THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER ARTICLE 7 OF THE EU REGULATION 596/2014 AS IT FORMS PART OF THE UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR"). UPON THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.

21 April 2023

AFC Energy PLC

("AFC Energy" or the "Company")

Final Results for year ended 31 October 2022

AFC Energy (AIM: AFC), a leading provider of hydrogen power generation technologies, is pleased to announce its results for the year ended 31 October 2022 ("FY 2022"). 

Adam Bond, Chief Executive of AFC Energy, said:

"At the start of 2022, we announced a new strategy of technology acceleration.  This led to a year of unprecedented progress with multiple successful field deployments for two new product platforms. In addition, we successfully met the first milestone, confirmed post year end, in our agreement with ABB E-mobility, validating performance of AFC Energy's new S+ Series fuel cell technology.  This validation importantly resulted in ABB E-mobility making a follow-on investment post year end of £2m, in addition to their initial £2 million payment received earlier in the year.

"Our present strategy is focused on displacing diesel generators at off-grid locations, initially in the construction sector where we made great strides in 2022, and we also see significant follow-on opportunities in the EV charging, maritime and critical power back-up sectors.  

"Since the period end, we have launched our new ammonia cracking technology platform and received a first order for our new 50kVA H-Power S Series Generator from ACCIONA.

"The technical and commercial successes of 2022 have set the stage for a successful 2023 and, given the high level of commercial enquiries for rentals of H-Power Towers, we are excited about the year ahead."

Highlights:

·    Revenue and deferred revenue increased by 266% to £2.2m (2021: £0.6m)

o £2.0 million non-refundable payment from ABB received.

o  ABB deferred revenue of £1.4m (£2.0m less the fair value of the warrants granted), will be earned as a discount over the sale to ABB of the first 10 S+ Series units

o  Net loss after tax of £16.4m (2021: £9.4m)

·    Strong balance sheet with £40.2m (2021: £55.4m) of cash as at period end

·    First field deployments of S Series (air cooled) H-Power Tower launched in March 2022

o  Four successful field trials on construction sites in the UK and Spain

o  Initial rental revenues recognised in FY 2022, with balance to fall in FY 2023

·    Successful on time delivery of the first 100kW S+ Series (liquid cooled) fuel cell stacks for validation by ABB 

·    Flex fuel strategy vindicated by first Methanol Fuel Tower deployment

o  First Methanol Fuel Tower generated hydrogen alongside H-Power Tower field deployment in Spain

·    Successful completion of first Extreme E contract, to deliver off-grid power for the e-SUV race series, with successful completion of second contract post year end

o  Two season collaboration provided essential operational data in wide range of extreme climates

·    Significant growth in skilled work force and improved facilities with 73 new hires

·    Strengthened Board with appointment of Monika Biddulph as Non-executive Director with a focus on ESG

o  Further strengthened post-period end with appointment of Peter Dixon-Clarke as CFO

·    Established ESG Board committee to deliver a suite of enhanced policies and procedures and produce first carbon footprint review

Post Period Developments

·    On 23 March 2023, launch of new advanced ammonia cracker technology platform with near term commercial partnerships being explored with European utilities, green and blue ammonia producers, ship owners, and heavy plant and equipment manufacturers

·    On 29 March 2023, ABB made a follow on investment of £2m into AFC Energy following validation of the Company's new S+ Series fuel cell technology

·    On 17 April 2023, ACCIONA signed an order for the first 50 kVA H-Power S Series Generator for delivery in the second half of 2023

o  Comprised of a 30kW air cooled fuel cell and 45kWh battery storage system

o  Initially rented for a six-month period with option to buy at a pre-agreed price or extend

Outlook

·    Expecting growing revenue from system rentals and hydrogen sales with an already contracted pipeline of deployments and growing pipeline of prospective H-Power Tower rentals

·    Growing interest in new H-Power S Series Generator deployments from new and existing companies

o  Evidence of traction from plant hire business this year following early H-Power Tower field deployments in 2022 and growth in resultant customer enquiries

o  Next development cycle will incorporate feedback from field trials including increasing output to c.30kW and reducing production costs

·    Near-term focus remains on construction sector, initially through system rentals before transitioning to sales to plant hire businesses

o  Sales to plant hire businesses should see an acceleration of revenues versus existing H-Power generator rentals

o  Expecting momentum on EV and maritime during 2023 based on the development of the S+ Series (liquid cooled) generator

Key Financials

For further information, please contact:

AFC Energy plc

Adam Bond (Chief Executive Officer)

+44 (0) 14 8327 6726

[email protected]

Peel Hunt LLP-  Nominated Adviser and Joint Broker

Richard Crichton / Tom Ballard / Georgia Langoulant

+44 (0) 207 418 8900

Zeus - Joint Broker

David Foreman / James Hornigold (Investment Banking)

Dominic King (Corporate Broking) / Rupert Woolfenden (Sales)

+44 (0) 203 829 5000

FTI Consulting - Financial PR Advisors

Ben Brewerton / Nick Hennis / Dhruv Soni

+44 (0) 203 727 1000

[email protected]

Chairman's Statement

The increased focus on emissions targets and energy security, combined with the recent ban on Russian diesel, continues to drive momentum for displacing diesel with clean fuels, such as hydrogen. This year, AFC Energy has continued to deliver on its role in the energy transition through accelerated development and validation of its products, most notably those displacing diesel generators at off-grid construction locations with follow-on applications for additional sectors.

Our decision to focus on the construction sector, due to its high usage of off-grid diesel, has delighted customers and delivered first revenue from our new S Series H-Power Towers, along with a growing pipeline for 2023 and beyond. In addition to the immediate opportunities in construction, electric vehicle charging and maritime remain attractive for medium and longer-term opportunities. The continued investment in our "flex fuel" capability, supported by the growing level of incoming enquiries, means we are well positioned to benefit as these markets develop.

We have continued to review the effectiveness of our Board and committees and, accordingly, appointed Dr Monika Biddulph at the beginning of the year. Monika has a strong scientific background combined with a focus on Environmental, Social and Governance matters and therefore is board sponsor of the ESG Committee. In recognition of the central role technology plays in our development, we have a Technical Advisory Board chaired by Dr Gerry Agnew, a Non-Executive Director, with access to suitable and independent advisers from within the hydrogen sector. Gerry also chairs the Remuneration Committee and, this year, offered consultations with several institutional shareholders on the structure of the remuneration policy. We also saw the retirement of our Chief Financial Officer, Graeme Lewis, and his replacement by Peter Dixon-Clarke, who joined the Board on 1 December 2022. I wish to thank Graeme for his support and contribution to the Company over his time here and wish him well in his retirement.

The Board has increased its focus on ESG reporting and this year finalised the committee structures required to deliver on our enhanced policies and procedures. The outcomes from this work have included our first carbon footprint review as well as the establishment of three employee led committees, focusing on: Environment; Diversity & Inclusion; and Social & Employee Wellbeing. More on this is provided later in this report.

I would particularly like to thank our employees for their role in the technical and commercial successes of 2022. They, along with continued support from our partners, customers and investors have set the stage for a prosperous 2023 as we all transition towards a clean hydrogen future.

Chief Executive Officer's Report

Successful customer H-Power Tower deployments on construction sites, delivery of our first S+ Series stacks with ABB and growing H-Power Tower rental revenues laid the foundation for what was a successful 2022. The scene is now set for industry to accelerate its transition away from diesel.

2022 emphasised the importance global energy policy plays in driving not only sectoral decarbonisation, but also its criticality in impacting wider macro-economic inflation and energy independence. Within this environment of uncertainty, the role of hydrogen has continued to grow with vast commitments being made to the zero emission fuel across Europe and more recently in the United States, under the Biden Government's Inflation Reduction Act.

AFC Energy has continued to successfully deliver on its milestones for the year further supporting the transition and displacement of diesel generators from today's off-grid power market. Successful field deployments this financial year included our new S Series H-Power Tower Generator across multiple construction sites in Europe and the UK and more recently, by delivering, on time, our first S+ Series H-Power Generator stacks for validation by ABB in October. These customer deployments and validations are an important strategic milestone and drive: revenue; industry awareness; and technological validation.

Important strides were also made in delivery of our fuel processing division highlighting the work undertaken in accelerating our first ammonia cracking technology platform recently announced, alongside the field deployment of our Methanol Fuel Tower in Spain.

This is the most rapid technological progress in the Company's history and highlights the importance of having a quality team with years of experience in disciplined product development lifecycles.

18-months ago we took six discreet "ideas" and, enabled by the proceeds of our 2020 and 2021 equity placings and contribution from ABB, accelerated a number of these programmes to deliver working systems utilising:

·    S Series air cooled fuel cell stacks (2.5 kW)

·    S Series modules (incorporating the above 2.5 kW stack plus balance of plant)

·    S Series 10 kW H-Power Tower (incorporating four 2.5 kW modules)

·    S+ Series liquid cooled fuel cell stacks (providing cumulative power of 100 kW)

·    Methanol Fuel Tower

This is an extraordinary amount of work put in by the development and engineering teams within a single financial year and I wish to thank them all most sincerely for their efforts and focus in delivering such an ambitious target.

The first S Series H-Power Tower deployment was in August 2022 where our partner, ACCIONA, deployed the system at its off-grid construction compound north of Cadiz in Spain. The H-Power Tower, replaced the on-site diesel generator on a multiyear road development project for the whole of its three-month trial, highlighting the role our product will play in continuing to reduce greenhouse gas emissions by displacing diesel.

Following the successful deployment, we received powerful feedback from Miguel Paris Torres, Head of ACCIONA's Construction R&D Centre, when he said in an interview:

"I think hydrogen is the most feasible and realistic technology to satisfy in a sustainable way the power needs not only from the construction site compounds but also from the heavy construction machinery used in the construction projects. Our partnership with AFC Energy is very important for us because we are convinced that AFC Energy is a key technological partner that will help us adopt and implement the use of hydrogen gensets as an essential tool for the decarbonisation of our construction activities. What I like … most about AFC technology [is] its modularity, easy size of scalability and compactness. And what I like more about the field trial today is that we've managed to achieve the target of not using for the entire duration of the pilot the former polluting diesel genset that was powering the site before we started the trial."

Customer feedback of this quality from an industry leader in construction takes significant resource and investment to achieve and cements the value generated in our technology platform and customer relationship throughout 2022. As a follow-on to the initial H-Power Tower deployment, ACCIONA requested that we initiate the deployment of our first methanol Fuel Tower to generate on-site hydrogen to fuel our S Series fuel cell modules and in April 2023, ACCIONA confirmed its first order of AFC Energy's next generation 50kVA hydrogen generator, incorporating a new 30kW H-Power Generator and 45kWh battery storage module. The new 50kVA power generator is a step towards displacing ACCIONA's considerable incumbent internal fleet of 30 - 80 kVA diesel generators and more generally, targets a significant proportion of the existing diesel generator market as a "sweet spot" for mass deployment.

Following on from the success at ACCIONA, subsequent deployments took place with: Keltbray at its M621 project in Leeds; the Mace Dragados Joint Venture at its HS2 development project at Euston Station; and Kier at its bereavement centre development in Plymouth. For each of these deployments, we rented our H-Power Tower along with providing the hydrogen to site. Initial revenue from these rentals was recognised in the 2022 financial year, with the balance to be recognised in the 2023 financial year.

We have focused on construction as the ideal use case for diesel displacement and early deployments for a number of reasons, including:

·    Increasing cost of diesel (particularly following the removal of the red diesel subsidy)

·    Higher cost of Stage V emission compliant (a requirement to operate in low emission zones) generators

·    ESG standards set by contractors, their shareholders and procurement agencies

·    Higher weightings given to construction tenders to adoption of low emission technologies

·    The recent ban on importing Russian diesel into Europe

We are continuing to receive interest for further deployments, from both existing and new customers and finishing the current production run of H-Power Towers during the spring of 2023 will see up to 10 of our fleet of H-Power Towers deployed in the field simultaneously this year. As this run is expected to complete soon, we've already started the next development cycle, which will benefit from the customer feedback we are receiving. Based on the feedback received, we plan to focus on two things. The first of these will be an increase in the power output by building on the existing modular platform, albeit with a change to the form factor so it looks more like a generator and less like a tower. The second will be the value engineering aimed at halving the production costs, relative to the existing H-Power Towers.

On 15 November 2021, we signed both a Sale and Development agreement and Warrant agreement with ABB E-mobility (ABB), Europe's leading supplier of Electric Vehicle (EV) charging infrastructure. Under the agreement we agreed to develop and supply a 200 kW liquid cooled system (S+ Series) to support EV charging in grid constrained environments. Shortly after signing, ABB made a £2.0 million non-refundable payment towards initial development costs, at which point the first tranche, of 3.4 million warrants, granted under the Warrant agreement vested.

Throughout 2022, substantial effort was placed into delivering on the first milestone, being 100 kW of fuel cell stacks for third party validation by ABB. This was duly delivered on schedule in October for independent validation, with operational field-testing taking place in Germany. Witnessed by ABB, the testing exceeded target performance with over 100 kW of cumulative power delivered from the stacks throughout the validation period - a significant Company milestone. These stacks will provide the basis of scaled liquid cooled system deployments and revenue growth.

Just as important as the validation above, was the use of cutting-edge manufacturing to provide a pathway to being one of the lowest cost offerings amongst liquid cooled stacks in the market today. We share with ABB a strong focus on reducing the Total Cost of Ownership (TCO) and both look to the US Department of Energy guidelines as one of the suitable benchmarks for low cost fuel cell technology. Regular contact with ABB ensures that development stays on course in addition to highlighting new deployment opportunities, particularly for displacing diesel backup power.

We continue to see accelerated advancements in our fuel cell technology in a large part due to support from shareholders and partners such as ABB. We wish to acknowledge their support of our wider commercial outcomes. With the 200 kW liquid cooled power generator, we expect to be able to compete favourably in the fields of electric vehicle charging, in addition to temporary power applications. Importantly, the 200 kW S+ Series will also form the basis of future data centre and maritime deployments and so opens up multiple new market opportunities due to its high power density, small footprint and forecast profile to enhanced cost reduction.

Following the success of the first season in 2021, we renewed the contract to deliver sustainable off-grid power to Extreme E's offroad, all electric racing championship in 2022. Season 2 saw deployments in Saudi Arabia, Italy, Chile and Uruguay over a wide range of climatic conditions. We delivered power to charge the fleet of electric SUVs at every race, exceeding the power generated for Season 1. By the end of Season 2 our system had travelled 48,000 miles across several continents much of it exposed to the high seas on board the St. Helena, the dedicated race logistics vessel.

After two successful seasons with Extreme E, and with a growing demand in time and resources, we made the decision not to proceed with the Championship in 2023. The data we've gained over the wide range of environments and climates and prospective customers we've met whilst showcasing our zero-emission technology have been invaluable and we wish Extreme E every success for its third season and beyond.

A key area of investment during the year has been in the field of fuel conversion, a new division within AFC Energy. Although only recently launched, we have witnessed an accelerated drive to release our new ammonia cracking technology platform which seeks to unlock the challenges of ammonia as a hydrogen fuel carrier across multiple AFC Energy target markets, including maritime. The rate of progress seen in designing, prototyping and building our first scale ammonia cracker reactors is driven by customer need and supports the saleability of our fuel cell systems with upstream fuel conversion technology. We have also taken possession of new ammonia crackers to facilitate parallel commissioning and validation and we look forward to seeing them in operation later this year.

Methanol reforming development activity has also been evidenced with the first of our new methanol Fuel Towers deployed in Spain alongside ACCIONA in late 2022, equally highlighting the potential for green methanol to play its role in supporting the decarbonisation of industry.

Work on the AlkaMem membrane technology continues in conjunction with industry experts in both fuel cell and electrolyser fields. The decision was taken during the year that with the short-term demand for products in the field and the necessary focus on the S and S+ Series, that the work on the AlkaMem platform would be decelerated on commercial grounds.

Outlook

For 2023, we expect to see growing revenue from system rentals and hydrogen sales with an already contracted pipeline of deployments and growing pipeline of prospective rentals. This rental model is consistent with the incumbent diesel generator hire market and is one with which customers are familiar. The transition to our sales revenues exceeding rental revenues is expected to be led by sales to plant hire businesses with established market positions.

We see growing appetite for our S Series Generator in the construction sector with temporary power following closely behind. In addition, and consistent with our announced focus on electric vehicle charging in grid constrained environments and our Approval in Principle level certification from DNV, global advisors to the international maritime industry, we still see growing opportunities in these markets for our S+ Series Generator and expect to see more announcements during 2023.

We enter 2023 with a sense of optimism that, with a gradual decline in geopolitical and sector-based uncertainty, together with AFC Energy's continued delivery of its technical and commercial milestones, we will evidence the accelerating transition away from diesel towards new, clean solutions. I wish to thank all our employees, shareholders and partners for their support and efforts in 2022 and eagerly await the successes expected throughout 2023.

Chief Financial Officer's Report

The three themes that characterised the financial year ended 31 October 2022 were:

·    First revenue recognised from H-Power Tower deployments

·    Increased investment in product research and development

·    Continued strong cash levels

Following its announcement in March 2022, AFC Energy deployed its first H-Power Tower, just five months later, to the Spanish construction group, ACCIONA, at one of its sites north of Cadiz.

The H-Power Tower is aimed at displacing diesel generators at off-grid sites, making it well suited to the construction sector. In total, H-Power Towers were deployed to three different construction customers during the year, collectively generating initial revenue of £41,000 from a combination of rental income and sales of the related hydrogen.

Outside of the H-Power Tower, the balance of revenue was generated from continued support of the Extreme E racing series, giving total revenue for the year of £0.6 million (2021: £0.6 million), which generated a gross profit of £0.1 million (2021: £0.0 million) and a net loss after tax of £16.4 million (2021: £9.4 million).

The £1.6 million of deferred revenue relates mainly to the ABB contract, where the £2.0 million initial payment, less the fair value of the warrants granted, will be earned as a discount to ABB over the sales of the first 10 units, up to pre-agreed value per unit.

The year saw increased investment in the engineering and operational capability required to manufacture and deploy the H-Power Tower to a growing number of customer validation sites. Based on the early stage in the product development lifecycle during the year (both in terms of economic and technical feasibility), we still expense all of our research and development expenditure to operating costs.

Within the £9.0 million (2021: £3.0 million) of qualifying R&D spend, the £3.7 million (2021: £2.0 million) payroll balance relates almost entirely to our Fuel Cell and Fuel Conversion departments, whilst materials of £4.7 million (2021: £1.0 million) includes both third party consultancy and tangible items.

Within non-qualifying expenditure, other items of £4.3 million (2021: £3.2 million) relate mainly to other employment costs of £0.8 million (2021: £1.2 million) and other administrative expenses of £2.4 million (2021: £1.8 million).

A summary of the cash deployed in the year is set out in the table below:

Cash movements relating to the income statement are discussed above. The working capital movement is primarily driven by the first £2.0 million ABB payment, of which £1.4 million was held as deferred income at the year end. Of the £2.6 million (2021: £1.9 million) of investing activities, £2.0 million related to leasehold improvements, primarily to the development and manufacturing facilities, £0.4 million related to fixtures, fittings and computers and the £0.3 million balance to intangible assets, mainly patent expenses.

Based on the above, the annual "cash burn" was £11.2 million (2021: £7.3 million). This is based on operating costs (Note 6) of £19.8 million less materials of £5.1 million and total non-cash items of £3.5 million and is an indication of the annual cash spend on fixed overheads. It equates to £0.9 million (2021: £0.6 million) per month.

At the end of the year the Company had deferred revenue of £1.4 million in respect of the ABB Sale & Development Agreement.  This comprised the £2.0 million received during the year, less the £0.6 million of fair value allocated to the Warrant Agreement signed on the same day as the Sale & Development Agreement.

Following the year end, on 28 March 2023, the Sale & Development Agreement was revised by both parties.  Under the revised agreement, ABB will have a pre-agreed discount for a defined term to be spread over the purchases of the first ten eligible 200kW fuel cell systems, the first of which will be purchased under the revised contract, with the subsequent nine at ABB's option. 

The £2.0 million balance, from the £4.0 million under the original contract, will be used for the purchase of issued shares in AFC Energy.  This balance was received on 5 April 2023 and the shares issued and admitted for trading shortly thereafter.  The cash value of the original contract therefore remains unchanged at £4.0 million.

2023 has already seen continued, and growing, deployments of the H-Power Tower. This has continued to be on a rental basis, the best model for new market entry, with rentals expected to convert to hardware sales in due course.

Statement of comprehensive income

For the year ended 31 October 2022

All amounts relate to continuing operations. There was no other comprehensive income in the period (2021: £nil).

Statement of financial position

As at 31 October 2022

AFC Energy plc
Registered number: 05668788

Statement of changes in equity

For the year ended 31 October 2022

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

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

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

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

Cash flow statement

For the year ended 31 October 2022

Notes forming part of the financial statements

1.    Corporate information

AFC Energy plc (the Company) is a public limited company incorporated in England & Wales and quoted on the Alternative Investment Market of the London Stock Exchange. The principal activity of the Company is the development of fuel cell and fuel processing technology and allied equipment.

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

2.    Basis of preparation and accounting policies

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 2022 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 2022 was unqualified and did not contain statements under section 498 of the Companies Act 2006.

Going concern

The financial statements of AFC Energy plc have been prepared in accordance with UK Adopted International Accounting Standards (IASs).

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

The directors are required to assess whether it is appropriate to prepare the financial statements on a going concern basis. In making this assessment the directors need to be satisfied that the Company can meet its obligations as they fall due for at least 12 months from the date of this report.

The directors make their assessment based on a cash flow model prepared by management which sets out expected cash flows through to 30 April 2024. Extending the period beyond the minimum 12 months from the date of this report provides additional comfort when making the assessment.

Downside sensitivities have been applied to the cash flows primarily related to an overspend of product development costs (for both materials and internal labour) and an under-recovery of R&D tax credits.

Having concluded that the Company remains a going concern, these financial statements have therefore been prepared on that basis.

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

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

Standards, amendments and interpretations to published standards not yet effective

Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for 31 October 2022 reporting periods and have not been early adopted by the Company. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

Amendments to International Financial Reporting Standards (IFRSs) that are mandatorily effective for the current year

In the current year, the Company has applied the following amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatory:

•     Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for Interest Rate Benchmark reform - phase 2 (effective for periods beginning on or after 1 January 2021)

•     IFRS 16 Amendment for COVID-19 related Rent Concessions beyond 30 June 2021 (effective for periods beginning on or after 1 April 2021)

These standards have not had a material impact on the entity in the current reporting period.

New and revised IFRSs in issue but not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for 30 October 2022 reporting periods and have not been early adopted by the Company. These standards are expected neither to have a material impact on the entity in the current or future reporting periods nor on foreseeable future transactions:

•     IFRS 3 Amendments to references to the Conceptual Framework Current (effective for periods beginning on or after 1 January 2022)

•     IAS 16 Amendments to Property, Plant and Equipment - Proceeds before intended Use Current (effective for periods beginning on or after 1 January 2022)

•     IAS 37 Amendments to Onerous Contracts - Cost of Fulfilling a Contract (effective for periods beginning on or after 1 January 2022)

•     Annual Improvements to IFRS Standards 2018-2020, affecting IFRS 1, IFRS 9, IFRS 16, IFRS 41 (effective for periods beginning on or after 1 January 2022)

•     IAS 1 Classification of Liabilities as Current or Non-Current (effective for periods beginning on or after 1 January 2024)

•     IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting Policies from significant to material (effective for periods beginning on or after 1 January 2023)

•     IAS 8 Amendments to Definition of Accounting Estimates (effective for periods beginning on or after 1 January 2023)

•     IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for periods beginning on or after 1 January 2023)

Capital policy

The Company manages its equity as capital. Equity comprises the items detailed within the principal accounting policy for equity and financial details can be found in the statement of financial position. The Company adheres to the capital maintenance requirements as set out in the Companies Act 2006.

Revenue recognition

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

•     Identifying the contract with a customer;

•     Identifying the performance obligations;

•     Determining the transaction price;

•     Allocating the transaction price to the performance obligations; and

•     Recognising revenue as the performance obligations are satisfied. Revenue is generated from complex contracts covering the

•     Sale of goods and parts;

•     Sale of services and maintenance; and

•     Short-term rental contracts.

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

•     The contracts were negotiated as a single commercial package;

•     Consideration of one contract depends upon the other contract; and

•     Some or all the goods and services comprise a single performance obligation.

The contract terms are analysed to determine if they represent performance obligations individually, or in combination with other promises. Performance obligations in the contracts are analysed between either distinct physical goods and services delivered or service level agreements. The transaction price of the performance obligations is based upon

the contract terms taking into account both cash and non-cash consideration. Non-cash consideration is valued at fair value taking into consideration contract terms and known arm's length pricing where available. In the event there are multiple performance obligations in a contract, the price is allocated to the performance obligations based on a suitable indicator of fair value.

Revenue is recognised either at a point in time or over time, as the performance obligations are satisfied by transferring the promised goods or services to customers. Contract liabilities are recognised for consideration received in respect of unsatisfied performance obligations and the Company reports these amounts as Deferred revenue in the notes to the statement of financial position.

Similarly, if a performance obligation is satisfied in advance of any consideration, a contract asset or a receivable is recognised in the statement of financial position.

Rental as service and long-term service contracts - Revenue is recognised over time, based on outputs provided to the customer, because this is the most accurate measurement of the satisfaction of the performance obligation as it matches the consumption of the benefits obtained by the customer. The customer is simultaneously receiving and consuming the benefits as the Company performs its obligations. Revenue can comprise a fixed rental charge and a variable charge related to the usage of assets or other services (including pass-through fuel).

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

During the product build, deposits and progress payments will be reflected in the balance sheet as Deferred revenue.

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

Sale (customised products) contracts - Revenues for customised contracts (i.e. contracts with no alternative use for the contract deliverable) will be recognised over time according to how much of the performance obligation has been satisfied. This is measured using the input method, comparing the extent of inputs towards satisfying the performance obligation with the expected total inputs required. Any changes in expectation are reflected in the total inputs figure as they become known. The progress percentage obtained is then applied to the revenue associated with that performance obligation.

Combination of contracts - contracts are combined and accounted for as a single contract if the contracts are entered into at or near the same time with the same customer or if one or more of the following are met; contracts negotiated as a single package; consideration of one contract depends on another; or some of the goods or services are a single performance obligation.

Other income

Other income represents sales by the Company of waste materials.

Development costs

Identifiable non-recurring engineering and design costs and other prototype costs incurred to develop a technically and commercially feasible product are assessed. In accordance with IAS 38 Development costs and capitalised if they meet all of the criteria required as below:

•     technical feasibility of completing the asset for use or sale;

•     intention to complete the asset for use or sale;

•     ability to use or sell the asset;

•     generation of probable future economic benefits;

•     availability of adequate technical and financial resources; and

•     ability to measure the attributable expenditure reliably.

Foreign currency

The financial statements of the Company are presented in the currency of the primary economic environment in which it operates (the functional currency) which is pounds sterling. In accordance with IAS 21, transactions entered into by the Company in a currency other than the functional currency are recorded at the rates ruling when the transactions occur.

At each Statement of Financial Position date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the date of the Statement of Financial Position.

Inventory

Inventory is recorded at the lower of actual cost and net realisable value, applying the FIFO methodology.

Work in progress comprises direct labour, direct materials and direct overheads. Direct Labour will be allocated on an input basis that reflects the consumption of those resources in the production process.

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash balances and bank overdrafts that form an integral part of the Company's cash management process. They are recorded in the SFP and valued at fair value.

Restricted cash represents bank deposit accounts where disbursement is dependent upon certain contractual performance conditions.

Other receivables

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

Tangible fixed assets

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

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

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

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

The useful economic lives of tangible fixed assets are reviewed annually and any revision is accounted for as a change in accounting estimate and the net book value of the asset, at the time of the revision, is depreciated over the remaining revised economic life of the asset.

Right-of-use assets

At inception each contract is assessed as to whether it conveys the right to control the use of an identified asset, and obtain substantially all the economic benefits from use of the asset, for a period of time in exchange for consideration. In this instance the contract should be accounted for as a lease. The Company recognises a right-of-use asset and a lease liability at the lease commencement date.

The right-of-use assets comprises the corresponding lease liability, lease payments made before the commencement date, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. The lease liability is initially measured at the present value of the lease payments and discounted using the interest rate implicit in the lease or, if that rate cannot be determined, the incremental borrowing rate is used. The lease liability continues to be measured at amortised cost using the effective interest method. It is remeasured when there is a change in the future lease payments. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset.

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

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

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

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

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

The Company has elected not to recognise right-of-use assets and lease liabilities for leases of less than 12 months and leases of low value assets. These largely relate to short-term rentals of equipment. The lease payments associated with these leases are expensed on a straight-line basis over the lease term.

Intangible assets

The useful economic lives of intangible fixed assets are reviewed annually and any revision is accounted for as a change in accounting estimate and the net book value of the asset, at the time of the revision, is amortised over the remaining revised economic life of the asset.

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

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

The useful economic lives of intangible fixed assets are reviewed annually and any revision is accounted for as a change in accounting estimate and the net book value of the asset, at the time of the revision, is amortised over the remaining revised economic life of the asset.

Impairment testing of intangible assets and property, plant and equipment

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

Financial instruments

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

In the periods presented the Company does not have any financial assets categorised as FVTPL or FVOCI.

Financial assets at amortised cost

A financial asset is measured at amortised cost if it is held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding and is not designated as FVTPL. Financial

assets classified as amortised cost are measured subsequent to initial recognition at amortised cost using the effective interest method. Cash, restricted cash, trade receivables and certain other assets are classified as and measured at amortised cost.

Financial liabilities

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss.

Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in net earnings when the liabilities are derecognised as well as through the amortisation

process. Borrowing liabilities are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date. Accounts payable and accrued liabilities and leases liabilities are classified as and measured at amortised cost.

Impairment of financial assets

A loss allowance for expected credit losses is recognised in the Statement of Comprehensive Income for financial assets measured at amortised cost. At each balance sheet date, on a forward-looking basis, the Company assesses the expected credit losses associated with its financial assets (such as trade receivables and contract assets) carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The expected credit losses are required to be measured through a loss allowance at an amount equal

to the 12-month expected credit losses (expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date) or full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument). A loss allowance for full lifetime expected credit losses is required for a financial instrument if the credit risk of that financial instrument has increased significantly since initial recognition.

Derecognition of financial assets and liabilities

A financial asset is derecognised when either the rights to receive cash flows from the asset have expired or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party. If neither the rights to receive cash flows from the asset have expired nor the Company has transferred its rights to receive cash flows from the asset, the Company will assess whether it has relinquished control of the asset or not. If the Company does not control the asset then derecognition is appropriate. A financial liability is derecognised when the associated obligation is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of Comprehensive Income.

Share-based payment transactions

The fair value of options granted under the Employee Option Plan is recognised as an employee benefits expense, with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted:

•     Including any market performance conditions (e.g., the entity's share price)

•     Excluding the impact of any service and non-market performance vesting conditions (e.g., profitability, sales growth targets and remaining an employee of the entity over a specified time period)

•     Including the impact of any non-vesting conditions (e.g., the requirement for employees to save or hold shares for a specific period of time)

The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.

Modifications after the vesting date to terms and conditions of equity-based payments which increase the fair value are recognised over the remaining vesting period. If the fair value of the revised equity-based payments is less than the original valuation, then the original valuation is expensed as if the modification never occurred.

Where there are unapproved share option plans, a provision for the employer's share of National Insurance Contributions is estimated based on the intrinsic value of the exercisable options at the reporting period date. A charge is recorded in the Statement of Comprehensive Income and the liability is included within provisions.

Provisions

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

Provisions include onerous contracts (see later under section 3) where, if unavoidable costs of meeting a contract exceed the expected revenue, a provision is recognised immediately through profit and loss.

Taxation

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

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

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

R&D tax credits

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

Pension contributions

The Company operates a defined contribution pension scheme which is open to all employees and makes monthly employer contributions to the scheme in respect of employees who join the scheme. These employer contributions were capped at 5% of the employee's salary and are reflected in the statement of comprehensive income in the period for which they are made.

3.    Critical accounting judgements and key sources of estimation uncertainty

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

Critical accounting judgements

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

Customer contracts and revenue recognition

Customer contracts typically include the provision of goods or services related to the provision of off-grid power generated from the conversion by fuel cells of hydrogen to electricity.

Customer agreements can be complex, involve multiple legal documents and have a duration covering multiple accounting periods including different performance obligations and payment terms designed to manage cash flow rather than the underlying arm's length transaction price. Management use judgement to identify the specific performance obligations and allocate the total expected revenue to the identified performance obligations. These judgements are made based on the interpretation of key clauses and conditions within each customer contract.

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

Capitalisation of development expenditure

The Company uses the criteria of IAS 38 to determine whether development expenditure should be capitalised. Management identifies separately non-recurring engineering, design costs and prototype costs incurred to develop demonstration units used in marketing activities and customer trials. Management believe that the Development Expenditure will continue to support marketing and customer trials for the foreseeable future. This assessment relies upon judgements about future customer behaviour taking in to account the feedback received from prospective customers and future product improvements which influence the economic useful life and residual value of said assets.

For the current year, all development costs have been expensed as they do not yet meet all six of the criteria set out within the policy (see section 2) on development costs.

Key source of estimation uncertainty

Share-based payments

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

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

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

The estimation uncertainty relating to share-based payments is not at risk of material change in future years other than in relation to management's estimate of the extent to which the non-market and service conditions will be met.

Onerous contracts

Throughout the year, the performance of each open contract is reviewed and expected cost of delivering that contract is compared to the expected revenue from doing so. Where the expected costs suggest a loss, the contract is treated as

an onerous contract and a provision is recognised immediately through the profit and loss. No such provisions were made.

Estimates

Warrant valuation

6.8 million warrants were granted during the year to ABB E-mobility on the same day, 15 November 2021, that the Company signed the Sale and Development Agreement.

As the warrant vesting conditions were dependent on performance conditions within the Sale and Development contract, the two contracts were considered to be linked and therefore accounted as a single contract (meaning that the contract value of the Sale and Development agreement was reduced by the fair value of the warrants, which have been accounted for as equity and so not charged to the Statement of Comprehensive Income).

The fair value is determined using the Black-Scholes valuation model with the Monte Carlo model used for inputs around likelihood of exercise. The main area of uncertainty relates to the inputs to the Black-Scholes model, particularly around the assumptions concerning the exercise period and timing of any potential exercise. This is because the start of the exercise period) (i.e. the point the warrants vest) is subject to performance, and therefore not fixed in time at the point of grant (which is the valuation date). Changing the assumptions around timing could have a material impact on the valuation. Level 1 inputs have been used where suitable but management inputs have also been taken into account. See also note 24.

4.    Segmental analysis

Operating segments are determined by the chief operating decision maker based on information used to allocate the Company's resources. The information as presented to internal management is consistent with the Statement of Comprehensive Income. It has been determined that there is one operating segment, the development of fuel cells. In the year to 31 October 2022, the Company operated mainly in the United Kingdom. All non-current assets are in the United Kingdom.

Revenue for the period was all generated from fuel cell systems.

5.    Revenue

The majority of the other revenue relates to sales of hydrogen to the rentee of the fuel cell generators.

1 During the year, revenue was only recognised in relation to rental as a service. The company had also entered into a contract to deliver products. At the balance sheet date, the contract had not commenced, and no revenue has been recognised.

The aggregate amount of the transaction price allocated to contracts that are fully unsatisfied as of 31 October 2022 was £96,000 (2021: £354,000). The Company expects to recognise these revenues within the next twelve months.

The consideration in kind relates to marketing services received from the customer and fair valued in accordance with the contract.

6.    Operating costs

The operating costs consist of:

The values disclosed as qualifying R&D spend form the total R&D expenditure incurred by the Company during the year.

Occupancy costs include: repair & maintenance, utilities and lease payments. In the prior year the information technology costs were classified within occupancy costs but have been reclassified in the current year into other administration expenses to better reflect the nature of the costs.

Fees paid to the auditors included within the operating costs were:

7.    Other administration expenses

In the prior year the information technology costs were classified within occupancy costs but have been reclassified in the current year into other administration expenses to better reflect the nature of the costs.

8.    Employee numbers and costs, including directors

The average numbers of employees in the year were:

The aggregate payroll costs for these persons were:

9.    Directors' costs

Adam Bond is the only director ever to have exercised options or warrants (see below).

Adam Bond realized £133,000 from exercising in full options that vested earlier in the year at value £241,000. He did not exercise any options in the previous year.

The highest paid director received remuneration of £581,000 (2021: £863,000) excluding pension contributions and LTIP.

10.  Net finance cost

11.  Taxation

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

The cumulative tax losses in the amount of £47.6 million (2021: £37.8 million) that are available indefinitely for offsetting against future taxable profits have not been recognised as the Directors consider that it is unlikely that they will be realised in the foreseeable future.

The 2021 Finance Act increased the UK corporation tax rate to 25% from 1 April 2023, which will affect any future tax charges.

The tax reconciliation for the prior year has been re-presented to reflect the reconciliation in the current year where 'change in unrecognised deferred tax resulting from tax losses' has been disclosed separately from other reconciling items.

12.  Loss per share

The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary shareholders and a weighted average number of shares in issue for the year.

Diluted earnings per share

As set out in note 23, there are share options and warrants (accounted for under IFRS 2: Share based payments) outstanding as at 31 October 2022 which, if exercised, would increase the number of shares in issue. Given the losses for the year, there is no dilution of losses per share in the year ended 31 October 2022 nor the previous year.

13.  Intangible assets

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

The impairment charge relates to certain expenses capitalised during the development of the L-Series and now considered impaired due to the development of the S-Series.

14.  Right-of-use assets

15.  Tangible fixed assets

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

16.  Inventory

Inventory expensed as cost of sales during the year was £nil (2021 £nil).  During the year, £488,000 of brought forward inventory was written off as research and development costs on projects that did not subsequently meet the anticipated level of commerciality.

17.  Receivables

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

Given the value of VAT receivables for the current year, it has been reclassified as a separate line item, with the balance remaining within other receivables.

18.  Cash and cash equivalents

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

Restricted cash of £612,000 (2021: £612,000) is not included within cash and cash equivalents and is held in escrow to support bank guarantees provided under contracted obligations to suppliers and customers.

19.  Payables

Included in Accruals as of 31 October 2022 is an amount of £514,000 in relation to bonuses (2021: £507,000).

Deferred revenue under the ABB contract is reduced by the fair value of the warrants granted on the same day, 15 November 2021, as the two contracts are considered to be linked. Also see note 24 for information on the warrants granted.

20.  Lease liabilities

The Company has a number of leases, which are mainly of five years in duration and have break clauses after two, or three, years. Leases are renewed, as opposed to being extended, and are granted outside of the 1954 Act, and therefore do not have security of tenure.

21.  Provisions

The prior year provision for National Insurance related to options granted outside of the approved EMI scheme. No further grants of similar options were made during the current year and, as the EMI options are marked-to-market and the relevant market benchmark is lower than the exercise price, no provision is required.

The Company has set up a decommissioning provision for the Stade site in Germany, the cost of which is based on estimates. Various scenarios have been considered which estimate the range of costs to be from £35,000 to £420,000 dependent upon agreements reached with the lessor.

22.  Issued share capital

All issued shares are fully paid other than some shares which were issued during the year without payment of the nominal face value of 0.1 pence per share required by the relevant legislation. The Company will work to remediate this issue and processes have been modified to prevent this happening in future.

The Company considers its capital and reserves attributable to equity shareholders to be the Company's capital. In managing its capital, the Company's primary long-term objective is to provide a return for its equity shareholders through capital growth. Going forward the Company will seek to maintain a gearing ratio that balances risks and returns at an acceptable level and to maintain a sufficient funding base to enable the Company to meet its working capital needs. The Company has no debt, other than property leases, and therefore a target debt to equity ratio is not relevant at the time.

Share premium is shown before the permitted deduction of cost of issue. After such deduction the value equals £116,487,000.

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

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

In November 2021 the Company granted 6.8 million warrants to ABB (see note 24)

23.  Share based payments

Share based payment charge:

Employee share option plan

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

Options are granted under the Plan for no consideration and carry no dividend nor voting rights. When exercisable, each option is convertible into one ordinary share.

Set out below are summaries of options granted under the Plan:

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

The table below sets out the inputs used in determining the fair value of the grants of options per the previous table as well as the expense recognised in the accounts in the current year. The grants in the previous table are linked below based on the exercise price and grant date.

Three grants were made on 19 November 2021. The first two, of the three disclosed above, related to the Transitional LTIP, and was made in two tranches. The first tranche had a risk-free rate of 0.05% whilst the second tranche had a rate of 0.35%. The third, of the three above, related to the PSP LTIP and had a risk free rate of 0.05%.

SAYE

24.  Financial instruments

Warrants

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

Warrants are granted for no consideration and carry no dividend nor voting rights. When exercisable, each warrant is convertible into one ordinary share.

Set out below are summaries of warrants granted under the Plan:

The total charge for the prior year was £62,100.

The warrant life is two years from the date of vesting. The first tranche of 3.4 million warrants have fully vested. Under the revised agreement signed on 28 March 2023, ABB will invest the £2.0 million balance into newly issued share capital, which means that the original milestones 1 and 2 will no longer apply and so the related warrants will not vest and therefore expire in due course.

Further information on the ABB transaction is provided under post balance sheet events within the Directors' Report.

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

Vesting is conditional on the meeting of the milestones 1 and 2.

In common with other businesses, the Company is exposed to risks that arise from its use of financial instruments.

This note describes the Company's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

Principal financial instruments

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

VAT receivables and prepayments have been removed from financial assets and deferred income from financial liabilities.

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

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

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

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

Other than the ABB warrants, granted on 15 November 2021, which also incorporate managements inputs to the fair valuation, all financial instruments are Level 1 and none have been transferred between Levels during the year.

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:

The Company's principal other receivables arose from:

a)   customers, and

b)   trade and other receivables

Credit risk with cash and cash equivalents is reduced by placing funds with banks with acceptable credit ratings and government support where applicable and on term deposits with a range of maturity dates. At the year end, most cash were temporarily held on short-term deposit. The credit risk provision is estimated on a case by case basis taking into account public information of the counterparty and payment history and no loss is expected. No expected credit loss accrual has been made as at 31 October 2021 and 2020 as they are estimated to be de minimis.

Liquidity risk

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

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

See also note 20, which sets out the lease liabilities for less than 12 months and more than 12 months.

Interest rate risk

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

Fair value of financial instruments

There is no difference between the fair value and book value of financial instruments.

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

25.  Related party transactions

There were no transactions with any related parties during the year ended 31 October 2022 (2021: £nil) other than key management compensation.

26.  Ultimate controlling party

There is no ultimate controlling party.

27.  Post balance sheet events

ABB E-mobility

On 28 March 2023, ABB E-mobility confirmed that AFC Energy had successfully validated its first cumulative 100kW liquid cooled fuel cell. As a result of this, the Sale and Development Agreement, signed on 15 November 2021, was revised such that:

•     ABB will have a pre-agreed discount, to be spread over the purchases of the first ten fuel cell systems, the first of which would be purchased under the revised contract with the subsequent nine at ABB's option; and

•     the payment of the remaining £2.0 million, of the £4.0 million, to be used for the purchase of issued shares in AFC Energy

The £2.0m balance, was received on 5 April 2023 and the shares issued and admitted for trading shortly thereafter. The shares are of the same class and have the same voting rights as those already in issue. The cash value of the original contract therefore remains unchanged at £4.0 million.

ACCIONA

On 18 April 2023, ACCIONA signed an order for the first 50kVA H-Power S Series Generator for delivery in the second half of 2023. The system will comprise a 30kW fuel cell and 45kWh battery energy storage system. The system will initially be rented for a six-month period, following which ACCIONA has the option to buy the system at a pre-agreed price or extend the rental.

==