REG - Velocys PLC - Final Results
17/05/2022 07:00
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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 making good progress in the technology delivery and commercialisation
phase of its growth strategy.
2021 Financial Highlights
· Revenue increased to £8.3 million (2020: £0.2 million).
· Administrative expenses of £13.3 million (2020: £9.2 million).
· Operating loss of £9.0 million (2020: £8.8m).
· Net assets increased to £29.7 million as at 31 December 2021
(2020: £13.1 million).
· £26.2 million (before expenses) successfully raised by a Placing
and Open Offer in December 2021.
· Net cash at year end of £25.5 million (2020: £13.1 million).
· No borrowings at the year-end (2020: £0.5 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 £9.75 million with £2.5 million in cash and £7.25 million owing
as deferred consideration at year-end ahead of onward sale to Foresight Group
LLP.
· Velocys and British Airways were awarded a grant of up to £2.4
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 £9.75 million settling the deferred consideration and
repaying Velocys the £2.5 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 £100 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 +44 1865 800821
Henrik Wareborn, CEO
Andrew Morris, CFO
Lak Siriwardene, Head 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
Notes to Editors
Velocys is an international sustainable fuels technology company, traded on
the AIM market of the London Stock Exchange ("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)
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
£26.2m (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 £100m 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 £2.4 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 £26.2
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
British 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 £3.4m in 2021 and the successful oversubscribed fund
raise of £26.2m (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 £8.3m (2020: £0.2m). 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 £0.2m in
respect of this work. Overall, the gross profit for the year ended 31 December
2021 was £3.4m (2020: £0.1m).
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 £13.3m (2020: £9.2m). In 2021,
the Company was able to release £0.5m (2020: £3.0m) 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 £1.0m consisted of £0.5m from the forgiveness of a
loan awarded under a US Federal Government stimulus package to support
businesses during the COVID-19 crisis, £0.3m from the Green Fuels Green Skies
("GFGS") grant awarded by the UK Department for Transport in 2021 and £0.2m
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
£0.4m mainly consisted of £0.3m from the first tranche of the F4C grant.
Operating losses
Operating losses of £9.0m were in line with the previous year (2020: £8.8m).
Net assets and cash
The net assets of the Company were £29.7m, which is an increase of £16.6m
compared to 2020. This increase was principally the result of an increase in
cash of £12.5m, and non-current assets (less the related outstanding deferred
consideration) of £2.5m. There was also a reduction in deferred revenue and
the related costs which increased net assets by £2.9m. The net cash inflow to
the Company in 2021 was £12.8m (2020: £9.2m) principally being cash
generated from financing activities of £24.2m, attributed to £24.6m received
net of expenses from the fund raise completed in December, less £3.2m used in
investing activities and £8.1m 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 £2.5m. 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
£2.5m in December 2021 and a further deferred consideration amount of
£7.25m, 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 £9.8m. 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 £103.1m compared to £108.0m at
the previous year end. The Company's net assets were £29.7m (2020: £13.1m).
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 £9.2m (compared to the parent
company's market capitalisation value of £103.1m) showed that no impairment
indicators were identified and, as a result, no impairment was recognised
(2020: £nil).
The parent company also assessed total loans of £22.6m due from its
subsidiaries and as a result recorded a provision for expected credit losses
("ECL") of £2.0m (2020: £1.8m). The total ECL provision of £3.9m is
eliminated on consolidation and therefore is not seen in the consolidated
financial statements.
Funding
In December 2021 Velocys raised a total of £26.2m (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 £'000 £'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
£'000 £'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 £'000 £'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 up Share premium account Share based payment reserve Foreign exchange reserve Accumulated Total equity
share capital Merger reserve losses
£'000 £'000 £'000 £'000 £'000 £'000 £'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 - - - - (251) (251)
Foreign currency translation differences -
Total comprehensive expense - - - - (251) (8,795) (9,046)
Transactions with owners
Share-based payments - value of - - - 120 - - 120
employee
services
Net proceeds from share 4,200 15,437 - - - - 19,637
issues
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 - - - 293 - - 293
employee
services
Transfer from share-based payments reserve - - - (14,000) - 14,000 -
Net proceeds from share 3,278 21,326 - - - - 24,604
issues
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
Note £'000 £'000
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 293 120
Changes in working capital (excluding the effects of exchange differences on
consolidation)
4,908 (4,545)
Trade and other receivables
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 £26.2 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 (£). 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 £.
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
£2.5m cash payment and deferred consideration of £7.25m 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:
£'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
£'000 £'000 £'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 £7.25m. 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
£'000 £'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 £8,132,000 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
£'000 £'000
Interest income on bank deposits 2 6
Interest income on customer late payments 32 -
Total 34 6
5. Finance costs
2021 2020
£'000 £'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
£'000 £'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
£'000 £'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
£2,122,000 (2020: £1,603,000)
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
£'000 £'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
£1,052,000 (2020: £983,000) in respect of 2021 performance. The bonuses
included in 2020 of £983,000 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 (£'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 £72,000.
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 £172,000 for patents, licences and trademarks are
included in administrative expenses (2020: £137,000). There were no
amortisation charges recorded in respect of other classes of intangible assets
during the year as the net book value was £nil (2020: £nil).
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
£28.8m, in 2017. This comprised £7.4m of Goodwill, £20.6m of In-process
technology and £0.8m 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
£1.4m 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.
Goodwill In-process technology Patents, licence and trademarks Software Total
2021 £'000 £'000 £'000 £'000 £'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
Goodwill In-process technology Patents, licence and trademarks Software Total
2020 £'000 £'000 £'000 £'000 £'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 Land Plant and Total
construction machinery
2021 £'000 £'000 £'000 £'000
Cost
At 1 January 2021 - 1,221 9,307 10,528
Additions - 9,820 160 9,980
Disposals - - (344) (344)
Foreign exchange - 8 58 66
At 31 December 2021 - 11,049 9,181 20,230
Accumulated depreciation and impairment
At 1 January 2021 - 1,074 7,975 9,049
Charge for the year - - 453 453
Disposals - - (345) (345)
Foreign exchange - 7 60 67
At 31 December 2021 - 1,081 8,143 9,224
Net book amount
At 31 December 2021 - 9,968 1,038 11,006
Assets under Land Plant and Total
construction machinery
2020 £'000 £'000 £'000 £'000
Cost
At 1 January 2020 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 2020 - 1,221 9,307 10,528
Accumulated depreciation and impairment
At 1 January 2020 - 1,142 7,686 8,828
Charge for the year - - 500 500
Foreign exchange - (68) (211) (279)
At 31 December 2020 - 1,074 7,975 9,049
Net book amount
At 31 December 2020 - 147 1,332 1,479
The addition of £9,820,000 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 £7,217,000 (2020:
£3,827,000).
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 £116,000
(2020: £142,000). The total cash outflow as a result of leasing activity was
£588,000 (2020: £572,000).
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 £nil (2020: £2,000) and were
included in administrative expenses.
2021 Equipment Buildings Total
Cost £'000 £'000 £'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 £'000 £'000 £'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
£316,000. The addition in 2020 of £296,000 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
£22,000 (2020: £nil). In addition, there were sundry adjustments and
corrections totaling £19,000 (2020: £nil) resulting in a net disposal in
buildings lease values of £3,000.
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 £4,000 (2020;
£nil).
2021 2020
Lease liability £'000 £'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
£'000 £'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
£771,000 (2020: £653,000). The Company recorded £118,000 (2020: £270,000)
related to slow moving inventory in the Administrative expenses line of the
Consolidated income statement.
14. Trade and other receivables
2021 2020
£'000 £'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 £158,000 as at 31 December 2021 were in respect of the
Green Fuels Green Skies grant awarded to the Altalto project. Grants
receivable of £290,000 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
£'000 £'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
£'000 £'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
£'000 £'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:
£'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 £8,166,000 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 £9.75 million, with a call option for Altalto to re-purchase
RDIL within three years paying up to £11.75 million plus a quarterly option
fee of £100,000 during the option period. This allowed Altalto to settle the
deferred consideration payable of £7.25 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 £100 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
£1.5 million in the building enhancements to fit our specific needs and £4.8
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 (http://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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