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26th Jan 2023

Business Update

Velocys plc (AIM: VLS), the sustainable fuels technology company, is pleased to provide the following business and post close update for the 12 months ending 31 December 2022 (“FY22”).

Based on unaudited accounts for FY22, the financial performance of the Company was in line with market expectations. As of 31 December 2022, Velocys had a cash balance of £13.4 million (2021: £25.5 million). The Company expects to report its results for the year to 31 December 2022 in May 2023.

During 2022, Velocys saw the achievement of a number of key milestones and objectives which put the Company in a strong position to progress its reference projects through to key valuation inflection points and build its commercial pipeline.

Business Scale-up and Delivery

  • Appointment of Global Head of Business Development and Technology Delivery and new Chief Financial Officer, together with a number of key technical and engineering roles in Houston, Texas and Columbus, Ohio.
  • Provision of technical and engineering services to commercial clients.
  • Commencement and completion of construction of a new Columbus, Ohio reactor core manufacturing facility.
  • Sale of the Ashtabula site in Ohio.
  • Establishment of the Scientific Advisory Board for catalysis.

Bayou Fuels Project (US)

  • Further optimisation on the Bayou Fuels plant design, enabling the delivery of industry leading negative carbon intensity Sustainable Aviation Fuel (“SAF”).
  • Implementation of the Landmark US Inflation Reduction Act (“IRA”) legislation will significantly support development of the US sustainable fuels industry, including SAF and enabling the Company to progress Series A funding for the project.

Altalto and e-Alto Projects (UK)

  • Award of two grants from the UK Government’s Department for Transport (“DfT”) Advanced Fuel Funds for an aggregate of £29.5 million:
    • £27 million– to deliver the Altalto Front-End Engineering Design (“FEED”)
    • £2.5 million – to contribute towards a new e-fuels project (“e-Alto”).
  • Secured long term site-control for the Altalto project in collaboration with the Foresight Group.

Post year-end, Velocys has entered into a Master Relationship Agreement (“MRA”) with Bechtel Limited, one of the world’s most respected engineering companies. The MRA, which will be instrumental in delivering the next important milestones for the reference projects and future commercialisation, sets out a framework and roadmap for the parties to collaborate with each other with the objective of developing an EPC execution model for sustainable fuel plants.

The Company is also in the final stages of appointing a global investment bank as Financial Adviser to assist with, and advise on, the delivery of development capital into the Bayou Fuels (US) and Altalto (UK) projects. As this activity accelerates, we have commenced a broader recruitment programme with a focus on increasing our project engineering and business development capability.

2023 Outlook

Operations and Business Development

  • Manufacturing capability:
    • Construction has been completed at the new reactor core assembly facility in Columbus, Ohio, with fit-out now being undertaken on site
    • Recruitment of manufacturing personnel has begun, and commissioning will commence in Q3 2023
    • The site will significantly scale up the Company’s reactor core assembly capabilities, with a capacity to produce 12 reactors a year (each comprising of four cores).
  • Toyo, Japan – the Company continues to provide services and support to Toyo Engineering Corporation under the Collaboration Agreement signed in late 2021 as progress continues on the NEDO projects to proceed towards FEED in 2024.
  • Velocys’ technology capability in power-to-liquid was recognised by a further grant award of £2.5 million from the DfT’s Advanced Fuels Fund to the e-Alto project, a new e-fuels concept development project in the UK. Velocys will be contributing its proprietary technology to e-Alto, alongside other partners including Clariant Catalysts, Technip Energies and British Airways.
  • The business development pipeline continues to grow, with a number of feasibility studies underway with both biorefinery and advanced power-to-liquid developers, as well as an increase in enquiries for potential projects. Velocys expects to move forward with a number of new global clients over the course of 2023.
  • Organisation scale-up is planned to support commercial strategy. With the commissioning of the manufacturing facility in Ohio and the significant progress made at the Company’s reference projects, the Company is planning to materially expand the workforce in 2023, with a particular focus on project and operations engineering and manufacturing resources, business development and a small number of functional support staff.
  • The Company continues to develop its commercial revenue model focussing on providing clients with fully integrated technology packages.
  • Velocys expects to build its revenue generation during 2023 from fees generated by its reference projects as they move into FEED stage, along with additional income from other feasibility studies.

Bayou Fuels Project 

With the support of the Financial Adviser, the Company expects the Series A funding for the development capital for the Bayou Fuels project to be launched in Q2 2023, with an aim to enter in to FEED by Q4 2023, delivering a pathway to Financial Investment Decision (“FID”) in Q1 2025. Once the project enters FEED, the Company expects to generate revenues for its technology license and engineering service. Velocys expects to retain a reduced equity position in the Bayou project post the Series A fundraising.

Following FID in early 2025, the Company expects to enter into construction with commissioning and start up anticipated in 2028, at which point Velocys expects to be generating revenue from reactor and catalyst sales, engineering services and technology licensing.

The 15-year, fixed price, offtake agreement remains in place with Southwest Airlines, amended recently to reflect the updated project schedule, as well as a Memorandum of Understanding with IAG for a 10-year fixed price offtake for 100% of the SAF produced at the biorefinery.

As previously announced, the project has significantly improved its carbon intensity score from -144g CO2e/MJ to -375g CO2e/MJ through the provision of a biomass boiler renewable power solution with CCS integration. This improvement has the potential to increase future revenue for Bayou Fuels and further support third party project funding. The Inflation Reduction Act of 2022 supports the project greatly as the 45Z tax credits incentivises the total amount of avoided carbon rather than the volume of sustainable fuel supplied, therefore prioritises our technology which offers a direct route to negative carbon intensity fuels.

Altalto Project

A grant award of £27 million was received for this project from the DfT’s Advanced Fuels Fund, the highest such award from the DfT to any party involved in the competition. This award, along with private sector matched funding, will be used for the completion of the project FEED and places Altalto on a clear pathway to FID by the end of 2024 and recognises the progress that has been made in advancing the project. Altalto expects to enter into construction in 2025 with commissioning and start up anticipated in 2027, at which point Velocys expects to generate revenue from reactor and catalyst sales, engineering services and technology licensing.

Licensor and engineering service agreements are being finalised and, subject to contract, it is expected that Bechtel will commence FEED in Q2 2023. With the support of our Financial Adviser, matched funding will be sought in Q2 2023. This will provide an opportunity for new partners to participate in the early development capital ahead of FID, as well as the development of offtake arrangements. Velocys expects to retain a reduced equity position in the Altalto project post the funding. The project is being jointly developed with British Airways.

Henrik Wareborn, CEO, said:
“The progress and partnerships outlined in this business update reflect the significant achievements made in 2022 and Velocys’ position of strength in a rapidly evolving global market for advanced synthetic fuels technology.

“We have the here-and-now technology to enable SAF production close to sustainable feedstock sources to decarbonise the aviation industry at scale. In order for SAF production plants to be successful, several threads need to be in place, such as government regulatory support, abundant and sustainable feedstock, carbon capture and sequestration, supply of renewable power, and most of all, a technology that works. Velocys provides a uniquely integrated package with its IP-protected technology at its core.

“The progress we continue to make, supported by these new developments and the policy tailwinds, means we have a solid platform to deliver. Consequently, we are confident about the years ahead and our commercialisation strategy.”

This announcement contains inside information for the purposes of the UK Market Abuse Regulation.

For further information, please contact:

Henrik Wareborn, CEO
Philip Sanderson, CFO
Lak Siriwardene, Director of Communications & Sustainability
+44 1865 800821

Panmure Gordon (UK) Limited (Nomad and Joint Broker)
Hugh Rich (Corporate Broking)
Emma Earl (Corporate Finance)
John Prior (Corporate Finance)
+44 20 7886 2500

Shore Capital Stockbrokers Limited (Joint Broker)
Henry Willcocks (Corporate Broking)
Toby Gibbs (Corporate Advisory)
James Thomas (Corporate Advisory)
+44 20 7408 4090

Radnor Capital (Investor Relations)
Joshua Cryer
Iain Daly
+44 20 3897 1830

Buchanan (Financial PR)
Helen Tarbet
Simon Compton
+44 20 7466 5000

Notes to Editors

Velocys is an LSE-listed, international sustainable fuels technology company, traded on the AIM, providing customers with a technology solution to enable the production of negative Carbon Intensity synthetic, drop-in fuels from a variety of waste materials. Synthetic fuel is the only commercially available, permanent alternative to fossil aviation fuels. The Velocys technology is IP-protected in all major jurisdictions.

Two reference projects (Bayou Fuels, US, and Altalto, UK) are designed to accelerate the adoption and standardise the Velocys proprietary Fischer Tropsch (FT) technology with an integrated end to end solution, including renewable power and carbon sequestration.

Velocys is enabling commercial scale synthetic fuel production in response to the clean energy transition, with significant additional positive air quality impacts.

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