REG - Velocys PLC - Interim Results and Business Update
21/09/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230921:nRSU1362Na&default-theme=true
RNS Number : 1362N Velocys PLC 21 September 2023
News release
Velocys plc
("Velocys" or the "Company")
21 September 2023
Interim results for the six months ended 30 June 2023
Significant Progress in Commercialisation Strategy
Velocys plc (VLS. L), the sustainable fuels technology company, announces its
interim results for the six months ended 30 June 2023.
The Company has continued to focus on the activities which have the greatest
potential to drive near-term market uptake for its technology, through
continued development of the US and UK reference projects and building the
business development pipeline. The UK reference project (Altalto Immingham)
achieved an important milestone, commencing the detailed Front End Engineering
and Design phase ("FEED"), a process which delivers the required cost accuracy
levels required for potential investors to commit funds for construction. Both
Altalto Immingham and the US reference project (Bayou Fuels) are expected to
begin generating revenue for the Company during FEED.
As a technology hardware supplier, Velocys has made significant enhancements
to its manufacturing capability with the completion of a purpose-built
facility in Columbus, Ohio which consolidates the Company's reactor core
manufacturing and catalysis operations as the Company increases its scale.
HIGHLIGHTS FOR THE SIX MONTHS ENDED 30 JUNE 2023 (including post period-end)
Organisational scale-up and advancing the business development pipeline
· £6.3 million (before expenses) raised in May 2023 alongside a
conditional commitment from strategic investor Carbon Direct Capital in New
York for a further £12.5 million in convertible loan notes ("CLN").
· Multiple advanced discussions ongoing with other specialist and
strategic investors to invest alongside Carbon Direct Capital in the CLN.
Extension of CLN Long Stop Date agreed with Carbon Direct Capital to 31
October 2023 to facilitate ongoing investor due diligence and discussions.
· Completed the relocation of our catalysis activity and reactor
core manufacturing to our brand-new 52,500 ft(2) facility in Columbus, Ohio.
· Reactor manufacturing plan aligned to the Altalto and Bayou Fuels
project schedules and expected third party client orders. Targeting
commencement of commercial reactor production from mid-2024.
· Catalysis capabilities upgraded, providing the testing facilities
to support clients to optimise regeneration and catalyst change-out cycles.
· Paid engineering study has been completed for a client in
Northern Europe as well as ongoing technical support services to TOYO in Japan
to advance the NEDO2 project, which involves the advanced engineering and
design phase of a commercial scale biofuel refinery.
· The Company is actively progressing a substantial pipeline of
business development opportunities in the Americas, Europe and Asia.
· Velocys has bid for two engineering studies for European clients
which, if selected, would be expected to lead to reactor orders in 2024.
· Supported a European client's grant application which, if
successful, would result in a paid engineering study beginning in Q4 2023.
· Four full scale, catalyst charged Velocys FT reactors in
inventory, acquired from a previous customer, available for new customers.
· Relocated the engineering team in Houston to the "Houston Energy
Corridor", placing the team amongst some of the largest energy and energy
transition companies in the US.
Project Funding Update
· Project development funding activities are underway for both
Altalto Immingham and Bayou Fuels led by a top three global investment bank to
raise FEED funding for the Bayou Project and the balance of matched FEED
funding for the Altalto Immingham project alongside the £27m Advanced Fuels
Fund grant awarded in December 2022.
· Third party technical and commercial reports completed to support
investor due diligence, supporting the project technology line up and
identifying the Company's two reference projects as some of the most advanced
2(nd) generation SAF projects globally (second generation excludes biofuels
produced from plants which could be used as food or animal feed).
· Receipt of commitments for Project funding are targeted by the
end of 2023.
Bayou Fuels Project, Natchez, Mississippi
· Validated the reasonableness and accuracy of the life cycle
assessment ("LCA") results from previous internal analysis by hiring a 3rd
party consulting company, EcoEngineers, to perform an LCA which showed the
project facility will produce SAF with a deeply negative Carbon Intensity (CI)
score of -389 g CO(2)ei/MJ which will provide the project's airline customers
with >500% carbon savings relative to existing fossil benchmark. This
translates into 1.3m MT of avoided CO(2) per year at design capacity,
equivalent to approximately 1.1 million round trip economy passenger flights
between San Francisco and London.
· Bechtel, our engineering partner, successfully completed the
final pre-FEED engineering study for the biomass power island and the
post-combustion carbon capture facility. This study confirmed the overall
design, validated that the site could meet the essential requirements of the
design, and completed a preliminary design that is consistent with the deeply
negative carbon intensity score.
· Extended the site option agreement for the project facility in
Natchez, Mississippi subject to ongoing discussion in relation to required
site-works.
· Completed a preliminary environmental review of the proposed
biomass power plant site and confirmed that the site does not have any
material clean-up requirements.
· Extended milestone dates in the existing SAF offtake agreement
with Southwest Airlines to reflect the previously announced revised project
schedule of FEED commencement in 2024.
· Our CO(2) transport and storage partner, 1Point Five
Sequestration, a subsidiary of Oxy Low Carbon Ventures, confirmed the
suitability of the Natchez site for large scale Carbon Capture Storage ("CCS")
following a geotechnical survey.
· Secured $300K of grant funding from the United States Department
of Agriculture ("USDA") Federal Forestry Service requiring matched funding, to
support advancing early works that will support preparations for FEED.
Altalto Waste to SAF Project in Immingham, NE Lincolnshire
· FEED, the final stage of engineering prior to a Final Investment
Decision, is advancing as planned, led by Bechtel in London and largely funded
to date by the Advanced Fuels Fund ("AFF") grant from the Department for
Transport. All AFF grant milestones have been achieved to date.
· Licence and engineering services agreements have been concluded
with key technology licensors including TOPSOE, Air Liquide and TRI to support
the FEED phase.
· Technology Licence Agreement with Velocys to be finalised in Q4
2023, with first instalment of fees flowing to Velocys following the project
funding completion.
· An archaeological survey has been completed and sign-off for the
Immingham site secured.
· Construction of initial site access road complete in line with
planning consent obligations.
· The second UK Government Consultation on a SAF mandate and
long-term price stability mechanism has concluded, pending final HMG decisions
on exact levels of mandated buy-out price and long term avoided carbon price.
· The UK Government more recently announced its commitment to
implement a long-term revenue certainty scheme for UK SAF projects to enable
project financing on commercial terms. The DfT will launch a consultation on
the design and delivery of the Scheme, which should attract further investment
into the UK SAF industry.
Financial highlights
· Revenue of £61k (HY2022: £48k) from engineering services.
· Grant income recognised of £8.7m (HY2022: £1.5m).
· Operating loss of £8.5m (HY2022: £6.7m) driven by increased
activity reflecting the Altalto project entering FEED, scale up of
manufacturing activity and project funding activities.
· Net loss before tax of £9.8m (HY2022: £5.7m), including £0.8m
of unrealised FX losses due to GBP: US dollar re-translation effects (2022:
£1.3m gain).
· Net assets at 30 June 2023 of £13.9m (31 December 2022:
£16.7m).
· Cash at 30 June 2023 of £9.0m (31 December 2022: £13.4m).
· Net cash outflow for the six months to 30 June 2023 of £4.3m
(HY2022: £6.8m).
· Fundraise of £6.3m (before expenses) in May 2023.
OUTLOOK
· Current cash balance of £6m provides working capital runway to
approximately the year end based on current work plans.
· Completion of the conditional CLN funding led by Carbon Direct
Capital will significantly extend the working capital runway and provide
growth capital for the Company's commercial and engineering scale-up and
initial commissioning of our Columbus, Ohio reactor manufacturing facility as
well as continuing to fund the key value inflection points in relation to the
Bayou Fuels and Altalto Immingham reference projects.
· Continuing to progress Altalto Immingham FEED: targeting all AFF
milestones to be met in November and the conclusion of a Technology License
Agreement between Velocys and the Altalto project by year end, providing
revenue for the Company in H1 2024.
· The development capital private fundraise for both the Altalto
and Bayou fuels projects is underway and investment commitments are targeted
for the end of the year.
· Following the development capital raise, Bayou Fuels FEED will be
commenced, generating license and engineering service fees for the Company.
· Continuing to build and advance the business development pipeline
with a target of moving at least two prospects to client status by year end.
· Overall, financial results for the full year are expected to
trend in line with results reported for HY1 with an increase in revenue
expected to be seen in 2024 following completion of the project funding and as
the pipeline crystallises.
Henrik Wareborn, CEO of Velocys, said:
"It has been an exceptionally busy period for Velocys, during which we have
deployed the proceeds of our May fundraise to make significant progress in the
development of our two reference projects, Bayou Fuels and Altalto, and build
and nurture our substantial commercial pipeline.
Progress has been made in both Company and Project finance activities with
numerous discussions underway with both strategic and specialist investors
which has confirmed the significant interest in SAF. We continue to work
closely with Carbon Direct Capital and are pleased to have agreed an extension
to the CLN long stop date to 31 October to facilitate ongoing co-investor
discussions. Our transition to full commercialisation continues apace, with
our reactor manufacturing facility in Columbus Ohio now targeting commercial
production from mid-2024. We are also advancing our pipeline of engineering
studies and are working productively on the third-party commercial scale
biofuel refinery project in Japan.
Velocys' sustainable aviation fuel technology is immediately deployable to
deliver advanced SAF solutions for standardizing aviation, traditionally one
of the most difficult sectors to standardize. The United States, the European
Union and the United Kingdom have all proposed or initiated regulatory
programmes that incentivise SAF adoption. This provides a positive environment
for the adoption of SAF technologies."
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 20 7466 5000
Notes to Editors
Velocys is an LSE-listed, international sustainable fuels technology company,
traded on the AIM, providing customers with a technology solution to enable
the production of negative Carbon Intensity synthetic, drop-in fuels from a
variety of waste materials. Synthetic fuel is the only commercially available,
permanent alternative to fossil aviation fuels. The Velocys technology is
IP-protected in all major jurisdictions.
Two reference projects (Bayou Fuels, US, and Altalto, UK) are designed to
accelerate the adoption and standardize 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)
Financial Review
Overview
During the six months to 30 June 2023, the Company completed its investment in
a new Technical Centre in Columbus, Ohio and the 15-year lease became
effective. The FEED phase for the Altalto project in the UK, supported by the
£27million Advanced Fuels Fund grant, commenced and is well underway with
detailed engineering work being undertaken with Bechtel and the integrated
licensors who provide other technology elements to the project. The Company
has also progressed the Bayou Fuels reference project with the completion of
pre-FEED engineering and has been preparing to raise the development capital
required to enable the completion of the FEED phase.
The Company raised £6.3m (before expenses) in an equity fundraise comprising
a placing, retail offer and open offer of new ordinary shares in May 2023.
Additionally strategic investor, Carbon Direct Capital, has conditionally
agreed to subscribe for a minimum of $15 million (approximately £12.5
million) of convertible loan notes subject to, inter alia, the Company
raising or having received legally binding commitments in respect of minimum
funding of $40 million in aggregate (including the funds raised in May 2023
and Carbon Direct Capital's commitment). The Company has been exceptionally
busy since the May 2023 placing with numerous investors undertaking due
diligence in relation to the convertible loan notes and separately preparing
for the project funding activities which are being led by a top three global
investment bank. The CLN Long Stop Date of 30 September has been extended to
31 October to facilitate ongoing investor due diligence and discussions.
Revenues
The Company recorded revenues of £61,000 in half-year 2023 (HY2022: £48,000)
in respect of engineering consultancy services provided to third party
customer projects under development.
Operating expenses
Total operating expenses, including reference project development costs for
Altalto and Bayou Fuels, for the six months ended 30 June 2023 were £17.2m
(HY2022: £8.4m). The significant increase is mainly attributed to Altalto
commencing the FEED phase at the start of the year. £8.7m of grant income has
been recognised in respect of the Altalto project and e-Alto (an e-fuels
project). The Bayou Fuels development costs have been 100% funded by Velocys
whilst third party project funding to take the project into FEED is underway.
The key components of operating expenses, as set out in note 5, comprise
project engineering, licensor fees and consultancy costs of £9.5m (2022:
£1.8m) and employee benefit costs of £4.5m (HY2022: £4.0m). Depreciation
and amortisation were level at £0.6m (HY2022: £0.6m) and other corporate
running costs were £2.6m (HY2022: £2.0m) which included costs for the
relocation activities underway in Columbus.
Operating result
The operating loss for the six months to 30 June 2023 was £8.5m (HY2022:
£6.7m).
Loss before income tax
The loss before income tax for the six months to 30 June 2023 was £9.8m
(HY2022: £5.7m). The Company recorded unrealised foreign exchange losses on
intra-group loans resulting from exchange movements in the US dollar and
pounds sterling of £0.8m for the six months to 30 June 2023 (HY2022: £1.3m
gain) which accounts for £2.1m of the increased loss before income tax.
Dividends
The directors do not recommend an interim dividend for the six months to 30
June 2023 (HY2022: £nil).
Net assets and cash
The net assets of the Company were £13.9m at 30 June 2023 (31 December 2022:
£16.7m). The decrease was principally the result of the £4.4m decrease in
cash and cash equivalents as a result of funding the Company's capital
expenditure, development projects and ongoing operating activities offset by
the net proceeds from the May 2023 fundraise of £5.2m.
The Company had a net cash outflow, of £4.3m in the six months to 30 June
2023 (HY2022: £6.8m) comprising expenditure on operating activities of £6.9m
(HY2022: £8.6m) and investing activities of £2.6m (HY2022: £7.8m) offset by
an inflow from financing activities of £5.2m (HY2022: £9.6m).
Going concern and future funding
These unaudited interim condensed consolidated financial statements have been
prepared on a going-concern basis, which assumes the Company will have
sufficient funds available to enable it to trade for not less than twelve
months from the date of announcing these unaudited interim condensed
consolidated financial statements.
At the date of signing of these unaudited interim condensed consolidated
financial statements, the Company has cash reserves of £6m including
restricted cash of £0.2m which is sufficient to operate the Company to
approximately the year end based on current work plans. The nature of the
Company's strategy means that the precise timing of milestones and funds
generated during the early years of development projects are difficult to
predict. The directors have prepared financial forecasts to estimate the
likely cash requirements of the Company over the next twelve months from the
date of announcing these unaudited interim condensed consolidated financial
statements. As noted above these forecasts show that the Company will require
additional external funding before the end of the year to be able to continue
as a going concern.
The directors have assessed that there is a reasonable prospect that the
funding required for the Company to continue as a going concern will be
secured within the short term and therefore have prepared the unaudited
interim condensed consolidated financial statements on a going concern basis.
As set out in the Company's Annual Report and Accounts 2022, the Company has
agreed to the issuance of convertible loan notes ("CLN") to Carbon Direct
Capital, who has provided a commitment to proceed with $15 million provided
the Company is able to raise a total of $40m (approximately £32m). Following
proceeds of £6.3m from an equity fundraise in May 2023, this leaves a balance
of approximately £14 million. Multiple advanced discussions are ongoing with
other specialist and strategic investors to invest alongside Carbon Direct
Capital in the CLN. The commitment period agreed with Carbon Direct Capital
for completion of the CLN investment has been extended to 31 October 2023 to
facilitate ongoing investor due diligence and discussions. Reflecting the
extension of the convertible loan note long stop date, the Company is also
exploring working capital facilities.
Whilst numerous discussions remain ongoing in relation to the balance of
funding necessary to meet the CLN conditionality, as at the date of announcing
these unaudited interim condensed consolidated financial statements no
additional funding has been committed.
Should additional funding not be secured within the short term, the Company
would not be a going concern. As such, these conditions indicate the existence
of a material uncertainty that may cast significant doubt over the Company's
ability to continue as a going concern. The Company continues to monitor its
cash requirements carefully, particularly the working capital requirements of
the AFF grant. The Company remains focused on securing additional funding
alongside Carbon Direct Capital to enable the Company to pursue its growth
plans and take advantage of the significant progress made with both reference
projects, the increasing momentum in relation to government policy and the
increasing interest in SAF projects from a number of stakeholders.
The unaudited interim condensed consolidated financial statements do not
include any adjustments that would arise if the Company were unable to
continue as a going concern.
Principal risks and uncertainties
The Company has continued to maintain its framework and processes to identify,
assess and manage risks. The principal risks and uncertainties that could
potentially have a material impact on the Company's long-term performance and
delivery of strategy are detailed on pages 26 to 29 of the Annual Report and
Accounts 2022.
The risks associated with access to capital remain a key consideration which
is kept under review, and particularly relevant given the challenging global
economic and capital market conditions experienced in the first six months of
the year. However, the Company assesses that the availability of funds for
clean energy projects and technology solutions remains positive for the medium
to long term and will enable it to secure the external funding required before
the Company is generating sufficient working capital from its commercial
operations.
Condensed consolidated statement of profit or loss
Six months ended 30 June Six months ended
2023 30 June
2022 ((1))
Note £'000 £'000
Revenue 4 61 48
Cost of sales (13) (33)
Gross profit 48 15
Operating expenses 5 (17,184) (8,366)
Other income 6 8,684 1,609
Operating loss (8,452) (6,742)
Finance income 7 27 1,312
Finance costs 8 (1,390) (287)
Loss before income tax (9,815) (5,717)
Income tax credit 9 583 576
Loss for the period attributable to the owners of Velocys plc (9,232) (5,141)
Loss per share attributable to the owners of Velocys plc Pence Pence
Basic and diluted loss per share 10 (0.65) (0.37)
The above condensed consolidated statement of profit or loss should be read in
conjunction with the accompanying notes.
((1)) The results for the six months ended 30 June 2022 have been restated to
be consistent with the audited financial statements for the year ending 31
December 2022. Foreign exchange gains of £1,276,000 have been re-categorised
from Operating expenses to Finance income (see note 7). There is no change to
the net loss for the period.
Condensed consolidated statement of comprehensive income
6 months ended 6 months ended
30 June 30 June
2023 2022
£'000 £'000
Loss for the period (9,232) (5,141)
Other comprehensive income/(expense)
Items that may be reclassified to the income statement in subsequent periods
Foreign currency translation differences 558 (512)
Total comprehensive income/(expense) for the period attributable to the owners (8,674) (5,653)
of Velocys plc
The above condensed consolidated statement of comprehensive income should be
read in conjunction with the accompanying notes.
Condensed consolidated balance sheet
30 June 2023 31 December 2022
Note £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 11 12,949 11,004
Right-of-use assets 4,781 399
Intangible assets 12 1,641 1,524
Total non-current assets 19,371 12,927
Current assets
Inventories 871 855
Trade and other receivables 6,697 2,586
Current income tax asset 1,345 976
Cash and cash equivalents 14 9,023 13,383
Total current assets 17,936 17,800
Total assets 37,307 30,727
LIABILITIES
Non-current liabilities
Provisions (165) (13)
Lease liabilities (4,114) (51)
Other financial liabilities 15 (10,035) (9,719)
Other liabilities (157) (165)
Total non-current liabilities (14,471) (9,948)
Current liabilities
Provisions (214) (216)
Trade and other payables (6,165) (2,596)
Lease liabilities (549) (375)
Other financial liabilities 15 (376) (376)
Other liabilities (70) (322)
Deferred revenue (1,612) (206)
Total current liabilities (8,986) (4,091)
Total liabilities (23,457) (14,039)
Net assets 13,850 16,688
EQUITY
Called up share capital 17 16,518 13,977
Share premium account 17 224,250 221,141
Merger reserve 369 369
Share-based payments reserve 3,323 3,137
Foreign exchange reserve 3,297 2,739
Accumulated losses (233,907) (224,675)
Total equity 13,850 16,688
The above condensed consolidated balance sheet should be read in conjunction
with the accompanying notes.
Condensed consolidated statement of changes in equity
Called up share Share premium Merger Share-based payment Foreign exchange Accumulated Total
capital account reserve reserve reserve losses equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2023 13,977 221,141 369 3,137 2,739 (224,675) 16,688
Loss for the period - - - - - (9,232) (9,232)
Other comprehensive income
Foreign currency translation differences - - - - 558 - 558
Total comprehensive expense - - - - 558 (9,232) (8,674)
Transactions with owners
Share-based payment - value of employee services - - - 186 - - 186
Net proceeds from share issues 2,541 3,109 - - - - 5,650
Total transactions with owners 2,541 3,109 - 186 - - 5,836
Balance at 30 June 2023 16,518 224,250 369 3,323 3,297 (233,907) 13,850
Called up share Share premium Merger Share-based payment Foreign exchange Accumulated Total
capital account reserve reserve reserve losses equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2022 13,936 221,059 369 2,638 3,151 (211,476) 29,677
Loss for the period - - - - - (5,141) (5,141)
Other comprehensive expense
Foreign currency translation differences - - - - (512) - (512)
Total comprehensive expense - - - - (512) (5,141) (5,653)
Transactions with owners
Share-based payments - value of employee services - - - 264 - - 264
Proceeds from options exercised 26 52 - - - - 78
Total transactions with owners 26 52 - 264 - - 342
Balance at 30 June 2022 13,962 221,111 369 2,902 2,639 (216,617) 24,366
The above condensed consolidated statement of changes in equity should be read
in conjunction with the accompanying notes.
Condensed consolidated statement of cash flows
6 months ended 30 June 6 months
2023 ended 30 June
2022
Note £'000 £'000
Cash flows from operating activities
Cash used in operations (6,874) (8,501)
Interest received 27 36
Interest paid (77) (142)
Net cash outflow from operating activities (6,924) (8,607)
Cash flows from investing activities
Payments for property, plant and equipment (2,315) (7,614)
Payments for intangible assets (216) (259)
Proceeds from sale of property, plant and equipment - 97
Net cash outflow from investing activities (2,531) (7,776)
Cash flows from financing activities
Proceeds received from financing arrangement - 9,750
Option fees paid under financing arrangement (200) -
Proceeds received from issuance of shares 5,650 -
Proceeds received from exercise of share options - 78
Principal elements of lease payments (281) (264)
Net cash inflow from financing activities 5,169 9,564
Net decrease in cash and cash equivalents (4,286) (6,819)
Cash and cash equivalents at beginning of the half-year 13,383 25,506
Exchange movements on cash and cash equivalents (74) 103
Cash and cash equivalents at end of the half-year 14 9,023 18,790
The above condensed consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
Notes to the condensed consolidated interim financial statements
1. Significant changes in the current reporting period
The Company has undertaken a detailed going concern assessment, reviewing its
current and projected financial performance and position, the conclusion of
which is presented in note 2 below.
The Company has continued to experience an increase in inflationary pressures
on operating expenses and regularly updates its projections to take this into
account.
The Company has also reviewed its exposure to climate change and concluded
that this did not have a significant impact on the financial performance
and/or position of the Company for the period and as at 30 June 2023,
respectively.
The financial position and performance of the Company was particularly
affected by the following events and transactions during the six months to 30
June 2023:
· The Company raised £5.7m (after expenses) in a fundraise
comprising a placing, retail offer and open offer of ordinary shares in May
2023.
· The 15 year lease for the new technical centre in Ohio became
effective in May 2023, with an addition of £4.5m to right-of-use assets and a
corresponding increase in lease liabilities at 30 June 2023.
· The Company incurred a significant increase in operating expenses
as a result of the Altalto project commencing the FEED stage of development.
However, a large proportion of these costs are recoverable under the Advanced
Fuels Fund grant.
2. Going concern
These unaudited interim condensed consolidated financial statements have been
prepared on a going-concern basis, which assumes the Company will have
sufficient funds available to enable it to trade for not less than twelve
months from the date of announcing these unaudited interim condensed
consolidated financial statements.
At the date of signing of these unaudited interim condensed consolidated
financial statements, the Company has cash reserves of £6m including
restricted cash of £0.2m which is sufficient to operate the Company to
approximately the year end based on currrent work plans. The nature of the
Company's strategy means that the precise timing of milestones and funds
generated during the early years of development projects are difficult to
predict. The directors have prepared financial forecasts to estimate the
likely cash requirements of the Company over the next twelve months from the
date of announcing these unaudited interim condensed consolidated financial
statements. As noted above these forecasts show that the Company will require
additional external funding before the end of the year to be able to continue
as a going concern.
The directors have assessed that there is a reasonable prospect that the
funding required for the Company to continue as a going concern will be
secured within the short term and therefore have prepared the unaudited
interim condensed consolidated financial statements on a going concern basis.
As set out in the Company's Annual Report and Accounts 2022, the Company has
agreed to the issuance of convertible loan notes ("CLN") to Carbon Direct
Capital, who has provided a commitment to proceed with $15 million provided
the Company is able to raise a total of $40m (approximately £32m). Following
proceeds of £6.3m from an equity fundraise in May 2023, this leaves a balance
of approximately £14 million. Multiple advanced discussions are ongoing with
other specialist and strategic investors to invest alongside Carbon Direct
Capital in the CLN. The commitment period agreed with Carbon Direct Capital
for completion of the CLN investment has been extended to 31 October 2023 to
facilitate ongoing investor due diligence and discussions. Reflecting the
extension of the CLN long stop date, the Company is also exploring working
capital facilities.
Whilst numerous discussions remain ongoing in relation to the balance of
funding necessary to meet the CLN conditionality, as at the date of announcing
these unaudited interim condensed consolidated financial statements no
additional funding has been committed.
Should additional funding not be secured within the short term, the Company
would not be a going concern. As such, these conditions indicate the existence
of a material uncertainty that may cast significant doubt over the Company's
ability to continue as a going concern. The Company continues to monitor its
cash requirements carefully, particularly the working capital requirements of
the AFF grant. The Company remains focused on securing additional funding
alongside Carbon Direct Capital to enable the Company to pursue its growth
plans and take advantage of the significant progress made with both reference
projects, the increasing momentum in relation to government policy and the
increasing interest in SAF projects from a number of stakeholders.
The unaudited interim condensed consolidated financial statements do not
include any adjustments that would arise if the Company were unable to
continue as a going concern.
3. Critical estimates and judgements
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results might differ from these estimates.
In preparing these condensed interim financial statements, the significant
judgements made by management in applying the Company's accounting policies
and the key sources of estimation uncertainty were the same as those that
applied to the consolidated financial statements for the year ended 31
December 2022.
4. Segment and revenue information
The Company has one operating segment as the business comprises a single
activity, which is the design, development, marketing and sale of technology
for the production of sustainable transport fuels.
Revenue is allocated to geographic area based on the country in which the
customer is located.
6 months 6 months
ended ended
30 June 2023 30 June 2022
£'000 £'000
Asia Pacific 61 48
Total 61 48
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 is 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 bound by the
performance obligations of that sale.
In the six months ended 30 June 2023 and 2022, the revenue was in respect of
engineering services which was recognised as services were performed during
the period.
5. Operating expenses
6 months 6 months
ended ended
30 June 2023 £'000 30 June 2022
£'000
Employee benefit expense 4,516 4,008
Project engineering, licensor fees and consultancy costs 9,515 1,767
Facilities, IT and administrative costs 969 448
Patents and IP related costs 22 175
Insurance 246 333
Legal and professional services 1,103 920
Travel 188 160
Depreciation of property, plant and equipment 257 214
Depreciation of right-of-use asset 293 233
Amortisation of intangible assets 75 108
Total 17,184 8,366
6. Other income
In the six months ended 30 June 2023, income from government grants was in
respect of a grant awarded to the Altalto project under the UK government's
Advanced Fuels Fund. In the previous period, the grant income was from the
Green Fuels Green Skies competition, the work under which was completed in
June 2022.
6 months 6 months
ended ended
30 June 2023 £'000 30 June 2022
£'000
Income from government grants 8,673 1,512
Profit on sale of fixed assets 11 97
Total 8,684 1,609
7. Finance income
6 months 6 months
ended ended
30 June 2023 30 June 2022
£'000 £'000
Interest income on bank deposits 27 24
Interest income on customer late payments - 12
Foreign exchange gains - 1,276
Total 27 1,312
8. Finance costs
6 months 6 months
ended ended
30 June 2023 30 June 2022
£'000 £'000
Interest on lease liabilities 62 42
Interest on other financial liabilities 531 245
Foreign exchange losses 797 -
Total 1,390 287
9. Income tax credit
Due to the losses incurred in the period, there is no charge to corporate tax.
The Company recognised £583,000 for estimated R&D tax credits for the six
months ended 30 June 2023 (HY1 2022: £576,000). The estimate is prepared on
an accruals basis, and is based on an assessment of the Company's projects, to
determine which ones qualify under HMRC rules, and to estimate the level of
allowable expenses within each, based on the nature of the costs.
10. 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 period.
6 months ended 6 months ended
30 June 2023 30 June 2022
Loss attributable to owners of Velocys plc (£'000s) (9,232) (5,141)
Weighted average number of ordinary shares in issue ('000) 1,428,560 1,394,487
Basic and diluted loss per share (pence) (0.65) (0.37)
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.
11. Property, plant and equipment
There has been no change in the types of property, plant and equipment held in
the six months ended 30 June 2023. Further details are disclosed the Company's
Annual Report and Accounts 2022, pages 80 to 81.
Assets under construction Land Plant and machinery Total
At 31 December 2022 £'000 £'000 £'000 £'000
Cost or fair value 46 9,820 10,673 20,539
Accumulated depreciation and impairment - - (9,535) (9,535)
Net book amount 46 9,820 1,138 11,004
6 months ended 30 June 2023
Opening net book amount 46 9,820 1,138 11,004
Exchange differences (11) - (102) (113)
Additions 445 - 1,870 2,315
Depreciation charge - - (257) (257)
Closing net book amount 480 9,820 2,649 12,949
At 30 June 2023
Cost or fair value 480 9,820 11,986 22,286
Accumulated depreciation and impairment - - (9,337) (9,337)
Net book amount 480 9,820 2,649 12,949
12. Intangible assets
There has been no change in the types of intangible assets held in the six
months ended 30 June 2023. Further details are disclosed the Company's Annual
Report and Accounts 2022 on pages 83 to 85.
Management did not identify any significant changes to the indicators of
impairment or changes in circumstances that could cause the Company to impair
or consider reversing prior period impairments of its intangible assets during
the six months ended 30 June 2023.
In-process technology Patents, licence and trademarks Software Total
Goodwill
At 31 December 2022 £'000 £'000 £'000 £'000 £'000
Cost or fair value 7,398 23,681 2,612 119 33,810
Accumulated amortisation and impairment (23,681) (1,111) (96) (32,286)
(7,398)
Net book amount - - 1,501 23 1,524
6 months ended 30 June 2023
Opening net book amount - - 1,501 23 1,524
Exchange differences - - (24) - (24)
Additions - - 216 - 216
Amortisation charge - - (73) (2) (75)
Closing net book amount - - 1,620 21 1,641
At 30 June 2023
Cost or fair value 7,398 23,681 2,632 119 33,830
Accumulated amortisation and impairment (23,681) (1,012) (98) (32,189)
(7,398)
Net book amount - - 1,620 21 1,641
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 that the Company is contractually required
to pay in the future as long as the other party meets its contractual
obligations.
The commitments set out below relate to the Company's investment in the new
manufacturing facility in Ohio. The Company will make a final contribution of
£161,000 towards the construction cost of the new leasehold building upon
completion of all agreed works, which it expects to pay in Q3 2023.
The Company has also made capital commitments for long lead-time equipment
required for the manufacturing line and upgrade of the catalysis laboratories.
Therefore, total capital expenditure contracted but not yet recognised was as
follows:
30 June 2023 31 December 2022
£'000 £'000
Contribution to new building 161 879
Manufacturing equipment 925 1,866
Catalysis laboratory equipment 99 221
Total 1,185 2,966
(b) Contingent liabilities
The Company has no contingent liabilities.
14. Cash and cash equivalents
30 June 31 December 2022
2023 £'000
£'000
Unrestricted cash 8,825 12,428
Restricted cash 198 955
Total 9,023 13,383
Restricted cash 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).
15. Other financial liabilities
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 of 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 estimates and judgements
The Company has determined that the cash consideration of £9,750,000 received
from Foresight Group LLP ("Foresight") for the sale of 100% of Rula
Developments (Immingham) Ltd ("RDIL") ordinary shares in March 2022, which
enabled Velocys to settle deferred consideration due from the original
acquisition of RDIL in December 2021, 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 Velocys
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 is £11,250,000. If the option is
exercised after the 2(nd) anniversary date and before the expiry date, the
purchase price is £11,750,000. Quarterly option fees of £100,000 are due
throughout the option period. Because Velocys maintains significant control
over RDIL's asset, namely the Immingham site where the Altalto development is
planned, 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: £'000
As at 1 January 2022 -
Initial fair value recognised 9,750
Interest expense 745
Payments made (400)
As at 31 December 2022 10,095
Interest expense 516
Payments made (200)
As at 30 June 2023 10,411
30 June 2023 31 December 2022
£'000 £'000
Current 376 376
Non-current 10,035 9,719
Total 10,411 10,095
16. Financial instruments
Details of the classification of financial assets and financial liabilities
following the guidance in IFRS 9 and the Company's exposure to various risks
associated with the financial instruments is disclosed on pages 90 to 93 of
the Company's Annual Report and Accounts 2022.
The Company's main financial asset at 30 June 2023 and 31 December 2022 is
cash and cash equivalents which comprise bank current accounts and short-term
cash deposits.
The detail of the Company's financial instruments at 30 June 2023 and 31
December 2022 by nature and classification for measurement purposes is as
follows:
At 30 June 2023 Financial assets
Amortised cost Fair value through OCI Fair value through income statement Total carrying amount
£'000 £'000 £'000 £'000
Trade and other receivables excluding non-financial assets - - - -
Cash and cash equivalents 9,023 - - 9,023
Total 9,023 - - 9,023
At 31 December 2022 Financial assets
Amortised cost Fair value through OCI Fair value through income statement Total carrying amount
£'000 £'000 £'000 £'000
Trade and other receivables excluding non-financial assets - - - -
Cash and cash equivalents 13,383 - - 13,383
Total 13,383 - - 13,383
At 30 June 2023 Financial liabilities
Amortised cost Fair value through OCI Fair value through income statement Total carrying amount
£'000 £'000 £'000 £'000
Trade and other payables excluding non-financial liabilities 2,801 - - 2,801
Accruals 3,148 - - 3,148
Lease liabilities 4,663 - - 4,663
Other financial liabilities 10,411 - - 10,411
Other liabilities 2,055 - - 2,055
Total 23,078 - - 23,078
At 31 December 2022 Financial liabilities
Amortised cost Fair value through OCI Fair value through income statement Total carrying amount
£'000 £'000 £'000 £'000
Trade and other payables excluding non-financial liabilities 289 - - 289
Accruals 2,230 - - 2,230
Lease liabilities 426 - - 426
Other financial liabilities 10,095 - - 10,095
Other liabilities 487 - - 487
Total 13,527 - - 13,527
The contractual maturity of financial liabilities is as follows:
30 June 2023 31 December 2022
£'000 £'000
Within one year 8,772 3,592
Within two to five years 14,306 9,935
Total 23,078 13,527
17. Equity securities issued
Number of Ordinary
shares shares
(thousands) £'000
Share Premium
£'000
At 1 January 2023 1,397,671 13,977 221,141
Proceeds from share issues 254,128 2,541 3,821
Expenses of share issues - - (712)
At 30 June 2023 1,651,799 16,518 224,250
Number of Ordinary
shares shares
(thousands) £'000
Share Premium
£'000
At 1 January 2022 1,393,571 13,936 221,059
Proceeds from options exercised 2,600 26 52
At 30 June 2022 1,396,171 13,962 221,111
18. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not disclosed
in this note.
In the six months ended 30 June 2023, Lansdowne Partners (UK) LLP, a
substantial shareholder of the Company has subscribed for a total of
71,405,393 placing shares at the placing price of 2.5 pence per share. The
directors, having consulted with the Company's nominated advisor, consider
that the terms of the related party transaction were fair and reasonable.
Certain directors of the Company, being Henrik Wareborn, Philip Sanderson,
Philip Holland, Ann Markey and Thomas Quigley, all of which are deemed to be a
related party pursuant to the AIM Rules, have subscribed for an aggregate of
2,400,000 placing shares at the placing price of 2.5 pence per share.
There were no related party transactions in the six months ended 30 June 2022.
19. Events occurring after the reporting period
There were no events occurring after the reporting period end that have an
impact on the financial results.
20. General information and basis of preparation of half-year report
General information
Velocys plc is a company incorporated and domiciled in the UK. It operates
through a number of subsidiaries in the UK and the US, and collectively they
are referred to in these unaudited interim condensed consolidated financial
statements as the "Company" or "Velocys", with Velocys plc as "Velocys plc" or
the "parent company. The parent company's securities are traded on the
Alternative Investment Market ("AIM") of the London Stock Exchange under the
symbol VLS.
These unaudited interim condensed consolidated financial statements were
approved for issue on 20 September 2023.
These unaudited interim condensed consolidated financial statements do not
comprise statutory accounts within the meaning of section 434 of the Companies
Act 2006. Statutory accounts for the year ended 31 December 2022 were approved
by the board of directors on 24 May 2023 and delivered to the Registrar of
Companies. The report of the auditors on these accounts was unqualified and
did not contain a statement under section 498 of the Companies Act 2006.
However, the report of the auditors did contain an emphasis of matter
paragraph in respect of going concern.
Basis of preparation
This unaudited interim condensed consolidated financial report for the
half-year reporting period ended 30 June 2023 has been prepared in accordance
with UK-adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosures Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
The interim report does not include all of the notes of the type normally
included in an annual financial report. Accordingly, this report is to be read
in conjunction with the annual report for the year ended 31 December 2022,
which has been prepared in accordance with UK-adopted international accounting
standards and with the requirements of the Companies Act 2006, and any public
announcements made by Velocys plc during the interim reporting period.
New and amended standards adopted by the Company
A number of new or amended standards and interpretations became applicable for
the current reporting period. The Company did not change its accounting
policies or make retrospective adjustments as a result of adopting these
standards.
Statement of directors' responsibilities
The directors confirm that these unaudited interim condensed consolidated
financial statements have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority and that the interim management report includes a
fair review of information required by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of the important events that have occurred during
the first six months and their impact on the condensed set of financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
· material related-party transactions in the first six months and
any material changes in the related-party transactions described in the last
annual report.
The directors of Velocys plc are listed in the Velocys plc annual report for
31 December 2022 and on the Velocys plc website: www.velocys.com
(http://www.velocys.com) .
By order of the board
Henrik Wareborn
20 September 2023
Chief Executive Officer
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR MZGZLMGDGFZZRecent news on Velocys
See all newsREG - Velocys PLC - Cancellation of admission to trading
AnnouncementREG - AIM Velocys PLC - Cancellation - Velocys Plc
AnnouncementREG - Takeover Panel - Disclosure Table
AnnouncementREG - Takeover Panel - Disclosure Table
AnnouncementREG - Velocys PLC - Scheme of Arrangement becomes Effective
Announcement