OREANDA-NEWS. April 1, 2016. I initiated the quarterly newsletters following your comments that our corporate communications needed to improve to keep you, the Shareholder, up to speed with where we are and where we plan to be by the end of this year.  Turning now to the key highlights in this past quarter:

Shareholder Offer

We raised 3.6 million, including 1.13 million from Qualifying Shareholders (oversubscribed at 3.8 times) in the prevailing challenging market conditions.  This demonstrates the ongoing strong support we have from our loyal shareholder base, which continues to believe in the opportunities for future success following the progress made by the Company in 2015, in particular on the POWER-UP project in Stade, Germany.

Appointment of NOMAD and Joint Broker

As part of our progress towards commercialisation, Cantor Fitzgerald was appointed as AFC's new NOMAD and Joint Broker.  As mentioned in the RNS (dated 28th January), Cantor Fitzgerald not only provides AFC with an international reach in its broking and research capabilities, but also a credible understanding of the clean energy industry.

AFC Achieves Power Output of 204kW

On the 31st January, we announced that AFC Energy had successfully achieved a total power output of 204kW at its KORE fuel cell power plant in Stade, Germany.  This represented the culmination of an intense and accelerated twelve month fuel cell development programme and provided a number of significant technical "firsts" for the Company.  Most of you will already know that while the nameplate total output of 240kW was not achieved, the majority of the 24 stacks trialled in Stade last January, achieved 10kW or more of power output, which we consider to be a substantial achievement for the Company.

Furthermore, due to our accelerated approach, we acquired a vast quantity of operational data, which has now been fully assessed.  The second generation (Gen 2) of our fuel cell system will incorporate many enhancements to improve the existing design.

As a point of clarification, currently the Stade facility is not operating and as a pilot plant it will be utilised going forward to further test our technology improvements.  Hence, it will only run intermittently in 2016.

Strategic Partnership Agreement with plantIng GmbH

As part of the increased confidence and validation of our technology, we signed a long-term strategic engineering partnership and services agreement with German engineering consultancy plantIng GmbH ("plantIng").  For the past year, plantIng has played an integral part in developing the KORE system with the provision of engineering support and Engineering Procurement Construction Management ("EPCM") services and this new agreement involves a significant investment by plantIng of their time and resources in supporting AFC Energy.

The scope of the agreement includes: assisting AFC with the fuel cell Balance of Plant ("BoP"), so as to generate product/package/costed solutions for optimised designs ranging from 240kW to initially 1MWe hydrogen fuel cell projects; undertaking feasibility studies in conjunction with AFC for commercial fuel cell projects globally.  As I stated at the time (RNS dated 19th February), this agreement marks a new start for the outsourcing of non-core engineering services required for the optimisation of AFC's fuel cell system.

2016 Strategic Milestones and Outcomes

So, finally we come to the 2016 Milestones and Outcomes.  While our 2015 milestones focused on technical and manufacturing developments to support the Stade project, this year we are focusing on three areas:

·   Further optimising the design of our fuel cell stack and BoP

·   Product development of plants ranging from 10kW to 1MW, and

·   Securing value added partnerships with recognised industrial and institutional groups as well as commencing scoping studies and securing contracts for at least two fuel cell projects.

There has been a deliberate departure from last year in that I intentionally did not want to place tight deadlines on specific milestones this year.  By way of explanation, 2015 was about project POWER-UP milestones, which were granular enough to report against on a monthly basis, whereas the 2016 milestones are by their nature strategic, as stated above.  Therefore my intention is to update you on these strategic milestones at least on a quarterly basis.

Of course, in the meantime, we continue to aggressively pursue a number of strategic partnership opportunities and potential commercial projects.

In order to facilitate the acceleration of potential commercial projects, it was decided to design and deploy an entry-level single cartridge 10kW system before the end of this year and deploy our larger systems in 2017. 

The 10kW system provides a lower barrier to a larger scale commercial deal where the prospective partner seeks to "try before you buy" without taking the substantial cost and risk associated with a larger fuel cell system.

Given our push towards early adoption, this seemed a logical decision to make, and also potentially opens up a new market space for AFC.

However, and I would like to be crystal clear on this point, our raison d'?tre, is as a manufacturer of large-scale industrial fuel cells.  This represents the largest sub-sector (stationary fuel cell applications) in a hydrogen economy that is internationally starting to gain momentum.

I remain confident that AFC will achieve its target of 1GW, that is 1,000MW of capacity installed or under development, by 2020.

I thank all shareholders for their support and look forward to the opportunity of meeting you at next month's AGM, updating you on our future progress in the coming months and hope that you will all participate in and benefit from our future successes.

Yours sincerely,

Adam Bond

Chief Executive Officer