Final Results
AFC Energy Plc
17 March 2008
17 March 2008
AFC Energy plc
('AFC Energy' or 'the Company')
Preliminary results to 31 October 2007
AFC Energy develops low-cost fuel cells for industries that produce waste
hydrogen as a by-product. This hydrogen is used by AFC Energy's fuel cells to
produce clean electricity.
AFC Energy's fuel cells use reduced levels of precious metal and the Company has
a clear route to commercialisation by selling fuel cells directly to the
end-user. Akzo Nobel is AFC Energy's first customer.
HIGHLIGHTS
• Successful admission to AIM, raising proceeds of £3 million before
expenses
• Contract won with Akzo Nobel to provide financial support for fuel cell
development and commitment to purchase fuel cell systems
• Development of fully scaled single cell prototype that will be used in the
3.5kW, 50kW and 200kW systems
• Delivery of first fuel cells to Akzo Nobel scheduled for August 2008
Gerard Sauer, Chief Executive, AFC Energy said:
'The IPO of AFC Energy has given the Company greater visibility amongst
industrial companies looking to reduce their energy costs.
'We are experiencing increasing interest from potential customers who are keen
to use our fuel cells to produce clean electricity from their hydrogen that
would otherwise be vented off into the atmosphere.
'As AFC Energy moves into a production phase ahead of delivery of our first fuel
cells to Akzo Nobel, we continue to make technological improvements to drive
down the cost of our fuel cell components.'
For further information please visit www.afcenergy.com or contact:
AFC Energy plc 01483 276726
Gerard Sauer, Chief Executive
Blue Oar Securities 020 7448 4400
Shane Gallwey / Andrew Raca / Jerry Keen
Madano Partnership 020 7593 4000
Mark Way / Graham Moonie
CHAIRMAN'S STATEMENT
It is a pleasure to report our first full year results, to 31 October 2007,
which were in line with our forecasts at the time of admission to AIM.
Introduction
In a year of highly satisfactory progress, the Company secured its first
contract with Akzo Nobel. During the year, Akzo Nobel made on-account payments
to AFC Energy to cover part of the development costs of our technology. AFC
Energy will begin shipping its fuel cells to Akzo Nobel during August 2008.
The Company has a strong technical team to complete the development of its fuel
cells and begin the first shipments.
Group strategy
The Company is focused on developing fuel cells for industrial companies that
produce hydrogen as a by-product from their activities. The hydrogen is
currently vented off and released into the atmosphere.
By taking our fuel cells to this energy source and capturing the hydrogen, we
will be able to provide these companies with a method of generating electricity
in an environmentally friendly manner. Customers will then be able to sell this
electricity or reduce their own energy costs by using the electricity
themselves. Payback for AFC Energy's fuel cells therefore is approximately two
years. In order to ensure timely execution of AFC Energy's budgeted development
plans, the Company intends to raise additional funds in the coming months. To
this end shareholders are being asked at the Company's AGM on 10 April 2008 to
authorise the directors to issue and allot shares for cash.
Market opportunity
With mounting pressure to expand renewable energy sources there are an
increasing number of companies developing different types of fuel cells for
different markets and different applications. AFC Energy targets industries that
produce waste hydrogen. The directors estimate that the chlor-alkali industry
alone has approximately 3,000 MW per annum of generating capacity.
Companies in this sector often use electrolysis as part of their own operation,
a reverse of the process that AFC Energy uses in its own fuel cells.
Consequently the adoption and management of our systems by a customer is
relatively easy and familiar to them. In addition, installing our fuel cells
into large single sites within a controlled environment provides greater
efficiencies than, for example, installing fuel cells into individual
residential locations. This is more costly and vulnerable to misuse.
Employees
We are grateful to every employee, all of whom have worked incredibly hard
during our first full year as a listed company. The work ethic at AFC Energy has
been a major factor in our ability to achieve all our milestones within this
targeted timeframe.
We have also strengthened the board during the year and welcomed Otto Carlisle
as Technical Director. In addition, it is intended that Mitchell Field be
proposed at the AGM for appointment to the board. Otto has responsibility for
the development of our fuel cells and ensuring that AFC Energy meets all aspects
of its agreement with Akzo Nobel, and Mitchell has substantial business
experience from which we hope to benefit.
Tim Yeo 17 March 2008
Chairman
OPERATING AND FINANCIAL REVIEW
Introduction
AFC Energy is involved in the cost engineering of an existing technology, not
the development of a new one. This is an important point of differentiation for
the Company. Our focus is to produce alkaline fuel cells at a commercial price
point.
Consequently, it has been essential for us to hire the right calibre people who
understand the connection between product development and cost engineering. The
successful IPO and listing of the Company has allowed us to expand our team and
accelerate our product development, enabling us to complete our cell
configuration and testing work in our own labs. Tests run in parallel by Surrey
University have confirmed our results and show that we can manufacture our cells
and all their components at the cost we projected, using technology that is
currently available. This is a major step forward in the commercialisation of
fuel cells.
TECHNOLOGY DEVELOPMENT
AFC's technological objectives
During the year, the majority of our work has been concentrated on the electrode
development and the final system design with repeatability and reliability of
product our main priority.
We have set the performance criterion for the electrode at a modest 100mA/cm2.
Our aim, central to our business plan, is to achieve this target output at the
set production price, based on a production rate of 1,000kW per annum.
The AFC Energy team has a strong background in production engineering, which has
been the key to developing the Company's strong manufacturing control processes.
We have a very tightly defined programme plan and have been able to stick with
this throughout our current workload and projections, meeting all the milestones
set out in the Admission Document.
Summary of development programme
Milestone Description Target Completion
1 Small scale single cell 500 hours operation May 2007 - ACHIEVED
2 First scaled single cell operation August 2007 - ACHIEVED
3 Scaled single cell 500 hours operation October 2007 - ACHIEVED
4 First prototype system operation January 2008 - ACHIEVED
5 System operation 500 hours February 2008 - ACHIEVED
6 Delivery of multiple systems to customer August 2008
Catalyst
AFC Energy's core technology is the production of a non-precious metal catalyst
at a price point that makes commercial sense. We have achieved notable success
with the development of this technology and have also established a reliably
reproducible cathode and anode substrate to complement it.
Work on the catalyst is still ongoing as we finalise processes and combinations
and at the same time test it for longevity and mechanical strength. We will also
carry out further research to explore the possible application of our technology
in the chlorate industry. This work will attract funding under the EU FP7
programme, which AFC Energy will investigate in the next few months.
Electrode
An integral part of the development of the electrode is to balance the desired
output against the cost of manufacture, the catalytic loading and the binder
volume and the electrode conductor material. This process is now well on the way
with clearly defined pathways to apply, test and confirm a series of performance
steps. Tests already undertaken have produced, in many cases, better than
projected results. Work is still ongoing and we are well on course to complete
this within the timeframe set for these tasks to be finalised.
Reduced complexity of the fuel cell
Reducing the complexity of the fuel cell system is an essential requirement and
primary objective in the development of a reliable and cost-effective product.
Our design departments have sought to minimise the number of components to be
assembled, to reduce the electrical and mechanical losses in the peripheral
systems, to develop the components for automated assembly and to ensure by
design that components that are being serviced cannot be assembled incorrectly.
This demonstrates AFC Energy's recognition of the importance of product design
to company profitability.
Testing and validation
Surrey University works alongside AFC Energy to help the Company achieve its
targets, and provides independent validation reports on half-cell testing
progress and electrode analysis. This has contributed greatly to the successful
completion of our programme so far, and the Company expects to continue its
relationship with Surrey University.
In addition the appointment of Gasketel as our after-sales service partner in
Germany strengthens our development plans and further underlines our commitment
to Akzo Nobel. AFC Energy is considering extending its single cell test
programme to Gasketel in Germany for third party validation.
AKZO NOBEL
First prototype
The first commercial application of our system and its technology will be at
Akzo Nobel's chlor-alkali plant in Bitterfeld, Germany.
We will install a unit comprising five 3.5kW systems and integrate this unit
with the factory's own control and safety systems. This arrangement will allow
for the in-house and remote monitoring of system up-time, efficiency of
conversion, temperatures, reliability, and interface aspects. We have agreed
safety controls to comply with Akzo Nobel's in-house requirements and will
shortly receive full HAZOP certification of our system.
50kW system
In line with its agreement with Akzo Nobel, AFC Energy has started the Product
Design Specification of the 50kW system, which will be based around the current
electrode and cartridge frame design. Modelling of the 50kW system is underway
in preparation for the final system design.
FINANCIAL HIGHLIGHTS
The company was successfully admitted to AIM in April 2007 raising £3 million
before expenses. The Company incurred direct and administrative costs of
approximately £2 million in the year, as it consolidated its team of technical
experts tasked with the development and testing of the company's products and
their commercialisation. Monthly payments have been received from Akzo Nobel,
our first customer. We have delivered on time the various development programme
milestones outlined in the Admission Document.
The Company's net assets at 31 October 2007 were £2.948 million and the cash
balance was £2.128 million.
COMMERCIAL OUTLOOK
Chlorate industry
We have also identified a very large opportunity within the chlorate industry as
well as the chlorine industry. This sector is at least as large as the
chlor-alkali industry and currently does not use any of the hydrogen produced in
its processes. There are more contaminants in their hydrogen which will provide
an additional technical challenge for the AFC team.
Our product, with its unique electrode design and cost structure, is ideally
suited to providing a novel solution to this industry, allowing them to recover
a large cost element rather than almost completely losing the value of the
hydrogen produced.
Power and water applications
During the year we explored other interesting avenues for our product, combining
power generation with the production of potable water. We have commissioned
Element Energy to carry out a study on our behalf that will further define this
space.
We received an order for three thousand 3.5 kW systems from the Indonesian
government but the internal political situation is such that it may be a while
before this order is formally ratified. Until the order is confirmed, with the
receipt of an initial payment, AFC Energy will not be allocating any resources
to this opportunity.
Revenue sharing model
We are currently working on the last phase of our future business model, where
we provide our customers in the chlorine industry with a complete leasing
solution. AFC Energy will install and maintain its equipment on site, in
exchange for a long-term contract to share the revenue generated by the
conversion of excess hydrogen to electric power. This model is highly attractive
as it allows AFC to benefit from any rise in electricity prices in the future,
and at the same time provides us with a regular income.
Chlor-alkali industry
We continue to discuss opportunities with a number of major players in the
chlor-alkali industry, mostly larger by size and volume of hydrogen produced
than Akzo Nobel, with a view to building on our existing customer base.
We are in active discussions and look forward to updating shareholders about
these opportunities in due course.
Gerard Sauer 17 March 2008
Chief Executive Officer
INCOME STATEMENT
Year ended 31 Period from 9
October January to 31
October
2007 2006
Note £ £
Revenue - -
Direct expenses (116,228) -
Gross loss (116,228) -
Administrative expenses (1,840,802) (617,158)
analysed as:
Administrative expenses (1,562,298) (605,612)
Equity-settled share-based payments 12 (278,504) (11,546)
Operating loss 2 (1,957,030) (617,158)
Financial income 3 90,158 14,013
Financial expense 4 - (27)
Net financial income 90,158 13,986
Loss before tax (1,866,872) (603,172)
Taxation 5 155,294 60,679
Loss for the year attributable to equity holders (1,711,578) (542,493)
Basic loss per share 6 (2.1)p (1.2)p
Diluted loss per share 6 (2.1)p (1.2)p
All amounts relate to continuing operations.
Note 2007 2006
BALANCE SHEET
£ £
Non-current assets
Intangible assets 7 298,874 287,051
Property and equipment 8 472,601 152,184
771,475 439,235
Current assets
Trade and other receivables 9 461,567 114,735
Cash and cash equivalents 10 2,128,350 396,244
2,589,917 510,979
Total assets 3,361,392 950,214
Equity and liabilities
Equity attributable to ordinary shareholders
Share capital 11 87,683 70,000
Share premium 4,825,189 1,334,935
Other reserve 290,050 11,546
Retained earnings (2,254,071) (542,493)
Total equity 2,948,851 873,988
Current liabilities
Trade and other payables 13 412,541 76,226
412,541 76,226
Total equity and liabilities 3,361,392 950,214
These financial statements were approved and authorised for issue by the Board
on 17 March 2008.
GERARD SAUER SIMON WALTERS
Chief Executive Officer Finance Director
CASH FLOW STATEMENT Note Year ended 31 Period from 9
October January to 31
October
2007 2006
£ £
Cash flows from operating activities
Loss before tax for the year (1,866,872) (603,172)
Adjustments for:
Depreciation and amortisation 145,275 44,154
Equity-settled share-based payment expenses 12 278,504 11,546
Interest paid - 27
Interest received (90,158) (14,013)
Cash flows from operating activities before changes in working capital (1,533,251) (561,458)
and provisions
Increase in trade and other receivables (191,538) (54,056)
Increase in trade and other payables 336,315 76,226
Cash absorbed by operating activities (1,388,474) (539,288)
Cash flows from investing activities
Investment in plant and equipment 8 (452,592) (184,207)
Acquisition of patents 7 (24,923) (299,182)
Net cash absorbed by investing activities (477,515) (483,389)
Cash flows from financing activities
Proceeds from the issue of share capital 3,507,937 1,404,935
Interest paid - (27)
Interest received 90,158 14,013
Net cash from financing activities 3,598,095 1,418,921
Net increase in cash and cash equivalents 1,732,106 396,244
Cash and cash equivalents at start of period 396,244 -
Cash and cash equivalents at 31 October 10 2,128,350 396,244
STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
Share Share Other Retained Total
Capital Premium Reserve Earnings Equity
For the year ended 31 October
2007
£ £ £ £ £
Balance at 9 January 2006 - - - - -
Loss after tax for the period - - - (542,493) (542,493)
Total recognised income and - - - (542,493) (542,493)
expense for the period
Issue of equity shares 7,000 1,397,935 - - 1,404,935
Capitalisation issue 63,000 (63,000) - - -
Equity-settled share-based - - 11,546 - 11,546
payments
Balance at 31 October 2006 70,000 1,334,935 11,546 (542,493) 873,988
Balance at 1 November 2006 70,000 1,334,935 11,546 (542,493) 873,988
Loss after tax for the year - - - (1,711,578) (1,711,578)
Total recognised income and (1,711,578) (1,711,578)
expense for the year
Shares issued in the year 17,683 4,015,731 - - 4,033,414
Share issue expenses - (525,477) - - (525,477)
Equity-settled share-based 278,504 - 278,504
payments
Balance at 31 October 2007 87,683 4,825,189 290,050 (2,254,071) 2,948,851
Share capital is the amount subscribed for shares at nominal value.
Share premium represents the excess of the amount subscribed for share capital
over the nominal value of these shares net of share issue expenses.
Other reserve represents the credit to equity in respect of equity-settled
share-based payments.
Retained losses represent the cumulative loss of the Company attributable to
equity shareholders.
Notes forming part of the financial statements
1 Basis of preparation and accounting policies
These financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs and IFRIC interpretations) as adopted by
the European Union and also in accordance with the Companies Act 2006.
2 Operating loss (2006: loss) Year ended 31 Period ended 31
October October
2007 2006
£ £
This has been stated after charging:
Depreciation of property and equipment 132,175 32,023
Amortisation of intangible assets 13,100 12,131
Equity-settled share-based payment expense 278,504 11,546
Auditors' remuneration - audit 20,000 20,000
Auditors' remuneration - other services 52,286 -
3 Financial income Year ended 31 Period ended 31
October October
2007 2006
£ £
Bank interest receivable 90,158 14,013
90,158 14,013
4 Financial expense Year ended 31 Period ended 31
October October
2007 2006
£ £
Bank interest payable - 27
- 27
5 Taxation Year ended 31 Period ended 31
October October
2007 2006
Recognised in the income statement £ £
Research and development tax credit 155,294 60,679
Total tax credit 155,294 60,679
Reconciliation of effective tax rates
Loss before tax (1,866,872) (603,172)
Tax using the domestic rate of corporation tax of 30% (560,062) (180,952)
Effect of:
Expenses not deductible for tax purposes 89,561 8,667
Research and development allowance (97,058) (37,924)
Research and development tax credit 155,294 53,095
Depreciation in excess of capital allowances (24,536) (6,248)
Losses surrendered for research and development 291,176 -
Unutilised losses carried forward 300,919 102,683
Total tax credit for the year 155,294 60,679
6 Loss per share
The calculation of the basic loss per share is based upon the net loss after tax
attributable to ordinary shareholders of £1,711,578 (2006: loss of £542,493) and
a weighted average number of shares in issue for the year of 80,067,752 (2006:
45,144,125).
Year ended 31 Period ended 31
October October
2007 2006
Basic loss per share (2.1)p (1.2)p
Loss attributable to equity shareholders £1,711,578 £542,493
Number Number
Weighted average number of shares in issue 80,067,752 45,144,125
Diluted earnings per share
The diluted loss per share is the same as the basic loss per share, as the loss
for the year has an anti-dilutive effect.
7 Intangible assets
2007 2006
Patents Patents
£ £
Cost
Balance at 1 November 2006 299,182 -
Additions 24,923 299,182
Balance at 31 October 2007 324,105 299,182
Amortisation
Balance at 1 November 2006 12,131 -
Charge for the year 13,100 12,131
Balance at 31 October 2007 25,231 12,131
Net book value 298,874 287,051
8 Property and equipment Leasehold Fixtures,
fittings and
improvements equipment Total
£ £ £
Cost
At 9 January 2006 - - -
Additions 62,208 121,999 184,207
At 31 October 2006 62,208 121,999 184,207
At 1 November 2006 62,208 121,999 184,207
Additions 64,384 388,208 452,592
At 31 October 2007 126,592 510,207 636,799
Depreciation
At 9 January 2006 - - -
Charge for the period 9,090 22,933 32,023
At 31 October 2006 9,090 22,933 32,023
At 1 November 2006 9,090 22,933 32,023
Charge for the year 41,085 91,090 132,175
At 31 October 2007 50,175 114,023 164,198
Net book value
At 31 October 2007 76,417 396,184 472,601
At 31 October 2006 53,118 99,066 152,184
There are no assets held under finance leases. No assets have been revalued.
9 Trade and other receivables
2007 2006
£ £
Trade receivables 20,289 -
Other receivables 267,185 114,735
Prepayments 174,093 -
461,567 114,735
10 Cash and cash equivalents
2007 2006
£ £
Cash at bank 86,226 396,244
Bank deposits 2,042,124 -
2,128,350 396,244
Cash at bank and bank deposits consist of cash. There is no material foreign
exchange movement in respect of cash and cash equivalents.
11a Authorised share capital
Number Number £ £
2007 2006 2007 2006
Ordinary Shares of 0.1p 700,000,000 70,000,000 700,000 700,000
On 23 March 2007, the authorised share capital of the Company was changed from
70,000,000 ordinary shares of 1p each to 700,000,000 ordinary shares of 0.1p
each.
11b Issued share capital Number £
At 9 January 2006 - -
Issue of shares 7,000,000 70,000
At 31 October 2006 7,000,000 70,000
At 1 November 2006 7,000,000 70,000
Issue of shares on 13 February 2007 1 449,982 4,500
Issued shares at 23 March 2007 7,449,982 74,500
Converted to ordinary shares of 0.1p on 23 March 2007 74,499,820 74,500
Issue of shares on 24 April 2007 2 13,183,034 13,183
At 31 October 2007 87,682,854 87,683
1 449,982 ordinary shares with a par value of 1.0p per share were issued at
£2.23p per ordinary share by way of a sale to private investors. Proceeds from
the issue amounted to £1,003,460.
2 13,183,034 ordinary shares with a par value of 0.1p per share were issued at
23p per ordinary share in connection with the Company's admission to the
Alternative Investment Market ('AIM'). Proceeds from the issue amounted to
£3,029,954, together with associated costs of issue amounting to £525,477.
12a Share options
Number of Exercise
options price (p)
At 9 January 2006 - -
Options granted in period 490,000 100
Options lapsed in period (70,000) 100
At 31 October 2006 420,000 100
At 1 November 2006 420,000 100
Amendment to share options following share sub-division on 23 4,200,000 10
March 2007
Options granted in the year 3,179,660 22-23
At 31 October 2007 7,379,660
12b Warrants
Number of Exercise
warrants price (p)
At 1 November 2006 - -
Warrants granted in the year 4,039,980 10-22
At 31 October 2007 4,039,980
12c Equity-settled share-based payments charge
Share options
Option price Average grant Average Average Average Average Average Amount
(p) date share expected risk-free dividend implied fair value expensed
price volatility interest yield option life per option in the 2007
(p) (pa) rate (pa) (years) (p) accounts
(pa)
£
10 9 46% 4.4% 0.0% 3.5 2.5 39,402
22 20 46% 4.4% 0.0% 3.5 6 39,225
23 21 46% 4.4% 0.0% 3.5 6 2,008
Adjustment for changes in assumptions in respect of vesting conditions -
Total charge for the year (2006: £11,546) 80,635
Warrants
Warrant price Average grant Average Average Average Average Average Amount
(p) date share expected risk-free dividend implied fair value expensed
price volatility interest yield warrant life per in the 2007
(p) (pa) rate (pa)) (years) accounts
(pa) warrant
(p) £
10 20 46% 4.4% 0.0% 3.5 10 100,563
22 20 46% 4.4% 0.0% 3.5 6 97,306
Adjustment for changes in assumptions in respect of vesting conditions -
Total charge for the year (2006: £nil) 197,869
Total equity-settled share-based payment charge (2006: £11,546) 278,504
The weighted average fair value of the options over 490,000 ordinary shares
granted in the period to 31 October 2006, as estimated at the date of the grant,
was £122,500. The fair value of options granted to employees during the period
to 31 October 2006 was measured on the basis of the exercise price of the
Company's shares at the date of the grant.
13 Trade and other payables
2007 2006
£ £
Trade payables 207,615 40,976
Deferred income 111,219 -
Other payables 27,613 12,333
Accruals 66,094 22,917
412,541 76,226
Publication of non-statutory accounts
The financial information contained in this preliminary statement does not
constitute accounts as defined by section 240 of the Companies Act 1985. The
financial information for the preceding period is based on the statutory
accounts for the period from incorporation on 9 January 2006 to 31 October 2006.
Those accounts, upon which the auditors issued an unqualified opinion, have been
delivered to the Registrar of Companies.
Copies of the interim statement may be obtained from the Company Secretary, AFC
Energy plc, Unit 71.4 Dunsfold Park, Stovolds Hill, Cranleigh, Surrey GU6 8TB
and can be accessed from the company's website at www.afcenergy.com.
-ends-
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Friday, 22nd November 2024
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