HYDROGEN POWER FOR A BETTER WORLDFor the year ended 31 October 2022AFC Energy PLCAnnualReport Contents
STRATEGIC REPORT
Chairman’s report
Chief Executive Officer’s report
Chief Financial Officer’s report
Our strategy and business model
Market opportunity
Product deployment
ESG REPORT
ESG Committee report
Why ESG is so important for us
How we approach ESG
Materiality matrix
How we support the UN
sustainability goals
Environmental
Social
Governance
ESG commitments
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10
14
16
19
24
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33
33
34
35
36
38
41
42
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GOVERNANCE REPORT
Risk management
Roles of the Board and
sub-committees
Section 172
Audit and Risk Committee report
Nomination Committee report
Remuneration Committee report
Board of Directors
Directors’ report
Statement of Directors’
responsibilities
Auditor’s report
FINANCIAL STATEMENTS
Statement of comprehensive
income
Statement of financial position
Statement of changes in equity
Cash flow statement
Notes forming part of the
financial statements
Company information
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49
51
53
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AFC Energy
Highlights
Financial
£0.6m
£1.6m
£40.2m
Revenue
Deferred
revenue
Cash at
year end
£16.4m
£3.0m
Loss for the
year
R&D tax credit
receivable
Commercial - customer deployments in FY2022
4
AFC Energy PLC Annual Report 2022 Technology being developed in FY2022
S Series fuel cell module
(2.5 kW)
S Series H-Power Tower &
Generator (10 kW)
S+ Series fuel cell H-Power Generator
(100 kW stacks)
Fuel conversion – ammonia cracker
& methanol reformer
Environmental, Social & Governance (ESG) - progress in FY2022
Lost time injuries
Zero in FY2022
Materiality matrix
Completed in FY2022
Carbon footprint
2021 baseline measured
ESG committees
Set up and running
5
Strategic ReportAFC Energy PLC Annual Report 2022 Chairman’s report
Gary Bullard
Chairman
The increased focus on emissions targets and
energy security, combined with the recent ban on
Russian diesel, continues to drive momentum for
displacing diesel with clean fuels, such as hydrogen.
This year, AFC Energy has continued to deliver on
its role in the energy transition through accelerated
development and validation of its products, most
notably those displacing diesel generators at
off-grid construction locations with follow-on
applications for additional sectors.
Strategic development
The Board
Our decision to focus on the construction sector, due to
We have continued to review the effectiveness of our
its high usage of off-grid diesel, has delighted customers
Board and committees and, accordingly, appointed Dr
and delivered first revenue from our new S Series H-Power
Monika Biddulph at the beginning of the year. Monika has
Towers, along with a growing pipeline for 2023 and
a strong scientific background combined with a focus
beyond.
In addition to the immediate opportunities in construction,
on Environmental, Social and Governance matters and
therefore is board sponsor of the ESG Committee.
electric vehicle charging and maritime remain attractive
In recognition of the central role technology plays in our
for medium and longer-term opportunities. The continued
development, we have a Technical Advisory Board chaired
investment in our “flex fuel” capability, supported by the
by Dr Gerry Agnew, a Non-Executive Director, with access
growing level of incoming enquiries, means we are well
to suitable and independent advisers from within the
positioned to benefit as these markets develop.
hydrogen sector.
Gerry also chairs the Remuneration Committee and,
this year, offered consultations with several institutional
shareholders on the structure of the remuneration policy.
Further details of these consultations are provided later,
in the Remuneration Committee report.
We also saw the retirement of our Chief Financial Officer,
Graeme Lewis, and his replacement by Peter Dixon-Clarke,
who joined the Board on 1 December 2022. I wish to thank
Graeme for his support and contribution to the Company
over his time here and wish him well in his retirement.
8
Strategic ReportAFC Energy PLC Annual Report 2022 Environmental, Social
and Governance (ESG)
The Board has increased its focus on ESG reporting and
this year finalised the committee structures required to
deliver on our enhanced policies and procedures. The
outcomes from this work have included our first carbon
footprint review as well as the establishment of three
employee led committees, focusing on: Environment;
Diversity & Inclusion; and Social & Employee Wellbeing.
More on this is provided later in this report.
Looking ahead
I would particularly like to thank our employees for their role in the technical and
commercial successes of 2022. They, along with continued support from our
partners, customers and investors have set the stage for a prosperous 2023 as
we all transition towards a clean hydrogen future.
Gary Bullard
Chairman
21 April 2023
9
Strategic ReportAFC Energy PLC Annual Report 2022 Chief Executive Officer’s report
Adam Bond
Chief Executive
Successful customer H-Power Tower deployments on
construction sites, delivery of our first S+ Series stacks
with ABB and growing H-Power Tower rental revenues
laid the foundation for what was a successful 2022.
The scene is now set for industry to accelerate its
transition away from diesel.
2022 emphasised the importance global energy policy
This is the most rapid technological progress in the
plays in driving not only sectoral decarbonisation, but also
Company’s history and highlights the importance
its criticality in impacting wider macro-economic inflation
of having a quality team with years of experience in
and energy independence. Within this environment of
disciplined product development lifecycles.
uncertainty, the role of hydrogen has continued to grow
with vast commitments being made to the zero emission
fuel across Europe and more recently in the United States,
Technology acceleration
under the Biden Government’s Inflation Reduction Act.
18-months ago we took six discreet “ideas” and, enabled
AFC Energy has continued to successfully deliver on its
milestones for the year further supporting the transition
and displacement of diesel generators from today’s
off-grid power market. Successful field deployments this
financial year included our new S Series H-Power Tower
Generator across multiple construction sites in Europe
and the UK and more recently, by delivering, on time, our
first S+ Series H-Power Generator stacks for validation
by ABB in October. These customer deployments and
validations are an important strategic milestone and
drive: revenue; industry awareness; and technological
validation.
Important strides were also made in delivery of our fuel
processing division highlighting the work undertaken
in accelerating our first ammonia cracking technology
platform recently announced, alongside the field
deployment of our Methanol Fuel Tower in Spain.
by the proceeds of our 2020 and 2021 equity placings and
contribution from ABB, accelerated a number of these
programmes to deliver working systems utilising:
• S Series air cooled fuel cell stacks (2.5 kW)
• S Series modules (incorporating the above 2.5 kW
stack plus balance of plant)
• S Series 10 kW H-Power Tower (incorporating four
2.5 kW modules)
• S+ Series liquid cooled fuel cell stacks (providing
cumulative power of 100 kW)
• Ammonia Cracking Technology
• Methanol Fuel Tower
This is an extraordinary amount of work put in by the
development and engineering teams within a single financial
year and I wish to thank them all most sincerely for their
efforts and focus in delivering such an ambitious target.
10
Strategic ReportAFC Energy PLC Annual Report 2022 The first H-Power Tower
deployment: ACCIONA
The first S Series H-Power Tower deployment was in August
2022 where our partner, ACCIONA, deployed the system at
its off-grid construction compound north of Cadiz in Spain.
The H-Power Tower, replaced the on-site diesel generator
on a multiyear road development project for the whole of
its three-month trial, highlighting the role our product will
play in continuing to reduce greenhouse gas emissions by
displacing diesel.
Following the successful deployment, we received powerful
feedback from Miguel Paris Torres, Head of ACCIONA’s
Construction R&D Centre, when he said in an interview:
I think hydrogen is the most feasible
and realistic technology to satisfy in a
sustainable way the power needs not only
from the construction site compounds
but also from the heavy construction
machinery used in the construction
projects. Our partnership with AFC
Energy is very important for us because
we are convinced that AFC Energy is a
key technological partner that will help
us adopt and implement the use of
hydrogen gensets as an essential tool for
the decarbonisation of our construction
activities. What I like … most about AFC
technology [is] its modularity, easy size of
scalability and compactness. And what I
Customer feedback of this quality from an industry leader in
construction takes significant resource and investment to
achieve and cements the value generated in our technology
platform and customer relationship throughout 2022.
As a follow-on to the initial H-Power Tower deployment,
ACCIONA requested that we initiate the deployment of our
first methanol Fuel Tower to generate on-site hydrogen
to fuel our S Series fuel cell modules and in April 2023,
ACCIONA confirmed its first order of AFC Energy’s next
generation 50kVA hydrogen generator, incorporating a
new 30kW H-Power Generator and 45kWh battery storage
module. The new 50kVA power generator is a step towards
displacing ACCIONA’s considerable incumbent internal fleet
of 30 – 80 kVA diesel generators and more generally, targets
a significant proportion of the existing diesel generator
market as a “sweet spot” for mass deployment.
Subsequent H-Power Tower
deployments
Following on from the success at ACCIONA, subsequent
deployments took place with: Keltbray at its M621 project
in Leeds; the Mace Dragados Joint Venture at its HS2
development project at Euston Station; and Kier at its
bereavement centre development in Plymouth. For each
of these deployments, we rented our H-Power Tower along
with providing the hydrogen to site. Initial revenue from
these rentals was recognised in the 2022 financial year, with
the balance to be recognised in the 2023 financial year.
We have focused on construction as the ideal use case for
diesel displacement and early deployments for a number of
like more about the field trial today is that
reasons, including:
we’ve managed to achieve the target of
not using for the entire duration of the
pilot the former polluting diesel genset
that was powering the site before we
started the trial.
•
Increasing cost of diesel (particularly following the
removal of the red diesel subsidy)
• Higher cost of Stage V emission compliant (a
requirement to operate in low emission zones)
generators
• ESG standards set by contractors, their shareholders
and procurement agencies
• Higher weightings given to construction tenders to
adoption of low emission technologies
• The recent ban on importing Russian diesel into Europe
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‘‘‘‘Strategic ReportAFC Energy PLC Annual Report 2022 We are continuing to receive interest for further
We continue to see accelerated advancements in our
deployments, from both existing and new customers and
fuel cell technology in a large part due to support from
finishing the current production run of H-Power Towers
shareholders and partners such as ABB. We wish to
during the spring of 2023 will see up to 10 of our fleet of
acknowledge their support of our wider commercial
H-Power Towers deployed in the field simultaneously
outcomes. With the 200 kW liquid cooled power generator,
this year. As this run is expected to complete soon, we’ve
we expect to be able to compete favourably in the fields
already started the next development cycle, which will
of electric vehicle charging, in addition to temporary
benefit from the customer feedback we are receiving.
power applications. Importantly, the 200 kW S+ Series will
Based on the feedback received, we plan to focus on two
also form the basis of future data centre and maritime
things. The first of these will be an increase in the power
deployments and so opens up multiple new market
output by building on the existing modular platform, albeit
opportunities due to its high power density, small footprint
with a change to the form factor so it looks more like a
and forecast profile to enhanced cost reduction.
generator and less like a tower. The second will be the value
engineering aimed at halving the production costs, relative
to the existing H-Power Towers.
Extreme E
S+ Series validated
Following the success of the first season in 2021, we
renewed the contract to deliver sustainable off-grid power
to Extreme E’s offroad, all electric racing championship in
On 15 November 2021, we signed both a Sale and
2022. Season 2 saw deployments in Saudi Arabia, Italy, Chile
Development agreement and Warrant agreement with
and Uruguay over a wide range of climatic conditions. We
ABB E-mobility (ABB), Europe’s leading supplier of Electric
delivered power to charge the fleet of electric SUVs at every
Vehicle (EV) charging infrastructure. Under the agreement
race, exceeding the power generated for Season 1. By the
we agreed to develop and supply a 200 kW liquid cooled
end of Season 2 our system had travelled 48,000 miles
system (S+ Series) to support EV charging in grid constrained
across several continents much of it exposed to the high
environments. Shortly after signing, ABB made a £2.0 million
seas on board the St. Helena, the dedicated race logistics
non-refundable payment towards initial development
vessel.
costs, at which point the first tranche, of 3.4 million warrants,
granted under the Warrant agreement vested..
After two successful seasons with Extreme E, and with
a growing demand in time and resources, we made
Throughout 2022, substantial effort was placed into
the decision not to proceed with the Championship in
delivering on the first milestone, being 100 kW of fuel
2023. The data we’ve gained over the wide range of
cell stacks for third party validation by ABB. This was
environments and climates and prospective customers
duly delivered on schedule in October for independent
we’ve met whilst showcasing our zero-emission technology
validation, with operational field-testing taking place in
have been invaluable and we wish Extreme E every success
Germany. Witnessed by ABB, the testing exceeded target
performance with over 100 kW of cumulative power
delivered from the stacks throughout the validation
period – a significant Company milestone. These stacks
for its third season and beyond.
Fuel conversion and AlkaMem
will provide the basis of scaled liquid cooled systems
A key area of investment during the year has been in the
deployment and revenue growth.
Just as important as the validation above, was the use
of cutting-edge manufacturing to provide a pathway to
being one of the lowest cost offerings amongst liquid
cooled stacks in the market today. We share with ABB
a strong focus on reducing the Total Cost of Ownership
(TCO) and both look to the US Department of Energy
guidelines as one of the suitable benchmarks for low cost
fuel cell technology. Regular contact with ABB ensures that
development stays on course in addition to highlighting
new deployment opportunities, particularly for displacing
diesel backup power.
12
field of fuel conversion, a new division within AFC Energy.
Although only recently launched, we have witnessed an
accelerated drive to release our new ammonia cracking
technology platform which seeks to unlock the challenges
of ammonia as a hydrogen fuel carrier across multiple
AFC Energy target markets, including maritime. The rate of
progress seen in designing, prototyping and building our
first scale ammonia cracker reactors is driven by customer
need and supports the saleability of our fuel cell systems
with upstream fuel conversion technology. We have also
taken possession of new ammonia crackers to facilitate
parallel commissioning and validation and we look forward
to seeing them in operation later this year.
Strategic ReportAFC Energy PLC Annual Report 2022 Methanol reforming development activity has also been
evidenced with the first of our new methanol Fuel Towers
deployed in Spain alongside ACCIONA in late 2022, equally
highlighting the potential for green methanol to play its
role in supporting the decarbonisation of industry.
Work on the AlkaMem membrane technology continues
in conjunction with industry experts in both fuel cell and
electrolyser fields. The decision was taken during the year
that with the short-term demand for products in the field
and the necessary focus on the S and S+ Series, that the
work on the AlkaMem platform would be decelerated on
commercial grounds.
Outlook
For 2023, we expect to see growing revenue from system
rentals and hydrogen sales with an already contracted
pipeline of deployments and growing pipeline of
prospective rentals. This rental model is consistent with
the incumbent diesel generator hire market and is one
We see growing appetite for our S Series Generator in the
with which customers are familiar. The transition to our
construction sector with temporary power following closely
sales revenues exceeding rental revenues is expected to
behind. In addition, and consistent with our announced
be led by sales to plant hire businesses with established
focus on electric vehicle charging in grid constrained
market positions.
environments and our Approval in Principle level
certification from DNV, global advisors to the international
maritime industry, we still see growing opportunities in
these markets for our S+ Series Generator and expect to
see more announcements during 2023.
We enter 2023 with a sense of optimism that, with a gradual decline in
geopolitical and sector-based uncertainty, together with AFC Energy’s
continued delivery of its technical and commercial milestones, we will evidence
the accelerating transition away from diesel towards new, clean solutions.
I wish to thank all our employees, shareholders and partners for their support
and efforts in 2022 and eagerly await the successes expected throughout 2023.
Adam Bond
Chief Executive
21 April 2023
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Strategic ReportAFC Energy PLC Annual Report 2022
Chief Financial Officer’s report
Peter Dixon-Clarke
Chief Finance Officer
The three themes that characterised the financial
year ended 31 October 2022 were:
• First revenue recognised from H-Power Tower
deployments
• Increased investment in product research and
development
• Continued strong cash levels
Revenue
Product progress
Following its announcement in March 2022, AFC Energy
deployed its first H-Power Tower, just five months later, to
the Spanish construction group, ACCIONA, at one of its
sites north of Cadiz.
The H-Power Tower is aimed at displacing diesel
generators at off-grid sites, making it well suited to the
construction sector. In total, H-Power Towers were
deployed to three different construction customers during
the year, collectively generating initial revenue of £41,000
from a combination of rental income and sales of the
related hydrogen.
The year saw increased investment in the engineering and
operational capability required to manufacture and deploy
the H-Power Tower to a growing number of customer
validation sites. Based on the early stage in the product
development lifecycle during the year (both in terms of
economic and technical feasibility). We still expense all of
our research and development expenditure to operating
costs, which are further analysed below:
Qualifying R&D spend
Payroll
Materials
Outside of the H-Power Tower, the balance of revenue was
generated from continued support of the Extreme E racing
Other employment & administration
expenses
series, giving total revenue for the year of £0.6 million
(2021: £0.6 million), which generated a gross profit of
£0.1 million (2021: £0.0 million) and a net loss after tax of
£16.4 million (2021: £9.4 million).
The £1.6 million of deferred revenue relates mainly to the
Non-qualifying
Payroll (inc. directors)
Other
ABB contract, where the £2.0 million initial payment, less
Non-cash
the fair value of the warrants granted, will be earned as a
discount to ABB over the sales of the first 10 units, up to pre-
agreed value per unit.
14
Within the £9.0 million (2021: £3.0 million) of qualifying
R&D spend, the £3.7 million (2021: £2.0 million) payroll
balance relates almost entirely to our Fuel Cell and Fuel
Conversion departments, whilst materials of £4.7 million
(2021: £1.0 million) includes both third party consultancy
and tangible items.
£’m
3.7
4.7
0.6
9.0
2.9
4.3
3.5
10.8
19.8
Strategic ReportAFC Energy PLC Annual Report 2022 Within non-qualifying expenditure, other items of
£4.3 million (2021: £3.2 million) relate mainly to other
employment costs of £0.8 million (2021: £1.2 million) and
other administrative expenses of £2.4 million
(2021: £1.8 million).
Cash levels
A summary of the cash deployed in the year is set out in
the table below:
Net loss before tax
Non-cash items
R&D tax credits received
Working capital movement
Investing activities
Financing activities
Opening cash
Closing cash
£’m
(19.5)
4.1
(15.4)
0.5
2.1
(12.8)
(2.6)
0.2
(15.2)
55.4
40.2
Cash movements relating to the income statement
are discussed above. The working capital movement
is primarily driven by the first £2.0 million ABB payment,
of which £1.4 million was held as deferred income at the
ABB E-mobility (ABB)
At the end of the year the Company had deferred revenue
of £1.4 million in respect of the ABB Sale & Development
Agreement. This comprised the £2.0 million received
during the year, less the £0.6 million of fair value allocated
to the Warrant Agreement signed on the same day as the
Sale & Development Agreement.
year end. Of the £2.6 million (2021: £1.9 million) of investing
Following the year end, on 28 March 2023, the Sale &
activities, £2.0 million related to leasehold improvements,
Development Agreement was revised by both parties.
primarily to the development and manufacturing facilities,
Under the revised agreement, ABB will have a pre-
£0.4 million related to fixtures, fittings and computers and
agreed discount for a defined term to be spread over the
the £0.3 million balance to intangible assets, mainly patent
purchases of the first ten eligible 200kW fuel cell systems,
expenses.
Based on the above, the annual “cash burn” was
the first of which will be purchased under the revised
contract, with the subsequent nine at ABB’s option.
£11.2 million (2021: £7.3 million). This is based on operating
The £2.0 million balance, from the £4.0 million under the
costs (Note 6) of £19.8 million less materials of
£5.1 million and total non-cash items of £3.5 million
original contract, will be used for the purchase of issued
shares in AFC Energy. This balance was received on 5
and is an indication of the annual cash spend on fixed
April 2023 and the shares issued and admitted for trading
overheads. It equates to £0.9 million (2021: £0.6 million)
shortly thereafter. The cash value of the original contract
per month.
Outlook
therefore remains unchanged at £4.0 million.
2023 has already seen continued, and growing, deployments of the H-Power
Tower. This has continued to be on a rental basis, the best model for new
market entry, with rentals expected to convert to hardware sales in due course.
Peter Dixon-Clarke
Chief Finance Officer
21 April 2023
15
Strategic ReportAFC Energy PLC Annual Report 2022 Our strategy and
business model
Our strategy is built around replacing diesel powered generation. We do this
through investing in our three key product offerings over the development cycle
from research to revenue.
With our S Series air cooled fuel cell already generating revenue, our ongoing strategy is to grow that revenue stream
whilst developing the S+ Series liquid cooled and Fuel conversion product offerings to the revenue stage over the
near-term and medium-term.
Product-led strategy
Development
Revenue
S Series H-Power Generator
Development
Development
31 Oct 22
S+ Series H-Power Generator
Revenue
Revenue
Fuel Conversion
H2
Early stage S Series air cooled systems, such as the H-Power Towers, are focused on short term system rentals
consistent with the current diesel generator market. The rental model is well understood by customers and allows AFC
Energy to procure, for a handling fee, hydrogen fuel alongside weekly customer rental fees. With initial H-Power Towers
reflecting “first of a kind” capital costings, we have limited the number of systems available for deployment until the
next round of value engineering and sizeable cost reductions are scheduled for later this year. AFC Energy is engaging
with plant hire businesses who are interested in collaboration during 2023, creating critical mass for future system
manufacturing and scale up. Annuity revenue opportunities exist for fuel cell maintenance and stack re-cores at the
end of their useful lives.
The S+ Series fuel cell generator, currently being developed in collaboration with ABB, is expected to commence field
trials (at 200 kW output) later this year. These higher power systems are expected to see a combination of early rental
models adopted for temporary power, EV charging or construction market applications, but are equally expected to see
longer term system sales into maritime and data centre customers for which this technology is well suited.
The business model related to adoption of fuel conversion technologies, including ammonia crackers and methanol
reformers will vary greatly relative to their end use. Shipping applications, for example, will most likely see ammonia
crackers sold and permanently mounted to vessels and so sales and after-market support is considered to be the likely
preferred business model in this scenario. However, smaller methanol towers deployed on construction sites are more
likely to follow the rental model initially, followed by systems sales similar to the S Series Generators above.
16
Strategic ReportAFC Energy PLC Annual Report 2022 Key performance indicators
Progress is measured and managed by tracking four areas of Key Performance
Indicators (KPIs)
Commercial
generating revenue through commercial
contracts with customers
Financial
control cash burn
Scale up
managing headcount growth to increase
team skills and experience
Employee wellbeing
health and safety performance
Commercial
Revenue (£000s)
Deferred revenue (£000s)
Number of active customers
Financial (£000s)
Operating loss
Liquidity (Unrestricted cash and cash equivalents)
Cash absorbed by operating and investing activities
Scale up (headcount)
Support, operations and technical employees
Directors
Health and safety
On-site hours
Near miss*
Lost Time Injuries (LTI)
Year ended
31-Oct-22
Year ended
31-Oct-21
582
1,600
2,182
7
19,612
40,220
14,760
109
6
592
214
806
1
10,409
55,375
10,687
36
6
152,453
78,508
10
0
2
1
* An increase in near misses reflects the additional reporting taking place since we put more focus on engaging our employees to report near misses,
our injuries per on-site hours figure has declined over the same period.
17
Strategic ReportAFC Energy PLC Annual Report 2022 Technology products
Power generation
H-Power Tower S Series
The S Series air cooled 10 kW H-Power Tower
has proven itself through multiple commercial
deployments.
H-Power Generator S Series
Through our customer-guided product development
process, we have improved on the H-Power Tower. The new
modular diesel generator replacement, with a scalable
power output range of 10 to 50 kW, will be deployed in the
field during 2023.
H-Power Generator S+ Series
The 200 kW high power density S+ series supported by
liquid cooling, can deliver multi-megawatt power output
over multiple units. This unit will be operational for the
first time in 2023.
Fuel conversion
Fuel Tower – methanol reformer
Technology to convert methanol to hydrogen on-site.
Field-tested in 2022 when coupled to H-Power Tower for
a methanol to power solution.
Ammonia cracker
New technology platform launched in March 2023.
The AFC Energy proprietary technology, has potential
to unlock ammonia as a clean fuel to support the
decarbonisaton of hard-to-abate sectors.
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Strategic ReportAFC Energy PLC Annual Report 2022 Market opportunity
Our place in the market
We believe our capability gives us an edge for today’s and tomorrow’s
marketplace. Our combination of design, engineering, solutions and technology
expertise, puts AFC Energy in a strong position to grow its business.
• Design and engineering – developing technology from cradle to grave
• Turn-key end-to-end solutions – developing comprehensive customer solutions
• Technology IP and know how – Intellectual property and technology understanding
• Integration – uniquely placed to provide solutions using fuel conversion and fuel cell technology
Our product development is focused on the following
highlighted parts of the hydrogen value chain
Ammonia
Hydrogen
Methanol
H2
H2
1 | Fuel
2 | Fuel conversion
3 | Fuel cell
4 | Battery storage
Supply, delivery and
on-site storage.
Methanol reformer and/
or ammonia cracker
converts carrier
fuel into hydrogen,
which is then purified,
compressed and
stored.
Hydrogen used to
generate power
where and when it’s
needed.
Power stored if
required to manage
peak demand.
5 | Power demand
for application
Powering stationary
on-site equipment
and facilities, or
mobile applications
in electric vehicles,
rail and shipping.
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Strategic ReportAFC Energy PLC Annual Report 2022
The growing market for fuel cell technology
Organisations who operate in off-grid or constrained-grid environments are
looking for alternatives to fossil fuel power. Today diesel generators remain
in widespread use, our focus is to replace them with zero emission fuel cells.
Construction, temporary power and EV charging market applications are here
today. Future markets include, data centres and maritime.
The future of construction
ZERO
EMISSION
HYDROGEN
POWER
2020
Strategic ReportAFC Energy PLC Annual Report 2022 Today’s market opportunity
Construction
Market opportunity
• The major construction firms have announced their intent to reach Net Zero by 2040 or before
• 13%1 of global carbon emmissions are from building materials and construction
• Diesel generators are in widespread use today on construction sites
• Reduction of air pollutant emissions is a growing priority particularly in urban sites
• The sector sees hydrogen fuel cells as a way to replace diesel generators to reduce CO2 and air pollutants
• Sustainable construction is a growing criteria in bid-winning procurement processes
• The industry body, Construction Leadership Council set sector-wide targets to cut diesel use by 78% by 2035
• Rising cost of diesel and the recent ban on Russian imports
AFC Energy opportunity
• Our proven track-record of successful deployments
• Existing working relationships within the sector
• Repeat order enquiries from several construction firms
• Modular and scalable power solutions in development
1 Source: IEA 2022
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Strategic ReportAFC Energy PLC Annual Report 2022 Electric vehicle charging
Market opportunity
•
It is forecast that global EV sales will grow to 35%2 by 2040
• Power is needed to charge the rapid growth of EVs
• 15-25%3 forecast saving potential for commercial fleet owners to switch to EVs
• Grid capacity threatens to slow down fleet electrification
• Fuel cells and battery storage are increasingly seen as alternatives to grid for rapid charging
AFC Energy opportunity
• Tried and tested technology in remote locations and harsh conditions
• Proven capability in providing rapid EV charging
• Our modular and scalable solutions can grow as fleets grow
• We can help unlock the potential of hydrogen carrier fuels
2 Source: Bloomberg NEF 2022
3 Source: McKinsey and company Sept 22
22
Strategic ReportAFC Energy PLC Annual Report 2022 Tomorrow’s market opportunity
For certain applications, such as in the maritime sector, the use of energy
dense carrier fuels will help to lower the cost of storage and transportation of
hydrogen. There is a clear market opportunity for technology to convert carrier
fuels, such as ammonia, into hydrogen.
Maritime
Data centres
Market opportunity
Market opportunity
• Hydrogen is a solution to decarbonise this hard-
• Data centres and networks power requirement
to-abate sector
is growing
• Ammonia seen as the leading carrier fuels for
the maritime sector
• Lowers the cost of fuel transportation and
storage
• The marine sector is targeting a 50%4 reduction
in greenhouse gas emissions by 2050
• Ammonia is expected to account for 45%5 of the
global shipping fuel needs
• Microsoft are quoted of saying ‘We are
eliminating diesel backup generators’
• Fuel cells have potential to provide zero emission
back up for data centres
AFC Energy opportunity
AFC Energy opportunity
• Demonstrated ammonia to hydrogen conversion
• New S+ Series high power output technology
• Launch of our scalable proprietary ammonia
cracker technology
• Modular flexible technology designed to be
retrofitted or installed in new builds
4 Source: International Maritime Organisation
5 Source: International Energy Agency
• Unlocking the potential of cost effective
hydrogen carrier fuels
• Scalable modular flexible technology design
23
Strategic ReportAFC Energy PLC Annual Report 2022
Product deployment
Customer
ACCIONA
Sector
Type
Construction
Commercial deployment
Location
Cadiz, Spain
End customer
Government of Spain
ACCIONA aims to be at the
forefront of the construction industry’s
transition to a net zero future. As
part of those efforts to decarbonise
our business activities, we have been
running a field trial of an AFC Energy’s
H-Power Tower fuel cell in one of our
construction sites in Spain. One of the
Technology
S Series fuel cell & methanol reformer
challenges for the construction industry
Deployed
H Power Tower & Fuel Tower
Replacing
Diesel
Powering
Site operations
Fuel
Hydrogen & Methanol
is the transportation to and storage of
hydrogen on site. The methanol Fuel
Tower will help enable us to overcome
those challenges and fully utilise the
potential for this technology across all of
our construction sites.
Miguel Paris Torres,
Head of ACCIONA’s
R&D centre
24
‘‘ACCIONA (Left to right:) Miguel Paris Torres - Head of ACCIONA’S Construction R&D CentreMike Rendall - AFC Energy’s Chief Engineer & Product OfficerDavid Harvey - AFC Energy’s Chief Technology Officer‘‘Strategic ReportAFC Energy PLC Annual Report 2022 Customer
ABB
Sector
Type
E-mobility
Development partnership
Technology
S+ Series fuel cell
With the accelerating transition to
electric vehicles there is an increasingly
urgent need for additional fast charging
capability and particularly in cost effective
areas that are not grid connected or
where the grid is constrained. We believe
AFC Energy’s hydrogen fuel cell system
Developed
H-Power generator & ammonia cracker
to be an important part of our solution to
Power
Fuel
200 kW (100 kW initial milestone)
make EVs accessible to everyone.
Hydrogen
Frank Muehlon,
President of ABB’s
E-mobility Division
25
‘‘‘‘Strategic ReportAFC Energy PLC Annual Report 2022 Customer
Keltbray
Sector
Type
Construction
Commercial deployment
Location
Leeds, UK
End customer
National Highways
Technology
S Series fuel cell
Deployed
H Power Tower generator
Replacing
Grid
Powering
Charging EVs
Fuel
Hydrogen
We’re pleased to be collaborating
with AFC Energy, this is an important
step forward in our journey towards a
Net Zero future. Keltbray strives to make
a positive contribution to the planet
and this partnership allows us to further
accelerate the sector’s transition to a
more sustainable world.
Kiro Tamer,
Head of Environmental
Sustainability, Keltbray
26
‘‘‘‘Strategic ReportAFC Energy PLC Annual Report 2022 Customer
Mace/Dragados joint venture
HS2 is championing the use of
Sector
Type
Construction
Commercial deployment
Location
Euston, London
End customer
HS2 rail project
Technology
S Series fuel cell
environmentally friendly energy
solutions across the project, and this
is another great example of just that.
A major step forward for the wider
construction sector.
Deployed
H Power Tower generator
Andrea Davidson,
Replacing
Diesel
Powering
Charging site equipment
Fuel
Hydrogen
Head of Environmental Sciences
at HS2
Our trialling of AFC Energy’s fuel cell
generators at our Euston station site this
year, is making clear our commitment to
supporting HS2 with its aspiration to help
drive a low carbon future in the UK.
Ben Wheeldon,
Programme Director
for Mace Dragados Joint Venture
27
‘‘‘‘‘‘‘‘Strategic ReportAFC Energy PLC Annual Report 2022 Customer
Kier
Sector
Type
Construction
Commercial deployment
Location
Southampton, UK
End customer
Southampton Council
Technology
S Series fuel cell
Deployed
H Power Tower generator
Replacing
Grid
Powering
Charging EVs
This deployment further
demonstrates our commitment
to sustainability and finding
innovative solutions that will reduce
our carbon footprint and help
our clients and customers deliver
against their targets too.
Chris Lilley,
Health, Safety, Wellbeing and Sustainability
Fuel
Green hydrogen
Director at Kier Group
28
‘‘‘‘Strategic ReportAFC Energy PLC Annual Report 2022 Customer
Extreme E
Sector
Type
Location
Motor racing
Commercial deployment
UK, Saudi Arabia, Sardinia, Chile,
Uruguay
End customer
Extreme E racers
Technology
L Series fuel cell
Deployed
L Series generator
Replacing
Diesel
Powering
Charging EVs
Fuel
Hydrogen
Working with AFC Energy has
enabled Extreme E to be the world’s first
sporting event to use zero emission power
generators. From the outset, our vision
of using battery powered race cars could
only be truly fulfilled if we could charge
them in a completely sustainable way. AFC
Energy has enabled us to do that, and we
are delighted to be using their technology
again for the 2022 season.
Alejandro Agag,
Extreme E
Championship CEO
The Strategic Report on pages 8 to 29 has been approved by the directors and signed on their behalf by
Adam Bond
21 April 2023
29
‘‘‘‘Strategic ReportAFC Energy PLC Annual Report 2022 ESG Committee report
At AFC Energy we want to improve our world by
providing affordable, flexible and clean energy.
It’s a purpose we’re passionate about along with
our customers and investors.
We are proud and active players in the energy transition. The Hydrogen
Council predicts that hydrogen will account for up to 20% of the
decarbonisation required to reach net zero. So, there’s a bright future for
hydrogen, and our fuel cells and carrier fuel conversion are proving to be a
viable alternative to diesel generators. The shift from diesel to hydrogen has
huge potential to reduce greenhouse gas emissions and air pollution.
We don’t see investing into ESG as a “separate, nice to have”, we believe it is an
essential and integrated part of our business that makes good business sense
and it is what our customers, investors, suppliers, communities and employees
expect. This is why we are putting sustainability at the heart of our purpose,
strategy, product and values.
Monika Biddulph
ESG board sponsor and Non-Executive Director of AFC Energy
“Sustainability proudly
sits at the heart of our
business and products,
and whilst there’s plenty
more to do, we are
making good progress.”
32
ESG ReportAFC Energy PLC Annual Report 2022 Why ESG is so important for us
Whilst we see the principles and practices of ESG as simply the right thing to do,
we also see it as good for business.
Environmental
attract and retain them. We want everyone who works for
AFC Energy to be engaged, motivated and feel part of our
Environment is, unsurprisingly, top of the agenda for a
business.
business like ours in the Energy Transition and hydrogen
sector. It is a key reason we are able to attract such great
Governance
talent, customer interest and investor support. We are
working at finding ways to reduce our direct and indirect
emissions, whilst helping our customers reduce their impact.
Social
Good governance means good business. Ensuring our
business operates responsibly and we deliver on our
promises is key to our long-term success. As the business
grows we are putting in place new governance processes
across purchasing, financial and people areas. We are
Being socially responsible is important to us as individuals
using the data from stakeholder feedback and our
and for the business as a whole. Doing the right thing for
carbon survey to help define our ESG priorities and KPIs.
our employees and our customers supports our ability to
How we approach ESG
We have in place organisational structures to lead ESG across the business.
Board sponsor
Specialist support
Monika Biddulph is the board sponsor and board
Health and safety, Human Resources, Finance,
representative on the ESG Committee.
Procurement, Facilities and Marketing are all represented
ESG Committee
The 12-strong team meets monthly to champion ESG
in the ESG Committee.
Baseline and target setting
internally, coordinate plans, drive actions and report on
The pre-requisite of setting good targets is to have a
progress to the Board and the wider company.
good baseline. We are pleased to provide detail on our
ESG sub-committees
first carbon footprint report. We worked with independent
experts who developed the thorough report. It will form
the basis of action planning led by the ESG Committee,
Three sub-committees are set up to drive progress in
and will be used to set targets and report progress in
• Environmental
• Social and employee wellbeing
• Diversity and inclusion
future annual reports.
33
ESG ReportAFC Energy PLC Annual Report 2022 ESG materiality matrix
ESG materiality assessment
stakeholder interviews to identify the most material
issues for the business. To assess our stakeholders’
As we grow and evolve our business, we recognise the
views on the materiality of these issues, we engaged
need to ensure that our activities are meeting the needs
with our employees, customers and investors using a
and expectations of our stakeholders. To support this,
combination of qualitative and quantitative methods,
during the year we commissioned a third-party agency
including interviews and surveys.
to conduct our first ESG materiality assessment. The aim
is to help us to identify and prioritise the ESG issues that
are most relevant and material for the business and our
stakeholders.
Using the insights gained, we created a materiality
matrix which can be seen below. This matrix
provides the foundation to develop a strategy for
sustainability, focusing on those issues where we can
This process followed a robust and recognised approach.
have the greatest impact, with our commitment to
It involved initial desk research incorporating a variety of
Health and Safety to the fore.
sources, including internal documents, peer and industry
sources and external frameworks coupled with internal
l
s
r
e
d
o
h
e
k
a
t
s
o
t
e
c
n
a
t
r
o
p
m
g
n
i
s
i
R
i
Carbon footprint
Developing clean
energy solutions
Legal and regulatory compliance
Product benefits and
customer service
Business ethics
Health and safety
Waste and waste management
Supply chain and materials sourcing
Product end-of-life
management
Board composition
and responsibilities
Employee
development
and wellbeing
Employee engagement
Regulation, policy and engagement
Educational and industrial partnerships
Charity and community engagement
Diversity, equity and inclusion
Rising importance to AFC Energy
Environmental issues
Social issues
Governance issues
Product benefit issues
34
ESG ReportAFC Energy PLC Annual Report 2022
How we support the
UN sustainability goals
Air pollution remains a significant health issue in many cities across the
world, particularly amongst the young or vulnerable. The replacement of
diesel generators with hydrogen fuel cells such as ours which produce no air
pollutants is a positive contributor to improved health.
Our fuel cell technologies produce zero emissions at the point of use, replacing
their fossil fuel equivalent in use today. With increased production and availability
of clean hydrogen and its falling price (forecasted to half in price by 2030), we are
playing our part in delivering affordable, clean energy.
We employ a diverse workforce with professional, technical, engineering, scientific
and other highly specialised skills and experience. Our people join and stay with us
because of the opportunity to work on innovation and sustainability.
We partner with industry to support the decarbonisation of hard-to-abate
sectors such as maritime, construction, rail and data centres. For example our
strategic partnership with ABB, where we are innovating fuel cell technology
for EV charging and data centres.
The vision for a world without hydrocarbons often puts hydrogen centre stage.
We are contributing to the global efforts to get to both net zero and real zero.
2022 was the second year of us providing clean power for the international
Extreme E racing community touring the world in remote locations to highlight
the impact of climate change. The power, generated by our on-site hydrogen
fuel cell, charged the Extreme E racing cars. Our partnership with Extreme E is a
glimpse into the future of off-grid power generation.
35
ESG ReportAFC Energy PLC Annual Report 2022 Environmental
We made progress on our environmental strategy in 2022. We measured
our carbon impact for FY 2021 and are in the process of completing the 2022
carbon footprint report. We continue to be supplied by renewable electricity
to our premises, mobilised our Environmental ESG sub-committee, reduced
emissions through our customer fuel cell deployments, identified the most
material ESG issues to the business and canvassed opinion amongst our
stakeholders.
2021 carbon footprint report highlights
Total emissions summary 2021
Total 1,572 tCO2e
1,600
1,200
800
400
0
8 tCO2e
Scope 1 direct combustion
emissions
0 tCO2e
Scope 2 energy supply impact
(renewable energy supply)
1,564 tCO2e
Scope 3 operational and
supply chain emissions
Our total carbon impact between Nov 2020 and October
2021 was 1,572 tCO2e.
Based on an average of 32 full-time employees it was
4.70 tCO2e per employee.
0.5% of total emissions were scope 1.
This is associated with the purchasing of metal and other
raw materials to support our technology production
process.
We will measure and report our carbon emissions
each year, and set ourselves targets to improve on the
4.70 tCO2e per employee.
36
ESG ReportAFC Energy PLC Annual Report 2022 Scope 1 Direct combustion emissions
Direct combustion emissions from site facilities and company transport of 8.32 tCO2e
Scope 2 Renewable energy supply
Electricity supplied is delivered under a 100% renewable tariff. The power used was 175,943 kWh in 2021,
and as it is renewable electricity supplied, this is reported as zero tCO2e.
Scope 3 Operational and supply chain emissions
Scope 3 operational emissions of 142 tCO2e and supply chain emissions of 1,422 tCO2e mostly made up of iron-based
materials used in the production of our technologies.
5.3
109.6
27.7
Scope 3
emissions tCO2e
1,422
Facilities
Transport
Operations
Supply chain
Scope 4 Diesel generator replacement for customers
The fuel cell deployments in 2022 replaced the use of fossil fuel-based power generation. The carbon savings
from these field deployments go towards our customer’s ESG reporting. The charts below quantify, per kWh power
generated, the reduction of CO2 and NOx when making the switch from grid or diesel generators to fuel cells.
Climate changing CO2 emissions
Air polluting NOx emissions
h
W
k
r
e
p
2
O
C
f
o
g
k
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0.915
0.19121
0
h
W
k
r
e
p
x
O
N
f
o
g
k
0.016
0.014
0.012
0.01
0.008
0.006
0.004
0.002
0
0.0135
0.00137
0
UK Grid*
Diesel
generator**
AFC Energy
fuel cell
UK Grid*
Diesel
generator**
AFC Energy
fuel cell
*UK Government greenhouse gas conversion factors for company reporting 2022
**typical 10 kW diesel generator with average biofuel blend
37
ESG ReportAFC Energy PLC Annual Report 2022
Social
2022 saw the Company grow significantly. We made progress on our social strategy,
on-boarded 80 new starters, improved our health and safety processes, engaged
our workforce in shaping the future of the business including the development of our
company values, and refurbished our offices improving our work environment.
Health and safety
Our foundation
Training
We take our health and safety responsibilities very
We provide all employees access to a range of online
seriously, it’s the foundation of our culture. We provide
training courses, including mandatory training modules
and maintain a safe and healthy work environment
covering health and safety and other compliance areas
for our employees, subcontractors and other people
such as anti-bribery, anti-corruption, data security, fire
involved in our operations. Our existing Health &
awareness, and privacy policy. These are completed by
Safety Policy demonstrates our commitment to
all new starters during their on-boarding process, with
the prevention of injury and ill health in accordance
regular refresher training for all employees.
with the Health & Safety at Work Act (1974) and its
associated regulations. We are working towards a
Health & Safety Management System (in accordance
with ISO 45001: 2018). In 2023 we will introduce new
software for every employee in order to better
monitor, manage and report health and safety
performance.
In addition face-to-face health & safety training is provided
in-house and through third party specialists. These
include NEBOSH HSE Award in Managing Risks and Risk
Assessments at Work and COSHH Practical Assessment
& Control training provided by the Health and Safety
Executive in 2022.
Health and safety
2022
2021
On-site hours
Near miss*
Lost Time Injuries (LTI)
LTI per on-site hours
152,453
78,508
10
0
0
2
1
0.000013
* An increase in near misses reflects the additional reporting taking place since we put more focus on engaging our employees to report near misses.
Our injuries per on-site hours has declined over the same period.
3838
ESG ReportAFC Energy PLC Annual Report 2022 Strengthening the team
Employee development
Diversity and inclusion
We set direction and purpose for employees through
the articulation of our strategy, support from line
As an organisation we believe in attracting and retaining
the best talent and that should be merited solely on
managers and defined job descriptions.
people’s ability to do the job. Having a diverse workforce
We support employees with their personal development
through inductions, training opportunities and
professional development. We continue our
long-established practice of working with education
establishments to promote clean energy as a key
career option.
Charity
In March 2022 we donated to the Ukraine appeal.
Motivated by the plight of the Ukrainians, we collected
generous donations of money and everyday items from
employees and partners. We used the money to buy
much needed first-aid kits, baby supplies and warm
clothing. We are grateful to the Polish Community Centre
in Balham for arranging delivery to Kyiv via Poland.
allows for unique perspectives and promotes innovation.
We actively seek to recruit diverse talent and our
workforce has a wide range of technical and professional
disciplines. Our diversity is our strength, and we are
committed to building on this.
Working environment
We completed the expansion and refurbishment of our
office space this year, to provide a high quality work
environment for our growing workforce, including EV
charging points for our employees and visitors with
electric vehicles.
Gender
Years of service
Employee age
Female
Male
0-1
5-10
1-2
10-15
2-5
>15
20-29
30-39
40-49
50-59
60-69
39
The full AFC Energy team, taken at the Charge Ahead away day in the summerESG ReportAFC Energy PLC Annual Report 2022 Employee engagement
We strive to provide an engaging and supportive environment for our
employees to work at their best. We hold regular “town hall” and team meetings
to update on company progress and, of course, to celebrate our successes.
In summer 2022 we had an all-company off-site, where we came together as a 100-strong team for the first time.
We discussed and agreed the priorities for the next few years, covering both what we need to do and how we will do
it. At the event we developed and refined our shared purpose and values, shown below. We called the initiative Charge
Ahead, and we will continue to embed these principles across the business in 2023.
Our purpose
To improve our world with affordable flexible clean energy.
Our values
We developed our values by asking two questions, what are we like at our best today and what is important
for future success? It was important to us that the values reflected our current culture, whilst also supported
our ambition for the future. During 2023 we will continue to embed our values throughout the business.
Innovation
We are pioneering disruptive
solutions to decarbonise the future
Accountability
We’re committed owners of
structured plans and outcomes
Collaboration
We diligently deliver by working
together towards shared goals
Responsibility
We take care of our people
and our planet
Customer first
We’re driven by delivering
great outcomes for our
customers
40
ESG ReportAFC Energy PLC Annual Report 2022 Governance
We made progress on our ESG Governance in 2022 through improvements
in the way we work. We reviewed our purpose and values, delivered our PLC
requirements, managed our risks, adhered to our growing list of policies, and
made improvements to our operational, financial and procurement processes.
As a publicly listed business, we are committed to achieving high standards of Governance and following the Quoted
Companies Alliance Corporate Governance Code (the QCA Code) and its principles in ensuring the business acts fairly,
professionally and with integrity in all its work. Details of how the QCA Code is applied can be found at
https://www.afcenergy.com/investors/aim-rule-26/corporate-governance
• We continue to deliver our strategy and business
model, promoting long-term value creation for all our
shareholders.
• We maintain governance structures and processes that
are fit for purpose and support good decision-making
throughout the Company.
• We continue to seek to understand and meet
shareholders needs and expectations, delivering our
requirements under Section 172 of the Companies Act.
• We consider wider stakeholder and social
responsibilities and their implications for long-term
success, reflected by the adoption of this ESG &
Sustainability Policy.
• We provide 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.
• We maintain a number of policies that are
communicated and upheld.
• Risk management continues to be effectively
• Anti corruption policy
embedded throughout the business, overseen by the
Audit and Risk Committee.
• The Board maintain 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 ensure that Directors have the necessary
and up-to-date experience, skills and capabilities
required to effectively discharge their functions.
• Board performance is subject to external annual review
to drive continuous improvement in its operation.
• We continue to promote a zero-tolerance approach to
bribery and corruption.
• Health and safety policy
•
Information technology policy
• Drugs and alcohol policy
• Business travel and expense policy
• Environment policy
• Sustainability policy statement
• Employee privacy policy
• Slavery and human trafficking statement
• Privacy and cookie policies
• Code of ethics
• Diversity and inclusion policy
41
ESG ReportAFC Energy PLC Annual Report 2022 ESG commitments
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 is actively working towards.
Environmental
Social
Governance
• Development of
• Embedding effective
• Strong Board oversight
zero-emission fuel cell
generators at point of use
health & safety practices
in system build and use
• Ability of systems to use
• Embedding effective
• Effective decision-making
embedded throughout the
business
health & safety practices
for employees
• Strong operational, financial
and procurement processes
• Driving change through
effective KPIs
• Supporting employees
with their personal
development
• Clear diversity & inclusion
practices
• Introduction of HR software
• Commitment to help the
communities we live in
multiple sources of fuel to
accelerate deployment to
support decarbonisation
• Annual measurement and
reporting of our carbon
footprint
• Materials sourcing &
efficiency, linked to
effective supply chain and
procurement management
42
ESG ReportAFC Energy PLC Annual Report 2022 43
ESG ReportAFC Energy PLC Annual Report 2022 Risk management
The Company’s business exposes it to a broad range of risks. AFC Energy’s approach to managing these risks has been
to create a system of internal controls. This system looks to manage, rather than eliminate, risk and, whilst the Company
has an Audit & Risk Committee, it is seen as the responsibility of the entire Board.
Commercial risk
Detail
Likelihood
Impact
Trend
Mitigation
The S and S+ Series fuel
cell is at an early stage of
commercialisation and so
may not initially perform
to customer expectations
and may take time to gain
traction in new markets.
The product has two
platforms, being liquid
cooled and air cooled.
Of these, the latter was
launched in March 2022
and first deployed in
August that year.
Most development
and commercialisation
workstreams are
undertaken in conjunction
with, and are reliant upon,
strategic partners.
High system costs may
reduce competitiveness
compared to other fuel
cell systems.
Competitiveness
compared to non-
hydrogen solutions is
heavily dependent on
the commodity price
and handling costs of
hydrogen.
Existing strategic partners
include ABB, on the
liquid-cooled platform,
and ACCIONA, on the
air-cooled platform.
Additional partnership
discussions are in
progress, some of which
have been announced.
The Company does not
yet manufacture at the
scale required to generate
material costs savings
from operational and
purchasing efficiencies.
Customers’ buying
decisions will be driven by
the total cost of ownership,
being both upfront capital
expenditure and ongoing
operational expenditure
(which will include the
inputs costs of the fuel).
High
High
▲
High
High
▲
Strict quality control procedures
during manufacturing and acceptance
tests prior to shipping combined with
readily available on-site support.
Working with strategic partners will
help in penetrating new markets,
particularly where those partners
already have a presence.
Extensive and continued due diligence
to confirm financial, technical and
commercial competence and
alignment.
Pursuit of multiple partnerships, to
mitigate negative impact of any single
relationship.
High
High
▲
A proactive value engineering process
with a clear product roadmap.
High
High
▼
Increasing levels of global investment
in the hydrogen supply chain,
particularly in the area of green
hydrogen.
Pursuit of an integrated fuelling
strategy covering both direct
hydrogen and hydrogen from
ammonia.
Technology risk
Detail
Likelihood
Impact
Trend
Mitigation
Ongoing development
requires ready access
to test equipment and
facilities.
The growing levels of
customers; employee
turnover and strategic
partnerships increase
the risk of "leakage" of
intellectual property and/
or "know how".
Increased activity in the
hydrogen space means
that the timely access to
suitable test equipment
cannot be guaranteed and
so may lead to delays in
product development.
H-Power Towers have
been deployed in the field
at a growing number of
customers since August
2022 and average
employee headcount grew
during the 2022 financial
year from 42 - 84.
High
High
▲
The Company has good relations
with existing suppliers, both in the UK
and Europe. It is also exploring an
opportunity to lease its own facility.
Medium
Medium
▲
Through the use of specialist
advisers, internal controls, and
employee briefings we capture,
protect and exploit internally
generated IP.
Partner agreements contain
non-disclosure and IP protection
provisions.
The Company does not sell into
markets where there is a high risk of
"reverse engineering".
46
Governance ReportAFC Energy PLC Annual Report 2022 Operational risk
Detail
Likelihood
Impact
Trend
Mitigation
The Company
manufactures and
deploys its own product to
customer sites and often
procures the fuel required
by those customers for
power generation.
The supply chain is
international and certain
components are sole
sourced.
The supply chain is, as
yet, unproven at the scale
envisaged.
Global pandemics, such
as Covid 19
Whilst many materials
and sub-assemblies are
sourced externally, the
Company undertakes
manual operations both
on and off-site, along with
the handling (both for
internal development and
on behalf of customers) of
volatile and/or corrosive
chemicals such as
hydrogen and ammonia.
Most key components, by
value, are sourced from
within Europe and North
America, particularly from
Germany and Canada.
Driving down costs
will require material
production increases over
the coming years.
Effective collaboration,
both internally and
externally (particularly the
ability to attend customer
sites) is critical to the
success of the business.
Medium
High
▲
The Company has a dedicated health
& safety officer along with a dedicated
HSE management & tracking system.
The HSE system incorporates a
wide range of functionality, including
modules such as "Accident/Incidents
Management"; "Permit to Work" and
"Risk Assessment".
Medium
High
▼
Moving away from sole sourcing, to
achieve both greater resilience and
greater cost competitiveness.
Medium
High
▲
Medium
Medium
▼
Good planning, along with a growing
order book and strong balance sheet
will help in developing stronger and
more equitable supplier relationships
as output grows.
The Company has a Business
Continuity Plan, which includes the
requirement for robust information
technology systems able to support
remote working if required.
Corporate risk
Detail
Likelihood
Impact
Trend
Mitigation
The Company does not
yet generate positive
cash flow.
Failure to meet
shareholder expectations
The Company is at a
relatively early stage of
commercialisation and so
does not yet generate the
product margins required
to support all its costs. It is
therefore likely to require
additional funding in the
medium to longer term.
Material fundraisings
in recent years have
increased expectations
and poor performance
could deter potential
investors from buying or
existing investors from
holding. Further, the
existing macroeconomic
headwinds may deter
capital markets from
further exposure in the
near term.
High
High
▲
Continued sales growth and product
development will drive down
manufacturing costs per unit and
therefore improve product margin.
Medium
High
▲
The Company focuses on cash burn
and operates strict cost control
measures on a project by project
basis. It also has contingency plans
in place to curtail certain projects if
necessary to slow the cash burn.
47
Governance ReportAFC Energy PLC Annual Report 2022 Continued
Corporate risk
Detail
Likelihood
Impact
Trend
Mitigation
Competition attracting
& retaining skilled
personnel.
In addition, to the national
"cost of living crisis", the
sector is seeing increasing
demand for skilled
personnel.
High
High
▲
Cyber risk
The use of networked
systems across a growing
organisation, along with
being a "listed" entity,
increases the risk of cyber-
attacks, such as ransom
demands.
Medium
High
▲
The Company has a proactive
remuneration committee with access
to specialist advice and a mixture of
shorter-term incentives, such as cash
bonuses, and longer-term incentives,
such as options, to retain and
motivate employees.
The Company is well advanced in
seeking reaccreditation under the
"Cyber Essentials" programme, the
government-backed scheme created
by the National Cyber Security Centre.
Detail
Likelihood
Impact
Trend
Mitigation
Medium
Medium
▲
Seeking specialist external advice,
particularly on tax and tariff related
matters.
High
High
▲
The Company has a proactive
remuneration committee with access
to specialist advice and a mixture of
shorter-term incentives, such as cash
bonuses, and longer-term incentives,
such as options, to retain and
motivate employees.
Medium
Medium ▲
Prioritise customers that already
have the budget to proceed with their
projects, rather than those still subject
to government funding.
The Company is UK
based with customers
and strategic partners in
both the UK and Europe.
Future sales or strategic
partnerships are likely
to include additional
jurisdictions, such as the
Middle East & North Africa.
The invasion and
occupation by Russia of
Ukraine has had global
consequences, including
the highest cost of energy
for decades. These
increases have driven
the current "cost of living
crisis" which, in turn, places
greater pressure on wage
inflation.
The Company’s current
customer base is in the UK
and Europe, both of which
are jurisdictions where
considerable support,
both legislative and
financial, will be required
for the continued energy
transition.
Political &
regulatory risk
Customers and strategic
partners in multiple
jurisdictions.
State sponsored
aggression against other
countries.
Emissions targets and
government support
can impact customer
purchasing decisions.
48
Governance ReportAFC Energy PLC Annual Report 2022 Roles of the Board and
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 independence of the key committees due to
one member having previously received part of
their fee in the form of warrants; and
•
The performance conditions for the options
granted to the Executive Directors relating only to
share price targets.
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 and Risk Committee, the Remuneration Committee
and the Nominations Committee. To raise the profile of
Environmental, Social and Governance an ESG Committee
was formed earlier in the financial year. The Board has
delegated the day-to-day management of the Company
to the Chief Executive Officer.
Stakeholder input to decision
making
Consultation with shareholders, market professionals and
professional advisers to set an appropriate aggregate cap
on fees for non-executive directors to provide sufficient
but not excessive flexibility over the next few years to
recruit and retain suitably experienced and qualified non-
executive directors to support and work with the executive
team.
Following consultation with shareholders no further
immediate action was required regarding the
independence of key committee membership as Monika
Biddulph was appointed to the Board increasing the
number of independent directors. Monika has been
appointed to the ESG, Remuneration and Audit & Risk
Committees.
The Company has a remuneration policy that can attract,
retain and motivate senior executives and employees in
line with shareholder objectives and going forward the
remuneration report will be put to vote in the AGM.
Consultation with shareholders, market professionals,
customers and employees to identify their expectations
and priorities in regard to ESG reporting. External advisers
have been used to measure our carbon footprint and
create a materiality matrix to prioritise actions and the
use of resources. The results of these studies and internal
surveys are described in more detail in the ESG report.
Deployment of our technology with strategic partners and
end users in both laboratory and real life settings to gain
feedback on the market readiness of our equipment.
Board responsibilities
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
Consultation with shareholders, market professionals
and professional advisers to understand and resolve
decisions.
the concerns voiced at the approval of the 2021 annual
financial statements identified that the principal concerns
for the votes against the resolution to approve the
accounts were:
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 dominates
49
Governance ReportAFC Energy PLC Annual Report 2022 the Board’s decision-making and ensuring the Non-
Board procedures are followed, and applicable rules and
Executive Directors are properly briefed on matters.
regulations are complied with.
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
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.
Gary Bullard
Monika Biddulph (Appointed 3 December 2021)
Joe Mangion
Gerry Agnew
Adam Bond
Jim Gibson
Graeme Lewis (resigned 1 December 2022)
Board meetings
Audit Committee
Remuneration
Committee
12
11
12
12
12
12
12
2
1
2
2
2
-
2
2
1
2
2
-
-
-
The organisational structure is clearly documented
The Directors have overall responsibility for ensuring that
and communicated, identifying levels of responsibility,
the Company maintains a system of internal controls
delegated authority and reporting procedures. The Board
to provide them with reasonable assurance that the
supports the highest levels of commitment and integrity
assets of the Company are safeguarded, and that
from employees. Expected standards of behaviour are set
shareholders’ investments are protected. The system
out in the Employee Handbook, a copy of which is available
includes internal controls appropriate for a company of
to all employees. The Company is an equal opportunities
the size of AFC Energy, and covers financial, operational,
employer, and it's policy is to ensure that all job applicants
compliance (including health and safety) controls and risk
and employees are treated fairly and on merit, regardless
management.
of their race, gender, marital status, age, disability, religious
belief or sexual orientation.
Such systems are designed to manage, rather than
eliminate, the risk of failure to achieve business objectives
The Board considers effective communication with
as any system can only provide reasonable, and not
shareholders to be especially important and encourages
absolute, assurance against material misstatement or loss.
regular dialogue with investors. Shareholders will be
The process in place for reviewing AFC Energy’s system of
given at least 21 days’ notice of the Annual General
internal controls includes procedures designed to identify
Meeting, at which they will have the opportunity to
and evaluate failings and weaknesses, and to ensure that
discuss the Company’s development and performance.
necessary action is taken to remedy the failings.
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 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.
50
Governance ReportAFC Energy PLC Annual Report 2022 Section 172
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 or she
The Board is ultimately responsible for the direction,
considers, in good faith, would be most likely to promote
management, performance and long-term sustainable
the success of the Company for the benefit of its
success of the Company. It sets the Company’s strategy
members and, in doing so, have regard (amongst other
and objectives, considering the interests of all its
matters) to the following factors:
• The likely consequences of any decision on the long-
term value of the Company 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;
stakeholders. A good understanding of the Company’s
stakeholders enables the Board to factor the potential
impact of strategic decisions on each stakeholder 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
• The interests of the Company’s employees through
with our strategic direction and consistently aims to
monitoring employee welfare and safety, annual
uphold the highest standards of business conduct. Board
appraisal and setting clear remuneration policy.
resolutions are always determined with reference to
These are described in more detail in the ESG and
the interests of the Company’s employees, its business
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; and
• 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.
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 advisers 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 advisers
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;
51
Governance ReportAFC Energy PLC Annual Report 2022 • Market sounding and site validation projects confirm
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 potential improvement to
future versions of the Company's products; and
•
An ESG 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 during 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.
52
Governance ReportAFC Energy PLC Annual Report 2022 Audit and Risk Committee
report
The Audit and Risk Committee (the Committee) plays
Committee to ensure that the Company has appropriate
a central role in the review of the Company’s financial
risk management and internal controls, and that external
reporting, risk review and internal control processes. The
audit processes are robust. At the invitation of the
Committee’s role is to assist the Board in its oversight
Committee, its meetings are attended by the external
of the financial stewardship of the Company. The
auditor, the Chief Executive Officer, the Chief Financial
Audit Committee considers certain key areas of risk
Officer and other Non-Executive Directors (including the
management and supports the Board’s role in overseeing
Company Chairman) as appropriate. The Committee
an enterprise-wide approach to risk identification,
meets with the external auditor on a regular basis without
management, and mitigation. The Committee met twice
the Executive Directors being present.
during the period.
The Audit Committee is composed of Non-Executive
Directors and is chaired by Joe Mangion supported by
Gerry Agnew and Monika Biddulph, both of whom have
The Committee report includes the following:
• Summary of the role and responsibilities of the
Committee; and
been members for the whole year. The Committee
• Summary of significant issues considered by the
is considered to have sufficient, recent and relevant
Committee during the year; and
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
• Summary of work performed regarding the assessment
of the external auditor, approach to appointment/re-
appointment and policy on auditor rotation.
Assessing that the risk and
control framework and
processes are operating
accurately
reasonable but not absolute assurance against material
The Company prepares detailed budget and working
misstatement or loss. Through the activities of the
capital projections which are approved annually by
Committee, the effectiveness of these internal controls is
the Board and are maintained and updated regularly
reviewed annually. The results of the annual review of risks
and uncertainties is published in the Annual Report.
throughout the year. Management accounts and working
capital cash flows are prepared and compared to budgets
The Company employs Directors and senior personnel
and projections to identify any significant variances.
with the appropriate knowledge and experience for a
The Board is risk averse when investing the Company’s
business engaged in activities in its field of operations and
surplus cash. The Company’s policy is to deposit surplus
undertakes regular risk assessments and reviews of its
funds with leading regulated financial institutions based in
activities.
the UK.
The Committee's role is to assist the Board in its oversight
The Committee’s main responsibilities include:
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 supported by external technical advisers
• 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
from academia and industry, works alongside the Audit
systems;
53
Governance ReportAFC Energy PLC Annual Report 2022 • To monitor and review the going concern status of the
Company;
Onerous contracts
• 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.
Throughout the year, the performance of each open
contract is reviewed and expected cost of delivering
that contract is compared to the expected revenue from
doing so. Where the expected costs suggest a loss the
contract is treated as an onerous contract and a provision
is recognised immediately through the profit and loss. No
such provisions were made.
Significant financial reporting
matters
Impairment provisions
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's financial statements for
the year ended 31 October 2022:
Revenue recognition in respect of
existing and new customer contracts
As a minimum, an annual review of impairment
indicators is prepared by management in accordance
with the guidelines in IAS 36. The Committee reviewed
management’s assessment that there had been no
indicator of impairment other than for the L Series, which
was retired following the end of the Extreme E contract.
In addition, there is an ongoing awareness that indicators
might arise at any time during the year and require
consideration at that time.
Valuation and disclosure of
share-based payments
During the period, revenue was recognised of £0.6 million
with IFRS 2 and specific consideration has been given to:
Share based payments are accounted for in accordance
• Application of a Monte Carlo simulation for market-
based targets and a Black Scholes model for options
where the conditions relating to the granting, vesting
or exercising of such are conditional on certain
performance targets; and
• Reviewing the assumptions, especially share price
volatility, used in the valuation models.
Independent professional advisers have been consulted
to discuss the treatment adopted and to perform
valuations. After considering all matters the Committee
concurs with the accounting treatment adopted.
(2021: £0.6 million) 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 consideration across different
performance obligations where there are multiple
performance obligations within a contract. 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 ABB sale and development
agreement, Extreme E and Jülich contracts. Following
discussions in Committee meetings, the Committee
considers management’s treatment to be appropriate.
54
Governance ReportAFC Energy PLC Annual Report 2022 Valuation and disclosure of warrants
granted
The warrants granted to ABB have been accounted on
initial recognition for as equity and valued in line with
IFRS13: Fair Value Measurement, which defines fair value
as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between
market participants at the measurement date.
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 had decided
to introduce such an internal audit function during 2022
and to upgrade the management information systems
in line with the business needs. During the year project
management and time recording processes have
been integrated within the financial systems along with
other process improvements to reflect the increased
complexity and scale of the business. A search for an
outsource partner was commenced to provide internal
audit services but the final selection has been put on hold
whilst the CFO handover is being completed.
Joe Mangion
Audit and Risk Committee Chair
21 April 2023
55
Governance ReportAFC Energy PLC Annual Report 2022 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:
Directors
Gary Bullard
Non-Executive Chairman
Adam Bond
Chief Executive Officer
Jim Gibson
Chief Operating Officer
Graeme Lewis
Chief Financial Officer
(resigned 1 December 2022)
Peter Dixon-Clarke Chief Financial Officer
(appointed 1 December 2022)
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. Peter Dixon-Clarke was
appointed subsequent to the most recent Annual General
Meeting and therefore offers himself for election. Jim
Gibson was not elected or re-elected at either of the two
preceding Annual General Meetings and therefore offers
himself 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 2018 UK
Corporate Governance Code.
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.
To support effective future succession and appointments,
the Committee will continue to engage with external
stakeholders (including shareholders and regulators)
when appropriate. 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
Peter Dixon-Clarke as Chief Financial Officer, who brings
extensive experience in the energy sector in the UK and
internationally.
The Committee believes that the Company has a
well balanced Board whose skills, experience and
independence covering research, product development,
commercial and finance are aligned to the current
business and stakeholder needs.
Gary Bullard
Nomination Committee Chair
21 April 2023
56
Governance ReportAFC Energy PLC Annual Report 2022 57
Governance ReportAFC Energy PLC Annual Report 2022 Remuneration Committee
report
and responded accordingly, and now believe we have
addressed all of the points raised. This puts us in a position
whereby the forward-looking remuneration policy and
implementation of this policy will be aligned with best
practice.
We draw attention to the following decisions of
the Committee as part of our efforts to respond to
shareholder feedback and continuously improve
governance:
•
Introducing an advisory shareholder vote on the
remuneration report on a voluntary basis
• Creating and maintaining a Remuneration Committee
which is made up entirely of independent Non-Executive
Directors with relevant experience, and that complies
with the UK QCA Code
•
Introducing an LTIP scheme for Executive Directors and
senior leaders in the business and bridging the gap until
this forms the natural pattern of long-term reward
• Maintaining an equal pension policy for our entire
workforce, including Executive Directors
• Keeping a consistent philosophy of reward throughout
the business, which is strongly linked to performance
• Consulting and maintaining an open dialogue
with shareholders and advisory bodies on all key
remuneration decisions
The Committee remains satisfied with the current
executive remuneration framework and its ability to
provide appropriate incentives for management. We are
comfortable that the framework is proportionate and
predictable, and that it aligns executive pay with value
creation while supporting a Company culture that can
successfully deliver our strategy. Having set out a policy
last year for ongoing elements of remuneration which
is fully aligned to best practice, the Committee is not
proposing any significant change to the operation of the
policy for 2022-2023.
“On behalf of the Board, I am
pleased to present the 2022
Directors’ Remuneration Report,
which sets out the remuneration
paid to the Directors in 2022
and the implementation of our
remuneration policy for 2022.”
Gerry Agnew
Remuneration Committee Chair
AFC Energy is listed on the Alternative Investment
Market (AIM) and therefore provides these remuneration
disclosures on a voluntary basis. As such, the charts and
tables included here are unaudited, but, in general, our
disclosures have been prepared in accordance with best
practice.
Actions taken post 2022 AGM
Last year, we started on a journey to bring AFC's
remuneration structure and practices into line with
established market practice and expected norms. This
involved addressing legacy issues, and in normalising our
practices, certain non-standard structures were used on
an interim basis. At our 2022 AGM, shareholders provided
feedback on these areas, both with their votes and in
conversations. We have listened to the areas of concern
58
Governance ReportAFC Energy PLC Annual Report 2022
Incentive outcomes during
the year
Closing remarks
For the year under review, stretching annual bonus targets
had been set to continue the Company’s drive toward
achieving sustained revenue and subsequent profitability
and objectives were structured so that maximum payout
could only be achieved for exceptional performance.
Bonuses for the year were based on a blend of 40%
financial, 50% operational and 10% ESG objectives. For
the financial objectives an overall payout of 16.7% was
determined reflecting a threshold performance for sales
revenue and a stretch performance for overall spend.
There was no payout in regard to an order book objective
that was not met. All assessments were made in line with
the Remuneration Policy described in detail below and
first rolled out in the previous year’s Annual Report.
AFC Energy continues to be a very exciting and fast
moving business that has grown rapidly while preserving
the key elements of culture that has got it to where it is
now. The Remuneration Committee has as at the same
time set out to enhance the governance needed to
maintain the confidence of stakeholders as it reaches
a size that rightly attracts keener scrutiny. We continue
to be guided by investors, employees and other key
stakeholders as we navigate our way through the
challenges of ensuring we have the right people attracted
in and motivated to not just stay but take the business to
another level. This starts at the top and we look to reward
these people while challenging them to go higher without
excessive risk. We look to your support in this journey.
For the operational objectives, 35% of a maximum 50%
bonus was earned. In achieving this determination, the
committee recorded good performance in key areas
such as health and safety and the on-time delivery of
Composition of the Committee
Gerry Agnew (Chair)
Joe Mangion
new H-Power Tower units as well as successful delivery of
Monika Biddulph
Number of meetings: 2
Gerry Agnew
Remuneration Committee Chair
21 April 2023
hydrogen-based vehicle charging for the second season
of Extreme E racing. A 100 hour demonstration run of a 10
kW H-Power Tower fueled through a methanol reformer
was also successfully delivered.
This was the first year in which an ESG objective grouping
was set and the Committee assessed performance
in this area to warrant the full 10% payout. Overall, the
bonus earned across all objective areas came to 61.7% of
maximum. The Committee did not exercise any discretion
in this outcome.
The first of two tranches of the legacy transition awards
granted in 2021 based on share price targets vested
in March 2022 yielding 583,169 and 255,136 shares for
Adam Bond and Jim Gibson respectively. This outcome
corresponded to a vesting level of 51.8%. The Committee
did not exercise any discretion in this outcome.
The final tranche of this award will vest in March 2023 and
beyond that all LTIP awards will have three-year vesting
periods.
59
Governance ReportAFC Energy PLC Annual Report 2022 Directors’ remuneration policy
• Promote the long-term success of the Company
and ensure the alignment of interests between
This section of the report sets out the remuneration policy
Senior Management, Non-Executive Directors and
for Executive Directors and outlines how this policy will be
shareholders including but extending beyond value
implemented for 2022-2023.
creation
The Remuneration Policy outlines the principles and
• Provide a remuneration structure which looks to attract
framework for remuneration allowing the Board of
Directors and management to attract and maintain high
and retain high quality candidates into senior roles
within AFC Energy through being competitive with those
quality employees with a sustainable and fair approach.
of businesses of similar size
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.
• Provide a long-term incentive structure to retain senior
management while ensuring maximum award levels are
capped
The Policy acknowledges the Company’s intention to:
This policy will be reviewed and updated annually by the
Remuneration Committee and discussed from time to
time with shareholders.
The Policy adopts a framework structured around several key elements:
Performance
metrics
Company
and individual
performance are
considered when
setting Executive
Director base
salaries.
Implementation of
Remuneration Policy for
2022-2023
Base salaries will be
increased by 3.5% with
effect from 1 December
2022 to:
CEO £320k
COO £240k
CFO £200k
These increases are
slightly lower than the
average increase across
the wider workforce.
Element
(purpose and link
to strategy)
Base salary
To reflect size and scope
of the role and individual’s
performance and
contribution
Operation
Opportunity
Payable in cash. 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.
The Committee reviews base
salaries with reference to:
• The size and scope of the
individual’s roles
• The individual’s performance
and experience
• Business performance and
the external economic
environment
• Market practice at other
companies of a similar size
and complexity
• Salary increases across the
Group
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
take into account
circumstances such
as:
• Changes in an
individual's role or
responsibility
• To reflect an
individual's
contribution to the
company
• Where a salary is
significantly behind
market practice
60
Governance ReportAFC Energy PLC Annual Report 2022 Element
(purpose and link
to strategy)
Pension and other
benefits
To provide market-
competitive benefits
and pension
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
Operation
Opportunity
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.
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 payout is
120% salary for the
CEO and 80% for
the other Executive
Directors.
From 1 November 2021, 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.
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.
Performance
metrics
Not performance
related.
Implementation of
Remuneration Policy for
2022-2023
In line with policy,
Executive Directors will
receive 5% contribution
from AFC alongside their
own contribution of 5%
salary.
Objectives have been set
based on a blend of 40%
financial, 50% operational
and 10% ESG objectives.
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.
61
Governance ReportAFC Energy PLC Annual Report 2022 Implementation of
Remuneration Policy for
2022-2023
Awards are anticipated
to be granted with both
Relative TSR and Absolute
TSR conditions, consistent
with the awards granted
in 2022.
Element
(purpose and link
to strategy)
LTIP
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
Operation
Opportunity
Performance
metrics
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.
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.
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.
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.
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 clawback terms
based on advice from external
advisers regarding current industry
standards.
Pay scenario charts
The charts below provide estimates of the potential future reward opportunity for the current Executive Directors in
FY 2022-23 in line with the policy described above. The potential is split between the different elements of remuneration
under four different performance scenarios: "Minimum", "On Target", "Maximum" and "Maximum with 50% share price
CEO
COO
CFO
£1,400k
£1,200k
£1,000k
£800k
£600k
£400k
£200k
£0k
Min On Target Max
Max (incl
share price
growth)
£1,400k
£1,200k
£1,000k
£800k
£600k
£400k
£200k
£0k
Min On Target Max
Max (incl
share price
growth)
Fixed pay
Annual Bonus
LTIP
Share price growth
Min
On Target
Max
Max (incl
share price
growth)
growth".
£1,400k
£1,200k
£1,000k
£800k
£600k
£400k
£200k
£0k
62
Governance ReportAFC Energy PLC Annual Report 2022 In illustrating potential reward opportunities, the following assumptions have been made:
Component
Base Salary
Benefits
Pension
Minimum
On-target
Maximum
Maximum + 50%
share price growth
CEO: £320k
COO: £240k
CFO: £200k
Based on single figure for FYE2022
5% of base salary
Annual Bonus
No bonus payable
LTIP
No LTIP Vesting
Target bonus
(75% of maximum)
Threshold vesting
(25% of maximum)
Maximum bonus
Maximum vesting
Maximum vesting with
50% share price growth
Service contracts
Executive Directors
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.
Executive Director
Adam Bond
Jim Gibson
Graeme Lewis
Date of service contract
1 January 2016
4 October 2018
31 December 2019 (Resigned with effect 1 December 2022)
Peter Dixon-Clarke
1 December 2022
63
Governance ReportAFC Energy PLC Annual Report 2022 Non-Executive Directors
The Non-Executive Directors signed letters of appointment with the Company for the provision of Non-Executive Directors’
services for an indefinite term, which may be terminated by either party giving three months' written notice except for Gary
Bullard whose contract specifies one month. The Non-Executive Directors’ fees are determined by the Board.
Non-Executive Director
Date of service contract
Gary Bullard
Joe Mangion
Gerry Agnew1
Monika Biddulph
5 March 2021
5 December 2017
9 September 2019
3 December 2021
1 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 10 September
2022 Gerry will be entitled to a director’s fee only.
Non-Executive Director policy table
Details of the policy on fees paid to our Non-Executive Directors and how this policy will be implemented for 2022-2023
are set out in the table below:
Implementation of
Remuneration Policy for
2022-2023
A review of senior
executives and NED
remuneration was
undertaken in October
2021 with input from
remuneration advisers
regarding fees in AIM
listed companies of a
similar size.
On the basis of this
advice, NED fees were
raised to £50k from
1 November 2021. The
Chair’s fee was set at
£100k following advice at
time of appointment.
Element
(purpose and link
to strategy)
Fees
To attract and retain
high-calibre individuals
to serve as Non-Executive
Directors
Performance
metrics
Not performance
related.
Operation
Opportunity
Fee levels are set to reflect the
time, commitment and experience
of the Chairman and the Non-
Executive Directors, taking into
account fee levels at other
companies of a similar size and
complexity and to other UK
companies.
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 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 as a
whole following a
recommendation
from the Chief
Executive.
Non-Executive Directors receive
cash fees only and will not be
granted interests in share option
schemes or warrants.
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.
64
Governance ReportAFC Energy PLC Annual Report 2022 Annual report on remuneration
The following section provides details of how AFC Energy’s
remuneration policy was implemented during the financial
Remuneration Committee activities during the year were
as follows:
• Approval of the Directors’ Remuneration Report
year ending 31 October 2022.
for 2022
Remuneration Committee
membership and activities in 2022
The Remuneration Committee’s members as at 31 October
2022 were Gerry Agnew, who is the Chair of the Committee,
Joe Mangion and Monika Biddulph. All members of the
Committee are independent Non-Executive Directors.
Gary Bullard, Company Chairman, is also invited to attend
meetings.
The Committee operates under Terms of Reference
which set out its duties, including reviewing all senior
executive appointments and determining the Group’s
• Review and approval of the Executive Directors’
performance against 2022 annual objectives
• Determination of performance targets for the Executive
Directors’ annual bonus for the year ahead
• Determination of performance targets for the 2022
LTIP grant
• Review of developments in corporate governance
and best practice
• Review of remuneration arrangements and policies
for senior management
• Overseeing implementation of a new all employee
SAYE scheme
policy in respect of the terms of employment, including
During the year, the Committee sought internal support
remuneration packages of Executive Directors and other
from the Chief Executive Officer, who attended Committee
designated members of senior management.
meetings by invitation from the Committee Chair, to advise
The Committee’s Terms of Reference are available on
request from the Company Secretary. The Remuneration
Committee met formally twice during the 2021-2022
financial year and also on an ad hoc basis when required.
on specific questions raised by the Committee and on
matters relating to the performance and remuneration of
senior managers. The Chief Executive Officer and Chair
were not present for any discussions that related directly to
their own remuneration.
The Committee has appointed PricewaterhouseCoopers
(PwC) to provide independent advice on executive
remuneration matters. PwC is a signatory to the Code
of Conduct for Remuneration Consultants in the UK.
The fees paid to PwC in relation to advice provided to
the Committee for 2021-2022 were £29,150 + VAT. The
Committee evaluates the support provided by PwC
annually and is comfortable that they do not have any
connections with AFC Energy that may impair their
independence. No non-remuneration related advice was
provided by PwC to the Group in the year.
65
Governance ReportAFC Energy PLC Annual Report 2022 Single total figure of remuneration for Executive Directors
The table below sets out a single figure for the total remuneration received by each Director for the financial year
ended 31 October 2022:
Basic
salary/fees
(£k)
Taxable
benefits
(£k)
Pension
(£k)
Annual
bonus
(£k)
LTIP
(£k)
Total
(£k)
FYE
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
Executive Directors
Adam Bond
309
305
Jim Gibson
Graeme Lewis1
Non-Executive
Directors
John Rennoks
Gary Bullard
Joe Mangion
Gerry Agnew2
Monika Biddulph3
232
176
–
100
50
37
46
229
167
35
55
25
15
–
43
34
–
–
–
–
–
–
–
88
19
–
–
–
–
–
–
16
12
22
–
–
–
–
–
13
9
22
–
–
–
–
–
229
470
114
87
135
102
–
–
–
–
–
–
–
–
–
–
241
105
–
–
–
–
–
–
950
831
77
107
50
44
430
707
346
–
–
–
–
–
–
–
–
–
838
497
285
–
100
50
37
46
876
392
291
35
55
25
15
–
1,853
1,689
1 Graeme Lewis negotiated a larger pension contribution on joining the business in 2019 and this remains unchanged
2 Gerry Agnew received part payment through share warrants in lieu of £15,000 of his fees. As a result, he received 300,000 warrants
annually until 9 September 2022. This arrangement was part of the original service agreement he signed on joining the Company on
9 September 2019. Only the £35,000 per annum cash element of his fees is disclosed in the table above, as he did not exercise any
warrants within the financial year. After the final tranche of warrants was awarded on 9 September 2022 his fees changed to £50,000
per annum.
3 Monika Biddulph was appointed on 3 December 2021.
4. Gain on vest of LTIP awards.
5. Adam Bond exercised all of the 583,169 options that vested during the year on 25 July 2022 and realised a gain of £133,000.
Incentive outcomes for the year
ended 31 October 2022
Annual bonus in respect
of 2021-2022 performance
Bonuses for the year were based on a blend of 40%
financial, 50% operational and 10% ESG objectives. For
the financial objectives an overall payout of 16.7% was
determined reflecting a threshold performance for sales
revenue and a stretch performance for overall spend.
Despite continued new orders, there was no payout in
regard to an order book objective that was not met.
66
For the operational objectives’ scorecard, 35% of a
maximum 50% bonus pool was paid out. In achieving this
determination, the Committee noted good performance
in key areas such as health and safety and the on-time
delivery of new Power Tower units as well as successful
conclusion of hydrogen-based vehicle charging for the
second season of Extreme E racing.
This was the first year in which an ESG objective grouping
was set and the Committee were pleased to see
performance in this area achieving full 10% payout. The
overall bonus earned across all objective areas came to
61.7% of maximum.
Governance ReportAFC Energy PLC Annual Report 2022 Vesting of first tranche
of transitional LTIP
The first of two tranches of the transitional PSP award
announced in September 2021 vested in the year yielding
583,169 and 255,136 shares for Adam Bond and Jim
Gibson respectively. This outcome was driven by the share
price over the share price averaging window arriving
at 39.086p with a corresponding vesting of 51.8% and
without the Committee exercising any discretion in these
outcomes. Remaining unvested share options from this
tranche lapsed per the scheme rules.
Scheme Interests awarded
in 2021-2022
to introduce a relative element to assessing TSR
improvement and consequently equal 50% weighting was
applied to the relative and absolute elements. In choosing
a relative metric, the AIM 100 index grouping was chosen
to ensure continued emphasis on pushing toward the top
of the market. The choice of 75th percentile performance
limits seeks to expressly exclude unusual extremes in
performance seen in a handful of stocks at the top end
of the market that are actively considering moving onto
main market listings. The use of median performance as
the lower measure ensures a continued push for stretch
and avoids the risk of rewarding mediocre performance.
For the absolute TSR growth metrics, fixed prices rather
than pure CAGR based measures were chosen. This
reflected the strong desire of the Committee to push
towards restoring the share price to being substantially
For the PSP LTIP grants made in 2021-2022, working in
above that of the last raise while at the same time not
conjunction with external advice, considerable thought
necessitating a framework that looked unachievable.
was given to avoiding windfall outcomes linked to the
larger fluctuations in share price seen throughout the
AIM index within the year. Although the PSP framework
explicitly allows discretionary intervention to avoid
extreme outcomes, it was felt more appropriate
The second award made under the PSP LTIP scheme was
made in July 2022 using performance measures outlined
above. This granted the following options:
Executive Director
No of nil cost options awarded in 2021-2022 PSP
Adam Bond
Jim Gibson
1,697,802
743,590
Performance targets apply to the awards over a three-year period commencing on 13 July 2022 as follows:
Performance measure
Weighting
Threshold
performance
(25% vesting)
Maximum
performance
(100% vesting)
Relative TSR vs FTSE AIM 100
Absolute TSR
50%
50%
Median
40p
Upper quartile
75p
Vesting is on a pro-rata basis for performance between the threshold and maximum levels.
67
Governance ReportAFC Energy PLC Annual Report 2022 Exit payments made in the year
On 29 June 2022 Graeme Lewis announced his retirement as CFO and his intention to remain in service until 30 April
2023 to assist in a smooth handover. No payments beyond normal salary, benefits and annual bonus have been made
to Graeme while he has worked this period. He ceased to be a director on 1 December 2022.
Payments to past Directors
There were no payments to past Directors in the year.
Directors’ interests in shares and options
On 31 October 2022 the Executive Directors’ interests over share options and warrants of the Company were:
Date of grant
Adam Bond
Vested Options
15/07/2015 rev 16/12/2019
Unvested Options1
15/07/2015 rev 16/12/2019
Vested LTIP
19/11/2021
Transitional LTIP
19/11/2021
PSP LTIP
19/11/2021
PSP LTIP
12/07/2022
Jim Gibson
Share
price1
pence
Exercise
price
pence
Number
of shares/
options
Awarded
Face
value at
grant
£'000 Performance period
Vesting date
22.0
22.0
59.713
59.713
59.713
21.84
22.0
5,000,000
– 17/07/2017 - 17/05/2025
Vested
22.0
1,000,000
– 17/07/2017 - 17/05/2025
–
0.1
0.1
0.1
0.1
1,125,000
671 07/09/2021- 30/03/2022
30/03/2022
1,125,000
671 07/09/2021 - 30/03/2023
30/03/2023
620,970
370 07/09/2021 - 06/09/2024 06/09/2024
1,697,802
369 12/07/2022 - 11/07/2025
11/07/2025
Vested Options
15/08/2018
8.8
8.8
2,500,000
– 19/11/2021 - 30/03/2023
Vested
Vested LTIP
19/11/2021
Transitional LTIP
19/11/2021
PSP LTIP
19/11/2021
PSP LTIP
12/07/2022
Graeme Lewis
59.713
59.713
59.713
21.84
0.1
0.1
0.1
0.1
492,187
293 07/09/2021 - 30/03/2022
31/03/2023
492,188
293 07/09/2021 - 30/03/2023
30/03/2023
271,968
162 07/09/2021 - 06/09/2024 06/09/2024
743,590
162 12/07/2022 - 11/07/2025
11/07/2025
Vested Options
31/12/2019
16.0
16.0
2,750,000
– 31/12/2019 - 31/12/2029
Vested
PSP LTIP
19/11/2021
59.713
0.1
206,320
123 07/09/2021 - 06/09/2024 06/09/2024
Gerry Angew
Vested Warrants in
lieu fees
09/09/2019
4.925
4.925
900,000
– 09/09/2019 - 09/09/2022 Vested
1 Final remaining unvested tranche of share options granted 15/07/2015 vesting at 85.0p
Of the existing directors, only Adam Bond has ever exercised any options or warrants and did so during the financial year with the gain
from this recorded in Note 9 of the accounts
68
Governance ReportAFC Energy PLC Annual Report 2022 Implementation of policy for
2022-2023
The Committee considers the range of base salary and pay
increases across the Company when determining the base
salary increases for Executive Directors. Although no salary
increase was implemented within the financial year 2021-
engaging with employees and ensuring that the employee
voice is represented in the boardroom. She attends
employee meetings and engages with employees at all
levels both within and beyond the ESG activities that she
is heavily engaged in. This has provided an additional path
for the employees to feed in their view of remuneration
alongside the existing channels provided through HR
22, a review was made immediately following year end and
surveys and NED visits to site.
a 3.5% salary increase was awarded to executives on
1 December 2022, which was slightly lower than the average
increase across the business as a whole. Additionally, a
one time cost of living driven payment of £1,000 was made
to all employees below executive level. The Committee
considered more complex arrangements but decided this
would be the fairest way of addressing the current UK cost
of living challenge without undue complexity.
For 2022-23, the annual bonus continues to use a blend of
40% financial, 50% operational and 10% ESG objectives,
recognising the critical importance of operational delivery
in building long-term value while at the same time driving an
increasingly active emphasis on ESG improvements. Again
revenue, order book and control of spend will be equally
weighted in the 40% of bonus tied to financial objectives.
In line with the recent developments in corporate
governance, Monika Biddulph was appointed as the
Group’s designated Non-Executive Director responsible for
LTIP awards are anticipated to be granted during the
year with both Relative TSR and Absolute TSR conditions,
consistent with the awards granted in 2022.
69
Governance ReportAFC Energy PLC Annual Report 2022 Board of Directors
GARY
BULLARD
ADAM
BOND
JIM
GIBSON
PETER
DIXON-CLARKE
Non-Executive Chairman
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Year appointed – 2021.
Year appointed – 2014.
Year appointed – 2017.
Year appointed – 2022.
Relevant skills and
experience
Experienced Chairman,
Relevant skills and
experience
Over 20 years’ experience
Relevant skills
and experience
Thirty years’ experience in
Relevant skills
and experience
A Deloitte trained Chief
non-executive director and
operating within the
operations management
Financial Officer with over
executive in industrial and
international energy
and business development
30 years of experience,
information technology
sector both in executive
roles within the engineering
of which 20 have been at
industries.
management positions for
contracting sector.
senior management or
Broad experience in the
scale up of high-volume
manufacturing and
supporting high value,
listed energy companies,
and in advisory capacities
to both governments and
the private sector.
Previous
appointments
Twenty-three years at
high growth businesses in
Adam is well networked
Foster Wheeler working in
board level.
Previous
appointments
Experience has been
the commercialisation of
internationally across
operational, business and
primarily in the Energy
commercial roles.
Sector, but also Financial
Two years at ThyssenKrupp
working in process
technology/business
development.
Services and Charity,
and always in high profile
organisations undergoing
strategic change.
Most jobs have been UK
based, but usually with
a strong International
element and time spent
overseas in countries
including: USA, Norway,
Kuwait, Ethiopia, Falkland
Islands and Indonesia.
technology.
Previous
appointments
Senior management
positions in IBM, BT and
Logica.
Non-executive director of
Chloride plc and Rotork plc.
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).
Other current
appointments
Chairman: Gooch &
Housego plc and Recycling
Technologies plc.
Non-executive director:
Spirent Communications plc.
Previous
appointments
Director of JS Yerostigaz
(Uzbekistan).
Previously Non-Executive
Director of AFC Energy plc
from 2012.
70
Governance ReportAFC Energy PLC Annual Report 2022 GERRY
AGNEW
MONIKA
BIDDULPH
JOE
MANGION
Non-Executive Director
Non-Executive Director
Non-Executive Director
Year appointed – 2019.
Year appointed – 2021.
Year appointed – 2017.
Relevant skills and
experience
Over 20 years’ experience
Relevant skills and
experience
Over 20 years’ experience
Relevant skills and
experience
A Chartered Accountant with
in fuel cell technology and
in commercial, operational
over 20 years of operational
systems with both Rolls-Royce
and technical areas of
experience within the
and LG Fuel Cell Systems Inc.
international technology
environmental services and
Before joining the Board
businesses.
alternative energy sectors.
of AFC Energy, Dr Agnew
PhD in Experimental High
served as Senior Fellow on
Energy Physics from ETH
the Rolls-Royce Council
Zurich.
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 Adviser
to LG Fuel Cell Systems Inc.
Prior to this he was Chief
Previous
appointments
CEO of Swiss listed Leclanché,
S.A. – a developer and
producer of large format
lithium-ion energy storage and
energy management systems.
Previous
appointments
Member of Senior
Leadership Team IP
Products at Arm Holdings
Chairman of Solel Solar
plc. Non-executive director
Systems Ltd., a private equity
Linaro Limited.
backed solar company.
Other current
appointments
Non-executive director of
A board member of Airtricity
Plc., a private equity backed
wind developer.
Technologist of Rolls-Royce
Ilika plc and D4t4 Solutions
Fuel Cell Systems, Executive
plc.
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.
71
Governance ReportAFC Energy PLC Annual Report 2022 Directors’ report
The Directors present their report together with the
audited financial statements for the year ended
31 October 2022. The comparative period was from
1 November 2020 to 31 October 2021.
Financial instruments
Financial instruments are disclosed in note 24 of the
financial statements.
Principal activity and review of
future business developments
The principal activity of AFC Energy plc (the Company)
is the development of fuel cells and fuel conversion.
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.
A review of future business developments is included
within the Chairman’s, Chief Executive's and Chief
Financial Officer’s reports on pages 8 to 15.
Results and dividends
The operating loss before tax for the year was £19.5 million
(2021: £10.4 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 in the Nomination Report.
On 31 October 2022 the beneficial interests of Directors
and their families in the equity share capital of the
Company were:
Number of Ordinary
Number of Ordinary
shares of 0.1p
shares of 0.1p
2022
225,000
25,093
2021
115,000
25,093
3,583,169
3,000,000
90,000
90,000
Gary Bullard
Joe Mangion
Adam Bond
Jim Gibson
None of the other directors had a direct interest over
share capital during the reporting period.
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, relevant qualifying
expenditure was £9.1 million
(2021: £3.1 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 24 to the financial statements.
Nil cost options
The directors are aware that some shares were issued
without payment of the nominal face value of 0.1 pence
per share required by the relevant legislation. The
Company will work to remediate this issue and processes
have been modified to prevent this happening in the
future.
72
Governance ReportAFC Energy PLC Annual Report 2022 Going concern
The Company had unrestricted cash of £40.2 million
at 31 October 2022 (2021: £55.4 million).
The Company’s cash outflows currently exceed its
inflows, a position that is expected to continue until its
development products are sufficiently profitable to
generate net cash inflows.
The period covered by the going concern assessment is
until 30 April 2024, being greater than 12 months from the
date of this report.
At 31 October 2022, unrestricted cash resources were
£40.2 million and at 28 February 2023 unrestricted cash
resources were £34.3 million.
The Directors have a reasonable expectation that
sufficient funds exist to meet all payment obligations
as and when they fall due for at least 12 months from
the signing of the balance sheet. Much of the expected
spend during the period covered by the going concern
assessment remains discretionary, particularly as to the
rate of materials spend on development projects.
The Directors, having considered current cash resources,
business risks and financial forecasts, believe the
Company has adequate resources to continue in
operational existence for at least 12 months from the date
of this report and therefore believe that it continues to be
reasonable to adopt the going concern basis in preparing
the Annual Report and financial statements.
Events after the reporting
period
ABB E-mobility
On 28 March 2023, ABB E-mobility confirmed that AFC
Energy had successfully validated its first cumulative
100kW liquid cooled fuel cell. As a result of this, the Sale
and Development Agreement, signed on 15 November
2021, was revised such that:
• ABB will have a pre-agreed discount, to be spread over
the purchases of the first ten fuel cell systems, the first
of which would be purchased under the revised contract
with the subsequent nine at ABB's option; and
• the payment of the remaining £2.0 million, of the £4.0
million, to be used for the purchase of issued shares in
AFC Energy.
The £2.0m balance, was received on 5 April 2023 and the
shares issued and admitted for trading shortly thereafter.
The shares are of the same class and have the same
voting rights as those already in issue. The cash value of
the original contract therefore remains unchanged at
£4.0 million.
ACCIONA
On 18 April 2023, ACCIONA signed an order for the first
50kVA H-Power S Series Generator for delivery in the
second half of 2023. The system will comprise a 30kW
fuel cell and 45kWh battery energy storage system. The
system will initially be rented for a six-month period,
following which ACCIONA has the option to buy the system
at a pre-agreed price or extend the rental.
Disclosure of information to the
auditor
The directors confirm that:
• so far as each director is aware, there is no relevant
audit information of which the company's auditors is
unaware: and
• the directors have taken all the steps they ought to have
taken as directors in order to make themselves aware
of any relevant audit information and to establish that
the company's auditor is aware of that information.
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 4 April 2023
and signed on its behalf by Peter Dixon-Clarke.
Peter Dixon-Clarke
Chief Financial Officer and Company Secretary
21 April 2023
73
Governance ReportAFC Energy PLC Annual Report 2022 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 year. Accordingly, the
directors have chosen to prepare the financial statements
in accordance with UK-adopted international accounting
standards. Under company law the directors must not
approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs
and profit or loss of the company for that period. In
preparing these financial statements, the directors are
required to:
Statement of disclosure to auditor
The Directors confirm that:
• So far as each Director is aware, there is no relevant
audit information of which the Company’s auditor is
unaware; and
• The Directors have taken all the steps that they ought
to have taken as directors in order to make themselves
aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
To the best of our knowledge:
• Select suitable accounting policies and then apply them
consistently;
• Make judgements and estimates that are reasonable
and prudent;
• The financial statements, prepared in accordance with
UK-adopted international accounting standards, give
a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the
undertakings included in the consolidation taken as a
• State whether applicable UK-adopted international
whole; and
• The Strategic report and Directors’ report include a
fair review of the development and performance of
the business and the position of the Company and the
undertakings included in the consolidation taken as a
whole, together with a description of the principal risks
and uncertainties that they face.
accounting standards have been followed, subject to
any material departures disclosed and explained in the
financial statements; and
• Prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
company will continue in business.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the company’s transactions and 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.
74
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
to the members of AFC Energy plc
Opinion
Our opinion on the financial
statements is unmodified
We have audited the financial statements of AFC Energy
plc (the ‘Company’) for the year ended 31 October 2022,
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 UK-adopted international accounting
standards.
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
In our opinion, the financial statements:
continue as a going concern.
• give a true and fair view of the state of the Company’s
affairs as at 31 October 2022 and of its loss for the year
then ended;
Our evaluation of the directors’ assessment of the
Company’s ability to continue to adopt the going concern
basis of accounting included:
• have been properly prepared in accordance with UK-
• challenging management on their determination of
adopted international accounting standards; and
their going concern period;
• have been prepared in accordance with the
• an assessment of management’s cash flow forecasts,
requirements of the Companies Act 2006.
including the impact of the ongoing war in Ukraine and
rising inflation;
• sensitivity analysis of management’s cash flows
forecasts including the robustness of the scenarios
modelled;
• assessments of management’s forecasting accuracy;
and
• discussion with those outside of the finance team
to gain a more robust understanding of future
expectations and developments of the Company.
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.
75
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
Continued
In our evaluation of the directors’ conclusions, we
Based on the work we have performed, we have not
considered the inherent risks associated with the
identified any material uncertainties relating to events
Company’s business model including effects arising from
or conditions that, individually or collectively, may cast
macro-economic uncertainties (such as the ongoing
significant doubt on the Company’s ability to continue as a
war in Ukraine and rising inflation), we assessed and
going concern for a period of at least twelve months from
challenged the reasonableness of estimates made by
when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the
relevant sections of this report.
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.
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.
Our approach to the audit
Overview of our audit approach
Overall materiality: £585,000, which represents 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.
Key audit matters were identified as:
• risk of fraud in revenue recognition (same as previous year); and
• risk of incomplete recognition of the loss provision in relation to contract
accounting (new in year).
Materiality
Key audit
matters
Scoping
Our auditor’s report for the year ended 31 October 2021 included no key
audit matters that have not been reported as key audit matters in our
current year’s report.
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
attendance at the year-end stock count.
76
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
Continued
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
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
High
Employee
remuneration
expenses
Accounting
treatment for
development
costs
Risk of
incomplete
recognition
of the loss
provision in
relation to
contract
accounting
Risk of fraud
in revenue
recognition
Management
override of
controls
Potential
financial
statement
impact
Overstatement
of expenses
included in R&D
tax credit claim
Inventories
Low
Low
Accounting for
share based
payments
Going concern
Extent of management judgement
High
Key audit matter
Significant risk
Other risk
77
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
Continued
Key Audit Matter
How our scope addressed the matter
Risk of fraud in revenue recognition
In responding to the key audit matter, we performed the
We identified the risk of fraud in revenue recognition as
one of the most significant assessed risks of material
misstatement due to fraud.
As the Company continues to commercialise its products,
following audit procedures:
• obtaining an understanding of the revenue recognition
processes and relevant controls relating to accounting
for contracts entered into with customers, in
the more important revenue growth is to stakeholders.
accordance with International Financial Reporting
Further, the recognition of revenue requires management
Standard (IFRS) 15 ‘Revenue from Contracts with
to make judgements relating to the nature and terms of
Customers’;
the contract, such as the identification of performance
obligations, allocation of price to those obligations and
timing of revenue recognition.
• assessing whether the revenue recognition policy is in
accordance with the requirements of IFRS 15 and has
been applied appropriately for the contracts entered
These judgements and the incentive to misstate
with customers;
revenues increase the associated risk of fraud in relation
• challenging management regarding the judgements
to revenue recognition.
made in relation to the identification of performance
obligations, the amounts allocated to performance
obligations and the timing of the satisfaction of the
performance obligations;
•
inspecting all significant 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 confirmation of delivery or completion; and
• assessing the adequacy of related disclosures within
the financial statements.
Relevant disclosures in the Annual Report
Our results
• Financial statements: Note 5, Revenue; and
• Audit Committee report: Revenue recognition in
respect of existing and new customer contracts
Based on our audit work addressing the risk of fraud
in revenue recognition, we are satisfied that the
assumptions made by management in recognising
revenue were appropriate and in accordance with the
financial reporting framework, including IFRS 15, and
we did not identify any material misstatements in the
revenue recognised.
78
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
Continued
Risk of incomplete recognition of the loss provision in
relation to contract accounting
In responding to the key audit matter, we performed the
following audit procedures:
We identified incomplete recognition of the loss provision
in relation to contract accounting as one of the most
significant assessed risks of material misstatement due
to error.
As a result of the Company beginning commercialisation
of products whilst not having history of product delivery
and establishing consistent costs of delivery on new
products, there is a heightened risk of onerous contracts.
There is a significant level of judgement in management
calculating future expected costs on the contracts as the
contracts are bespoke in nature. The impact of incorrect
assessment of these costs is the potential for immediate
recognition of future losses.
• challenging the completeness of managements
onerous contracts assessment by identification of
ongoing contracts;
• testing material costs expected to complete a project
through discussions with project managers and
comparing total costs to complete to contracted
revenue to assess the risk of loss provisions;
• enquiring of specific project managers outside of
the finance team to obtain an understanding of
the process and methods of estimating costs to
complete. Testing for indicators of management bias
in their assumptions and corroborating estimates to
supporting documentation such as approved project
plans;
• testing a sample of forecast costs to complete to
supporting evidence, such as purchase orders and
supplier quotations;
• assessing whether the loss provision policy is in
accordance with the requirements of International
Accounting Standard (IAS) 37 ‘Provisions, Contingent
Liabilities and Contingent Assets’ and IFRS 15 and has
been applied appropriately for the contracts; and
• assessing and challenging the appropriateness and
completeness of the financial statement disclosures.
Relevant disclosures in the Annual Report
Our results
• Financial statements: Note 5, Revenue.
Based on our audit work addressing the risk of
incomplete recognition of the loss provision, we are
satisfied that assumptions made by management
are appropriate and in accordance with the financial
reporting framework, including IAS 37 and IFRS 15.
79
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
Continued
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
£585,000, which represents 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, because we believe that the materiality level
determined at the planning stage is appropriate to the needs of the users of
the financial statements and supports an efficient audit.
Significant judgements made by
In determining materiality, we made the following significant judgements:
auditor in determining materiality
• Loss before tax is considered the most appropriate benchmark due to the
Company being within the development phase of its lifecycle. It is also a
key performance measure for the Company and therefore of interest to
stakeholders.
• The engagement team selected a measurement percentage of 4.5% of
the Company’s loss before tax during the planning of the audit. This was
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 2021 to reflect the increase in the Company’s loss
before tax for the current year at the planning stage of the audit.
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.
80
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
Continued
Performance materiality threshold
£380,000, which is 65% of financial statement materiality.
Significant judgements made
In determining performance materiality, we made the following significant
by auditor in determining
performance materiality
judgements:
• the number of identified control deficiencies in internal control in the prior
year audit; and
• the number and quantum of identified misstatements in the prior year audit.
Specific materiality
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 certain areas such as
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
£29,200 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
£18,041,000
FSM
£585,000,
being 4.5%
of loss
before tax
at planning
stage
FSM: Financial statements
PM
£380,000, 65%
materiality
PM: Performance materiality
TFPUM: Tolerance for potential
uncorrected misstatements
TFPUM
£205,000,
35%
81
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
Continued
An overview of the scope of our
audit
Changes in approach from previous
period
We performed a risk-based audit that requires an
understanding of the Company’s business and in
particular matters related to:
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 the Company (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 and risk of incomplete
recognition of the loss provision in relation to contract
accounting, which were identified as key audit matters.
Performance of our audit
• 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:
– Scoping the risk of incomplete recognition of the
loss provision in relation to contract accounting as
a significant risk in the current year as a result of
our enquiries with management and obtaining an
understanding of the significant costs relating to
contracts entered into by the Company, noting that
the Company continues to be loss making. In the prior
year the risk of incomplete recognition of the loss
provision in relation to contract accounting was not
scoped as a significant risk.
Other information
The other information comprises the information included
in the annual report, other than the financial statements
and our auditor’s report thereon. The directors are
responsible for the other information contained within the
annual report. 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.
• a full-scope audit was performed by the engagement
team, including an evaluation of the internal control
environment, including its IT systems; and
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
• we completed a site visit of the Company’s premises at
our knowledge obtained in the audit or otherwise appears
the planning and fieldwork stages of the audit, as well as
to be materially misstated. If we identify such material
observing the client’s stock count.
inconsistencies or apparent material misstatements, we
are required to determine whether there is a material
misstatement in the financial statements themselves. 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.
82
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
Continued
Our opinion on other matters
prescribed by the Companies
Act 2006 is unmodified
Responsibilities of directors for
the financial statements
As explained more fully in the statement of directors’
In our opinion, based on the work undertaken in the
responsibilities set out on page 74, the directors
course of the audit:
• the information given in the strategic report and the
directors’ report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
• the strategic report and the directors’ report have
been prepared in accordance with applicable legal
requirements.
Matter on which we are required
to report under the Companies
Act 2006
In the light of the knowledge and understanding of the
Company and its environment obtained in the course of
the audit, we have not identified material misstatements in
the strategic report or the directors’ report.
Matters on which we are
required to report by exception
We have nothing to report in respect of the following
matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
• adequate accounting records have not been kept, or
returns adequate for our audit have not been received
from branches not visited by us; or
• the financial statements are not in agreement with the
accounting records and returns; or
• certain disclosures of directors’ remuneration specified
by law are not made; or
• we have not received all the information and
explanations we require for our audit.
are responsible for the preparation of the financial
statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation
of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors
are responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going
concern basis of accounting unless the directors either
intend to liquidate the Company or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in
the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the
basis of these financial statements.
83
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
Continued
Irregularities, including fraud, are instances of non-
– challenging assumptions and judgements made by
compliance with laws and regulations. The extent to which
management in its significant accounting estimates;
our procedures are capable of detecting irregularities,
and
including fraud, is detailed below:
• We obtained an understanding of the legal and
year and post year-end which were deemed to be
regulatory frameworks applicable to the Company
unusual.
– identifying and testing journal entries posted in the
and the industry in which it operates. We determined
that the following laws and regulations were the most
significant: the Companies Act 2006, UK-adopted
international accounting standards, 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;
• 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;
• The engagement partner’s 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
• We assessed the susceptibility of the financial statements
– understanding of the legal and regulatory
to material misstatement, including how fraud might
requirements specific to the Company.
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;
• 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.
84
Governance ReportAFC Energy PLC Annual Report 2022 Independent auditor’s report
Continued
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.
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
21 April 2023
85
Governance ReportAFC Energy PLC Annual Report 2022 Statement of
comprehensive income
For the year ended 31 October 2022
Revenue from customer contracts
Cost of sales
Gross profit
Other income
Operating costs
Operating loss
Finance cost
Bank interest receivable
Loss before tax
Taxation
Loss for the financial year and total comprehensive loss
attributable to owners of the Company
Basic loss per share (pence)
Diluted loss per share (pence)
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
582
(467)
115
22
(19,749)
(19,612)
(19)
143
(19,488)
3,042
592
(577)
16
25
(10,450)
(10,409)
(52)
19
(10,442)
1,063
(16,446)
(9,378)
(2.24)
(2.24)
(1.33)
(1.33)
Note
5
6
10
10
11
12
12
All amounts relate to continuing operations. There was no other comprehensive income in the period (2021: £nil).
The notes on pages 92 to 116 form part of these financial statements.
88
Financial StatementsAFC Energy PLC Annual Report 2022 Statement of
financial position
As at 31 October 2022
AFC Energy plc
Registered number: 05668788
Note
31 October 2022
£000s
31 October 2021
£000s
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
Total assets
Current liabilities
Payables
Lease liabilities
Non-current liabilities
Lease liabilities
Provisions
Total liabilities
Capital and reserves attributable to owners of the Company
Share capital
Share premium
Other reserve
Retained deficit
Total equity attributable to shareholders
Total equity and liabilities
13
14
15
16
17
18
18
19
20
20
21
22
22
311
976
3,282
4,569
43
1,160
4,075
40,220
612
46,110
50,679
3,644
298
3,942
698
301
999
4,941
735
116,487
4,073
(75,557)
45,738
50,679
The notes on pages 92 to 116 form part of these financial statements.
These financial statements were approved and authorised for issue by the Board on 21 April 2023.
Adam Bond
Chief Executive Officer
Peter Dixon-Clarke
Chief Financial Officer
746
884
2,269
3,899
661
1,015
1,581
55,375
612
59,243
63,142
1,696
322
2,018
584
654
1,238
3,256
734
116,448
2,456
(59,752)
59,886
63,142
89
Financial StatementsAFC Energy PLC Annual Report 2022
Statement of changes
in equity
For the year ended 31 October 2022
Balance at 1 November 2020
676
81,418
1,513
(50,583)
33,024
Share
Capital
£000s
Share
Premium
£000s
Other
Reserve
£000s
Retained
Loss
£000s
Total
£000s
Loss after tax 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
Balance at 31 October 2021
Loss after tax for the year
Issue of equity shares
Equity settled share-based payments
- Lapsed or exercised in the period
- Charged in the period
Fair value of warrants accounted for
as equity
-
58
-
35,030
-
-
(9,378)
(9,378)
-
35,088
-
-
-
-
(209)
1,152
209
-
-
1,152
734
116,448
2,456
(59,752)
59,886
-
1
-
-
-
-
39
-
-
-
-
-
(641)
1,682
576
(16,446)
(16,446)
-
40
641
-
-
-
2,258
-
Balance at 31 October 2022
735
116,487
4,073
(75,557)
45,738
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 and
warrants granted.
Retained deficit represents the cumulative loss of the Company attributable to equity shareholders.
The notes on pages 92 to 116 form part of these financial statements.
90
Financial StatementsAFC Energy PLC Annual Report 2022
Cash flow
statement
For the year ended 31 October 2022
Cash flows from operating activities
Loss before tax for the year
Adjustments for:
Amortisation of intangible assets
Impairment of intangible assets
Depreciation of right-of-use assets
Depreciation of tangible assets
Impairment of tangible assets
Loss on disposal of property and equipment
Depreciation of decommissioning asset
Equity settled payments
Interest receivable
Lease finance charges
Cash flows from operations
R&D tax credits received
(Increase)/decrease in restricted cash
(Increase)/decrease in inventory
Decrease/(increase) in receivables
(Decrease)/increase in payables
(Decrease)/increase in provision
Cash absorbed by operating activities
Purchase of plant and equipment
Additions to intangible assets
Interest received
Net cash absorbed by investing activities
Proceeds from the issue of share capital
Costs of issue of share capital
Proceeds from the exercise of options
Proceeds from grant of warrants
Lease interest paid
Lease payments
Net cash from financing activities
Net (decease)/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 92 to 116 form part of these financial statements.
Note
31 October 2022
£000s
31 October 2021
£000s
(19,488)
(10,442)
13
13
14
15
15
15
23
15
13
10
24
20
20
18
473
294
379
994
255
126
-
1,682
(143)
33
110
302
448
4
31
1,152
(19)
37
(15,395)
(8,377)
546
-
618
(145)
1,948
(353)
(12,781)
(2,388)
(334)
151
(2,571)
-
-
40
576
(38)
(381)
197
(15,155)
55,375
40,220
-
(342)
(411)
(489)
459
353
(8,807)
(1,812)
(87)
19
(1,880)
36,000
(1,348)
437
–
(37)
(292)
34,760
24,074
31,301
55,375
91
Financial StatementsAFC Energy PLC Annual Report 2022 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 fuel cell and fuel processing 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 UK Adopted International
Accounting Standards (IASs).
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 directors are required to assess whether it is appropriate to prepare the financial statements on a going concern
basis. In making this assessment the directors need to be satisfied that the Company can meet its obligations as they
fall due for at least 12 months from the date of this report.
The directors make their assessment based on a cash flow model prepared by management which sets out expected
cash flows through to 30 April 2024. Extending the period beyond the minimum 12 months from the date of this report
provides additional comfort when making the assessment.
Downside sensitivities have been applied to the cash flows primarily related to an overspend of product development
costs (for both materials and internal labour) and an under-recovery of R&D tax credits.
Having concluded that the Company remains a going concern, these financial statements have therefore been
prepared on that basis.
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 October 2022 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.
92
Financial StatementsAFC Energy PLC Annual Report 2022 Amendments to International Financial Reporting Standards (IFRSs) that are
mandatorily effective for the current year
In the current year, the Company has applied the following amendments to IFRSs issued by the International Accounting
Standards Board (IASB) that are mandatory:
– Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for Interest Rate Benchmark reform – phase 2 (effective for
periods beginning on or after 1 January 2021)
– IFRS 16 Amendment for COVID-19 related Rent Concessions beyond 30 June 2021 (effective for periods beginning on
or after 1 April 2021)
These standards have not had a material impact on the entity in the current reporting period.
New and revised IFRSs in issue but not yet effective
Certain new accounting standards and interpretations have been published that are not mandatory for 30 October
2022 reporting periods and have not been early adopted by the Company. These standards are expected neither to
have a material impact on the entity in the current or future reporting periods nor on foreseeable future transactions:
– IFRS 3 Amendments to references to the Conceptual Framework Current (effective for periods beginning on or after 1
January 2022)
– IAS 16 Amendments to Property, Plant and Equipment – Proceeds before intended Use Current (effective for periods
beginning on or after 1 January 2022)
– IAS 37 Amendments to Onerous Contracts – Cost of Fulfilling a Contract (effective for periods beginning on or after 1
January 2022)
– Annual Improvements to IFRS Standards 2018-2020, affecting IFRS 1, IFRS 9, IFRS 16, IFRS 41 (effective for periods
beginning on or after 1 January 2022)
– IAS 1 Classification of Liabilities as Current or Non-Current (effective for periods beginning on or after 1 January 2024)
– IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting Policies from significant to material (effective for periods
beginning on or after 1 January 2023)
– IAS 8 Amendments to Definition of Accounting Estimates (effective for periods beginning on or after 1 January 2023)
– IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for periods beginning
on or after 1 January 2023)
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 2006.
Revenue recognition
To determine whether to recognise revenue, a five-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; and
• 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.
and may be either for 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; and
• Some or all the goods and services comprise a single performance obligation.
93
Financial StatementsAFC Energy PLC Annual Report 2022 The contract terms are analysed to determine if they 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 a
suitable indicator of fair value.
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 customers. Contract liabilities are recognised for consideration received in respect
of unsatisfied performance obligations and the Company reports these amounts as Deferred revenue in the notes to
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 in 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.
During the product build, deposits and progress payments will be reflected in the balance sheet as Deferred revenue.
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 as an onerous contract with immediate effect.
Sale (customised products) contracts - Revenues for customised contracts (i.e. contracts with no alternative use for the
contract deliverable) 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.
Combination of contracts - contracts are combined and accounted for as a single contract if the contracts are entered
into at or near the same time with the same customer or if one or more of the following are met; contracts negotiated
as a single package; consideration of one contract depends on another; or some of the goods or services are a single
performance obligation.
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 assessed. In accordance with IAS 38 Development costs and capitalised if they meet
all of the criteria required as below:
• technical feasibility of completing the asset for use or sale;
•
intention to complete the asset for use or sale;
• ability to use or sell the asset;
• generation of probable future economic benefits;
• availability of adequate technical and financial resources; and
• ability to measure the attributable expenditure reliably.
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.
94
Financial StatementsAFC Energy PLC Annual Report 2022 At each Statement of Financial Position date, monetary items denominated in foreign currencies are retranslated at the
rates prevailing at the date of the Statement of Financial Position.
Inventory
Inventory is recorded at the lower of actual cost and net realisable value, applying the FIFO methodology.
Work in progress comprises direct labour, direct materials and direct overheads. 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 represents bank deposit accounts where disbursement is dependent upon certain contractual
performance conditions.
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
Fixtures, fittings and equipment
Computer equipment
Manufacturing and test stands
Motor vehicles
Demonstration equipment
Rental fleet
Years
1 to 3 years
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 tangible fixed assets are reviewed annually and any revision is accounted for as a change
in accounting estimate and the net book value of the asset, at the time of the revision, is depreciated over the remaining
revised economic life of the asset.
Right-of-use assets
At inception each contract is assessed as to 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 for 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 is used. 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.
95
Financial StatementsAFC Energy PLC Annual Report 2022 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.
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
The useful economic lives of intangible fixed assets are reviewed annually and any revision is accounted for as a change
in accounting estimate and the net book value of the asset, at the time of the revision, is amortised over the remaining
revised economic life of the asset.
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 periods:
Development costs
Patents
Commercial rights
Years
5 years
10 to 20 years
5 years
The useful economic lives of intangible fixed assets are reviewed annually and any revision is accounted for as a change
in accounting estimate and the net book value of the asset, at the time of the revision, is amortised over the remaining
revised economic life of the asset.
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).
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 (FVTPL), directly attributable transaction costs. Financial
instruments are recognised when the Company becomes a party to the contracts that give rise to them and are
classified as amortised 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 FVTPL or FVOCI.
96
Financial StatementsAFC Energy PLC Annual Report 2022 Financial assets at amortised cost
A financial asset is measured at amortised 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 FVTPL. Financial
assets classified as amortised cost are measured subsequent to initial recognition at amortised cost using the effective
interest method. Cash, restricted cash, trade receivables and certain other assets are classified as and measured at
amortised cost.
Financial liabilities
Financial liabilities are classified as measured at amortised 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 recognised in profit
or loss.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Gains
and losses are recognised in net earnings when the liabilities are derecognised as well as through the amortisation
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 leases liabilities are classified as and measured at amortised cost.
Impairment of financial assets
A loss allowance for expected credit losses is recognised in the Statement of Comprehensive Income for financial
assets measured at amortised cost. At each balance sheet date, on a forward-looking basis, the Company assesses
the expected credit losses associated with its financial assets (such as trade receivables and contract assets) carried
at amortised 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 derecognised 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 derecognised 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
recognised in the statement of Comprehensive Income.
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)
•
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.
97
Financial StatementsAFC Energy PLC Annual Report 2022 Where there are unapproved share option plans, a provision for the employer’s 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.
Provisions include onerous contracts (see later under section 3) where, if unavoidable costs of meeting a contract
exceed the expected revenue, a provision is recognised immediately through profit and loss.
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.
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 5% of the employee’s salary and are reflected in the statement of comprehensive income in the period
for which they are made.
3. Critical accounting judgements, and key sources of estimation 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:
Critical accounting 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 goods or services related to the provision of off-grid power
generated from the conversion by fuel cells of hydrogen to electricity.
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.
98
Financial StatementsAFC Energy PLC Annual Report 2022 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.
For the current year, all development costs have been expensed as they do not yet meet all six of the criteria set out
within the policy (see section 2) on development costs.
Key source of estimation uncertainty
Share-based payments
Certain employees (including Directors and senior Executives) of the Company receive remuneration in the form of
share-based payment, 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 for 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.
Onerous contracts
Throughout the year, the performance of each open contract is reviewed and expected cost of delivering that contract
is compared to the expected revenue from doing so. Where the expected costs suggest a loss the contract is treated as
an onerous contract and a provision is recognised immediately through the profit and loss. No such provisions were made.
Estimate
Accounting estimate but not a significant estimate under IAS 1.125.
Warrant valuation
6.8 million warrants were granted during the year to ABB E-mobility on the same day, 15 November 2021, that the
Company signed the Sale and Development Agreement.
As the warrant vesting conditions were dependent on performance conditions within the Sale and Development
contract, the two contracts were considered to be linked and therefore accounted as a single contract (meaning that
the contract value of the Sale and Development agreement was reduced by the fair value of the warrants, which have
been accounted for as equity and so not charged to the Statement of Comprehensive Income).
The fair value is determined using the Black-Scholes valuation model with the Monte Carlo model used for inputs around
likelihood of exercise. The main area of uncertainty relates to the inputs to the Black-Scholes model, particularly around the
assumptions concerning the exercise period and timing of any potential exercise. This is because the start of the exercise
period) (i.e. the point the warrants vest) is subject to performance, and therefore not fixed in time at the point of grant
(which is the valuation date). Changing the assumptions around timing could have a material impact on the valuation. Level
1 inputs have been used where suitable but management inputs have also been taken into account. See also note 24.
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 2022, the Company operated mainly in the United Kingdom. All non-current assets are in the
United Kingdom.
Revenue for the period was all generated from fuel cell systems.
99
Financial StatementsAFC Energy PLC Annual Report 2022 5. Revenue
Revenue from contracts with customers
Rental revenue
Other revenue
Being
Cash consideration
Consideration in kind
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
225
357
582
367
215
582
576
16
592
315
277
592
The majority of the other revenue relates to sales of hydrogen to the rentee of the fuel cell generators.
Unsatisfied performance obligations were:
31 October 2021 1
31 October 2022
Total
£000s
Within one year
£000s
Within 2 to 5 years
£000s
148
96
148
96
-
-
1 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 2022
was £96,000 (2021: £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.
100
Financial StatementsAFC Energy PLC Annual Report 2022 6. Operating costs
The operating costs consist of:
Qualifying
R&D spend
31 October
2022
£000s
Indirect
31 October
2022
£000s
Year ended
31 October
2022
£000s
Qualifying
R&D spend
31 October
2021
£000s
Indirect
31 October
2021
£000s
Year ended
31 October
2021
£000s
Note
Materials
Payroll (excluding Directors)
Directors costs
Other employment costs
Occupancy costs
Other administrative 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
9
7
13
14
15
15
5
23
4,654
3,660
8,314
-
251
-
440
9,005
-
-
-
-
-
-
451
1,247
1,698
1,642
796
772
2,310
7,218
474
5,105
4,907
10,012
1,642
1,047
772
2,750
16,223
474
379
379
994
994
(218)
215
1,682
(218)
215
1,682
1,003
1,767
2,770
-
17
27
75
3,100
-
-
-
-
-
-
34
220
254
1,900
1,196
245
1,743
5,127
110
1,037
1,987
3,024
1,900
1,212
272
1,818
8,226
110
302
302
480
480
(98)
278
1,152
(98)
278
1,152
9,005
10,744
19,749
3,100
7,351
10,450
The values disclosed as qualifying R&D spend form the total R&D expenditure incurred by the Company during the year.
Occupancy costs include: repair & maintenance, utilities and lease payments. In the prior year the information
technology costs were classified within occupancy costs but have been reclassified in the current year into other
administration expenses to better reflect the nature of the costs.
Fees paid to the auditors included within the operating costs were:
Audit
Other assurance services
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
244
9
136
12
101
Financial StatementsAFC Energy PLC Annual Report 2022 7. Other administration expenses
Professional fees
Audit and tax costs
Information technology
Travel & entertainment
Insurance
Other
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
889
312
753
486
260
50
596
155
342
224
162
339
2,750
1,818
In the prior year the information technology costs were classified within occupancy costs but have been reclassified in
the current year into other administrative expenses to better reflect the nature of the costs.
8. Employee numbers and costs, including directors
The average numbers of employees in the year were:
Support, operations and technical
Directors
The aggregate payroll costs for these persons were:
Wages and salaries
Social security
Employer’s pension contributions
Equity-settled share-based payment expense
9. Directors’ costs
Wages and salaries
Accrual for untaken holiday
Other compensation
Company pension contributions
Social security
Year ended
31 October 2022
Number
Year ended
31 October 2021
Number
77
7
84
36
6
42
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
5,961
392
196
6,549
1,682
8,231
3,108
684
95
3,887
1,152
5,039
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
1,380
37
77
50
1,544
98
1,642
1,538
–
107
44
1,689
211
1,900
Social security and accrued holidays are included in the table above to reconcile to Note 6.
102
Financial StatementsAFC Energy PLC Annual Report 2022 9. Directors’ costs - continued
Directors’ emoluments
Wages and salaries
Other compensation
Company contributions to defined contribution pension schemes
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
1,380
77
50
1,507
1,538
107
44
1,689
Of the current directors, Adam Bond is the only director ever to have exercised options or warrants (see below).
Highest paid director
Wages and salaries
Other compensation
Company contributions to defined contribution pension schemes
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
538
43
581
16
597
775
88
863
13
876
Adam Bond realised £133,000 from exercising in full options that vested earlier in the year at value £241,000. He did not
exercise any options in the previous year.
The highest paid director received remuneration of £581,000 (2021: £863,000) excluding pension contributions and LTIP.
10. Net finance cost
Lease Interest
Exchange rate differences
Bank charges
Total finance cost
Bank interest receivable
Net finance cost
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
38
(21)
2
19
(143)
(124)
37
2
13
52
(19)
33
103
Financial StatementsAFC Energy PLC Annual Report 2022 11. Taxation
Recognised in the statement of comprehensive income
R&D tax credit - current year
R&D tax credit - prior year
Total tax credit
Reconciliation of effective tax rates
Loss before tax
Tax using the domestic rate of corporation tax of 19% (2021: 19%)
Effect of:
Change in unrecognised deferred tax resulting from tax losses
Timing differences not deductible for tax purposes
Depreciation in excess of capital allowances
R&D enhanced deduction on qualifying R&D expenditure
R&D rate adjustment on surrendered losses
R&D tax credit - prior year
Total tax credit
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 2022
£000s
Year ended
31 October 2021
£000s
(3,050)
8
(3,042)
(1,034)
(30)
(1,063)
(19,488)
(3,703)
(10,442)
(1,984)
1,767
(101)
299
(2,259)
947
8
1,354
(165)
148
(766)
380
(30)
(3,042)
(1,063)
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
(187)
477
12,037
12,327
(95)
39
9,595
9,539
The cumulative tax losses in the amount of £47.6 million (2021: £37.8 million) 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.
The 2021 Finance Act increased the UK corporation tax rate to 25% from 1 April 2023, which will affect any future tax
charges.
The tax reconciliation for the prior year has been re-presented to reflect the reconciliation in the current year where
change in unrecognised deferred tax resulting from tax losses has been disclosed separately from other reconciling
items.
104
Financial StatementsAFC Energy PLC Annual Report 2022 12. Loss per share
The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary shareholders 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 £000s
Weighted average number of shares in issue 000s
Diluted earnings per share
Year ended
31 October 2022
Year ended
31 October 2021
(2.24)
(2.24)
(£16,446)
734,745
(1.33)
(1.33)
(£9,378)
706,413
As set out in note 23, there are share options and warrants (accounted for under IFRS 2: Share based payments)
outstanding as at 31 October 2022 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 2022 nor the previous year.
13. Intangible assets
Cost
As at 1 November 2020
Additions
31 October 2021
Additions
As at 31 October 2022
Amortisation
As at 1 November 2020
Charge for the year
As at 31 October 2021
Intangible: Impairment
Charge for the year
As at 31 October 2022
Net book value 31 October 2020
Net book value 31 October 2021
Net book value 31 October 2022
Development
costs
£000s
229
-
229
-
229
28
46
74
121
34
229
201
155
-
Patents
£000s
800
86
886
334
1,220
344
40
384
173
422
979
456
504
241
Commercial
rights
£000s
Intangible
assets
£000s
121
-
121
-
121
9
24
33
-
18
51
112
88
70
1,150
86
1,236
334
1,570
381
110
491
294
474
1,259
769
747
311
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 £100k and future payments in kind through the provision of technical support.
The impairment charge relates to certain expenses capitalised during the development of the L-Series and now
considered impaired due to the development of the S-Series.
105
Financial StatementsAFC Energy PLC Annual Report 2022 14. Right-of-use assets
Costs
As at 1 November 2020
As at 31 October 2021
Additions
As at 31 October 2022
Depreciation
31 October 2020
Charge for the year
31 October 2021
Charge for the year
As at 31 October 2022
Net Book Value
As at 31 October 2020
As at 31 October 2021
As at 31 October 2022
15. Tangible fixed assets
Costs
As at 1 November 2020
Additions
Disposals
Transfers
As at 31 October 2021
Additions
Disposals
As at 31 October 2022
Depreciation
1 November 2020
Charge for the year
Disposals
Transfers
As at 31 October 2021
Charge for the year
Impairment
As at 31 October 2022
Net Book Value
1 November 2020
31 October 2021
As at 31 October 2022
106
Buildings
£000s
1,415
1,415
470
1,885
228
302
530
379
909
248
884
976
Leasehold
improvements
£000s
De-
commissioning
Asset
£000s
Fixtures,
fittings and
equipment
£000s
Motor
vehicles
£000s
Demon-
stration
equipment
£000s
Sub-
Total
£000s
222
736
-
-
958
1,620
(8)
2,570
222
80
-
-
302
444
-
746
-
655
1,824
300
1,486
18
-
-
-
300
-
-
81
(13)
(214)
1,340
241
-
300
1,581
234
31
-
-
265
20
-
1,310
42
(10)
(98)
1,244
83
-
285
1,327
66
35
15
176
96
254
-
-
-
18
-
-
18
18
-
-
-
18
-
-
18
-
-
-
327
295
622
-
(118)
504
54
144
-
-
198
69
67
334
273
424
170
2,353
1,112
(13)
(214)
3,238
1,861
(126)
4,973
1,838
297
(10)
(98)
2,027
616
67
2,710
515
1,211
2,263
Financial StatementsAFC Energy PLC Annual Report 2022 15. Tangible fixed assets - continued
Sub-
Total
£000s
Rental
asset
£000s
Computer
equipment
£000s
Manu-
facturing and
test stands
£000s
Assets in
construction
£000s
Costs
1 November 2020
Additions
Disposals
Transfers
31 October 2021
Additions
Disposals
31 October 2022
Depreciation
1 November 2020
Charge for the year
Disposals
Transfers
31 October 2021
Charge for the year
Impairment
31 October 2022
Net Book Value
1 November 2020
31 October 2021
31 October 2022
2,353
1,112
(13)
(214)
3,238
1,861
(126)
4,973
1,838
297
(10)
(98)
2,027
616
67
2,710
515
1,211
2,263
423
280
-
-
703
-
-
703
-
98
-
-
98
218
188
504
423
605
199
-
70
-
129
199
119
-
318
-
39
-
47
86
71
-
157
-
113
161
Total
£000s
2,776
1,813
(13)
-
4,576
2,388
(126)
-
351
-
85
436
2
-
-
-
-
-
-
406
-
438
406
6,838
-
45
-
51
96
89
-
185
-
340
253
-
-
-
-
-
-
-
-
-
-
406
1,838
479
(10)
-
2,307
994
255
3,556
938
2,269
3,282
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.
16. Inventory
Raw materials
Work in progress
Provision
Inventory
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
173
-
(130)
43
453
208
-
661
Inventory expensed as cost of sales during the year was £nil (2021 £nil). During the year, £488,000 of brought
forward inventory was written off as research and development costs on projects that did not subsequently meet the
anticipated level of commerciality.
107
Financial StatementsAFC Energy PLC Annual Report 2022 17. Receivables
Accounts receivable
VAT receivables
Other receivables
Prepayments
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
142
401
303
314
1,160
299
229
154
333
1,015
There is no significant difference between the fair value of the receivables and the values stated above.
Given the value of VAT receivables for the current year, it has been reclassified as a separate line item, with the balance
remaining within other receivables.
18. Cash and cash equivalents
Cash at bank
Bank deposits
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
285
39,935
40,220
119
55,256
55,375
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 of £612,000 (2021: £612,000) is not included within cash and cash equivalents and is held on escrow to
support bank guarantees provided under contractual obligations to suppliers and customers..
19. Payables
Current liabilities:
Trade payables
Deferred revenue
Other payables
Accruals
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
445
1,600
349
1,250
3,644
353
214
144
985
1,696
Included in Accruals as of 31 October 2022 is an amount of £514,000 in relation to bonuses (2021: 507,000).
Deferred revenue under the ABB contract is reduced by the fair value of the warrants granted on the same day, 15
November 2021, as the two contracts are considered to be linked. Also see note 24 for information on the warrants
granted.
108
Financial StatementsAFC Energy PLC Annual Report 2022 20. Lease liabilities
Opening position
Cash flows
- Repayment
Non-cash
- Additions
- Interest expense
Lease liabilities less than 12 months
Lease liabilities more than 12 months
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
906
-
(419)
-
471
38
996
260
-
(330)
-
939
37
906
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
298
698
996
322
584
906
The Company has a number of leases, which are mainly of five years in duration and have break clauses after two, or
three, years. Leases are renewed, as opposed to being extended, and are granted outside of the 1954 Act, and therefore
do not have security of tenure.
21. Provisions
Balance at 1 November 2020
Addition
Balance at 31 October 2021
Utilisation
Balance at 31 October 2022
National
Insurance on
unapproved share
options
£000s
Decommissioning
provision
£000s
-
(353)
(353)
353
-
(301)
-
(301)
-
(301)
Total
£000s
(301)
(353)
(654)
353
(301)
The prior year provision for National Insurance related to options granted outside of the approved EMI scheme. No
further grants of similar options were made during the current year and, as the EMI options are marked-to-market and
the relevant market benchmark is lower than the exercise price, no provision is required.
The Company has set up a decommissioning provision for 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 the lessor.
109
Financial StatementsAFC Energy PLC Annual Report 2022 22. Issued share capital
Ordinary
shares
Price
£000s
Share
Capital
£000s
Share
premium
£000s
Cost
of issue
£000s
Total
share
premium
£000s
1 November 2021
734,484,668
-
734
119,718
(3,269)
116,448
Exercise of options 14 March 2022
Exercise of options 5 July 2022
Exercise of PSP award 21 July 2022
Exercise of options 26 July 2022
Exercise of options 7 September 2022
60,000
110,000
583,169
60,000
53,334
9,240
12,320
583
9,240
8,213
-
-
1
-
-
9
12
-
9
8
-
-
-
-
-
9
12
1
9
8
31 October 2022
735,351,171
39,596
735
119,756
(3,269)
116,487
All issued shares are fully paid, other than some shares which were issued during the year without payment of the
nominal face value of 0.1 pence per share required by the relevant legislation. The Company will work to remediate the
issue and processes have been modified to prevent this happening in the future.
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 has no debt, other than property leases, and therefore a target debt to equity ratio is not relevant at the time.
Share premium is shown before the permitted deduction of cost of issue. After such deduction the value equals
£116,487,000.
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.
In November 2021 the Company granted 6.8 million warrants to ABB (see note 24)
23. Share based payments
Share based payment charge:
Employee Share Option Plan
Warrants
SAYE
2022
£000s
1,593
70
19
1,682
2021
£000s
1,090
62
-
1,152
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 conditional 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.
110
Financial StatementsAFC Energy PLC Annual Report 2022
23. Share based payments - continued
Set out below are summaries of options granted under the Plan:
1 November 2021
Granted during the year
Exercised during the year
Lapsed during the year
31 October 2022
Vested and exercisable at 31 October
Average exercise
price per share
option (£)
2022
0.35
0.01
0.05
0.21
0.24
Average exercise
price per share
option (£)
2021
0.30
0.62
0.22
0.33
0.35
Number of
options
2022
14,952,167
7,708,317
(866,503)
(1,945,548)
19,848,433
11,700,637
Number of
options
2021
14,420,835
1,600,000
(718,668)
(350,000)
14,952,167
9,630,501
Share options outstanding at the end of the year have the following expiry dates and exercise prices.
Grant date
Expiry date
Exercise price (£)
07 November 2012
07 November 2022
02 December 2013
01 December 2023
17 July 2015
17 July 2025
10 September 2018
01 August 2024
15 October 2018
15 October 2024
31 December 2019
20 April 2030
20 April 2020
24 June 2021
20 April 2030
28 June 2031
19 November 2021
19 November 2031
04 July 2022
15 July 2022
04 July 2032
15 July 2032
0.3575
0.34
0.22
0.088
0.088
0.1635
0.154
0.617
0.001
0.19
0.001
Share options
2022
Share options
2021
95,000
120,000
95,000
120,000
6,000,000
6,000,000
216,667
266,667
2,500,000
2,500,000
2,750,000
2,750,000
820,500
1,720,500
1,000,000
1,500,000
2,971,582
215,000
3,159,684
-
-
-
19,848,433
14,952,167
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.
111
Financial StatementsAFC Energy PLC Annual Report 2022
23. Share based payments - continued
Exercise
price
(pence)
16.35
61.7
0.001
0.001
0.001
0.19
0.001
0.001
Average
grant
date share
price
(pence)
Grant date
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
2022
£000s
31 December 2019
16.35
95.5%
24 June 2021
19 November 2021
19 November 2021
19 November 2021
04 July 2022
15 July 2022
15 July 2022
63.5
53.8
53.8
53.8
19
20.7
20.7
106.8%
76%
76%
76%
95%
95%
95%
0.54%
0.18%
0.05%
0.35%
0.05%
1.83%
1.76%
1.76%
0%
0%
0%
0%
0%
0%
0%
0%
2
3
0.4
1.4
3
3
3
3
8.1
41.8
0.43
0.42
0.45
11.4
12.7
16.6
74
116
698
472
167
3
27
36
1,593
Total charge for the year (2021: £ 1,089,887)
Three grants were made on 19 November 2021. The first two, of the three disclosed above, related to the Transitional
LTIP, and was made in two tranches. The first tranche had a risk free rate of 0.05% whilst the second tranche had a rate
of 0.35% The third, of the three above, related to the PSP LTIP and had a risk free rate of 0.05%.
SAYE
1 November
Granted during the year
31 October
Vested and exercisable at 31 October
Average
exercise
price per
option (£)
2022
0.2
0.2
-
Number of
options
2022
-
2,007,400
2,007,400
-
Average
exercise
price per
option (£)
2021
Number of
options
2021
-
-
-
-
-
-
-
-
Grant date
03 August 2022
Expiry date
Exercise price (£)
Share options
2022
Share options
2021
31 March 2026
0.2
2,007,400
2,007,400
-
-
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 2022
(£000’s)
0.256
95%
2.93%
0%
3.08
17.7
19
19
Grant date
03 August
2022
Exercise
price
(pence)
0.2048
Total
charge for
the year
(2021: £ nil)
112
Financial StatementsAFC Energy PLC Annual Report 2022 24. Financial instruments
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:
01 November
Granted during the year
Exercised during the year
31 October
Vested and exercisable at 31 October
Average
exercise price per
warrant (£)
2022
0.51
0.59
-
Number of
warrants
2022
8,900,000
6,802,720
-
0.54
15,702,720
4,001,300
Average
exercise price per
warrant (£)
2021
0.18
0.77
0.19
0.51
Number of
warrants
2021
5,400,000
5,000,000
(1,500,000)
8,900,000
600,000
Warrant
price
(pence)
Average
grant
date share
price
(pence)
Grant date
Average
expected
volatility
(per annum)
Average
risk-free
interest rate
(per annum)
Average
dividend
yield
(per annum)
Average
implied
warrant life
(years)
Average fair
value
per warrant
(pence)
Amount
expensed in
2022 (£)
19.5
13 October 2020
18.56
102.76%
(0.02)%
0.0%
1
7.01
Total charge for the year
The total charge for the prior year was £62,100.
70
70
Warrant
price
(pence)
58.8
58.8
58.8
Grant date
15 November 2021
15 November 2021
15 November 2021
Accounted as equity
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
warrant life
(years)
Average fair
value
per warrant
(pence)
Accounted
as equity in
2022 (£)
58.8
58.8
58.8
59.1%
59.1%
59.1%
0.65%
0.65%
0.65%
0.0%
0.0%
0.0%
2
2
2
6.3
11.3
9.9
215
192
169
576
The warrant life is two years from the date of vesting. The first tranche of 3.4 million warrants have fully vested. Under
the revised agreement signed on 28 March 2023, ABB will invest the £2.0 million balance into newly issued share capital,
which means that the original milestones 1 and 2 will no longer apply and so the related warrants will not vest and
therefore expire in due course.
Further information on the ABB transaction is provided under post balance sheet events within the Directors’ Report.
113
Financial StatementsAFC Energy PLC Annual Report 2022 24. Financial instruments - continued
Warrants - continued
Warrants outstanding at the end of the year have the following expiry dates and exercise prices.
Grant date
Expiry date
Exercise price (£)
09 September 2019
09 September 2029
19 October 2020
13 October 2021
19 October 2020
13 April 2022
19 October 2020
13 October 2022
13 January 2021
13 March 2025
15 November 2022
04 February 2024
15 November 2022
24 months after vesting
15 November 2022
24 months after vesting
0.05
0.195
0.21
0.23
0.77
0.59
0.59
0.59
Warrants
2022
Warrants
2021
900,000
900,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
5,000,000
5,000,000
3,401,360
1,700,680
1,700,680
-
-
-
15,702,720
8,900,000
Vesting is conditional on the meeting of the milestones 1 and 2.
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
Payables
Total financial liabilities held at amortised cost
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
Note
18
17
19
40,220
445
41,380
2,044
2,044
55,375
453
56,390
1,482
1,482
VAT receivables and prepayments have been removed from financial assets and deferred income from financial
liabilities.
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.
Other than the ABB warrants, granted on 15 November 2021, which also incorporate managements inputs to the fair
valuation, all financial instruments are Level 1 and none have been transferred between Levels during the year.
114
Financial StatementsAFC Energy PLC Annual Report 2022 24. Financial instruments - continued
General objectives, policies and processes
The Board has overall responsibility for the determination of the Company’s risk management objectives and policies
and, while retaining ultimate responsibility for them, it has delegated part of the authority for designing and operating
processes that ensure the effective implementation of the objectives and policies to the Company’s finance team. The
Board receives reports from the financial team through which it reviews the effectiveness of the processes put in place
and the appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce ongoing risk as far as possible without unduly
affecting the Company’s competitiveness and flexibility. Further details regarding these policies are set out below.
Credit risk
Credit risk arises principally from the Company’s other receivables and cash and cash equivalents. It is the risk that the
counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk equals
the carrying value of these items in the financial statements as shown below:
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 2022
£000s
Year ended
31 October 2021
£000s
1,160
40,220
1,015
55,375
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.
See also note 20, which sets out the lease liabilities for less than 12 months and more than 12 months.
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.
115
Financial StatementsAFC Energy PLC Annual Report 2022 24. Financial instruments - continued
Fair value of financial instruments
Receivables
Cash and cash equivalents
Trade and other payables
Year ended
31 October 2022
£000s
Year ended
31 October 2021
£000s
445
40,220
(2,044)
38,621
453
55,375
(1,482)
54,346
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.
25. Related party transactions
There were no transactions with any related parties during the year ended 31 October 2022 (2021: £nil) other than key
management compensation.
26. Ultimate controlling party
There is no ultimate controlling party.
27. Post balance sheet events
See within the Directors’ Report on page 73.
116
Financial StatementsAFC Energy PLC Annual Report 2022 Other Information
Company
information
Directors
Gary Bullard
Adam Bond
Jim Gibson
Peter Dixon-Clarke (appointed 1 December 2022)
Gerry Agnew
Monika Biddulph (appointed 3 December 2021)
Joe Mangion
Company Secretary
Peter Dixon-Clarke (appointed 1 December 2022)
Bankers
Barclays Bank PLC
40/41 High Street
Chelmsford
Essex
CM1 1BE
Registered Office
Unit 71.4 Dunsfold Park
Stovolds Hill
Cranleigh
Surrey
GU6 8TB
Registered in England: 05668788
AIM Nominated Adviser
and Joint Broker
Peel Hunt LLP
100 Liverpool Street
London
EC2M 2AT
Joint Broker
Zeus Capital Limited
82 King Street
Manchester
M2 4WQ
117
AFC Energy PLC Annual Report 2022
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AFC Energy PLCAnnualReport AFC Energy PLC Unit 71.4 Dunsfold Park, Stovolds Hill, Cranleigh GU6 8TB www.afcenergy.com