Velocys : 2022 Interim results for the six months ended 30 June 2022 (21 Sep 2022)
(“Velocys” or the “Company”)
21 September 2022
Interim results for the six months ended 30 June 2022
Velocys plc (VLS. L), the sustainable fuels technology company, announces its interim results for the six months ended 30 June 2022, during which period the Company has continued to successfully pursue its commercialisation strategy against an increasingly favourable legislative backdrop.
HIGHLIGHTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
- The Company recorded revenue of £48k (HY2021: £8.2m) from engineering consulting services in respect of feasibility studies. Prior period revenues were mainly in respect of recognising the revenue from supplying reactors and catalyst to our first major commercial client contract in the US which commenced in 2017. Revenues are expected to be uneven in the short-term due to the concentrated number of projects.
- The Company recorded a loss before income tax of £5.7m (HY2021: £2.2m loss). The prior year loss was lower as it included gross profit of £3.3m.
- As at 30 June 2022, the net assets of the Company were £24.4m.
- Cash balances of the Company as at 30 June 2022 were £18.8m (31 December 2021: £25.5m) which included £1.4m of restricted cash.
- Net cash outflow recorded for the six months to 30 June 2022 was £6.8m (HY2021: cash outflow £4.8m) which included investment in the new technical facility in Ohio and deposits for manufacturing equipment totalling £1.1m.
OPERATIONAL AND COMMERCIAL HIGHLIGHTS (INCLUDING POST PERIOD UPDATES)
Legislative and Policy Frameworks
- The US Inflation Reduction Act of 2022, signed into law on 16 August 2022, allocates $369 billion to reducing greenhouse gas emissions and incentivises expanded production and use of domestic clean energy. Sustainable Aviation Fuel (“SAF”) tax credits are an integral part of the Act, together with other incentives and mechanisms to accelerate the deployment of advanced fuel technologies generating non-fossil fuels with a significantly reduced carbon intensity.
- The UK Government Department for Transport launched its “Jet Zero” strategy on 19 July 2022, which includes an ambition for a minimum of five commercial-scale SAF plants to be under construction in the UK by 2025, and a mandate for at least 10% SAF to be blended into conventional aviation fuel by 2030 to reduce greenhouse gas emissions.
Commercial SAF projects and business development
- Collaboration with TOYO regarding biomass to SAF (“BtL”) and power to SAF (“PtL”) solutions for the energy transition in Japan has continued. The commercial scale NEDO2 BtL project is currently in FEL2 stage and progressing to plan and the Power to Liquids demonstration project is advancing as planned.
- The legislative developments and increased awareness of the vital need for SAF over the past few months has led to increased enquiries for Velocys’ technology offering.
- The pipeline of potential opportunities continues to develop and the Company is well placed to provide front end project development consultancy, including feasibility studies and pre-FEED project definition for SAF projects under consideration globally. The Company is currently progressing a paid engineering study for a client in Northern Europe and has been requested to quote for a number of other global projects.
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Reference projects update
- Bayou Fuels (Mississippi, US):
- The local development authority in Mississippi is finalising the levee construction protecting the biorefinery site. This is a critical milestone required for insurance purposes and de-risking of the site.
- The project benefits from significant US legislative progress. The biofuels that will be produced, should the project proceed, will adhere to both the US Renewable Fuel Standard (“RFS”) and the Low Carbon Fuels Standard (“LCFS”) and earn additional incentives through the associated Renewable Identification Number (“RIN”) and LCFS credits.
- The project is being further optimised to achieve an even lower carbon intensity to take advantage of the recently introduced dedicated tax credits for US domestic SAF production (Clean Fuel Production Tax Credits).
- The feedstock capability and the power supply to the biorefinery are being further assessed to ascertain optimal output.
- Altalto (Immingham, UK):
- Site engineering, geotechnical work and integration of carbon sequestration continued in readiness for connection into the East Coast Carbon Capture and Storage cluster for the Immingham site.
- In March 2022, the Company welcomed Foresight Group LLP (“Foresight”) into the Altalto municipal solid waste to jet fuel project in Immingham, UK, where Velocys is providing project development services, engineering and Fischer-Tropsch Synthesis (“FTS”) technology.
- The Company funded the £7.25m deferred consideration due for the Immingham site purchase by selling the site owning company to Foresight for £9.75m with an option to repurchase the company in up to three years’ time. Velocys paid £2.5m of the £9.75m consideration in December 2021, so effectively recovered its cash outlay in March 2022 whilst retaining control of the site.
- The Company agreed with British Airways (“BA”) to extend both the UK Altalto project Joint Development Agreement and the Option Agreement for BA to acquire 50% of Altalto Limited by one year to 31 March 2023.
- An application was made to the UK’s Department for Transport (DfT) to obtain a share of the £165m funding available from the Advanced Fuels Fund launched in July 2022. The fund prioritises commercial-scale sustainable aviation fuel plants that require additional support to become ready for investment and construction. The Company believes Altalto meets the eligibility requirements of the Advanced Fuels Fund.
New Technical Centre (Ohio, US)
- An agreement was entered into to construct a 52,000 square foot site in Columbus, Ohio, suitable to house the Company’s reactor core assembly operations alongside its research and development activities.
- Terms of a 15-year lease were agreed with Velocys contributing a maximum of $2m for construction out of a total cost of approximately $10m.
- An Enterprise Zone agreement was signed with Union County, Ohio which provides property tax abatement of 75% once the building is occupied from 2023, with commitments to the creation of new jobs in the facility and support for the local community.
- Construction commenced in May 2022 and is anticipated to complete in Spring 2023.
- Orders were placed for the new equipment to support the commissioning and production of reactor cores. £1.4m of commitments have been made in the six months to June 2022 (in addition to upfront deposits paid of £0.7m).
- The total Net Present Value of local Ohio State incentives secured is approximately $600k.
Other highlights and post period events
- Philip Sanderson was appointed as CFO and executive member of the Board in June 2022, bringing extensive project and commercial finance experience to the Company.
- During HY2022 the Company successfully filled several key appointments in the in-house Catalysis group, strengthening our expertise in catalysis development and continuing to build on our extensive IP portfolio.
- In July 2022, the Company concluded the sale of its undeveloped Ashtabula site in Northern Ohio, acquired as part of an acquisition in 2014, to the Ashtabula Port Authority.
- The Company has submitted a separate application with a group of partners under the UK Advanced Fuels Fund competition for a share of the £22m of funding specifically allocated for e-fuels projects. This provides an opportunity to conduct feasibility, technical validation and potentially site selection for such a project in the UK.
- Establishment of a Scientific Advisory Board with global experts to provide a forum for science and technology-based discussions based on independent, objective advice and guidance.
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- Velocys is targeting completion of the fuel offtake agreements for Bayou Fuels, taking into account the specific tax credit mechanics set out in the Inflation Reduction Act. The Company intends to confirm appointment of its US investment banks to lead the front-end engineering design (“FEED”) funding during the fourth quarter of 2022. This is with a view to having FEED project funding in place in mid-2023.
- Globally, government policy support to accelerate SAF supply continues, as evidenced by the recent US legislation, the European Parliament’s adoption of the ReFuel EU Aviation initiative and the UK Government’s SAF mandate consultation pro cess now assessing in greater detail the administration of such mandates. Velocys looks forward to the conclusion of the UK consultation process, the results of which are targeted to be published by the end of 2022.
- Velocys expects the construction and fit-out of the new Ohio Technical Centre will remain on track, with operations moving into the facility by mid-2023.
- Velocys, through its 20 years of expertise in sustainable fuels, is receiving a high level of enquiries from blue chip potential customers and is focussing its active dialogue on companies which operate in regions with favourable policy environments.
- Velocys is actively focussed on advancing its commercialisation strategy through a targeted pipeline of opportunities to deploy its technology and services.
Henrik Wareborn, CEO of Velocys, said:
“Our interim results show tangible progress with multiple milestones reached over the course of the period. Our new Ohio Technical Centre is well into its construction phase. Here, our technology and licensing services will be consolidated under one roof, providing a fully integrated client delivery and service offering domestically and globally. The facility is on schedule to be completed and commissioned next year.
“We welcomed Foresight Group who demonstrated their support for Velocys and Altalto through the purchase of the Altalto site owner giving the project permanent site control with an option for repurchase. We continue to have a strong partnership with British Airways and their commitment to the Altalto project represented through their extension of our Joint Development Agreement and Option Agreement.
“The launch in the UK of the “Jet Zero” strategy was well-received and sets out the Government’s approach to achieving “net zero” aviation by 2050. This stated an ambition for a minimum of five commercial-scale SAF plants to be under construction in the UK by 2025, and a mandate for the equivalent of at least 10% SAF to be blended into conventional aviation fuel by 2030. Both these initiatives bode very well for Altalto which is exactly the type of commercial-scale SAF plant the UK Government is seeking. We look forward to the outcome of the Government’s pledge to further work with industry to create the long-term conditions for investable projects in the UK.
“The landmark climate legislation passed in the US, the “Inflation Reduction Act of 2022”, focusses on the total amount of avoided carbon and not solely on sustainable fuel supplied. Bayou Fuels, our project in the US, is well positioned to benefit from such legislation because of its low carbon footprint, and continues to progress, exploring a route to achieving an even lower carbon intensity score. The targeted commencement of FEED next year will be a key milestone following which Velocys expects to generate licence revenue from the project.
“We have strengthened the business and organisational design by recruiting world class scientific and commercial talent in Ohio, Houston and Oxford and continue to build our network of potential partners to accelerate commercialisation.
“The progress we have made, alongside the policy tailwinds, creates a solid platform for the Company to deliver. Our outlook remains targeted and selective as we continue on the path of capital-light scalable growth. The ultra-low negative carbon intensity synthetic aviation fuel enabled by Velocys’ IP-protected technology provides a solution to fuel independence and a pathway to sustainable aviation. We look to the future with confidence.”
Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) prior to its release as part of this announcement.
For further information, please contact:
Henrik Wareborn, CEO
Philip Sanderson, CFO
Lak Siriwardene, Director of Communications & Sustainability +44 1865 800821
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Panmure Gordon (UK) Limited (Nomad and joint broker)
Hugh Rich (Corporate Broking)
Emma Earl (Corporate Finance)
John Prior (Corporate Finance)
+44 20 7886 2500
Shore Capital Stockbrokers Limited (Joint broker)
Henry Willcocks (Corporate Broking)
Toby Gibbs (Corporate Advisory) James Thomas (Corporate Advisory) +44 20 7408 4090
Radnor Capital (Investor Relations)
+44 20 3897 1830
Buchanan (Financial PR)
Simon Compton +44 20 7466 5000
Notes to Editors
Velocys is an LSE-listed, international sustainable fuels technology company, traded on the AIM, providing customers with a technology solution to enable the production of negative Carbon Intensity synthetic, drop-in fuels from a variety of waste materials. Synthetic fuel is the only commercially available, permanent alternative to fossil aviation fuels. The Velocys technology is IP-protected in all major jurisdictions.
Two reference projects (Bayou Fuels, US, and Altalto, UK) are designed to accelerate the adoption and standardise the Velocys proprietary Fischer Tropsch (“FT”) technology with an integrated end to end solution, including renewable power and carbon sequestration.
Velocys is enabling commercial scale synthetic fuel production in response to the clean energy transition, with significant additional positive air quality impacts. www.velocys.com
We have made strong progress in the first half of 2022, moving forward at pace with the key priorities set out in our December 2021 fund raise. We set ourselves targets to strengthen our business development activities; to scale up our reactor manufacturing capabilities; as well as specific goals for our two reference projects designed to accelerate the delivery of our technology. Alongside our operational progress, we have seen key government policy developments in the US, UK, and the EU which remain of critical importance to the speed with which our reference projects and those of our potential clients will proceed to financing and construction, crystalising a growing number of commercial opportunities.
I would like to take this opportunity to thank all of our employees for their commitment, innovative mindset and professionalism.
Policy and market developments
The Inflation Reduction Act of 2022 (“the Act”) was signed into US law on 16 August and is of historic significance, putting the United States on a path to significantly lower emissions by 2030, and beyond. We believe this landmark legislation represents a compelling model which other governments will seek to follow, in particular the focus on the total amount of avoided carbon instead of the volume of sustainable fuel supplied, thus prioritising those technologies which offer routes to negative carbon-intensity fuels.
The Act allocates approximately $369 billion to reducing greenhouse gas emissions and incentivises expanded production and use of domestic clean energy. SAF tax credits are an integral part of the Act, together with other incentives and mechanisms to accelerate the deployment of advanced fuel technologies, generating non-fossil fuels with a significantly reduced carbon intensity.
SAF is the only current commercially-scalable decarbonisation route for the aviation sector. Multiple pathways to SAF production are needed to satisfy the aviation industry’s decarbonisation targets towards “net zero”. Velocys provides
its clients with integrated IP-protected technology enabling the production of synthetic aviation fuel from a variety of sustainable feedstocks with ultra-low to negative carbon intensity.
The SAF tax credits and associated incentives are expected to underpin the financing of Bayou Fuels, Velocys’ advanced SAF reference project in Natchez, Mississippi, US. Bayou Fuels is a planned cellulosic biofuels plant enabling the production of carbon negative fuel through the use of biogenic feedstock, renewable power, and carbon sequestration. The biorefinery will convert 3,000 tons/day of woody biomass forestry residues into 36 million gallons/year (nameplate) of renewable transportation fuels, predominantly SAF, with a negative carbon intensity. The biofuels produced will adhere to both the US Renewable Fuel Standard (“RFS”) and the Low Carbon Fuels Standard (“LCFS”) and earn additional incentives via the associated Renewable Identification Number (“RIN”) and LCFS credits.
This critical legislative development in the US follows the launch by the UK Government’s Department for Transport of its Jet Zero strategy, setting out the Government’s approach for achieving net zero aviation by 2050. This includes an ambition for a minimum of five commercial-scale SAF plants to be under construction in the UK by 2025, and a mandate for the equivalent of at least 10% SAF to be blended into conventional aviation fuel by 2030. Velocys and British Airways are jointly developing the Altalto project, to build a full-scale plant in Immingham, UK, to make SAF from commercial and residential residual waste, in anticipation of UK policy incentives similar to those announced by the US. Importantly, the UK mandate is to be expressed in terms of greenhouse gas reductions, rather than simple fuel volume, which will benefit Altalto due to its ultra-low carbon intensity.
In July, the European Parliament voted to support the European Commission’s ReFuelEU Aviation proposal to introduce an obligation to uplift an increasing percentage of sustainable aviation fuel for all flights leaving the EU starting in 2025. European Parliament members increased the commission’s original proposal for the minimum share of SAF made available at EU airports from 5 percent in 2030, 32 percent in 2040, and 63 percent for 2050 to 6 percent, 37 percent, and 85 percent, respectively. The blending obligation starts in 2025, with a SAF share of 2 percent, driving demand for SAF uptake by airlines.
Growth and commercialisation strategy
We are actively focussed on advancing our commercialisation strategy through a targeted pipeline of opportunities to deploy our technology and services. We are seeing an increasing number of enquiries, and through our 20 years of SAF industry experience, we are well placed to provide front end project development consultancy, including feasibility studies and pre-FEED project definition for the potential SAF projects under consideration globally.
Our collaboration with TOYO regarding biomass to SAF (“BtL”) and power to SAF (“PtL”) solutions for the energy transition in Japan has continued. The commercial scale NEDO2 BtL project is currently in FEL2 stage and progressing to plan and the Power to Liquids demonstration project is advancing as planned. The increased awareness of the vital need for SAF over the past few months has stimulated increased demand for Velocys’ technology offering. Velocys is currently progressing a paid engineering study for a client in Northern Europe and has been requested to quote for a number of other studies.
Ohio Technical Centre
Construction of our new facility in Columbus, Ohio is underway, following the selection of a suitable site earlier this year. The leasehold facility will be constructed to our specific requirements, and we look forward to commissioning the reactor core assembly operations during 2023. This project also involves the relocation of our staff and equipment from our current Columbus facility.
We have also concluded an Enterprise Zone agreement with Union County, Ohio, which provides a package of investment incentives such as abatement of property taxes over the lease term following our commitment to create new jobs at the facility. We estimate that these incentives could be worth approximately £0.5m in grants and cost savings.
During the first half year we have continued to place a high degree of importance on maintaining a safe and healthy working environment for our employees and visitors to our sites. There were no Lost Time Accidents and no near misses reported during the period. The COVID-19 response committee formed in 2020 has continued to operate during 2022 facilitating the resumption to pre-pandemic ways of working wherever possible.
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Velocys plc published this content on 21 September 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 September 2022 06:09:09 UTC.
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