REG - Velocys PLC - Final Results
18/05/2023 17:45
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RNS Number : 9407Z Velocys PLC 18 May 2023
News release
Velocys plc
("Velocys" or "the Company")
18 May 2023
Unaudited Preliminary Results for the year ended 31 December 2022
Creating a Platform for Growth with the Achievement of Key Milestones
Velocys, the sustainable fuels technology company, is pleased to announce its
unaudited preliminary results for the year ended 31 December 2022 ("FY22").
During 2022, Velocys saw the achievement of a number of key milestones which
put the Company in a strong position to continue with the commercialisation
phase of its growth strategy.
2022 Financial Highlights
· Revenue of £0.2 million from engineering services (2021: £8.3
million from licensing and reactor sales(1)).
· Administrative expenses of £16.3 million (2021: £13.3 million).
· Operating loss of £14.5 million (2021: £9.0 million).
· Net loss of £13.2 million (2021: £8.4 million)
· Net assets of £16.7 million at 31 December 2022 (2021: £29.7
million).
· Net cash at year end of £13.4 million (2021: £25.5 million).
(1) The revenue recognised in FY21 represented the completion of a
multi-year contract to deliver reactors and catalyst to the Company's first
major commercial customer located in the US.
Operational Highlights (including post period end events)
Business scale-up and delivery
· Construction completed at the new 52,000 sq. ft. reactor core
manufacturing facility in Columbus, Ohio, with fit-out being completed during
HY1 2023. 15-year lease agreed (commencing in May 2023), with Velocys
contributing $2.0 million (£1.7 million) for construction, with the remaining
$8.0 million (£6.7 million) contributed by the developer.
· Appointment of new Chief Financial Officer, Senior VP Business
Development and Technology Delivery, and new VP Engineering together with a
number of key technical and engineering roles.
· Establishment of a Scientific Advisory Board for catalysis.
· Provision of technical and engineering services to commercial
clients in Europe and Japan.
· Continued investment in patents protecting the Company's extensive
intellectual property portfolio.
Favourable regulatory developments
· Landmark US Inflation Reduction Act of 2022 created strong
incentives to accelerate the deployment of sustainable aviation fuel ("SAF")
technologies including by providing tax credits for every gallon of qualifying
SAF produced in the US - based on lifecycle greenhouse gas emission reduction
percentages.
· UK Government's Net Zero Strategy included developing a mandate for
at least 10% SAF by 2030 and an objective of five commercial-scale plants to
be in construction by 2025. A second consultation seeking stakeholder views on
the detailed design of the mandate is underway and closes in June 2023.
· UK Advanced Fuels Fund ("AFF") launched to accelerate projects
through their Front-End Engineering and Design ("FEED") phase and reaching
financial investment decision ("FID") for construction.
· The European Commission's ReFuelEU Aviation sustainable air
transport initiative, setting out minimum obligations upon fuel suppliers to
increase the share of SAF in the fuel supplied to operators at EU airports,
gained political agreement in April 2023 and now requires adoption by the
European Parliament and the Council.
Bayou Fuels Project (US)
· Further optimisation of the Natchez Mississippi plant design
incorporating a biomass boiler and carbon sequestration, enabling the delivery
of industry leading negative carbon intensity SAF.
· The offtake arrangements secured in 2021, covering 100% of the SAF
to be produced at the plant and important to future investors into the
project, were updated to reflect the Inflation Reduction Act and subsequent
guidance on the details of the tax credits.
· Levee construction commenced, a key milestone for insurance and
de-risking of the Natchez site, which is expected to be completed in Q4 2023.
Altalto Immingham Project (UK)
· Long term control of the 78-acre Immingham site secured through a
financing arrangement with Foresight Group LLP, with an option to repurchase
in up to 36 months from March 2022.
· Completion of pre-FEED project milestones supported by the Green
Fuels Green Skies grant awarded in FY21.
· Award of a grant of up to £27.0 million under the AFF to deliver
the FEED phase of the project. The matched funding requirement of £27.0
million included letters of intent from existing and new partners, and Velocys
(post year-end) plans to launch project financing with the support of a
leading global investment bank to raise the balance of development capital
required for this project phase, which runs to March 2025.
e-Alto Project
· £2.5 million grant awarded under the AFF competition to support a
new e-fuels project. E-fuels, also referred to as third generation SAF, are
produced from CO(2) (point source or direct air capture) as their main carbon
source.
Post period end events
· Velocys entered into a Master Relationship Agreement ("MRA") and
Altalto Immingham FEED contract with Bechtel Limited, one of the world's most
respected engineering companies. The MRA and FEED contract, instrumental in
delivering the next important milestones for the Bayou Fuels and Altalto
Immingham reference projects, include the objective of developing a viable
engineering, procurement and construction ("EPC") execution model for
sustainable fuel plants.
· Velocys has appointed a leading global investment bank to assist
with, and advise on, the delivery of development capital into the two
reference projects.
· The Company has today announced the launch of a fundraise
comprising a placing, retail offer, open offer, a conditional issuance of
convertible loan notes to Carbon Direct Capital and potential further
issuances of convertible loan notes and/or new ordinary shares to investors
other than Carbon Direct Capital. The fundraise aims to raise a minimum of
£32 million (before expenses), of which the placing, retail offer and open
offer are expected to raise approximately £8 million (before expenses). An
accelerated bookbuild process for the placing is expected to raise a minimum
of approximately £6 million (before expenses), with the result of the placing
expected to be announced on 19 May 2023 and the process scheduled to complete
on 9 June 2023, provided the necessary approvals from the Company's
shareholders are obtained at a General Meeting of the Company's shareholders
expected to be held on 8 June 2023. The retail offer and open offer are for up
to £0.5 million and £2.0 million respectively.
Henrik Wareborn, CEO of Velocys, said:
"This has been a transformational year for Velocys, during which we have put
in place key operational building blocks which will enable us to move towards
full commercialisation. We have achieved key milestones at both our US and UK
reference projects, supported by top tier partners and policy incentives. We
are engaged in scaling up the business to meet client requirements, with the
appointment of key finance and business development personnel. And we are
highly encouraged by the favourable legislative developments in both the US
and the UK, which provide strong financial and political support for the
production of SAF.
"We have today announced a placing, retail offer and open offer, supported by
the conditional commitment from a leading carbon tech investor, Carbon Direct
Capital, to subscribe for convertible loan notes. This fundraise will provide
the capital we need to scale-up the business and move fully into our
commercialisation phase.
"We are very excited about what the future holds for Velocys, as we continue
to lead at the forefront of decarbonising aviation and helping industry
towards a greener and more sustainable future."
Certain information contained in this announcement would have constituted
inside information (as defined by Article 7 of Regulation (EU) No 596/2014)
prior to its release as part of this announcement.
For further information, please contact:
Velocys
Henrik Wareborn, CEO
Philip Sanderson, CFO
+44 1865 800821
Panmure Gordon (UK) Limited (Nomad and Joint Broker)
Hugh Rich (Corporate Broking)
Emma Earl (Corporate Finance)
John Prior (Corporate Finance)
+44 20 7886 2500
Shore Capital Stockbrokers Limited (Joint Broker)
Henry Willcocks (Corporate Broking)
Toby Gibbs (Corporate Advisory)
James Thomas (Corporate Advisory)
+44 20 7408 4090
Radnor Capital (Investor Relations)
Joshua Cryer
Iain Daly
+44 20 3897 1830
Buchanan (Financial PR)
Helen Tarbet
Simon Compton
+44 7872 604 453
+44 7979 497 324
velocys@buchanan.uk.com
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 Immingham, 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
2022, with the airline industry recovering from the impact of the COVID-19
pandemic, proved to be another extraordinary year. Inflation rates, including
in the UK and US, reached a 40-year high, and Russia's
invasion of Ukraine not only inflicted devastation on the country and its
people, but also led to volatility in energy and financial markets, as well as
heightening costs and uncertainty for businesses around the world.
Nevertheless, the world's focus on mitigating climate change, setting
sustainability goals and support for reducing aviation emissions has not
wavered, and 2022 saw a number of key regulatory developments which we
were very pleased to see come to fruition after several years under
discussion.
I am pleased that, despite the challenging market conditions, Velocys has,
once again, delivered on some key milestones. Employee engagement remains
high, and we continue to invest for long term growth in our technology, our
people and in our manufacturing capability. On behalf of the Board, I would
like to thank our employees for their hard work and commitment to the Company.
Their focus and resilience have enabled Velocys to navigate the economic
volatility and finish the year in a good position to move forward with our
technology commercialisation plans.
POLICY DEVELOPMENTS
August saw a critical legislative development in the US when the Inflation
Reduction Act of 2022 ("the Act") was passed into law. The legislation
allocates approximately $369 billion to reducing greenhouse gas emissions and
incentivises expanded production and use of domestic clean energy. Sustainable
Aviation Fuel ("SAF") tax credits are an integral part of the Act, together
with other incentives and mechanisms to accelerate the deployment of advanced
fuel technologies, generating non-fossil fuels with a significantly reduced
carbon intensity.
We believe this landmark legislation represents a compelling model which other
governments will seek to follow, in particular in its focus on total amount of
avoided carbon instead of volume of sustainable fuel supplied, thus
prioritising those technologies which offer routes to negative carbon
intensity fuels, such as our Bayou Fuels reference project.
Whilst the US legislation was pending, the team continued to enhance the
attractiveness of the Bayou Fuels project ahead of launching third party
project funding in 2023. In November we announced that the Bayou Fuels project
had been re-optimised for maximum decarbonisation, thus setting a new
benchmark for carbon savings with a significantly improved negative carbon
intensity score of -375g CO(2)e/MJ (previously -144g CO(2)e/MJ); abating the
carbon emissions from the equivalent of 1.1 million return trips from San
Francisco to London per annum. The project is now designed to use renewable
energy derived from sustainable biomass power instead of solar power.
The significant improvement in negative carbon intensity will allow the Bayou
Fuels project to derive the maximum benefit from the 45z tax credits under the
Act. This, combined with the offtake arrangements already in place with
Southwest Airlines and IAG accounting for in aggregate 100% of the SAF
produced, enhances and derisks the economic profile of the project.
The UK Government's Department for Transport launched its Jet Zero Strategy,
setting out the Government's approach for achieving net zero aviation by 2050.
This included an ambition for a minimum of five commercial scale SAF plants to
be under construction in the UK by 2025, and a mandate for the equivalent of
at least 10% SAF to be blended into conventional aviation fuel by 2030.
Importantly, the UK mandate is to be expressed in terms of greenhouse gas
reductions, rather than simple volume, which will benefit our Altalto
Immingham reference project due to its ultra-low carbon intensity.
The strategy launch was followed up with the announcement of a £165 million
Advanced Fuels Fund competition providing grants to support the completion of
front-end engineering and development phase of commercial-scale SAF plants,
enabling them to advance to the stage of being ready for investment decision
required for construction. The Altalto Immingham project, which had already
secured long term control of the Immingham site in North East Lincolnshire in
March 2022 (for which planning permission has previously been granted), was
successful with the largest award of a grant of up to £27 million.
The grant provides approximately 50% of the funding required to complete the
FEED phase by March 2025. With the appointment by Velocys of a leading
international investment bank, the total matched funding requirement of £27
million is expected to be finalised during the second half of 2023.
Therefore, our strategic priority to advance the two reference projects as key
enablers for showcasing our technology in a long-term commercial setting has
really come together during 2022. The engagement with Bechtel, one of the most
experienced and respected engineering companies in the world, is a huge vote
of confidence in Velocys' technological capabilities and I look forward to our
collaboration in the years ahead. For our clients, this provides a scalable
deployment model with tangible global reach.
BOARD CHANGES
We are delighted to have appointed Philip Sanderson as CFO and executive
director of the Company in June 2022. Philip, who brings over 30 years of
international experience in financial and commercial leadership from Shell
plc, has first-hand experience of large-scale project financing. I would like
to acknowledge the efforts and contributions of our outgoing CFO, Andrew
Morris, who stood down from the Board in June 2022. 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.
SENIOR MANAGEMENT APPOINTMENTS
Andy Bensley joined us in February 2022 as SVP Business Development and
Technology Delivery and is a member of our management team and based in
Oxford. He has 35 years of international expertise in international oil
companies and EPC contractor organisations.
Darren Sanders joined us in September 2022 as VP Engineering based in our
Houston office. Darren has 30 years of engineering and construction
experience, holding diverse roles with responsibilities including process
design, proposal and business development, and project management.
SCIENTIFIC ADVISORY BOARD
Reflecting the importance and commitment to our catalysis expertise developed
over the past twenty years, this year the Board approved the establishment of
our first Scientific Advisory Board ("SAB"), chaired by Dawid Duvenhage, VP
Catalysis. When establishing the SAB, the Board ensured that the distinguished
members brought a wide range of experience that will augment our internal
capabilities and ensure we remain at the forefront of innovation in this
field.
LOOKING AHEAD
As set out in the Financial Review, the Company requires additional external
funding to be in a position to move forward with our growth plan. We also look
forward to transitioning our reference projects as new investors take them
forward and Velocys focuses on the key role of technology delivery.
Our commercial and business development function supported by the engineering
team is focused on converting the accelerating number of customer enquiries
into viable projects. Through established strategic alliances with our
technology and engineering partners, we will be able to offer a highly
competitive fully integrated end-to-end solution for converting sustainable
non-fossil feedstocks into SAF.
Despite the excellent operational progress we have made in the past year to
strengthen our organisation, bringing together staff, manufacturing facilities
and our catalysis laboratory into a new build integrated technology centre in
Ohio and increasing our business development and commercial capability, it
would be inappropriate not to recognise the external headwinds facing the
Company in bringing the two reference projects to FID status. The continued
lack of finalised UK policy support poses specific challenges for Altalto,
whilst the current volatility and weakness of the global capital markets will
make future near-term project funding rounds more difficult.
We look forward to the conclusion of the UK Government's consultation process
and finalised plans for the policy support necessary to kick-start a UK based
SAF industry, in which Velocys' technology is well positioned to play a
significant role. The Board is confident that the Company, under Henrik
Wareborn's leadership, is well placed to execute our corporate strategy with
the objective to deliver sustainable returns to our shareholders.
CEO's Statement
Velocys provides a unique technology pathway enabling the economic production
of drop-in sustainable aviation fuel, which can help to decarbonise the
aviation industry without the need for any aircraft engine modification or
change of fuelling systems at airports.
In addition to delivering environmental improvements as a cleaner burning
fuel, there is also considerable potential to address national fuel security
concerns whereby most countries without the natural resources to produce
fossil fuels can leverage domestic sustainable feedstocks used for SAF.
With the highly favourable US climate legislation, the Inflation Reduction
Act, implemented in the second half of 2022 and the launch of the UK
Government's Advanced Fuels Fund, Velocys' clients are well positioned to
benefit from the regulatory tailwinds which help underpin the economic
viability of advanced SAF production.
PROGRESS MADE IN 2022
New reactor core manufacturing facility in Ohio
A key focus during the past year was to increase our patented reactor core
manufacturing capacity, through investment in a new build facility in
Columbus, Ohio. Previously, our reactor cores were produced at a third-party
site using our custom-made equipment with oversight and quality assurance
performed by Velocys personnel. At just over twelve months from site
selection, I am pleased to report that the new 52,000 square foot facility is
constructed, the internal fit-out is largely completed and the relocation from
our existing Columbus facility is well underway.
The new facility has the capacity to produce 48 cores per year, sufficient for
12 reactors (the typical requirement for each client) which will unlock
commercial revenues for Velocys' core business which is technology licensing.
Startup and commissioning of the reactor core manufacturing will take place
during the second half of 2023.
Reference projects
Good progress was made on the Bayou Fuels reference project in Mississippi, US
in preparation for the launch of the Series A financing for the project to
enter the FEED phase. The carbon intensity of the biorefinery design was
optimised through the provision of renewable power from biomass and carbon
sequestration which significantly enhances the expected financial returns and
takes advantage of the favourable legislative support legislated in the
Inflation Reduction Act. A leading global investment bank has been engaged to
launch the Series A financing in the second half of 2023. Velocys expects
external long term capital partners to take Bayou Fuels into FID and
construction upon completion of the FEED phase while converting Velocys'
development capital stake into a long-term royalty stream from the asset.
In the UK, the Altalto Immingham project also achieved some key milestones. In
March 2022, Velocys secured long term control of the site by means of a
financing arrangement with Foresight Group LLP with an option to
repurchase. Foresight has a proven track record and history of investing in
energy transition infrastructure.
They have also acquired an option to invest up to £100 million into the asset
upon FID. Altalto Ltd has retained the right to access the land for
maintenance and predevelopment activities associated with its existing
planning permission.
In December 2022, Velocys secured the largest grant awarded under the UK
Department for Transport's Advanced Fuels Fund ("AFF") for up to a maximum of
£27 million for the Altalto project. The AFF prioritises first-of-a-kind
commercial scale SAF plants that require additional financial support to reach
the construction stage. The grant funding, which will be distributed over the
grant period through to March 2025, will support Altalto to complete the FEED
stage of the project, which will incorporate the integrated technology
packages of the licensors (including Velocys) and develop the basis for the
Engineering, Procurement and Construction ("EPC") contract. The Company has
obtained letters of intent from a number of existing and new potential
partners for the private-sector matched funding requirement with the first
tranche of funding in place during the first half of 2023.
Velocys also secured a separate grant of £2.5 million from the AFF for the
concept development of e-fuels projects (where energy input is derived from
renewable electricity via hydrogen). This e-fuels grant has been awarded to
Velocys to assemble the technology package for an e-fuels project in the UK,
in collaboration with a number of new and existing partners. E-fuels
technology also require FT synthesis technology for conversion of hydrogen
into liquid sustainable fuels.
Business development and client pipeline
The business development pipeline continues to grow, with a number of paid
feasibility studies underway with both biorefinery and advanced
power-to-liquid developers, as well as a significant increase in enquiries
stimulated by strong policy incentives.
OUTLOOK
Velocys has signed a master relationship agreement ("MRA") and FEED agreement
with Bechtel Limited ("Bechtel"), a leading global provider of engineering,
construction and project management services, as our SAF project delivery
partner to develop a viable EPC model, a centre of excellence model and to
provide project engineering and other technical services to our clients,
thereby accelerating the commercialisation strategy and significantly
de-risking technology implementation.
Initially the collaboration is focusing on the Altalto Immingham and the Bayou
Fuels reference projects together with the e-Alto power-to-liquids project in
the UK. The MRA also covers other third-party clients that may be introduced
by either Bechtel or Velocys globally. Under a separate continuing technical
services agreement, Bechtel is providing technical services to support the
development of Velocys' SAF client portfolio.
As detailed in the Financial Review, Velocys has announced a fundraise which
comprises a placing, retail offer and open offer of the Company's ordinary
shares on AIM. The Company has also received a conditional commitment from
Carbon Direct Capital to subscribe for convertible loan notes which are
structured to incentivise a US secondary listing of the Company, in addition
to the current London listing.
The Board has been considering the merits of a US listing for some time, given
Velocys' long history in the US and major investments there in assets and
capabilities. I believe that a dual listing will improve our access to capital
and liquidity which will allow us to accelerate our commercial strategy in due
course.
We intend to use the net proceeds of the placing, the retail offer and the
open offer for working capital whilst the proposed additional funding from the
convertible loan notes and/or further issuances of new ordinary shares will
allow us to significantly scale the business to enable commercial delivery. We
have a highly scaleable business model, partnerships with some of the world's
leading technology companies and airlines, and a growing business development
pipeline.
THANK YOU
Our achievements in 2022 would not have been possible without the dedication,
focus and commitment of our employees, and the support of our shareholders. I
also want to personally thank our Chair, Philip Holland, and the Board for
their invaluable support throughout the year.
Financial Review
During 2022, Velocys achieved a number of key milestones that put the Company
in a strong position to progress the Altalto and Bayou Fuels reference
projects whilst building the commercial pipeline and having the manufacturing
capacity in place to support it.
We secured long-term control of the Immingham site for the Altalto reference
project through a financing arrangement with Foresight Group LLP, were
successful in our grant applications for Altalto and e-Alto projects for an
aggregate of £29.5m and advanced the Bayou Fuels project to the point of
being ready to launch a Series A funding for the development capital in
mid-2023. The new reactor core manufacturing facility in Ohio has been
completed and the lease commenced in May 2023.
REVENUES AND GROSS PROFIT
The Company recognised revenue of £0.2m (2021: £8.3m) for the year ended 31
December 2022. Annual revenues are expected to remain uneven in the short-term
due to the growing but concentrated number of SAF projects in development
whilst the market becomes more established. The 2022 revenue was in respect of
engineering feasibility services provided during the year whereas the 2021
revenue was mainly the conclusion of a contract with our first major
commercial client, which commenced in 2017, for the supply of reactors and
catalyst, and associated licensing fees to operate the technology. The Company
satisfied the performance obligations within the contract in June 2021
following expiry of all contractual obligations and therefore recognised the
revenue and associated cost of goods in 2021. As a result, the gross profit
for the year ended 31 December 2022 was £0.2m compared to £3.4m in the
previous year.
EXPENSES
Administrative expenses for the year ended 31 December 2022, which include all
company running costs and the costs incurred by the Company for engineering
and project development services performed for the reference projects
increased by 22% to £16.3m (2021: £13.3m).
Key components of administrative expenses were employee benefit expenses of
£8.2m (2021: £6.3m), project engineering and consultancy costs of £3.2m
(2021: £2.8m), depreciation and amortisation of £1.2m (2021: £1.1m) and
other corporate running costs of £3.7m (2021: £3.1m).
Employee benefit expenses were £1.8m higher than in 2021, as in line with our
commercial strategy, the Company has recruited a number of key leadership
positions within the last two years. Therefore salary and benefit expenses for
several employees that joined the Company part way through 2021, were included
for the full year in 2022 in addition to the new employees hired during the
past year. Including the executive directors, there was an average of 36
employees during 2022 (2021: 32).
The other main driver of operating expenses are the costs incurred with our
technical support partners for engineering and related services on the
Company's two reference projects. These totalled £3.7m in 2022 (2021:
£3.7m). The reference projects are designed to accelerate the adoption of the
Company's technology, and to the extent possible, the Company has secured
co-development funding or applied for government grants available to support
sustainable aviation fuel projects. The majority of costs incurred for the
Altalto project during 2022 were supported by the Green Fuels Green Skies
("GFGS") grant (for which £1.7m is included in other income). In 2021, £0.7m
of partner funding received under the Altalto co-development agreement was
offset against costs. Bayou Fuels development costs are borne wholly by the
Company.
OTHER INCOME
The Company recorded other income for the year ended 31 December 2022 of
£1.6m which consisted of £1.5m of grant income from GFGS grant awarded to
the Altalto project by the UK Department for Transport in 2021 and a £0.1m
gain on disposal of assets related to the relocation of premises in Ohio.
Other income in 2021 of £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 GFGS grant and £0.2m
from the Future Fuels for Flight and Freight ("F4C") grant also awarded to the
Altalto project by the UK Department for Transport.
OPERATING LOSSES
Operating losses were £14.5m (2021: £9.0m). The £5.5m increase is due to
the higher level of gross profit recognised in 2021 and an increased level of
operating activities during 2022.
NET ASSETS AND CASH
The net assets of the Company were £16.7m, which is a decrease of £13.0m
compared to 2021. As at 31 December 2022, the Company had cash and cash
equivalents of £13.4m (2021: £25.5m) and therefore the decrease in net
assets is mainly due to the net cash outflow during the year.
Net cash outflow in 2022 was £12.2m, principally being cash generated from
financing activities of £8.8m, attributed to £9.75m received from Foresight
in March 2022 offset by lease payments, less £8.1m used in investing
activities and £12.9m used in operating activities.
The net cash inflow to the Company in 2021 was £12.8m, principally being cash
generated from financing activities of £24.1m, attributed to £24.6m received
net of expenses from the fundraise completed in December 2021, 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 invests
prudently on capital expenditure required to support its commercial strategy.
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.
RULA DEVELOPMENTS (IMMINGHAM) LTD
In December 2021, Altalto Immingham Ltd, a 100% owned subsidiary of the
Company, exercised an option to purchase Rula Developments (Immingham) Ltd
("RDIL"), a property development company which owns the site of the proposed
Altalto project, near Immingham in North East Lincolnshire. 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 was
recorded in current liabilities at 31 December 2021. The value of the net
assets acquired was £9.8m and further details are provided in note 2 of the
consolidated financial statements.
In March 2022, the Company signed a sale and purchase agreement with a
subsidiary of Foresight Group LLP ("Foresight") to sell 100% of its shares
held in RDIL. The Company received total consideration of £9.75m which was
used to pay the deferred consideration of £7.25m due to the previous owners
of RDIL arising from the purchase in December 2021 described above.
At the same time, the Company entered into a Call Option agreement with
Foresight which enables the Company to re-purchase the RDIL shares in up to
three years from March 2022, therefore, in substance, maintaining control over
the Altalto development site at Immingham. As a result, the Company has
accounted for the Call Option as a financing arrangement at amortised cost
applying the effective interest method under IFRS 9.
The option agreement includes a quarterly payment to Foresight of £100,000.
Further details of the financing arrangement are provided in note 17 of the
consolidated financial statements.
IMPAIRMENT ASSESSMENTS (COMPANY AND THE PARENT COMPANY)
Our impairment testing in relation to the long-term potential of the Company's
in-process technology assets has not identified a change in circumstances or
specific events during 2022, and therefore no impairment or reversal of
previous impairments have been recorded in respect of the Company's assets in
2022.
The recoverable value is determined by comparing the higher of the value in
use and the fair value less costs of disposal. Given the early stage of the
Company's commercialisation plans, the share price of the parent Company is
deemed the most accurate indicator of value. The market capitalisation value
at 31 December 2022 was £65.7m compared to £103.1m at the previous year end,
reflective of the challenging global economic and market conditions depressing
stock market performances across many sectors. The Company's net assets were
£17.0m (2021: £29.7m), so approximately 26% of the parent company's market
capitalisation value (2021: 29%).
Alongside the share price of the parent Company, management also review
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.
· 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.
While 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 the engineering and construction
phases, the Company from this point will likely retain only a minority
interest in the project entity.
Landing commercial orders for reactors and catalyst, either from the reference
projects or new commercial clients, supported by less variation in long-term
cash flow forecasts and demand schedules, will be strong indicators that
previous impairments of the Company's in-process technology assets may require
reversal.
The parent company, Velocys plc, has both equity investments in its
subsidiaries and loans made to its subsidiaries, which are compared to their
recoverable amount. The impairment assessment for the equity investments
considers their value compared to the parent company's market capitalisation
value. These totalled £9.4m at 31 December 2022 (compared to the parent
company's market capitalisation value of £65.7m). No impairment indicators
were identified and, as a result, no impairment was recognised (2021: £nil).
The parent company also assessed loans receivable from its subsidiaries and as
a result recorded a provision charge for expected credit losses ("ECL") of
£2.2m (2021: £2.0m). The total ECL provision of £6.1m at 31 December 2022
(2021: £3.9m) is eliminated on consolidation and therefore is not seen in the
consolidated financial statements.
MATERIAL UNCERTAINTY OVER GOING CONCERN
The Company has been actively preparing for a new corporate fundraise post
year end which takes the form of a placing, retail offer and open offer of new
ordinary shares. In addition, the Company has agreed to the issuance of
convertible loan notes to Carbon Direct Capital, who has provided a commitment
to proceed provided that the Company is able to raise a minimum of £32m
(including from the placing, the retail offer and the open offer announced on
18 May 2023 and Carbon Direct Capital's existing conditional convertible loan
note commitment for $15m (£12.0m).
The Company plans to achieve this by raising approximately £8m from the
placing, retail offer and open offer and the balance from the issuance of
convertible loan notes and/or the issuance of new ordinary shares to
investors. However, as at the date of this unaudited preliminary announcement,
the Company does not have firm commitments from any additional investors to
subscribe for the convertible loan notes and has set a deadline of 30
September 2023 for completing this part of the fundraise.
At the point of this unaudited preliminary announcement, the directors have
reviewed the non-binding indications for the placing with the Company's joint
brokers and are satisfied that, as a minimum, the accelerated bookbuild can be
expected to generate the target of £6m.
Subject to closing, the placing is conditional on shareholder approval at a
General Meeting scheduled for 8 June 2023. The directors believe that all
resolutions required to execute the placing will be successfully approved at
the general meeting as a matter of course, with proceeds to be received
shortly after.
The directors reviewed the Company's business plan and cash flow forecasts on
the basis that the placing, retail offer and open offer is approved at the
general meeting. These cash resources will be used to provide working capital
and to enable continued work on the reference projects to the point of
reaching key decisions. If the convertible loan notes are issued, the Company
will move forward with its plans to scale up the organisation to meet its
commercial objectives. In the event that the convertible loan notes are not
issued, the Company would require further funding, in addition to the £8m
equity fundraise announced on 18 May 2023, to be able to continue as a going
concern for at least twelve months from the date of this preliminary
announcement.
At the time of this unaudited preliminary announcement, these conditions
indicate the existence of a material uncertainty that may cast significant
doubt on the Company and Velocys plc's ability to continue as a going concern.
The unaudited preliminary announcement does not include any 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 2022
2022 2021
Note £'000 £'000
Revenue 3 241 8,283
Cost of sales (87) (4,881)
Gross profit 154 3,402
Administrative expenses 4 (16,263) (13,331)
Other income 6 1,624 956
Operating loss (14,485) (8,973)
Finance income 7 1,359 34
Finance costs 8 (828) (551)
Net finance costs 531 (517)
Loss before income tax (13,954) (9,490)
Income tax credit 755 1,049
Loss for the financial year attributable to the owners of Velocys plc
(13,199) (8,441)
Loss per share attributable to the owners of Velocys plc
Basic and diluted loss per share (pence) 9 (0.95) (0.78)
Consolidated statement of comprehensive income
for the year ended 31 December 2022
2022 2021
£'000 £'000
Loss for the year (13,199) (8,441)
Items that may be reclassified to the income
statement in subsequent periods:
Foreign currency translation differences (412) 113
Total comprehensive expense for the year
attributable to the owners of Velocys plc (13,611) (8,328)
Consolidated statement of financial position
as at 31 December 2022
2022 2021
Note £'000 £'000
Assets
Non-current assets
Property, plant and equipment 10 11,004 11,006
Right-of-use asset 11 399 500
Intangible assets 12 1,524 1,086
12,927 12,592
Current assets
Inventories 14 855 767
Trade and other receivables 15 2,586 1,274
Current income tax asset 976 1,100
Cash and cash equivalents 16 13,383 25,506
17,800 28,647
Total assets 30,727 41,239
Liabilities
Non-current liabilities
Provisions 17 (13) -
Lease labilities 11 (51) (189)
Other financial liabilities 18 (9,719) -
Other liabilities (165) -
(9,948) (189)
Current liabilities
Provisions 17 (216) -
Trade and other payables 19 (2,596) (2,969)
Lease liabilities 11 (375) (397)
Deferred consideration - (7,250)
Other financial liabilities 18 (376) -
Other liabilities (322) (431)
Deferred revenue (206) (326)
(4,091) (11,373)
Total liabilities (14,039) (11,562)
Net assets 16,688 29,677
Capital and reserves attributable to owners of Velocys plc
Called up share capital 13,977 13,936
Share premium account 221,141 221,059
Merger reserve 369 369
Share-based payments reserve 3,137 2,638
Foreign exchange reserve 2,739 3,151
Accumulated losses (224,675) (211,476)
Total equity 16,688 29,677
Consolidated statement of changes in equity
for the year ended 31 December 2022
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 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
Balance at 1 January 2022 13,936 221,059 369 2,638 3,151 (211,476) 29,677
Loss for the year - - - - - (13,199) (13,199)
Other comprehensive expense
Foreign currency translation differences - - - - (412) - (412)
Total comprehensive expense - - - - (412) (13,199) (13,611)
Transactions with owners
Share-based payments - value of - - - 499 - - 499
employee
services
Proceeds from options exercised 41 82 - - - - 123
Total transactions with owners 41 82 - 499 - - 622
Balance at 31 December 2022 13,977 221,141 369 3,137 2,739 (224,675) 16,688
Consolidated statement of cash flows
for the year ended 31 December 2022
2022 2021
Note £'000 £'000
Cash flows from operating activities
Operating loss (14,485) (8,973)
Depreciation and amortisation 1,194 1,084
Profit on sale of property, plant and equipment (113) -
Impairment of inventory - 118
Share-based payments 499 293
FX not related to cash 647 -
Changes in working capital (excluding the effects of exchange differences on
consolidation)
Trade and other receivables (1,312) 4,908
Trade and other payables (373) 2,037
Other liabilities 285 (566)
Deferred revenue (120) (7,830)
Inventory - 85
Cash consumed by operations (13,778) (8,844)
Tax credits received 879 759
Net cash used in operating activities (12,899) (8,085)
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 113 -
Purchase of property, plant and equipment (7,759) (2,730)
Purchase of intangible assets (539) (518)
Interest received 83 34
Net cash used in investing activities (8,102) (3,214)
Cash flows from financing activities
Proceeds from issues of shares - 26,222
Costs of issuing shares - (1,618)
Proceeds from issue of share options 123 48
Principal elements of lease payments (611) (485)
Interest paid (828) (116)
Proceeds from borrowings 9,750 -
Financing interest/option fees 345 -
Net cash generated from financing activities 8,779 24,051
Net (decrease)/increase in cash and cash equivalents (12,222) 12,752
Cash and cash equivalents at beginning of year 16 25,506 13,051
Exchange movements on cash and cash equivalents 99 (297)
Cash and cash equivalents at end of year 16 13,383 25,506
Notes to the consolidated financial statements
1. ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these
unaudited preliminary consolidated financial statements are summarised below.
The policies have been consistently applied to each year presented unless
otherwise stated.
Basis of preparation
In accordance with the Companies Act 2006, these unaudited preliminary
consolidated financial statements have been prepared and approved by the
Directors in accordance with UK adopted international accounting standards.
The financial information for the year ended 31 December 2021 does not
constitute statutory financial statements as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year has been
delivered to the Registrar of Companies. The independent auditors' report on
the full financial statements for the year ended 31 December 2021 was
unqualified and did not contain an emphasis of matter paragraph or any
statement under section 498 of the Companies Act 2006.
This preliminary announcement does not constitute the Company's full financial
statements for the year ended 31 December 2022. The Company's full financial
statements will be approved by the Board and reported on by the Company's
auditors subsequently in May 2023. Accordingly, the financial information for
2022 is presented unaudited in this preliminary announcement.
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 2022 or 2021.
The preparation of financial statements to conform to UK adopted international
accounting standards 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
Based on the Company's latest forecast and cash flow projections approved by
the Board, additional and imminent funding is required at the date of
approving these unaudited preliminary consolidated financial statements in
order for the Company to continue as a going concern. As at the date of
approving these unaudited preliminary consolidated financial statements, the
Company has cash reserves of £5.3m including £0.5m of restricted cash, which
is sufficient to operate the Company for approximately 8 weeks.
The Company's main source of new funds has been by undertaking a capital raise
on AIM, with the last fundraise being completed in December 2021. The Company
has been actively preparing for a new corporate fundraise post year end which
takes the form of a placing, retail offer and open offer of new ordinary
shares, and opens concurrent with the release of these unaudited preliminary
results. In addition, the Company has agreed to the issuance of convertible
loan notes of $15m (approximately £12.0m) to Carbon Direct Capital, who has
provided a commitment to proceed provided that the Company is able to raise a
minimum of £32m (including from the placing, the retail offer and the open
offer equity raise announced on 18 May 2023 and the existing conditional
convertible loan note commitment for £12.0m).
The Company plans to achieve this by raising approximately £8 million from
the placing, retail offer and open offer, referred to above, and the balance
from the issuance of convertible loan notes and/or the new ordinary shares to
investors. However, as at the date of this preliminary announcement, the
Company does not have firm commitments from any additional investors to
subscribe for convertible loan notes and has set a deadline of 30 September
2023 for completing this part of the fundraise.
At the point of this preliminary announcement, the directors have reviewed the
non-binding indications for the placing announced on 18 May 2023 with the
Company's joint brokers and are satisfied that, as a minimum, the accelerated
bookbuild process will generate the target of £6 million.
Subject to closing, the placing is conditional on shareholder approval at a
General Meeting scheduled for 8 June 2023. The directors believe that all
resolutions required to execute the placing will be successfully approved at
the general meeting as a matter of course, with proceeds to be received
shortly after.
The directors reviewed the Company's business plan and cash flow forecasts on
the basis that the placing, retail offer and open offer is approved at the
general meeting. These cash resources will be used to provide working capital
and to enable continued work on the reference projects to the point of
reaching key decisions. If the convertible loan notes are issued, the Company
will move forward with its plans to scale up the organisation to meet its
commercial objectives. In the event that the convertible loan notes are not
issued, the Company would require further funding, in addition to the £8
million equity fundraise announced on 18 May 2023, to be able to continue as a
going concern for at least twelve months from the date of this preliminary
announcement.
At the time of this unaudited preliminary announcement, these conditions
indicate the existence of a material uncertainty that may cast significant
doubt on the Company and Velocys plc's ability to continue as a going concern.
The unaudited preliminary announcement does not include any adjustments that
would arise if the Company and Velocys plc were unable to continue as a going
concern.
Changes in accounting policies
New accounting standards adopted by the Company
The Company has not applied any new accounting standards during the year ended
31 December 2022 or 2021.
New accounting standards in issue but not yet effective
At the date of authorisation of these consolidated financial statements,
several new, but not yet effective, Standards and amendments to existing
Standards and Interpretations have been published by the IASB or IFRIC. None
of these Standards or amendments to existing Standards have been adopted early
by the Company and no Interpretations have been issued that are applicable and
need to be taken into consideration by the Company at either reporting date.
Management anticipates that all relevant pronouncements will be adopted for
the first period beginning on or after the effective date of the
pronouncement. New Standards, amendments and Interpretations not adopted in
the current year have not been disclosed as they are not expected to have a
material impact on the Company's consolidated financial statements.
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 (IMMIMGHAM) 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 LLP, with a call option to repurchase
RDIL within three years. 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 financing arrangement set out in note 18 enabled the Company to settle the
deferred consideration due, in March 2022.
The assets and liabilities recognised as a result of the acquisition are as
follows:
Book value Adjustment Fair value
£'000 £'000 £'000
Cash and cash equivalents 1 - 1
Property, plant and equipment - development land 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
that 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.
2022 2021
£'000 £'000
FT reactor, catalyst and licence (recognised at a point in time) - 8,132
Engineering services (recognised over time) 241 151
Total 241 8,283
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. ADMINISTRATIVE EXPENSES
2022 2021
£'000 £'000
Employee benefit expense (note 5) 8,155 6,310
Project engineering and consultancy costs 3,171 2,799
Facilities and administrative costs 1,071 1,257
Patents and IP related costs 349 193
Insurance 629 536
Legal and professional services 1,338 971
Travel 356 181
Depreciation of property, plant and equipment (note 10) 478 453
Depreciation of right-of-use asset (note 11) 542 459
Amortisation of intangible assets (note 12) 174 172
Total administrative expenses 16,263 13,331
Included in administrative expenses were research and development costs of
£2,440,000 (2021: £2,122,000)
5. 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. As at 31 December 2022 the total amount accrued was £39,000
(2021: £23,000)
The average monthly number of Company employees (including Executive
Directors) was as follows.
2022 2021
number number
Technical and engineering 19 17
General and administration 17 15
Total average headcount 36 32
Their aggregate remuneration comprised the following items.
2022 2021
£'000 £'000
Wages and salaries 6,180 4,783
Short-term non-monetary benefits 649 491
Social security contributions and similar taxes 514 616
Defined contribution pension costs 313 330
Severance expense 90 -
Share-based payments granted to directors and employees 499 293
Total remuneration before reclassification of wages and salaries 8,245 6,513
Reclassification of wages and salaries (90) (203)
Total remuneration 8,155 6,310
Wages and salaries for the year ended 31 December 2022 include discretionary
bonuses payable in 2023 to executive directors and employees totalling
£1,237,000 (2021: £1,052,000) in respect of 2022 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 reclassification of wages and salaries relates to employees who provide
engineering services to customers.
6. OTHER INCOME
Other income consists of items such as government grants, sales of property,
plant and equipment 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. The grant income recognised in
2022 was in respect of the UK Department for Transport's ("DfT") Green, Fuels,
Green Skies ("GFGS") initiative. In the year ended 31 December 2021, the grant
income comprised £523,000 from a US Federal Government stimulus package to
support businesses during the COVID-19 crisis, £233,000 from the GFGS grant
and £200,000 from the Future Fuels for Flight and Freight, also awarded by
the UK DfT.
2022 2021
£'000 £'000
Income from government grants 1,511 956
Profit on sale of property, plant and equipment 113 -
Total 1,624 956
7. FINANCE INCOME
2022 2021
£'000 £'000
Interest income on bank deposits 39 2
Interest income on customer late payments 44 32
Foreign exchange gains 1,276 -
Total 1,359 34
8. FINANCE COSTS
2022 2021
£'000 £'000
Interest on lease liabilities 64 116
Interest on other financial liabilities 764 -
Foreign exchange losses - 435
Total 828 551
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.
2022 2021
Loss attributable to owners of Velocys plc (£'000) (13,199) (8,441)
Weighted average number of ordinary shares in issue ('000) 1,395,967 1,078,827
Basic and diluted loss per share (pence) (0.95) (0.78)
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 2022 and 2021 there were
no other potentially dilutive instruments.
10. 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 recognsied 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
2022 £'000 £'000 £'000 £'000
Cost
At 1 January 2022 - 11,049 9,181 20,230
Additions 46 - 463 509
Disposals - (1,370) (8) (1,378)
Foreign exchange - 141 1,037 1,178
At 31 December 2022 46 9,820 10,673 20,539
Accumulated depreciation and impairment
At 1 January 2022 - 1,081 8,143 9,224
Charge for the year - - 478 478
Disposals - (1,205) (8) (1,213)
Foreign exchange - 124 922 1,046
At 31 December 2022 - - 9,535 9,535
Net book amount
At 31 December 2022 46 9,820 1,138 11,004
Assets under Plant and
construction Land machinery Total
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
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 2022, the gross carrying amount of fully depreciated
property, plant and equipment still in use was £8,173,000 (2020:
£7,217,000).
11. RIGHT-OF-USE ASSETS
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-of-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 £64,000
(2021: £116,000). The total cash outflow as a result of leasing activity was
£611,000 (2021: £588,000).
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 adjustment in the net book value of the
associated asset. The right-of-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 2022 and at 31 December 2021.
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.
The balance sheet presents the following amounts related to right-of-use
assets:
2022 Equipment Buildings Total
Cost £'000 £'000 £'000
At 1 January 2022 162 1,548 1,710
Additions - 394 394
Disposals (181) - (181)
Foreign exchange 19 146 165
At 31 December 2022 - 2,088 2,088
Accumulated depreciation
At 1 January 2022 121 1,089 1,210
Charge for the year 45 497 542
Disposals (180) - (180)
Foreign exchange 14 103 117
At 31 December 2022 - 1,689 1,689
Net book amount
At 31 December 2022 - 399 399
Additions and disposals in 2022
During 2022, an equipment storage facility was acquired under a lease
agreement, the Company's Texas office and the Oxford headquarters had their
lease terms extended by 12 months and, as an equipment lease agreement
expired, it was derecognised. In addition, management decided to recognise
specific
dilapidation provisions on the leasehold properties that resulted in increases
in the cost base of those assets.
The long term equipment storage facility new lease resulted in additional
lease commitments, and increase in the right-of-use costs, of £66,000 (2021:
£nil). The extension of lease terms for the Texas office and the Oxford
headquarters, resulted in net increases in lease commitments and in the
right-of-use costs of £267,000 (2021: £316,000).
£61,000 of the additions related to the dilapidation costs. Of the total
£229,000 dilapidations costs that were initially recognised in 2022,
£168,000 was expensed through the income statement.
Equipment Buildings Total
2021 £'000 £'000 £'000
Cost
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
Additions and disposals in 2021
During 2021 the lease terms for the Company's offices in Ohio and Texas were
extended, which resulted in an increase in the right-of-use assets of
£316,000.
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. In
addition, there were sundry adjustments and corrections totalling £19,000
resulting in a net disposal in buildings lease values of £3,000.
Various equipment leases expired in 2021 which have been derecognised. In
addition, management's review of the lease assets resulted in the early
derecognition of a further equipment right-of-use asset. The net effect of
derecognising these assets resulted in a net decrease of £4,000.
2022 2021
Analysis of lease liabilities £'000 £'000
In one year or less 375 397
In more than one year but not more than five years 51 189
Present value of lease liabilities 426 586
Current portion 375 397
Non-current portion 51 189
12. INTANGIBLE ASSETS
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.
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 £174,000 for patents, licences and trademarks are
included in administrative expenses (2021: £172,000). There were no
amortisation charges recorded in respect of other classes of intangible assets
during the year as the net book value was £nil (2021: £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.
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 2022 compared the carrying amount of
£1.5m 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 2022 which included progress on our reference projects. Whilst
there was clear evidence of the Company's progress during 2022, Management
also considered the wider economic environment.
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 2022, the Company
considered:
· At 31 December 2022, 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 2022 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.
Management also concluded that at 31 December 2022 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
2022 £'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2022 7,398 23,681 2,491 101 33,671
Additions - - 522 17 539
Disposals - - (514) - (514)
Foreign exchange - - 113 1 114
At 31 December 2022 7,398 23,681 2,612 119 33,810
Accumulated amortisation and impairment -
At 1 January 2022 7,398 23,681 1,410 96 32,585
Charge for the year - - 174 - 174
Disposals - - (514) - (514)
Foreign exchange - - 41 - 41
At 31 December 2022 7,398 23,681 1,111 96 32,286
Net book amount
At 31 December 2022 - - 1,501 23 1,524
Note
Disposals represent renewal fees relating to patents no longer being
capitalised.
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
13. COMMITMENTS AND CONTINGENCIES
(a) Commitments
Commitments are not held on the Company's balance sheet as these are executory
arrangements that relate to amounts the Company is contractually required to
pay in the future as long as the other party meets its contractual
obligations.
The Company has committed to making a total contribution of £1,776,000
towards the construction costs of a new leasehold building in Ohio which will
house the Company's manufacturing and technical facilities which commenced
construction in 2022 and is expected to be completed in the first half of
2023. The Company has already made stage payments of £897,000 in the year
ended 31 December 2022, and further stage payments totalling £879,000 are due
over the remaining construction period upon specific milestones being
completed. The Company has provided a letter of credit in respect of this
commitment, with cash provided as collateral, and therefore has presented this
amount as restricted cash as at 31 December 2022. As stage payments are made,
the cash collateral is reduced by an equivalent amount.
The Company has also paid deposits to suppliers of £1,127,000 for property,
plant and equipment comprising long lead-time manufacturing and catalysis
laboratory equipment in the year ended 31 December 2022, with commitments to
make further payments of £2,087,000 during 2023 under these contracts.
Therefore, total capital expenditure contracted for during the year ended 31
December 2022, but not yet recognised, was as follows:
2022 2021
£'000 £'000
Contribution to new building 879 -
Manufacturing equipment 1,866 -
Catalysis laboratory equipment 221 -
Total 2,966 -
(b) Contingent liabilities
The Company had no contingent liabilities at 31 December 2022 (2021: £nil).
14. 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.
2022 2021
£'000 £'000
Raw materials and consumables 373 286
Finished goods 482 481
Total 855 767
Raw materials and consumables consist of parts that will be consumed in the
manufacturing of reactors.
As at 31 December 2022, the Company had a total inventory provision of
£855,000 (2021: £771,000). The Company recorded £nil (2021: £118,000)
related to slow moving inventory in the Administrative expenses line of the
Consolidated income statement.
15. TRADE AND OTHER RECEIVABLES
2022 2021
£'000 £'000
Trade receivables - 6
Prepaid costs 2,471 748
Grants receivable - 158
Other receivables 115 362
Total 2,586 1,274
Prepaid costs at 31 December 2022 include part payments for manufacturing and
catalysis laboratory equipment yet to be delivered at 31 December 2022 and the
contribution to the new building in Ohio (see note 13).
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.
Trade receivables 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.
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.
There were no Grants receivable as at 31 December 2022. The value as at 31
December 2021 were in respect of the Green Fuels Green Skies grant awarded to
the Altalto Immingham project.
Other receivables consist of vendor deposits and sales taxes recoverable.
16. 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.
2022 2021
£'000 £'000
Unrestricted cash 12,428 25,506
Restricted cash 955 -
Total 13,383 25,506
Restricted cash as at 31 December 2022 relates to the total undrawn amount of
a cash secured letter of credit provided by the Company as part of its
commitment towards the construction costs of the new leasehold premises (see
note 13).
Cash and cash equivalents is denominated in UK sterling, US dollars and euros
as follows.
2022 2021
£'000 £'000
Cash and cash equivalents UK UK sterling denominated
10,202 16,908
US dollar denominated 3,180 8,584
Euro denominated 1 14
Total 13,383 25,506
17. PROVISIONS
Provisions are recognised when the Company has a present obligation (legal or
constructive) as a result of a past event, and it is probable that the Company
will be required to settle that obligation and a reliable estimate can be made
of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration
required to settle the present obligation at the reporting date, taking into
account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the net present value of those cash flows
(when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are
expected to be recovered from a third party, a receivable is recognised as an
asset if it is virtually certain that reimbursement will be received and the
amount of the receivable can be measured reliably.
Restoration provisions
Provisions for the costs to restore leased assets to their original condition,
as required by the terms and conditions of the lease, are recognised when the
obligation is incurred, either at the commencement date or as a consequence of
having used the underlying asset during a particular period of the lease, at
managements' best estimate of the expenditure that would be required to
restore the assets. Estimates are regularly reviewed and adjusted as
appropriate for new circumstances.
2022 2021
£'000 £'000
Restoration provision 229 -
Total 229 -
2022 2021
£'000 £'000
Current 216 -
Non-current 13 -
Total 229 -
Restoration provision Total
£'000 £'000
As at 1 January 2022 - -
Additional provision in the year 229 229
Total 229 229
The restoration provision is in respect of the Company's leased premises in
Columbus, Ohio, which the Company plans to vacate by the fourth quarter of
2023. Management have estimated the costs of restoring the building to the
standard required, and in doing so have made cost estimates where quotes or
purchase orders are not already in place. Whilst it is not possible to
identify all rectification works whilst the building remains in use,
management do not expect the total costs to exceed the estimated provision.
18. OTHER FINANCIAL LIABILITIES
Other financial liabilities that are not (i) contingent consideration of an
acquirer in a business combination, (ii) held-for-trading, or (iii) designated
as at fair value through profit and loss, are measured subsequently at
amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of
a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts
estimated future cash payments (including all fees and points paid or received
that form an integral part or the effective interest rate, transaction costs
and other premiums or discounts) through the expected life of the financial
liability or (where appropriate) a shorter period, to the amortised cost of a
financial liability.
Critical accounting judgements and estimates
In March 2022, the Company received £9,750,000 from Blackmead Infrastructure
Limited, a subsidiary of Foresight Group LLP ("Foresight") as cash
consideration for Foresight's purchase of 100% of the ordinary shares of Rula
Developments Immingham Limited ("RDIL").
The Company has determined that the cash consideration of £9,750,000, which
enabled the Company to settle the £7,250,000 deferred consideration due from
the acquisition of RDIL in December 2021 (see note 4), meets the criteria of a
financial liability measured subsequently at amortised cost using the
effective interest method.
The Company signed a Call Option agreement with Foresight which gives it the
right to re-purchase RDIL over a period of up to three years from the
effective date of 23 March 2022. If the option is exercised on or before the
2(nd) anniversary date, the purchase price due to Foresight is £11,250,000.
If the option is exercised after the 2(nd) anniversary date and before the
expiry date, the purchase price increases to £11,750,000. Management's
current expectation is that the full 36 month option period will apply and
therefore the calculation at amortised cost is based on this scenario.
Quarterly option fees of £100,000 are due throughout the option period.
Because the Company maintains significant control over RDIL's asset, namely
the Immingham development site, throughout the option period, management have
assessed that the most appropriate accounting treatment is to continue
recognising the asset and to account for a financing liability to Foresight.
Financial liabilities at amortised cost 2022 2021
£'000 £'000
At 1 January - -
Initial fair value recognised 9,750 -
Interest expense 745 -
Payments made (400) -
As at 31 December 10,095 -
2022 2021
£'000 £'000
Current 376 -
Non-current 9,719 -
Total 10,095 -
19. TRADE AND OTHER PAYABLES
2022 2021
£'000 £'000
Trade payables 289 593
Other taxation and social security 77 203
Accruals 2,230 2,173
Total 2,596 2,969
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 (2021: 60
days or less).
20. POST FINANCIAL POSITION EVENTS
Master relationship agreement executed with Bechtel Limited
On 25 January 2023 the Company signed a master relationship agreement with
Bechtel Limited setting out a route map for the parties to collaborate with
each other with the objective of developing an engineering procurement
construction (EPC) execution model for the Company's sustainable fuels
projects.
Appointment of financial advisor to support raising finance for the Altalto
Immingham and Bayou Fuels reference projects
In March 2023, following a competitive RFP process, Velocys announced the
appointment of a leading global investment bank to assist in securing the
necessary development capital for the Company's two reference projects.
Fundraise announced in May 2023
The Company announced its intention to raise a minimum of £32 million in
aggregate (before expenses) by way of a conditional placing together with a
retail offer to existing retail shareholders, an open offer of new ordinary
shares to existing shareholders, a proposed conditional issue of convertible
loan notes to Carbon Direct Capital, and potential further issuances of
convertible loan notes and/or new ordinary shares. The launch of an
accelerated book build process today for a placing is expected to raise a
minimum of £6.0 million (before expenses), with the process scheduled to
complete on 9 June 2023, provided the necessary approvals from the Company's
shareholders required are obtained at a General Meeting of the Company's
shareholders expected on 8 June 2023. The open offer period, for up to a
maximum of £2.0 million proceeds (before expenses) will also run until the
day before the general meeting. The retail offer is for up to a maximum of
£0.5 million proceeds (before expenses).
21. STATUTORY INFORMATION
Copies of the 2022 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) .
22. ANNUAL GENERAL MEETING
The Annual General Meeting ("AGM") is to be held on 28 June 2023. Notice of
the AGM will be dispatched to shareholders with the Company's 2022 Annual
Report and Accounts.
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