Vita Life Sciences Limited Annual Report 2019

FY2019 Annual Report · Vita Life Sciences Limited

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Velocys plc
Magdalen Centre
Robert Robinson Avenue
The Oxford Science Park
Oxford
OX4 4GA

Company Number: 05712187
+44 1865 800 821
info@velocys.com
www.velocys.com

ANNUAL
REPORT AND
ACCOUNTS
2019

www.velocys.com

About us

Velocys is an international UK-based
sustainable fuels technology company.
Velocys designed, developed and now
licenses proprietary Fischer-Tropsch
technology for the generation of clean,
low carbon, synthetic drop-in aviation
and road transport fuel from waste
biomass in plants currently under
development and construction.

Velocys is currently developing two
reference projects: one in Natchez,
Mississippi, USA (incorporating Carbon
Capture, Utilisation and Storage) and
one in 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.

www.velocys.com

Directors, secretary and advisors to the Company

Registered office
Velocys
Magdalen Centre
Robert Robinson Avenue
The Oxford Science Park
Oxford
OX4 4GA

Velocys plc registration no.
05712187

Directors
Philip Holland (Non-Executive Chairman)
Henrik Wareborn (Chief Executive Officer)
Andrew Morris (Chief Financial Officer)
Sandy Shaw (Non-Executive Director)
Darran Messem (Non-Executive Director)

Company secretary
Jeremy Gorman

Nominated advisors and joint brokers
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
St Pauls
London
EC4M 7LT

Joint brokers
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR

Registrars
Link Market Services Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU

Bankers
Barclays Bank Plc
Wytham Court
11 West Way
Oxford
OX2 0JB

Investor relations
Radnor Capital Partners Limited
1 King Street
London
EC2V 8AU

Public relations
Field Consulting Limited
Second Floor, 38 St Martins Lane
London
WC2N 4ER

Independent auditors
PricewaterhouseCoopers LLP
3 Forbury Place
23 Forbury Road
Reading
Berkshire
RG1 3JH

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Contents

Strategic Report

Chairman’s statement

CEO’s report

Financial review

Corporate social responsibility

Key performance indicators (KPIs)

Risks and mitigation

Corporate Governance

Corporate governance report

Directors’ report

Directors’ remuneration report

Statement of directors’ responsibilities

Independent auditors’ report

Financial Statements

Consolidated income statement

Consolidated statement of
comprehensive income

Consolidated statement of
financial position

Consolidated statement of
changes in equity

Consolidated statement of cash flows

Notes to the consolidated
financial statements

Velocys plc statement of
financial position

Velocys plc statement of
changes in equity

Velocys plc statement of cash flows

Notes to the financial statements
for Velocys plc

Directors, secretary and advisors
to the Company

www.velocys.com

Strategic ReportCorporate GovernanceFinancial Statementswww.velocys.com

2
2

Highlights

Fund raise of £7m (before expenses)
in July 2019.

Altalto Immingham Project strategic
partners, British Airways and Shell,
commitment of £2.8 million in July 2019.

Planning application for a commercial
waste to fuel plant submitted to North
East Lincolnshire County Council for the
Altalto Immingham project.

Revenue of £0.3m (2018: £0.7m).

Operating loss of £9.6m, before exceptional
items including a credit of £0.1m related to
impairments (2018: loss of £18.6m before
exceptional items of £10.1m).

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.

Administrative expenses before
exceptional items reduced significantly
to £9.9m (£9.8m after exceptional items)
compared to 2018 £19.1m (£29.1m after
exceptional items).

Cash at period end £4.8m
(31 December 2018: £7.0m).

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.

Bayou Fuels project set to produce
negative emission fuels after signing CCUS
agreement with Oxy Low Carbon Ventures.

Appointed Worley (EPC) to manage
delivery of our technology globally.

Velocys classified as a Green Economy
Issuer by the London Stock Exchange.

Licensors on-board include: TRI, Arvos,
Air Liquide, Linde and Haldor Topsoe A/S.

Velocys plc Annual Report and Accounts 2019

International Leadership Team

Our mission is to deliver the
next generation of sustainable
fuels to decarbonise aviation
and heavy-duty transport. We
have designed, developed and
licensed patented proprietary
Fischer-Tropsch technology,
which enables the production
of sustainable fuels from a
variety of waste materials. It
is the turn-key solution to fuel
producers that significantly
reduce both greenhouse gas
emissions and key exhaust
pollutants, helping to meet
net zero targets.

Global engagement

Henrik Wareborn
Chief Executive Officer

Andrew Morris
Chief Financial Officer

Brian Cody
VP Manufacturing &
Technology Licensing

Ivan Greager
VP Engineering

Neville Hargreaves
VP Waste to Fuels

Roger Harris
VP Operations

Jeff McDaniel
VP New Projects

Heinz Robota
VP Technology

Lak Siriwardene
Head of Communications
& Sustainability

Strategic ReportCorporate GovernanceFinancial Statementswww.velocys.com4
4

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.

Velocys plc Annual Report and Accounts 2019

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, see page 20 for additional details.

Fundraising
In July 2019 Velocys raised a total of £7.0m (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 £21.0m (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.

Philip Holland
Chairman
5 August 2020

Strategic ReportCorporate GovernanceFinancial Statementswww.velocys.com6

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 Association2 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. Further details can be seen in the Directors’
remuneration report and in Note 15 (Share-based incentives).

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 £9.2m order commenced in 2019. During the year we
invoiced a further £1.2m upon the delivery of the first reactor
and four charges of catalyst. We have £5.6m 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 £0.4 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 £3.2 million. The deposit
has been paid in a non-refundable tranche of £0.4 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 fulfill 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.

Velocys plc Annual Report and Accounts 20197

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 £2.8m 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 £21m
(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 £0.5m
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 £1m 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.

Henrik Wareborn
Chief Executive Officer
5 August 2020

Strategic ReportCorporate GovernanceFinancial Statementswww.velocys.com
8

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 £0.3m (2018: £0.7m). 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 £0.2m (2018: £0.4m).

Expenses and income
Administrative expenses before exceptional items reduced
by 48% to £9.9m and £9.8m after exceptional items (2018:
£19.1m before and £29.1m 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 £0.1m credit (2018: £10.1m 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 £0.08m (2018: £0.04m) from the sale of assets
associated with the final closing of the ENVIA plant.

Operating losses were £9.6m, before exceptional items
credit of £0.1m related to impairments (2018: £18.6m before
exceptional items of £10.1m). 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 £2.3m, which is down
from the £5.4m 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 £1.4m
(2018: £4.3m cash inflow) principally being cash generated
from financing activities of £5.7m, principally attributed to
£6.6m received after the fund raise that was successfully
completed in July, and £2.3m cash generated from investing
activities, less £9.4m 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 £352,000.
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 £123,000.

During 2018 the Company recorded an impairment of £10.1m
with respect to the loan to ENVIA and £0.9m 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
£3.3m (2018: £33.3m) 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 £3.4m against
part of ENVIA’s outstanding secured loan obligation to the
Company.

Velocys plc Annual Report and Accounts 20199

Fundraises
In July 2019 Velocys raised a total of £7.0m (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 £21m (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
£1m 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 £21m (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. Risks and uncertainties
regarding the two projects are detailed on pages 12 to 17.

Andrew Morris
Chief Financial Officer
5 August 2020

Strategic ReportCorporate GovernanceFinancial Statementswww.velocys.com
10

Corporate social responsibility
and KPIs

Employees
Velocys strives to be a good employer and endeavours to train
staff well, to pay them fair market value and to maintain a safe
environment in which they can work. Velocys is committed
to equal opportunities for all its employees. Of the 33 global
employees working for Velocys at 31 December 2019, 27%
were female (2018: 26%). At the end of 2019, one of the
five members of the Board was female (2018: one of four
members). The percentage of female employees broken down
by areas of the business was as shown below.

Gender diversity

Scientific & engineering

2018

2019

83%

17%

17+
35+

2018

35%

65%

13%

87%

A 13+
A 39+

2019

39%

61%

Sales, finance, HR & admin

Female

Male

Health and Safety
Velocys takes the safety and well-being of its employees
seriously. Velocys has created a culture of safety, health, and
environmental responsibility and continuous improvement
that extends from the CEO to all employees. Each employee is
encouraged to actively participate in, and take responsibility
for, their own safety and health through various opportunities,
such as by providing suggestions for improvement,
participating in safety and environmental training and site
meetings. Holding leadership positions on the site’s Safety
Committee or serving on an investigation team that performs
root cause analysis of potential hazards or near misses at
the site is actively encouraged. Velocys maintains detailed
records that are required for regulatory compliance, and also
ensures safety policy, programme, and hazard communication
documents are available to all staff.

Velocys’ dedication for continuous improvement,
understanding root causes and implementing corrective and
preventative actions is evidenced in late July 2018 after the
Company experienced its first Lost-Time Accident (“LTA”) at the
Ohio location. All staff have taken part in a lessons-learned
session from the 2018 LTA, with a focus on identification and
prevention of hazards. Relevant staff were retrained on several
safety topics that led to the accident. An elevated level of rigor
is placed on completing thorough job safety analyses before
work on a new or unfamiliar task begins. To ensure lost time
accident risk is minimised the company has a rigorous practice
of near-miss reporting throughout its activities.

Since the 2018 incident, the Velocys sites in the US have
logged over 87,421 operating labour hours without an LTA. The
UK site continues to operate without any lost time, bringing the
total number of operating labour hours without an LTA to over
401,815 in the United Kingdom.

Environment
Velocys recognises that as an advanced biofuels company
it has a duty to limit the environmental impact of its own
operations. As such, the Company is careful to monitor the
environmental impact of its operations. Air travel and buildings
operation have been identified as two of the major factors in
the Company’s direct CO2 emissions. We also strive to ensure
our reference projects are optimised so that they produce
product with the lowest carbon intensity score from the most
energy efficient plants.

Steps being taken to reduce direct CO2 emissions in Velocys’
operations include permitting business class travel only on
overnight long-haul flights, replacing travel for face-to-face
meetings with telephone and video calls where practical,
measuring and minimising direct energy consumption though
efficient use of energy-using assets and minimising waste
production and on-site water consumption.

Velocys plc Annual Report and Accounts 201983
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Key performance indicators (“KPI”s)
and milestones
The Company’s business strategy is to exploit the use of its
core technology, micro-channel Fischer-Tropsch reactors, to
produce sustainable fuels. During 2019, the Company focused
on the following KPIs as a measurement of the company’s
success.

• Completion of our supply contracts to our customers and

expanding revenues of the Company.

• Ensure that the costs of the business are controlled to give

the most capital efficient operations.

• Raising awareness of our technology and its potential to

reduce emissions.

• Continuous improvement of our core technologies and

the manufacturing of the Velocys micro-channel Fischer-
Tropsch reactors.

• Continuing the development of our reference projects and

the addition of new projects.

• Commissioning of our reactors at our reference projects.

In 2019 the key milestones for the Company were as follows:

• Delivery of reactors and reactor components to our

customer Red Rock Biofuels.

• Develop the Carbon Capture and Storage (“CCS”) and solar

power content for the Mississippi Biorefinery Project.

• Secure one or more strategic investors into the Mississippi

biorefinery project.

• Secure second stage consortium funding for the

Immingham, UK waste-to-jet fuel project.

• Complete Oklahoma site demobilisation and receive £3.4m

• Complete license agreements with all major process

licensors and appoint an EPC contractor to the Altalto
project

• Complete an equity fund raise during the year to ensure the

Company has the funds to achieve these milestones.

Financial results were reviewed on a regular basis by
Directors. Careful monitoring of the Company’s cash and cash
commitments is undertaken to ensure that all the fiduciary
responsibilities and commitments of the Directors are met.

The performance of the Company against these milestones
is expanded upon in the CEO’s report on page 6. The financial
results are outlined in the Financial Review on pages 8 to 9.

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www.velocys.com

Risks and mitigation

The Board is responsible for the risk framework and aims to ensure that the Group’s ability to achieve its objectives outweighs its
risk exposure. However, the Group’s risk management programme can only provide reasonable, but not absolute, assurance that
principal risks are managed to an acceptable level.

The Executive Directors are responsible for identifying, managing and mitigating the risks to the Company. The Audit Committee
reviews the processes and controls for ensuring material business risks are identified and managed appropriately. These are
subsequently put to the Board annually for inclusion in the Annual Report.

There are a number of risks and uncertainties that have the potential to impact the execution of the Group’s strategy, as well as
its short-term results. The principal risks which are considered to have a potentially material impact on the Company’s long-term
performance and delivery of its strategy are set out in the following table. Rating of the risks to high, medium or low is also shown to
demonstrate the importance of the risk to the Company.

Risk description and impact

Risk management strategy

Risk Rating

Financial risks

Access to capital

The Company is expected to remain cash flow negative
for a period of time and continues to be reliant on
additional external capital for its ongoing operations,
investment program in scaling up manufacturing
capability as well as reference project development.

Foreign Exchange risk

The Company is generally funded in GBP while more
than half of its costs and most of its revenues are in
USD. It should be noted that the functional currency for
the Company is GBP as the Company is traded on the
AIM market and is head quartered in the UK.

The Board recognises that the Company needs
to raise additional capital from current and new
shareholders on the back of achieved technology
demonstration and project milestones. The
Company’s strategy is to build up a number
of customer developed projects that earn the
Company annually recurring revenues, which will
lead the Company to being profitable with positive
long-term cashflows.

Based on regularly updated cash flow forecasts
the required currency mix holding in the treasury
accounts is identified and implemented to
minimise net foreign exchange exposures under
the Company’s overall Treasury Policy. At the time
of reporting, all new equity-based fund raises are
completed in the UK and made in GBP.

Reference project funding risk

Velocys relies on strategic third-party project
investment for development capital to progress both
its reference projects to Financial Close covering
Front End Engineering and Design, FEED, as well as
pre-FEED costs.

Current strategic partners have largely funded the
pre-FEED work for the UK reference project and the
Company is in the process of securing third party
funding for the FEED stage of the US reference
project. Velocys will not proceed with any unfunded
project development until it has been secured.

High

Low

Medium

Velocys plc Annual Report and Accounts 201913

Risk Rating

Medium

Risk description and impact

Risk management strategy

Decarbonisation policy risk

Velocys’ clients rely on policy support to secure a
significant explicit or implicit revenue for avoided
CO2 emissions. The main risk is that political support
wanes for mitigation of climate change such as
decarbonisation of fuels. The US has withdrawn
from the Paris climate accords in 2020, which may
indicate where the current administration is moving
towards, however against this there are up to 10 States
considering implementing low carbon fuel standards
similar to California.

Technology and Commercial execution risks

FT Reactor performance

Velocys FT reactors might not perform as expected or at
full conversion rate.

FT Catalyst performance

Velocys Actocat OMX catalyst might not perform as
expected or for as long as expected.

Policy support is well established in the US and
UK via RFS-2 and Road Transport Fuel Obligations
respectively. The Landfill tax in the UK, or equivalent
Gate Fees for landfilling in the US provide economic
incentives for Velocys’ technology adoption.
Additional incentives for avoided CO2 equivalent
emissions are in place in a number of US States,
such as the Low Carbon Fuel Standard in California.

Velocys and its strategic partners are pursuing joint
pro-active engagement with respective governments
and transnational organisations such as the
International Civil Aviation Organisation (“ICAO”)
to further strengthen and extend essential policy
incentives for sustainable fuels. The Company
is an active member of advance renewable fuels
industry organisations in the UK and in the US,
and contributes to a broader engagement on these
common policy goals.

Medium

Low

The Company has successfully demonstrated its FT
reactors at commercial scale for over 5000 hours
of operations at a demonstration site in Oklahoma
during 2017-2018. In addition, a number of pilot runs
have been conducted on various forms of feedstock
in recent years in North Carolina, Brazil, Austria and
in Australia.

The Company has demonstrated full catalyst
performance at commercial scale over 5000 hours
at a demonstration plant in Oklahoma in 2017-2018
as well as in numerous pilot runs and in a very large
number of hours of laboratory runs demonstrating
long term resilience of the catalyst as well its ability
to regenerate.

Strategic ReportCorporate GovernanceFinancial Statementswww.velocys.com14

Risks and mitigation
continued

Risk description and impact

Risk management strategy

Risk of performance of and integration with other
licensors’ technology

Technology supplied by other licensors may not
function as expected or may not integrate as envisaged
with Velocys technology, which could cause plants to
operate sub-optimally.

Commercial experience on representative
feedstock is a key selection criteria for Velocys’
consortium of process licensors. Thermochem
Recovery International (“TRI”) and Velocys operated
an integrated gasification-Fischer Tropsch
demonstration at TRI’s Advanced Development
Center in Durham, North Carolina in 2018 where
over 900 hours of qualifying operation was logged
and from where some FT liquids were upgraded
to on-specification FT diesel and naphtha.
Subsequently, Synthetic Paraffinic Kerosene
(“SPK”) and naphtha was upgraded in 2019. The
Company’s providers of technology are world
leading in their fields, deploying well tested
technologies with multiple commercial scale
references worldwide. This significantly reduces
the technology integration risks associated with
operating a Velocys FT based biorefinery.

Risk Rating

Medium

Reference projects execution risk

High

There are no guarantees that the any project will
proceed through all successive development phases.
Existing project partners may not be willing to fund
the project to Financial Close. Capex, opex and
revenue estimates derived during engineering studies,
combined with views on risk, lack of sufficient policy
support or otherwise may make the project unattractive
to capital providers.

The Velocys project engineering team in
collaboration with our global engineering partner,
Worley, is managing the projects in a way to
maximise risk reduction per unit cost, reducing
the most significant uncertainties earlier and only
later deploying more resources required for the
finer detailed engineering when the major cost and
schedule risks are significantly reduced.

Procurement and Construction contracting risk

Failure to contract a comprehensive procurement and
construction partner at a competitive price for each
project could lead to delays in reaching Financial Close.

Velocys has designed a competitive bidding process
for the Procurement and Construction phase to be
executed later in the FEED phase of each reference
project. Separation of the Engineering activity from
Procurement and Construction is a strong risk
mitigation strategy.

Supply Chain Risks and Other operational risks

Supply chain delays

Unplanned complications, whether operational
or financial, with equipment suppliers in our
manufacturing supply chain could lead to delays in
our deliveries of reactors and catalyst to our clients
potentially triggering Liquidated Damages on our
supply contracts.

Working with proven experts in the field of
manufacturing for our type of equipment is the
main way to mitigate against the potential for
problems leading to delays in our supply chain.
Maintaining inventory equipment helps mitigate
against delays in manufacture. A robust Quality
Assurance Program is followed for the supply of
commercial catalyst and reactors.

Medium

Velocys plc Annual Report and Accounts 201915

Risk Rating

Medium

Low

Medium

Risk description and impact

Risk management strategy

Loss of intellectual property (“IP”) protection or key
staff capability

Unauthorised third parties may receive or obtain
confidential information about our core technology,
thereby exposing the Company to competitors obtaining
this information and gaining a competitive advantage.
Key staff and their expertise may leave the Company.

Health, safety and environmental risks

HS&E risks occur in all businesses such that incidents
may take place resulting in injury or exposure to
hazardous conditions for an employee, contractor or
customer.

Competing technologies

There are other technologies either already in existence
or in development that could take market share from
Velocys.

Loss of IP is mitigated by having the core technology
protected by Patents and laws supporting
protection of Intellectual Property rights. Velocys
has invested significantly in patents and IP
protection for our designs and inventions and
vigorously defends all our entrenched rights.
We also aggressively protect and defend a large
body of trade secrets, often in the form of specific
knowhow relating to test or analysis methods,
which is also part of our overall portfolio of IP. This
type of Intellectual Property has been protected by
securing non-disclosure agreements with parties
requiring knowledge of such IP to fulfil transactions
of benefit to Velocys. To retain staff expertise and
protect Company IP Velocys provides competitive
compensation to attract and retain staff.

The Company has an excellent in-house safety
record. All employees are trained according to OSHA
requirements in a range of practices related to safe
operations and for handling hazardous substances
and the Company’s HSE procedures and practices
are outlined on page 10. Velocys will provide
operational management services, incorporating
rigorous HSSE advice to support future biorefineries
that either the Company, or third parties develop.

Velocys and its partners have invested significant
resources in plant integration optimisation and
modularisation, achieving reductions in capex and
opex intensity on a per gallon basis. Such advances
take a long time to develop and provide Velocys with
a competitive advantage beyond its core Fischer-
Tropsch technology capability. In addition, the
Company believes that the market is large enough
to support multiple suppliers. However, due to the
complexity of the processes to convert solid bio
feedstocks to drop-in fuels at commercial scale, the
barriers to entry are significant.

Strategic ReportCorporate GovernanceFinancial Statementswww.velocys.com16

Risks and mitigation
continued

Risk description and impact

Risk management strategy

Brexit risk

There is uncertainty surrounding the outcome of the
Brexit trade negotiations with the EU. This could cause
a significant medium term economic downturn in the
UK. Any reduction in the competitiveness of the UK
economy due to its departure from the EU can impact
Velocys via weakness in its funding currency and the
UK capital markets along with a reduction of economic
activity in its home market.

Velocys is funded primarily in GBP but has
significant USD based business protecting itself
from being entirely UK centric. This Brexit risk is also
mitigated via the long term Treasury policy of foreign
exchange risk management. It is also mitigated
by the international geographical spread of our
customers and the fact that much of our operations
and business is based in the USA.

Pandemic risk

As has been seen recently the risk of the spread
of an infectious disease can lead to Governments’
declarations of a disease being a Pandemic. This
can cause significant business interruption and a
downturn in economic activity. As a direct result there
is a heightened risk of bankruptcy of suppliers and
customers, with consequential risk for the financial
position of Velocys. There is risk to the health and
wellbeing of employees and others related to the
business of the Company as well as a threat to the
ongoing financial capability of the Company to continue
as a going concern.

Fraud risk

Fraud can be perpetrated from both within the
Company as well as from outside. The primary
responsibility for the prevention and detection of
fraud rests with those charged with governance of the
Company and its management.

The Company has a Pandemic risk policy and the
technology and training in place for all employees
to work from home for an extended period of time.
Velocys has therefore, a high capacity of operating
in a fully distributed mode for a long period of time
collaborating over video links, while protecting
each other from any potential contamination.
This enables the Company to protect the health
of its employees whilst maintaining a high level of
economic activity and financial welfare.

At the time of reporting, due to the COVID-19
pandemic, the Company is not operating any
demonstration plants or significant labour
intensive operations, and all employees are
engaged in high-value engineering and commercial
optimisation work for clients and reference
projects which are not yet in construction.
The company reviews the credit worthiness of
suppliers and customers, and makes every effort to
ensure they are able to fulfil contracts.

The Board manages risk of fraud by the controls
set in place to manage the transactions within the
Company along with the policies and procedures
commensurate with these transactions. These
are reviewed on a regular basis and the Executive
Management are held to account by the Board
of Directors and the Governance structure of the
Company. Also and importantly the appointment of
experienced Executives to manage and control the
business supported by qualified staff, all with vested
interests in the success of the business, ensure that
fraud is avoided or otherwise detected early and
controlled. In addition, the duties of key staff and
Directors are segregated sufficiently to secure good
oversight of transactions and ensure irregularities
are avoided or detected early.

Risk Rating

Medium

Velocys plc Annual Report and Accounts 201917

Risk description and impact

Risk management strategy

Impairment risk

The Group holds intangible assets and property, plant
and equipment, of which the valuation may change.

When considering the value in use, given its early stage,
there remains a significant amount of uncertainty in
any commercial roll-out of the Group’s technology, and
thus in management’s forecasts.

Approved by the Board and signed on its behalf by:

Group assets are valued and reviewed on a
continuous basis by management, supported by
an annual impairment review. Management are
required to review for impairment indicators, in
accordance with IAS 36.

Risk Rating

Medium

Henrik Wareborn
Chief Executive Officer
5 August 2020

Strategic ReportCorporate GovernanceFinancial Statementswww.velocys.comCorporate
Governance

173721 Velocys R&A Pt2_173721 Velocys R&A Pt2 07/08/2020 11:48 Page 20

Corporate governance report

Introduction
Companies whose securities are traded on the Alternative Investment Market (“AIM”) market of the London Stock Exchange are not
required to comply with the principles and provisions of the UK Corporate Governance Code 2018 (“Code”). For example, the Company
does not comply with:
 FCA Listing Rule 9.8.6R (which includes the ‘comply or explain’ requirement);
 FCA Disclosure Guidance and Transparency Rules (“DTR”) Section 7.2 (which set out certain mandatory disclosures);
 Competition and Markets Authority’s Final Order 1 (for UK incorporated FTSE 350 companies only).

The Directors recognise the value and importance of good corporate governance and are committed to drawing upon best practice and
maintaining high standards. Further to the amendment to AIM Rule 26 with effect 28 September 2018, the Board has determined to
follow the QCA Code, published by the Quoted Companies Alliance (“QCA”), which sets out a minimum best practice standard for small
and mid-size quoted companies, particularly AIM companies.

The following information is provided to describe how the Company applies the principles of the QCA Code and explain any departures
from the specific provisions of that code.

The QCA’s Ten Principles of Corporate Governance
The ten principles of corporate governance set out under three headings in the QCA Code – Deliver Growth, Maintain a Dynamic
Management Framework, and Build Trust – are applied by the Company are as follows:

Deliver Growth
1. Establish a strategy and business model which promote long-term value for shareholders.
The Board is responsible to shareholders for setting the Company’s strategy and overseeing its execution, and for the overall
management, control and performance of Velocys’ business. Velocys’ strategy and business model can be found in the Chairman’s and
CEO’s reports on pages 4 and 6, respectively.

2. Seek to understand and meet shareholder needs and expectations.
The Board considers effective communication with shareholders to be very important and encourages regular dialogue with investors.

At the Company’s Annual Meeting, the Chairman and Chief Executive Officer are available before and after the meeting for further
discussions with shareholders. The Chief Executive Officer and the Chief Financial Officer attend meetings with shareholders and
analysts on various occasions during the year, primarily following the Company’s Annual Results and Interim Results announcements.
Relevant feedback from shareholder discussions is advised to the Board. Other members of the Board including the Chairman and the
Head of the Remuneration Committee have also either met or consulted with Shareholders from time to time. The Board considers
that their policy on shareholder engagement has resulted in the considerable support demonstrated by major shareholders since the
Company was originally admitted to AIM in 2006.

The Board responds promptly to questions received, which may be sent to investors@velocys.com.

3. Take into account wider stakeholder and social responsibilities and their implications for long-term success.
Velocys is committed to being a good employer and endeavours to train staff well, to pay them fair market value and to maintain a safe
environment in which they can work. We are also committed to equal opportunities for all our employees. In addition, as an advanced
biofuels company, we have a duty to limit the environmental impact of our own operations and are careful to monitor and improve
their environmental impact. Further information on our corporate social responsibility and KPI’s can be found on page 10.

There is an ongoing dialogue with our technology partners, customers, suppliers and other stakeholders which is continuously fed
back into our knowledge base in relation to projects under development and, where relevant, integrated into the Company’s strategy
and business model.

4. Embed effective risk management, considering both opportunities and threats, throughout the organisation.
The Company employs directors and senior personnel with the appropriate knowledge and experience for a business active in its field
of operations and undertakes regular risk assessments and reviews of its activities.

The Audit & Risk Committee reviews all of the Company’s principal risk management policies and the ongoing development of a
Company risk register. Further information on Risk Management can be found page 12. This is discussed with, amended if required
and adopted by the Board at least annually.

The principal risks and uncertainties that are considered to have a potentially material impact on the Company’s long-term
performance and delivery of its strategy are set out pages 12 to 17.

Maintain a Dynamic Management Framework
5. Maintain the board as a well-functioning, balanced team led by the chair.
The Board comprises a Chairman and two part-time Non-Executive Directors with relevant experience to complement the two full-
time Executive Directors and to provide an independent view to the Executive Directors. Details of the Board can be found in the
Corporate Governance Report on page 22. A time commitment of up to 4 days a month is expected of the Non-Executive Directors.

Velocys plc Annual Report and Accounts 2019

173721 Velocys R&A Pt2_173721 Velocys R&A Pt2 07/08/2020 11:48 Page 21

Attendance at Board and committee meetings

Number of meetings held in 2019

Attendance* by:
Pierre Jungels

Philip Holland

Darran Messem

Sandy Shaw

Andrew Morris

Henrik Wareborn

Scheduled
Board
meetings

Special
Board
meetings

Audit & Risk
Committee

Remuneration
Committee

Nominations
Committee

100%

–

100%

–

100%

–

100%

–

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The attendance percentage relates only to applicable meetings (for example, percentages do not include meetings held prior to appointment or following
the resignation of particular directors).

Philip Holland and Darran Messem were appointed to the Board as non-executive directors on 1 January 2019.

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Pierre Jungels retired from the Board as Chairman and as a non-executive director on 10 December 2019 having served more than
four consecutive three-year terms of office, and Philip Holland was appointed as the Company’s new Chairman. At the time of Philip
Holland’s appointment as Chairman, he met the independence criteria set out in the UK Corporate Governance Code. Thereafter the
test of independence is not appropriate in relation to the Chairman. The Board regards each of the other Non-Executive Directors as
being fully independent.

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Philip Holland was appointed as Senior Independent Director on 1 January 2019 and stepped down from this position following his
appointment as Chairman on 10 December 2019, on which date Sandy Shaw was appointed Senior Independent Director in his place.

Philip Holland and Darran Messem were appointed as members of the Company’s Audit and Risk, Remuneration and Nominations
Committees on 1 January 2019. Philip Holland stepped down as a member of the Audit and Risk, and Remuneration Committees,
following his appointment as Chairman on 10 December 2019. Other committee changes during the year are shown in section 9 below.

The roles of the Chairman and the Chief Executive Officer are separated, with clear written guidance to support the division of
responsibilities. The role of the Senior Independent Director is also clearly set out.

The Chairman is principally responsible for leadership and effectiveness of the Board, for corporate governance matters, setting the
Board agenda, ensuring adequacy of information flow to the Board, that due consideration is given to strategic issues, and promoting
a culture of openness of debate at Board level, and between directors and the Executive Committee.

The Chief Executive Officer is primarily responsible for the management of the business and implementation of the Company’s
strategy and policies, maintaining a close working relationship with the Chairman, and leading the Executive Committee.

6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities.
The Board includes individuals with a deep knowledge of markets worldwide and relationships at the highest level of industry. The
Board believes that, as a whole, it contains the necessary mix of experience, skills, personal qualities (including gender balance) and
capabilities to deliver the strategy of the Company for the benefit of the shareholders over the medium to long term. This is an area
which is maintained under constant review.

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Corporate governance report (continued)

Name Philip Holland
Role Chairman
Skills and experience
Philip was appointed as Senior Independent Director of Velocys in January 2019, and as Chairman on 10 December
2019. Philip holds a BSc in Civil Engineering from Leeds University and a MSc in Engineering and Construction
Project Management from Cranfield School of Management. He has extensive experience in managing large scale oil
and gas projects around the globe. In 1980, he joined Bechtel Corporation and managed major oil and gas projects in
a wide range of international locations. In 2004, he joined Shell as vice president of projects, Shell Global Solutions
International. In 2009, Philip became Executive Vice President Downstream Projects in Shell’s newly formed projects
and technology business and in 2010 he was appointed as Project Director for Shell’s Kashagan phase 2 project in
Kazakhstan, and subsequently the Shell/QP Al Karaana petrochemicals project. Since 2013, he has operated as an
independent project management consultant. Philip joined the Board of Enquest plc in August 2015, where he chairs
its Risk Committee and is a member of its Remuneration Committee.

Name Henrik Wareborn
Role Chief Executive Officer
Skills and experience
Henrik was appointed Chief Executive Officer and Executive Director in November 2018, having acted as a consulting
adviser to the Company and provided services equivalent to those of a Chief Commercial Officer since March 2017.
Henrik was formerly a Managing Director with Natixis S.A. (both in the UK and North America), and previously Global
Head of Crude Oil Sales and Trading at BP PLC. His experience prior to this included roles as Executive Director at
Hess Energy Trading Ltd, and Executive Director at Goldman Sachs International, London. His expertise includes
investment banking, commodities trading, fund raising, and commodity finance. Henrik has an MBA from INSEAD
and graduated from the Stockholm School of Economics with a BA in finance and economics.

Name Andrew Morris
Role Chief Financial Officer
Skills and experience
Andrew was appointed Chief Financial Officer and Executive Director in November 2018. He was formerly a Non-
executive Director of the Company and Chair of Velocys’ Audit Committee and has been on the Board since June 2017.
Andrew has extensive experience as Chairman, CEO, CFO and Group Finance Director with significant involvement in
financing and business development for AIM companies, SMEs and private equity backed organisations. He has
considerable experience in the power and renewable energy, energy from waste and biofuels sectors. Until November
2018, he acted as CEO of Envirofusion, a company with nascent technology in the waste-to-energy and biomass-to-
power sector. For six years he acted as Commercial & Finance Director for Advanced Plasma Power Limited, a private
equity funded company that owns gasification and plasma waste treatment technology. He began his career at Price
Waterhouse in London, is a qualified accountant and graduated from the University of Newcastle with a BSc in
agricultural economics.

Name Sandy Shaw
Role Senior Independent Director
Skills and experience
Sandy was appointed to the Board of Velocys in October 2012 and chairs the Remuneration Committee. Sandy has
nearly 40 years of experience in the oil and gas industry. From 2008 until its take-over in 2013 Sandy was an
Executive Director Corporate & Commercial, and Company Secretary of Valiant Petroleum PLC, a company of which
she was a founder and initially a Non-Executive Director. She has held senior executive positions as group legal
counsel and/or commercial director for numerous companies including Consort Resources, LASMO PLC (where she
was also inter alia President of LASMO USA), Esso Petroleum, Marathon Oil and Mobil. Sandy has extensive oil and
gas M&A experience, has overseen numerous material private equity subscriptions and led a £200m trade sale
through to final negotiations. She has worked as a consultant to several oil and gas companies, as well as two UK law
firms. In January 2019 Sandy joined the Board of Hurricane Energy plc as a Non Executive Director and Chair of the
Remuneration Committee.

Name Darran Messem
Role Non-Executive Director
Skills and experience
Darran was appointed to the Board of Velocys in January 2019 and chairs the Audit & Risk Committee. Darran has 30
years of commercial experience in energy, transport and sustainable development, with particular focus on
renewable energy and low-emission transport. He has served as Managing Director Certification and International
Director at the Carbon Trust, Vice President Fuel Development at Shell, and General Manager Market Development at
British Airways. At Shell he worked on the removal of lead and sulphur from fuel in the UK, and the development of
Shell’s global biofuel business, where he worked on a number of biofuel technologies including gasification and
Fischer-Tropsch synthesis. He was Shell’s nominated Director, and subsequently elected Chair, of Iogen Energy. From
2014 to 2020 he served as Chair of the Low Carbon Vehicle Partnership, where he remains Director, a UK public-
private partnership that works to accelerate the deployment of low carbon vehicles and fuels. In July 2019 Darran
was appointed to the Board of BRE (formerly the Building Research Establishment) and chair of the Remuneration
and Nominations Committee, and in November 2019 he was appointed as an advisor to the Roads Advisory Panel of
the UK Office for Rail and Road.

Velocys plc Annual Report and Accounts 2019

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Internal Advisory Responsibilities
The Company Secretary, through the Chairman, is responsible for advising the Board on governance matters, and for ensuring that
Board procedures are followed and that the Company complies with applicable rules and regulations. All directors have access to the
advice and services of the Company Secretary. An agreed procedure exists for directors in the furtherance of their duties to take
independent professional advice. During 2019, no director sought independent legal advice pursuant to the policy.

The Company regularly reviews the ongoing training requirements of directors as part of the annual board evaluation process.
Directors keep their personal skillsets up to date through a combination of industry contact, reading of relevant material and, where
appropriate, training courses.

There is a process for ensuring that any new director receives advice, including from the Company’s nominated adviser and external
lawyers where appropriate, on his/her responsibilities as a director of an AIM company. The Board ensures that any new appointee
benefits from an induction programme.

7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement.
An annual evaluation of the Board and its committees is carried out by the Company Secretary, taking the form of comprehensive
questionnaires which provide all directors with an opportunity to score (1=Dissatisfied; 5= Satisfied) their opinion on a series of
questions in relation to inter alia the constitution, execution and performance of the Board and the three committees, and to comment
on procedures or any relevant matters. Average scores for each question are measured against the relevant score in the previous two
years to help identify trends and are also assessed in absolute terms. Written comments, on an unattributed basis, are assimilated
into a written report.

A performance evaluation of the Chairman is carried out, led by the Company Secretary, and takes into account the views of all
directors. As in previous years, the results of the evaluation are considered on an unattributable basis by the Board and each
committee in open session and, where appropriate, actions arising from such reviews are implemented.

Actions have resulted in continued improvements to timing and quality of management information; the provision to the Board of
more detailed information on individual projects, including the visit by the Board to Plain City, Ohio to meet the technical team there
and receive presentations from senior management; and improvements to the structure and workings of committees.

Succession planning at Board and Committee level is formally reviewed on an annual basis. During 2019, the Board reviewed its
succession plan for all Board members and senior management. In accordance with best practice, all directors are proposed for
re-appointment at the Annual General Meeting, and due consideration is given by the Nomination Committee as to whether individual
directors are recommended for re-election.

8. Promote a corporate culture that is based on ethical values and behaviours.
The Board believes that the business culture is consistent with the Company’s objectives, strategy and business model as set out in
the strategic report and the description of principal risks and uncertainties.

The Board ensures that the Company has the means to determine that ethical values and behaviours are recognised and respected
through the adoption of appropriate policies, including an Anti-Bribery and Corruption and Anti-Modern Slavery Policy; a
Whistleblowing Policy; and a Policy on Equal Employment Opportunity and Diversity.

In addition, in response to the Market Abuse Regulations (“MAR”) which came into force on 3 July 2016, and which apply to AIM
companies, the Company has adopted a Share Dealing Policy and Dealing Code which apply to all directors and employees of the
Company.

9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the board.
The Board meets at least six times a year with a formal schedule of matters reserved for its decision. The Board has also established a
schedule of delegated authorities, which are reviewed to ensure they are commensurate with the level of the Company’s development.
The governance structure in place is considered to be appropriate for the foreseeable future but will be evolved in line with the
Company’s plans for growth.

Board Committees
The minutes of the Audit & Risk, Remuneration and Nomination & Governance Committees are circulated to the Board. The Committee
chairs also report to the Board on the outcome of committee meetings at the subsequent Board meeting. All of the committees
annually review and re-adopt their terms of reference. The Committees have the following roles:

Audit & Risk Committee
The members of the Audit & Risk Committee are currently Darran Messem (Chair) and Sandy Shaw. Sandy Shaw was Chair during the
period 1 January 2019 to 17 September 2019, and Philip Holland was a member during the period 1 January 2019 to 10 December
2019 when he stepped down on his appointment as Chairman. Meetings are held not less than four times a year and are based on the
work programme set out in the Audit Committee Guide published by the QCA.

Under its Terms of Reference, which can be found on the Company’s website, the Audit & Risk Committee reviews inter alia the
Company’s audit planning, risk management systems and processes and effectiveness of internal controls, accounting policies and

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Corporate governance report (continued)

financial reporting, provides a forum through which the external auditors report, and reviews and monitors their independence and the
provision of additional services. At least once a year it meets with the external auditors without executive directors present.

Financial information
The Company prepares detailed budget and working capital projections, which are approved annually by the Board and are
maintained and updated regularly throughout the year. Detailed management accounts and working capital cash flows are prepared
on a monthly basis and compared to budgets and projections to identify any significant variances.

The Audit & Risk Committee has considered the integrity of the Company’s 2019 financial statements and reviewed the
appropriateness of its critical accounting policies and the judgements made in applying them. The year-end financial statements were
reviewed and discussed with PricewaterhouseCoopers LLP. In addition, the interim financial statements were reviewed by the
committee. The committee considered, among others, the following specific matters:
 Going concern – see page 9, for consideration from the board regarding going concern.
 Valuation of assets (consolidated company) and investment in subsidiaries (Velocys plc).
 COVID-19.

Audit review
The Audit & Risk Committee has discussed PricewaterhouseCoopers LLP’s audit process and has reviewed the findings from the audit
of the 2019 financial year as well as the effectiveness of the external audit process. The committee reviewed the quality and cost
effectiveness of the external audit, and the independence and objectivity of the auditors. It obtained confirmation from
PricewaterhouseCoopers LLP that their independence and ethics policies complied with FRC requirements, and that they remain
independent and maintain internal safeguards to ensure their objectivity. No contractual obligations exist that restrict the Company’s
choice of external auditor and the committee is satisfied that the external auditor remains independent.

The committee has established policies determining the non-audit services that the external auditors can provide and the procedures
required for approval of any such engagement. Further details of fees paid to PricewaterhouseCoopers LLP for both audit and non-
audit work can be found in note 11 to the financial statements.

Remuneration Committee
The members of the Remuneration Committee are currently Sandy Shaw (Chair) and Darran Messem. Darran Messem was Chairman
during the period 1 January 2019 to 17 September 2019, and Philip Holland was a member during the period 1 January 2019 to
10 December 2019 when he stepped down on his appointment as Chairman. Meetings of the Committee take place not less than
three times a year. Due regard is paid to the Investment Association Principles of Remuneration.

The committee reviews, inter-alia, the performance of executive directors and senior managers setting the scale and structure of their
remuneration and the basis of their service agreements, having due regard to the interests of shareholders. The committee also
determines the allocation of share options to executive directors and senior managers. No executive director has a service agreement
exceeding one year.

The remuneration of the Non-Executive Directors is a matter for the Chairman and the Company’s executive directors. Under its Terms
of Reference, which can be found on the Company’s website, no director is permitted to participate in decisions concerning his or her
own remuneration.

Nomination & Governance Committee
The members of the Nomination & Governance Committee are Philip Holland (Chair), Sandy Shaw and Darran Messem. Pierre Jungels
was Chair during the period 1 January 2019 to 10 December 2019 when he stepped down as Chairman. The committee met once
during 2019. Among its duties it reviews the composition of the Board and its succession planning, the Board evaluation process and
the findings from recent evaluations, director performance and recommendations for re-elections at the AGM, and considerations of
director independence under the corporate governance code. The Terms of Reference can be found on the Company’s website.

Build Trust
10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other
relevant stakeholders.
The Board considers effective communication with shareholders to be very important and encourages regular dialogue with investors.
Directors regularly attend meetings with shareholders and analysts throughout the year, and the Board responds promptly to
questions received. Shareholders will be given at least 21 days’ notice of the Annual General Meeting, at which they have the
opportunity to raise questions of the Board on the Company’s developments and performance, although special arrangements will be
made in respect of the 2020 Annual General Meeting in light of the COVID-19 emergency. Details of arrangements for the 2020 Annual
General Meeting are set out in the Company’s notice of 2020 AGM which is being published at the same time as this Annual Report
and are available on the Company’s website. Further information is shown under QCA Principle 2 above.

Copies of the Annual Report and Financial Statements are issued to all shareholders and copies are available on the Company’s
website www.velocys.com, which provides information to shareholders and other interested parties. The website contains full details
of the Company’s business activities, press releases and links to the London Stock Exchange website for share price information,
share trading activities and graphs, as well as Regulatory News Service (“RNS”) announcements. The Company Secretary also deals
with shareholder correspondence and may be contacted at investors@velocys.com.

Velocys plc Annual Report and Accounts 2019

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Directors’ report
The directors present their report and the audited consolidated financial statements for the year ended 31 December 2019

Company
Velocys plc is the parent of the Company. It is a public limited company listed on AIM and incorporated and registered in the United
Kingdom. The registered office address is given on the information page inside the back cover of this document.

Future developments
The Board aims to pursue its corporate strategies as detailed in the Strategic Report on pages 4 to 17.

Dividends
The Directors do not recommend any dividend for the year ended 31 December 2019 (2018: nil).

Research and development
The Company’s R&D activity now relates primarily to the development of first-of-a kind sustainable fuel projects in the UK and the
USA. However, some limited research is being undertaken to establish lessons learned from use of Velocys technology at the
Oklahoma plant, both from an operational point of view and from a technical assessment of the results from the plant operations.
Details of R&D expense are in note 10.

Donations
The Company made no political donations during 2019 (2018: nil).

Post financial position events
Fundraise of £21 million completed in July 2020
On 14th July 2020, the Company announced that it had completed the fund raising of £21 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 £19.65m, 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
down 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 has been completed with the
delivery of all four reactors by 30 June 2020. The ongoing engineering work on the Altalto Biorefinery Project in Immingham, UK 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 Altalto Immingham plant.

US SBA loan received
In April 2020, the Company announced the approval of a $709,000 (£567,200) 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 £1m 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 £1, as a pre-cursor to a full Shareholders’ Agreement for Altalto Limited in due course.

Further F4C grant from the Department of Transport
In June 2020, the Company announced that it has secured a further £0.5 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 £0.4m in Stage One of the F4C in 2018, and was shortlisted to receive an award in Stage Two. The DfT has now made £0.5m 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.

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Directors’ report (continued)

Delivery of Reactors and Catalyst to Red Rock Biofuels
In June 2020 the Company completed the manufacturing and supply of the four reactors and associated catalyst for its customer Red
Rock Biofuels. The Company invoiced £0.9 million during 2019 which was 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.

Directors
The directors of Velocys plc who were in office during the year and up to the date of signing the financial statements, unless otherwise
stated, were as follows.
 Philip Holland (Non-Executive Chairman) – appointed as a director 1 January 2019 and as Chairman 10 December 2019
 Pierre Jungels (Non-Executive Chairman) – resigned as director 10 December 2019
 Henrik Wareborn (Chief Executive Officer)
 Andrew Morris (Chief Financial Officer)
 Sandy Shaw (Senior Independent Director)
 Darran Messem (Non-Executive Director) – appointed as a director 1 January 2019

While the Company’s Articles of Association require that all directors are subject to election by shareholders at the first opportunity
after their appointment, and to re-election thereafter at intervals of not more than three years, the directors have decided that, in line
with best corporate governance practice, at the 2020 Annual General Meeting all of the directors will again retire and offer themselves
for re-election, as they did in 2019.

The S172(1) statement of Directors’ Duties
The Directors of the Company must act within a general set of duties, which have been set out in section 172 of the UK Companies Act
2006. The new reporting requirements are effective for December 2019 year ends. They arise from the 2018 UK Corporate Governance
Code and the Companies (Miscellaneous Reporting) Regulations 2018. Both the Code and the Regulations introduce new
requirements for boards to explain how they have taken account of stakeholder views and met the requirements of s172 of the
Companies Act. Specifically, the Code states that:

“The board should understand the views of the company’s other key stakeholders and describe in the annual report how their
interests and the matters set out in section 172 of the Companies Act 2006 have been considered in board discussions and decision-
making.”

The Regulations formalise this by requiring companies to include a s172(1) statement in their annual reports, which “describes how
the directors have had regard to the matters set out in section 172(1) (a) to (f) when performing their duty under section 172.”

The matters set out in section 172(1) (a) to (f) are:
(a) the likely consequences of any decision in the long term;
(b) the interests of the company’s employees;
(c) the need to foster the company’s business relationships with suppliers, customers and others;
(d) the impact of the company’s operations on the community and the environment;
(e) the desirability of the company maintaining a reputation for high standards of business conduct; and
(f) the need to act fairly between members of the company.

Below we describe how the Directors fulfil their duties:

Risk Management and Long-Term Consequences
Decisions brought to the Board are considered in the wider context of their consequences for the business both in the short term but
also in the long term. We are making decisions about reference projects; feasibility studies with potential partners and customers;
manufacturing capacity for many years to come; research into the development of our reactors and catalyst; and health and safety of
our employees and customers along with how to resource this work with finance and human resources. The consequences of these
decisions and the risks taken have a direct impact on the activities of the Company and the relationships with all aspects of our
stakeholders and the community.

For details on how we manage risks in our business please see pages 12 to 17 for our Risk and mitigation section.

Our Employees
During the year a number of actions were taken by the Board to promote the interests of our most important resource, our employees,
such that we increased the pension contributions made by the Company to the pensions of employees in the US as well as increasing

Velocys plc Annual Report and Accounts 2019

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the amount of the healthcare benefit provided by the Company for all employees. This has ensured that we have kept our employment
packages competitive in the local markets where we are operating both in the UK and the USA. In terms of talent retention, we have
awarded a three-year Long-Term Incentive Plan, which includes all our staff. More information about this can be seen in the Directors’
remuneration report and in Note 15 Share-based incentives. We engage with our employees on a personal basis by completing a
performance evaluation with them twice a year. This can influence decisions on promotion, career advancement, training, fixed and
variable compensation. It also ensures that there is an opportunity for us to hear back from our employees as to how we are doing for
them as a Company, helping us to improve our employment practices and so the well-being and performance of our team.

Business Relationships
The Company recognises the importance of mutually beneficial, long-term business relationships to our business. Each major
relationship with a customer, supplier, trade body, government department or other organisation is assigned a senior manager who is
responsible for ensuring overall success and co-ordinating the interactions with other team members. Our business development
resources have led, for example, to the current relationship that we have with Toyo Engineering in Japan, whilst also continuing to
create new relationships with customers in the USA, Europe and the Middle East. The aim is to develop a pipeline of opportunities
throughout the world that will benefit from the use of our FT technology and the integrated engineering package that we have
developed in the last few years surrounding a complete waste biomass to fuels plant. This pipeline then develops into a small number
of actual projects from which we then earn sales and technical support revenues.

For details on our reference projects please see the Chief Executive’s Report on page 7.

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Community and the Environment
Our “raison d’être” is to provide a solution to parts of the transport sector that are hard to decarbonise, especially the airlines. As a
company we have developed a technology and now an engineered, integrated technology package, which will allow plants to be built
with a significant beneficial impact on the carbon emissions of this sector. Indeed in 2019 we announced that we had achieved
negative 125gCO2e/MJ equivalent for our planned Natchez Mississippi Project thanks to the carbon capture and storage agreement
with Oxy Low Carbon Ventures, demonstrating our commitment towards achieving carbon negative fuels. During the design of the
Altalto Immingham plant we have agreed to undertake measures to protect the environment during both construction and operation,
and have consulted on our plans with members of the local community. As well as delivering a positive impact from our products, we
also aim for continuous improvement of the sustainability of our own operations; this will be part of the focus of the new Head of
Communications and Sustainability (see below).

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For more details please see our Corporate social responsibility section on Page 10.

Standards of Business Conduct
The Company complies with the QCA code on Corporate Governance, which in part regulates how we conduct our business with all
stakeholders. We also have a policy on anti-corruption and bribery and an anti-modern slavery policy, which sets out the rules by
which the officers of the Company have to act in relationships with other organisations and the personnel employed by the Company.

For details on our Corporate Governance please see our Corporate Governance report on pages 20 to 24.

Our Members
We treat all shareholders in the Company with equal respect and are grateful to them for supporting the Board throughout this change
of strategy from R&D and gas-to-liquids (“GTL”) to developing a renewable fuels technology and working in this developing market.
Given that we raise funds from the public market on a regular basis the Executives on the Board regularly meet with the larger
shareholders of the Company but also have group meetings arranged by our brokers of smaller shareholders to keep all of them up to
date with the activities of the Company. Furthermore, recent fundraises included open offers to the wider public and the smaller
shareholder community to ensure the Board has acted fairly between our members. In addition, in 2019 we established a new position
within the Company of Head of Communications and Sustainability. We have developed regular communications to shareholders
through the media including the website, Twitter and LinkedIn.

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Directors’ report (continued)

Directors’ interests
The directors who held office at 31 December 2019 had the following interests in the shares of parent company undertakings (as
recorded in the Register of Directors’ Interests and including those of the spouse or civil partner and children under 18).

Sandy Shaw
Philip Holland
Darran Messem
Andrew Morris
Henrik Wareborn

Velocys plc ordinary shares

31 December
2019

31 December
2018

451,091
972,894
333,333
433,333
1,666,666

117,758
–
–
100,000
1,000,000

The following Board members purchased shares as part of the July 2019 fundraise during the year (as recorded in the Register of
Directors’ Interests and including those of the spouse or civil partner and children under 18): Sandy Shaw (333,333), Philip Holland
(333,333), Darran Messem (333,333), Andrew Morris (333,333), and Henrik Wareborn (666,666). Philip Holland purchased an
additional 639,561 shares in December 2019.

The following Board members purchased shares as part of the July 2020 fundraise (as recorded in the Register of Directors’ Interests
and including those of the spouse or civil partner and children under 18): Sandy Shaw (100,000), Philip Holland (230,224), Darran
Messem (100,000), Andrew Morris (414,484), and Henrik Wareborn (451,779).

Directors’ share options and service contracts are detailed in the Directors’ remuneration report.

Directors’ qualifying third-party indemnity provision
The Company maintains directors’ qualifying third-party indemnity insurance to provide cover for legal action against its directors.
This has been in place throughout the year and remains in place at the date of this report.

Financial instruments
The Company’s financial instruments are detailed in note 26.

Financial risk management
Financial risks, and exposure and risk management policies and objectives are detailed in the Strategic Report on page 12, and in
note 26.

Substantial shareholdings
The Company has been notified of the following holdings of 3% or more of the issued share capital of Velocys plc as at 30 June 2020.

Ervington Investments Limited
Lansdowne Partners
Amati Global Investment
Hargreaves Lansdown Asset Management
Janus Henderson Investors
Interactive Investor Trading

Number of
shares held

137,855,776
136,220,153
66,666,666
65,592,720
28,294,316
25,500,537

Percentage
of issued
share capital

21.41%
21.16%
10.36%
10.19%
4.40%
3.96%

Post the July 2020 fundraise notifications have been received from the following shareholders notifying changes in ownership of
shares in Velocys plc:

Lansdowne Partners
Ervington Investments Limited
Ruffer LLP
Amati AIM VCT plc

Number of
shares held

196,220,153
137,855,776
88,604,000
63,313,316

Percentage
of issued
share capital

18.45%
12.96%
8.33%
5.95%

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.

Velocys plc Annual Report and Accounts 2019

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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 Company will also complete the supply of its Fischer-
Tropsch reactors to its customer Red Rock Biofuels with its project in Oregon, USA.

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 £21 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 £1m 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 £572,000; and has been awarded a further
£0.5m F4C grant from the Department of Transport in the UK (see the Director’s Report on page 25 for more information).

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.

Annual General Meeting
Special arrangements will be made in respect of the 2020 Annual General Meeting in light of the COVID-19 emergency. Details of
arrangements for the 2020 Annual General Meeting are set out in the Company’s notice of 2020 AGM which is being published at the
same time as this Annual Report and are available on the Company’s website.

Auditors and disclosure of information to auditors
Each of the persons who is a director at the date of approval of this report confirms that:
 So far as the director is aware, there is no relevant audit information of which the Company’s auditors are unaware.
 The director has taken all the steps that he / she ought to have taken as a director in order to make himself/herself aware of any

relevant audit information and to establish that the Company’s auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.

Corporate governance
The Company’s statement on corporate governance is available on pages 20 to 24.

Approved by the Board and signed on its behalf by:

Henrik Wareborn
Chief Executive Officer
5 August 2020

www.velocys.com

173721 Velocys R&A Pt2_173721 Velocys R&A Pt2 07/08/2020 11:48 Page 30

Directors’ remuneration report

Introduction
The Remuneration Committee is resolute in maintaining high standards of corporate governance and has taken steps to comply with
the principles of best practice in so far as they can be applied practically given the size of the Company. The Company is listed on AIM
and is therefore not required to comply with the following regulations: disclosure requirements of the Directors’ Remuneration Report
Regulations 2013; the UKLA Listing Rules; Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008. The content of this report is unaudited unless stated. Consequently, certain disclosures contained in these
regulations are not included below.

Remuneration Committee
The following served as members of the Committee throughout the year ended 31 December 2019 (unless otherwise specified):
 Sandy Shaw (appointed Chair 18 September 2019)
 Darran Messem (Chair 1 January 2019 to 17 September 2019)
 Philip Holland (appointed 1 January 2019, resigned 10 December 2019)

The Committee’s constitution and operation has been compliant with the provisions of the QCA Code, published by the Quoted
Companies Alliance, which sets out a minimum best practice standard for small and mid-size quoted companies, particularly AIM
companies. In determining remuneration policy for Executive Directors, the Committee takes into consideration both the QCA Code
and the guidelines published by The Investment Association Principles of Remuneration (formerly the Association of British Insurers).

Remuneration policy for Executive Directors
The remuneration policy has been designed to ensure that Executive Directors receive incentives and rewards appropriate to their
performance, responsibility and experience. In making its assessment, the Remuneration Committee seeks to align the policy with the
interests of the shareholders and takes advice from specialist advisors when necessary.

Key features of the policy are:
 Setting salaries to be competitive relative to the experience of the individual and the nature, complexity and responsibilities of their

work in order to attract and retain management of the required quality.

 Linking individual remuneration packages to the Company’s performance through bonus schemes and long-term share-based

plans.

 Providing employment and post-retirement benefits in accordance with standard policies of the Company.

The following chart illustrates the proportion of fixed and variable elements in the remuneration package.

Target

Minimum

Base

Bonus

LTIP

100

150

200

250

As % of base salary

Remuneration of Executive Directors
Executive Directors’ remuneration is considered annually. In addition, the Remuneration Committee undertakes periodically
a comprehensive review using external advisors. Current remuneration is based on the following principles.

Base salary
The base salary is reviewed annually at the beginning of each year. The review process undertaken by the Remuneration Committee
considers the ongoing development of the Company, the contribution of the individual, the need to retain and motivate employees, and
benchmark remuneration information from comparable organisations.

Annual performance incentive
All Executive Directors are eligible, at the discretion of the Remuneration Committee, for an annual bonus. The target bonus award for
each individual is based on a percentage of base salary, which, for the year commencing 1 January 2019, was 75%. The Remuneration
Committee sets performance targets for bonus awards at the beginning of each year. Awards are determined by both the performance
of the individual and the Company as a whole at the end of each year. The performance targets for the Company comprise measures of
financial, technical and business development goals. Where performance is judged against measurable targets, the Remuneration
Committee retains discretion to adjust the outturn to ensure it is fair, reasonable and related to the Company’s performance and
shareholders’ experience. For 2019 performance, bonus will remain at the discretion of the Remuneration Committee and will depend

Velocys plc Annual Report and Accounts 2019

173721 Velocys R&A Pt2_173721 Velocys R&A Pt2 07/08/2020 11:48 Page 31

on the success of the Company coming out of the current COVID-19 crisis and the level of liquidity within the Company. At the date of
signing of the Annual Report and Accounts no bonus has been paid.

Long-term Incentive Plan
As explained in the 2018 Annual Report and Accounts, the committee believes that an LTIP scheme should provide to Executive
Directors and other senior managers the appropriate incentivisation, focus, retention and reward for achievement, that is aligned with
shareholder interests. The last LTIP awards to Executive Directors were in 2014 and no further awards had been made thereafter. In
late 2018 as part of the engagement of the new Executive Directors, the Committee agreed to the grant of Commencement and
Performance Options as set out below to enable early engagement with the Executive Directors and their alignment with shareholders’
interests. During 2019 the committee also developed and adopted a new equity-based incentive scheme, the 2019-2021 LTIP Scheme
(“Scheme”) which applies to all Velocys staff except Non-Executive Directors, with varying awards. The Scheme is intended to run for
three years; it is subject to and is consistent with the LTIP rules agreed by the Board and approved by Shareholders in 2015. The
Company made an initial award under the Scheme in December 2019, details of which are set out below.

As part of the process of developing the Executive Directors’ remuneration packages and then developing the Scheme, as explained in
the 2018 Annual Report and Accounts, the Committee undertook market research and took advice from external remuneration
consultants, who confirmed that they believed the packages and the Scheme were fair and reasonable and in line with market
practice. The Committee then consulted with major shareholders to seek their views before the Scheme was formally approved by the
Board and adopted. Given the time necessary to agree the format and documentation and subject to an open period, no awards were
made until December 2019.

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All Options were granted subject to the Rules of the Velocys 2012 Share Option Scheme, the Company’s Share Dealing Code and
applicable law (including new GDPR terms and terms for Malus and Clawback). By way of clarification, the strike price, upon exercise,
is payable by the employee so that the employee only gains if the share price rises. There are no nil-cost Options; this is understood by
the Executive, senior management and staff who are fully committed to the principle of gain by delivering value.

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Grants to Executive Directors
1. The two Executives were granted long term incentives by way of one–off grants of Options comprising of:

a) A “Commencement Award” of 2,000,000 Options to each Executive Director at a strike price of 10p being the price at which new
ordinary shares were issued during the fundraising in July 2018, notwithstanding the lower share price prevailing at the time of
the award with vesting phased over 3 years from date of employment contract; and

b) A “Performance Award” to focus them on high level, stretch performance of 2,000,000 Options to each Executive Director at a

strike price of 15p being a fifty percent increase on the strike price that the Commencement Awards were made at, with vesting
on the third or fourth anniversary of the grant subject to the performance condition, see page 33 for further information.

2. The Executive Directors were also eligible for annual 2019 awards under the Scheme. These awards comprised a mix of Options
and EMI Options with a value equivalent to 75% of base salary and based on a strike price of 3p, being the price at which new
ordinary shares were issued during the fundraising in July 2019, notwithstanding the lower share price prevailing at the time of the
award. Vesting requirements for 2019 Scheme Options were based 50/50 as to elapsing of time and meeting a target share price
performance; this was considered appropriate under the current circumstances of the Company. The number of Options awarded to
each Executive Director and the vesting conditions are set out in the table on page 33.

Grants to other staff
Annual awards may be made by the Committee under the Scheme to the Executive Directors (reference item 2 above) and to the
senior management with awards varied by grade level. Awards were made to senior management at the same time as to the Executive
Directors in December 2019, at the same 3p strike price and on the same terms.

Furthermore, to bring all employees into the long term incentive programme, a one-off “Special Award” was granted to senior staff
and non-Scheme participants (excluding the Executive Directors and Non-Executive Directors). Many of our employees have received
no awards of Options since joining the Company. The Company values all of its employees and wishes to incentivise, focus, retain and
reward them as well. The Special Award was granted at a strike price of 3p and vests rateably over three years from date of grant.

Headroom Calculations
The total of awards set out above together and the projected awards under the Scheme over its three year period represents a
potential maximum dilution of current shareholders’ interests of 15.1% taking into account historic awards outstanding (10.7%) and
2020-2022 LTIP (4.4%), based on issued capital at the time of the award. The Remuneration Committee believes the proposed Scheme
is reasonable and necessary to compensate for the absence of a share scheme in recent years, and to motivate and retain expert staff
who are essential to the success of Velocys over the crucial next three years. The Company continues to work well within its
shareholder agreed headroom cap on awards of equity.

Pensions and other benefits
The Company contributes to Executives’ defined contribution pension plans at 10% of base salary. For other employees the Company
contributes to individuals’ defined contribution pension plans in line with the Company-wide schemes in place. For UK-based
employees, the Company contributions are 7% of base salary. For US-based employees, the contributions are 3% of pensionable pay
(which includes bonus) up to the maximum allowable under US pensions law.

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Directors’ remuneration report (continued)

Other benefits provided are life insurance, private medical insurance and relocation allowances where applicable, in line with the
Company’s standard policies.

Directors’ service contracts
Each of the Executive Directors has a service contract with a notice period of six months.

Remuneration policy for Non-Executive Directors
The remuneration of Non-Executive Directors is determined by the executive members of the Board in consultation with the Chairman,
based on a benchmark review of current practices in similar companies. The Non-Executive Directors are paid a fixed fee and do not
receive any pension payments, bonus or other benefits. The Chairman’s salary is set by the Executive Directors in consultation with the
remuneration committee. No director can be involved in the determination of his or her own remuneration.

Non-Executive Directors are appointed for an initial three-year term and are typically expected to serve for two three-year terms.
Either the Non-Executive Director or the Company can terminate the contract with three months’ written notice. The Chairman’s
appointment is on the same terms and the notice period is also three months. The Company may invite a Non-Executive Director to
serve for further periods after the expiry of two three-year terms subject to a particularly rigorous review of performance and
considering the need for progressive refreshing of the Board. Under the Company’s Articles of Association, all directors are required to
stand for re-election by shareholders on appointment and thereafter at least once every three years. However, in line with best
practice, the Company has decided to put all Non-Executive Directors up for re-election at its Annual General Meeting (“AGM”).

Fees paid to Non-Executive Directors
The aggregate amount of Non-Executive Directors’ fees, as set out in the Company’s Annual report and accounts for the years ended
31 December 2019 and 2018 is as follows.

Aggregate fees paid to Chairman and Non-Executive Directors

2019
£

2018
£

219,079

154,195

Directors’ remuneration (audited)
Aggregate emoluments for current and former directors in 2019 totalled £737,249 (2018: £212,605), and Company pension
contributions were £54,832 (2018: £nil).

The directors who held office at 31 December 2019 received the following remuneration in relation to the year ended 31 December
2019, with the bonus paid in 2019 relating to performance in 2018.

Salary
Other
& fees benefits(5)
£

Bonus Pension(6)
£

2019

Total
£

Salary
Other
& fees benefits
£

Bonus
£

Pension
£

2018

Total
£

250,000
225,000

7,118
6,365

15,625
14,062

29,263
25,569

302,006
270,996

34,295
65,810

50,000
51,418
50,000

–
–
–

50,000
51,418
50,000

40,500
–
–

626,418

13,483

29,687

54,832

724,420

140,605

–
–

–
–
–

–

–
–

–
–
–

–

–
–

–
–
–

34,295
65,810

40,500
–
–

– 140,605

Name of director

Executive
Henrik Wareborn(1)
Andrew Morris(2)
Non-Executive
Sandy Shaw(4)
Philip Holland(3)
Darran Messem(3)

Aggregate emoluments
and pension
contributions

(1) In 2018, the Salary and benefits for Mr. Wareborn was for the period 13 November 2018 to 31 December 2018.
(2) Aggregate salary & fees paid to Andrew Morris during 2018 includes an amount of £34,945 paid to him in his role as a Non-Executive Director in the period

1 January 2018 to 13 November 2018.

(3) Philip Holland and Darran Messem were appointed to the board on 1 January 2019.
(4) £4,000 was paid to SDC LNC Limited for providing additional services of Sandy Shaw during the management changeover in 2018. SDC LNC Limited is

owned and operated by Sandy Shaw and this sum was paid in addition to her salary and fees shown above.

(5) Other Benefits include medical cover for Executive Directors.
(6) The amounts stated for pensions include proportionate amounts for 2018 paid in 2019 as the schemes were set up. Included in Henrik Wareborn’s pension

is £4,263 related to 2018. Included in Andrew Morris’ pension is £3,069 related to 2018.

Velocys plc Annual Report and Accounts 2019

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Directors’ share options (audited)
Aggregate emoluments disclosed above include any amounts paid through the employee benefit trust (“EBT”) in relation to share
options exercised. In 2019 no such payments were made to serving or former directors (2018: nil).

Details of all directors’ shareholdings are disclosed on page 28 in the Directors’ report.

Details of options held by the directors at 31 December 2019 are as follows.

Name of Director

Henrik Wareborn
Commencement
Performance
LTIP 2019 – performance
LTIP 2019 – time

Subtotal

Andrew Morris
Commencement
Performance
LTIP 2019 – performance
LTIP 2019 – time

Subtotal

Total

At 31
December
2018

Granted

Exercised

Lapsed

–
–
–
–

–

–
–
–
–

–

2,000,000
2,000,000
3,125,000
3,125,000

10,250,000

2,000,000
2,000,000
2,812,500
2,812,500

9,625,000

19,875,000

–
–
–
–

–

–
–
–
–

–

–
–
–
–

–

–
–
–
–

–

Exercise
price (£)

Earliest
date of
exercise

Date of
expiry

Exercisable
at 31
December
2019

10.00p
15.00p
3.00p
3.00p

13/12/19
31/12/21
13/12/22
13/12/22

12/12/29
12/12/29
12/12/29
12/12/29

1,333,333
–
–
–

13/12/19
31/12/21
13/12/22
13/12/22

12/12/29
12/12/29
12/12/29
12/12/29

1,333,333
–
–
–

At 31
December
2019

2,000,000
2,000,000
3,125,000
3,125,000

10,250,000

2,000,000
2,000,000
2,812,500
2,812,500

9,625,000

19,875,000

–

No options were exercised by acting directors during 2019. The total charge for share-based payments during the year in respect of
directors was £23,000.

2019 option grants:
Commencement Awards. In connection with the commencement of service of Mr. Wareborn and Mr. Morris, it was agreed to award
2,000,000 share options with an effective date of grant at the date of the services agreement, two-thirds of the Options vested on the
effective date of grant 13th December 2019. The balance of the Options vest on 4th December 2020. The exercise price of the awards
is 10 pence and the last date for exercise is the day immediately preceding the tenth anniversary of the date of grant.

Performance Awards. In connection with the commencement of service of Mr. Wareborn and Mr. Morris, each was awarded 2,000,000
performance based awards. These awards vest and become exercisable at either (i) 31 December 2021 if the target conditions are met
or (ii) 31 December 2022 if the target conditions are not met by 31 December 2021 but are met within the calendar year 2022. The
target condition is that for any 15 consecutive dealing days leading up to the vesting date the weighted average share price of the
Velocys shares on each of these days is equal to or more than 15 pence or for any 45 consecutive days in the six month period leading
up to 31 December 2021 the weighted average share price of a share over the 45-day period is equal to or more than 15 pence. The
exercise price is 15 pence.

2019-2021 LTIP Scheme (“Scheme”)
The Executives were awarded a single award based on 75% of base salary under this Scheme split equally into time-based and
performance awards. Under the Scheme, Mr. Wareborn and Mr. Morris were awarded 3,125,000 and 2,812,500 time-based share
options, respectively, on the 13th December 2019 these options vest and become exercisable on the third anniversary of the date of
grant. The exercise price of the awards is 3 pence and the last date for exercise is the day immediately preceding the tenth anniversary
of the date of grant.

In addition, Mr. Wareborn and Mr. Morris were awarded 3,125,000 and 2,812,500 performance based share options, respectively, on the
13th December 2019 under the Scheme, these awards vest and become exercisable in full on the third anniversary of the date of grant
provided the weighted average share price of a share for the month preceding that third anniversary is at least 4.5 pence. The exercise
price of these awards is 3 pence.

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Directors’ remuneration report (continued)

Former directors (audited)
The directors listed below, who were members of the Board at 1 January 2019 and resigned during the year, received the following
remuneration.

Name of
director

Non-Executive
Pierre Jungels

Aggregate emoluments
and pension
contributions

Salary
Other
& fees Benefits
£

Bonus
£

Pension
£

2019

Total
£

Salary
Other
& fees benefits
£

Bonus
£

Pension
£

67,661

–

67,661

72,000

67,661

72,000

–

2018

Total
£

–

72,000

–

72,000

Pierre Jungels resigned on 10 December 2019.

Share price
The market price of the parent company’s shares as at 31 December 2019 was 1.785p (2018: 4.845p) and the range during the year
was 1.17p to 5.24p (2018: 3.8p to 31p). Details of options and the cost of share-based payments are given in note 15.

Approved by the Board and signed on its behalf by:

Sandy Shaw
Non-Executive Director and Chair of the Remuneration Committee
5 August 2020

Velocys plc Annual Report and Accounts 2019

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Statement of directors’ responsibilities
in respect of the financial statements

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and
regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have
prepared the group financial statements in accordance with International Financial Reporting Standards (“IFRS”s) as adopted by the
European Union and parent company financial statements in accordance with IFRSs as adopted by the European Union. Under
company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of
the state of affairs of the group and parent company and of the profit or loss of the group and parent company for that period. In
preparing the financial statements, the directors are required to:

 select suitable accounting policies and then apply them consistently;
 state whether applicable IFRSs as adopted by the European Union have been followed for the group financial statements and
IFRSs as adopted by the European Union have been followed for the company financial statements, subject to any material
departures disclosed and explained in the financial statements;

 make judgements and accounting estimates that are reasonable and prudent; and
 prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent

company will continue in business.

The directors are also responsible for safeguarding the assets of the group and parent company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.

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The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group and parent
company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and parent company
and enable them to ensure that the financial statements comply with the Companies Act 2006.

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The directors are responsible for the maintenance and integrity of the parent company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors Confirmation
The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group and parent company’s position and performance, business model and
strategy.

In the case of each director in office at the date the Directors’ Report is approved:
 so far as the director is aware, there is no relevant audit information of which the group and parent company’s auditors are

unaware; and

 they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit

information and to establish that the group and parent company’s auditors are aware of that information.

On behalf of the Board

Henrik Wareborn
Chief Executive Officer
5 August 2020

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Independent auditors’ report to the members of Velocys plc
Report on the audit of the financial statements

Opinion
In our opinion, Velocys plc’s Company consolidated financial statements (which cover the group comprising Velocys plc and its
subsidiaries) and Velocys plc’s parent company financial statements (the “financial statements”):
 give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2019 and of the group’s loss and

the group’s and the company’s cash flows for the year then ended;

 have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union and, as regards the company’s financial statements, as applied in accordance with the provisions of the Companies Act
2006; and

 have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual report and accounts 2019 (the “Annual Report”), which
comprise: the consolidated and Velocys plc statements of financial position as at 31 December 2019; the consolidated income
statement and consolidated statement of comprehensive income, the consolidated and Velocys plc statements of cash flows, and the
consolidated and Velocys plc’s statements of changes in equity for the year then ended; and the notes to the financial statements,
which include a description of the significant accounting policies.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section
of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.

Our audit approach
Overview

Materiality

Audit scope

Key audit
matters

 Overall group materiality: £0.5 million (2018: £1.0 million), based on 5.0% of loss before tax, before

exceptional items.

 Overall company materiality: £107,600 (2018: £147,000), based on 0.9% of total assets.
 We identified two financially significant components which were subject to full scope audits.
 We performed a full scope audit over the significant components Velocys plc and Velocys Inc as

well as Velocys Technology Limited for statutory reporting purposes.

 We performed specified audit procedures at two further components to address specific risk
characteristics or to provide sufficient overall coverage of particular financial statement line
items.

 All audit work was performed by the group engagement team.
 Components where we performed audit procedures accounted for 94% of group loss before tax

and 99% of Velocys plc total assets.

 Valuation of assets for Company consolidated (group) and investment in subsidiaries for Velocys

plc (parent company).

 COVID-19 (group and parent company)

The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our
audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of
bias by the directors that represented a risk of material misstatement due to fraud.

Velocys plc Annual Report and Accounts 2019

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Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of
our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

Key audit matter

How our audit addressed the key audit matter

Valuation of assets for the group and investments in subsidiaries for Velocys plc (parent company)

We assessed the level at which impairment testing was
performed. Based on our knowledge of the business, including
the use of assets and internal reporting, we agreed with
management’s judgement that, for the assessment of the
recoverable amount of the group’s assets, the group has
one CGU.

We evaluated management’s approach to calculating the CGU’s
recoverable amount, based on its fair value, using Velocys plc’s
market capitalisation. Management’s assessment considered
the market capitalisation at 31 December 2019 and post year
end up to the date of this report. We concluded that the
application of this market approach was appropriate.

We tested the accuracy of the impairment loss calculated for
the investment in subsidiaries, by comparing the carrying value
of assets with their recoverable amount. We did not identify any
material exceptions in these tests.

We also assessed the group’s and Velocys plc’s disclosures
regarding the significant accounting judgements in assessing
the impairment required. We consider that these disclosures
appropriately draw attention to the significant areas of
judgement that support management’s conclusion.

The carrying value of the group’s intangible assets is £0.4m
(2018: £0.4m) and net assets are £2.3m (2018: £5.4m). The
carrying value of Velocys plc’s investments in subsidiaries is
£9.1m following an impairment loss of £3.3m recorded in the
year (2018: £2.0m). The group’s intangible assets and Velocys
plc’s investments in subsidiaries are subject to impairment
testing at least annually or more frequently if events or changes
in circumstances indicate the carrying value may not be
recoverable. In assessing whether there was any indication of
impairment, management considered any changes in
operations and compared the carrying amount of the group’s
and Velocys plc’s net assets to Velocys plc’s market
capitalisation.

For the assessment of the recoverable amount of the group’s
and Velocys plc’s assets, the recoverable amount was
determined for the cash generating unit (‘CGU’) to which these
assets belong. The group and Velocys plc has one CGU. The
recoverable amount of the CGU was determined based on its
fair value less costs of disposal (‘fair value’), using Velocys plc’s
market capitalisation.

IAS 36 also requires that the group assess at the end of each
reporting period whether there is any indication that an
impairment loss recognised in prior periods for an asset other
than goodwill may no longer exist or may have decreased.

Management considered the operational performance in 2019
to contain no clear favourable events or changes in
circumstances that would indicate the impairment loss no
longer exists or has increased. Management have also
considered the market capitalisation. The market capitalisation
at 31 December 2019 was £11.5m (2018: £19.9m). Post year end
the share price increased to a high of 14.5p in June 2020 and
fluctuated to a low of 1.7p in March 2020. Based on a market
capitalisation of £11.5m in comparison to the net assets of the
group at 31 December 2019 of £2.3m there is not considered to
be an impairment at that date.

The investment in subsidiaries recorded in Velocys plc’s
financial statements has been impaired by £3.3m based on the
market capitalisation of £11.5m. This writes down the net
assets of Velocys plc being equal to the market capitalisation at
31 December 2019.

Our audit focused on the risk that the carrying value of the
group’s assets and Velocys plc’s investments in subsidiaries
could be overstated and further impairments could be
necessary as well as considering if there were any indicators
that the previous impairment may be reversed.

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Independent auditors’ report to the members of Velocys plc
(continued)

Key audit matter

COVID-19

The impact of COVID-19 on the group includes both the wider
impact to the global economy (the air travel and oil and gas
industries are key stakeholders), and the direct impact on
slowing operations. Following the social distancing policy
implemented in both the UK and the US, the group has also had
to temporarily close offices and sites in Oxford, Houston and
Plain City and put in place a work from home policy.
Management consider that whilst this has impacted
productivity, operations and progress continues to be made in
all aspects of the business.

Despite the wider economic challenges Velocys raised gross
proceeds of just under £21 million in June 2020 by way of new
ordinary shares issued to retail and institutional investors
including Directors and other investors at a price of 5 pence per
share.

Our audit focussed on the extent of the impact both to the
group’s near-term liquidity, its basis of preparation as a going
concern and the associated disclosures.

How our audit addressed the key audit matter

We evaluated the process used and tested the mathematical
accuracy of the models used by management in their
assessment.

We evaluated management’s assumptions in respect of
downside scenarios in the cash flow forecast, in particular cash
inflows from customers and the ability to receive strategic
funding following the impact on the airline and oil and gas
industries.

We agreed the fundraise (July 2020) cash inflows to the bank
statement and reviewed the relevant commission/fee
documents to ensure that the fund raise amount included
within the cash flow forecast is net of all expenses. We have
reviewed post year customer cash receipts and project funding.

We performed sensitivities over the group’s cash flow forecasts
taking account of reasonably possible adverse effects that
could arise from COVID-19 both individually and collectively. The
impact of COVID-19 has negatively impacted operations but
management have been able to secure financial support from
the US government post year end including a £0.6m loan.

We assessed the transparency and reasonableness of the going
concern disclosure and considered these to be adequate.

Overall, we have concluded that the directors’ use of the going
concern basis is appropriate. However, because not all future
events or conditions can be predicted, this is not a guarantee as
to the Consolidated Company (group) or Velocys plc’s (parent
company) ability to continue as a going concern.

How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry
in which they operate.

Velocys plc Annual Report and Accounts 2019

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Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Company consolidated (group) financial
statements

Velocys plc (company only) financial
statements

Overall materiality

£0.5 million (2018: £1.0 million).

£107,600 (2018: £147,000).

How we determined it

5.0% of loss before tax, before exceptional items.

0.9% of total assets.

Rationale for benchmark
applied

Based on the benchmarks used in the Annual
Report, loss before tax before exceptional items,
is the primary measure used by the members in
assessing the financial performance of the
group. We consider it appropriate to eliminate
exceptional items, which are considered non-
recurring, to preserve the link between
materiality and the underlying performance of
the group.

We believe that total assets is the primary
measure used by the shareholders in assessing
the performance and position of the entity and
reflects the Velocys plc’s principal activity as a
holding company.

For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The
range of materiality allocated across components was between £107,600 and £498,977. Certain components were audited to a local
statutory audit materiality that was also less than our overall group materiality.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £25,950 (group
audit) (2018: £49,000) and £5,380 (company audit) (2018: £7,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.

Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you where:
 the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
 the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the group’s and company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s and
company’s ability to continue as a going concern.

Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the
other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report,
any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report
certain opinions and matters as described below.

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Independent auditors’ report to the members of Velocys plc
(continued)

Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’
Report for the year ended 31 December 2019 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.

In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we
did not identify any material misstatements in the Strategic Report and Directors’ Report.

Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of directors' responsibilities in respect of the financial statements set out on page 35, the
directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being
satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.

Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
 we have not received all the information and explanations we require for our audit; or
 adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from

branches not visited by us; or

 certain disclosures of directors’ remuneration specified by law are not made; or
 the company financial statements are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Gareth Murfitt
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
5 August 2020

Velocys plc Annual Report and Accounts 2019

173721 Velocys R&A Pt2_173721 Velocys R&A Pt2 07/08/2020 11:48 Page 41

Financial
Statements

173721 Velocys R&A Pt3a_173721 Velocys R&A Pt3a 07/08/2020 11:49 Page 42

Consolidated income statement
for the year ended 31 December 2019

Revenue
Cost of sales

Gross profit
Administrative expenses
Other income

Operating loss
Share of loss of investments
accounted for using the equity
method

Loss before net finance (costs)/income
Finance income
Finance costs

Net finance (cost)/income

Loss before income tax
Income tax credit

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

Loss per share attributable to the
owners of Velocys plc
Basic and diluted loss per share (pence)

2019
£’000

2018
£’000

Note

10
9

7
8

Before Exceptional
items
(note 4)

exceptional
items

332
(132)

200
(9,898)
79

(9,619)

–

(9,619)
48
(429)

(381)

(10,000)
291

(9,709)

–
–

–
94
–

–

94
–
–

–

94
–

Before Exceptional
items
(note 4)

exceptional
items

664
(273)

391
(19,060)
36

(18,633)

(1,717)

(20,350)
993
(628)

365

(19,985)
317

–
–

–
(10,067)
–

(10,067)

(848)

(10,915)
–
–

–

(10,915)
–

Total

332
(132)

200
(9,804)
79

(9,525)

–

(9,525)
48
(429)

(381)

(9,906)
291

Total

664
(273)

391
(29,127)
36

(28,700)

(2,565)

(31,265)
993
(628)

365

(30,900)
317

(9,615)

(19,668)

(10,915)

(30,583)

(1.91)

–

(1.90)

(5.75)

–

(8.95)

The notes on pages 47 to 75 are part of these consolidated financial statements.

Velocys plc Annual Report and Accounts 2019

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Consolidated statement of comprehensive income
for the year ended 31 December 2019

2019
£’000

2018
£’000

Before Exceptional
items
(note 4)

exceptional
items

Before Exceptional
items
(note 4)

exceptional
items

Total

Loss for the year

(9,709)

(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

Total comprehensive expense for the year
attributable to the owners of Velocys plc

(262)

(9,971)

–

(262)

897

–

897

(9,877)

(18,771)

(10,915)

(29,686)

The notes on pages 47 to 75 are part of these consolidated financial statements.

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Consolidated statement of financial position
as at 31 December 2019

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use asset
Trade and other receivables

Current assets
Inventories
Trade and other receivables
Current income tax asset
Cash and cash equivalents

Total assets

Liabilities
Current liabilities
Trade and other payables
Lease liability
Borrowings
Other liabilities
Deferred revenue

Non-current liabilities
Trade and other payables
Lease lability
Deferred revenue

Total liabilities

Net assets

Capital and reserves attributable to owners of Velocys plc
Called up share capital
Share premium account
Merger reserve
Share-based payments reserve
Foreign exchange reserve
Accumulated losses

Total equity

Note

17
18
19
21

22
21

24
19

29
30

25
19
30

27
27

2019
£’000

444
1,734
836
–

3,014

3,332
1,637
648
4,797

10,414

13,428

(1,331)
(581)
–
(2,804)
(5,562)

(10,278)

–
(343)
(470)

(813)

(11,091)

2,337

6,438
184,256
369
16,225
3,289
(208,240)

2,337

(Restated)
2018
£’000

357
1,819
–
281

2,457

1,438
4,404
862
6,964

13,668

16,125

(3,018)
–
(289)
(2,092)
(579)

(5,978)

(90)
–
(4,634)

(4,724)

(10,702)

5,423

4,105
180,016
369
16,143
3,551
(198,761)

5,423

The notes on pages 47 to 75 are part of these consolidated financial statements.

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 £2,192,000. 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 £1,913,000 and share premium was
£182,208,000. See note 27 for further information.

The financial statements on pages 42 to 75 were approved by the Board of directors and authorised for issue on 5 August 2020. They
were signed on its behalf by:

Henrik Wareborn
Chief Executive Officer

Company number 05712187

Velocys plc Annual Report and Accounts 2019

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Consolidated statement of changes in equity
for the year ended 31 December 2019

Called up
share
capital
(Restated)
£’000

Share
premium
account
(Restated)
£’000

Convertible
loan/
’other’
reserve
£’000

Share-
based
payment
reserve
£’000

Merger
reserve
£’000

Note

Foreign
exchange
reserve
£’000

Accumu-
lated
losses
£’000

Total
equity
£’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
Other comprehensive income
Foreign currency translation differences

Total comprehensive expense

Transactions with owners
Share-based payments – value of employee
services
Proceeds from share issues
Convertible loan notes
Interest on convertible loan note

Total transactions with owners

Balance at 31 December 2018

Change in accounting policy

Balance at 1 January 2019

Loss for the year
Other comprehensive expense
Foreign currency translation differences

Total comprehensive expense

Transactions with owners
Share-based payments – value of
employee services
Proceeds from share issues

Total transactions with owners

Balance at 31 December 2019

15
27
27
27

15
27

–

–
2,435
180
22

2,637

4,105

–

–
20,205
8,820
1,027

30,052

180,016

–

4,105

180,016

–

–
2,333

2,333

6,438

–

–
4,240

4,240

–

–
–
–
–

–

369

–

369

–

–
–

–

–
–
(9,000)
(421)

(9,421)

–

–
–

–

58
–
–
–

–

82
–

–

(30,583)

897

–

897

(30,583)

(29,686)

–
–
–
–

–

–
–
–
(628)

(628)

16,143

3,551

(198,761)

–

136

16,143

3,551

(198,625)

58
22,640
–
–

22,698

5,423

136

5,559

–

(9,615)

(262)

–

(262)

(9,615)

(9,877)

–
–

–

–
–

–

82
6,573

6,655

2,337

184,256

369

16,225

3,289

(208,240)

The notes on pages 47 to 75 are part of these consolidated financial statements.

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Consolidated statement of cash flows
for the year ended 31 December 2019

Cash flows from operating activities
Operating loss
Depreciation and amortisation
Loss on disposal of intangible assets
Impairment of property, plant and equipment
Impairment of loan to associate ENVIA
Finance costs
Impairment of inventory
Share-based payments
Changes in working capital (excluding the effects of exchange
differences on consolidation)
Trade and other receivables
Trade and other payables
Other liabilities
Deferred revenue
Inventory

Cash consumed by operations
Tax credits received

Net cash used in operating activities

Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Payment from (loan to) associate ENVIA
Interest received

Net cash generated from/(used in) investing activities

Cash flows from financing activities
Proceeds from issues of shares and convertible loan notes
Costs of issuing shares and convertible loan notes
Principal elements of lease payments
Interest paid
Repayment of borrowings

Net cash generated from financing activities

Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange movements on cash and cash equivalents

Cash and cash equivalents at end of year

The notes on pages 47 to 75 are part of these consolidated financial statements.

Note

17
4
4
8
22

2019
£’000

(9,525)
1,094
187
439
–
(196)
569
82

(165)
(1,687)
712
819
(2,473)

(10,144)
736

(9,408)

(779)
(394)
3,432
33

2,292

7,000
(427)
(479)
(5)
(371)

5,718

(1,398)
6,964
(769)

4,797

2018
£’000

(28,700)
659
627
–
10,067
–
–
58

(220)
(1,125)
2,092
5,213
(1,050)

(12,379)
–

(12,379)

(509)
(349)
(5,531)
74

(6,315)

25,172
(1,904)
–
(13)
(252)

23,003

4,309
2,070
585

6,964

Velocys plc Annual Report and Accounts 2019

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Notes to the consolidated financial statements

1. General information
Velocys plc is a company incorporated in England and Wales and domiciled in England. It operates through a number of subsidiaries in
the UK and the US, and collectively they are referred to in the financial statements as the “Company” or “Velocys”, with Velocys plc as
“Velocys plc” or the “parent company”. The nature of the Company’s operations and its principal activities are set out in the Strategic
report on pages 4 to 17. The parent company financial statements are included on pages 76 to 86 The parent company’s securities are
traded on the Alternative Investment Market (“AIM”) of The London Stock Exchange under the symbol “VLS”.

2. 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 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.

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 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

www.velocys.com

173721 Velocys R&A Pt3b_173721 Velocys R&A Pt3b 07/08/2020 11:50 Page 48

Notes to the consolidated financial statements (continued)

2. Accounting policies (continued)
 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

Operating lease commitments disclosed as at 31 December 2018
Discount based on incremental borrowing rate at 1 January 2019
(Less): short term/low value leases recognised on a straight line basis as expense

Lease liability recognised as at 1 January 2019

Of which are:
Current liabilities
Non-current liabilities

£’000

1,314
(234)
(42)

1,038

409
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 £1,038,000
 Lease liabilities – increase by £1,038,000
 Accrued Rent – decrease by £88,000

The net impact on retained earnings on 1 January 2019 was an increase of £88,000.

Velocys plc Annual Report and Accounts 2019

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New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting
periods and have not been early adopted by the group. These standards are not expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable future transactions.

Financial risk management policies
Financial risk management policies are set out in the Strategic report on pages 12 and 13, and in note 26.

Capital management policies
Capital management policies are set out in note 26.

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 (£). 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.

3. Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Company’s accounting policies. Although these
estimates and judgements are based on management’s best knowledge of the amount and/or timing, actual results ultimately may
differ. These estimates and judgements are regularly reviewed and revised as necessary. The areas that involve a higher degree of
judgement or complexity, or that have the most significant effect on the amounts included in these consolidated financial statements
are listed below and described in the relevant note. Please see the notes referenced below for the details associated with the critical
accounting estimates and judgements.

Items involving a critical estimate
IFRS 16 critical estimates
Share-based payments
Other receivables – impairment assessment under IFRS 9
Items involving a judgement
Revenue recognition under IFRS 15
Share-based payments
Intangible assets – impairment assessment

Note

19
15
20

6 and 29
15
17

www.velocys.com

173721 Velocys R&A Pt3b_173721 Velocys R&A Pt3b 07/08/2020 11:50 Page 50

Notes to the consolidated financial statements (continued)

4. 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.

Administrative expenses:
Property, plant and equipment impairment
Recovery/(impairment) of loan to associate ENVIA

Impairment in carrying value of equity accounted associate

Total

2019
£’000

(439)
533

–
–

2018
£’000

–
(10,067)

(10,067)

(848)
(848)

(10,915)

Administrative expenses
Property, plant and equipment impairment – in 2019, the Company made an impairment of £439,000 (2018: £nil) 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 secured loan to ENVIA – In 2019 the Company released deferred revenue in the amount of £533,000 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 £848,000.

5. Segmental information
The Company’s chief operating decision-making unit is the Executive management team made up of the Chief Executive Officer and
the Chief Financial Officer. The Executive management team reviews the Company’s internal reporting in order to assess performance
and allocate resources and has determined the operating segments based on these reports.

The Executive management team considers that the business comprises a single activity, which is the design, development, marketing
and sale of technology for the production of sustainable transport fuels. This includes facilitating project development by putting
together partnerships with technology licensors, engineers, feedstock suppliers, offtakers and financing entities. The Executive
management team reviews the Company’s profit or loss and its cash flows, assets and liabilities on a Company-wide basis. In carrying
out these reviews, the Executive management team considers all material items of income and expenditure that are directly
attributable to individual commercial projects and development programmes. The internal management reports do allocate assets
and liabilities or shared overheads to individual products or projects.

The business has one segment on the basis that the key end use market is that of sustainable transport 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.

Internal and external reporting is on a consolidated basis, with purchases and sales between subsidiaries eliminated on
consolidation. Therefore, the segmental and financial information is the same as that set out in the financial statements.

The Chief Executive Officer assesses the performance of the operating segment based on a measure of operating loss.

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The Company’s operating segment operates in two main geographical areas. Revenue is allocated based on the country in which
the customer is located.

Americas
Asia Pacific

Total revenue

2019
£’000

66
266

332

2018
£’000

652
12

664

Revenues during the year originated predominantly from Japan relating to sale of equipment in the Asia Pacific region, with
professional services revenue from feasibility studies in the Americas.

The total amount of revenue recognised from customers where revenue comprises 10% or more of Company revenue is as follows:

Customer 1
Customer 2
Customers less than 10%

Total revenue

Non-current assets held in the United States are as follows:

Intangible assets
Property, plant and equipment
Right-of-use asset
Trade and other receivables

Total

2019
£’000

266
44
22

332

2019
£’000

347
1,627
751
–

2,725

2018
£’000

508
144
12

664

2018
£’000

175
1,701
–
281

2,157

All other non-current assets were held in the United Kingdom and amounted to £289,000 (2018: £223,000).

6. 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.

www.velocys.com

173721 Velocys R&A Pt3b_173721 Velocys R&A Pt3b 07/08/2020 11:50 Page 52

Notes to the consolidated financial statements (continued)

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

FT reactor, catalyst and licence
Engineering services

Total

2019
£’000

273
59

332

2018
£’000

508
156

664

FT reactor, catalyst and license revenue in the amount of £273,000 for the year ended December 31, 2019 consisted principally the
sale of substacks to a customer in Japan in the Asia Pacific region (2018: £508,000).

7. Finance income

Interest income on bank deposits
Interest on loan to associate
Foreign exchange gains

Total

2019
£’000

48
–
–

2018
£’000

76
732
185

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 20 and 21 for further information).

8. Finance costs

Interest on lease liabilities
Interest on borrowings
Foreign exchange losses

Total

2019
£’000

196
4
229

429

2018
£’000

–
628
–

628

Interest on leases is the interest associated with the adoption of IFRS 16 in 2019. Included in interest on borrowing in 2018 is the
interest associated with the convertible loan note and other loans.

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

Return on deposits
Sale of fixed assets

Total

2019
£’000

–
79

2018
£’000

22
14

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10. Expenses by nature

Employee benefit expense (see note 12)
Sub-contractor and consultant costs
Depreciation of property, plant and equipment (note 18)
Amortisation of intangible assets (note 17)
Depreciation of right-of-use asset (note 19)
Lease expense
Patent and other IP costs
Other direct and administrative costs
Services
Legal
Travel
Other expenses

Total administrative expenses before exceptional items

Exceptional items (note 4)

Total administrative expenses

2019
£’000

3,332
2,967
568
112
414
–
89
937
560
450
469
–

9,898

(94)

9,804

2018
£’000

6,282
3,888
581
96
–
470
88
735
5,041
720
958
201

19,060

10,067

29,127

Included in administrative expenses were research and development costs of £1,174,000 (2018: £1,849,000). The decrease in research
and development costs is the result of the Company’s change of focus to developing projects thereby reducing the emphasis on
research. The reduction of services in 2019 has occurred because the US project expenses were significantly reduced at the end of
2018 by the new management of the Company, whilst the project was reworked with a solar power source and CO2 capture and
storage.

11. Auditor’s remuneration

Payable to PricewaterhouseCoopers LLP and its associates:
For the audit of the parent company and consolidated financial statements in respect of the current year
For the audit of the parent company and consolidated financial statements in respect of the prior year
For the audit of the financial statements of subsidiaries of the parent company in respect of the current year
For the audit of the financial statements of subsidiaries of the parent company in respect of the prior year
Other services:
Audit-related assurance services

Total

2019
£’000

158
54
35
12

–

259

2018
£’000

100
44
25
12

188

12. Employee benefit expense
Short-term employee benefits
Accruals are included to reflect the cost of short-term compensation to employees for absences such as paid leave.

Pensions
The Company operates various defined contribution pension schemes for its employees. The Company has no legal or constructive
obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefit derived from the
current and prior periods.

The amount charged to the Income statement in respect of pension costs and other post-retirement benefits is the contributions
payable in the year. Differences between contributions payable and contributions actually paid are accrued. The Company has no
further payment obligations once the contributions have been paid.

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

Research, design and development
Administration

Total average headcount

2019
number

2018
number

15
18

21
18

www.velocys.com

173721 Velocys R&A Pt3b_173721 Velocys R&A Pt3b 07/08/2020 11:50 Page 54

Notes to the consolidated financial statements (continued)

12. Employee benefit expense (continued)
Their aggregate remuneration comprised the following items.

Wages and salaries
Social security costs
Other pension costs
Severance expense
Share-based payments granted to directors and employees (note 15)

Total remuneration before capitalisation of wages and salaries

Capitalisation of wages and salaries

Total remuneration

2019
£’000

4,360
286
188
138
82

5,054

(1,722)

3,332

2018
£’000

5,053
349
433
389
58

6,282

–

6,282

The capitalisation of wages and salaries relates to employees who manufacture the reactors associated with one of the company’s
contracts. In addition, capitalisation on of wages and salaries, include those related to the Altalto project, are offset against Other
liabilities. No redundancies were made during 2019. Severance in the amount of £138,000 in 2019 and £39,000 in 2018 was paid to a
former director, who resigned in December 2018. During 2017 the decision to scale down R&D activities was taken resulting in some
final redundancy payments, including payments in lieu of notice and holiday totalling £389,000 in 2018.

Details of directors’ remuneration are given in the audited information in the Directors’ remuneration report on pages 24 to 26, which
forms part of these financial statements.

13. Income tax
Current tax, including UK corporation tax and foreign tax, is provided for at the amount expected to be paid (or recovered) based on the
tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Current tax:
R&D tax credit relating to prior years
R&D tax credit relating to current year

Current tax total

Income tax total

2019
£’000

247
(538)

(291)

2018
£’000

133
(450)

(317)

Due to the availability of losses incurred in the year, there is no charge to corporation tax. The Company recognised £291,000 for R&D
tax credits (2018: £317,000). The credit relating to the current year is on an accruals basis, which is an estimate of the amount to be
claimed from HMRC based on the activity level and significant R&D costs of the current year compared to previous years. The debit
relating to prior years is the difference between the brought forward accrual and the settlement from HMRC.

The accrual for the current year, which is the majority of the credit, is based on an assessment of the Company’s projects, to determine
which ones qualify under HMRC’s rules, and to estimate the level of allowable cost within each, based on the nature of costs.

The actual tax credit for the current and previous year is lower (2018: lower) than the theoretical amount that would arise using the
weighted average tax rate applicable to the results of the consolidated entities, for the reasons set out in the following reconciliation.

Loss before income tax after exceptional items

Tax calculated at domestic tax rates applicable to losses in the respective countries

Tax effects of:
Expenses not deductible for tax purposes
Impairment loss not deductible for tax purposes
Unutilised tax losses for which no deferred tax asset is recognised
R&D tax credit

Income tax total

2019
£’000

(9,906)

(1,882)

72
–
1,811
(291)

(291)

2018
£’000

(30,900)

(5,779)

215
2,292
3,272
(317)

(317)

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In the table, Impairment loss not deductible for tax purposes, in both 2019 and 2018, removes the tax impact of the In-process
technology and Goodwill impairments. Goodwill created from a stock purchase such as that of Velocys Inc.is not deductible for US tax
purposes. Goodwill created from purchasing the assets of the Company (such as Velocys Project Solutions LLC) is tax deductible.

The weighted average applicable tax rate was 21% (2018: 21%).

In the Spring Budget 2020, the UK Government announced that from 1 April 2020 the UK corporation tax rate would remain at 19%
(rather than reducing to 17%, as previously enacted). This new law was substantively enacted on 17 March 2020. As the proposal to
keep the rate at 17% had not been substantively enacted at the balance sheet date, its effects are not included in these financial
statements. Unrecognised UK deferred tax balances have been measured at 17% (recognised: £nil).

In December 2017 the US Congress voted to reduce the tax rate to 21%. Unrecognised US deferred tax balances have been measured
at 21% (recognised: £nil).

14. Deferred tax
Deferred tax is recognised, using the liability method, on temporary differences arising between the tax basis of assets and liabilities
and their carrying amounts in the consolidated financial statements. Deferred tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affected
neither accounting nor taxable profit or loss. Tax amounts are determined using tax rates (and laws) that have been enacted or
substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised, or
the deferred income tax liability is settled.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries except
where the timing of the reversal of the temporary difference is controlled by the parent company and it is probable that the temporary
difference will not reverse in the foreseeable future.

There was no recognised deferred tax in the year or the comparative period.

Unrecognised
Deferred tax assets
Trading losses

Total

2019
£’000

2018
£’000

(27,116)

(37,418)

At 31 December 2019, the Company had a net unrecognised deferred tax asset of £27,116,000 (2018: £37,418,000) arising from trading
losses since incorporation. No recognition (2018: £nil) of the net deferred tax asset has been made at 31 December 2019 on the
grounds of uncertainty over its recoverability in light of the Company’s nascent revenue streams and commitment to continued
investment in the development of its biorefineries, and therefore there is no impact on the current or prior year income statement.

Of this unrecognised deferred tax asset £10,663,000 (2018: £19,306,000) is anticipated to remain available indefinitely to offset
against future taxable trading profits of the entities in which the losses arose. The remainder has expiry dates between 2025 and 2039
(2018: 2024 and 2038).

15. Share-based payments
Velocys plc issues share options to employees of its subsidiaries that are accounted for as equity settled. There are a number of
schemes covering employees, executives and external consultants; most are based on a service period, but some include performance
conditions, both market based and non-market based.

Options are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. For executive
options with market performance conditions attached, the Monte Carlo pricing model is used. All other options apply the Black-
Scholes model. The fair value calculation of share-based payments requires several assumptions and estimates. Such assumptions
and estimates could change and could affect the amount recorded.

The basic assumptions that feed into both models are volatility of the share price, annual risk-free rate and dividend yield. Volatility is
estimated using the average daily share price commensurate with the remaining contractual term, the risk-free rate is based on the
Bank of England’s yield curve tables, and it is assumed no dividend will be paid over the life of the option. Additionally, for the Monte
Carlo model, contract term is assumed to be 10 years. This has been adjusted, using management’s best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural considerations.

At the end of each reporting period, for awards not containing a market condition the Company revises its estimates of the number of
options that are expected to vest, based on historical satisfaction of non-market vesting and service conditions. It recognises the

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Notes to the consolidated financial statements (continued)

15. Share-based payments (continued)
impact of the revision to original estimates in the Income statement, recorded in Administrative expenses, with a corresponding
adjustment to equity.

When options are exercised, the Company issues new shares; proceeds received, net of attributable transaction costs, are credited to
share capital and premium. The Company does not hold any treasury shares.

The number of options outstanding at 31 December 2019 and the expense recognised in the profit or loss for these schemes, along
with bonus shares and other schemes, are as follows.

Scheme

Employees UK/US
LTIP (Executives and Senior Management team)
Velocys, Inc.
Bonus shares
Other

Total

2019

Income
statement
£’000

55
27
–
–
–

Options
outstanding

1,767,100
4,922,741
63,570
79,760
212,625

7,045,796

2018

Income
statement
£’000

12
44
–
–
2

Options
outstanding

17,993,269
38,568,280
58,566
37,655
212,625

56,870,395

Critical estimates and judgements
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which
depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the
valuation model including the expected life of the share option or appreciation right, volatility and dividend yield and making
assumptions about them. For the measurement of the fair value of equity-settled transactions with employees at the grant date, the
Company uses a Black-Scholes model and a Monte-Carlo simulation model for awards granted in 2019.

Employees UK/US
In 2019, the Company awarded all of its UK and US employees (excluding the Executive Directors and Non-Executive Directors) with a
Special Award grants of options. The UK awards had advanced assurance from the HMRC for EMI qualification. The Special awards
were made as a once-off award, looking forward, to incentivise, focus, retain and reward staff and in part as recognition that no long
term equity based award schemes have been put in place since 2014. The Special Award also encompassed and superseded awarded
options in new joiner employment contracts where the options had not yet been granted.

The Special Awards granted vest over a three year period with the first tranche vesting on 31 December 2019. The options granted
expire after ten years. The options will normally lapse if the option holder ceases to hold an office or employment within the Group. The
exercise price was set at the time of grant at 3 pence. Options are fair valued at grant date using the Black-Scholes model, and
expensed over the vesting period.

Prior to 2019, options were granted to employees when they join the Company, which vest three, four or five years from the date of
joining, subject to the employee completing a corresponding service period, and expire after ten years. The exercise price is the mid-
market value of Velocys plc’s ordinary shares on the day prior to grant. Options are fair valued at grant date using the Black-Scholes
model, and expensed over the vesting period. No options were granted in 2018.

Movements in the number of options outstanding and their related weighted average exercise prices are as follows.

At 1 January
Granted
Forfeited
Exercised

At 31 December

Weighted
average
exercise price

129.45p
3.00p
106.42p

–

2019

Number of
options

1,767,100
16,700,000
(473,831)
–

Weighted
average
exercise price

117.95p

–

89.31p

–

2018

Number of
options

2,036,100
–
(269,000)
–

12.31p

17,993,269

129.45p

1,767,100

Of the 17,993,269 options outstanding at 31 December 2019, 1,389,934 were exercisable (2018: 1,550,431). The weighted average
exercise price of the exercisable shares was 41.85p (2018: 129.62p).

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Options outstanding at the end of the year have the following expiry dates and exercise prices.

Year of expiry

2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029

Total

Range of
exercise price

159p
57.78 – 68.32p
51 – 72.25p
67.55 – 69.89p
185.99 – 206.53p
202.61 – 293.23p
60.47 – 174.66p
29.24 – 39.26p
–
–
3.00p

Number of
options

–
21,308
491,961
10,000
460,000
140,000
100,000
70,000
–
–
16,700,000

3.00 – 293.23p

17,993,269

2019

Weighted
average
exercise price

–
57.78p
53.74p
67.55p
191.71p
230.81p
168.81p
29.65p
–
–
3.00p

37.11p

2018

Weighted
average
exercise price

159.00p
68.32p
44.74p
69.89p
198.36p
236.74p
154.18p
30.67p
–
–
–

129.45p

Number of
options

62,893
24,352
739,855
10,000
460,000
160,000
240,000
70,000
–
–
–

1,767,100

The significant inputs into the Black-Scholes model were as follows.

Weighted average share price at grant date
Weighted average exercise price
Expected volatility
Weighted average annual risk-free rate
Dividend yield
Weighted average expected life

2019

2018

1.45p
3.00p
73.40%
0.01% – 0.63%
0%
5.03 – 6.03

–
–
–
–
–
–

Total expense recognised in the income statement for share options granted to directors and employees was £55,000 (2018: £12,000).

LTIP (Executives and Senior Management team) options
Executive and Senior Management options (also referred to as “LTIP” and the “Scheme” in the Directors’ remuneration report) are
awarded to Executive Directors and senior managers of the Company.

The fair value of options is recognised from the start of the relevant service period to the end of the vesting period.

In 2019, the Remuneration Committee introduced a new annual equity-based incentive scheme for executive directors and senior
managers. Under the 2019 Scheme, Executive Directors and senior managers were awarded (i) time based share options and (ii)
performance based awards in equal amounts.

The time based share options awarded vest and become exercisable on the third anniversary of the grant date in December 2019 and
expire after ten years. The exercise price was set at the time of grant at 3 pence. The options will normally lapse if the option holder
ceases to hold an office or employment within the Group. Options are fair valued at grant date using the Black-Scholes model, and
expensed over the vesting period.

The performance awards vest and become exercisable in full on the third anniversary of the grant date provided the weighted average
share price for the month preceding that third anniversary is at least 4.50 pence. The options expire after ten years. The exercise price
was set at the time of grant at 3 pence. The options will normally lapse if the option holder ceases to hold an office or employment
within the Group. Options are fair valued at grant date using the Monte-Carlo model, and expensed over the vesting period.

In connection with the commencement of service of Mr. Wareborn and Mr. Morris, it was agreed to award 2,000,000 share options with
an effective date of grant at the date of the services agreement, two-thirds of the Options vested on the effective date of grant 13th
December 2019. The balance of the Options vest on 4th December 2020. The exercise price of the awards is 10 pence and the last date
for exercise is the day immediately preceding the tenth anniversary of the date of grant.

In connection with the commencement of service of Mr. Wareborn and Mr. Morris, each was awarded 2,000,000 performance based
awards. These awards vest and become exercisable at either (i) 31 December 2021 if the target conditions are met or (ii) 31 December
2022 if the target conditions are not met by 31 December 2021 but are met within the calendar year 2022. The target condition is that
for any 15 consecutive dealing days leading up to the vesting date the weighted average share price of the Velocys shares on each of
these days is equal to or more than 15 pence or for any 45 consecutive days in the six month period leading up to 31 December 2021
the weighted average share price of a share over the 45-day period is equal to or more than 15 pence. The exercise price is 15 pence.

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Notes to the consolidated financial statements (continued)

15. Share-based payments (continued)
Executive options granted up to and including 2014, are exercisable at a price of 1p or at a price equal to the mid-market value of the
parent company’s ordinary shares on the day prior to the grant. Options vest immediately or after a period of one, two or three years
from grant, they expire after ten years and are forfeited if the employee leaves the Company before the options vest.

Options, including Restricted Stock Units (“RSU”s), awarded after 2014 were divided into those with a service period and those with
market performance conditions. Except for a former executive, service period options represented 23% of the award; they vest two
years after the conclusion of the period over which performance is measured; the market performance conditions on which the rest of
the award was based pertain to the compound annual growth rate of the Company’s market capitalisation excluding fund raising
subsequent to 1 January 2015; market performance options are measurable after three years from the start of the service period, with
a possible final re-measurement in 2019; options are subject to the discretion of the Board if the employee leaves the Company before
the options vest.

Movements in the number of options outstanding and their related weighted average exercise prices are as follows.

At 1 January
Granted
Forfeited
Exercised

At 31 December

Weighted
average
exercise price

97.02p
5.69p
78.48p
–

14.55p

2019

Number of
options

4,922,741
35,125,146
(1,479,607)
–

38,568,280

Weighted
average
exercise price

89.85p
–
63.10p
–

97.02p

2018

Number of
options

7,597,732
–
(2,674,991)
–

4,922,741

Of the 38,568,280 options outstanding at 31 December 2019, 3,238,134 were exercisable (2018: 4,822,741). The weighted average
exercise price of the exercisable shares was 37.49p (2018: 90.55).

Share options, performance awards and RSUs outstanding at the end of the year have the following expiry dates (RSU latest exercise
dates) and exercise prices.

Year of expiry

2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2029

Total

Range of
exercise price

–
Nil – 1.00p
Nil
1.00 – 58.00p
49.00p
159.00p
153.00 – 163.50p
Nil
1.00p
1.00p
3.00-15.00p

2019

Weighted
average
exercise price

–
–
–
10.82p
28.00p
97.85p
112.94p
Nil
1.00p
1.00p
5.69p

Number of
options

–
–
–
471,876
851,503
911,853
763,937
238,965
105,000
100,000
35,125,146

Number of
options

–
517,369
171,407
550,000
970,503
1,456,694
1,156,768
–
–
100,000
–

Nil – 163.50p

38,568,280

38.63p

4,922,741

2018

Weighted
average
exercise price

–
0.31p
Nil
17.52p
49.00p
159.00p
163.05p
–
–
1.00p
–

97.02p

In 2019, the Company awarded 35,121,146 of equity awards with a weighted average fair value of 3 pence per option. No options have
been granted in respect of 2018. The significant inputs into the model were as follows.

Weighted average share price at grant date
Weighted average exercise price
Expected volatility
Weighted average annual risk-free rate
Dividend yield
Weighted average expected life

2019

2018

1.45p
3.00p-15.00p
70.89%
0.69%
0%
5.03-10.0

–
–
–
–
–
–

Total expense recognised in the income statement for executive options granted to directors and employees was £27,000 in 2019
(2018: £44,000).

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Velocys, Inc. scheme
The Velocys, Inc. Stock Compensation Plan (“Pre-Acquisition Scheme”) was acquired as part of the acquisition of Velocys, Inc. by
Velocys plc, formerly Oxford Catalysts Group PLC, on 20 November 2008. The scheme was started in 2001 and covers all US-based
employees. Prior to the acquisition, Velocys, Inc.’s Board of directors granted non-qualified share options to employees with expiry ten
years from grant date. The options’ exercise price was equal to the stock’s fair market value at the date of grant. Options are forfeited if
an employee leaves the Company. Generally, options vest as follows.

After one year of service from vest start date:
Each month subsequent to one year of service:

25% of grant
1/48th of grant

Pursuant to the terms and conditions of the acquisition of Velocys, Inc., each vested and unvested Pre-Acquisition Scheme option
existing on the acquisition date was converted into 0.3659 of a Velocys plc, formerly Oxford Catalyst Group PLC, option (the ratio of the
value of one share of Velocys, Inc. stock to one share of Velocys plc, formerly Oxford Catalyst Group PLC stock) with a corresponding
increase to the exercise price. Share options are exercisable in US dollars.

During 2011, the Company reviewed employee incentives and concluded that the Pre-Acquisition Scheme options did not provide the
intended incentive or retention value for its employees due to significant shifts in the market price since the original grants.
Consequently, holders of these options were offered the opportunity to forfeit their options and have new options issued. All such new
issues vested in three years and expire ten years from date of grant.

Details of the share options outstanding under the Velocys, Inc. scheme are as follows.

At 1 January
Forfeited
Exercised

At 31 December

Weighted
average
exercise price

$0.93
$0.93
–

$0.93

2019

Number of
options

63,570
(5,004)
–

58,566

Weighted
average
exercise price

$0.93
–
–

$0.93

2018

Number of
options

63,570
–
–

63,570

Of the options outstanding presented above, 58,566 (2018: 63,570) were exercisable as of 31 December 2019. The weighted average
share price of the exercisable shares was $0.93 (2018: $0.93).

Share options outstanding at the end of the year have the following expiry dates and exercise prices.

Year of expiry

2021

Total

Exercise price
per share

Number of
options

$0.93

58,566

2019

Weighted
average
exercise price

$0.93

2018

Weighted
average
exercise price

$0.93

Number of
options

63,570

Total expense recognised in the income statement for share options granted under the Velocys, Inc. plan was £nil (2018: £nil).

Bonus shares
The Company previously maintained two bonus share schemes for certain executives: one in respect of employees of Velocys
Technologies Limited and one in respect of employees of Velocys, Inc. Under both schemes, the value of the bonus was based upon the
executive’s salary as well as the Company and the executive achieving certain targets throughout the year. No awards were, or will be,
made under these schemes during, or in respect of, 2019 and 2018.

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Notes to the consolidated financial statements (continued)

15. Share-based payments (continued)
The Velocys Technologies Limited bonus share scheme awarded nominal value share options (1p) that were issued subsequent to the
end of previous financial years. The awards vested on the date of grant and expire 10 years thereafter. Details of the bonus shares
outstanding under the Velocys Technologies Limited bonus share scheme are as follows.

At 1 January
Forfeited

At 31 December

Exercise
price

1.00p
1.00p

1.00p

2019

Number of
options

79,760
(42,105)

37,655

Exercise
price

1.00p
–

1.00p

Velocys Technologies Limited bonus share options outstanding at the end of the year have the following expiry dates.

Year of expiry

2019
2021

Total

Exercise
price

1.00p
1.00p

1.00p

2019

Number of
options

–
37,655

37,655

2018

Number of
options

79,760
–

79,760

2018

Number of
options

42,105
37,655

79,760

The Velocys, Inc. bonus share scheme consists of deferred shares awarded subsequent to year end at a nominal price of 1p. 20% of
the award is due to be granted on each anniversary of the date of award. Shares remaining to be granted in future years totalled
16,418.

No bonus share grants were made for either scheme in 2019 (2018: nil). All expense has been recognised prior to 2018.

Other share options
The Board has approved the granting of share options to a small number of consultants (non-employees) who provide a strategic
service to the business.

Options are granted either in respect of a completed service period, in which case they vest immediately, or in respect of a future
service period, in which case they vest over periods of up to three years. They expire after ten years. Exercise prices range from £nil to
the mid-market value of Velocys plc’s ordinary shares on the day prior to grant. Options are fair valued at grant date using the Black-
Scholes model (which is not the fair value of goods and services received). For a completed service period, fair value is expensed over
the service period plus the vesting period, for a future service period, fair value is expensed over the vesting period.

Movements in the number of consultants’ share options outstanding and their related weighted average exercise prices are as follows.

At 1 January
Granted
Exercised

At 31 December

Weighted
average
exercise price

104.15p
–
–

104.15p

2019

Number of
options

212,625
–
–

212,625

Weighted
average
exercise price

104.15p
–
–

104.15p

2018

Number of
options

212,625
–
–

212,625

Of the options issued to consultants and outstanding at 31 December 2019, 212,625 were exercisable (2018: 212,625). The weighted
average exercise price of the exercisable shares was 104.15p (2018: 104.15p).

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Share options outstanding at the end of the year have the following expiry dates and exercise prices.

Year of expiry

2023
2024
2025

Total

Range of
exercise price

Number of
options

1.00 – 53.10p
145.25p
105.25 – 143.50p

1.00 – 145.25p

29,500
21,375
161,750

212,625

2019

Weighted
average
exercise price

53.10p
145.25p
108.03p

104.15p

2018

Weighted
average
exercise price

53.10p
145.25p
108.03p

104.15p

Number of
options

29,500
21,375
161,750

212,625

No options have been granted to consultants in respect of 2019 and 2018.

The share-based payment expense for the year includes a cost of £nil (2018: £2,000) relating to options granted to consultants.

Share-based payments charge
The total charge for share-based payments during the year was £82,000 (2018: £58,000) of which £23,000 (2018: £32,000) relates to
options granted to directors and the remainder to other employees.

16. 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.

Loss attributable to owners of Velocys plc (£’000s)
Weighted average number of ordinary shares in issue

Basic and diluted loss per share (pence)

2019

2018

(9,615)
507,218,656

(30,583)
341,867,109

(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 (see note 27). Details of share options are given in note 15.

17. 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 £187,000 (2018: loss of £627,000).

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

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Notes to the consolidated financial statements (continued)

17. Intangible assets (continued)
Significant accounting policies (continued)
Cost or valuation and amortisation (continued)
Impairment (continued)
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.

2019

Cost
At 1 January 2019
Additions
Disposals
Foreign exchange movement

At 31 December 2019

Accumulated amortisation and impairment
At 1 January 2019
Charge for the year
Disposals
Foreign exchange movement

At 31 December 2019

Net book amount
At 31 December 2019

Goodwill
£’000

In-process
technology
£’000

Patents,
licence and
trademarks
£’000

Software
£’000

7,398
–
–
–

7,398

7,398
–
–
–

7,398

–

23,681
–
–
–

23,681

23,681
–
–
–

23,681

1,580
394
(291)
(85)

1,598

1,223
112
(104)
(77)

1,154

–

444

96
–
–
–

–

Total
£’000

32,755
394
(291)
(85)

32,773

32,398
112
(104)
(77)

32,329

444

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2018

Cost
At 1 January 2018
Additions
Disposals
Foreign exchange movement

At 31 December 2018

Accumulated amortisation and impairment
At 1 January 2018
Charge for the year
Disposals
Foreign exchange movement

At 31 December 2018

Net book amount
At 31 December 2018

Goodwill
£’000

In-process
technology
£’000

Patents,
licence and
trademarks
£’000

Software
£’000

7,398
–
–
–

7,398

7,398
–
–
–

7,398

–

23,681
–
–
–

23,681

23,681
–
–
–

23,681

2,159
349
(956)
28

1,580

1,404
96
(329)
52

1,223

–

357

96
–
–
–

–

Total
£’000

33,334
349
(956)
28

32,755

32,579
96
(329)
52

32,398

357

18. 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 17).

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.

www.velocys.com

173721 Velocys R&A Pt3b_173721 Velocys R&A Pt3b 07/08/2020 11:50 Page 64

Notes to the consolidated financial statements (continued)

18. Property, plant and equipment (continued)
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.

2019

Cost
At 1 January 2019
Additions
Disposals
Transfers to plant and machinery
Foreign exchange

At 31 December 2019

Accumulated depreciation and impairment
At 1 January 2019
Charge for the year
Impairment
Transfer to plant and machinery
Foreign exchange

At 31 December 2019

Net book amount
At 31 December 2019

2018

Cost
At 1 January 2018
Additions
Disposals
Transfers to plant and machinery
Foreign exchange

At 31 December 2018

Accumulated depreciation and impairment
At 1 January 2018
Charge for the year
Disposals
Foreign exchange

At 31 December 2018

Net book amount

At 31 December 2018

Assets under
construction
£’000

51
476
(4)
(16)
25

532

31
–
–
2

499

Assets under
construction
£’000

532
621
–
(171)
–

982

33
–
–
(33)
–

–

982

Lease
Assets
£’000

–
–
–
–
–

–

–
–
–
–

–

Land
£’000

1,285
–
–
–
14

1,299

706
–
439
–
(3)

1,142

157

Land
£’000

1,212
–
–
–
73

1,285

666
–
–
40

706

579

Plant and
machinery
£’000

7,841
158
–
171
111

8,281

7,100
568
–
33
(15)

7,686

Total
£’000

9,658
779
–
–
125

10,562

7,839
568
439
–
(18)

8,828

595

1,734

Plant and
machinery
£’000

8,731
33
(1,492)
16
553

7,841

7,496
563
(1,466)
507

7,100

Total
£’000

9,994
509
(1,496)
–
651

9,658

8,193
563
(1,466)
549

7,839

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.

19. Leases
The Company leases certain building and equipment under non-cancellable leases with varying lease terms. Until the 2018 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.

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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 £196,000 (2018: £nil).

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 £2,000 (2018: £nil) 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.

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173721 Velocys R&A Pt3b_173721 Velocys R&A Pt3b 07/08/2020 11:50 Page 66

Notes to the consolidated financial statements (continued)

19. Leases (continued)
The balance sheet presents the following amounts relating to its right-to-use assets:

Cost

At 1 January 2019
Additions
Foreign exchange

At 31 December 2019

Accumulated depreciation
At 1 January 2019
Charge for the year
Foreign exchange

At 31 December 2019

Net Book value
At 31 December 2019

Equipment
£’000

Buildings
£’000

168
–
–

168

–
63
–

105

870
208
18

1,096

–
351
14

365

731

Total
£’000

1,038
208
18

1,264

–
414
14

428

836

Additions to right-to-use assets during 2019 were £208,000 relating to the Company’s relocation to the Oxford Science Park.

Lease liability

Current
Non-Current

31 December 2019
£’000

1 January 2019
£’000

581
343

924

409
629

1,038

20. 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 Managers of ENVIA to shut down the operations in Oklahoma.

Investment in associate
At 1 January
Share of loss
Impairment
Foreign exchange

At 31 December

2019
£’000

–
–
–
–

–

2018
£’000

2,580
(1,717)
(848)
(15)

–

21. 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 £1,054,000 (2018: £281,000) and are principally related to the Red Rock
project. Also included in the Trade and other receivables are prepaid costs of £447,000 (2018: £925,000) and VAT receivables in the
amount of £99,000 (2018: £91,000). Trade receivables of £37,000 (2018: £6,000) 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.

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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 £3.4m against part of ENVIA’s outstanding secured loan obligation to the Company. This is considered a best
outcome under the circumstances for the total loans made of £15.8m 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.

Trade and other receivables – non-current
Trade and other receivables – current
Loan receivable

Total

2019
£’000

–
1,637
–

1,637

2018
£’000

281
930
3,474

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 £10.1m taking the total provision to £12.3m. The outstanding balance on the loan at
31 December 2018 was therefore £3.4m. 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.

22. 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.

Raw materials and consumables
Work in progress
Finished goods

Total

2019
£’000

1,782
1,550
–

3,332

2018
£’000

1,043
–
395

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 £73,000 (2018:
£194,000) of inventory in Cost of sales in the consolidated income statement.

In 2019, the Company recognised a provision of £408,000 (2018: £nil) related to slow moving inventory in the Administrative expenses
line of the consolidated income statement.

In 2019, the Company recognised a provision of £38,000 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 £352,000. This reactor
was delivered to a customer in 2019 and is 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 £123,000. There were
no impairments recorded with respect to inventory in 2018.

www.velocys.com

173721 Velocys R&A Pt3b_173721 Velocys R&A Pt3b 07/08/2020 11:50 Page 68

Notes to the consolidated financial statements (continued)

23. 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.

Cash and cash equivalents

Total

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

Cash and cash equivalents
UK sterling denominated
US dollar denominated
Euro denominated

Total

24. Trade and other payables: current

Trade payables
Other taxation and social security
Accruals

Total

2019
£’000

4,797

2019
£’000

3,783
927
87

4,797

2019
£’000

333
45
953

1,331

2018
£’000

6,964

2018
£’000

5,130
1,733
101

6,964

2018
£’000

853
395
1,770

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).

25. Trade and other payables: non-current

Accruals

Total

2019
£’000

–

2018
£’000

The fair values of trade and other payables are not considered to be materially different to their carrying values.

26. Financial instruments
On 1 January 2018, the Company adopted IFRS 9, which replaces the provisions of International Accounting Standard 39, “Financial
Instruments: Recognition and Measurement” (“IAS 39”), that relate to the recognition, classification and measurement of financial
assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

Financial assets
Financial assets are classified upon initial recognition and the classification based on the guidance in IFRS 9. In accordance with
IFRS 9, the Company classifies its financial assets at amortised cost only if both of the following criteria are met: (i) the asset is held
within a business model with the objective of collecting the contractual cash flows and (ii) the contractual terms give rise on specified
dates to cash flows that are solely payments of principal and interest on the principal outstanding.

The Company holds cash, trade receivables and loan receivables at amortised cost in accordance with IFRS 9.

The Company’s principal financial asset is Cash and cash equivalents. From time to time it also holds short-term investments, which
are cash deposits on fixed terms of interest for more than three months.

Loans and receivables also includes Trade and other receivables (see note 21) which are classified as both non-current assets and
current assets. Other receivables consists of deferred costs which are outside of the scope of IFRS 9. At 31 December 2019, there
were £nil (2018: £281,000) non-current Trade and other receivables.

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Financial liabilities
Financial liabilities are classified in accordance with IFRS 9. The financial liabilities of the Company are measured at amortised cost.

Financial liabilities at amortised cost
Financial liabilities at amortised cost includes Trade payables, all of which are current liabilities (see note 24) as well as Borrowings
and Finance leases. Trade payables are stated at fair value and subsequently held at amortised cost using the effective interest
method. Under Borrowings, interest bearing loans and overdrafts are initially recorded at the fair value of proceeds received net of
direct issue costs, and thereafter at amortised cost. Finance charges, including premiums payable on settlement or redemption and
direct issue costs, are recognised in the income statement using the effective interest method and are added to the carrying amount
of the instrument to the extent that they are not settled in the period in which they arise.

Financial risks
The Company’s exposure to various risks associated with the financial instruments is discussed below.

Liquidity
The Company’s cash usage is significant versus prospective future cash inflows and Velocys is reliant on the support of a small group
of major shareholders and project partners. The timing of cash flows is difficult to predict given the long development time and
reliance on external parties. The Board recognises that further funding will be needed. Note 2 discusses uncertainties surrounding the
extent and composition of future funding. The Company has recently received commitment of investment from strategic project
partners in April 2020, from which the likelihood of additional financing from current and new shareholders is created.

Equity forms the basis of the Company’s capital. Its objectives when managing this capital are:
 To secure its ability to continue as a going concern.
 To keep its cost of capital low through an optimised capital structure.
 To preserve sufficient funds to protect it against unforeseen events and risks.
 To be in a position to take advantage of opportunities that can deliver a return to shareholders.

The Company’s revenue stream relies on projects incorporating its technology, securing project finance. The Company’s strategy is to
take a pro-active role in this process even though two of its customers’ project in 2019 were started independently from the
Company’s activities in 2019. It is actively engaging with banks and financial advisors with high levels of expertise in project financing
to support the financing plans for the types of projects it is developing.

Cash flow forecasts are regularly reviewed, cash balances are held immediately available as necessary, and surplus funds are placed
on time deposits of varying duration. With the completion of the July 2020 fundraise, the Company maintains sufficient cash balances
to meet anticipated requirements. 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.

Please see note 33 for additional information regarding the completion of the July 2020 fundraise.

Exchange rates
A proportion of commercial activity and development costs are US-dollar denominated. Where possible, revenue is received in US
dollars to act as a natural hedge against this exposure. Additionally, a proportion of liquid assets are held in US dollars. It should be
noted that the functional currency for Velocys plc is GBP as it is traded on the AIM market and head quartered in the UK. Currently all
new equity based fund raises are completed in the UK and made in GBP.

The use of financial derivatives is governed by Company policies, which are approved by the Board of directors, and which provide a set
of written principles for the management of these risks. At 31 December 2019, there were no financial derivatives (2018: £nil).

The table below illustrates the Company’s sensitivity to changes in the US dollar exchange rate at the balance sheet date. The analysis
covers only financial assets and liabilities.

GBP:USD exchange rate +/- 10%

Income
statement
£’000

2019

Equity
£’000

(100)

Income
statement
£’000

2018

Equity
£’000

(212)

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Notes to the consolidated financial statements (continued)

26. Financial instruments (continued)
Exchange rates (continued)
The Company’s exposure to foreign currency risk at the end of the reporting period, expressed in currency units, was as follows:

Trade receivables
Trade payables
Debt

2019

USD
£’000

37
201
–

GBP
£’000

6
–
–

2018

USD
£’000

–
814
289

Credit
The Company’s credit risk is primarily attributable to its trade receivables, which are concentrated in a small number of high value
customer accounts. This risk is managed by carrying out relevant financial checks on customers, and where necessary, requiring
letters of credit or advance payments.

The credit risk of liquid funds is limited through a Company treasury policy, maintained to ensure that liquid assets are only placed
with highly-rated institutions, and that the spread of such assets restricts exposure to any one counterparty. Risk is assessed using
an external credit rating agency’s long-term ratings.

The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets
mentioned above.

Interest rates
Variations in interest rates affect only Velocys’ cash holdings, as its borrowing were payable at a fixed rate. The Company has no
borrowings, other than lease liabilities, as 31 December 2019. As far as the cash flow forecast allows for certainty, funds are placed on
fixed rate deposits. The effect of interest rates on exchange rates is not anticipated.

Financial assets are as follows.

Assets
Trade and other receivables excluding non-financial assets
Cash and cash equivalents

Total

Assets
Trade and other receivables excluding non-financial assets
Cash and cash equivalents

Total

Assets at
amortised costs
£’000

Assets at fair
value through
profit or loss
£’000

37
4,797

4,834

–
–

–

Assets at
amortised costs
£’000

Assets at fair
value through
profit and loss
£’000

1,198
6,964

8,162

–
–

–

31 December 2019

Total
£’000

37
4,797

4,834

31 December 2018

Total
£’000

1,198
6,964

8,162

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The credit risk of short-term investments, and cash and cash equivalents is summarised in the following table.

Short-term bank deposits, cash at bank and in hand

Aa1
Aa2
Aa3
A1
A2

Total

Aa2

Financial liabilities are as follows.

£’000

–
–
1,498
3,299
–

4,797

–

2019

–
–
31
69
–

100

–

£’000

517
–
4,064
24
2,359

6,964

–

2018

7
–
59
–
34

100

–

Liabilities as per balance sheet
Trade and other payables excluding non-financial liabilities
Accruals
Lease liabilities

Total

Liabilities as per balance sheet
Borrowings
Trade and other payables excluding non-financial liabilities
Accruals

Total

The contractual maturity of financial liabilities is as follows.

Within one year
Within two to five years

Total

31 December 2019

Financial liabilities
at amortised cost
£’000

378
953
924

2,255

Total
£’000

378
953
924

2,255

31 December 2018

Financial liabilities
at amortised cost
£’000

289
1,248
1,770

3,307

2019
£’000

1,912
343

2,255

Total
£’000

289
1,248
1,770

3,307

2018
£’000

3,108
–

3,108

The financial liabilities payable with one year, consisting primarily of trade payables and year end accruals, will be paid in accordance
with the terms of the agreements, generally 30 to 60 days.

27. Called up share capital and reserves
Share capital and share premium include ordinary shares in Velocys plc issued to shareholders and options that have been exercised
by employees and associated consultants.

Convertible loan note instruments (“loan notes”) issued by the Company allow the issuer the right to exchange all outstanding loan
notes and all accrued interest thereon for equity in the parent company. The Company assesses whether the loan notes and the

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Notes to the consolidated financial statements (continued)

27. Called up share capital and reserves (continued)
conversion feature should be classified as a financial liability or equity instrument. In making this assessment the Company assesses
whether there is an obligation for the Company to:
a) deliver cash to another entity; or to exchange financial assets or financial liabilities with another entity under conditions that are

potentially unfavourable to the Company (as the issuer); and

b) if the instrument will or may be settled in the issuer’s own equity instruments it is:

(i) a non-derivative that includes no contractual obligation for the Company to deliver a variable number of its own equity

instruments; or

(ii) a derivative that will be settled only by the Company exchanging a fixed amount of cash or another financial asset for a fixed

number of its own equity instruments.

If these criteria are met, the loan notes will be recorded as an equity instrument.

In 2018, the £18,000,000 loan notes issued in May 2017 were settled.

At 1 January 2018
Proceeds from share issues
Convertible loan notes
Interest on convertible loan notes

At 31 December 2018

Proceeds from share issues

At 31 December 2019

* All shares have been issued, authorised and fully paid.

Number of
shares*
(thousands)

Ordinary
shares
(restated)
£’000

146,860
243,463
18,000
2,100

410,423

233,333

643,756

1,468
2,435
180
22

4,105

2,333

6,438

Share
Premium
(restated)
£’000

149,964
20,205
8,820
1,027

180,016

4,240

184,256

Convertible
loan/
’other’
reserve
£’000

9,421
–
(9,000)
(421)

–

The presentation of called up share capital and share premium in the period December 31, 2018 has been restated with respect to a
calculation error in the amount of £2,192,000. Prior to the restatement, at 31 December 2018 called up share capital was £1,913,000
and share premium was £182,208,000. The restatement resulted in an increase in called up share capital and a decrease in share
premium.

In July 2019 Velocys announced a gross fundraise of £7.0 million (£6.6 million net of fees and expenses). This constituted a firm placing
of Ordinary shares. The firm placing was of 233,333,335 Ordinary shares at a price of £0.03 with existing and new shareholders. These
shares represented 57% of the enlarged Ordinary share capital.

In January 2018 Velocys announced a gross fundraise of £18.4 million (£16.8 million net of fees and expenses). This constituted a firm
placing of Ordinary shares and a conditional placing of Ordinary shares. The firm placing was of 139,605,000 Ordinary shares and the
conditional placing was of 44,057,946 Ordinary shares, both at a price of £0.10 with existing and new shareholders. These shares
represented 55.5% of the enlarged Ordinary share capital.

In August 2018 Velocys announced a gross fundraise of £6.0 million (£5.6 million net of fees and expenses). This constituted a firm
placing of Ordinary shares and a conditional placing of Ordinary shares. The firm placing was of 30,000,000 Ordinary shares at a price
of £0.10 with existing and new shareholders. These shares represented 14.4% of the enlarged Ordinary share capital.

In November 2018, the 18,000,000 loan notes that were issued in 2017 to two of Company’s largest shareholders matured; as such the
Company issued 20,100,000 shares. The Company issued 420,000 of shares to HMRC related to the £1.1 million of interest expense
associated with the loan notes.

A total of 56,870,395 (2018: 7,045,796) options to subscribe for ordinary shares of Velocys plc have been granted and are outstanding
at 31 December 2019 under the employee options schemes operated within the Company and contracts for options granted to a
limited number of consultants. Details are given in note 15.

Reserves
Foreign exchange reserve relates to the exchange differences arising from the retranslation of the results and opening net assets of
foreign subsidiaries. Changes in the reserve are included in other comprehensive income. The Company’s foreign exchange reserve
was a credit balance of £3,289,000 (2018: a credit balance of £3,551,000).

The share-based payment reserve records the IFRS 2 charge for equity settled share-based payment awards. At 31 December 2019,
the Company’s share-based payment reserve was £16,225,000 (2018: £16,143,000).

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28. Commitments
The Company leases certain property, plant and equipment. The leases have varying terms, escalation clauses and renewal rights. On
renewal, the terms of the leases are renegotiated.

From 1 January 2019, the Company has recognised right-of-use assets for these leases, except for short-term and low-value leases, see
note 19. At 31 December 2019, the Company did not have any short-term or low-value leases with lease term greater than one month.

Future aggregate minimum lease payments
Within one year
Between one and five years
After more than five years

Total

2018
£’000

414
900
–

1,314

29. Other liabilities
Other liabilities are comprised of contract liabilities related to the development funding received from industry partners related to the
next stage of the UK Altalto Immingham waste-to-jet project, being £2,804,000 in 2019 (2018: £2,092,000).

30. 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:

£’000

At 1 January 2018

Contract liabilities incurred
Revenue recognised in the period

At 31 December 2018

Contract liabilities incurred
Released deferred revenue

At 31 December 2019

Catalyst

Reactor

License

1,238

1,334
(507)

2,065

499
(533)

2,031

–

1,949
–

1,949

853
–

2,802

–

1,199
–

1,199

–
–

1,199

Total

1,238

4,482
(507)

5,213

1,352
(533)

6,032

In 2019 the Company released deferred revenue in the amount of £533,000 in final settlement of the ENVIA loan receivable balance
representing a recovery on the impairment recorded in 2018, see note 4.

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.

31. Related parties
The participation of each of Ervington Investments Limited and Lansdowne Partners in the July 2019 Placing constitutes a related
party transaction under the AIM Rules as each is a substantial shareholder (within the meaning of the AIM Rules). Ervington
Investments Limited subscribed for 46,666,666 Placing Shares at the Placing Price of 3 pence per share, and Lansdowne Partners
subscribed for 49,373,800 Placing Shares at the Placing Price. The Directors consider, having consulted with Numis, the Company's
nominated advisor, that the terms of the related party transaction were fair and reasonable.

For 2019, the Company recognised the remaining catalyst lease revenue totalling £43,000 related to a catalyst lease agreement with
ENVIA, an associate in which the Company has ownership and voting rights as detailed in note 20 of the consolidated financial
statements. No further activity associated with ENVIA is expected to occur going forward.

For 2018, the Company recognised catalyst lease revenue totalling £534,000 related to a catalyst lease agreement with ENVIA, an
associate in which the Company has ownership and voting rights as detailed in note 20 of the consolidated financial statements. As at
31 December 2018, draw downs on the loan facility had been made by ENVIA in the amount of £5,531,000. As a result of the decision
of the Board of Directors of ENVIA to suspend operations at the facility, the Company fully impaired its investment in ENVIA. In
addition, the Company impaired £12,341,000 related to the loan facility during 2018.

Disclosures related to key management personnel can be located in the Directors’ remuneration report, see page 24. Only the
executive and Non-Executive Directors are recognised as being key management personnel.

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173721 Velocys R&A Pt3b_173721 Velocys R&A Pt3b 07/08/2020 11:50 Page 74

Notes to the consolidated financial statements (continued)

32. Net debt reconciliation
This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.

Cash and cash equivalents
Borrowings
Lease liabilities

Net debt

Cash and cash equivalents
Gross debt – fixed interest rate

Net debt

Net debt as at 1 January 2018
Cash flows
Other changes
Foreign exchange adjustments

Net debt as at 31 December 2018
Recognised on adoption of IFRS 16
(see note 2 and 19)

Cash flows
Other changes
Foreign exchange adjustments

Net debt as at 31 December 2019

2019
£’000

4,797
–
(559)

4,238

4,797
(559)

4,238

Liabilities from financing activities

Borrowings
£’000

Leases
£’000

Sub-total
£’000

Cash/bank
overdraft
£’000

(541)
252
13
(13)

(289)

–

(289)

281
1
7

–

–
–
–
–

–

(1,038)

479
–
–

(559)

(541)
252
13
(13)

(289)

(1,038)

(1,327)

760
1
7

(559)

2,070
4,309
–
585

6,964

–

6,964

(1,304)
–
(863)

4,797

2018
£’000

6,964
(289)
–

6,675

6,964
(289)

6,675

Total
£’000

1,529
4,561
13
572

6,675

(1,038)

5,637

(544)
1
(856)

4,238

Other changes include non-cash movements, including accrued interest expense which will be presented as operating cash flows in
the statement of cash flows when paid.

33. Post financial position events
The following events took place after 31 December 2019.

Fundraise of £21 million completed in July 2020
On 14th July 2020, the Company announced that it had completed the fund raising of £21 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 £19.65m, 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. 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 is that the extent of Government interventions in response to the COVID-19 pandemic only became
apparent after the balance sheet date and represents 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.

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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.

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Velocys plc statement of financial position
as at 31 December 2019

Assets
Non-current assets
Investments in subsidiaries
Property, plant and equipment

Current assets
Trade and other receivables
Current income tax asset
Cash and cash equivalents

Total assets

Liabilities
Current liabilities
Trade and other payables

Total Liabilities

Net assets

Capital and reserves attributable to owners of Velocys plc
Called up share capital
Share premium account
Share-based payment reserve
Accumulated losses at 1 January
Loss for the year attributable to owners
Convertible loan note interest

Total equity

Note

9
8

10
6

13
13
13

2019
£’000

9,121
27

9,148

1,400
539
1,492

3,431

12,579

(1,088)

11,491

6,438
184,256
16,225
(185,563)
(9,865)
–

11,491

2018
(restated)
£’000

12,377
–

12,377

7
589
1,803

2,399

14,776

(75)

14,701

4,105
180,016
16,143
(162,237)
(22,698)
(628)

14,701

The notes on pages 79 to 86 are part of these parent company financial statements.

The presentation of called up share capital and share premium in the period December 31, 2018 has been restated with respect to a
calculation error in the amount of £2,192,000. 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 £1,913,000 and share premium was
£182,208,000.

The financial statements on pages 76 to 86 were approved by the Board of directors on 5 August 2020 and signed on its behalf by:

Henrik Wareborn
Chief Executive Officer
5 August 2020

Company number 05712187

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Velocys plc statement of changes in equity
for the year ended 31 December 2019

Called up
share capital
(Restated)
£’000

Share
premium
Account
(Restated)
£’000

Share-
based
payment
reserve
£’000

Convertible
loan note/

‘other’ Accumulated
losses
£’000

reserve
£’000

Total
equity
£’000

Balance at 1 January 2018

1,468

149,964

16,085

9,421

(162,237)

14,701

Loss for the year
Foreign currency translation differences

Total comprehensive expense

Transactions with owners
Share-based payments – value of employee
services
Proceeds from share issues
Convertible loan notes
Interest on convertible loan notes

Total transactions with owners

Balance at 31 December 2018

Net loss for the year
Foreign currency translation differences

Total comprehensive expense

Transactions with owners
Share-based payments – value of employee
services
Proceeds from share issues

Total transactions with owners

Balance at 31 December 2019

–
–

–

–
2,435
180
22

2,637

4,105

–
–

–

–
2,333

2,333

6,438

–
–

–

–
20,205
8,820
1,027

30,052

–
–

–

58
–
–
–

180,016

16,143

–
–

–

–
4,240

4,240

–
–

–

82
–

–
–

–

(28,314)
5,616

(22,698)

–
–
(9,000)
(421)

(9,421)

–

–
–

–

–
–

–

–
–
–
(628)

(628)

(185,563)

(9,865)
–

(9,865)

–
–

–

58
22,640
–
–

22,698

14,701

(9,865)
–

(9,865)

82
6,573

6,655

184,256

16,225

–-

(195,428)

11,491

The notes on pages 79 to 86 are part of these parent company financial statements.

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Velocys plc statement of cash flows
for the year ended 31 December 2019

Cash flows from operating activities
Operating loss before tax
Depreciation of property, plant and equipment
Impairment of subsidiaries
Share based payments
Changes in working capital
Trade and other receivables
Trade and other payables

Cash consumed by operations
Tax credit received

Net cash used in operating activities

Cash flow from investing activities
Intercompany balances
Purchase of property, plant and equipment
Interest received

Net cash generated from/(used in) investing activities

Cash flows from financing activities
Proceeds from issues of shares and convertible loan notes
Costs of issuing shares and convertible loan notes

Net cash generated from financing activities

Net movement in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange movements on cash and cash equivalents

Cash and cash equivalents at end of year

The notes on pages 79 to 86 are part of these parent company financial statements.

Note

8
9

13
13

2019
£’000

(10,200)
6
3,449
16

(1,523)
1,013

(7,239)
384

(6,855)

66
(33)
53

7,000
(427)

6,573

(196)
1,803
(115)

1,492

2018
£’000

(33,972)
–
33,288
58

(1)
(113)

(740)
–

(740)

(31,365)
–
5,510

(25,855)

23,065
(628)

22,437

(4,158)
–
5,961

1,803

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Notes to the financial statements of Velocys plc

1. General information
Velocys plc is a holding company incorporated in England and Wales and domiciled in England. It operates through a number of
subsidiaries in the UK and the US, and collectively they are referred to in the financial statements as the “Company” or “Velocys”, with
Velocys plc as “Velocys plc” or the “parent company”.

Velocys plc is a public limited company listed on AIM.

2. Accounting policies
The principal accounting policies applied in the preparation of these parent company financial statements are the same as those of
the Company unless otherwise specified. The additional accounting policy for the parent company relates to the Investments in
subsidiaries (see note 9). The policies have been consistently applied to each year presented unless otherwise stated.

Basis of preparation
The basis of preparation is the same as the Company, as set out on page 47 of the consolidated financial statements. The parent
company has taken advantage of the legal dispensation contained in Section 408 of the Companies Act 2006 allowing it not to publish
a separate income statement and related notes and not to publish a separate statement of other comprehensive income. The
comprehensive loss for the parent company for the year was £9,865,000 (2018: loss £22,698,000).

Going concern
The going concern of Velocys plc is intrinsically linked to that of its subsidiaries, through which it trades in the UK and the US. The
going concern basis of preparation is consistent with that set out for the Company. See page 47 of the consolidated
financial statements.

Accounting developments
New and amended standards adopted by the Company
The Company has applied the following standards and amendments for the first time for the annual reporting period commencing
1 January 2019:
 IFRS 16 leases

The Company also elected to adopt the following amendments early:
 Annual Improvements to IFS Standards 2015 – 2017 Cycle.

IFRS 16 Leases
IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet by lessees, as the
distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use leased item) and a
financial liability to pay rents are recognised. The only exceptions are short-term and low-value leases.

Velocys plc has reviewed all its leasing arrangements over the last year considering the new lease accounting rules in IFRS 16. The
standard will primarily affect the accounting for the Company’s operating leases.

Velocys plc activities as a lessor are not material and Velocys plc does not expect any significant impact on the financial statements
related to lessor activities. However, there may be additional disclosures related to these activities that will be required for 2020 and
subsequent years.

Velocys plc has applied this standard on the mandatory adoption date of 1 January 2019. Velocys plc has applied the simplified
transition approach and will not restate comparative amounts for the year prior to adoption. Right-of-use assets for property leases
are measured on transition as if the new rules had always been applied. All other right-of-us assets are measured at the amount of
the lease liability on adoptions (adjusting for any prepaid or accrued lease expenses).

There are no other standards that are not yet effective and that would be expected to have a material impact on Velocys plc in the
current or future reporting periods or on foreseeable future transactions.

Financial risk management policies
Financial risk management policies are set out in the Strategic report on page 12, and in note 26 of the consolidated financial
statements.

Capital management policies
Capital management policies are set out in note 26 of the consolidated financial statements.

3. Critical accounting estimates and judgements
In applying the parent company’s relevant accounting policies set out in note 2, the parent company is required to make certain
estimates and judgements concerning the future. Although these estimates and judgements are based on management’s best
knowledge of the amount and or timing, actual results ultimately may differ. These estimates and judgements are regularly reviewed

www.velocys.com

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Notes to the financial statements of Velocys plc (continued)

3. Critical accounting estimates and judgements (continued)

and revised as necessary. The estimates and judgements that have the most significant effect on the amounts included in these
financial statements are listed below and described in the relevant note.

Item of critical estimate

Investment in subsidiaries – impairment assessment
Share based compensation

Note

9
12

4. 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’s Executive Committee to monitor and measure the underlying performance of the
parent company are classified as exceptional items. They include, for instance, impairments to the parent company’s investments in
subsidiaries. Exceptional items are included within the appropriate parent company income statement category but are highlighted
separately in the notes to the financial statements.

The following exceptional items have been included in the income statement.

Impairment of investment in subsidiaries
Loans with subsidiaries

Total

2019
£’000

(3,322)
(127)

(3,449)

2018
£’000

(33,288)
–

(33,288)

At the end of 2019 and 2018, the parent company reviewed for impairment its investments in subsidiaries in light of the respective
closing market capitalisation and concluded that an impairment was required. As a result of this analysis Velocys plc recorded an
impairment of £3,322,000 (2018: £33,288,000) related to its investment in subsidiaries.

5. Revenue
The Company adopted IFRS 15 on 1 January 2018, using the full retrospective transition method. The Company generates revenue
through contracts with its subsidiary companies to provide a license for the use of its intellectual property associated with the
catalyst and reactors both of which have been specifically designed and over which the parent company and its subsidiaries holds a
significant number of patents. Royalties are invoiced and paid in accordance with the Company transfer pricing and royalties polices
which states Velocys plc will share in 50% of the license fees earned by its subsidiaries.

For the year ended 31 December 2019, the parent company recognised royalty revenue of £538,000 (2018: nil).

Income tax

Current tax:
R&D tax credit relating to prior years
R&D tax credit relating to current year

Current tax total

Income tax total

2019
£’000

202
(539)

(337)

2018
£’000

152
(300)

(148)

Due to the availability of losses incurred in the year, there is no charge to corporation tax. The parent company recognised £337,000 for
R&D tax credits in 2019 (2018: £148,000).

Velocys plc Annual Report and Accounts 2019

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The actual tax credit for the current and previous year is lower (2018: lower) than the theoretical amount that would arise using the tax
rate for the reasons set out in the following reconciliation.

Loss before income tax

Tax calculated at domestic tax rates applicable to losses

Tax effects of:
Expenses not deductible for tax purposes
Impairment loss not deductible for tax purposes
Unutilised/(utilised) tax losses
R&D tax credit

Income tax total

2019
£’000

(10,200)

(1,938)

2
655
1,281
(337)

(337)

2018
£’000

(28,314)

(5,380)

8
6,108
(736)
(148)

(148)

The impairment loss not deductible for tax purposes represents the impairment of investment in subsidiaries as described in note 9.

The applicable tax rate was 19% (2018: 19%).

In the Spring Budget 2020, the Government announced that from 1 April 2020 the corporation tax rate would remain at 19% (rather
than reducing to 17%, as previously enacted). This new law was substantively enacted on 17 March 2020. As the proposal to keep the
rate at 19% had not been substantively enacted at the balance sheet date, its effects are not included in these financial statements.
Unrecognised UK deferred tax balances have been measured at 19% (recognised: 17%).

7. Deferred tax
The parent company has not recognised a deferred tax asset or liability in 2019 (2018: £nil).

Unrecognised
Deferred tax assets
Trading losses

Total

2019
£’000

(5,952)

2018
£’000

(8,579)

At 31 December 2019, the Company had a net unrecognised deferred tax asset of £5,952,000 (2018: £8,579,000) arising from trading
losses since incorporation. No recognition (2018: £nil) of the net deferred tax asset has been made at 31 December 2019 on the
grounds of uncertainty over its recoverability in light of the Company’s nascent revenue streams and commitment to continued
investment in the development of its biorefineries, and therefore there is no impact on the current or prior year’s income statement.

All of the unrecognised deferred tax asset (2018: all) is anticipated to remain available indefinitely to offset against future taxable
trading profits.

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.

www.velocys.com

173721 Velocys R&A Pt3c_173721 Velocys R&A Pt3c 07/08/2020 11:51 Page 82

Notes to the financial statements of Velocys plc (continued)

8. Property, plant and equipment (continued)

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.

2019

Cost
At 1 January 2019
Additions

At 31 December 2019

Accumulated Depreciation
At 1 January 2019
Charge for the year

At 31 December 2019

Net book amount
At 31 December 2019

Furniture and
Fixtures
£’000

Total
£’000

–
33

–
6

–
33

–
6

In 2019, Velocys plc purchased furniture and fixtures for its offices. There were no property, plant and equipment in 2018.

Investments in subsidiaries

9.
Investments in subsidiaries are held by Velocys plc at historical cost less impairment. The net investment that the parent company
has in its subsidiary undertakings is its interest in the net assets of that subsidiary.

The carrying amounts of the parent company’s Investments in subsidiaries are reviewed at each balance sheet date, or when events or
changes in circumstance indicate their carrying value may not be recoverable, to determine whether there is any indication of
impairment. If such an indication exists, the asset’s recoverable amount is estimated. To the extent the carrying amount 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.

An impairment loss in respect of Investments in subsidiaries is reversed if the subsequent increase in recoverable amount can be
related objectively to an event occurring after the impairment loss was recognised or if there has been a change in the estimate used
to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed that which would have been determined if no impairment loss had been recognised.

Critical estimates and judgements
Assets are reviewed for impairment annually and also whenever events or changes in circumstances indicate their carrying value may
not be recoverable. 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.

As set out in note 17 to the consolidated financial statements, an impairment assessment was carried out on the parent company’s
investment in subsidiaries and an impairment was indicated. Velocys plc used the same basis for calculating the recoverable amount
to determine the total value of the three subsidiaries held by the parent company, based on the judgement that there is limited value
attributable to the parent company. 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 investments
in subsidiaries was higher than the recoverable amount, determined by fair value less costs of disposal. As a result, an impairment of
£3,322,000 (2018: £33,288,000) was recognised in 2019.

Velocys plc Annual Report and Accounts 2019

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Impairments recorded in Velocys plc’s individual financial statements are eliminated through consolidation.

2019

Capital
contributions to
subsidiaries
£’000

Total

Capital
investment in contributions to
subsidiaries
£’000

subsidiaries
£’000

2018

Total
investment in
subsidiaries
£’000

Investments in subsidiaries
At 1 January
Movement in loans
Capital contributions
Impairment of subsidiaries
Foreign exchange

At 31 December

12,377
–
66
(3,322)
–

9,121

12,377
–
66
(3,322)
–

9,121

14,441
–
31,365
(33,288)
(141)

12,377

14,441
–
31,365
(33,288)
(141)

12,377

Velocys plc has direct investments in the following subsidiary undertakings.

Subsidiary undertakings

Country of
incorporation or principal
business address

Principal activity

% Holding
(all ordinary
share capital)

Velocys Technologies Limited*

England and Wales

Exploitation of platform catalyst technologies

Velocys (USA Holdings) LLC**

Ohio, USA

Holding company for US subsidiaries

Altalto Ltd*

Velocys Projects Ltd*

England and Wales

Oxford Catalysts Trustees Limited*

England and Wales

UK reference project operations

Holds assets and makes distributions in respect
of employee remuneration

The following companies are subsidiaries of the Company whose immediate parent is not Velocys plc.

Subsidiary undertakings

Country of
incorporation or principal
business address

Velocys, Inc.**

Delaware, USA

Principal activity

Design, development and exploitation of
its microchannel technologies

YellowRock GTL Services, LLC**

Delaware, USA

Secondment of employees to plants

VMH Assets LLC**

Ohio, USA

Holds manufacturing assets in Ohio

Altalto Immingham Holdings Ltd*

England and Wales

UK reference project operations

Altalto Immingham Ltd*

England and Wales

UK reference project operations

100

% Holding
(all ordinary
share capital)

100

The following are dormant subsidiaries.

Dormant subsidiaries

Oxford Catalysts UK Limited*
Velocys Project Solutions, LLC***
Velocys Renewables LLC**
Ashtabula Energy, LLC***
Bayou Fuels One LLC
Bradford GTL LLC***
JAB Land-Ashtabula**
Susquehanna GTL LLC***
Westlake GTL, LLC**

Incorporated

England and Wales
Delaware, USA
Ohio, USA
Delaware, USA
Delaware, USA
Delaware, USA
Ohio, USA
Delaware, USA
Delaware, USA

Immediate parent

% Holding

Velocys plc
Velocys (USA Holdings) LLC
Velocys (USA Holdings) LLC
Velocys Project Solutions, LLC
Velocys Projects Ltd
Velocys Project Solutions, LLC
Ashtabula Energy, LLC
Velocys Project Solutions, LLC
Velocys (USA Holdings) LLC

100
100
100
100
100
100
100
100
100

* Located at Magdalen Centre, Robert Robinson Avenue, The Oxford Science Park, Oxford, OX4 4GA UK.
** Located at 7950 Corporate Boulevard, Plain City, OH 43064, USA.
***Located at 2603 Augusta Drive, Suite 1175, Houston, TX 77057, USA.

www.velocys.com

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Notes to the financial statements of Velocys plc (continued)

10. Trade and other receivables

Trade and other receivables – current
Amounts due from group undertakings

Total

2019
£’000

58
1,342

1,400

Amounts due from group undertakings consists of loans with subsidiaries. All amounts are unsecured and have one year terms,
renewable on an annual basis then being repayable on demand. Interest is charged on all intercompany loans at 5%.

11. Trade and other payables: current

Trade payables
Accruals
Amounts due to group undertakings

Total

2019
£’000

62
135
891

1,088

2018
£’000

7
–

2018
£’000

2
73
–

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).

Amounts due to group undertakings consists of loans with subsidiaries. All amounts are unsecured and have no fixed date of
repayment. Interest is charged on all intercompany loans at 5%.

12. Financial instruments
Financial assets
Velocys plc classifies, measures and accounts for its financial assets in the same way as the Company as a whole (see note 26 to the
consolidated financial statements).

Financial risks
The risks that the parent company faces are intrinsically linked to those of the Company, see note 26 to the consolidated financial
statements. No mitigation of this risk is taken at parent company level.

Financial assets are held at amortised costs and are as follows.

31 December 2019

Assets at amortised
costs
£’000

1,492
53
1,342

31 December 2018

Assets at amortised
costs
£’000

1,803
7

Assets
Cash and cash equivalents
Trade and other receivables excluding non-financial assets
Loans receivable from subsidiaries

Assets
Cash and cash equivalents
Trade and other receivables excluding non-financial assets

Velocys plc Annual Report and Accounts 2019

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Liabilities

Trade and other payables excluding non-financial liabilities
Loans payable to subsidiaries

Liabilities

Trade and other payables excluding non-financial liabilities

31 December 2019

Financial liabilities at
amortised cost
£’000

62
891

31 December 2018

Financial liabilities at
amortised costs
£’000

In 2019 and 2018, no share options were exercised which result in no obligation for the Company to fund the Employee Benefit Trust.
For additional information related to Share-based payments, see note 15 to the consolidated financial statements.

13. Share capital
Disclosures in respect of share capital of the Velocys plc are provided in note 27 to the consolidated financial statements.

14. Commitments
The Company has no right to use asset leases (2018: nil) and no capital commitments (2018: nil).

15. Other information
Short-term employee benefits
Accruals are included to reflect the cost of short-term compensation to employees for absences such as paid leave.

In 2019, in connection with new employment agreement certain employees of the Company had their new agreements written under
Velocys plc. In prior years, these employee’s employment agreement were under Velocys Technologies Ltd, in which their costs were
recorded.

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

Administration

Total average headcount

Their aggregate remuneration comprised the following items.

Wages and salaries
Social security costs
Other pension costs
Share-based payments granted to directors and employee

Total remuneration

2019
number

2018
number

2019
£’000

303
31
20
16

370

–

2018
£’000

–
–
–
–

–

Directors’ remuneration
Details of the remuneration paid to directors of the parent company are provided in the Directors’ remuneration report on
pages 30 to 34.

www.velocys.com

173721 Velocys R&A Pt3c_173721 Velocys R&A Pt3c 07/08/2020 11:51 Page 86

Notes to the financial statements of Velocys plc (continued)

15. Other information (continued)

Auditor’s remuneration
Details of remuneration paid for the audit of the Company are disclosed in note 11 to the consolidated financial statements.

16. Related parties
The participation of each of Ervington Investments Limited and Lansdowne Partners in the July 2019 Placing constitutes a related
party transaction under the AIM Rules as each is a substantial shareholder (within the meaning of the AIM Rules). Ervington
Investments Limited subscribed for 46,666,666 Placing Shares at the Placing Price of 3 pence per share, and Lansdowne Partners
subscribed for 49,373,800 Placing Shares at the Placing Price. The Directors consider, having consulted with Numis, the Company’s
nominated advisor, that the terms of the related party transaction were fair and reasonable.

17. Post financial position events
The following events took place after 31 December 2019.

Velocys plc Annual Report and Accounts 2019

About us

www.velocys.com

Directors, secretary and advisors to the Company

Registered office
Velocys
Magdalen Centre
Robert Robinson Avenue
The Oxford Science Park
Oxford
OX4 4GA

Velocys plc registration no.
05712187

Company secretary
Jeremy Gorman

Nominated advisors and joint brokers
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
St Pauls
London
EC4M 7LT

Joint brokers
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR

Registrars
Link Market Services Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU

Bankers
Barclays Bank Plc
Wytham Court
11 West Way
Oxford
OX2 0JB

Investor relations
Radnor Capital Partners Limited
1 King Street
London
EC2V 8AU

Public relations
Field Consulting Limited
Second Floor, 38 St Martins Lane
London
WC2N 4ER

Independent auditors
PricewaterhouseCoopers LLP
3 Forbury Place
23 Forbury Road
Reading
Berkshire
RG1 3JH

87
87

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www.velocys.com

Velocys plc
Magdalen Centre
Robert Robinson Avenue
The Oxford Science Park
Oxford
OX4 4GA

Company Number: 05712187
+44 1865 800 821
info@velocys.com
www.velocys.com

ANNUAL
REPORT AND
ACCOUNTS
2019