Final Results

RNS Number : 8040C

AFC Energy Plc

14 March 2011

 



14 March 2011

Embargoed until 07:00

AFC Energy PLC

("AFC Energy" or the "Company")

Preliminary Results and Notice of AGM

AFC Energy (AIM:AFC), a world leading developer of alkaline fuel cells, is pleased to announce its preliminary results for the year ended 31 October 2010.

FY10 Operational and Financial Highlights

- Testing of commercial metal-based electrodes

- First revenue

- £6m fundraising

- Centrica 250kW reservation of capacity

- Pilot manufacturing

- Linc Energy exercise of option following successful trial

Post Period Highlights

- Constructing first Beta systems

- Strengthened management team to support anticipated growth

Tim Yeo, Chairman of AFC Energy commented "AFC is a much stronger company than a year ago. Progress has been made technically, commercially and financially. Experienced management has been recruited. We have added world-class partners and our financial position is sounder. This provides a strong platform from which to drive forward our projects and begin to deliver on our potential. AFC invoiced its first commercial revenue during the year. The Board expects that these revenues will increase through 2011 and 2012."

In addition, AFC Energy also gives notice that its AGM will be held at St James's Hotel and Club, 7-8 Park Place, St James's, London SW1A 1LS at 2pm on Wednesday 6 April 2011.

The Annual Report and Accounts and Notice of AGM are currently being sent to shareholders and will shortly be available for download from the Company's website, www.afcenergy.com, in accordance with AIM Rule 20.

For further information, please contact:

AFC Energy plc Tim Yeo, Chairman Ian Balchin, Deputy Chairman Ed Wilson, Managing Director David Marson, Finance Director	[phone]
Allenby Capital Limited                   Brian Stockbridge Alex Price	[phone]
Threadneedle Communications John Coles Fiona Conroy	[phone]

About AFC Energy 

AFC Energy is a world leading developer of low-cost alkaline fuel cells that uses hydrogen to produce clean electricity. AFC Energy's technology is focused on large-scale industrial applications and the objective of producing the lowest possible unit cost electricity. Please visit our website at www.afcenergy.com.

- High efficiency levels: using readily available hydrogen and air as the source of oxygen, electrical efficiency is up to 60% which compares to around 30% for conventional electricity generating technology.

- Low cost production: fabricating with low cost materials combined with industrially proven production processes.

- Low temperature and pressure: operating at less than 100 degrees Celsius enables us to use polymer mouldings for many parts.

- Hydrogen sealing: operating at low pressure, hydrogen is readily sealed within the system.

- Thermal management: a circulating liquid electrolyte simplifies the thermal management of the system.

- Balance of plant: the majority of components are off-the-shelf and mass manufactured for other uses enabling us to benefit from these economies of scale.

- Value engineered for assembly: the component count has significantly reduced and commercial units are designed for easy assembly.

AFC Energy has significantly reduced the cost of its technology to make its fuel cell system a commercially compelling proposition.

Chairman's Statement

 

Overview

The past year has been another in which the Company has taken significant strides towards its goal of commercialising its low cost alkaline fuel cell system.

A vital part of this has been the progressive strengthening of the technical team over the last eighteen months and the development programme (as outlined in the Operating Review) has made exciting and rapid headway. This has again been recognised by further positive independent reviews carried out in April and November 2010 by the Centre for Process Innovation.

As I write, the Company is constructing its first Beta Fuel Cell System and is planning the necessary steps for moving towards volume production of this modular system. Managing the interface between development and manufacturing is key to achieving this and I am pleased to report the appointment of Ed Wilson as Director of Manufacturing - and after the year-end as Managing Director - in this regard. He is the former Chief Executive of CEL International and has a wealth of operational, commercial and project management experience, including manufacturing fuel cell systems and components.

This was also a year in which AFC welcomed on board a significant new shareholder. Further to the agreement made in December 2009 between the Company, Linc Energy and B9 Coal and the successful deployment and operation of a fuel cell system in Australia, Linc Energy exercised its option to extend licence rights, resulting in the purchase of 16.76 million AFC shares. As a result, Linc Energy now holds approximately 10% of the enlarged share capital of the Company. We have been delighted by the support received from Peter Bond and his colleagues at Linc Energy.

The exercise of this option resulted in a £3 million inflow into the Company. At the same time, the Company raised a further £1 million by a placing of shares with a group of private investors who wished to make a strategic investment. The arrival of these new shareholders has led to further business opportunities for AFC. These transactions, together with the £2 million raised in December 2009, significantly strengthened the cash position of the Company. At the end of October 2010, the net cash position was £5.35 million. With the Company continuing to keep tight control over its operational costs, this cash provides a strong platform from which to achieve our goals over the next two years.

Partnerships and projects

The Company's first major partner was AkzoNobel and the project to utilise AFC's fuel cells to generate electricity from surplus hydrogen at AkzoNobel's chlor-alkali sites has made significant progress. Trials of the Alpha system will be followed by trials of the Beta system, which are planned for later this year.

It has become clear that as the Company, its technology and economic environments continue to develop, there are additional opportunities for deployment beyond the Chlorine industry. We have decided that, in conjunction with strategic partners, we should progress these opportunities in parallel in order to maximise their commercial potential, once our fuel cell systems have completed development.

The partnership with Linc Energy and B9 Coal, though still at an early stage, is potentially important. The deployment and utilisation of our fuel cell systems in conjunction with Linc's Underground Coal Gasification (UCG) expertise could provide a significant change in coal usage worldwide. The Company's Alpha fuel cell system was successfully demonstrated in Australia during the year and we expect Linc to be ready to deploy Beta fuel cell systems once development is complete. Our relationship with Linc Energy could eventually lead to many hundreds of megawatts of fuel cell systems being deployed to produce clean energy from coal.

Elsewhere, we are continuing to work on the SuperGreen power station project with our partners Air Products and WSP Group; we are part of a consortium (including Linc and B9 Coal) for a proposed Carbon Capture and Storage (CCS) project at Lynemouth; we are also partnered with Powerfuel Power Ltd through B9 Coal in a fuel cell power station project at Hatfield Colliery with the potential for 300MW of fuel cell systems, though progress with this project depends on finding a buyer for Powerfuel.

Through our partnership with Waste2Tricity Limited, we hope to have the opportunity to deploy fuel cell systems at Air Products' planned energy from waste plant in Teesside.

We are working with Centrica plc, who have reserved 250kW of future capacity for use in a flagship project.

Management and Board

During the year, we have further strengthened the Company's management team.

There have been a number of changes to the Board during the year and since the year end. Ian Balchin, who joined AFC in 2008 and was appointed Chief Executive in 2009, is stepping up to be Deputy Chairman with particular responsibility for strategy and business development. Ian has led the Company with skill through an important phase of its development and I am delighted that his talents will continue to be deployed on our behalf.

As already mentioned, Ed Wilson, who has been working with us since the middle of 2010, was appointed initially as Director of Manufacturing and then, in February 2011, as Managing Director. Ed's experience, particularly in manufacturing and engineering, will be invaluable as the Company continues the commercialisation of its technology.

I am grateful to the Board and the whole management team for their hard work and support throughout the year.

Outlook

AFC is a much stronger company than a year ago. Progress has been made technically, commercially and financially. Experienced management has been recruited. We have added world-class partners and our financial position is sounder. This provides a strong platform from which to drive forward our projects and begin to deliver on our potential. AFC invoiced its first commercial revenue during the year. The Board expects that these revenues will increase through 2011 and 2012.

None of this year's achievements could have been made without a dedicated team and, once again, I would like to thank them for their outstanding efforts. I would also like to thank our shareholders and commercial partners for their continuing support and we shall continue to work hard to ensure their expectations are met.

Tim Yeo

Chairman

8 March 2011

Operating and Financial Review

We believe that the successful commercialisation of AFC Energy's fuel cell system will be as important to a hydrogen economy as the internal combustion engine was to the petrochemical industry.

AFC Energy has seized the opportunity to apply modern engineering materials and manufacturing methodologies to an already proven fuel cell technology. We have re-engineered the alkaline fuel cell to radically reduce its cost and provide the prospect, at maturity, of a fuel cell that can compete with conventional turbines on economics. The Company is opening up a significant lead in this field through its intellectual property and commercial relationships.

Technical Progress

The Company has taken further significant strides towards commercialisation, both in terms of technical development and the recruitment of key technical personnel.

From a technical perspective, there have been five key developments.

Firstly, the Company has moved to using metal-based electrodes. This development is projected to deliver significantly lower lifetime costs with a corresponding opportunity to optimise operating efficiency in areas such as power density and cell longevity. The volumetric power density of a cartridge has been increased by a factor of three with potential to improve further on this. Furthermore, a significant number of the components used to fabricate the cell are designed to be reused when cartridges are replaced - lowering lifetime operational costs and reducing the environmental footprint of the fuel cell system. Our development work has recognised the need for the materials and the cartridge design to facilitate volume manufacture. The Company has installed production based equipment and has the ability to support cell manufacture on a scale that supports our initial commercial activities.

Secondly, the Company has sourced mature mass manufacturing technologies used in sectors such as telecommunications, food and automotive for depositing catalyst coatings on electrodes. The use of these industrially accepted processes will increase cell performance and reliability in a commercially viable manner. Production rates of fuel cells are planned to significantly increase over the next 18 months to support commercial activities whilst we validate the manufacturing technology.

Thirdly, considerable progress has been made with modifications that simplify the fluid flow through the fuel cells and cartridges. The resulting cartridge design has been optimised for electrical current collection, heat management and water recovery. The Company has applied for patents relating to this breakthrough, which virtually eliminates all leakage currents - which are a source of much concern in other multi-cell cartridge designs.

Fourthly, significant progress has been made in the area of system control. Based on an operating design approved by AkzoNobel, system operation is now completely automated.

Fifthly, as the technology moves towards commercialisation the Company continues to develop quality processes befitting a company that is making a transitional change from that of a development focused to a production focused organisation. These processes will help enable a seamless, controlled transition of future developments from the laboratory into production.

From Alpha to Beta

The Company's Alpha (small scale) system was installed and tested at both AkzoNobel's Bitterfeld site and Linc Energy's Chinchilla site during the year. The key to future success though is the Beta (modular large scale) system and this has progressively been developed in parallel with the Alpha system throughout 2010. The development of the metal based electrodes has been integral to this - facilitating a radically simplified and operationally more efficient overall system design.

In summary, the benefits that the Beta system is designed to deliver include a combination of technical and commercial fundamentals with reduced part costs, optimised electrical output, high efficiencies in the conversion of hydrogen and the reuse of components. From the initial commercial deployment of the Beta system onward, we expect a sustained and progressive improvement in performance as the technology matures.

In support of these technical achievements, we have procured the use of external specialists to support the design of the wider system and interfaces which are key to the modular build and hence the ability to supply ever larger electrical outputs whilst retaining the inherent flexibility of a modular system.

Since the end of the reporting period, the Company has begun the construction of the first Beta systems.

Financial highlights

During the year, the Company raised a total of £6 million after expenses, through the placing of 21.5 million shares in December 2009 and a further 22.47 million shares in October 2010. In addition, it received £169,000 in February/March 2009 through the exercise of options and warrants issued in February 2007 as part of a pre-IPO fundraising.

We were pleased to be able to recognise our first revenue, for the delivery and testing of a system for Linc Energy.

We continued to maintain tight control over operational costs, whilst at the same time strengthening our technical team and accelerating the pace of technical development. Consequently, the cash outflow from operating activities was only £306,000 higher than the previous year, despite the delivery of the test system to Linc Energy and the onsite testing undertaken at both AkzoNobel and Linc.

This year, we invested substantially in new pilot manufacturing facilities housed in additional accommodation adjacent to our existing laboratories, as well as in improved materials characterisation and electrode development capabilities. Total investment in plant and equipment was £631,000.

In order to incentivise and retain employees and directors during the key commercialisation phase in the development of the Company, a total of 12,306,000 options and warrants were issued during the year. A total of 8,084,970 options and warrants were exercised, lapsed or cancelled, leaving a total of 11,200,000 options and 11,956,000 warrants outstanding at 31 October 2010. The charge of £527,705 to the income statement under IFRS2 in the year relating to these options and warrants is not a cash cost and accounts for two thirds of the increase in the reported loss compared with the previous year.

Intellectual Property and R&D

We regularly review the intellectual property generated by our technical programme and apply for patent protection for significant inventions.

The Company invests substantially in research and development and makes claims under the Government's R&D tax credit scheme. In the year to 31 October 2010, relevant expenditure totalled £1,053,371 (2009: £932,085).

Commercial Outlook

Overall, AFC Energy finds itself with no shortage of potential markets and partners ready to work with us in commercialising the Beta system as it begins to become available.

Our initial target market is the chlorine industry which generates surplus hydrogen. We have begun testing our commercial electrode architecture with this hydrogen and expect to be installing our first Beta system in a chlorine plant this year.

Whilst we anticipate selling the first few megawatts of power generating capacity, our intention is to move to an Energy Supply Company (ESCo) business model as soon as practically possible. Under the ESCo model, AFC Energy would obtain financing to build and supply fuel cell systems to a customer and then share the revenue generated by the installed equipment. Our financial modelling shows that there is a distinct benefit to the Company from doing this, especially as we expect, over time, that new generations of fuel cell cartridges will be increasingly lower cost per kilowatt hour of electricity generated and that we will be able to retrofit them to installed fuel cell systems.

The models show that payback can be achieved relatively quickly from sales of electricity generated. In some applications, the water and heat produced by the fuel cell system may also have a considerable value. This model appears attractive to chlorine manufacturers.

In summary, we believe that AFC Energy has the makings of a highly attractive commercial product.

To access other markets, the Company will continue working with and through third parties. In this way, we intend to harness the expertise and resources available from partner companies to accelerate the timescales for reaching new markets whilst improving the likelihood of success and minimising the distraction this causes the Company.

The second market opportunity that we have developed is with Waste2Tricity Limited, a company focused on the efficient conversion of municipal solid waste into electricity. During the year, Waste2Tricity announced its involvement and support for Air Products' plan for a renewable energy plant in the Tees Valley, United Kingdom. By diverting non-recyclable waste from landfill, the proposed plant will offer an environmentally responsible solution for the production of renewable energy in the North East. The plant is being considered as a potential demonstration opportunity for AFC Energy's alkaline fuel cell technology alongside conventional generating technologies. Air Products believe this project has the potential to aid the region's moves towards developing a hydrogen economy. Waste2Tricity expects that its involvement in this project will enable it to purchase an exclusive UK licence for the Company's fuel cell technology for use in the conversion of waste into electricity. Whilst this has taken slightly longer than originally envisaged, it is currently in discussions regarding some major commercial opportunities which have potential to generate revenue for the Company.

The third market opportunity is Underground Coal Gasification (UCG). We have also entered into a contract with B9 Coal Limited and Linc Energy (ASX:LNC). Linc Energy is a leader in the development of converting underground coal into synthetic gas for processing into diesel and/or electrical power. The carbon dioxide produced from power generation is relatively easy to capture and has the prospect of being pumped back underground to be stored in the caverns created when the coal is burnt out - offering the tantalising prospect of clean electricity from coal. Linc Energy plans to install hundreds of megawatts of generating capacity over the next few years.

Elsewhere, as commercial momentum builds, we have begun to take orders reserving future production capacity. The first order in this regard was placed during the reporting period by Centrica plc for 250kW of capacity for use with a flagship project. We are also in discussions with many other global organisations about developing future markets.

In the UK, the Company is expecting that the introductions of legislation and regulation, such as the CRC Energy Efficiency Scheme (CRC), to reduce carbon emissions has the potential to create a favourable driver for the introduction of clean energy generating technologies such as an alkaline fuel cell system. The CRC was introduced in April 2010 to address barriers preventing large public and private sector organisations from adopting cost effective energy efficiency opportunities. The barriers being addressed specifically include uncertain reputational benefits of demonstrating leadership, insufficient financial drivers, split incentives between landlords and tenant and organisational inertia amongst large electricity users. We are working with partners to offer fuel cell systems in conjunction with on-site hydrogen generation to produce zero carbon electricity. The infrastructure to achieve this can easily be converted to operate on biogas and will be carbon capture ready, offering the prospect of negative carbon electricity.

We look forward to reporting our continued progress towards commercialisation and thank all those working for and with the Company for their support.

Ian Balchin

Deputy Chairman & Chief Strategic Officer

Consolidated Statement of Comprehensive Income

Year ended 31 October 2010

	Note	Year ended 31 October 2010 £	Year ended 31 October 2009 £
Revenue		180,607	-
Direct expenses		-	-
Gross profit/(loss)		180,607	-
Other income		3,996	4,664
Administrative expenses		(3,236,371)	(2,345,651)
Analysed as:
Administrative expenses		(2,708,666)	(2,280,731)
Equity-settled share-based payments		(527,705)	(64,920)
Operating loss	3	(3,051,768)	(2,340,987)
Financial income	4	30,461	67,890
Share of loss of Associate		(17,781)	(26,651)
Loss before tax		(3,039,088)	(2,299,748)
Taxation		250,358	219,220
Loss for the financial year and total comprehensive loss attributable to owners of the Company		(2,788,730)	(2,080,528)
Basic loss per share	5	(1.88)p	(1.63)p
Diluted loss per share		(1.88)p	(1.63)p

All amounts relate to continuing operations.

Balance Sheet as at 31 October 2010

	Note	31 October 2010 £	31 October 2009 £
Assets
Non-current assets
Intangible assets		318,851	308,525
Property and equipment		632,657	270,069
Trade and other receivables		-	124,849
		951,508	703,443
Current assets
Work in progress		123,740	123,740
Trade and other receivables	6	527,992	307,644
Cash and cash equivalents	7	5,345,716	1,868,601
		5,997,448	2,299,985
Total assets		6,948,956	3,003,428
Capital and reserves attributable to owners of the Company
Share capital		173,339	127,683
Share premium		15,044,217	8,940,379
Other reserve		1,130,013	602,308
Retained deficit		(9,775,097)	(6,986,367)
Total equity attributable to shareholders		6,572,472	2,684,003
Current liabilities
Trade and other payables	8	376,484	319,425
		376,484	319,425
Total equity and liabilities		6,948,956	3,003,428

Statement of Changes in Equity

Year ended 31 October 2010

	Share Capital £	Share Premium £	Other Reserve £	Retained Loss £	Total Equity £
Balance at 1 November 2008	127,683	8,940,379	537,388	(4,905,839)	4,699,611
Loss after tax for the year	-	-	-	(2,080,528)	(2,080,528)
Total recognised in income and expense for the year	-	-	-	(2,080,528)	(2,080,528)
Equity-settled share-based payments	-	-	64,920	-	64,920
Balance at 31 October 2009	127,683	8,940,379	602,308	(6,986,367)	2,684,003
Balance at 1 November 2009	127,683	8,940,379	602,308	(6,986,367)	2,684,003
Loss after tax for the year	-	-	-	(2,788,730)	(2,788,730)
Total recognised in income and expense for the year	-	-	-	(2,788,730)	(2,788,730)
Issue of equity shares	45,656	6,298,863	-		6,344,519
Share issue expenses		(195,025)	-		(195,025)
Equity-settled share-based payments	-	-	527,705	-	527,705
Balance at 31 October 2010	173,339	15,044,217	1,130,013	(9,775,097)	6,572,472

Cash Flow Statement 

Year ended 31 October 2010

	Note	31 October 2010 £	31 October 2009 £
Cash flows from operating activities
Loss before tax for the year		(3,039,088)	(2,299,748)
Adjustments for:
Depreciation and amortisation		284,173	345,005
Loss on disposal of plant and equipment		2,765
Equity-settled share-based payment expenses		527,705	64,920
Finance income		(30,461)	(67,890)
Share of loss of associate		17,781	26,651
Cash flows from operating activities before changes in working capital and provisions		(2,237,125)	(1,931,062)
Corporation tax received		220,643	463,721
Decrease/(increase) in trade and other receivables		(83,565)	38,411
Decrease/(increase) in trade and other payables		57,059	(119,273)
Cash absorbed by operating activities		(2,042,988)	(1,548,203)
Cash flows from investing activities
Purchase of plant and equipment		(630,543)	(105,192)
Acquisitions of patents		(29,308)	(18,820)
Disposal of plant and equipment		-	12,722
Loans to Associates		-	(150,000)
Interest received		30,461	67,890
Net cash absorbed by investing activities		(629,390)	(193,400)
Cash flows from financing activities
Proceeds from the issue of share capital		6,344,519	-
Costs of issue of share capital		(195,025)	-
Net cash from financing activities		6,149,494	-
Net increase/(decrease) in cash and cash equivalents		3,477,115	(1,741,603)
Cash and cash equivalents at start of year		1,868,601	3,610,204
Cash and cash equivalents at 31 October		5,345,716	1,868,601

Notes to the Preliminary Results

Year ended 31 October 2010

1. Basis of preparation

Financial information in this preliminary statement does not comprise statutory accounts for the purpose of section 435 of the Companies Act 2006 and has been extracted from the audited consolidated accounts for the period to 31 October 2010. The statutory accounts for the year to 31 October 2009 have been filed with the Registrar of Companies and those for the year to 31 October 2010 will be filed on or before 30 April 2011. The auditors reported on those accounts; their report was unqualified and did not contain any statements under the Companies Act 2006. The statutory accounts for the year ended 31 October 2010 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies.

Whilst the information in this preliminary statement has been prepared in accordance with recognition and measurement criteria of IFRSs, this statement in itself does not give sufficient information to comply with IFRSs.

The principal accounting policies adopted are set out below:

2. Segmental analysis

A segment is a distinguishable component of the Company that is engaged in providing products or services in a particular business sector (business segment) or in providing products or services in a particular economic environment (geographic segment), which is subject to risks and rewards that are different in those other segments. The Company operated in the year in one operating segment, the development of fuel cells, and in two principal geographic areas, the United Kingdom and Australia, but also conducted some system tests at AkzoNobel's site in Bitterfeld, Germany. All revenue was derived from one customer in Australia. There were no assets or liabilities in Australia at the year end.

3. Operating loss (2009: loss)        

This has been stated after charging:	Year ended 31 October 2010 £	Year ended 31 October 2009 £
Depreciation of property and equipment	267,956	326,858
Research and Development expenditure	1,053,371	932,085
Amortisation of intangible assets	18,982	18,147
Equity-settled share-based payment expense	527,705	64,920
Auditors' remuneration - audit	17,500	17,500
Auditors' remuneration - other services	4,050	7,330

4. Financial income

	Year ended 31 October 2010 £	Year ended 31 October 2009 £
Bank interest receivable	28,986	66,390
Loan interest receivable	1,475	1,500
Total interest receivable	30,461	67,890

 

5. Loss per share

The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary shareholders of £2,788,730 (2009: loss of £2,080,528) and a weighted average number of shares in issue for the year.

	Year ended 31 October 2010	Year ended 31 October 2009
Basic loss per share (pence)	(1.88)p	(1.63)p
Diluted loss per share (pence)	(1.88)p	(1.63)p
Loss attributable to equity shareholders	(2,788,730)	(2,080,528)
	Number	Number
Weighted average number of shares in issue	148,396,520	127,682,854

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.

 

6. Trade and other receivables

	2010 £	2009 £
Trade receivables	391	4,579
Other receivables	468,442	254,195
Prepayments	59,159	48,870
	527,992	307,644

There were no trade and other receivables that were past due or considered to be impaired. The trade and other receivables balances are categorised as loans and other receivables. There is no significant difference between the fair-value of the trade and other receivables and the values stated above.

7. Cash and cashequivalents

	2010 £	2009 £
Cash at bank	-	-
Bank deposits	5,345,716	1,868,601
	5,345,716	1,868,601

Cash at bank and bank deposits consist of cash. There is no material foreign exchange movement in respect of cash and cash equivalents.

8. Trade and other payables

	2010 £	2009 £
Trade payables	139,743	133,875
Deferred income	123,740	123,740
Other payables	35,064	31,723
Accruals	77,937	30,087
	376,484	319,425

 

9. Availability of report and accounts

The Company will advise when copies of the Annual Report and Accounts will be sent to shareholders and be available from the Company's website  www.afcenergy.com 

 

END

 

 

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