TIDMVLS
RNS Number : 9407Z
Velocys PLC
18 May 2023
News release
Velocys plc
("Velocys" or "the Company")
18 May 2023
Unaudited Preliminary R esults for the year ended 31 December
202 2
Creating a Platform for Growth with the Achievement of Key
Milestones
Velocys, the sustainable fuels technology company, is pleased to
announce its un audited preliminary results for the year ended 31
December 202 2 ("FY22 " ). During 2022, Velocys saw the achievement
of a number of key milestones which put the Company in a strong
position to continue with the commercialisation phase of its growth
strategy.
202 2 Financial Highlights
-- Revenue of GBP0.2 million from engineering services (202 1 :
GBP 8 . 3 million from licensing and reactor sales (1) ).
-- Administrative expenses of GBP 16.3 million (202 1 : GBP 13 . 3 million).
-- Operating loss of GBP 14.5 million (202 1 : GBP 9 . 0 m illion ).
-- Net loss of GBP13.2 million (2021: GBP8.4 million)
-- Net assets of GBP 16 .7 million at 31 December 202 2 (202 1 : GBP 29 . 7 million).
-- Net cash at year end of GBP 13 . 4 million (202 1 : GBP 25 . 5 million).
(1) The revenue recognised in FY21 represented the completion of
a multi-year contract to deliver reactors and catalyst to the
Company's first major commercial customer located in the US.
Operational Highlights ( including post period end events)
Business scale-up and delivery
-- Construction completed at the new 52,000 sq. ft. reactor core
manufacturing facility in Columbus, Ohio, with fit-out being
completed during HY1 2023. 15-year lease agreed (commencing in May
2023), with Velocys contributing $2.0 million ( GBP1.7 million) for
construction, with the remaining $8.0 million ( GBP6.7 million)
contributed by the developer.
-- Appointment of new Chief Financial Officer, Senior VP
Business Development and Technology Delivery, and new VP
Engineering together with a number of key technical and engineering
roles.
-- Establishment of a Scientific Advisory Board for catalysis.
-- Provision of technical and engineering services to commercial clients in Europe and Japan.
-- Continued investment in patents protecting the Company's
extensive intellectual property portfolio.
Favourable regulatory developments
-- Landmark US Inflation Reduction Act of 2022 created strong
incentives to accelerate the deployment of sustainable aviation
fuel ("SAF") technologies including by providing tax credits for
every gallon of qualifying SAF produced in the US - based on
lifecycle greenhouse gas emission reduction percentages .
-- UK Government's Net Zero Strategy included developing a
mandate for at least 10% SAF by 2030 and an objective of five
commercial-scale plants to be in construction by 2025. A second
consultation seeking stakeholder views on the detailed design of
the mandate is underway and closes in June 2023.
-- UK Advanced Fuels Fund ("AFF") launched to accelerate
projects through their Front-End Engineering and Design ("FEED")
phase and reaching financial investment decision ("FID") for
construction.
-- The European Commission's ReFuelEU Aviation sustainable air
transport initiative, setting out minimum obligations upon fuel
suppliers to increase the share of SAF in the fuel supplied to
operators at EU airports, gained political agreement in April 2023
and now requires adoption by the European Parliament and the
Council.
Bayou Fuels Project (US)
-- Further optimisation of the Natchez Mississippi plant design
incorporating a biomass boiler and carbon sequestration, enabling
the delivery of industry leading negative carbon intensity SAF.
-- The offtake arrangements secured in 2021, covering 100% of
the SAF to be produced at the plant and important to future
investors into the project, were updated to reflect the I nflation
Reduction Act and subsequent guidance on the details of the tax
credits .
-- Levee construction commenced, a key milestone for insurance
and de-risking of the Natchez site, which is expected to be
completed in Q4 2023.
Altalto Immingham Project (UK)
-- Long term control of the 78-acre Immingham site secured
through a financing arrangement with Foresight Group LLP, with an
option to repurchase in up to 36 months from March 2022.
-- Completion of pre-FEED project milestones supported by the
Green Fuels Green Skies grant awarded in FY21.
-- Award of a grant of up to GBP27.0 million under the AFF to
deliver the FEED phase of the project. The matched funding
requirement of GBP27.0 million included letters of intent from
existing and new partners, and Velocys (post year-end) plans to
launch project financing with the support of a leading global
investment bank to raise the balance of development capital
required for this project phase, which runs to March 2025.
e-Alto Project
-- GBP2.5 million grant awarded under the AFF competition to
support a new e-fuels project. E-fuels, also referred to as third
generation SAF, are produced from CO (2) (point source or direct
air capture) as their main carbon source.
Post period end events
-- Velocys entered into a Master Relationship Agreement ("MRA")
and Altalto Immingham FEED contract with Bechtel Limited, one of
the world's most respected engineering companies. The MRA and FEED
contract, instrumental in delivering the next important milestones
for the Bayou Fuels and Altalto Immingham reference projects,
include the objective of developing a viable engineering,
procurement and construction ("EPC") execution model for
sustainable fuel plants.
-- Velocys has appointed a leading global investment bank to
assist with, and advise on, the delivery of development capital
into the two reference projects.
-- The Company has today announced the launch of a fundraise
comprising a placing, retail offer, open offer, a conditional
issuance of convertible loan notes to Carbon Direct Capital and
potential further issuances of convertible loan notes and/or new
ordinary shares to investors other than Carbon Direct Capital . The
fundraise aims to raise a minimum of GBP32 million (before
expenses), of which the placing, retail offer and open offer are
expected to raise approximately GBP8 million (before expenses). An
accelerated bookbuild process for the placing is expected to raise
a minimum of approximately GBP6 million (before expenses), with the
result of the placing expected to be announced on 19 May 2023 and
the process scheduled to complete on 9 June 2023, provided the
necessary approvals from the Company's shareholders are obtained at
a General Meeting of the Company's shareholders expected to be held
on 8 June 2023. The retail offer and open offer are for up to
GBP0.5 million and GBP2.0 million respectively.
Henrik Wareborn, CEO of Velocys, said:
"This has been a transformational year for Velocys, during which
we have put in place key operational building blocks which will
enable us to move towards full commercialisation. We have achieved
key milestones at both our US and UK reference projects, supported
by top tier partners and policy incentives. We are engaged in
scaling up the business to meet client requirements, with the
appointment of key finance and business development personnel. And
we are highly encouraged by the favourable legislative developments
in both the US and the UK, which provide strong financial and
political support for the production of SAF.
"We have today announced a placing, retail offer and open offer,
supported by the conditional commitment from a leading carbon tech
investor, Carbon Direct Capital, to subscribe for convertible loan
notes. This fundraise will provide the capital we need to scale-up
the business and move fully into our commercialisation phase.
"We are very excited about what the future holds for Velocys, as
we continue to lead at the forefront of decarbonising aviation and
helping industry towards a greener and more sustainable
future."
Certain information contained in this announcement would have
constituted inside information (as defined by Article 7 of
Regulation (EU) No 596/2014) prior to its release as part of this
announcement.
For further information, please contact: Velocys
Henrik Wareborn, CEO
Philip Sanderson , CFO
+44 1865 800821
Panmure Gordon (UK) Limited (Nomad and Joint Broker)
Hugh Rich (Corporate Broking)
Emma Earl (Corporate Finance)
John Prior (Corporate Finance)
+44 20 7886 2500
Shore Capital Stockbrokers Limited (Joint Broker)
Henry Willcocks (Corporate Broking)
Toby Gibbs (Corporate Advisory)
James Thomas (Corporate Advisory)
+44 20 7408 4090
Radnor Capital (Investor Relations)
Joshua Cryer
Iain Daly
+44 20 3897 1830
Buchanan (Financial PR)
Helen Tarbet
Simon Compton
+44 7872 604 453
+44 7979 497 324
velocys@buchanan.uk.com
Notes to Editors
Velocys is an LSE-listed, international sustainable fuels
technology company, traded on the AIM, providing customers with a
technology solution to enable the production of negative Carbon
Intensity synthetic, drop-in fuels from a variety of waste
materials. Synthetic fuel is the only commercially available,
permanent alternative to fossil aviation fuels. The Velocys
technology is IP-protected in all major jurisdictions.
Two reference projects (Bayou Fuels, US, and Altalto Immingham ,
UK) are designed to accelerate the adoption and standardise the
Velocys proprietary Fischer Tropsch ( " FT " ) technology with an
integrated end to end solution, including renewable power and
carbon sequestration.
Velocys is enabling commercial scale synthetic fuel production
in response to the clean energy transition, with significant
additional positive air quality impacts.
www.velocys.com
Chairman's Statement
2022, with the airline industry recovering from the impact of
the COVID-19 pandemic, proved to be another extraordinary year.
Inflation rates, including in the UK and US, reached a 40 - year
high, and Russia's
invasion of Ukraine not only inflicted devastation on the
country and its people, but also led to volatility in energy and
financial markets, as well as heightening costs and uncertainty for
businesses around the world.
Nevertheless, the world's focus on mitigating climate change,
setting sustainability goals and support for reducing aviation
emissions has not wavered, and 2022 saw a number of key regulatory
developments which we
were very pleased to see come to fruition after several years
under discussion.
I am pleased that , despite the challenging market conditions ,
Velocys has, once again, delivered on some key milestones. Employee
e ngagement remains high , and we continue to invest for long term
growth in our technology, our people and in our manufacturing
capability. On behalf of the Board, I would like to thank our
employees for their hard work and commitment to the Company. Their
focus and resilience have enabled Velocys to navigate the economic
volatility and finish the year in a good position to move forward
with our techn o logy commercialisation plans.
POLICY DEVELOPMENTS
August saw a critical legislative development in the US when the
Inflation Reduction Act of 2022 ("the Act") was passed into law.
The legislation allocates approximately $369 billion to reducing
greenhouse gas emissions and
incentivises expanded production and use of domestic clean
energy. Sustainable Aviation Fuel ("SAF") tax credits are an
integral part of the Act, together with other incentives and
mechanisms to accelerate the deployment of advanced fuel
technologies, generating non-fossil fuels with a significantly
reduced carbon intensity.
We believe this landmark legislation represents a compelling
model which other governments will seek to follow, in particular in
its focus on total amount of avoided carbon instead of volume of
sustainable fuel supplied, thus prioritising those technologies
which offer routes to negative carbon intensity fuels, such as our
Bayou Fuels reference project.
Whilst the US legislation was pending, the team continued to
enhance the attractiveness of the Bayou Fuels project ahead of
launching third party project funding in 2023. In November we
announced that the Bayou Fuels project had been re-optimised for
maximum decarbonisation , thus setting a new benchmark for carbon
savings with a significantly improved negative carbon intensity
score of -375g CO (2) e/MJ (previously -144g CO (2) e/MJ); abating
the carbon emissions from the equivalent of 1.1 million return
trips from San Francisco to London per annum. The project is now
designed to use renewable energy derived from sustainable biomass
power instead of solar power.
The significant improvement in negative carbon intensity will
allow the Bayou Fuels project to derive the maximum benefit from
the 45z tax credits under the Act. This, combined with the offtake
arrangements already in place with Southwest Airlines and IAG
accounting for in aggregate 100% of the SAF produced, enhances and
derisks the economic profile of the project.
The UK Government's Department for Transport launched its Jet
Zero Strategy, setting out the Government's approach for achieving
net zero aviation by 2050. This included an ambition for a minimum
of five commercial scale SAF plants to be under construction in the
UK by 2025, and a mandate for the equivalent of at least 10% SAF to
be blended into conventional aviation fuel by 2030. Importantly,
the UK mandate is to be expressed in terms of greenhouse gas
reductions, rather than simple volume, which will benefit our
Altalto Immingham reference project due to its ultra-low carbon
intensity.
The strategy launch was followed up with the announcement of a
GBP165 million Advanced Fuels Fund competition providing grants to
support the completion of front-end engineering and development
phase of commercial-scale SAF plants, enabling them to advance to
the stage of being ready for investment decision required for
construction. The Altalto Immingham project , which had already
secured long term control of the Immingham site in North East
Lincolnshire in March 2022 ( for which planning permission has
previously been granted ) , was successful with the largest award
of a grant of up to GBP27 million.
The grant provides approximately 50% of the funding required to
complete the FEED phase by March 2025. With the appointment by
Velocys of a leading international investment bank, the total
matched funding requirement of GBP27 million is expected to be
finalised during the second half of 2023.
Therefore, our strategic priority to advance the two reference
projects as key enablers for showcasing our technology in a
long-term commercial setting has really come together during 2022.
The engagement with Bechtel, one of the most experienced and
respected engineering companies in the world, is a huge vote of
confidence in Velocys' technological capabilities and I look
forward to our collaboration in the years ahead. For our clients,
this provides a scalable deployment model with tangible global
reach.
BOARD CHANGES
We are delighted to have appointed Philip Sanderson as CFO and
executive director of the Company in June 2022. Philip, who brings
over 30 years of international experience in financial and
commercial leadership from Shell plc, has first-hand experience of
large-scale project financing. I would like to acknowledge the
efforts and contributions of our outgoing CFO, Andrew Morris, who
stood down from the Board in June 2022. Andrew has played a key
role in strengthening and consolidating the finance function of the
Company, and the Board is grateful for his service and his
commitment.
SENIOR MANAGEMENT APPOINTMENTS
Andy Bensley joined us in February 2022 as SVP Business
Development and Technology Delivery and is a member of our
management team and based in Oxford. He has 35 years of
international expertise in international oil companies and EPC
contractor organisations.
Darren Sanders joined us in September 2022 as VP Engineering
based in our Houston office. Darren has 30 years of engineering and
construction experience, holding diverse roles with
responsibilities including process design, proposal and business
development, and project management.
SCIENTIFIC ADVISORY BOARD
Reflecting the importance and commitment to our catalysis
expertise developed over the past twenty years, this year the Board
approved the establishment of our first Scientific Advisory Board
("SAB"), chaired by Dawid Duvenhage, VP Catalysis. When
establishing the SAB, the Board ensured that the distinguished
members brought a wide range of experience that will augment our
internal capabilities and ensure we remain at the forefront of
innovation in this field.
LOOKING AHEAD
As set out in the Financial Review, t he Company requires
additional external funding to be in a position to move forward
with our growth plan . We also look forward to transitioning our
reference projects as new investors take them forward and Velocys
focuses on the key role of technology delivery.
O ur commercial and business development function supported by
the engineering team is focused on convert ing the accelerating
number of customer enquiries into viable projects. Through
established strategic alliances with our technology and engineering
partners, we will be able to offer a highly competitive fully
integrated end-to-end solution for converting sustainable
non-fossil feedstocks into SAF.
Despite the excellent operational progress we have made in the
past year to strengthen our organisation, bringing together staff,
manufacturing facilities and our catalysis laboratory into a new
build integrated technology centre in Ohio and increasing our
business development and commercial capability, it would be
inappropriate not to recognise the external headwinds facing the
Company in bringing the two reference projects to FID status. The
continued lack of finalised UK policy support poses specific
challenges for Altalto, whilst the current volatility and weakness
of the global capital markets will make future near-term project
funding rounds more difficult.
We look forward to the conclusion of the U K Government's
consultation process and finalised plans for the policy support
necessary to kick-start a UK based SAF i ndustry, in which Velocys'
t echnology is well positioned to play a significant role. The
Board is confident that the Company, under Henrik Wareborn's
leadership, is well placed to execute our corporate strategy with
the objective to deliver sustainable returns to our
shareholders.
CEO's Statement
Velocys provides a unique technology pathway enabling the
economic production of drop-in sustainable aviation fuel, which can
help to decarbonise the aviation industry without the need for any
aircraft engine modification or change of fuelling systems at
airports.
In addition to delivering environmental improvements as a
cleaner burning fuel, there is also considerable potential to
address national fuel security concerns whereby most countries
without the natural resources to produce fossil fuels can leverage
domestic sustainable feedstocks used for SAF.
With the highly favourable US climate legislation , the
Inflation Reduction Act, implemented in the second half of 2022 and
the launch of the UK G overnment's Advanced Fuels Fund, Velocys'
clients are well positioned to benefit from the regulatory
tailwinds which help underpin the economic viability of advanced
SAF production.
PROGRESS MADE IN 2022
New reactor core manufacturing facility in Ohio
A key focus during the past year was to increase our patented
reactor core manufacturing capacity, through investment in a new
build facility in Columbus, Ohio. Previously, our reactor cores
were produced at a third - party site using our custom-made
equipment with oversight and quality assurance performed by Velocys
personnel. At just over twelve months from site selection, I am
pleased to report that the new 52,000 square foot facility is
constructed, the internal fit-out is largely completed and the
relocation from our existing Columbus facility is well
underway.
The new facility has the capacity to produce 48 cores per year,
sufficient for 12 reactors (the typical requirement for each
client) which will unlock commercial revenues for Velocys' core
business which is technology licensing. Startup and commissioning
of the reactor core manufacturing will take place during the second
half of 2023.
Reference projects
Good progress was made on the Bayou Fuels reference project in
Mississippi, US in preparation for the launch of the Series A
financing for the project to enter the FEED phase. The carbon
intensity of the biorefinery design was optimised through the
provision of renewable power from biomass and carbon sequestration
which significantly enhances the expected financial returns and
takes advantage of the favourable legislative support legislated in
the Inflation Reduction Act. A leading global investment bank has
been engaged to launch the Series A financing in the second half of
2023. Velocys expects external long term capital partners to take
Bayou Fuels into FID and construction upon completion of the FEED
phase while converting Velocys' development capital stake into a
long - term royalty stream from the asset.
In the UK, the Altalto Immingham project also achieved some key
milestones. In March 2022, Velocys secured long term control of the
site by means of a financing arrangement with Foresight Group LLP
with an option to
repurchase. Foresight has a proven track record and history of
investing in energy transition infrastructure.
They have also acquired an option to invest up to GBP100 million
into the asset upon FID. Altalto Ltd has retained the right to
access the land for maintenance and predevelopment activities
associated with its existing planning permission.
In December 2022, Velocys secured the largest grant awarded
under the UK Department for Transport's Advanced Fuels Fund ("AFF")
for up to a maximum of GBP27 million for the Altalto project. The
AFF prioritises first-of-a - kind commercial scale SAF plants that
require additional financial support to reach the construction
stage. The grant funding, which will be distributed over the grant
period through to March 2025, will support Altalto to complete the
FEED stage of the project, which will incorporate the integrated
technology packages of the licensors (including Velocys) and
develop the basis for the Engineering, Procurement and Construction
("EPC") contract. The Company has obtained letters of intent from a
number of existing and new potential partners for the
private-sector matched funding requirement with the first tranche
of funding in place during the first half of 2023.
Velocys also secured a separate grant of GBP2.5 million from the
AFF for the concept development of e-fuels projects (where energy
input is derived from renewable electricity via hydrogen). This
e-fuels grant has been awarded to Velocys to assemble the
technology package for an e-fuels project in the UK, in
collaboration with a number of new and existing partners. E-fuels
technology also require FT synthesis technology for conversion of
hydrogen into liquid sustainable fuels.
Business development and client pipeline
The business development pipeline continues to grow, with a
number of paid feasibility studies underway with both biorefinery
and advanced power-to-liquid developers, as well as a significant
increase in enquiries stimulated by strong policy incentives.
OUTLOOK
Velocys has signed a master relationship agreement ("MRA") and
FEED agreement with Bechtel Limited ("Bechtel"), a leading global
provider of engineering, construction and project management
services, as our SAF project delivery partner to develop a viable
EPC model, a centre of excellence model and to provide project
engineering and other technical services to our clients, thereby
accelerating the commercialisation strategy and significantly
de-risking technology implementation.
Initially the collaboration is focusing on the Altalto Immingham
and the Bayou Fuels reference projects together with the e-Alto
power-to-liquids project in the UK. The MRA also covers other
third-party clients that may be introduced by either Bechtel or
Velocys globally. Under a separate continuing technical services
agreement, Bechtel is providing technical services to support the
development of Velocys' SAF client portfolio.
As detailed in the Financial Review, Velocys has announced a
fundraise which comprises a placing, retail offer and open offer of
the Company's ordinary shares on AIM. The Company has also received
a conditional commitment from Carbon Direct Capital to subscribe
for convertible loan notes which are structured to incentivise a US
secondary listing of the Company, in addition to the current London
listing.
The Board has been considering the merits of a US listing for
some time, given Velocys' long history in the US and major
investments there in assets and capabilities. I believe that a dual
listing will improve our access to capital and liquidity which will
allow us to accelerate our commercial strategy in due course.
We intend to use the net proceeds of the placing, the retail
offer and the open offer for working capital whilst the proposed
additional funding from the convertible loan notes and/or further
issuances of new ordinary shares will allow us to significantly
scale the business to enable commercial delivery. We have a highly
scaleable business model, partnerships with some of the world's
leading technology companies and airlines, and a growing business
development pipeline.
THANK YOU
Our achievements in 2022 would not have been possible without
the dedication, focus and commitment of our employees, and the
support of our shareholders. I also want to personally thank our
Chair, Philip Holland, and the Board for their invaluable support
throughout the year.
Financial Review
During 2022, Velocys achieved a number of key milestones that
put the Company in a strong position to progress the Altalto and
Bayou Fuels reference projects whilst building the commercial
pipeline and having the manufacturing capacity in place to support
it.
We secured long-term control of the Immingham site for the
Altalto reference project through a financing arrangement with
Foresight Group LLP, were successful in our grant applications for
Altalto and e-Alto projects for an aggregate of GBP29.5m and
advanced the Bayou Fuels project to the point of being ready to
launch a Series A funding for the development capital in mid-2023.
The new reactor core manufacturing facility in Ohio has been
completed and the lease commenced in May 2023.
REVENUES AND GROSS PROFIT
The Company recognised revenue of GBP0.2m (2021: GBP8.3m) for
the year ended 31 December 2022. Annual revenues are expected to
remain uneven in the short-term due to the growing but concentrated
number of SAF projects in development whilst the market becomes
more established. The 2022 revenue was in respect of engineering
feasibility services provided during the year whereas the 2021
revenue was mainly the conclusion of a contract with our first
major commercial client, which commenced in 2017, for the supply of
reactors and catalyst, and associated licensing fees to operate the
technology. The Company satisfied the performance obligations
within the contract in June 2021 following expiry of all
contractual obligations and therefore recognised the revenue and
associated cost of goods in 2021. As a result, the gross profit for
the year ended 31 December 2022 was GBP0.2m compared to GBP3.4m in
the previous year.
EXPENSES
Administrative expenses for the year ended 31 December 2022,
which include all company running costs and the costs incurred by
the Company for engineering and project development services
performed for the reference projects increased by 22% to GBP16.3m
(2021: GBP13.3m).
Key components of administrative expenses were employee benefit
expenses of GBP8.2m (2021: GBP6.3m), project engineering and
consultancy costs of GBP3.2m (2021: GBP2.8m), depreciation and
amortisation of GBP1.2m (2021: GBP1.1m) and other corporate running
costs of GBP3.7m (2021: GBP3.1m).
Employee benefit expenses were GBP1.8m higher than in 2021, as
in line with our commercial strategy, the Company has recruited a
number of key leadership positions within the last two years.
Therefore salary and benefit expenses for several employees that
joined the Company part way through 2021, were included for the
full year in 2022 in addition to the new employees hired during the
past year. Including the executive directors, there was an average
of 36 employees during 2022 (2021: 32).
The other main driver of operating expenses are the costs
incurred with our technical support partners for engineering and
related services on the Company's two reference projects. These
totalled GBP3.7m in 2022 (2021: GBP3.7m). The reference projects
are designed to accelerate the adoption of the Company's
technology, and to the extent possible, the Company has secured
co-development funding or applied for government grants available
to support sustainable aviation fuel projects. The majority of
costs incurred for the Altalto project during 2022 were supported
by the Green Fuels Green Skies ("GFGS") grant (for which GBP1.7m is
included in other income). In 2021, GBP0.7m of partner funding
received under the Altalto co-development agreement was offset
against costs. Bayou Fuels development costs are borne wholly by
the Company.
OTHER INCOME
The Company recorded other income for the year ended 31 December
2022 of GBP1.6m which consisted of GBP1.5m of grant income from
GFGS grant awarded to the Altalto project by the UK Department for
Transport in 2021 and a GBP0.1m gain on disposal of assets related
to the relocation of premises in Ohio. Other income in 2021 of
GBP1.0m consisted of GBP0.5m from the forgiveness of a loan awarded
under a US Federal Government stimulus package to support
businesses during the COVID-19 crisis, GBP0.3m from the GFGS grant
and GBP0.2m from the Future Fuels for Flight and Freight ("F4C")
grant also awarded to the Altalto project by the UK Department for
Transport.
OPERATING LOSSES
Operating losses were GBP14.5m (2021: GBP9.0m). The GBP5.5m
increase is due to the higher level of gross profit recognised in
2021 and an increased level of operating activities during
2022.
NET ASSETS AND CASH
The net assets of the Company were GBP16.7m, which is a decrease
of GBP13.0m compared to 2021. As at 31 December 2022, the Company
had cash and cash equivalents of GBP13.4m (2021: GBP25.5m) and
therefore the decrease in net assets is mainly due to the net cash
outflow during the year.
Net cash outflow in 2022 was GBP12.2m, principally being cash
generated from financing activities of GBP8.8m, attributed to
GBP9.75m received from Foresight in March 2022 offset by lease
payments, less GBP8.1m used in investing activities and GBP12.9m
used in operating activities.
The net cash inflow to the Company in 2021 was GBP12.8m,
principally being cash generated from financing activities of
GBP24.1m, attributed to GBP24.6m received net of expenses from the
fundraise completed in December 2021, less GBP3.2m used in
investing activities and GBP8.1m used in operating activities.
The Company continues to carefully manage its underlying cost
base and invests prudently on capital expenditure required to
support its commercial strategy. The Company incurs a proportion of
its expenses in US dollars and has exposure to the US dollar
exchange rate. This is hedged to the extent possible by holding
cash reserves in US dollars.
RULA DEVELOPMENTS (IMMINGHAM) LTD
In December 2021, Altalto Immingham Ltd, a 100% owned subsidiary
of the Company, exercised an option to purchase Rula Developments
(Immingham) Ltd ("RDIL"), a property development company which owns
the site of the proposed Altalto project, near Immingham in North
East Lincolnshire. The total consideration to acquire RDIL
comprised a cash payment of GBP2.5m in December 2021 and a further
deferred consideration amount of GBP7.25m, which was recorded in
current liabilities at 31 December 2021. The value of the net
assets acquired was GBP9.8m and further details are provided in
note 2 of the consolidated financial statements.
In March 2022, the Company signed a sale and purchase agreement
with a subsidiary of Foresight Group LLP ("Foresight") to sell 100%
of its shares held in RDIL. The Company received total
consideration of GBP9.75m which was used to pay the deferred
consideration of GBP7.25m due to the previous owners of RDIL
arising from the purchase in December 2021 described above.
At the same time, the Company entered into a Call Option
agreement with Foresight which enables the Company to re-purchase
the RDIL shares in up to three years from March 2022, therefore, in
substance, maintaining control over the Altalto development site at
Immingham. As a result, the Company has accounted for the Call
Option as a financing arrangement at amortised cost applying the
effective interest method under IFRS 9.
The option agreement includes a quarterly payment to Foresight
of GBP100,000. Further details of the financing arrangement are
provided in note 17 of the consolidated financial statements.
IMPAIRMENT ASSESSMENTS (COMPANY AND THE PARENT COMPANY)
Our impairment testing in relation to the long-term potential of
the Company's in-process technology assets has not identified a
change in circumstances or specific events during 2022, and
therefore no impairment or reversal of previous impairments have
been recorded in respect of the Company's assets in 2022.
The recoverable value is determined by comparing the higher of
the value in use and the fair value less costs of disposal. Given
the early stage of the Company's commercialisation plans, the share
price of the parent Company is deemed the most accurate indicator
of value. The market capitalisation value at 31 December 2022 was
GBP65.7m compared to GBP103.1m at the previous year end, reflective
of the challenging global economic and market conditions depressing
stock market performances across many sectors. The Company's net
assets were GBP17.0m (2021: GBP29.7m), so approximately 26% of the
parent company's market capitalisation value (2021: 29%).
Alongside the share price of the parent Company, management also
review changes in a number of other indicators including:
-- The present value of estimated future net cash flows, using
the Company's internal forecasts.
-- Global demand forecasts for sustainable aviation fuel.
-- Government policy support and commitments for carbon reduction.
-- Potential competing technologies.
-- New commercial arrangements signed during the year.
In November 2021, the Company entered into its first offtake
agreement, with Southwest Airlines ("Southwest"), for two thirds of
the sustainable aviation fuel to be produced at the planned Bayou
Fuels biorefinery project. A memorandum of understanding with
International Consolidated Airlines Group S.A. ("IAG") was also
concluded.
While these two long-dated fuel offtake arrangements provide a
high level of confidence of revenue for the Bayou Fuels project,
which is an important step towards enabling capital financing for
the engineering and construction phases, the Company from this
point will likely retain only a minority interest in the project
entity.
Landing commercial orders for reactors and catalyst, either from
the reference projects or new commercial clients, supported by less
variation in long-term cash flow forecasts and demand schedules,
will be strong indicators that previous impairments of the
Company's in-process technology assets may require reversal.
The parent company, Velocys plc, has both equity investments in
its subsidiaries and loans made to its subsidiaries, which are
compared to their recoverable amount. The impairment assessment for
the equity investments considers their value compared to the parent
company's market capitalisation value. These totalled GBP9.4m at 31
December 2022 (compared to the parent company's market
capitalisation value of GBP65.7m). No impairment indicators were
identified and, as a result, no impairment was recognised (2021:
GBPnil).
The parent company also assessed loans receivable from its
subsidiaries and as a result recorded a provision charge for
expected credit losses ("ECL") of GBP2.2m (2021: GBP2.0m). The
total ECL provision of GBP6.1m at 31 December 2022 (2021: GBP3.9m)
is eliminated on consolidation and therefore is not seen in the
consolidated financial statements.
MATERIAL UNCERTAINTY OVER GOING CONCERN
The Company has been actively preparing for a new corporate
fundraise post year end which takes the form of a placing, retail
offer and open offer of new ordinary shares. In addition, the
Company has agreed to the issuance of convertible loan notes to
Carbon Direct Capital, who has provided a commitment to proceed
provided that the Company is able to raise a minimum of GBP32m
(including from the placing, the retail offer and the open offer
announced on 18 May 2023 and Carbon Direct Capital's existing
conditional convertible loan note commitment for $15m
(GBP12.0m).
The Company plans to achieve this by raising approximately GBP8m
from the placing, retail offer and open offer and the balance from
the issuance of convertible loan notes and/or the issuance of new
ordinary shares to investors. However, as at the date of this
unaudited preliminary announcement, the Company does not have firm
commitments from any additional investors to subscribe for the
convertible loan notes and has set a deadline of 30 September 2023
for completing this part of the fundraise.
At the point of this unaudited preliminary announcement, the
directors have reviewed the non-binding indications for the placing
with the Company's joint brokers and are satisfied that, as a
minimum, the accelerated bookbuild can be expected to generate the
target of GBP6m.
Subject to closing, the placing is conditional on shareholder
approval at a General Meeting scheduled for 8 June 2023. The
directors believe that all resolutions required to execute the
placing will be successfully approved at the general meeting as a
matter of course, with proceeds to be received shortly after.
The directors reviewed the Company's business plan and cash flow
forecasts on the basis that the placing, retail offer and open
offer is approved at the general meeting. These cash resources will
be used to provide working capital and to enable continued work on
the reference projects to the point of reaching key decisions. If
the convertible loan notes are issued, the Company will move
forward with its plans to scale up the organisation to meet its
commercial objectives. In the event that the convertible loan notes
are not issued, the Company would require further funding, in
addition to the GBP8m equity fundraise announced on 18 May 2023, to
be able to continue as a going concern for at least twelve months
from the date of this preliminary announcement.
At the time of this unaudited preliminary announcement, these
conditions indicate the existence of a material uncertainty that
may cast significant doubt on the Company and Velocys plc's ability
to continue as a going concern.
The unaudited preliminary announcement does not include any
adjustments that would arise if the Company and Velocys plc were
unable to continue as a going concern.
Consolidated income statement
for the year ended 31 December 2022
2022 2021
Note GBP'000 GBP'000
Revenue 3 241 8,283
Cost of sales (87) (4,881)
============================ ==== ========== =========
Gross profit 154 3,402
Administrative expenses 4 (16,263) (13,331)
Other income 6 1,624 956
============================ ==== ========== =========
Operating loss (14,485) (8,973)
Finance income 7 1,359 34
Finance costs 8 (828) (551)
============================ ==== ========== =========
Net finance costs 531 (517)
============================ ==== ========== =========
Loss before income tax (13,954) (9,490)
Income tax credit 755 1,049
============================ ==== ========== =========
Loss for the financial
year attributable to the
owners of Velocys plc (13,199) (8,441)
============================ ==== ========== =========
Loss per share attributable
to the owners of Velocys
plc
Basic and diluted loss
per share (pence) 9 (0.95) (0.78)
============================ ==== ========== =========
Consolidated statement of comprehensive income
for the year ended 31 December 2022
2022 2021
=================================
GBP'000 GBP'000
================================= ======== =======
Loss for the year (13,199) (8,441)
================================= ======== =======
Items that may be reclassified
to the income
statement in subsequent periods:
Foreign currency translation
differences (412) 113
================================= ======== =======
Total comprehensive expense
for the year
attributable to the owners
of Velocys plc (13,611) (8,328)
================================= ======== =======
Consolidated statement of financial position
as at 31 December 2022
Note 2022 2021
GBP' 000 GBP'000
===================================== ===== ========= =========
Assets
Non-current assets
Property, plant and equipment 10 11,004 11,006
Right-of-use asset 11 399 500
Intangible assets 12 1,524 1,086
===================================== ===== ========= =========
12,927 12,592
===================================== ===== ========= =========
Current assets
Inventories 14 855 767
Trade and other receivables 15 2,586 1,274
Current income tax asset 976 1,100
Cash and cash equivalents 16 13,383 25,506
===================================== ===== ========= =========
17,800 28,647
===================================== ===== ========= =========
Total assets 30,727 41,239
===================================== ===== ========= =========
Liabilities
Non-current liabilities
Provisions 17 (13) -
Lease labilities 11 (51) (189)
Other financial liabilities 18 (9,719) -
Other liabilities (165) -
------------------------------------- ----- --------- ---------
(9,948) (189)
------------------------------------- ----- --------- ---------
Current liabilities
Provisions 17 (216) -
Trade and other payables 19 (2,596) (2,969)
Lease liabilities 11 (375) (397)
Deferred consideration - (7,250)
Other financial liabilities 18 (376) -
Other liabilities (322) (431)
Deferred revenue (206) (326)
===================================== ===== ========= =========
(4,091) (11,373)
===================================== ===== ========= =========
Total liabilities (14,039) (11,562)
===================================== ===== ========= =========
Net assets 16,688 29,677
===================================== ===== ========= =========
Capital and reserves attributable to
owners of Velocys plc
Called up share capital 13,977 13,936
Share premium account 221,141 221,059
Merger reserve 369 369
Share-based payments reserve 3,137 2,638
Foreign exchange reserve 2,739 3,151
Accumulated losses (224,675) (211,476)
===================================== ===== ========= =========
Total equity 16,688 29,677
===================================== ===== ========= =========
Consolidated statement of changes in equity
for the year ended 31 December 2022
Called Share
up Share based Foreign
share premium Merger payment exchange Accumulated
capital account reserve reserve reserve losses Total equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============== ============= ============= ================== ============= ============= ============= ===================
Balance at 1
January 2021 10,642 199,701 369 16,345 3,038 (217,035) 13,060
--------------- ------------- ------------- ------------------ ------------- ------------- ------------- -------------------
Loss for the
year - - - - - - (8,441) (8,441)
Other
comprehensive
expense
Foreign
currency
translation
differences - - - - 113 - 113
=============== ============= ============= ================== ============= ============= ============= ===================
Total
comprehensive
expense - - - - 113 (8,441) (8,328)
=============== ============= ============= ================== ============= ============= ============= ===================
Transactions
with owners
Share-based
payments -
value
of
employee
services - - - 293 - - 293
Transfer from
share-based
payments
reserve - - - (14,000) - 14,000 -
Net proceeds
from share
issues 3,278 21,326 - - - - 24,604
Proceeds from
options
exercised 16 32 - - - - 48
--------------- ------------- ------------- ------------------ ------------- ------------- ------------- -------------------
Total
transactions
with
owners 3,294 21,358 - (13,707) - 14,000 24,945
=============== ============= ============= ================== ============= ============= ============= ===================
Balance at 31
December
2021 13,936 221,059 369 2,638 3,151 (211,476) 29,677
=============== ============= ============= ================== ============= ============= ============= ===================
Balance at 1
January 2022 13,936 221,059 369 2,638 3,151 (211,476) 29,677
--------------- ------------- ------------- ------------------ ------------- ------------- ------------- -------------------
Loss for the
year - - - - - (13,199) (13,199)
Other
comprehensive
expense
Foreign
currency
translation
differences - - - - (412) - (412)
--------------- ------------- ------------- ------------------ ------------- ------------- ------------- -------------------
Total
comprehensive
expense - - - - (412) (13,199) (13,611)
=============== ============= ============= ================== ============= ============= ============= ===================
Transactions
with owners
Share-based
payments -
value
of
employee
services - - - 499 - - 499
Proceeds from
options
exercised 41 82 - - - - 123
=============== ============= ============= ================== ============= ============= ============= ===================
Total
transactions
with
owners 41 82 - 499 - - 622
=============== ============= ============= ================== ============= ============= ============= ===================
Balance at 31
December
2022 13,977 221,141 369 3,137 2,739 (224,675) 16,688
=============== ============= ============= ================== ============= ============= ============= ===================
Consolidated statement of cash flows
for the year ended 31 December 2022
2022 2021
GBP'000 GBP'000
Note
=================================================== ====== ========= =========
Cash flows from operating activities
Operating loss (14,485) (8,973)
Depreciation and amortisation 1,194 1,084
Profit on sale of property, plant and equipment (113) -
Impairment of inventory - 118
Share-based payments 499 293
FX not related to cash 647 -
Changes in working capital (excluding the
effects of exchange differences on consolidation)
Trade and other receivables (1,312) 4,908
Trade and other payables (373) 2,037
Other liabilities 285 (566)
Deferred revenue (120) (7,830)
Inventory - 85
=================================================== ====== ========= =========
Cash consumed by operations (13,778) (8,844)
Tax credits received 879 759
=================================================== ====== ========= =========
Net cash used in operating activities (12,899) (8,085)
=================================================== ====== ========= =========
Cash flows from investing activities
Proceeds from sale of property, plant and
equipment 113 -
Purchase of property, plant and equipment (7,759) (2,730)
Purchase of intangible assets (539) (518)
Interest received 83 34
=================================================== ====== ========= =========
Net cash used in investing activities (8,102) (3,214)
=================================================== ====== ========= =========
Cash flows from financing activities
Proceeds from issues of shares - 26,222
Costs of issuing shares - (1,618)
Proceeds from issue of share options 123 48
Principal elements of lease payments (611) (485)
Interest paid (828) (116)
Proceeds from borrowings 9,750 -
Financing interest/option fees 345 -
Net cash generated from financing activities 8,779 24,051
=================================================== ====== ========= =========
Net (decrease)/increase in cash and cash
equivalents (12,222) 12,752
Cash and cash equivalents at beginning of
year 16 25,506 13,051
Exchange movements on cash and cash equivalents 99 (297)
=================================================== ====== ========= =========
Cash and cash equivalents at end of year 16 13,383 25,506
=================================================== ====== ========= =========
Notes to the consolidated financial statements
1. ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these unaudited preliminary consolidated financial statements are
summarised below. The policies have been consistently applied to
each year presented unless otherwise stated.
Basis of preparation
In accordance with the Companies Act 2006, these unaudited
preliminary consolidated financial statements have been prepared
and approved by the Directors in accordance with UK adopted
international accounting standards.
The financial information for the year ended 31 December 2021
does not constitute statutory financial statements as defined in
section 434 of the Companies Act 2006. A copy of the statutory
accounts for that year has been delivered to the Registrar of
Companies. The independent auditors' report on the full financial
statements for the year ended 31 December 2021 was unqualified and
did not contain an emphasis of matter paragraph or any statement
under section 498 of the Companies Act 2006.
This preliminary announcement does not constitute the Company's
full financial statements for the year ended 31 December 2022. The
Company's full financial statements will be approved by the Board
and reported on by the Company's auditors subsequently in May 2023.
Accordingly, the financial information for 2022 is presented
unaudited in this preliminary announcement.
The financial statements have been prepared under the historical
cost convention as modified by the revaluation of financial assets
and liabilities at fair value, where relevant. No such adjustments
to financial assets or liabilities were required in 2022 or
2021.
The preparation of financial statements to conform to UK adopted
international accounting standards requires the use of certain
critical accounting estimates and the exercise of management's
judgement in the application of the Company's accounting policies.
Areas involving a higher degree of judgement or complexity, and
areas where assumptions and estimates are significant to the
financial statements are set out in the relevant note below.
Going concern
Based on the Company's latest forecast and cash flow projections
approved by the Board, additional and imminent funding is required
at the date of approving these unaudited preliminary consolidated
financial statements in order for the Company to continue as a
going concern. As at the date of approving these unaudited
preliminary consolidated financial statements, the Company has cash
reserves of GBP5.3m including GBP0.5m of restricted cash, which is
sufficient to operate the Company for approximately 8 weeks.
The Company's main source of new funds has been by undertaking a
capital raise on AIM, with the last fundraise being completed in
December 2021. The Company has been actively preparing for a new
corporate fundraise post year end which takes the form of a
placing, retail offer and open offer of new ordinary shares, and
opens concurrent with the release of these unaudited preliminary
results. In addition, the Company has agreed to the issuance of
convertible loan notes of $15m (approximately GBP12.0m) to Carbon
Direct Capital, who has provided a commitment to proceed provided
that the Company is able to raise a minimum of GBP32m (including
from the placing, the retail offer and the open offer equity raise
announced on 18 May 2023 and the existing conditional convertible
loan note commitment for GBP12.0m).
The Company plans to achieve this by raising approximately GBP8
million from the placing, retail offer and open offer, referred to
above, and the balance from the issuance of convertible loan notes
and/or the new ordinary shares to investors. However, as at the
date of this preliminary announcement, the Company does not have
firm commitments from any additional investors to subscribe for
convertible loan notes and has set a deadline of 30 September 2023
for completing this part of the fundraise.
At the point of this preliminary announcement, the directors
have reviewed the non-binding indications for the placing announced
on 18 May 2023 with the Company's joint brokers and are satisfied
that, as a minimum, the accelerated bookbuild process will generate
the target of GBP6 million.
Subject to closing, the placing is conditional on shareholder
approval at a General Meeting scheduled for 8 June 2023. The
directors believe that all resolutions required to execute the
placing will be successfully approved at the general meeting as a
matter of course, with proceeds to be received shortly after.
The directors reviewed the Company's business plan and cash flow
forecasts on the basis that the placing, retail offer and open
offer is approved at the general meeting. These cash resources will
be used to provide working capital and to enable continued work on
the reference projects to the point of reaching key decisions. If
the convertible loan notes are issued, the Company will move
forward with its plans to scale up the organisation to meet its
commercial objectives. In the event that the convertible loan notes
are not issued, the Company would require further funding, in
addition to the GBP8 million equity fundraise announced on 18 May
2023, to be able to continue as a going concern for at least twelve
months from the date of this preliminary announcement.
At the time of this unaudited preliminary announcement, these
conditions indicate the existence of a material uncertainty that
may cast significant doubt on the Company and Velocys plc's ability
to continue as a going concern.
The unaudited preliminary announcement does not include any
adjustments that would arise if the Company and Velocys plc were
unable to continue as a going concern.
Changes in accounting policies
New accounting standards adopted by the Company
The Company has not applied any new accounting standards during
the year ended 31 December 2022 or 2021.
New accounting standards in issue but not yet effective
At the date of authorisation of these consolidated financial
statements, several new, but not yet effective, Standards and
amendments to existing Standards and Interpretations have been
published by the IASB or IFRIC. None of these Standards or
amendments to existing Standards have been adopted early by the
Company and no Interpretations have been issued that are applicable
and need to be taken into consideration by the Company at either
reporting date.
Management anticipates that all relevant pronouncements will be
adopted for the first period beginning on or after the effective
date of the pronouncement. New Standards, amendments and
Interpretations not adopted in the current year have not been
disclosed as they are not expected to have a material impact on the
Company's consolidated financial statements.
Significant accounting policies
Consolidation - subsidiaries
The acquisition method of accounting is used to account for the
acquisition of subsidiaries in the Company. The cost of an
acquisition is measured as the fair value of the assets acquired,
equity instruments issued and liabilities incurred. Directly
attributable costs are expensed to the income statement.
Identifiable assets acquired and liabilities assumed in a business
combination are measured initially at their fair value at the
acquisition date, irrespective of the extent of any minority
interest. The excess of the cost of acquisition over the fair value
of the acquiring company's share of the identifiable net assets
acquired is recorded as goodwill. If the cost of acquisition is
less than the fair value of the net assets of the subsidiary
acquired, the difference is
recognised in the income statement. Acquired subsidiaries are
consolidated from the date on which control of the subsidiary is
transferred to the Company.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the
Company.
Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of Velocys
plc's subsidiaries are measured using the currency of the primary
economic environment in which the entity operates (the "functional
currency"). The consolidated financial statements are presented in
pounds sterling (GBP). It should be noted that the functional
currency for Velocys plc is pounds sterling as Velocys plc is
traded on the AIM market and is head quartered in the UK. Currently
all new equity based fund raises are completed in the UK and made
in GBP.
Transactions and balances
Foreign currency transactions are booked in the functional
currency of the entity at the exchange rates ruling at the dates of
the transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at
year- end exchange rates of monetary assets and liabilities
denominated in foreign currencies are included in the Income
statement. Foreign exchange gains and losses that relate to
borrowings and cash and cash equivalents are presented in the
Income statement within Finance income or Finance costs.
The net investment that Velocys plc has in its subsidiary
undertakings is its interest in the net assets of that
subsidiary.
Entities within Velocys
The results and financial position of all Velocys entities that
have a functional currency different from the presentation currency
(none of which is of a hyper-inflationary economy) are translated
into the presentation currency as follows:
(i) assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet;
(ii) income and expenses for each income statement are
translated at average exchange rates; and
(iii) all resulting exchange differences are recognised as a
movement within other comprehensive income.
On consolidation, exchange differences arising from the
translation of the net investment in foreign operations are taken
to shareholders' equity. Goodwill and fair value adjustments
arising on the acquisition of a foreign entity are treated as
assets and liabilities of the foreign entity and translated at the
closing rate.
Other significant accounting policies
Other significant accounting policies are included in the note
to which they apply.
2. ACQUISITION OF RULA DEVELOPMENTS (IMMIMGHAM) LTD
On 22 December 2021, the Company acquired 100% of the share
capital of Rula Developments (Immingham) Ltd ("RDIL"). RDIL is a UK
based property development company which owns land in Immingham, UK
on which Velocys plans to develop the Altalto waste to sustainable
fuels biorefinery. The consideration comprised a GBP2.5m cash
payment and deferred consideration of GBP7.25m which was paid by 31
March 2022.
As at 31 December 2021, the Company was actively seeking to sell
the entire share capital of RDIL to a third party in order to fund
the deferred consideration. Following the reporting period end, in
March 2022, RDIL was sold to a subsidiary of Foresight Group LLP,
with a call option to repurchase RDIL within three years. The RDIL
assets have been presented in the consolidated financial statements
as non-current assets because the existence of the call option
means control of the asset does not pass to the purchaser of the
RDIL shares and will therefore remain on the consolidated balance
sheet during the three-year option period. Below are the critical
estimates and judgements made in determining the appropriate
accounting treatment of the acquisition.
Critical accounting estimates and judgements
In assessing whether the acquisition of RDIL constitutes a
business combination or the acquisition of an asset, management
considered the optional concentration test set out in IFRS 3. This
test is a simplified assessment of whether what has been acquired
is a business with assets and liabilities to process those assets,
or simply a collection of assets. It poses the question of whether
substantially all of the fair value of the gross assets acquired is
concentrated in a single asset or group of similar assets, or
not.
Based on a detailed analysis of the assets acquired, the Company
decided that substantially all of the fair value of RDIL's assets
was concentrated in a single asset, namely the development site at
Immingham. Therefore, the Company is required to account for the
acquisition as an asset purchase and allocate the total costs of
the acquisition (including acquisition expenses) to the assets and
liabilities according to their respective fair values.
Acquisition cost and allocation of assets
The total cost of the asset acquisition was as follows:
GBP'000
Cash paid 2,483
Deferred consideration 7,250
Acquisition expenses (legal fees etc) 88
--------------------------------------- -------
Total purchase consideration 9,821
--------------------------------------- -------
The financing arrangement set out in note 18 enabled the Company
to settle the deferred consideration due, in March 2022.
The assets and liabilities recognised as a result of the
acquisition are as follows:
Book value Adjustment Fair value
GBP'000 GBP'000 GBP'000
Cash and cash equivalents 1 - 1
Property, plant and equipment -
development land 541 9,279 9,820
Trade and other receivables 1 - 1
Trade and other payables (1) - (1)
----------------------------------- ----------- ----------- ----------------
Net assets acquired 542 9,279 9,821
----------------------------------- ----------- ----------- ----------------
Appropriate valuation of the deferred consideration
The acquisition of RDIL included deferred consideration of
GBP7.25m. The exact amount was settled in March 2022, and therefore
management consider that this value at 31 December 2021 is
appropriate.
3. REVENUE
The Company generates revenue through contracts in which it (i)
sells Fischer-Tropsch ("FT") reactors, (ii) sells FT catalyst,
(iii) provides licence agreements and (iv) performs engineering
services. In general, contracts with the Company provide a licence
agreement for the use of its intellectual property associated with
the catalyst and reactors both of which have been specifically
designed and over which the Company holds a significant number of
patents. The majority of the Company's revenue is derived from a
small number of significant commercial customers and development
partners.
Revenue is recognised when the Company satisfies a performance
obligation by transferring promised goods or services to a
customer. The sales income related to sales of reactors and
catalyst will be recognised as the performance obligations are
satisfied. Revenue from engineering services is earned on a time
and materials basis and is recognised as the work is performed
provided that it does not relate to the sale of equipment and
therefore is bound by the performance obligations of that sale.
If the entity is providing a single performance obligation in
the form of an integrated set of activities, each contract is
assessed to determine if it meets the criteria for recognition over
time. This would require the contract to either transfer control of
the combined output over time or for the entity to have an
enforceable right of payment for the performance completed to date
for activities that do not create an asset with alternative
use.
One contract that was signed in 2018 with reactor and catalyst
deliveries completed in 2020 was either subject to a performance
test run in 2021 or the performance obligations expired under the
terms of the contract in 2021 if the test was not completed. This
has been assessed as a combined performance obligation and it was
determined in 2021 that the above criteria have now been met. As
such, all consideration received has been recognised as revenue in
that year.
Critical estimates and judgements
Determining whether the goods or services provided are
considered distinct performance obligations from the supply of
equipment can require significant judgment. The Company's
agreements, in some instances, could have a single performance
obligation, which would result in the deferral of revenue until the
performance obligation is satisfied. This is the case when the
entity promises an integrated package of goods and services and
where the customer is receiving a combined output (for example, an
engineering service that results in operational technology at a
particular site). In other instances, there will be no integration
service and each good or service will be considered separately.
When there are multiple performance obligations, revenue from
goods or services is allocated to the respective performance
obligations based on relative stand alone selling prices and is
recognised as the performance obligations are satisfied. Revenue
from goods or services is measured as the amount of consideration
expected to be received in exchange for the goods and services
delivered.
2022 2021
GBP'000 GBP'000
================================================== ======== ========
FT reactor, catalyst and licence (recognised at a
point in time) - 8,132
Engineering services (recognised over time) 241 151
================================================== ======== ========
Total 241 8,283
================================================== ======== ========
FT reactor, catalyst and licence revenue in the amount of
GBP8,132,000 for the year ended 31 December 2021 consisted
principally of the sale or reactor and catalyst to a customer in
the US, which had previously been deferred.
Revenue from engineering services was recognised on a time and
materials basis during the period in which the services were
delivered.
4. ADMINISTRATIVE EXPENSES
2022 2021
GBP'000 GBP'000
============================================== ======== ========
Employee benefit expense (note 5) 8,155 6,310
Project engineering and consultancy costs 3,171 2,799
Facilities and administrative costs 1,071 1,257
Patents and IP related costs 349 193
Insurance 629 536
Legal and professional services 1,338 971
Travel 356 181
Depreciation of property, plant and equipment
(note 10) 478 453
Depreciation of right-of-use asset (note 11) 542 459
Amortisation of intangible assets (note 12) 174 172
Total administrative expenses 16,263 13,331
============================================== ======== ========
Included in administrative expenses were research and
development costs of GBP2,440,000 (2021: GBP2,122,000)
5. EMPLOYEE BENEFIT EXPENSE
Short-term employee benefits
Accruals are included to reflect the cost of short-term
compensation to employees for absences such as paid leave.
Pensions
The Company operates various defined contribution pension
schemes for its employees. The Company has no legal or constructive
obligations to pay further contributions if the fund does not hold
sufficient assets to pay all employees the benefit derived from the
current and prior periods. The amount charged to the Consolidated
income statement in respect of pension costs and other
post-retirement benefits represents the contributions payable in
the year. Differences between contributions payable and
contributions actually paid are accrued. The Company has no further
payment obligations once the contributions have been paid. As at 31
December 2022 the total amount accrued was GBP39,000 (2021:
GBP23,000)
The average monthly number of Company employees (including
Executive Directors) was as follows.
2022 2021
number number
=========================== ======= =======
Technical and engineering 19 17
General and administration 17 15
=========================== ======= =======
Total average headcount 36 32
=========================== ======= =======
Their aggregate remuneration comprised the following items.
2022 2021
GBP'000 GBP'000
================================================ ======== ========
Wages and salaries 6,180 4,783
Short-term non-monetary benefits 649 491
Social security contributions and similar taxes 514 616
Defined contribution pension costs 313 330
Severance expense 90 -
Share-based payments granted to directors and
employees 499 293
================================================ ======== ========
Total remuneration before reclassification of
wages and salaries 8,245 6,513
================================================ ======== ========
Reclassification of wages and salaries (90) (203)
================================================ ======== ========
Total remuneration 8,155 6,310
================================================ ======== ========
Wages and salaries for the year ended 31 December 2022 include
discretionary bonuses payable in 2023 to executive directors and
employees totalling GBP1,237,000 (2021: GBP1,052,000) in respect of
2022 performance.
Short term non-monetary benefits are in respect of health
insurance benefits provided to employees and the amounts paid for
workers compensation policies in respect of US based employees.
The reclassification of wages and salaries relates to employees
who provide engineering services to customers.
6. OTHER INCOME
Other income consists of items such as government grants, sales
of property, plant and equipment and any other operating income
recognised outside of commercial activities.
Income from government grants is recognised only when there is
reasonable assurance that (a) the Company has complied with any
conditions attached to the grant and (b) the grant will be
received. The grant income recognised in 2022 was in respect of the
UK Department for Transport's ("DfT") Green, Fuels, Green Skies
("GFGS") initiative. In the year ended 31 December 2021, the grant
income comprised GBP523,000 from a US Federal Government stimulus
package to support businesses during the COVID-19 crisis,
GBP233,000 from the GFGS grant and GBP200,000 from the Future Fuels
for Flight and Freight, also awarded by the UK DfT.
2022 2021
GBP'000 GBP'000
Income from government grants 1,511 956
Profit on sale of property, plant and equipment 113 -
------------------------------------------------ -------- --------
Total 1,624 956
------------------------------------------------ -------- --------
7. FINANCE INCOME
2022 2021
GBP'000 GBP'000
Interest income on bank deposits 39 2
Interest income on customer late payments 44 32
Foreign exchange gains 1,276 -
------------------------------------------ -------- -----------
Total 1,359 34
------------------------------------------ -------- -----------
8. FINANCE COSTS
2022 2021
GBP'000 GBP'000
======================================== ======== ========
Interest on lease liabilities 64 116
Interest on other financial liabilities 764 -
Foreign exchange losses - 435
======================================== ======== ========
Total 828 551
======================================== ======== ========
9. BASIC AND DILUTED LOSS PER SHARE
The basic loss per share is calculated by dividing the loss
attributable to owners of the parent company by the weighted
average number of ordinary shares in issue during the year.
2022 2021
=========================================== ========= =========
Loss attributable to owners of Velocys
plc (GBP'000) (13,199) (8,441)
Weighted average number of ordinary shares
in issue ('000) 1,395,967 1,078,827
=========================================== ========= =========
Basic and diluted loss per share (pence) (0.95) (0.78)
=========================================== ========= =========
Diluted loss per share is calculated by adjusting the weighted
average number of shares in issue to assume conversion of all
potential dilutive shares. Share options have not been included in
the number of shares used for the purpose of calculating diluted
loss per share since these would be anti-dilutive for the period
presented. At the end of 2022 and 2021 there were no other
potentially dilutive instruments.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at historical cost, net
of depreciation and any provision for impairment. Cost includes the
original purchase price of the asset and the costs attributable to
bringing the asset to working condition for its intended use.
Depreciation is provided on all property, plant and equipment at
rates calculated to write off the cost, less estimated residual
value, of each asset on a straight-line basis over its expected
useful life, which for plant and machinery is three to ten years.
No depreciation is provided on land or assets under construction.
Residual values and useful lives are reviewed annually. Values are
estimated using benchmark prices at the balance sheet date; useful
lives are estimated based on management expectations of future
project requirements and operational assessment of the state of
assets.
Assets are reviewed for impairment annually and also whenever
events or changes in circumstances indicate their carrying value
may not be recoverable. To the extent the carrying value exceeds
the recoverable amount, the difference is recorded as an expense in
the Income statement. The recoverable amount used for impairment
testing is the higher of the value in use and fair value less costs
of disposal. For the purpose of impairment testing, assets are
generally tested individually or at a CGU level, which represents
the lowest level for which there are separately identifiable cash
inflows, which are largely independent of cash inflows from other
assets or groups of assets. Property, plant and equipment were
included in the list of items to which an impairment was considered
but nothing applied subsequent to the impairment review.
An impairment loss in respect of property, plant and equipment
would be reversed if the subsequent increase in recoverable amount
can be related objectively to an event occurring after the loss was
recognised, or if there has been a change in the estimate used to
determine the recoverable amount. A loss is reversed only to the
extent that the assets carrying amount does not exceed that which
would have been determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
Expenditure funded by research partners is only recognsied where
there are no significant rights acquired by the third party over
the asset and the asset has a clear enduring use beyond the
specific funding project, these are regularly reviewed.
Assets under Plant and
construction Land machinery Total
202 2 GBP'000 GBP'000 GBP'000 GBP'000
============================= ============= ======= ========== =======
Cost
At 1 January 202 2 - 11,049 9,181 20,230
Additions 46 - 463 509
Disposals - (1,370) (8) (1,378)
Foreign exchange - 141 1,037 1,178
============================= ============= ======= ========== =======
At 31 December 202 2 46 9,820 10,673 20,539
============================= ============= ======= ========== =======
Accumulated depreciation and
impairment
At 1 January 202 2 - 1,081 8,143 9,224
Charge for the year - - 478 478
Disposals - (1,205) (8) (1,213)
Foreign exchange - 124 922 1,046
============================= ============= ======= ========== =======
At 31 December 202 2 - - 9,535 9,535
============================= ============= ======= ========== =======
Net book amount
At 31 December 202 2 46 9,820 1,138 11,004
============================= ============= ======= ========== =======
Assets under Plant and
construction Land machinery Total
20 21 GBP'000 GBP'000 GBP'000 GBP'000
============================= ============= ======= ========== =======
Cost
At 1 January 20 21 - 1,221 9,307 10,528
Additions - 9,820 160 9,980
Disposals - - (344) (344)
Foreign exchange - 8 58 66
============================= ============= ======= ========== =======
At 31 December 20 21 - 11,049 9,181 20,230
============================= ============= ======= ========== =======
Accumulated depreciation and
impairment
At 1 January 202 1 - 1,074 7,975 9,049
Charge for the year - - 453 453
Disposals - - (345) (345)
Foreign exchange - 7 60 67
----------------------------- ------------- ------- ---------- -------
At 31 December 202 1 - 1,081 8,143 9,224
============================= ============= ======= ========== =======
Net book amount
At 31 December 20 21 - 9,968 1,038 11,006
============================= ============= ======= ========== =======
The addition of GBP9,820,000 of land is in respect of the
development site at Immingham, UK. Refer to note 2 for further
details.
As at 31 December 2022, the gross carrying amount of fully
depreciated property, plant and equipment still in use was
GBP8,173,000 (2020: GBP7,217,000).
11. RIGHT-OF-USE ASSETS
The Company leases certain building and equipment under
non-cancellable leases with varying lease terms. For these leases,
that convey the right to control the use of an identified asset for
a period of time, the Company recognises, on the Statement of
Financial Position, a 'right-of-use asset' and a lease liability.
These liabilities are measured at the present value of the
remaining lease payments, discounted using the Company's
incremental borrowing rate at the inception of the lease or at any
later lease extension. The incremental borrowing rates used are
estimates and rely on management judgements.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to the Income Statement over the lease
period so as to produce a constant rate of interest on the
remaining balance of each lease at each Reporting date.
To determine the incremental borrowing rate, the Company uses a
build-up approach. This starts with a risk-free interest rate
adjusted for credit risk for leases that do not have recent third
party financing. Adjustments specific to the lease, e.g. term,
country, currency and security, are then made to this risk-free
rate. Interest expense (included in finance costs) was GBP64,000
(2021: GBP116,000). The total cash outflow as a result of leasing
activity was GBP611,000 (2021: GBP588,000).
Lease terms are negotiated on an individual basis, and are with
different lessors. The lease agreements do not impose any
covenants, other than for the security interests of the lessor,
over the leased assets. The assets may not be used as security for
borrowing purposes. Building leases are typically for a fixed
period of time, but some have had their lease terms extended by
agreement with the lessor.
The associated right-of-use assets are initially measured at an
amount equal to the lease liability. Any assessment of the lease
liability, such as at a lease extension, results in an equal
adjustment in the net book value of the associated asset. The
right-of-use assets are depreciated over the lease term on a
straight-line basis and are subject to impairment in accordance
with IAS 36. No impairment was recorded at 31 December 2022 and at
31 December 2021.
Payments relating to short-term leases and to leases of
low-value assets, are recognised as they fall due as an expense in
the Income Statement. Short-term leases are leases with a lease
term of 12 months or less.
The balance sheet presents the following amounts related to
right-of-use assets:
2022 Equipment Buildings Total
Cost GBP'000 GBP'000 GBP'000
========================= ========= ========= ========
At 1 January 2022 162 1,548 1,710
Additions - 394 394
Disposals (181) - (181)
Foreign exchange 19 146 165
========================= ========= ========= ========
At 31 December 2022 - 2,088 2,088
========================= ========= ========= ========
Accumulated depreciation
At 1 January 2022 121 1,089 1,210
Charge for the year 45 497 542
Disposals (180) - (180)
Foreign exchange 14 103 117
========================= ========= ========= ========
At 31 December 2022 - 1,689 1,689
========================= ========= ========= ========
Net book amount
At 31 December 2022 - 399 399
------------------------- --------- --------- --------
Additions and disposals in 2022
During 2022, an equipment storage facility was acquired under a
lease agreement, the Company's Texas office and the Oxford
headquarters had their lease terms extended by 12 months and, as an
equipment lease agreement expired, it was derecognised. In
addition, management decided to recognise specific
dilapidation provisions on the leasehold properties that
resulted in increases in the cost base of those assets.
The long term equipment storage facility new lease resulted in
additional lease commitments, and increase in the right-of-use
costs, of GBP66,000 (2021: GBPnil). The extension of lease terms
for the Texas office and the Oxford headquarters, resulted in net
increases in lease commitments and in the right-of-use costs of
GBP267,000 (2021: GBP316,000).
GBP61,000 of the additions related to the dilapidation costs. Of
the total GBP 229,000 dilapidations costs that were initially
recognised in 2022, GBP168,000 was expensed through the income
statement.
Equipment Buildings Total
2021 GBP'000 GBP'000 GBP'000
Cost
========================= ========= ========= ========
At 1 January 2021 210 1,314 1,524
Additions - 316 316
Disposals (49) (88) (137)
Foreign exchange 1 6 7
========================= ========= ========= ========
At 31 December 2021 162 1,548 1,710
========================= ========= ========= ========
Accumulated depreciation
At 1 January 2021 122 749 871
Charge for the year 44 415 459
Disposals (45) (85) (130)
Foreign exchange - 10 10
========================= ========= ========= ========
At 31 December 2021 121 1,089 1,210
========================= ========= ========= ========
Net book amount
At 31 December 2021 41 459 500
========================= ========= ========= ========
Additions and disposals in 2021
During 2021 the lease terms for the Company's offices in Ohio
and Texas were extended, which resulted in an increase in the
right-of-use assets of GBP316,000.
An extension of the lease term for the Oxford headquarters,
together with a reappraisal of the incremental borrowing rate of
the lease and its remaining term, led to an effective net disposal
in value of this lease of GBP22,000. In addition, there were sundry
adjustments and corrections totalling GBP19,000 resulting in a net
disposal in buildings lease values of GBP3,000.
Various equipment leases expired in 2021 which have been
derecognised. In addition, management's review of the lease assets
resulted in the early derecognition of a further equipment
right-of-use asset. The net effect of derecognising these assets
resulted in a net decrease of GBP4,000.
2022 2021
Analysis of lease liabilities GBP'000 GBP'000
=================================== ======== ========
In one year or less 375 397
In more than one year but not more
than five years 51 189
Present value of lease liabilities 426 586
Current portion 375 397
Non-current portion 51 189
=================================== ======== ========
12. INTANGIBLE ASSETS
Goodwill
Goodwill is stated at cost less impairments. Goodwill is deemed
to have an indefinite life and is tested for impairment at least
annually.
In-process technology
Development costs, where the related expenditure is separately
identifiable and measurable, and management are satisfied as to the
ultimate technical and commercial viability of the project and that
the asset will generate future economic benefit based on all
relevant available information, are recognised as an intangible
asset. Capitalised development costs are carried at cost less
accumulated amortisation and impairment losses. Amortisation is
charged over periods expected to benefit, typically up to 20 years,
commencing with launch of the product. Development costs not
meeting the criteria for capitalisation are expensed as
incurred.
Patents, licences and trademarks
Patents and trademarks are recorded at cost less accumulated
amortisation and impairment losses. Amortisation is charged on a
straight-line basis over a period of 20 years, which is their
estimated useful economic life. Residual values and useful lives
are reviewed annually and adjusted if appropriate.
Software
Purchased software is recorded at cost less accumulated
amortisation and impairment losses. Amortisation is charged on a
straight-line basis over its estimated useful life or its license
period, whichever is the shorter.
Amortisation
The Company amortises intangible assets with a limited useful
life, using a straight-line method, over the following periods:
-- In-process technology: up to 20 years
-- Patents, licences and trademarks: 20 years
-- Software: 2-5 years
Amortisation charges of GBP174,000 for patents, licences and
trademarks are included in administrative expenses (2021:
GBP172,000). There were no amortisation charges recorded in respect
of other classes of intangible assets during the year as the net
book value was GBPnil (2021: GBPnil).
Impairment
Intangible assets are reviewed for impairment annually and
whenever events or changes in circumstances indicate their carrying
value may not be recoverable. To the extent carrying value exceeds
recoverable amount, the difference is recognised as an expense in
the income statement. The recoverable amount used for impairment
testing is the higher of value in use and fair value less costs of
disposal.
Impairment testing is initially performed at the individual
asset level. The impairment test is then performed at the Cash
Generating Unit ("CGU") level whereby the carrying value of each
CGU is compared with its fair value. Should an impairment at a CGU
level be detected, then the impairment is allocated against the CGU
individual assets; initially against any Goodwill then against the
other assets.
A CGU represents the lowest operating structure level for which
there are separately identifiable cash inflows that are largely
independent of other operating units. The Company has one CGU on
the basis that the key end use market is that of sustainable
transport fuels production. At this stage, the sustainable
transport fuels segment represents 100% of the business and
therefore represents the only material segment. Based on
management's judgement, all products and services offered within
the operating segment have similar economic characteristics.
An impairment loss in respect of Goodwill is not reversed. An
impairment loss in respect of other intangible assets is reversed
if the subsequent increase in recoverable amount can be related
objectively to an event occurring after the loss was recognised, or
if there has been a change in the estimate used to determine the
recoverable amount. A loss is reversed only to the extent that the
asset's carrying amount does not exceed that which would have been
determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
For the impairment testing of the single identified CGU, the
Company, the recoverable amount is determined by comparing the
carrying amount of the Company's total net assets with the fair
value of the business, by reference to the value of Velocys plc's
market capitalisation. This approach is followed to also determine
whether any reversal of previous impairments is required.
The analysis performed at 31 December 2022 compared the carrying
amount of GBP1.5m with the value of Velocys plc's equity based on
the AIM-listed shares at this date. This assessment also considered
the operating performance of the Company during 2022 which included
progress on our reference projects. Whilst there was clear evidence
of the Company's progress during 2022, Management also considered
the wider economic environment.
Critical estimates and judgements
In assessing whether there is any indication that an asset may
be impaired or whether a reversal of prior year impairments is
required, the Company considers, as a minimum, a number of
indicators. In 2022, the Company considered:
-- At 31 December 2022, whether the carrying amount of the
Company's net assets was above or below Velocys plc's market
capitalisation;
-- Whether significant increases or decreases in the market price of the assets had occurred;
-- Whether there were significant favourable or adverse changes
in the extent or manner in which the assets are being used; and
-- Whether there were significant favourable or adverse changes
in the global market for sustainable aviation fuel and global
economic factors more generally.
Based on the 2022 analysis, the Company concluded that no
further impairment was required.
As detailed in the accounting policy set out above, the Company
is considered to operate as a single CGU. Whilst the Company's
strategy and biorefinery development plans are clearly defined,
Management considers that it is still too early to rely upon its
revenue forecasts for long-term discounted cash flow analysis.
Consequently, the CGU's recoverable amount has been determined
based on its fair value less costs of disposal (fair value), by
reference to the total value of the parent company's equity based
on the AIM-listed shares of the parent company, consistent with the
impairment assessment performed in previous years.
Management also concluded that at 31 December 2022 there were
insufficient indicators that impairment losses previously
recognised had reversed. This was despite the market capitalisation
exceeding the carrying amount of the Company's net assets, as the
Board concluded that the Company's current commercial position,
without any significant new customer contracts or additional
investors into the reference projects outweighed the other positive
aspects considered.
Patents,
In-process licence
Goodwill technology and trademarks Software Total
2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- ------------ ---------------- --------- --------
Cost
At 1 January 2022 7,398 23,681 2,491 101 33,671
Additions - - 522 17 539
Disposals - - (514) - (514)
Foreign exchange - - 113 1 114
------------------------- --------- ------------ ---------------- --------- --------
At 31 December 2022 7,398 23,681 2,612 119 33,810
------------------------- --------- ------------ ---------------- --------- --------
Accumulated amortisation -
and impairment
At 1 January 2022 7,398 23,681 1,410 96 32,585
Charge for the year - - 174 - 174
Disposals - - (514) - (514)
Foreign exchange - - 41 - 41
------------------------- --------- ------------ ---------------- --------- --------
At 31 December 2022 7,398 23,681 1,111 96 32,286
------------------------- --------- ------------ ---------------- --------- --------
Net book amount
At 31 December 2022 - - 1,501 23 1,524
------------------------- --------- ------------ ---------------- --------- --------
Note
Disposals represent renewal fees relating to patents no longer
being capitalised.
Patents,
In-process licence
Goodwill technology and trademarks Software Total
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- ------------ ---------------- --------- --------
Cost
At 1 January 2021 7,398 23,681 1,971 96 33,146
Additions - - 513 5 518
Foreign exchange movement - - 7 - 7
-------------------------- --------- ------------ ---------------- --------- --------
At 31 December 2021 7,398 23,681 2,491 101 33,671
-------------------------- --------- ------------ ---------------- --------- --------
Accumulated amortisation
and impairment
At 1 January 2021 7,398 23,681 1,231 96 32,406
Charge for the year - - 172 - 172
Foreign exchange movement - - 7 - 7
-------------------------- --------- ------------ ---------------- --------- --------
At 31 December 2021 7,398 23,681 1,410 96 32,585
-------------------------- --------- ------------ ---------------- --------- --------
Net book amount
At 31 December 2021 - - 1,081 5 1,086
-------------------------- --------- ------------ ---------------- --------- --------
13. COMMITMENTS AND CONTINGENCIES
(a) Commitments
Commitments are not held on the Company's balance sheet as these
are executory arrangements that relate to amounts the Company is
contractually required to pay in the future as long as the other
party meets its contractual obligations.
The Company has committed to making a total contribution of
GBP1,776,000 towards the construction costs of a new leasehold
building in Ohio which will house the Company's manufacturing and
technical facilities which commenced construction in 2022 and is
expected to be completed in the first half of 2023. The Company has
already made stage payments of GBP897,000 in the year ended 31
December 2022, and further stage payments totalling GBP879,000 are
due over the remaining construction period upon specific milestones
being completed. The Company has provided a letter of credit in
respect of this commitment, with cash provided as collateral, and
therefore has presented this amount as restricted cash as at 31
December 2022. As stage payments are made, the cash collateral is
reduced by an equivalent amount.
The Company has also paid deposits to suppliers of GBP1,127,000
for property, plant and equipment comprising long lead-time
manufacturing and catalysis laboratory equipment in the year ended
31 December 2022, with commitments to make further payments of
GBP2,087,000 during 2023 under these contracts.
Therefore, total capital expenditure contracted for during the
year ended 31 December 2022, but not yet recognised, was as
follows:
2022 2021
GBP'000 GBP'000
=============================== ======= =======
Contribution to new building 879 -
Manufacturing equipment 1,866 -
Catalysis laboratory equipment 221 -
=============================== ======= =======
Total 2,966 -
=============================== ======= =======
(b) Contingent liabilities
The Company had no contingent liabilities at 31 December 2022
(2021: GBPnil).
14. INVENTORIES
Inventories are stated at the lower of cost or net realisable
value less provision for impairment. Cost is determined on a
first-in, first- out basis and includes transport and handling
costs. In the case of manufactured products, cost includes all
direct expenditure including production overheads. Where necessary,
provision is made for obsolete, slow-moving and defective
inventories. Items purchased for use in externally funded research
and development projects are expensed to that contract immediately.
Items held for the Company's own development are also expensed when
acquired. Items purchased for ongoing commercial sale are held in
inventory and expensed when used or sold.
2022 2021
GBP'000 GBP'000
============================== ======== ========
Raw materials and consumables 373 286
Finished goods 482 481
============================== ======== ========
Total 855 767
============================== ======== ========
Raw materials and consumables consist of parts that will be
consumed in the manufacturing of reactors.
As at 31 December 2022, the Company had a total inventory
provision of GBP855,000 (2021: GBP771,000). The Company recorded
GBPnil (2021: GBP118,000) related to slow moving inventory in the
Administrative expenses line of the Consolidated income
statement.
15. TRADE AND OTHER RECEIVABLES
2022 2021
GBP'000 GBP'000
================== ======= =======
Trade receivables - 6
Prepaid costs 2,471 748
Grants receivable - 158
Other receivables 115 362
================== ======= =======
Total 2,586 1,274
================== ======= =======
Prepaid costs at 31 December 2022 include part payments for
manufacturing and catalysis laboratory equipment yet to be
delivered at 31 December 2022 and the contribution to the new
building in Ohio (see note 13).
Trade receivables represent assets that are held for collection
of contractual cash flows and those cash flows represent solely
payments of principal and interest. Trade receivables, in general,
are collected within 45 days of invoice date.
Trade receivables are provided against where there is no
reasonable expectation of recovery. Indicators that there is no
reasonable expectation of recovery include, amongst others, the
failure of a debtor to engage in a repayment plan with the Company,
and a failure to make contractual payments for a period of greater
than 90 days past due.
Impairment losses on trade receivables and contract assets are
presented as net impairment losses within administrative expenses
in the income statement. Subsequent recoveries of amounts
previously written off are credited against the same line item.
The Company applies the IFRS 9 simplified approach to measuring
Expected Credit Loss ("ECL"), which uses a lifetime expected loss
allowance for trade receivables. To measure the ECL, trade
receivables have been grouped based on shared credit risk
characteristics and the days past due. The Company will adjust its
analysis based on the historical credit loss. The Company's
historical credit loss experience may also not be representative of
customer's actual default in the future. As part of the ECL
analysis, it was noted that trade receivables are considered to be
both short term and low credit risk and as such any provision would
be trivial.
There were no Grants receivable as at 31 December 2022. The
value as at 31 December 2021 were in respect of the Green Fuels
Green Skies grant awarded to the Altalto Immingham project.
Other receivables consist of vendor deposits and sales taxes
recoverable.
16. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash in hand, deposits held
at call with banks and other short-term highly liquid investments
with original maturities of three months or less.
2022 2021
GBP'000 GBP'000
================== ======== ========
Unrestricted cash 12,428 25,506
Restricted cash 955 -
------------------ -------- --------
Total 13,383 25,506
================== ======== ========
Restricted cash as at 31 December 2022 relates to the total
undrawn amount of a cash secured letter of credit provided by the
Company as part of its commitment towards the construction costs of
the new leasehold premises (see note 13).
Cash and cash equivalents is denominated in UK sterling, US
dollars and euros as follows.
2022 2021
GBP'000 GBP'000
===================================================== ======== ========
Cash and cash equivalents UK UK sterling denominated 10,202 16,908
US dollar denominated 3,180 8,584
Euro denominated 1 14
===================================================== ======== ========
Total 13,383 25,506
===================================================== ======== ========
17. PROVISIONS
Provisions are recognised when the Company has a present
obligation (legal or constructive) as a result of a past event, and
it is probable that the Company will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
reporting date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the
cash flows estimated to settle the present obligation, its carrying
amount is the net present value of those cash flows (when the
effect of the time value of money is material).
When some or all of the economic benefits required to settle a
provision are expected to be recovered from a third party, a
receivable is recognised as an asset if it is virtually certain
that reimbursement will be received and the amount of the
receivable can be measured reliably.
Restoration provisions
Provisions for the costs to restore leased assets to their
original condition, as required by the terms and conditions of the
lease, are recognised when the obligation is incurred, either at
the commencement date or as a consequence of having used the
underlying asset during a particular period of the lease, at
managements' best estimate of the expenditure that would be
required to restore the assets. Estimates are regularly reviewed
and adjusted as appropriate for new circumstances.
2022 2021
GBP'000 GBP'000
====================== ======== ========
Restoration provision 229 -
====================== ======== ========
Total 229 -
====================== ======== ========
2022 2021
GBP'000 GBP'000
------------ -------- --------
Current 216 -
Non-current 13 -
============ ======== ========
Total 229 -
============ ======== ========
Restoration Total
provision GBP'000
GBP'000
--------------------------------- ----------- --------
As at 1 January 2022 - -
Additional provision in the year 229 229
================================= =========== ========
Total 229 229
================================= =========== ========
The restoration provision is in respect of the Company's leased
premises in Columbus, Ohio, which the Company plans to vacate by
the fourth quarter of 2023. Management have estimated the costs of
restoring the building to the standard required, and in doing so
have made cost estimates where quotes or purchase orders are not
already in place. Whilst it is not possible to identify all
rectification works whilst the building remains in use, management
do not expect the total costs to exceed the estimated
provision.
18. OTHER FINANCIAL LIABILITIES
Other financial liabilities that are not (i) contingent
consideration of an acquirer in a business combination, (ii)
held-for-trading, or (iii) designated as at fair value through
profit and loss, are measured subsequently at amortised cost using
the effective interest method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
(including all fees and points paid or received that form an
integral part or the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the
financial liability or (where appropriate) a shorter period, to the
amortised cost of a financial liability.
Critical accounting judgements and estimates
In March 2022, the Company received GBP9,750,000 from Blackmead
Infrastructure Limited, a subsidiary of Foresight Group LLP
("Foresight") as cash consideration for Foresight's purchase of
100% of the ordinary shares of Rula Developments Immingham Limited
("RDIL").
The Company has determined that the cash consideration of
GBP9,750,000, which enabled the Company to settle the GBP7,250,000
deferred consideration due from the acquisition of RDIL in December
2021 (see note 4), meets the criteria of a financial liability
measured subsequently at amortised cost using the effective
interest method.
The Company signed a Call Option agreement with Foresight which
gives it the right to re-purchase RDIL over a period of up to three
years from the effective date of 23 March 2022. If the option is
exercised on or before the 2(nd) anniversary date, the purchase
price due to Foresight is GBP11,250,000. If the option is exercised
after the 2(nd) anniversary date and before the expiry date, the
purchase price increases to GBP11,750,000. Management's current
expectation is that the full 36 month option period will apply and
therefore the calculation at amortised cost is based on this
scenario.
Quarterly option fees of GBP100,000 are due throughout the
option period. Because the Company maintains significant control
over RDIL's asset, namely the Immingham development site,
throughout the option period, management have assessed that the
most appropriate accounting treatment is to continue recognising
the asset and to account for a financing liability to
Foresight.
Financial liabilities at amortised cost 2022 2021
GBP'000 GBP'000
---------------------------------------- -------- --------
At 1 January - -
Initial fair value recognised 9,750 -
Interest expense 745 -
Payments made (400) -
======================================== ======== ========
As at 31 December 10,095 -
======================================== ======== ========
2022 2021
GBP'000 GBP'000
Current 376 -
Non-current 9,719 -
------------ -------- --------
Total 10,095 -
------------ -------- --------
19. TRADE AND OTHER PAYABLES
2022 2021
GBP'000 GBP'000
=================================== ======= =======
Trade payables 289 593
Other taxation and social security 77 203
Accruals 2,230 2,173
=================================== ======= =======
Total 2,596 2,969
=================================== ======= =======
Due to their short maturity, the fair value of trade and other
payables is not considered to be materially different to their
carrying values, based on discounted cash flows. All trade payables
are due in 60 days or less (2021: 60 days or less).
20. POST FINANCIAL POSITION EVENTS
Master relationship agreement executed with Bechtel Limited
On 25 January 2023 the Company signed a master relationship
agreement with Bechtel Limited setting out a route map for the
parties to collaborate with each other with the objective of
developing an engineering procurement construction (EPC) execution
model for the Company's sustainable fuels projects.
Appointment of financial advisor to support raising finance for
the Altalto Immingham and Bayou Fuels reference projects
In March 2023, following a competitive RFP process, Velocys
announced the appointment of a leading global investment bank to
assist in securing the necessary development capital for the
Company's two reference projects.
Fundraise announced in May 2023
The Company announced its intention to raise a minimum of GBP 32
million in aggregate (before expenses) by way of a conditional
placing together with a retail offer to existing retail
shareholders, an open offer of new ordinary shares to existing
shareholders, a proposed conditional issue of convertible loan
notes to Carbon Direct Capital, and potential further issuances of
convertible loan notes and/or new ordinary shares. The launch of an
accelerated book build process today for a placing is expected to
raise a minimum of GBP6.0 million (before expenses), with the
process scheduled to complete on 9 June 2023, provided the
necessary approvals from the Company's shareholders required are
obtained at a General Meeting of the Company's shareholders
expected on 8 June 2023. The open offer period, for up to a maximum
of GBP 2 .0 million proceeds (before expens es) will also run until
the day before the general meeting. The retail offer is for up to a
maximum of GBP 0 .5 million proceeds (before expens es).
21. STATUTORY INFORMATION
Copies of the 2022 Annual Report and Accounts will be posted or
emailed to shareholders at least 21 days before the Company's
Annual General Meeting and may be obtained, free of charge for one
month from the date of posting, from the registered office of
Velocys plc, Magdalen Centre, Robert Robinson Avenue, The Oxford
Science Park, Oxford, OX4 4GA, UK, as well as from the Company's
website www.velocys.com .
22. ANNUAL GENERAL MEETING
The Annual General Meeting ("AGM") is to be held on 28 June
2023. Notice of the AGM will be dispatched to shareholders with the
Company's 2022 Annual Report and Accounts.
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END
FR EVLFFXELFBBX
(END) Dow Jones Newswires
May 18, 2023 12:39 ET (16:39 GMT)
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