H-Power plc (HPOW) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to the AFC Energy plc Investor Update. [Operator Instructions] 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 vote following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to the management team from AFC Energy. Karl, John, good morning.

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 usual disclaimer. By way of an agenda, for those that haven't met us before, we'll give a brief introduction as to who we are. I will talk through what we call the hydrogen dilemma, how we're setting about creating shareholder value, run through the 2 sides of the business, 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 6 months now. I'm a commercial technologist. I've spent a number of years working in technology consultancy before embarking on an executive plc career in around about 2008, where I joined a small-cap AIM-listed business called Elektron. Within 2 years, I was CEO of that group and took it on a bit of a journey, a number of disposals, founding a SaaS business within that, that's called Checkit , which is currently listed on AIM. And in 2019, disposed of myself with a part of that business through a private equity-backed MBO for GBP 105 million, which was significantly greater than market cap of the group at that time. I then joined forces with Karl, who came in as well-known from our private equity sponsor. And then we grew that business over 3.5 years and sold it for GBP 0.25 billion. I've joined the Board of 2 other companies. So I sit on the Board of an AIM-listed company called Volex, and I also chair another AIM business Insig AI. Karl?

Good morning, everyone. Karl Bostock, CFO here at AFC Energy. I've been on Board 2 weeks less than John, so just over 6 months now. Next year, will mark the 20th anniversary of me being in a finance leadership role as CFO. And up to this point, I've 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 last 6 years, and I really look forward to seeing where we take this business.

Okay. So addressing what we call the hydrogen dilemma. As we've probably said before, neither Karl or myself are from this sector. So coming in, 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 that back. So there was a clear identifiable need to resolve those 2 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. So what does the business offer? So there's 2 parts of our business, which 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 6 months. 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 Hy-5 ammonia cracker technology at a disruptive fuel as-a-service price of GBP 10 per kilo, which is substantially below the GBP 40 to GBP 60 that we're currently playing in the U.K. for hydrogen. And I think most importantly, as a business, what we focused on are projects that create shareholder value. So any kind of pet projects, anything in the medium-to-long-term, but it's not going to create shareholder value, we'd stop 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 multiple stages. So firstly, on the cracker side, we announced at the start of June, a JDA with an S&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. 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 Amogy in the U.S. that perpetually raises money, the most recent raise a couple of weeks ago, I think gives it a value of around about USD 650 million, [indiscernible], 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. 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 a joint venture with Industrial Chemicals Group, which is a GBP 0.5 billion 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 portside locations for shipping in the ammonia. Secondly, it gave us a short-term potential to be producing hydrogen in low cost. And when you pull all of that together, we put ourselves in a position where we're confident that, firstly, we've got the cost down on the generators, the GBP 10 per kilo hydrogen. That then gave us the confidence to work with Speedy to offer their customers what we call 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. And as a final point, there's other opportunities that are late stages, which I'll come on to. So as you'll all be aware, we have concluded a successful fundraise, GBP 27.5 million in total. GBP 23 million of that came from -- that's subject to shareholder approval, a large portion of that. GBP 23 million 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. And I think we're extremely pleased with the GBP 4.5 million that we received from retail shareholders. I think last time the offer was for GBP 2 million, and it was oversubscribed to the tune of GBP 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 GBP 5 million 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 7th of August. 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. 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 price, i.e., the market is enormous. So if we take the generator market, firstly, the diesel generator market is an $18 billion market. Diesel generators are lower cost than hydrogen generators, but it's got a GBP 7 -- 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 Europe. In the U.K. alone, there's 20,000 new generators per year, up to that 50 kVA, so up to just over 30-kilowatt size. So in the U.K. alone, there's a market based on a sale price of around about GBP 95,000 to GBP 100,000 per generator. There's a market of over GBP 2 billion. GBP 2 billion, we already have an exclusive partner within Speedy Hire. So the go-to-market strategy is already set. We've proven to ourselves from what I said earlier in terms of the offering of GBP 10 per kilo hydrogen and a revised pricing on our generators that prices the units at cost parity with diesel. So a great opportunity for us in the U.K. 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 U.K. alone. 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 going to file for UL approval, which allows us then to enter the U.S. market, which opens up the U.S. market. So a great opportunity. And in terms of addressable market across those 3 geographies, I just mentioned, there's over GBP 27 billion of market opportunity. And then if we look at the opportunity for hydrogen over the next 20 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 Hy-5s, it'd be the equivalent of over GBP 3 billion of revenue per day and 657,000 Hy-5s. But a point -- the only point I'll really talk through on this slide is the bottom one. So if we look at the updated U.K. government target of just shy of 1.6 million 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 GBP 10 per kilo, that would equate to over GBP 0.75 billion of revenue generated, but that's only equivalent to 480 of our Hy-5 units. So 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 6 to 12 months in the hydrogen economy. So most recently, good old Donald in 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. And also our own government is beginning to get its act together. So announced most recently last month, GBP 0.5 billion fund for hydrogen storage and transport. So why is our ammonia cracking technology so special? And how can we make hydrogen at a disruptive price point? So on the left, you'll see a simple graph that shows the fully loaded cost of electricity for industrial users in the U.K. 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 GBP 15 per kilo. That's just the electrical cost. 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 1 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 find the cost of these, around about $400 per tonne. That converts to a raw material cost of GBP 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. 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 is all the green and blue ammonia coming from, so you'll see here, this is obviously a map of our world and the number of blue and green ammonia plants coming on stream in the next 5 years. And the chart in the top right, which is very difficult to read, that's the cost of green ammonia relative to gray ammonia over the next 25 years as forecast by IRENA. 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. So when we talked at the start around the cost and infrastructure challenges holding back the hydrogen economy, the cost aspect, we just dealt with. We talked about getting comparative costs with diesel. We talked about how we're going to get there. Then it's addressing logistics. So what this illustrates is 2 standard ISO tanks of ammonia at a very low cost, commoditized tanks, you can buy ISO tanks on eBay. You crack that and the output is equivalent to 15 300-kilogram hydrogen tube trailers, which can cost up to $1 million each. There's only around about 90 of them in the U.K. So each one of those trailers needs a truck, needs a driver, has lots of CO2 emissions, and it's only carrying 300 kilos of hydrogen. And a real use case of this is Lower Thames Crossing. So Lower Thames crossing requires 1,200 tonnes of hydrogen per year. That equates to 45 300-kilogram tube trailers to be delivered to site per day, 45 trucks, 45 drivers, 45 lots of CO2 emissions. The other issue with hydrogen is you can't drive it through tunnels. So even needs to go all the way around to the M25 or it needs to go across by boat, a logistical challenge or alternatively, you have 8 Hy-5s, 4 on the north side of the crossing, 4 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? It boils down to 3 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 destroy the fuel cell. 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. You 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 20 minutes. Conventional cracking on a large gigawatt scale takes up to 36 hours to heat up and then has to be run for extended period. We can effectively produce hydrogen on demand. And then in terms of the target markets, so what we currently have is our Gen 2 architecture. This is the architecture that we have in our sites running in Dunsfold. This is the architecture that is going into our Hy-5 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 for that in a couple of slides' time. And then the future architecture, which we are developing for our JDA partner is predominantly for portside ammonia crackers and then ultimately, the hydrogen pipeline filling. So in terms of scale, the Gen 2 architecture is the size of around about a fire extinguisher. The Gen 3 is the size of a wheelie bin. And in terms of output, the Gen 2 in Hy-5 guys produces 500 kilograms of hydrogen per day. The Gen 3 is capable of producing up to 4 tonnes per day. 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 I've had previously that one of the pieces of work that I had to do before I joined was 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 have been down to Dunsfold will have seen, you've been down in the last 12, 18 months. That's been running for over a year. So technology is proven. We're effectively taking the learnings from that, containerizing that to create the Hy-5. 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 going to be producing our own low-cost hydrogen. And in terms of practical use cases for Hy-5, so a single Hy-5 can power up to 80 of our small fuel cells, 25 of our larger ones. It could power 14 hydrogen buses or up to 9 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. 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 run for the life of -- the run time for the amount of material it's going to use. It can't be interrupted. They currently run on very large tanks of propane, which lasts for up to 13 hours, but to come with significant CO2 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 25 minutes. So logistically, it just isn't feasible to run hydrogen. If you look to use ammonia and crack that ammonia and feed that cracked ammonia straight into the burner, you get 2 benefits. So firstly, if it's blended with the propane, you can reduce or derate the burner, so the carbon taxes are significantly lower or you can effectively run on zero emission by using hydrogen. 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. Then on to the fuel cells. So the high-power platform fuel cells, we've currently parked, and we parked them until we can generate hydrogen at GBP 10 a kilo because they're just not economically viable when you're paying GBP 50 to GBP 60 per kilo for fuel unless there's a lot of grants around certain deployments. So the focus has been very much on the medium power platforms, the 30 kW generators that we 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 12, 2.5-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 the 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. And how do we get to that total cost of ownership piece? And 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 service and maintenance cost is significantly lower because we don't have moving parts. The fuel cost is in conjunction with the generator efficiency is a lot lower once we bring online the Hy-5, and that's what gets us to cost parity. If you compare that with our offering of 6, 9 months ago, the total cost was 4.5x 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. 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 1 construction companies gives us those real kind of tailwinds. And I think the point 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. It's a barrier to CapEx investment from large organizations when they're dependent on a fuel source that is subsidized. So from the outset, Karl 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. We manufacture or we've manufactured 20 generators, sold it into our JV, and they are in the process of deploying those generators to their customers. That is a model that we are looking to replicate. I mentioned obviously previously TAMGO. We're currently supporting TAMGO with Extreme H in Riyadh in September, October time. So we're providing a 200-kilowatt unit and support for Extreme H out there in conjunction with TAMGO. And also, once 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 -- targeting in [indiscernible] other jurisdictions. And we're already having discussions in the U.S. And obviously, we've got a long-term relationship for the perpetual hires ACCIONA. And in terms of outlook, I mean, what we wanted to do is really kind of give an indication of the use of the placing proceeds. So we looked initially to raise GBP 20 million. We're expecting perhaps GBP 2 million, GBP 2.5 million 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 4 Hy-5 units manufactured and in the field. And as a reminder, this is GBP 10 per kilo hydrogen. Each one of those units is capable of producing at least GBP 1 million 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. We don't need a huge sprawling footprint for a business of this size. And then in terms of the value creation road map, so the business is focusing on 5 things and 5 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 3 or 4 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 can demonstrate, et cetera, et cetera. And then with the Hy-5, we're running that schedule until the middle of next year before we start to move into prototype trialing. The first couple of units 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 Hy-5 units. The JDA with our S&P 500 partner, we expect that to run until the end of '26 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 finalized the work around 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. 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 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 Karl to run through the interims. As it says there, it's about building a commercially viable business without the need for government subsidy. For Karl 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. And we've also put a reasonable amount of our money into this as well. So we're invested alongside shareholders. We've got skin in the game to make this 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 12 months. The technology has been verified through our S&P 500 partner, ICL have done their own due diligence. Volex 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. 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 2p 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 spend 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, these came out a little bit later than anticipated. The team at Dunsfold did a great job getting these ready, but we chose to release them at 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 or 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 H1 is, there are sort of 2 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 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. So looking at revenue, revenue to date in the first 6 months is only GBP 17,000, which if you look back to FY '24, we finished the year at GBP 4 million. Now if you look deep into the FY '24 results, you will note that each of those generators, the 20 that we sold to the JV cost us GBP 355,000 on a material and labor basis. If we had fulfilled the guidance that was in the market, which is based on 50 generators, essentially, it would have cost us GBP 18 million to generate GBP 10 million of revenue, of which we'd have had to contribute GBP 5 million. So essentially, we would have burned GBP 13 million of cash. And given that our opening cash balance was only GBP 15.4 million, 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. On the R&D side, we've capitalized another GBP 3.1 million 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&D generated GBP 1.5 million in accrued tax -- R&D tax credits. The cash for that won't be received well into FY '26 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 6 months, the business posted a GBP 10.1 million loss, which was up from GBP 8.3 million in the prior year, so a GBP 1.8 million increase. But there are 2 noncash items which are impacting that number. First is the depreciation and amortization, which has increased by GBP 0.75 million over the prior year. GBP 400,000 of that is depreciating the GBP 4.4 million of R&D capitalization that we made in FY '24 and the balance is a full year impact of the GBP 3 million 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 Dunsfold, some of which were bought -- we were quite a lot of product in advance because we've changed the strategy 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 going to be used in the next generation of generator. And at the same time, we've also revalued our 8 finished generators down to what we believe the new market price of those generators are, which is GBP 95,000. So that impacted profit by GBP 2.9 million. So if you adjust back for those 2, essentially, we would be -- we would have posted a loss after tax of GBP 6.5 million versus the GBP 8.3 million from the prior year. The most important thing in our business is cash. So looking at the cash balance, we had GBP 4.3 million 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 costs incurred to deliver the RDR Grant and the R&D tax monies due from the previous financial year of GBP 1.6 million. So essentially, the adjusted number, the way we look at it, we had about GBP 8.5 million. And on the right-hand side, you'll see that the organization spent GBP 11.1 million 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 published that we spent essentially GBP 28 million in the prior year, which is on average GBP 4 million -- sorry, GBP 7 million a quarter. Q1 before we joined, the business spent another GBP 7 million. So Q2, we reduced that burn rate from GBP 7 million to GBP 4 million. And in Q3, we'll reduce that burn rate even further while we reformulated the strategy. So essentially, the first -- the 5 quarters before we joined, we burned GBP 7 million a quarter. And post joining, we've reduced that down to GBP 4 million. So what have we spent the money on? We spent GBP 6.4 million on fixed cost cash burn, which at the interim results, I stated -- sorry, at the full year results, I stated was GBP 1 million. We've spent GBP 2.6 million on R&D, net of grant income. There is GBP 1.7 million due to come in. So essentially, once that's in, the development cost or cash cost in this financial period will be GBP 1 million. We spent GBP 380,000 on CapEx. The largest item was a GBP 290,000 [ vest ] to support the RDR project. And as I said earlier, because of the timing of the delivery of the 28 generators that happened in Q4 of the current financial year, we still have a lot of invoices that we owe suppliers on the books, which in the current year has cost us GBP 1.3 million of cash. And the Chairman, as he stepped into the role between John and Adam took some cost action, which cost GBP 373,000. So overall, GBP 11.1 million. I think the most important thing is, as I just walked through, we are 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. [Operator Instructions] Karl, 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 a 26% discount?

Well, I think you've got to look at firstly, the macro situation. We take a step back. I think it's fair to say and our broker friends won't mind me saying that it's a difficult market out there. It's very difficult to raise money. The expectation was that this would be a difficult raise given the recent history of the business. But ultimately, the market sets the price, not the management. And it was clear that the largest 4 to 5 institutions were looking for a sizable discount. And for what it's worth, that discount was actually talked up or the price was talked up to 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 read these particular ones out. Why do you continually step 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 mergers. But I think it's an interesting one. It's one -- it's difficult to answer because, firstly, I don't recognize that comment in the recent fundraise. I think that's the first point. You can see by the retail offer that we opened up for all retail to participate alongside institutions on the same terms. So that's a second point. And I think a third point is that Karl and I would never stab people at the back, we'd stab in the front. And there was an opportunity, as you'd expect, when the share price was 4p or 5p, 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, would have taken it private at 7p, run the business for 4 or 5 years, taken a 10% suite equity stake and then walked away with GBP 80 million to GBP 100 million, 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 investment view. But I think as a final point, 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 can trade out in a day. This isn't a privately held company where your shares are trapped. So I think that's how I'd answer that one, Mark.

Great. A 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 8 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 like the story. I think there are 1 or 2 “"big names”" in there, which I think we take as a reflection of their view on the strategy and the opportunity. In terms of crossing the threshold, so I think because we've got essentially the shares allocated in 2 portions because of the requirement for general meeting, it will be post that if there's going to be a Tier 1 announcement. 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 1 or 2, it will be close.

Okay. Great. Obviously, you had a roadshow alongside the fundraising question here around, did any institutional investors get any special insights into how the investment return a positive outcome, I guess, to 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 RNS is effectively what is contained in the presentation 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. Question around cash here. When do you expect revenues to start to exceed cash flows? When will we see profitability at AFC?

I'm assuming that should be cash inflows relative to cash outflows because with the best one in the world, we're not going to have 100% gross margin business, which -- 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 earlier questioning, we're conscious of dilution. So we'd rather let raise GBP 20 million at 50p than GBP 10 million at 10p. 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 U.K. We have contracted orders for our Hy-5. And then at that point, the access to capital is somewhat different. I think there's always businesses that are pre-revenue, you often have access to what I call death spirals, so convertibles where you essentially call a payday loan, which are not really the way that certainly in my view, collectively and the Board view that we want this next leg of our journey to be supported by. But once you're looking for growth capital, then a convertible, which obviously doesn't dilute construction the right way. It's expensive, but it doesn't dilute is a way of achieving that kind of growth capital. Equally, with the Hy-5 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. And what that creates is an amount of optionality beyond that of how we fund ourselves.

Great. Will the recent equity raise cover the cost of the initial Hy-5 cracker production?

So I think we've semi covered that in the deck. So the first 4 units are covered in the use of proceeds.

What have you sold to Nifty over the last 6 months? Are you still planning on delivering the fuel cell modules for Niftylift that were due to be delivered at the start of this year? And if so, when?

Okay. So I think 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 Nifty and the GBP 17,000 of revenue that was in the first 6 months was rental income from ACCIONA. And as a business, if we want to be commercially viable, we can't sell [ GBP 10 outs ] for fiber. And ultimately, the opportunity with Niftylift was effectively that. And so we've walked away from that particular opportunity. We've left the door completely open to support Niftylift. 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. Interesting question here. Is AFC an appropriate name still for the business? In the view of recent development, surely all-encompassing trendy name may be more valuable in marketing your brands?