("Velocys" or "the Company")
19 June 2020
2019 Year End Trading Update
As announced on 24 March 2020, Velocys has responded well to the Covid-19 related lockdowns in the UK and the US, implementing procedures which have allowed the Company to operate close to "Business as usual" during this period. Progress has been made on all aspects of the business and all critical milestones have been met. Manufacturing of reactors for Red Rock Biofuels has progressed as per the agreed schedule and we anticipate being able to complete the delivery of all four reactors by the end of June 2020. The ongoing work on our reference projects and our customers' projects is also on schedule. We have announced an extension of our JDA with British Airways and Shell as well as Planning Permission for the Altalto project in the UK during this period. We have received grants and subsidised Payroll Protection loans from the UK and US governments respectively in recognition of our continued commercial progress and absence of redundancies or furlough of any employees.
Due to the logistical difficulties involved in completing the audit while operating under lockdown restrictions, the Company believes that it will not be possible to complete the annual audit in time for an Annual General Meeting and presentation of the Annual Report and Accounts prior to 30 June 2020. The London Stock Exchange and the Registrar of Companies have approved a delay to the filing and publication of the Company's audited annual accounts for the financial year ended 31 December 2019 and the holding of its 2020 AGM by three months in line with current broad industry practice due to the restrictions imposed by the Covid-19 pandemic. The Company confirms that it now expects to release the Annual Report and audited accounts during early August 2020.
Given this delay, the Company is today providing shareholders with an unaudited update on trading for the year ended 31 December 2019, details of which are set out below.
Headline Financial Results for year ended 31 December 2019 (Unaudited)
· Revenue of £0.3m (2018: £0.7m).
· Operating loss of £9.8m, before exceptional items including a credit of £0.1m related to impairments (2018: loss of £18.6m before exceptional items of £10.1m).
· Administrative expenses before exceptional items reduced significantly to £10.0m (£10.0m after exceptional items) compared to 2018 £19.1m (£29.1m after exceptional items). This reduction of 47% is principally due to aggressive cost cutting and efficient operations in corporate overhead, net headcount reductions, third party consulting costs eliminations and project development costs transferred to third parties.
· Cash at period end £4.8m (31 December 2018: £7.0m).
· Fund raise of £7m (before expenses) in July 2019.
· Complementing commitments received by the Company from the Altalto Immingham Project strategic partners, British Airways and Shell, of £2.8 million in total in July 2019 with and an additional commitment of £1m in May 2020.
· In early 2019 the commercial scale Fischer-Tropsch (FT) reactor demonstration in Oklahoma was safely and comprehensively concluded with complete decommissioning of the site, return of the two FT reactors to Velocys and return of the site to one of our JV partners for a total of £3.3m as final settlement of the Velocys ENVIA loan.
Today, Velocys is delivering the technology to provide the next generation of sustainable fuels for difficult to decarbonise sectors, particularly for aviation and heavy goods transport. Our technology converts biogenic sustainable waste materials, to cut net greenhouse gas emissions and improve air quality.
Combining transformative technology, operational expertise and a partnership approach, we are enabling commercial biorefinery projects, today, that will deliver the sustainable fuels required that will allow our clients to advance towards their net zero objectives.
Our technology can reduce the impact aviation has on the climate - the toughest area of transport to decarbonise - by delivering aviation fuel with a low or even carbon-negative footprint.
Velocys' commercial strategy and future revenue generation is derived in three ways:
1) The sale of engineering services, FT reactors, catalysts and FT technology licences to commercial customers;
2) The limited initiation, design and development of joint venture biorefineries and sale of related engineering and technology services to the two Reference Projects.
3) The sale of integrated technology packages for end to end solid waste biomass to liquid synthetic fuels earning revenues from engineering, technology hardware including the FT reactors and catalysts and from technology licenses and decarbonisation royalties.
Red Rock Biofuels, Oregon biorefinery ("RRB")
This wood chips to sustainable fuel biorefinery commenced construction during 2018. During 2019 we reached agreement on a series of amendments in our licensing contracts with RRB, seeing the delivery of the first of four reactors and the first four charges of catalyst, reducing the commitment for reactors from six to four. Manufacturing the reactors and catalyst for this £9.2m order was commenced in 2019. During the year we invoiced £1.2m for the delivery of one reactor and four loads of catalyst and have £5.6m deferred revenue awaiting the completion of the delivery of the three remaining reactors, which will be completed in June 2020 and the commissioning of the FT process once the customer's plant is fully constructed later this year.
Toyo Engineering Corporation
During 2019 we secured a purchase order and technical service agreement with Toyo Engineering Corporation (Toyo) for the use of Velocys technology in a publicly funded demonstration facility in Nagoya, Japan, as well as an advance deposit for the use of the Velocys technology by Toyo in a subsequent commercial plant.
The Toyo order with Velocys, worth approximately £0.4 million is for the supply of Velocys' FT technology, equipment and catalyst for a biomass-to-jet fuel demonstration facility currently under construction by a consortium of Japanese companies.
In addition, Velocys has agreed that it will grant an exclusive right for Toyo to secure and use the license and technical services of the Velocys FT technology for a future potential commercial plant in Japan with an advance deposit of £3.2 million. The deposit was paid in a non-refundable tranche of $0.5 million (£0.4 million) and a further tranche which is potentially refundable and subject to milestones.
Our Reference Projects
· Altalto Immingham Biorefinery Project:
o Partner funding of £2.8m secured during 2019 with an additional commitment of £1m in May 2020 as the project successfully moved into the first phase of the front-end engineering design ("FEED") stage, which we are developing in collaboration with British Airways and Shell.
o Plans were submitted to North East Lincolnshire Council planning authority for what will be the first waste to jet fuel plant in the UK producing commercial scale volumes of clean drop-in fuels from hundreds of thousands of tonnes of residual waste. Planning permission was granted in May 2020.
o A global competitive process was completed to appoint Worley as engineering contractor to manage the delivery of the Velocys fully integrated technology package.
o The fully integrated technology package converts waste feedstocks into sustainable aviation and road transport fuels. Velocys has selected all the same technology suppliers as for its Mississippi Biorefinery Project, creating commercial and developmental synergies.
o Engagement continued with the UK Government to secure sufficient and stable policy support for the project to reach financial close. This has resulted in the recent announcement of an additional F4C grant of £0.5m, available immediately for the final stages of the project development.
· Natchez, Mississippi Biorefinery Project:
o An agreement was signed with Oxy Low Carbon Ventures, LLC ("OLCV"), a subsidiary of Occidental Petroleum Inc., to sequester carbon dioxide (CO2) from the plant in Mississippi underground in a geologic formation, enhancing the project's optimisation of negative lifecycle carbon emissions. The biogenic CO2 is a by-product of the bioenergy conversion of biomass to liquid fuels. This will allow the production of sustainable fuels to reach a negative Carbon Intensity enhancing their competitiveness sharply in the critical measure of amount of CO2 saved per gallon on fuel consumed.
o A solar solution was developed to meet the power requirements of the plant, saving capex and decreasing the carbon intensity of the fuels produced, which brings in additional revenues from carbon credits due to greater amounts of avoided carbon emissions.
o Hamilton Clark Sustainable Capital was appointed to act as corporate finance advisors to raise capital for FEED engineering and construction capital for the project.
o Detailed due diligence and value-added engagement continues with potential strategic partners.
o The project has been further optimised to achieve negative lifecycle carbon emissions and reduce overall environmental impact whilst maintaining 20-25 million gallons of sustainable aviation fuel or renewable diesel and gasoline blendstock production per year from 2025.
Henrik Wareborn, CEO of Velocys, observed:
"Velocys is now within reach of being able to offer a tangible solution to support decarbonisation of air travel; a critical sector supporting the global economy with very stringent fuel criteria and few alternatives to hydrocarbon fuels. The aviation sector needs renewable fuels which meet the complex standards of fossil fuels for engine safety and performance reasons. I believe Velocys is well positioned to create significant shareholder value from our unique position at the cutting edge of sustainable aviation.
"Velocys has entered into an exciting period of its commercial development as we are progressing with the Altalto Immingham Project with our partners British Airways and Shell, having appointed Worley as our engineering contractor for the FEED stage. We announced a groundbreaking development in our Mississippi Biorefinery Project with its Carbon Capture and Storage contract with Oxy Low Carbon Ventures, which means that the fuel produced from this plant will have a negative carbon intensity. We expect negative carbon intensity to be required for competitive sustainable fuels in the future to assist our clients to progress towards their "net zero" objectives.
"Whilst developing these two reference projects for our technology we have reached agreement with our technology partners to work with us to bring their technologies into our integrated package solution providing a standardised conversion process from solid waste feedstocks to liquid synthetic fuels, which burn cleaner than conventional fuels and have low or negative Carbon Intensity."
For further information, please contact:
Henrik Wareborn, CEO
Andrew Morris, CFO
Lak Siriwardene, Head of Communications & Sustainability
+44 1865 800821
Numis Securities (Nomad and joint broker)
+44 20 7260 1000
Canaccord Genuity (Joint broker)
+44 20 7523 8000
Radnor Capital (Investor relations)
+44 20 3897 1830
Field Consulting (PR)
+44 20 7096 7730
Notes to Editors
Velocys is an international UK-based sustainable fuels technology company. Velocys designed, developed and now licences proprietary Fischer-Tropsch technology for the generation of clean, low carbon, synthetic drop-in aviation and transport fuel from municipal solid waste and waste woody biomass.
Velocys is currently developing projects in Natchez, Mississippi, USA (incorporating Carbon Capture Use and Storage) and Immingham, UK to produce fuels that significantly reduce both greenhouse gas emissions and key exhaust pollutants for aviation and road transport. Originally a spin-out from Oxford University, in 2008 the company acquired a US company based on complementary technology developed at the Pacific Northwest National Laboratory. Velocys is headquartered in Oxford in the United Kingdom.