REG - Velocys PLC - Interim Results
21/09/2022 07:00
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RNS Number : 1149A Velocys PLC 21 September 2022
News release
Velocys plc
("Velocys" or the "Company")
21 September 2022
Interim results for the six months ended 30 June 2022
Velocys plc (VLS. L), the sustainable fuels technology company, announces its
interim results for the six months ended 30 June 2022, during which period the
Company has continued to successfully pursue its commercialisation strategy
against an increasingly favourable legislative backdrop.
HIGHLIGHTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
FINANCIAL HIGHLIGHTS
· The Company recorded revenue of £48k (HY2021: £8.2m) from
engineering consulting services in respect of feasibility studies. Prior
period revenues were mainly in respect of recognising the revenue from
supplying reactors and catalyst to our first major commercial client contract
in the US which commenced in 2017. Revenues are expected to be uneven in the
short-term due to the concentrated number of projects.
· The Company recorded a loss before income tax of £5.7m (HY2021:
£2.2m loss). The prior year loss was lower as it included gross profit of
£3.3m.
· As at 30 June 2022, the net assets of the Company were £24.4m.
· Cash balances of the Company as at 30 June 2022 were £18.8m (31
December 2021: £25.5m) which included £1.4m of restricted cash.
· Net cash outflow recorded for the six months to 30 June 2022 was
£6.8m (HY2021: cash outflow £4.8m) which included investment in the new
technical facility in Ohio and deposits for manufacturing equipment totalling
£1.1m.
OPERATIONAL AND COMMERCIAL HIGHLIGHTS (INCLUDING POST PERIOD UPDATES)
Legislative and Policy Frameworks
• The US Inflation Reduction Act of 2022, signed into law on 16
August 2022, allocates $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.
• The UK Government Department for Transport launched its "Jet Zero"
strategy on 19 July 2022, which includes an ambition for a minimum of five
commercial-scale SAF plants to be under construction in the UK by 2025, and a
mandate for at least 10% SAF to be blended into conventional aviation fuel by
2030 to reduce greenhouse gas emissions.
Commercial SAF projects and business development
• Collaboration with TOYO regarding biomass to SAF ("BtL") and power
to SAF ("PtL") solutions for the energy transition in Japan has continued. The
commercial scale NEDO2 BtL project is currently in FEL2 stage and progressing
to plan and the Power to Liquids demonstration project is advancing as
planned.
• The legislative developments and increased awareness of the vital
need for SAF over the past few months has led to increased enquiries for
Velocys' technology offering.
• The pipeline of potential opportunities continues to develop and
the Company is well placed to provide front end project development
consultancy, including feasibility studies and pre-FEED project definition for
SAF projects under consideration globally. The Company is currently
progressing a paid engineering study for a client in Northern Europe and has
been requested to quote for a number of other global projects.
Reference projects update
· Bayou Fuels (Mississippi, US):
· The local development authority in Mississippi is finalising the
levee construction protecting the biorefinery site. This is a critical
milestone required for insurance purposes and de-risking of the site.
· The project benefits from significant US legislative progress.
The biofuels that will be produced, should the project proceed, will adhere to
both the US Renewable Fuel Standard ("RFS") and the Low Carbon Fuels Standard
("LCFS") and earn additional incentives through the associated Renewable
Identification Number ("RIN") and LCFS credits.
· The project is being further optimised to achieve an even lower
carbon intensity to take advantage of the recently introduced dedicated tax
credits for US domestic SAF production (Clean Fuel Production Tax Credits).
· The feedstock capability and the power supply to the biorefinery
are being further assessed to ascertain optimal output.
· Altalto (Immingham, UK):
· Site engineering, geotechnical work and integration of carbon
sequestration continued in readiness for connection into the East Coast Carbon
Capture and Storage cluster for the Immingham site.
· In March 2022, the Company welcomed Foresight Group LLP
("Foresight") into the Altalto municipal solid waste to jet fuel project in
Immingham, UK, where Velocys is providing project development services,
engineering and Fischer-Tropsch Synthesis ("FTS") technology.
· The Company funded the £7.25m deferred consideration due for the
Immingham site purchase by selling the site owning company to Foresight for
£9.75m with an option to repurchase the company in up to three years' time.
Velocys paid £2.5m of the £9.75m consideration in December 2021, so
effectively recovered its cash outlay in March 2022 whilst retaining control
of the site.
· The Company agreed with British Airways ("BA") to extend both the
UK Altalto project Joint Development Agreement and the Option Agreement for BA
to acquire 50% of Altalto Limited by one year to 31 March 2023.
· An application was made to the UK's Department for Transport
(DfT) to obtain a share of the £165m funding available from the Advanced
Fuels Fund launched in July 2022. The fund prioritises commercial-scale
sustainable aviation fuel plants that require additional support to become
ready for investment and construction. The Company believes Altalto meets the
eligibility requirements of the Advanced Fuels Fund.
New Technical Centre (Ohio, US)
· An agreement was entered into to construct a 52,000 square foot
site in Columbus, Ohio, suitable to house the Company's reactor core assembly
operations alongside its research and development activities.
· Terms of a 15-year lease were agreed with Velocys contributing a
maximum of $2m for construction out of a total cost of approximately $10m.
· An Enterprise Zone agreement was signed with Union County, Ohio
which provides property tax abatement of 75% once the building is occupied
from 2023, with commitments to the creation of new jobs in the facility and
support for the local community.
· Construction commenced in May 2022 and is anticipated to complete
in Spring 2023.
· Orders were placed for the new equipment to support the
commissioning and production of reactor cores. £1.4m of commitments have been
made in the six months to June 2022 (in addition to upfront deposits paid of
£0.7m).
· The total Net Present Value of local Ohio State incentives
secured is approximately $600k.
Other highlights and post period events
· Philip Sanderson was appointed as CFO and executive member of the
Board in June 2022, bringing extensive project and commercial finance
experience to the Company.
· During HY2022 the Company successfully filled several key
appointments in the in-house Catalysis group, strengthening our expertise in
catalysis development and continuing to build on our extensive IP portfolio.
· In July 2022, the Company concluded the sale of its undeveloped
Ashtabula site in Northern Ohio, acquired as part of an acquisition in 2014,
to the Ashtabula Port Authority.
· The Company has submitted a separate application with a group of
partners under the UK Advanced Fuels Fund competition for a share of the £22m
of funding specifically allocated for e-fuels projects. This provides an
opportunity to conduct feasibility, technical validation and potentially site
selection for such a project in the UK.
· Establishment of a Scientific Advisory Board with global experts
to provide a forum for science and technology-based discussions based on
independent, objective advice and guidance.
OUTLOOK
· Velocys is targeting completion of the fuel offtake agreements
for Bayou Fuels, taking into account the specific tax credit mechanics set out
in the Inflation Reduction Act. The Company intends to confirm appointment of
its US investment banks to lead the front-end engineering design ("FEED")
funding during the fourth quarter of 2022. This is with a view to having FEED
project funding in place in mid-2023.
· Globally, government policy support to accelerate SAF supply
continues, as evidenced by the recent US legislation, the European
Parliament's adoption of the ReFuel EU Aviation initiative and the UK
Government's SAF mandate consultation pro cess now assessing in greater detail
the administration of such mandates. Velocys looks forward to the conclusion
of the UK consultation process, the results of which are targeted to be
published by the end of 2022.
· Velocys expects the construction and fit-out of the new Ohio
Technical Centre will remain on track, with operations moving into the
facility by mid-2023.
· Velocys, through its 20 years of expertise in sustainable fuels,
is receiving a high level of enquiries from blue chip potential customers and
is focussing its active dialogue on companies which operate in regions with
favourable policy environments.
· Velocys is actively focussed on advancing its commercialisation
strategy through a targeted pipeline of opportunities to deploy its technology
and services.
Henrik Wareborn, CEO of Velocys, said:
"Our interim results show tangible progress with multiple milestones reached
over the course of the period. Our new Ohio Technical Centre is well into its
construction phase. Here, our technology and licensing services will be
consolidated under one roof, providing a fully integrated client delivery and
service offering domestically and globally. The facility is on schedule to be
completed and commissioned next year.
"We welcomed Foresight Group who demonstrated their support for Velocys and
Altalto through the purchase of the Altalto site owner giving the project
permanent site control with an option for repurchase. We continue to have a
strong partnership with British Airways and their commitment to the Altalto
project represented through their extension of our Joint Development Agreement
and Option Agreement.
"The launch in the UK of the "Jet Zero" strategy was well-received and sets
out the Government's approach to achieving "net zero" aviation by 2050. This
stated 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. Both
these initiatives bode very well for Altalto which is exactly the type of
commercial-scale SAF plant the UK Government is seeking. We look forward to
the outcome of the Government's pledge to further work with industry to create
the long-term conditions for investable projects in the UK.
"The landmark climate legislation passed in the US, the "Inflation Reduction
Act of 2022", focusses on the total amount of avoided carbon and not solely on
sustainable fuel supplied. Bayou Fuels, our project in the US, is well
positioned to benefit from such legislation because of its low carbon
footprint, and continues to progress, exploring a route to achieving an even
lower carbon intensity score. The targeted commencement of FEED next year will
be a key milestone following which Velocys expects to generate licence revenue
from the project.
"We have strengthened the business and organisational design by recruiting
world class scientific and commercial talent in Ohio, Houston and Oxford and
continue to build our network of potential partners to accelerate
commercialisation.
"The progress we have made, alongside the policy tailwinds, creates a solid
platform for the Company to deliver. Our outlook remains targeted and
selective as we continue on the path of capital-light scalable growth. The
ultra-low negative carbon intensity synthetic aviation fuel enabled by
Velocys' IP-protected technology provides a solution to fuel independence and
a pathway to sustainable aviation. We look to the future with confidence."
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
Lak Siriwardene, Director of Communications & Sustainability
+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 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)
CEO Report
Overview
We have made strong progress in the first half of 2022, moving forward at pace
with the key priorities set out in our December 2021 fund raise. We set
ourselves targets to strengthen our business development activities; to scale
up our reactor manufacturing capabilities; as well as specific goals for our
two reference projects designed to accelerate the delivery of our technology.
Alongside our operational progress, we have seen key government policy
developments in the US, UK, and the EU which remain of critical importance to
the speed with which our reference projects and those of our potential clients
will proceed to financing and construction, crystalising a growing number of
commercial opportunities.
I would like to take this opportunity to thank all of our employees for their
commitment, innovative mindset and professionalism.
Policy and market developments
The Inflation Reduction Act of 2022 ("the Act") was signed into US law on 16
August and is of historic significance, putting the United States on a path to
significantly lower emissions by 2030, and beyond. We believe this landmark
legislation represents a compelling model which other governments will seek to
follow, in particular the focus on the total amount of avoided carbon instead
of the volume of sustainable fuel supplied, thus prioritising those
technologies which offer routes to negative carbon-intensity fuels.
The Act allocates approximately $369 billion to reducing greenhouse gas
emissions and incentivises expanded production and use of domestic clean
energy. 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.
SAF is the only current commercially-scalable decarbonisation route for the
aviation sector. Multiple pathways to SAF production are needed to satisfy the
aviation industry's decarbonisation targets towards "net zero". Velocys
provides its clients with integrated IP-protected technology enabling the
production of synthetic aviation fuel from a variety of sustainable feedstocks
with ultra-low to negative carbon intensity.
The SAF tax credits and associated incentives are expected to underpin the
financing of Bayou Fuels, Velocys' advanced SAF reference project in Natchez,
Mississippi, US. Bayou Fuels is a planned cellulosic biofuels plant enabling
the production of carbon negative fuel through the use of biogenic feedstock,
renewable power, and carbon sequestration. The biorefinery will convert 3,000
tons/day of woody biomass forestry residues into 36 million gallons/year
(nameplate) of renewable transportation fuels, predominantly SAF, with a
negative carbon intensity. The biofuels produced will adhere to both the US
Renewable Fuel Standard ("RFS") and the Low Carbon Fuels Standard ("LCFS") and
earn additional incentives via the associated Renewable Identification Number
("RIN") and LCFS credits.
This critical legislative development in the US follows the launch by the UK
Government's Department for Transport of its Jet Zero strategy, setting out
the Government's approach for achieving net zero aviation by 2050. This
includes 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. Velocys
and British Airways are jointly developing the Altalto project, to build a
full-scale plant in Immingham, UK, to make SAF from commercial and residential
residual waste, in anticipation of UK policy incentives similar to those
announced by the US. Importantly, the UK mandate is to be expressed in terms
of greenhouse gas reductions, rather than simple fuel volume, which will
benefit Altalto due to its ultra-low carbon intensity.
In July, the European Parliament voted to support the European Commission's
ReFuelEU Aviation proposal to introduce an obligation to uplift an increasing
percentage of sustainable aviation fuel for all flights leaving the EU
starting in 2025. European Parliament members increased the commission's
original proposal for the minimum share of SAF made available at EU airports
from 5 percent in 2030, 32 percent in 2040, and 63 percent for 2050 to 6
percent, 37 percent, and 85 percent, respectively. The blending obligation
starts in 2025, with a SAF share of 2 percent, driving demand for SAF uptake
by airlines.
Growth and commercialisation strategy
We are actively focussed on advancing our commercialisation strategy through a
targeted pipeline of opportunities to deploy our technology and services. We
are seeing an increasing number of enquiries, and through our 20 years of SAF
industry experience, we are well placed to provide front end project
development consultancy, including feasibility studies and pre-FEED project
definition for the potential SAF projects under consideration globally.
Our collaboration with TOYO regarding biomass to SAF ("BtL") and power to SAF
("PtL") solutions for the energy transition in Japan has continued. The
commercial scale NEDO2 BtL project is currently in FEL2 stage and progressing
to plan and the Power to Liquids demonstration project is advancing as
planned. The increased awareness of the vital need for SAF over the past few
months has stimulated increased demand for Velocys' technology offering.
Velocys is currently progressing a paid engineering study for a client in
Northern Europe and has been requested to quote for a number of other studies.
Ohio Technical Centre
Construction of our new facility in Columbus, Ohio is underway, following the
selection of a suitable site earlier this year. The leasehold facility will be
constructed to our specific requirements, and we look forward to commissioning
the reactor core assembly operations during 2023. This project also involves
the relocation of our staff and equipment from our current Columbus facility.
We have also concluded an Enterprise Zone agreement with Union County, Ohio,
which provides a package of investment incentives such as abatement of
property taxes over the lease term following our commitment to create new jobs
at the facility. We estimate that these incentives could be worth
approximately £0.5m in grants and cost savings.
HSSE
During the first half year we have continued to place a high degree of
importance on maintaining a safe and healthy working environment for our
employees and visitors to our sites. There were no Lost Time Accidents and no
near misses reported during the period. The COVID-19 response committee formed
in 2020 has continued to operate during 2022 facilitating the resumption to
pre-pandemic ways of working wherever possible.
Financial Review
Overview
During the six months to 30 June 2022, the Company proceeded with its planned
investment in a new Technical Centre in Ohio and also secured control of the
Altalto project site through an agreement with Foresight Group LLP. Further
details of these activities are presented in more detail below. Operating
expenses and cash resources continue to be managed carefully throughout the
Group, with the Company benefitting from £1.5m of grant funding in HY2022 to
support engineering work on the Altalto project.
Revenues
Revenues of £48,000 in half-year 2022 related to engineering consultancy
services provided to third party customer projects under development. In
comparison, the Company recognised revenue of £8.2m (and gross profit of
£3.3m) in half-year 2021 for the sales of reactors and catalyst, and
licensing fees earned from our first major commercial client contract which
commenced in 2017 and concluded in half-year 2021. Given the relatively early
stage of commercialisation, revenues will remain uneven in the short-term due
to the concentrated number of projects.
Operating expenses
Total operating expenses for the six months ended 30 June 2022 were 32% higher
(£1.7m) at £7.1m (HY2021: £5.4m). Included within the half-year 2022
operating expenses is a £1.3m credit resulting from unrealised foreign
exchange gains (HY2021: £0.3m loss). Therefore, the underlying operating
expenses at £8.4m are approximately £3.3m higher in half-year 2022 compared
to the same period in 2021.
The key components of operating expenses are staff-related costs of £4.0m
(HY2021: £2.6m), reference projects spend of £1.8m (HY2021: £0.4m),
depreciation and amortisation of £0.6m (HY2021: £0.6m) and other corporate
running costs of £2.0m (HY2021: £1.5m). Staff-related costs were £1.4m
higher than half-year 2021 as, in line with its commercial strategy, the
Company has recruited a number of key senior positions within the last year.
Therefore the results for half-year 2022 include a full six months of these
payroll related costs plus recruitment fees and relocation expenses. The
Company also took the decision to accrue for the annual performance incentive
plan throughout the year and has recorded £0.7m for the six months to June
2022 (HY2021: £nil).
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 £1.8m in half-year 2022
(HY2021: £0.4m). It should be noted that in half-year 2021, £0.7m of partner
funding received under the Altalto co-development agreement was offset against
project costs. These development 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. For half-year 2022, the
majority of costs incurred for the Altalto project were supported by the Green
Fuels Green Skies grant (for which £1.5m is included in other income). Bayou
Fuels pre-FEED engineering activities are borne wholly by the Company, with
total external services of £0.6m incurred in half-year 2022 (HY2021: £0.4m).
Operating result
The operating loss for the six months to 30 June 2022 was £5.5m (HY2021:
£2.0m).
Loss before income tax
The loss before income tax for the six months to 30 June 2022 was £5.7m
(HY2021: £2.2m).
Dividends
The Directors do not recommend an interim dividend for the six months to 30
June 2022 (HY2021: £nil).
Net assets and cash
The net assets of the Company were £24.4m at 30 June 2022 (31 December 2021:
£29.7m). The decrease was principally the result of the £6.7m decrease in
cash and cash equivalents as a result of funding the Company's capital
expenditure, development projects and ongoing operating activities.
The Company used £6.8m of cash in the six months to 30 June 2022 comprising
expenditure on operating activities of £8.6m (HY2021: £4.1m) and investing
activities of £7.8m (HY2021: £0.4m) offset by an inflow from financing
activities of £9.8m (HY2021: £0.3m inflow due to new borrowings).
In March 2022, the Company signed a sale and purchase agreement with a
subsidiary of Foresight Group LLP (Foresight) to sell 100% of shares held in
Rula Developments Immingham Ltd ("RDIL"). The Company received total
consideration of £9.75m (included within financing activities) which was used
to pay deferred consideration of £7.25m (included within investing
activities) due to the previous owners of RDIL arising from the Group's
purchase of RDIL in December 2021. Therefore, the Company recovered the £2.5m
it had paid in cash consideration in December 2021.
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' time, 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 Company continues to incur a significant proportion of its expenses in US
dollars and has exposure to the US dollar to GBP exchange rate. This is hedged
to the extent possible by holding a proportionate cash balance in US
dollars. In addition, the majority of the Company's revenue is invoiced in
US dollars.
Going concern and future funding
The condensed consolidated interim 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 condensed consolidated interim financial statements.
The nature of the Company's strategy means that the precise timing of
milestones and funds generated during the early years of development projects
are difficult to predict. The directors have prepared financial forecasts to
estimate the likely cash requirements of the Company over the next twelve
months from the date of announcing these condensed consolidated interim
financial statements. These forecasts show that the Company will require
additional external funding within the twelve-month forecast period to be able
to continue as a going concern.
The directors are confident that the funding required for the Company to
continue as a going concern will be secured with a period of twelve months and
therefore have prepared the condensed consolidated interim financial
statements on a going concern basis. However, as at the date of announcing the
condensed consolidated interim financial statements no additional funding has
been committed.
Should additional funding not be secured within twelve months from the date of
announcing these condensed consolidated interim financial statements, 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 condensed interim 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 16 to 19 of our Annual Report and
Accounts 2021.
The Company has provided an update on the key developments in the policy and
legislative frameworks above, which remain a key driver of the future
commercial opportunities for SAF projects. The US Inflation Reduction Act was
a major step forward, as the announced tax credits and associated incentives
are expected to underpin the financing of the Bayou Fuels project. The Company
has already secured long-term offtake arrangements for 100% of the SAF output
expected from the Bayou Fuels facility with Southwest Airlines (a 15-year
agreement) and IAG/British Airways (MOU for a 10-year agreement). This new
climate legislation is expected to allow finalisation of these offtake
agreements.
At a corporate level, 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.
The war in Ukraine has substantially intensified geopolitical risks that
relate to sourcing of energy and other
products from Russia and Eastern Europe. The ongoing war may result in further
trade sanctions, continue to impact supply chains or further accelerate the
cost inflation being experienced throughout the global economy. It may also
have a material effect on the global energy markets, development of
regulation, cyber risk landscape, and overall market supply and demand
conditions. Whilst the Company has no operations in these territories, it is
mindful of these pricing pressures and mitigates the risk where possible, for
example in fixing the contractual cost of equipment purchased for the new
technical facility.
The prolonged duration of the COVID-19 pandemic driven by waves of variants
has caused the Company to keep its COVID-19 response continually under review,
and our dedicated COVID-19 response committee has met regularly to assess the
safety of employees attending both the Company's and third-party sites.
Overall, the Company has not experienced any specific operational issues in
HY2022 as a result of the pandemic.
Condensed consolidated statement of profit or loss
Six months ended 30 June Six months ended
2022 30 June
2021
Note £'000 £'000
Revenue 4 48 8,237
Cost of sales (33) (4,895)
Gross profit 15 3,342
Administrative expenses (7,090) (5,384)
Other income 5 1,609 -
Operating loss (5,466) (2,042)
Finance income 36 -
Finance costs 6 (287) (180)
Loss before income tax (5,717) (2,222)
Income tax credit 7 576 396
Loss for the period attributable to the owners of Velocys plc (5,141) (1,826)
Loss per share attributable to the owners of Velocys plc Pence Pence
Basic and diluted loss per share 8 (0.37) (0.17)
The above condensed consolidated statement of profit or loss should be read in
conjunction with the accompanying notes.
Condensed consolidated statement of comprehensive income
6 months ended 6 months ended
30 June 30 June
2022 2021
£'000 £'000
Loss for the period (5,141) (1,826)
Other comprehensive income/(expense)
Items that may be reclassified to the income statement in subsequent periods
Foreign currency translation differences (512) 183
Total comprehensive income/(expense) for the period attributable to the owners (5,653) (1,643)
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 2022 31 December 2021
Note £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 9 11,103 11,006
Right-of-use assets 408 500
Intangible assets 10 1,271 1,086
Total non-current assets 12,782 12,592
Current assets
Inventories 851 767
Trade and other receivables 2,961 1,274
Current income tax asset 1,681 1,100
Cash and cash equivalents 12 18,790 25,506
24,283 28,647
Assets classified as held for sale 13 164 -
Total current assets 24,447 28,647
Total assets 37,229 41,239
LIABILITIES
Non-current liabilities
Lease liabilities 80 189
Other financial liabilities 14 9,419 -
Total non-current liabilities 9,499 189
Current liabilities
Trade and other payables 2,138 2,969
Lease liabilities 406 397
Deferred consideration - 7,250
Other financial liabilities 14 476 -
Other liabilities 32 431
Deferred revenue 312 326
Total current liabilities 3,364 11,373
Total liabilities 12,863 11,562
Net assets 24,366 29,677
EQUITY
Called up share capital 16 13,962 13,936
Share premium account 16 221,111 221,059
Merger reserve 369 369
Share-based payments reserve 2,902 2,638
Foreign exchange reserve 2,639 3,151
Accumulated losses (216,617) (211,476)
Total equity 24,366 29,677
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 2022 13,936 221,059 369 2,638 3,151 (211,476) 29,677
Loss for the period - - - - - (5,141) (5,141)
Other comprehensive income
Foreign currency translation differences - - - - (512) - (512)
Total comprehensive expense - - - - (512) (5,141) (5,653)
Transactions with owners
Share-based payment - 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
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 2021 10,642 199,701 369 16,345 3,038 (217,035) 13,060
Loss for the period - - - - - (1,826) (1,826)
Other comprehensive expense
Foreign currency translation differences - - - - 183 - 183
Total comprehensive expense - - - - 3,221 (1,826) (1,643)
Transactions with owners
Share-based payments - value of employee services - - - 145 - - 145
Proceeds from options exercised 16 32 - - - - 48
Total transactions with owners 16 32 - 145 - - 193
Balance at 30 June 2021 10,658 199,733 369 16,490 3,221 (218,861) 11,610
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
2022 ended 30 June
2021
Note £'000 £'000
Cash flows from operating activities
Cash used in operations (8,501) (4,079)
Interest received 36 -
Interest paid (142) (63)
Net cash outflow from operating activities (8,607) (4,142)
Cash flows from investing activities
Payments for property, plant and equipment (7,614) (131)
Payments for intangible assets (259) (284)
Proceeds from sale of property, plant and equipment 97 -
Net cash outflow from investing activities (7,776) (415)
Cash flows from financing activities
Proceeds received from financing arrangement 9,750 -
Proceeds received from exercise of share options 78 48
Principal elements of lease payments (264) (279)
Net cash inflow/(outflow) from financing activities 9,564 (231)
Net decrease in cash and cash equivalents (6,819) (4,788)
Cash and cash equivalents at beginning of the half-year 25,506 13,051
Exchange movements on cash and cash equivalents 103 86
Cash and cash equivalents at end of the half-year 12 18,790 8,349
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.
Worldwide economic conditions affecting prices and supply chains following
Russia's invasion of Ukraine and the lasting effects of the global pandemic
have increased operational risks. Whilst Velocys does not have any operations
directly impacted by the war in Ukraine, the Company has experienced 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 2022,
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 2022:
· In March 2022 Altalto Immingham Ltd ("Altalto"), a wholly owned
subsidiary of Velocys plc sold its 100% interest in Rula Developments
(Immingham) Ltd (RDIL) for £9,750,000 to a subsidiary of the Foresight Group
LLP and at the same time took out a call option for Altalto to repurchase RDIL
within a three-year period. This enabled the Company to settle deferred
consideration of £7,250,000 due to the previous owners of RDIL. As Altalto
continues to have significant control over the development land asset owned by
RDIL, the Company has not recorded a disposal of property, plant and equipment
and has recorded a financial liability in respect of the new call option
arrangement (see note 14).
· The Company agreed the terms of a new 15-year lease on a building
currently under construction to house its manufacturing and technical
activities in Ohio, US. The exact start date for the lease will be confirmed
nearer the completion of construction. The Company has committed to contribute
a total of £1,776,000 towards the cost of construction, of which £420,000
was paid during the period ended 30 June 2022. The Company has also spent
£670,000 under its manufacturing upgrade programme on upfront deposits when
placing orders for long lead-time equipment that will be installed at the new
site (see note 11).
2. Going concern
The condensed consolidated interim 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 condensed consolidated interim financial statements.
The nature of the Company's strategy means that the precise timing of
milestones and funds generated during the early years of development projects
are difficult to predict. The directors have prepared financial forecasts to
estimate the likely cash requirements of the Company over the next twelve
months from the date of announcing these condensed consolidated interim
financial statements. These forecasts show that the Company will require
additional external funding within the twelve-month forecast period to be able
to continue as a going concern.
The directors are confident that the funding required for the Company to
continue as a going concern will be secured with a period of twelve months and
therefore have prepared the condensed consolidated interim financial
statements on a going concern basis. However, as at the date of announcing the
condensed consolidated interim financial statements no additional funding has
been committed.
Should additional funding not be secured within twelve months from the date of
announcing these condensed consolidated interim financial statements, 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 condensed interim 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 2021, with the exception of a new judgement made in determining the
appropriate accounting treatment for other financial liabilities (see note
14).
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.
The Company's operating segment operates in two main geographical areas.
Revenue is allocated based on the country in which the customer is located.
6 months 6 months
ended ended
30 June 2022 30 June 2021
£'000 £'000
Americas - 8,130
Asia Pacific 48 107
Total revenue 48 8,237
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 2022, the revenue was in respect of
engineering services.
In the six months ended 30 June 2021, the Company recorded revenue from sales
of reactors and catalyst, and licensing fees earned from a contract which
commenced in 2018. The Company satisfied the performance conditions within the
contract in 2021 following the expiry of all contractual obligations and
therefore determined that it was appropriate to recognise the revenue and the
associated cost of goods in the six months ended 30 June 2021.
5. Other income
Income from government grants was in respect of a grant awarded to the Altalto
project under the UK government's Green Fuels Green Skies competition in 2021,
the work under which was completed in June 2022.
6 months 6 months
ended ended
30 June 2022 £'000 30 June 2021
£'000
Income from government grants 1,512 -
Profit on sale of fixed assets 97 -
Total 1,609 -
6. Finance costs
6 months 6 months
ended ended
30 June 2022 30 June 2021
£'000 £'000
Interest on lease liabilities 42 63
Interest on other financial liabilities 245 -
Foreign exchange losses - 117
Total 287 180
7. Income tax credit
Due to the losses incurred in the period, there is no charge to corporate tax.
The Company recognised £576,000 for estimated R&D tax credits for the six
months ended 30 June 2022 (HY1 2020: £396,000). 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.
8. 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 2022 30 June 2021
Loss attributable to owners of Velocys plc (£'000s) (5,141) (1,826)
Weighted average number of ordinary shares in issue ('000) 1,394,487 1,064,635
Basic and diluted loss per share (pence) (0.37) (0.17)
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.
9. 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 2022. Further details are disclosed the Company's
Annual Report and Accounts 2021, pages 69 to 71.
The Company has reclassified a plot of land that was previously impaired as
available for sale as at 30 June 2022 (see note 13).
Land Plant and machinery Total
At 31 December 2021 £'000 £'000 £'000
Cost or fair value 11,049 9,181 20,230
Accumulated depreciation and impairment 1,081 8,143 9,224
Net book amount 9,968 1,038 11,006
6 months ended 30 June 2022
Opening net book amount 9,968 1,038 11,006
Exchange differences 16 95 111
Additions - 364 364
Depreciation charge - (214) (214)
Reclassification to assets available for sale (164) - (164)
Closing net book amount 9,820 1,283 11,103
At 30 June 2022
Cost or fair value 9,820 10,553 20,373
Accumulated depreciation and impairment - (9,270) (9,270)
Net book amount 9,820 1,283 11,103
10. Intangible assets
There has been no change in the types of intangible assets held in the six
months ended 30 June 2022. Further details are disclosed the Company's Annual
Report and Accounts on pages 67 to 69.
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 2022.
In-process technology Patents, licence and trademarks Software Total
Goodwill
At 31 December 2021 £'000 £'000 £'000 £'000 £'000
Cost or fair value 7,398 23,681 2,491 101 33,671
Accumulated amortisation and impairment (23,681) (1,410) (96) (32,585)
(7,398)
Net book amount - - 1,081 5 1,086
6 months ended 30 June 2022
Opening net book amount - - 1,081 5 1,086
Exchange differences - - 34 - 34
Additions - - 252 7 259
Amortisation charge - - (108) - (108)
Closing net book amount - - 1,259 12 1,271
At 30 June 2022
Cost or fair value 7,398 23,681 2,777 12 33,868
Accumulated amortisation and impairment (23,681) (1,518) - (32,597)
(7,398)
Net book amount - - 1,259 12 1,271
11. 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 Company has committed to making a contribution of £1,776,000 towards the
construction costs of the new leased premises in Ohio which will house the
Company's manufacturing and technical facilities currently under construction
and expected to be completed in the first half of 2023. The Company has
already made a stage payment of £420,000 in the half-year to 30 June 2022,
and further stage payments totalling £1,356,000 will be due over the
construction period based on construction 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 30 June 2022.
The Company has also paid deposits to suppliers of £670,000 for property,
plant and equipment comprising long lead-time manufacturing equipment in the
half-year to 30 June 2022, with commitments to make further payments of
£1,394,000 under these contracts.
Therefore, total capital expenditure contracted for during the half-year ended
30 June 2022, but not yet recognised was as follows:
30 June 2022 31 December 2021
£'000 £'000
Leasehold property construction costs 1,356 -
Reactor core manufacturing equipment 1,394 -
Total 2,750 -
(b) Contingent liabilities
The Company has no contingent liabilities.
12. Cash and cash equivalents
30 June 31 December 2021
2022
Unrestricted cash 17,434 25,506
Restricted cash 1,356 -
Total 18,790 25,506
Restricted cash as at 30 June 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 10).
13. Assets available for sale
As at 30 June 2022, the Company has reclassified property, plant and equipment
with a net book value of £164,000 comprising an 80-acre site in Ashtabula
County, Ohio, US acquired as part of an acquisition in 2014 for which the
Company has no future use. The decision was taken to proceed with the disposal
and the purchaser's due diligence was well advanced as at 30 June 2022. The
transaction was completed in July 2022.
14. 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 (see note 1) for the purchase of 100% of RDIL ordinary shares
in March 2022, which enabled Velocys to settle deferred consideration due from
the 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 development site, throughout the
option period, management 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 245
Payments made (100)
As at 30 June 2022 9,895
Current 476
Non-current 9,419
Total 9,895
15. 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 74 to 77 of
the Company's Annual Report and Accounts 2021.
The Company's main financial asset at 30 June 2022 and 31 December 2021 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 2022 and 31
December 2021 by nature and classification for measurement purposes is as
follows:
At 30 June 2022 Financial assets
Amortised cost Fair value through OCI Fair value through income statement Total carrying amount
£'000 £'000 £'000 £'000
Trade receivables 6 - - 6
Cash and cash equivalents 18,790 - - 18,790
Total 18,796 - - 18,796
At 31 December 2021 Financial assets
Amortised cost Fair value through OCI Fair value through income statement Total carrying amount
£'000 £'000 £'000 £'000
Trade receivables 6 - - 6
Cash and cash equivalents 25,506 - - 25,506
Total 25,512 - - 25,512
At 30 June 2022 Financial liabilities
Amortised cost Fair value through OCI Fair value through income statement Total carrying amount
£'000 £'000 £'000 £'000
Financing arrangement with Foresight (note 14) 9,895 - - 9,895
Trade and other payables excluding non-financial liabilities 650 - - 650
Accruals 1,171 - - 1,171
Lease liabilities 486 - - 486
Other liabilities 32 - - 32
Total 12,234 - - 12,234
At 31 December 2021 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 593 - - 593
Accruals 2,173 - - 2,173
Lease liabilities 586 - - 586
Other liabilities 431 - - 431
Total 3,783 - - 3,783
16. Equity securities issued
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
Number of Ordinary
shares shares
(thousands) £'000
Share Premium
£'000
At 1 January 2021 1,064,156 10,642 199,701
Proceeds from options exercised 1,600 16 32
At 30 June 2021 1,065,756 10,658 199,733
17. 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.
There were no transactions with other related parties in the half-year ended
30 June 2022.
18. Events occurring after the reporting period
In July 2022, the Company completed the disposal of the Ashtabula site,
receiving total consideration of £164,000 which equated to the net book value
of the asset shown as available for sale as at 30 June 2022 (see note 13).
19. 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 condensed consolidated interim 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 condensed interim financial statements were approved for issue on 20
September 2022.
These condensed interim 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 2021 were approved by the
board of directors on 16 May 2022 and delivered to the Registrar of Companies.
The report of the auditors on these accounts was unqualified, did not contain
an emphasis of matter paragraph and did not contain a statement under section
498 of the Companies Act 2006.
The financial statements have been reviewed, not audited.
Basis of preparation
This condensed consolidated interim financial report for the half-year
reporting period ended 30 June 2022 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 2021,
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 consolidated interim 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 2021, with the exception of the following changes in the period:
Andrew Morris resigned on 21 June 2022, and Philip Sanderson was appointed on
22 June 2022. A list of current directors is maintained on the Velocys plc
website: www.velocys.com (http://www.velocys.com) .
By order of the board
Henrik Wareborn
20 September 2022
Chief Executive Officer
Independent review report to Velocys plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Velocys plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Interim results of
Velocys plc for the 6 month period ended 30 June 2022 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the AIM Rules for Companies.
The interim financial statements comprise:
· the condensed consolidated balance sheet as at 30 June 2022;
· the condensed consolidated statement of profit or loss and
condensed consolidated statement of comprehensive income for the period then
ended;
· the condensed consolidated statement of cash flows for the period
then ended;
· the condensed consolidated statement of changes in equity for the
period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim results of Velocys
plc have been prepared in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the AIM Rules for Companies.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Interim results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Material uncertainty related to going concern
In forming our conclusion on the interim financial statements, which is not
modified, we have considered the adequacy of the disclosure made in note 2 to
the interim financial statements concerning the Company's ability to continue
as a going concern. Due to the nature of the Company's activities, and based
on the forecasts prepared by management, the Company needs to secure
additional external funding within 12 months from the date of approval of the
financial statements in order to continue as a going concern. At the time of
the approval of the interim financial statements no such funding is committed.
These conditions, along with the other matters explained in note 2 to the
interim financial statements, indicate the existence of a material uncertainty
which may cast significant doubt about the Company's ability to continue as a
going concern. The interim financial statements do not include the adjustments
that would result if the Company were unable to continue as a going concern.
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately applied the going concern basis of accounting in the
preparation of the interim financial statements.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Interim results in accordance with the AIM Rules
for Companies which require that the financial information must be presented
and prepared in a form consistent with that which will be adopted in the
Company's annual financial statements. In preparing the Interim results,
including the interim financial statements, the directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Company's or
to cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Interim results based on our review. Our conclusion is based
on procedures that are less extensive than audit procedures, as described in
the Basis for conclusion paragraph of this report. This report, including the
conclusion, has been prepared for and only for Velocys plc for the purpose of
complying with the AIM Rules for Companies and for no other purpose. We do
not, in giving this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Reading
20 September 2022
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