TIDMVLS
RNS Number : 2360Z
Velocys PLC
17 September 2020
News release
Velocys plc
("Velocys" or "the Company")
17 September 2020
Interim results for the six months ended 30 June 2020
Velocys plc (VLS.L), the sustainable fuels technology company,
is pleased to announce its interim results for the six months ended
30 June 2020.
Henrik Wareborn, CEO of Velocys, said:
"During 2020 much has been achieved in delivering the Company's
strategy and advancing towards our objectives of commercial
delivery of our two reference projects in Immingham, UK and
Mississippi, USA, and our technology to our client Red Rock
Biofuels, in Oregon. This has been achieved despite the
restrictions brought on us by the Covid-19 pandemic. Our mitigation
included transferring to working from home at all our three
locations from the earliest stage while maintain ing our
manufacturing operations in the USA, as well as continuing all
engineering work with strong support by Worley , our engineering partner.
W e completed a successful fundraise in July 2020 raising GBP21
million before expenses, which significantly strengthened the
balance sheet of the Company. This allows us to focus on delivery
of our reference projects whilst strengthening our manufacturing
capability further in anticipation of orders from our reference
projects , and our current and new clients.
In the second half of 2020 we remain focused on executing our
strategy. Demand for sustainable fuels has gained significant
momentum this year and we are in the position to deliver the
technology to allow our clients to scale up Sustainable Aviation
Fuel production from sustainable feedstocks , which is essential
for global post - Covid economic recovery. In response, the UK
Government established a newly formed Jet Zero Council and invited
Velocys to become a founding member. I look forward to highlighting
our progress during the rest of the year."
Operational Highlights:
-- Altalto Immingham, UK, plant granted planning permission from
North East Lincolnshire Council.
-- Joint Development Agreement extension with GBP1m further
funding from British Airways and Shell International Petroleum
Company Ltd for the Altalto Immingham waste-to-fuels project.
-- Further GBP0.5 million F4C grant from the UK Department for
Transport secured for the Altalto Immingham project.
-- Worley announced as engineering partner in the development of
engineering packages for all the projects in the Velocys
portfolio.
-- Completed delivery of reactors and catalyst to Red Rock Biofuels in June 2020.
-- GBP578,000 loan awarded by the Small Business Administration
("SBA"), a US Federal Agency, from the Pay-check Protection
Program, as part of the US Government's stimulus package known as
the Coronavirus Aid, Relief and Economic Security (CARES) Act. The
loan is eligible for "forgiveness", becoming non-repayable upon
application by Velocys if used for retaining US employees.
-- Operating loss before exceptional items was reduced by 48% to
GBP2.6 million compared to H1 2019 and was GBP8.4m less than first
half 2018, demonstrating our focus on cost-management and
control.
Financial Highlights:
-- Revenue of GBP180,000 (H1 2019: GBP22,000).
-- Operating loss of GBP 2.6m, with exceptional items of GBP nil
(H1 2019: GBP5.1m loss before exceptional items of GBP 0.5m).
-- Cash* at period end of GBP 816k (31 December 2019: GBP 4.8m).
-- H1 2020 cash outflow of GBP3.2m (H1 2019: cash outflow GBP 5.1m).
-- Fund raise of GBP21m (before expenses) in July 2020 (post-period end).
* Defined as cash, cash equivalents and short-term
investments.
Outlook
-- During the Covid crisis a positive environment for developers
of third-party sustainable fuels projects has become apparent
creating additional demand for our technology and engineering
services.
-- Advancing the Immingham UK project into Front End Engineering
Design (FEED) with our industry partners Shell and British Airways,
and towards financial close in 2022, are key objectives for this
waste to sustainable fuels project.
-- Developing the commercial project for the NEDO/Toyo
Engineering project in Japan, after a successful demonstration of
the integrated technology in Nagoya including the Velocys
Fischer-Tropsch ("FT") reactor, is the next stage in our long
relationship with Toyo Engineering.
-- We have adapted the technology solution for the Bayou Fuels
Mississippi project to increase total fuel production and total
carbon savings, making the project more attractive for additional
third-party financing."
For further information, please contact:
Velocys
Henrik Wareborn, CEO
Andrew Morris, CFO
Lak Siriwardene, Head of Communications & +44 1865 800
Sustainability 821
Numis Securities (Nomad and joint broker)
Stuart Skinner +44 20 7260 1000
Canaccord Genuity (Joint broker)
Henry Fitzgerald-O'Connor
James Asensio +44 20 7523 8000
Radnor Capital Partners (Investor relations)
Joshua Cryer
Iain Daly +44 20 3897 1830
Field Consulting (General PR) +44 20 7096
Robert Jeffery 7730
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.
www.velocys.com
Chairman's Statement
Philip Holland
Having positioned ourselves during 2019 to deliver our
micro-channel FT technology to our customers in the USA and Japan,
we achieved this in the first half of 2020, and are now looking
beyond the current set of projects to deliver to new third parties
in accordance with our capital-light business model. This year has
been extremely busy in delivery of our objectives even with the
restrictions of the Covid-19 virus lockdown.
Covid-19 coronavirus pandemic and continued delivery
During March 2020 both the UK and US Governments implemented a
social distancing policy, meaning we had to close operations at our
offices in Oxford, Houston and Plain City and establish a
work-from-home policy. Even with these restrictions the Toyo
project in Japan was commissioned and has been supported throughout
its campaign trials, which have successfully produced liquid fuels.
Our manufacturing suppliers in both Alabama and Wisconsin have
continued to operate with remote supervision from our manufacturing
team. The final of 4 reactors were completed in June and
subsequently delivered to our customer Red Rock Biofuels. We have
continued furthering the technical scope of work on both the
Altalto Immingham and Mississippi Biorefinery reference projects.
All this has been completed under remote working conditions, and I
would like to thank the team for continuing to deliver on their
objectives during this crisis.
Technical Development work in 2020
We are focused on our reference projects in the UK and the USA
in order to get them to a position of both acceptable capital cost
and a commercial return which will attract further investment
support. The technical work is being completed in cooperation with
our engineering contractor Worley. In addition, we need to conclude
all our licensing arrangements with our licensor partners in the
projects before moving into the FEED phase of the project
development. This is anticipated to be completed by the end of Q2
2021 when the FEED work will begin.
Fundraising
As previously announced the Company successfully raised GBP21
million before expenses through a Placing, Retail Offer and Open
Offer. This enabled all types of shareholder to participate in an
oversubscribed offer. We are extremely pleased to see new
high-quality institutional investors join our shareholder register
and thank all those who participated in this fundraise. The
fundraise enables the management team to concentrate on delivery
and strategy execution, building shareholder value during this
time.
Outlook
The experience of working with the Velocys Board and the senior
team has shown me the hard work that all of them put in throughout
the year under such difficult circumstances during the Covid-19
crisis. It is impressive that the Company has in such a short few
years gone from an R&D focus to commercial delivery success. I
am confident that the team can drive the reference projects forward
whilst also delivering to the third party owned projects at the
same time. We will be pursuing our goal of becoming the provider of
the integrated technology package and the FT island for the
production of sustainable fuels around the world.
Philip Holland
Chairman
Chief Executive's Report
Henrik Wareborn
During the first half of the year we completed the manufacturing
and delivery of three more reactors and associated catalyst to Red
Rock Biofuels in Oregon. We passed a significant milestone with
planning permission being granted for the Altalto Immingham
waste-to-fuels plant in May. This is a first in the UK and
validates the pathway of using our Fischer Tropsch (FT) technology
in combination with waste gasification and associated gas clean-up,
opening up for future similar projects and demand for our FT
conversion technology in the UK and abroad.
O ur small-scale demonstration FT reactor has been commissioned
and is in operation producing liquid fuels at the NEDO project in
Nagoya, Japan. The NEDO project is a demonstration of the
conversion of forestry residue (wood chips) to sustainable aviation
fuel in Japan on behalf of the Japanese Government in order to
secure suitable policy support for the commercial plants to
follow.
Finance
The Company raised GBP21 million before expenses in July 2020
through a Placing, Retail Offer and an Open Offer. I am grateful
for the support by established shareholders as well as new ones,
which has significantly strengthened our balance sheet. We also
secured a further GBP1 million of non-dilutive capital for the
Altalto waste-to-fuels project from British Airways and Shell
supporting the continued technical and commercial development of
the project. In addition, the Altalto Immingham project has been
awarded a grant of GBP0.5 million under the Future Fuels for Flight
and Freight Competition by the UK Government.
During the early stages of the Covid-19 crisis in the USA the
Company successfully applied for the so-called Pay-check Protection
Program loan awarded by the Small Business Administration, a US
Federal Agency of GBP578,000. The Pay-check Protection Program was
part of the Federal stimulus package known as the CARES
(Coronavirus Aid, Relief and Economic Security) Act to offer help
to small businesses in the USA during the Covid-19 crisis. The loan
is eligible for "forgiveness", becoming non-repayable if used for
retaining US employees and maintaining US payroll. The Company is
confident that it will meet the criteria for this "forgiveness" as
we have continued to operate at full capacity in the US during the
pandemic.
W e have demonstrated a significant level of cost control during
this difficult period. This financial discipline has meant that the
operating loss before exceptional items of GBP2.6 million is 48%
less than for the
same period in 2019 and 76% less than for the first half of 2018.
Communications
Other changes made at the end of 2019 have had positive impact
during this year, including the changes to our communications and
investor relations work. With the employment of Lak Siriwardene as
Head of Communications and Sustainability, we have significantly
improved our communication with all our stakeholders. We are using
a multifaceted communication strategy with the utilisation of the
full range of available channels to reach all our constituents.
There remain many challenges for full delivery of our capital
light business model including the continued uncertainty regarding
the pace of recovery from the Covid-19 induced economic crisis.
However, with our recent successful fundraise we are in a strong
position to meet the challenges as they arise with an experienced
team able and confident to deliver our objectives.
Financial review
Revenue
The company recognised revenue of GBP180,000 (H1 2019:
GBP22,000). The revenue was primarily the result of professional
services for, and the delivery of reactor components to, Toyo and
professional services related to on-going reference projects.
Operating losses were GBP2.6m before exceptional items of GBPnil
(H1 2019: GBP5.1m before exceptional items of GBP0.5m). The
decrease in operating loss is principally the result of diligent
management of underlying overhead costs and prudent spend in the
implementation of our reference projects.
Expenses and income
Administrative expenses before exceptional items reduced to
GBP2.8m compared to H1 2019 of GBP5.2m before and GBP4.7m after
exceptional items. The reduction is principally the result of
disciplined cost control over technical, legal and commercial
consultants.
Other income was GBP115k for the six months ended 30 June 2020
(H1 2019: GBP83k). This was principally the net result of the sale
of a patent and reactor revenue related an old agreement with a
customer where management considers the performance obligation has
been satisfied.
Assets and cash
The net assets of the Company were a negative GBP834k at 30 June
2020 (31 December 2019: positive GBP628k). The decrease was
principally the result of the net effect of the increase in
deferred revenue and the increase in deferred costs and inventory
associated with the Red Rock Biofuels client. Also contributing was
a decrease of cash and cash equivalents as a result of on-going
operations. Further to the fundraise of GBP21m (before expenses) in
July 2020 a positive net assets position can subsequently be
reported. In addition, the SBA loan of GBP578k is expected to be
forgiven by the US Federal Agency in the second half of the year
which will have a positive effect on the net assets.
The Company used GBP3.2m cash in operations (H1 2019: GBP5.1m)
principally in the pursuit of the commercial projects which has
driven the net loss. The Company had a GBP1.5m increase in deferred
revenue (H1 2019: GBP339k) principally as a result of the delivery
of catalyst and a reactor in accordance with the agreements with
Red Rock Biofuels. The Company continues to carefully manage its
underlying cost base and spend prudently on the implementation of
its reference projects.
The Company incurs much of its expenses in US dollar and has
exposure to the US dollar exchange rate. This is hedged to the
extent possible by holding a proportionate cash balance in US
dollars. In addition, the majority of the Company's income is
invoiced in dollars.
Impairment
No impairment was recorded as of 30 June 2020 (30 June 2019
GBPnil). During H1 2020, the Company did not impair any of its
assets as a result of IFRS 9 or IAS 38. In addition, the company
did not reverse any impairments despite the favourable market
capitalisation of the Company at 30 June 2020. The Company will
review the possibility of the reversal of prior year impairments at
year end 2020 once a longer period of stability in the share price
and the market capitalisation has been demonstrated.
Deferred Revenue
Deferred revenue consists of contract liabilities as a result of
instances in which the Company receives payments prior to the
satisfaction of a performance obligation, as defined in IFRS 15.
Deferred revenue is allocated to the respective performance
obligations based on relative transaction prices and is recognised
as the performance obligation is satisfied. Determining the
performance obligations associated with the Company contracts can
require significant judgment.
The Company recorded a total of GBP7.5m deferred revenue at 30
June (31 December 2019: GBP6m) of which GBP7.1m related to the
sales of reactors and catalysts to Red Rock Biofuels. The relevant
performance obligations are expected to be met in 2021 once the
plant is in commissioning.
Fundraises
-- No fund raises were completed during the period to 30 June 2020.
-- Just after the period end, in July 2020, Velocys raised a
total of GBP21m (before expenses), which will allow us to develop
our reference projects into FEED, deliver engineering packages into
third party projects and design new manufacturing capacity to meet
the demand for our micro-channel FT reactors.
-- Prior to this fundraise the Company secured a further GBP1
million funding for the Altalto Immingham waste to sustainable
fuels project from Shell and British Airways in an extension to the
Joint Development Agreement between us. This extension supports the
continued technical and commercial development of the project.
-- The Company was approved for a GBP578k Pay-check protection
program loan awarded by the SBA, a US Federal Agency.
The Directors intend to use the net proceeds raised by the
Placing and Retail Offer of up to approximately GBP19.65m million
to complement the funding commitments already made by British
Airways and Shell as follows:
(i) to further strengthen its intellectual property and trade
secret protection, working capital and central costs;
(ii) to complete the process engineering phase of FEED for the Altalto Immingham Project;
(iii) to complete the fund raising for the Mississippi
Bio-refinery Project and launch the associated FEED;
(iv) to evaluate and design a de-bottlenecking of the reactor
core manufacturing line in the United States to reach a production
capacity of more than 12 Fischer-Tropsch reactors per year (twice
the current capacity) and
(v) to implement learnings from a post-operative analysis from
the Oklahoma demonstration reactors for the benefit of our clients
via updated operating manuals and training.
Future funding requirements
As discussed in note 1 below, the Company has prepared these
statements on a going-concern basis . Its forecasts show that the
Company will not require additional external funding within the
12-month forecast period to be able to continue as a going
concern.
Henrik Wareborn
Chief Executive Officer
Consolidated income statement
for the six months ended 30 June 2020
6 months 6 months 6 months 6 months 6 months 6 months
ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June 30 June
2020 2020 2020 2019 2019 2019
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Before Exceptional Before Exceptional
exceptional items exceptional items
(note (note
Note items 3) Total items 3) Total
--------------------- ----- ------------- ------------- ------------- ------------- ------------- -------------
Revenue 5 180 - 180 22 - 22
Cost of sales (106) - (106) (8) - (8)
--------------------- ----- ------------- ------------- ------------- ------------- ------------- -------------
Gross profit 74 - 74 14 - 14
Administrative
expenses (2,821) - (2,821) (5,203) 533 (4,670)
Other income 6 115 - 115 83 - 83
--------------------- ----- ------------- ------------- ------------- ------------- ------------- -------------
Operating loss (2,632) - (2,632) (5,106) 533 (4,573)
Loss before net
finance
(costs)/income (2,632) - (2,632) (5,106) - (4,573)
Finance income 7 5 - 5 20 - 20
Finance costs 8 (92) - (92) (112) - (112)
--------------------- ----- ------------- ------------- ------------- ------------- ------------- -------------
Net finance income (87) - (87) (92) - (92)
--------------------- ----- ------------- ------------- ------------- ------------- ------------- -------------
Loss before income
tax (2,719) - (2,719) (5,198) 533 (4,665)
Income tax credit - - - 286 - 286
--------------------- ----- ------------- ------------- ------------- ------------- ------------- -------------
Loss for the
financial year
attributable
to the owners
of Velocys plc (2,719) - (2,719) (4,912) 533 (4,379)
--------------------- ----- ------------- ------------- ------------- ------------- ------------- -------------
Loss per share
attributable
to the owners
of Velocys plc
Basic and diluted
loss per share
(pence) 9 (0.42) - (0.42) (1.20) (1.07)
--------------------- ----- ------------- ------------- ------------- ------------- ------------- -------------
Consolidated statement of comprehensive income
for the six month ended 30 June 2020
6 months
6 months 6 months 6 months 6 months 6 months
ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June
30 June 2020 2020 2020 2019 2019 2019
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------- ------------- ------------- ------------- -------------
Before Exceptional Before Exceptional
exceptional items exceptional items
(note (note
items 3) Total items 3) Total
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Loss for the year (2,719) - (2,719) (4,912) 533 (4,379)
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Other comprehensive
(expense)/income
Items that may be
reclassified
to the income statement
in subsequent periods
Foreign currency
translation
differences (640) - (640) (475) - (475)
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive
(expense)/income for
the year attributable
to the owners of Velocys
plc (3,359) - (3,359) (5,387) 533 (4,854)
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Consolidated statement of financial position
as at 30 June 2020
30 June 2020 31 December
2019
(unaudited) (audited)
Note GBP'000 GBP'000
-------------------------------------- ---- ----- ------------- ------------
Assets
Non-current assets
Intangible assets 10 585 444
Property, plant and equipment 1,325 1,734
Right-of-use asset 589 836
2,499 3,014
------------------------------------------- ----- ------------- ------------
Current assets
Inventories 12 1,453 3,332
Trade and other receivables 11 6,222 1,637
Current income tax asset 648 648
Cash and cash equivalents 816 4,797
-------------------------------------------- ----- ------------- ------------
9,139 10,414
------------------------------------------- ----- ------------- ------------
Total assets 11,638 13,428
-------------------------------------------- ----- ------------- ------------
Liabilities
Current liabilities
Trade and other payables (1,633) (1,331)
Lease liability (453) (581)
Borrowings 13 (198) -
Other liabilities 14 (2,126) (2,804)
Deferred revenue 15 (7,142) (5,562)
-------------------------------------------- ----- ------------- ------------
(11,552) (10,278)
------------------------------------------- ----- ------------- ------------
Non-current liabilities
Lease liability (159) (343)
Borrowings 13 (380) -
Deferred revenue 15 (381) (470)
-------------------------------------------- ----- ------------- ------------
(920) (813)
------------------------------------------- ----- ------------- ------------
Total liabilities (12,472) (11,091)
-------------------------------------------- ----- ------------- ------------
Net assets (834) 2,337
-------------------------------------------- ----- ------------- ------------
Capital and reserves attributable to
owners of Velocys plc
Called up share capital 16 6,438 6,438
Share premium account 16 184,256 184,256
Merger reserve 369 369
Share-based payments reserve 16,413 16,225
Foreign exchange reserve 2,649 3,289
Accumulated losses (210,959) (208,240)
-------------------------------------------- ----- ------------- ------------
Total equity (834) 2,337
-------------------------------------------- ----- ------------- ------------
The financial statements were approved by the Board of directors
and authorised for issue on 16 September 2020. They were signed on
its behalf by:
Henrik Wareborn
Chief Executive Officer
Company number 05712187
Consolidated statement of changes in equity
for the six months ended 30 June 2020
Called Share Share-based Foreign
up share premium Merger payment exchange Accumulated Total
capital account reserve reserve reserve losses equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------- --------- --------- ------------ ---------- ------------ --------
Balance at 1 January
2019 4,105 180,016 369 16,143 3,551 (198,625) 5,559
---------------------- ---------- --------- --------- ------------ ---------- ------------ --------
Loss for the year - - - - - (9,615) (9,615)
Other comprehensive
expense
Foreign currency
translation
differences - - - - (262) - (262)
---------------------- ---------- --------- --------- ------------ ---------- ------------ --------
Total comprehensive
expense 1,913 182,208 369 16,143 (262) (9,615) (9,877)
---------------------- ---------- --------- --------- ------------ ---------- ------------ --------
Transactions with
owners
Share-based payments
-
value of employee
services - - - 82 - - 82
Proceeds from share
issues 2,333 4,240 - - - - 6,573
Total transactions
with
owners 2,333 4,240 - 82 - - 6,655
---------------------- ---------- --------- --------- ------------ ---------- ------------ --------
Balance at 1 January
2020 6,438 184,256 369 16,225 3,289 (208,240) 2,337
---------------------- ---------- --------- --------- ------------ ---------- ------------ --------
Loss for the period - - - - - (2,719) (2,719)
Other comprehensive
expense
Foreign currency
translation
differences - - - - (640) - (640)
---------------------- ---------- --------- --------- ------------ ---------- ------------ --------
Total comprehensive
expense - - - - (640) (2,719) (3,359)
---------------------- ---------- --------- --------- ------------ ---------- ------------ --------
Transactions with
owners
Share-based payments
-
value of employee
services - - - 188 - - 188
Total transactions
with
owners - - - 188 - - 188
---------------------- ---------- --------- --------- ------------ ---------- ------------ --------
Balance at 30 June
2020 6,438 184,256 369 16,413 2,649 (210,959) (834)
---------------------- ---------- --------- --------- ------------ ---------- ------------ --------
Consolidated statement of cash flows
for the six months ended 30 June 2020
6 months 6 months
ended ended
30 June 30 June
2020 2019
(unaudited) (unaudited)
Note GBP'000 GBP'000
------------------------------------------------------ ----- -------------- --------------
Cash flows from operating activities
Operating loss (2,632) (4,573)
Depreciation and amortisation 593 344
Share-based payments 188 15
Changes in working capital (excluding the effects
of exchange
differences on consolidation)
Trade and other receivables (3,964) (255)
Trade and other payables 302 (322)
Altalto Liability 14 (678) (1,143)
Deferred revenue 15 1,491 339
Inventory 1,748 (693)
------------------------------------------------------ ----- -------------- --------------
Cash consumed by operations (2,952) (6,288)
Tax credits received - 286
------------------------------------------------------ ----- -------------- --------------
Net cash used in operating activities (2,952) (6,002)
------------------------------------------------------ ----- -------------- --------------
Cash flows from investing activities
Purchase of property, plant and equipment (557) (453)
Purchase of intangible assets 10 (249) (211)
Payment from/(loan to) associate ENVIA - 1,681
Proceeds from the sale of patents 6 53 -
Proceeds from the sale of assets 6 - 79
Interest received 7 5 20
Net cash (used in)/generated from investing
activities (748) 1,116
------------------------------------------------------ ----- -------------- --------------
Cash flows from financing activities
Interest paid 8 (5) (2)
Principle element of lease payments 8 (83) (98)
Proceeds/(repayment) of borrowings 13 578 (144)
------------------------------------------------------ ----- -------------- --------------
Net cash generated from/(used in) financing
activities 490 (244)
------------------------------------------------------ ----- -------------- --------------
Net (decrease)/increase in cash and cash equivalents (3,210) (5,130)
Cash and cash equivalents at beginning of year 4,797 6,964
Exchange movements on cash and cash equivalents (771) (556)
------------------------------------------------------ ----- -------------- --------------
Cash and cash equivalents at end of period 816 1,278
------------------------------------------------------ ----- -------------- --------------
Notes to the unaudited interim financial statements
For the six months ended 30 June 2020
1. General information, basis of preparation and accounting
policies
Velocys plc operates through a number of subsidiaries in the UK
and the US, and collectively they are referred to in these
unaudited interim financial statements as the "Company" or "
Velocys ", with Velocys plc as " Velocys plc " or the "parent
company" .
The unaudited interim financial statements have not been
prepared in accordance with International Financial Reporting
Standards (" IFRS ") as adopted by the European Union (IFRSs as
adopted by the EU), IFRS Interpretations Committee Interpretations,
or the Companies Act 2006 applicable to companies reporting under
IFRS and Article 4 of the IAS Regulation. They do not include all
the statements required for full annual financial statements and
should be read in conjunction with the consolidated financial
statements of the Company as at 31 December 2019.
Accounting policies
The unaudited interim financial statements have been prepared
using the same accounting policies adopted in the Company's
financial statements for the year ended 31 December 2019, except as
described below.
Items included in the unaudited interim financial statements of
each of the Company's entities 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 sterling (GBP).
Judgements and estimates
In preparing these unaudited interim financial statements, the
significant judgements made by management in applying the Company's
accounting policies and the key sources of estimation uncertainty
were as stated within the consolidated financial statements for the
year ended 31 December 2019.
Going Concern
During July 2020 the Company raised GBP21 million (before
expenses) by way of a Placing, Retail Offer and Open Offer. The
directors consider that this is sufficient funding for the Company
to continue as a going concern beyond the twelve months of the date
of this report. The directors do not anticipate that any further
funding to the Company will come from further placing of the parent
company shares during this period. However additional income may
come from one, or a combination of, the following sources, with
agreements being actively sought from third parties:
-- Additional third-party license sales, similar to the Red Rock
Biofuels project.
-- The realisation of certain assets and the selling of non-core
intellectual property.
-- Additional strategic investment of development capital into
either or both of Altalto Immingham Project and the Mississippi
Biorefinery Project, which are expected during 2020 and the first
half of 2021.
-- UK or USA Government loans or grants.
The directors are confident that the funding received by the
Company in July 2020 will ensure that it will continue as a going
concern and that there will be sufficient funding in the Company to
continue to support its activities for the foreseeable future being
not less than twelve months from the date of approval of these
financial statements. The directors have therefore prepared the
financial statements on a going concern basis.
In addition to the July 2020 Placing, Retail Offer and Open
Offer, the Company executed an extension of the Altalto Joint
Development Agreement providing GBP1m non-dilutive investment into
the Altalto Immingham Project. The Company was awarded a forgivable
loan as part of the Pay-check Protection Program awarded by the
SBA, a US Federal Agency in the amount of GBP578,000; and has been
awarded a further GBP0.5m F4C grant from the Department of
Transport in the UK.
The unaudited interim financial statements do not include any
adjustments that would arise if the Company and Velocys plc were
unable to continue as a going concern.
2. Publication of non-statutory accounts
The unaudited interim financial statements presented in this
document have not been audited or reviewed and do not constitute
Group statutory accounts as defined in section 434 of the Companies
Act 2006. Group statutory accounts for the year ended 31 December
2019 were approved by the Board of Directors on 5 August 2020 and
delivered to the Registrar of Companies. The comparative figures
for the year ended 31 December 2019 have been derived from the
statutory accounts for that year. The auditors' report on those
accounts, which was not modified, drew attention to the adequacy of
the disclosure made in the financial statements concerning Velocys'
ability to continue as a going concern, under section 498(2) or (3)
of the Companies Act 2006.
3. Exceptional items
Items that are significant by virtue of their size or nature,
which are considered non-recurring and which are excluded from the
underlying profit measures used by the Board of Directors to
monitor and measure the underlying performance of the Company are
classified as exceptional operating items. Exceptional operating
items are included within the appropriate consolidated income
statement category but are highlighted separately in the notes to
the financial statements.
The following exceptional items have been included in the
consolidated income statement.
6 months 6 months
ended ended
30 June 30 June
2019
2020 (unaudited)
(unaudited)
GBP'000 GBP'000
-------------------------------------- ---- -------------- -------------
Administrative expenses:
Recovery of loan to associate ENVIA - 533
-------------------------------------------- ------------- -------------
Total - 533
-------------------------------------------- ------------- -------------
4. Segmental information
Business segments
At 30 June 2020 the Company is organised as a world-wide
business comprising a single segment.
Geographic segments
The Company's business operates in three main geographical
areas. Revenue is allocated based on the country in which the
customer is located.
6 months 6 months
ended
30 June ended
2020 (unaudited)
30 June 2019
(unaudited)
GBP'000 GBP'000
--------------- ---- -------------------- ---------------
Americas 27 22
Asia Pacific 153 -
--------------- ---- -------------------- ---------------
Total revenue 180 22
--------------------- -------------------- ---------------
Revenue recognised during the six months ended 30 June 2020
originated predominately from Japan relating to engineering service
in the Asia Pacific region.
5. Revenue
The Company generates revenue through contracts in which it (i)
sells Fischer-Tropsch reactors, (ii) leases or sells
Fischer-Tropsch catalyst, (iii) provides license agreements and
(iv) performs engineering services. In general, contracts with the
Company provide a license agreement for the use of its intellectual
property associated with the catalyst, which is used in
specifically designed reactors. The majority of the Company's
revenue is derived from a small number of significant commercial
customers and development partners.
Determining whether the services provided are considered
distinct performance obligations 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 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 is
allocated to the respective performance obligations based on
relative transaction prices and is recognised as services are
delivered to the customer or in some instance, as when the catalyst
is leased, revenue is recognised over the estimated life of the
catalyst. Revenue is measured as the amount of consideration
expected to be received in exchange for the services delivered.
Revenue is recognised when the Company satisfies a performance
obligation by transferring promised goods or services to a
customer. Otherwise, the sales income related to sales of 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.
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. In
2019, there is one contract that has been assessed as a combined
performance obligation and it was determined that none of these
criteria are met. As such, all consideration received has been
deferred and revenue will be recognised when the final project is
completed and control is transferred to the customer.
Contract modifications are accounted for prospectively or as a
cumulative catch-up adjustment depending on the nature of the
change. Revenue from engineering services is recognised as services
are delivered to the customer.
6 months 6 months
ended ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
GBP'000 GBP'000
---------------------------------- -------------- --------------
FT reactor, catalyst and license 68 -
Engineering services 112 22
----------------------------------- -------------- --------------
Total 180 22
----------------------------------- -------------- --------------
FT reactor, catalyst and license revenue consisted principally
of the sale of catalyst to a customer in Japan in the Asia Pacific
region. Engineering services consisted principally of the services
provided to the same customer in Japan. In addition engineering
services were provided to a customer in the Americas.
6. Other income
Other income consists of items such as sales of fixed assets and
any other operating income recognised outside commercial
activities.
6 months 6 months
ended ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
GBP'000 GBP'000
--------------------------------- ---- -------------- --------------
Sale of patent 53 -
Recognition of deferred revenue 77 -
Sale of fixed assets - 79
Foreign exchange movement (15) 4
--------------------------------------- -------------- --------------
Total 115 83
--------------------------------------- -------------- --------------
In March 2020, the Company sold a patent that was no longer
being actively used. At 30 June 2020, the Company has recognised
GBP77,000 of reactor revenue related an agreement with a customer
where management believes the performance obligation has been
satisfied.
7. Finance income
6 months 6 months
ended ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
GBP'000 GBP'000
---------------------------------- ---- -------------- --------------
Interest income on bank deposits 5 20
---------------------------------------- -------------- --------------
Total 5 20
---------------------------------------- -------------- --------------
8. Finance costs
6 months 6 months
ended ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
GBP'000 GBP'000
---------------------------- ---- -------------- --------------
Interest on lease payments 83 98
Interest fees 5 2
Foreign exchange movement 4 12
---------------------------------- -------------- --------------
Total 92 112
---------------------------------- -------------- --------------
9. 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.
6 months ended 6 months ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
-------------------------------------------- ---- --------------- ---------------
Loss attributable to owners of Velocys plc
(GBP'000s) (2,719) (4,379)
Weighted average number of ordinary shares
in issue ('000) 643,756 410,423
-------------------------------------------------- --------------- ---------------
Basic and diluted loss per share (pence) (0.42) (1.07)
-------------------------------------------------- --------------- ---------------
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.
10. Intangible assets
Patents, licenses 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. For the six
months ended 30 June 2020, the Company did not abandon any non-core
patents (31 December 2019: GBP291,000).
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.
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. For the purpose of impairment testing, assets are
generally tested individually or at a Cash Generating Unit (CGU)
level which represents the lowest level for which there are
separately identifiable cash inflows that are largely independent
of cash inflows from other assets or groups of assets. The Company
has one CGU on the basis that the key end use market is that of
synthetic fuels production. At this stage, the synthetic 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 intangible assets (excluding
Goodwill) 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.
Were the fair value of the business to change in the coming 12
months, due to an increase or further decrease in the market
capitalisation of Velocys plc, the impairment disclosed in this
note would be reversed or the Company's assets would be further
impaired accordingly.
The Company did not impair or reverse any impairment to its
intangibles for the six months ended 30 June 2020 (31 December
2019: GBPnil). The table below presents a roll forward of
intangible assets.
Patents,
license
In-process and
Goodwill technology trademarks Software Total
6 months ended 30 June 2020 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- --------- ----------- ----------- --------- --------
Cost
At 1 January 2020 7,398 23,681 1,598 96 32,773
Additions - - 249 - 249
Sale of patent - - (53) - (53)
Foreign exchange movement - - 21 - 21
----------------------------------------- --------- ----------- ----------- --------- --------
At 30 June 2020 7,398 23,681 1,815 96 32,990
----------------------------------------- --------- ----------- ----------- --------- --------
Accumulated amortisation and
impairment
At 1 January 2020 7,398 23,681 1,154 96 32,329
Charge for the year - - 62 - 62
Foreign exchange movement - - 14 - 14
----------------------------------------- --------- ----------- ----------- --------- --------
At 30 June 2020 7,398 23,681 1,230 96 32,405
----------------------------------------- --------- ----------- ----------- --------- --------
Net book amount
At 30 June 2020 - - 585 - 585
----------------------------------------- --------- ----------- ----------- --------- --------
Patents,
license
In-process and
Goodwill technology trademarks Software Total
31 December 2019 (audited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- ----------- ----------- --------- --------
Cost
At 1 January 2019 7,398 23,681 1,580 96 32,755
Additions - - 394 - 394
Disposals - - (291) - (291)
Foreign exchange movement - - (85) - 225
---------------------------- --------- ----------- ----------- --------- --------
At 31 December 2019 7,398 23,681 1,598 96 32,773
---------------------------- --------- ----------- ----------- --------- --------
Accumulated amortisation
and impairment
At 1 January 2019 7,398 23,681 1,223 96 32,398
Charge for the year - - 112 - 112
Disposals - - (104) - (104)
Foreign exchange movement - - (77) - 233
---------------------------- --------- ----------- ----------- --------- --------
At 31 December 2019 7,398 23,681 1,154 96 32,329
---------------------------- --------- ----------- ----------- --------- --------
Net book amount
At 31 December 2019 - - 444 - 444
---------------------------- --------- ----------- ----------- --------- --------
11. Trade and other receivables
Trade receivables represent assets that are held for collection
of contractual cash flows and those cash flows represent solely
payments of principal and interest. Other receivables consist of
vendor deposits and deferred costs associated with an ongoing
project. At 30 June 2020, deferred costs represented GBP5,185,000
(31 December 2019: GBP1,054,000) and are principally related to the
Red Rock project. Also included in the Trade and other receivables
are prepaid costs of GBP392,000 (31 December 2019: GBP447,000) and
VAT receivables in the amount of GBP123,000 (31 December 2019:
GBP99,000). Trade receivables of GBP522,000 (31 December 2019:
GBP37,000) are considered not material and, in general, are
collected within 45 days of invoice date.
30 June 31 December
2020 2019
(unaudited) (audited)
GBP'000 GBP'000
------------------------------------------- ---- -------------- -------------
Trade and other receivables - non-current - -
Trade and other receivables - current 6,222 1,637
------------------------------------------------- -------------- -------------
Total 6,222 1,637
------------------------------------------------- -------------- -------------
12. 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.
30 June 31 December
2020 2019
(unaudited) (audited)
GBP'000 GBP'000
------------------------------- ---- ------------- -------------
Raw materials and consumables 437 1,782
Work in progress - 1,550
Finished good 1,016 -
------------------------------- ---- ------------- -------------
Total 1,453 3,332
------------------------------------- ------------- -------------
Raw material and consumables consist primarily of material that
will be consumed in the manufacturing of reactors and catalyst.
Work in progress consist of labour associated with the
manufacturing of reactors.
At 30 June 2020, the Company recognised a provision of
GBP270,000 (31 December 2019: GBP408,000) related to slow moving
inventory in the Administrative expenses line of the consolidated
income statement.
The Company had no impairments related to inventory for the
period ending 30, June 2020.
13. Borrowings
In April 2020, the Company entered into a new loan under the
Pay-check Protection Program (" PPP ") awarded by the Small
Business Administration (" SBA "), a US Federal Agency, in the
amount of GBP578,000. The SBA PPP program is part of the Federal
stimulus package known as the CARES (Coronavirus Aid, Relief and
Economic Security) Act to offer help to small businesses in the USA
during the Covid-19 crisis. This unsecured loan has been awarded to
support Velocys' US payroll costs in the short-term. It is an
unsecured loan with a 2-year maturity and 0.98% interest. No
interest or principal payments are due in the first six months.
There are no loan covenants associated with the loan. The loan is
however eligible for "forgiveness", becoming non-repayable upon
application by Velocys after 60 days from receipt if used for
retaining US employees and maintaining US payroll costs of at least
this amount in the period until the end of June 2020. Velocys is
confident that it will meet the criteria for this "forgiveness"
.
14. Other liabilities
Other liabilities are comprised of contract liabilities related
to the development funding received from industry partners related
to the next stage of the UK Altalto Immingham waste-to-jet project,
being GBP2,126,000 at 30 June 2020 (31 December 2019:
GBP2,804,000).
15. Deferred revenue
Deferred revenue consists of contract liabilities as a result of
instances in which the Company receives payments prior to the
satisfaction of a performance obligation, as defined in IFRS 15.
Deferred revenue is allocated to the respective performance
obligations based on relative transaction prices and is recognised
as the performance obligation is satisfied. Determining the
performance obligations associated with the Company contracts can
require significant judgment.
The Company recognised the following liabilities associated with
contracts with customers:
GBP'000 Catalyst Reactor License Total
------------------------------------ --------- -------- -------- ------
At 1 January 2019 2,065 1,949 1,199 5,213
------------------------------------- --------- -------- -------- ------
Contract liabilities incurred 499 853 - 1,352
Released deferred revenue (533) - - (533)
------------------------------------- --------- -------- -------- ------
At 31 December 2019 2,031 2,802 1,199 6,032
------------------------------------- --------- -------- -------- ------
Contract liabilities incurred 531 1,037 - 1,568
Revenue recognised in the period - (77) - (77)
------------------------------------- --------- -------- -------- ------
At 30 June 2020 (unaudited) 2,562 3,762 1,199 7,523
------------------------------------- --------- -------- -------- ------
At 30 June 2020, the Company has recognised GBP77,000 of reactor
revenue related an agreement with customer that management believes
the performance obligation has been satisfied.
In 2019 the Company released deferred revenue in the amount of
GBP533,000 in final settlement of the ENVIA loan receivable balance
representing a recovery on the impairment recorded in 2018, see
note 3.
16. Movement in equity
Share capital and share premium include ordinary shares in
Velocys plc issued to shareholders and options that have been
exercised by employees and associated consultants.
Share Premium
(restated)
Number of Ordinary GBP'000
shares* shares
(thousands) GBP'000
----------------------------- ------------- --------- ----------------
At 1 January 2019 410,423 1,913 182,208
Proceeds from share issues 233,333 2,333 4,240
----------------------------- ------------- --------- ----------------
At 31 December 2019 643,756 6,438 184,256
----------------------------- ------------- --------- ----------------
At 30 June 2020 (unaudited) 643,756 6,438 184,256
----------------------------- ------------- --------- ----------------
* All shares have been issued, authorised and fully paid.
For the six months ended 30 June 2020, the Company did not issue
any shares or complete and fundraises which would have resulted in
the issuance of shares. The Company did complete a fundraise in the
second half of 2020, see note 17.
17. Post period end events
Fundraise of GBP21 million completed in July 2020
In July 2020, the Company announced that it had completed the
fund raising of GBP21 million (before expenses) through a Placing,
Retail Offer and Open Offer. This was confirmed through a General
Meeting held on 14th July 2020 and has been announced to the
market. Net of expenses the Company has received GBP19.65m, which
will ensure that it has sufficient funding to continue as a going
concern for at least 12 months. The Company expects that it will
receive income from other sources including customers through
licensing and sales of engineering services which will extend this
timeline.
US SBA PPP Loan (CARES Act)
In September 2020, the Company applied for forgiveness of the
SBA PPP loan in accordance with the terms of the loan. The Company
is currently waiting for approval of the forgiveness from the
SBA.
Legal disputes
The Company may from time to time be involved in disputes which
may give rise to claims. The Directors have considered any current
matters pending against the Company, including a claim made by the
bankruptcy trustee of Ventech Engineers International LLC (a former
commercial partner of the Company). Based on the information
available and the facts and circumstances of any claims, the Board
considers that the outcome of these will be resolved with no
material impact on the Company's financial position or results.
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END
IR MZGMLMVZGGZZ
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