H-Power (LSE:HPOW) — Investor Update

0:00 Good morning, ladies and gentlemen, and welcome to the AFC Energy PLC Investor Update. Throughout this recorded meeting, investors online will be in listen only mode. Questions are encouraged and can be submitted at any time just using the Q and A tab situated on the right hand corner of the screen. Given the significant attendance on today's call, the company will not be in a position to answer every question it receives during the meeting itself. However, we can review those questions submitted today and publish additional responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. I'm sure the company would be most grateful for your participation. I'd now like to hand over to the management team from ASC Energy. Carl, John, good morning. Good morning, Mark. Thank you very much, and good morning, everyone, and thanks for joining us this morning. So we're going to run through a relatively brief deck this morning, and then happy to take questions as we go through. So here's a disclaimer.

0:47 By way of an agenda, for those that haven't met us before, we'll give a brief introduction as to who we are, talk through what we call the hydrogen dilemma, how we're selling about creating shareholder value, run through the two sides of the business,

1:03 give a flavor of the outlook, and then Karl will run through the interim results. So for those that haven't met us before, so my name is John Wilson. I'm the CEO. I've been here just over six months now. I'm a commercial technologist. I've spent a number of years working in technology consultancy before embarking on a executive PLC career in around about 2008, where I joined a small cap aim listed business called Electron. Within two years, I was CEO of that group and took it on a bit of a journey. I know of disposals, founding a SaaS business within that that's called Check It, which is currently listed on AIM. And in 2019, disposed of myself with part of that business through a private equity backed MBO for $105,000,000 which was significantly greater than market cap of the group at that time.

1:56 I then joined forces with Carl, who came in as well known from our private equity sponsor. And then we grew that business over three and a half years and sold it for 250,000,000. I've joined the board of two other companies. So I sat on the board of AIM listed company called Volex, and I also chair another AIM business in SIG AI. Carl. Good morning, everyone. Carl Bostock, the CFO up here at AFC Energy. I've been on board two weeks less than John, so just just over six months now.

2:31 Next year will mark the twentieth anniversary of me being in a finance leadership role as a CFO. And up to this point, I worked solely in private equity backed businesses, which I think, given what we have to achieve at AFC Energy, puts me in a really good spot because it's all about speed of execution. As John said, I've worked alongside him for the, for the last six years, and I really look forward to, seeing where we can take this business.

2:54 Okay. So addressing what we call the hydrogen dilemma. As we've probably said before, neither Carl or myself are from this sector. So coming in, it's there's a clear need to get an understanding of what has been holding back that hydrogen economy. And from the conversations we've had with potential customers and partners such as Speedy Hire, what's absolutely clear is that cost and infrastructure challenges have been holding holding that back. So there was a clear identifiable need to resolve those two issues, and we're supported by having world class technology to meet those challenges. So the solution that we outlined with our results at the end of March was to look to provide an end to end hydrogen solution at cost parity with diesel. If we can get to cost parity, then we have a business that we believe is commercially viable.

3:53 So what does the business offer? So there's two parts of our business, which in in totality provide that end to end solution. So on the left hand side there, we take ammonia molecules. We crack those with our proprietary ammonia cracking technology to produce hydrogen at significantly lower cost than current market rates. We can then take that hydrogen and then convert that to electrons, electrical power through using our fuel cell generator systems. And as I mentioned earlier, end to end, that gives us, from the end of next year, cost parity with diesel. Sorry, the slides are very slow. There we go. So as we mentioned earlier, we've been here for around about six months.

4:38 So what has the business achieved in that time? So we set out our store relatively recently. It's been a fundamental repositioning of the strategy to look to achieve commercial viability in 2026. And we've delivered that through the announcements that we've made over the last few months. So we announced an 85% cost down on the 30 kilowatt fuel cell generators, which will be delivered from the second half of next year. We also launched our H-five ammonia cracker technology, a disruptive fuel as a service price of £10 per kilo, which is substantially below the £40 to £60 that you'll be currently playing in The UK for hydrogen.

5:24 And I think most importantly, as business, what we've focused on are projects that create shareholder value. So any kind of pet projects, anything in the medium to long term that is not going to create shareholder value, we've stopped doing. And so once we look to reposition that strategy and get us to a point where, in totality, we get we believe we could get to that cost parity, it was then a case of looking to deliver the validation of the technology. And we've done that in in multiple stages. So firstly, on the cracker side, we announced at the start of June, a JDA with an S and P 500 industrial company to develop a range of crackers for them. So this is an important milestone for the business because, a, it gives validation of the technology.

6:11 How does it give the validation? Firstly, through the fact that they did their own substantial due diligence. They've looked around the competitive landscape. They've looked at our competitors such as Amagi in The US that perpetually raises money. The most recent raise a couple of weeks ago, I think, gives it a value of around about 650,000,000 US. Sisygy, European competitors, and also Asian competitors, and determined that we are fundamentally well, well ahead of where they are. But in addition to that, as we've overcome challenges they've yet to reach, we've actually patented how we've overcome those challenges. So we've created a protective moat around the IP or around the technology that we have through filing that IP.

6:59 We also announced a strategic partnership with Volex to support the fuel cell growth plans. And then in addition to that, most recently, we announced joint venture with Industrial Chemicals Group, which is a $0.02 $5,000,000,000 turnover, privately held chemicals business to produce and sell our own low cost hydrogen using our cracking technology. And the reason why that's fundamentally important is a, it's a chemical business. They've got access to ammonia. They've got port side locations for shipping in the ammonia. Secondly, it gave us a a short term potential to be producing hydrogen in low cost. And when you pull all of that together, we've put ourselves in a position where we're confident that, firstly, we've got the cost down on the generators, the 10 pound per kilo hydrogen.

7:53 That then gave us the confidence to work with Speedy to offer their customers what we called tomorrow's price today. So we've reset the pricing of our generators. The lease price is the same as the when the new generators come on stream. We are subsidizing the cost of hydrogen to a number of Speedy's customers on a short term basis. And what that has proven to us fundamentally is it's unlocked the market. We've had an overwhelming response and demand for generators. So the enabling of that has been through the delivery of those key objectives.

8:38 And as a final point, there's other opportunities that are late stages, which I'll come on to. So as you all be aware, we have concluded a successful fundraise, 27,500,000 in total. Dollars 23,000,000 of that came from that's subject to shareholder approval, a large portion of that. 23,000,000 of that came from an accelerated book build. That was significantly oversubscribed. I think it's fair to say I don't think I've ever seen any placing announced that people claim hasn't been oversubscribed. But in this instance, it's certainly been the most oversubscribed placing I've been involved in. We had very strong institutional support from new institutions, but also the vast majority of existing institutions that are in that shareholder register to some level.

9:29 And I think we're extremely pleased with the $4,500,000 that we received from retail shareholders. I think last time, the offer was for for 2,000,000, and it was it was oversubscribed to the tune of 2.3 or so million. So what we wanted to do is make sure that there was adequate opportunity for retail shareholders to invest alongside not just ourselves, but also institutions on the same terms. So we're delighted that the majority of that was taken up, and that's why we obviously set the cap at $5,000,000 to ensure we would be able to accommodate those. As I mentioned, there is conditionality on a large portion of that. We're only allowed to issue up to 10% of shares without the general meeting that is occurring on the August 7.

10:22 So what that provides us with is a clear mandate from institutions and also our retail investors to execute the strategy that we've outlined. And what this allows us to do is it gets us to the point where we believe we'll be able to demonstrate the commercial viability of the business by delivering product at a market disruptive price point.

10:50 So why have we set off in that vein? What has really kind of informed the strategy? Well, it's back to the size of the prize. And the prize, I. E, the market is enormous. So if we take the generator market, firstly, the diesel generator market, it's an $18,000,000,000 market. Diesel generators are lower cost than hydrogen generators. But it's got a seven pound sorry, 7% CAGR. If we break that down by units, by geography and focus on AFC's sweet spot, so our 30 kilowatt generators, which were the most sort of abundantly used, certainly, in in Europe. In The UK alone, there's 20,000 new generators per year up to that 50 kVA, so up to just over 30 kilowatt size.

11:44 So in The UK alone, there's a market based on a sell price of around about 95 to 100,000 per generator. There's a market of over 2,000,000,000. 2,000,000,000, we already have an exclusive partner within with SpeedyHire. So the go to to market strategy is already set. We've proven to ourselves, what I said earlier, in terms of the offering of £10 per kilo hydrogen and a revised pricing on our generators that prices the units cost parity with diesel. So a great opportunity for us in The UK alone. So we currently have 0.1% of that market based on the fact we've got 20 generators sold into our joint venture. So a great opportunity in The UK alone.

12:35 We're also targeting MENA. We've announced previously and talked previously about the relationship that's blossoming with Tamgo. And what we are introducing with the new generators is we're we're going to file for UL approval, which allows us then to enter The US market, which opens up The US market. So a great opportunity. And in terms of addressable market across those three geographies, I've just mentioned there's over GBP 27,000,000,000 of market opportunity. And then if we look at the opportunity for hydrogen over the next twenty years or so, it's expected to use is meant to trip between triple and quadruple, an absolutely enormous market. So to put that into monetary terms, if we were to address the entire market in 2030 through our high fives, it'd be equivalent of over 3,000,000,000 of revenue per day and 657,000 high fives. But a point the only point I'll really talked through on this slide is the bottom one. So if we look at the updated UK government target of just shy of 1,600,000 metric tons of hydrogen to be produced by 2030, if we took 5% market share of that, bearing in mind, we've got a price disruptive £10 per kilo, that would equate to over 750,000,000 of revenue generated, but that's only equivalent to 480 of our

14:06 HPOWER So we can we can substantially move the needle in revenue terms without needing significant numbers of units in the field to achieve that. And there's also tailwinds over the last six to twelve months in the in the hydrogen economy. So most recently, good old Donald and his big beautiful bill extending the eligibility of hydrogen production tax credits up to $3 per kilo for projects starting December 27. That's obviously one of the reasons why we are pushing hard to move into that geography and duplicate the type of relationship, the JV relationship that we have with Speedy Hire. The EU continues to invest.

14:52 And also, our own government is beginning to get its act together. So announced most recently, last month, a $05,000,000,000 fund for hydrogen storage and transport.

15:04 So why is our ammonia cracking technology so special? And how can we make hydrogen at a disruptive price point? So on the left on the left, you'll see a simple graph that shows the fully loaded cost of electricity for industrial users in The UK. When I say fully loaded, that includes standing charges. So it's around about 26p per kilowatt. A typical electrolyzer operates with an efficiency of around about 60 kilowatt hours per kilogram. So the cost of electricity alone to produce a kilo of hydrogen in this country through electrolysis is over £15 per kilo. That's just the electrical cost.

15:52 If you compare that with hydrogen made from cracked ammonia, we focus on blue hydrogen, which is what we require for government contracts, certainly tier one construction companies like Balfour Beatty, requires a minimum low carbon hydrogen. Then the cost based on current market rates, ammonia is a traded commodity. You can go on Google and and find the cost of these. Around about $400 per ton, that converts to a raw material cost of £1.70. So we can produce hydrogen from cracked ammonia for 15%, less than 15% of the cost of electrolysis in this country. If we wanted to use green ammonia, yes, it's more expensive, but we're still 25% of the cost of hydrogen produced by electrolysis. That is the competitive advantage we have on pure operational cost terms with electrolyzers.

16:54 If we look at the capital cost, we estimate that the capital cost of a cracker compared with an electrolyzer for similar output is around about 40% of the cost. So we have significant capital cost benefits and operational cost benefits. That's what allows us to get to the price point. And in terms of where's all the green and blue ammonia coming from, so you'll see here, this is obviously a map of our of our world and the number of blue and green ammonia plants coming on stream in the next five years. And the charts in the top right, which is very difficult to read, that's the cost of green ammonia relative to gray ammonia over the next twenty five years as forecast by IRENA.

17:40 And effectively, what it shows, by 2030, the costs start to become coincident. But as per the previous slide, we don't need that to disrupt the market, certainly compared to hydrogen produced via electrolysis.

17:56 So when we talked at the start around the cost and infrastructure challenges holding back the hydrogen economy, the cost aspect we've just dealt with. We talked about getting comparative costs with diesel. We talked about how we're gonna get there. Then it's addressing logistics. So what this illustrates is two standard isotanks of ammonia at a very low cost, commoditize tanks. You can buy isotanks on eBay. You crack that, and the output is equivalent to fifteen three hundred kilogram hydrogen tube trailers, which can cost up to a million dollars each. There's only around about 90 of them in The UK. So each one of those trailers needs a truck, needs a driver, has lots of c o two emissions, and it's only carrying 300 kilos of hydrogen.

18:47 And a real use case of this is is Lower Thames Crossing. So Lower Thames Crossing requires 1,200 tons of hydrogen per year. That equates to forty five three hundred kilogram tube trailers to be delivered to site per day. 45 trucks, 45 drivers, 45 lots of c o two emissions. The other issue with hydrogen is you can't drive it through tunnels, so it even needs to go all the way around to the M 25, or it needs to go across by boat. A logistical challenge. Or alternatively, could have eight high fives, four on the north side of the crossing, four on the south side of the crossing. So it's an opportunity to completely disrupt the market with the technology that we have. And what is so special about that technology?

19:35 It boils down to three parts where we have patent families filed, the novel design, the architecture, and the efficiency. So it's a technology that's easily integrated into larger systems. It operates over a wide pressure range, operates harmoniously with purification technologies. And so we have a patent protected polishing technology that strips away waste gas. So what that allows us to do is fundamentally produce 99.99% pure hydrogen. Typical cracking will have trace ammonia in. We can scrub that away. That waste ammonia, if it were to be pumped into a fuel cell, would would destroy the fuel cell.

20:22 Secondly, it's highly efficient. So it can utilize multiple heat sources, including its own waste heat stream. So what that means is it can operate completely off grid. It need a battery to start it, but then once running, it can run off its own waste heat completely remotely. And a final point, it has very low thermal mass. So what that means is it's very responsive to demand. It can start up within twenty minutes. Conventional cracking on a large gigawatt scale takes up to thirty six hours to heat up and then has to be run for extended periods. We can effectively produce hydrogen on demand.

21:04 And then in terms of the target markets, so what we currently have is our Gen two architecture. This is the architecture that we have in our site running in Dunsford. This is the architecture that is going into our high five units. And the target market for that is refuelers, internal combustion engine conversions, fuel cells and industrial plant conversions, and I'll give a use case of that in a couple of slides' time. And then the future architecture, which we are developing for our JDA partner, is predominantly for port side ammonia crackers and then ultimately for hydrogen pipeline filling. So in terms of scale, the gen two architecture is the size of roundabout fire extinguisher. The gen three is the size of a wheelie bin. And in terms of output, the gen two in in high five guys produces 500 kilograms of hydrogen per day. The Gen three is capable of producing up to four tons per day.

22:04 And the benefit of the technology is that it's proven. And I think I've said before, certainly through a number of meetings that that I've had previously, that one of the pieces of work that I had to do before I joined was, you know, regarding due diligence. We've got a clear steer and understanding of the technology. In nascent technology businesses, it's typically the technology that is the overarching risk. The benefit of this business is that it's been well funded, it's well invested, and the technology is proven. So we have a pilot cracking plant, which is the top left picture, which those of you who've down to would have seen, if you've been down in the last twelve, eighteen months. That's been running for over a year.

22:50 So our technology proven where it's authentically taking the learnings from that, containerizing that to create the high five. We're also, as we announced with the JV with our partners, ICL, we are lifting that cracking plant. We're going to move it to Port Clarence in Middlesbrough, where we're gonna be producing our own low cost hydrogen. And in terms of practical use cases for a high five, so a single high five can power up to 80 of our small fuel cells, 25 of our larger ones. It could power 14 hydrogen buses or up to nine hydrogen trucks. I mentioned earlier about an industry use case, and this is for asphalt production, as it states there. So asphalt production is hugely energy intensive.

23:46 It requires a significant amount of heat to dry a rock and then heat it before it's coated with bitumen. The process needs to to run for the life of the the run time for the amount of material it's gonna use. It can't be interrupted. They currently run on very large tanks of propane, which lasts for up to thirteen hours, but to come with significant c o two emissions, which in turn comes with significant carbon tax taxes on the for the 20 megawatt burner. They've looked to transition to hydrogen, but one of those tube trailers will only last twenty five minutes. So logistically, it just isn't feasible to to run off hydrogen. If you look to use ammonia and crack that ammonia and feed that cracked ammonia straight into the burner, you get two benefits. So firstly, if it's blended with the propane, you can reduce or derate the burner so that the carbon taxes are significantly lower, or you could effectively run on zero emission by by using hydrogen.

24:53 And similar to the work that we've done in establishing the price point we need to hit to achieve cost parity with diesel. We're looking at where we need to be by industry vertical based on a fully loaded basis with carbon taxes. We haven't quite completed that work, but that's a work in progress. So we can get a clear understanding of how we then can displace incumbent technology or incumbent fuels in those vectors. And on to the fuel cells. So the HPOWER PLUTFORM fuel cells, we've currently parked. And we've parked them until we can generate hydrogen at 10 a kilo because they're just not economically viable when you're paying 50 to £60 per kilo for fuel unless there's a lot of grants around certain deployments.

25:47 So the focus has been very much on the medium power platforms, the the 30 k kw generators that we've talked about where we've driven down the cost by 85%. And there's been a number of questions of how we've actually achieved that. And I think in very simplistic terms, we've replaced twelve two and a half kilowatt proprietary air cooled fuel cells for a single off the shelf 30 kilowatt liquid cooled fuel cell, reduce the footprint, reduce the complexity, and significantly reduce the cost. So there's no rocket science in any of that. We've also derisked product from a warranty basis. So the fuel cell comes with a 15,000 hour warranty. We don't have to worry about factoring in the cost of warranty and recall of our own in house developed fuel cell stacks.

26:49 And how do we get to that total cost of ownership piece? So and this is this is effectively where we started from with through the support Speedy Hire, we got a clear understanding of what the total cost of ownership of a generator over its lifetime would be, and we use that as a benchmark and work back from there. The capital cost of diesel generators will always be lower, certainly until we get the economies of scale that drive the cost of that generator down. That said, the price point that's allowed us to take 85% of the cost out is based on 50 units at a time, so not substantial volume. The servicing and maintenance cost is significantly lower because we don't have moving parts.

27:35 The fuel cost is in conjunction with the generator efficiency is a lot lower once we bring online the high five, and that's what gets us to to cost parity. If you compare that with our offering of six, nine months ago, the total cost was four and a half times that of diesel. The world has moved on. The macroeconomic situation has dictated that price is extremely sensitive in the market. That's why it was important to get to a point of cost parity.

28:13 And in terms of the route to market, our predecessors rightly chose the construction industry as a focus and the significant tailwinds and legislative drivers to support that. So HS2 is required to be diesel free by 2028, Lower Thames Crossing from 2027. And that in conjunction with ESG requirements from the shareholders and regulatory bodies for tier one construction companies gives us a you know, gives us those real kind of tailwinds. And I think the point to to really stress here is the point of cost parity for us comes without any need for government subsidy. Government can flip and flop, can remove subsidies.

29:02 It's a barrier to CapEx investment from from large organizations when they're dependent on a fuel source that is subsidized. So from the outset, Carl and I set about working on creating a business model that did not require the government subsidies. And that's how we get to that point of cost parity. In terms of go to market, as most of you will be aware, that is through an exclusive JV that we have with Speedy Hire. They we manufacture we've manufactured 20 generators, sold it into our JV, and they are in process of deploying those generators to their their customers.

29:51 That is a model that we are look looking to replicate. I mentioned, obviously, previously, TAMGO. We're currently supporting TAMGO with Extreme H in in Riyadh in in September, October time. So we're providing a 200 kilowatt unit and support for Extreme H out there in conjunction with with Tamgo. And also, we get closer to having prototype units of the towards the end of the year of the new generators, then we'll be looking in anger targeting in anger other jurisdictions. And we're already having discussions in The US. And, obviously, we've got a a long term relationship for the perpetual hires, Axiona.

30:39 And in terms of outlook, I mean, we wanted to do is really kind of give a indication of the use of the placing proceeds. So we looked initially to to raise 20,000,000. We're expecting perhaps $22,500,000 in a retail offer. We decided to take slightly more than that, firstly, because the retail subscription was significantly higher than we expected. But also, we wanted to give ourselves a little bit more wiggle room, which is why we took 23 from institutions rather than the 20 we stated. And what where that gets us to a point is we'll have four high five units manufactured in the field. And as a reminder, this is 10 pound per kilo hydrogen.

31:27 Each one of those units is capable of producing at least 1,000,000 of annual recurring revenue. We'll also have our first fuel cells with Volex's support in the market. And then the balance is for the factory and payroll overhead costs that we have. And as per the comment on a previous slide, we focus on stripping out non shareholder value added activity. We're also removing non value added costs of closing down sites that aren't used, looking at closing or giving up leases as and when they lapse.

32:14 We don't need a huge sprawling footprint for a business of this size.

32:21 And then in terms of the value creation road map, so the business is focusing on five things and five things alone at this stage. So firstly, in terms of fuel cells, through the back end of this year, we'll be packaging and testing our fuel cells, prototyping them, putting them through approval, which takes a good three or four months, and then we'll be running into production. As it states there, towards the back end of this year into next year, that's when we'll really be looking at geographical expansion. In earnest, we'll have prototype units that we could demonstrate, etcetera, etcetera. And then with the H-five, we're running that schedule until the middle of next year before we start to move into pro site trialing.

33:09 The first couple of units will be will be sending to ICL. So we can actually generate revenue from those units and also do shakedown testing and hopefully look to accelerate that prototyping. And in conjunction with that, that then enables us to move back to looking at the larger generators that suddenly become extremely economically attractive relative to large diesel generators because of the fuel consumption. And then in terms of hydrogen production, that is our JV with ICL. So we're relocating the cracker site, and then we'll be producing hydrogen in earnest. And then as it says, they're deploying our HPOWER PLC units.

33:56 The JDA with our S and P 500 partner, we expect that to run until the end of twenty six before we go into production. Our expectation is, in terms of announcing who that is, we'll be looking to announce who that partner is once we agree the commercial terms. And we can't agree the commercial terms until we've finalized the workaround the cost per molecule of hydrogen that those larger cracker units will produce. So once we've got that, we'll agree the commercial terms, and then we'll announce who they are. The reason they haven't been announced is, firstly, it's at their request, and it's at their request because they are very concerned that one of their competitors will come in and look to buy the business.

34:49 So they want anonymity until they've got certainty around the commercial terms. And finally, we are tentatively working with another partner around a JDA. So there's some preliminary work that is going on regarding that. So those those are the focal points for the business through the period that's outlined there. And just to conclude on this before I hand over to Carl to run through the the interims. As it says there, it's about building a commercially viable business without the need for government subsidy. For Carl and myself, this isn't exactly a case of rinse and repeat, but we've created significant amounts of shareholder value working together, but also working separately.

35:41 And we've also put a reasonable amount of our our money into this as well. So we're invested alongside shareholders. We've got skin in the game to make this a success. That commercially viable business model is initially based upon cost parity with diesel for off grid applications. The technology is proven and validated. So we've got generators in the field. The ammonia cracker site has been running for twelve months. The technology's been verified through our S and P 500 partner. ICL have done their own due diligence. Has done its own due diligence, and, obviously, we have the JV with Speedy Hire. I think the key point here is that the IP creates that protective moat that I mentioned earlier that ensures our competitive advantage.

36:29 In terms of low cost hydrogen production, we are, as far as we're aware, untouchable certainly in this country and in most of Western Europe, where there is no access to electricity at under two to 3p or equivalent per kilowatt. And as a final point, we're focused solely on creating shareholder value. Karl? Okay. So John spent a lot of time looking forward. It feels right that we spent a few minutes looking backwards at the results for the first half. I think a couple of points before we get into the detail. I said at the, full year results that we'd look to publish results, sooner, and apologies for these to come out a little bit later than anticipated.

37:14 The team, Dunsall, did a great job getting these ready, but we chose to release them at the same time of the fund at the the same time of the fundraise because it didn't really feel appropriate to unveil the new strategy without the necessary funds in place. The other thing to note is that none of the work the great achievements that John just mentioned have yet to impact the financials. And, essentially, if you take a step back and look holistically at what h one is, there are there are sort of two things going on really. One is the completion of the red diesel replacement grant, which is a piece of work where we delivered one high powered and one low powered fuel cell into the into the field. And the other is closing out the 28 generator build from the prior year, which happened towards that quarter, which meant a lot of the cash rolled into the current financial year.

38:06 So looking at revenue, revenue today in the first six months is only £17,000, which if you look back to f y twenty four, we finished the year at 4,000,000. Now if you look deep into the f y twenty four results, you'll note that each of those generators, the 20 that we sold to the JV, cost us 355,000 on a material and labor basis. If we had fulfilled the guidance that was in the market, is based on 50 generators, essentially, it would have cost us 18,000,000. She had generate 10,000,000 of revenue, of which we'd have had to contribute 5,000,000. So, essentially, we would have burnt 13,000,000 of cash. And given that our opening cash balance was only 15,400,000, that didn't really seem appropriate. So what we've done, we've chosen not to make revenue in 2025 or FY '25, and we focus the resource our resources on taking the total cost of ownership of our end to end solution down, which John has just walked through.

39:06 On the r and d side, we've capitalized another 3,100,000 of costs. A big chunk of those costs relate to the development work contained within the RDR grant, and that is part funded, by the government. The continuous focus on r and d has generated GBP 1,500,000 in accrued tax r and d tax credits. The cash for that won't be received well into FY twenty six because the trigger is the filing of the FY '25 tax return. And then when you look at the loss after tax for the first six months, the business posted a 10,100,000 loss, which was up from 8,300,000, in the in the prior year, so 1,800,000 increase. But there are two noncash items which are impacting that number.

39:54 First is the depreciation and amortization, which has increased by three quarters of a million over the prior year. 400,000 of that is depreciating the 4,400,000 of R and D capitalization that we made in FY '24, and the balance is a full year impact of the 3,000,000 we spent on CapEx in FY '24. Due to the change of strategy, we have looked at the components that we've got on the shelf back in Dunsford, some of which were bought. We bought quite a lot of product in advance. Because we've changed the strategy and the and the and the makeup, which John just walked through, of the generator, essentially, we decided to take the decision to write off some of the components that are not gonna be used in the next generation generator.

40:41 And at the same time, we've also revalued our eight finished generators down to what we believe the new market price of those generators are, which is 95,000. So that impacted the profits by 2,900,000. So if you adjust back for those two, essentially, we would be we would have posted a loss after tax of GBP 6,500,000 versus the 8,300,000 from the prior year. The most important thing in our business is cash. So looking at the cash balance, we had 4,300,000 at the end of the half year. That number is low because of the timing of when we're receiving grant payments for primarily the RDR grant, a VAT repayment for for costs incurred to deliver the RDR grant, and the r and d tax money is due from the previous financial year of 1,600,000.

41:33 So, essentially, the adjusted number, the way we look at it, we had about 8,500,000. And on the right hand side, you'll see that the organization spent GBP 11,100,000 in the first half. Now I think if you take a step back and think through the cash burn, in FY '24, in the full year results, we've we've published that we spent essentially 28,000,000 in the prior year, which is on average 4,000,000 sorry, 7,000,000 a quarter. Q one, before we joined, the business spent another 7,000,000. So q two, we reduced that burn rate from seven to four, and in q three, we reduced that burn rate even further while we reformulated the strategy. So essentially, the fur the five quarters before, we joined, we burned 7,000,000 a quarter, and post joining, we've reduced that reduced that down to four.

42:24 So what have we spent the money on? We spent 6,400,000 on fixed cost cash burn, which at the, interim results are stated oh, sorry. The full year results are stated was a million. We've spent 2,600,000 on r and d, net of grant income. There is 1,700,000 due to come in. So, essentially, once that's in, the the the development cost or cash cost in this financial period will be a million. We spent 380,000 on CapEx. The largest item was a £290,000 best to support the, RDR project. And as I said earlier, because of the timing of the delivery of the '28 generators that happened in q four of the current financial year, we still had a lot of invoices that we owed to suppliers on the books, which in the current year has cost us 1,300,000 of cash.

43:12 And the chairman, as he stepped into the role between, John and Adam, took just took some cost action, which cost 373,000. So overall, 11,100,000. I think the most important thing is, as I've just walked through, we're well in control of the cash burn now. We definitely have the systems and processes in place to make sure that anything we spend is only spent on shareholder value creation activities. Thank you, Karl. So that concludes the formal part of the presentation. So we'll open it up to questions. That's great, Karl, John. Thank you very much indeed for updating investors. Ladies and gentlemen, please do continue to submit your questions just using the Q and A tab situated on the right hand corner of the screen. Just want the guys to take a few moments to review your questions submitted already. I'd just like to remind you, we're recording this presentation along with a copy of the slides and the published Q and A will be available via your Investor League company dashboard.

44:08 Carl, John, you've received a number of questions ahead of today's presentation and a number throughout today's meeting. So thank you to everybody for your engagement. Well, let's crack on. I suspect you would expect a number of questions around your recent fundraising. First question, why was the share price offer at 10p considered appropriate at 26% discount? Well, I think I think you've got to look at, firstly, the macro situation. We take a step back. I think it's fair to say in our in our broker friends, where mommy is saying that it's a difficult market out there. It's very difficult to to raise money. The expectation was that this would be a difficult raise given the recent history of the business.

44:54 But ultimately, the market sets the price, not the management. And it was clear that the the largest four to five institutions were looking for a sizable discount. And for what it's worth, that discount was actually talked talked up or the price was talked up, so the discount was less. So that's ultimately how the price was arrived at. Great. Thank you very much. Moving on to the next question. I'll read them out as you've asked me to to read these particular ones out. Why do you continually stab your retail investors in the back by rushing through reduced price share offers that only you, at the top of the company, seem to benefit from? That's punchy. So I think the first point to make is I'm assuming that's a metaphorical statement and there hasn't been any attempted murders. But but I think it's it's an interesting one. It's it's one it's it's difficult to answer because, firstly, I don't I don't recognize that comment in the recent fundraise. I think that's the that's the first point.

45:56 You can see by the the retail offer that we opened up for all retail to participate alongside institutions on the the same terms. So that's a a second point. And I think a third point is that, you know, Carl and I would never stab people in the back. We'd stab you in the front. And, you know, there was an opportunity, as you'd expect, when the share price was 4 or 5 p. You know, there was a lot of unsolicited informal approaches from private equity, looking to see if we could be tempted to look to take it private. So if we wanted to stab you in the front or the back, we would have taken it private, seven p, run the business for four or five years, taken a 10% sweet equity stake, then walked away with 80 to 100,000,000.

46:45 But that didn't really seem appropriate given the circumstances. So what we did instead was knuckle down, create a strategy that we believe in, put our own money into it to back ourselves with the aim of rewarding shareholders for that long term that long term investment view. But I think as a final point, for for people that have been in the share a long time, I mean, ultimately, the individual has to take responsibility for their own investment choices. It's not my choice, it's not my predecessor's choice for people to invest. This is a very liquid share for the market cap that we have. So unless you're in the top 30 or 40 shareholders, you you can trade out in a day. This isn't a privately held company where your shares are trapped.

47:32 So I think that's how I'd answer that one, Mark. Great. Thank you. Question here around the share cap table, I guess. Who are the main contributors in the recent share offering? And have any of them obviously crossed the 3% threshold? I assume there'd be an RNS if there was, but I wonder if you could give a bit more color on the question. Yes. So I mean, I think it's fair to say we probably had about eight to 10 new institutions coming in. Some of those have made reasonable returns on businesses I've been involved in previously. Others are completely new and and like the story. I think this there are one or two inverted commas big names in there, which I think we take as a a reflection of their view on on the strategy and and the opportunity. In terms of crossing the threshold, so I think because we've got essentially the shares allocated in two portions because of the requirement for general meeting, It will be post that if there's gonna be a t r one announcement.

48:42 I think that all new institutions and existing institutions with the exception of Henderson that are already have a declared holding, I think they fall beneath that threshold. But with one or two, it will be close. Okay. Great. Thank you. Obviously, you had a road show with alongside the fundraising question here around, did any institutional investors get any special insights into how the investment return a positive outcome, I guess, convince them to buy the place? No. I mean, I think everyone has access to exactly the same information. So everything that went out with the with the RNS is effectively what is contained in the the presentation we've we've just talked through. So nobody has had nobody has been more disadvantaged than others in terms of the information that's available to them. Great. Thank you.

49:35 Question around cash here. When do you expect revenues to start to exceed cash flows? When will we see profit profitability at AFC? I'm I'm assuming that should be cash inflows relative to cash outflows because we with the best world in the world, we're not gonna have a 100% gross margin business, which so so I think, ultimately, all we can do is look to achieve a point in the future when we look to generate cash. So that's what we are positioning the business to do. There's no question of that. And we're also perhaps rather ironically based on the early questioning, we're conscious of dilution. So we'd rather let raise $20,000,000 at 50p than $10,000,000 at 10p.

50:26 So our expectation through the use of these proceeds is we get to a point where we have delivered a business that is commercially viable. What does that mean? We have a strong contracted order book on generators. We've proliferated that JV structure outside of the of The UK. We have contracted orders for our H-five. And then at that point, the the access to capital is somewhat different. I think, you know, there's always businesses that are pre revenue, You often have access to, you know, what I call death spirals. So convertibles, where you essentially call them a payday loan, which which are not really the way that yeah. So in in my view, collectively in the board view, that we, you know, we we want this next leg of our journey to be supported by. But once you're looking for for growth capital, then a convertible, which doesn't dilute its structure in the right way. It's expensive, but it doesn't dilute, is a way of achieving that kind of growth capital. Equally, with the high five units, what we're seeing through early conversations is that there is a likelihood that we'll be able to debt finance these because we're looking at long term hydrogen provision contracts. So the fundraise was to raise the money we needed to get us to the point of commercial viability.

51:52 And what that creates is an amount of optionality beyond that of how we fund ourselves. Great. Thank you. Will the recent equity raise cover the cost of the initial high five cracker production? So I think I think we we semi covered that in the in the deck. So the first four units are covered in the use of proceeds. Thank you. What have you sold to Nifty over the last six months? Are you still planning on delivering the fuel cell modules for Nifty Lift that were due to be delivered at the start of this year? And if so, when? Okay. So I think the the very first IMC we gave, we held in February. We made it clear the priorities for the business, which were the generators and for the cracker. We haven't sold anything to to Nifty. The 17,000 of revenue that was in the first six months was rental income from from Axiona.

52:45 And as a business, if we want to be commercially viable, we can't sell £10 notes for Fiverr. So and and and ultimately, the the opportunity with Nifty Lift was was effectively that. And so we've we've walked away from from that particular opportunity. We've left the door completely open to support Nifty Lift. But as I say, we need to be in a position where when we sell product, we generate cash. We don't give cash away. Great. Thanks. Interesting question here. Is AFC an appropriate name still for the business? In the view of recent developments, surely an all encompassing trendy name made more maybe more valuable in marketing your brands.

53:30 I think you're pushing against an open door. With that one, I think but it's, you know, it's it's the out getting priorities. I think the priority for us was was building a a business model that drives towards that commercial viability. Then it's raising the money to deliver it, and then it's all the trimmings around that to move the business forward. So I think watch this space. Great. Thank you. Can you give us an update on the TAM TAMGO relationship? How many units have we supplied to them? Yeah. So, I mean, we've got a a very good dialer with Tamgo. We've now got a weekly call with Tamgo, as I mentioned earlier. We're supporting them with Extreme H. So we're sending a 200 kilowatt unit, some people, and other stuff over support that in September, October.

54:23 There's there's one unit that we sold to Tango. What we've effectively worked through based on our learnings with Axiona is that the liquid cool units are much more suitable for tango for the very high temperatures. Just like, you know, your an old carburetor air cooled car isn't very good in hot temperatures nor is a nor is a fuel cell. So the next generation of fuel cells will be the the fuel cells involving that go to TAMGO once we kind of crystallize that that JV. Thanks very much indeed. Can you give us an update on the ABB relationship? Sure. Well, there's not much to say. I think they are, I think, a 1.7% shareholder in the business.

55:12 Neither Karl or I have had any dialogue with them. I think their investment was predicated on a specific project around off grid EV charging, and the person that was responsible for that investment left ABB soon afterwards, and the the successor wasn't a fan of hydrogen, I think, from what I understand. But but as I say, we've had no dealings with them whatsoever. Thank you. You've referenced the S and P five hundred partner. When will you announce who that is? As said through the through the presentation, once we've agreed the commercial terms, we've mutually agreed, that's when we will disclose who they are and most likely an overview of what that commercial arrangement is.

55:59 And that hopefully will be in the next six to nine months. Thank you very much. Let's move on to the next question. How will you fund the production scale up for the generator units? More dilution or a variable lease or rental outsourced financing? And what margins would you expect? Well, I think that kind of dovetails into the answer to the kind of previous question about if this is the last raise. So I think once once you've got a contracted order book, you have much more optionality. And, you know, we're extremely conscious of of dilution. Our preference would always be to steer away from dilution if we can get favorable financing terms. In terms of margins, I'm not going to disclose that other than to say it will be a positive margin, not a negative one.

56:51 Thank you. What's happened to the Speedy High contract? And how many units have we supplied to them over the last six months? Okay. So, yeah. So we've got a very good dialogue with Speedy. We have a biweekly business development call. We have a quarterly joint venture board meeting where we talk about the strategy and also the business plan. As you'd expect, based on what Carl's outlined earlier regarding our decision not to make any more units, that essentially that business plan has been paused whilst we determine the the rollout and the and the market demand. And as I mentioned earlier, the fact is that providing tomorrow's price today, we can see it's unlocked the market. This is a massive pipeline that has been built. So we're focusing very hard on building new generators, and we'll be looking at engaging with Speedy around what the version two of that kind of contract looks like in terms of committed volume of units. But in terms of what we've sold in the first six months, we haven't sold any, as we said, in our full year results that we wouldn't be making any.

58:09 Thanks. What is the time scale for packaging the current cracker system? And is there a time scale for developing much larger and possibly marine certified units? Okay. So the the timetable is in the presentation. So I'd refer the the the question originated back to that value creation road map. As I also mentioned, those are the five things that we're focused on. Is is marine a market in the future? It it absolutely is. But I think, you know, the most important thing for any business is to be masters of your own destiny and to control the things that you can control. So we can control cash. To an extent, we can control the development road map that we have, and that's what we're focused on doing.

58:57 Great. Thank you. Obviously, tons of questions, John, Paul, Lindsay, Frederico, thank you all so much for all your questions. Perhaps a good question maybe that we could just finish with you guys on is in terms of expected news flow perhaps moving forward. What important news or announcement should we be watching out for maybe over the next three to six months? So I think it's a good question. Mean so as I mentioned, we would hope to be in a position to announce what version two of that speedy contract looks like. You know, that will come with committed orders, so forecastable revenue. Also, mentioned through that presentation around early discussions around another JDA.

59:44 Hopefully, we'll be in a position to announce that. And also in terms of high fives, the progress that we're making in commercial discussions around around those. That's great. Well, thank you very much to you both for your time this morning. I know investor feedback is important to you guys. I'll shortly redirect those on the call to give you their thoughts and expectations. But before doing so, if I may just come back to you for a couple of closing comments, and then I'll send investors to give you their feedback. Thanks thanks, Mark. And I just wanna say, you know, thank you for everyone for listening. You know, I appreciate there's a number of investors that have been here a long time. It's been a difficult journey, but and I think, you know, for me, the most important thing being a CEO is integrity and authenticity.

1:00:31 I'll say it how it is, and that's effectively what I've done. I mean, we're committed to making this this work. We're doing our very best. There's there's no such thing as certainty. If you want certainty, then go and buy a government bond and help the government doesn't go bust. That's not investment advice. I'm not regulated to give investment advice. But but as I say, we are we're doing everything that we can. We believe in it. We put our own money into it. So I'll leave it there. But if you've anything you wanna say, Carl? No. Thank you. Okay. Thank you very much, everyone. Cheers. Thank you, everyone. That's great. Thank you, Carl, John, for updating investors. Can I please ask investors not to close the session as we'll now automatically redirect you to the opportunity to provide your feedback in order the company can better understand your views and expectations? This will take a few minutes complete. I'm sure you'll be greatly valued by the company.

1:01:17 On behalf of the management team of AFC Energy PLC, we'd like to thank you for attending today's presentation, and