TIDMAFC

RNS Number : 5832Q

AFC Energy Plc

01 March 2021

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

1 March 2021

AFC Energy plc

("AFC Energy" or the "Company")

Final Results for year ended 31 October 2020

AFC Energy (AIM: AFC), a leading provider of hydrogen power generation technologies, is pleased to announce its results for the year ended 31 October 2020. Highlights of those results are as follows.

Commercial

-- Six-month engagement with global e-mobility leader, ABB, culminating in the post year-end formation of a Strategic Partnership to develop high power Electric Vehicle (EV) charging solutions with established route to a growing worldwide EV market.

-- Achieved first commercial orders, including appointment as Official Charging Partner of FIA Accredited Extreme E in 2021, providing sustainable off-grid power for rapid vehicle charging.

-- Confirmed initial order book of GBP1.1m at year end, with strong pipeline of commercial orders across prospective partners and distributors currently under development.

-- Announced collaboration with global contractor ACCIONA, highlighting opportunities for sustainable construction and temporary power applications.

-- Introduced potential for alkaline fuel cell adoptions in high growth micro grid applications with system sale to Forschungszentrum Jülich ("Jülich") at its Living Lab Energy Campus ("LLEC") showcase in Germany.

-- Commenced strategic relationship with Ricardo plc post year-end to explore alkaline fuel cell deployment across global maritime, rail and stationary markets following growth in enquiries - all new target industries for the business.

   --      Oversubscribed GBP31.6m fundraise, strengthening balance sheet for accelerated growth. 

Manufacturing

-- Confirmation of capital light manufacturing and scale up strategy through supply chain strengthening in preparation for near term growth potential in commercial orders.

-- Cemented partnership with BK Gulf through post year-end agreement for mass scale up of containerised and skid mounted fuel cell system fabrication.

-- Agreement reached post year-end to lease 30,000 sq. ft UK based facility for the assembly, commissioning and dispatch of fuel cell systems to customers.

Technology

-- Prototype design of high-density "S" series fuel cell system completed and work commenced to assemble and demonstrate "short stack" performance, prior to scaling up to full scale 10kW stack in 2021 and expected release of commercial-scale stacks to the market in late 2022.

-- Initial supply of AlkaMem(R) membrane samples across multiple non-fuel cell applications demonstrating the diversity of revenue opportunities across non-core markets.

-- Design and engineering of world class testing and research lab for high density fuel cell, launched after year-end in February 2021.

Key Financial Highlights

-- Stronger year end cash balance of GBP31.6m (FY 2019: GBP1.6m), providing the basis for future growth.

-- Growing investment in product range reflected in increased loss of GBP4.2m (FY 2019: GBP2.9m).

-- Strong pipeline growth across all target markets post year-end with potential for commensurate revenue.

Outlook

-- Unprecedented global investment in hydrogen, with $300bn project pipeline and 30 of the world's largest economies already having national Hydrogen strategies in place.

-- Principle of 'building back better' and the bringing forward of EV deployment post COVID-19 is driving strong Government action on decarbonisation.

-- Leveraging the value of existing and new international partnerships to enhance commercial route to market remains central to driving growth in top line commercial revenue.

-- Systems to be completed and deployed to reinforce political & regulatory support for industry's viable transition away from diesel, with anticipated drive towards commercial sales.

-- Stronger balance sheet to support further investment in containerised fuel cell systems to meet customer demand and hone supply chain and manufacturing scale up potential.

-- Planned deployment of first integrated EV charger system alongside ABB in second half of 2021.

-- Target delivery of first prototype high energy density "S" series fuel cell stack with adoption of AFC Energy's new Alkamem(R) membrane technology in 2021.

-- Continued international promotion of our work through the Hydrogen Council and the Ammonia Energy Association.

Adam Bond, Chief Executive of AFC Energy, said:

"2020 was the year that hydrogen took centre stage as a key enabler of a more sustainable future, fuelling a transformational year for AFC Energy. A growing order book, new strategic partnerships, a stronger cash position at year-end and a strong global political will, evidenced by record levels of investment in the sector, provides the basis for our future success.

Our outlook for the coming year is one of confidence, with both Governmental policies and industry sentiment driving sustainable change in our key target markets. The Company's stronger balance sheet position enables us to invest in our people, products and technology and we therefore expect cash burn to increase in the coming year to deliver and grow our order book.

Leveraging the value of our existing international partnerships and collaborations remains central to our approach in 2021. With the required distribution channels, manufacturing and staffing being put in place to turn our enquiry pipeline into commercial sales with significant annuity revenue, I look forward to us making a growing contribution to delivering emissions-free solutions to the world's energy challenges."

-S-

 
 AFC Energy plc                                                      +44 (0) 14 8327 6726 
  Adam Bond (Chief Executive Officer)                                 Investors@afcenergy.com 
  Iain Thomson (Head of Communications and Stakeholder Management) 
 WH Ireland - Nominated Adviser and Joint Broker 
  M ike Coe (Corporate Finance) 
  Jasper Berry (Corporate Broking)                                   +44 (0) 117 945 3470 
 
M C Peat & Co LLP - Joint Broker 
 Charlie Peat                                                        +44 (0) 20 7104 2334 
Zeus Capital Limited - Joint Broker 
 Daniel Harris (Corporate Finance) 
 John Goold/Dominic King (Corporate Broking)                         +44 (0) 203 829 5000 
 
  Tuva Partners - Public Relations 
  Alex Brooks                                                        +44 (0) 7900 205 460 
 

For further information, please contact:

About AFC Energy plc

AFC Energy plc is commercialising a scalable alkaline fuel cell system, to provide clean electricity for on and off grid applications. The technology is now deployable in electric vehicle chargers, off-grid decentralised power systems and industrial gas plants as part of a portfolio approach to the decarbonisation of local electricity needs (Afcenergy.com).

Chairman's report

The year ended 31 October 2020 was a transformational one for AFC Energy. A supportive public policy environment, commercial opportunity, strong customer engagement and product readiness all converged and gave rise to our first commercial orders. The profile of the company was also significantly heightened through becoming the official charging partner for the inaugural Extreme E season, alongside the forging of close ties with global partners in the EV Charging (ABB) and Construction (Acciona) markets to grow our international footprint and reputation.

The successful GBP31.6m fundraising that took place in July was also a critical milestone in the development of the company, directly supporting the transition from the development of our products and technology into the manufacture and commercialisation of them whilst providing significant financial headroom for long-term planning. The company is in a strong position for future growth.

Financial Overview

The successful restructuring of our finances in this financial year provides a robust platform to accelerate the deployment of our products into our key target markets. The year began with several small fundraises which avoided the need for a drawdown from our GBP4m convertible loan facility and provided sufficient liquidity for the company to deliver against our customer commitments during the first lockdown.

The successful conclusion of our July fundraise brought the total funds raised for the year to GBP34 million. Careful use of this funding prior to period end meant that we ended the year with a cash balance of GBP31.6 million (FY 2019: GBP1.6 million). This strong cash position supported our decision after period end to cancel our Convertible Loan Note facility, having not drawn any amounts from it during the eighteen months it was in place.

The operating loss for the year was GBP4.2 million (FY 2019: GBP2.9 million), whilst cash absorbed by operations and investing activities was GBP4.1 million (FY 2019: GBP2.8 million). This directly reflected our increased investment in our operational and technical headcount, tooling, demonstration equipment and costs associated with assembling Extreme E's charging system.

Our commercial strategy has begun to be successfully demonstrated by closing the year with an order book of GBP1.1 million (2019: GBP nil); more detail is provided within the Operational Review.

People, culture and values

Our people have worked tirelessly throughout this financial year to deliver our projects against tight deadlines within the backdrop of social distancing and remote working. The way that our employees have risen to the challenge of maintaining our research, product development, manufacturing and assembly programmes to support our projects despite the challenges posed by the COVID-19 pandemic has made me immensely proud. On behalf of the Board, I would like to thank them all for their professionalism, dedication and understanding during a year like no other.

During the year we reviewed our remuneration policy to align with our stakeholder objectives. The first step was a grant of options to existing and new staff to align them with value creation and our principal commercial targets. During the coming year we will roll out further actions to ensure that we attract and retain the right staff and that their objectives and interests are aligned with our stakeholders.

Investor communications

The COVID-19 pandemic also directly affected how we communicated with our shareholders during the period. Whilst many of our institutional and private investors were present at our Electric Vehicle Charging demonstration in December 2019, social restrictions meant that our annual investor day - planned to coincide with our Annual General Meeting - was postponed. The Board remains committed to regular communication with the market and our investors and is keen to resume its investor day activities in line with Government guidelines.

We appointed Iain Thomson as Head of Communication and Stakeholder Management in January 2021 and he will be facilitating a virtual Capital Markets Morning in the Spring to bring us closer to our investors. This event will be one of four key touchpoints across the year where investors can learn more about the company and its strategy, alongside our Annual General Meeting (AGM) and materials relating to our Full Year and Half Year results.

The Board is also committed to high standards of public reporting and will put a formal ESG reporting framework in place in 2021 to support investors to measure the positive impact the company has on wider society and in successfully future proofing itself. We believe that the company supports at least nine of the UN's 17 Sustainable Development Goals but also recognise that investors require further detail; a formal update will be provided as part of our Half Year results.

Thank you

The continued hard work and technical ability of our staff has ultimately set t he foundation for what the company will achieve in coming years. My thanks also to our executive team for their leadership, to my colleagues on the Board for their counsel, to our shareholders for their support and commitment, to our customers who recognise the quality of the products we provide, and to all of our other stakeholders who provide input and guidance into our projects.

Having served as Chairman for nearly four years it is my intention to retire at the end of the forthcoming Annual General Meeting and I shall therefore not be seeking re-election. It has been a challenging and often exciting period for the company and following the most recent fund raising and the excellent new relationships with Acciona, ABB and Ricardo the company is well placed to accelerate its commercialisation in 2021 and beyond. The Board is progressing a process to identify a successor Chairman and once that person has been appointed I wish them and the company every success in the exciting years ahead.

John Rennocks

Chairman

26 February 2021

Operational review

2020 was the year Hydrogen took centre stage. With an unprecedented $300 billion pencilled for investment into new project pipelines and an estimated 18% of the world's energy needs forecast to come from hydrogen over the next few decades [1] , this is very much just the start.

For AFC Energy, 2020 was a year in which foundations were laid with first commercial sales, strategic partnerships cemented with global routes to market, high profile technology branding, and unprecedented policy backing across the clean air and sustainable energy agendas.

In 2020 alone, 30 of the world's largest economies confirmed Hydrogen Strategies, promoting the sector for the first time into mainstream clean energy portfolio solutions. Such policy support, together with our commercial progress over these past 12 months, cements the company's position as a market leader in the global transition away from diesel generators.

The World has changed ... and with change comes the opportunity to make things better

COVID-19 has placed significant challenges on us all that will see huge changes in both people's day to day social interactions and in the pursuit of national and personal endeavours.

Recent studies ([2]) have however highlighted how the global pandemic has, through implementation of national lockdowns and reduced economic activity, seen significant improvements in air quality, reduced greenhouse gas emissions and improved water quality.

As we begin to rebuild the economic drivers of our economies, the policy imperatives being driven by central governments worldwide increasingly reflect the principal of "building back better". A key element of this is a growing recognition of the role Hydrogen is and will continue to play in supporting society to build back in a more sustainable and environmental conscious manner.

For AFC Energy, this reality is reflected in the need to reduce society's reliance on fossil fuels and in particular, diesel fuelled power generation. Industries that currently rely on diesel generators all have the potential to benefit from the unique selling points of our proprietary alkaline fuel cell system technology. For over 200 million viewers who will be watching the inaugural Extreme E season powered by our zero-emission technology, AFC Energy will be at the heart of this global transition away from diesel.

Today, AFC Energy is engaging with several of the world's leading constructors, diesel generator distributors and global electrification providers in showcasing the strong environmental credentials our fuel cell technology can play in aiding the world's search for Net Zero. Our pipeline of project opportunities has, in response to these environmental circumstances, continued to grow during the course of the 2020 and 2021 lockdowns and we are excited to start converting these opportunities into long term annuity revenue streams.

With hundreds of billions of dollars now committed to making the Hydrogen sector a reality, and a relatively small number of core commercial and near commercial technology providers in place today to make this happen, the opportunity for AFC Energy has never been more compelling.

First Commercial Orders and Pipeline Growth

2020 saw the conclusion of AFC Energy's first commercial contracts with an order book of GBP1.1m for delivery during 2021. Our revenue pipeline and partnerships however continue to strengthen alongside the commitment of constructors, power generators and Governments to pursue zero carbon commitments.

Our business model of working through global partners such as ABB continues to validate the merit of our focused go to market strategy.

Extreme E was a high profile first contract for the Company which not only delivers revenue, but also tremendous global marketing opportunities. The series will showcase the modular system's flexibility in operating in some of the harshest environmental conditions on Earth, from desert to glacier, and provide a real life, real time demonstration of our system's operability to partners and customers.

To a large degree, our pipeline is strongly supported by Government policy and regulations. These are mandating, at an accelerating rate, a reduction in diesel combustion engines in transport systems, the removal of many of the benefits available to offgrid power generation (such as the UK's subsidy on red diesel ending for the Construction sector from 2022) and enforcing new low emissions standards on stationary power generators. All of these factors are now forcing industry to reconsider the drivers of technology choice in the alternative adoption of legacy diesel generators. This, supported by our low capital cost targets and the ability of our systems to accept low grade hydrogen fuel, enables the Company to position itself in a market which reflects premium priced power, and does not require short term Government subsidy in order to be successful.

First Global Distribution Channel

Significant effort was also made during the year in promoting and demonstrating our technology both at home and abroad.

This began with the Dunsfold to Dundee roadshow in February that physically demonstrated the capabilities of our new EV charger unit and acted as a catalyst for further press coverage and interest in our products.

This roadshow culminated in both our agreement with Extreme E and the announcement after year end of our global partnership with world leaders in electrification, ABB. This partnership not only gives ABB access to AFC Energy's leading fuel cell technologies for the rapid charging of electric vehicles, it also provides AFC Energy with access to a global distribution network which has already sold rapid EV charging equipment in over 80 countries.

Work has already begun with ABB to integrate their chargepoints with our fuel cells to provide an off-grid solution where the grid is constrained (or absent), with the integrated product launch targeted for later this year. Importantly, we are already in discussions with several of ABB's customers who have expressed interest in the system in locations where large power demand exists, such as high-volume logistics hubs, but where adequate grid connectivity does not.

To put the importance of this agreement into context, our commercial team can now access a global market of some 1.2 billion existing vehicles [3] , compared with a domestic market of just 38.7 million vehicles [4] .

This model of working through global distributors can be evidenced across all of AFC Energy's key target markets and we hope to be making further announcements in this regard later in the year.

New Partnerships and Collaborations

To accelerate our growth and extend our commercial footprint across the world, we have also begun to enter into a series of partnerships and collaborations with key global companies and we view this as a principal part of our commercial strategy moving forward in order to generate a larger volume of sales.

In June, we announced a partnership with Acciona SA in support of their stated intention to decarbonise their portfolio of global construction sites. Our programme of work with Acciona this year will explore logistics chains, fuelling strategy (with ammonia), regulatory compliance and the cost effectiveness of our system compared to diesel fuel in off-grid construction applications.

Partnerships such as that announced with Acciona are being developed across several constructors and diesel genset distributors and create large opportunities for early deployment of H-Power systems in markets driven by sustainability agendas.

After period end for example, we also entered into a collaboration agreement with Ricardo plc for both companies to jointly explore and engineer innovative, zero greenhouse emission products with a focus on transportation and stationary power generation, thereby taking advantage of clear growth in industrial customer demand. The partnership is closely considering the benefits achieved using low cost, readily available, and high energy dense green ammonia fuel (rather than hydrogen gas) as a fuel of choice in off-grid or remote power needs, including international shipping and distributed power generation.

Manufacturing scale up

Our 2020 contracts and the strength of our potential order pipeline placed a spotlight on our dependence upon the small workforce we have at Dunsfold. We subsequently took three actions to ensure that our manufacturing capability can meet current and future orders.

Our partnership with BK Gulf, announced after period end, supports the immediate scale up of manufacturing capacity for delivery of our power systems through the delivery of the Company's containerised fuel cell balance of plant. BK Gulf has the existing capacity to deliver several hundred fitted out containerised modules per annum to address future customer demand, with the first fabricated units expected this year. In parallel with this work, BK Gulf has also commenced a detailed value engineering process to further optimise our system layout and drive cost reduction. Our partnership with De Nora also remains strong following the extension of our Joint Development Agreement, with their electrodes continuing to be used in all of our projects.

Our successful GBP31.6 million fundraise in July also supported two key internal actions. To further scale up fuel cell system assembly and commissioning to satisfy existing and future orders, we announced in November that we'd taken a lease over a 30,000 sq. ft unit at Dunsfold Park to serve as our first large scale H-Power(TM) assembly and commissioning facility. This provides the space for the assembly of fuel cell systems of any scale before commissioning and despatch to customers.

In addition, the fundraise provided the financial headroom to recruit new manufacturing, engineering and commercial staff in support of the deployment of our systems into the Company's key target markets. We will be announcing a further strengthening of our executive team shortly and it's a tribute to our progress that we can now attract such talent to our business.

Product and technology development

Our technology platform is at the heart of our value proposition, and with a three pillar approach to technology development, we are confident our market leading position in alkaline fuel cell systems continues to be strengthened.

The first of these pillars represents the HydroX-Cell(L) fuel cell system which is currently set for deployment in all of our current and near term pipeline of projects. The focus here continues to be predicated on lowering of cost and enhancement of performance. Our partnership with Industrie De Nora continues to pay dividends as they further invest in our L Series electrode technology through Joint Development Agreement, with BK Gulf now supporting the value engineering of modular, containerised systems.

The second pillar represents to HydroX-Cell(S) fuel cell system which continues to be scaled up towards a full commercial prototype system expected for delivery later this year. The S Series system continues to demonstrate market leading power densities for alkaline fuel cell systems designed to compete head on with existing Proton Exchange Membrane (PEM) based technologies in mobile applications where power density and footprint are key. The key differentiator is the alkaline system's ability to accept lower grade, and therefore lower cost Hydrogen (including that sourced from Ammonia) with a far lower loading of high cost metals within its electro-chemistry. We continue to believe the S Series fuel cell will be a game changer for the hydrogen sector.

Finally, the third pillar represents the AlkaMem(R) anion exchange membrane, used within the S Series fuel cell system, but which can equally be applied in other non fuel cell applications such as alkaline water electrolysis. AlkaMem(R) has now been dispatched to several leading industrial and research entities and continues to highlight the potential for our technology in these markets. 2020 presented certain challenges across the AlkaMem(R) supply chain however we are now through this and continue to prepare the membrane for third party users in 2021.

Fuel

The unique selling point of our equipment to accept low grade, cheaper hydrogen sources - especially ammonia, which has been confirmed as our strongest competitive advantage by our customers. Adoption of ammonia as a preferred vector for the carriage of Hydrogen is gaining momentum, particularly in heavy mobile applications such as shipping. We are continuing to work closely with the ammonia industry, including joining the Ammonia Energy Association as Gold Members in 2020.

Outlook

Our outlook for the coming year is one of confidence, with both Governmental policies and industry sentiment driving sustainable change in our key target markets. The company's strong balance sheet position enables us to invest in our people, products and technology and we therefore expect cash burn to modestly increase in the coming year - partly offset by an increase in customer revenues - to accelerate our commercial growth.

With regulations pertaining to diesel generation continuing to tighten, environmental and societal change agendas becoming more prevalent, the rate of Electric Vehicle deployment and their required rate of charge increasing, and the cost of Hydrogen continuing to fall whilst diesel does the opposite, this will drive additional interest and ultimately drive sales of our products in our target markets.

Beyond this clear opportunity, we have also begun to put in place the required distribution channels, manufacturing and staffing to turn these opportunities into significant revenue. Leveraging the value of our international partnerships and collaborations remains central to our approach in 2021.

Whilst the COVID-19 pandemic has had an obvious impact on all businesses, we demonstrated in 2020 that we have been able to work safely and efficiently in meeting the needs of our customers whilst continuing to develop our product base. I expect us to maintain this momentum throughout 2021.

This transformational year has been the result of innovative, passionate and committed effort by a team with the single-minded desire to bring "emissions-free solutions to the world's energy challenges". I wish to take this opportunity to thank our staff, partners and supply chain for their tremendous efforts and I look forward to even greater things in the future.

Adam Bond

Chief Executive Officer

26 February 2021

Statement of Comprehensive Income

FOR THE YEARED 31 OCTOBER 2020

 
                                                                                     Year ended     Year ended 
                                                                                     31 October     31 October 
                                                                                           2020           2019 
                                                                            Note            GBP            GBP 
---------------------------------------------------------------------      -----  -------------  ------------- 
 Revenue from customer contracts                                                              -              - 
 Cost of sales                                                                                -           (26) 
-------------------------------------------------------------------------  -----  -------------  ------------- 
 Gross loss                                                                                   -           (26) 
 
 Other income                                                                            32,892         39,729 
 Administrative expenses                                                            (4,639,104)    (3,606,266) 
-------------------------------------------------------------------------  -----  -------------  ------------- 
 Operating loss                                                                5    (4,606,212)    (3,566,563) 
-------------------------------------------------------------------------  -----  -------------  ------------- 
 
 Finance cost                                                                  8      (178,407)       (52,805) 
-------------------------------------------------------------------------  -----  -------------  ------------- 
 Loss before tax                                                                    (4,784,619)    (3,619,368) 
-------------------------------------------------------------------------  -----  -------------  ------------- 
 Taxation                                                                      9        559,627        768,528 
-------------------------------------------------------------------------  -----  -------------  ------------- 
 Loss for the financial year and total comprehensive loss attributable to 
  owners of the Company                                                             (4,224,992)    (2,850,840) 
-------------------------------------------------------------------------  -----  -------------  ------------- 
 
 Basic loss per share                                                         10        (0.80)p        (0.68)p 
 Diluted loss per share                                                       10        (0.80)p        (0.68)p 
-------------------------------------------------------------------------  -----  -------------  ------------- 
 

All amounts relate to continuing operations.

The notes form part of these financial statements.

Statement of Financial Position

AS AT 31 OCTOBER 2020

 
                                                                          31 October     31 October 
                                                                                2020           2019 
                                                                 Note            GBP            GBP 
------------------------------------------------------------    -----  -------------  ------------- 
 Assets 
 Non-current assets 
 Intangible assets                                                 11        769,269        606,041 
 Right of use assets                                               12        247,505        361,738 
 Tangible fixed assets                                             13         940218        396,935 
                                                                           1,956,992      1,364,714 
  ------------------------------------------------------------  -----  -------------  ------------- 
 Current assets 
 Inventory                                                         15        249,370         95,423 
 Receivables                                                       16      1,043,880      1,151,998 
 Cash and cash equivalents                                         17     31,301,467      1,327,935 
 Restricted cash                                                   17        270,027        259,072 
--------------------------------------------------------------  -----  -------------  ------------- 
                                                                          32,864,744      2,834,428 
  ------------------------------------------------------------  -----  -------------  ------------- 
 
 Total assets                                                             34,821,736      4,199,142 
--------------------------------------------------------------  -----  -------------  ------------- 
 
 Capital and reserves attributable to owners of the Company 
 Share capital                                                     18        676,006        447,988 
 Share premium                                                     18     81,417,845     47,389,424 
 Other reserve                                                             1,512,974      2,204,774 
 Retained deficit                                                       (50,582,856)   (47,185,257) 
--------------------------------------------------------------  -----  -------------  ------------- 
 Total equity attributable to Shareholders                                33,023,969      2,856,929 
--------------------------------------------------------------  -----  -------------  ------------- 
 
 Current liabilities 
 Payables                                                          20      1,236,796        667,811 
 Lease liabilities                                                 21        113,431        113,431 
                                                                           1,350,227        781,242 
  ------------------------------------------------------------  -----  -------------  ------------- 
 Non-current liabilities 
 Lease liabilities                                                 21        146,368        259,799 
 Provisions                                                        22        301,172        301,172 
--------------------------------------------------------------  -----  -------------  ------------- 
                                                                             447,540        560,971 
  ------------------------------------------------------------  -----  -------------  ------------- 
 Total liabilities                                                         1,797,767      1,342,213 
 
 Total equity and liabilities                                             34,821,736      4,199,142 
--------------------------------------------------------------  -----  -------------  ------------- 
 

The notes form part of these financial statements.

These financial statements were approved and authorised for issue by the Board on 26 February 2021.

   ADAM BOND                                                     GRAEME LEWIS 

Chief Executive Officer Chief Financial Officer

AFC Energy plc

Registered number: 05668788

Statement of Changes in Equity

FOR THE YEARED 31 OCTOBER 2020

 
                                    Share        Share        Other       Retained          Total 
                                  Capital      Premium      Reserve        Deficit         Equity 
                           Note       GBP          GBP          GBP            GBP            GBP 
-----------------------   -----  --------  -----------  -----------  -------------  ------------- 
 31 October 2018                  391,698   45,506,524    2,908,021   (44,487,129)      4,319,114 
 Adjustment from 
  the adoption of 
  IFRS 16                               -            -            -        (6,794)        (6,794) 
------------------------  -----  --------  -----------  -----------  -------------  ------------- 
 Adjusted balance 
  at 31 October 
  2018                            391,698   45,506,524    2,908,021   (44,493,923)      4,312,320 
 Comprehensive 
  loss for the year                     -            -            -    (2,850,840)    (2,850,840) 
 Issue of equity 
  shares                           56,290    1,882,900            -              -      1,939,190 
 Equity-settled 
  share-based payments                  -            -    (703,247)        159,506      (543,741) 
------------------------  -----  --------  -----------  -----------  -------------  ------------- 
 Transactions with 
  owners                           56,290    1,882,900    (703,247)        159,506      1,395,449 
------------------------  -----  --------  -----------  -----------  -------------  ------------- 
 31 October 2019                  447,988   47,389,424    2,204,774   (47,185,257)      2,856,929 
 
 Comprehensive 
  loss for the year                     -            -            -    (4,224,992)    (4,224,992) 
 Issue of equity 
  shares                     18   226,873   33,798,289            -              -     34,025,162 
 Exercise of share 
  options                           1,145      230,132                                    231,277 
 Equity-settled 
  share-based payments       19         -            -    (691,800)        827,393        135,593 
 Transactions with 
  owners                          228,018   34,028,421    (691,800)        827,393     34,392,032 
------------------------  -----  --------  -----------  -----------  -------------  ------------- 
 31 October 2020                  676,006   81,417,845    1,512,974   (50,582,856)     33,023,969 
------------------------  -----  --------  -----------  -----------  -------------  ------------- 
 

Share capital is the amount subscribed for shares at nominal value.

Share premium represents the excess of the amount subscribed for share capital over the nominal value of these shares net of share issue expenses.

Other reserve represents the charge to equity in respect of unexercised equity-settled share-based payments.

Retained deficit represents the cumulative loss of the Company attributable to equity Shareholders.

The notes form part of these financial statements.

Cash Flow Statement

FOR THE YEARED 31 OCTOBER 2020

 
                                                                                              31 October    31 October 
                                                                                                    2020          2019 
                                                                                      Note           GBP           GBP 
-----------------------------------------------------------  ----  ----  ----  ----  -----  ------------  ------------ 
 Cash flows from operating activities 
 Loss before tax for the year                                                                (4,784,619)   (3,619,368) 
 Adjustments for: 
 Amortisation of intangible assets                                                      11       108,014        35,388 
  Depreciation of right of use asset                                                    12       114,233       114,233 
  Depreciation of property and equipment                                                13       143,758        88,950 
  Depreciation of decommissioning asset                                                 13        31,365        31,364 
 Equity-settled share-based payment expenses                                            19       135,593     (543,741) 
 Interest received                                                                       8       (6,168)       (4,173) 
    Gain on disposal of investment and allied agreements                                14      (80,000)      (20,000) 
 Cash flows from operating activities before changes in working capital and 
  provisions                                                                                 (4,337,824)   (3,917,347) 
 R&D tax credits received                                                                        644,523     1,299,360 
 (Increase)/Decrease in restricted cash                                                         (10,955)         6,702 
 (Increase)/Decrease in inventory                                                              (153,947)        68,297 
 Decrease in receivables                                                                          23,222        76,910 
 Increase in payables                                                                            568,985        26,264 
 Cash absorbed by operating activities                                                       (3,265,996)   (2,439,814) 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
 
 Cash flows from investing activities 
 Purchase of plant and equipment                                                        13     (718,406)     (224,253) 
 Additions to intangible assets                                                         11     (171,242)     (198,743) 
 Interest received                                                                       8         6,168         4,173 
 Proceeds from disposal of investment and allied agreements                             14        80,000        20,000 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
 Net cash absorbed by investing activities                                                     (803,480)     (398,823) 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
 
 Cash flows from financing activities 
 Proceeds from the issue of share capital                                                     35,558,667     1,888,940 
 Costs of issue of share capital                                                             (1,633,505)     (149,750) 
 Proceeds from the exercise of options                                                           231,277             - 
 Lease payments                                                                                (113,431)     (124,686) 
 Net cash from financing activities                                                           34,043,008     1,614,504 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
 
 Net increase/(decrease) in cash and cash equivalents                                         29,973,532   (1,224,133) 
 Cash and cash equivalents at start of year                                                    1,327,935     2,552,068 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
 Cash and cash equivalents at end of year                                               17    31,301,467     1,327,935 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
 

The notes form part of these financial statements.

Notes Forming Part of the Financial Statements

1. CORPORATE INFORMATION

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

The address of its registered office is Unit 71.4 Dunsfold Park, Stovolds Hill, Cranleigh, Surrey GU6 8TB.

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.

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 has been derived from the Company's statutory accounts for that year. The auditors' report on the statutory accounts for the year ended 31 October 2020 was unqualified and did not contain statements under section 498 of the Companies Act 2006.

The accounting policies used in completing this financial information have been consistently applied in all periods shown. These accounting policies are detailed in the Company's financial statements for the year ended 31 October 2020 which can be found on the Company's website.

The financial statements have been prepared on a going concern basis notwithstanding the trading losses being carried forward and the expectation that the trading losses will continue for the near future as the Company transitions from research and development to commercial operations.

The Company currently consumes cash resources and will continue to do so until sales revenues are sufficiently high to generate net cash inflows. Management have prepared and reviewed five-year financial projections aligned with ongoing technological, operational and commercial strategies. During the initial period of commercialisation there will be negative cash flows the size of which will be dependent upon the speed at which revenue grows. On 31 October 2020 unrestricted cash resources were GBP 31.3 million. The Directors have reasonable expectation that sufficient funding exists to meet payment obligations as and when they fall due. The directors' having taken into account current cash resources, identified risks including the impact of Covid 19 and financial forecasts the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of at least twelve months from the date of this report). Thus, the Directors believe that it is reasonable to continue to adopt the going concern basis in preparing the annual report and financial statements.

The accounting policies set out below have, unless otherwise stated, been applied consistently in these financial statements.

Judgements made by the Directors in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 3.

a. Standards, Amendments and Interpretations to Published Standards not yet Effective.

At the date of authorisation of these financial statements, all the IASB and IFRIC standards and interpretations, which are effective for annual accounting periods beginning on or after the stated effective date have been adopted.

b. 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.

c. Revenue recognition

To determine whether to recognise revenue, a 5-step process is followed:

   --      Identifying the contract with a customer 
   --      Identifying the performance obligations 
   --      Determining the transaction price 
   --      Allocating the transaction price to the performance obligations 
   --      Recognising revenue as the performance obligations are satisfied. 

Revenue is generated from complex contracts covering the

   --      Sale of goods and parts, 
   --      Sale of services and maintenance, and 
   --      Lease contracts. 

and may be either a single or multiple contracts. Multiple contracts are accounted for as a single contract where one or more of the following criteria are met

   --      The contracts were negotiated as a single commercial package, 
   --      Consideration of one contract depends upon the other contract, and 
   --      Some or all of the goods and services comprise a single performance obligation. 

Performance obligations of the contracts are analysed between either physical goods and services delivered or service level agreements. The transaction price of the performance obligations are based upon the contract terms taking in to account both cash and non-cash consideration. Non- cash consideration is valued at fair value taking in to consideration contract terms and known arms length pricing where available.

Revenue is recognised either at a point in time or over time, as the performance obligations are satisfied by transferring the promised goods or services to its customers. Contract liabilities are recognised for consideration received in respect of unsatisfied performance obligation and reports these amounts as other Contract and other liabilities in the statement of financial position. Similarly, if a performance obligation is satisfied before it receives the consideration, a contract asset or a receivable is recognised in the statement of financial position, depending on whether something other than the passage of time is required before the consideration is due.

Sale (standard products) contracts - Revenue from standard products will be recognised at a point of time only when the performance obligation has been fulfilled and ownership of the goods has transferred, which is typically at site or factory acceptance, which is the official handover of control of the goods to the customer.

-- During the product build, deposits and progress payments will be reflected in the balance sheet as deferred income.

-- Costs incurred on projects to date will not be included in the statement of comprehensive income but will be accumulated on the balance sheet as work in progress (as they are considered recoverable) and transferred to cost of sales once the revenue applicable to those costs can be recognised in the accounts. Should costs exceed anticipated revenues, a provision will be recognised and the surplus costs expensed with immediate effect.

Sale (customised products) contracts - Revenues for customised contracts will be recognised over time according to how much of the performance obligation has been satisfied. This is measured using the input method, comparing the extent of inputs towards satisfying the performance obligation with the expected total inputs required. Any changes in expectation are reflected in the total inputs figure as they become known. The progress percentage obtained is then applied to the revenue associated with that performance obligation.

Lease and long-term service contracts - Revenue is recognised over time based on outputs provided to the customer, because this is the most accurate measurement of the satisfaction of the performance obligation. Revenue can comprise a fixed rental charge and a variable charge related to the usage of assets or other services (including pass-through fuel).

d. Other Income

Other income represents sales by the Company of waste materials.

e. Development Costs

Identifiable non-recurring engineering and design costs and other prototype costs incurred to develop a technically and commercially feasible product are capitalised.

f. Foreign Currency

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

g. Inventory

Inventory is recorded at the lower of cost and net realisable value.

h. Other Receivables

These assets are initially recognised at fair value and are subsequently measured at amortised cost less any provision for impairment.

i. Tangible fixed assets

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

Right-of-use assets are measured at either:

- Their carrying amount as if IFRS 16 has been applied since commencement, discounted using the lessee's incremental borrowing rate at the date of initial application

- An amount equal to the lease liability, adjusted for any prepaid or accrued lease payments

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

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

   --       Right of use asset - building                                        life of the lease 
   --       Leasehold improvements                                             1 to 3 years 
   --       Decommissioning asset                                                  life of the lease 
   --       Fixtures, fittings and equipment                             1 to 3 years 

-- Motor vehicles 3 to 4 years

   --       Demonstration equipment                                          5 years 

-- Rental fleet 5 years

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

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

j. Intangible Assets

Expenditure in establishing a patent is capitalised and written off over its useful life.

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

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

   --       Development costs                                                           5 years 

-- Patents 20 years

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

k. Impairment testing of intangible assets and property, plant and equipment

At each statement of financial position date, the carrying amounts of the assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). In assessing whether an impairment is required, the carrying value of the asset is compared with its recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal (FVLCD) and value in use (VIU).

l. Lease liabilities

Measurement and recognition of leases as lessee

At lease commencement date, a right of use and lease liability are recognised on the Statement of Financial Position. The right of use asset is measured at cost, which comprises the initial measurement of the lease liability, any initial direct costs incurred, an estimate of costs to dismantle and remove the asset at the end of the lease term and any lease payments made in advance of the lease commencement date.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right of use asset, or profit and loss if the right of use asset is already reduced to zero.

Short term leases and low value assets have been accounted for using the practical expedients set out in IFRS 16 and the payments are recognised as an expense in profit or loss on a straight-line basis over the lease term.

m. Financial Instruments

Financial instruments are measured on initial recognition at fair value, plus, in the case of financial instruments other than those classified as fair value through profit or loss ("FVPL"), directly attributable transaction costs. Financial instruments are recognized when the Company becomes a party to the contracts that give rise to them and are classified as amortized cost, fair value through profit or loss or fair value through other comprehensive income, as appropriate. The Company considers whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives are separated from the host contract if the host contract is not measured at fair value through profit or loss and when the economic characteristics and risks are not closely related to those of the host contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

In the periods presented the Group does not have any financial assets categorised as FVPL or FVOCI.

Financial assets at amortized cost

A financial asset is measured at amortized cost if it is held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, and is not designated as FVPL. Financial assets classified as amortized cost are measured subsequent to initial recognition at amortized cost using the effective interest method. Cash, restricted cash, trade receivables and certain other assets are classified as and measured at amortized cost.

Financial liabilities

Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in net earnings when the liabilities are derecognized as well as through the amortization process. Borrowing liabilities are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date. Accounts payable and accrued liabilities and finance leases are classified as and measured at amortized cost.

Impairment of financial assets

A loss allowance for expected credit losses is recognized in OCI for financial assets measured at amortized cost. At each balance sheet date, on a forward-looking basis, the Company assesses the expected credit losses associated with its financial assets carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The expected credit losses are required to be measured through a loss allowance at an amount equal to the 12-month expected credit losses (expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date) or full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument). A loss allowance for full lifetime expected credit losses is required for a financial instrument if the credit risk of that financial instrument has increased significantly since initial recognition.

Derecognition of financial assets and liabilities

A financial asset is derecognized when either the rights to receive cash flows from the asset have expired or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party. If neither the rights to receive cash flows from the asset have expired nor the Company has transferred its rights to receive cash flows from the asset, the Company will assess whether it has relinquished control of the asset or not. If the Company does not control the asset then derecognition is appropriate. A financial liability is derecognized when the associated obligation is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in net earnings.

n. Share-Based Payment Transactions

The fair value of options and warrants granted is recognised as an employee expense with a corresponding increase in Other Reserve. The fair value of the expense is estimated at grant date using either the Black-Scholes option valuation model considering the terms and conditions upon which they were granted or a Log normal Monte Carlo stochastic model for market conditions. The expense accrues from the grant date until the options and warrants have unconditionally vested. Where vesting is dependent upon market or non-market performance criteria the vesting period is estimated at the grant date and, in the case of non-market performance criteria, is revised annually. When an option or warrant is exercised the balance is transferred to share capital with excess value going to the premium account whereas those that lapse are transferred to retained earnings. Where options or warrants are amended by the introduction of new schemes and the absorption of earlier schemes by agreement between the Company and the beneficiary the net difference in valuation is charged to earnings in the appropriate period.

o. Provisions

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

p. Taxation

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

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

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

q. R&D Tax Credits

The Company's research and development activities allow it to claim R&D tax credits from HMRC in respect of qualifying expenditure; these credits are reflected in the statement of comprehensive income in the taxation line depending on the nature of the credit.

r. 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 4% of the employee's salary and are reflected in the statement of comprehensive income in the period for which they are made.

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION AND UNCERTAINTY

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

Significant management judgements:

The following are the judgements made by management in applying the accounting policies of the Company that have the most significant effect on the financial statements:

Customer contracts and revenue recognition

Customer contracts typically include the provision of

-- engineering, manufacturing, installation, commissioning, and maintenance of standard and customised alkaline fuel cell systems and integrated auxiliary equipment, and

   --      access to or sale of technology. 

These performance obligations are provided for as either

   --      Lease contract, or 
   --      Sale contract 

In accordance with IFRS 16 management defines a lease as "A contract, or part of a contract, that conveys the right to use an identified asset for a period of time in exchange for consideration". For such a contract to exist the user of the asset needs to have the right to:

   --      Obtain substantially all the economic benefits from the use of the asset. 
   --      The right to direct the use of the asset. 

All other contracts, or part of a contract, are treated as sale contracts.

Sales contracts are analysed in accordance with the 5-step principle laid out by IFRS 15 and management distinguish between

   --      Standard products, 
   --      Customised products, and 
   --      Services. 

The distinction between standard and customised products arises from whether the products and auxiliary components up to the point of customer handover have alternative uses. Customised contracts by their nature do not create an asset with an alternative use as they are customised to the customers' requirements which cannot be easily converted for use on another project.

Customer agreements can be complex, involve multiple legal documents and have a duration covering multiple accounting periods including different performance obligations and payment terms designed to manage cash flow rather than the underlying arm's length transaction price. Management use judgement to identify the specific performance obligations and allocate the total expected revenue to the identified performance obligations. These judgements are made based on the interpretation of key clauses and conditions within each customer contract. Revenue is recognised when the performance obligation has been met. For standard products the performance obligations are assumed to be met when the customer takes delivery usually evidenced by either a factory or site acceptance test depending upon the agreed delivery terms. For customised products management consider that revenue can be recognised over time due to their status as custom builds. In accounting for their revenue under this method, management must take a view of the total costs required for each performance obligation together with the actual spend already recognised in cost of sales to be able to recognise an equivalent proportion of the revenue for that performance obligation. As this relates to expense not yet incurred, the projections are largely based on budgeted costs or quotes for costs. Management view this as a much more reliable measure of progress towards completion of the performance obligation than the output method as, despite contracting with milestone payments, these are not reliable measures of progress or value to the customer but instead have been designed to aid cash flow.

Project reviews covering cost forecasts and technical progress are monitored periodically to ensure that any potential losses are recognised immediately in the accounts in accordance with IAS 37.

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 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. Management identify separately non-recurring engineering, design costs and prototype costs incurred to develop demonstration units used in marketing activities and customer trials. Management believe that the Development Expenditure will continue to support marketing and customer trials for the foreseeable future. This assessment relies upon judgements about future customer behaviour taking in to account the feedback received from prospective customers and future product improvements which influence the economic useful life and residual value of said assets. To the extent that customer demand or competing products enter the market the economic useful life and residual value of the Development Expenditure may change which will impact depreciation and amortisation expenses for the period in which such determination is made.

Estimation uncertainty:

Information about estimates and assumptions that may have the most significant effect on recognition and measurement on assets, liabilities and expenses is provided below.

Share-Based Payments

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

The fair value is determined using either the Black-Scholes valuation model or a Log-normal Monte Carlo stochastic model for market conditions. Both are appropriate considering the effects of the vesting conditions, expected exercise period and the dividend policy of the Company.

The cost of equity-settled transactions is accrued, together with a corresponding increase in equity over the period the directors expect the performance criteria will be fulfilled. For market performance criteria this estimate is made at the time of grant considering historic share price performance and volatility. For non-market performance criteria an estimate is made at the time of grant and reviewed annually thereafter considering progress on the operational objectives set, plans and budgets.

Expected volatility has been based on the 3.5-year historical volatility of share price. Vesting requirements are three years for the exercise of warrants and options, except for 500,000 options granted which vest in two years. Certain options granted to Directors are also subject to performance conditions described in note 18.

Decommissioning Provision

The Company has set-up a decommissioning provision for the removal of the plant and equipment installed at the Stade site in Germany, the cost of which is based on estimates. Various scenarios have been considered which estimate the range of costs to be from GBP 35,000 to GBP 301,000 dependent upon agreements reached with lessor.

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 2020, 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   Year ended 
                                                           31 October   31 October 
                                                                 2020         2019 
                                                                  GBP          GBP 
---------------------------------------------------       -----------  ----------- 
 Amortisation/Impairment of intangible assets                 108,014       35,338 
 Depreciation of right of use asset                           114,233      114,233 
 Depreciation of property and equipment                       143,758       88,950 
 Depreciation of decommissioning asset                         31,365       31,364 
 R&D expenditure                                            1,553,519    1,808,080 
 Equity-settled share-based payment expense                   135,593    (543,741) 
 Foreign exchange differences                                (23,046)       27,068 
 Auditor's remuneration - audit                                49,172       56,500 
 Auditor's remuneration - corporation tax services              7,450        6,700 
 Auditor's remuneration - R&D tax credit services              25,000       25,000 
--------------------------------------------------------  -----------  ----------- 
 

6. STAFF NUMBERS AND COSTS, INCLUDING DIRECTORS

The average numbers of employees in the year were

 
                                           Year ended   Year ended 
                                           31 October   31 October 
                                                 2020         2019 
                                               Number       Number 
-----------------------------------       -----------  ----------- 
 Support, operations and technical                 24           20 
 Administration                                     6            6 
----------------------------------------  -----------  ----------- 
                                                   30           26 
     -----------------------------------  -----------  ----------- 
 

The aggregate payroll costs for these persons were:

 
                                                                    GBP         GBP 
------------------------------------------------------       ----------  ---------- 
 Wages and salaries (including Directors' emoluments)         1,901,966   1,628,330 
 Social security                                                192,706     183,353 
 Employer's pension contributions                                72,084      40,606 
 Equity-settled share-based payment expense                     135,593   (543,741) 
-----------------------------------------------------------  ----------  ---------- 
                                                              2,302,349   1,308,548 
     ------------------------------------------------------  ----------  ---------- 
 

7. DIRECTORS' REMUNERATION

 
                                                    Year ended   Year ended 
                                                    31 October   31 October 
                                                          2020         2019 
                                                           GBP          GBP 
--------------------------------------------       -----------  ----------- 
 Wages and salaries                                    963,559      645,876 
 Social security                                       104,667       81,177 
 Equity-settled share-based payment expense             89,943       19,663 
 Other compensation                                     67,717       61,066 
 Company pension contributions                          36,433       11,938 
-------------------------------------------------  -----------  ----------- 
                                                     1,262,319      819,720 
     --------------------------------------------  -----------  ----------- 
 
 

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

8. NET FINANCe COST

 
                                  Year ended   Year ended 
                                  31 October   31 October 
                                        2020         2019 
                                         GBP          GBP 
--------------------------       -----------  ----------- 
 Lease Interest                       12,072       16,955 
 Bank charges                        172,503       40,023 
-------------------------------  -----------  ----------- 
 Finance cost                        184,575       56,978 
 Bank interest receivable            (6,168)      (4,173) 
-------------------------------  -----------  ----------- 
                                     178,407       52,805 
     --------------------------  -----------  ----------- 
 

9. TAXATION

 
                                                                            Year ended    Year ended 
                                                                            31 October    31 October 
                                                                                  2020          2019 
 Recognised in the statement of comprehensive income                               GBP           GBP 
-------------------------------------------------------------------       ------------  ------------ 
 R&D tax credit - current year                                               (518,099)     (602,995) 
 R&D tax credit - prior year                                                  (41,528)     (165,533) 
------------------------------------------------------------------------  ------------  ------------ 
 Total tax credit                                                            (559,627)     (768,528) 
 
 Reconciliation of effective tax rates 
 
 Loss before tax                                                           (4,775,519)   (3,619,368) 
------------------------------------------------------------------------  ------------  ------------ 
 Tax using the domestic rate of corporation tax of 19% (2019: 19%)           (907,349)     (687,680) 
------------------------------------------------------------------------  ------------  ------------ 
 
 Effect of: 
 R&D tax credit - prior year                                                  (41,528)     (165,533) 
 Timing differences not deductible for tax purposes                             29,792      (14,929) 
 R&D allowance                                                               (383,719)     (446,596) 
 Tax credit on losses surrendered                                            (518,099)     (602,995) 
 Depreciation in excess of capital allowances                                   27,314        16,957 
 Losses surrendered for research and development                               678,888       790,131 
 Unutilised losses carried forward                                             555,074       342,117 
 Total tax credit                                                            (559,627)     (768,528) 
------------------------------------------------------------------------  ------------  ------------ 
 

Potential deferred tax assets have not been recognised but are set out below

 
                                      Year ended   Year ended 
                                      31 October   31 October 
                                            2020         2019 
                                         GBP000s      GBP000s 
------------------------------       -----------  ----------- 
 Share based payments                         30            - 
 Losses carried forward                    5,879        4,747 
-----------------------------------  -----------  ----------- 
 Potential deferred tax asset              5,909        4,747 
-----------------------------------  -----------  ----------- 
 

The deferred tax assets have not been recognised as the Directors consider that it is unlikely that they will be realised in the foreseeable future. The potential deferred tax asset are calculated using the estimated UK tax rate of 19% (2019: 17%).

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 GBP 4,224,992 (2019: loss of GBP2,850,840) and a weighted average number of shares in issue for the year.

 
                                                      Year ended     Year ended 
                                                      31 October     31 October 
                                                            2020           2019 
--------------------------------------------       -------------  ------------- 
 Basic loss per share (pence)                            (0.80)p        (0.68)p 
 Diluted loss per share (pence)                          (0.80)p        (0.68)p 
 Loss attributable to equity Shareholders           GBP4,224,992   GBP2,850,840 
--------------------------------------------       -------------  ------------- 
 
 
 Weighted average number of shares in issue          528,865,765    418,024,570 
-------------------------------------------------  -------------  ------------- 
 

Diluted earnings per share

As set out in note 18, there are share options and warrants outstanding as at 31 October 2020 which, if exercised, would increase the number of shares in issue. Given the losses for the year, there is no dilution of losses per share in the year ended 31 October 2020 nor the previous year.

11. INTANGIBLE ASSETS

 
 
                          Development   Patents   Commercial   Intangible 
                                costs              rights          assets 
                                  GBP       GBP          GBP          GBP 
---------------------    ------------  --------  -----------  ----------- 
 Cost 
 1 November 2018                    -   680,113            -      680,113 
 Retirements                        -         -            -            - 
 Additions                    149,460    49,283            -      198,743 
 31 October 2019              149,460   729,396            -      878,856 
 Retirements                        -         -            -            - 
 Additions                     79,583    70,309      121,350      271,242 
-----------------------  ------------  --------  -----------  ----------- 
 31 October 2020              229,043   799,705      121,350    1,150,098 
-----------------------  ------------  --------  -----------  ----------- 
 
 
 Amortisation 
 1 November 2018                    -   237,427            -      237,427 
 Retirements                        -         -            -            - 
 Charge for the year                -    35,388            -       35,388 
-----------------------  ------------  --------  -----------  ----------- 
 31 October 2019                    -   272,815            -      272,815 
 Retirements                        -         -            - 
 Charge for the year           28,138    70,775        9,101      108,014 
-----------------------  ------------  --------  -----------  ----------- 
 31 October 2020               28,138   343,590        9,101      380,829 
-----------------------  ------------  --------  -----------  ----------- 
 
 Net book value 31 
  October 2019                149,460   456,581            -      606,041 
-----------------------  ------------  --------  -----------  ----------- 
 Net book value 31 
  October 2020                200,905   456,115      112,249      769,269 
-----------------------  ------------  --------  -----------  ----------- 
 

The commercial rights include the global preferential rights to integrate the HiiRoc plasma-based technology which were acquired by an initial payment in shares of GBP 100,000 and future payments in kind through the provision of technical support.

12. RIGHT of uSE ASSETS

 
                        Buildings 
                              GBP 
 1 November 2018                - 
 Adoption of IFRS 16      475,971 
 Additions                      - 
 Disposals                      - 
---------------------  ---------- 
 1 November 2019          475,971 
 Additions                      - 
 Disposals                      - 
---------------------  ---------- 
 31 October 2020          475,971 
---------------------  ---------- 
 
 Depreciation 
 1 November 2018                - 
 Charge for the year      114,233 
 Disposals                      - 
---------------------  ---------- 
 1 November 2019          114,233 
 Charge for the year      114,233 
 Disposals                      - 
 31 October 2020          228,466 
---------------------  ---------- 
 
 Net Book Value 
 31 October 2019          361,738 
---------------------  ---------- 
 31 October 2020          247,505 
---------------------  ---------- 
 

13. TANGIBLE FIXED ASSETS

 
                     Leasehold   Decommissioning       Fixtures,       Motor   Demonstration    Rental       Total 
                  improvements             Asset        fittings    vehicles       equipment     asset 
                                                   and equipment 
                           GBP               GBP             GBP         GBP             GBP       GBP         GBP 
--------------  --------------  ----------------  --------------  ----------  --------------  --------  ---------- 
 Cost 
 1 November 
  2018                 337,462           301,172       1,297,742      17,994               -         -   1,954,370 
 Additions                   -                 -          30,849           -         193,404         -     224,253 
 Disposals           (115,950)                 -         (3,800)           -               -         -   (119,750) 
 1 November 
  2019                 221,512           301,172       1,324,791      17,994         193,404         -   2,058,873 
 Additions                   -                 -         161,697           -         133,571   423,138     718,406 
 Disposals                   -                 -               -           -                         -           - 
--------------  --------------  ----------------  --------------  ----------  --------------  --------  ---------- 
 31 October 
  2020                 221,512           301,172       1,486,488      17,994         326,975   423,138   2,777,279 
--------------  --------------  ----------------  --------------  ----------  --------------  --------  ---------- 
 
 Depreciation 
 1 November 
  2018                 337,462           170,486       1,135,432      17,994               -         -   1,661,374 
 Charge for 
  the year                   -            31,364          88,950           -               -         -     120,314 
 Disposals           (115,950)                 -         (3,800)           -               -         -   (119,750) 
 1 November 
  2019                 221,512           201,850       1,220,582      17,994               -         -   1,661,938 
 Charge for 
  the year                   -            31,365          89,801           -          53,957         -     175,123 
 Disposals                   -                 -               -           -               -         -           - 
--------------  --------------  ----------------  --------------  ----------  --------------  --------  ---------- 
 31 October 
  2020                 221,512           233,215       1,310,383      17,994          53,957         -   1,837,061 
--------------  --------------  ----------------  --------------  ----------  --------------  --------  ---------- 
 
 Net Book 
  Value 
 1 November 
  2019                       -            99,322         104,209           -         193,404         -     396,935 
--------------  --------------  ----------------  --------------  ----------  --------------  --------  ---------- 
 31 October 
  2020                       -            67,957         176,105           -         273,018   423,138     940,218 
--------------  --------------  ----------------  --------------  ----------  --------------  --------  ---------- 
 
 
 

The Company has set-up a decommissioning asset for the removal of the plant and equipment installed at the Stade site in Germany and for dilapidations associated with the leasehold premises at Dunsfold in the UK, the cost of which is based on estimates. No decision has been taken about the date when the plant will be decommissioned.

Minimum lease payments receivable on rental assets are GBP 200,000 (2019: GBP nil) of which GBP 150,000 mature within twelve months and GBP 50,000 between one and two years.

14. INVESTMENT

The previously held investment in the unlisted share capital of Waste2Tricity Ltd (a registered company in England & Wales) was sold on 12 March 2019 for GBP20,000. Simultaneously, the licence agreements with Waste2Tricity Limited and Waste2Tricity International (Thailand) Limited were terminated and GBP 80,000 compensation was received in the current period. The investment in Waste2Tricity was fully provided and due to the lack of overwhelming evidence that the financial position had improved the recovery of the provision has been recognized when proceeds were received.

15. INVENTORY

 
                   Year ended   Year ended 
                   31 October   31 October 
                         2020         2019 
                          GBP          GBP 
-----------       -----------  ----------- 
 Inventory            249,370       95,423 
----------------  -----------  ----------- 
 

16. RECEIVABLES

 
                                                             Year ended   Year ended 
                                                             31 October   31 October 
                                                                   2020         2019 
                                                                    GBP          GBP 
----------------------------  ----  ----  ----  ----  ----  -----------  ----------- 
 Current: 
 Accounts receivable                                             60,000       13,941 
 R&D tax credits receivable                                     518,099      602,995 
 EU grants receivable                                           106,642      106,642 
 Other receivables                                              204,367      136,068 
  Prepayments                                                   154,772      292,352 
----------------------------------------------------------  -----------  ----------- 
                                                              1,043,880    1,151,998 
     -----------------------------------------------------  -----------  ----------- 
 

There is no significant difference between the fair value of the receivables and the values stated above.

17. CASH AND CASH EQUIVALENTS

 
                       Year ended   Year ended 
                       31 October   31 October 
                             2020         2019 
                              GBP          GBP 
---------------       -----------  ----------- 
 Cash at bank             286,578      718,057 
 Bank deposits         31,014,889      609,878 
--------------------  -----------  ----------- 
                       31,301,467    1,327,935 
     ---------------  -----------  ----------- 
 

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 EUR300,000 held in escrow to support a bank guarantee in favour of Air Products GmbH relating to contractual obligations by the Company in relation to the Stade site in Germany.

18. ISSUED SHARE CAPITAL

 
                                                                       Ordinary   Share premium         Total 
                                                                         shares 
                                           Number                           GBP             GBP           GBP 
-----------------------   ----  ---  ------------  ----------------------------  --------------  ------------ 
 Issue of shares 18 
  November 2019                         2,600,000                         2,600         517,400       520,000 
 Issue of shares 20 
  January 2020                          5,882,353                         5,882         994,118     1,000,000 
 Issue of shares 22 
  January 2020                          5,882,353                         5,882         994,118     1,000,000 
 Issue of shares 31 
  January 2020                            526,316                           526          99,474       100,000 
 Issue of shares 13 
  March 2020                              483,332                           483          38,184        38,667 
 Issue of shares 23 
  March 2020                           14,000,000                        14,000       1,386,000     1,400,000 
 Exercise of options 
  9 June 2020                             550,000                           550         113,575       114,125 
 Exercise of options 
  9 June 2020                              37,500                            38           5,737         5,775 
 Exercise of options 
  11 June 2020                             40,000                            40           6,120         6,160 
 Exercise of options 
  25 June 2020                            500,000                           500         103,250       103,750 
 Issue of shares 3 
  July 2020                            24,364,875                        24,365       3,874,015     3,898,380 
 Issue of shares 6 
  July 2020                            71,107,125                        71,107      11,306,033    11,377,140 
 Issue of shares 15 
  July 2020                               625,000                           625          99,375       100,000 
 Issue of shares 20 
  July 2020                           101,403,000                       101,403      16,123,077    16,224,480 
 Exercise of options 
  29 September 2020                        16,666                            17           1,450         1,467 
 Cost of shares issued                                                              (1,633,505)   (1,633,505) 
------------------------    -------  ------------  ----------------------------  --------------  ------------ 
 Issued share capital                 228,018,520                       228,018      34,028,421    34,256,439 
 31 October 2019                      447,987,790                       447,988      47,389,424    47,837,412 
 31 October 
  2020                                676,006,310                       676,006      81,417,845    82,093,851 
-------------------------------  ----------------  ----------------------------  --------------  ------------ 
 
 

The issue of shares on 31 January 2020 were part payment for certain commercial rights received in exchange for funding HiiRoc scaling up programme. The total consideration was GBP 100,000 in shares plus future technical support up to GBP 300,000.

All issued shares are fully paid. The Company considers its capital and reserves attributable to equity Shareholders to be the Company's capital. In managing its capital, the Company's primary long-term objective is to provide a return for its equity Shareholders through capital growth. Going forward the Company will seek to maintain a gearing ratio that balances risks and returns at an acceptable level and to maintain a sufficient funding base to enable the Company to meet its working capital needs. The Company's commercial activities are at an early stage and management considers that no useful target debt to equity gearing ratio can be identified at this time.

Details of the Company's capital are disclosed in the statement of changes in equity.

There have been no other significant changes to the Company's management objectives, policies and processes in the year nor has there been any change in what the Company considers to be capital.

19. Share BASED PAYMENTS

Employee Share Option Plan

The establishment of the Employee Share Option Plan was approved by the Board on 1 August 2018 and amended on 10 October 2018. The Plan is designed to attract, retain and motivate employees. Under the Plan, participants can be granted options which vest unconditionally or conditioned upon achieving certain performance targets. Participation in the Plan is solely at the Board's discretion and no employee has a contractual right to participate in the Plan or to receive any guaranteed benefits.

Options are granted under the Plan for no consideration and carry no dividend nor voting rights.

When exercisable, each option is convertible into one ordinary share.

Set out below are summaries of options granted under the Plan

 
                           Average exercise   Number of options   Average exercise   Number of options 
                            price per share                        price per share 
                             option (GBP)                           option (GBP) 
                                 2020               2020                2019               2019 
------------------------  -----------------  ------------------  -----------------  ------------------ 
     1 November 2019             0.33            11,745,000             0.31            13,330,000 
     Granted during 
         the year                0.16             4,885,000                                  - 
    Exercised during 
         the year                0.17            (1,627,498)            0.03             (300,000) 
      Lapsed during 
         the year                0.30             (581,667)             0.24            (1,285,000) 
------------------------  -----------------  ------------------  -----------------  ------------------ 
     31 October 2020             0.30            14,420,835             0.33            11,745,000 
------------------------  -----------------  ------------------  -----------------  ------------------ 
 Vested and exercisable 
      at 31 October 
           2020                                   3,386,666 
 

Share options outstanding at the end of the year have the following expiry dates and exercise prices.

 
 Grant date         Expiry date        Exercise price   Share options   Share options 
                                            (GBP) 
                                                                 2020            2019 
-----------------  -----------------  ---------------  --------------  -------------- 
 17 April 2009      17 April 2019          0.0313                   -          90,000 
 13 April 2010      13 April 2020           0.24                    -          75,000 
 7 July 2010        6 July 2020            0.2075                   -       1,050,000 
 7 November 2012    7 November 2022        0.3575             170,000         170,000 
 2 December 2013    1 December 2023         0.34              135,000         135,000 
 14 April 2015      13 April 2025           0.41              150,000         150,000 
 17 July 2015       17 July 2025            0.51            6,000,000       6,000,000 
 10 September 
  2018              1 August 2024          0.088              658,335       1,575,000 
 15 October 2018    15 October 2024         0.16            2,500,000       2,500,000 
 31 December 
  2019              20 April 2030          0.1635           2,750,000               0 
 20 April 2020      20 April 2030          0.154            2,057,500               0 
-----------------  -----------------  ---------------  --------------  -------------- 
                                                           14,420,835      11,745,000 
 

The assessed fair value at grant date of options granted during the year ended 31 October 2020 was

 
 Option price              Average       Average       Average       Average       Average       Average      Amount 
  (pence)                   grant        expected      risk-free     dividend      implied      fair value    expensed 
                          date share    volatility     interest     yield (per     option       per option    in 2020 
                            price       (per annum)    rate (per      annum)        life         (pence)       (GBP) 
                           (pence)                      annum)                     (years) 
----------------------  ------------  -------------  -----------  ------------  ------------  ------------  ---------- 
 8.8                        6.58          81.2%         0.80%          0%             1            2.2        15,500 
 15.4                       14.9          99.6%         0.11%          0%            1.5           6.9        45,649 
 16.35                      16.35         95,5%         0.54%          0%            2.0           8.1        74,443 
----------------------  ------------  -------------  -----------  ------------  ------------  ------------  ---------- 
          Total charge 
          for the year 
 (2019: GBP (549,227))                                                                                        135,593 
 

Warrants

The Board has the discretion to award warrants from time to time to third parties. Typically, warrants are granted and vest upon certain performance targets. Grant of warrants is solely at the Board's discretion.

Warrants are granted for no consideration and carry no dividend nor voting rights.

When exercisable, each warrant is convertible into one ordinary share.

Set out below are summaries of warrants granted under the Plan

 
                            Average exercise    Number of warrants    Average exercise    Number of warrants 
                            price per warrant                         price per warrant 
                                  (GBP)                                     (GBP) 
                                  2020                 2020                 2019                 2019 
------------------------  -------------------  -------------------  -------------------  ------------------- 
     1 November 2019              0.14              5,793,800               0.15              4,643,800 
     Granted during 
         the year                 0.20              4,500,000               0.05              3,000,000 
    Exercised during 
         the year 
      Lapsed during 
         the year                 0.14             (5,793,800)              0.03             (1,450,000) 
------------------------  -------------------  -------------------  -------------------  ------------------- 
     31 October 2020              0.20              4,500,000               0.14              5,793,800 
------------------------  -------------------  -------------------  -------------------  ------------------- 
 Vested and exercisable                                  - 
      at 31 October 
           2020 
 

Warrants outstanding at the end of the year have the following expiry dates and exercise prices.

 
 Grant date         Expiry date        Exercise price   Share options   Share options 
                                            (GBP) 
                                                                 2020            2019 
-----------------  -----------------  ---------------  --------------  -------------- 
 13 April 2010      13 April 2020           0.24                    -       2,793,800 
 24 June 2019       24 June 2021           0.048                    -       3,000,000 
 19 October 2020    31 January 2021        0.185            1,500,000               - 
 19 October 2020    13 October 2021        0.195            1,000,000               - 
 19 October 2020    13 April 2022           0.21            1,000,000               - 
 19 October 2020    13 October 2022         0.23            1,000,000               - 
                                                            4,500,000       5,793,800 
 

The assessed fair value at grant date of warrants for the year ended 31 October 2020 was nil (2019: GBP 5,486)

SAYE

No SAYE were granted and the scheme ended during the period. The movements were

 
                           Average exercise   Number of SAYE   Average exercise   Number of SAYE 
                            price per SAYE                      price per SAYE 
                                 (GBP)                               (GBP) 
                                 2020              2020              2019              2019 
------------------------  -----------------  ---------------  -----------------  --------------- 
     1 November 2019             0.12            207,736             0.12            207,736 
     Granted during                                 -                                   - 
         the year 
    Exercised during                                -                                   - 
         the year 
      Lapsed during 
         the year                0.12           (207,736)                               - 
------------------------  -----------------  ---------------  -----------------  --------------- 
     31 October 2020                                                 0.12            207,736 
------------------------  -----------------  ---------------  -----------------  --------------- 
 Vested and exercisable                             - 
      at 31 October 
           2020 
 

SAYE outstanding at the end of the year have the following expiry dates and exercise prices.

 
 Grant date       Expiry date      Exercise price   Share options   Share options 
                                        (GBP) 
                                                             2020            2019 
---------------  ---------------  ---------------  --------------  -------------- 
 28 April 2016    28 April 2019        0.122                    -         207,736 
                                                                -         207,736 
 

Share based payment charge

 
                             2020        2019 
-----------------------  --------  ---------- 
                              GBP         GBP 
 Employee Share Option 
  Plan                    135,593   (549,227) 
 Warrants                       -           - 
 SAYE                           -       5,486 
-----------------------  --------  ---------- 
                          135,593   (543,741) 
 

20. PAYABLES

 
                              Year ended   Year ended 
                              31 October   31 October 
                                    2020         2019 
                                     GBP          GBP 
----------------------       -----------  ----------- 
 Current liabilities: 
 Trade payables                  347,167      298,590 
 Advance payments                150,000       28,187 
 Other payables                  199,261      182,096 
 Accruals                        540,368      158,938 
---------------------------  -----------  ----------- 
                               1,236,796      667,811 
     ----------------------  -----------  ----------- 
 

21. LEASE LIABILITIES

 
                                           Year ended    Year ended 
                                           31 October    31 October 
                                                 2020          2019 
                                                  GBP           GBP 
 Lease liabilities less than 12 months        113,431       113,431 
 Lease liabilities more than 12 months        146,368       259,799 
---------------------------------------  ------------  ------------ 
                                              259,799       373,230 
---------------------------------------  ------------  ------------ 
 

22. PROVISIONS

 
                                             2020              2019 
                                  Decommissioning   Decommissioning 
                                        provision         provision 
                                              GBP               GBP 
--------------------------       ----------------  ---------------- 
 Non-current liabilities: 
 1 November                               301,172           301,172 
 Addition                                       -                 - 
 Utilisation                                    -                 - 
--------------------------       ----------------  ---------------- 
 31 October                               301,172           301,172 
-------------------------------  ----------------  ---------------- 
 

The Company has set-up a decommissioning provision associated with a commitment to remove the plant and equipment installed at the Stade site in Germany at a future date.

23. FINANCIAL INSTRUMENTS

In common with other businesses, the Company is exposed to risks that arise from its use of financial instruments. This note describes the Company's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

Principal Financial Instruments

The principal financial instruments used by the Company, from which financial instrument risk arises, are as follows:

 
                                                            Year ended   Year ended 
                                                            31 October   31 October 
                                                                  2020         2019 
                                                                   GBP          GBP 
----------------------------------------------------       -----------  ----------- 
 Financial instruments held at amortised cost: 
 Cash and cash equivalents                                  31,014,889    1,327,935 
 Receivables                                                 1,043,880    1,151,998 
 Total financial assets held at amortised cost              32,058,769    2,479,933 
 Other payables                                              1,496,595    1,041,041 
 Total financial liabilities held at amortised cost          1,496,595    1,041,041 
---------------------------------------------------------  -----------  ----------- 
 

Financial instruments that are measured subsequent to initial recognition at fair value are grouped into three levels based on the degree to which the fair value is observable as defined by IFRS 7:

-- Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets and liabilities.

-- Level 2 fair value measurements are those derived from inputs, other than quoted prices included within Level 1, that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

-- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

All financial instruments are Level 1 and none have been transferred between Levels during the year.

General Objectives, Policies and Processes

The Board has overall responsibility for the determination of the Company's risk management objectives and policies and, while retaining ultimate responsibility for them, it has delegated part of the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company's finance team. The Board receives reports from the financial team through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

The overall objective of the Board is to set policies that seek to reduce ongoing risk as far as possible without unduly affecting the Company's competitiveness and flexibility. Further details regarding these policies are set out below.

Credit Risk

Credit risk arises principally from the Company's other receivables and cash and cash equivalents. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk equals the carrying value of these items in the financial statements as shown below:

 
                                   Year ended   Year ended 
                                   31 October   31 October 
                                         2020         2019 
                                          GBP          GBP 
---------------------------       -----------  ----------- 
 Receivables                        1,043,880    1,151,998 
 Cash and cash equivalents         31,014,889    1,327,935 
--------------------------------  -----------  ----------- 
 

The Company's principal other receivables arose from: a) VAT receivable from UK and German tax authorities b) an R&D tax credit c) grant funding receivable from the EU. Credit risk with cash and cash equivalents is reduced by placing funds with banks with acceptable credit ratings and government support where applicable and on term deposits with a range of maturity dates. At the year end, most cash were temporarily held on short-term deposit.

Liquidity Risk

Liquidity risk arises from the Company's management of working capital and the amount of funding required for the development programme. It is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. The Company's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.

The principal liabilities of the Company are trade and other payables in respect of the ongoing product development programme. Trade payables are all payable within two months. The Board receives cash flow projections on a regular basis as well as information on cash balances.

Interest Rate Risk

The Company is exposed to interest rate risk in respect of surplus funds held on deposit and, where appropriate, uses fixed interest term deposits to mitigate this risk.

Fair Value of Financial Liabilities

 
                                              Year ended   Year ended 
                                              31 October   31 October 
                                                    2020         2019 
                                                     GBP          GBP 
--------------------------------------       -----------  ----------- 
 Trade and other payables                      1,236,796      667,811 
 Lease liabilities less than one year            113,431      113,431 
 Lease liabilities more than one year            146,368      259,799 
-------------------------------------------  -----------  ----------- 
                                               1,496,595    1,041,041 
 

There is no difference between the fair value and book value of trade and other payables and provisions.

The Company does not enter into forward exchange contracts or otherwise hedge its potential foreign exchange exposure. The Board monitors and reviews its policies in respect of currency risk on a regular basis.

24. CAPITAL COMMITMENTS AND OTHER OBLIGATIONS

The Company had no capital commitments outstanding at 31 October 2020 (2019: GBPnil).

The aggregate amount of the transaction price allocated to contracts that are fully unsatisfied as at 31 October 2020 was GBP 354,000 (2019: GBP nil). The Company expects to recognise these revenues within the next twelve months.

25. FINANCING FACILITIES

On 11 April 2019, a GBP4 million equity financing facility was signed for a period of 36 months from the signing date with a further six-month period, post the expiry date of the facility, to repay any outstanding amounts.

26. EVENTS AFTER THE REPORTING PERIOD

After the reporting date

-- the financing facility was terminated by mutual agreement. No drawdowns had been made on the facility, and

-- the vesting conditions of Adam Bond's share options were reviewed and amended by the Remuneration committee.

o The target prices were adjusted to 42.5p, 64p and 85p (respectively) to take into account the change in the share capital since July 2015.

o A retention clause was added to these options such that a specified number of shares should not be sold between the date of exercise and the first anniversary of these revisions. This holding requirement is reduced by the number of shares necessary to meet the tax liability arising from the exercise of the options.

o The operational performance conditions for all but one of the original targets have either been achieved, or a comparable measure achieved. The exercise price of these options has been adjusted from 51p to 22p, in line with changes in the share capital since July 2015.

27. ULTIMATE CONTROLLING PARTY

There is no ultimate controlling party.

[1] Taken from Hydrogen Council/McKinsey report, 'A perspective on Hydrogen Investment, Deployment and Cost Competitiveness' (February 2021)

[2] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7498239/

[3] Taken from https://about.bnef.com/electric-vehicle-outlook/

[4] Taken from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/882196/vehicle-licensing-statistics-2019.pdf

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