REG - Velocys PLC - Business Update

VelocysAnnouncement

26/01/2023 07:00

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RNS Number : 8967N  Velocys PLC  26 January 2023

 

26 January 2023

News Release

 

Velocys plc

("the Company")

 

 

Business Update

 

Velocys plc (AIM: VLS), the sustainable fuels technology company, is pleased
to provide the following business and post close update for the 12 months
ending 31 December 2022 ("FY22").

 

Based on unaudited accounts for FY22, the financial performance of the Company
was in line with market expectations. As of 31 December 2022, Velocys had a
cash balance of £13.4 million (2021: £25.5 million). The Company expects to
report its results for the year to 31 December 2022 in May 2023.

 

During 2022, Velocys saw the achievement of a number of key milestones and
objectives which put the Company in a strong position to progress its
reference projects through to key valuation inflection points and build its
commercial pipeline.

 

Business Scale-up and Delivery

·     Appointment of Global Head of Business Development and Technology
Delivery and new Chief Financial Officer, together with a number of key
technical and engineering roles in Houston, Texas and Columbus, Ohio.

·     Provision of technical and engineering services to commercial
clients.

·     Commencement and completion of construction of a new Columbus, Ohio
reactor core manufacturing facility.

·     Sale of the Ashtabula site in Ohio.

·     Establishment of the Scientific Advisory Board for catalysis.

 

Bayou Fuels Project (US)

·     Further optimisation on the Bayou Fuels plant design, enabling the
delivery of industry leading negative carbon intensity Sustainable Aviation
Fuel ("SAF").

·     Implementation of the Landmark US Inflation Reduction Act ("IRA")
legislation will significantly support development of the US sustainable fuels
industry, including SAF and enabling the Company to progress Series A funding
for the project.

 

Altalto and e-Alto Projects (UK)

·     Award of two grants from the UK Government's Department for
Transport ("DfT") Advanced Fuel Funds for an aggregate of £29.5 million:

o  £27 million- to deliver the Altalto Front-End Engineering Design ("FEED")

o  £2.5 million - to contribute towards a new e-fuels project ("e-Alto").

·     Secured long term site-control for the Altalto project in
collaboration with the Foresight Group.

 

Post year-end, Velocys has entered into a Master Relationship Agreement
("MRA") with Bechtel Limited, one of the world's most respected engineering
companies. The MRA, which will be instrumental in delivering the next
important milestones for the reference projects and future commercialisation,
sets out a framework and roadmap for the parties to collaborate with each
other with the objective of developing an EPC execution model for sustainable
fuel plants.

 

The Company is also in the final stages of appointing a global investment bank
as Financial Adviser to assist with, and advise on, the delivery of
development capital into the Bayou Fuels (US) and Altalto (UK) projects. As
this activity accelerates, we have commenced a broader recruitment programme
with a focus on increasing our project engineering and business development
capability.

 

2023 Outlook

 

Operations and Business Development

 

·     Manufacturing capability:

o  Construction has been completed at the new reactor core assembly facility
in Columbus, Ohio, with fit-out now being undertaken on site

o  Recruitment of manufacturing personnel has begun, and commissioning will
commence in Q3 2023

o  The site will significantly scale up the Company's reactor core assembly
capabilities, with a capacity to produce 12 reactors a year (each comprising
of four cores).

 

·     Toyo, Japan - the Company continues to provide services and support
to Toyo Engineering Corporation under the Collaboration Agreement signed in
late 2021 as progress continues on the NEDO projects to proceed towards FEED
in 2024.

 

·     Velocys' technology capability in power-to-liquid was recognised by
a further grant award of £2.5 million from the DfT's Advanced Fuels Fund to
the e-Alto project, a new e-fuels concept development project in the UK.
Velocys will be contributing its proprietary technology to e-Alto, alongside
other partners including Clariant Catalysts, Technip Energies and British
Airways.

 

·     The business development pipeline continues to grow, with a number
of feasibility studies underway with both biorefinery and advanced
power-to-liquid developers, as well as an increase in enquiries for potential
projects. Velocys expects to move forward with a number of new global clients
over the course of 2023.

 

·     Organisation scale-up is planned to support commercial strategy.
With the commissioning of the manufacturing facility in Ohio and the
significant progress made at the Company's reference projects, the Company is
planning to materially expand the workforce in 2023, with a particular focus
on project and operations engineering and manufacturing resources, business
development and a small number of functional support staff.

 

·     The Company continues to develop its commercial revenue model
focussing on providing clients with fully integrated technology packages.

 

·     Velocys expects to build its revenue generation during 2023 from
fees generated by its reference projects as they move into FEED stage, along
with additional income from other feasibility studies.

 

Bayou Fuels Project

 

With the support of the Financial Adviser, the Company expects the Series A
funding for the development capital for the Bayou Fuels project to be launched
in Q2 2023, with an aim to enter in to FEED by Q4 2023, delivering a pathway
to Financial Investment Decision ("FID") in Q1 2025. Once the project enters
FEED, the Company expects to generate revenues for its technology license and
engineering service. Velocys expects to retain a reduced equity position in
the Bayou project post the Series A fundraising.

 

Following FID in early 2025, the Company expects to enter into construction
with commissioning and start up anticipated in 2028, at which point Velocys
expects to be generating revenue from reactor and catalyst sales, engineering
services and technology licensing.

 

The 15-year, fixed price, offtake agreement remains in place with Southwest
Airlines, amended recently to reflect the updated project schedule, as well as
a Memorandum of Understanding with IAG for a 10-year fixed price offtake for
100% of the SAF produced at the biorefinery.

 

As previously announced, the project has significantly improved its carbon
intensity score from -144g CO2e/MJ to -375g CO2e/MJ through the provision of a
biomass boiler renewable power solution with CCS integration. This improvement
has the potential to increase future revenue for Bayou Fuels and further
support third party project funding. The Inflation Reduction Act of 2022
supports the project greatly as the 45Z tax credits incentivises the total
amount of avoided carbon rather than the volume of sustainable fuel supplied,
therefore prioritises our technology which offers a direct route to negative
carbon intensity fuels.

 

Altalto Project

 

A grant award of £27 million was received for this project from the DfT's
Advanced Fuels Fund, the highest such award from the DfT to any party involved
in the competition. This award, along with private sector matched funding,
will be used for the completion of the project FEED and places Altalto on a
clear pathway to FID by the end of 2024 and recognises the progress that has
been made in advancing the project. Altalto expects to enter into construction
in 2025 with commissioning and start up anticipated in 2027, at which point
Velocys expects to generate revenue from reactor and catalyst sales,
engineering services and technology licensing.

 

Licensor and engineering service agreements are being finalised and, subject
to contract, it is expected that Bechtel will commence FEED in Q2 2023. With
the support of our Financial Adviser, matched funding will be sought in Q2
2023. This will provide an opportunity for new partners to participate in the
early development capital ahead of FID, as well as the development of offtake
arrangements. Velocys expects to retain a reduced equity position in the
Altalto project post the funding. The project is being jointly developed with
British Airways.

 

 

Henrik Wareborn, CEO, said:

 

"The progress and partnerships outlined in this business update reflect the
significant achievements made in 2022 and Velocys' position of strength in a
rapidly evolving global market for advanced synthetic fuels technology.

 

"We have the here-and-now technology to enable SAF production close to
sustainable feedstock sources to decarbonise the aviation industry at scale.
In order for SAF production plants to be successful, several threads need to
be in place, such as government regulatory support, abundant and sustainable
feedstock, carbon capture and sequestration, supply of renewable power, and
most of all, a technology that works. Velocys provides a uniquely integrated
package with its IP-protected technology at its core.

 

"The progress we continue to make, supported by these new developments and the
policy tailwinds, means we have a solid platform to deliver. Consequently, we
are confident about the years ahead and our commercialisation strategy."

 

This announcement contains inside information for the purposes of the UK
Market Abuse Regulation.

 

 

 

For further information, please contact:

 

 Velocys                                                            +44 1865 800821

 Henrik Wareborn, CEO

 Philip Sanderson, CFO

 Lak Siriwardene, Director of Communications & Sustainability
 Panmure Gordon (UK) Limited (Nomad and Joint Broker)               +44 20 7886 2500

 Hugh Rich (Corporate Broking)

 Emma Earl (Corporate Finance)

 John Prior (Corporate Finance)
 Shore Capital Stockbrokers Limited (Joint Broker)                  +44 20 7408 4090

 Henry Willcocks (Corporate Broking)

 Toby Gibbs (Corporate Advisory)

 James Thomas (Corporate Advisory)
 Radnor Capital (Investor Relations)                                +44 20 3897 1830

 Joshua Cryer

 Iain Daly
 Buchanan (Financial PR)                                            +44 20 7466 5000

 Helen Tarbet

 Simon Compton

 

 

--Ends-

 

Notes to Editors

 

Velocys is an LSE-listed, international sustainable fuels technology company,
traded on the AIM, providing customers with a technology solution to enable
the production of negative Carbon Intensity synthetic, drop-in fuels from a
variety of waste materials. Synthetic fuel is the only commercially available,
permanent alternative to fossil aviation fuels. The Velocys technology is
IP-protected in all major jurisdictions.

 

Two reference projects (Bayou Fuels, US, and Altalto, 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 (http://www.velocys.com)

 

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