’ areas being
left behind.
• We believe off-grid solutions will be
required to support the inevitable grid
reinforcement to meet charging demand.
• In the UK alone, EV grid reinforcement
estimated to be worth between £50 billion
and £100 billion (Scottish Power).
Why AFC Energy
• AFC Energy has first mover advantage via partnership with ABB.
• ABB validated our market demand assumption through their partnership with us.
• Partnership provides access to a global distribution network across 80 countries.
• Powering our systems via hydrogen from cracked ammonia provides a clear cost advantage
versus other fuel cell types.
22
Temporary power
Opportunity
Why fuel
cells?
• Potential to provide zero emission solution
without intermittency.
• Less reliant on batteries.
• Offer modular, containerised solutions with a
small footprint.
• Construction industry currently accounts for
an estimated 38% of global energy related
emissions.
• Major construction / temporary power
businesses increasingly setting zero emission
targets within decade.
• Regulators banning and removing subsidies
from diesel.
• Several major companies now have carbon
targets and actions plans in place, including
Mace.
• Global new genset market circa $20 billion.
Why AFC Energy
• Fuel cost is key driver.
• Ability for us to integrate methanol or ammonia as feedstock.
• Potential for lower total cost of ownership versus PEM.
• Partnerships in place with companies with established global footprints, including Altaaqa,
ACCIONA and Mace.
23
Strategic Partners
and Customers
Our commercial and distribution strategy is built upon long-
term relationships with customers and strategic partners to
understand their financial, energy and environmental needs.
Our strategic partners give us vital and unique insight into their
markets and customers through their role as either
Integrator
or
Distributor
This provides access to some of the world’s largest markets with local know how, on the ground
maintenance, local consenting, local logistics and customer relationships. These commercial
relationships are supported by a small dedicated commercial team, which we are reinforcing,
who manage the day-to-day relationship with the strategic partners and also focus on developing
key accounts.
ABB
• Development and launch of high-power EV charging product
• Existing 80 country network
• Good progress being made in developing integrated product
• Sale of first 200 kW S Series system to ABB
• Expanding applications to include data centres
24
Altaaqa
Jülich
• Owns and operates 2GW of temporary
power solutions
• Investigating zero emission solutions
• Prestigious European research centre
to be supplied to principal campus in
Germany
• Forms part of the Government’s €9 billion
• Discussing to be distribution partner for
commitment to Hydrogen economy
MENA region
• Fuel cell system under review to
consider new product roadmap
• System to be delivered once
infrastructure and civil works complete
ACCIONA
Mace
• Supporting the decarbonisation of
• Mace aiming to remove diesel
construction sites
generators from all of its sites by 2026
• Achieving net zero is a corporate target
• Multiple flagship sites under Mace’s
for ACCIONA
control to be identified
• Fuel cell system to be deployed in
• Systems to be leased for trials
second quarter 2022 at ACCIONA’s
request
• First hybrid fuel cell to be deployed
Extreme E
• World’s first FIA accredited, all electric off-road SUV rally championship
• Race locations include the Artic (Greenland) and Desert (Saudi) to raise awareness of
climate change
• Raised awareness of climate change to a global audience in 2021
• Official EV Charging Partner to provide a zero-emission charging system to charge all race
vehicles in 2021 and 2022
• System currently rented to Extreme E on commercial terms
• System completed and distributed to Extreme E
25
Strategic Report Product development roadmap
Our Edge
Full
Design &
Engineering
Turn-Key,
End-to-End
Solutions
Integration
IP &
Know How
For many years we have been aware of multiple
opportunities which exist in the broader
decarbonisation value chain. However, due
to limited resources our product offering
was dominated by the L Series, with liquid
electrolyte technology which has been field
tested during the Extreme E racing series.
The L Series platform has highlighted the
possibilities of alkaline fuel cells and their
fuel flexing capability across both hydrogen
and ammonia. With the incorporation of
Anion Exchange Membrane technology and
its potential through the S Series fuel cell to
drive down costs, increase energy density
and reduce overall system footprint relative to
the L Series, customers now have a choice on
technology platforms.
The AEM S Series technology platform is being
accelerated with the support of ABB across
each of the “air cooled” and “liquid cooled”
26
platforms. These product platforms will form
the basis for all large scale, high power density
systems where ammonia is considered the low-
cost hydrogen carrier of choice, including data
centres and maritime.
Feedback from end users highlights that cost
effective hydrogen carriers such as ammonia
should be expanded to include methanol.
The AEM S Series fuel cell platform provides
customers with the ability to choose either
hydrogen, ammonia or methanol. For this reason
we have decided to create a separate team
focused on fuel technologies, building upon the
experience gained with ammonia and with a
wider remit to look at all cost-effective hydrogen
carrier technologies, to provide our customers
with fuel flexible solutions.
AFC ENERGY PLC Our product development is built around three pillars utilising
the skills and experience.
Our core technology focus is:
Stationary,
Temporary &
Back-up Power
Rapid EV
Charging
Maritime
Applications
Integrated
Energy Solutions
Fuel Conversion
and Filtration
Fuel Cell
Technology
Ammonia Cracking
Steam Methanol
Reforming
Hydrogen Purification
& Compression
Ionic Polymers
S Series fuel cells
L Series fuel cell
Fuel conversion and
filtration – this will build
a portfolio of products
which will enable our future
customers the opportunity
to choose their preferred
fuel source.
Integrated energy
solutions – this will
deliver a power dense
flexible fuelled power
generation solution.
Fuel cell technology –
this uses our polymer
membrane technologies
to deliver power
dense fuel cells (with
possible electrolysis
applications).
27
Strategic Report AFC ENERGY PLC
Stakeholder input to our decision making
during the period has included
• Market sounding has identified that end
users are prepared to pay a reasonable
but not excessive premium to reduce
emissions.
• Consultation with major shareholders
over the skill set and experience of the
Board and the remuneration policy for
Board and senior managers which have
been aligned better with shareholder
interests.
• Feedback from strategic partners that
they prefer to work with a one-stop
shop technology provider which has
underpinned our three-pillar technology
approach.
• Response from end users that power
and fuel density is a key technology
selection criterion which has motivated
accelerating the development of the S
Series suite of solutions.
• Comment from candidates and
recruitment consultants that a mixed
fixed and variable remuneration package
aligned with both short- and long-
term shareholder interests is the most
effective means of recruiting, retaining
and motivating staff at all levels.
Role of the
Board and its
sub-committees
The Board is collectively
responsible for the long-
term success of the
Company and is ultimately
responsible for its strategy,
management, direction and
performance.
The Board sets the strategic aims, ensures
that the necessary financial and human
resources are in place to meet financial and
ESG objectives, reviews progress towards
the achievement of these objectives and
reviews the performance of management.
The Board establishes the values, culture,
ethics and standards of the Company
and sets the framework for prudent and
effective controls which enable risks to be
assessed and managed. The Company has
adopted the QCA Corporate Governance
Code. The Board has delegated authority
to its committees to carry out the tasks
defined in the Committees’ terms of
reference. The Committees are the Audit
Committee, the Remuneration Committee
and the Nominations Committee. To raise
the profile of Environmental, Societal and
Governance after the year-end
an ESG Committee was formed.
The Board has delegated the day-to-day
management to the Chief Executive Officer.
28
The Board has overall responsibility for
promoting the success of the Company and
balancing the interests of all stakeholders.
The Executive Directors have day-to-day
responsibility for the operational management
of the activities. The Non-Executive Directors
are responsible for bringing independent and
objective judgement to Board decisions.
Directors are properly briefed on matters. The
Chairman has overall responsibility for corporate
governance matters. The Chief Executive Officer
has overall responsibility for implementing the
strategy of the Board and managing day-to-day
business activities. The Company Secretary is
responsible for ensuring that Board procedures
are followed, and applicable rules and
regulations are complied with.
There is a clear separation of the roles of Chief
Executive Officer and Non-Executive Chairman.
The Chairman is responsible for overseeing the
running of the Board, ensuring that no individual
nor Company dominates the Board’s decision-
making and ensuring the Non-Executive
The Board is responsible to the shareholders
for the proper management of the Company
and meets at least six times a year and all
key operational and investment decisions are
subject to Board approval.
The table below shows the number of Board and Committee meetings of the Company held during
the financial year, and the attendance of the individual Directors.
Chairman
Gary Bullard
(Appointed 15 April 2021)
John Rennocks
(Resigned 14 April 2021)
Joe Mangion
Gerry Agnew
Adam Bond
Jim Gibson
Graeme Lewis
(Appointed 27 February 2020)
Board
meeting
Audit
Committee
Remuneration
Committee
John Rennocks/
Gary Bullard
Joe Mangion
Gerry Agnew
7/7
2/3
9/10
9/10
9/10
8/10
10/10
2/2
2/2
6/6
6/6
29
Strategic Report The organisational structure is clearly
documented and communicated, identifying
levels of responsibility, delegated authority
and reporting procedures. The professionalism
and competence of employees is maintained
through recruitment, performance appraisal,
written job descriptions, personal training and
development plans. The Board supports the
highest levels of commitment and integrity from
employees. Expected standards of behaviour are
set out in the Staff Handbook, a copy of which is
given to all employees. The Company is an equal
opportunities employer, and it is our policy to
ensure that all job applicants and employees
are treated fairly and on merit, regardless of
their race, gender, marital status, age, disability,
religious belief or sexual orientation. In
common with many organisations, we operate a
performance appraisal system, the aim of which
is to support employees to contribute fully to
the organisation and to assist them to fulfil
their potential.
The Board considers effective communication
with shareholders to be especially important
and encourages regular dialogue with investors.
Shareholders will be given at least 21 days’
notice of the Annual General Meeting, at which
they will have the opportunity to discuss the
Company’s development and performance.
The Company’s website “www.afcenergy.
com” contains full details of the Company’s
activities, press releases, Regulatory News
Service announcements, share price details and
other information.
The Directors have overall responsibility
for ensuring that the Company maintains a
system of internal control to provide them
with a reasonable assurance that the assets
of the Company are safeguarded, and that
shareholders’ investments are protected. The
system includes internal controls appropriate
for a company of the size of AFC Energy,
and covers financial, operational, compliance
(including health and safety) controls and
risk management.
Such systems are designed to manage, rather
than eliminate, the risk of failure to achieve
business objectives; any system can provide
only reasonable, and not absolute, assurance
against material misstatement or loss. The
process in place for reviewing AFC Energy’s
system of internal control includes procedures
designed to identify and evaluate failings and
weaknesses, and to ensure that necessary action
is taken to remedy the failings.
The Board has considered its policies regarding
internal controls, as set out in the Code, and
undertakes assessments of the major areas
of the business and methods used to monitor
and control them. In addition to financial risk,
the review covers operational, commercial,
regulatory and health and safety risks. The risk
review is an ongoing process with reviews being
undertaken on a regular basis.
30
AFC ENERGY PLC Companies Act 2006, Section 172(1)
Directors Statement – Promoting the
Success of the Company
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of
the company for the benefit of its members and, in doing so, have regard (amongst other matters) to the following
factors:
•
•
•
•
•
•
The likely consequences of any decision on the long-term through the annual strategic review and risk appraisal
processes which are reviewed and approved by the Board. A summary of the strategy and business model together
with the findings of the annual risk review are set out in the Strategic report.
The interests of the company’s employees through monitoring staff welfare and safety, annual appraisal and setting
clear remuneration policy. These are described in more detail in the ESG and Remuneration Committee reports.
The need to foster the company’s business relationships with suppliers, customers and others through the development
of strategic agreements with supply chain and distribution channel partners. A summary of our partners is laid out in
the Strategic report.
The impact of the company’s operations on the community and the environment by setting up an Environment,
Social and Governance Committee to agree on activities, set goals, monitor KPIs and review and update policies and
procedures. An initial valuation of our impact is assessed in the ESG Committee report.
The desirability of the company maintaining a reputation for high standards of business conduct by reviewing and
updating the Code of Ethics, the anti-slavery policy and the whistleblowing policies.
The need to act fairly between members of the company by having a balanced Board membership covering different
professional backgrounds with a mix of independent and executive directors. Further description of the actions taken
are set out in the Nomination report.
The Board is ultimately responsible for the direction, management, performance and long-term sustainable success of
the Company. It sets the Company’s strategy and objectives, considering the interests of all its stakeholders. A good
understanding of the Company’s stakeholders enables the Board to factor the potential impact of strategic decisions on
each stakeholder Company into boardroom discussions. By considering the Company’s purpose, vision and values
together with its strategic priorities the Board aims to make sure that its decisions are fair. The Board has always, both
collectively and individually, taken decisions for the long term that align with our strategic direction and consistently
aims to uphold the highest standards of business conduct. Board resolutions are always determined with reference to
the interests of the Company’s employees, its business relationships with suppliers and customers, and the impact of its
operations on communities and the environment.
Stakeholder input to our decision making during the period has included
• Consultation with shareholders, market professionals and professional advisors to diversify and strengthen the
professional experience and independence of the Board and senior managers to cover commercial, product
development, technology and finance. The Nomination Committee report sets out further details of the processes
followed.
• Consultation with shareholders, professional advisors and candidates for senior roles identified a need to realign the
remuneration policy with market expectations and shareholder short- and long-term objectives in order to be able to
attract, retain and motivate the best team. The Remuneration Committee report describes the remuneration policy
adopted and the transitional arrangements put in place to remedy existing long term incentive plans.
• Market sounding and site validation projects confirms that end users are prepared to pay a reasonable but not
excessive premium to reduce emissions. Furthermore, end users and strategic partners have provided feedback
identifying that they prefer to work with a one stop shop technology provider and that power density and fuel
flexibility are key distinguishing features they consider when selecting new power technology. This insight has
underpinned our business strategy specifically the three-pillar technology approach and the acceleration of the
development of the S Series suite of solutions described in the Strategic report.
• After the reporting date an Environmental, Societal and Governance Sub-Committee has been formed consisting of
Executive and Non-Executive directors and in the ESG Committee report there is an evaluation of existing programmes
and day to day operational activity which already align with our high level commitments set out in the report to the
environment, wider society and governance treating all stakeholders fairly whilst maintaining high standards of
business conduct in accordance with internal policies and procedures.
This statement serves as an overview of how the Directors have performed this duty in the financial period and engaged
with the Company’s key stakeholders to help to inform the Board’s decision-making. Further details of the consultation
processes applied this period are set out in the Nomination Committee, Remuneration Committee and Strategic (Strategy
and business model) Reports.
These initiatives should be read in conjunction with the Corporate Governance section which sets out the decision
making and risk appraisal processes together with delegation of authorities.
31
Strategic Report Risk Management
The Company’s principal risks and uncertainties are
RISK
Core technology
•
Loss in product reputation arising from
technical failure at customer trials could
affect customer sentiment in some
applications.
Product cannot be manufactured at
competitive price.
Fuel costs do not fall.
Fuel not freely available.
•
•
•
Intellectual property and technology
• Working with an increasing range of
•
partners and customers, together with
additional staff, means that there is greater
risk of inappropriate information sharing,
risking the protection of leak trade secrets
and proprietary technology.
Loss of competitive advantage from
successful challenges to patents,
unauthorised parties using proprietary
technology in their own products, or others
infringing existing intellectual property
rights (IPRs).
Product commercialisation
•
Product does not meet customer’s
operational needs.
Product does not meet customer’s price
expectation.
•
MITIGATING PROCEDURES
•
•
Implementing Three pillar technology strategy diversifies risk.
Fuelling strategy covers hydrogen, ammonia and methanol,
diversifies risk and reduces delivered cost of fuel.
• Regular independent reviews of technologies and processes
used by Technical Advisory Board.
Leveraging established competitive supply chain.
•
• Demonstration units delivered and validated by independent
third parties.
•
Internal procedures and controls in place to capture, patent and
exploit all intellectual property (IP) as well as to protect, limit
and control disclosure to third parties and partners.
• Use of specialist IP legal advisors.
• Continuous education of workforce to the importance of know-
how and trade secrets.
• Contractual provisions with partners include non-disclosure and
other provisions to protect know how and intellectual property.
• Avoid markets and customers where reverse engineering may
happen.
• Close collaboration with partners with recognised market
•
•
expertise helps define the product USP and reduces commercial
risks.
Implementing lean product development philosophy with
shortened development cycles.
Increasing our pipeline of customers and expanded market
applications, mitigating the impact of individual customers or
markets choosing not to move forward.
• Reinforcing commercial and product development experience
and resources.
Supply chain
• Major failure/disaster at key suppliers
•
•
jeopardising supply and causing loss of
revenue or brand damage.
Loss or failure of key contractors or service
providers.
Supply chain partners may be unable or
unwilling to co-develop or supply key
components.
•
•
•
Focused procurement procedures distinguishing between
operational, strategic, and technical.
For operational supplies procedures focus on ensuring value for
money.
For strategic and technical suppliers financial and technical due
diligence is undertaken on new suppliers and ongoing
developments, and product quality and lead order times are
monitored constantly.
• Meet regularly with major strategic suppliers to discuss and
agree development plans.
Manufacturing scale up
•
• Rightsizing manufacturing facilities with
Product cannot be manufactured at scale.
• Rollout of CRM to measure customer demand and requirements.
• Commercial appraisal of size of addressable market considering
customer demand.
planned product roadmap rollout.
• Access to established supply chain and outsource partners
minimises scale of internal manufacturing.
32
AFC ENERGY PLC
RISK
Talent attraction and retention
•
•
Labour cost inflation accelerates cash burn.
Inability to recruit, incentivise and retain
commercial, product development and
research staff.
Cybersecurity
•
Failure or incident leading to data loss,
disruption of development, loss of
intellectual property or reputational
damage.
Funding and cash burn
•
The business continues to be in a cash
consumption phase, as it seeks to
accelerate and build capacity ahead of
anticipated demand.
Reliance on strategic partners
•
Partner roll-out plan does not align with
our timescales.
Lack of adoption of our technology.
•
Competing technologies
• Alternative technologies are adopted
reducing the size of the addressable market
or market shares.
• Open-source competitor enters market
Political and regulatory
•
•
•
Fiscal compliance in multiple jurisdictions
Legal compliance in multiple jurisdictions
Influence of emissions regulations in target
markets and territories.
COVID 19
• Disruption to supply chain.
•
• Customers delay purchasing decisions.
Production delayed due to staff sick leave.
MITIGATING PROCEDURES
• Updated remuneration policy applies a mix of salary, bonus and
share options to attract, retain and motivate staff.
• Recent and ongoing reinforcement of staff.
Security programme established across all IT processes.
Staff training and updates on cybersecurity.
•
•
• Annual external IT audit process.
•
•
•
•
•
•
Identification of funding needs and access to funds underpinned
by continuous business planning and cash forecasting.
Strengthening of operational/project management controls
thereby reducing the risk of failing to deliver on commitments.
Financial, commercial and technical due diligence of OEM and
distribution partners to ensure alignment of objectives and
business continuity.
Strategic partners continue to meet expectations with their go-
to-market ambitions.
Increasing end user input to product development
Increasing our pipeline of partners and expanded market
applications, mitigating the impact of an individual partner
choosing not to move forward.
• Alkaline Fuel cells offer a lower operating cost than comparable
technologies.
• Continual evaluation of the competitive landscape and targeted
technology improvements seeks to retain that competitive
advantage.
Second generation solid membrane fuel cell development
advancing.
Diversification with Alkamem membrane opening up alternative
markets such as electrolysis.
•
•
• OEM and distribution partners will shield from local political and
regulatory risks.
• Global commercial strategy minimises impact of specific political
and regulatory risks from individual territories.
• Appointment of health and safety officer in addition to current
resources to ensure best practice and compliance for H and S
related aspects and to protect the workforce.
• Reorganised office layout to maximise social separation.
• Regular town hall meetings communicating internal policy.
• Constant review of order lead times.
• Customer purchasing decisions driven by their net zero
emissions targets. Evidence to date is that this timeline has been
brought forward by the pandemic through Government stimulus
plans.
The Strategic Report on page 8 to 33 has been approved by the Directors and signed on their
behalf by
Adam Bond
8 March 2022
33
Strategic Report Governance
Report
Financial Statements
Audit and Risk Committee report
TITLE CONT. =
YEAR END =
Audit and Risk Committee report
The Audit and Risk Committee (“The audit committee”) plays a central role in the review of the Company’s financial
reporting, risk review and internal control processes. The Committee’s role is to assist the Board in its oversight of the
financial stewardship of the Company. The Audit Committee considers certain key areas of risk management and
supports the Board’s role in overseeing an enterprise-wide approach to risk identification, management, and mitigation.
The Audit Committee has met twice during the period.
The Audit Committee is composed entirely of Non-Executive Directors and is chaired by Joe Mangion supported by
Gerry Agnew, both of whom have been members for the whole period. The Committee is considered to have sufficient,
recent and relevant financial experience and competence to discharge its responsibilities. Joe Mangion, who has served
as Non-Executive Director and Chair of the Committee since 2017, has significant senior financial experience, which is
further detailed in his biography.
The Board is responsible for the systems of risk management and internal control and for reviewing their effectiveness.
The internal controls are designed to manage, rather than eliminate, risk and provide reasonable but not absolute
assurance against material misstatement or loss. Through the activities of the Audit Committee, the effectiveness of
these internal controls is reviewed annually. The results of the annual review of risks and uncertainties is published in the
annual report.
The Company employs Directors and senior personnel with the appropriate knowledge and experience for a business
engaged in activities in its field of operations and undertakes regular risk assessments and reviews of its activities.
The Audit Committee’s role is to assist the Board in its oversight of the financial stewardship and is responsible for
ensuring the effective financial integrity of the Company through the regular review of its financial processes and
performance, and by remaining up to date with the latest regulatory changes and evolution of best practice. The
Technical Advisory Board, comprising Gerry Agnew and supported by external technical advisors from academia and
industry, works alongside the Audit Committee to ensure that the Company has appropriate risk management and
internal controls, and that external audit processes are robust. At the invitation of the Committee, its meetings are
attended by the external auditor, the Chief Executive Officer, the Chief Financial Officer and others (including the
Company Chairman) as appropriate. The Committee meets with the external auditor on a regular basis without the
Executive Directors being present.
The Audit Committee report includes the following:
•
•
•
Summary of role and responsibility of the Audit Committee
Summary of significant issues considered by the Audit Committee during the year
Summary of work performed regarding the assessment of the external auditor, approach to appointment/re-
appointment and policy on auditor rotation
ASSESSING THE RISK AND CONTROL FRAMEWORK AND PROCESSES ARE OPERATING ACCURATELY
The Company prepares detailed budget and working capital projections which are approved annually by the Board and
are maintained and updated regularly throughout the year. Detailed management accounts and working capital cash
flows are prepared and compared to budgets and projections to identify any significant variances.
The Board is risk averse when investing the Company’s surplus cash. The Company’s policy to deposit surplus funds with
leading regulated financial institutions based in the UK.
The Audit Committee’s main responsibilities include:
•
•
•
•
to satisfy itself as to the integrity of the financial statements and other formal announcements relating to financial
performance, ensuring compliance with applicable accounting standards, regulations and rules
to monitor and review the effectiveness of internal financial controls and risk management policies and systems
to monitor and review the going concern status
to satisfy itself of the independence and effectiveness of the external auditor, and to make recommendations to the
Board in relation to the appointment and remuneration of the external auditor, and the policy relating to their non-
audit services; and
•
to consider the need for an internal audit function.
35
Governance
Audit and Risk Committee report
SIGNIFICANT FINANCIAL REPORTING MATTERS
During the period, the Committee received and considered reports from the Chief Financial Officer in respect of the
critical accounting estimates and judgements and subsequently approved the disclosure set out in the financial
statements. The Committee considered the following significant financial reporting matters, estimates and judgements,
amongst others, when approving the Company financial statements for the period ended 31 October 2021:
REVENUE RECOGNITION IN RESPECT OF EXISTING AND NEW CUSTOMER CONTRACTS
During the period, revenue was recognised of £0.6 million (2020: £nil) relating to contracts with customers in accordance
with IFRS 15. Commercial contracts generally involve the provision of several performance obligations typically including
engineering services and access to or sale of technology hardware. Significant judgement is required in allocating
revenue between and valuing the different performance obligations provided. The Audit Committee has reviewed the
judgements and estimates applied by management during the period when accounting for revenue recognition and has
determined them to be appropriate. During the period, the Committee has reviewed management’s judgements applied
to recognising revenue for the Extreme E and Jülich contracts. Following discussions in Committee meetings, the
Committee considers management’s treatment to be appropriate, which is also the view of the external auditors.
INTERNALLY GENERATED ASSETS
Two demonstration units have been constructed and have been used to showcase the technology at various customer
demonstrations and during the Extreme E race series.
•
•
The costs of non-recurring engineering and prototype tooling costs have been accounted for as intangible assets in
accordance with IAS 38 which defines an intangible asset as an identifiable non-monetary asset without physical
substance. After considering input from management and challenges from the external auditors the committee
concur with the judgements exercised.
The fuel cell and auxiliary systems have been capitalised in accordance with IAS 16 as the units are held for use in the
supply of goods (via demonstration).
The assessment process requires significant judgement to be applied by management in respect of identifying whether
a particular project has passed the relevant performance milestone to begin capitalization, confirming when development
activities are complete and therefore ceasing capitalization of costs, and in assessing appropriate periods of capitalisation.
The Audit Committee has reviewed and agreed the Company’s accounting policy with respect to the capitalisation of
internally generated assets. The Committee has reviewed management reports on the treatment of capitalised costs
during the period, together with reviewing reporting from the external auditors on the subject and is satisfied that the
accounting treatment and disclosure of capitalised internally generated assets is appropriate.
IMPAIRMENT PROVISIONS
An annual review of impairment indicators is prepared by management in accordance with the guidelines in IAS 36. The
Committee reviewed management’s assessment and specific consideration was given to whether the increased focus on
the S Series compared to the L Series is a change in technology. Management believes that the change in technology
test should only be applied at the level of fuel cell versus competing technologies. There is no indication that fuel cell
technology has been overtaken and made obsolete by alternative technologies. The nature of product development is
that there will be various product releases each one an improvement upon the previous release, starting from a minimum
viable product (MVP) through to minimum commercial product (MCP) to a final commercial product. The L Series assets
remain relevant as they are the platform upon which we have built our fuel cell technology and demonstrate
• Alkaline technology and the ability to use low-cost ammonia as a fuel carrier,
•
Increases public awareness of AFC and alkaline technology through the Extreme E events, and
• AFC ability to take science from the laboratory to operational scale.
These benefits, used hand in hand with the product development roadmap, assist in developing relationships with
strategic partners, investors and commercial customers. The committee concur with the conclusion that there is no
indicator of impairment and have revised useful economic lives and residual values to take into account the accelerated
development roadmap for the S Series products with effect from 1 November 2021.
36
AFC ENERGY PLC
Governance
VALUATION AND DISCLOSURE OF SHARE-BASED PAYMENTS
The remuneration policy has been revised during the period to align with stakeholder interests. Because of this exercise
the CEO existing market and performance related share options have been revised, and a revised LTIP has been
introduced based on annual grants of nil cost options scaled according to salary, which then vest conditionally three
years later based on achievement of certain market and performance targets set at grant.
Share based payments are accounted for in accordance with IFRS 2 and specific consideration has been given to:
• Accounting for the CEO existing share option as a modification,
• Adoption of a Monte Carlo simulation for market-based targets and a Black Scholes model for performance targets
conditional grant of options, and
• Reviewing the assumptions, especially share price volatility, used in the valuation models.
Independent professional advisors have been consulted to discuss the treatment adopted and to perform valuations in
addition to the review by the external auditors. After considering all matters the committee concurs with the accounting
treatment adopted.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Committee has monitored the risk management processes and reviewed the effectiveness of the internal controls.
The Committee makes recommendations to the Board in relation to risk management and internal control matters.
During the period, the Committee has considered the Company’s wider internal control environment and the need for
an internal audit function and has decided to introduce such an internal audit function during 2022 and to upgrade the
management information systems in line with the business needs. The Finance team has upgraded the information
systems to reflect the increased size and complexity of the business. The search for an outsource partner to provide
internal audit services is underway.
37
Financial Statements
Nomination Committee report
TITLE CONT. =
YEAR END =
Nomination Committee report
The Nomination Committee ensures that the Board possesses an appropriate balance of skills, knowledge, experience,
diversity and independence amongst the Directors. To assist in identifying and nominating candidates for the Board, the
Committee oversees succession planning for the Executive and Non-Executive Directors and Senior Management. The
Nomination Committee also has responsibility for the oversight of talent development throughout the Company. During
the year, the Committee carried out an independent review of the effectiveness and performance of the Board and
during the coming year will review the succession plans for the Board and senior management.
The Directors who served during the year and during the period up until the signing of these financial statements were:
Gary Bullard
Non-Executive Chairman (appointed 15 April 2021)
John Rennocks
Non-Executive Chairman (resigned 14 April 2021)
Adam Bond
Jim Gibson
Chief Executive Officer
Chief Operating Officer
Graeme Lewis
Chief Financial Officer (appointed 27 February 2020)
Gerry Agnew
Non-Executive
Monika Biddulph
Non-Executive (appointed 3 December 2021)
Joe Mangion
Non-Executive
In accordance with the Company’s Articles of Association, a director appointed during or after the year must stand for
re-appointment at the first Annual General Meeting after such appointment. 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 was not elected or re-elected at either of the two preceding Annual General Meetings and
therefore offers himself for re-election. Gary Bullard and Monika Biddulph were appointed after the last Annual General
Meeting and therefore offer themselves for re-election.
The Committee reviewed the balance of skills, experience and independence of the Board. For Non-Executive Directors,
independence in thought and judgement is vital to facilitating constructive and challenging debate in the boardroom
and is essential to the operational effectiveness of the Board. The appraisal system seeks to identify areas of concern
and make recommendations for any training or development to enable the Board member to meet their objectives
which will be set for the following year. The appraisal process will also review the progress made against prior year
targets to ensure any identified skill gaps are addressed.
The Board considers itself to be sufficiently independent and adheres to the QCA Code recommendation that a board
should have at least two independent Non-Executive Directors. The Committee determines a Non-Executive Director’s
independence by evaluating their character and judgement, in line with the 2016 UK Corporate Governance Code. The
Committee conducted a rigorous review of Gerry Agnew, who has served on the Board since September 9, 2019, and
who receives part of his remuneration in the form of warrants. The intention had been for this arrangement to be
temporary, was proportionate at the time of grant and shareholder interests considered through consultation with
independent advisors. In accordance with the revised remuneration policy from September 10, 2022, Gerry will cease to
receive any remuneration in the form of warrants. Gerry has a deep understanding of fuel cell technologies with extensive
experience in a business setting and continues to provide independent oversight and challenge in the boardroom. After
considering the change in which Gerry is remunerated and how he has applied his knowledge and experience when
applying judgement, the Board has concluded that Gerry fulfils the requirements of an independent director.
Directors’ service contracts or appointment letters and the terms of reference of the sub-committees of the Board make
provision for a director to seek personal advice independently in furtherance of his or her duties and responsibilities.
38
AFC ENERGY PLC
To support effective future succession and appointments, the Committee will continue to engage with external
stakeholders (including shareholders and regulators) when appropriate. Following engagement with key stakeholders a
need to diversify the skills and experience of the Board in respect to commercial and product development was
identified. Following an extensive search led by Joe Mangion, the senior Non-Executive Director, a shortlist of excellent
candidates for the Chairman’s role was produced. An external head-hunter was appointed to support the search and
interviewed several candidates in a thorough and highly competitive process. The Committee ensured that there was a
diverse selection of candidates and that all candidates aligned with the culture and values set by the Company. This
process led to a unanimous conclusion with the Committee recommending the appointment of Gary Bullard as Chairman,
who brings extensive commercial experience in a technology setting.
After the year-end a further independent search was made to add product development skills and experience to the
Board. The search was led by the Chairman, supported by an independent head-hunter, and a number of excellent and
diverse candidates were presented. This process led to a unanimous conclusion with the Committee recommending the
appointment of Monika Biddulph as a Non-Executive Director who brings extensive experience of product development
of new technology.
The Committee believes that the changes made create a better-balanced Board whose skills, experience and
independence covering research, product development, commercial and finance which are aligned to the current
business and stakeholder needs.
39
Governance Financial Statements
Remuneration Committee report
TITLE CONT. =
YEAR END =
Remuneration Committee report
The Remuneration Committee (the Committee) ensures remuneration arrangements for the Executive Directors and
employees are aligned to the execution of the business strategy and effective risk management, for the medium to long
term. The Committee does so within the agreed terms of reference, considering the views of shareholders. The Committee,
chaired by Gerry Agnew, is currently exclusively composed of independent Non-Executive Directors. During the period the
other member of the Committee was Joe Mangion and the Chairman also attended meetings. The Chief Executive Officer
is invited to attend meetings where appropriate. The Committee usually meets at least twice annually, and in the past year
met six times; each member was able to give 100% attendance.
The Remuneration Committee report is split into the following three sections::
•
•
•
a summary of the work completed by the Committee in the period;
the Remuneration Policy (the Policy) which sets out the Company’s approach to Directors’ remuneration; and
the Annual Report on Remuneration which sets out the remuneration paid to Directors in the period.
We expand on each of these areas below.
ANNUAL STATEMENT SUMMARISING THE WORK OF THE REMUNERATION COMMITTEE
During the year the Committee’s key activities included:
• Benchmarking and agreeing revised executive remuneration packages to reflect business growth.
• Reviewing and agreeing individual attainment and the achievement against performance targets for annual bonuses
and Long- Term Incentive Plan (LTIP) awards.
• Considering and agreeing the annual salary increase.
• Considering and selecting key performance targets and thresholds for the forthcoming financial year.
• Agreeing the targets for LTIP awards granted during the period.
• Considering dilution effects of share option schemes short, medium and long term; and
• Reviewing terms of reference for the Committee.
REMUNERATION POLICY REPORT
The Remuneration Policy (“the Policy”) outlines the principles and framework for remuneration allowing the Board of
Directors and management to attract and maintain high quality employees across respective disciplines and to ensure
alignment between all stakeholder objectives.
The Policy focuses on Board and Senior Executives and Management within the Company but equally provides a framework
for all other employees regardless of seniority. The Policy acknowledges the Company’s intention to:
•
•
Promote the long-term success of the company and ensure the alignment of interests between Senior Management,
Non- Executive Directors and shareholders.
Provide a remuneration structure which looks to attract and retain high quality candidates into senior roles within AFC
Energy.
•
Provide a long-term incentive structure to retain senior management.
This policy will be reviewed and updated annually by the Remuneration Committee and general principles may be discussed
from time to time with shareholders.
The Policy adopts a framework premised on several key elements:
EXECUTIVE DIRECTORS
Executive Director remuneration packages shall comprise a combination of the following core elements in accordance with
market- based packages of similar companies.
• Base Salary
• Benefits
Pension Contributions
Short Term Performance Incentive (Bonus)
Long Term Performance Incentive
•
•
•
40
AFC ENERGY PLC
CHAIRMAN AND NON-EXECUTIVE DIRECTORS
In accordance with best market practice, the Chairman and Non-Executive Directors shall receive market-based fees for
services provided to the Company, as reviewed annually.
SENIOR MANAGEMENT
For consistency, this policy also covers senior employees reporting directly to the CEO and those reporting to the CEO’s
first line and where specifically identified, other employees.
No director or senior manager is involved in any decisions about their own remuneration. The Committee is, however,
responsible for making recommendations to the Directors on matters relating to the remuneration structure, including
pension rights, the policy on compensation for Executive Directors and their terms of employment. To achieve the
overall aim of attracting and retaining high quality people, the Committee has set guidelines for a suitable balance of
short-term and long-term incentives.
Remuneration policy for Executive Directors remuneration packages is reviewed annually on the basis of market
comparisons with positions of similar responsibility and scope in comparable industries. In 2021 the Committee engaged
PriceWaterhouseCoopers to review the remuneration policy and packages for the senior executives in the context of
recent significant continued growth and increase in market capitalisation over the last year. Based on a review of
remuneration packages of the peer company, it agreed to revise overall packages for the senior executives.
The policy for Executive Directors is to continue to pay base salary and introduce an annual performance-related bonus.
Performance Share Plan (PSP) shares are awarded to the Executive team and the intention is to roll this out further to
other senior managers to create a Long-Term Incentive Plan (LTIP). These performance shares are linked to market
targets and, in the future, will also be linked to key performance indicators and structured to align corporate and
individual performance to the long-term success of the Company. Our policy aims to reward executives competitively in
comparison to their peer group in benchmarked companies, subject to them achieving performance measures for annual
bonus and LTIP attainment. For salary our policy is to reward at or around the median level for peer companies, thereby
ensuring that talent is attracted and retained, and that Executives are appropriately incentivised to perform.
The Remuneration Policy therefore provides a summary of each element of remuneration for the Executive Directors
with an explanation of its purpose, link to strategy, its operation, maximum opportunity and the performance measures.
EXECUTIVE DIRECTORS
Base salary
Base salary, payable monthly in cash, is set at an appropriate level to attract and retain management of a high calibre
with the necessary experience, skills and credentials required to deliver a sustainable business model and drive
shareholder returns. Where items are scaled to base salary in this document, the number used shall be the salary prior
to any salary sacrifice. Generally, but subject to prevailing economic conditions, salaries are reviewed annually with
changes effective from the beginning of the financial year but may be reviewed at other times if the Committee considers
this appropriate.
In determining base salary levels, consideration is first given to role and the corresponding salary band, within that band
consideration is given to:
•
•
•
•
the individual’s experience and relevant skills
the performance of the company and the performance of the individual
the overall remuneration packages
recognition of salary levels at other companies of a similar size and complexity in the UK and as far as possible
consistent with internal pay scales.
While there is no maximum salary level, salary increases will generally be in line with increases awarded to other
employees in the company. However, larger increases may be made at the discretion of the Committee to consider
circumstances such as:
•
•
changes in an individual’s role or responsibility;
to reflect an individual’s contribution to the company; and
• where a salary is significantly behind market practice.
41
Governance Remuneration Committee report
When reviewing salary levels, the performance of individuals is considered in advance of any increases being awarded.
Performance will be determined by formal annual performance reviews of all Board members and other Senior Executives
to be carried out before the end of each financial year.
Performance-related annual bonus
To incentivise executives to achieve annual financial and operational targets in line with key strategic objectives
considering risk and shareholder interests. For Board Members this will also include observations from the board
effectiveness review.
The annual bonus is normally based on performance over the financial year and the Bonus plan shall be documented and
updated annually considering the Company’s targets and the individual’s objectives.
After the year-end the Committee determines the extent to which pre-defined targets have been met. The final quantum
of the bonus, which is subject to an annual cap, will be dependent upon success of the executive in delivering their
targets, with flexibility to adjust up and down to reflect the overall performance of business and individual performance.
Bonuses are non-pensionable. An ‘on target’ performance would be expected to deliver 75% of maximum. A minimum
threshold achievement will deliver a bonus of not more than 25% of maximum. Maximum pay out is 120% for the CEO
and 70% for the other executive directors.
In conjunction with the Executive Directors, measures are selected each year by the Committee to ensure continued
focus on the Company’s objectives and in line with the Business Plan. The Committee may decide that the bonus
entitlement be subject to a minimum delivery of the Company’s financial targets. Typically, but at the discretion of the
Remuneration committee, the indicative split of the annual bonus going forward should normally be 40% financial, 40%
operational and 20% personal objectives.
Pension and other benefits
All employees are eligible for a Company matching contribution towards AFC Energy’s chosen pension provider of up
to 5% of salary before taxation. Employees in this scheme also contribute 5% salary towards their pension. The Committee
has discretion to make alternative arrangements on a case-by-case basis. When determining such arrangements, the
Committee will consider cost and market practice.
For employees that have reached lifetime allowance limit, the company contribution can be paid as salary but will not
be grossed up. All other benefits are at an appropriate level considering market practice.
Executive Directors – Long-Term Performance Share Plan (PSP)
To attract and retain Executive Directors and Senior Managers of a high calibre and align their interests with the long-
term objectives of the Company, annual grants of nil-cost options are scaled according to salary which then vest
conditionally three years later based on achievement of performance targets set at grant.
For the first year’s grant and until specifically changed by the Committee, performance testing will be based on
Compound Annual Growth Rate (CAGR – expressed in %age terms) of Total Shareholder Return (TSR), which for the
time being is expected to be entirely share price based but accommodating future dividends when these
become possible.
At the vesting date, the CAGR (%) of TSR will be calculated for the three-year period and tested versus the threshold set
for the year of award. Below this level of CAGR the award will be forfeited. At the original threshold, one quarter of the
maximum award will vest, and this will increase linearly with CAGR up to full release of the award at an upper limit of
CAGR equivalent to 20% in this year. CAGR levels beyond this limit will not result in the release of any more options,
however the holder is rewarded through the increased value the awarded options will have at the higher share price.
Good leavers will retain pro-rated awards according to the fraction of the three-year period they work for the company
with details, along with malus and claw back terms based on advice from external advisers regarding current
industry standards.
The maximum award level will be 120% salary for the CEO with the other board level executives having maximum award
of 70% salary. Non board level executives will not automatically be eligible to the scheme but those that do will have a
maximum award equal to or less than board level executives.
42
AFC ENERGY PLC
The new PSP will retain the overall limit on share capital of 10% for all option allocations. Annual awards will normally be
made after the announcement of the half-year operating statement to avoid potential conflicts.
Service agreements
Service contracts for all employees including the CEO and Executives shall specify reasonable notice periods, defined
as normally three to six months and not exceeding one year with no additional liquidated damages clauses.
Payments due on termination shall be limited to basic salary and benefits. Annual bonus payments shall be related only
to the period worked and shall not extend to periods of unworked notice or gardening leave.
NON-EXECUTIVE DIRECTORS
Fee levels are set to reflect the time, commitment and experience of the Chairman and the Non-Executive Directors,
considering fee levels at other companies of a similar size and complexity and to other UK companies.
The fees of Non-Executive Directors shall normally be reviewed annually to ensure that they are in line with market
conditions and any changes to said fees will be approved by the Board following a recommendation from the
Chief Executive.
Fees for the Company Chairman shall normally be reviewed annually to ensure that they are in line with market conditions
and any changes to said fees will be approved by the Board as a whole.
The fees are normally paid in cash monthly but by mutual consent may be paid in shares if this is considered appropriate.
Payments of shares may be made annually instead of monthly. The QCA CG Code 4.4 indicates Non-Executives should
not normally have a ‘significant interest in a company share option scheme’. In view of the potential impact of this on
independence and the Board composition requirements identified by ISS and voting advisory bodies, NEDs shall only
be granted share options or warrants where the perceived threat to the NED’s independence has been safeguarded.
The Chair and Non-Executive Directors shall expressly not participate in any performance related plans or bonuses.
Further additional fees may be paid to reflect additional time, Committee or Board responsibilities if this is considered
appropriate. The Company reimburses reasonable business expenses incurred wholly exclusively and necessarily on
behalf of the business. Any tax that arises on benefits in kind shall be paid by the employee.
Remuneration policy for senior managers and other employees of the Company
The remuneration policy for senior executives is like the policy for Executive Directors as set out in this report with a
combined base and incentive related to encourage and reward superior business performance and shareholder returns
and remuneration is linked to both individual and Company performance.
Basic salary is targeted at normal commercial rates for comparable roles and is benchmarked on a regular basis. Bonuses
can be earned on the same basis as Executive Directors. Increases to executive managers’ base salaries are considered
at the same time as all other colleagues across the company and increases are generally in line with all colleagues.
Where appropriate, colleagues may be eligible for a full year bonus, although the type, limits and performance conditions
vary according to job level. Senior managers and other key management may be invited to join the Company Share
Option Scheme.
Circumstances may dictate where classes of employee are more closely aligned with sales and the delivery of revenue
to the Company, that a lower base and “commission” based salary may be appropriate. This will be for the Executive
Directors to assess based on good industry practice and to ensure appropriate employee incentivisation.
ANNUAL REPORT ON REMUNERATION
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.
43
Governance Remuneration Committee report
As part of the scale up of operations the Board became aware that the remuneration policy needed to be revised to
attract, retain and align new and existing staff with shareholder interests. In particular, senior members of the leadership
team had not had their remuneration and long-term incentive plans reviewed for several years, and grants of options had
not been made in recent years. An independent advisor was engaged to benchmark the existing remuneration packages
and advise on the structure and quantum of the proposed remuneration policy in line with best practice. The Non-
Executive directors also approached certain key shareholders and market professionals to understand their views on
executive remuneration.
Based on these inputs a revised remuneration policy was presented to the Remuneration Committee and unanimously
approved. The key Long-Term Incentive Plan under the new policy is a Performance Share Plan with yearly grants of
options that vest conditionally based on performance three years after grant. This Performance Share Plan, which going
forward will be the sole long-term incentive plan, is described in the remuneration policy. As part of this review, certain
historical long term incentive awards were identified as not meeting the objectives described above and certain historical
anomalies were considered. To address all of these matters in a way that ensures continued alignment of executives with
shareholder objectives a one-off package was agreed which included modification of terms and conditions of existing
share option plans, a transitional award under the proposed Performance Share Plan and in one case a cash settlement.
As part of the re-alignment of Adam Bond’s long-term incentive plan the Board agreed to:
• Award 2,250,000 nil cost options to Adam Bond and 984,375 nil cost options to Jim Gibson under the Transitional
Performance Share Plan announced on December 2021. Below a threshold share price of 27.6p none of these options
will vest. At this threshold price, 25% of the maximum award will vest and this will increase linearly so there is
maximum vesting for a price of 59.7 pence per share. Providing the thresholds have been achieved, the options will
vest in two equal tranches in March 2022 and March 2023 so that each executive will have LTIP incentivisation awards
tested and vesting annually up until the first vesting of the new regular PSP
• Modify the terms and conditions of Adam’s 2015 share option plan as announced on 16 December 2020 and described
in more detail below.
• Remove the requirement for Employers’ National Insurance Contribution be deducted from the proceeds of exercising
the share options, and
• Make a cash payment of £200 thousand reflecting longer term performance against strategic objectives reported
below as part of the annual bonus figure of £470 thousand.
The Transitional Award was deemed to represent a related party transaction in accordance with AIM Rule 13. The directors
who are independent of the Transitional Award, being all the directors other than Adam Bond and Jim Gibson, consider
that, having consulted the nominated adviser, that the terms of the Transitional Award are fair and reasonable in so far as
shareholders as a whole are concerned.
Taken together the total outstanding unexercised executive share options represent less than 2% of issued share capital.
During the year, the three executive directors were paid a bonus of 75% of the maximum levels set out in the revised
remuneration policy of 120% salary for the CEO and 80% salary for the other executive directors. This represented an ‘on-
target’ performance vs a number of objectives including securing revenue, further extension of the strategic relationship
with ABB, delivering the Extreme E hydrogen solution, expanding the team with high calibre leaders and staff while
providing an excellent HS&E performance and significantly improved operating environment. The Executive directors
were also awarded a 3% pay rise effective 1 April 2021 in line with a raise for the wider workforce who also received
additional backdated awards. Adam’s compensation this year included pay in lieu of untaken holiday recorded as ‘Other
compensation’ along with other benefits including an accommodation allowance, health cover and a company car.
44
AFC ENERGY PLC
The directors’ remuneration for the period was:
Salary
£
Bonus
£
Share
based
payment
£
Other
compensation
£
Total
compensation
£
Pension
contributions
£
Total
2021
£
Total
2020
£
Gary Bullard
(appointed April 15,
2021)
John Rennocks
(resigned April 14,
2021)
54,615
35,256
–
–
Adam Bond
305,250 470,000
Jim Gibson
229,083 135,000
Graeme Lewis
(appointed 27
February 2020)
Joe Mangion
Gerry Agnew
167,250 102,000
25,000
15,000
–
–
831,454 707,000
–
–
–
–
–
–
–
–
–
–
88,456
18,913
54,615
35,256
–
–
54,615
–
35,256
50,000
863,706
12,672
876,378
488,210
382,996
9,163
392,159
335,107
–
–
–
269,250
21,800
291,050
154,392
25,000
15,000
–
–
25,000
25,000
15,000
15,000
107,369
1,645,823
43,635 1,689,458 1,067,709
The share-based payment included in the table above is the gain on the share options when exercised in accordance
with the requirements set out in Company Law.
On 31 October 2021 the Directors’ interests over share options and warrants of the Company were:
1 November
2020
6,000,000
2,500,000
900,000
1,510,000
1,240,000
Adam
Bond
Jim Gibson
Gerry
Agnew
Graeme
Lewis
Graeme
Lewis
Options/
Warrants
granted in
year
Options/
Warrants
exercised/
lapsed in
year
–
–
–
–
–
–
–
–
–
–
31 October
2021
Exercise
price
Date from
which
exercisable
Expiry
date
6,000,000
£0.22 17/07/2015 17/07/2025
2,500,000
£0.088 14/08/2019 14/08/2028
Type
Unapproved
Option
Unapproved
option
900,000
£0.049
9/09/2020
9/09/2030
Warrants
1,510,000
£0.1635 31/12/2020 31/12/2027
EMI Option
1,240,000
£0.1635 31/12/2020 31/12/2027
Unapproved
option
45
Governance
Remuneration Committee report
Adam Bond’s interests over share capital include 6,000,000 options granted in 2015. These options have performance
conditions attached to them; 3,000,000 of these options will only vest if specific operational targets for energy output
are met. The remaining options vest in equal portions if the share price achieves and sustains market quotation of £1.00,
£1.50 and £2.00. The vesting conditions for the options have been reviewed and amended by the Remuneration
committee.
•
The target prices were adjusted to 42.5p, 64p and 85p (respectively) to consider the change in the share capital since
July 2015.
• A retention clause was added to these options such that a specified number of shares should not be sold between
the date of exercise and the first anniversary of these revisions.
•
The operational performance conditions for all but one of the original targets have either been achieved, or a
comparable measure achieved. The exercise price of these options has been adjusted from 51p to 22p, in line with
changes in the share capital since July 2015.
•
There were no transactions with any related parties during the year ended 31 October 2021 (2020: £nil).
The directors are employed under contracts whose main conditions are
• Gary Bullard’s services as Chairman and Non-Executive Director are provided under a service agreement dated 5
March 2021 for an indefinite term, subject to a minimum of one months’ notice. Under this agreement, Gary is entitled
to a director’s fee.
•
John Rennocks’ services as Chairman and Non-Executive Director were provided under a service agreement dated 7
June 2018 for an indefinite term, subject to a minimum of three months’ notice. Under this agreement, John was
entitled to a director’s fee.
• Adam Bond’s services as Chief Executive Officer and Director are provided under a service agreement dated 1
January 2016. The agreement is for calendar years and is renewable by mutual consent. The agreement may be
cancelled by either party providing a minimum of three months’ notice. Under this agreement, Adam is entitled to a
salary plus payment or receipt of other benefits including a housing allowance, private medical insurance, pension
and a company car.
•
Jim Gibson’s services as Chief Operating Officer and Director are under an employment contract for an indefinite
term, subject to a minimum notice period of three months and is entitled to a salary plus accommodation allowance
and reimbursement of commuting costs.
• Graeme Lewis’ services as Chief Financial Officer and Director are provided under an employment contract dated
31 December 2020 for an indefinite term, subject to a minimum of six months’ notice. Graeme is entitled to a salary
plus participation in the defined contribution pension scheme.
• Gerry Agnew’s services as a Non-Executive Director are provided under a service agreement dated 9 September
2020 for an indefinite term, subject to a minimum of three months’ notice. Gerry is entitled to a director’s fee and was
granted warrants in lieu of sacrificed director’s fee at the time of joining. From October 2022 Gerry will be entitled to
a director’s fee only.
•
Joe Mangion’s services as a Non-Executive Director are provided under a service agreement dated 5 December 2017
for an indefinite term, subject to a minimum of three months’ notice. Joe is entitled to a director’s fee.
• Monika Biddulph’s services as a Non-Executive Director are provided under a service agreement dated 23 November
2021 for an indefinite term, subject to a minimum of three months’ notice. Monika is entitled to a director’s fee.
46
AFC ENERGY PLC
Financial Statements
ESG Committee report
TITLE CONT. =
YEAR END =
ESG Committee report
The ESG Committee was created in December 2021, post year end, and has been empowered to ensure that our programs
and operational day to day activity reflect the commitment to build a sustainable business and have a positive impact
on the world around us.
Our purpose is to provide clean energy fuel cell solutions to support the decarbonisation of industry as part of global
efforts to address the issue of climate change.
This initial report will focus on existing programs and operational activity which already align with our high-level
commitments, but also consider how some of our already planned activities will consolidate our commitment. During
the coming year we will be reviewing our internal programs and procedures to identify where we can improve our
impact on society and the environment and put in place reporting mechanisms and KPIs to ensure that these objectives
are delivered.
Sustainability principles are already at the heart of our day-to-day decision making, taking into consideration our
Environmental, Social and Governance (ESG) goals. We define ‘Sustainability’ as:
“Meeting the needs of the present without compromising
the ability of future generations to meet their needs.”
This means taking decisions that help to preserve or improve the environment in which we work and live, in addition to
quantifying and maximising our social impact and ensuring that our Board of Directors and staff work to the highest
ethical standards as a leading listed clean energy business. Why does this matter?
•
•
It ties to our long-term purpose. As a clean energy business that is at the centre of the energy transition, we must
ensure that our operations and decisions do not undermine or run contrary to this goal.
It links to the demands of our customers and partners. Our partners have also set clear sustainability goals, for
example Mace banning the use of diesel generators from its sites from 2026 as part of its Corporate Strategy. This
policy ties with these wider commitments.
• Companies that focus on sustainability are inherently lower risk. Companies that weave sustainability standards
and credentials into their corporate fabric - planning for long term growth, positive values reflected in employee
behaviour and consumer interest – usually outperform those companies that don’t.
• We think it’s the right thing to do. At all levels of the company there is a strong commitment to the environment
and sustainability.
47
Governance
ESG Committee report
OUR CURRENT CONTRIBUTION TO THE UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS
As a leading clean energy business, our work already contributes to the delivery of nine of the UN’s seventeen Sustainable
Development Goals (SDGs). These goals form a central part of the 2030 Agenda for Sustainable Development, adopted
by all United Nations Member States in 2015 that provides a shared blueprint for peace and prosperity for people and
the planet, now and into the future. They are quantified as follows.
GOAL
CONTRIBUTION
Our systems provide a clean energy alternative to the diesel generator. The move away from diesel
is essential to good health; in London for example, 14.5% of the most harmful emissions such as PM2.5
are sourced from stationary diesel generators on construction sites.
Our systems create water, and nitrogen as by-products, ready for use in other applications.
All of our systems are off-grid and zero-emission at the point of use, directly supporting the
decarbonisation of a number of global industries.
We already employ over 40 highly skilled staff at our Dunsfold base in developing and assembling our
systems, with plans to grow this to over a hundred in response to demand. Through our supply
contracts, we also support high-value employment across the world.
Our systems are supporting the decarbonisation of five key sectors across the globe: Mobility,
Construction, Maritime, Rail and Data Centres.
Our work in powering Extreme E’s inaugural championship has shown that our systems are capable
of being deployed in remote, inhospitable environments to provide reliable off-grid power, reducing
the current reliance on the diesel generator.
The use of hydrogen as a fuel is recognised as a central part of international decarbonisation efforts,
with the Oxford Institute for Energy Studies reporting that ‘it can replace hydrocarbons in (for
instance) aviation, shipping, rail and heavy road transport’. Our systems are part of this energy
transition in the move to net-zero.
The deployment of both the L Series and S Series power systems across a large number of industries
will support a reduction in per capita CO2 emissions, contributing global efforts to get to net-zero
2050.
We have forged a number of international partnerships to accelerate the deployment of our zero-
emission systems, as well as instituting a number of supply chain agreements to effectively deliver
them.
We intend to maintain and build on our contribution via the Sustainable Development Goal commitments made in this policy.
48
AFC ENERGY PLC
OUR PEOPLE
WORKFORCE BY GENDER
We are privileged to be an employer that is supporting the UK to
‘build back better’ – providing high-value work with a clear social
purpose. We are therefore committed to being a responsible and
supportive employer, whilst also holding our Partners and supply
chain to our high standards.
• We set clear direction and purpose for each and every
employee through job description, objective setting and
regular internal communication of corporate strategy and
operational targets. The remuneration and annual evaluation
process support this strategy by rewarding performance and
developing career plans to enable all staff to continually grow
professionally.
• We provide an engaging, supportive environment for our
staff to work in. This includes providing an effective induction
for all new employees and full support for all learning and
development requirements of all our employees. We hold
regular ‘town hall” and team meetings to update on company
progress and of course celebrate our successes!
• We will continue to encourage diversity and equal opportunity
for all people in relation to recruitment and their career
development within the business.
• We ensure that employees or those working on behalf of AFC
Energy act ethically in discharging their responsibilities.
Buyers and key decision makers shall not accept gifts,
hospitality or any other inducements above limits specified
within our internal policies.
• Our Modern Slavery statement confirms that we have a zero-
tolerance approach to slavery.
• We recognise and accept our responsibility to provide and
maintain a safe and healthy work environment for our
employees, subcontractors and other persons who may be
affected by our operations. Our existing Health & Safety
Policy demonstrates our commitment to the prevention of
injury and ill health in accordance with the Health & Safety at
Work Act (1974) and its associated regulations. We also have
an established a Health & Safety Management System (in
accordance with ISO 45001: 2018) that is proportionate to
the scale and nature of our operational risks.
• We continue our long-established tradition of working with
key further and higher education establishments in the UK
and across Europe to promote clean energy as a key career
option to inspire the next generation of scientists and
engineers to commit their futures to the sector.
During the coming year we plan to implement an Employee
Survey in line with industry best practice, covering ethics, safety,
quality, leadership, communication, collaboration, performance
management, innovation and compensation.
We believe in attracting the best talent in our field irrespective of
race, creed and religion. We have a spread of ages and diverse
workforce with a wide range of technical and professional
disciplines, and from numerous different nationalities.
85+
65+
YEARS OF SERVICE
WORKFORCE BY AGE
25+
Male
Female
0-1
2-5
6-10
11-15
15-20
20-29
30-39
40-49
50-59
60-69
70-79
49
Governance15
+
A
15
+
15
+
5
+
A
25
+
25
+
15
+
10
+
A
ESG Committee report
HEALTH AND SAFETY DURING PANDEMIC
During the pandemic our commitment to operate in a manner that protects the health and safety and well-being of our
staff and partners has been tested to the limit. We are committed to continuously improving our Health and Safety
performance through constant monitoring. We track both leading and lagging indicators with annual targets set. The
aim is to have zero lost time accidents.
Onsite hours
Near miss
Injuries
2021
78,508
2
1
2020
33,327
1
1
All incidents and near misses were investigated and operational procedures amended appropriately.
COVID 19 has had a specific impact on our business and we have focused on three key objectives of safety, maintain
headcount and work flexibility.
Our business is only as strong as the skills and experience of the people we employ. We committed early in the pandemic
to reassure our team that we would do everything in our power to keep the business operating and avoid any temporary
or permanent reduction in headcount. To the contrary we have increased headcount.
During the pandemic we were able to manage our facilities and operations with a skeleton staff with the rest of the
employees working from home to maintain progress. Our experience is that remote working can have both positive and
negative impacts depending upon the relative importance of teamwork and physical inputs, but also impacts our carbon
footprint through commuting. We are in the process of developing a work from home policy which is equitable between
different employee groups, considering how the role interacts with colleagues and external stakeholders and the facilities
needed to perform the role, plus considering the carbon footprint commuting to our premises.
In health and safety, we have
•
•
Increased our office space to maximise social distance between employees.
Provided partitioning between workstations in open plan offices.
• Actively encouraged the use of electronic communication tools to limit the number of meetings with external
stakeholders.
•
•
Supported remote working where practical.
Provided external and personal testing kits to all staff.
These actions have enabled us to continue working throughout the lockdown without furloughing staff and with minimal
days lost through COVID infection.
50
AFC ENERGY PLC
ENVIRONMENTAL
As a leading clean energy business, we are committed to delivering power systems that help to reduce the world’s
emissions whilst undertaking our day-to-day activities in ways that minimise our effect on the environment. We will
focus on
• Continuing to use electricity only from renewable sources.
•
Improving our understanding of the environmental impacts of our products, suppliers and operations.
• Reduce our corporate and product carbon footprints, and
• Reduce our waste generation and energy consumption.
Electricity is supplied from renewable sources by the landlord.
Waste materials are generated through our development and testing activities and principally are chemical waste,
pallets and cardboard which are disposed by separating from general waste for collection and disposal by licenced
contractors.
We are committed to managing our carbon footprint and projects including the use of zero emission vehicles among
staff by the installation of electric charge points for employee and visitor use.
GOVERNANCE
As a publicly listed business, we are committed to achieving high standards of Governance and follow the Quoted
Companies Alliance Corporate Governance Code (the “QCA Code”) and its ten key principles in ensuring the business
acts fairly, professionally and with integrity in all its work:
• We will continue to deliver our strategy and business model, promoting long-term value creation for all our
shareholders.
• We will continue to seek to understand and meet shareholders needs and expectations, delivering our requirements
under Section 172 of the Companies Act.
• We will consider wider stakeholder and social responsibilities and their implications for long-term success, reflected
by the adoption of this ESG & Sustainability Policy.
• Risk management will continue to be effectively embedded throughout the business, overseen by the Company’s
Audit Committee.
•
•
The Board will be maintained as a well-functioning, balanced team that actively drives and supports the continued
success of the business.
Through the work of the Chairman and the Company Secretary, we will ensure that Directors have the necessary and
up-to-date experience, skills and capabilities required to effectively discharge their functions.
• Board performance will be subject to external annual review to drive continuous improvement in its operation.
• We will continue to promote a zero-tolerance approach to bribery and corruption.
• We will also maintain governance structures and processes that are fit for purpose and support good decision-
making throughout the Company.
•
Finally, we are committed to regular and timely communication with the market and shareholders on how the
company is both governed and performs, creating a ‘feedback loop’ with our key stakeholders to ensure continuous
improvement.
Details of how the QCA Code is applied can be found at www.afcenergy.com/corporate-governance/.
51
Governance ESG Committee report
OUR COMMITMENTS TO ESG AND SUSTAINABILITY
We are fully committed to undertaking all our work in a safe, responsible and sustainable manner. With this in mind, we
have set individual Environmental, Social and Governance commitments that the business will actively work towards.
We have undertaken a light touch materiality assessment with several key stakeholders including employees, key
commercial/distribution partners and institutional investors, whilst also accounting for feedback from the Sustainability
Accounting Standards Board (SASB) Index for fuel cell businesses.
This provided the following areas of focus in order to set our commitments to ESG and sustainability:
ENVIRONMENTAL
SOCIAL
GOVERNANCE
•
•
•
Strong Board oversight
Supply chain and procurement
management
Effective decision-making is
embedded throughout the
business
• Driving change through
effective KPIs
Embedding effective health &
safety practices in system build
and use
•
Embedding effective health &
safety practices for employees
• Clear Diversity & Inclusion
practices
•
Employee health and well-being
initiatives
• Commitment to help the
communities we live in
• Development of zero-emission
•
systems at point of use
• Ability of systems to use
multiple sources of fuel,
including ammonia, to
accelerate deployment to
support decarbonisation
•
•
•
Product design & lifecycle
management
Energy management of
operations
Supporting the decarbonisation
of several key industries
internationally
• Materials sourcing & efficiency,
linked to effective supply chain
and procurement management
We plan to implement an annual corporate policy review with all employees and board of directors including reviewing,
updating and publishing key global initiatives
• Code of ethics
• Anti-corruption
• Diversity and inclusion
•
Environment
• Health and safety, and
• Quality
52
AFC ENERGY PLC
Financial Statements
Board of directors
TITLE CONT. =
YEAR END =
Board of directors
GARY BULLARD
ADAM BOND
JIM GIBSON
GRAEME LEWIS
Non-Executive Chairman
Year appointed 2021.
Chief Executive Officer
Year appointed – 2014.
Chief Operating Officer
Year appointed – 2017.
Chief Financial Officer
Year appointed – 2020.
Relevant skills and
experience
Relevant skills and
experience
Relevant skills and
experience
Relevant skills and
experience
Thirty years’ experience in
operations management
and business
development roles within
the engineering
contracting sector.
A Chartered Accountant
with over 20 years of
operational experience in
distribution of
construction and power
equipment.
Previous appointments
Previous appointments
Twenty-three years at
Foster Wheeler working in
operational, business and
commercial roles
Two years at
ThyssenKrupp working in
process technology/
business development.
Divisional CFO Barloworld
global Caterpillar
operations.
CFO of Finanzauto, S.A.
– Listed Caterpillar
distributor for Spain and
Portugal.
Experienced Chairman,
non-executive director
and executive in industrial
and information
technology industries.
Broad experience in the
scale up of high-volume
manufacturing and
supporting high value,
high growth businesses in
the commercialisation of
technology.
Previous appointments
Senior management
positions in IBM, BT and
Logica.
Non-executive director of
Chloride plc and Rotork plc.
Other current
appointments
Chairman: Gooch &
Housego plc and
Recycling Technologies
plc.
Non-Executive Director:
Spirent Communications
plc.
Over 20 years’ experience
operating within the
international energy
sector both in executive
management positions for
listed energy companies,
and in advisory capacities
to both governments and
the private sector.
Adam is well networked
internationally across the
conventional and
unconventional energy
sectors and has a strong
understanding of energy
markets and deal making
within that sector.
Qualified with Bachelors’
degrees in Commerce and
Law and a Master in Laws
(Taxation).
Previous appointments
Director of JS Yerostigaz
(Uzbekistan).
Previously Non-Executive
Director of AFC Energy
plc from 2012.
53
Governance
Board of directors
GERRY AGNEW
MONIKA BIDDULPH
JOE MANGION
Non-Executive Director
Year appointed – 2019.
Non-Executive Director
Year appointed 2021.
Non-Executive Director
Year appointed 2017.
Relevant skills and
experience
Relevant skills and
experience
Relevant skills and
experience
A Chartered Accountant
with over 20 years of
operational experience
within the environmental
services and alternative
energy sectors.
Previous appointments
CEO of Swiss listed
Leclanché, S.A. – a
developer and producer
of large format lithium-ion
energy storage and
energy management
systems.
Chairman of Solel Solar
Systems Ltd., a private
equity backed solar
company.
A board member of
Airtricity Plc., a private
equity backed wind
developer.
Over 20 years’ experience
in fuel cell technology and
systems with both Rolls-
Royce and LG Fuel Cell
Systems Inc.
Over 20 years’ experience
in commercial, operational
and technical areas of
international technology
businesses.
PhD in Experimental High
Energy Physics from ETH
Zurich.
Previous appointments
Member of Senior
Leadership Team IP
Products at Arm Holdings
plc. Non-executive
director Linaro Limited.
Other current
appointments
Non-executive director of
Ilika plc and D4t4
Solutions plc.
Before joining the Board
of AFC Energy, Dr Agnew
served as Senior Fellow
on the Rolls-Royce
Council of Fellows,
attending the Company
Chief Technology Officer’s
Technology Strategy
workshops.
Previous appointments
Dr Agnew spent seven
years as Chief Technology
Officer and Chief
Technology Advisor to LG
Fuel Cell Systems Inc.
Prior to this he was Chief
Technologist of Rolls-
Royce Fuel Cell Systems,
Executive VP Engineering
at Rolls-Royce Fuel Cell
Systems and Chief
Engineer Fuel Cell
Systems at Rolls-Royce.
Other current
appointments
Director of Scotland’s
Hydrogen Accelerator and
Senior Research Fellow at
the University of St
Andrews.
54
AFC ENERGY PLC
Financial Statements
Directors’ report
TITLE CONT. =
YEAR END =
Directors’ report
The Directors present their report together with the audited financial statements for the year ended 31 October 2021.
The comparative period was from 1 November 2019 to 31 October 2020.
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, future business developments and current projects are included in the Chairman’s Statement and
Operational Review on pages 8 to 15.
RESULTS AND DIVIDEND
The operating loss before tax for the year was £10.4 million (2020: £4.8 million).
No dividends were paid in the year. No dividend will be paid in respect of the current year.
BOARD MEMBERS
Details of the Board membership during the period are set out on page 38 in the Nomination Report
On 31 October 2021 the beneficial interests of Directors and their families in the equity share capital of the Company
were:
Gary Bullard
Joe Mangion
Adam Bond
Jim Gibson
Number of
Ordinary shares
of 0.1p
2021
Number of
Ordinary shares
of 0.1p
2020
270,000
25,093
–
–
3,000,000
3,000,000
90,000
90,000
None of the other directors had a direct interest over share capital during the reporting period.
FINANCIAL INSTRUMENTS
Financial instruments are disclosed in the notes to the financial statements.
OTHER INFORMATION
The Directors consider that despite being a small company, certain information required for medium and large companies
should be provided as best practice.
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 2021, relevant qualifying expenditure was £3.1 million (2020: £1.6 million).
RISK MANAGEMENT
The responsibility of the Board is to determine financial risks and delegate to the finance function their management by
setting policies and objectives. The management of credit, liquidity and interest rate risks are set out in note 23 to the
financial statements.
55
Governance
AFC ENERGY PLC
Directors’ report
GOING CONCERN
The Company had unrestricted cash of £55.4 million on 31 October 2021 (2020: £31.3 million).
The Company currently consumes cash resources and will continue to do so until sales revenues are sufficiently high to
generate net cash inflows. The period covered by the going concern assessment is until 31 October 2023, the period over
which the detailed cash flow forecasts are available. On 31 October 2021 unrestricted cash resources were £55.4 million.
The Directors have a reasonable expectation that sufficient funds exist to meet payment obligations as and when they
fall due, as the majority of the spend during the going concern assessment period are discretional in nature. The
directors’, having taken into account current cash resources, identified risks including the impact of COVID 19 and
financial forecasts, believe the Company has adequate resources to continue in operational existence for the period
covered under the going concern assessment (however the minimum period required per standard is twelve months
from the date of this report). Thus, the Directors believe that it is reasonable to continue to adopt the going concern
basis in preparing the annual report and financial statements.
EVENTS AFTER THE REPORTING PERIOD
After the reporting date on 15 November 2021 a sale and development agreement were entered into with an industrial
partner whereby a 200KW fuel cell would be delivered for integration with their systems. In consideration, the industrial
partner will pay stage payments totalling £4 million related to certain performance criteria and will have the right to
subscribe in the 24 months following each progress payment a total of £4 million worth of shares at an exercise price
of 58.8p.
On 19 November 2021 awards were made to the Executive directors under the Performance Share Plan as follows
Adam Bond
Jim Gibson
Graeme Lewis
Transitional award
Initial award
Transitional award
Initial award
Initial award
Benchmark share
price (£)
0.16
0.597
0.16
0.597
0.597
Nil cost options
2,250,000
620,970
984,375
271,968
206,320
The Scheme is based on annual grants of nil cost options which then vest conditionally three years later based on
achievement of performance targets set at grant. For the first year’s grant, performance testing will be based on
Compound Annual Growth Rate (CAGR) of Total Shareholder Return (TSR), which at this stage will be entirely share
price based but accommodating future dividends when these become possible. At the vesting date, the CAGR of TSR
will be calculated for the three-year period and tested versus a lower threshold set for this year’s award at 5%. Below
this level of CAGR the award will be forfeited. At the threshold, 25% of the maximum award will vest and this will increase
linearly with CAGR up to full release of the award at an upper limit of 20% CAGR. CAGR levels beyond this limit will not
result in the release of any more options, however the holder is rewarded through the increased value the awarded
options will have at the higher share price. In addition, the Remuneration Committee has approved a transitional award
(the “Transitional Award”) to Adam Bond and Jim Gibson in recognition, inter alia, that no new option awards have been
made to them in recent years. The Transitional Award is being made on the bases that would have prevailed had the
award been made in March 2020. Pursuant to the Transitional Award, Adam Bond and Jim Gibson are receiving 2,250,000
and 984,375 nil cost options respectively. These options have a benchmark price of 16 pence. Below a threshold price of
27.6p no options will vest. At this threshold price, 25% of the maximum award will vest and this will increase linearly up
to a fully vesting price of 59.7 pence per share. Providing the thresholds have been achieved, the options will vest in two
equal tranches in March 2022 and March 2023 so that each executive will now have LTIP incentivisation awards tested
and vesting annually over the next three years. In accordance with IAS 10 Events after the Reporting Period and IFRS 2
Share Based Payments the fair value of the Performance Shares Plan award was not recorded in the period as the
vesting period had not begun. A Monte Carlo simulation was used to fair value the Performance Shares Plan awards as
they have market-based conditions and the expense to be recorded in future periods is £1,411 thousand and
£495 thousand for the transitional award and initial award respectively.
56
Governance
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 8 March 2022 and signed on its behalf by
Graeme Lewis
Chief Financial Officer and Company Secretary
57
Financial Statements
Statement of directors’ responsibilities
TITLE CONT. =
YEAR END =
Statement of directors’ responsibilities
The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial statements for each financial period. Under that law the
Directors have to prepare the financial statements in accordance with International Accounting Standards (“IASs”) in
conformity with Companies Act 2006 and those parts of the Companies Act 2006 that applies to companies reporting
under IAS in conformity with the Companies Act 2006. 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. The directors are responsible for preparing the annual report in accordance with
applicable law and regulations. Having taken advice from the Audit Committee, the directors consider the annual report
and the financial statements, taken as a whole, provides the information necessary to assess the company’s performance,
business model and strategy and is fair, balanced and understandable.
58
AFC ENERGY PLC
Governance
Independent Auditors 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 (the ‘Company’) for the year ended 31 October 2021,
which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of
Changes in Equity, the 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 accounting standards in conformity with the requirements of the Companies Act 2006.
In our opinion, the financial statements:
•
•
give a true and fair view of the state of the Company’s affairs as at 31 October 2021 and of its loss for the year then
ended;
have been properly prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006; 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.
Conclusions relating to going concern
We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up
to the date of our report. However, future events or conditions may cause the Company to cease to continue as a going
concern.
Our evaluation of the directors’ assessment of the Company’s ability to continue to adopt the going concern basis of
accounting included:
•
•
•
•
an assessment of management’s cash flow forecasts, including the potential impact of Covid-19 on trading results.
sensitivity analysis of management’s cash flow forecasts, including the robustness of the scenarios modelled.
assessments of management’s forecasting accuracy; and
discussions with those outside the finance team to gain a more robust understanding of the future expectations and
developments of the Company.
In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the Company’s business
model including effects arising from macro-economic uncertainties such as Brexit and Covid-19, we assessed and
challenged the reasonableness of estimates made by the directors and the related disclosures and analysed how those
risks might affect the Company’s financial resources or ability to continue operations over the going concern period.
59
AFC ENERGY PLC
Independent Auditors Report to the
Members of AFC Energy plc
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a
period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for the
financial statements’ section of this report.
Our approach to the audit
Overview of our audit approach
Overall materiality: £375,000, which represents approximately 4.5% of the
Company’s loss before tax at the planning stage of the audit.
Key audit matter was identified as:
• risk of fraud in revenue recognition (new in year).
Our auditor’s report for the year ended 31 October 2020 included one key
audit matter that has not been reported as a key audit matter in our
current year’s audit report. This relates to ‘Accounting for contracts
entered into with customers. This was not identified as a key audit matter
in the current year because as the Company is now recognising revenue
from contracts, the risk has transferred to the risk of fraud in
revenue recognition.
We performed a full-scope audit of the financial statements of the
Company. A site visit was completed as part of our audit procedures, as
well as completion of an in-person stock count.
Materially
Key audit
matters
Scoping
Key audit matters
Key audit matters are those matters that, in our
professional judgement, were of most
significance in our audit of the 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 financial statements
as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on
these matters
Description
Audit
response
KAM
Disclosures Our results
60
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
High
Employee
remuneration
expenses
Risk of
fraud in
revenue
recognition
Management
override of
controls
Going concern
Accounting
for lease
contracts
Accounting
for share-
based
payments
Accounting
treatment for
development
costs
Overstatement
of expenses
included in
R&D tax credit
claim
Inventories
Impairment
of long-lived
assets
Potential
financial
statement
impact
Low
Low
Extent of management judgement
High
Key audit matter
Significant risk
Other risk
Key Audit Matter
How our scope addressed the matter
Risk of fraud in revenue recognition
We identified the risk of fraud in revenue recognition as
one of the most significant assessed risks of material
misstatement due to fraud.
During the year, the Company started to recognise
revenue from contracts with customers in accordance
with International Financial Reporting Standard (IFRS) 15
‘Revenue from Contracts with Customers’.
The recognition of revenue requires management to make
judgements relating to the nature and terms of the
contract, such as the identification of performance
obligations, allocation of price to those obligations and
timing of revenue recognition.
During order fulfilment, contractual obligations need to
be assessed. Total estimated project costs may exceed
total contract revenues and therefore require write-offs of
contract assets, receivables and the immediate recognition
of the expected loss as a provision, all of which require
management judgement.
These judgements increase the associated risk of fraud in
relation to revenue recognition.
In responding to the key audit matter, we performed the
following audit procedures:
• obtaining an understanding of the revenue recognition
processes and relevant controls relating to accounting
for contracts entered into with customers, in accordance
with IFRS 15.
• assessing whether the revenue recognition policy is in
accordance with the requirements of IFRS 15 and has
been applied appropriately for the contracts entered
with customers.
• challenging management regarding the judgements
made in relation to the timing of satisfaction of
performance obligations and the amounts allocated to
performance obligations.
• inspecting all contracts entered into with customers to
determine appropriate accounting treatment through
key terms outlined within the contracts.
• testing revenue recognised to signed contract and
inspecting supporting documentation to test cash
receipts in order to validate the contract asset or liability
included in the statement of financial position.
61
Governance
AFC ENERGY PLC
Key Audit Matter
How our scope addressed the matter
• challenging the validity and completeness of
calculations of estimated project costs, testing the
mathematical accuracy of calculations, testing a sample
of incurred expenses to supporting documentation and
underlying calculations for accuracy; and
• assessing the adequacy of related disclosures within the
financial statements.
Relevant disclosures in the Annual Report 2021
Our results
• Financial statements: Note 5
• Audit Committee report: Revenue Recognition
in respect of existing and new customer contracts
Our audit work did not identify any material
misstatements in relation to the recognition of revenue.
Our application of materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the
opinion in the auditor’s report.
Materiality was determined as follows:
Materiality measure
Company
Materiality for financial
statements as a whole
We define materiality as the magnitude of misstatement in the financial statements that,
individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of these financial statements. We use materiality in determining the
nature, timing and extent of our audit work.
Materiality threshold
£375,000, which is approximately 4.5% of the Company’s loss before tax at the planning
stage of the audit. We chose not to revise our materiality once the final loss before tax
was known.
Significant judgements
made by auditor in
determining materiality
In determining materiality, we made the following significant judgements:
• Loss before tax is considered the most appropriate benchmark due to the Company
being within the development phase of its lifecycle. The majority of costs are expensed,
with only a portion capitalised and we consider users of the financial statements to be
most interested in how the Company expended its funding.
• The engagement team selected a percentage of approximately 4.5% during the planning
of the audit. This was applied based on the complexity and the size of the Company
and the continuing uncertainties in the macro-economic environment.
Materiality for the current year is higher than the level that we determined for the year
ended 31 October 2020 to reflect the increase in the Company’s loss before tax for the
current year.
Performance materiality
used to drive the extent of
our testing
We set performance materiality at an amount less than materiality for the financial
statements as a whole to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds materiality for the
financial statements as a whole.
62
Materiality measure
Company
Performance materiality
threshold
Significant judgements
made by auditor in
determining performance
materiality
Specific materiality
£262,500, which is 70% of financial statement materiality.
In determining performance materiality, we made the following significant judgement:
• Our experience with auditing the financial statements of the Company in previous years
– based on the strength of the control environment and the number and quantum of
identified misstatements in the prior year audit.
We determine specific materiality for one or more particular classes of transactions,
account balances or disclosures for which misstatements of lesser amounts than
materiality for the financial statements as a whole could reasonably be expected to
influence the economic decisions of users taken on the basis of the financial statements.
Specific materiality
We determined a lower level of specific materiality for the following areas:
• directors’ remuneration; and
• related party transactions.
Communication of
misstatements to the
Audit Committee
We determine a threshold for reporting unadjusted differences to the Audit Committee.
Threshold for
communication
£18,800 and misstatements below that threshold that, in our view, warrant reporting on
qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for
potential uncorrected misstatements.
Overall materiality
Loss before
tax
£10,442,000
PM
£262,500
70%
FSM
£375,000
3.6%
FSM: Financial statements
materiality
PM: Performance materiality
TFPUM: Tolerance for potential
uncorrected misstatements
'
TFPUM
£112,500, 30%
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding of the Company’s business and in particular matters
related to:
63
Governance AFC ENERGY PLC
Understanding the Company, its environment, including controls
• The engagement team obtained an understanding of the Company and its environment, including its controls, and
assessed the risks of material misstatement.
Work to be performed on financial information of (including how it addressed the key audit matters)
• An audit of the financial information of the Company has been completed to financial statement materiality (full-scope
audit), with specific focus on the risk of fraud in revenue recognition, which was identified as a key audit matter.
Performance of our audit
• A full-scope audit was performed by the engagement team, including an evaluation of the internal control environment,
including its IT systems; and
• We completed a site visit of the Company’s premises at the planning and fieldwork stages of the audit, as well as
completing an in-person stock count.
Changes in approach from previous period
The scope of the audit for the current year in broadly consistent with the scope applied in the previous year’s audit. The
following scope changes have been made to reflect changes within the Company:
• An examination of an IT system upgrade which occurred during the financial year was completed; and
• We performed full-scope audit procedures targeting the risk of fraud in revenue recognition, given this is the first year
for which revenue has been recognised by the Company.
Other information
The directors are responsible for the other information. The other information comprises the information included in the
annual report, 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 of 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:
64
•
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 statement of directors’ responsibilities, 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 Company 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 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.
Explanation as to what extent the audit was considered capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial
statements may not be detected, even though the audit is properly planned and performed in accordance with
ISAs (UK).
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below:
• We obtained an understanding of the legal and regulatory frameworks applicable to the Company and the industry
in which it operates. We determined that the following laws and regulations were the most significant: the Companies
Act 2006, international accounting standards in conformity with the requirements of the Companies Act 2006, the
AIM Rules for Companies, tax legislation and the QCA Corporate Governance Code;
•
In addition, we concluded that there are certain specific laws and regulations that may have an effect on the
determination of amounts and disclosures in the financial statements and we identified those laws and regulations as
those relating to health and safety, employee matters, environmental matters and bribery and corruption matters;
• We enquired of management and those charged with governance, concerning the Company’s policies and procedures
relating to the identification, evaluation and compliance with laws and regulations and the detection and response to
the risks of fraud. We also enquired of management and those charged with governance as to whether they were
aware of any instances of non-compliance with laws and regulations and whether they had any knowledge of actual,
suspected or alleged fraud. We corroborated the results of our enquiries to relevant supporting documentation;
65
Governance AFC ENERGY PLC
• We assessed the susceptibility of the financial statements to material misstatement, including how fraud might occur
by evaluating management’s incentives and opportunities for manipulation of the financial statements. Audit
procedures performed included:
— identifying and assessing the design and implementation of controls management has in place to prevent and
detect fraud;
— obtaining an understanding how those charged with governance considered and addressed the potential for
override of controls or other inappropriate influence over the financial reporting process;
— challenging assumptions and judgments made by management in its significant accounting estimates; and
— identifying and testing journal entries posted in the year which were deemed to be unusual.
•
These audit procedures were designed to provide reasonable assurance that the financial statements were free from
fraud or error. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting
one resulting from error and detecting irregularities that result from fraud is inherently more difficult than detecting
those that result from error, as fraud may involve collusion, deliberate concealment, forgery or intentional
misrepresentations. Also, the further removed non-compliance with laws and regulations is from events and
transactions reflected in the financial statements, the less likely we would become aware of it.
• Assessment of the appropriateness of the collective competence and capabilities of the engagement team including
consideration of the engagement team’s:
— understanding of, and practical experience with, audit engagements of a similar nature and complexity through
appropriate training and participation;
— knowledge of the industry in which the Company operates; and
— understanding of the legal and regulatory requirements specific to the Company.
• We communicated relevant laws and regulations and potential fraud risks to all engagement team members and
remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. We also
note our key audit matter in relation to the risk of fraud in revenue recognition at year-end relates to irregularities,
including fraud. Refer to key audit matters for work completed and our results from the procedures performed.
Use of our report
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.
Christopher Raab, ACA
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
8 March 2022
66
Financial
Statements
Statement of Comprehensive Income
TITLE CONT. =
YEAR END = FOR THE YEAR ENDED 31 OCTOBER 2021
Statement of Comprehensive Income
FOR THE YEAR ENDED 31 OCTOBER 2021
Revenue from customer contracts
Cost of sales
Gross income
Other income
Operating costs
Operating loss
Finance cost
Bank interest receivable
Loss before tax
Taxation
Note
5
6
9
9
Year ended
31 October 2021
£
Year ended
31 October 2020
£
592,800
(576,831)
15,969
–
–
–
25,470
32,892
(10,450,005)
(4,639,104)
(10,408,566)
(4,606,212)
(51,694)
(184,575)
18,690
6,168
(10,441,570)
(4,784,619)
10
1,063,317
559,627
Loss for the financial year and total comprehensive loss attributable to
owners of the Company
(9,378,253)
(4,224,992)
Basic loss per share
Diluted loss per share
11
11
(1.33)p
(1.33)p
(0.80)p
(0.80)p
All amounts relate to continuing operations. There was no other comprehensive income in the period (2020: £nil).
The notes on pages 72 to 97 form part of these financial statements.
68
AFC ENERGY PLC
Statement of Comprehensive Income
TITLE CONT. =
YEAR END = FOR THE YEAR ENDED 31 OCTOBER 2021
Statement of Financial Position
TITLE CONT. =
YEAR END = AS AT 31 OCTOBER 2021
Statement of Financial Position
AS AT 31 OCTOBER 2021
Assets
Non-current assets
Intangible assets
Right of use assets
Tangible fixed assets
Current assets
Inventory
Receivables
Income tax receivable
Cash and cash equivalents
Restricted cash
Note
31 October 2021
£
31 October 2020
Restated
£
31 October 2019
Restated
£
12
13
14
15
16
16
17
17
745,649
884,181
2,268,569
3,898,399
660,678
1,014,391
1,581,416
769,269
247,505
940,218
606,041
361,738
396,935
1,956,992
1,364,714
249,370
525,781
518,099
95,423
549,003
602,995
55,375,366
31,301,467
1,327,935
612,000
270,027
259,072
59,243,851
32,864,744
2,834,428
Total assets
63,142,250
34,821,736
4,199,142
Capital and reserves attributable to owners of the Company
Share capital
Share premium
Other reserve
Retained deficit
Total equity attributable to Shareholders
Current liabilities
Payables
Lease liabilities
Non-current liabilities
Lease liabilities
Provisions
Total liabilities
18
18
20
21
21
22
734,484
676,006
447,988
116,448,125
81,417,845
47,389,424
2,456,045
1,512,974
2,204,774
(59,752,193)
(50,582,856)
(47,185,257)
59,886,461
33,023,969
2,856,929
1,695,758
1,236,796
322,179
2,017,937
583,952
653,900
1,237,852
3,255,789
113,431
1,350,227
146,368
301,172
447,540
667,811
113,431
781,242
259,799
301,172
560,971
1,797,767
1,342,213
Total equity and liabilities
63,142,250
34,821,736
4,199,142
The notes on pages 72 to 97 form part of these financial statements.
These financial statements were approved and authorised for issue by the Board on on 8 March 2022.
ADAM BOND
Chief Executive Officer
GRAEME LEWIS
Chief Financial Officer
AFC Energy plc
Registered number: 05668788
69
Financial Statements
Statement of Changes in Equity
TITLE CONT. =
YEAR END = FOR THE YEAR ENDED 31 OCTOBER 2021
Statement of Changes in Equity
FOR THE YEAR ENDED 31 OCTOBER 2021
Balance at 31 October 2019
447,988
47,389,424
2,204,774 (47,185,257)
2,856,929
Share
Capital
£
Share
Premium
£
Other (SBP)
Reserve
£
Retained
Loss
£
Total
£
Loss after tax for the year
Comprehensive income for the year
Issue of equity shares
Exercise of share options
Equity settled share-based payments
- Lapsed or exercised in the period
- Charged in the period
Transactions with owners
–
–
–
–
226,873
33,798,289
1,145
230,132
–
–
–
–
–
–
–
–
–
–
(4,224,992)
(4,224,992)
(4,224,992)
(4,224,992)
–
–
34,025,162
231,277
(827,393)
827,393
–
135,593
–
135,593
228,018
34,028,421
(691,800)
827,393
34,392,032
Balance at 31 October 2020
676,006
81,417,845
1,512,974
(50,582,856)
33,023,969
Loss after tax for the year
Comprehensive income for the year
–
–
–
–
Issue of equity shares
58,478
35,030,280
–
–
–
(9,378,253)
(9,378,253)
(9,378,253)
(9,378,253)
–
35,088,758
Equity settled share-based payments
- Lapsed or exercised in the period
- Charged in the period
Transactions with owners
–
–
–
–
(208,916)
208,916
–
1,151,987
–
1,151,987
58,478
35,030,280
943,071
208,916
36,240,745
Balance at 31 October 2021
734,484 116,448,125
2,456,045 (59,752,193)
59,886,461
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 unexercised equity-settled share-based payments.
Retained deficit represents the cumulative loss of the Company attributable to equity Shareholders.
The notes on pages 72 to 97 form part of these financial statements.
70
AFC ENERGY PLC
Statement of Changes in Equity
TITLE CONT. =
Cash Flow Statement
TITLE CONT. =
YEAR END = FOR THE YEAR ENDED 31 OCTOBER 2021
YEAR END = FOR THE YEAR ENDED 31 OCTOBER 2021
Cash Flow Statement
FOR THE YEAR ENDED 31 OCTOBER 2021
Cash flows from operating activities
Loss before tax for the year
Adjustments for:
Amortisation of intangible assets
Depreciation of right of use asset
Depreciation of property and equipment
Loss on disposal of property and equipment
Depreciation of decommissioning asset
Equity-settled share-based payment expenses
Interest received
Lease finance charge
Gain on disposal of investment and allied agreements
Cash flows from operating activities before changes in
working capital and provisions
R&D tax credits received
Increase in restricted cash
Increase in inventory
(Increase)/decrease in receivables
Increase in payables
Increase in provision
Note
31 October 2021
£
31 October 2020
£
(10,441,570)
(4,784,619)
12
13
14
14
19
9
110,413
301,961
448,275
3,692
31,365
1,151,987
(18,690)
37,322
–
108,014
114,233
143,758
–
31,365
135,593
(6,168)
12,072
(80,000)
(8,375,245)
(4,325,752)
–
(341,973)
(411,308)
(488,610)
458,962
352,728
644,523
(10,955)
(153,947)
23,222
568,985
–
Cash absorbed by operating activities
(8,805,446)
(3,253,924)
Cash flows from investing activities
Purchase of plant and equipment
Additions to intangible assets
Interest received
Proceeds from disposal of investment and allied agreements
Net cash absorbed by investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
Costs of issue of share capital
Proceeds from the exercise of options and warrants
Lease payments
Lease interest paid
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
The notes on pages 72 to 97 form part of these financial statements.
14
12
9
18
18
18
21
21
(1,811,683)
(86,793)
18,690
-
(718,406)
(171,242)
6,168
80,000
(1,879,786)
(803,480)
36,000,000
35,558,667
(1,347,839)
(1,633,505)
436,597
(292,305)
(37,322)
231,277
(113,431)
(12,072)
34,759,131
34,030,936
24,073,899
29,973,532
31,301,467
1,327,935
17
55,375,366
31,301,467
71
Financial Statements
Notes Forming Part of the Financial Statements
TITLE CONT. =
YEAR END =
Notes Forming Part of the Financial Statements
1. CORPORATE INFORMATION
AFC Energy plc (“the Company”) is a public limited company incorporated in England & Wales and quoted on the
Alternative Investment Market of the London Stock Exchange. The principal activity of the Company is the development
of alkaline fuel cell technology and allied equipment.
The address of its registered office is Unit 71.4 Dunsfold Park, Stovolds Hill, Cranleigh, Surrey GU6 8TB.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
Going concern
The financial statements of AFC Energy plc have been prepared in accordance with International Accounting Standards
(“IASs”) in conformity with Companies Act 2006 and those parts of the Companies Act 2006 that applies to companies
reporting under IAS in conformity with the Companies Act 2006.
The financial statements have been prepared on a going concern basis notwithstanding the trading losses being carried
forward and the expectation that the trading losses will continue for the near future as the Company transitions from
research and development to commercial operations.
The Company currently consumes cash resources and will continue to do so until sales revenues are sufficiently high to
generate net cash inflows. The period covered by the going concern assessment is until 31 October 2023, the period over
which the detailed cash flow forecasts are available. On 31 October 2021 unrestricted cash resources were £55.4 million.
The Directors have a reasonable expectation that sufficient funds exist to meet payment obligations as and when they
fall due, as the majority of the spend during the going concern assessment period are discretional in nature. The
directors’, having taken into account current cash resources, identified risks including the impact of COVID 19 and
financial forecasts, believe the Company has adequate resources to continue in operational existence for the period
covered under the going concern assessment (however the minimum period required per standard is twelve months
from the date of this report). Thus, the Directors believe that it is reasonable to continue to adopt the going concern
basis in preparing the annual report and financial statements.
The 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.
Standards, Amendments and Interpretations to Published Standards not yet Effective.
Certain new accounting standards, amendments to accounting standards and interpretations have been published that
are not mandatory for 31 December 2021 reporting periods and have not been early adopted by the Company. These
standards, amendments or interpretations are not expected to have a material impact on the entity in the current or
future reporting periods and on foreseeable future transactions.
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.
Revenue recognition
To determine whether to recognise revenue, a 5-step process is followed:
•
•
Identifying the contract with a customer
Identifying the performance obligations
• Determining the transaction price
• Allocating the transaction price to the performance obligations
• Recognising revenue as the performance obligations are satisfied.
Revenue is generated from complex contracts covering the
Sale of goods and parts,
Sale of services and maintenance, and
short-term rental contracts.
•
•
•
72
AFC ENERGY PLC
and may be either a single or multiple contracts. Multiple contracts are accounted for as a single contract where one or
more of the following criteria are met
• The contracts were negotiated as a single commercial package,
• Consideration of one contract depends upon the other contract, or
• Some or all the goods and services comprise a single performance obligation.
The promises in each contract are analysed to determine if these represent performance obligations individually, or in
combination with other promises. Performance obligations in the contracts are analysed between either distinct physical
goods and services delivered or service level agreements. The transaction price of the performance obligations is based
upon the contract terms taking into account both cash and non-cash consideration. Non-cash consideration is valued at
fair value taking into consideration contract terms and known arm’s length pricing where available. In the event there
are multiple performance obligations in a contract, the price is allocated to the performance obligations based on the
relative costs of fulfilling each obligation plus a margin.
Revenue is recognised either at a point in time or over time, as the performance obligations are satisfied by transferring
the promised goods or services to its customers. Contract liabilities are recognised for consideration received in respect
of unsatisfied performance obligation and the Company reports these amounts as other Contract and other liabilities in
the statement of financial position.
Similarly, if a performance obligation is satisfied in advance of any consideration, a contract asset or a receivable is
recognised in the statement of financial position.
Rental as service and long-term service contracts - Revenue is recognised over time based on outputs provided to the
customer, because this is the most accurate measurement of the satisfaction of the performance obligation as it matches
the consumption of the benefits obtained by the customer. The customer is simultaneously receiving and consuming
the benefits as the Company performs its obligations. Revenue can comprise a fixed rental charge and a variable charge
related to the usage of assets or other services (including pass-through fuel).
Sale (standard products) contracts – Revenue from standard products will be recognised at a point of time only when
the performance obligation has been fulfilled and ownership of the goods has transferred, which is typically at site or
factory acceptance, which is the official handover of control of the goods to the customer. Revenue will be recognised
at a point in time for standard products as it would not meet any of the criteria within the standard to recognise over
time. The customer would not simultaneously receive and consume the benefit, nor would it control the asset as it was
being produced. As the products are not deemed to be bespoke, there are alternative uses to the Company as the
products would be able to be resold to other customers.
• During the product build, deposits and progress payments will be reflected in the balance sheet as deferred income.
• Costs incurred on projects to date will not be included in the statement of comprehensive income but will be accumulated
on the balance sheet as work in progress (as they are considered recoverable) and transferred to cost of sales once the
revenue applicable to those costs can be recognised in the accounts. Should costs exceed anticipated revenues, a
provision will be recognised and the surplus costs expensed with immediate effect.
Sale (customised products) contracts – Revenues for customised contracts will be recognised over time according to
how much of the performance obligation has been satisfied. This is measured using the input method, comparing the
extent of inputs towards satisfying the performance obligation with the expected total inputs required. Any changes in
expectation are reflected in the total inputs figure as they become known. The progress percentage obtained is then
applied to the revenue associated with that performance obligation. The revenue should be recognised over a point in
time as the products under these contracts would be bespoke and therefore not have an alternative use. These contracts
would have an enforceable right to payment for performance completed to date.
Other Income
Other income represents sales by the Company of waste materials.
Development Costs
Identifiable non-recurring engineering and design costs and other prototype costs incurred to develop a technically and
commercially feasible product are capitalised. In accordance with IAS 38 development costs are capitalised if they meet
all the criteria required for capitalisation.
73
Financial Statements Notes Forming Part of the Financial Statements
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 Statement of Financial Position date, monetary items denominated in foreign currencies are retranslated
at the rates prevailing at the Statement of Financial Position date.
Inventory
Inventory is recorded at the lower of actual cost and net realisable value, applying the FIFO methodology.
Work in progress comprises direct labour and direct materials. Direct Labour will be allocated on an input basis that
reflects the consumption of those resources in the production process.
Cash and Cash Equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprise cash balances and bank overdrafts
that form an integral part of the Company’s cash management process. They are recorded in the SFP and valued at
fair value.
Restricted cash are bank deposit accounts where disbursement
performance conditions.
is dependent upon certain contractual
Other Receivables
These assets are initially recognised at fair value and are subsequently measured at amortised cost less any provision for
impairment.
Tangible fixed assets
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:
• Decommissioning asset
life of the lease
•
Fixtures, fittings and equipment
1 to 3 years
• Computer equipment
• Manufacturing and test stands
• Motor vehicles
• Demonstration equipment
• Rental fleet
3 years
3 years
3 to 4 years
3 to 10 years
3 to 10 years
Expenses incurred in respect of the maintenance and repair of property and equipment are charged against income
when incurred. Refurbishment and improvement expenditure, where the benefit is expected to be long lasting, is
capitalised as part of the appropriate asset.
The useful economic lives of property, plant and equipment and the carrying value of tangible fixed assets are assessed
annually and any impairment is charged to the statement of comprehensive income.
74
AFC ENERGY PLC
Right of Use Assets
At inception each contract is assessed whether it conveys the right to control the use of an identified asset -and obtain
substantially all the economic benefits from use of the asset- for a period of time in exchange for consideration. In this
instance the contract should be accounted as a lease. The Company recognises a right-of-use asset and a lease liability
at the lease commencement date.
The right of use assets comprises the corresponding lease liability, lease payments made before the commencement
date, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses. The lease liability is initially measured at the present value of the lease
payments and discounted using the interest rate implicit in the lease or, if that rate cannot be determined, the incremental
borrowing rate or best estimate of the same. The lease liability continues to be measured at amortised cost using the
effective interest method. It is remeasured when there is a change in the future lease payments. When the lease liability
is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset.
The Company has elected not to recognise right-of-use assets and lease liabilities for leases of less than 12 months and
leases of low value assets. These largely relate to short-term rentals of equipment. The lease payments associated with
these leases are expensed on a straight-line basis over the lease term.
Intangible Assets
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:
• Development costs
5 years
• Patents
20 years
• Commercial rights
5 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.
Impairment testing of intangible assets and property, plant and equipment
At each statement of financial position date, the carrying amounts of the assets are reviewed to determine whether there
is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated to determine the extent of the impairment loss (if any). In assessing whether an impairment is
required, the carrying value of the asset is compared with its recoverable amount. The recoverable amount is the higher
of the fair value less costs of disposal (FVLCD) and value in use (VIU).
Lease liabilities
Measurement and recognition of leases as lessee
At lease commencement date, a right of use and lease liability are recognised on the Statement of Financial Position. The
right of use asset is measured at cost, which comprises the initial measurement of the lease liability, any initial direct costs
incurred, an estimate of costs to dismantle and remove the asset at the end of the lease term and any lease payments made
in advance of the lease commencement date.
Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance
fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and
payments arising from options reasonably certain to be exercised.
After initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to
reflect any reassessment or modification, or if there are changes in in-substance payments.
When the lease liability is remeasured, the corresponding adjustment is reflected in the right of use asset, or profit and loss
if the right of use asset is already reduced to zero.
Short term leases and low value assets have been accounted for using the practical expedients set out in IFRS 16 and the
payments are recognised as an expense in profit or loss on a straight-line basis over the lease term.
75
Financial Statements
Notes Forming Part of the Financial Statements
Financial Instruments
Financial instruments are measured on initial recognition at fair value, plus, in the case of financial instruments other than
those classified as fair value through profit or loss (“FVPL”), directly attributable transaction costs. Financial instruments are
recognized when the Company becomes a party to the contracts that give rise to them and are classified as amortized cost,
fair value through profit or loss or fair value through other comprehensive income, as appropriate. The Company considers
whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives
are separated from the host contract if the host contract is not measured at fair value through profit or loss and when the
economic characteristics and risks are not closely related to those of the host contract. Reassessment only occurs if there
is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.
In the periods presented the Company does not have any financial assets categorised as FVPL or FVOCI.
Financial assets at amortized cost
A financial asset is measured at amortized cost if it is held within a business model whose objective is to hold assets to
collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding and is not designated as FVPL. Financial assets classified as
amortized cost are measured subsequent to initial recognition at amortized cost using the effective interest method. Cash,
restricted cash, trade receivables and certain other assets are classified as and measured at amortized cost.
Financial liabilities
Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it
is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at
FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss.
Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Gains and
losses are recognized in net earnings when the liabilities are derecognized as well as through the amortization process.
Borrowing liabilities are classified as current liabilities unless the Company has an unconditional right to defer settlement
of the liability for at least 12 months after the statement of financial position date. Accounts payable and accrued
liabilities and finance leases are classified as and measured at amortized cost.
Impairment of financial assets
A loss allowance for expected credit losses is recognized in the Statement of Comprehensive Income for financial assets
measured at amortized cost. At each balance sheet date, on a forward-looking basis, the Company assesses the expected
credit losses associated with its financial assets carried at amortized cost. The impairment methodology applied
depends on whether there has been a significant increase in credit risk. The expected credit losses are required to be
measured through a loss allowance at an amount equal to the 12-month expected credit losses (expected credit losses
that result from those default events on the financial instrument that are possible within 12 months after the reporting
date) or full lifetime expected credit losses (expected credit losses that result from all possible default events over the
life of the financial instrument). A loss allowance for full lifetime expected credit losses is required for a financial
instrument if the credit risk of that financial instrument has increased significantly since initial recognition.
Derecognition of financial assets and liabilities
A financial asset is derecognized when either the rights to receive cash flows from the asset have expired or the
Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party. If neither the rights to receive cash flows from the
asset have expired nor the Company has transferred its rights to receive cash flows from the asset, the Company will
assess whether it has relinquished control of the asset or not. If the Company does not control the asset then
derecognition is appropriate. A financial liability is derecognized when the associated obligation is discharged or
cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective
carrying amounts is recognized in net earnings.
76
AFC ENERGY PLC
Share-Based Payment Transactions
The fair value of options granted under the Employee Option Plan is recognised as an employee benefits expense, with
a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the
options granted:
•
•
•
including any market performance conditions (e.g., the entity’s share price)
excluding the impact of any service and non-market performance vesting conditions (e.g., profitability, sales growth
targets and remaining an employee of the entity over a specified time period), and
including the impact of any non-vesting conditions (e.g., the requirement for employees to save or hold shares for
a specific period of time).
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that
are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to
original estimates, if any, in profit or loss, with a corresponding adjustment to equity.
Modifications after the vesting date to terms and conditions of equity-based payments which increase the fair value are
recognised over the remaining vesting period. If the fair value of the revised equity-based payments is less than the
original valuation, then the original valuation is expensed as if the modification never occurred.
Where there are unapproved share option plans, a provision for the employers share of National Insurance Contributions
is estimated based on the intrinsic value of the exercisable options at the reporting period date. A charge is recorded in
the Statement of Comprehensive Income and the liability is included within provisions.
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 Statement of Financial Position date
and are discounted to present value where the effect is material.
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 Statement of Financial Position date together with any adjustment to tax payable in respect
of previous years.
Deferred tax assets are not recognised due to the uncertainty of their recovery.
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 the taxation line depending on the
nature of the credit.
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 were
capped at 4% of the employee’s salary and are reflected in the statement of comprehensive income in the period for
which they are made.
77
Financial Statements Notes Forming Part of the Financial Statements
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:
Significant management judgements:
The following are the judgements made by management in applying the accounting policies of the Company that have
the most significant effect on the financial statements:
Customer contracts and revenue recognition
Customer contracts typically include the provision of
•
engineering, manufacturing, installation, commissioning, and maintenance of standard and customised alkaline fuel
cell systems and integrated auxiliary equipment, and
•
access to or sale of technology.
Customer agreements can be complex, involve multiple legal documents and have a duration covering multiple
accounting periods including different performance obligations and payment terms designed to manage cash flow
rather than the underlying arm’s length transaction price. Management use judgement to identify the specific
performance obligations and allocate the total expected revenue to the identified performance obligations. These
judgements are made based on the interpretation of key clauses and conditions within each customer contract.
Project reviews covering cost forecasts and technical progress are monitored periodically to ensure that any potential
losses are recognised immediately in the accounts in accordance with IAS 37. It is management’s position that there is
unlikely to be a material change in future years in relation to positions taken in this year’s financial statements.
Capitalisation of Development Expenditure
The Company uses the criteria of IAS 38 to determine whether development expenditure should be capitalised.
Management identifies separately non-recurring engineering, design costs and prototype costs incurred to develop
demonstration units used in marketing activities and customer trials. Management believe that the Development
Expenditure will continue to support marketing and customer trials for the foreseeable future. This assessment relies
upon judgements about future customer behaviour taking in to account the feedback received from prospective
customers and future product improvements which influence the economic useful life and residual value of said assets.
To the extent that customer demand or competing products enter the market the economic useful life and residual value
of the Development Expenditure may change which will impact depreciation and amortisation expenses for the period
in which such determination is made.
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 either the Black-Scholes valuation model or a Log-normal Monte Carlo stochastic
model for market conditions. Both are appropriate considering the effects of the vesting conditions, expected exercise
period and the dividend policy of the Company.
The cost of equity-settled transactions is accrued, together with a corresponding increase in equity over the period the
directors expect the performance criteria will be fulfilled. For market performance criteria this estimate is made at the
time of grant considering historic share price performance and volatility. For non-market performance criteria an
estimate is made at the time of grant and reviewed annually thereafter considering progress on the operational objectives
set, plans and budgets.
The estimation uncertainty relating to share-based payments is not at risk of material change in future years other than
in relation to management’s estimate of the extent to which the non-market and service conditions will be met.
78
AFC ENERGY PLC
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 2021, the Company operated mainly in the United Kingdom. All non-current assets are in the
United Kingdom.
All revenue in the period was generated from one contract.
5. REVENUE
Revenue recognised in terms of IFRS 15: Revenue from contracts with customers
Standard products
Rendering of services (earned over time)
Customised product
Rental
Revenue
Being
Cash consideration
Consideration in kind
Revenue
Unsatisfied performance obligations were:
31 October 2020
31 October 2021
Year ended
31 October 2021
£
Year ended
31 October 2020
£
–
–
592,800
592,800
315,300
277,500
592,800
–
–
–
–
–
–
–
Total
–
Within
one year
–
148,201
148,201
Within
2 to 5 years
–
–
During the year, revenue was only recognised in relation to rental as a service. The company had also entered into a
contract to deliver products. At the balance sheet date, the contract had not commenced, and no revenue has been
recognised.
The aggregate amount of the transaction price allocated to contracts that are fully unsatisfied as of 31 October 2021 was
£354,000 (2020: £354,000). The Company expects to recognise these revenues within the next twelve months.
The consideration in kind relates to marketing services received from the customer and fair valued in accordance with
the contract. The fair value was expressly quantified in the contract and agreed by both parties.
79
Financial Statements
Notes Forming Part of the Financial Statements
6. OPERATING COSTS
The operating costs consist of:
Aggregate payroll costs (less equity settled share based payment expense)
Less indirect labour
Direct labour
Materials
Project spend
Indirect labour
Other employment costs
Occupancy costs, repair and maintenance, utilities and sundry rent
Other administrative expenses
Cash expenses
Amortisation of intangible assets
Depreciation of right to use assets
Depreciation of tangible fixed assets
Less depreciation of rental asset charged to cost of sales
Consideration in kind
Share based payment
Administrative expenses
Note
7
8
Year ended
31 October 2021
£
Year ended
31 October 2020
£
3,886,595
2,166,756
1,689,458
1,067,709
2,197,137
1,099,047
1,037,379
3,234,516
1,689,459
1,212,226
967,014
1,123,369
8,226,584
110,413
301,961
479,640
(98,080)
277,500
572,235
1,671,282
1,262,319
437,396
394,492
535,262
4,106,141
108,014
114,233
175,123
–
–
1,151,987
135,593
10,450,005
4,639,104
12
13
14
14
5
7
Operating costs are managed in two pools, Project costs being the discretional spend by product development teams
which includes direct labour and materials incurred and the fixed overheads which includes indirect labour, occupancy
costs and other general overheads.
Other administrative expenses are made up of general costs such as training, recruitment, travel and miscellaneous
expenses, none of which are individually material.
Fees paid to the auditors including in the operating costs were:
Year ended
31 October 2021
£
Year ended
31 October 2020
£
135,500
–
–
11,723
45,272
7,450
25,000
3,900
Audit
Corporation tax services
R & D tax credit services
Other assurance services
80
AFC ENERGY PLC
7. 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
8. DIRECTORS’ REMUNERATION
Wages and salaries
Other compensation
Company pension contributions
Year ended
31 October 2021
Number
Year ended
31 October 2020
Number
36
6
42
£
24
6
30
£
3,107,894
1,901,966
684,099
94,602
192,706
72,084
3,886,595
2,166,756
1,151,987
5,038,582
135,593
2,302,349
Year ended
31 October 2021
£
Year ended
31 October 2020
£
1,538,454
963,559
107,369
43,635
67,717
36,433
1,689,458
1,067,709
The highest paid director received remuneration of £863,705 (2020: £476,210). Pension amounts were accrued in the
year in respect of 3 (2020: 3) directors.
81
Financial Statements
Notes Forming Part of the Financial Statements
9. NET FINANCE COST
Lease Interest
Exchange rate differences
Bank charges
Total finance cost
Bank interest receivable
Net finance cost
10. 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
Year ended
31 October 2021
£
Year ended
31 October 2020
£
37,322
1,684
12,688
51,694
(18,690)
33,004
12,072
-
172,503
184,575
(6,168)
178,407
Year ended
31 October 2021
£
Year ended
31 October 2020
£
(1,033,588)
(518,099)
(29,729)
(41,528)
(1,063,317)
(559,627)
Loss before tax
(10,441,570)
(4,784,619)
Tax using the domestic rate of corporation tax of 19% (2020: 19%)
(1,983,898)
(907,349)
Effect of:
R&D tax credit – prior year
Timing differences not deductible for tax purposes
Enhanced deduction on qualifying R&D expenditure
Tax difference on surrendered losses
Depreciation in excess of capital allowances
Unutilised losses carried forward
Total tax credit
(29,729)
(165,181)
(41,528)
29,792
(765,506)
(383,719)
320,769
146,697
1,413,531
160,789
27,314
555,074
(1,063,317)
(559,627)
82
AFC ENERGY PLC
Potential deferred tax assets have not been recognised but are set out below:
Property, plant and equipment, and intangible assets
Share based payments
Losses carried forward
Unrecognised net deferred tax assets
Year ended
31 October 2021
£000s
Year ended
31 October 2020
£000s
(95)
39
9,595
(9,539)
178
30
5,879
(6,087)
The cumulative tax losses in the amount of £37,846,551 (2020: £30,940,518) that are available indefinitely for offsetting
against future taxable profits have not been recognised as the Directors consider that it is unlikely that they will be
realised in the foreseeable future.
In the Spring 2021 Budget, The UK Government announced that from 1April 2023 the corporation tax rate would increase
to 25% (rather than remaining at 19% as previously enacted). This new law was substantively enacted on 24 May 2021.
Deferred taxes at the reporting date have been measured using these enacted rates and reflected in these financial
statements.
11. LOSS PER SHARE
The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary Shareholders of
£9,378,253 (2020: loss of £4,224,992) 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 2021
Year ended
31 October 2020
(1.33)p
(1.33)p
(0.80)p
(0.80)p
£9,378,253
£4,224,992
706,413,693
528,865,765
Diluted earnings per share
As set out in note 19, there are share options and warrants outstanding as at 31 October 2021 which, if exercised, would
increase the number of shares in issue. Given the losses for the year, there is no dilution of losses per share in the year
ended 31 October 2021 nor the previous year.
83
Financial Statements
Notes Forming Part of the Financial Statements
12. INTANGIBLE ASSETS
Cost
1 November 2019
Additions
31 October 2020
Additions
31 October 2021
Amortisation
1 November 2019
Retirements
Charge for the year
31 October 2020
Retirements
Charge for the year
31 October 2021
Net book value 31 October 2019
Net book value 31 October 2020
Net book value 31 October 2021
Development
costs
£
149,460
79,583
229,043
–
229,043
–
–
28,138
28,138
–
45,809
73,947
149,460
200,905
155,096
Patents
£
729,396
70,309
799,705
86,793
886,498
272,815
–
70,775
343,590
–
40,334
383,924
456,581
456,115
502,574
Commercial
rights
£
Intangible
assets
£
–
121,350
121,350
–
878,856
271,242
1,150,098
86,793
121,350
1,236,891
–
–
9,101
9,101
–
24,270
33,371
–
112,249
87,979
272,815
108,014
380,829
–
110,413
491,242
606,041
769,269
745,649
The commercial rights include the global preferential rights to integrate the HiiRoc plasma-based technology which
were acquired by an initial payment in shares of £100,000 and future payments in kind through the provision of
technical support.
84
AFC ENERGY PLC
13. RIGHT OF USE ASSETS
Cost
31 October 2019
31 October 2020
Additions
31 October 2021
Depreciation
31 October 2019
Charge for the year
31 October 2020
Charge for the year
31 October 2021
Net Book Value
31 October 2019
31 October 2020
31 October 2021
Buildings
£
475,971
475,971
938,637
1,414,608
114,233
114,233
228,466
301,961
530,427
361,738
247,505
884,181
85
Financial Statements
Notes Forming Part of the Financial Statements
14. TANGIBLE FIXED ASSETS
Leasehold
improvements
£
Decommissioning
Asset
£
Fixtures,
fittings and
equipment
£
Motor
vehicles
£
Demonstration
equipment
£
Rental
asset
£
Computer
equipment
£
Manufacturing
and test stands
£
Total
£
Cost
1 November 2019
221,512
301,172
1,324,791
17,994
193,404
–
Additions
Disposals
–
–
–
–
161,697
–
–
–
133,571
423,138
–
1 November 2020
221,512
301,172
1,486,488
17,994
326,975
423,138
–
–
–
–
–
–
–
–
2,058,873
718,406
–
2,777,279
Additions
Disposals
Transfers
735,100
–
–
–
–
–
80,626
(13,202)
(213,687)
–
–
–
294,824
280,291
69,665
351,177 1,811,683
–
–
–
–
–
–
(13,202)
128,687
85,000
–
31 October 2021
956,612
301,172
1,340,225
17,994
621,799
703,429
198,352
436,177 4,575,760
Depreciation
1 November 2019
221,512
201,850
1,220,582
17,994
–
Charge for the
year
Disposals
–
–
31,365
89,801
–
–
–
–
53,957
–
1 November 2020
221,512
233,215
1,310,383
17,994
53,957
–
–
–
–
–
–
–
–
–
1,661,938
–
–
–
175,123
–
1,837,061
Charge for the
year
Disposals
Transfers
80,220
31,365
42,033
–
–
–
–
(9,510)
(97,618)
–
–
–
144,203
98,080
39,058
44,681
479,640
–
–
–
–
–
–
(9,510)
46,688
50,930
–
31 October 2021
301,732
264,580
1,245,288
17,994
198,160
98,080
85,746
95,611 2,307,191
Net Book Value
31 October 2019
1 November 2020
–
–
99,322
104,209
67,957
176,105
31 October 2021
654,880
36,592
94,937
–
–
–
193,404
–
273,018
423,138
–
–
–
–
396,935
940,218
423,639
605,349
112,606
340,566
2,268,569
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. No decision has been taken about the date when the plant will be decommissioned.
86
AFC ENERGY PLC
15. INVENTORY
Raw materials
Work in progress
Inventory
Inventory expensed as cost of sales during the year was £nil (2020 £nil).
16. RECEIVABLES
Current:
Accounts receivable
EU grants receivable
Other receivables
Prepayments
Receivables
Income tax receivable
Year ended
31 October 2021
£
Year ended
31 October 2020
£
452,885
207,793
660,678
249,370
–
249,370
Year ended
31 October 2021
£
Year ended
31 October 2020
£
299,062
–
382,810
332,519
1,014,391
1,581,416
60,000
106,642
204,367
154,772
525,781
518,099
There is no significant difference between the fair value of the receivables and the values stated above.
Amounts receivable relating to the income tax receivable have been disclosed separately in Statement of Financial
Position and therefore, the comparative figures have been restated.
17. CASH AND CASH EQUIVALENTS
Cash at bank
Bank deposits
Year ended
31 October 2021
£
Year ended
31 October 2020
£
119,339
286,578
55,256,027
31,014,889
55,375,366
31,301,467
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 £612,000 held in escrow to support bank guarantees
provided under contractual obligations to suppliers and customers.
87
Financial Statements
Notes Forming Part of the Financial Statements
18. ISSUED SHARE CAPITAL
Exercise of options 25 November 2020
Exercise of options 1 December 2020
Exercise of options 15 January 2021
Exercise of options 15 January 2021
Exercise of options 15 January 2021
Exercise of options 15 January 2021
Exercise of options 6 April 2021
Fund raise - subscription share issue
Number
55,000
90,000
114,500
25,000
35,000
15,000
150,000
7,364,340
Ordinary shares
£
Share premium
£
55
90
115
25
35
15
150
7,364
4,785
13,770
17,519
2,175
12,478
5,085
61,350
Total
£
4,840
13,860
17,634
2,200
12,513
5,100
61,500
4,742,635
4,749,999
Fund raise – placing share issue
48,404,614
48,405
29,537,231
29,585,636
Fund raise – director subscription
New shares issue in payment of advisor fees
Exercise of options 26 April 2021
Exercise of options 26 April 2021
Exercise of options 1 May 2021
45,000
445,736
32,500
40,000
55,000
45
446
33
40
55
28,980
287,054
4,973
14,260
8,415
29,025
287,500
5,005
14,300
8,470
Exercise of warrants 28 June 2021
1,500,000
1,500
276,000
277,500
Exercise of options 15 July 2021
Exercise of options 29 July 2021
Exercise of options 15 August 2021
Exercise of options 20 September 2021
Exercise of options 20 September 2021
Exercise of options 20 September 2021
Movement for the year
Issued share capital
31 October 2020
31 October 2021
10,000
30,000
15,000
16,668
10,000
25,000
10
30
15
17
10
25
1,530
4,590
2,295
1,450
1,530
2,175
1,540
4,620
2,310
1,467
1,540
2,200
58,478,358
58,478
35,030,280
35,088,758
676,006,310
676,006
81,417,845
82,093,851
734,484,668
734,484
116,448,125
117,182,610
All issued shares are fully paid. The Company considers its capital and reserves attributable to equity Shareholders to
be the Company’s capital. In managing its capital, the Company’s primary long-term objective is to provide a return for
its equity Shareholders through capital growth. Going forward the Company will seek to maintain a gearing ratio that
balances risks and returns at an acceptable level and 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.
88
AFC ENERGY PLC
19. SHARE BASED PAYMENTS
Employee Share Option Plan
The establishment of the Employee Share Option Plan was approved by the Board on 1 August 2018 and amended on 10
October 2018. The Plan is designed to attract, retain and motivate employees. Under the Plan, participants can be
granted options which vest unconditionally or conditioned upon achieving certain performance targets. Participation in
the Plan is solely at the Board’s discretion and no employee has a contractual right to participate in the Plan or to receive
any guaranteed benefits.
Options are granted under the Plan for no consideration and carry no dividend nor voting rights.
When exercisable, each option is convertible into one ordinary share.
Set out below are summaries of options granted under the Plan:
1 November 2020
Granted during the year
Exercised during the year
Lapsed during the year
31 October 2021
Vested and exercisable at 31 October 2021
Average exercise
price per share
option (£)
2021
0.30
0.62
0.22
0.33
0.35
Average exercise
price per share
option (£)
2020
0.33
0.16
0.17
0.30
0.30
Number of
options
2021
14,420,835
1,600,000
(718,668)
(350,000)
14,952,167
9,630,501
Number of
options
2020
11,745,000
4,885,000
(1,627,498)
(581,667)
14,420,835
Share options outstanding at the end of the year have the following expiry dates and exercise prices.
Grant date
Expiry date
Exercise price (£)
Share options
2021
Share options
2020
7 November 2012
7 November 2022
2 December 2013
1 December 2023
14 April 2015
13 April 2025
17 July 2015
17 July 2025
10 September 2018
1 August 2024
15 October 2018
15 October 2024
31 December 2019
20 April 2030
20 April 2020
20 April 2030
24 June 2021
28 June 2031
0.3575
0.34
0.41
0.22
0.088
0.16
0.1635
0.154
0.617
95,000
120,000
–
6,000,000
266,667
2,500,000
2,750,000
1,720,500
1,500,000
170,000
135,000
150,000
6,000,000
658,335
2,500,000
2,750,000
2,057,500
–
14,952,167
14,420,835
89
Financial Statements
Notes Forming Part of the Financial Statements
The table below sets out the inputs used in determining the fair value of the grants of options per the previous table as
well as the expense recognised in the accounts in the current year. The grants in the previous table are linked below
based on the exercise price and grant date.
Exercise
price
(pence)
15.4
16.35
61.7
22
Grant date
20 April 2020
31 December 2019
24 June 2021
17 July 2015
Average grant
date share
price (pence)
Average
expected
volatility
(per annum)
Average
risk-free
interest rate
(per annum)
Average
dividend yield
(per annum)
Average
implied
option life
(years)
Average
fair value
per option
(pence)
Amount
expensed in
2021 (£)
14.9
16.35
63.5
58
99.6%
95.5%
106.8%
74.9%
0.11%
0.54%
0.18%
2.08%
0%
0%
0%
0%
1.5
2.0
3.0
2.0
6.9
8.1
41.8
26.0
46,803
74,443
194,354
774,287
1,089,887
Total charge for the year (2020: £(135,593))
Warrants
The Board has the discretion to award warrants from time to time to third parties. Typically, warrants are granted and
vest upon certain performance targets. Grant of warrants is solely at the Board’s discretion.
Warrants are granted for no consideration and carry no dividend nor voting rights.
When exercisable, each warrant is convertible into one ordinary share.
Set out below are summaries of warrants granted under the Plan:
1 November 2020
Restatement
Granted during the year
Exercised during the year
Lapsed during the year
31 October 2021
Vested and exercisable at 31 October 2021
Average
exercise price
per
warrant (£)
2021
0.20
0.05
0.77
0.19
–
Number of
warrants
2021
4,500,000
900,000
5,000,000
(1,500,000)
–
0.51
8,900,000
(600,000)
Average
exercise price
per
warrant (£)
2020
Number of
warrants
2020
0.14
5,793,800
0.20
4,500,000
0.14
0.20
(5,793,800)
4,500,000
The assessed fair value at grant date of warrants expensed during the year ended 31 October 2021 was:
Warrant
price
(pence)
18.5
77.0
Average
grant date
share price
(pence)
Average
expected
volatility
(per
annum)
Average
risk-free
interest
rate (per
annum)
Grant date
Average
dividend
yield (per
annum)
Average
implied
option life
(years)
Average
fair value
per option
(pence)
Amount
expensed in
2021 (£)
19 October 2020
18.56
102.76%
-0.01%
13 January 2021
78
104.69%
-0.09%
0%
0%
1
2
4.14
42.37
62,100
–
62,100
Total charge for the year (2020: £(nil))
90
AFC ENERGY PLC
Warrants outstanding at the end of the year have the following expiry dates and exercise prices.
Grant date
Expiry date
Exercise price (£)
9 September 2019
9 September 2029
19 October 2020
31 January 2021
19 October 2020
13 October 2021
19 October 2020
13 April 2022
19 October 2020
13 October 2022
13 January 2021
13 March 2025
0.05
0.185
0.195
0.21
0.23
0.77
Warrants
2021
900,000
–
1,000,000
1,000,000
1,000,000
5,000,000
8,900,000
Warrants
2020
900,000
1,500,000
1,000,000
1,000,000
1,000,000
–
5,400,000
SAYE
No SAYE were granted, and the scheme ended during the period. The movements were:
1 November 2020
Granted during the year
Exercised during the year
Lapsed during the year
31 October 2021
Vested and exercisable at 31 October 2021
Average
exercise price
per
SAYE (£)
2021
Number of
SAYE
2021
Average exercise
price per
SAYE (£)
2020
Number of
SAYE
2020
–
–
–
–
–
–
–
–
–
–
–
0.12
207,736
–
–
–
–
0.12
(207,735)
–
–
–
91
Financial Statements
Notes Forming Part of the Financial Statements
Share based payment charge:
Employee Share Option Plan
Warrants
SAYE
20. PAYABLES
Current liabilities:
Trade payables
Advance payments
Other payables
Accruals
2021
£
2020
£
1,089,887
135,593
62,100
–
–
–
1,151,987
135,593
Year ended
31 October 2021
£
Year ended
31 October 2020
£
353,404
213,903
143,709
984,742
347,167
150,000
199,261
540,368
1,695,758
1,236,796
Included in Accruals as of 31 October 2021 is an amount of £507 thousand in relation to Executive director bonuses
(2020: £240 thousand).
92
AFC ENERGY PLC
21. LEASE LIABILITIES
1 November 2019
Cashflows:
- Repayment
- Proceeds
Non-cash:
- Additions
- Interest expense
31 October 2020
Cashflows:
- Repayment
- Proceeds
Non-cash:
- Additions
- Interest expense
31 October 2021
Year ended
31 October 2021
£
373,230
(125,503)
–
–
12,072
259,799
(329,627)
–
938,637
37,322
906,131
Lease liabilities less than 12 months
Lease liabilities more than 12 months
Immaterial leases had an expense of £12,659 (2020: £4,220) during the year.
Year ended
31 October 2021
£
Year ended
31 October 2020
£
322,179
583,952
906,131
113,431
146,368
259,799
93
Financial Statements
Notes Forming Part of the Financial Statements
22. PROVISIONS
Balance at 31 October 2019
Balance at 31 October 2020
Addition
Balance at 31 October 2021
National Insurance on
unapproved share
options
£
Decommissioning
provision
£
–
–
352,728
352,728
301,172
301,172
–
301,172
Total
£
301,172
301,172
352,728
653,900
Employer National Insurance Contributions are payable on certain unapproved share option awards on the capital gain
when exercised. The provision is estimated using the closing market price less the exercise price applied to the number
of share options granted.
The Company has set-up a decommissioning provision for the removal of the plant and equipment installed at the Stade
site in Germany, the cost of which is based on estimates. Various scenarios have been considered which estimate the
range of costs to be from £35,000 to £420,000 dependent upon agreements reached with lessor.
94
AFC ENERGY PLC
23. 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:
Financial instruments held at amortised cost:
Cash and cash equivalents
Receivables
Total financial assets held at amortised cost
Trade and payables
Total financial liabilities held at amortised cost
Year ended
31 October 2021
£
Year ended
31 October 2020
£
Note
17
16
20
55,375,366
31,301,467
681,872
264,367
56,057,238
31,565,834
865,155
865,155
846,796
846,796
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.
All financial instruments are Level 1 and none 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.
95
Financial Statements
Notes Forming Part of the Financial Statements
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:
Receivables
Cash and cash equivalents
The Company’s principal other receivables arose from:
a) customers, and
b) trade and other receivables
Year ended
31 October 2021
£
Year ended
31 October 2020
£
681,872
264,367
55,375,366
31,301,467
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
were temporarily held on short-term deposit. The credit risk provision is estimated on a case by case basis taking into
account public information of the counterparty and payment history and no loss is expected. No expected credit loss
accrual has been made as at 31 October 2021 and 2020 as they are estimated to be de minimis.
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 Instruments
Trade and other payables
Receivables
Cash and cash equivalents
Year ended
31 October 2021
£
Year ended
31 October 2020
£
(865,155)
(846,796)
681,872
264,367
55,375,366
31,301,467
55,192,083
30,719,038
There is no difference between the fair value and book value of financial instruments.
The Company does not enter 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.
96
AFC ENERGY PLC
24. RELATED PARTY TRANSACTIONS
There were no transactions with any related parties during the year ended 31 October 2021 (2020: £nil) other than key
management compensation. Key management personnel remuneration includes short term employee benefits (including
social security costs) of £1,645,823 (2020 £1,031,276), £43,635 (2020 £36,433) for post-employment benefits and
£848,730 (2020 £89,943) for share-based payment expense.
25. EVENTS AFTER THE REPORTING PERIOD
After the reporting date on 15 November 2021 a sale and development agreement were entered into with an industrial
partner whereby a 200KW fuel cell would be delivered for integration with their systems. In consideration, the industrial
partner will pay stage payments totalling £4 million related to certain performance criteria and will have the right to
subscribe in the 24 months following each progress payment a total of £4 million worth of shares at an exercise price
of 58.8p.
On 19 November 2021 awards were made to the Executive directors under the Performance Share Plan as follows
Adam Bond
Jim Gibson
Graeme Lewis
Transitional award
Initial award
Transitional award
Initial award
Initial award
Benchmark share
price (£)
0.16
0.597
0.16
0.597
0.597
Nil cost options
2,250,000
620,970
984,375
271,968
206,320
The Scheme is based on annual grants of nil cost options which then vest conditionally three years later based on
achievement of performance targets set at grant. For the first year’s grant, performance testing will be based on
Compound Annual Growth Rate (CAGR) of Total Shareholder Return (TSR), which at this stage will be entirely share
price based but accommodating future dividends when these become possible. At the vesting date, the CAGR of TSR
will be calculated for the three-year period and tested versus a lower threshold set for this year’s award at 5%. Below
this level of CAGR the award will be forfeited. At the threshold, 25% of the maximum award will vest and this will increase
linearly with CAGR up to full release of the award at an upper limit of 20% CAGR. CAGR levels beyond this limit will not
result in the release of any more options, however the holder is rewarded through the increased value the awarded
options will have at the higher share price. In addition, the Remuneration Committee has approved a transitional award
(the “Transitional Award”) to Adam Bond and Jim Gibson in recognition, inter alia, that no new option awards have been
made to them in recent years. The Transitional Award is being made on the bases that would have prevailed had the
award been made in March 2020. Pursuant to the Transitional Award, Adam Bond and Jim Gibson are receiving 2,250,000
and 984,375 nil cost options respectively. These options have a benchmark price of 16 pence. Below a threshold price of
27.6p no options will vest. At this threshold price, 25% of the maximum award will vest and this will increase linearly up
to a fully vesting price of 59.7 pence per share. Providing the thresholds have been achieved, the options will vest in two
equal tranches in March 2022 and March 2023 so that each executive will now have LTIP incentivisation awards tested
and vesting annually over the next three years. In accordance with IAS 10 Events after the Reporting Period and IFRS 2
Share Based Payments the fair value of the Performance Shares Plan award was not recorded in the period as the
vesting period had not begun. A Monte Carlo simulation was used to fair value the Performance Shares Plan awards as
they have market-based conditions and the expense to be recorded in future periods is £1,411 thousand and £495 thousand
for the transitional award and initial award respectively.
26. ULTIMATE CONTROLLING PARTY
There is no ultimate controlling party.
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Financial Statements
Company Information
TITLE CONT. =
YEAR END =
Company Information
Directors
Gary Bullard (appointed 15 April 2021)
Adam Bond
Jim Gibson
Graeme Lewis
Gerry Agnew
Monika Biddulph (appointed 3 December 2021)
Joe Mangion
Company Secretary
Graeme Lewis
Registered Office
Unit 71.4 Dunsfold Park
Stovolds Hill
Cranleigh
Surrey
GU6 8TB
Registered in England: 05668788
Joint Brokers
Peat & Co
118 Piccadilly
London
W1J 7NW
Zeus Capital Limited
82 King Street
Manchester
M2 4WQ
AIM Nominated Adviser and Joint Broker
Peel Hunt LLP
100 Liverpool Street
London EC2M 2AT
Bankers
Barclays Bank PLC
40/41 High Street
Chelmsford
Essex
CM1 1BE
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AFC ENERGY PLC
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Financial Statements AFC ENERGY PLC
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Unit 71.4 Dunsfold Park,
Stovolds Hill,
Cranleigh
GU6 8TB
www.afcenergy.com
Annual Report 2021