AFC Energy Announces FY 2023 Results and Strategic Advances

Robust Year of Market Penetration and Partnership Expansion Sets Stage for Future Growth.

AFC Energy (AIM: AFC), a leading provider of hydrogen power generation technologies, is pleased to announce its results for the year ended 31 October 2023 (“FY 2023”).  The results are included below and copies are available at www.afcenergy.com.

Highlights:

• 2023 strategy focussed on market penetration with key agreements signed to expand distribution channels for the fuel cell division, resulting in a £27m orderbook^[1]  for 30kW S Series H-Power Generators and ancillary equipment

• Signed first Heads of Terms with Speedy Hire for the formation of Speedy Hydrogen Solutions

o  50:50 joint venture with AFC Energy executed after year end

o  Initial order commitment of £2.0m with first year projected orders of £4.7m

• Signed exclusive distribution agreement with TAMGO, an entity wholly owned by the Zahid Group, focussed on key markets in Saudi Arabia, the Middle East and Northern Africa (MENA) region

• Signed first order from Acciona for 30kW H-Power Generator and 45kWh battery energy storage system following  successful H-Power Tower trial in 2023

• Modest revenue of £0.2m (2022: £0.6m) due to focus on market penetration which led to material growth in current customer orderbook

o  200kW S+ Series generator (ABB) deferred revenue of £1.4m (2022: £1.6m)

o  Loss after tax of £17.5m (2022: £16.4m)

• Receipt of first S+ Series fuel cell stacks from 3^rd party contract manufacturer for ABB’s initial 200kW H-Power Generator

• Completed strategic supplier qualification for all key H-Power Generator components – positioning for scale up with each selected on ability to deliver +1,000 generators worth of components per annum

• Significant qualifying R&D investment in 2023 of £8.5m (2022: £9.0m), with £4.1m R&D tax credits received (2022: £0.5m)

• Engineered and built world’s largest modular ammonia cracker currently in operation (commissioned December 2023)

• Grant award of £4.3m from the UK Government under its red diesel scheme which aims to displace diesel in the construction, quarrying and mining sectors

• Strong balance sheet with £27.4m of cash at period end (2022: £40.2m)

Post Period Developments

• Completed design and engineering on 30kW H-Power Generator, with successful Factory Acceptance Testing complete

• S Series fuel cell operation cost reductions achieved

o  Reduced £/kW capital cost of H-Power Generator by 50% since 2023 H-Power Tower

o  Achieved 16% improvement in fuel efficiency, which will drive material savings for customers’ total cost of ownership versus prior year measurement

• Company’s first third party Attestation of Conformity for CE Mark from TUV SUD for 30kW H-Power Generator

• Next generation ammonia cracker on test and delivering material improvements in performance

 

Outlook

• 2024 is focussed on delivery.  Targeting sales to Speedy Hydrogen Solutions and Acciona initially to meet growth in UK and European construction demand

o  First customer hires through Speedy Hydrogen Solutions

o  Delivery of first 50kVA H-Power Generator to Acciona

• Receipt and delivery of first orders from TAMGO to meet the accelerated growth in Saudi offgrid power demand

• 200kW S+ Series generator, part funded by ABB, currently in build and test phase with first operation targeted for H1 2024

• Confirmation of manufacturing partners for scaled H-Power production

• Ammonia cracker validation and announcement of first development and deployment partners

[1] As at the date of publication, comprising committed and uncommitted elements within existing contracts

Adam Bond, Chief Executive of AFC Energy, said:

 

“Validation of (i) our H-Power Generator business model, (ii) customer demand, (iii) technology and (iv) route to market were all key aims of 2023.  Twelve months later, our contracted order book, multiple routes to market and successful product deployments highlight the tangible successes achieved by AFC Energy over the year.

Never before has customer pull to displace diesel generators been stronger, driven by Government policy, tendering requirements, carbon reduction commitments and emissions based regulations.  Together with our new distribution partners, including Speedy Hire and TAMGO, we are confident of the Company’s robust commercialisation strategy.

We continue to target further capital cost reductions, manufacturing scale up partners and newly announced international dealerships during 2024, giving us confidence in delivering contracted customer deployments and revenue growth.

Together with our fuel processing division’s market leading modular ammonia cracking technology and the partners we are currently in discussion with who have expressed interest in the technology, we continue to believe the true value of this technology platform is not yet reflected in the Company’s value and as a Board, we are reviewing options to capitalise on this unrealised value.

We are well placed to build on the foundations set in 2023 and look forward to the successful deliveries of our new H-Power Generators into the hands of customers throughout the remainder of the 2024 calendar year.”

 

 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 / Georgia Langoulant / Brian Hanratty	+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
RBC Capital Markets – Joint Broker Matthew Coakes / Teri Su Eduardo Famini / Jack Wood   FTI Consulting – Financial PR Advisors Ben Brewerton / Tilly Abraham / Evie Taylor	+44 (0) 20 7653 4000       +44 (0) 203 727 1000 [email protected]

About AFC Energy

 AFC Energy plc is a leading provider of hydrogen energy solutions, to provide clean electricity for on and off grid power applications. The Company’s fuel cell technology is targeting near term commercial deployment across the construction and temporary power markets with longer term opportunities in electric vehicle charging, maritime and data centres as part of a portfolio approach to the decarbonisation of society’s growing electrification needs.  The Company’s proprietary ammonia cracking technology further highlights emerging opportunities across the distributed hydrogen production market with a focus on hydrogen’s role in supporting the decarbonisation of hard to abate industries.

Chair’s Report

Leading the transition

COP 28 was held in Dubai in 2023 and renewed the focus on the global need to decarbonise and the opportunities this is creating. AFC Energy was represented by our CEO, Adam Bond, and with hydrogen high on the COP agenda, there was a lot of interest in our technology and products. It was also a great backdrop for the fuel cell and then fuel processing announcements we made around the time.

Strategic development

The construction sector remains our primary commercial focus due to its reliance on diesel generators and the growing pressure to displace diesel when tendering for contracts.

To this end, the joint venture announced with Speedy Hire combines perfectly their marketing and logistical strength with our hydrogen fuelled equipment and technical expertise.

The first H-Power Generator passed factory acceptance testing in March 2024 and I’m delighted to report that feedback has already been very positive, particularly from the potential JV customers that have visited.

 

The Board

Graeme Lewis retired as chief financial officer and resigned as a director from the board on 30 November 2022. I wish to thank Graeme for his service and wish him well in retirement.

Taking over from Graeme, Peter Dixon-Clarke joined us on 1 December 2022, bringing with him his considerable fund raising and transactional experience from across the energy sector.

Jim Gibson resigned on 9 June 2023, and I wish to thank him for his five years of service. Jim’s duties as chief operating officer have been shared amongst the existing C-suite.

This year saw the retirement of Joe Mangion as nonexecutive and chair of the Audit Committee on 31 July 2023. I wish to thank Joe for his six-years of service and wish him well in his retirement.

Taking over from Joe on 1 August 2023, I’m delighted to welcome Duncan Neale to the Board. Duncan has both the breadth and depth of experience in the role and in the energy sector that will serve the Company well as we look to scale.

Environmental, Social and Governance (ESG)

A great deal of focus has understandably been on the important role that the Company’s products can play in decarbonising the environment. However, as we grow and start to manufacture in volume, we need to take further steps ourselves as a company.

I am pleased that Monika Biddulph has taken on leading ESG activity for the Board, and especially pleased by the way that this has been embraced by all our employees.

 

Our employees

I would like to thank our employees for their continued commitment to what has been a milestone year.

 

Chief Executive Officer’s Report

Displacing diesel

The 2023 financial year saw the global hydrogen market grow with over half a trillion US dollars of new projects in the pipeline to support industry’s decarbonisation commitments.

In recognition of how this rapidly expanding industry is evolving, and the growing importance of decarbonised ammonia as a hydrogen carrier in the facilitation of global trade, we have commenced consideration of standalone divisions within AFC Energy reflecting both the consumption (fuel cells) and production (fuel conversion or ammonia cracking) of hydrogen. This delineation would reflect the fact that whilst there is a clear overlap in technologies where ammonia cracking can facilitate fuel cell deployments, there is also a growing number of stand alone enquiries for the cracker technology that gives rise to a value proposition that perhaps is not currently reflected in the value of AFC Energy.

Across our fuel cell division, in the 2023 financial year, ten first generation 10kW H-Power Towers were successfully deployed to customer sites predominantly in the construction sector. The aim of these deployments was to:

 

• validate the operation of the S Series fuel cell technology in the form of generators;
• validate the plant hire business model for the UK construction market;
• validate the pain points and drivers for uptake of hydrogen powered fuel cell generators;
• obtain valuable customer feedback to build into subsequent H-Power Generator platforms;
• generate nominal revenue from the weekly rental of H-Power Towers; and
• validate a contractual order book of new generator orders.

 

The success of these first generation trials evidenced industry demand for our zero emission generators, which was the impetus behind our initial Heads of Agreement with Speedy Hire signed in July 2023 (which was subsequently converted to a joint venture in the form of Speedy Hydrogen Solutions post year end) and first commercial orders from Acciona and Speedy Hydrogen Solutions (post year end). These partnerships provided valuable insights that informed the 30kW generator product which, post year end, culminated in delivery of the Company’s first Factory Acceptance Test (announced in March 2024) and its first independent Attestation of Conformity for CE Mark from global certification agency, TUV SUD (March 2024) – both massive achievements for the Company.

This strategy has proven highly successful and whilst not reflected in the earned revenue in the 2023 financial year, can be evidenced in the order book of £27m as at the date of this report highlighting both committed and uncommitted orders on existing contracts for S Series generators derived from customer contracts including Acciona and Speedy Hydrogen Solutions. This order book would not have been possible without the investment of time and resources throughout 2023.

In parallel with customer deployments was a programme of cost reduction that successfully represented a 50% fall in component and material costs brought about by engineering and scaled component procurement. This cost down approach to the H-Power Generator platform has continued to evidence further value enhancements into 2024, including the confirmation of a robust and globally diversified supply chain across all key components positioning AFC Energy well for manufacturing scale up.

The growing displacement of the global diesel generator market represents a US$20bn per annum opportunity which, through tightened regulation and emission standards, corporate sustainability targets, and rising costs of compliance, makes AFC Energy’s H-Power Generator an increasingly viable alternative to support industry’s roadmap to a decarbonised future.

The vast adoption of diesel generation by industry, whether for prime or backup power, creates a sizeable prize to chase, however our immediate focus remains on the construction market with its immediate decarbonisation challenges.

Throughout this overview, a theme resonates with all our partners, that the time to displace diesel is now and whilst it will take time to transition from the material sunk cost in diesel generators in the market today, the pressure to find alternative off-grid power solutions is imminent.

Our fuel conversion division has also reached new milestones during the course of the year culminating in the launch of the world’s largest modular, scalable ammonia cracker platform in late 2023. Much of 2023 was spent in the design, engineering and build phase of this platform, including the launch of the Company’s next generation ammonia cracker which is designed for low cost, efficient production of hydrogen at the point of demand. Since launch, we have hosted many visitor groups from across the Globe to the site, reflecting industry’s growing interest in ammonia adoption as a clean and sustainable fuel of the future.

Speedy Hydrogen Solution (“SHS”) Joint Venture

SHS, our new joint venture with Speedy Hire, signed in November 2023, is a market first and aligns perfectly with our stated business model of selling H-Power Generators wholesale to plant hire companies for onward rental to the construction sector and temporary power markets.

The UK construction market is aggressively moving towards the displacement of diesel generators with high profile projects such as HS2 stating there will be no diesel generators on site by 2029. Speedy Hire and SHS are aiming to step into this void with viable alternative technologies that include hydrogen fuelled generators.

Read the most up to date Fuel Cell and Hydrogen Industry news at FuelCellsWorks