TIDMVLS
RNS Number : 2964V
Velocys PLC
06 August 2020
News release
Velocys plc
("Velocys" or "the Company")
6 August 2020
Final results for the year ended 31 December 2019
Velocys plc (VLS.L), the sustainable fuels technology company,
is pleased to announce its final audited results for the year ended
31 December 2019.
Highlights
-- Fund raise of GBP7m (before expenses) in July 2019 and an
additional fund raise of GBP21m (before expenses) in July 2020.
-- Altalto Immingham Project strategic partners, British Airways
and Shell, commitment of GBP2.8 million in July 2019.
-- Revenue of GBP0.3m (2018: GBP0.7m).
-- Operating loss of GBP9.6m, before exceptional items including
a credit of GBP0.1m related to impairments (2018: loss of GBP18.6m
before exceptional items of GBP10.1m).
-- Administrative expenses before exceptional items reduced
significantly to GBP9.9m (GBP9.8m after exceptional items) compared
to 2018 GBP19.1m (GBP29.1m after exceptional items).
-- Loss before income tax of GBP10.0m before exceptional items
including a credit of GBP0.1m related to impairments (2018: loss of
GBP20.0m before exceptional items of GBP10.9m).
-- Cash at period end GBP4.8m (31 December 2018: GBP7.0m).
-- Amended Red Rock Biofuels licensing contract in February 2019
with delivery of the first reactor in Q4 2019 and completion of
delivery of the other 3 reactors in H1 2020.
-- Planning application for a commercial waste to fuel plant
submitted to North East Lincolnshire County Council for the Altalto
Immingham project.
-- Contracted, manufactured and now delivered Fischer-Tropsch
(FT) reactors and catalyst to Toyo Engineering Corporation (Toyo)
for use in a biomass-to-jet fuel demonstration facility in Nagoya,
Japan.
-- Bayou Fuels project set to produce negative emission fuels
after signing Carbon Capture Utilisation and Storage (CCUS)
agreement with Oxy Low Carbon Ventures.
-- Appointed Worley (EPC) to manage delivery of our technology globally.
-- Licensors on-board include: TRI, Arvos, Air Liquide, Linde and Haldor Topsoe A/S.
-- Velocys classified as a Green Economy Issuer by the London Stock Exchange .
Henrik Wareborn, CEO of Velocys, said:
"In 2019, we moved forward from demonstrating our technology in
2018 to manufacturing and delivery of reactors , catalysts and
engineering services to our clients Red Rock Biofuels and Toyo
Engineering. Velocys is on track to create significant value as a
technology enabler of advanced sustainable fuels.
"Our investors demonstrated strong support for our strategy in
our recent successful fundraise s of July 2019 and July 2020. This
has been complemented by the hard work, ingenuity, and dedication
of all our employees creating a platform from which Velocys can
deliver significant shareholder value.
"The C ompany took measures in response to the Covid-19 crisis a
t a very early stage . Employee well-being and safe ty was the
primary focus and together we implemented a comprehensive work from
home policy . I thank my colleagues for their pro - active approach
in this crisis which has allowed us to operate near to normal,
satisfy the delivery requirements to our clients and stay on
schedule with our reference projects.
"2019 saw the emergence of a powerful global voice advocating
the importance of tackling the sources of climate change and
air-quality deterioration with immediate concrete solutions.
Pressure mounted on governments, industry and individuals to take
action. Heavy transportation, especially aviation, remains one of
the hardest sectors to decarbonise. The drive for decarbonisation,
including net zero targets, has gained strong momentum requiring
industry and fuel providers to invest significantly in carbon
emission s reductions technology. We are ideally placed with our
commercially demonstrated technology and business model to
accelerate the supply of Sustainable Aviation Fuels.
"I would like to thank all my colleagues at Velocys for their
continued commitment and relentless efforts during the intensive
phase of technology delivery and project development during
2019.
"In December 2019, we welcomed our new Chairman, Philip Holland,
who brings much experience and insight to Velocys. I would also
like to thank Dr. Pierre Jungels for his continued support during
2019 and wish him well for the future. "
For further information, please contact:
Velocys
Henrik Wareborn, CEO
Andrew Morris, CFO
Lak Siriwardene, Head of Communications and
Sustainability +44 1865 800821
Numis Securities (Nomad and joint broker)
Stuart Skinner +44 20 7260 1000
Canaccord Genuity (Joint broker)
Henry Fitzgerald-O'Connor
James Asensio +44 20 7523 8000
Radnor Capital (Investor Relations)
Joshua Cryer
Iain Daly
Field Consulting (PR) +44 20 3897 1830
Robert Jeffery +44 20 7096 7730
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.
Web | Twitter
Chairman's statement
In 2019 Velocys completed its transition from its historical
base as a research focused organisation to one of being capable of
delivering its micro-channel Fischer- Tropsch ("FT") technology for
incorporation into commercial scale waste to sustainable fuel
plants. This has been a significant achievement and has established
Velocys as a credible technology provider to sustainable fuels
producers, enabling a major increase in the production of both
sustainable jet fuel for the global aviation industry and low
carbon diesel for the automotive industry.
The demand for sustainable jet fuel could not be more obvious.
Velocys is in a unique position to offer a de-risked, scalable and
executable solution to convert widely available waste feedstocks
into sustainable jet fuel with a minimal carbon intensity both in
the USA and in the UK.
Market and Strategy
Our hybrid capital-light business model centres around (1)
securing the adoption of our unique technology solution into the
two reference projects being the Altalto Immingham Project in the
UK and the Mississippi Biorefinery Project in the USA and (2) also
supply and service third party projects where our technology
solution has been selected for the core processing units. We will
be intimately involved in both reference projects from inception to
financial close and we have brought in strategic partners such as
British Airways and Shell into the Altalto Immingham Project.
We are negotiating with US parties to secure the FEED funding of
the Mississippi Biorefinery Project. This ensures our technology is
deployed in our chosen market of waste-to-liquid fuels, whilst at
the same time we have developed an integrated technology package
that can be deployed for sustainable feedstock to liquid fuels
production for new customers around the world. We are supplying our
FT technology to our current commercial clients, Red Rock Biofuels
and Toyo Engineering. They are both making good progress on their
respective biomass to fuels projects.
In supporting the aviation industry in its de-carbonisation
efforts, Velocys is able to provide two complementary commercial
solutions:
-- Firstly, as the developer of waste-to-sustainable fuel
plants, as evidenced by our two current projects; the Altalto
Immingham Biorefinery Project to be constructed at Immingham in the
UK, and our Mississippi Biorefinery to be constructed at Natchez in
the USA. The Altalto project has secured Planning Permission in May
2020. This will be followed by further technical work, supported by
Shell and British Airways, to further de-risk the project and
enable an investment decision to be taken in 2022. Development work
in 2019 on our Mississippi Biorefinery Project included securing an
agreement with a subsidiary of Occidental to provide carbon dioxide
sequestration facilities and development of a solar power solution.
The inclusion of these two opportunities results in both
significant reductions in capex and a facility that has the ability
to produce sustainable jet fuel with a negative carbon
intensity.
-- Secondly, as the owner of patented FT micro-channel
technology for the conversion of synthetic gas to liquids we are
able to provide commercial scale reactors to third party developers
of waste-to-sustainable fuel plants as evidenced by the use of
Velocys reactors at two facilities in the US; our Oklahoma plant at
which we demonstrated our reactor technology at commercial scale in
2017/2018, and also at Red Rock Biofuels, a third party facility
that began construction at Lakeview Oregon in 2018 and is due to
commence operations in 2021. The first of four reactors were
delivered to our Red Rock Biofuels client in 2019. The remaining
three have been delivered in the first half of 2020.
Management and Board
Darran Messem and I joined the Velocys Board in January 2019.
The Board structure for the majority of 2019 was led by Pierre
Jungels as Chairman, with me as Senior Independent Director, and
member of the Audit & Risk, Remuneration and Nomination
Committees. Mr. Messem Chaired the Remuneration Committee and was
member of the Audit & Risk and Nomination Committees. Sandy
Shaw continued in her role as Chair of the Audit & Risk
Committee and member of the Remuneration Committee. In September
2019, Sandy Shaw resumed her former position as Chair of the
Remuneration Committee, and Darran Messem replaced her as Chair of
the Audit & Risk Committee.
Further to his notification in the 2018 Annual Report, Dr.
Jungels stepped down as Chairman in December 2019, and was
succeeded by me. I would like to express sincere and grateful
appreciation to Dr. Jungels on behalf of all Velocys' stakeholders
for the outstanding contribution he made during his tenure as
Chairman, directing the efforts of the organisation from being
research based to now being able to offer its technology on a
commercial basis to an expanding client base.
Corporate governance
The Directors recognise the value and importance of good
corporate governance and are committed to drawing upon best
practice and maintaining high standards. Led by the Chairman, the
Velocys Board follows the ten principles of corporate governance
set out under three headings in the Quoted Companies Alliance
Code.
Fundraising
In July 2019 Velocys raised a total of GBP7.0m (before expenses)
via a firm placing and an open offer. We have received strong
support from existing and new institutional investors including new
VCT investors, for which we are grateful. All Board Directors
participated in this round of funding. This complements the
commitments by Shell and British Airways to co-fund the remaining
pre-FEED project work to bring the Altalto Immingham Project to the
same state of pre-FEED completion as our Mississippi Biorefinery
Project. This provided the Company with sufficient funding to
deliver its strategy for a year supported by revenues received from
technology sales and support services.
In July 2020 the Company successfully raised GBP21.0m (before
expenses) through a Placing, Retail Offer and an Open Offer, with
the Open Offer enabling all eligible shareholders as well as new
smaller investors to participate. We are delighted with the
strength of support shown by both new and existing investors in
this fundraising as the issue was significantly oversubscribed. We
are particularly pleased to see a number of high-quality
institutional investors join our shareholder register.
Outlook
The transformation of Velocys from a research and development
focus to a solution provider for the future sustainable fuels
industry having been completed, 2020 will further establish Velocys
as a significant player in that industry. With the delivery of
reactors and catalyst to our customers in 2020 as a provider of
technology and equipment to third party sustainable fuel project
developers, Velocys will further increase its ability to generate
revenues from licensing fees, royalty fees, catalyst sales,
equipment supplies, and professional technical services.
The Executive Team will place significant emphasis during 2020
on cementing Velocys' position in the marketplace and securing
future opportunities for enhancing revenues from third-party
developers.
Technical development work in 2020 will focus on finalising the
technical definition of our two reference projects such that they
are appropriately positioned in terms of capital requirements and
commercial returns to attract the necessary investment support.
This technical development work will include concluding Licensor
Agreements and the necessary engineering, procurement and
construction expertise from our world class engineering contractor,
Worley, to finalise the technical definition for both projects.
At the time of writing this Chairman's statement, the majority
of the world's population is experiencing some form of lockdown in
an effort to control the spread of the COVID-19 Coronavirus.
Velocys has taken all necessary measures to protect its staff, both
in the UK and the USA, from being exposed to the transmission of
this disease, by instituting 100% work from home procedures for all
its employees. With the support of our suppliers we have been able
to continue the critical work of reactor manufacturing for our
client Red Rock Biofuels. This has enabled Velocys to complete the
delivery of all the reactors in Q2 2020 as agreed.
We deployed staff to our Japanese client to assist in catalyst
loading of the reactor cores that were delivered in Q1 2020. With
the support of Worley we have been able to continue to progress the
technical development of the Altalto Immingham Project on
schedule.
2019 saw the emergence of a powerful voice globally advocating
the importance of immediate action to avoid the adverse effects of
climate change and the urgent need for governments, industry and
individuals to take action. The drive for industrial
decarbonisation has strong momentum and will see industry and fuel
providers seeking ways of contributing significantly to assist the
aviation industry to reduce its carbon emissions. Velocys'
technology and business model are ideally placed to accelerate the
supply of Sustainable Aviation Fuel.
CEO's Report
2019 has been a positive year for the Company. The demand is
growing for our integrated Fischer-Tropsch technology and
associated engineering services for conversion of waste feedstocks
to advanced sustainable fuels.
Following the completion in 2018 of the commercial scale and
integrated demonstrations of our technology in Oklahoma and North
Carolina, we have concentrated our efforts in 2019 on building our
capability to deliver our technology at scale to clients. Velocys
has transitioned from research, development and demonstration to
commercial-scale client delivery. We have delivered all of our
reactors and catalyst charges to our clients in Oregon and
Japan.
Velocys is committed to seamless delivery to our clients of
hardware in the form of reactors and catalyst as well as providing
engineering services and commercial solutions during the
feasibility and FEED stages. We also provide commissioning and
start-up services along with on-going engineering and optimisation
support over the lifetime of the technology site license
contracts.
None of this would have been possible without the support of our
shareholders, new and old, in 2019 along with the hard work,
ingenuity and dedication of all our employees.
Market dynamics
There has been a distinct movement in 2019, particularly in the
last quarter, in the climate change debate with commercial
solutions for sustainable aviation and decarbonised fuels gaining
momentum. The need for a solution is now widely covered in
mainstream media and Velocys has been recognised broadly as a
potential critical provider of such a solution in global media
during the year.
Velocys fully supports the Sustainable Aviation ("SA") 1
initiative, which comprises UK aviation partners and takes a
collective approach to address the challenge of ensuring a cleaner,
quieter and smarter future for the industry. SA has provided a new
aviation industry roadmap forecasting that sustainable aviation
fuels could meet 32% of aviation fuel demand by 2050. This formed
part of a wider announcement by the industry coalition committing
to net zero carbon emissions by 2050. The FT technology provided by
Velocys will contribute significantly towards reaching these
targets. As members of the Carbon Capture and Storage Association 2
we support the development and deployment of CCS worldwide.
Climate change and green energy remain at the top of global
agendas with challenging but realistic net zero targets.
Established technologies, such as ours, are now in demand in order
to reach net-zero targets through the decarbonisation of transport,
with aviation and heavy goods transport being two of the most
challenging sectors.
1 www.sustainableaviation.co.uk
2 www.ccsassociation.org
Talent retention
A three-year Long-Term Incentive plan ("LTIP") based on equity
options with a strike price based on the previous fund raise in
July 2019, which was double the share price at the time of the
award in December 2019, was implemented for a broad group of
employees in December 2019 along with a special equity based award
for all employees. No such awards have been made since 2014.
Commercial success
In 2019 Velocys delivered a number of key commercial
developments:
Red Rock Biofuels, Oregon biorefinery
RRB commenced construction during 2018 at Lakeview, Oregon.
During 2019 we amended our license contract with RRB, reducing the
commitment for reactors from six to four, with an option for RRB to
acquire two further reactors before the end of 2020. Manufacturing
the reactors and catalyst for this GBP9.2m order commenced in 2019.
During the year we invoiced a further GBP0.9m upon the delivery of
the first reactor and four charges of catalyst. We have GBP5.6m
deferred revenue subject to the completion of the delivery and
commissioning of three more reactors, all of which completed
manufacturing in the first half of 2020.
Toyo Engineering Corporation, Nagoya, Japan
Toyo placed an order with Velocys in September 2019, worth
approximately GBP0.4 million, to supply an FT site license, reactor
and catalyst for a biomass-to-jet fuel demonstration facility which
completed construction in March 2020 by a consortium of Japanese
companies. This plant is now in operation and is producing liquid
fuels.
In addition, Velocys has agreed that it will grant an exclusive
right to Toyo for a site license and technical services of the
Velocys FT Technology for a future potential commercial plant in
Japan with an advance deposit of GBP3.2 million. The deposit has
been paid in a non-refundable tranche of GBP0.4 million and a
further tranche which is potentially refundable and subject to
milestones.
Velocys has also been invited to participate in pre-feasibility
work for a number of projects around the world of similar scale and
scope to our two reference projects.
Technology and Operations
We have scaled-up manufacturing operations to fulfil our recent
reactor and catalyst orders from the US and Japan. The FT reactor
cores are manufactured in Alabama using highly customised laser
welding technology, and then enclosed in a pressure vessel at a
separate location. Our proprietary Actocat catalyst is also
manufactured in the US under the supervision of Velocys
specialists.
Our progress includes new manufacturing equipment being
incorporated into the production line of the cores that hold the
catalyst and cooling panels of the reactors to scale-up delivery
while following a very strict quality assurance programme. We also
successfully implemented the on-site high pressure testing of the
cores, and the full automation of laser welding of coolant
panels.
Commercial demonstration plant: Post-operative analysis of FT
reactors
The two full-scale FT reactors from the demonstration plant in
Oklahoma, with combined runtime in excess of 6,000 hours have
provided invaluable data in our post-operative analysis work at our
technology centre in Ohio over the course of 2019 and into
2020.
We have collected and processed a vast amount of data from the
demonstration plant allowing us to correlate this information with
our models to further optimise design and operating parameters.
This allows us to improve resilience, volume, and product quality
directly benefiting all our current and future clients. This is a
critical differentiating capability of Velocys at this early stage
of development of the new sustainable fuels industry.
Our reference projects
Altalto Biorefinery, Immingham, UK
In 2019 we secured partner funding of GBP2.8m for the project we
are developing in collaboration with British Airways and Shell.
Plans were submitted in August 2019 to North East Lincolnshire
Council planning authority for the first commercial-scale
waste-to-jet fuel plant in the UK using municipal solid waste as
feedstock. As a business we completed a global competitive
selection process leading to the appointment of Worley as our
global engineering contractor to support the delivery of Velocys'
fully integrated technology package and to become the Owner's
Engineer for our two reference projects. Velocys continues to
engage with the UK Government to secure additional long term policy
support required for the project to reach financial close.
Mississippi Biorefinery, Natchez, MS, USA
An agreement was signed with Oxy Low Carbon Ventures, a
subsidiary of Occidental, to process biogenic carbon dioxide from
the Mississippi plant for permanent sequestration using existing
infrastructure near to the current site. We developed a solar power
solution for the plant, saving capex and further decreasing the
carbon intensity of the fuels produced.
In order to raise the capital for FEED engineering and
construction we appointed Hamilton Clark Sustainable Capital in
Houston. In addition, detailed due diligence and value-added
engagement by potential strategic partners continues. The project
has been further optimised to achieve a negative carbon intensity
for 20-25 million gallons of sustainable aviation fuel, or diesel
and gasoline blendstock, per year from 2025.
Outlook for 2020
During July 2020 the Company raised approximately GBP21m (before
expenses) through a Placing, Retail Offer and Open Offer. The
success of this fundraise at a time of international economic
distress, particularly in the airlines and oil sector is a great
validation of our capital light strategy within the sustainable
fuels sector. This has been supported by the UK government who have
promoted the green recovery as well as supporting our Altalto
Immingham project with a further GBP0.5m grant, announced in July
2020. This capital raise accelerates our ability to provide
commercial scale turn-key solutions to fuel producers in the energy
transition away from fossil fuels into sustainable fuels towards
improved air quality and net zero carbon emissions.
In 2020 we have seen the continuation of the Altalto development
with our strategic collaborators British Airways and Shell
investing a further GBP1m of non-dilutive capital into the project
in May at a time of great economic difficulty in the airline
industry; we achieved the granting of planning permission for the
plant and will now focus on detailed post- planning work in the
engineering throughout the rest of the year. We have also completed
the FT and catalyst orders to our clients in Oregon and Japan, and
expect to secure FEED financing for the Mississippi biorefinery
project. We plan to seek and secure pre-FEED engineering contract
work from one or more parties for similar type and scale of
facilities as our two reference projects.
I believe Velocys is well positioned to create significant
shareholder value from our unique position at the cutting edge of
sustainable fuels technology. However, there remain many challenges
for our business over the next twelve months, not least of which is
the recent economic downturn caused by COVID-19. This may manifest
itself in delays to the development of our reference projects. A
number of the other risks relating to our business are set out in
the risk and mitigation section on page 12. The Board monitors
these risks proactively and communicates with Shareholders in order
to minimise their effects.
My thanks to all my colleagues at Velocys, our shareholders old
and new along with our strategic partners for their continued
commitment and relentless efforts during the intensive phase of
scaling-up technology delivery and project development during 2019
and into 2020.
I would like to welcome Philip Holland as our new Chairman from
December 2019, and I would also like to take this opportunity to
thank Dr. Pierre Jungels for his continued support to me and the
team during the year and wish him well for the future.
Financial review
Revenues
Velocys plc is managed as a single operation and referred to as
"the Company" throughout the strategic report. The "Company"
results represent the consolidated results and Velocys plc results
are for the parent company only. The Company recognised revenue of
GBP0.3m (2018: GBP0.7m). The 2019 revenue was primarily the result
of the delivery of reactor components to Toyo and professional
service related to ongoing reference projects. Gross profit
decreased to GBP0.2m (2018: GBP0.4m).
Expenses and income
Administrative expenses before exceptional items reduced by 48%
to GBP9.9m and GBP9.8m after exceptional items (2018: GBP19.1m
before and GBP29.1m after exceptional items). The reduction before
exceptional items is principally the result of aggressive cost
management and restructuring of certain functions in the Company
leading to significantly reduced corporate overhead, third party
consulting costs, legal and travel costs.
The exceptional items of GBP0.1m credit (2018: GBP10.1m cost) is
the impairment of the value of land held as an asset offset by the
release of deferred revenue as the part-repayment to the Company of
its secured loan to ENVIA.
Other income before exceptional items during the year consisted
of GBP0.08m (2018: GBP0.04m) from the sale of assets associated
with the final closing of the ENVIA plant.
Operating losses were GBP9.6m, before exceptional items credit
of GBP0.1m related to impairments (2018: GBP18.6m before
exceptional items of GBP10.1m). The reduction of the operating loss
is principally the result of a decrease in administrative expenses
period over period.
Assets and Cash
The net assets of the Company were GBP2.3m, which is down from
the GBP5.4m in 2018. This decrease was principally the result of a
reduction of cash and trade and other receivables offset by an
increase in deferred revenue and other liabilities.
The cash outflow from the Company in 2019 was GBP1.4m (2018:
GBP4.3m cash inflow) principally being cash generated from
financing activities of GBP5.7m, principally attributed to GBP6.6m
received after the fund raise that was successfully completed in
July, and GBP2.3m cash generated from investing activities, less
GBP9.4m used in operating activities. The Company continues to
carefully manage its underlying cost base and spend prudently on
strategy implementation.
The company incurs much 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.
Impairment of assets and investments
In 2019, the Company impaired the land associated with a
subsidiary based on the fair value less costs of disposal ("fair
value"), by reference to a recent appraisal. In 2019, the Company
reversed a 2017 impairment of an inventoried reactor that was not
used at ENVIA in the amount of GBP352,000. This reactor was
subsequently sold and delivered in 2019 and is currently presented
as deferred cost on the 2019 Consolidated balance sheet until the
performance obligations, defined under IFRS 15, are met. The
reversal of the impairment in inventories was partially offset by
the impairment of pre- qualification cores that did not meet
quality specifications to be included in the Red Rock Biofuels
order, to the amount of GBP123,000.
During 2018 the Company recorded an impairment of GBP10.1m with
respect to the loan to ENVIA and GBP0.9m with respect to the
investment as a result of an increase in the credit risk arising
from ENVIA's decision to suspend activities.
There has been no change in the Board's assessment of the
long-term potential of the Company's assets. As a result of the
Board's assessment, there has been no impairment of the Company's
assets in 2020. The impairments made, except for Goodwill, could be
reversed in future if there is a change in the estimates used to
determine the asset's recoverable amount, particularly in relation
to the share price of the parent Company. At 31 December 2019, the
Board did not consider there has been a change in circumstances
that would justify reversal of the impairments recorded in 2018 or
that additional impairments were required in 2019.
The parent Company has both equity and debt investments in its
subsidiaries, which are compared to the recoverable amount. On this
basis, the impairment assessment indicated that the carrying value
of the investment in subsidiaries was higher than the recoverable
amount, determined by fair value less costs of disposal. As a
result, an impairment of GBP3.3m (2018: GBP33.3m) was recognised.
This impairment was eliminated on consolidation and therefore is
not seen in these consolidated statements.
ENVIA
In April 2019, the Company completed negotiations with the
remaining partners and site landlord on a wind-down for ENVIA. In
the wind-down, ENVIA released the site to the landlord and sold
certain assets, the proceeds of which were used to fund wind-down
operations and repay GBP3.4m against part of ENVIA's outstanding
secured loan obligation to the Company.
Fundraises
In July 2019 Velocys raised a total of GBP7.0m (before expenses)
via a firm placing and an open offer.
Net proceeds of the capital raising are being used to:
-- Complete the development capital fund raising and preparation
of the FEED for the Mississippi Biorefinery Project;
-- Strengthen and extend the Company's intellectual property portfolio;
-- Analyse and test catalyst and Fischer-Tropsch reactors from
the recently completed full-scale demonstration in Oklahoma;
and
-- Fund the Company's working capital and central operating costs.
Future funding
With the successful fundraise in July 2020 of GBP21m (before
expenses), the financial statements have been prepared on the going
concern basis, which assumes the Company will have sufficient funds
available to enable it to continue to trade for the foreseeable
future. The cash forecast includes the following assumptions: (i)
the completion of the current stage of the FEED for the Altalto
Immingham Project prior to securing funding for the next stage of
development to financial close; (ii) the completion of the
manufacture and delivery of reactors to our customer Red Rock
Biofuels; (iii) the continued process of on-boarding one or more
strategic investors to provide the final stages of development
funding for the Mississippi Biorefinery Project; (iv) revenue from
the ongoing support to our customer Toyo engineering in Japan; (v)
the current overhead cost run rate.
The Company's plan is to continue working with our investment
partners in the Altalto Immingham Project, having secured GBP1m
additional non-dilutive investment in May 2020 and securing further
investment into the project along with completing all the
engineering design and commercial arrangements required to reach
financial close on the project in 2022. At the same time in the USA
we are working to secure investment by one or more strategic
partners into the Mississippi project. We are also working with
several other interested parties in Europe, the USA and the Middle
East developing their own projects potentially using our FT
technology within an integrated technology package into a complete
plant.
Going Concern
The Company assessed its cash requirements from these activities
and raised an additional GBP21m (before expenses) through an equity
fundraise via a Placing, Retail Offer and Open Offer. The directors
consider that this is sufficient funding for the Company to
continue as a going concern beyond twelve months of the date of
this report. The directors do not anticipate that any further
funding to the Company will come from further placing of the parent
company shares during this period. However additional income may
come from one, or a combination of, the following sources, with
agreements being actively sought from third parties:
-- Additional third-party license sales, similar to the Red Rock Biofuels project.
-- The realisation of certain assets and the selling of non-core intellectual property.
-- Additional strategic investment of development capital into
either or both of Altalto Immingham Project and the Mississippi
Biorefinery Project, which are expected during 2020 and the first
half of 2021.
-- UK or USA Government loans or grants.
The directors are confident that the funding received by the
Company in July 2020 will ensure that it will continue as a going
concern and that there will be sufficient funding in the Company to
continue to support its activities for the foreseeable future being
not less than 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.
As in previous years, the Board will be proposing a further
Special Resolution at the forthcoming Annual General Meeting to
approve the disapplication of the pre-emption rights equal to 15%
of the issued share capital.
Following financial close of one or both reference projects in
early 2022, the Company's funding requirements will depend on the
final structure of each of the biorefinery project consortia and on
the Company's strategy to support projects developed and funded by
third parties.
Consolidated income statement
for the year ended 31 December 2019
2019 2019 2019 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------ --------
Before Exceptional Before Exceptional
exceptional items exceptional items
(note
Note items (note 2) Total items 2) Total
------------------------------ ----- ------------- ------------ -------- ------------- ------------ ---------
Revenue 3 332 - 332 664 - 664
Cost of sales (132) - (132) (273) - (273)
------------------------------ ----- ------------- ------------ -------- ------------- ------------ ---------
Gross profit 200 - 200 391 - 391
Administrative expenses (9,898) 94 (9,804) (19,060) (10,067) (29,127)
Other income 5 79 - 79 36 - 36
------------------------------ ----- ------------- ------------ -------- ------------- ------------ ---------
Operating loss (9,619) 94 (9,525) (18,633) (10,067) (28,700)
Share of loss of investments
accounted for using
the equity method 10 - - - (1,717) (848) (2,565)
------------------------------ ----- ------------- ------------ -------- ------------- ------------ ---------
Loss before net finance
(costs)/income (9,619) 94 (9,525) (20,350) (10,915) (31,265)
Finance income 4 48 - 48 993 - 993
Finance costs (429) - (429) (628) - (628)
------------------------------ ----- ------------- ------------ -------- ------------- ------------ ---------
Net finance (cost)/income (381) - (381) 365 - 365
------------------------------ ----- ------------- ------------ -------- ------------- ------------ ---------
Loss before income
tax (10,000) 94 (9,906) (19,985) (10,915) (30,900)
Income tax credit 291 - 291 317 - 317
------------------------------ ----- ------------- ------------ -------- ------------- ------------ ---------
Loss for the financial
year attributable
to the owners of Velocys
plc (9,709) 94 (9,615) (19,668) (10,915) (30,583)
------------------------------ ----- ------------- ------------ -------- ------------- ------------ ---------
Loss per share attributable
to the owners of Velocys
plc
Basic and diluted
loss per share (pence) 6 (1.91) - (1.90) (5.75) - (8.95)
------------------------------ ----- ------------- ------------ -------- ------------- ------------ ---------
Consolidated statement of comprehensive income
for the year ended 31 December 2019
2019 2019 2019 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------------ ---------------- ------------ ------------ ---------
Before Exceptional Before Exceptional
exceptional items exceptional items
items (note 4) Total items (note 4) Total
-------------------------- ---------------- ------------ ---------------- ------------ ------------ ---------
Loss for the year (9,709) 94 (9,615) (19,668) (10,915) (30,583)
-------------------------- ---------------- ------------ ---------------- ------------ ------------ ---------
Other comprehensive
(expense)/income
Items that may
be reclassified
to the income
statement in subsequent
periods
Foreign currency
translation differences (262) - (262) 897 - 897
-------------------------- ---------------- ------------ ---------------- ------------ ------------ ---------
Total comprehensive
expense for the
year attributable
to the owners
of Velocys plc (9,971) 94 (9,877) (18,771) (10,915) (29,686)
-------------------------- ---------------- ------------ ---------------- ------------ ------------ ---------
Consolidated statement of financial position
as at 31 December 2019
(Restated)
2019 2018
Note GBP'000 GBP'000
-------------------------------------- ----- ---------- -----------
Assets
Non-current assets
Intangible assets 7 444 357
Property, plant and equipment 8 1,734 1,819
Right-of-use asset 9 836 -
Trade and other receivables 11 - 281
3,014 2,457
-------------------------------------- ----- ---------- -----------
Current assets
Inventories 12 3,332 1,438
Trade and other receivables 11 1,637 4,404
Current income tax asset 648 862
Cash and cash equivalents 13 4,797 6,964
--------------------------------------- ----- ---------- -----------
10,414 13,668
-------------------------------------- ----- ---------- -----------
Total assets 13,428 16,125
--------------------------------------- ----- ---------- -----------
Liabilities
Current liabilities
Trade and other payables 14 (1,331) (3,018)
Lease liability 9 (581) -
Borrowings - (289)
Other liabilities (2,804) (2,092)
Deferred revenue 15 (5,562) (579)
--------------------------------------- ----- ---------- -----------
(10,278) (5,978)
-------------------------------------- ----- ---------- -----------
Non-current liabilities
Trade and other payables - (90)
Lease lability 9 (343) -
Deferred revenue 15 (470) (4,634)
--------------------------------------- ----- ---------- -----------
(813) (4,724)
-------------------------------------- ----- ---------- -----------
Total liabilities (11,091) (10,702)
--------------------------------------- ----- ---------- -----------
Net assets 2,337 5,423
--------------------------------------- ----- ---------- -----------
Capital and reserves attributable to
owners of Velocys plc
Called up share capital 6,438 4,105
Share premium account 184,256 180,016
Merger reserve 369 369
Share-based payments reserve 16,225 16,143
Foreign exchange reserve 3,289 3,551
Accumulated losses (208,240) (198,761)
--------------------------------------- ----- ---------- -----------
Total equity 2,337 5,423
--------------------------------------- ----- ---------- -----------
The presentation of called up share capital and share premium in
the period 31 December 2018 has been restated with respect to a
calculation error in the amount of GBP2,192,000. The restatement
resulted in an increase in called up share capital and a decrease
in share premium. Prior to the restatement, at 31 December 2018
called up share capital was GBP1,913,000 and share premium was
GBP182,208,000.
Consolidated statement of changes in equity
for the year ended 31 December 2019
Called Share Convertible
up share premium loan/'other' Share-based Foreign
capital account Merger reserve payment exchange Accumulated Total
(Restated) (Restated) reserve reserve reserve losses equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --- ----------- ----------- -------- ------------- ------------ --------- ------------ ---------
Balance at 1
January
2018 1,468 149,964 369 9,421 16,085 2,654 (167,550) 12,411
---------------- --------------- ----------- -------- ------------- ------------ --------- ------------ ---------
Loss for the
year - - - - - - (30,583) (30,583)
Other
comprehensive
income
Foreign
currency
translation
differences - - - - - 897 - 897
---------------- --------------- ----------- -------- ------------- ------------ --------- ------------ ---------
Total
comprehensive
expense - - - - - 897 (30,583) (29,686)
---------------- --------------- ----------- -------- ------------- ------------ --------- ------------ ---------
Transactions
with
owners
Share-based
payments
- value of
employee
services - - - - 58 - - 58
Proceeds from
share issues 2,435 20,205 - - - - - 22,640
Convertible
loan
notes 180 8,820 - (9,000) - - - -
Interest on
convertible
loan note 22 1,027 - (421) - - (628) -
---------------- --------------- ----------- -------- ------------- ------------ --------- ------------ ---------
Total
transactions
with owners 2,637 30,052 - (9,421) 58 - (628) 22,698
---------------- --------------- ----------- -------- ------------- ------------ --------- ------------ ---------
Balance at 31
December 2018 4,105 180,016 369 - 16,143 3,551 (198,761) 5,423
---------------- --------------- ----------- -------- ------------- ------------ --------- ------------ ---------
Change in
accounting
policy - - - - - - 136 136
Balance at 1
January
2019 4,105 180,016 369 - 16,143 3,551 (198,625) 5,559
Loss for the
year - - - - - - (9,615) (9,615)
Other
comprehensive
expense
Foreign
currency
translation
differences - - - - - (262) - (262)
---------------- --------------- ----------- -------- ------------- ------------ --------- ------------ ---------
Total
comprehensive
expense - - - - - (262) (9,615) (9,877)
---------------- --------------- ----------- -------- ------------- ------------ --------- ------------ ---------
Transactions
with
owners
Share-based
payments
- value of
employee
services - - - - 82 - - 82
Proceeds from
share issues 2,333 4,240 - - - - - 6,573
Total
transactions
with owners 2,333 4,240 - - 82 - - 6,655
---------------- --------------- ----------- -------- ------------- ------------ --------- ------------ ---------
Balance at 31
December 2019 6,438 184,256 369 - 16,225 3,289 (208,240) 2,337
---------------- --------------- ----------- -------- ------------- ------------ --------- ------------ ---------
The presentation of called up share capital and share premium in
the period 31 December 2018 has been restated with respect to a
calculation error in the amount of GBP2,192,000. The restatement
resulted in an increase in called up share capital and a decrease
in share premium. Prior to the restatement, at 31 December 2018
called up share capital was GBP1,913,000 and share premium was
GBP182,208,000.
Consolidated statement of cash flows
for the year ended 31 December 2019
2019 2018
Note GBP'000 GBP'000
------------------------------------------------- ----- --------- ---------
Cash flows from operating activities
Operating loss (9,525) (28,700)
Depreciation and amortisation 1,094 659
Loss on disposal of intangible assets 7 187 627
Impairment of property, plant and equipment 2 439 -
Impairment of loan to associate ENVIA 2 - 10,067
Finance costs (196) -
Impairment of inventory 569 -
Share-based payments 82 58
Changes in working capital (excluding
the effects of exchange
differences on consolidation)
Trade and other receivables (165) (220)
Trade and other payables (1,687) (1,125)
Other liabilities 712 2,092
Deferred revenue 15 819 5,213
Inventory (2,473) (1,050)
------------------------------------------------- ----- --------- ---------
Cash consumed by operations (10,144) (12,379)
Tax credits received 736 -
------------------------------------------------- ----- --------- ---------
Net cash used in operating activities (9,408) (12,379)
------------------------------------------------- ----- --------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (779) (509)
Purchase of intangible assets (394) (349)
Payment from (loan to) associate ENVIA 3,432 (5,531)
Interest received 33 74
Net cash generated from/(used in) investing
activities 2,292 (6,315)
------------------------------------------------- ----- --------- ---------
Cash flows from financing activities
Proceeds from issues of shares and convertible
loan notes 7,000 25,172
Costs of issuing shares and convertible
loan notes (427) (1,904)
Principal elements of lease payments 9 (479) -
Interest paid (5) (13)
Repayment of borrowings (371) (252)
------------------------------------------------- ----- --------- ---------
Net cash generated from financing activities 5,718 23,003
------------------------------------------------- ----- --------- ---------
Net (decrease)/increase in cash and cash
equivalents (1,398) 4,309
Cash and cash equivalents at beginning
of year 13 6,964 2,070
Exchange movements on cash and cash equivalents (769) 585
------------------------------------------------- ----- --------- ---------
Cash and cash equivalents at end of year 13 4,797 6,964
------------------------------------------------- ----- --------- ---------
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 results shown for the years ended 31 December 2019 and 31
December 2018 are audited. The consolidated financial information
contained in this announcement does not constitute statutory
accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts of the Company in respect of the financial
year ended 31 December 2019 were approved by the Board of directors
on 5 August 2020 and will be delivered to the Registrar of
Companies in due course. The report of the auditors on those
accounts was unqualified and did not contain a material uncertainty
paragraph nor any statement under Section 498 of the Companies Act
2006.
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU,
hereafter referred to as "IFRS"), IFRS Interpretations Committee
("IFRS IC") Interpretations and the Companies Act 2006 applicable
to companies reporting under IFRS. The statements have been
prepared under the historical cost convention as modified by the
revaluation of certain financial assets and liabilities (including
derivative instruments) at fair value, where relevant.
The preparation of financial statements to conform to IFRS
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 referenced in note
3, 7, 9 and 10.
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
the foreseeable future.
The Company expects to develop its reference projects, in
particular, the Mississippi Biorefinery Project and Altalto
Immingham Project, which will require significant development and
capital expenditure.
The nature of the Company's strategy means that the timing of
milestones and funds generated from developments are difficult to
predict at this stage. 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.
During July 2020 the Company raised GBP21 million (before
expenses) by way of a Placing, Retail Offer and Open Offer. The
directors consider that this is sufficient funding for the Company
to continue as a going concern beyond the twelve months of the date
of this report. The directors do not anticipate that any further
funding to the Company will come from further placing of the parent
company shares during this period. However additional income may
come from one, or a combination of, the following sources, with
agreements being actively sought from third parties:
-- Additional third-party license sales, similar to the Red Rock Biofuels project.
-- The realisation of certain assets and the selling of non-core intellectual property.
-- Additional strategic investment of development capital into
either or both of Altalto Immingham Project and the Mississippi
Biorefinery Project, which are expected during 2020 and the first
half of 2021.
-- UK or USA Government loans or grants.
The directors are confident that the funding received by the
Company in July 2020 will ensure that it will continue as a going
concern and that there will be sufficient funding in the Company to
continue to support its activities for the foreseeable future being
not less than twelve months from the date of approval of these
financial statements. The directors have therefore prepared the
financial statements on a going concern basis.
In addition to the July 2020 Placing, Retail Offer and Open
Offer, the Company executed an extension of the Altalto Joint
Development Agreement providing GBP1m non-dilutive investment into
the Altalto Immingham Project; was awarded a forgivable loan as
part of the Pay-check Protection Program awarded by the SBA, a US
Federal Agency in the amount of GBP572,000; and has been awarded a
further GBP0.5m F4C grant from the Department of Transport in the
UK.
The financial statements do not include any adjustments that
would arise if the Company and Velocys plc were unable to continue
as a going concern.
Accounting developments
New and amended standards adopted by the Company
The group has applied the following standards and amendments for
the first time for their annual reporting period commencing 1
January 2019:
-- IFRS 16 "Leases" - ("IFRS 16")
-- Prepayment Features with Negative Compensation - Amendments to IFRS 9
-- Long-term Interests in Associates and Joint Ventures - Amendments to IAS 28
-- Annual Improvements to IFRS Standards 2015 - 2017 Cycle
-- Plan Amendment, Curtailment or Settlement - Amendments to IAS 19
-- Interpretation 23 Uncertainty over Income Tax Treatments.
The group also elected to adopt the following amendments
early:
-- Definition of Material - Amendments to IAS 1 and IAS 8.
IFRS 16 Leases
The Company has adopted IFRS 16 retrospectively on 1 January
2019, but has not restated comparatives for the 2018 reporting
period, as permitted under the specific transition provisions in
the standard. The reclassifications and the adjustments arising
from the new leasing rules are therefore recognised in the opening
balance sheet on 1 January 2019.
On adoption of IFRS 16, the Company recognised lease assets and
current and non-current lease liabilities in relation to leases
which had previously been classified as 'operating leases' under
the principles of IAS 17 Leases. These liabilities were measured at
the present value of the remaining lease payments, discounted using
the lessee's incremental borrowing rate as of 1 January 2019. The
weighted average lessee's incremental borrowing rate applied to the
lease liabilities on 1 January 2019 was approximately 21%.
Significant judgements and estimates were used with respect to
the incremental borrowing rate, as the Company currently has no
outstanding significant debt. Also, significant judgement and
estimates were used in the calculation of lease term as some leases
are expected to be extended beyond the stated lease term.
Practical expedients applied
In applying IFRS 16 for the first time, the Company has used the
following practical expedients permitted by the standard:
-- applying a single discount rate to a portfolio of leases with
reasonably similar characteristics,
-- relying on previous assessments on whether leases are onerous
as an alternative to performing an impairment review - there were
no onerous contracts as at 1 January 2019,
-- accounting for operating leases with a remaining lease term
of less than twelve months as at 1 January 2019 as short-term
leases,
-- excluding initial direct costs for the measurement of the
right-of-use asset at the date of initial application, and
-- using hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The Company has also elected not to reassess whether a contract
is, or contains a lease at the date of initial application.
Instead, for contracts entered into before the transition date the
Company relied on its assessment made applying IAS 17 and
Interpretation 4 Determining Whether an Arrangement contains a
Lease.
Measurement of lease liability
GBP'000
------------------------------------------------------------------- --------
Operating lease commitments disclosed as at 31 December 2018 1,314
Discount based on incremental borrowing rate at 1 January
2019 (234)
(Less): short term/low value leases recognised on a straight-line
basis as expense (42)
-------------------------------------------------------------------- --------
Lease liability recognised as at 1 January 2019 1,038
-------------------------------------------------------------------- --------
Of which are:
Current liabilities 409
Non-current liabilities 629
-------------------------------------------------------------------- --------
1,038
------------------------------------------------------------------- --------
Measurement of right-of-use assets
The associated right-of-use assets for property leases were
measured on a retrospective basis as if the new rules had always
been applied. Other right-of use assets were measured at the amount
equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in the
balance sheet as at 31 December 2018. There were no onerous lease
contracts that would have required an adjustment to the
right-of-use assets at the date of initial application.
Adjustments recognised in the balance sheet on 1 January
2019
The change in accounting policy affected the following items in
the balance sheet on 1 January 2019:
-- Right-of-use asset - increase by GBP1,038,000
-- Lease liabilities - increase by GBP1,038,000
-- Accrued Rent - decrease by GBP88,000
The net impact on retained earnings on 1 January 2019 was an
increase of GBP88,000.
Significant accounting policies
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
sterling (GBP). It should be noted that the functional currency for
Velocys plc is GBP 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 GBP.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing 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 recognised 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:
1. assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet;
2. income and expenses for each income statement are translated
at average exchange rates; and
3. 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 are incorporated in the
note to which they apply.
2. Exceptional items
Items that are significant by virtue of their size or nature,
which are considered non-recurring and which are excluded from the
underlying profit measures used by the Board to monitor and measure
the underlying performance of the Company are classified as
exceptional operating items. Exceptional operating items are
included within the appropriate Consolidated income statement
category but are highlighted separately in the notes to the
financial statements.
The following exceptional items have been included in the
Consolidated income statement.
2019 2018
GBP'000 GBP'000
-------------------------------------------------- --------------- --------------
Administrative expenses:
Property, plant and equipment impairment (439) -
Recovery/(impairment) of loan to associate
ENVIA 533 (10,067)
94 (10,067)
Impairment in carrying value of equity accounted
associate - (848)
- (848)
-------------------------------------------------- --------------- --------------
Total 94 (10,915)
--------------------------------------------------- --------------- --------------
Administrative expenses
Property, plant and equipment impairment - in 2019, the Company
made an impairment of GBP439,000 (2018: GBPnil) for the land
associated with a subsidiary based on a current valuation appraisal
by a third party expert. The value of the land either for
development or for a sale of the land determined a lesser value
than was held as an asset. As a result of the third party's
appraisal, the Company determine that the land required an
impairment.
Recovery/(impairment) of loan to associate ENVIA - In 2019 the
Company released deferred revenue in the amount of GBP533,000 in
final settlement of the ENVIA loan receivable balance representing
a recovery on the impairment recorded in 2018.
Impairment in carrying value of equity accounted associate - the
Company is required to assess, at the end of each reporting period,
whether there is any indication that an asset may be impaired.
Given the investment was fully impaired in the prior year there
were no further impairment considerations. Management also assessed
and confirmed that a write back of the prior year impairment is not
appropriate, given operations at ENVIA ceased in 2018. In 2018 the
Company recorded an impairment of its investment in associate in
the amount of GBP848,000.
3. Revenue
The Company adopted IFRS 15 on 1 January 2018, using the full
retrospective transition method. The Company generates revenue
through contracts in which it (i) sells Fischer-Tropsch reactors,
(ii) sells Fischer-Tropsch catalyst, (iii) provides license
agreements and (iv) performs engineering services. In general,
contracts with the Company provide a license 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 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 but delivery was started in
2019 and will be completed in 2020 has been assessed as a combined
performance obligation and it was determined that none of these
criteria have been met as at the year end. As such, all
consideration received has been deferred and revenue will be
recognised when the project performance obligations have been
met.
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 standalone 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.
2019 2018
GBP'000 GBP'000
---------------------------------- -------- --------
FT reactor, catalyst and licence 273 508
Engineering services 59 156
----------------------------------- -------- --------
Total 332 664
----------------------------------- -------- --------
FT reactor, catalyst and license revenue in the amount of
GBP273,000 for the year ended December 31, 2019 consisted
principally the sale of substacks to a customer in Japan in the
Asia Pacific region (2018: GBP508,000).
4. Finance income
2019 2018
GBP'000 GBP'000
---------------------------------- -------- --------
Interest income on bank deposits 48 76
Interest on loan to associate - 732
Foreign exchange gains - 185
----------------------------------- -------- --------
Total 48 993
----------------------------------- -------- --------
In 2018, the Company stopped recognising interest on loan to
associate as a result of the impairment of the investment in ENVIA
(see Notes 10 and 11 for further information).
5. Other income
Other income consists of items such as sales of fixed assets and
any other operating income recognised outside of commercial
activities.
2019 2018
GBP'000 GBP'000
---------------------- -------- --------
Return on deposits - 22
Sale of fixed assets 79 14
----------------------- -------- --------
Total 79 36
----------------------- -------- --------
6. 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.
2019 2018
-------------------------------------------- ------------ ------------
Loss attributable to owners of Velocys plc
(GBP'000s) (9,615) (30,583)
Weighted average number of ordinary shares
in issue 507,218,656 341,867,109
--------------------------------------------- ------------ ------------
Basic and diluted loss per share (pence) (1.90) (8.95)
--------------------------------------------- ------------ ------------
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 2019 and 2018 there were no other
potentially dilutive instruments.
7. Intangible assets
Significant accounting policies
Cost or valuation and amortisation
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 2019 and 2018. This
resulted in a loss on disposal of patents of GBP187,000 (2018: loss
of GBP627,000).
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.
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. For the purpose of impairment testing, assets are
generally tested individually or at a Cash Generating Unit ("CGU")
level which represents the lowest level for which there are
separately identifiable cash inflows that are largely independent
of cash inflows from other assets or groups of assets. The Company
has one CGU on the basis that the key end use market is that of
synthetic fuels production. At this stage, the synthetic 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 intangible assets (excluding
Goodwill) 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.
Were the fair value of the business to change in the coming
twelve months, due to an increase or further decrease in the market
capitalisation of Velocys plc, the impairment disclosed in this
note would be reversed or the Company's assets would be further
impaired accordingly. Upon analysis performed at 31 December 2019,
the Company determined that no reversal of prior year impairments
was required or additional impairment required. This assessment
also considered the operating performance of the Company during
2019 which included progress being made on our reference projects,
new funding obtained and customer agreements signed. This 2019
performance, including both negative and positive factors, was also
not considered indicative of incremental impairment or reversal of
previous impairment.
Critical estimates and judgements
In assessing whether there is any indication that an asset may
be impaired, an entity shall consider, as a minimum, a number of
indicators of potential impairment. In 2019, the Company
considered:
-- At 31 December 2019, if the carrying amount of the Company's
net assets exceeded Velocys plc's market capitalisation;
-- Significant decreases in the market price of the asset; and
-- Significant adverse changes in the extent or manner in which an asset is being used.
Based on the 2019 analysis, the Company concluded that no
impairment or reversal of previous impairment was required with
reference to the 31 December 2019 parent company equity based
valuation.
To assess the recoverability of the intangible assets, the
recoverable amount is calculated at a CGU level, which represents
the lowest level for which there are separately identifiable cash
inflows that are largely independent of cash inflows from other
assets or groups of assets. As detailed in the accounting policy
set out above, the Company is considered to operate as a single
CGU. Due to the stage of the Company's strategy, its biorefinery
development plans are still too early to provide reliable 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 the prior year.
Patents,
licence
In-process and
Goodwill technology trademarks Software Total
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- ----------- ----------- --------- --------
Cost
At 1 January 2019 7,398 23,681 1,580 96 32,755
Additions - - 394 - 394
Disposals - - (291) - (291)
Foreign exchange movement - - (85) - (85)
--------------------------- --------- ----------- ----------- --------- --------
At 31 December 2019 7,398 23,681 1,598 96 32,773
--------------------------- --------- ----------- ----------- --------- --------
Accumulated amortisation
and impairment
At 1 January 2019 7,398 23,681 1,223 96 32,398
Charge for the year - - 112 - 112
Disposals - - (104) - (104)
Foreign exchange movement - - (77) - (77)
--------------------------- --------- ----------- ----------- --------- --------
At 31 December 2019 7,398 23,681 1,154 96 32,329
--------------------------- --------- ----------- ----------- --------- --------
Net book amount
At 31 December 2019 - - 444 - 444
--------------------------- --------- ----------- ----------- --------- --------
Patents,
licence
In-process and
Goodwill technology trademarks Software Total
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- ----------- ----------- --------- --------
Cost
At 1 January 2018 7,398 23,681 2,159 96 33,334
Additions - - 349 - 349
Disposals - - (956) - (956)
Foreign exchange movement - - 28 - 28
--------------------------- --------- ----------- ----------- --------- --------
At 31 December 2018 7,398 23,681 1,580 96 32,755
--------------------------- --------- ----------- ----------- --------- --------
Accumulated amortisation
and impairment
At 1 January 2018 7,398 23,681 1,404 96 32,579
Charge for the year - - 96 - 96
Disposals - - (329) - (329)
Foreign exchange movement - - 52 - 52
--------------------------- --------- ----------- ----------- --------- --------
At 31 December 2018 7,398 23,681 1,223 96 32,398
--------------------------- --------- ----------- ----------- --------- --------
Net book amount
At 31 December 2018 - - 357 - 357
--------------------------- --------- ----------- ----------- --------- --------
8. 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 (see note
7).
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 Plant
under and
construction Land machinery Total
2019 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------------- -------- ---------- --------
Cost
At 1 January 2019 532 1,285 7,841 9,658
Additions 621 - 158 779
Disposals - - - -
Transfers to plant and
machinery (171) - 171 -
Foreign exchange - 14 111 125
--------------------------- ------------- -------- ---------- --------
At 31 December 2019 982 1,299 8,281 10,562
--------------------------- ------------- -------- ---------- --------
Accumulated depreciation
and impairment
At 1 January 2019 33 706 7,100 7,839
Charge for the year -- - 568 568
Impairment - 439 - 439
Transfers to plant and
machinery (33) - 33 -
Foreign exchange - (3) (15) (18)
--------------------------- ------------- -------- ---------- --------
At 31 December 2019 - 1,142 7,686 8,828
--------------------------- ------------- -------- ---------- --------
Net book amount
At 31 December 2019 982 157 595 1,734
--------------------------- ------------- -------- ---------- --------
Assets Lease Plant
under and
construction Assets Land machinery Total
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------- -------- -------- ---------- --------
Cost
At 1 January 2018 51 - 1,212 8,731 9,994
Additions 476 - - 33 509
Disposals (4) - - (1,492) (1,496)
Transfers to plant and machinery (16) - - 16 -
Foreign exchange 25 - 73 553 651
----------------------------------- ------------- -------- -------- ---------- --------
At 31 December 2018 532 - 1,285 7,841 9,658
----------------------------------- ------------- -------- -------- ---------- --------
Accumulated depreciation
and impairment
At 1 January 2018 31 - 666 7,496 8,193
Charge for the year - - - 563 563
Disposals - - - (1,466) (1,466)
Foreign exchange 2 - 40 507 549
----------------------------------- ------------- -------- -------- ---------- --------
At 31 December 2018 33 - 706 7,100 7,839
----------------------------------- ------------- -------- -------- ---------- --------
Net book amount
At 31 December 2018 499 - 579 741 1,819
----------------------------------- ------------- -------- -------- ---------- --------
As at 31 December 2019, the Company had not entered into any
contractual commitments for the material acquisition of property,
plant and equipment.
9. Leases
The Company leases certain building and equipment under
non-cancellable leases with varying lease terms. Until the 2 018
financial year, leases of property, plant and equipment were
classified as either finance leases or operating leases under the
principles of IAS 17 Leases. As a result of the adoption of IFRS 16
on 1 January 2019, the company recognised a right-of-use asset and
a lease liability on the Balance Sheet. These liabilities were
measured at the present value of the remaining lease payments,
discounted using the lessee's incremental borrowing rate as of 1
January 2019. The weighted average lessee's incremental borrowing
rate applied to the lease liabilities on 1 January 2019 was
approximately 21%.
The Company is exposed to potential future increases in variable
lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to
lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the right-of-use
asset.
Lease terms are negotiated on an individual basis and contain a
wide range of different terms and conditions. The lease agreements
do not impose any covenants other than the security interests in
the leased assets that are held by the lessor. Leased assets may
not be used as security for borrowing purposes. Building leases are
typically for a fixed period of time but may have extension
options. Lease payments to be made under reasonably certain
extension options are also included in the measurement of the
liability.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
The associated right-of-use assets for property leases were
measured on a retrospective basis as if the new rules had always
been applied. Other right-of-use assets were measured at the amount
equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in the
balance sheet as at 31 December 2018. There were no onerous lease
contracts that would have required an adjustment to the
right-of-use assets at the date of initial application.
To determine the incremental borrowing rate, the Company uses a
build-up approach that starts with a risk-free interest rate
adjusted for credit risk for leases, which does not have recent
third party financing, and makes adjustments specific to the lease,
e.g. term, country, currency and security. The Company is exposed
to potential future increases in variable lease payments based on
an index or rate, which are not included in the lease liability
until they take effect. When adjustments to lease payments based on
an index or rate take effect, the lease liability is reassessed and
adjusted against the right-of-use asset. Interest expense (included
in finance costs) was GBP196,000 (2018: GBPnil).
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis. Impairment of right-of-use assets is accounted for under IAS
36.
Payments associated with short-term leases and all leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Expense related to short term
leases and lease of low-value was GBP2,000 (2018: GBPnil) and were
included in administrative expenses.
Critical estimates and judgements
Leases - Estimating the incremental borrowing rate
The Company cannot readily determine the interest rate implicit
in the lease, therefore, it uses its incremental borrowing rate
("IBR") to measure lease liabilities. The IBR is the rate of
interest that the Company would have to pay to borrow over a
similar term, and with a similar security, the funds necessary to
obtain an asset of a similar value to the right-of-use asset in a
similar economic environment. The IBR therefore reflects what the
Company 'would have to pay', which requires estimation when no
observable rates are available (such as for subsidiaries that do
not enter into financing transactions) or when they need to be
adjusted to reflect the terms and conditions of the lease (for
example, when leases are not in the subsidiary's functional
currency). The Company estimates the IBR using a build-up approach
as stated above. The incremental borrowing rate is not sensitive to
changes as a 10% movement in the IBR does not have a material
impact on the lease liability.
Leases - Determining the lease term of contracts with renewal
and termination options
The Company determines the lease term as the non-cancellable
term of the lease, together with any periods covered by an option
to extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group has several lease contracts that include extension and
termination options. The Group applies judgement in evaluating
whether it is reasonably certain whether or not to exercise the
option to renew or terminate the lease. That is, it considers all
relevant factors that create an economic incentive for it to
exercise either the renewal or termination. After the commencement
date, the Company reassesses the lease term if there is a
significant event or change in circumstances that is within its
control and affects its ability to exercise or not to exercise the
option to renew or to terminate.
The balance sheet presents the following amounts relating to its
right-to-use assets:
Equipment Buildings Total
Cost GBP'000 GBP'000 GBP'000
-------------------------- ------------ ------------ --------
At 1 January 2019 168 870 1,038
Additions - 208 208
Foreign exchange - 18 18
--------------------------- ------------ ------------ --------
At 31 December 2019 168 1,096 1,264
--------------------------- ------------ ------------ --------
Accumulated depreciation
-------------------------- ------------ ------------ --------
At 1 January 2019 - - -
Charge for the year 63 351 414
Foreign exchange - 14 14
--------------------------- ------------ ------------ --------
At 31 December 2019 63 365 428
--------------------------- ------------ ------------ --------
Net Book value
At 31 December 2019 105 731 836
--------------------------- ------------ ------------ --------
Additions to right-to-use assets during 2019 were GBP208,000
relating to the Company's relocation to the Oxford Science
Park.
31 December 1 January 2019
2019
Lease liability GBP'000 GBP'000
----------------- ------------ ---------------
Current 581 409
Non-Current 343 629
------------------ ------------ ---------------
924 1,038
----------------- ------------ ---------------
10. Investment in associate
The Company carries nil value for an Investment in associate.
Previously the Company recorded an investment related to Velocys'
holding in ENVIA Energy, LLC ("ENVIA"), a US company and the
holding company for the project located in Oklahoma (the "ENVIA
project"). The Company first invested in ENVIA in 2014 as entry
into a joint venture to develop GTL plants in the US using a
combination of renewable biogas (including landfill gas) and
natural gas. In 2018 the Company impaired the investment in ENVIA
to nil value due to the decision by the Board of Directors of ENVIA
to shut down the operations in Oklahoma.
2019 2018
GBP'000 GBP'000
------------------------- --------- --------
Investment in associate
At 1 January - 2,580
Share of loss - (1,717)
Impairment - (848)
Foreign exchange - (15)
-------------------------- -------- --------
At 31 December - -
-------------------------- -------- --------
11. Trade and other receivables
Trade receivables represent assets that are held for collection
of contractual cash flows and those cash flows represent solely
payments of principal and interest. Other receivables consist of
vendor deposits and deferred costs associated with an ongoing
project. At 31 December 2019, deferred costs represented
GBP1,054,000 (2018: GBP281,000) and are principally related to the
Red Rock project. Also included in the Trade and other receivables
are prepaid costs of GBP447,000 (2018: GBP925,000) and VAT
receivables in the amount of GBP99,000 (2018: GBP91,000). Trade
receivables of GBP37,000 (2018: GBP6,000) are considered not
material and, in general, are collected within 45 days of invoice
date.
Loan receivable represents the outstanding loan and related
interest associated with the loan to ENVIA at the end of 2018. The
interest receivable associated with the ENVIA loan is calculated
using the effective interest rate method. The Company's trade
receivables and loan receivable are classified and measured at
amortised cost.
The Company completed negotiations in April 2019 with one of the
remaining partners of ENVIA and landfill gas supplier to sell some
of the assets and terminate the loan, which has removed the
Company's liens associated with ENVIA from the Company and release
the site to the landlord so that they can pursue their own business
from the site for a total of GBP3.4m. This settlement is considered
a best outcome for the total loans made of GBP15.8m and a positive
result from the activity with ENVIA, including all the operating
and management data secured from the operation of this full-scale
operational FT plant.
2019 2018
GBP'000 GBP'000
------------------------------------------- -------- --------
Trade and other receivables - non-current - 281
Trade and other receivables - current 1,637 930
Loan receivable - 3,474
-------------------------------------------- -------- --------
Total 1,637 4,685
-------------------------------------------- -------- --------
Critical estimates and judgements
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.
At 31 December 2019, the Company performed an ECL analysis with
respect to trade receivables and no additional impairment was
recorded. As at the end of 31 December 2018, performed an updated
ECL analysis, where the company recorded an additional impairment
on a lifetime ECL basis of GBP10.1m taking the total provision to
GBP12.3m. The outstanding balance on the loan at 31 December 2018
was therefore GBP3.4m. As detailed above, negotiations were
concluded in respect of ENVIA with relevant parties in May 2019,
where the remaining balance settled.
Impairment losses are presented in administrative expense in the
Consolidated income statement.
12. 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.
2019 2018
GBP'000 GBP'000
------------------------------- -------- --------
Raw materials and consumables 1,782 1,043
Work in progress 1,550 -
Finished goods - 395
-------------------------------- -------- --------
Total 3,332 1,438
-------------------------------- -------- --------
Raw material and consumables consist primarily of material that
will be consumed in the manufacturing of reactors and catalyst.
Work in progress consist of labour associated with the
manufacturing of reactors. In 2019, the Company recognised
GBP73,000 (2018: GBP194,000) of inventory in Cost of sales in the
consolidated income statement.
In 2019, the Company recognised a provision of GBP408,000 (2018:
GBPnil) related to slow moving inventory in the Administrative
expenses line of the consolidated income statement.
In 2019, the Company recognised a provision of GBP38,000 related
to the manufacturing of two cores which didn't meet the Company
specifications. In 2019, the Company reversed a 2017 impairment of
a reactor in inventory for the amount of GBP352,000. This reactor
was delivered to a customer in 2019 and is currently presented as
inventory on the 2019 Consolidated balance sheet until the
performance obligations, defined under IFRS 15, is met. This
reactor has been reclassed to deferred costs as it relates to the
Red Rock project. The reversal of the impairment in inventories was
partially offset by the impairment of test reactors in the amount
of GBP123,000. There were no impairments recorded with respect to
inventory in 2018.
13. 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.
2019 2018
GBP'000 GBP'000
--------------------------- -------- --------
Cash and cash equivalents 4,797 6,964
Total 4,797 6,964
---------------------------- -------- --------
Cash and cash equivalents are denominated in UK sterling, Euros
and US dollars as follows.
2019 2018
GBP'000 GBP'000
---------------------------- -------- --------
Cash and cash equivalents
UK sterling denominated 3,783 5,130
US dollar denominated 927 1,733
Euro denominated 87 101
Total 4,797 6,964
----------------------------- -------- --------
14. Trade and other payables: current
2019 2018
GBP'000 GBP'000
------------------------------------ -------- --------
Trade payables 333 853
Other taxation and social security 45 395
Accruals 953 1,770
Total 1,331 3,018
------------------------------------- -------- --------
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 (2018: 60 days or
less).
15. Deferred revenue
Deferred revenue consists of contract liabilities as a result of
instances in which the Company's 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 contracts can
require significant judgment.
The Company recognised the following liabilities associated with
contracts with customers:
GBP'000 Catalyst Reactor License Total
------------------------------------ --------- -------- -------- ------
At 1 January 2018 1,238 - - 1,238
Contract liabilities incurred 1,334 1,949 1,199 4,482
Revenue recognised in the period (507) - - (507)
At 31 December 2018 2,065 1,949 1,199 5,213
------------------------------------- --------- -------- -------- ------
Contract liabilities incurred 499 853 - 1,352
Released deferred revenue (533) - - (533)
At 31 December 2019 2,031 2,802 1,199 6,032
------------------------------------- --------- -------- -------- ------
In 2019 the Company released deferred revenue in the amount of
GBP533,000 in final settlement of the ENVIA loan receivable balance
representing a recovery on the impairment recorded in 2018, see
note 2.
Management expects that 95% of the deferred revenue as of 31
December 2019 could be recognised as revenue in 2021 if the related
performance obligations are met.
16. Post financial position events
The following events took place after 31 December 2019
Fundraise of GBP21 million completed in July 2020
On 14th July 2020, the Company announced that it had completed
the fund raising of GBP21 million (before expenses) through a
Placing, Retail Offer and Open Offer. This was confirmed through a
General Meeting held on 14th July 2020 and has been announced to
the market. Net of expenses the Company has received GBP19.65m,
which will ensure that it has sufficient funding to continue as a
going concern for at least 12 months. The Company expects that it
will receive income from other sources including customers through
licensing and sales of engineering services which will extend this
timeline.
Covid-19 coronavirus pandemic
During March 2020 both the UK and the US Governments implemented
a social distancing policy, which meant that we had to close
operations at our offices and sites in Oxford, Houston and Plain
City and put in place a work from home policy. This has meant that
it is difficult to have as many productive face to face meetings as
we might have had otherwise but nonetheless progress has been made
on all aspects of the business. Our manufacturing of the reactors
for Red Rock Biofuels (as at 30 March) is still being undertaken
and we anticipate being able to complete the delivery of all four
reactors and catalysts in the first half of 2020. The ongoing
engineering work on the Altalto Immingham, UK biorefinery plant is
continuing and to that end in February 2020 we announced the
appointment of Worley as engineering partner for the development of
all projects in the Velocys portfolio, including the Immingham, UK
biorefinery plant.
The Company's judgement that the extent of Government
interventions in response to the Covid-19 pandemic only became
apparent after the balance sheet date and represent a non-adjusting
post balance sheet event. Given these events are of such
significance, further explanation of the impact of Covid-19 is
presented in the Strategic report section of the financial
statement.
US SBA loan received
In April 2020, the Company announced the approval of a $709,000
(GBP567,200) loan from the Pay-check Protection Program awarded by
the Small Business Administration ("SBA"), a US Federal Agency. The
SBA program is part of the Federal stimulus package known as the
CARES (Coronavirus Aid, Relief and Economic Security) Act to offer
help to small businesses in the USA during the Covid-19 crisis.
This unsecured loan has been awarded to support Velocys' US payroll
costs in the short-term. It is an unsecured loan with a 2-year
maturity and 0.98% interest. No interest or principal payments are
due in the first six months. The loan is however eligible for
"forgiveness", becoming non-repayable upon application by Velocys
after 60 days from receipt if used for retaining US employees and
maintaining US payroll costs of at least this amount in the period
until the end of June 2020. Velocys is confident that it will meet
the criteria for this "forgiveness".
Altalto Immingham Joint Development Agreement extension
In May 2020, the Company has secured a further GBP1m funding for
the Altalto waste-to-fuels project from British Airways PLC and
Shell International Petroleum Company Limited ("Shell"), payable
before the end of June 2020. The proposed Altalto Immingham plant
is being executed under a Joint Development Agreement ("JDA")
between British Airways, Shell, and Velocys. This JDA has now been
extended as planned in order to support the continued technical and
commercial development of the project. British Airways and Shell
have each now been granted an option to take a one-third share in
the equity capital of Altalto Limited (a subsidiary of the Company)
at a strike price of GBP1, as a pre-cursor to a full Shareholders'
Agreement for Altalto Limited in due course.
Altalto Immingham plant granted planning permission from North
East Lincolnshire Council
In May 2020, North East Lincolnshire Council granted planning
permission for the UK's first commercial waste-to-jet fuel plant.
This means that the project can proceed through the next stages of
development with the certainty of this completed. Subject to
additional funding and financial close, construction is targeted to
begin in 2022 and the facility could be producing fuel from
2025.
Further F4C grant from the Department of Transport
In June 2020, the Company announced that it has secured a
further GBP0.5 million of grant funding for the Altalto
waste-to-fuels project from the Department for Transport (DfT),
under the Future Fuels for Flight and Freight Competition (F4C).
Velocys was awarded a grant of GBP0.4m in Stage One of the F4C in
2018, and was shortlisted to receive an award in Stage Two. The DfT
has now made GBP0.5m of the Stage Two grant available to Velocys.
Velocys is one of the two remaining companies expected to receive
the balance of funding in Stage Two, subject to completion of
future project milestones.
Delivery of Reactors and Catalyst to Red Rock Biofuels
In July 2020 the Company announced that it has completed the
manufacturing and supply of the four reactors and associated
catalyst for its customer Red Rock Biofuels. The Company invoiced
GBP0.9 million during 2019 which is all treated as deferred revenue
in accordance with IFRS 15 until the performance test is completed
during commissioning of the plant in 2021.
Legal disputes
The Company may from time to time be involved in disputes which
may give rise to claims. The Directors have considered any current
matters pending against the Company, including a claim made by the
bankruptcy trustee of Ventech Engineers International LLC (a former
commercial partner of the Company). Based on the information
available and the facts and circumstances of any claims, the Board
considers that the outcome of these will be resolved with no
material impact on the Company's financial position or results.
17. Statutory information
Copies of the 2019 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 Roboert Robinson Avenues, The Oxford
Science Park Oxford OX4 4GA, UK, as well as from the Company's
website www.velocys.com .
18. Annual General Meeting
The Annual General Meeting (AGM) is to be held on 2 September
2020. Notice of the AGM will be dispatched to shareholders with the
Company's Annual report and accounts.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FFFEVTLIEIII
(END) Dow Jones Newswires
August 06, 2020 02:00 ET (06:00 GMT)
Velocys (LSE:VLS)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Velocys (LSE:VLS)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024