Final Results

RNS Number : 6915L
Velocys PLC
17 May 2022
 

 

 

 

News release

 

Velocys plc 

 

("Velocys" or "the Company")

 

 

17 May 2022

 

 

Final audited results for the year ended 31 December 2021

Acceleration of Commercialisation

 

Velocys, the sustainable fuels technology company, is pleased to announce its final audited results for the year ended 31 December 2021, which shows the Company mak ing good progress in the technology delivery and commercialisation phase of its growth strategy. 

 

2021 Financial Highlights

· Revenue increased to £8.3 million (2020: £0.2 million).

· Administrative expenses of £13.3 million (2020: £9.2 million).

· Operating loss of £9.0 million (2020: £8.8m).

· Net assets increased to £29.7 million as at 31 December 2021 (2020: £13.1 million).

· £26.2 million (before expenses) successfully raised by a Placing and Open Offer in December 2021.

· Net cash at year end of £25.5 million (2020: £13.1 million).

· No borrowings at the year-end (2020: £0.5 million).

 

Business Highlights including post period end activities

 

Strong commercial progress made

· Commercial offtake agreement with Southwest Airlines and a memorandum of understanding ("MOU") with IAG for all the Sustainable Aviation Fuel ("SAF") and associated environmental credits for the Bayou Fuels project.

· Collaboration with TOYO, with Velocys Fischer Tropsch technology being selected for an e-fuels project commissioned by the Japanese government.

· TOYO commenced advanced engineering for commercial scale biorefinery for conversion of forestry residue into SAF.

· Exercised option agreement for Altalto to acquire Immingham site owner for £9.75 million with £2.5 million in cash and £7.25 million owing as deferred consideration at year-end ahead of onward sale to Foresight Group LLP .

· Velocys and B ritish Airways were awarded a grant of up to £2.4 million from the UK Government's Green Fuels Green Skies ("GFGS") grant scheme.

· Appointed Koch Project Solutions to provide pre-FEED/FEED support with the potential to be awarded an EPC contract for the Bayou Fuels project.

· Growing pipeline of customer opportunities leading to additional technology licensing opportunities across three continents.

 

Technology skillset strengthened

· Dr Dawid Duvenhage joined as VP, Catalysis - bringing a wealth of knowledge and experience in catalysis and the Fischer Tropsch process.

 

Post period end

· In March 2022 onward sale of Altalto project site owner to Foresight Group LLP for £9.75 million settling the deferred consideration and repaying Velocys the £2.5 million paid in December 2021 alongside securing a three-year option to repurchase the site owning company and a right of first refusal for Foresight to invest up to £100 million into the Altalto project.

· Altalto Joint Development agreement and Altalto option agreement with British Airways plc extended to 31 March 2023.

· In March 2022 a 15-year lease for a modern sustainable technical centre in Ohio was signed for a new building purpose built to suit Velocys' technical needs in catalysis services, microchannel reactor core assembly and technology licensing.

 

 

Henrik Wareborn, CEO of Velocys, said:

 

"Velocys offers a decarbonisation solution to the aviation industry and is now firmly in the technology delivery and commercialisation phase of our growth strategy. We have a growing pipeline of new customer opportunities spanning multiple continents, which have developed in response to client specific net zero targets in countries that are ahead of the game on mandates and policy incentives.

 

"Our commercially demonstrated patented technology enables an alternative to fossil jet fuel with an ultra-low carbon intensity. In addition, our production pathway generates fuels with much lower sulphur oxide and particulate matter emissions. Synthetic drop-in fuel is the here and now solution, which requires no modification to aircraft or airport infrastructure.

 

"The synthetic fuel enabled by our technology will greatly benefit our customers, industry and society."

 

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) prior to its release as part of this announcement.

 

For further information, please contact:

Velocys

Henrik Wareborn, CEO

Andrew Morris, CFO

Lak Siriwardene, Head 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 international sustainable fuels technology company, traded on the AIM market of the L ondon S tock E xchange ("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

 

 

Chairman's statement

 

The year saw a strong performance from Velocys towards its financial, commercial, and technical objectives.

 

We adapted in 2020 to working remotely and effectively during the pandemic without losing momentum and we built on this learning in 2021 to ensure seamless customer delivery during the year. The Company achieved another year with zero lost time incidents across all three sites, a health and safety record of real note.

 

The past twelve months have seen greatly increased engagement and deeper commitments from leading global organisations to support policy objectives aimed at reducing greenhouse gas emissions and driving an increase in the use of renewable energy.

 

The 2021 United Nations Climate Change Conference ("COP26") saw further commitment to support sustainable aviation with the launch of the International Aviation Climate Ambition Coalition ("IACAC") where 26 member states, including the UK, pledged to work together to support the adoption of global goals for international aviation CO2 emissions by the International Civil Aviation Organization and to support specific measures to reduce aviation emissions including sustainable aviation fuels.

 

To make meaningful progress, there must be increased collaboration and innovation from all sides. Industry players with proven technologies need to work alongside policy makers at a governmental level and with other key stakeholders to drive the necessary change to address aviation emissions by including these emissions in their national climate targets - something the UK, who led the declaration, committed to itself earlier this year.

 

Velocys' versatile and innovative technology adds significant IP and optimisation to the Fischer Tropsch ( " FT " ) process and is ideally placed to play a key role in supporting the international decarbonisation agenda.

 

Board

After nine years of service to the Company, Sandy Shaw stepped down from the Board at the 2021 AGM. Following an extensive search, we have strengthened the Board with the appointment of two new Non-Executive Directors: Ann Markey and Tom Quigley. Both Ann and Tom bring significant financial and operational experience to the Board at a time when the Company is looking to progress towards securing funding for the next stage of development for its UK and US reference projects and to build our technology delivery capability to satisfy the ever-growing global demand.

 

We have taken the opportunity to strengthen the Board's oversight of the Company's risk management and sustainability activities by establishing a Risk and Sustainability Committee, chaired by Darran Messem. The Audit Committee is now chaired by Ann Markey, and the Remuneration Committee is chaired by Tom Quigley.

 

In February 2022, Andrew Morris, CFO, advised the Board of his intention to leave Velocys in Q2 2022 in order to pursue other career opportunities. Andrew has played a key role in strengthening and consolidating the finance function of the Company and the Board is grateful for his service and his commitment. The recruitment process of our next CFO is well underway.

 

Leadership

David Bate was appointed General Counsel, Vice President Legal and Compliance in March 2021. David's most recent position was at Schlumberger where he was responsible for all legal support to the group's upstream asset portfolio covering M&A, business development, risk and project management, development financing and other regulatory matters.

 

Andy Bensley joined Velocys as the Global Head of Business Development and Technology Delivery in February 2022. He has 35 years of international experience in senior corporate, functional leadership and project delivery roles in both major international oil companies and EPC contractor organisations. In this newly created role, Andy will focus on the acceleration of the commercialisation of the Velocys technology in order to cultivate our global client pipeline and enhance our technology delivery capability.

 

Heinz Robota, VP Technology, is retiring from his role after 10 years at Velocys, having led the catalysis efforts from R&D through to commercial scale demonstration of Velocys' super active FT catalyst. Heinz will be succeeded by Dawid Duvenhage who has over 30 years' experience in catalyst development, scale-up and commercialisation. Heinz will continue to support Velocys as a member of our Senior Scientific Advisory Board.

 

Outlook

The recent successful placing and open offer will enable us to expand our reactor core assembly capability, ensuring that we will be able to meet strong customer demand for our technology, driven by SAF mandates. We also look forward to accelerating our reference projects in 2022.

 

A key focus will be to augment our commercial and business development function to serve a wide range of customers with an integrated, standardised service offering and a capital light licensing model deployed for biorefineries with integrated CO 2 sequestration as well as in the new e-fuels sector.

 

Through our established strategic alliances with our technology and engineering partners, we will be able to offer a fully integrated end to end solution for converting sustainable non-fossil feedstocks into SAF.

 

I would like to thank Henrik Wareborn, his leadership team and everyone at Velocys for their hard work and commitment in 2021. Their energy, enthusiasm and professionalism has enabled our strategic success during this important year for Velocys.

 

CEO's Report

 

As a sustainable fuels technology company, Velocys has a solution to reduce greenhouse gas emissions in the aviation sector. 

 

Our IP-protected technology enables the production of a synthetic fuel with the same chemical composition of fossil jet fuel and, as a drop-in fuel, utilises sustainable waste feedstocks, which have no alternative use such as forestry residue and municipal solid waste. It is a negative carbon intensity fuel with carbon sequestration and not only has the potential to support national fuel security initiatives but also delivers environmental improvements as a cleaner burning fuel.

 

Global opportunities for the Velocys technology are growing rapidly and with an international roster of blue chip customers, partners, and industry stakeholders, Velocys is well positioned with its integrated, standardised service offering.

 

Our intention is to take advantage of this opportunity by focusing on markets with the most advantageous regulatory tailwinds, expanding our business development function and offering our commercially demonstrated, IP-protected technology to a broad global customer base.

 

This year saw the achievement of a number of important objectives in our growth strategy, including multi-year offtake agreements with IAG (whose constituent airlines include British Airways, Aer Lingus, and Iberia) and Southwest Airlines; the selection of our technology for an e-fuels project commissioned by the Ministry of the Environment in Japan; and a successful £26.2m (before expenses) fundraise to enable us to accelerate our commercialisation strategy.

 

Commercial and operational achievements

A significant validation of the Velocys technology occurred in the commercial flight by Japan Airlines in June 2021. The SAF used on the plane was produced at the NEDO1 demonstration in Nagoya, Japan, and synthesised in a Velocys FT reactor from gasified woodchips. This flight was the first commercial flight in the world to use SAF derived from woodchips and synthesised into aviation fuel. SAF's advantage is its availability for immediate use and its ability to be blended in existing airport fuelling systems without any segregation or modification of the jet turbines.

 

Our collaboration with TOYO was further strengthened with Velocys' FT technology being selected for an e-fuels project by a consortium of six leading Japanese companies. This validates an additional application of Velocys' technology for the "power to liquids" pathway whereby hydrogen and carbon gases are generated from "co-electrolysis" instead of gasification to be synthesised to liquid hydrocarbon fuels using Velocys' Fischer Tropsch Synthesis ("FTS").

 

TOYO also started the advanced engineering and design phase of a commercial scale biofuel refinery in Japan for conversion of forestry residue to SAF, which will be enabled by Velocys' FT technology.

 

Progress was made on the Bayou Fuels reference project in Mississippi, US, which has the intended nameplate capacity to produce 132m litres of SAF per year from woody biomass feedstock. In November 2021, Velocys announced 15- and 10-year offtake arrangements for all the SAF and the associated environmental credits expected to be generated by the Bayou Fuels Project with Southwest Airlines and IAG, respectively. These agreements represent a multi-billion-dollar balance sheet commitment for SAF by these two major airlines. They also underpin the financing of the construction capital for the Bayou Fuels biorefinery.

 

Work also continued on the Altalto project located in North East Lincolnshire, UK, with the intended nameplate capacity to produce 80m litres of SAF per year from municipal solid waste. As previously reported, the site has full planning permission, and its main commercial sponsor is British Airways. In December 2021, we exercised an option agreement to acquire Rula Developments (Immingham) Ltd, which owns the Altalto site. In line with our planned strategy to secure long term access to the Altalto site without significant capital outlay at this time, our announcement in March 2022 noted that Altalto sold Rula Developments to funds managed by Foresight Group LLP.

 

Velocys holds a three year repurchase option and Foresight has been granted first right of refusal for up to a £100m investment in the Altalto project . This is also in line with the rights of British Airways and other future investors. Further information is provided in the Financial Review. During the year, Velocys and British Airways were awarded a grant of up to £2.4 million from the UK Government's Green Fuels, Green Skies scheme, to accelerate the technical development of Altalto.

 

As the year closed, Velocys concluded an oversubscribed fundraise of £26.2 million (before expenses) , with strong support from both existing and new shareholders. This capital raise will help us to accelerate our reactor and catalyst manufacturing capability during 2022 to unlock a steady growth of customer revenues and positive cash flow for Velocys.

 

I am very appreciative of the support shown by our current and new shareholders. Notably, we welcomed a number of high-profile UK and US institutional investors onto our register, some of which are now new major shareholders. I am grateful for the seamless and exceptional preparation and execution of our Placing by our joint brokers, Panmure Gordon and Shore Capital, at the end of a successful year for Velocys.

 

I would like to thank Andrew Morris and Heinz Robota, both of whom announced that they are stepping down, for all their dedication to Velocys. In addition, I am pleased to confirm the strengthening of our Management team during 2021 by the appointments of David Bate and Dr Dawid Duvenhage and , more recently, Andy Bensley as we continue our technical and commercial progress.

 

Above all, none of these accomplishments would have been possible without the dedication and expertise provided by the talented team at Velocys. I would like to thank everyone for their professionalism and commitment.

 

Sustainability

Velocys offers a sustainable technology solution to help meet the decarbonisation goals of our customers and partners as well as providing environmental benefits. All our employees play an important role in how we deliver sustainability both internally and externally and are fully committed to this ethos and practice. Positive steps were taken in 2021 with the creation of a Risk and Sustainability Committee and we established a cross functional team to develop a sustainability policy.

 

Summary

Velocys is now well into our transition from R&D to technology delivery and commercialisation. Andy Bensley will help to lead this effort which includes responsibility to prepare our reference project in Mississippi for Front End Engineering and Design ("FEED") and into execution as well as deliver the Altalto project under the Joint Development Agreement ("JDA") with B ritish Airways .

 

We have an exciting pipeline of customer opportunities which is increasing in response to mandates and policy incentives being enacted by governments around the world in pursuit of decarbonisation. We are seeing high levels of interest from well-established and well-funded customers with access to suitable sites and abundant sustainable feedstocks. The ability of our technology to use a range of feedstocks, provides opportunities for customers to utilise local sustainable resources, decreasing their reliance on imported crude oil and natural gas.

 

I look forward with confidence to another busy and successful year.

 

 

Financial Review

 

With gross profits of £3.4m in 2021 and the successful oversubscribed fund raise of £26.2m (before expenses) the Company has the strength to support delivery of its reference projects and supply to its customers.

 

Revenues

The Company 1 recognised revenue of £8.3m (2020: £0.2m). The 2021 revenue primarily comprised sales of reactors and catalyst, and licensing fees earned from our first major commercial client contract which commenced in 2017. The Company satisfied the performance obligations within the contract in 2021 following expiry of all contractual obligations and therefore determined that it was appropriate to recognise the revenue and the associated cost of goods. The Company also provided engineering services in Japan and recorded £0.2m in respect of this work. Overall, the gross profit for the year ended 31 December 2021 was £3.4m (2020: £0.1m).

 

 

Note

1.  Velocys plc is managed as a single operation and referred to as "the Company" or "Velocys" throughout the Strategic report. The "Company" or "Velocys" represents the consolidated results and Velocys plc refers to the parent company only.

 

Expenses and income

Administrative expenses increased by 44% to £13.3m (2020: £9.2m). In 2021, the Company was able to release £0.5m (2020: £3.0m) of the Altalto credit (being the advanced funding liability received from British Airways) against its operating costs as work was completed on the co-development project. Therefore, on a comparable basis, the Company's operating expenses have increased by approximately 13%.

 

Other income totalling £1.0m consisted of £0.5m from the forgiveness of a loan awarded under a US Federal Government stimulus package to support businesses during the COVID-19 crisis, £0.3m from the Green Fuels Green Skies ("GFGS") grant awarded by the UK Department for Transport in 2021 and £0.2m from the second tranche of the Future Fuels for Flight and Freight ("F4C") grant awarded by the UK Department for Transport. In 2020 other income of £0.4m mainly consisted of £0.3m from the first tranche of the F4C grant.

 

Operating losses

Operating losses of £9.0m were in line with the previous year (2020: £8.8m).

 

Net assets and cash

The net assets of the Company were £29.7m, which is an increase of £16.6m compared to 2020. This increase was principally the result of an increase in cash of £12.5m, and non-current assets (less the related outstanding deferred consideration) of £2.5m. There was also a reduction in deferred revenue and the related costs which increased net assets by £2.9m. The net cash inflow to the Company in 2021 was £12.8m (2020: £9.2m) principally being cash generated from financing activities of £24.2m, attributed to £24.6m received net of expenses from the fund raise completed in December, less £3.2m used in investing activities and £8. 1 m used in operating activities. The Company continues to carefully manage its underlying cost base and spends prudently on strategy implementation. The Company incurs a proportion of its expenses in US dollars and has exposure to the US dollar exchange rate. This is hedged to the extent possible by holding cash reserves in US dollars. In addition, the majority of the Company's income is currently invoiced in dollars.

 

Acquisition of Rula Developments (Immingham) Ltd

In December 2021, Altalto Immingham Ltd, a 100% subsidiary of the Company, exercised an option to purchase Rula Developments (Immingham) Ltd. ("RDIL"), a property development company, with an initial part-payment of £2.5m. RDIL owns the site of the proposed Altalto project, near Immingham in North East Lincolnshire, which is being jointly developed with British Airways and Velocys. The total consideration to acquire RDIL comprised a cash payment of £2.5m in December 2021 and a further deferred consideration amount of £7.25m, which has been recorded in current liabilities. The deferred consideration was settled in March 2022 when RDIL was sold to Foresight Group LLC.

 

The value of the net assets acquired was £9.8m. Further details are provided in note 2 .

 

Impairment assessment

There has been no change in the Board's assessment of the long-term potential of the Company's in-process technology assets, and therefore there has been no impairment or reversal of previous impairments of the Company's assets in 2021. 

 

The recoverable value is determined by comparing the higher of the value in use and the fair value less costs of disposal. Previously, given the early stage of the Company's commercialisation plans, the share price of the parent Company was deemed the most accurate indicator of value. The market capitalisation value at 31 December 2021 was £103.1m compared to £108.0m at the previous year end. The Company's net assets were £29.7m (2020: £13.1m).

 

Alongside the share price of the parent Company, the Board also considers changes in a number of other indicators including:

· The present value of estimated future net cash flows, using the Company's internal forecasts;

· Global demand forecasts for sustainable aviation fuel;

· Government policy support and commitments for carbon reduction;

· Potential competing technologies; and

· New commercial arrangements signed during the year.

 

In November 2021, the Company entered into its first offtake agreement, with Southwest Airlines ("Southwest"), for two thirds of the sustainable aviation fuel to be produced at the planned Bayou Fuels biorefinery project. A memorandum of understanding with International Consolidated Airlines Group S.A. ("IAG") was also concluded. Whilst these two long-dated fuel offtake arrangements provide a high level of confidence of revenue for the Bayou Fuels project, which is an important step towards enabling capital financing for construction, until new commercial orders for the Company's reactors and catalyst are in place, this indicator alone is not considered sufficient to support a reversal of previous impairments.

 

The parent company, Velocys plc, has both equity and debt investments in its subsidiaries, which are compared to the recoverable amount. The impairment assessment of equity investments totalling £9.2m (compared to the parent company's market capitalisation value of £103.1m) showed that no impairment indicators were identified and, as a result, no impairment was recognised (2020: £nil).

 

The parent company also assessed total loans of £22.6m due from its subsidiaries and as a result recorded a provision for expected credit losses ("ECL") of £2.0m (2020: £1.8m). The total ECL provision of £ 3.9 m is eliminated on consolidation and therefore is not seen in the consolidated financial statements.

 

Funding

In December 2021 Velocys raised a total of £26.2m (before expenses) via a Placing and Open Offer. With this successful fundraise, the financial statements have been prepared on the going concern basis.

 

The Company's cash forecast includes the use of the net proceeds of the capital raising to:

· Invest in manufacturing capability to enable output of at least 12 reactors per year and in addition the build-up of reactor parts inventory to expedite commissioning of the manufacturing equipment;

· Complete work on the Bayou Fuels and Altalto reference projects to the point of securing external investment into the detailed engineering stage;

· Support process guarantees and equipment warranties required by clients;

· Strengthen the Company's business development function; and

· Provide the working capital to support the Company's projected running costs.

 

Going Concern

The directors are confident that the funding received in December 2021 is sufficient to enable the Company to support its activities for not less than the twelve months from the date of approval of these financial statements. The directors have therefore prepared the financial statements on a going concern basis. The financial statements do not include the adjustments that would arise if the Company and Velocys plc were unable to continue as a going concern.

 

 

Consolidated income statement

for the year ended 31 December 2021

 

 


2021

2020

 

Note

£'000

£'000

Revenue

3

8,283

178

Cost of sales


(4,881)

(101)

Gross profit


3,402

77

Administrative expenses

7

(13,331)

(9,238)

Other income

6

956

400

Operating loss


(8,973)

(8,761)

Finance income

4

34

6

Finance costs

5

(551)

(850)

Net finance costs


(517)

(844)

Loss before income tax


(9,490)

(9,605)

Income tax credit


1,049

810

Loss for the financial year attributable to the owners of Velocys plc


 

(8,441)

 

(8,795)

Loss per share attributable to the owners of Velocys plc

Basic and diluted loss per share (pence)

 

9

 

(0.78)

 

(1.05)

 

 

Consolidated statement of comprehensive income

for the year ended 31 December 2021

 


2021

2020

£'000

£'000

Loss for the year

(8,441)

(8,795)

Items that may be reclassified to the income



statement in subsequent periods:



Foreign currency translation differences

113

(251)

Total comprehensive expense for the year



attributable to the owners of Velocys plc

(8,328)

(9,046)

 

Consolidated statement of financial position

as at 31 December 2021

 


 

Note

2021

£' 000

2020

£'000

Assets


 

 

Non-current assets




Intangible assets

10

1,086

740

Property, plant and equipment

11

11,006

1,479

Right-of-use asset

12

500

653



12,592

2,872

Current assets


 

 

Inventories

13

767

970

Trade and other receivables

14

1,274

6,182

Current income tax asset


1,100

810

Cash and cash equivalents

15

25,506

13,051



28,647

21,013

Total assets


41,239

23,885

Liabilities


 

 

Current liabilities




Trade and other payables

16

(2,969)

(932)

Lease liability

12

(397)

(470)

Deferred consideration


(7,250)

-

Borrowings


-

(152)

Other liabilities


(431)

(474)

Deferred revenue

17

(326)

(7,774)



(11,373)

(9,802)

Non-current liabilities


 

 

Lease lability

12

(189)

(270)

Borrowings


-

(371)

Deferred revenue

17

-

(382)



(189)

(1,023)

Total liabilities


(11,562)

(10,825)

Net assets


29,677

13,060

Capital and reserves attributable to owners of Velocys plc


 

 

Called up share capital


13,936

10,642

Share premium account


221,059

199,701

Merger reserve


369

369

Share-based payments reserve


2,638

16,345

Foreign exchange reserve


3,151

3,038

Accumulated losses


(211,476)

(217,035)

Total equity


29,677

13,060

 

Consolidated statement of changes in equity

for the year ended 31 December 2021

 

 


Called up

share capital

Share premium account

 

Merger reserve

Share based payment reserve

Foreign exchange reserve

Accumulated

  losses

Total equity


£'000

£'000

£'000

£'000

£'000

  £'000

£'000

Balance at 1 January 2020

6,438

184,256

369

16,225

3,289

(208,240)

2,337

Loss for the year

-

-

  -

-

-  -

(8,795) 

  (8,795)

Other comprehensive expense

Foreign currency translation differences

-

-

-

-

(251)

 

  -

(251)

Total comprehensive expense

-

  -

-

(251)

(8,795)

(9,046)

Transactions with owners

Share-based payments - value of

employee services 

 

-

 

-

 

-

 

120

 

-

 

  -

 

120

Net proceeds from share issues 

4,200

15,437

-

-

-

-

19,637

Proceeds from options exercised

4

8

-

-

-

-

12

Total transactions with owners

4,204

-

120

-

-

19,769

Balance at 31 December 2020

10,642

369

16,345

3,038

(217,035)

13,060

Balance at 1 January 2021

10,642

369

16,345

3,038

(217,035)

13,060

Loss for the year

Other comprehensive expense

Foreign currency translation differences

-

-

-

-

-

-

-

-

-

  113

(8,441)

 

  -

(8,441)

113

Total comprehensive expense

-

-

-

113

(8,441)

(8,328)

Transactions with owners

Share-based payments - value of

employee services 

 

-

 

-

 

-

 

293

 

-

 

  -

 

293

Transfer from share-based payments reserve

-

-

-

(14,000)

-

14,000

-

Net proceeds from share issues 

3,278

21,326

-

-

-

-

24,604

Proceeds from options exercised

16

32

-

-

-

-

48

Total transactions with owners

3,294

-

(13,707)

-

14,000

24,945

Balance at 31 December 2021

13,936

369

2,638

3,151

(211,476)

29,677

 

 

Consolidated statement of cash flows

for the year ended 31 December 2021

 


 

 

Note

 

2021

£'000

 

2020

£'000

Cash flows from operating activities

Operating loss


 

(8,973)

 

(8,761)

Depreciation and amortisation


1,084

1,099

Loss on disposal of intangible assets


-

72

Impairment of inventory


118

270

Share-based payments

Changes in working capital (excluding the effects of exchange differences on consolidation)

Trade and other receivables


293

 

4,908

120

 

(4,545)

Trade and other payables


2,037

(399)

Other liabilities


(566)

(2,330)

Deferred revenue


(7,830)

2,124

Inventory


85

2,092

Cash consumed by operations


(8,844

(10,258)

Tax credits received


759

648

Net cash used in operating activities


(8,085)

(9,610)

Cash flows from investing activities

Purchase of property, plant and equipment


 

(2,730)

 

(342)

Purchase of intangible assets


(518)

(513)

Interest received


34

6

Net cash used in investing activities


(3,214)

(849)

Cash flows from financing activities

Proceeds from issues of shares

 

 

 

26,222

 

21,000

Costs of issuing shares


(1,618)

(1,363)

Proceeds from issue of share options


48

12

Principal elements of lease payments


(485)

(457)

Interest paid


(116)

(142)

Proceeds from borrowings


-

567

Net cash generated from financing activities


24,051

19,617

Net increase in cash and cash equivalents


12,752

9,158

Cash and cash equivalents at beginning of year

15

13,051

4,797

Exchange movements on cash and cash equivalents


(297)

(904)

Cash and cash equivalents at end of year

15

25,506

13,051

 

 

 

Notes to the consolidated financial statements

 

1. Accounting policies

 

The principal accounting policies applied in the preparation of these consolidated financial statements are summarised below. The policies have been consistently applied to each year presented unless otherwise stated.

 

Basis of preparation

The financial information contained in this document does not constitute Group statutory financial statements as defined in Sections 435 of the Companies Act 2006. It is based on, and is consistent with, that in the Group's statutory consolidated financial statements for the year ended 31 December 2021.

 

The Group's auditors, PricewaterhouseCoopers LLP, have given an unqualified audit opinion on the consolidated financial statements for the year ended 31 December 2021. The consolidated financial statements will be filed with the Registrar of Companies subject to their approvals by the Company's shareholders on 21 June 2022 at the Company's Annual General Meeting.

 

The consolidated financial statements have been prepared in accordance with the requirements of the Companies Act 2006. .

 

The financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets and liabilities at fair value, where relevant. No such adjustments to financial assets or liabilities were required in 2021 or 2020.

 

The preparation of financial statements to conform to IFRS as adopted by the UK requires the use of certain critical accounting estimates and the exercise of management's judgement in the application of the Company's accounting policies. Areas involving a higher degree of judgement or complexity, and areas where assumptions and estimates are significant to the financial statements are set out in the relevant note below.

 

Going concern

The financial statements have been prepared on the going concern basis, which assumes that the Company and Velocys plc will have sufficient funds available to enable them to continue to trade for not less than twelve months from the date of approval of the financial statements.

 

The nature of the Company's strategy means that the precise timing of milestones and funds generated during the early years of development projects are difficult to predict. The directors have prepared financial forecasts to estimate the likely cash requirements of the Company and Velocys plc over the next twelve months from the date of approval of the financial statements. These forecasts, including analysis of a severe but plausible downside scenario, showed that the Company and Velocys plc have sufficient funding for this period.

 

During December 2021 the Company raised £26.2 million (before expenses) by way of a VCT Placing, General Placing and Open Offer. The directors do not anticipate that any further funding to the Company will come from further placing of the parent company shares within the twelve months from the date of signing the financial statements. However additional funding may come from one, or a combination of, the following sources, with agreements actively being sought from third parties:

· Selling additional technology licences;

· Additional strategic investment into either or both of Bayou Fuels or Altalto projects;

· UK or USA Government loans or grants

 

The directors have therefore prepared the financial statements on a going concern basis.

 

Changes in accounting policies

New standards, interpretations and amendments adopted from 1 January 2021

The Company has assessed the new standards, interpretations and amendments issued that are effective from 1 January 2021 and does not consider these to be relevant to the financial statements or to have a material impact on the Company in the current or future reporting periods and on foreseeable future transactions.

 

New standards, interpretations and amendments not yet effective

There are a number of standards, amendments to standards, and interpretations which have been issued by the International Accounting Standards Board ("IASB") that are effective in future accounting periods that the Company has decided not to adopt early.

 

The following amendments are effective for the accounting period beginning 1 January 2022:

· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

· Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

· Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS1, IFRS9, IFRS16 and IAS 41) and

· References to Conceptual Framework (Amendments to IFRS 3).

 

In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has the right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that 'settlement' includes the transfer of cash, goods, services or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments were originally effective for annual reporting periods beginning on or after 1 January 2022. However, in May 2020, the effective date was deferred to annual reporting periods beginning on or after 1 January 2023.

 

The Company is currently assessing the impact of these new accounting standards and amendments. The Company does not believe that these amendments will have a material impact.

 

 

 

Significant accounting policies

 

Consolidation - subsidiaries

The acquisition method of accounting is used to account for the acquisition of subsidiaries in the Company. The cost of an acquisition is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred. Directly attributable costs are expensed to the income statement. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the acquiring company's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is

recognised in the income statement. Acquired subsidiaries are consolidated from the date on which control of the subsidiary is transferred to the Company.

 

Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company.

 

Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of Velocys plc's subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in pounds sterling (£). It should be noted that the functional currency for Velocys plc is pounds sterling as Velocys plc is traded on the AIM market and is head quartered in the UK. Currently all new equity based fund raises are completed in the UK and made in £.

 

Transactions and balances

Foreign currency transactions are booked in the functional currency of the entity at the exchange rates ruling at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year- end exchange rates of monetary assets and liabilities denominated in foreign currencies are included in the Income statement. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the Income statement within Finance income or Finance costs.

 

The net investment that Velocys plc has in its subsidiary undertakings is its interest in the net assets of that subsidiary.

 

Entities within Velocys

The results and financial position of all Velocys entities that have a functional currency different from the presentation currency (none of which is of a hyper-inflationary economy) are translated into the presentation currency as follows:

(i)  assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

(ii)  income and expenses for each income statement are translated at average exchange rates; and

(iii)  all resulting exchange differences are recognised as a movement within other comprehensive income.

 

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders' equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

 

Other significant accounting policies

Other significant accounting policies are included in the note to which they apply.

 

2. Acquisition of Rula Developments (Immingham) Ltd

 

On 22 December 2021, the Company acquired 100% of the share capital of Rula Developments (Immingham) Ltd ("RDIL"). RDIL is a UK based property development company which owns land in Immingham, UK on which Velocys plans to develop the Altalto waste to sustainable fuels biorefinery. The consideration comprised a £2.5m cash payment and deferred consideration of £7.25m which was paid by 31 March 2022.

 

As at 31 December 2021, the Company was actively seeking to sell the entire share capital of RDIL to a third party in order to fund the deferred consideration. Following the reporting period end, in March 2022, RDIL was sold to a subsidiary of Foresight Group LLC, with a call option to repurchase RDIL within three years. For further details, please refer to Note 18 (Post financial position events). The RDIL assets have been presented in the consolidated financial statements as non-current assets because the existence of the call option means control of the asset does not pass to the purchaser of the RDIL shares and will therefore remain on the consolidated balance sheet during the three year option period. Below are the critical estimates and judgements made in determining the appropriate accounting treatment of the acquisition.

 

Critical accounting estimates and judgements

In assessing whether the acquisition of RDIL constitutes a business combination or the acquisition of an asset, management considered the optional concentration test set out in IFRS 3. This test is a simplified assessment of whether what has been acquired is a business with assets and liabilities to process those assets, or simply a collection of assets. It poses the question of whether substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets, or not.

 

Based on a detailed analysis of the assets acquired, the Company decided that substantially all of the fair value of RDIL's assets was concentrated in a single asset, namely the development site at Immingham. Therefore, the Company is required to account for the acquisition as an asset purchase and allocate the total costs of the acquisition (including acquisition expenses) to the assets and liabilities according to their respective fair values.

 

Acquisition cost and allocation of assets

The total cost of the asset acquisition was as follows:

 

 


 

£'000

Cash paid

 

2,483

Deferred consideration

 

7,250

Acquisition expenses (legal fees etc)

 

88

Total purchase consideration

 

9,821

 

 

 

The assets and liabilities recognised as a result of this acquisition are as follows:

 

 

 


Book value

Adjustment

  Total

 

 

 

£'000

  £'000

  £'000

  Cash and cash equivalents

 

 

1

-

  1

 

  Property, plant and equipment - development



541

  9,279

  9,820

 

  Trade and other receivables



1

-

  1

 

  Trade and other payables



(1)

-

  (1)

 

  Net assets acquired

 

 

542

9,279

  9,821

 

 

 

 

Appropriate valuation of the deferred consideration

The acquisition of RDIL included deferred consideration of £7.25m. The exact amount was settled in March 2022, and therefore management consider that this value at 31 December 2021 is appropriate.

 

3. Revenue

 

The Company generates revenue through contracts in which it (i) sells Fischer-Tropsch ("FT") reactors, (ii) sells FT catalyst, (iii) provides licence agreements and (iv) performs engineering services. In general, contracts with the Company provide a licence agreement for the use of its intellectual property associated with the catalyst and reactors both of which have been specifically designed and over which the Company holds a significant number of patents. The majority of the Company's revenue is derived from a small number of significant commercial customers and development partners.

 

Revenue is recognised when the Company satisfies a performance obligation by transferring promised goods or services to a customer. The sales income related to sales of reactors and catalyst will be recognised as the performance obligations are satisfied. Revenue from engineering services is earned on a time and materials basis and is recognised as the work is performed provided that it does not relate to the sale of equipment and therefore is bound by the performance obligations of that sale.

 

If the entity is providing a single performance obligation in the form of an integrated set of activities, each contract is assessed to determine if it meets the criteria for recognition over time. This would require the contract to either transfer control of the combined output over time or for the entity to have an enforceable right of payment for the performance completed to date for activities that do not create an asset with alternative use.

 

One contract that was signed in 2018 with reactor and catalyst deliveries completed in 2020 was either subject to a performance test run in 2021 or the performance obligations expired under the terms of the contract in 2021 if the test was not completed. This has been assessed as a combined performance obligation and it was determined in 2021 that the above criteria have now been met. As such, all consideration received has been recognised as revenue in the year.

 

Critical estimates and judgements

Determining whether the goods or services provided are considered distinct performance obligations from the supply of equipment can require significant judgment. The Company's agreements, in some instances, could have a single performance obligation, which would result in the deferral of revenue until the performance obligation is satisfied. This is the case when the entity promises an integrated package of goods and services and where the customer is receiving a combined output (for example, an engineering service that results in operational technology at a particular site). In other instances, there will be no integration service and each good or service will be considered separately.

 

When there are multiple performance obligations, revenue from goods or services is allocated to the respective performance obligations based on relative stand alone selling prices and is recognised as the performance obligations are satisfied. Revenue from goods or services is measured as the amount of consideration expected to be received in exchange for the goods and services delivered.

 


2021

£'000

2020

£'000

FT reactor, catalyst and licence

8,132

63

Engineering services

151

115

Total

8,283

178

 

FT reactor, catalyst and licence revenue in the amount of £8,132,000 for the year ended 31 December 2021 consisted principally of the sale or reactor and catalyst to a customer in the US, which had previously been deferred.

 

Revenue from engineering services was recognised on a time and materials basis during the period in which the services were delivered.

 

4. Finance income

 

2021

£'000

2020

£'000

Interest income on bank deposits

2

6

Interest income on customer late payments

32

-

Total

34

6

 

 

 

5. Finance costs

 


2021

£'000

2020

£'000

Interest on lease liabilities

116

142

Foreign exchange losses

435

708

Total

551

850

 

6. Other income

 

Other income consists of items such as government grants, sales of fixed assets and any other operating income recognised outside of commercial activities.

 

Income from government grants is recognised only when there is reasonable assurance that (a) the Company has complied with any conditions attached to the grant and (b) the grant will be received.

 


2021

£'000

2020

£'000

Income from government grants

956

290

Release of aged deposit received

-

80

Profit on sale of fixed assets

-

30

Total

956

400

 

7. Administrative expenses

 


2021

£'000

2020

£'000

Employee benefit expense

6,310

4,530

Sub-contractor and consultant costs

2,799

1,171

Depreciation of property, plant and equipment

453

500

Amortisation of intangible assets

172

137

Depreciation of right-of-use asset

459

462

Patent and other IP costs

193

104

Insurance

536

392

Other direct and administrative costs

1,257

1,043

professional services

756

404

Legal

215

358

Travel

181

137

Total administrative expenses

13,331

9,238

Included in administrative expenses were research and development costs of £2,122,000 (2020: £1,603,000)

 

8. Employee benefit expense

 

Short-term employee benefits

Accruals are included to reflect the cost of short-term compensation to employees for absences such as paid leave.

 

Pensions

The Company operates various defined contribution pension schemes for its employees. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefit derived from the current and prior periods.The amount charged to the Consolidated income statement in respect of pension costs and other post-retirement benefits represents the contributions payable in the year. Differences between contributions payable and contributions actually paid are accrued. The Company has no further payment obligations once the contributions have been paid.

 

The average monthly number of Company employees (including Executive Directors) was as follows.

 


2021

number

2020

number

Research, design and development

17

17

Administration

15

16

Total average headcount

32

33

 

Their aggregate remuneration comprised the following items.

 


2021

£'000

2020

£'000

Wages and salaries

4,783

4,813

Short-term non-monetary benefits

491

560

Social security contributions and similar taxes

616

393

Defined contribution pension costs

330

228

Severance expense

-

43

Share-based payments granted to directors and employees

293

120

Total remuneration before capitalisation of wages and salaries

6,513

6,157

Capitalisation of wages and salaries

(203)

(1,627)

Total remuneration

6,310

4,530

 

Wages and salaries for the year ended 31 December 2021 include discretionary bonuses payable in 2022 to Executive Directors and employees totalling £1,052,000 (2020: £983,000) in respect of 2021 performance. The bonuses included in 2020 of £983,000 related to payments in respect of 2019 performance (no bonuses were awarded in respect of 2020 performance).

 

Short term non-monetary benefits are in respect of health insurance benefits provided to employees and the amounts paid for workers compensation policies in respect of US based employees.

 

The capitalisation of wages and salaries relates to employees who manufacture the reactors associated with one of the Company's sales contracts, where the costs are deferred until revenue and cost recognition is allowed in accordance with the performance obligations of the contract. In addition, capitalisation of wages and salaries includes those costs related to the Altalto project which are offset against Other liabilities.

 

9. Basic and diluted loss per share

 

The basic loss per share is calculated by dividing the loss attributable to owners of the parent company by the weighted average number of ordinary shares in issue during the year.

 

 

2021

2020

Loss attributable to owners of Velocys plc (£'000s)

(8,441)

(8,795)

Weighted average number of ordinary shares in issue

1,078,827,346

836,710,315

Basic and diluted loss per share (pence)

(0.78)

(1.05)

 

Diluted loss per share is calculated by adjusting the weighted average number of shares in issue to assume conversion of all potential dilutive shares. Share options have not been included in the number of shares used for the purpose of calculating diluted loss per share since these would be anti-dilutive for the period presented. At the end of 2021 and 2020 there were no other potentially dilutive instruments.

 

10. Intangible assets

 

Significant accounting policies

Cost or valuation and amortisation

 

Goodwill

Goodwill is stated at cost less impairments. Goodwill is deemed to have an indefinite life and is tested for impairment at least annually.

 

In-process technology

Development costs, where the related expenditure is separately identifiable and measurable, and management are satisfied as to the ultimate technical and commercial viability of the project and that the asset will generate future economic benefit based on all relevant available information, are recognised as an intangible asset. Capitalised development costs are carried at cost less accumulated amortisation and impairment losses. Amortisation is charged over periods expected to benefit, typically up to 20 years, commencing with launch of the product. Development costs not meeting the criteria for capitalisation are expensed as incurred.

 

Patents, licences and trademarks

Patents and trademarks are recorded at cost less accumulated amortisation and impairment losses. Amortisation is charged on a straight-line basis over a period of 20 years, which is their estimated useful economic life. Residual values and useful lives are reviewed annually and adjusted if appropriate. The Company decided to abandon certain non-core patents in 2020. This resulted in a loss on disposal of patents of £72,000.

 

Software

Purchased software is recorded at cost less accumulated amortisation and impairment losses. Amortisation is charged on a straight-line basis over its estimated useful life or its license period, whichever is the shorter.

 

Amortisation

The Company amortises intangible assets with a limited useful life, using a straight-line method, over the following periods:

· In-process technology: up to 20 years

· Patents, licences and trademarks: 20 years

· Software: 2-5 years

 

Amortisation charges of £172,000 for patents, licences and trademarks are included in administrative expenses (2020: £137,000). There were no amortisation charges recorded in respect of other classes of intangible assets during the year as the net book value was £nil (2020: £nil).

 

Impairment

Intangible assets are reviewed for impairment annually and whenever events or changes in circumstances indicate their carrying value may not be recoverable. To the extent carrying value exceeds recoverable amount, the difference is recognised as an expense in the income statement. The recoverable amount used for impairment testing is the higher of value in use and fair value less costs of disposal.

 

Impairment testing is initially performed at the individual asset level. The impairment test is then performed at the Cash Generating Unit ("CGU") level whereby the carrying value of each CGU is compared with its fair value. Should an impairment at a CGU level be detected, then the impairment is allocated against the CGU individual assets; initially against any Goodwill then against the other assets.

 

A CGU represents the lowest operating structure level for which there are separately identifiable cash inflows that are largely independent of other operating units. The Company has one CGU on the basis that the key end use market is that of sustainable transport fuels production. At this stage, the sustainable transport fuels segment represents 100% of the business and therefore represents the only material segment. Based on management's judgement, all products and services offered within the operating segment have similar economic characteristics.

 

An impairment loss in respect of Goodwill is not reversed. An impairment loss in respect of other intangible assets is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the loss was recognised, or if there has been a change in the estimate used to determine the recoverable amount. A loss is reversed only to the extent that the asset's carrying amount does not exceed that which would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

The Company last recorded an impairment of intangible assets, which totalled £28.8m, in 2017. This comprised £7.4m of Goodwill, £20.6m of In-process technology and £0.8m of Patents, licence and trademarks. The majority of the intangible assets arose on the Company's acquisition of Velocys, Inc. in November 2008 and relates to the acquired microchannel process technology which forms an integral part of the Company's patented Fischer-Tropsch ("FT") reactors.

 

For the impairment testing of the single identified CGU, the Company, the recoverable amount is determined by comparing the carrying amount of the Company's total net assets with the fair value of the business, by reference to the value of Velocys plc's market capitalisation. This approach is followed to also determine whether any reversal of previous impairments is required.

 

The analysis performed at 31 December 2021 compared the carrying amount of £1.4m with the value of Velocys plc's equity based on the AIM-listed shares at this date. This assessment also considered the operating performance of the Company during 2021 which included progress on our reference projects and new external funding obtained. Whilst there was clear evidence of the Company's progress during 2021, Management also considered the wider economic environment and increased risks posed by the Covid-19 pandemic.

 

Critical estimates and judgements

In assessing whether there is any indication that an asset may be impaired or whether a reversal of prior year impairments is required, the Company considers, as a minimum, a number of indicators. In 2021, the Company considered:

· At 31 December 2021, whether the carrying amount of the Company's net assets was above or below Velocys plc's market capitalisation;

· Whether significant increases or decreases in the market price of the assets had occurred;

· Whether there were significant favourable or adverse changes in the extent or manner in which the assets are being used; and

· Whether there were significant favourable or adverse changes in the global market for sustainable aviation fuel and global economic factors more generally.

 

Based on the 2021 analysis, the Company concluded that no further impairment was required.

 

As detailed in the accounting policy set out above, the Company is considered to operate as a single CGU. Whilst the Company's strategy and biorefinery development plans are clearly defined, Management considers that it is still too early to rely upon its revenue forecasts for long-term discounted cash flow analysis. Consequently, the CGU's recoverable amount has been determined based on its fair value less costs of disposal (fair value), by reference to the total value of the parent company's equity based on the AIM-listed shares of the parent company, consistent with the impairment assessment performed in previous years.

 

The Management also concluded that at 31 December 2021 there were insufficient indicators that impairment losses previously recognised had reversed. This was despite the market capitalisation exceeding the carrying amount of the Company's net assets, as the Board concluded that the Company's current commercial position, without any significant new customer contracts or additional investors into the reference projects outweighed the other positive aspects considered.

 

 

Goodwill

In-process technology

Patents, licence and trademarks

Software

Total

2021

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

At 1 January 2021

7,398

23,681

1,971

96

33,146

Additions

-

-

513

5

518

Foreign exchange movement

-

-

7

-

7

At 31 December 2021

7,398

23,681

2,491

101

33,671

Accumulated amortisation and impairment






At 1 January 2021

7,398

23,681

1,231

96

32,406

Charge for the year

-

-

172

-

172

Foreign exchange movement

-

-

7

-

7

At 31 December 2021

7,398

23,681

1,410

96

32,585

Net book amount

 

 

 

 

 

At 31 December 2021

-

-

1,081

5

1,086

 

Goodwill

In-process technology

Patents, licence and trademarks

Software

Total

2020

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

At 1 January 2020

7,398

23,681

1,598

96

32,773

Additions

-

-

513

-

513

Disposals

-

-

(103)

-

(103)

Foreign exchange movement

-

-

(37)

-

(37)

At 31 December 2020

7,398

23,681

1,971

96

33,146

Accumulated amortisation and impairment






At 1 January 2020

7,398

23,681

1,154

96

32,329

Charge for the year

-

-

137

-

137

Disposals

-

-

(31)

-

(31)

Foreign exchange movement

-

-

(29)

-

(29)

At 31 December 2020

7,398

23,681

1,231

96

32,406

Net book amount






At 31 December 2020

-

-

740

-

740

 

11. Property, plant and equipment

 

Property, plant and equipment is stated at historical cost, net of depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to working condition for its intended use. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its expected useful life, which for plant and machinery is three to ten years. No depreciation is provided on land or assets under construction. Residual values and useful lives are reviewed annually. Values are estimated using benchmark prices at the balance sheet date; useful lives are estimated based on management expectations of future project requirements and operational assessment of the state of assets.

 

Assets are reviewed for impairment annually and also whenever events or changes in circumstances indicate their carrying value may not be recoverable. To the extent the carrying value exceeds the recoverable amount, the difference is recorded as an expense in the Income statement. The recoverable amount used for impairment testing is the higher of the value in use and fair value less costs of disposal. For the purpose of impairment testing, assets are generally tested individually or at a CGU level, which represents the lowest level for which there are separately identifiable cash inflows, which are largely independent of cash inflows from other assets or groups of assets. Property, plant and equipment were included in the list of items to which an impairment was considered but nothing applied subsequent to the impairment review.

 

An impairment loss in respect of property, plant and equipment would be reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the loss was recognised, or if there has been a change in the estimate used to determine the recoverable amount. A loss is reversed only to the extent that the assets carrying amount does not exceed that which would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

Expenditure funded by research partners is only capitalised where there are no significant rights acquired by the third party over the asset and the asset has a clear enduring use beyond the specific funding project, these are regularly reviewed.

 


Assets under

construction

Land

Plant and

machinery

Total

202 1

£'000

£'000

£'000

£'000

Cost





-

1,221

9,307

10,528

Additions

-

9,820

160

9,980

Disposals

-

-

(344)

(344)

Foreign exchange

-

8

58

66

At 31 December 202 1

-

11,049

9,181

20,230

Accumulated depreciation and impairment





-

1,074

7,975

9,049

Charge for the year

-

-

453

453

Disposals

-

-

(345)

(345)

Foreign exchange

-

7

60

67

At 31 December 202 1

-

1,081

8,143

9,224

Net book amount





At 31 December 202 1

-

9,968

1,038

11,006


Assets under

construction

Land

Plant and

machinery

Total

20 20

£'000

£'000

£'000

£'000

Cost





982

1,299

8,281

10,562

Additions

-

-

342

342

Transfers to plant and machinery

(982)

-

982

-

Foreign exchange

-

(78)

(298)

(376)

At 31 December 20 20

-

1,221

9,307

10,528

Accumulated depreciation and impairment

At 1 January 20 20

 

-

 

1,142

 

7,686

 

8,828

Charge for the year

-

-

500

500

Foreign exchange

-

(68)

(211)

(279)

At 31 December 20 20

-

1,074

7,975

9,049

Net book amount

At 31 December 20 20

 

-

 

147

 

1,332

 

1,479

 

The addition of £9,820,000 of land is in respect of the development site at Immingham, UK. Refer to note 2 for further details.

 

As at 31 December 2021, the Company had not entered into any contractual commitments for the material acquisition of property, plant and equipment (2020: none).

 

As at 31 December 2021, the gross carrying amount of fully depreciated property, plant and equipment still in use was £7,217,000 (2020: £3,827,000).

 

12. Leases

 

The Company leases certain building and equipment under non-cancellable leases with varying lease terms. For these leases, that convey the right to control the use of an identified asset for a period of time, the Company recognises, on the Statement of Financial Position, a 'right-to-use asset' and a lease liability. These liabilities are measured at the present value of the remaining lease payments, discounted using the Company's incremental borrowing rate at the inception of the lease or at any later lease extension. The incremental borrowing rates used are estimates and rely on management judgements.

 

Lease payments are allocated between principal and finance cost. The finance cost is charged to the Income Statement over the lease period so as to produce a constant rate of interest on the remaining balance of each lease at each Reporting date.

 

To determine the incremental borrowing rate, the Company uses a build-up approach. This starts with a risk-free interest rate adjusted for credit risk for leases that do not have recent third party financing. Adjustments specific to the lease, e.g. term, country, currency and security, are then made to this risk-free rate. Interest expense (included in finance costs) was £116,000 (2020: £142,000). The total cash outflow as a result of leasing activity was £588,000 (2020: £572,000).

 

Lease terms are negotiated on an individual basis, and are with different lessors. The lease agreements do not impose any covenants, other than for the security interests of the lessor, over the leased assets. The assets may not be used as security for borrowing purposes. Building leases are typically for a fixed period of time, but some have had their lease terms extended by agreement with the lessor.

 

The associated right-of-use assets are initially measured at an amount equal to the lease liability. Any assessment of the lease liability, such as at a lease extension, results in an equal adjustments in the net book value of the associated asset. The right-to-use assets are depreciated over the lease term on a straight-line basis and are subject to impairment in accordance with IAS 36. No impairment was recorded at 31 December 2021 and at 31 December 2020.

 

Payments relating to short-term leases and to leases of low-value assets, are recognised as they fall due as an expense in the Income Statement. Short-term leases are leases with a lease term of 12 months or less. Expenses related to short term leases and lease of low-value was £nil (2020: £2,000) and were included in administrative expenses.

 

 

 

 

2021

Cost

Equipment

£'000

Buildings

£'000

Total

£'000

At 1 January 2021

210

1,314

1,524

Additions

-

316

316

Disposals

(49)

(88)

(137)

Foreign exchange

1

6

7

At 31 December 2021

162

1,548

1,710

Accumulated depreciation




At 1 January 2021

122

749

871

Charge for the year

44

415

459

Disposals

(45)

(85)

(130)

Foreign exchange

-

10

10

At 31 December 2021

121

1,089

1,210

Net book amount




At 31 December 2021

41

459

500

 


 

 

 

 

2020

 

Cost

Equipment

£'000

Buildings

£'000

Total

£'000

At 1 January 2020

168

1,096

1,264

Transfers to Buildings

(35)

35

-

Additions

85

211

296

Foreign exchange

(8)

(28)

(36)

At 31 December 2020

210

1,314

1,524

Accumulated depreciation




At 1 January 2020

63

365

428

Charge for the year

63

399

462

Foreign exchange

(4)

(15)

(19)

At 31 December 2020

122

749

871

Net book amount




At 31 December 2020

88

565

653

 

During 2021 the lease terms for the Company's  offices in Ohio and Texas were extended. This resulted in an increase in the right-to-use assets of £316,000. The addition in 2020 of £296,000 related to the expansion of the Company's office space at its Oxford headquarters.

 

In 2021, an extension of the lease term for the Oxford headquarters, together with a reappraisal of the incremental borrowing rate of the lease and its remaining term, led to an effective net disposal in value of this lease of £22,000 (2020: £nil). In addition, there were sundry adjustments and corrections totaling £19,000 (2020: £nil) resulting in a net disposal in buildings lease values of £3,000.

 

During 2021 various equipment leases expired which have been derecognised. In addition, management's review of the lease assets resulted in the early derognision of a further equipment right-of-use asset. The net effect of derecognising these assets resulted in a net decrease of £4,000 (2020; £nil).

 

 

Lease liability

2021

£'000

2020

£'000

Current

397

470

Non-Current

189

270


586

740

 

13. Inventories

 

Inventories are stated at the lower of cost or net realisable value less provision for impairment. Cost is determined on a first-in, first- out basis and includes transport and handling costs. In the case of manufactured products, cost includes all direct expenditure including production overheads. Where necessary, provision is made for obsolete, slow-moving and defective inventories. Items purchased for use in externally funded research and development projects are expensed to that contract immediately. Items held for the Company's own development are also expensed when acquired. Items purchased for ongoing commercial sale are held in inventory and expensed when used or sold.

 


2021

£'000

2020

£'000

Raw materials and consumables

286

336

Work in progress

-

45

Finished goods

481

589

Total

767

970

 

Raw materials and consumables consist of parts that will be consumed in the manufacturing of reactors.

 

As at 31 December 2021, the Company had a total inventory provision of £771,000 (2020: £653,000). The Company recorded £118,000 (2020: £270,000) related to slow moving inventory in the Administrative expenses line of the Consolidated income statement.

 

14. Trade and other receivables

 

 

2021

 

2020


£'000

£'000

Trade receivables

6

110

Deferred costs

-

4,947

Prepaid costs

748

531

Grants receivable

158

290

Other receivables

362

304

Total

1,274

6,182

 

Trade receivables represent assets that are held for collection of contractual cash flows and those cash flows represent solely payments of principal and interest. Trade receivables, in general, are collected within 45 days of invoice date.

 

Deferred costs as at 31 December 2020 are in respect of a customer contract, for which the Company also recorded deferred revenue as shown in note 17, these costs were fully expensed in 2021.

 

Trade receivables and deferred costs (contract assets) are provided against where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Company, and a failure to make contractual payments for a period of greater than 90 days past due.

 

Impairment losses on trade receivables and contract assets are presented as net impairment losses within administrative expenses in the income statement. Subsequent recoveries of amounts previously written off are credited against the same line item.

 

Grants receivable of £158,000 as at 31 December 2021 were in respect of the Green Fuels Green Skies grant awarded to the Altalto project. Grants receivable of £290,000 as at 31 December 2020 also related to grant funding for the Altalto project from the UK DfT, under the Future Fuels for Flight and Freight Competition.

 

Other receivables consist of vendor deposits and sales taxes recoverable.

 

The Company applies the IFRS 9 simplified approach to measuring Expected Credit Loss ("ECL"), which uses a lifetime expected loss allowance for trade receivables. To measure the ECL, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The Company will adjust its analysis based on the historical credit loss. The Company's historical credit loss experience may also not be representative of customer's actual default in the future. As part of the ECL analysis, it was noted that trade receivables are considered to be both short term and low credit risk and as such any provision would be trivial.

 

15. Cash and cash equivalents

 

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

 


2021

£'000

2020

£'000

Cash and cash equivalents

25,506

13,051

Total

25,506

13,051

Cash and cash equivalents is denominated in UK sterling, Euros and US dollars as follows.




2021

£'000

2020

£'000

Cash and cash equivalents UK UK sterling denominated

 

16,908

 

6,584

US dollar denominated

8,584

6,465

Euro denominated

14

2

Total

25,506

13,051

 

16. Trade and other payables

 

 

2021

 

2020


£'000

£'000

Trade payables

593

360

Other taxation and social security

203

31

Accruals

2,173

541

Total

2,969

932

 

Due to their short maturity, the fair value of trade and other payables is not considered to be materially different to their carrying values, based on discounted cash flows. All trade payables are due in 60 days or less (2020: 60 days or less).

 

17. Deferred revenue

 

Deferred revenue consists of contract liabilities as a result of instances in which the Company receives payments prior to the satisfaction of the performance obligation, as defined in IFRS 15. Deferred revenue is allocated to the respective performance obligations based on relative transaction prices and is recognised as the performance obligation is satisfied. Determining the performance obligations associated with the Company's contracts can require significant judgment.

 

The Company recognised the following liabilities associated with contracts with customers:

 

£'000

Catalyst

Reactor

License

Total

At 1 January 2020

2,031

2,802

1,199

6,032

Contract liabilities incurred

1,155

969

-

2,124

At 31 December 2020

3,186

3,771

1,199

8,156

Contract liabilities incurred

-

-

336

336

Released deferred revenue

(3,186)

(3,445)

(1,535)

(8,166)

At 31 December 2021

-

326

-

326

 

The deferred revenue remaining at 31 December 2021, is shown on the balance sheet as a current liability. Deferred revenue totalling £8,166,000 has been recognised during 2021 as the related performance obligations have been met.

 

18. Post position financial events

 

The following events took place after 31 December 2021.

 

Grant of share options to Executives and employees

In January 2022, the Company granted options under the 2021 Share Option Scheme totalling 11,378,282 to Executives and senior management in respect of 2021 performance and options totalling 1,500,000 to new employees who joined the Company during 2021. The exercise price was set at the time of grant at 8.00 pence being the highest of the share price at the last fund raising, the share price on the date of grant and the weighted average share price for the month prior to grant. The Executive Directors, Mr. Wareborn and Mr. Morris received a total of 2,343,750 and 2,109,376 options respectively, allocated equally between time-based and performance-based options.

 

Directorate Change

Andrew Morris, CFO, has advised the Board of his intention to leave Velocys in order to pursue other career opportunities. The intention is for Andrew to step down as CFO and Board Director on 30 June 2022. The recruitment process of the next CFO is underway.

 

Sale and purchase option over Altalto Project site with Foresight Group LLP

In March 2022 Altalto Immingham Ltd ("Altalto") a wholly owned subsidiary of Velocys plc sold its 100% interest in Rula Developments (Immingham) Ltd ("RDIL") for £9.75 million, with a call option for Altalto to re-purchase RDIL within three years paying up to £11.75 million plus a quarterly option fee of £100,000 during the option period. This allowed Altalto to settle the deferred consideration payable of £7.25 million from the transaction that took place in December 2021, when Altalto took up its option to purchase RDIL, the property development company which owns the project site in Immingham, North East Lincolnshire, UK. Additionally, and subject to the exercise of the re-purchase option, Altalto has agreed to grant Foresight a right of first refusal to invest up to £100 million into the project,

alongside British Airways and other future investors, once the full funding us required. The financial effects of this transaction have not been recognised at 31 December 2021.

 

New Technical Centre in Ohio

In March 2022 the Company secured a 15 year lease for a modern and sustainable facility of approximately 52,500 square feet of new building to be built near Columbus, Ohio. This will consolidate all our catalysis services, microchannel reactor core assembly and technology licensing under one roof. In line with

our recent Placing Circular, this will involve a capital investment of up to £1.5 million in the building enhancements to fit our specific needs and £4.8 million in reactor core assembly automation enabling steady output of at least 12 reactors per year. It is expected that we will start moving into the building in Q4

2022 and Q1 2023.

 

Extension of Agreements with British Airways

In March 2022, the Company agreed with British Airways ("BA") to extend both the UK Altalto project Joint Development Agreement and the Option Agreement for BA to acquire 50% of Altalto Ltd by one year to 31 March 2023. The original option was signed on 12 May 2020 and initially extended on 30 March 2021.

 

19. Statutory information

 

Copies of the 2021 Annual Report and Accounts will be posted or emailed to shareholders at least 21 days before the Company's Annual General Meeting and may be obtained, free of charge for one month from the date of posting, from the registered office of Velocys plc, Magdalen Centre, Robert Robinson Avenue, The Oxford Science Park, Oxford, OX4 4GA, UK, as well as from the Company's website www.velocys.com .

 

20. Annual General Meeting

 

The Annual General Meeting ("AGM") is to be held on 21 June 2022. Notice of the AGM will be dispatched to shareholders with the Company's Annual Report and Accounts.

 

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