REG - Velocys PLC - Interim results for the 6 months ended 30 June 17 <Origin Href="QuoteRef">VLSV.L</Origin> - Part 2

VelocysAnnouncement

29/09/2017 07:08

- Part 2: For the preceding part double click  ID:nRSc1753Sa 

                                            (unaudited)£'000Before restatement   (unaudited)£'000After restatement   
 Consolidated income statement:                                                                                                           
 Loss for the period attributable to the owners of Velocys plc*  (3,894)                              (7,325)                             
                                                                                                                                          
 Consolidated statement of financial position:                                                                                            
 Investments                                                     9,122                                5,449                               
 
 
* There was no impact on Operating loss. 
 
6.      Finance income 
 
                                                             6 months           6 months           Year ended       
                                                             ended              ended              31 December      
                                                             30 June 2017       30 June 2016       2016             
                                                             (unaudited)£'000   (unaudited)£'000   (audited)£'000   
 Interest income on bank deposits                            36                 76                 129              
 Interest on loan to associate                               226                -                  -                
 Net fair value gains on forward foreign exchange contracts  -                  1,116              668              
 Foreign exchange gains                                      -                  751                2,547            
                                                             262                1,943              3,344            
 
 
7.      Finance costs 
 
                                        6 months           6 months           Year ended       
                                        ended              ended              31 December      
                                        30 June 2017       30 June 2016       2016             
                                        (unaudited)£'000   (unaudited)£'000   (audited)£'000   
 Interest on finance leases             1                  3                  5                
 Interest on borrowings                 10                 14                 21               
 Net FX losses on forward FX contracts  60                 -                  -                
 Interest on embedded derivative *      195                -                  -                
 Interest on convertible loan note      59                 -                  -                
 Foreign exchange losses                216                -                  -                
                                        541                17                 26               
 *See note 12                                                                                  
 
 
8.      Loss per share 
 
The calculation of loss per share is based on the following losses and number
of shares: 
 
                        6 months ended 30 June 2017  6 months ended 30 June 2016  Year ended 31 December 2016  
                        (unaudited)                  (unaudited)                  (audited)                    
                        Loss£'000                    Number                       Pence                        Loss£'000  Number          Pence       Loss£'000  Number          Pence       
                                                     of shares'000                per share                               of shares'000   per share              of shares'000   per share   
 Basic & fully diluted  (10,058)                     143,981                      (6.99)                       (7,325)    142,748         (5.13)      (12,669)   143,283         (8.84)      
 
 
9.      Foreign currency translation 
 
The foreign currency translation differences included in the Consolidated
statement of 
 
comprehensive income primarily related to differences arising on the
translation into pounds sterling of a) the Company's net investment in
Velocys, Inc. whose assets and liabilities are denominated in US dollars, and
b) goodwill and fair value adjustments arising from the acquisition of
Velocys, Inc. in 2008 which are also denominated in US dollars. 
 
10.    Investments 
 
                                 6 months           6 months           Year ended       
                                 ended              ended              31 December      
                                 30 June 2017       30 June 2016       2016             
                                 (unaudited)£'000   (unaudited)£'000   (audited)£'000   
 Available-for-sale investment:                                                         
 At 1 January                    -                  3,375              3,375            
 Movement to associate           -                  (3,375)            (3,375)          
                                 -                  -                  -                
 
 
                                   6 months           6 months           Year ended       
                                   ended              ended              31 December      
                                   30 June 2017       30 June 2016       2016             
                                   (unaudited)£'000   (unaudited)£'000   (audited)£'000   
 Investment in associate:                                                                 
 At 1 January                      5,865              -                  -                
 Movement from available-for-sale  -                  3,375              3,375            
 Investment                        -                  1,805              1,938            
 Share of loss                     (259)              (207)              (306)            
 Foreign exchange                  (307)              476                858              
                                   5,299              5,449              5,865            
 
 
Investments consist solely of Velocys' holding in ENVIA Energy, LLC (ENVIA)
which is the holding company for the project located in Oklahoma (the ENVIA
project). 
 
At the end of January 2016, Velocys entered into a financing arrangement with
ENVIA under which it contributed additional equity finance of $2,587,000 and
committed to provide loan finance of up to $9,310,000. As a result, Velocys
increased its ownership share and was awarded additional voting rights, taking
its share of voting rights to 28%. Up to this point the investment had been
recognised as an Available-for-sale financial asset, thereafter it has been
recognised as an Investment in associate, accounted for under the equity
method. ENVIA was also thereafter considered to be a related party of
Velocys. 
 
In May 2017, an additional $3.4m loan was made available to ENVIA, taking the
total facility to $12.7m. The loan note bears interest at 10%, and is
repayable on 31 December 2019 with an option to extend the maturity date to 31
December 2020. ENVIA had drawn down $9,110,000 on this facility as at 30 June
2017 ($0.4m at 31 December 2016). 
 
The Company's share of post-acquisition profit or loss is recognised in the
Income statement; there are no post-acquisition movements in Other
comprehensive income. For the period, the Company has recognised 9.8% as its
share of ENVIA's post-acquisition loss (end of January 2016 to December 2016:
9.8%). 
 
The Company determines at each reporting date whether there is any objective
evidence that the investment in the associate is impaired. If this is the
case, the Company calculates the amount of impairment as the difference
between the recoverable amount of the associate and its carrying value and
recognises the amount adjacent to share of profit/(loss) of associates in the
Income statement. 
 
As at 30 June 2017 the Company estimated that the fair value of its Investment
had not been impaired after considering a number of factors, which include a
better understanding of the timing of qualification of RINs, a revised
forecast for the plant revenues from both RINs and product pricing the plant
having not achieved a key capacity milestone (post period end) and increased
equity share related to exit of NRG from the JV (post period end). 
 
Critical estimates and judgements 
 
The value of the investment relied on a judgement of the likelihood of the
plant passing its key capacity milestone during October based on current
performance data, and on estimates of future revenues and costs of the ENVIA
plant based on expected product prices and qualification for RIN credits, and
on anticipated operational savings as well increased equity share from NRG
exit from the JV. 
 
11.    Trade and other receivables: non-current 
 
Non-current trade and other receivables is comprised solely of the Company's
loan to ENVIA. At 30 June 2017 ENVIA had drawn $9,110,000 (December 2016:
$400,000) of the $12.4m loan facility made available by Velocys. The Company
determined that a risk factor attached to meeting the next operational
milestone exists which could result in risk of ENVIA lease termination and
ability to operate, and deemed that an impairment of the loan of £0.7m was
required; this estimate was based on the likelihood of passing the key
capacity milestone during October 2017.  Achieving the key capacity milestone
would result in a reversal of the impairment. 
 
12.    Derivative financial instruments 
 
The loan to ENVIA referred to in note 11 contains an option for the borrower
to extend the repayment date by 12 months from December 2019 to December 2020.
The interest rate during the extended period is 10%, the same as during the
initial period, and as this is not related to expected market rates it is
deemed an embedded derivative within the loan agreement. Based on the
difference in discounted cashflows between the two repayment dates, the
derivative is valued at -£246,000. The liability is recorded as a reduction of
the trade receivable with the charge recognised as a Finance cost in the
Income statement. 
 
13.    Movement in equity 
 
On 15 May 2017 Velocys announced a fundraise of £10m. This constituted a
placing of Ordinary shares and an issue of convertible loan notes. The placing
was of 2,577,777 Ordinary shares at a price of £0.45 with existing and new
shareholders. These shares represent 1.8% of Ordinary share capital. A total
of 18 million convertible loan notes were issued at a price of £0.50 to the
Company's two largest shareholders, Ervington Investments Limited and
Lansdowne Partners. The final maturity date of the loan notes is 18 months
from the date of issue, and the interest rate is 8%, with interest also being
convertible into equity. Interest is therefore recorded in equity as it is
accrued. 
 
14.    Post-financial position events 
 
On 21 July the Company announced that it would be ceasing R&D activities at
its UK site on Milton Park in Oxfordshire, and ceasing certain related R&D
activities at its technical site in Ohio. 
 
Also in July, Velocys announced that CFO Susan Robertson had decided to leave
the company. John Tunison, an experienced interim CFO with nearly 15 years'
experience working in finance leadership roles has since joined the Company,
and is based in Houston. 
 
In September Velocys also announced the formation of a consortium including
British Airways and Suez to address an opportunity for a waste to jet fuel
plant in the UK. 
 
As discussed in the CEO's report, in September 2017 Velocys increased its
voting rights in ENVIA Energy after one of the members of the joint venture,
NRG Energy, exited the JV. 
 
This information is provided by RNS
The company news service from the London Stock Exchange