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AFC Energy PLC

AFC Energy Plc - Final Results and Notice of AGM

RNS Number : 1182T
AFC Energy Plc
24 March 2016
 

24 March 2016

Embargoed until 07:00

 

AFC Energy PLC

("AFC Energy" or "the Company")

 

Final Results and Notice of AGM

 

AFC Energy (AIM: AFC), the industrial fuel cell power company, is pleased to announce its final results for the year ended 31 October 2015.

 

FY15 Highlights

 

·     Successful testing of 25, 51 and complete 101 fuel cell stacks

·     Successful completion of Milestone 10, POWER-UP Programme with testing of entire tier of eight fuel cells

·     50MW Project Development Agreement with Samyoung Corp. and Chang Shin Chemical Co., Korea

·     10MW Heads of Agreement with Bangkok Industrial Gas Co., Thailand

·     300MW MoU with Dubai Carbon Centre of Excellence

·     Income increased to £2.3 million (2014: £782k)

·     Diluted loss per share of 1.66p (2014: 2.42p)

 

Post Period Highlights

 

·     Raised £3.6 million through placing and offer for subscription

·     Commissioning of KORE System and production of power at Stade, Germany

·     Heads of Agreement with global manufacturer

·     Heads of Agreement with DNR Industries Ltd., part of the Dutco Group of Companies, Dubai

·     Receipt of €1.07 million from EU's FCH JU

·     Strategic Partnership Agreement with plantIng GmbH

·     2016 Strategic Milestones and Outcomes

 

 

Adam Bond, CEO of AFC Energy, commented: "2015 was all about driving our alkaline fuel cell technology platform to maximise the power output of the system for the first time at a third party industrial facility in Germany whilst in parallel delivering the requirements of the joint EU funded POWER-UP programme.  Having achieved a number of critical successes over this period, 2016 is now focused on delivery of international contracts for the deployment of our fuel cell system whilst taking the wealth of learnings acquired over the course of 2015 and further enhancing the operability of the fuel cell system capable of meeting the requirements of our commercial partners.  Progress in developing and monetising partnerships continues unabated in our target markets." 

 

 

 

Notice of AGM

 

AFC Energy also today gives notice that its Annual General Meeting will be held in the Millennium Suite at Chelsea Football Club, Stamford Bridge, London SW6 1HS at 12pm on Thursday 28 April 2016.

 

The Annual Report and Accounts and Notice of AGM will be sent to shareholders in early April and will 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

Adam Bond (Chief Executive Officer)

 

 

+44 (0) 20 3697 1209

Cantor Fitzgerald Europe Nominated Adviser and Joint Broker

Andrew Craig

Richard Salmond 

                          

 

+44 (0) 20 7894 7000

M C Peat & Co LLP Joint Broker

Charlie Peat

 

+44 (0) 20 7104 2334



Lionsgate Communications Public Relations

Jonathan Charles

Rachel Rigby

 

 

+44 (0) 20 3697 1209

 

About AFC Energy

 

AFC Energy plc has developed and successfully operated an alkaline fuel cell system ("KORE"), which converts hydrogen into "clean" electricity. AFC Energy's key project POWER-UP demonstrated the world's largest operational alkaline fuel cell system at Air Products' industrial gas plant in Stade, Germany in January 2016.  The Company is now looking to build upon an already established pipeline of commercial opportunities and drive the findings from the development phase of the technology into a technically optimised and commercially relevant fuel cell system.  For further information, please visit our website: www.afcenergy.com

 

 

Chairman's Statement

 

The Company made great progress in 2015 both technologically and commercially.

 

Overview

 

The future for low carbon technology took a huge positive stride forward in early 2016 following the Paris Conference, which commits all countries to cut carbon emissions and means that governments will need to go further and faster to tackle climate change than ever before.

 

While fossil fuel prices - notably oil - have continued to weaken in recent months, following Paris it is clear that the choice will no longer be simply about price - the world is now committed to a lower carbon future.

 

Stationary fuel cells can play a major part in this globally and while there has been - and remains - substantial activity in Japan, South Korea and the US, the UK and Europe continue to lag behind outside of the small CHP market. In addition, most developing countries have had insufficient funds to invest in low carbon technology but with the Paris accord promising US$100bn p.a. by 2020, this should slowly begin to change.

 

The opportunity for AFC Energy remains significant.

 

Key developments

 

In December 2014, AFC Energy announced plans to fast-track the development of its KORE fuel cell system in 2015 and set out an ambitious series of 11 milestones against which the progress of this plan could be measured. This would culminate in the demonstration of power output up to 240kW in December 2015 - an acceleration of some 18 months over earlier plans. The first 10 milestones were successfully achieved on time, and Milestone 11 - the key one, was extended by one month to ensure that the entire 24-cell system was fully and precisely conditioned before final testing.

 

In what was a seminal moment for AFC Energy, the KORE system was initiated at the end of January 2016 with the cells' combined power output reaching in excess of 200kW with 1.3MWh of electricity delivered into the German grid.

 

This achievement firmly establishes the next important phase of development for the Company.

 

From a commercial standpoint, during the year the Company signed:

·    A formal 50MW project development agreement with Samyoung Corporation and Chang Shin Chemical Co. in South Korea

·    A Heads of Agreement for 10MW with Bangkok Industral Gas Co. in Thailand

·    A further Memorandum of Understanding with Dubai Carbon Centre of Excellence for a potential deployment of 300MW in Dubai

 

These build on the commercial progress made in 2014 and demonstrate the very high level of global interest in the Company's fuel cell.

 

Shortly after the year-end - in December 2015 - the Company raised a further £3.6 million from existing Shareholders to support working capital requirements in advance of receipt of grant funds from the EU in relation to the POWER-UP project in Germany.

 

Partners

 

AFC Energy continues to attract - and be supported by - high quality partners. In 2015, a joint venture was signed with DUTCO in Dubai to cover fuel cell deployment in the Middle East. In addition, a Heads of Agreement was signed with a major global manufacturing partner for the international procurement and manufacture of the cells.

 

Summary

 

The Company made good progress in 2015, both technologically and commercially. My thanks go to everyone at AFC Energy for what was an outstanding team effort.

 

Having now established that the full KORE system is capable of delivering what it promised, 2016 is likely to be a pivotal year for the Company as we further demonstrate the system's commerciality and we also anticipate further progress on manufacturing and commercial orders.

 

The Board remains confident of the Company's potential and, with the right resources, of its ability to achieve shareholder expectations.

 

 

 

Operational Review from the CEO

 

The Company is looking ahead to build upon its now proven technology and its established pipeline of commercial opportunities to drive the findings from the development phase into a technically optimised and commercially viable fuel cell system.

 

The past 12 months represent a pivotal year for AFC Energy, where we have undertaken to demonstrate for the first time AFC Energy's KORE fuel cell system, representing the largest alkaline fuel cell system in operation internationally today.

 

Operating Review

 

Technology

 

Throughout 2015, AFC Energy conducted an intense and accelerated twelve month fuel cell development programme attaining ten out of the 11 internally set milestones. These consisted of a number of firsts for the Company, including the successful testing of a 25 cell stack system, a 51 cell stack and ultimately a complete stack of 101 cells.

 

This final 101 fuel cell stack test demonstrated the operability of the fundamental building block of the KORE system giving us the flexibility to consider a whole range of alternative products - from a single cartridge product to multi-mega watt systems.

 

As a result, AFC Energy has picked up a lot of interest from potential customers assessing smaller energy requirement opportunities in integers of 10kWs, dramatically expanding AFC Energy's market potential. Whilst the market potential exists for AFC Energy's systems at a range of different capacity sizes, including smaller scale systems, the Company's immediate focus remains firmly on large stationary systems in markets where positive environmental and fiscal drivers exist.

 

Achieving the penultimate Milestone 10 in October 2015 demonstrated for the first time the capability of the KORE fuel cell system on a tier level (each of the three tiers comprising of eight fuel cell cartridges for a total of 24 cartridges, or 2,424 cells, operating in sequence), in an industrial environment and delivering acceptable power output for dispatch into the local power grid.

 

Post Year-end developments

 

Equity Funding

 

Following on from the penultimate Milestone 10 in December 2015, we announced that the Company had raised a total of £3.6 million by way of a subscription and Shareholder offer at an issue price of 20p per share. One of the great attributes of AFC Energy is its very loyal Shareholder base and it was most pleasing to see that the Shareholder offer was 3.8 times oversubscribed.

 

The net proceeds of the subscription were deployed to enable AFC Energy to complete pre-commissioning activities in relation to Milestone 11, as well as support the short-term working capital requirements of the Company, in advance of the receipt of EU grant funds by way of reimbursement of expenditure for the POWER-UP project.

 

Milestone 11

 

Since the fundraise, the Company has received  >€1 million from the EU, for work completed to 30 June 2014, and a further £1.5-£2 million is expected before year end. In January 2016, we completed our final Milestone 11, achieving a gross electrical output in excess of 200kW from AFC Energy's proprietary KORE fuel cell system in Stade, Germany. This was the first time that all three tiers of the KORE fuel cell system had operated in parallel with each other. While total power of 204kW was down from the nameplate 240kW, a maximum output of 11.7kW per stack was achieved, exceeding the 10kW nameplate capacity; an excellent achievement given where we were twelve months earlier. This is one of the key de-risking achievements of the technology to date. In addition, over 1.3MWh of power was generated and sold into the grid under the Power Purchase Agreement with local utility Stadtwerke Stade. Importantly, one of the key successes from trialling the KORE fuel cell system has been the vast quantity of operational data that has been acquired. This has enabled the team to fully assess and identify further areas where improvements can be made to optimise the fuel cell system, which at present is the largest alkaline fuel cell system in the world today.

 

Following Milestone 11, AFC Energy signed a strategic engineering partnership and services agreement with Germany-based engineering consultancy plantIng GmbH to support the optimisation and rollout of AFC Energy's alkaline fuel cell systems. As plantIng has provided engineering support and Engineering Procurement Construction Management services to AFC Energy's POWER-UP project at Stade for over a year, the firm already boasts a deep knowledge and understanding of AFC Energy's fuel cell technology. The Engineering Agreement includes a significant investment by plantIng of their time and resources in supporting AFC Energy in addressing the identified deployment opportunities that exist in Germany, Europe and internationally. The decision by plantIng to invest their own time into this optimisation exercise further demonstrates the market potential of the technology and the quality of the partners we are able to attract and collaborate with.

 

2016 Strategic Milestones and Outcomes

In March 2016, AFC Energy announced its eight 2016 strategic milestones and outcomes. Milestones 1 to 3 refer to technical optimisation of the fuel cell system during the second half of 2016; operating the second generation system over an extended test period before the end of 2016 and confirming the availability and longevity of the fuel cell system to meet minimum industry standards required for commercial deployment. Milestones 4 and 5 cover the development of two new system configurations to be developed in conjunction with AFC Energy's engineering partner plantIng: the completion of the basic design and engineering on a single cartridge 10kW system capable of deployment in 2016 and a larger 1MW capacity fuel cell system capable of deployment in 2017. The final three milestones, 6 to 8, involve commercial opportunities including the commencement of scoping studies for at least three fuel cell projects internationally, with a focus on the Middle East and Asia; securing confirmed contracts for at least two AFC Energy fuel cell projects internationally and securing value added partnerships with recognised industrial and institutional key players. Importantly, the eight milestones continue to emphasize the positioning of AFC Energy as an industry leading stationary fuel Company focusing on large industrial installations, whilst recognising the further potential that exists for optimisation of the system capacity necessary to meet market demand.

 

Partnerships

The POWER-UP programme in Stade has been our main point of focus and its success would not have been possible without the involvement of our key partners.

 

We now have a system operating in Germany at an industrial plant owned by Air Products, which in turn accepts hydrogen from Dow Chemicals.

 

Engineering and design work associated with delivering the POWER-UP programme on site was supported by our engineering partners plantIng and Artelia.

 

In the meantime, AFC Energy signed Memorandum of Understandings ("MoUs") in three of its key regions during 2015, including the Middle East (Dubai), South-East Asia (Thailand) and northeast Asia (South Korea).

 

I've already mentioned the Power Purchase Agreement with the utility Stadtwerke Stade. This represents the first commercial revenue for AFC Energy, but just as importantly, it allows us to learn how to integrate and interface our KORE power plant with a modern day, established power grid.

 

AFC Energy continues to work with its partners across a number of opportunities.

 

 

FUNDED PROJECTS: PROJECT POWER-UP

POWER-UP has been AFC Energy's key project for the past 12 months. The €6.1 million EU-part funded programme represents the world's first large-scale demonstration of an alkaline fuel cell system. ZBT GmbH has joined the consortium to ensure that the POWER-UP system complies with all relevant national and European regulations and will ensure that the system is CE-compliant.

 

Financial Overview

In 2015, AFC Energy's EU grant and other income increased to £2,313,586 (2014: £796,135).

 

AFC Energy continued to receive support from the EU by way of grants which strongly underpin the AFC Energy's research and development programme. Throughout the year and at the year end, the Company was engaged in three EU funded projects, ALKAMMONIA, LASERCELL and POWER-UP, with the focus during the year primarily on POWER-UP, which entails the construction and delivery of the first KORE system to an operational site in Germany. Increased expenditure on the site and on the KORE module itself is reflected in cost of sales. R&D spend qualifying for R&D tax credits increased substantially to £3.48 million (2014: £1.28 million) as a change in HMRC rules now allows some R&D expenditure relating to the EU funded projects and included in cost of sales to qualify for credits.

 

Overall post tax losses to 31 October 2015 were £4.8 million (2014: £5.4 million). Cash balances at 31 October, excluding restricted cash, were £1.8 million (2014: £4.9 million). As mentioned (in post year-end developments), subsequent to the year end in December 2015 and January 2016, the Company successfully raised £3.6 million before costs through a placing and offer for subscription, which was oversubscribed by a factor of 3.8 times.

 

OUTLOOK

AFC Energy now has a proven fuel cell cartridge capable of operating at or above its nameplate capacity and we are continuing the momentum created in 2015 to confirm the longevity of the fuel cell system to meet the industry standards required for commercial deployment.

 

I said last year that our targets were ambitious and they remain so. I still firmly believe that we will achieve our aggressive target of 1GW (1,000MW) of fuel cell capacity installed or under development by the end of 2020.

 

Finally, I would like to thank again all the staff and contractors working with AFC Energy together with the FCH JU for their continued support in delivering this project. I also wish to recognise the massive contribution and sacrifices made by many to achieve this outcome. 2016 is going to be another exciting year for AFC Energy.

 

 

 

 

 

Principal Risks and Uncertainties

 

Managing Risks

 

Effective risk management underpins the delivery of our objectives. It is essential to protecting our reputation and generating sustainable shareholder value. We aim to identify key risks at an early stage and develop actions to eliminate them or mitigate their impact and likelihood to an acceptable level.

 

Risk management processes are embedded at both Company and project levels and form an integral part of day-to-day business activity. They help management and delivery teams to identify and understand the risks they face in delivering business objectives and to develop mitigations to manage those risks.

 

Risk and Impact

Management Strategy

Delayed technology development necessary to meet minimum industry and commercial standards of the fuel cell system

Since 2015, AFC Energy has implemented a robust control of technological progress against a budgeted plan adopting principles of "technology readiness levels" ("TRL"). External partners have also been identified and where relevant, engaged to support the development plan with transparent KPIs and road maps to a product that meets commercial power, availability, longevity, efficiency and cost metrics. 

Insufficient working capital to fund the Company's technology development plan and operate the business

The adoption of a budgeted technology development plan, supported by prudent budgetary controls that can be measured and monitored periodically provides a robust means of mitigating risk of insufficient working capital. The ability to demonstrate progress against predefined milestones that demonstrate substantive commercial development of the fuel cell system also enhances the Company's ability to access new funding if required through the capital markets.

Insufficient operational capability and capacity to deliver project contracts

The strategy for transition of AFC Energy from a technology development Company into a vehicle for commercial deployment focuses on long-term partnerships and collaborations with industry leading companies. Our partners are identified and developed to complement AFC Energy's project execution capability, both in terms of understanding local regulatory environments, through to construction, funding, operational and logistical support. This strategy will continue to be employed over the short to medium term by the Company.

Loss or breach of intellectual property

AFC Energy has long benefited from the external advice provided by highly qualified patent attorneys and legal practitioners. The integrity of the Company's IP management and the manner in which all contractual negotiations with third parties takes place to ensure IP protection and compliance is of critical importance to the maintaining of shareholder value and prosperity of the Company. IP registers are reviewed regularly both in terms of existing patents, but also in terms of future and unregistered protection. Staff education and internal controls over IT systems and cyber threats are conducted by third party expert consultants to provide assurance over the integrity of our systems.

Health and safety breaches of incidents

Failure of health and safety systems put at risk the reputational integrity of the Company and its operational capability at its respective facilities. Robust health and safety management and an environment of continuous improvement and reinforcement of safety culture is paramount for the Company and enforced at all levels of the management and staff. Adherence to codes and standards surrounding health and safety provides a transparent mitigation to the risk of breaches and ensures the integrity of AFC Energy's health and safety remains intact for the sake of our employees, partners, contractors and shareholders.   

Design and quality issues with AFC Energy's fuel cell systems

As the Company progresses to a commercial business entity, design defects and poor quality management could have a direct impact on the Company's market reputation and positioning, with consequential loss of value to shareholders, together with the potential for financial consequences (eg. performance warranties and guarantees). AFC Energy adopts a very high standard of control over manufacturing processes and quality controls mitigating to a large extent the risk of product quality issues and failure. Further, negotiations with partners on commercial contracts cannot over commit the Company in terms of financial exposure whilst the technology continues to mature. Strict adherence to the Manufacturing Readiness Levels (MRL) and the consequential commercial flow on of respective MRLs in partner contracts will provide a high level of risk mitigation from the issues of design and quality management across our project portfolio.

 

 

Statement of Comprehensive Income

for the year ended 31 October 2015

 



Year ended

Year ended



31 October 2015

31 October 2014


Note

£

restated £

EU Grant income


2,262,506

782,236

Cost of sales


(4,846,933)

(1,029,460)

Gross (loss)/profit


(2,584,427)

(247,224)





Other income


51,080

13,899

Administrative expenses


(6,112,856)

(5,037,309)

Operating loss

5

(8,646,203)

(5,270,634)





Financial income/(loss)

8

3,294,272

(587,663)

Loss before tax


(5,351,931)

(5,858,297)

Taxation

9

569,706

421,280

Loss for the financial year and total comprehensive




loss attributable to owners of the Company


(4,782,225)

(5,437,017)





Basic loss per share

10

(1.66)p

(2.42)p

Diluted loss per share

10

(1.66)p

(2.42)p

 

All amounts relate to continuing operations.

 

 

Statement of Financial Position

as at 31 October 2015

 



31 October 2015

31 October 2014

31 October 2013


Note

£

restated £

 £

Assets





Non-current assets





Intangible assets

11

338,176

279,073

180,733

Property and equipment

12

116,328

609,441

858,806

Investment

13

-

52,500

52,500

Derivative financial instrument

15

-

479,761

-



454,504

1,420,775

1,092,039






Current assets





Inventory and work in progress

14

219,421

157,048

174,469

Derivative financial instrument

21

1,308,859

753,909

-

Trade and other receivables

15

3,458,340

3,502,892

1,717,808

Cash and cash equivalents

16

1,756,445

4,858,203

6,961,338

Restricted cash

16

91,105

-

-



6,834,170

9,272,052

8,853,615

Total assets


7,288,674

10,692,827

9,945,654






Capital and reserves attributable to owners of the Company





Share capital

17

289,904

285,684

223,325

Share premium

17

33,947,857

33,332,478

27,566,408

Other reserve


2,207,441

3,032,472

2,792,504

Retained deficit


(30,830,087)

(27,089,095)

(21,652,078)

Total equity attributable to Shareholders


5,615,115

9,561,539

8,930,159






Current liabilities





Trade and other payables

19

1,673,559

1,131,288

1,015,495



1,673,559

1,131,288

1,015,495






Total equity and liabilities


7,288,674

10,692,827

9,945,654

 

 

These financial statements were approved and authorised for issue by the Board on 23 March 2016.

 

 

 

Tim Yeo                               Christopher Tawney

Chairman                             Finance Director and Company Secretary

 

AFC Energy plc

Registered number: 05668788 

 

Statement of Changes in Equity

for the year ended 31 October 2015

 


Share

Share

Other

Retained

Total


Capital

Premium

Reserve

Loss

Equity


£

£

£

£

£

Balance at 1 November 2013

223,325

27,566,408

2,792,504

(21,652,078)

8,930,159

Loss after tax for the year

-

-

-

(5,437,017)

(5,437,017)

Comprehensive income for the year

-

-

-

(5,437,017)

(5,437,017)

Issue of equity shares

62,359

5,766,070

-

-

5,828,429

Equity-settled share-based payments

-

-

239,968

-

239,968

Transactions with owners

62,359

5,766,070

239,968

-

6,068,397

Balance at 31 October 2014

285,684

33,332,478

3,032,472

(27,089,095)

9,561,539

Loss after tax for the year

-

-

-

(4,782,225)

(4,782,225)

Comprehensive income for the year

-

-

-

(4,782,225)

(4,782,225)

Issue of equity shares

4,220

615,379

-

-

619,599

Equity-settled share-based payments

-

-

(825,031)

1,041,233

216,202

Transactions with owners

4,220

615,379

(825,031)

1,041,233

835,801

Balance at 31 October 2015

289,904

33,947,857

2,207,441

(30,830,087)

5,615,115

 

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 earnings represent the cumulative loss of the Company attributable to equity Shareholders.

 

 

Cash Flow Statement

for the year ended 31 October 2015

 



31 October 2015

31 October 2014


Note

£

£ restated

Cash flows from operating activities




Loss before tax for the year


(5,351,931)

(5,858,297)

Adjustments for:




Depreciation and amortisation

11,12

278,291

312,487

Impairment of intangible asset investment


52,500

-

Loss on disposal of tangible assets


286,743

-

Equity-settled share-based payment expenses

18d

216,202

239,968

Payment of shares in lieu of cash


331,000

-

Finance income


(5,775)

(48,667)

R&D tax credits receivable


(174,937)

-

(Gain)/Loss on derivative financial investment


(3,288,497)

636,330

Cash flows from operating activities before changes in working capital and provisions


(7,656,404)

(4,718,179)

R&D tax credits received


813,696

361,174

(Increase) in restricted cash


(91,105)

-

(Increase)/Decrease in Inventory and Work in Progress


(62,373)

17,421

(Increase) in trade and other receivables


(24,500)

(1,724,978)

Increase in trade and other payables


542,271

115,793

Cash absorbed by operating activities


(6,478,415)

(5,948,769)

 

Cash flows from investing activities




Purchase of plant and equipment

12

(36,845)

(51,247)

Additions to intangible assets

11

(98,980)

(110,215)

Proceeds of disposal of tangible assets


4,800

-

Interest received

8

5,775

48,667

Net cash absorbed by investing activities


(125,250)

(112,795)





Cash flows from financing activities




Proceeds from the issue of share capital


288,599

6,232,428

Costs of issue of share capital


-

(403,999)

Derivative financial asset

21

3,213,308

(1,870,000)

Net cash from financing activities


3,501,907

3,958,429





Net (decrease) in cash and cash equivalents


(3,101,758)

(2,103,135)

Cash and cash equivalents at start of year


4,858,203

6,961,338

Cash and cash equivalents at end of year

16

1,756,445

4,858,203

 

 

1. Corporate information

AFC Energy plc ("the Company") is a public limited Company incorporated in England & Wales and quoted on the Alternative Investment Market of the London Stock Exchange.

 

The address of its registered office is Finsgate, 5-7 Cranwood Street, London, EC1V 9EE.

 

2. Basis of preparation and accounting policies

The financial statements of AFC Energy plc have been prepared in accordance with International Financial Reporting Standards ("IFRSs"), International Accounting Standards ("IASs") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations (collectively "IFRSs") as adopted for use in the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

The Company prepares cash flow forecasts based on current estimates of future revenues and expenditure. These are agreed by the Board and monitored against actual expenditure to ensure the Company's resources are sufficient for the Directors to prepare the accounts on a going concern basis. In December 2015 and January 2016 the Company successfully raised £3.6 million before expenses in a placing and an offer for subscription that was oversubscribed by a factor of 3.8 times. The Directors therefore remain confident that they will continue to be able to raise money to fund the Company's continuing activities as required.

 

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.

 

These results are audited, however the financial information does not constitute statutory accounts as defined under section 434 of the Companies Act 2006. The financial information for the year ended 31 October 2015 has been derived from the Group's statutory accounts for that year, as filed with the Registrar of Companies.  The auditors' report on the statutory accounts for the year ended 31 October 2015 was unqualified and did not contain statements under section 498 of the Companies Act 2006.

 

a. New and Revised Standards Adopted by the Company

·    IFRS 10 Consolidated Financial Statements is effective from 1 January 2014. This requires a parent to present consolidated financial statements as those of a single economic entity, replacing the requirements previously contained in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities.

·    IFRS 11 Joint Arrangements is effective from 1 January 2014. The core principle of the standard is that a party to a joint arrangement determines type of joint arrangements in which it is involved by assessing the rights and obligations and accounts for those rights and obligations in accordance with the type of joint arrangement. Joint ventures now must be accounted for using the equity method. Joint operator which is a newly defined term recognises its assets, liabilities, revenues and expenses and relative shares thereof.

·    IFRS 12 Disclosures of Interests with Other Entities is effective from 1 January 2014. It requires increased disclosure about the nature, risks and financial effects of an entity's relationship with other entities along with its involvement with other entities.

·    Amendments to IAS 27 Separate Financial Statements is effective from 1 January 2014. It requires that when an entity prepares separate financial statements, investments in subsidiaries, associates, and jointly controlled entities are accounted for either at cost, or in accordance with IFRS 9 Financial Instruments/IAS39 Financial Instruments: Recognition and Measurement.

·    Amendments to IAS 28 Investments in Associates and Joint Ventures is effective from 1 January 2014. This standard supersedes IAS 28 Investments in Associates and prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

·    Amendments to IAS 32 Financial Instruments: Presentation is effective from 1 January 2014. The standard outlines the accounting requirements for the presentation of financial instruments, particularly as to the classification of such instruments into financial assets, financial liabilities and equity instruments. The standard also provides guidance on the classification of related interest, dividends and gains/losses, and when financial assets and financial liabilities can be offset.

·    Amendments to IAS 36 Impairment of Assets is effective from 1 January 2014. The standard seeks to ensure that an entity's assets are not carried at more than their recoverable amount (i.e. the higher of fair value less costs of disposal and value in use).

 

b. Standards, Amendments and Interpretations to Published Standards not yet effective

At the date of authorisation of these financial statements, the IASB and IFRIC have issued the following standards and interpretations, which are effective for annual accounting periods beginning on or after the stated effective date. These standards and interpretations are not effective for and have not been applied in the preparation of these financial statements:

 

·    IFRS 9 Financial Instruments is effective from 1 January 2015. This standard includes requirements for recognition and measurement, derecognition and hedge accounting.

·    IFRS 15 Revenue from contracts with customers. The new standard will replace IAS 18 Revenue and IAS 11 Construction contracts. It will become effective for accounting periods on or after 1 January 2018 at the earliest.

·    IFRS 16 Leases is effective from 1 January 2019. Management has not yet analysed the input to the Financial Statements upon adoption.

 

The Company expects no impact from the adoption of IFRS 9. As the Company is not currently revenue generating, there would be no impact relating to the adoption of IFRS 15 on the current financial position. The Company will determine the effects of the adoption of IFRS 15 in future periods.

 

 

2. Basis of preparation and accounting policies continued

c. 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.

 

d. Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duty. Revenue arising from the provision of services is recognised when and to the extent that the Company obtains the right to consideration in exchange for the performance of its contractual obligations. Licence income is recognised in accordance with the substance of the agreement. When a licensee has the right to use certain technology for a specified period of time, this is usually on a straight-line basis over the life of the agreement in accordance with IAS 18.

 

e. Grants

The Company participates in three projects, LASERCELL, ALKAMMONIA and POWER-UP, which receive funding from the European Union. These grants are based on periodic claims for qualifying expenditure incurred by all the entities participating in each project consortium. The Company acts as coordinator for all three projects and submits claims and receives funding on behalf of the other participants in each project consortium. Grant funds of other participants are paid over to them as soon as they are received and only the grant funding relating specifically to the Company's activities is reflected in the statement of comprehensive income. The qualifying expenditure is shown in the statement of comprehensive income as cost of sales. Grants, including grants from the European Union, are recognised in the statement of comprehensive income in the same period as the expenditure to which the grant relates.

 

f. Development Costs

Development expenditure does not meet the strict criteria for capitalisation under IAS 38 and has been recognised as an expense. Expenditure on and relating to the Company's KORE fuel cell module installed at Stade in Germany under the EU funded POWER-UP project is considered to be development expenditure to date, as the KORE module is the first of its kind that has been produced and has not yet operated at full power output for an extended period.

 

g. Foreign Currency

The financial statements of the Company are presented in the currency of the primary economic environment in which it operates (the functional currency) which is pounds sterling. In accordance with IAS 21, transactions entered into by the Company in a currency other than the functional currency are recorded at the rates ruling when the transactions occur. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date.

 

h. Inventory and Work in Progress

Inventory is recorded at the lower of cost and net realisable value. Work in progress is valued at cost, less the cost of work invoiced on incomplete contracts and less foreseeable losses. Cost comprises purchase cost plus production overheads.

 

i. Trade and Other Receivables

Trade and other receivables arise principally through the provision by the Company of goods and services to customers (trade debtors). They also include other types of contractual monetary assets. These assets are initially recognised at fair value and are subsequently measured at amortised cost less any provision for impairment.

 

j. Loans and Other Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

 

The Company's loans and receivables include cash and cash equivalents. These include cash in hand, and deposits held at call with banks.

 

k. Property and Equipment

Property and equipment are stated at cost less any subsequent accumulated depreciation and impairment losses.

 

Where parts of an item of property and equipment have different useful lives, they are accounted for as separate items of property and equipment.

 

Depreciation is charged to the income statement within cost of sales and administrative expenses on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:

 

·    Leasehold improvements                1 to 3 years

·    Fixtures, fittings and equipment       1 to 3 years

·    Vehicles                                        3 to 4 years

 

2. Basis of preparation and accounting policies continued

k. Property and Equipment continued

Expenses incurred in respect of the maintenance and repair of property and equipment are charged against income when incurred. Refurbishment and improvement expenditure, where the benefit is expected to be long lasting, is capitalised as part of the appropriate asset.

 

The useful economic lives of property, plant and equipment and the carrying value of tangible fixed assets are assessed annually and any impairment is charged to the income statement.

 

l. Intangible Assets

Expenditure on research activities is recognised in the income statement as an expense as incurred. Expenditure in establishing a Patent is capitalised and written off over its useful life.

 

Other intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and impairment losses.

 

Amortisation of intangible assets is charged using the straight-line method to administrative expenses over the following period:

 

·    Patents               20 years

 

Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness and any impairment is charged to the income statement.

 

m. Cash and Cash Equivalents

Cash and cash equivalents comprise cash balances and call deposits with major banking institutions realisable within 3 months. Restricted cash is €125,000 held in escrow to support a bank guarantee relating to the Stade site.

 

n. Other Financial Liabilities

The Company classifies its financial liabilities as:

 

•    Trade and Other Payables

These are initially recognised at invoiced value. These arise principally from the receipt of goods and services. There is no material difference between the invoiced value and the value calculated on an amortised cost basis or fair value.

 

•    Deferred Income

This is the carrying value of income received from a customer in advance which has not been fully recognised in the Income Statement pending delivery to the customer. The carrying value is fair value.

 

o. Leases

Finance Leases

Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected in profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term.

 

Operating Leases

Operating lease rentals are charged to the Income Statement on a straight-line basis over the lease term.

 

p. Financial Assets

All of the Company's financial assets are loans and receivables and investments. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets at fair value and comprise trade and other receivables and cash and cash equivalents. Investments are accounted for at cost less impairment.

 

 

2. Basis of preparation and accounting policies continued

q. Financial Instruments

Financial assets and liabilities are recognised on the balance sheet when the Company becomes a party to the contractual provisions of the instrument.

 

·    Cash and cash equivalents comprise cash held at bank and short-term deposits

·    Trade payables are not interest bearing and are stated at their nominal value

·    Equity instruments issued by the Company are recorded at the proceeds received except where those proceeds appear to be less than the fair value of the equity instruments issued, in which case the equity instruments are recorded at fair value. The difference between the proceeds received and the fair value is reflected in the share-based payments reserve.

 

r. Valuation of Derivative Financial Instrument

The Company has placed shares with Lanstead Capital L.P. and at the same time entered into an equity swap agreement in respect of the subscriptions for which consideration will be received monthly over an 18 month period as disclosed in the notes to these financial statements. The amount receivable each month is dependent on the Company's share price performance and gains and losses arising on monthly settlements are reflected in the income statement in administrative expenses. At each period end the financial instrument is valued at fair value based on the share price of the Company at that date. The instrument is accounted for as fair value through profit and loss; any change in the fair value of the derivative financial instrument is reflected in the statement of comprehensive income in administrative expenses.

 

s. Share-Based Payment Transactions

The Company awards share options and warrants to certain Directors and employees to acquire shares of the Company. The fair value of options and warrants granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the Directors and employees become unconditionally entitled to the options or warrants. The fair value of the options and warrants granted is measured using the Black-Scholes option valuation model, taking into account the terms and conditions upon which the options and warrants were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options and warrants that vest only where vesting is dependent upon the satisfaction of service and non-market vesting conditions or where the vesting periods themselves are amended by the introduction of new schemes and the absorption of earlier schemes by agreement between the Company and the relevant Directors and employees. Where options or warrants granted are cancelled, all future charges arising in respect of the grant are charged to the income statement on the date of cancellation.

 

t. Provisions

Provisions are recognised when the Company has a present obligation as a result of a past event and it is probable that the Company will be required to settle the obligation. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the balance sheet date and are discounted to present value where the effect is material.

 

u. Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

 

Current tax is the expected tax payable or recoverable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date together with any adjustment to tax payable in respect of previous years.

 

Deferred tax assets are not recognised due to the uncertainty of their recovery.

 

v. 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 income statement in administrative expenses or in the taxation line depending on the nature of the credit.

 

w. Pension Contributions

The Company operates a defined contribution pension scheme which is open to all employees and makes monthly employer contributions to the scheme in respect of employees who join the scheme. These employer contributions are currently capped at 3% of the employee's salary and are reflected in the statement of comprehensive income in the period for which they are made.

 

x. Restatement of Comparatives

Certain balances have been restated from 2014; this relates to the derivative financial instrument which had been included with trade and other receivables on the face of the statement of financial position and is now shown separately. The amounts received and receivable under EU grants have been reclassified from Revenue to EU Grant Income.

 

 

3. Critical accounting judgements and key sources of estimation and uncertainty

In the preparation of the financial statements management makes certain judgements and estimates that impact the financial statements. While these judgements are continually reviewed, the facts and circumstances underlying these judgements may change, resulting in a change to the estimates that could impact the results of the Company. In particular:

 

Carrying Values of Property and Equipment

The Company monitors internal and external indicators of impairment relating to its property and equipment. Management has considered whether
any indicators of impairment have arisen over certain assets relating to these assets. After assessing these, management has concluded that no impairment has arisen during the year and subsequent to 31 October 2015 (2014: £nil).

 

Useful Lives and Impairment of Intangible Assets, and Property and Equipment

Intangible assets, and property and equipment are amortised or depreciated over their useful lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. After undertaking a comprehensive review of intangible assets, management has concluded that no impairment has arisen with respect to intangible assets during the year and subsequent to 31 October 2015 (2014: £nil).

 

Income Taxes and Withholding Taxes

The Company believes that its receivables for tax recoverable are adequate for all open audit years based on its assessment of many factors, including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgements about future events. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact income tax expense in the period in which such determination is made.

 

Capitalisation of Development Expenditure

The Company uses the criteria of IAS 38 to determine whether development expenditure should be capitalised. After assessing these, management has concluded it would not be appropriate to capitalise development expenditure incurred during the year ended 31 October 2015.

 

Share-Based Payments

Certain employees (including Directors and senior Executives) of the Company receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ("equity-settled transactions").

 

The fair value is determined using an appropriate pricing model.

 

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ("the vesting date"). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

 

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

 

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

 

Licence Fees

Licence fees are recognised on a straight line basis over the life of the licence, with payments being received in staggered instalments. Fees which are contingent on an event are recognised when the Company believes that it is probable that the event will occur.

 

 

 

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 2015, the Company operated mainly in the United Kingdom and in Germany. All non current assets are located in the United Kingdom.

 

5. Operating loss

This has been stated after:


Year ended

31 October 2015

£

Year ended

31 October 2014

£

Government grants received and receivable

(2,262,506)

(591,269)

R&D tax credit receivable

(174,937)

-

Depreciation/Impairment of property and equipment

198,769

300,612

Research and Development expenditure

3,475,657

1,284,044

Amortisation/Impairment of intangible assets

79,522

11,875

Write off of Waste2Tricity investment and receivable

558,983

-

Equity-settled share-based payment expense

216,202

239,968

Foreign exchange differences

42,975

44,211

Auditor's remuneration - audit

30,000

20,000

Auditor's remuneration - tax

9,500

2,500

Auditor's remuneration - other services

-

14,360

 

 

6. Staff numbers and costs, including Directors

The average numbers of employees in the year were:


Year ended

31 October 2015

Number

Year ended

31 October 2014

Number

Support, operations and technical

39

37

Administration

5

12


44

49

 

The aggregate payroll costs for these persons were:

 


£

£

Wages and salaries (including Directors' emoluments)

2,660,709

2,214,039

Social security

317,242

247,339

Employer's pension contributions

35,095

31,443

Equity-settled share-based payment expense

216,202

239,968


3,229,248

2,732,789

 

 

7. Directors' remuneration

                                                                                                              

Year ended

31 October 2015

£

Year ended

31 October 2014

£

Wages and salaries

978,656

667,078

Social security

131,225

80,535

Equity-settled share-based payment expense

170,001

83,829

Other compensation (see note 25)

48,149

82,923

Company pension contributions

1,844

12,569


1,329,875

926,934




The emoluments of the Chairman

57,346

58,325




The emoluments of the highest-paid Director

661,932

370,613

Company pension contributions of highest paid Director

-

8,000

 

The remuneration, details of share options and interests in the Company's shares of each Director are shown in the Directors' Report.

 

8. Financial income


Year ended

31 October 2015

£

Year ended

31 October 2014

£

Gain/(Loss) on derivative financial instrument

3,288,497

(636,330)

Bank interest receivable

5,775

48,667

Total interest receivable

3,294,272

(587,663)

 

9. Taxation

Recognised in the income statement

Year ended

31 October 2015

£

Year ended

31 October 2014

£

Research and development tax credit - current year

(569,706)

(421,280)

Total tax credit

(569,706)

(421,280)




Reconciliation of effective tax rates






Loss before tax

(5,351,931)

(5,858,297)

Tax using the domestic rate of corporation tax of 20.42% (2014: 21.67%)

(1,092,864)

(1,269,298)




Effect of:



Expenses not deductible for tax purposes

659,518

151,115

Above the line tax credit

185,396

19,643

Research and development allowance

(450,148)

(347,762)

Research and development tax credit

(569,706)

(421,280)

Depreciation in excess of capital allowances

47,737

65,133

Losses surrendered for research and development

232,349

625,971

Unutilised losses carried forward

418,012

755,198

Total tax credit for the year

(569,706)

(421,280)

 

 

10. Loss per share

The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary Shareholders of £4,782,225 (2014: loss of £5,437,017) and a weighted average number of shares in issue for the year.


Year ended

31 October 2015

Year ended

31 October 2014

Basic loss per share (pence)

(1.66)p

(2.42)p

Diluted loss per share (pence)

(1.66)p

(2.42)p

Loss attributable to equity Shareholders

(4,782,225)

(5,437,017)

 


Number

Number

Weighted average number of shares in issue

288,431,626

224,533,287

 

Diluted earnings per share

As set out in Note 18, there are share options and warrants outstanding as at 31 October 2015 which, if exercised, would increase the number of shares in issue. However, the diluted loss per share is the same as the basic loss per share, as the loss for the year has an anti-dilutive effect.

 

11. Intangible assets


2015

Patents

£

2014

Patents

£

Cost



Balance at 1 November

748,113

637,898

Retirements

(401,166)

-

Additions

98,980

110,215

Balance at 31 October

445,927

748,113




Amortisation



Balance at 1 November

469,040

457,165

Retirements

(401,166)

-

Charge for the year

39,877

11,875

Balance at 31 October

107,751

469,040

Net book value

338,176

279,073

 

12. Property and equipment


Leasehold

improvements

£

Fixtures, fittings

and equipment

£

Motor Vehicles

£

Total

£

Cost





At 31 October 2013

221,512

2,693,951

10,495

2,925,958

Additions

51,247

-

-

51,247

At 31 October 2014

272,759

2,693,951

10,495

2,977,205

Transfers

45,852

(45,852)

-

-

Additions

18,851

-

17,994

36,845

Disposals

-

(1,326,821)

(10,495)

(1,337,316)

At 31 October 2015

337,462

1,321,278

17,994

1,676,734






Depreciation





At 31 October 2013

213,057

1,847,390

6,705

2,067,152

Charge for the year

27,047

270,067

3,498

300,612

At 31 October 2014

240,104

2,117,457

10,203

2,367,764

Transfers

9,783

(9,783)

-

-

Charge for the year

39,645

194,882

3,887

238,414

Disposals

-

(1,035,277)

(10,495)

(1,045,772)

At 31 October 2015

289,532

1,267,279

3,595

1,560,406






Net Book Value





At 31 October 2015

47,930

53,999

14,399

116,328

At 31 October 2014

32,655

576,494

292

609,441

 

There are no assets held under finance leases.

 

 

13. Investment

The Company holds 23% in Waste2Tricity Ltd ("W2T") (a Company registered in England & Wales). As at 31 October 2015 the Company held 230,000 shares representing 23% (2014: 230,000 representing 23%) of the share capital of W2T. In the view of the Directors this investment has no value currently and has been recognised at cost less impairment. No revenue was recognised in the period under the licence agreements with Waste2Tricity Limited and Waste2Tricity International (Thailand) Limited and accrued licence fees receivable as at 31 October 2014 of £506,483 has also been written off.


Year ended

31 October 2015

£

Year ended

31 October 2014

£

Investment in W2T

-

52,500

 

14. Inventory and work in progress


Year ended

31 October 2015

£

Year ended

31 October 2014

£

Inventory

219,421

88,304

Work in progress

-

68,744


219,421

157,048

 

15. Trade and other receivables


Year ended

31 October 2015

£

Year ended

31 October 2014

£

Current:



R&D tax credits receivable

718,023

787,075

EU grants receivable

2,513,395

419,183

Other receivables

226,922

2,296,634


3,458,340

3,502,892

 

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.

 

16. Cash and cash equivalents


Year ended

31 October 2015

£

Year ended

31 October 2014

£

Cash at bank

675,603

2,956,871

Bank deposits

1,080,842

1,901,332


1,756,445

4,858,203

 

Cash at bank and bank deposits consist of cash. There is no material foreign exchange movement in respect of cash and cash equivalents. Restricted cash, not included in cash and cash equivalents, is €125,000 held in an escrow account to support a bank guarantee relating to the Stade site.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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