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:

	Years
Decommissioning asset
Fixtures, fittings and equipment	1 to 3 years
Computer equipment	3 years
Manufacturing and test stands	3 years
Motor vehicles	3 to 4 years
Demonstration equipment	3 to 10 years
Rental fleet	3 to 10 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 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:

 

	Years
Development costs	5 years
Patents	10 to 20 years
Commercial rights	5 years

 

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

Revenue from contracts with customers	Year ended 31 October 2022 £000s	Year ended 31 October 2021 £000s
Rental revenue	225	576
Other revenue	357	16
	582	592
Being
Cash consideration	367	315
Consideration in kind	215	277
	582	592

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

 

Unsatisfied performance obligations were:
	Total £000s	Within one year £000s	Within 2 to 5 years £000s
31 October 2021 1	148	148	-
31 October 2022	96	96	-

 

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:

 

Note	Qualifying R&D spend 31 October 2022 £000s	Indirect 31 October 2022 £000s	Year ended 31 October 2022 £000s	Qualifying R&D spend 31 October 2021 £000s	Indirect 31 October 2021 £000s	Year ended 31 October 2021 £000s
Materials	4,654	451	5,105	1,003	34	1,037
Payroll (excluding Directors)	3,660	1,247	4,907	1,767	220	1,987
	8,314	1,698	10,012	2,770	254	3,024
Directors costs                                            9	-	1,642	1,642	-	1,900	1,900
Other employment costs	251	796	1,047	17	1,196	1,212
Occupancy costs	-	772	772	27	245	272
Other administrative expenses                  7	440	2,310	2,750	75	1,743	1,818
	9,005	7,218	16,223	3,100	5,127	8,226
Amortisation of intangible assets            13	-	474	474	-	110	110
Depreciation of right-to-use
assets                                                         14	-	379	379	-	302	302
Depreciation of tangible fixed
assets                                                         15	-	994	994	-	480	480
Less depreciation of rental asset
charged to cost of sales                          15	-	(218)	(218)	-	(98)	(98)
Consideration in kind                                5	-	215	215	-	278	278
Share based payment                               23	-	1,682	1,682	-	1,152	1,152
	9,005	10,744	19,749	3,100	7,351	10,450

 

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:

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Audit	244	136
Other assurance services	9	12

7.    Other administration expenses

 

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Professional fees	889	596
Audit and tax costs	312	155
Information technology	753	342
Travel & entertainment	486	224
Insurance	260	162
Other	50	339
	2,750	1,818

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:

Year ended 31 October 2022 Number		Year ended 31 October 2021 Number
Support, operations and technical	77	36
Directors	7	6
	84	42

The aggregate payroll costs for these persons were:

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Wages and salaries	5,961	3,108
Social security	392	684
Employer's pension contributions	196	95
	6,549	3,887
Equity-settled share-based payment expense	1,682	1,152
	8,231	5,039

9.    Directors' costs

 

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Wages and salaries	1,380	1,538
Accrual for holidays	37	-
Other compensation	77	107
Company pension contributions	50	44
	1,544	1,689
Social security	98	211
	1,642	1,900

 

Year ended 31 October 2022 Directors' emoluments                                                                                                                                      £000s		Year ended 31 October 2021 £000s
Wages and salaries	1,380	1,538
Other compensation	77	107
Company contributions to defined contribution pension schemes	50	44
	1,507	1,689

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

 

Year ended 31 October 2022 Highest paid director                                                                                                                                        £000s		Year ended 31 October 2021 £000s
Wages and salaries	538	775
Other compensation	43	88
Company contributions to defined contribution pension schemes	16	13
	597	876

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

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Lease Interest	38	37
Exchange rate differences	(21)	2
Bank charges	2	13
Total finance cost	19	52
Bank interest receivable	(143)	(19)
Net finance cost	(124)	33

11.  Taxation

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Recognised in the statement of comprehensive income
R&D tax credit - current year	(3,050)	(1,034)
R&D tax credit - prior year	8	(30)
Total tax credit	(3,042)	(1,063)
Reconciliation of effective tax rates   Loss before tax	(19,488)	(10,442)
Tax using the domestic rate of corporation tax of 19% (2021: 19%)	(3,703)	(1,984)
Effect of:
Change in unrecognised deferred tax resulting from tax losses	1,767	1,354
Timing differences not deductible for tax purposes	(101)	(165)
Depreciation in excess of capital allowances	299	148
R&D enhanced deduction on qualifying R&D expenditure	(2,259)	(766)
R&D rate adjustment on surrendered losses	947	380
R&D tax credit - prior year	8	(30)
Total tax credit	(3,042)	(1,063)

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

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Property, plant and equipment, and intangible assets	(187)	(95)
Share based payments	477	39
Losses carried forward	12,037	9,595
Unrecognised net deferred tax assets	12,327	9,539

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.

Year ended 31 October 2022		Year ended 31 October 2021
Basic loss per share (pence)	(2.24)	(1.33)
Diluted loss per share (pence)	(2.24)	(1.33)
Loss attributable to equity shareholders £000s	(£16,446)	(£9,378)
Weighted average number of shares in issue 000s	734,745	706,413

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

 

	Development costs	Patents		Commercial rights	Intangible assets
	£000s	£000s		£000s	£000s
Cost
As at 1 November 2020	229	800		121	1,150
Additions	-	86		-	86
31 October 2021	229	886		121	1,236
Additions	-	334		-	334
As at 31 October 2022	229	1,220		121	1,570
Amortisation
As at 1 November 2020	28		344	9	381
Charge for the year	46		40	24	110
As at 31 October 2021	74		384	33	491
Intangible: Impairment	121	173		-	294
Charge for the year	34	422		18	474
As at 31 October 2022	229	979		51	1,259
Net book value 31 October 2020	201		456	112	769
Net book value 31 October 2021	155		504	88	747
Net book value 31 October 2022	-	241		70	311

 

 

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

						Buildings £000s
Costs
As at 1 November 2020						1,415
As at 31 October 2021						1,415
Additions						470
As at 31 October 2022						1,885
Depreciation
31 October 2020						228
Charge for the year						302
31 October 2021						530
Charge for the year						379
As at 31 October 2022						909
Net Book Value
As at 31 October 2020						248
As at 31 October 2021						884
As at 31 October 2022						976

15.  Tangible fixed assets

		De-	Fixtures,		Demon-
	Leasehold	commissioning	fittings and	Motor	stration	Sub-
	improvements	Asset	equipment	vehicles	equipment	Total
	£000s	£000s	£000s	£000s	£000s	£000s
Costs
As at 31 October 2020	222	300	1,486	18	327	2,353
Additions	736	-	81	-	295	1,112
Disposals	-	-	(13)	-		(13)
Transfers	-	-	(214)	-		(214)
As at 31 October 2021	958	300	1,340	18	622	3,238
Additions	1,620	-	241	-	-	1,861
Disposals	(8)	-	-	-	(118)	(126)
As at 31 October 2022	2,570	300	1,581	18	504	4,973
Depreciation
1 November 2020	222	234	1,310	18	54	1,838
Charge for the year	80	31	42	-	144	297
Disposals	-	-	(10)	-	-	(10)
Transfers	-	-	(98)	-	-	(98)
As at 1 November 2021	302	265	1,244	18	198	2,027
Charge for the year	444	20	83	-	69	616
Impairment	-	-	-	-	67	67
As at 31 October 2022	746	285	1,327	18	334	2,710
Net Book Value
1 November 2020	-	66	176	-	273	515
31 October 2021	655	35	96	-	424	1,211
As at 31 October 2022	1,824	15	254	-	170	2,263

 

 

	Sub- Total	Rental asset	Computer equipment	Manufacturing and test stands	Assets in construction	Total
	£000s	£000s	£000s	£000s	£000s	£000s
Costs
1 November 2020	2,353	423	-	-	-	2,776
Additions	1,112	280	70	351	-	1,813
Disposals	(13)	-	-	-	-	(13)
Transfers	(214)	-	129	85	-	-
31 October 2021	3,238	703	199	436	-	4,576
Additions	1,861	-	119	2	406	2,388
Disposals	(126)	-	-	-	-	(126)
31 October 2022	4,973	703	318	438	406	6,838

 

Depreciation
1 November 2020		1,838	-		-		-		-	1,838
Charge for the year		297	98		39		45		-	479
Disposals		(10)	-		-		-		-	(10)
Transfers		(98)	-		47		51		-	-
31 October		2,027	98		86		96		-	2,307
Charge for the year	616		218		71		89		-	994
Impairment	67		188		-		-		-	255
31 October 2022	2,710		504		157		185		-	3,556
Net Book Value
1 November 2020	515		423		-		-		-	938
31 October 2021	1,211		605		113		340		-	2,269
31 October 2022		2,263		199	161	253		406		3,282

 

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

 

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Raw materials	173	453
Work in progress	-	208
Provision	(130)	-
Inventory	43	661

 

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

 

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Accounts receivable	142	299
VAT receivables	401	229
Other receivables	303	154
Prepayments	314	333
	1,160	1,015

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

 

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Cash at bank	285	119
Bank deposits	39,935	55,256
	40,220	55,375

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

 

Year ended 31 October 2022 £000s		Year ended 31 October 2021 £000s
Current liabilities:
Trade payables	445	353
Deferred revenue	1,600	214
Other payables	349	144
Accruals	1,250	985
	3,644	1,696

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.