TIDMVLS
RNS Number : 6915L
Velocys PLC
17 May 2022
News release
Velocys plc
("Velocys" or "the Company")
17 May 2022
Final audited results for the year ended 31 December 2021
Acceleration of Commercialisation
Velocys, the sustainable fuels technology company, is pleased to
announce its final audited results for the year ended 31 December
2021, which shows the Company mak ing good progress in the
technology delivery and commercialisation phase of its growth
strategy.
2021 Financial Highlights
-- Revenue increased to GBP8.3 million (2020: GBP0.2 million).
-- Administrative expenses of GBP13.3 million (2020: GBP9.2 million).
-- Operating loss of GBP9.0 million (2020: GBP8.8m).
-- Net assets increased to GBP29.7 million as at 31 December 2021 (2020: GBP13.1 million).
-- GBP26.2 million (before expenses) successfully raised by a
Placing and Open Offer in December 2021.
-- Net cash at year end of GBP25.5 million (2020: GBP13.1 million).
-- No borrowings at the year-end (2020: GBP0.5 million).
Business Highlights including post period end activities
Strong commercial progress made
-- Commercial offtake agreement with Southwest Airlines and a
memorandum of understanding ("MOU") with IAG for all the
Sustainable Aviation Fuel ("SAF") and associated environmental
credits for the Bayou Fuels project.
-- Collaboration with TOYO, with Velocys Fischer Tropsch
technology being selected for an e-fuels project commissioned by
the Japanese government.
-- TOYO commenced advanced engineering for commercial scale
biorefinery for conversion of forestry residue into SAF.
-- Exercised option agreement for Altalto to acquire Immingham
site owner for GBP9.75 million with GBP2.5 million in cash and
GBP7.25 million owing as deferred consideration at year-end ahead
of onward sale to Foresight Group LLP .
-- Velocys and B ritish Airways were awarded a grant of up to
GBP2.4 million from the UK Government's Green Fuels Green Skies
("GFGS") grant scheme.
-- Appointed Koch Project Solutions to provide pre-FEED/FEED
support with the potential to be awarded an EPC contract for the
Bayou Fuels project.
-- Growing pipeline of customer opportunities leading to
additional technology licensing opportunities across three
continents.
Technology skillset strengthened
-- Dr Dawid Duvenhage joined as VP, Catalysis - bringing a
wealth of knowledge and experience in catalysis and the Fischer
Tropsch process.
Post period end
-- In March 2022 onward sale of Altalto project site owner to
Foresight Group LLP for GBP9.75 million settling the deferred
consideration and repaying Velocys the GBP2.5 million paid in
December 2021 alongside securing a three-year option to repurchase
the site owning company and a right of first refusal for Foresight
to invest up to GBP100 million into the Altalto project.
-- Altalto Joint Development agreement and Altalto option
agreement with British Airways plc extended to 31 March 2023.
-- In March 2022 a 15-year lease for a modern sustainable
technical centre in Ohio was signed for a new building purpose
built to suit Velocys' technical needs in catalysis services,
microchannel reactor core assembly and technology licensing.
Henrik Wareborn, CEO of Velocys, said:
"Velocys offers a decarbonisation solution to the aviation
industry and is now firmly in the technology delivery and
commercialisation phase of our growth strategy. We have a growing
pipeline of new customer opportunities spanning multiple
continents, which have developed in response to client specific net
zero targets in countries that are ahead of the game on mandates
and policy incentives.
"Our commercially demonstrated patented technology enables an
alternative to fossil jet fuel with an ultra-low carbon intensity.
In addition, our production pathway generates fuels with much lower
sulphur oxide and particulate matter emissions. Synthetic drop-in
fuel is the here and now solution, which requires no modification
to aircraft or airport infrastructure.
"The synthetic fuel enabled by our technology will greatly
benefit our customers, industry and society."
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
Andrew Morris, CFO
Lak Siriwardene, Head of Communications & Sustainability +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 20 7466 5000
Notes to Editors
Velocys is an international sustainable fuels technology
company, traded on the AIM market of the L ondon S tock E xchange
("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, 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
The year saw a strong performance from Velocys towards its
financial, commercial, and technical objectives.
We adapted in 2020 to working remotely and effectively during
the pandemic without losing momentum and we built on this learning
in 2021 to ensure seamless customer delivery during the year. The
Company achieved another year with zero lost time incidents across
all three sites, a health and safety record of real note.
The past twelve months have seen greatly increased engagement
and deeper commitments from leading global organisations to support
policy objectives aimed at reducing greenhouse gas emissions and
driving an increase in the use of renewable energy.
The 2021 United Nations Climate Change Conference ("COP26") saw
further commitment to support sustainable aviation with the launch
of the International Aviation Climate Ambition Coalition ("IACAC")
where 26 member states, including the UK, pledged to work together
to support the adoption of global goals for international aviation
CO2 emissions by the International Civil Aviation Organization and
to support specific measures to reduce aviation emissions including
sustainable aviation fuels.
To make meaningful progress, there must be increased
collaboration and innovation from all sides. Industry players with
proven technologies need to work alongside policy makers at a
governmental level and with other key stakeholders to drive the
necessary change to address aviation emissions by including these
emissions in their national climate targets - something the UK, who
led the declaration, committed to itself earlier this year.
Velocys' versatile and innovative technology adds significant IP
and optimisation to the Fischer Tropsch ( " FT " ) process and is
ideally placed to play a key role in supporting the international
decarbonisation agenda.
Board
After nine years of service to the Company, Sandy Shaw stepped
down from the Board at the 2021 AGM. Following an extensive search,
we have strengthened the Board with the appointment of two new
Non-Executive Directors: Ann Markey and Tom Quigley. Both Ann and
Tom bring significant financial and operational experience to the
Board at a time when the Company is looking to progress towards
securing funding for the next stage of development for its UK and
US reference projects and to build our technology delivery
capability to satisfy the ever-growing global demand.
We have taken the opportunity to strengthen the Board's
oversight of the Company's risk management and sustainability
activities by establishing a Risk and Sustainability Committee,
chaired by Darran Messem. The Audit Committee is now chaired by Ann
Markey, and the Remuneration Committee is chaired by Tom
Quigley.
In February 2022, Andrew Morris, CFO, advised the Board of his
intention to leave Velocys in Q2 2022 in order to pursue other
career opportunities. 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. The recruitment
process of our next CFO is well underway.
Leadership
David Bate was appointed General Counsel, Vice President Legal
and Compliance in March 2021. David's most recent position was at
Schlumberger where he was responsible for all legal support to the
group's upstream asset portfolio covering M&A, business
development, risk and project management, development financing and
other regulatory matters.
Andy Bensley joined Velocys as the Global Head of Business
Development and Technology Delivery in February 2022. He has 35
years of international experience in senior corporate, functional
leadership and project delivery roles in both major international
oil companies and EPC contractor organisations. In this newly
created role, Andy will focus on the acceleration of the
commercialisation of the Velocys technology in order to cultivate
our global client pipeline and enhance our technology delivery
capability.
Heinz Robota, VP Technology, is retiring from his role after 10
years at Velocys, having led the catalysis efforts from R&D
through to commercial scale demonstration of Velocys' super active
FT catalyst. Heinz will be succeeded by Dawid Duvenhage who has
over 30 years' experience in catalyst development, scale-up and
commercialisation. Heinz will continue to support Velocys as a
member of our Senior Scientific Advisory Board.
Outlook
The recent successful placing and open offer will enable us to
expand our reactor core assembly capability, ensuring that we will
be able to meet strong customer demand for our technology, driven
by SAF mandates. We also look forward to accelerating our reference
projects in 2022.
A key focus will be to augment our commercial and business
development function to serve a wide range of customers with an
integrated, standardised service offering and a capital light
licensing model deployed for biorefineries with integrated CO (2)
sequestration as well as in the new e-fuels sector.
Through our established strategic alliances with our technology
and engineering partners, we will be able to offer a fully
integrated end to end solution for converting sustainable
non-fossil feedstocks into SAF.
I would like to thank Henrik Wareborn, his leadership team and
everyone at Velocys for their hard work and commitment in 2021.
Their energy, enthusiasm and professionalism has enabled our
strategic success during this important year for Velocys.
CEO's Report
As a sustainable fuels technology company, Velocys has a
solution to reduce greenhouse gas emissions in the aviation
sector.
Our IP-protected technology enables the production of a
synthetic fuel with the same chemical composition of fossil jet
fuel and, as a drop-in fuel, utilises sustainable waste feedstocks,
which have no alternative use such as forestry residue and
municipal solid waste. It is a negative carbon intensity fuel with
carbon sequestration and not only has the potential to support
national fuel security initiatives but also delivers environmental
improvements as a cleaner burning fuel.
Global opportunities for the Velocys technology are growing
rapidly and with an international roster of blue chip customers,
partners, and industry stakeholders, Velocys is well positioned
with its integrated, standardised service offering.
Our intention is to take advantage of this opportunity by
focusing on markets with the most advantageous regulatory
tailwinds, expanding our business development function and offering
our commercially demonstrated, IP-protected technology to a broad
global customer base.
This year saw the achievement of a number of important
objectives in our growth strategy, including multi-year offtake
agreements with IAG (whose constituent airlines include British
Airways, Aer Lingus, and Iberia) and Southwest Airlines; the
selection of our technology for an e-fuels project commissioned by
the Ministry of the Environment in Japan; and a successful GBP26.2m
(before expenses) fundraise to enable us to accelerate our
commercialisation strategy.
Commercial and operational achievements
A significant validation of the Velocys technology occurred in
the commercial flight by Japan Airlines in June 2021. The SAF used
on the plane was produced at the NEDO1 demonstration in Nagoya,
Japan, and synthesised in a Velocys FT reactor from gasified
woodchips. This flight was the first commercial flight in the world
to use SAF derived from woodchips and synthesised into aviation
fuel. SAF's advantage is its availability for immediate use and its
ability to be blended in existing airport fuelling systems without
any segregation or modification of the jet turbines.
Our collaboration with TOYO was further strengthened with
Velocys' FT technology being selected for an e-fuels project by a
consortium of six leading Japanese companies. This validates an
additional application of Velocys' technology for the "power to
liquids" pathway whereby hydrogen and carbon gases are generated
from "co-electrolysis" instead of gasification to be synthesised to
liquid hydrocarbon fuels using Velocys' Fischer Tropsch Synthesis
("FTS").
TOYO also started the advanced engineering and design phase of a
commercial scale biofuel refinery in Japan for conversion of
forestry residue to SAF, which will be enabled by Velocys' FT
technology.
Progress was made on the Bayou Fuels reference project in
Mississippi, US, which has the intended nameplate capacity to
produce 132m litres of SAF per year from woody biomass feedstock.
In November 2021, Velocys announced 15- and 10-year offtake
arrangements for all the SAF and the associated environmental
credits expected to be generated by the Bayou Fuels Project with
Southwest Airlines and IAG, respectively. These agreements
represent a multi-billion-dollar balance sheet commitment for SAF
by these two major airlines. They also underpin the financing of
the construction capital for the Bayou Fuels biorefinery.
Work also continued on the Altalto project located in North East
Lincolnshire, UK, with the intended nameplate capacity to produce
80m litres of SAF per year from municipal solid waste. As
previously reported, the site has full planning permission, and its
main commercial sponsor is British Airways. In December 2021, we
exercised an option agreement to acquire Rula Developments
(Immingham) Ltd, which owns the Altalto site. In line with our
planned strategy to secure long term access to the Altalto site
without significant capital outlay at this time, our announcement
in March 2022 noted that Altalto sold Rula Developments to funds
managed by Foresight Group LLP.
Velocys holds a three year repurchase option and Foresight has
been granted first right of refusal for up to a GBP100m investment
in the Altalto project . This is also in line with the rights of
British Airways and other future investors. Further information is
provided in the Financial Review. During the year, Velocys and
British Airways were awarded a grant of up to GBP2.4 million from
the UK Government's Green Fuels, Green Skies scheme, to accelerate
the technical development of Altalto.
As the year closed, Velocys concluded an oversubscribed
fundraise of GBP26.2 million (before expenses) , with strong
support from both existing and new shareholders. This capital raise
will help us to accelerate our reactor and catalyst manufacturing
capability during 2022 to unlock a steady growth of customer
revenues and positive cash flow for Velocys.
I am very appreciative of the support shown by our current and
new shareholders. Notably, we welcomed a number of high-profile UK
and US institutional investors onto our register, some of which are
now new major shareholders. I am grateful for the seamless and
exceptional preparation and execution of our Placing by our joint
brokers, Panmure Gordon and Shore Capital, at the end of a
successful year for Velocys.
I would like to thank Andrew Morris and Heinz Robota, both of
whom announced that they are stepping down, for all their
dedication to Velocys. In addition, I am pleased to confirm the
strengthening of our Management team during 2021 by the
appointments of David Bate and Dr Dawid Duvenhage and , more
recently, Andy Bensley as we continue our technical and commercial
progress.
Above all, none of these accomplishments would have been
possible without the dedication and expertise provided by the
talented team at Velocys. I would like to thank everyone for their
professionalism and commitment.
Sustainability
Velocys offers a sustainable technology solution to help meet
the decarbonisation goals of our customers and partners as well as
providing environmental benefits. All our employees play an
important role in how we deliver sustainability both internally and
externally and are fully committed to this ethos and practice.
Positive steps were taken in 2021 with the creation of a Risk and
Sustainability Committee and we established a cross functional team
to develop a sustainability policy.
Summary
Velocys is now well into our transition from R&D to
technology delivery and commercialisation. Andy Bensley will help
to lead this effort which includes responsibility to prepare our
reference project in Mississippi for Front End Engineering and
Design ("FEED") and into execution as well as deliver the Altalto
project under the Joint Development Agreement ("JDA") with B ritish
Airways .
We have an exciting pipeline of customer opportunities which is
increasing in response to mandates and policy incentives being
enacted by governments around the world in pursuit of
decarbonisation. We are seeing high levels of interest from
well-established and well-funded customers with access to suitable
sites and abundant sustainable feedstocks. The ability of our
technology to use a range of feedstocks, provides opportunities for
customers to utilise local sustainable resources, decreasing their
reliance on imported crude oil and natural gas.
I look forward with confidence to another busy and successful
year.
Financial Review
With gross profits of GBP3.4m in 2021 and the successful
oversubscribed fund raise of GBP26.2m (before expenses) the Company
has the strength to support delivery of its reference projects and
supply to its customers.
Revenues
The Company (1) recognised revenue of GBP8.3m (2020: GBP0.2m).
The 2021 revenue primarily comprised sales of reactors and
catalyst, and licensing fees earned from our first major commercial
client contract which commenced in 2017. The Company satisfied the
performance obligations within the contract in 2021 following
expiry of all contractual obligations and therefore determined that
it was appropriate to recognise the revenue and the associated cost
of goods. The Company also provided engineering services in Japan
and recorded GBP0.2m in respect of this work. Overall, the gross
profit for the year ended 31 December 2021 was GBP3.4m (2020:
GBP0.1m).
Note
1. Velocys plc is managed as a single operation and referred to
as "the Company" or "Velocys" throughout the Strategic report. The
"Company" or "Velocys" represents the consolidated results and
Velocys plc refers to the parent company only.
Expenses and income
Administrative expenses increased by 44% to GBP13.3m (2020:
GBP9.2m). In 2021, the Company was able to release GBP0.5m (2020:
GBP3.0m) of the Altalto credit (being the advanced funding
liability received from British Airways) against its operating
costs as work was completed on the co-development project.
Therefore, on a comparable basis, the Company's operating expenses
have increased by approximately 13%.
Other income totalling 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 Green Fuels Green Skies ("GFGS") grant awarded by
the UK Department for Transport in 2021 and GBP0.2m from the second
tranche of the Future Fuels for Flight and Freight ("F4C") grant
awarded by the UK Department for Transport. In 2020 other income of
GBP0.4m mainly consisted of GBP0.3m from the first tranche of the
F4C grant.
Operating losses
Operating losses of GBP9.0m were in line with the previous year
(2020: GBP8.8m).
Net assets and cash
The net assets of the Company were GBP29.7m, which is an
increase of GBP16.6m compared to 2020. This increase was
principally the result of an increase in cash of GBP12.5m, and
non-current assets (less the related outstanding deferred
consideration) of GBP2.5m. There was also a reduction in deferred
revenue and the related costs which increased net assets by
GBP2.9m. The net cash inflow to the Company in 2021 was GBP12.8m
(2020: GBP9.2m) principally being cash generated from financing
activities of GBP24.2m, attributed to GBP24.6m received net of
expenses from the fund raise completed in December, less GBP3.2m
used in investing activities and GBP8. 1 m used in operating
activities. The Company continues to carefully manage its
underlying cost base and spends prudently on strategy
implementation. 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. In addition, the majority of the Company's income is
currently invoiced in dollars.
Acquisition of Rula Developments (Immingham) Ltd
In December 2021, Altalto Immingham Ltd, a 100% subsidiary of
the Company, exercised an option to purchase Rula Developments
(Immingham) Ltd. ("RDIL"), a property development company, with an
initial part-payment of GBP2.5m. RDIL owns the site of the proposed
Altalto project, near Immingham in North East Lincolnshire, which
is being jointly developed with British Airways and Velocys. 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 has been recorded in current liabilities.
The deferred consideration was settled in March 2022 when RDIL was
sold to Foresight Group LLC.
The value of the net assets acquired was GBP9.8m. Further
details are provided in note 2 .
Impairment assessment
There has been no change in the Board's assessment of the
long-term potential of the Company's in-process technology assets,
and therefore there has been no impairment or reversal of previous
impairments of the Company's assets in 2021.
The recoverable value is determined by comparing the higher of
the value in use and the fair value less costs of disposal.
Previously, given the early stage of the Company's
commercialisation plans, the share price of the parent Company was
deemed the most accurate indicator of value. The market
capitalisation value at 31 December 2021 was GBP103.1m compared to
GBP108.0m at the previous year end. The Company's net assets were
GBP29.7m (2020: GBP13.1m).
Alongside the share price of the parent Company, the Board also
considers 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; and
-- 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. Whilst 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 construction, until new commercial orders for the
Company's reactors and catalyst are in place, this indicator alone
is not considered sufficient to support a reversal of previous
impairments.
The parent company, Velocys plc, has both equity and debt
investments in its subsidiaries, which are compared to the
recoverable amount. The impairment assessment of equity investments
totalling GBP9.2m (compared to the parent company's market
capitalisation value of GBP103.1m) showed that no impairment
indicators were identified and, as a result, no impairment was
recognised (2020: GBPnil).
The parent company also assessed total loans of GBP22.6m due
from its subsidiaries and as a result recorded a provision for
expected credit losses ("ECL") of GBP2.0m (2020: GBP1.8m). The
total ECL provision of GBP 3.9 m is eliminated on consolidation and
therefore is not seen in the consolidated financial statements.
Funding
In December 2021 Velocys raised a total of GBP26.2m (before
expenses) via a Placing and Open Offer. With this successful
fundraise, the financial statements have been prepared on the going
concern basis.
The Company's cash forecast includes the use of the net proceeds
of the capital raising to:
-- Invest in manufacturing capability to enable output of at
least 12 reactors per year and in addition the build-up of reactor
parts inventory to expedite commissioning of the manufacturing
equipment;
-- Complete work on the Bayou Fuels and Altalto reference
projects to the point of securing external investment into the
detailed engineering stage;
-- Support process guarantees and equipment warranties required by clients;
-- Strengthen the Company's business development function; and
-- Provide the working capital to support the Company's projected running costs.
Going Concern
The directors are confident that the funding received in
December 2021 is sufficient to enable the Company to support its
activities for not less than the twelve months from the date of
approval of these financial statements. The directors have
therefore prepared the financial statements on a going concern
basis. The financial statements do not include the 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 2021
2021 2020
Note GBP'000 GBP'000
Revenue 3 8,283 178
Cost of sales (4,881) (101)
Gross profit 3,402 77
Administrative expenses 7 (13,331) (9,238)
Other income 6 956 400
Operating loss (8,973) (8,761)
Finance income 4 34 6
Finance costs 5 (551) (850)
Net finance costs (517) (844)
Loss before income tax (9,490) (9,605)
Income tax credit 1,049 810
Loss for the financial
year attributable to the
owners of Velocys plc (8,441) (8,795)
Loss per share attributable
to the owners of Velocys
plc
Basic and diluted loss
per share (pence) 9 (0.78) (1.05)
Consolidated statement of comprehensive income
for the year ended 31 December 2021
2021 2020
GBP'000 GBP'000
Loss for the year (8,441) (8,795)
Items that may be reclassified
to the income
statement in subsequent periods:
Foreign currency translation
differences 113 (251)
Total comprehensive expense
for the year
attributable to the owners
of Velocys plc (8,328) (9,046)
Consolidated statement of financial position
as at 31 December 2021
2021 2020
Note GBP' 000 GBP'000
Assets
Non-current assets
Intangible assets 10 1,086 740
Property, plant and equipment 11 11,006 1,479
Right-of-use asset 12 500 653
12,592 2,872
Current assets
Inventories 13 767 970
Trade and other receivables 14 1,274 6,182
Current income tax asset 1,100 810
Cash and cash equivalents 15 25,506 13,051
28,647 21,013
Total assets 41,239 23,885
Liabilities
Current liabilities
Trade and other payables 16 (2,969) (932)
Lease liability 12 (397) (470)
Deferred consideration (7,250) -
Borrowings - (152)
Other liabilities (431) (474)
Deferred revenue 17 (326) (7,774)
(11,373) (9,802)
Non-current liabilities
Lease lability 12 (189) (270)
Borrowings - (371)
Deferred revenue 17 - (382)
(189) (1,023)
Total liabilities (11,562) (10,825)
Net assets 29,677 13,060
Capital and reserves attributable to
owners of Velocys plc
Called up share capital 13,936 10,642
Share premium account 221,059 199,701
Merger reserve 369 369
Share-based payments reserve 2,638 16,345
Foreign exchange reserve 3,151 3,038
Accumulated losses (211,476) (217,035)
Total equity 29,677 13,060
Consolidated statement of changes in equity
for the year ended 31 December 2021
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 2020 6,438 184,256 369 16,225 3,289 (208,240) 2,337
Loss for the year - - - - - - (8,795) (8,795)
Other comprehensive expense
Foreign currency translation
differences - - - - (251) - (251)
Total comprehensive expense - - - - (251) (8,795) (9,046)
Transactions with owners
Share-based payments - value
of
employee services - - - 120 - - 120
Net proceeds from share
issues 4,200 15,437 - - - - 19,637
Proceeds from options
exercised 4 8 - - - - 12
Total transactions with
owners 4,204 15,445 - 120 - - 19,769
Balance at 31 December
2020 10,642 199,701 369 16,345 3,038 (217,035) 13,060
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 - - - - 113 113
Foreign currency translation
differences -
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
Consolidated statement of cash flows
for the year ended 31 December 2021
2021 2020
GBP'000 GBP'000
Note
Cash flows from operating activities
Operating loss (8,973) (8,761)
Depreciation and amortisation 1,084 1,099
Loss on disposal of intangible assets - 72
Impairment of inventory 118 270
Share-based payments
Changes in working capital (excluding the 293 120
effects of exchange differences on consolidation)
Trade and other receivables 4,908 (4,545)
Trade and other payables 2,037 (399)
Other liabilities (566) (2,330)
Deferred revenue (7,830) 2,124
Inventory 85 2,092
Cash consumed by operations (8,844 (10,258)
Tax credits received 759 648
Net cash used in operating activities (8,085) (9,610)
Cash flows from investing activities
Purchase of property, plant and equipment (2,730) (342)
Purchase of intangible assets (518) (513)
Interest received 34 6
Net cash used in investing activities (3,214) (849)
Cash flows from financing activities
Proceeds from issues of shares 26,222 21,000
Costs of issuing shares (1,618) (1,363)
Proceeds from issue of share options 48 12
Principal elements of lease payments (485) (457)
Interest paid (116) (142)
Proceeds from borrowings - 567
Net cash generated from financing activities 24,051 19,617
Net increase in cash and cash equivalents 12,752 9,158
Cash and cash equivalents at beginning of
year 15 13,051 4,797
Exchange movements on cash and cash equivalents (297) (904)
Cash and cash equivalents at end of year 15 25,506 13,051
Notes to the consolidated financial statements
1. Accounting policies
The principal accounting policies applied in the preparation of
these consolidated financial statements are summarised below. The
policies have been consistently applied to each year presented
unless otherwise stated.
Basis of preparation
The financial information contained in this document does not
constitute Group statutory financial statements as defined in
Sections 435 of the Companies Act 2006. It is based on, and is
consistent with, that in the Group's statutory consolidated
financial statements for the year ended 31 December 2021.
The Group's auditors, PricewaterhouseCoopers LLP, have given an
unqualified audit opinion on the consolidated financial statements
for the year ended 31 December 2021. The consolidated financial
statements will be filed with the Registrar of Companies subject to
their approvals by the Company's shareholders on 21 June 2022 at
the Company's Annual General Meeting.
The consolidated financial statements have been prepared in
accordance with the requirements of the Companies Act 2006. .
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 2021 or
2020.
The preparation of financial statements to conform to IFRS as
adopted by the UK 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
The financial statements have been prepared on the going concern
basis, which assumes that the Company and Velocys plc will have
sufficient funds available to enable them to continue to trade for
not less than twelve months from the date of approval of the
financial statements.
The nature of the Company's strategy means that the precise
timing of milestones and funds generated during the early years of
development projects are difficult to predict. The directors have
prepared financial forecasts to estimate the likely cash
requirements of the Company and Velocys plc over the next twelve
months from the date of approval of the financial statements. These
forecasts, including analysis of a severe but plausible downside
scenario, showed that the Company and Velocys plc have sufficient
funding for this period.
During December 2021 the Company raised GBP26.2 million (before
expenses) by way of a VCT Placing, General Placing and Open Offer.
The directors do not anticipate that any further funding to the
Company will come from further placing of the parent company shares
within the twelve months from the date of signing the financial
statements. However additional funding may come from one, or a
combination of, the following sources, with agreements actively
being sought from third parties:
-- Selling additional technology licences;
-- Additional strategic investment into either or both of Bayou Fuels or Altalto projects;
-- UK or USA Government loans or grants
The directors have therefore prepared the financial statements
on a going concern basis.
Changes in accounting policies
New standards, interpretations and amendments adopted from 1
January 2021
The Company has assessed the new standards, interpretations and
amendments issued that are effective from 1 January 2021 and does
not consider these to be relevant to the financial statements or to
have a material impact on the Company in the current or future
reporting periods and on foreseeable future transactions.
New standards, interpretations and amendments not yet
effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the International
Accounting Standards Board ("IASB") that are effective in future
accounting periods that the Company has decided not to adopt
early.
The following amendments are effective for the accounting period
beginning 1 January 2022:
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
-- Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)
-- Annual Improvements to IFRS Standards 2018-2020 (Amendments
to IFRS1, IFRS9, IFRS16 and IAS 41) and
-- References to Conceptual Framework (Amendments to IFRS 3).
In January 2020, the IASB issued amendments to IAS 1, which
clarify the criteria used to determine whether liabilities are
classified as current or non-current. These amendments clarify that
current or non-current classification is based on whether an entity
has the right at the end of the reporting period to defer
settlement of the liability for at least twelve months after the
reporting period. The amendments also clarify that 'settlement'
includes the transfer of cash, goods, services or equity
instruments unless the obligation to transfer equity instruments
arises from a conversion feature classified as an equity instrument
separately from the liability component of a compound financial
instrument. The amendments were originally effective for annual
reporting periods beginning on or after 1 January 2022. However, in
May 2020, the effective date was deferred to annual reporting
periods beginning on or after 1 January 2023.
The Company is currently assessing the impact of these new
accounting standards and amendments. The Company does not believe
that these amendments will have a material impact.
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 (Immingham) 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 LLC,
with a call option to repurchase RDIL within three years. For
further details, please refer to Note 18 (Post financial position
events). 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 assets and liabilities recognised as a result of this
acquisition are as follows:
Book value Adjustment Total
GBP'000 GBP'000 GBP'000
Cash and cash equivalents 1 - 1
Property, plant and equipment
- development 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
the 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.
2021 2020
GBP'000 GBP'000
FT reactor, catalyst and licence 8,132 63
Engineering services 151 115
Total 8,283 178
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. Finance income
2021 2020
GBP'000 GBP'000
Interest income on bank deposits 2 6
Interest income on customer late payments 32 -
Total 34 6
5. Finance costs
2021 2020
GBP'000 GBP'000
Interest on lease liabilities 116 142
Foreign exchange losses 435 708
Total 551 850
6. Other income
Other income consists of items such as government grants, sales
of fixed assets 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.
2021 2020
GBP'000 GBP'000
Income from government grants 956 290
Release of aged deposit received - 80
Profit on sale of fixed assets - 30
Total 956 400
7. Administrative expenses
2021 2020
GBP'000 GBP'000
Employee benefit expense 6,310 4,530
Sub-contractor and consultant costs 2,799 1,171
Depreciation of property, plant and equipment 453 500
Amortisation of intangible assets 172 137
Depreciation of right-of-use asset 459 462
Patent and other IP costs 193 104
Insurance 536 392
Other direct and administrative costs 1,257 1,043
professional services 756 404
Legal 215 358
Travel 181 137
Total administrative expenses 13,331 9,238
Included in administrative expenses were research and
development costs of GBP2,122,000 (2020: GBP1,603,000)
8. 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.
The average monthly number of Company employees (including
Executive Directors) was as follows.
2021 2020
number number
Research, design and development 17 17
Administration 15 16
Total average headcount 32 33
Their aggregate remuneration comprised the following items.
2021 2020
GBP'000 GBP'000
Wages and salaries 4,783 4,813
Short-term non-monetary benefits 491 560
Social security contributions and similar taxes 616 393
Defined contribution pension costs 330 228
Severance expense - 43
Share-based payments granted to directors and
employees 293 120
Total remuneration before capitalisation of wages
and salaries 6,513 6,157
Capitalisation of wages and salaries (203) (1,627)
Total remuneration 6,310 4,530
Wages and salaries for the year ended 31 December 2021 include
discretionary bonuses payable in 2022 to Executive Directors and
employees totalling GBP1,052,000 (2020: GBP983,000) in respect of
2021 performance. The bonuses included in 2020 of GBP983,000
related to payments in respect of 2019 performance (no bonuses were
awarded in respect of 2020 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 capitalisation of wages and salaries relates to employees
who manufacture the reactors associated with one of the Company's
sales contracts, where the costs are deferred until revenue and
cost recognition is allowed in accordance with the performance
obligations of the contract. In addition, capitalisation of wages
and salaries includes those costs related to the Altalto project
which are offset against Other liabilities.
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.
2021 2020
Loss attributable to owners of Velocys
plc (GBP'000s) (8,441) (8,795)
Weighted average number of ordinary shares
in issue 1,078,827,346 836,710,315
Basic and diluted loss per share (pence) (0.78) (1.05)
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 2021 and 2020 there were no other
potentially dilutive instruments.
10. Intangible assets
Significant accounting policies
Cost or valuation and amortisation
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. The Company
decided to abandon certain non-core patents in 2020. This resulted
in a loss on disposal of patents of GBP72,000.
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.
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 GBP172,000 for patents, licences and
trademarks are included in administrative expenses (2020:
GBP137,000). There were no amortisation charges recorded in respect
of other classes of intangible assets during the year as the net
book value was GBPnil (2020: 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.
The Company last recorded an impairment of intangible assets,
which totalled GBP28.8m, in 2017. This comprised GBP7.4m of
Goodwill, GBP20.6m of In-process technology and GBP0.8m of Patents,
licence and trademarks. The majority of the intangible assets arose
on the Company's acquisition of Velocys, Inc. in November 2008 and
relates to the acquired microchannel process technology which forms
an integral part of the Company's patented Fischer-Tropsch ("FT")
reactors.
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 2021 compared the carrying
amount of GBP1.4m 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 2021 which included
progress on our reference projects and new external funding
obtained. Whilst there was clear evidence of the Company's progress
during 2021, Management also considered the wider economic
environment and increased risks posed by the Covid-19 pandemic.
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 2021, the Company considered:
-- At 31 December 2021, 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 2021 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.
The Management also concluded that at 31 December 2021 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
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
Patents,
In-process licence
Goodwill technology and trademarks Software Total
2020 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 - - 513 - 513
Disposals - - (103) - (103)
Foreign exchange movement - - (37) - (37)
At 31 December 2020 7,398 23,681 1,971 96 33,146
Accumulated amortisation
and impairment
At 1 January 2020 7,398 23,681 1,154 96 32,329
Charge for the year - - 137 - 137
Disposals - - (31) - (31)
Foreign exchange movement - - (29) - (29)
At 31 December 2020 7,398 23,681 1,231 96 32,406
Net book amount
At 31 December 2020 - - 740 - 740
11. 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 capitalised
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 1 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 202 1 - 1,221 9,307 10,528
Additions - 9,820 160 9,980
Disposals - - (344) (344)
Foreign exchange - 8 58 66
At 31 December 202 1 - 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 202 1 - 9,968 1,038 11,006
Assets under Land Plant and Total
construction machinery
20 20 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 20 20 982 1,299 8,281 10,562
Additions - - 342 342
Transfers to plant and machinery (982) - 982 -
Foreign exchange - (78) (298) (376)
At 31 December 20 20 - 1,221 9,307 10,528
Accumulated depreciation and
impairment
At 1 January 20 20 - 1,142 7,686 8,828
Charge for the year - - 500 500
Foreign exchange - (68) (211) (279)
At 31 December 20 20 - 1,074 7,975 9,049
Net book amount
At 31 December 20 20 - 147 1,332 1,479
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 2021, the Company had not entered into any
contractual commitments for the material acquisition of property,
plant and equipment (2020: none).
As at 31 December 2021, the gross carrying amount of fully
depreciated property, plant and equipment still in use was
GBP7,217,000 (2020: GBP3,827,000).
12. Leases
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-to-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 GBP116,000
(2020: GBP142,000). The total cash outflow as a result of leasing
activity was GBP588,000 (2020: GBP572,000).
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
adjustments in the net book value of the associated asset. The
right-to-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 2021 and at
31 December 2020.
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. Expenses related to short term leases
and lease of low-value was GBPnil (2020: GBP2,000) and were
included in administrative expenses.
2021 Equipment Buildings Total
Cost GBP'000 GBP'000 GBP'000
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
Equipment Buildings Total
2020 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2020 168 1,096 1,264
Transfers to Buildings (35) 35 -
Additions 85 211 296
Foreign exchange (8) (28) (36)
At 31 December 2020 210 1,314 1,524
Accumulated depreciation
At 1 January 2020 63 365 428
Charge for the year 63 399 462
Foreign exchange (4) (15) (19)
At 31 December 2020 122 749 871
Net book amount
At 31 December 2020 88 565 653
During 2021 the lease terms for the Company's offices in Ohio
and Texas were extended. This resulted in an increase in the
right-to-use assets of GBP316,000. The addition in 2020 of
GBP296,000 related to the expansion of the Company's office space
at its Oxford headquarters.
In 2021, 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 (2020:
GBPnil). In addition, there were sundry adjustments and corrections
totaling GBP19,000 (2020: GBPnil) resulting in a net disposal in
buildings lease values of GBP3,000.
During 2021 various equipment leases expired which have been
derecognised. In addition, management's review of the lease assets
resulted in the early derognision of a further equipment
right-of-use asset. The net effect of derecognising these assets
resulted in a net decrease of GBP4,000 (2020; GBPnil).
2021 2020
Lease liability GBP'000 GBP'000
Current 397 470
Non-Current 189 270
586 740
13. 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.
2021 2020
GBP'000 GBP'000
Raw materials and consumables 286 336
Work in progress - 45
Finished goods 481 589
Total 767 970
Raw materials and consumables consist of parts that will be
consumed in the manufacturing of reactors.
As at 31 December 2021, the Company had a total inventory
provision of GBP771,000 (2020: GBP653,000). The Company recorded
GBP118,000 (2020: GBP270,000) related to slow moving inventory in
the Administrative expenses line of the Consolidated income
statement.
14. Trade and other receivables
2021 2020
GBP'000 GBP'000
Trade receivables 6 110
Deferred costs - 4,947
Prepaid costs 748 531
Grants receivable 158 290
Other receivables 362 304
Total 1,274 6,182
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.
Deferred costs as at 31 December 2020 are in respect of a
customer contract, for which the Company also recorded deferred
revenue as shown in note 17, these costs were fully expensed in
2021.
Trade receivables and deferred costs (contract assets) 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.
Grants receivable of GBP158,000 as at 31 December 2021 were in
respect of the Green Fuels Green Skies grant awarded to the Altalto
project. Grants receivable of GBP290,000 as at 31 December 2020
also related to grant funding for the Altalto project from the UK
DfT, under the Future Fuels for Flight and Freight Competition.
Other receivables consist of vendor deposits and sales taxes
recoverable.
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.
15. 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.
2021 2020
GBP'000 GBP'000
Cash and cash equivalents 25,506 13,051
Total 25,506 13,051
Cash and cash equivalents is denominated in UK sterling,
Euros and US dollars as follows.
2021 2020
GBP'000 GBP'000
Cash and cash equivalents UK UK sterling denominated 16,908 6,584
US dollar denominated 8,584 6,465
Euro denominated 14 2
Total 25,506 13,051
16. Trade and other payables
2021 2020
GBP'000 GBP'000
Trade payables 593 360
Other taxation and social security 203 31
Accruals 2,173 541
Total 2,969 932
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 (2020: 60 days or less).
17. Deferred revenue
Deferred revenue consists of contract liabilities as a result of
instances in which the Company receives payments prior to the
satisfaction of the 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's 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 2020 2,031 2,802 1,199 6,032
Contract liabilities incurred 1,155 969 - 2,124
At 31 December 2020 3,186 3,771 1,199 8,156
Contract liabilities incurred - - 336 336
Released deferred revenue (3,186) (3,445) (1,535) (8,166)
At 31 December 2021 - 326 - 326
The deferred revenue remaining at 31 December 2021, is shown on
the balance sheet as a current liability. Deferred revenue
totalling GBP8,166,000 has been recognised during 2021 as the
related performance obligations have been met.
18. Post position financial events
The following events took place after 31 December 2021.
Grant of share options to Executives and employees
In January 2022, the Company granted options under the 2021
Share Option Scheme totalling 11,378,282 to Executives and senior
management in respect of 2021 performance and options totalling
1,500,000 to new employees who joined the Company during 2021. The
exercise price was set at the time of grant at 8.00 pence being the
highest of the share price at the last fund raising, the share
price on the date of grant and the weighted average share price for
the month prior to grant. The Executive Directors, Mr. Wareborn and
Mr. Morris received a total of 2,343,750 and 2,109,376 options
respectively, allocated equally between time-based and
performance-based options.
Directorate Change
Andrew Morris, CFO, has advised the Board of his intention to
leave Velocys in order to pursue other career opportunities. The
intention is for Andrew to step down as CFO and Board Director on
30 June 2022. The recruitment process of the next CFO is
underway.
Sale and purchase option over Altalto Project site with
Foresight Group LLP
In March 2022 Altalto Immingham Ltd ("Altalto") a wholly owned
subsidiary of Velocys plc sold its 100% interest in Rula
Developments (Immingham) Ltd ("RDIL") for GBP9.75 million, with a
call option for Altalto to re-purchase RDIL within three years
paying up to GBP11.75 million plus a quarterly option fee of
GBP100,000 during the option period. This allowed Altalto to settle
the deferred consideration payable of GBP7.25 million from the
transaction that took place in December 2021, when Altalto took up
its option to purchase RDIL, the property development company which
owns the project site in Immingham, North East Lincolnshire, UK.
Additionally, and subject to the exercise of the re-purchase
option, Altalto has agreed to grant Foresight a right of first
refusal to invest up to GBP100 million into the project,
alongside British Airways and other future investors, once the
full funding us required. The financial effects of this transaction
have not been recognised at 31 December 2021.
New Technical Centre in Ohio
In March 2022 the Company secured a 15 year lease for a modern
and sustainable facility of approximately 52,500 square feet of new
building to be built near Columbus, Ohio. This will consolidate all
our catalysis services, microchannel reactor core assembly and
technology licensing under one roof. In line with
our recent Placing Circular, this will involve a capital
investment of up to GBP1.5 million in the building enhancements to
fit our specific needs and GBP4.8 million in reactor core assembly
automation enabling steady output of at least 12 reactors per year.
It is expected that we will start moving into the building in
Q4
2022 and Q1 2023.
Extension of Agreements with British Airways
In March 2022, the Company agreed with British Airways ("BA") to
extend both the UK Altalto project Joint Development Agreement and
the Option Agreement for BA to acquire 50% of Altalto Ltd by one
year to 31 March 2023. The original option was signed on 12 May
2020 and initially extended on 30 March 2021.
19. Statutory information
Copies of the 2021 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 .
20. Annual General Meeting
The Annual General Meeting ("AGM") is to be held on 21 June
2022. Notice of the AGM will be dispatched to shareholders with the
Company's Annual Report and Accounts.
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END
FR FFFLIEAIRLIF
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May 17, 2022 10:04 ET (14:04 GMT)
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