12 Oct 2016 07:00
12 October 2016
Quadrise Fuels International plc
("Quadrise", "QFI", the "Company" and together with its subsidiaries the "Group")
Final Results for the year ended 30 June 2016
Quadrise Fuels International plc (AIM: QFI) is the emerging supplier of MSAR® emulsion technology and fuel, enabling a low cost alternative to heavy fuel oil (one of the world's largest fuel markets, comprising over 450 million tons per annum) in the global shipping, refining, and power generation markets. The Company today announces its audited final results for the year ended 30 June 2016 and gives notice for the convening of an Annual General Meeting ("AGM") of the Company to be held on 2 December 2016. In a separate statement issued today, the Company announces a proposed fundraising, by way of a proposed placing of new ordinary shares in the Company, to raise approximately £4.0 million (the "Placing") and a proposed open offer of further new ordinary shares to existing QFI shareholders in order to raise up to an additional £1.0 million (the "Open Offer").
Operational highlights for the period and since year end
· Marine Operational and LONO Trial commenced in July 2016 and is progressing well with positive initial feedback from Maersk
o MSAR® production facility at CEPSA refinery operational within 9 months of contract signature
o completion of the trial expected by mid 2017
o possibility of an interim assessment in early 2017
o commencement of commercial rollout targeted for H2 2017
· Power Operational Trial MoU signed with the Kingdom of Saudi Arabia in August 2016
o Commencement of the combustion trial currently anticipated before the end of 2017
o experience of delivering a commercial scale MSAR® production facility at the CEPSA refinery provides confidence in the envisaged timetable
· Continued engagement with a number of oil majors and regional power companies to pursue opportunities for the production and use of MSAR®
· Positioned to implement commercial roll-out
o enhanced operational resources and continued investment in in-house research facility, alongside continuing collaboration with University of Surrey
o extension of our agreements with Akzo Nobel
Financial highlights
· No debt and £4.3 million in cash reserves at 30 June 2016 (30 June 2015: £8.4 million), expected to be bolstered further by approximately £4.0 million through the Placing announced today and up to a further £1.0 million through the intended Open Offer to existing QFI shareholders.
· Loss after tax of £4.8 million (2015: £4.9 million) of which £0.8 million (2015: £2.3 million) relates to non-cash charges for share options and adjustments to available for sale investments.
· Cumulative tax losses of £41.1 million (2015: £40.7 million) available for set-off against future profits.
· Total assets of £8.8 million at 30 June 2016 (2015: £12.6 million), which includes further investment in the Group's own comprehensive R&D and operations support facility as well as the balance payment for a commercial-scale MSAR® Manufacturing Unit.
Significant events post year end
On 10 August 2016, the Company announced the execution of a Memorandum of Understanding ("MoU") which defines the basis of collaboration between Quadrise and its clients in the Kingdom of Saudi Arabia ("KSA") to progress a 'Production to Combustion' trial at designated refinery and power plant facilities within the KSA.
On 14 September 2016, the Company announced the extension of its contracts for the exclusive purchase and supply of goods and services and for the exclusive joint development of emulsion fuels with AkzoNobel group companies. The contract extensions ensure the continuity and ongoing support from AkzoNobel for the commercialisation of MSAR® projects globally until at least November 2018.
As separately announced today, the Company is proposing to raise approximately £4.0 million through a Placing of new ordinary shares in the Company. Given the longstanding support that shareholders, including a large number of private shareholders, have provided to the Company over an extended period, the board believes that it is appropriate that existing QFI shareholders are provided with the opportunity to participate in the further issue of new equity in the Company at the same price as is available to institutional and other investors under the placing. As a result, the Company intends to launch an Open Offer to qualifying shareholders to raise up to a further £1.0 million shortly. A further announcement will be made in this regard in due course.
Commenting on the results Mike Kirk, Executive Chairman of QFI, said:
"This has been a year of substantial progression for Quadrise, with our key trial projects in the marine and power markets having reached defining stages. We believe that the successful completion of the current trials should be the last remaining steps to being able to develop substantial commercial markets. We have also continued to selectively build our resources to support these projects and for the expected migration to commercial operations during 2017.
"Whilst there remain challenges, we believe that MSAR® provides a compelling economic and environmental offer to both producers and consumers and that this will drive market uptake during 2017 and beyond. We look forward to being able to report further progress for the remainder of 2016 and 2017"
Notice of Annual General Meeting
The Annual General Meeting ("AGM") of the Company is to be held at the DoubleTree by Hilton Hotel, 2 Bridge Place, Victoria, London SW1V 1QA on 2 December 2016 at 12.00 noon.
This announcement is inside information for the purposes of article 7 of Regulation 596/2014.
For additional information, please contact:
Quadrise Fuels International plc +44 (0)20 7031 7321
Mike Kirk
Hemant Thanawala
Jason Miles
Smith & Williamson Corporate Finance Limited +44 (0)20 7131 4000
Dr Azhic Basirov
Ben Jeynes
Katy Birkin
Peel Hunt LLP +44 (0)20 7418 8900
Richard Crichton
Ross Allister
Chris Burrows
FTI Consulting +44 (0)20 3727 1000
Ben Brewerton
Sara Powell
Chairman's Statement
I am pleased to present the final results for Quadrise Fuels International plc ("Quadrise", the "Company", "QFI" and together with its subsidiaries, the "Group") for the year ended 30 June 2016 together with an update on significant events since the year end.
Quadrise's Unique Offer
Quadrise has developed MSAR® as a less expensive, cleaner synthetic heavy fuel oil ("HFO"). Produced using QFI's proprietary technology and services, MSAR® offers both producers and consumers of the fuel significant economic and environmental advantages. MSAR®, an oil in water emulsion, is made by mixing the residual streams from an oil refinery with water and specialised chemicals in a proprietary production process - instead of diluting the residuals with high value distillate products as in the production of HFO.
MSAR® has superior characteristics compared with HFO:
· MSAR® can be stored and used at lower temperatures than HFO.
· The small particle size (5-10 microns) of the residue in MSAR® results in virtually complete combustion - leading to improvements in engine efficiency and significant reductions in carbon particulates in the exhaust gases.
· The presence of water in MSAR® reduces the combustion temperatures - leading to significant reductions in NOx emissions.
· MSAR® is provided at a lower price than HFO for the equivalent energy output.
· Producing MSAR® allows the refiner to sell the higher value distillates products that would otherwise be used to dilute the residue in order to create HFO.
Quadrise acts as the technology and service partner to both the producer and the consumer and aims to create value through licence revenues from the production of fuel and the sale of the chemicals and MSAR® manufacturing systems. The core technology has been developed jointly with AkzoNobel - one of the world's leading surface chemistry companies.
For the refiner, the production of MSAR® upgrades the low value residue that is inherent in any oil refining process by treating it with speciality chemicals and water in a proprietary production process, rather than diluting it with high value distillate to create HFO. This releases material volumes of high value distillate for sale (typically increasing from 50% to 70% of the overall output) - providing the potential to significantly increase refining margins. For the consumer, MSAR® is offered at a discount (on an energy equivalent basis) to HFO and also offers environmental and handling benefits, compared with HFO.
The two largest markets for the use of MSAR® as a low-cost, efficient and environmentally friendly synthetic HFO are the marine bunkering and power generation markets. In both cases, it is necessary to engage with both the producers (refiners) and consumers (shipping companies and power utilities) to develop the significant market opportunities. Significant work has been carried out to demonstrate the proof of concept in these two key end-user markets and current work is focused on commercial scale trials, the successful conclusion of which will be key milestones towards QFI developing sustainable commercial revenues.
Operational Highlights
Excellent progress has been made during the year on the marine operational trial with the nominated Maersk vessel successfully burning MSAR® since July 2016 on its regular scheduled route, whilst outside the European Emission Control Area. The Company moved from contract signature to an operational commercial scale MSAR® Manufacturing Unit ("MMU") at the Cepsa Gibraltar San Roque Refinery within 9 months and MSAR® is now being manufactured on a regular schedule. The initial feedback from Maersk has been positive, with the possibility of an interim assessment in early 2017 and completion of the trial by middle of 2017.
In power generation, substantive progress was made during the second half of the year and this culminated in the execution of the Memorandum of Understanding ("MoU") in the Kingdom of Saudi Arabia (the "KSA") in August 2016. Since that time we have been working with all parties to move this large-scale production to combustion trial forward and we currently anticipate being able to commence the combustion trial before the end of 2017. Given that this is a large and complex project, our recent experience in delivering a commercial scale MSAR® production facility at the CEPSA refinery on a very tight timetable provides a high degree of confidence in meeting the envisaged timetable.
Economic Case for MSAR® Remains Sound at Current Oil and Gas Prices.
The key value driver for MSAR® is the price differential, or spread, between HFO and distillate fuels (essentially diesel). The spread has remained in the range $155 per tonne to $235 per tonne during the financial year, and the economics of MSAR® technology remains sound at these levels. There is, therefore, a compelling economic case for conversion to MSAR® production to enhance refinery margins, using a proven technology with low capital costs and rapid payback. We continue to make progress with our major programmes in the marine and power sectors and we are working with a number of refiners considering participation in the envisaged global Marine MSAR® supply network.
Oil and energy market conditions remained volatile through the period, though the falls during the first half of the year were recovered during the second half. Although the current lower oil and gas prices do not directly impact the economic case for our unique offer, historically the pace and scale of the price changes have extended decision making cycles for our key customers. Our continued investment in business development capacity in our key customer markets is enabling us to respond positively to this challenge and we believe that the positive progress on our key programmes demonstrates this.
Targeted Business Development Programme to Develop Commercial Market
Quadrise targets specific sectors of very large global bulk fuels markets, and our present and intended clients are large companies which presently account for a substantial share of the production and combustion of HFO - refiners for production and the marine bunkering and power generation sectors for consumption. We believe that there are significant synergies in this approach, as the major producers and consumers are co-located around a small number of major refining and bunker fuel hubs in Europe, the Middle East and Asia.
Both the producers and consumers are inherently conservative and so building the customer base requires Quadrise to engage in significant and sustained business development activity to enable collaborative projects to be developed. Our business development activities are organised along sector lines, to align with our clients in the refining, marine and power markets. We believe that the ability to develop both the marine and power markets offers significant advantages to the producers, as it both increases the available product market potential and de-risks its development through the building of multiple potential customers in different market segments.
All of our business development, research and support activities are co-ordinated to ensure that we can maximise the opportunity for development of a global commercial market for MSAR® in the marine and power sectors. We have highlighted below the background to and progress in each of these sectors.
Marine MSAR2® Bunker Fuel
Quadrise has been working with Maersk for over 5 years and this has culminated in the current operational and LONO ('Letter Of No Objection') trials, which commenced in the first half of 2016, with the MSAR® fuel being manufactured using a commercial-scale MMU at the CEPSA San Roque refinery, adjacent to the Algeciras Mediterranean bunker hub.
Following the installation and commissioning of the MMU during the second quarter of 2016, the first fuel was bunkered to the nominated Maersk vessel in the first few days of July 2016 and the operational and LONO trial will run for a total of 4,000 hours. It is anticipated that the trial will be completed by the middle of 2017, as the MSAR® fuel can only be burned when the vessel is steaming outside of the European Emission Control Area on its normal operating schedule. At the date of this announcement, several additional batches of marine MSAR fuel have been successfully produced and bunkered to the nominated vessel and the trial continues to progress well on the vessel.
During the negotiation of the current agreements for the trial with Maersk, the Royalty Agreement with Maersk Line was extended to the tenth anniversary of the date of first fully commercial Marine MSAR® - which is presently expected to be mid-2027.
When LONO certification and other regulatory formalities have been completed the early commercial phase should get underway, subject to Quadrise agreeing appropriate commercial terms with CEPSA and Maersk. Whilst the initial focus would be to service Maersk Line's nominated requirements, Quadrise plans to work with other refiners and shipping companies to accelerate the scope of the commercial roll-out. The modular nature of the MMU and associated infrastructure provides refiners with a simple, quick and cost-effective means of scaling up production to meet the anticipated rapidly increasing demand for Marine MSAR®. The MMU capital cost is relatively modest and the site infrastructure is designed for export of larger quantities of fuel oil and hence MSAR® in the future.
Macro Features of the Marine Fuel Market
Emission Standards
Emission standards have an increasingly significant impact on the market for marine bunker fuels. The more stringent standards in the European and North American Emission Control Areas ("ECAs") have been in force since January 2015 and are primarily being met by operators switching to high-cost, low-sulphur marine diesel fuel; though the option to use HFO and exhaust scrubbers offers an alternative route for compliance. The pending reductions in the IMO open ocean emission standards are due to be discussed at the MEPC meeting of the IMO on 24 to 28 October 2016 - and potentially a decision taken for implementation in either 2020 or 2025. "High-sulphur" MSAR® and exhaust scrubbers appear to offer the most economic compliance option, though the use of higher-cost low-sulphur marine diesel will be an option for some operators. With appropriate residue streams there is also the potential to produce low-sulphur MSAR®. It should also be noted that MSAR® provides other benefits including a reduction in NOx and particulates emissions which are likely to be of increasing importance.
Alternative Fuels
The use of LNG as an alternative fuel for shipping has increased in profile over the years - primarily as a result of the fall in gas prices in the USA. The recent fall in oil prices has resulted in HFO becoming more cost competitive than LNG per unit energy in many circumstances. Therefore there are likely to be cost constraints on the widespread adoption of LNG as a replacement for HFO, although it may be used in certain geographic and end-user market niches. Given the scale of the global marine fuel market, the development of the marine LNG fuel market is not considered to have a material impact on the market opportunity for marine MSAR®.
Power Generation MSAR® Fuel
The KSA is the world's largest market for consumption of crude-oil and HFO for power generation and the scale and nature of the oil and power generation industries offers an enormous opportunity for Quadrise. It was therefore identified as the primary target market and we have been working with our local partner there, the Rafid Group, on a sustained basis for over 5 years. During this time, we have developed good relationships and have been working closely with a number of key parties and have undertaken a number of studies and evaluation programmes.
We are delighted that we were able to announce in early August 2016 the signing of an MoU to progress discussions for a major production to combustion trial in KSA. We are now engaged with our clients and their advisors to progress from the MoU to definitive contracts for the trial. The refining complex at which the MSAR® will be produced and the major coastal power station at which the combustion trial will take place have been defined and Quadrise is working with all parties to scope the requirements of this complex project which has to be co-ordinated with the existing operating schedules of both facilities. As part of the preparatory work carried out during 2015, the refinery was able to undertake the installation of "tie-ins" for the supply of the residue to the planned emulsion fuel manufacturing unit during a planned maintenance shut down at the end of 2015.
The recent experience that Quadrise has in designing, installing and commissioning a commercial scale MMU at CEPSA, together with our proven ability to manufacture MSAR® on a commercial scale will be highly relevant to the work required for the successful delivery of the production element of the trial in KSA during 2017.
Future Marine, Power and Industrial Programmes
In addition to our work with Maersk, CEPSA and with a number of parties in the KSA, Quadrise has been working on a number of other carefully selected opportunities with both refiners as potential producers of MSAR® fuels and power utilities and shipping operators as consumers. As noted previously, in many cases there are synergies to expanding both the bunker fuel and power generation markets in parallel as this reduces the risks significantly for both parties when there are multiple suppliers and multiple consumers.
In Asia, we continue our relationship with YTL Power Seraya and the prospective benefits continue to be material at current oil prices and price spreads, though lower gas prices are affecting competition in the Singapore power generation market. The project is dependent on MSAR® production by a major regional refiner and this is only likely to start when there is a market for Marine MSAR® through the Singapore bunker hub - which we believe will be an integral part of the post LONO commercial roll-out from 2017. Quadrise has maintained relationships with a number of oil majors and a number of technical evaluations have been completed or are progressing to confirm the suitability of specific refining residues for MSAR® production. These relationships also provide opportunities to explore options for MSAR® production and conversion of refinery units and steam generation plant.
Enhancement of Research, Development and Operations Activities
During the year we have enhanced our capacity and capability in research and development, operations and technical support activities, to ensure that we were able to respond to the increase in activity during the current trials and to enable us to support the planned commercial roll-out following the successful completion of the trials. This included expanding the team at QRF (where all our in-house R&D is undertaken) together with additional business development/process engineering support at our head office. We also commenced a complementary programme of research at the University of Surrey that, through enhancing our understanding of the mechanisms that underpin the creation of stable oil in water emulsion fuels, supports our in-house development activities. This has given Quadrise access to state of the art facilities and world-renowned expertise in emulsions and is proving to be an excellent partnership. We anticipate extending the current arrangements when they expire in the fourth quarter of 2016.
Central to our offer is the input and support of our technology partner, Akzo Nobel, who has worked with Quadrise for over a decade and with whom we have a Joint Development Agreement and a Co-Operation and Exclusive Purchase and Supply Agreement for the chemicals used to create MSAR®. These agreements were recently extended to November 2018 which will give confidence to our customers that we are able to support them when we enter into commercial agreements.
Board and Management
The board has developed during the year, in order to ensure that we are in the best possible position to deliver on the significant commercial opportunities that the successful conclusion of the current trials is expected to present during 2017 and beyond. After serving for 10 years, Ian Williams retired at the end of March 2016 and I succeeded him as Executive Chairman, working alongside our established Chief Operating Officer, Jason Miles, and Finance Director, Hemant Thanawala. We are working together very well as a team.
We continue to benefit from the input of our experienced non-executive directors, with Laurie Mutch chairing the Audit Committee, and Ian Duckels chairing the Compensation Committee - though on Ian's previously announced retirement, at the AGM in 2016, Phil Snaith will take over as Chair of the Compensation Committee. The board would like to take this opportunity to thank both Ian Williams and Ian Duckels for their input and support over many years.
As noted above, we have enhanced our capacity and capability in research and development, operations and technical support activities. In combination with our existing business development activities, this has ensured that we have been able to respond positively to the challenges of supporting two substantial, commercial-scale trial programmes, whilst having the capacity to plan for our future commercial operations.
Outlook - Current trading and prospects.
Both the Marine and Power programmes have reached defining stages. At CEPSA, we now have a commercial-scale MMU producing MSAR® for use in a Maersk nominated vessel whilst steaming on its normal scheduled route. The trial has progressed well to date and we expect further substantial progress towards the required 4,000 hours for the LONO element to be made during the remainder of 2016 and for the trial to be completed by the middle of 2017. The facility at CEPSA also provides QFI with a commercial facility built to permanent standards that it is able to showcase to potential clients. In KSA we are working hard with all key participants to progress the planned production to combustion trial and our experience at CEPSA is proving to be invaluable in demonstrating our capabilities and our experience in moving from design studies to a producing facility within tight timescales in an operating refinery.
We believe that the successful completion of the current trials are the last remaining steps to being able to develop substantial commercial markets, subject to the negotiation of suitable contracts, for the production and sale of MSAR® and we are working hard to maximise the opportunity that this will provide. Whilst there remain challenges, we believe that MSAR® provides a compelling economic and environmental offer to both producers and consumers and that this will drive market uptake during 2017 and beyond.
Finally, as announced today, the Board is seeking to enhance the Group's treasury through a proposed Placing of new ordinary shares in the Company to raise approximately £4.0 million. The proposed funding is intended to enable the Group to transition comfortably into the commercial phase, upon the successful completion of the marine operational/LONO and the KSA production to combustion trials. The Company also intends to launch an Open Offer of new ordinary shares to existing QFI shareholders in order to raise up to an additional £1.0 million.
Mike Kirk
Executive Chairman
11 October 2016
Financial Review
Overview
Close attention to the Group's treasury and effective financial management has remained a firm ethos of the Board and management of the Group during the year, especially in view of the unavoidable delays in getting the marine MSAR® trial with Maersk and the power MSAR® trial with the KSA underway.
Since the start of the New Year, the marine MSAR® LONO trial has been progressing well and a number of batches of the fuel have already been produced at the CEPSA refinery and burnt successfully in the Maersk nominated vessel. At the current pace, this trial is expected to be completed by the middle of 2017 and, on the successful completion thereof, should progress to the execution of the first commercial contracts.
The KSA production to combustion trial is also progressing well since the year-end and the recent execution of the MoU defines the outline timetable, scope, scale and pace for the trial. All key parties are now well engaged in commencing the trial in 2017, paving the way for an anticipated commercial roll-out in 2018.
To support the lead up to full-scale commercial operations over the next 2 years and to provide comfort to our key clients of our good financial standing and ability to perform when executing the first commercial contracts, the board is taking the necessary actions to strengthen our existing treasury further by raising additional funds through a proposed placing and proposed Open Offer as announced today. The proposed Placing should provide approximately £4.0 million and the proposed Open Offer should provide up to an additional £1.0 million of funds. The board is confident that this fundraising, in combination with the existing treasury, will position the Group well to move to sustainable commercial revenues and profitability.
Results for the Year
The consolidated after-tax loss for the year to 30 June 2016 was £4.8m (2015: £4.9m). This included production and development costs of £2.2m (2015: £1.3m), administration expenses of £2.0m (2015: £1.5m), a share option charge of £0.8m (2015: £1.9m), interest and other income of £192k (2015: £233k), and a charge of £nil (2015: £0.4m) for adjustments to available for sale investments.
Basic and diluted loss per share was 0.59p (2015: 0.61p).
Statement of Financial Position
At 30 June 2016, the Group had total assets of £8.8m (2015: £12.6m). The most significant balances were intangible assets of £2.9m (2015: £2.9m), property, plant and equipment of £1.2m (2015: £0.7m), and cash of £4.3m (2015: £8.4m). Further information on intangible assets is provided in note 11 to the Financial Information.
Cash Flow
The Group ended the year with £4.3m of cash and cash equivalents (2015: £8.4m) with £3.7m having been utilised in its operating activities during the year (2015: £2.7m). The Group continues to remain debt free.
Capital Structure
The Company had 809,585,162 ordinary shares of 1p each in issue at 30 June 2016. The Company's current issued share capital remains at 809,585,162 ordinary shares of 1p each all with voting rights. However, this will change shortly upon the completion of the Placing and Open Offer, as mentioned above. Details of the revised issued share capital will be notified to the shareholders through an RNS at the appropriate time.
Treasury and Financial Risk Management
Control over treasury and financial risk management is exercised by the Board and its Audit Committee through the setting of policies and the regular review of forecasts and financial exposures. Presently, the Group's financial instruments consist principally of cash and liquid resources and other items such as accounts receivable and payable, which arise directly from its operations. It is still the Group's policy not to undertake any trading activity in financial instruments, including derivatives.
The principal risks arising from the Group's financial instruments are those associated with interest, liquidity and foreign exchange. The Board reviews and establishes appropriate policies for the management of such risks and monitors them on a regular basis.
Taxation
The Group has tax losses arising in the UK of approximately £41.1m (2015: £40.7m) that are available, under current legislation, to be carried forward against future profits. £11.8m (2015: £11.2m) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £25.8m (2015: £25.8m) represent non-trade deficits arising on intangible assets within Quadrise International Limited, £1.6m (2015: £1.7m) represent pre-trading losses incurred by subsidiaries, £1.9m (2015: £1.9m) represent management expenses incurred by Quadrise International Limited, and £0.1m (2015: £0.1m) represent capital losses within Quadrise Fuels International plc.
Outlook
The key objectives for the current financial year are to successfully complete the marine MSAR® operational and LONO trial with Maersk and substantially progress the production to combustion trial in KSA, providing a clear pathway for moving the Group towards sustainable commercial revenues and profitability from the following year. With enhanced cash resources following the proposed Placing and Open Offer, the Group will also be well-positioned to enter into the early commercial contracts with our clients having the confidence of our ability to deliver the required operational and support resourcing.
Tight financial management will continue to be applied as a matter of good order and every care and attention will be given to the negotiations of the future commercial contracts to ensure that the Group receives an equitable share of the material value-add that our MSAR® technology offers to the market.
Hemant Thanawala
Finance Director
11 October 2016
Strategic Report
For the year ended 30 June 2016
Principal Activity
The principal activity of the Company is to develop markets for its proprietary emulsion fuel ("MSAR®") as a low cost substitute for conventional heavy fuel oil ("HFO") for use in power generation plants and industrial and marine diesel engines.
Business Review and Future Developments
A full review of the Group's activities during the year, recent events and future developments is contained in the Chairman's Statement.
Key Performance Indicators
The Group's key performance indicators are development and commercial performance against Group business plans and project timetables established with clients, and financial performance and position against the approved budgets and cashflow forecasts. The Board regularly reviews the Group business plans, project timetables, budgets and cashflow forecasts in order to optimise the application of available resources. Consideration of the Group's performance against Key Performance Indicators is contained in the Chairman's Statement and the Financial Review.
Going Concern
The Group had £4.3m in treasury as at 30 June 2016. Having conducted a full review of the updated business plan, budgets and associated commitments at the year end, the Directors concluded that the Group has adequate financial resources to continue in operational existence for at least the forthcoming year and therefore continue to adopt the going concern basis in preparing the accounts. Refer to Note 3 for further details.
Principal Business Risks
Set out below are certain risk factors relating to the Group's business. However, these may not include all of the risk factors that could affect future results. Actual results could differ materially from those anticipated as a consequence of these and various other factors, and those set forth in the Group's other periodic and current reports filed with the authorities from time to time.
Market risk
The marketability of MSAR® fuels is affected by numerous factors beyond the control of the Group. These include variability of price spreads between light and heavy oils and the relative competitiveness of oil, gas and coal prices both for prompt and future delivery. The Group cannot mitigate this risk by its nature, but pays close attention to the energy markets in order to be able to react in a timely and effective manner.
Feedstock sourcing
There is a risk in respect of appropriately located and ongoing price competitive availability of heavy oil residue feedstock as oil refiners seek to extract more transportation fuels from each barrel of crude using residue conversion processes. The Group mitigates this risk where possible by utilising its deep understanding of the global refining industry, targeting qualifying suppliers matched to prospective major consumers.
Commercial risks
There is a risk the Group will not achieve a commercial return due to major unanticipated change in a key variable or, more likely, the aggregate impact of changes to several variables which results in sustained depressed margins. Experience during early 2015 demonstrated that the price spread between heavy fuel oil and diesel fuel was relatively robust while crude oil prices collapsed. As this price spread drives the Quadrise 'value-add', the structure of the oil products market itself mitigates the principal margin risk.
The competitive position could be affected by changes to government regulations concerning taxation, duties, specifications, importation and exportation of hydrocarbon fuels and environmental aspects. Freight costs contribute substantially to the final cost of supplied products and a major change in the cost of bulk liquid freight markets could have an adverse effect on the economics of the fuels business. The Group would mitigate this risk through establishing appropriate flexibilities in the contractual framework, offtake arrangements and price risk management through hedging.
Technological risk
There is a risk that the technology used for the production of MSAR® fuel may not be adequately robust for all applications in respect of the character and nature of the feedstock and the particular parameters of transportation and storage pertaining to a specific project. This risk may jeopardise the early commercialisation of the technology and subsequent implementation of projects; or give rise to significant liabilities arising from defective fuel during plant operations. The Group mitigates this risk by ensuring that its highly experienced key personnel are closely involved with all areas of MSAR® formulation and manufacture, and that the MSAR® fuel is thoroughly tested before being put into operational use.
Delay in commercialisation of MSAR® and funding risks
There is a risk that the commercialisation of MSAR® could be delayed further due to unforeseen technical and/or commercial challenges. This could mean that the Group may need to raise further equity funds to remain operational. Depending on market conditions and investor sentiments, there is a risk that the Group may be unable to raise the requested funds when necessary. The Group mitigates this risk by maintaining strong control over its pre-revenue expenditure, keeping up the momentum on its key projects as far as possible, and maintaining regular contact with the financial markets and investor community.
Competition risks
There is a risk that new competition could emerge with similar technologies sufficiently differentiated to challenge the MSAR® process. This could result, over time, in further price competition and pressure on margins beyond that assumed in the Group's business planning. This risk is mitigated by the limited global pool of expertise in the emulsion fuel market combined with an enhanced R&D programme aimed at optimising cost and performance and protection of intellectual property. The Group also makes best use of scarce expertise by developing close relationships with strategic counterparties such as AkzoNobel while ensuring that key employees are suitably incentivised.
Other business risks
Dependence on key personnel
The Group's business is dependent on obtaining and retaining the services of key personnel of the appropriate calibre as the business develops. The appointment in recent years of key General Managers into a revised organisation structure, the conversion of former consultants to key full time posts and appointment of chemical technologists and process engineers has reduced risk and equipped the Company to meet future demands. The success of the Group will continue to be dependent on the expertise and experience of the Directors and the management team, and the loss of personnel could still have an adverse effect on the Group. The Group mitigates this risk by ensuring that key personnel are suitably incentivised and contractually bound.
Environmental risks
The Group's operations are subject to environmental risks inherent in the oil processing and distribution industry. The Group is subject to environmental laws and regulations in connection with all of its operations. Although the Group intends to be in compliance, in all material respects, with all applicable environmental laws and regulations, there are certain risks inherent to its activities, such as accidental spills, leakages or other circumstances that could subject the Group to extensive liability.
Further, the Group may require approval from the relevant authorities before it can undertake activities which are likely to impact the environment. Failure to obtain such approvals may prevent or delay the Group from undertaking its desired activities. The Group is unable to predict definitively the effect of additional environmental laws and regulations, which may be adopted in the future, including whether any such laws or regulations would materially increase the Group's cost of doing business, or affect its operations in any area. The Group mitigates this risk by ensuring compliance with environmental legislation in the jurisdictions in which it operates, and closely monitoring any pending regulation or legislation to ensure compliance.
No profit to date
The Group has incurred aggregate losses since its inception and it is therefore not possible to evaluate its prospects based on past performance. There can be no certainty that the Group will achieve or sustain profitability or achieve or sustain positive cash flow from its activities.
Corporate and regulatory formalities
The conduct of petroleum processing and distribution requires compliance by the Group with numerous procedures and formalities in many different national jurisdictions. It may not in all cases be possible to comply with or obtain waivers of all such formalities. Additionally, functioning as a publicly listed Group requires compliance with stock market regulations. The group mitigates this risk through commitment to a high standard of corporate governance and 'fit for purpose' procedures, and by maintaining and applying effective policies.
Economic, political, judicial, administrative, taxation or other regulatory factors
The Group may be adversely affected by changes in economic, political, judicial, administrative, taxation or other regulatory factors, in the areas in which the Group operates and conducts its principal activities.
Mike Kirk
Executive Chairman
11 October 2016
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2016
| Notes
| Year ended 30 June 2016 £'000 | Year ended 30 June 2015 £'000 |
Continuing operations |
|
|
|
Revenue |
| 2 | 66 |
Other income | 4 | - | 39 |
Production and development costs |
| (2,156) | (1,268) |
Adjustment to available for sale investments | 12 | - | (404) |
Other administration expenses |
| (1,965) | (1,540) |
Share option charge | 13 | (802) | (1,914) |
Foreign exchange loss |
| (18) | (3) |
Operating loss | 5 | (4,939) | (5,024) |
Finance costs | 6 | (8) | (7) |
Finance income | 7 | 41 | 56 |
Loss before tax |
| (4,906) | (4,975) |
Taxation | 8 | 149 | 72 |
Loss for the year from continuing operations | (4,757) | (4,903) | |
Other Comprehensive Income |
|
|
|
Adjustment to available for sale investments - will be recycled subsequently to profit and loss. | 12 | - | (1,035) |
Other comprehensive loss for the year net of tax |
| - | (1,035) |
|
|
|
|
Total comprehensive loss for the year | (4,757) | (5,938) | |
|
|
|
|
Loss for the year attributable to: |
|
|
|
Owners of the Company |
| (4,757) | (4,898) |
Non-controlling interest |
| - | (5) |
|
|
|
|
Total comprehensive loss attributable to: |
|
|
|
Owners of the Company |
| (4,757) | (5,933) |
Non-controlling interest |
| - | (5) |
|
|
|
|
Loss per share - pence |
|
|
|
Basic | 9 | (0.59)p | (0.61)p |
Diluted | 9 | (0.59)p | (0.61)p |
Consolidated Statement of Financial Position
As at 30 June 2016
| Notes
| As at 30 June 2016 £'000 | As at 30 June 2015 £'000 |
Assets |
|
|
|
Non-current assets |
|
|
|
Property, plant and equipment | 10 | 1,156 | 710 |
Intangible assets | 11 | 2,924 | 2,924 |
Non-current assets |
| 4,080 | 3,634 |
|
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
| 4,268 | 8,361 |
Trade and other receivables |
| 297 | 333 |
Prepayments |
| 120 | 238 |
Current assets |
| 4,685 | 8,932 |
TOTAL ASSETS |
| 8,765 | 12,566 |
Equity and liabilities |
|
|
|
Current liabilities |
|
|
|
Trade and other payables |
| 576 | 422 |
Current liabilities |
| 576 | 422 |
|
|
|
|
Equity attributable to equity holders of the parent |
|
|
|
Issued share capital |
| 8,096 | 8,096 |
Share premium |
| 69,216 | 69,216 |
Share option reserve |
| 4,704 | 4,210 |
Reverse acquisition reserve |
| 522 | 522 |
Accumulated losses |
| (74,349) | (69,900) |
Total shareholders' equity |
| 8,189 | 12,144 |
TOTAL EQUITY AND LIABILITIES |
| 8,765 | 12,566 |
Consolidated Statement of Changes in Equity
For the year ended 30 June 2016
Attributable to owners of the parent
| Issued capital £'000s | Share premium £'000s | Revaluation reserve £'000s | Share option reserve £'000s | Reverse acquisition reserve £'000s |
Accumulatedlosses £'000s | Total £'000s | Non controlling interest £'000s | Total equity £'000s |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
1 July 2014 | 8,072 | 68,633 | 1,035 | 3,045 | 522 | (65,126) | 16,181 | (120) | 16,061 |
|
|
|
|
|
|
| |
Loss for the year | - | - | - | - | - | (4,898) | (4,898) | (5) | (4,903) |
|
|
|
|
|
|
| |
Fair value adjustments | - | - | (1,035) | - | - | - | (1,035) | - | (1,035) |
|
|
|
|
|
|
| |
Total comprehensive loss for the year | - | - | (1,035) | - | - | (4,898) | (5,933) | (5) | (5,938) |
|
|
|
|
|
|
| |
Share option charge | - | - | - | 1,914 | - | - | 1,914 | - | 1,914 |
|
|
|
|
|
|
| |
Exercise of share options | 8 | 99 | - | (43) | - | 43 | 107 | - | 107 |
|
|
|
|
|
|
| |
Transfer of balances relating to expired share options | - | - | - | (706) | - | 706 | - | - | - |
|
|
|
|
|
|
| |
Acquisition of Minority Interest | 16 | 484 | - | - | - | (625) | (125) | 125 | - |
|
|
|
|
|
|
| |
30 June 2015 | 8,096 | 69,216 | - | 4,210 | 522 | (69,900) | 12,144 | - | 12,144 |
|
|
|
|
|
|
| |
1 July 2015 | 8,096 | 69,216 | - | 4,210 | 522 | (69,900) | 12,144 | - | 12,144 |
|
|
|
|
|
|
| |
Loss and total comprehensive loss for the year | - | - | - | - | - | (4,757) | (4,757) | - | (4,757) |
|
|
|
|
|
|
| |
Share option charge | - | - | - | 802 | - | - | 802 | - | 802 |
|
|
|
|
|
|
| |
Transfer of balances relating to expired share options | - | - | - | (308) | - | 308 | - | - | - |
|
|
|
|
|
|
| |
30 June 2016 | 8,096 | 69,216 | - | 4,704 | 522 | (74,349) | 8,189 | - | 8,189 |
|
|
|
|
|
|
| |
Consolidated Statement of Cash Flows
For the year ended 30 June 2016
| Notes
| Year ended 30 June 2016 £'000 | Year ended 30 June 2015 £'000 |
Operating activities |
|
|
|
Loss before tax from continuing operations |
| (4,906) | (4,975) |
Depreciation | 10 | 148 | 108 |
Loss on disposal of fixed assets | 10 | 2 | 14 |
Finance costs | 6 | 8 | 7 |
Finance income | 7 | (41) | (56) |
Adjustment to available for sale investments | 12 | - | 404 |
Share option charge | 13 | 802 | 1,914 |
Working capital adjustments |
|
|
|
Decrease/(increase) in trade and other receivables |
| 36 | (163) |
Decrease/(increase) in prepayments |
| 118 | (162) |
Increase in trade and other payables |
| 154 | 181 |
Cash utilised in operations |
| (3,679) | (2,728) |
|
|
|
|
Finance costs | 6 | (8) | (7) |
Taxation received | 8 | 149 | 72 |
Net cash outflow from operating activities |
| (3,538) | (2,663) |
|
|
|
|
Investing activities |
|
|
|
Finance income | 7 | 41 | 56 |
Purchase of property, plant and equipment | 10 | (596) | (220) |
Net cash outflow from investing activities |
| (555) | (164) |
|
|
|
|
Financing activities |
|
|
|
Exercise of share options |
| - | 107 |
Net cash inflow from financing activities |
| - | 107 |
|
|
|
|
Net decrease in cash and cash equivalents |
| (4,093) | (2,720) |
Cash and cash equivalents at the beginning of the year |
| 8,361 | 11,081 |
Cash and cash equivalents at the end of the year |
| 4,268 | 8,361 |
Notes to the Financial Information
1. Basis of Preparation and Significant Accounting Policies
The financial information for the year ended 30 June 2016 set out in this announcement has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).
The financial information has been prepared on the historical cost basis, except for the revaluation of certain financial instruments. Details of the accounting policies applied are set out in the financial statements for the year ended 30 June 2016.
The financial information is prepared in Pounds Sterling and all values are rounded to the nearest thousand Pounds (£'000) except where otherwise indicated.
The financial information does not constitute the Company's statutory financial statements for the year ended 30 June 2016 but has been extracted from them. These financial statements will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on these financial statements, and their report was unqualified and did not contain any statement under section 498(2) or (3) Companies Act 2006.
Statutory financial statements for the year ended 30 June 2015 have been delivered to the Registrar of Companies. The auditor's report on these financial statements was unqualified and did not contain any statement under section 498(2) or (3) Companies Act 2006.
The Directors do not propose a dividend in respect of the year ended 30 June 2016 (2015: nil).
This announcement was approved by the Board on 12 October 2016.
2. Going Concern
The Group's business activities and financial position, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement.
The Group had £4.3m in treasury as at 30 June 2016. The Directors have carried out a detailed assessment of going concern as part of the financial reporting process, and having conducted a full review of the updated business plan, budgets and associated commitments at the year end, have concluded that the Group has adequate financial resources to continue in operational existence for at least the forthcoming year and therefore continue to adopt the going concern basis in preparing the accounts.
3. Segmental Information
For the purpose of segmental information the reportable operating segment is determined to be the business segment. The Group principally has one business segment, the results of which are regularly reviewed by the Board. This business segment is a business to produce emulsion fuel (or supply the associated technology to third parties) as a low cost substitute for conventional heavy fuel oil ("HFO") for use in power generation plants and industrial and marine diesel engines.
Geographical Segments
The Group's only geographical segment during the year was the UK.
4. Other Income
Other income includes:
| Year ended 30 June 2016 £'000s | Year ended 30 June 2015 £'000s |
|
|
|
Recoverable costs recharged to related parties | - | 39 |
Total | - | 39 |
|
|
|
5. Operating Loss
Operating loss is stated after charging: | Year ended 30 June 2016 £'000s | Year ended 30 June 2015 £'000s |
|
|
|
|
|
|
Fees payable to the Company's auditor for the audit of the Company's annual accounts. Fees payable to the Company's auditor and its associates for other services: | 19 | 18 |
Audit of accounts of subsidiaries Tax compliance services | 19 20 | 18 11 |
Consultants and other professional fees (including legal) | 282 | 238 |
Depreciation of property, plant and equipment | 148 | 108 |
|
|
|
|
|
|
6. Finance Costs
| Year ended 30 June 2016 £'000s
| Year ended 30 June 2015 £'000s |
Bank charges | 8 | 7 |
|
|
|
Total | 8 | 7 |
7. Finance Income
All finance income recognised during the current and prior year has arisen from interest on bank deposits and loans.
8. Taxation
| Year ended 30 June 2016 £'000s | Year ended 30 June 2015 £'000s
|
UK corporation tax credit | (149) | (72) |
Total | (149) | (72) |
No liability in respect of corporation tax arises as a result of trading losses.
Tax Reconciliation | Year ended 30 June 2016 £'000s
| Year ended 30 June 2015 £'000s |
Loss on continuing operations before taxation | (4,906) | (4,975) |
Loss on continuing operations before taxation multiplied by the UK corporation tax rate of 20% (2015: 20.75%) |
(981) |
(1,032) |
Effects of: |
|
|
Non-deductible expenditure | 169 | 500 |
R&D tax credit | (149) | (72) |
Tax losses carried forward | 812 | 533 |
Total taxation credit on loss from continuing operations | (149) | (72) |
The Group has tax losses arising in the UK of approximately £41.1m (2015: £40.7m) that are available, under current legislation, to be carried forward against future profits. £11.7m (2015: £11.2m) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £25.8m (2015: £25.8m) represent non-trade deficits arising on intangible assets within Quadrise International Limited, £1.6m (2015: £1.7m) represent pre-trading losses incurred by subsidiaries, £1.9m (2015: £1.9m) represent management expenses incurred by Quadrise International Limited, and £0.1m (2015: £0.1m) represent capital losses within Quadrise Fuels International plc.
A deferred tax asset representing these losses and other timing differences at the statement of financial position date of approximately £8.2m (2015: £8.1m) has not been recognised as a result of existing uncertainties in relation to its realisation.
9. Loss Per Share
The calculation of loss per share is based on the following loss and number of shares:
| Year ended 30 June 2016
| Year ended 30 June 2015
|
Loss for the year (£'000s) | (4,757) | (4,898) |
Weighted average number of shares: |
|
|
Basic | 809,585,162 | 808,656,176 |
Diluted | 809,585,162 | 808,656,176 |
|
|
|
Loss per share: |
|
|
Basic | (0.59)p | (0.61)p |
Diluted | (0.59)p | (0.61)p |
Basic loss per share is calculated by dividing the loss for the year from continuing operations of the Group by the weighted average number of ordinary shares in issue during the year.
For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive options over ordinary shares. Potential ordinary shares resulting from the exercise of share options have an anti-dilutive effect due to the Group being in a loss position. As a result, diluted loss per share is disclosed as the same value as basic loss per share. The 26.3m dilutive share options issued by the Company and which are outstanding at year-end could potentially dilute earnings per share in the future if exercised when the Group is in a profit making position.
10. Property, plant and equipment
Consolidated | ||||||
| Leasehold Improvements | Computer Equipment | Software | Office Equipment | Plant and machinery | Total |
| £'000s | £'000s | £'000s | £'000s | £'000s | £'000s |
Cost |
|
|
|
|
|
|
Opening balance - 1 July 2015 | 99 | 70 | 43 | 16 | 682 | 910 |
Additions | - | 19 | - | - | 577 | 596 |
Disposals | - | - | - | - | (8) | (8) |
Closing balance - 30 June 2016 | 99 | 89 | 43 | 16 | 1,251 | 1,498 |
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
Opening balance - 1 July 2015 | (26) | (14) | (15) | (9) | (136) | (200) |
Depreciation charge for the year | (20) | (16) | (9) | (3) | (100) | (148) |
Disposals | - | - | - | - | 6 | 6 |
Closing balance - 30 June 2016 | (46) | (30) | (24) | (12) | (230) | (342) |
|
|
|
|
|
|
|
Net book value at 30 June 2016 | 53 | 59 | 19 | 4 | 1,021 | 1,156 |
Consolidated | ||||||
| Leasehold Improvements | Computer Equipment | Software | Office Equipment | Plant and machinery | Total |
| £'000s | £'000s | £'000s | £'000s | £'000s | £'000s |
Cost |
|
|
|
|
|
|
Opening balance - 1 July 2014 | 94 | 21 | 17 | 16 | 559 | 707 |
Additions | 5 | 49 | 26 | - | 140 | 220 |
Disposals | - | - | - | - | (17) | (17) |
Closing balance - 30 June 2015 | 99 | 70 | 43 | 16 | 682 | 910 |
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
Opening balance - 1 July 2014 | (6) | (7) | (9) | (6) | (67) | (95) |
Depreciation charge for the year | (20) | (7) | (6) | (3) | (72) | (108) |
Disposals | - | - | - | - | 3 | 3 |
Closing balance - 30 June 2015 | (26) | (14) | (15) | (9) | (136) | (200) |
|
|
|
|
|
|
|
Net book value at 30 June 2015 | 73 | 56 | 28 | 7 | 546 | 710 |
11. Intangible Assets
Consolidated
| QCC royalty payments | MSAR® trade name | Technology and know-how | Total |
| £'000s | £'000s | £'000s | £'000s |
Cost |
|
|
|
|
Opening balance - 1 July 2015 | 7,686 | 3,100 | 25,901 | 36,687 |
Additions | - | - | - | - |
Closing balance - 30 June 2016 | 7,686 | 3,100 | 25,901 | 36,687 |
|
|
|
|
|
Amortisation and Impairment |
|
|
|
|
Opening balance - 1 July 2015 | (7,686) | (176) | (25,901) | (33,763) |
Amortisation | - | - | - | - |
Closing balance - 30 June 2016 | (7,686) | (176) | (25,901) | (33,763) |
|
|
|
|
|
Net book value at 30 June 2016 | - | 2,924 | - | 2,924 |
Consolidated
| QCC royalty payments | MSAR® trade name | Technology and know-how | Total |
| £'000s | £'000s | £'000s | £'000s |
Cost |
|
|
|
|
Opening balance - 1 July 2014 | 7,686 | 3,100 | 25,901 | 36,687 |
Additions | - | - | - | - |
Closing balance - 30 June 2015 | 7,686 | 3,100 | 25,901 | 36,687 |
|
|
|
|
|
Amortisation and Impairment |
|
|
|
|
Opening balance - 1 July 2014 | (7,686) | (176) | (25,901) | (33,763) |
Amortisation | - | - | - | - |
Closing balance - 30 June 2015 | (7,686) | (176) | (25,901) | (33,763) |
|
|
|
|
|
Net book value at 30 June 2015 | - | 2,924 | - | 2,924 |
Intangible assets comprise intellectual property with a cost of £36.7m, including assets of finite and indefinite life. QCC's royalty payments of £7.7m and the MSAR® trade name of £3.1m are termed as assets having indefinite life as it is assessed that there is no foreseeable limit to the period over which the assets would be expected to generate net cash inflows for the Group, as they arise from cashflows resulting from Quadrise and QCC gaining a permanent market share. The assets with indefinite life are not amortised. The remaining intangibles amounting to £25.9m, primarily made up of technology and know-how, are considered as finite assets and were amortised over 93 months. The Group does not have any internally generated intangibles.
The Group tests intangible assets annually for impairment, or more frequently if there are indications that they might be impaired. The recoverable amount of intangible assets is determined based on a value in use calculation using cash flow forecasts derived from the most recent financial model information available. These cash flow forecasts extend to the year 2032 to ensure the full benefit of all current projects is realised. The rationale for using a timescale up to 2032 with the growth projections forecast is that as time progresses, Quadrise expects to gain an increasing foothold in the existing HFO market (~450m tonnes p.a.) which is already well established. The key assumptions used in these calculations include discount rates, turnover projections, growth rates, joint venture participation expectations, expected gross margins and the lifespan of the project. Management estimates the discount rates using pre-tax rates that reflect current market assessments of the time value of money and risks specific to expected future projects. Turnover projections, growth rates, margins and project lifespans are all estimated based on the latest business models and the most recent discussions with customers, suppliers and other business partners.
For the MSAR® trade name and technology and know-how intangible, the growth rate used for the extrapolation of cash flows beyond budgeted projections is 2.5% (2015: 2.5%) and the pre-tax discount rate applied to the cash flow projections is 12% (2015: 12%).
A 5% increase in the discount rate used would result in no impairment charge for the MSAR® trade name intangible asset or the Technology and know-how intangible asset. A 5% decrease in the discount rate used would also result in no impairment charge.
Amortisation of Intangible Assets
The Board has reviewed the accounting policy for intangible assets and has amortised those assets which have a finite life. All intangible assets with a finite life were fully amortised as at 30 June 2015, and a non-cash charge of £nil (2015: £nil) was recorded in the statement of comprehensive income for the year ended 30 June 2016.
12. Available for Sale Investments | Consolidated | Consolidated | Company | Company |
| 30 June 2016 £'000s | 30 June 2015 £'000s | 30 June 2016 £'000s | 30 June 2015 £'000s |
Unquoted securities |
|
|
|
|
Opening balance | - | 1,439 | - | 1,439 |
Changes in fair value | - | (1,035) | - | (1,035) |
Impairment charge | - | (404) | - | (404) |
Closing balance | - | - | - | - |
Unquoted securities represent the Group's investment in Quadrise Canada Corporation ("QCC"), Paxton Corporation ("Paxton"), Optimal Resources Inc. ("ORI") and Porient Fuels Corporation ("Porient"), all of which are incorporated in Canada.
At the statement of financial position date, the Group held a 20.44% share in the ordinary issued capital of QCC, a 3.75% share in the ordinary issued capital of Paxton, a 9.54% share in the ordinary issued capital of ORI and a 16.86% share in the ordinary issued capital of Porient.
QCC is independent of the Group and is responsible for its own policy-making decisions. There have been no material transactions between QCC and the Group during the period or any interchange of managerial personnel. As a result, the Directors do not consider that they have significant influence over QCC and as such this investment is not accounted for as an associate.
The Group has no immediate intention to dispose of its available for sale investments unless a beneficial opportunity to realise these investments arises.
Given that there is no active market in the shares of any of above companies, the Directors have determined the fair value of the unquoted securities at 30 June 2016. In this regard, the Directors considered other factors such as past equity placing pricing and assessment of risked net present value of the enterprises to arrive at their conclusion on any impairment for all of the unquoted securities.
The shares in each of these companies were valued at CAD $nil on 1 July 2015. Shareholder communications received during the year to 30 June 2016 indicate that the business models for each of these companies remain highly uncertain, with minimal possibility of any material value being recovered from their asset base. On that basis, the directors have determined that the investments should continue to remain valued at CAD $nil at 30 June 2016.
13. Share Options
Movement in the year:
The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, share options during the year:
|
Number 30 June 2016 | WAEP (pence) 30 June 2016 |
Number 30 June 2015 | WAEP (pence) 30 June 2015 |
|
|
|
|
|
Outstanding as at 1 July | 40,450,000 | 22.08 | 43,600,000 | 19.16 |
Granted during the year | 6,000,000 | 12.81 | 3,100,000 | 23.80 |
Expired during the year | (8,316,667) | 20.68 | - | - |
Exercised during the year | (5,000,000) | 0.80 | (6,250,000) | 2.59 |
Options outstanding as at 30 June | 33,133,333 | 23.60 | 40,450,000 | 22.08 |
Exercisable as at 30 June | 26,300,000 | 26.07 | 31,016,667 | 19.31 |
The weighted average remaining contractual life of the 33.13 million options outstanding at the statement of financial position date is 4.75 years (2015: 4.55 years). The weighted average share price during the year was 13.38p (2015: 23.84p) per share.
The expected volatility of the options reflects the assumption that historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The expected life of the options is based on historical data available at the time of the option issue and is not necessarily indicative of future trends, which may not necessarily be the actual outcome.
The Share Option Scheme is an equity settled plan and fair value is measured at the grant date of the option. Options issued under the Scheme vest over a two year period provided the recipient remains an employee of the Group. Options may be also exercised within one year of an employee leaving the Group at the discretion of the Board.
The Company issued 6.0 million share options to employees during the year (2015: 3.1million) the weighted average exercise price of these options was 12.81p (2015: 23.8p) and the weighted average fair value was 6.92p (2015: 13.8p). The exercise price of the options issued during the year ranged from 12.1p to 18.1p (2015: 12.1p to 32.3p).
The fair value was calculated using the Black Scholes option pricing model. The weighted average inputs were as follows
|
|
| 2016 | 2015 |
Stock price: |
|
| 12.80p | 20.5p |
Exercise Price |
|
| 12.81p | 23.6p |
Interest Rate |
|
| 0.5% | 0.5% |
Volatility |
|
| 73.2% | 77.3% |
Time to maturity |
|
| 4 years | 4 years |
14. Related Party Transactions
Non-executive Director Laurence Mutch is also a Director of Laurie Mutch & Associates Limited, which has provided consulting services to the Group. The total fees charged for the year amounted to £36k (2015: £41k). The balance payable at the statement of financial position date was £12k (2015: £21k).
Jason Miles was also a Director of ROE Projects Limited, which provided consulting services to the group until its acquisition by the Company on 22 October 2014. The total fees charged for the year amount to £nil (2015: £62k). The balance payable at the statement of financial position date was £nil (2015: £nil).
Mike Kirk provided consulting services to the group prior to his appointment as Executive Chairman on 1 April 2016. The total fees charged for the year amount to £12k (2015: £nil). The balance payable at the statement of financial position date was £nil (2015: £nil).
Ian Williams and Hemant Thanawala were directors of International Energy Services Limited ("IESL"). QFI provided services to IESL during the year for which QFI received income of £nil (2015: £39k). The balance receivable at the statement of financial position date was £nil (2015: £nil).
QFI defines key management personnel as the Directors of the Company. There are no transactions with Directors, other than their remuneration as disclosed in the Report of Directors' Remuneration in the Annual Report & Accounts.
15. Copies of the Annual Report
Copies of the annual report will be posted to shareholders and will be available shortly from the Company's website at www.quadrisefuels.com and from the Company's registered office, Gillingham House, 38-44 Gillingham Street, London, SW1V 1HU.