REG - Velocys PLC - Final results for the year ended 31 December 2016 <Origin Href="QuoteRef">VLSV.L</Origin> - Part 2

VelocysAnnouncement

15/05/2017 15:40

- Part 2: For the preceding part double click  ID:nRSO1752Fa 

Engineering services             1,445   182        
 Total                            1,445   2,002      
 
 
4.   Finance income 
 
                                                             2016    2015£'000  
                                                             £'000              
 Interest income on bank deposits                            129     329        
 Net fair value gains on forward foreign exchange contracts  668     381        
 Foreign exchange gains                                      2,547   445        
 Total Finance income                                        3,344   1,155      
 
 
Interest income is accrued on a time basis by reference to the principal
outstanding and the applicable interest rate. 
 
5.   Other income 
 
Other income consists of items such as sales of fixed assets, contractual and
legal settlements and any other operating income recognised outside of
commercial activities. Other income derived from sales of fixed assets and
non-commercial activities is recognised on an accruals basis. Legal
settlements are recognised as income when a final judgement is received. 
 
                                              2016    2015£'000  
                                              £'000              
 Before exceptional items:                                       
 Contractual and legal settlements            252     1,996      
 Sale of fixed assets                         20      13         
 Total other income before exceptional items  272     2,009      
                                                                 
 Exceptional items (see note 2):                                 
 Recognition of deferred income               2,496   -          
 Deferred consideration release               -       1,763      
 Total other income exceptional items         2,496   1,763      
                                                                 
 Total other income                           2,768   3,772      
 
 
In 2016 Other income included receipts from settlements with Toyo and MODEC,
which offset costs previously recorded in Administrative expenses, and the
recognition of deferred income in respect of cancellation of the Ventech
contract (see note 2). 
 
In 2015 Other income included receipt of settlements arising from two legal
disputes, with CompactGTL and Johnson Matthey, which offset previously
recorded Administrative expenses and the release of deferred consideration
that would have been due to the former owners of Velocys Project Solutions if
FID been achieved at Ashtabula in 2015 (see note 2). 
 
6.   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. 
 
                                                      2016         2015         
 Loss attributable to owners of Velocys plc (£'000s)  (12,669)     (20,051)     
 Weighted average number of ordinary shares in issue  143,282,963  141,915,307  
 Basic and diluted loss per share (pence)             (8.84)       (14.13)      
 
 
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 2016 there were no other
potentially dilutive instruments (see note 9). 
 
7.   Investments 
 
Investments consist solely of Velocys' holding in ENVIA Energy, LLC (ENVIA)
located at 1021 Main Street, Suite 1000 Houston, TX 77002. ENVIA is a US
company and is the holding company for the project located in Oklahoma (the
ENVIA project).  The Company first invested in ENVIA in 2014 as entry into a
joint venture to develop GTL plants in the US using a combination of renewable
biogas (including landfill gas) and natural gas. The first of these plants,
ENVIA Oklahoma City produced its first product in 2017. 
 
Available-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any of the other categories
of financial instruments. At 31 December 2015, the investment was recorded at
cost, which was also considered to be fair value. 
 
At the end of January 2016, Velocys entered into a financing arrangement with
ENVIA under which it contributed additional equity finance of $2,587,000 and
committed to provide loan finance of up to $9,310,000. This senior loan note
bears interest at 10%, and is repayable on 31 December 2019 with an option to
extend to 31 December 2020. As at 31 December 2016, one draw down on this
facility had been made by ENVIA in the amount of $400,000. As a result of the
new funding arrangement, Velocys increased its ownership share and was awarded
additional voting rights, taking its share of voting rights to 28%. 
 
Associates are all entities over which the Company has significant influence
but not control, generally accompanying a shareholding of between 20% and 50%
of the voting rights. From this point the investment has been recognised as an
Investment in associate, accounted for under the equity method. This judgement
was based on the level of influence Velocys holds in ENVIA, including voting
rights exceeding 20% and a seat on ENVIA's board. Investments in associates
are accounted for using the equity method of accounting from the date on which
it becomes an associate. Under the equity method, a cost approach is followed
whereby the cost of all purchases are accumulated (including transaction
costs) to determine the amount of the investment. The notional purchase price
allocation (including goodwill arising on the purchase of the additional
stake) is calculated using fair value information at the date when the
additional interest is acquired. Goodwill is calculated as the excess of the
cost of the investment over the Company's share of the net fair value of the
investee's identifiable assets and liabilities and included in the carrying
amount of the investment. The allocation was fair valued, which gave rise to
goodwill of £320,000; this has been included in Investment in the Investment
in associate table below. Velocys' share of losses since the end of January
2016, arising from administration costs incurred by ENVIA ahead of the
start-up of its first GTL plant, has been reflected in the Income statement.
The carrying amount of the investment is adjusted to recognise the investor's
share of the change in net assets of the investee after the date of
acquisition. 
 
The Company's share of post-acquisition profit or loss is recognised in the
Income statement. There are no post-acquisition movements in Other
comprehensive income in the Company's investments in associates. Distributions
received from an associate reduce the carrying amount of the investment. 
 
The Company determines at each reporting date whether there is any objective
evidence that the investment in the associate is impaired. If this is the
case, the Company calculates the amount of impairment as the difference
between the recoverable amount of the associate and its carrying value and
recognises the amount adjacent to share of profit/(loss) of associates in the
income statement. 
 
Gains and losses resulting from upstream and downstream transactions between
the Company and its associate are recognised in the financial statements only
to the extent of unrelated investors' interests in the associates. Unrealised
losses are eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Accounting policies of associates have
been changed where necessary to ensure consistency with the policies adopted
by the Company. There have been no dilution gains and losses arising in
investments in associates. 
 
Critical estimates and judgements 
 
On acquisition of significant influence, the Company has recognised 9.7% of
the net fair value of ENVIA's identifiable assets and liabilities in its
investment in ENVIA and, for the period from such acquisition to 31 December
2016, recognised 9.8% as its share of post-acquisition losses in ENVIA. These
percentages differ to both the Company's proportion of ownership units held in
ENVIA and its proportion of voting units, which are outlined above. They are
considered more appropriate measures of the Company's economic interest in
ENVIA at both acquisition and for the period ending 31 December 2016, where
the distribution of both ENVIA's identifiable assets and liabilities and its
net losses is defined by the LLC agreement agreed with each of the other
parties that hold ownership units in ENVIA. The investment is denominated in
US dollars; in 2015 it was considered to be an available-for-sale asset. 
 
                                2016     2015   
 Company                        £'000    £'000  
 Available-for-sale investment                  
 At 1 January                   3,375    1,711  
 Investment                     -        1,535  
 Foreign exchange               -        129    
 Movement to associate          (3,375)  -      
 At 31 December                 -        3,375  
 
 
                                   2016   2015   
 Company                           £'000  £'000  
 Investment in associate                         
 At 1 January                      -      -      
 Movement from available-for-sale  3,375  -      
 Investment                        1,938  -      
 Share of loss                     (306)  -      
 Foreign exchange                  858    -      
 At 31 December                    5,865  -      
 
 
8.   Short term investments, 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. Bank accounts held have an original maturity of more
than three months, or which are subject to significant restrictions over
access are shown as short term investments or other financial assets with
appropriate disclosure of which the related terms. 
 
                                  2016    2015    
 Company                          £'000   £'000   
 Short term bank deposits         -       3,000   
 Cash at bank and in hand         18,744  34,736  
 Total cash and cash equivalents  18,744  37,736  
 
 
Both short term investments, and cash and cash equivalents, are denominated in
UK sterling and in US dollars, as follows: 
 
UK sterling denominated 
 
 Company                        2016    2015£'000  
                                £'000              
 Short term bank deposits       -       3,000      
 Cash at bank and in hand       7,114   23,570     
 Total UK sterling denominated  7,114   26,570     
 
 
US dollar denominated 
 
 Company                      2016    2015£'000  
                              £'000              
 Short term bank deposits     -       -          
 Cash at bank and in hand     11,630  11,166     
 Total US dollar denominated  11,630  11,166     
 
 
The parent company has no cash or cash equivalents (2015: £nil). 
 
9.   Post-financial position events 
 
The following events occurred after 31 December 2016. 
 
On 17 January 2017 the Company announced that it had signed a memorandum of
understanding with Morimatsu, the Company's preferred supplier of module
fabrication and engineering. Velocys proceeded, on 3 March, to confirm that it
had reached a definitive agreement with Morimatsu. 
 
On 26 January 2017 a strategic alliance was announced with TRI, the Company's
preferred supplier of gasification systems for its biomass-to-liquids (BTL)
plants. 
 
On 6 February 2017 it was announced that first product had been made at ENVIA
Energy's GTL plant in Oklahoma City. 
 
Velocys announced on 26 April 2017 that Mark Chatterji had stepped down from
his position as Non-Executive Director. 
 
The Company announced separately on 15 May 2017 that it had secured over £10m
of additional funding. 
 
In May 2017 Velocys agreed to provide further loan finance to ENVIA of $3.4m;
this did not affect the Company's share of ownership or voting rights. 
 
10. Statutory information 
 
Copies of the 2016 Annual report and accounts will be posted 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, 115e Olympic Avenue, Milton Park, Abingdon,
OX14 4SA, as well as from the Company's website www.velocys.com. 
 
11. Annual General Meeting 
 
The Annual General Meeting (AGM) is to be held on 22 June 2017. Notice of the
AGM will be dispatched to shareholders with the Company's Annual report and
accounts. 
 
This information is provided by RNS
The company news service from the London Stock Exchange