30 Mar 2009 07:00
Quadrise Fuels International plc
("Quadrise" or "the Company")
Interim Results for the six months ended 31 December 2008
Quadrise Fuels International plc (AIM: QFI), the producer of emulsion fuel as a low cost substitute for heavy fuel oil for use in power generation plants and industrial diesel engines, today announces its interim results for the six months ended 31 December 2008.
HIGHLIGHTS
Financial
- No debt and £4.24 million (2007: £4.79 million) in cash reserves at 31 December 2008.
- Loss after tax of £2.42 million (2007: £7.38 million), which includes a non-cash charge of £2.97 million (2007: £3.46 million) for amortisation and impairment of intangible assets and £nil million (2007: £2.45) for impairment of available for sale investments. This reflects a prudent and conservative management approach. No dividend is proposed.
- Resultant loss per share 0.53 pence (2007: 1.59 pence).
- Operating loss for the period, excluding amortisation and impairments, was £0.35 million (2007: £1.29 million).
Operational
- A major commercial demonstration of the manufacture and combustion of MSAR® fuel was completed successfully in Lithuania between July and September 2008.
- Anticipate establishment of a 700,000 tpa MSAR® production facility in Lithuania by the end of 2009.
- Development of core geographic territories and the diesel market continues to progress.
Commenting, Bill Howe, Chief Executive Officer, said:
"Our business strategy is yielding results. The success of our commercial demonstration in Lithuania with AB Mazeikiu Nafta and AB Lietuvos Elektrine puts us in a position to establish a large commercial production facility in Lithuania by the end of 2009. This would see us transformed to a revenue generating business during 2010. The credibility of our technology will be enhanced by the Company's first commercial application and should facilitate the successful progression of other business prospects in our development pipeline."
For additional information, please contact:
Quadrise Fuels International plc
Bill Howe, Chief Executive
Tel: +44 (0)20 7550 4930
Fairfax I.S. PLC
Adam Hart / Bruce Evers
Tel: +44 (0)20 7598 5368
Capital MS&L
Penny Freer
Tel: +44 (0)20 7307 5330
Chairman's and CEO's Statement
Quadrise Fuels International plc ("Quadrise" or the "Company") the manufacturer of MSAR®, a second generation oil-in-water emulsion fuel for use in power generation and industrial diesel engines, presents its results for the half year ending 31 December 2008.
Business Overview
In a cost conscious world Quadrise has significant benefits to offer its target markets; the oil fired power generation and oil refinery sectors. Quadrise technology simultaneously provides increased margins to oil refiners and a lower cost liquid fuel for power production and it achieves this without any need for the subsidies often associated with other new generation fuels. By sourcing ultra low value refinery residues directly from an oil refinery, and manufacturing MSAR® at the refinery site, Quadrise can manufacture and distribute a liquid fuel product up to 30% lower in cost than conventional heavy fuel oil, and competitive in price with natural gas.
Operational Progress
The Company's main focus in 2008 was the completion of a major demonstration of MSAR® technology in Lithuania. The Company worked co-operatively with AB Mazeikiu Nafta, AB Lietuvos Elektrine, and its alliance partner, AkzoNobel, through all stages of the demonstration process. 20,000 tons of MSAR® was manufactured from heavy refinery residue on the Mazeikiu Nafta site, shipped 300km by rail and combusted in a 300MWe boiler owned by Lietuvos Elektrine. The demonstration achieved excellent results; an emulsion fuel product was produced meeting all key specifications and technical parameters guaranteed by Quadrise at the outset of the trial. Following the successful conclusion of the trial in September 2008, MSAR® fuel was entered by AB Mazeikiu Nafta for 'Product of the Year 2008'. The contest is organized by the Lithuanian Confederation of Industrialists who in December 2008 awarded MSAR® the Gold Medal in the competition. Shareholders have been provided with regular and more detailed reports on these developments, which are available on the Quadrise website.
Lithuania formed a new Energy Ministry early in 2009. This Ministry has assumed responsibility for Lithuania's future energy strategy, including the EU mandated closure of the Ignalina nuclear power plant set for end 2009. Closure of Ignalina represents a great prospect for Quadrise as the resulting Lithuanian power deficit opens the opportunity for MSAR® fuel supply for base load power generation at the host site used for the 2008 demonstration of MSAR® combustion. Quadrise aims to build on the success of the 2008 trial, and by the end of 2009, coincident with the Ignalina shutdown, establish a 700,000 tpa commercial production facility for MSAR® manufacture in Lithuania. To this end the Company is progressing discussions with AB Mazeikiu Nafta and AB Lietuvos Elektrine to establish an agreed framework for this production which should allow MSAR® to be supplied more cheaply than either of the alternate fuels, heavy fuel oil and Russian natural gas. Orders for the long lead equipment are anticipated to be placed in April 2009 and the plant is expected to be expanded to 1,000,000 tpa during 2010. The production facility will represent a clear fit with the issues of the day - reduced energy costs, added value to the Mazeikiu Nafta refinery and increased security of domestic electricity supply - in very material dimensions. Establishing this first reference site for MSAR® technology will also significantly assist Quadrise with its commercial representations to other interested parties in the refining and power generation industries.
Beyond Lithuania, Quadrise has continued to develop additional opportunities for MSAR®. Further MSAR® fuel supply contracts with power plants are being progressed, as are the identification of specific project opportunities within its next stage target markets of Saudi Arabia, Mexico and the diesel engine power generation industry.
Financial Position
Quadrise continues to operate within its budget and its available financial resources. Projects are developed on a highly cost efficient basis and with a requirement for client contribution to field trials. Cash burn, excluding development of the Lithuania project, is approximately £2 million per year. At December 2008 Quadrise had cash funds of approximately £4 million, providing a significant time buffer for concluding project development activities.
For its Lithuanian project, Quadrise is exploring a number of commercial frameworks. The capital requirements for the project vary quite widely dependant on the arrangements the Company ultimately concludes with its Lithuanian counter-parties; an issue currently under discussion.
Quadrise Canada Corporation ("QCC")
QCC's prime target market, the manufacture of MSAR® as a fuel for steam raising for heavy oil production in Canada, continues to have long term potential. Project delays have put back planned commissioning dates of QCC projects and the recent decline in the oil price has caused certain developments to be re-assessed as to their economic viability.
QCC has decided to further defer a planned fund raising due to a combination of turmoil in the financial markets and Canadian oil project uncertainties. QCC has completed a programme to reduce its cost structure and its scope of activities until the market improves and financial markets recover.
AkzoNobel
AkzoNobel has provided continuous support to the Company in our joint programmes for the development of MSAR® fuels over an extended period. AkzoNobel specialist personnel formed an important part of the joint team responsible for the establishment and operation of the Lithuanian trial. The success of the trial was as much a key development milestone for AkzoNobel as for Quadrise. Relationships remain positive and constructive as we jointly pursue the crystallisation of the Lithuanian venture and other MSAR® opportunities.
Nomad/Broker
During February 2009 the Company appointed Fairfax I.S. PLC as its nominated adviser and broker. The Company wishes to record its appreciation to Smith & Williamson and Religare Hichens, Harrison for their past services.
Management Team
In this phase of our development Quadrise has a small dedicated specialist management team, and enlists the services of outsourced experts when required.
The set-up, operation and demobilisation of the full-scale commercial trial required commitment and dedication well beyond the normal call from all directly concerned. The widely acknowledged success of their collective efforts, together with the respect and credibility earned with clients and suppliers is a credit to both the team and the Company.
I. Williams
Chairman
G.W. Howe
Chief Executive Officer
27 March 2009
Consolidated Income Statement
For the 6 months ended 31 December 2008
| | Note | 6 months ended 31 December 2008 Unaudited £’000s | 6 months ended 31 December 2007 Unaudited £’000s | Year ended 30 June 2008 Audited £’000s |
| Continuing operations | | | | |
| Other income | | 789 | 11 | 46 |
| Amortisation of intangible assets | 5 | (1,485) | (3,456) | (5,708) |
| Impairment of intangible assets | 5 | (1,489) | - | (6,229) |
| Impairment of available for sale investments | | - | (2,445) | (7,921) |
| Administration expenses | | (1,143) | (1,298) | (2,574) |
| Operating loss | | (3,328) | (7,188) | (22,386) |
| Finance costs | | (61) | - | - |
| Finance revenue | | 33 | 155 | 255 |
| Foreign exchange gain / (loss) | | 934 | (343) | (326) |
| Loss before tax | | (2,422) | (7,376) | (22,457) |
| Taxation | | - | - | - |
| Loss for the period from continuing operations attributable to equity holders of the company | (2,422) | (7,376) | (22,457) | |
| | | | | |
| Loss per share – pence | | | | |
| Basic | 4 | (0.53) p | (1.59) p | (4.86) p |
| Diluted | 4 | (0.53) p | (1.59) p | (4.86) p |
| | | | | |
Consolidated Balance Sheet
As at 31 December 2008
| | Note | As at 31 December 2008 Unaudited £’000s | As at 31 December 2007 Unaudited £’000s | As at 30 June 2008 Audited £’000s |
| Assets | | | | |
| Non-current assets | | | | |
| Property, plant and equipment | | 8 | 1 | 20 |
| Intangible assets | 5 | 13,130 | 24,585 | 16,104 |
| Available for sale investments | 6 | 6,447 | 11,684 | 6,447 |
| Non-current assets | | 19,585 | 36,270 | 22,571 |
| | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | 4,236 | 4,787 | 3,607 |
| Trade and other receivables | | 212 | 247 | 210 |
| Prepayments | | 9 | 5 | 123 |
| Current assets | | 4,457 | 5,039 | 3,940 |
| TOTAL ASSETS | | 24,042 | 41,309 | 26,511 |
| Equity and liabilities | | | | |
| Current liabilities | | | | |
| Trade and other payables | | 525 | 688 | 636 |
| Current liabilities | | 525 | 688 | 636 |
| | | | | |
| Equity attributable to equity holders of the parent | | | | |
| Issued capital | | 4,617 | 4,617 | 4,617 |
| Share premium | | 53,634 | 53,634 | 53,634 |
| Revaluation reserve | | 566 | - | 566 |
| Share option reserve | | 974 | 799 | 910 |
| Other reserves | | 522 | 864 | 522 |
| Accumulated losses | | (36,796) | (19,293) | (34,374) |
| Total shareholders’ equity | | 23,517 | 40,621 | 25,875 |
| TOTAL EQUITY AND LIABILITIES | | 24,042 | 41,309 | 26,511 |
Consolidated Statement of Changes in Equity
For the 6 months ended 31 December 2008
| | Accumulated Losses £’000s | Issued Capital £’000s | Share Premium £’000s | Revaluation Reserve £’000s | Share Option Reserve £’000s | Foreign Currency Reserve £’000s | Reverse acquisition Reserve £’000s | Total £’000s |
| As at 1 July 2007 | (11,917) | 4,617 | 53,634 | 2,002 | 507 | - | 522 | 49,365 |
| Loss for the period | (7,376) | - | - | - | - | - | - | (7,376) |
| Share options reserve | - | - | - | - | 292 | | - | 292 |
| Revaluation of available for sale investments | - | - | - | (2,002) | - | 342 | - | (1,660) |
| Shareholders’ equity at 31 December 2007 | (19,293) | 4,617 | 53,634 | - | 799 | 342 | 522 | 40,621 |
| | Accumulated Losses £’000s | Issued Capital £’000s | Share Premium £’000s | Revaluation Reserve £’000s | Share Option Reserve £’000s | Foreign Currency Reserve £’000s | Reverse acquisition Reserve £’000s | Total £’000s |
| As at 1 July 2008 | (34,374) | 4,617 | 53,634 | 566 | 910 | - | 522 | 25,875 |
| Loss for the period | (2,422) | - | - | - | - | - | - | (2,422) |
| Share options reserve | - | - | - | - | 64 | - | - | 64 |
| Shareholders’ equity at 31 December 2008 | (36,796) | 4,617 | 53,634 | 566 | 974 | - | 522 | 23,517 |
Consolidated Cash Flow Statement
For the 6 months ended 31 December 2008
| | Note | 6 Months ended 31 December 2008 Unaudited £’000s | 6 Months ended 31 December 2007 Unaudited £’000s | Year ended 30 June 2008 Audited £’000s |
| Operating activities | | | | |
| Loss before tax from continuing operations | | (2,422) | (7,376) | (22,457) |
| Interest expense | | 61 | - | - |
| Interest income | | (33) | (89) | (255) |
| Amortisation of intangibles | 5 | 1,485 | 3,456 | 5,708 |
| Impairment of intangibles | 5 | 1,489 | - | 6,229 |
| Impairment of available for sale investments | 6 | - | 2,445 | 7,921 |
| Depreciation of property, plant and equipment | | 12 | - | 5 |
| Share-based payments expense | | 64 | 292 | 403 |
| Foreign exchange (gain)/loss | | (934) | 343 | 326 |
| Working capital adjustments | | | | |
| Decrease/(increase) in trade and other receivables | | 112 | (186) | (260) |
| Decrease in trade and other payables | | (111) | (127) | (118) |
| Cash utilised in operations | | (277) | (1,242) | (2,498) |
| | | | | |
| Interest paid | | (61) | - | - |
| Net cash outflow from operating activities | | (61) | (1,242) | (2,498) |
| | | | | |
| Investing activities | | | | |
| Purchase of property, plant and equipment | | - | - | (24) |
| Interest received | | 33 | 155 | 255 |
| Net cash inflow from investing activities | | 33 | 155 | 231 |
| | | | | |
| Net decrease in cash and cash equivalents | | (305) | (1,087) | (2,267) |
| Cash and cash equivalents at the beginning of the period | | 3,607 | 5,874 | 5,874 |
| Effect of foreign exchange rate changes on cash and cash equivalents | | 934 | - | - |
| Cash and cash equivalents at 31 December 2008 | | 4,236 | 4,787 | 3,607 |
Notes to the Group Financial Statements
1. General Information
Quadrise and its subsidiaries ("the Group") are engaged principally in the manufacture and marketing of emulsified fuel for use in power generation, industrial diesel engines and steam generation applications. The Company's ordinary shares are listed on the AIM market of the London Stock Exchange.
Quadrise, the legal parent company, was incorporated on 22 October 2004 as a limited company under the Companies Act 1985 with registered number 05267512. It is domiciled at, and is registered at, Parnell House, 25 Wilton Road, London SW1V 1YD.
2. Summary of Significant Accounting Policies
(2.1) Basis of Preparation
The interim accounts have been prepared in accordance with IAS 34 'Interim financial reporting' and on the basis of the accounting policies set out in the June 2008 annual report and accounts, which have been prepared in accordance with International Financial Reporting Standards. The interim report is unaudited and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006, but is based on the latest statutory accounts. These accounts upon which the auditors issued an unqualified opinion, have been delivered to the registrar of companies.
The interim report for the 6 months ended 31 December 2008 was approved by the Board on 27 March 2009.
3. Amortisation of Intangible Assets
The Board has reviewed the accounting policy for intangible assets and has adopted a policy for the amortisation of those assets which have a finite life. A key asset that fits this description is the combination of rights secured under the AkzoNobel Alliance Agreement, together with other unpatented technologies, industry know-how and trade secrets, which drive the principal business case for Quadrise. Under the present arrangements, while intended to continue on an evergreen basis, AkzoNobel or Quadrise may effectively terminate, at 12 months notice, the AkzoNobel Alliance Agreement at any time after 20 December 2011. Whilst the directors believe that it is likely to be in the commercial best interests of both parties to continue the agreement beyond 20 December 2011, there can be no guarantee that this will occur. The directors have, accordingly, amortised this intangible asset over the remaining lifespan of the agreement. This policy has resulted in a non-cash charge of £1,485k to the income statement for the 6 months ended 31 December 2008. Further details of the treatment of intangible assets are set out in Note 5 below.
4. Loss Per Share
The calculation of loss per share is based on the following loss and number of shares:
| | 6 Months ended 31 December 2008 Unaudited | 6 Months ended 31 December 2007 Unaudited | Year ended 30 June 2008 Audited |
| | | | |
| Loss for the period from continuing operations (£000’s) | (2,422) | (7,376) | (22,457) |
| Weighted average number of shares: | | | |
| Basic | 461,726,857 | 461,726,857 | 461,726,857 |
| Diluted | 461,726,857 | 461,726,857 | 461,726,857 |
| | | | |
| Loss per share: | | | |
| Basic | (0.53) p | (1.59) p | (4.86) p |
| Diluted | (0.53) p | (1.59) p | (4.86) p |
Basic loss per share is calculated by dividing the loss for the period from continuing operations of the Group by the weighted average number of ordinary shares in issue during the period.
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 23.9m share options outstanding at 31 December 2008 could potentially dilute earnings per share in the future if exercised when the Group is in a profit making position.
5. Intangible Assets
| | 31 December 2008 Unaudited £’000s | 31 December 2008 Unaudited £’000s | 31 December 2008 Unaudited £’000s | 31 December 2007 Unaudited £’000s | 31 December 2007 Unaudited £’000s | 31 December 2007 Unaudited £’000s |
| | Infinite | Finite | Total | Infinite | Finite | Total |
| Cost | | | | | | |
| Opening balance 1 July | 10,786 | 25,901 | 36,687 | 10,786 | 25,901 | 36,687 |
| Additions | - | - | - | - | - | - |
| Closing balance | 10,786 | 25,901 | 36,687 | 10,786 | 25,901 | 36,687 |
| | | | | | | |
| Amortisation | | | | | | |
| Opening balance 1 July | (5,078) | (15,505) | (20,583) | - | (8,646) | (8,646) |
| Amortisation | - | (1,485) | (1,485) | - | (3,456) | (3,456) |
| Impairment | (1,489) | - | (1,489) | - | - | - |
| Closing balance | (6,567) | (16,990) | (23,557) | - | (12,102) | (12,102) |
| | | | | | | |
| Net book value | 4,219 | 8,911 | 13,130 | 10,786 | 13,799 | 24,585 |
| | 30 June 2008 Audited £’000s | 30 June 2008 Audited £’000s | 30 June 2008 Audited £’000s |
| | Infinite | Finite | Total |
| Cost | | | |
| Opening balance 1 July | 10,786 | 25,901 | 36,687 |
| Additions | - | - | - |
| Closing balance | 10,786 | 25,901 | 36,687 |
| | | | |
| Amortisation | | | |
| Opening balance 1 July | - | (8,646) | (8,646) |
| Amortisation | - | (5,708) | (5,708) |
| Impairment | (5,078) | (1,151) | (6,229) |
| Closing balance | (5,078) | (15,505) | (20,583) |
| | | | |
| Net book value | 5,708 | 10,396 | 16,104 |
Intangibles include intellectual property of £36.7m acquired from Quadrise International Limited, which comprises both assets of finite and infinite life. Quadrise Canada Corporation's royalty payments of £7.7m and the MSAR® trade name of £3.1m are termed as assets having infinite life and hence not amortised. The remaining intangibles amounting to £25.9m, primarily made up of technology and know-how, are considered as finite assets and amortised over 69 months. The Board has reviewed the accounting policy and adopted an amortisation policy on those assets which have a finite life as indicated in note 3. As a consequence of adopting this policy, a non-cash charge of £1.5m has been recognised in the income statement during the period.
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 budget information available. These cash flow forecasts extend to the year 2025 to ensure the full benefit of all potential projects is realised. The key assumptions used in these calculations include discount rates, turnover projections, growth rates, joint venture participation expectations, and expected gross margins. 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. For reasons of prudence the growth rate used for the extrapolation of cash flows beyond budgeted projections for all intangible impairment reviews was 2.5%. The pre-tax discount rate applied to the cash flow projections is 13%, with the exception of Quadrise Canada Corporation's royalty payments, to which a 25% discount rate and a 50% probability factor was applied.
The directors have performed a review of the fair value of the intangibles at 31 December 2008. As a result of this review, the directors have concluded that Quadrise Canada Corporation's royalty payments should be written down to a net fair value of £1.2m. This has resulted in a £1.5m impairment charge to the income statement for the 6 months ended 31 December 2008.
6. Available for Sale Investments
| | 31 December 2008 Unaudited £’000s | 31 December 2007 Unaudited £’000s | 30 June 2008 Audited £’000s |
| Unquoted securities | | | |
| Opening balance 1 July | 6,447 | 16,131 | 16,131 |
| Revaluation | - | - | 566 |
| Impairment | - | (4,447) | (9,922) |
| Foreign exchange | - | - | (328) |
| Closing balance | 6,447 | 11,684 | 6,447 |
Unquoted securities represent the Group's investment in Quadrise Canada Corporation and Paxton Corporation, both of which are incorporated in Canada. As at the balance sheet date, the Group held an 18.71% share in the ordinary issued capital of Quadrise Canada Corporation and a 3.75% share in the ordinary issued capital of Paxton Corporation. The directors do not consider that they have significant influence over either entity and as such these investments are not accounted for as associates.
The directors have performed a review of the fair value of the unquoted securities at 31 December 2008. Due to the lack of an active market in either of the securities, the directors considered other factors such as past equity placing pricing and independent assessment of risked net present value of the enterprises to arrive at their conclusion of the fair value. As a result of their review, the directors have concluded that no adjustment is necessary for the 6 months ended 31 December 2008.
7. Related Party Transactions
Executive Directors Ian Williams and Hemant Thanawala provide services under a service agreement with International Energy Services Limited, a subsidiary of International Energy Group AG, the ultimate parent of Quadrise Fuels International plc. The service charge for the 6 months ended 31 December 2008 amounted to £160k (2007: £205k), out of which £51k (2007: £68k) was incurred for Directors' salaries, £11k (2007: £21k) for staff salaries and £98k (2007: £116k) charged for rent and other office costs. Trade payables include £79k (2007: £29k) payable at the balance sheet date to International Energy Services Limited relating to these services.
Trade receivables of the Group include £140k (2007: £128k) receivable from other related parties, which consists of £111k (2007: £110k) from Quadrise Fuels US, £nil (2007: £15k) from Quadrise Canada Corporation, £29k (2007: £nil) from Wilton Petroleum Limited for shared personnel costs and £nil (2007: £3k) from International Energy Group AG for services rendered.
Transactions with related parties are made at normal market prices. Outstanding balances at the balance sheet date are unsecured, interest free and settlement occurs in cash.
8. Seasonality
The operations of the Group are not affected by seasonal fluctuations.
9. Commitments and Contingencies
The Group has not entered into any finance or operating leases as at the balance sheet date. Additionally the Group has no capital commitments or contingent liabilities as at the balance sheet date.
10. Events After the Balance Sheet Date
There are no events after the balance sheet date.
11. Copies of the Interim Report
Copies of the interim report will be available on the Company's website at www.quadrisefuels.com and from the Company's registered office, Parnell House, 25 Wilton Road, London SW1V 1YD.