Graphene Nanochem Regulatory News (GRPH)

16 January 2015

Graphene NanoChem PLC

("Graphene NanoChem", the "Company" or the "Group")

Trading Statement and Corporate Update

Graphene Nanochem (AIM: GRPH), the performance nanochemicals and advanced materials company, is pleased to announce a trading update following the close of its financial year ended 31st December 2014, and to provide an overview of the Company's recent performance and future strategy and milestones.

At the Company's interim results announced in September 2014, the Board highlighted that due to delays in the deployment of the PlatDrill Series, it was expected that the Company would report a loss for the year to 31 December 2014. Whilst this position remains unchanged, the Board is pleased to announce that the Group was profitable in the three month period ended 31 December 2014 ("Q4 2014").

Cash and cash equivalents as at 31 December 2014 was approximately £1.8 million, with approximately £23.0 million of cash and working capital facilities in aggregate. 

Corporate Overview

The Board considers that the Group's anticipated 2014 results demonstrate good underlying progress in its advanced strategy to become an international provider of enhanced performance products in high growth markets. This trend has been substantiated in Q4 2014, the Group's first profitable quarter, following stronger sales of the high-margin PlatDrill and PlatQuartZ Series. Approximately 3,000 MT of the PlatDrill Series and 1,000 drums of the PlatQuartZ Series were sold in Q4 2014.

In line with its strategy post the reverse takeover, the Group has remained focused in advancing key areas of applications of its nanotechnology platforms: Performance Chemicals, Energy and Nanocomposites with the Water Treatment solution being the latest expansion.

Performance Chemicals

Within the context of this progress, a suite of nano-enhanced products, as outlined in the table below, have been developed by the Group for the Performance Chemicals platform setting the foundation for growth in 2015 and 2016:

* Commercial launch anticipated in 2015 and 2016

The products offered by the Group have tangible and sizeable cost saving benefits to its customers. Specifically, through the use of nanotechnology, including nanomaterials enhancement, the Group's platform solutions are designed with superior performance features to improve performance efficiency in complex operating environments providing operational cost savings and enhancing production output levels. The reduction in oil prices by over 60% over the last six months has emphasised cost reduction initiatives by oil and gas companies resulting in increased demand for the Group's performance solutions.

The Group is focused on operating a clear growth plan to drive value across each established platform solution. With capital expenditure and product development expenses to seed the Performance Chemical products largely complete, the Group's focus for 2015 onwards is on increasing inventories of higher-margin products and driving sales revenue.

The Group has secured a strong base for market access via its partners' distribution channels as well as new tender opportunities. The Group is partnering with Scomi Oiltools Sdn Bhd ("Scomi"), a regional heavyweight oilfield services provider for the South Asia market; and Fire Creek Resources Ltd for future expansion into the North American market. Such partnerships significantly reduce the Group's marketing expenditure requirements, whilst obtaining highly significant market penetration and a captive customer base.

Water Treatment

The PlatClean System, was launched by the Group last quarter and positioned as water treatment solution in the South East Asia region via Scomi based on an equipment rental model basis.

Nanocomposites

The Group has completed the development of PlatCoat for composite applications planned for final prototyping and commercial deployment in the near term through a partnership model.

Energy Storage

The Group is developing a prototype graphene-enhanced lithium-ion battery in partnership with Sync R&D for electric buses under the Electric Bus 1Malaysia Programme.

Fuel Additive

Whilst key contracts for the Fuel Additive business has been renewed and the Group is able to realise the benefits of the completed upgrade of its production facility, there is a limited margin growth potential for this business moving forward. In light of the significant opportunities to drive quality earnings from the expanding Performance Chemicals Platform, the Group is reviewing the right sizing of the Fuel Additive business to enable further utilisation of its operating assets for high margin products and to improve the overall revenue profile of the Group.

Products Overview

The Group's key new offerings are summarised below. As noted above, the Group is planning to commercially launch its five new higher margin speciality products in 2015 and 2016.

▪ PlatDrill Series (a smart fluid that imparts improved thermal stability and lubricity and enables extreme temperature and pressure performance in oil based drillings fluids):

• First commercial delivery of c. 3,000 metric tonnes ("MT") of PlatDrill in Q4 2014 to a national oil company in South East Asia for operational deployment.

• Clear revenue visibility for 2015 from Scomi's existing supply chain with a 5 year (+ 5 year renewal option) offtake contract for 135,000 MT commencing in 2016

• Participating in several potentially significant new tenders for 2015 and 2016.

▪ PlatQuartZ Series (a smart fluid that imparts improved thermal stability and lubricity and enables extreme temperature and pressure performance in water based drillings fluids):

• Initial batch of c. 1,000 drums from first commercial order for 3,000 drums successfully delivered to a national oil company in South East Asia for operational deployment.

• On-going execution of order process for Scomi's existing supply chain.

• Participating in several potentially significant new tenders for 2015 and 2016.

▪ GraphEat (a highly effective dual function bactericide for both downhole and pipeline applications):

• Participating in several field tests/tenders

▪ GraphPol (a high performance nano-polymer designed to cost effectively enhance water flooding process for enhanced oil recovery):

• Participating in several field tests/tenders

▪ PlatSurf (a thermodynamically stable nano-emulsion stimulation agent for completion and wellbore remediation to remove filter cakes and blockages from downhole formation):

• On-going field testing with an oil major in South East Asia prior to potential deployment.

▪ PlatClean (a modular skid mounted water treatment system with graphene-enhanced membrane filters, designed to meet rig space and capacity constraints as well as the stringent environmental discharge limits of the oil and gas industry):

• Executed a product rollout agreement with Scomi for planned rollout of the PlatClean System in Indonesia

• Participating in several field tests/tenders in the region

▪ PlatCoat (a nano-coating solutions for corrosion protection, abrasion and high temperature resistance for various field applications inc. pipelines, casing, reaction vessels and tanks):

• Executed a agreement with a Tier-1 oilfield pipe supplier for the development of a prototype for casing and to pursue tender opportunities.

Key Mid-Term Targets of the Group

Having successfully developed its Performance Chemicals platform on commmercial scale, the Board has set a series of targets to achieve by the end of 2017, namely:

▪ Selective revenue growth: the Group is focused to improve revenue growth with quality earnings, targeting a CAGR of 25% in the period 2014 - 2017;

▪ Gradually improve margins: the shift to high margin performance began in Q4 2014 with focus on gross margins steadily increasing to 20-30%;

▪ Achieve ROCE of 15%:management has targeted ROCE as a key metric; and

▪ Reduce net debt:EBITDA < 2.0x: the Group will de-gear significantly through internal cash generation to reduce interest cost.

Jespal Deol, Chief Executive Officer of Graphene NanoChem, commented: "We have closed the year with strong momentum and a significant pipeline of both contracted sales and future tenders. The drop in oil prices has had a positive impact to our business with the need for superior products that enable cost savings to end-users. This was as reflected in positive sales in Q4 2014 and we are delighted with the market progress and scale of opportunities for expansion. Furthermore, the completed development of innovative new product lines planned for launch in 2015 and 2016 is a significant milestone in the growth plan of the Group and we look forward to updating the market on our progress."

For further information:

…