Velocys : Final results for the year ended 31 December 2020

News release

Velocys plc

("Velocys" or "the Company")

17 May 2021

Final audited results for the year ended 31 December 2020

Velocys, the sustainable fuels technology company, is pleased to announce its final audited results for the year ended 31 December 2020.

Financial Highlights

• Fund raise of £21m (before expenses) in July 2020
• Additional £0.5m Future Fuels for Flight and Freight grant from the UK Department for Transport secured for the Altalto waste to jet fuel project
• Revenue of £0.2m (2019: £0.3m)
• Total deferred revenue of £8.2m including £2.1m invoiced and received from commercial customers during 2020
• Administrative expenses before exceptional items reduced by 7% to £9.2m (2019: £9.9m)
• Operating loss of £8.8m (2019: £9.6m) before exceptional items
• Loss before income tax for the year of £9.6m (2019: £9.9m)
• Cash at year end of £13.1m (2019: £4.8m)

Business Highlights including post period end activities

Projects

• Granted planning permission from North East Lincolnshire Council for the Altalto Immingham site
• Ongoing discussions to secure investment by one or more strategic partners into the Mississippi Biorefinery Project, which has undergone a design review and optimisation during the second half of 2020, increasing its capacity and attractiveness to investors and Sustainable Aviation Fuel off-takers
• Successfully completed the NEDO demonstration project in Nagoya, Japan, achieving 1500 hours of integrated conversion of wood chips to Sustainable Aviation Fuel
  Commercial
• We have advanced our Sustainable Aviation Fuel off-take discussions with major airlines in Europe and North America
• Abundant Feedstock supply available as evidenced by engagement with local suppliers
• Advancing additional technology licensing opportunities across three continents
  Technology
• Delivered four Fischer-Tropsch reactors and completed catalyst loading for Red Rock Biofuels in Oregon, USA
• Integrated technology licensors on-boarded including TRI, Arvos, Air Liquide, Linde and Haldor Topsoe
• Appointed Worley as our engineering partner to manage delivery of our technology globally
  Policy
• Invited to be a founding member of the UK Government's Jet Zero Council
• Appointed to the boards of the Renewable Transport Fuel Association and the Biotechnology Innovation Organisation

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Post period end activities

• Altalto option agreement with British Airways plc extended to 31 March 2022 (Shell International Petroleum Company Limited withdrew from the agreement in January 2021)
• Collaboration agreement signed with Toyo Engineering Corporation, Japan in February 2021

Henrik Wareborn, CEO of Velocys, said:

"Velocys overcame unprecedented circumstances in 2020 due to the Covid pandemic restricting international travel and compelling all of our colleagues to work from home except those involved in reactor manufacturing, laboratory and site safety work.

"Our team demonstrated resilience and agility in adapting to the new conditions and ensured Velocys delivered all our contracted services and technology hardware to our customers.

"The successful fundraise in July 2020 enabled the Company to concentrate on client delivery from the second half of 2020 and onwards. In addition, we took the opportunity to further optimise the engineering for higher potential output and lower carbon intensity of our two reference projects in the UK and USA respectively.

"We are in a favourable position to take advantage of the growing global demand for climate change mitigation technology, specifically the decarbonisation of commercial aviation. The Company remains capital light and cost disciplined with a focus on deploying our end-to-end technology solution via partners, site owners and third-party developers worldwide.

"I thank my colleagues in Velocys and all our stakeholders for their dedication to our mission during the challenging year of 2020."

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) prior to its release as part of this announcement.

For further information, please contact:
Velocys	+44	1865 800821
Henrik Wareborn, CEO
Andrew Morris, CFO
Lak Siriwardene, Head of Communications & Sustainability
Panmure Gordon (UK) Limited (Nomad and Joint Broker)	+44	20 7886 2500
Dan Norman (Corporate Broking)
Hugh Rich (Corporate Broking)
Emma Earl (Corporate Finance)
John Prior (Corporate Finance)
Shore Capital Stockbrokers Limited (Joint Broker)	+44	20 7408 4090
Henry Willcocks (Corporate Broking)
Toby Gibbs (Corporate Advisory)
Sarah Mather (Corporate Advisory)
Radnor Capital (Investor Relations)	+44	20 3897 1830
Joshua Cryer
Iain Daly
Field Consulting (General PR)	[phone]
Robert Jeffery

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Notes to Editors

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 municipal solid waste and residual woody biomass.

Velocys is at present 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 reactor technology developed at the Pacific Northwest National Laboratory. Velocys is headquartered in Oxford in the United Kingdom.

www.velocys.com

Chairman's statement

Our first priority at the start of the pandemic was to ensure that we were able to provide our employees with as safe a working environment as possible, whilst maintaining their ability to work efficiently and as effectively. We closed all our offices and arranged for all employees to be able to work from home, providing additional technical support where necessary to enable them to work in a safe and secure home environment.

Four achievements during the year were of particular note and demonstrated our ongoing progress in delivering our strategy:

• The successful completion of the manufacturing of four FT reactors and catalyst and delivery to our client Red Rock Biofuels' Lakeview site in Oregon. In 2021 we look forward to working closely with Red Rock to assist with start-up and commissioning of its bioenergy plant.
• Our application for Planning Consent for the Altalto waste to jet fuel project was approved in May 2020 by North East Lincolnshire Council.
• July saw a successful and oversubscribed fund raise of £21.0 million, and further contributions from both British Airways and Shell towards the technical development of our Altalto project.
• We successfully concluded the wood chips to SAF NEDO demonstration project in Nagoya, Japan with our partner, Toyo Engineering Corporation, and look forward to delivering engineering services to the planned larger scale NEDO 2 project managed by the same consortium in Japan. We will deliver our FT reactors and catalyst in due course to NEDO 2 subject to approvals and funding by the local partners.

The year saw a significant increase of media exposure for Velocys, which was evidenced by the number of high- quality interviews with the CEO, extensive coverage by the national and international broadsheets and also in the technical press. UK Government support for our Altalto Immingham Project was validated by the mention of Velocys at the Downing Street daily briefing by the Secretary of State for Transport, Grant Shapps in June 2020 and the invitation for Velocys to be represented on the Jet Zero Council.

Strong US policy support for domestic sustainable fuel production, including SAF with negative carbon intensity has been recently reaffirmed by the new administration. This is very positive for our Bayou Fuels project in Mississippi and our other potential clients in the US.

Whilst there has been significant attention drawn to the potential use of hydrogen and electric propulsion as a means of reducing the carbon emissions of air travel, we remain convinced that the use of Sustainable Aviation Fuel provides the only near-term opportunity for the airline industry to reduce its carbon footprint at commercial scale and pace.

Management and Board

There were no changes to the Board membership during the year, however on 30 September 2021 Sandy Shaw will be standing down from the Board after 9 years of loyal service. We will be conducting a search for a replacement for Sandy during the first half of 2021, with the intention of the new NED bringing complementary skills to the Board as we enter an intensive phase of commercialisation of our technology. The Board has continued to enjoy strong and cooperative relationships with the Executive Team.

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We were able to strengthen our leadership team during the year with the appointment of Helen Lillistone as Group Financial Controller. Helen has over 20 years' experience in senior finance and accounting roles within the biotech sector and has already made significant contributions to strengthening and upgrading our financial and accounting processes.

During 2021, we have further strengthened the leadership team with the appointment of David Bate as General Counsel. David is an experienced business lawyer with 26 years global energy sector experience at executive level, encompassing extensive international project experience across a wide range of countries.

The Board's Committees have continued to work constructively in supporting the Board, and I would like to thank both Sandy Shaw and Darran Messem for their efforts in chairing the Remuneration and Audit & Risk Committees respectively. I would like to particularly thank Sandy Shaw for her efforts in realising a further year of LTIP's for the broader leadership team, ensuring the alignment of the leaders of the business with the shareholders. We do not envisage increasing the size of the Board this year but will do so at a later time commensurate with the growth of our business.

Corporate governance

The Board has maintained its emphasis on good governance following the ten principles of the Quoted Companies Alliance Code. With the anticipated appointment of a new Non-Executive Director in Q3 2021, and following the standing down of Sandy Shaw, there will be a change in the Chairs of the Audit & Risk and Remuneration Committees to accommodate the skills and experience of the new Non-Executive Director to the Board.

Fund raise

The Company successfully raised £21 million before expenses through a Placing, Retail Offer and Open Offer. This enabled a variety of UK investors to participate in an oversubscribed offer. We were extremely pleased with the support shown by existing investors and to see new high-quality institutional investors join our shareholder register and thank all those who participated in the fund raise. The fund raise has enabled our team to concentrate on delivery and strategy execution, building shareholder value during this time.

Outlook

We look forward to completing the post-planning consent and final phase of technical pre-development work of our Altalto Immingham Project in Q2 2021. In addition, we are taking advantage of the learnings we have gained working closely with our engineering partner, Worley, and accelerating the technical development of our Bayou Fuels Mississippi Biorefinery Project. This will make both projects highly standardised and modular, ready for the final FEED work and future projects.

With the successful fund raise in 2020, the Company is focused on delivering its reference projects as well as seeking new commercial opportunities to deploy our technology and support current and prospective customers.

The recent announcement of a collaboration agreement with Toyo Engineering Corporation demonstrates that we are delivering and creating opportunities for enhancing revenues from third-party developers, whilst opening up a new market for Velocys in Japan and the Far East.

We are now highly focused on accelerating the customer adoption of our technology. This requires us, as mentioned in our 2020 fundraise, to expand our current manufacturing capability, ensuring it has the capacity to achieve quality and on time delivery of our reactors at the scale required by multiple clients at various locations over the next number of years.

The Executive Team will continue to engage with respective host Governments and other stakeholders during 2021 to secure the necessary policy support to unlock the economic delivery of Sustainable Aviation Fuels to the airline industry at the scale and pace required to meet their aggressive Net Zero obligations.

CEO's report

Our global opportunity

Velocys is in a good position to take advantage of the growing demand for climate change mitigation, specifically the decarbonisation of commercial aviation. The aviation sector is staking its post COVID-19 recovery on Net Zero commitments to win back its passengers and licence to operate by host governments. For medium and

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long-haul flights, the only realistic prospect for the industry to decarbonise is to use fuel with a chemical composition similar to its current fossil fuel but with net zero or negative carbon intensity over the full life cycle. To avoid the need to replace or modify billions of dollars' worth of aircraft turbines and airport refuelling systems, and for aviation safety reasons, the net zero fuel must be ASTM approved and safe to blend seamlessly into the current fuel systems.

Synthetic Paraffinic Kerosene ("SPK") using the Fischer-Tropsch pathway (our enabling technology) is already ASTM approved for use at up to 50% with fossil based kerosene in commercial aviation globally. When SPK is made from sustainable feedstocks such as municipal, agricultural or forestry waste, it qualifies as Sustainable Aviation Fuel. The World Economic Forum estimates that these resources are sufficient to supply up to 95% of the world's jet fuel demand. This pathway is also the key to e-fuels (using CO2 as the carbon source, with renewable energy) which unlock an even greater additional supply.

Velocys provides the central processing technology which allows full commercial scale production of SAF using this pathway. We have integrated our technology into an end-to- end solution for site owners and developers to deploy on any site with more than 500,000 tonnes of available solid waste per year. Beyond the sharp reduction of CO2 emissions, our technology provides additional societal value through the diversion of this waste from landfills or incineration, as well as a final jet fuel with far superior air-quality properties than the fossil fuel it replaces.

The year in focus

Our Chairman has highlighted our main accomplishments for 2020, of which I am extremely proud. Our whole team demonstrated resilience and agility in adopting to the new work conditions imposed by the COVID-19 restrictions globally and managed to accelerate delivery of our engineering solutions to our clients as well as delivering hardware in the form of reactors and catalyst. I am pleased to say we did not need to furlough any employee in the US nor in the UK. I am also particularly pleased with our zero lost time incidents in the workplace at both our own sites and equally at our client sites where we have had Velocys engineers deployed during the year.

We have continued to tightly manage our overhead costs throughout 2020 by continuing the trend of effective cost management initiated at the end of 2018. My vision for Velocys is to remain capital light and low on fixed overhead costs while accessing a global capability to deliver our technology in its broadest sense via partners and third-party developers.

Our Financial review details our progress towards positive cashflow, which is our main strategic goal at this point. This enables us to unlock the full potential of future revenue generation from our technology, to meet the needs of all our stakeholders. We value our shareholder support in this final, but most important stage, from R&D to full scale commercialisation. I am very grateful for how that support was demonstrated by our early and new shareholders' engaged participation in our oversubscribed fund raise in July 2020.

Our commitment to sustainability

Velocys manages its own direct energy and resource consumption carefully. However, our overarching environmental impact is that our technology enables our clients to reduce net life cycle greenhouse gas emissions radically for their end-users. For example, 5 commercial scale Velocys enabled biorefineries each producing over 100 million litres of sustainable synthetic fuels would reduce net CO2 emissions by up to 3 million tonnes per year. This is equivalent to removing over 1 million average size petrol driven cars from the roads in the UK - but with the added benefit that the savings are in a much more difficult sector. Hence for investors, there are few other equally focused and near-time opportunities to contribute to a massive reduction of high impact CO2 emissions alongside improving air quality at altitude and around our airports.

Outlook

I am thankful for the reliable policy support we have received from both the US and UK governments during

2020 and recognise that continuing policy support is essential for the acceleration of the supply of SAF globally. It is wholly unrealistic to expect new process technologies, using sustainable feedstocks, to be able to compete on price with a mature technology such as fossil oil without a significant penalty for combusting fossil oil and a corresponding reward for producing net zero carbon fuels. Such policy support is already available and mature in parts of the US and is under development in the UK and across the EU. In addition, global aviation rules for decarbonisation under the Carbon Offsetting and Reduction Scheme for International Aviation ("CORSIA") also become mandatory from 2026.

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