TIDMQFI
RNS Number : 8794B
Quadrise Fuels International PLC
12 October 2015
12 October 2015
Quadrise Fuels International plc
("Quadrise", "QFI", the "Company" and together with its
subsidiaries the "Group")
Final Results for the year ended 30 June 2015
Quadrise Fuels International plc (AIM: QFI) is the emerging
manufacturer and supplier of MSAR(R) emulsion fuels, a low cost
alternative to heavy fuel oil (one of the world's largest fuel
markets utilising over 450 million tons per annum) in the global
shipping, refining and steam and power generation markets. The
Company today announces its audited final results for the year
ended 30 June 2015 and gives notice for the convening of an Annual
General Meeting ("AGM") of the Company to be held on 27 November
2015.
Operational highlights
-- Quadrise MSAR(R) Marine Fuels: Contracts executed with Mærsk
Line A/S and Compania Espanola De Petroleos S.A.U including the
production of Marine MSAR(R) at the San Roque refinery near
Gibraltar to supply the seaborne Operational Trial Programme due to
commence in H1 2016.
Target completion of the 4000 hour seaborne extended continuous
operation programme to support the issue of LONOs by participating
marine engine manufacturers by end Q1 2017, enabling thereafter
progressive development of supply sources and global commercial
roll-out.
-- Saudi Arabia: Programme now focused on a fast track
'production to combustion' demonstration pilot project including an
extended trial of MSAR(R) fuel firing for a 400MWe thermal power
unit within a large coastal power station complex.
A coastal refinery has been designated for the installation of
an MSAR(R) manufacturing unit with commissioning anticipated by Q2
2016. Work is proceeding with an assessment of installation
engineering requirements and any necessary adaptation of power
plant boiler and fuel storage.
-- Refinery Re-fuelling: The substitution of heavy fuel oil in
oil refinery steam and power generation has been identified as an
MSAR(R) target market in its own right presenting an opportunity
for refiners to reduce costs and possibly generate power and steam
for external sale.
Quadrise is currently leading a feasibility assessment with a
mid-sized refinery and anticipating a pilot plant installation
during H1 2016.
-- Management and Resourcing: Three specialist executive
appointments during 2015 considerably strengthened Quadrise
management in anticipation of the rapidly growing workload. Former
specialist consultants converted to full time employees. Service
and R&D facilities and capacity also expanded and enhanced.
Financial highlights
-- No debt and GBP8.4 million (2014: GBP11.1 million) in cash reserves at 30 June 2015.
-- Loss after tax of GBP4.9 million (2014: GBP5.9 million) of
which GBP2.3 million (2014: GBP2.9 million) relates to non-cash
charges for share options and adjustments to available for sale
investments.
-- Cumulative tax losses of GBP40.7 million (2014: GBP34.8
million) available for set-off against future profits.
-- Total assets of GBP12.6 million at 30 June 2015 (2014:
GBP16.3 million), which includes further investment in the Group's
own comprehensive R&D facility as well as a down-payment for
another commercial-scale MSAR(R) Manufacturing Unit, ear-marked for
installation at CEPSA refinery for LONO operational trial.
Significant events post year end
On 14 September 2015, Quadrise International Limited, a wholly
owned subsidiary of QFI, executed agreements with Compania Espanola
De Petroleos S.A.U. ("CEPSA") Mærsk Line A/S ("Mærsk Line") and
A.P. Moller-Mærsk A/S ("Mærsk") for the Operational Trial Programme
to provide the basis for the issue of Letters of No Objection
("LONOs") by participating marine engine manufacturers. The
Operational Trial includes the supply, installation and
commissioning of a Quadrise MSAR(R) Manufacturing Unit at the CEPSA
San Roque refinery near Gibraltar.
Commenting on the results Ian Williams, Executive Chairman of
QFI said:
"Very meaningful progress was made over the past year
culminating in the achievement of several key objectives. It is
particularly pleasing to see significant steps forward in both the
Marine MSAR(R) and Saudi Arabian projects as Quadrise moves ever
closer to commercial production. The Group is better prepared and
resourced than ever before to convert projects to fully commercial
programmes, securing bases from which to grow MSAR(R) fuel sales
into our very large target markets.
Recent developments have further de-risked our business model
and served to demonstrate that the Quadrise proposition remains
robust in very challenging oil market conditions. In practice,
these very conditions have established a more closely aligned view
of the value-adding potential of the Quadrise technology between
the company and our clients. In an uncertain world where the cost
and risk of other means of increasing refinery yield are becoming
prohibitive, we fully expect an increased level of interest as our
programmes gain visibility.
All things considered, the Company is undoubtedly better
resourced and positioned to succeed than ever before."
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 27 November 2015 at 12.00 noon.
For additional information, please contact:
Quadrise Fuels International plc +44 (0)20 7031 7321
Ian Williams
Hemant Thanawala
Jason Miles
Smith & Williamson Corporate Finance Limited +44 (0)20 7131
4000
Dr Azhic Basirov
Ben Jeynes
Peel Hunt LLP +44 (0)20 7418 8900
Richard Crichton
Matthew Armitt
Ross Allister
Bell Pottinger +44 (0)20 3772 2500
Rollo Crichton--Stuart
Chairman's Statement
I am pleased to present this Annual Report for Quadrise Fuels
International plc ("Quadrise", the "Company", "QFI" and together
with its subsidiaries, the "Group") for the year ended 30 June 2015
together with recent events.
Business Overview
The past year has been especially challenging for Quadrise on
many fronts but, as advised to investors during September, very
material progress has been made in our key programmes, and much of
the future pathway to commercial operations is now contractually
underpinned. The global oil price collapse, related delays in
settling terms with key counterparties and legal constraints on
interim disclosure combined with adverse stock market conditions
clearly impacted investor confidence. While not as far advanced as
had been planned and intended by this time, the Company is now more
assured of progressing to the prime objective of sustainable
commercial multi-source revenues than at any previous time.
The senior executive team of Quadrise International Limited
("QIL"), the 100% Group owned principal operating subsidiary
company, has been considerably strengthened by selective
recruitment, conversion of consultants to employees and
organisational restructuring. The collective effort is focussed on
business development - converting relationships and opportunities
progressively to contracts, operations and revenue. In this regard
the Quadrise capacity to perform and deliver has been very
significantly enhanced and the Company is fully equipped and
effectively structured to deliver the business programme. Whilst
the near term focus remains the Marine MSAR(R) and Saudi Arabian
ventures, both of which are assuming increased scale and
complexity, the Company has identified and continues to selectively
progress additional initiatives and projects to broaden the
business base, and to add significant future value to the
Group.
Quadrise clients are generally large companies that produce and
consume heavy fuel oil ("HFO") in particular in the marine and
power generation markets. Qualifying oil refiners can produce
MSAR(R) fuel under licence using our technology and QIL's
specialist services. By converting from 'conventional' processing
the refiner increases its own margin and is able to supply former
HFO consumers with a superior and cheaper fuel. These markets are
very large with annual global HFO demand exceeding 450 million tons
per annum with an aggregate value of over US$100 billion even at
current low oil prices. The Marine market accounts for
approximately 40% of this demand, most of which is 'open ocean'
heavy bunker fuel oil.
Marine and power generation fuel oil consumers and the oil
refining industry face unrelenting pressure to improve efficiency
and reduce cost. Our technology offers a "win-win" proposition to
these markets. Semi-complex oil refineries can step-change margins
at very modest investment, whilst offering the MSAR(R) consumer
cost and environmental benefits with performance efficiencies from
improved combustion and lower emissions.
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The Quadrise proposition remains attractive in conditions of
both economic growth and recession and through a wide range of oil
prices. Longer term economic trends and energy fundamentals
continue to validate this proposition, as the demand for distillate
transportation fuel is expected to remain relatively strong. While,
directionally, a firm crude oil price tends to support the
refiner's economics when converting to MSAR(R) production, the
inter-product price spread is the principal driver of the Quadrise
value-add. This is the price differential between residue-based
fuel oil and distillate diesel fuel. A wider spread yields more
value - and the global trend has been for growth in distillate
demand to exceed that for fuel oil thereby widening the price
differential - which is very positive for the Company's future
margin prospects. Experience through 2015 has been that even when
oil prices have entered a US$40 per barrel range, the economics of
the Quadrise processing mode have remained both viable and
relatively attractive. Informed industry forecasters and forward
market price projections suggest a widening spread will remain a
long term feature. The production of shale gas and shale oil,
notably in North America, may well impact global oil and gas
supply, demand, movements and prices, but is not expected to
materially impact our longer term business opportunity in target
markets.
In developing the Marine and Saudi MSAR(R) programmes, the
Company has had to establish relationships with leading corporates
in their respective industries. The scale and complexity has been
challenging as Quadrise is required to work within our clients'
programmes, standards and timetables. During the past year several
new associations have been formed, especially within the refining
industry and notably with Compania Espanola De Petroleos S.A.U.
("CEPSA"), a leading oil company. While the pace of progress during
2015 did not fully meet prior expectations, valuable experience has
been gained which should reduce lead times in future projects. A
very positive emerging feature is the depth of enthusiasm which has
built progressively within the refining, shipping and power
companies involved with our programmes as they have gained
confidence in the technical validity and economic promise of the
Quadrise proposition.
The more important developments during the period under review
have been:
1. Completion of the management resourcing programme to secure
expertise and services through conversion of former consultants to
employees, and recruitment of high calibre specialists to the newly
created general management positions to provide capacity to create,
manage and deliver the future business development plan.
2. Execution of the tri-partite Operational Trial and
Collaboration agreements with Mærsk Line A/S ("Mærsk Line") and
CEPSA which commit all parties to a programme intended to result in
the issue of LONOs by marine engine manufacturers to provide the
basis for the future development of the Marine MSAR(R) fuels
market.
3. The agreed revision and extension of the Royalty Agreement
between A.P. Moller-Mærsk A/S ("Mærsk") and QIL and its novation to
Mærsk Line. The revision serves to further clarify the rights and
obligations of both parties and commits them to work jointly in
developing the market for Marine MSAR(R) and procuring its
availability through qualifying refiners to serve both Mærsk Line
and third party requirements at key global supply locations.
4. The designation by Saudi Aramco of the coastal refining
complex and the power station and production units which will be
used for the planned 'production to combustion' extended
demonstration pilot programme scheduled now to commence in Q2
2016.
Financial Overview
The Group held cash and cash equivalents of GBP11.1 million as
at 1 July 2014 following a successful equity placing raising gross
GBP10.7 million which closed on 5 March 2014. Prior business plans
underlying the 2015 budget and the associated medium term revenue
and cash flow projections did forecast that the funds then held
would be sufficient to take the company through to the sustainable
revenue phase.
The slippage now affecting both programmes has had two principal
effects, actual expenditure during 2015 fell below budget as
activities were delayed, and the 'early commercial phase' with
related continuous revenues will occur later in the planning
period. The combination of these factors should assure that
available funds meet requirements for the remaining pre-commercial
phases of the lead programmes through to early continuous revenues.
In the longer term, any substantial changes to funding requirements
are only likely to be associated with significant new business
developments or a change in 'business' mode. In both cases it will
be possible to assess and plan for any such requirements well in
advance and, when doing so, to make judgements on the most
appropriate form of funding (i.e. debt or equity) to use to balance
risk and optimise shareholder interest.
The oil price collapse impacted directly on the prospective
joint venture project with Ecopetrol in Colombia. With oil revenues
falling, venture participation was declined by Ecopetrol, and
Quadrise could not have gone forward without exposure to 'merchant
plant' risk in any combination with third party venture partners.
As the Group is not funded for this exposure in the near term it
was decided to defer any further activity on the project and to
redirect resources on developing refinery power and steam
re-fuelling opportunities as a specialist sector. This has the
added advantage of reducing the call for capital expenditure in the
revised medium term business plan. Tight control has been
maintained on all expenditure, and the year closed with costs and
cash spend below planned levels. While, in principle, the policy of
client contribution to pre-commercial costs continues, the Company
has agreed on a selective basis to bear a greater share of pre
commercial costs where this will facilitate client commitment and
reduce time to market. During the period under review the Operating
and Corporate costs of GBP2.8m (2014: GBP2.4m) were well within
budget. The loss for the year of GBP4.9m (2014: GBP5.9m) was in
line with expectations in terms of managed operations, but was
affected by a further fair value adjustment of GBP0.4m (2014:
GBP1.0m) to the carried value of the Group's Canadian investments.
A non-cash share option charge of GBP1.9m (2014: GBP1.9m) is also
included in the loss for the year.
The Group continues to favour the 'Licence Mode' as the standard
business model in the short term due to the limited capital funding
requirements. This is the mode in which the refiner buys the
MSAR(R) Manufacturing Units ("MMUs") and is licenced to use MSAR(R)
manufacturing technology. In this mode QIL revenues are derived
from fees, supplies and services. A variation or progression is to
contract on a Joint Venture or "Toll Processing" mode in certain
projects in which QIL or the Joint Venture owns and operates the
MMU and charges a fee per ton to convert the refiner's heavy
residue into MSAR(R) fuel. In the longer term the Company would
logically aspire to apply the "Merchant Plant" mode. Here the
Company would acquire the heavy residue from the refiner and
convert it to MSAR(R) in our own facilities and sell the fuel
directly to consumers. Aside from the funding required to develop
the process facilities and related storage and services, in this
mode the Company would also have to secure working capital. This
generally accounts for a large share of the funds employed in a
bulk fuels operation. By restricting ambitions to the licence mode
in the early phase, the Company has progressed to the current stage
at very modest cost in oil industry terms.
Review of Directly Managed Interests
The principal Group business interests are managed by QIL which
owns all associated rights and participations. Where required or
advisable, subsidiaries of QIL have been formed to house interests
in a particular geographic area or market, or provide for joint
venture participations. In principle, the Group looks to simplify
the corporate structure wherever possible and will limit the
formation of new entities to circumstances where they are
appropriate and add value.
All directly managed projects target the substitution of
existing conventional fuels - presently consumed in large
quantities - with Quadrise MSAR(R) fuels. The global marine bunker
fuel oil market, some 200 million tons per annum, is a prime
example. A very modest share converting to MSAR(R) fuel would
represent a sizable business. The 30 million ton per annum market
for thermal power generation fuel in the Kingdom of Saudi Arabia
("KSA") is also a major large scale fuel substitution opportunity.
It is estimated that at least one third of this is potentially
convertible to MSAR(R) fuels based only on domestic heavy refinery
residue conversion - offering considerable advantage to all
stakeholders. This creates an enormous value-add opportunity to the
Kingdom, with the potential to make a very material contribution to
alleviating growing pressures on the KSA energy costs. This
capacity to reduce cost is certain to gain more attention as
reduced oil sales revenues start to impact more forcefully on the
KSA economy.
It is instructive that neither the marine nor the KSA power fuel
markets need demand growth for large scale fuel substitution to be
attractive. In reality, however, in both cases the market demand is
growing and this is expected to continue. In the case of marine, it
has become widely acknowledged that the impact of 'slow steaming'
on aggregate global demand has run its course, and the marine
bunker fuel oil market has again started to grow. KSA continues to
have one of the highest levels of electricity demand per capita,
and this looks set to continue.
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The Group has continued to look for selective opportunities to
broaden the portfolio. These often arise through initial enquiries
which then lead to joint evaluations with oil majors and associated
companies. The party concerned will generally pay Quadrise to
determine the feasibility of creating saleable MSAR(R) fuels by
modifying low value 'problem' heavy residue streams from oil and
petrochemicals processing to add value and reduce cost. The
resulting business development opportunity could serve to broaden
the active project portfolio and reduce future dependence on major
programmes such as Marine and KSA. In this context a number of
prospective 'generic' opportunities are currently in evaluation
including re-fuelling refinery steam and power generation.
Unsolicited approaches concerning projects in areas such as the
Former Soviet Union, the Caribbean, Asia and Africa continue to be
received. Where they have merit the Company has confirmed
conditional interest. The key provisos are that the basis of the
relationship will be a joint venture, the prospective partner will
fund the project with no recourse to QIL, and the Group
contribution will be limited to technology and expertise in return
for our share in the venture. Our expanded team has enabled more
attention to be given to these introductions, and some related work
is proceeding. However, 'select and focus' will remain the guiding
strategy for some years to come. The Company continues to receive
approaches from entities looking for co-investment in prospective
'toll processing' opportunities should these arise. No such
commitments have yet been made.
Marine MSAR(R)
Background
The Marine programme originated from a Quadrise presentation to
an international marine fuels conference. Mærsk quickly recognised
the potential of the MSAR(R) technology to reduce open ocean marine
fuel costs (then 75% of fleet operating cost). A Joint Development
Agreement ("JDA") was executed between QIL, Mærsk and AkzoNobel
Surface Chemistry ("Akzo") to formulate Marine MSAR(R) fuel to meet
the exacting requirements of marine diesel propulsion engines. The
JDA provisions have guided the development process over the past
four years. In January 2011 QIL entered into a marketing and
royalty agreement with Mærsk which recorded principles and terms
for commercial relationships then expected to follow the
development phase.
At the outset standards and targets were established to qualify
Marine MSAR(R) as a fit for purpose "standard" fuel acceptable for
use by Mærsk (and other shipping companies). These included the
ability to switch readily between fuel oil and/or marine diesel
fuel and Marine MSAR(R) . These key requirements informed the basis
used for the subsequent Mærsk Proof of Concept ("POC") assessment
and the associated seaborne proving trials programme which was
completed by mid-2014.
When formulated, Marine MSAR(R) fuel has to satisfy the
stringent standards set by many industry stakeholders, and
national, regional and global regulatory authorities. The sector is
heavily regulated, having a high profile due to the impact of
freight costs and services on a range of national and international
economic interests. The shipping industry is also closely
scrutinised on environmental matters, in particular combustion
emissions and associated NOx (nitric oxide/nitrogen dioxide), SO(2)
(sulphur dioxide) and carbon particulates (black soot). Mærsk is
the biggest global container shipping company and largest marine
fuels consumer. It has an enviable record for efficiency in
operations and is an industry leader in environmental performance,
adoption of new technology, and continuous improvement. All of
these features make Mærsk the ideal partner for the Quadrise Marine
MSAR(R) development programme.
Gaining the endorsement of the major marine engine manufacturers
is critical. The continuous development of very large vessel
propulsion engines and their fuelling and management systems is
focussed on optimising power and improving fuel performance.
Qualifying fuels have to be proven in both land-based and seaborne
operations to merit a Letter Of No Objection ("LONO") issued by the
engine manufacturer without which no modern shipping company would
consider using a new fuel in its fleet operations.
The multi-company team has worked closely throughout the
development process with two major engine manufacturers, Wärtsilä
and MAN Diesel & Turbo ("MAN"), and with selected refiners.
Both manufacturers are industry leaders in technology development,
and in combination account for the majority of engines installed in
the Mærsk fleet, particularly in the most modern and largest
container and crude oil carriers. This teamwork resulted in the
formulation of Quadrise Marine "MSAR(R) 2" fuel in late 2012
following an exhaustive series of trials. The fuel was then
successfully stress-tested in the Wärtsilä state-of-the-art, multi
cylinder propulsion engine test facility in Switzerland, resulting
in a very positive comprehensive report accepted by all
stakeholders. The MSAR(R) 2 formulation became the 'gold standard'
for marine emulsion fuels leading to the seaborne POC programme
during the last quarter of 2013 and into the first half of
2014.
The Wartsila and MAN seaborne POC programmes using Marine
MSAR(R) fuel were completed by July 2014 with the very positive
results clearing the way to proceed to the LONO phase. The key
findings of the MSAR(R) fuel assessment programme were:
- Fuel stability and optimum handling considerations had been confirmed.
- Comprehensive testing had confirmed good engine and emissions
performance on Marine MSAR(R) fuel.
- Seaborne operational tests were successful on both Wartsila
and MAN two stroke propulsion engines.
- Experience during trials included manoeuvring tests and
start/stop of engines according to class requirements.
In July 2014, Mærsk formally advised that the POC requirements
had been satisfied, and given the quality of results, the JDA
partners (Mærsk, Quadrise and Akzo) agreed to move forward as soon
as practicable to generate an early return on the investment made
during the period of joint development.
This cleared the way for the extended seaborne programme
required to provide operating performance data on which the engine
manufacturer would, if satisfied, base the issue of a LONO for the
engine type concerned. The LONO is the last remaining pre-condition
to the commercial phase and progressive 'roll-out' to the first set
of selected vessels. The expectation is that circa 4,000 hours of
performance data will be required to obtain the LONO. An interim
evaluation may be made at 2,000 hours, but it is also possible that
requirements could be extended by a further 2,000 hours.
When weighing alternative ways in which to move the marine
programme forward in late 2014, the assurance of continuing bulk
supply and efficient logistics systems in the 'post-LONO' phase of
continuous commercial supply was seen to be more important than
early fuel availability at higher unit cost just to deliver LONO
certification. As a result the revised plan positioned the LONO
programme as the first step of commercial 'roll-out', rather than
the last step of the development phase. Provisional volume
commitments relating to post LONO requirements and longer term
contracts were also expected to benefit manufacturing and supply
economics, as were related improvements in location based efficient
bulk logistics systems. By adopting a medium term view this
approach offered earlier assured availability of larger commercial
volumes of Marine MSAR(R) fuel despite potential short term delays
to the LONO programme.
The way forward then jointly agreed with Mærsk in Q4 2014 aimed
to:
- Identify candidate refineries to supply Mærsk requirements in Europe.
- Select preferred partners and agree terms for Quadrise MSAR(R)
Technology licensing and services contracts and for supply of
Marine MSAR(R) by the refiner to Mærsk for both the LONO programme
and (subject to contract) longer term requirements.
- Extend the availability of Marine MSAR(R) and selective fleet
fuelling progressively to the Rest of the World ("ROW") on
success.
The subsequent, and unforeseen, collapse in global oil prices
then interceded as was explained in the Company's 2015 Interim
Report issued on 30 March 2015. The direct impact of lower oil
prices on Marine MSAR(R) economics is limited as the Quadrise
process 'value-add' relates to the $ per ton 'spread' between the
heavy fuel oil and diesel fuel prices which has remained relatively
stable. However, the principal impact has been the delays
experienced in engaging with refiners who were focussed on
adjusting to the oil price collapse and associated implications for
future oil economics and margins.
The Company was very pleased to report on 16 September 2015 that
agreement has been reached and contracts executed between QIL,
Mærsk Line and CEPSA to produce Marine MSAR(R) at the San Roque
refinery for the extended seaborne "Operational Trial". The
refinery is adjacent to the Algeciras "bunker hub" servicing the
EU/Med market. Further contracts were signed relating to the 'post
LONO' collaboration between QIL, Mærsk Line and CEPSA, and the
basis of 'margin sharing' between CEPSA and QIL for the trial
programme. Regulatory approvals for the installation of the MSAR(R)
plant and associated oil processing and operations in refining
sites have proved to be a material element of production lead time.
While this was anticipated, when combined with the oil price
related delays, the original aim of producing MSAR(R) for the LONO
phase during 2015 will have slipped by up to 12 months. The
timetable now anticipated will see the installation and
commissioning of the first MMU at San Roque in mid H1 2016 subject
to local and governmental permitting in Spain. The LONO programme,
based on 4000 hours of continuing engine service, will require some
10 months, following which
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certifications and approvals will be sought to allow as early a
start to the 'roll-out programme' as possible. While the
unanticipated delays have been frustrating for all stakeholders,
the Company will benefit greatly from the participation, commitment
and enthusiasm of CEPSA, as a first league refining company
operating from a prime location for marine fuels supply. The
extended period of the operational trial also provides an
opportunity to further refine and de-risk the on-board fuel
switching techniques and related hardware.
These developments provided an opportunity for Quadrise and
Mærsk to further review the long standing Royalty Agreement and to
introduce clarifications intended to smooth the way forward in the
roll-out to the Mærsk Line fleet and the introduction of supply to
other shipping companies. Terms include, inter alia:
-- the commitment by both parties to the commercialisation of
Marine MSAR(R) in the global marine fuels market subject to success
with the Operational Trial and associated LONO certification,
and
-- a further extension of the expiry date of the agreement from
30 December 2022 to the tenth anniversary of first commercial
MSAR(R) production following the Operational Trial.
Looking forward, developments affecting the shipping industry
and marine fuels market continue to be positive for the global
commercialisation of Marine MSAR(R) . While the low oil price has
provided some relief on cost as such, competition between operators
on major trade routes in containerised, bulk commodity and other
cargoes remains as keen as ever. Majors look constantly for
competitive advantage, and marginal players for the means to
survive. The economic advantage of the MSAR(R) discount to fuel oil
is very relevant, especially when coupled with the environmental
benefits associated with both affordable scrubbing and carbon
particulate emission mitigation.
On environmental matters the new 0.1% sulphur standards
introduced on 1 January 2015 in the Emission Control Areas ("ECA"s)
has had a direct effect on cost and led to certain suppliers
offering a compliant 'fuel oil'. While sold at a discount to marine
diesel, it is priced well above bunker fuel oil. In reality these
fuels do not have a residual fuel base, but are largely formulated
from heavy distillate components and seem to have found a place in
the ECA market. A number of the leading operators in the ECA zones
have also wisely invested in scrubbers, enabling the combination of
lower fuel costs and technology to achieve compliance. As emissions
scrubbing becomes an accepted means of ECA compliance, and the
economics of the technology continues to improve, it should be
possible in the future for operators to meet standards using a
combination of Marine MSAR(R) and sulphur scrubbers. This
combination should also ensure compliance on particulate emissions
(black soot), reduce NOx and provide additional benefits from the
efficient conversion of all carbon particulates to energy in the
propulsion of the ship. Clearly, this way, compliance cost would be
considerably lower than any alternative fuels priced to compete
with diesel.
In the shorter term Quadrise and Mærsk Line are focussed on
'open ocean' fuelling where MSAR(R) will comply with current
sulphur emissions standards. Because Marine MSAR(R) mitigates
carbon particulate emission, the anticipated IMO 'black soot'
emissions standards are not expected to pose many difficulties.
Also, as conversion to MSAR(R) will generally reduce NOx emission
by more than 20% our fuel looks very well set to compete
effectively in the medium term given anticipated ever decreasing
NOx standards. The next major milestone for marine fuel standards
is the intended reduction of the 'open ocean' sulphur level from
3.5% to 0.5%. There is no date yet set for this change and industry
consensus is that it is now unlikely to be before 2025. A major
related issue is the availability of compliant distillate fuels in
the quantities implied and the major impact of such a change, even
if practically possible, on the cost of shipping. The more general
expectation is that while sulphur levels may be moderated,
regulators will permit emissions compliance by scrubbing for both
sulphur and particulates. In such circumstances it appears that the
combination of Marine MSAR(R) and sulphur scrubbing will represent
the lowest cost compliance option for the larger shipping companies
with the most modern propulsion engines.
While slippage in the programme for LONO certification of Marine
MSAR(R) has been frustrating, the intervening time has been put to
good use in the recruitment of additional personnel, conduct of an
extensive programme of formulation and product development, and
related expansion of the 'technical knowhow base'. The UK based
Quadrise Research Facility has been expanded to serve also as the
operations and service base for all active programmes. Where
required, and when advantageous, activities have and will include
design and fabrication of ancillary plant and specialised equipment
which, combined with the MMU, comprise an MSAR(R) production
facility.
The timetable is now contractually committed and the seaborne
programme will commence as soon as the MSAR(R) fuel is available at
San Roque/Algeciras. Mærsk Line liftings will be programmed to fit
with vessel operating schedules and will continue until the
required operating hours have been completed. Further activities
will be informed by the Collaboration Agreement with commercial
terms subject to contract.
As LONO requirements are met and other regulatory formalities
are completed the early commercial phase will get underway. The
first agreed joint objective will be to develop and progressively
implement a programme to secure supplies to meet the Mærsk Line
nominated requirements. These will be prioritised in terms of
supply locations and volumes required. QIL and Mærsk Line are
committed in terms of the Royalty Agreement to jointly use all
reasonable endeavours to develop the commercialisation of Marine
MSAR(R) in the global marine fuels market - fuelling both
qualifying Mærsk Line and third party vessels. Priority will be
given to Mærsk Line fleet requirements in the early years leading
the way for others to follow. If all goes to plan, the rate of
conversion and growth in demand from the shipping companies could
develop rapidly through the period to 2020 and beyond. A relatively
modest share of this large and growing market will provide a strong
base underpinning the future expansion and development of the
Company.
Saudi Arabia
The business opportunity in the Kingdom of Saudi Arabia ("KSA")
is the production of Quadrise MSAR(R) fuel by Saudi refineries to
replace heavy fuel oil and crude oil used in thermal power
generation. Over 30 million tons of oil is consumed annually in
this application, and it is estimated that currently at least one
third of this requirement could be met by MSAR(R) fuel produced in
KSA. Power demand in KSA is growing very rapidly and the scale and
potential of the opportunity are clearly exceptional.
By converting from heavy fuel oil to Quadrise MSAR(R) production
in 'qualifying' refineries, large volumes of distillates would be
released, adding significant value to refinery yields and
responding to consistently strong local market demand growth for
high value distillates such as automotive diesel. The release of
distillates whether for local market or value added exports, in the
tonnages concerned, represents a very attractive production
conversion and fuel substitution opportunity - potentially worth
billions of dollars annually at a national level. Quadrise has
invested a considerable amount of time and sustained effort to gain
credibility and recognition within KSA with Saudi Aramco and power
generation client organisations. This process has been very
effectively supported by our Saudi partner, the Rafid Group, who
have long established relationships in the oil and energy
industries throughout KSA. Quadrise technology is approved for
application within client refineries and there is a growing
appreciation at senior levels that Quadrise MSAR(R) fuel technology
can enable a step change in the 'integrated' cost of thermal power
generation at a national level, positively contributing to a KSA
strategic imperative. The mitigation of carbon particulate and NOx
emissions are potentially a very valuable added benefit resulting
from conversion of all hydrocarbon in MSAR(R) fuel into electrical
power in the generating plants. The prospective elimination of
accumulated carbon particulate which in some cases has to be
trucked in bulk to remote disposal sites, represents a material
further saving in fully costed power production.
The KSA organisations with whom QIL has been engaged are large
and complex, with policies, practices and procedures associated
with their scale and complexity. Several past initiatives to create
a modest KSA demonstration and reference plant did lose momentum -
possibly due to limited profile, lack of senior advocacy and the
weight of other urgent priority projects. More recently, however, a
more coordinated approach has led to confirmation of support at
senior level and active advocacy of the proposed 'production to
combustion' pilot demonstration plant project based on a fast-track
limited scope programme submitted by QIL. One of the agreed
objectives is to advance the application and evaluation of the
technology in Saudi Arabia, in both the refining and power station
contexts, to determine the fit and role of emulsion fuels in the
future national energy strategy.
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The KSA trial timetable targets installation of the process
plant in the designated major coastal refinery complex in time for
commissioning in H1 2016. This should ensure MSAR(R) fuel
availability in the quantities required for an extended combustion
trial in a 400MWe generation unit at the nominated power station,
which has coastal receipt facilities and an aggregate production
capacity of over 5,000MW. Continuous supply to the trial boiler for
an extended period will require a very effective supply and
logistics operation, and QIL will be working on site at both the
refinery and the power plant to guide and advise on all relevant
aspects of the operations. Formal acknowledgement of all relevant
aspects is a pre-requisite to QIL commitment to longer lead items
and related services.
Quadrise has full confidence that this 'semi-commercial'
extended demonstration project should meet all of the defined
objectives and represent a 'break through event' for development of
an extensive application programme in KSA. Aside from the process
economics and distillate recovery in oil refining, there are
expectations, as mentioned before, that the mitigation of carbon
particulate emissions could have a further material impact on the
operating costs of the Saudi Electricity Company ("SEC") large
scale thermal power stations in KSA. Preliminary studies show that
aside from any strategic considerations, there are sufficient
economic advantages to handsomely reward both the refining and the
power generation companies for conversion to manufacture and
combustion of MSAR(R) . In practical terms, this is neither costly
nor complex. Whether approached on a sequential basis or as an
integrated programme, the short lead times and high value-add of
refinery process conversion will offer rapid recovery of investment
and exceptional returns for all stakeholders.
Conversion of the 5 million tons p.a. of fuel oil at the
designated refinery alone would represent a large scale project
with considerable proven benefits. The scope for 'roll out' within
the KSA domestic refining industry has been previously identified
in studies conducted jointly with the client. At a national level
the availability of heavy residue from the client and joint venture
refineries in KSA will limit the potential for MSAR(R) production
to levels well below present thermal power generation requirements.
The KSA economy could continue to benefit irrespective of the
source of MSAR(R) and could potentially import at least a further
10 million tons annually from other sources as a 'finished
product'- displacing heavy fuel oil imports to considerable
financial advantage. In practice availability will, of course, be
determined by demand. However, any enquiry from KSA for MSAR(R)
imports would reasonably be expected to produce a positive
response.
Shareholders should anticipate that confidentiality
considerations may continue to limit the permitted release of
information given the nature of the KSA programme.
Americas
No further action has been taken on the PEMEX front as the
Mexican situation is in transition and it is not yet clear how far
the changes in policy and practices could affect the feasibility
and merits of reviving the Quadrise project.
The Colombian/Ecopetrol opportunity looked very prospective in
terms of the final report of a joint feasibility study completed
late in 2014. Despite the attractions of the project, Quadrise was
advised by Ecopetrol in early 2015 that the impact of the oil price
collapse on their future crude oil production margins and net cash
revenues required the company to freeze all non-essential capital
and operating expenditure in the refining, supply and marketing
sectors. On this basis they would not be able to invest in the
proposed JV and if it were to go ahead Quadrise would have to cover
all costs and associated risk, either alone or with an approved
partner. The Company is not funded for what would, in effect, be a
"merchant plant" type operation which in the early years would also
have to also fund its own working capital requirements due to the
non-availability of trade finance for finished MSAR(R) fuel. On
review it was decided to shelve the Colombian project pending a
change in circumstances in the medium term when oil market
conditions stabilise.
Asia
The YTL PowerSeraya Pte. Limited ("PowerSeraya") project
opportunity remains as attractive as ever, but the Company has
still not been able to secure the required source of heavy residue
and participating local or regional refiner. We remain confident
that this will change with the advent of Marine MSAR(R) production
to supply the Singapore bunker market. Having two marketing
opportunities (marine and power) will encourage refiners now still
reluctant to install process plant, convert operations and add a
new product stream based on single client supply. There is also a
potential Singapore availability link with the confidential
on-going extended technical assessment programme with a Global
Major which could provide the solution to the PowerSeraya supply
chain. Quadrise remains convinced that there is sufficient
attraction for both refinery and the power company to assure a
positive future result. QIL and PowerSeraya have again agreed a 12
month extension to the MOU which covers the basis for cooperation
on developing a MSAR(R) supply chain for the Singapore power
plant.
Refinery Power and Steam Re-fuelling
The Company has identified a refinery based line of business
involving substitution of conventional heavy fuel oil with MSAR(R)
for the generation of steam and power within refineries,
principally for their own use. While these opportunities tend to be
selective, indications are that they could aggregate to a
substantial and meaningful business sector. Refining companies
frequently have installed power generation capacity in excess of
their own needs and, with reduced fuel costs, have the scope to
earn revenues by generating and exporting power.
One such opportunity for a MSAR(R) pilot demonstration
(production to combustion) has progressed with a mid-sized refining
company. A programme is proceeding to finalise a detailed design
feasibility study in four phases for completion and consideration
in Q1 2016. This includes proposed commercial terms for
implementation and future operations. It is intended that the
implementation and initial demonstration will be managed by QIL and
that on success the MSAR(R) fuelling will be progressively extended
to fuel several refinery based utilities on a progressive
basis.
It is intended that a listing of similar prospects be
identified, and that a marketing programme be developed in which
the current project could also serve as a reference plant. While
these projects may individually be modest in scale, the economics
look to be very attractive and are enhanced by simplicity of
installation, short lead times and low cost intra-plant
logistics.
Global Oil Major
During 2012, QIL agreed to evaluate the conversion of certain
residue streams associated with the proprietary technologies used
in several large scale process plants of a Global Major. Quadrise
is not permitted to disclose the name of the group concerned, but
QIL has been successful in converting the residue streams arising
from these processing operations into MSAR(R) fuels. The
relationship is ongoing and the technical scope has been extended
by agreement. Thus far results indicate that a Quadrise solution
will offer a higher value route to market for the heavy
hydrocarbons concerned and could potentially be an attractive
production and marketing addition compared to their present
practice.
The Global Oil Major may also be a potential supplier to the
global marine fuels supply programme in several bunker hubs.
Understandably, until such time as LONOs are issued stimulating the
interest of major shipping companies and demand for marine MSAR(R)
, we do not expect the Global Major to seriously consider adoption
of the technology and/or demonstration plant installations. That
said, assuming the Marine programme proceeds as planned, we would
expect a step-change in interest by oil majors in licensing the
Quadrise technology in selected locations.
Board and Management
The Company has greatly benefitted from the continuity of
service and high quality informed and professional contributions of
our non-executive directors. Collectively they represent a very
extensive base of experience across a range of specialised
technical and commercial fields directly associated with the
business, circumstance and ambitions of the Group. Relations within
the board and between board and management are constructively open
and frank, and continuous interaction and involvement is encouraged
and valued.
The appointment of Mr Philip Snaith as an independent
non-executive director was announced during October 2014. Philip
brings a wealth of experience having had a successful career in the
Royal Dutch Shell Group, progressing through a succession of
international senior executive roles in oil refining, supply,
trading and marketing.
Mr Laurie Mutch and Dr Ian Duckels continued to chair,
respectively, the Audit and Compensation Committees. Their
commitment to the maintenance of consistently high standards in all
of the associated activities has continued and we thank them for
their valuable contribution. Mr Snaith has agreed to serve and has
been appointed to the Audit and Compensation Committees. While
benefitting from his contribution, this also serves to spread the
considerable load borne by his fellow non-executive directors over
many years.
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A key objective for 2014/5 has been to restructure the
organisation and recruit in anticipation of the growing demands of
the key business programmes. In doing so, considerations of
creating cover, and a reserve of keys skills and competencies
featured strongly, as did the need to relieve our ultra-active COO,
Jason Miles, from the growing demands of day to day matters. Having
established a very clear view on structure and specification for
the new roles, candidates were targeted and appointees selected
with a high level of confidence. While the process took longer than
planned, the quality of the outcome has more than compensated.
The three key General Management roles, Power, Marine and
Refining are now held by Sam Saimbi, Robin Lloyd and Mark Whittle
respectively. All are very well equipped to meet the requirements
in their specialised fields and, in combination with the COO and
their other colleagues, have rapidly become a formidable and
effective team.
An associated objective of the programme was to secure the full
time services of selected contractors and consultants whose
expertise, capabilities and continuity are very important in the
delivery of services and technical and operational guidance to
manufacturing sites and refinery management, supervisors and
operators. This has also been achieved with the full time
engagement of Bernard Johnston as Head of Operations and Paul
Gunter as Programme and Quality Manager.
Business Associates and Partners
The Company continues to share cordial, constructive and
supportive relations with the Akzo Nobel group in an association
that dates back to 2004. The new contractual framework agreed late
2013 is working very effectively and the joint commitment to
securing opportunities and commercialising MSAR(R) fuels remains
strong notwithstanding frustrating delays. This reflects the strong
conviction and shared belief within the combined team that the
Quadrise MSAR(R) fundamentals are sound, the competitive advantage
is assured and that the programmes will succeed. There is a very
strong association and collaboration in the field of research and
application and intellectual property development. While the new
Quadrise Research Facility in the UK is managed by QIL, its
programmes have been integrated with activities in the Akzo
facilities in Sweden into a combined joint effort with priorities
driven by Group business objectives.
In Marine Fuels our long standing association with Mærsk has
been a key feature of the programme to date. It would not have been
possible for Quadrise to even consider entry to the mainstream
marine fuels market without a shipping industry partner. Mærsk, as
a leader in many fields, distinguishes itself among the elite in
the industry. Being a leader in innovation and adaptation Mærsk was
uniquely placed to coordinate the Joint Development Process having
long established relations with regulators, marine authorities,
engine manufacturers and fuel suppliers. Their commercial
motivation and associated objectives are a constant in all dealings
which is a very good discipline. The recently announced novation
and amendments to the Royalty Agreement between Quadrise and Mærsk
Line reconfirm the commitment of both parties to work jointly to
ensure the successful commercialisation of Marine MSAR(R) in the
international marine market fuelling both Mærsk Line and third
party fleets. The terms ensure that success should reward both
parties equitably in all cases. The Quadrise Group is very
appreciative of the contribution made by Mærsk over an extended
period of preparation and the standard of technical and commercial
professionalism they have introduced and maintained throughout. As
matters now stand, both companies can reasonably expect to reap the
considerable prospective benefits of our joint efforts in the
foreseeable future.
Rafid, our partner in KSA, supplies a range of specialised
products and services to Saudi Aramco and other key industry and
state organisations. Efforts and teamwork over the past year have
further raised the profile of the "Quadrise opportunity" and
improved access at senior level in the refining and power
generation sectors. This has led to a new consensus on a pragmatic
approach to delivering a commercial scale "production to
combustion" pilot demonstration to prove all facets of the Quadrise
technology while creating an accessible reference plant in KSA to
facilitate familiarity and dispel scepticism. As a local business
of considerable standing in the fields of technology and
engineering, Rafid are able to engage with the largest state and
private sector organisations to identify and actively promote
Quadrise business opportunities.
Non - Managed Investments in Canada
The conditions leading to and following the oil price collapse
have severely tested the remaining independent Canadian ventures.
Anticipating this situation, the carried values have been
progressively written down to a level at which they are no longer
material for Quadrise shareholders.
Paxton Corporation (PC), in which the Company has a 3.8%
interest, has unfortunately been severely affected by the impact of
low oil prices on the Canadian oil and energy industries.
In the current year the Company decided, on advice and review,
to write down the remaining carried value of Paxton Corporation
following the withdrawal of Mærsk group support for the Clean
Energy Systems ("CES") technology development programme. This
withdrawal has created a funding crisis for CES and is likely to
lead to insolvency. The 30% equity interest in CES was previously
seen to offer some prospect of access to value for Paxton
shareholders. The recent developments now render that expectation
highly improbable. QFI now carries this interest at CAD$ nil.
Quadrise Canada Corporation ("QCC"), where the Company has a
20.4% shareholding, is effectively operating on a 'care and
maintenance' basis with very limited remaining resources. QFI
carries this holding at CAD$ nil.
Optimal Resources Inc. ("ORI"), in which the Company has a 9.5%
interest, had no success in securing a partner for its Enhanced Oil
Recovery ("EOR") technology. It has more than CAD$8 million in
accumulated tax losses but to monetise value is problematic. QFI
carries this holding at CAD$ nil.
Future Outlook
As anticipated in the 2015 Interim Report, the lead Marine and
Power programmes have both moved forward to a stage where the road
ahead and the respective timetables are firming up with involvement
and support from an expanded set of respective stakeholders. In
this regard the relationship with CEPSA and the collaboration with
the KSA refining company and the power generator, all signal a long
anticipated change and increased assurance of project
implementation and timing. The early addition of a prospective
refinery power and steam re-fuelling project is also most
encouraging.
The oil price uncertainties are expected to destabilise the oil
and energy sector for some time to come, but this is not expected
to have any further material effect on our principal programmes in
terms of feasibility or incentive for adoption of MSAR(R)
technology which have remained robust and considerable. On the
contrary, the perceived additional risk of investment in
conventional high cost refinery upgrading projects to improve
distillate yields could well encourage other refiners to follow the
CEPSA lead and closely evaluate the Quadrise MSAR(R) technology
alternative. A common objective for refiners, shipping companies
and power generators will be to identify and adopt low cost
technology which reduces cost and improves efficiency to ensure
competitive advantage and, in some cases, survival. For qualifying
refineries and power plants Quadrise may offer the best solution,
and we are now very well resourced to engage with credibility and
to demonstrate the merits of our case.
The Company is now better placed than ever before to make the
transition to operations and revenue, and that is the prime
objective of the directors and management for the years ahead.
Ian Williams
Executive Chairman
9 October 2015
Financial Review
Overview
Given the impact of the oil price collapse and, in turn, the
associated delays in our key programmes, strong treasury management
and cost control has been a key feature of the financial management
of the Group during the year. Both production & development
costs and administration expenses were maintained well within the
approved budgets, with greater emphasis being placed on enhancing
the management resource base and making further investment to build
up our research, development and service facility to meet the
future needs of our key programmes as they transition from the
development into the commercial phase.
As stated in the Chairman's Statement, despite the consequences
and impact of the oil price collapse within the sectors the Group
is involved in and the clients it is engaged with, it has continued
to make considerable tangible progress on a number of fronts during
the financial year and the period since. Particular attention was
paid to not only stress-test the economic and commercial viability
and attractiveness of our MSAR(R) fuel in a possible future world
of low oil prices but to also provide the necessary assurances and
confidence to our clients and other stakeholders to move forward
with the key programmes.
Results for the Year
The consolidated after-tax loss for the year to 30 June 2015 was
GBP4.9m (2014: GBP5.9m). This included a charge of GBP404k (2014:
GBP1.0m) for adjustments to available for sale investments, general
administration expenses of GBP1.5m (2014: GBP1.7m), production and
development costs of GBP1.3m (2014: GBP0.7m), a share option charge
of GBP1.9m (2014: GBP1.9m) and interest and other income of GBP233k
(2014: GBP122k).
Basic and diluted loss per share was 0.61p (2014: 0.74p).
Statement of Financial Position
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At 30 June 2015, the Group had total assets of GBP12.6m (2014:
GBP16.3m). The most significant balances were intangible assets of
GBP2.9m (2014: GBP2.9m), property, plant and equipment of GBP0.7m
(2014: GBP0.6m), cash of GBP8.4m (2014: GBP11.1m), and available
for sale investments of GBPnil (2014: GBP1.4m). Further information
on the intangible assets and available for sale investments is
provided in notes 11 and 12.
Cash Flow
The Group ended the year with GBP8.4m of cash and cash
equivalents (2014: GBP11.1m) with GBP2.7m having been utilised in
its operating activities during the year (2014: GBP2.3m). 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 2015. The Company's current issued share capital stands
at 809,585,162 ordinary shares of 1p each all with voting
rights.
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
GBP40.7m (2014: GBP34.8m) that are available, under current
legislation, to be carried forward against future profits. GBP11.2m
(2014: GBP8.3m) of the tax losses carried forward represent trading
losses, GBP25.8m (2014: GBP23.7m) represent non-trade deficits
arising on intangible assets within Quadrise International Limited,
GBP1.7m (2014: GBP1.2m) represent pre-trading losses incurred by
subsidiaries, GBP1.9m (2014: GBP1.5m) represent management expenses
incurred by Quadrise International Limited, and GBP0.1m (2014:
GBP0.1m) represent capital losses within Quadrise Fuels
International plc.
Outlook
The key objectives for the current year are to establish our
MSAR(R) manufacturing facilities at CEPSA to commence the extended
'Operational Trial' with Mærsk Line and in the designated Saudi
refinery to commence the 'semi-commercial' demonstration at the
designated Saudi Electricity Company power plant. The success of
both will potentially unlock two major markets for our MSAR(R) fuel
as we transition into the commercial phase.
At the same time, other initiatives such as the refinery
refuelling project, converting and testing high viscosity residue
streams for the Global Oil Major, engaging with additional
candidate refineries for Marine MSAR(R) production and establishing
links in other material oil-based thermal power markets will also
continue to receive attention.
Close attention to the Group's treasury and effective financial
management remains a firm ethos of the Board and management of the
Group and, based on the current plans and expectations, the cash
resources of GBP8.4m at the year end should carry the Group well
through what is now considered to be the 'final leg' of the
development phase.
Hemant Thanawala
Finance Director
9 October 2015
Strategic Report
For the year ended 30 June 2015
Principal Activity
The principal activity of the Company is to develop markets for
its proprietary emulsion fuel ("MSAR(R) ") 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 on pages 2 - 11 of this report.
Going Concern
The Group had GBP8.4m in treasury as at 30 June 2015. Having
conducted a full review of the updated business plan, budgets and
associated commitments at the year end, the Directors 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. Refer to Note 2 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(R) 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(R) 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(R) formulation and
manufacture, and that the MSAR(R) fuel is thoroughly tested before
being put into operational use.
Delay in commercialisation of MSAR(R) and funding risks
There is a risk that the commercialisation of MSAR(R) 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 AkzoNobel
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 while ensuring that key employees are
suitably incentivised.
Dependence on key personnel
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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 2015 of three General
Managers into a revised organisation structure and the conversion
of former consultants to key full time posts 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.
Ian Williams
Executive Chairman
9 October 2015
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2015
Notes Year ended Year ended
30 June 2015 30 June 2014
GBP'000 GBP'000
Continuing operations
Revenue 66 -
Other income 4 39 51
Production and development costs (1,268) (720)
Amortisation of intangible assets 11 - (685)
Adjustment to available for sale
investments 12 (404) (1,006)
Other administration expenses (1,540) (1,690)
Share option charge 13 (1,914) (1,924)
Foreign exchange loss (3) (3)
--------------------------------------- ------ -------------- -----------------------------
Operating loss 5 (5,024) (5,977)
Finance costs 6 (7) (6)
Finance income 7 56 7
--------------------------------------- ------ -------------- -----------------------------
Loss before tax (4,975) (5,976)
Taxation 8 72 64
--------------------------------------- ------ -------------- -----------------------------
Loss for the year from continuing
operations (4,903) (5,912)
----------------------------------------------- -------------- -----------------------------
Other Comprehensive Income
Adjustment to available for sale
investments - will be recycled
subsequently to profit and loss. 12 (1,035) (186)
--------------------------------------- ------ -------------- -----------------------------
Other comprehensive loss for
the year net of tax (1,035) (186)
--------------------------------------- ------ -------------- -----------------------------
Total comprehensive loss for the year (5,938) (6,098)
----------------------------------------------- -------------- -----------------------------
Loss for the year attributable
to:
Owners of the Company (4,898) (5,835)
Non-controlling interest (5) (77)
Total comprehensive loss attributable
to:
Owners of the Company (5,933) (6,021)
Non-controlling interest (5) (77)
Loss per share - pence
Basic 9 (0.61)p (0.74)p
Diluted 9 (0.61)p (0.74)p
--------------------------------------- ------ -------------- -----------------------------
Consolidated Statement of Financial Position
As at 30 June 2015
Notes As at As at
30 June 2015 30 June 2014
GBP'000 GBP'000
Assets
Non-current assets
Property, plant and equipment 10 710 612
Intangible assets 11 2,924 2,924
Available for sale investments 12 - 1,439
Non-current assets 3,634 4,975
-------------------------------- ------ -------------- ---------------
Current assets
Cash and cash equivalents 8,361 11,081
Trade and other receivables 333 170
Prepayments 238 76
-------------------------------- ------ -------------- ---------------
Current assets 8,932 11,327
-------------------------------- ------ -------------- ---------------
TOTAL ASSETS 12,566 16,302
-------------------------------- ------ -------------- ---------------
Equity and liabilities
Current liabilities
Trade and other payables 422 241
-------------------------------- --------- ---------
Current liabilities 422 241
-------------------------------- --------- ---------
Equity attributable to equity
holders of the parent
Issued share capital 8,096 8,072
Share premium 69,216 68,633
Revaluation reserve - 1,035
Share option reserve 4,210 3,045
Reverse acquisition reserve 522 522
Accumulated losses (69,900) (65,126)
-------------------------------- --------- ---------
Total shareholders' equity 12,144 16,181
-------------------------------- --------- ---------
Non-controlling interests - (120)
-------------------------------- --------- ---------
Total equity interests 12,144 16,061
-------------------------------- --------- ---------
TOTAL EQUITY AND LIABILITIES 12,566 16,302
-------------------------------- --------- ---------
Consolidated Statement of Changes in Equity
For the year ended 30 June 2015
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Attributable to owners of the parent
Share Reverse Non
Issued Share Revaluation option acquisition Accumulated controlling Total
capital premium reserve reserve reserve losses Total interest equity
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
1 July 2013 7,725 58,489 1,221 1,134 522 (58,793) 10,298 (249) 10,049
Loss for
the year - - - - - (5,835) (5,835) (77) (5,912)
Fair value
adjustments - - (186) - - - (186) - (186)
Total
comprehensive
loss for
the year - - (186) - - (5,835) (6,021) (77) (6,098)
---------------- --------- --------- ------------ --------- ------------ ------------- --------- ------------ ---------
New shares
issued net
of issue
costs 334 9,772 - - - - 10,106 - 10,106
---------------- --------- --------- ------------ --------- ------------ ------------- --------- ------------ ---------
Share option
charge - - - 1,924 - - 1,924 - 1,924
---------------- --------- --------- ------------ --------- ------------ ------------- --------- ------------ ---------
Exercise
of share
options 4 89 - (13) - - 80 - 80
---------------- --------- --------- ------------ --------- ------------ ------------- --------- ------------ ---------
Acquisition
of Minority
Interest 9 283 - - - (498) (206) 206 -
---------------- --------- --------- ------------ --------- ------------ ------------- --------- ------------ ---------
30 June
2014 8,072 68,633 1,035 3,045 522 (65,126) 16,181 (120) 16,061
---------------- --------- --------- ------------ --------- ------------ ------------- --------- ------------ ---------
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
---------------- --------- --------- ------------ --------- ------------ ------------- --------- ------------ ---------
Consolidated Statement of Cash Flows
For the year ended 30 June 2015
Notes Year ended Year ended
30 June 2015 30 June 2014
GBP'000 GBP'000
Operating activities
Loss before tax from continuing
operations (4,975) (5,976)
Depreciation 10 108 77
Loss on disposal of fixed
assets 10 14 -
Finance costs 6 7 6
Finance income 7 (56) (7)
Amortisation of intangible
assets 11 - 685
Adjustment to available
for sale investments 12 404 1,006
Share option charge 1,914 1,924
Working capital adjustments
Increase in trade and other
receivables (163) (9)
(Increase)/decrease in
prepayments (162) 3
Increase in trade and other
payables 181 7
--------------------------------- --------- -------------- --------------
Cash utilised in operations (2,728) (2,284)
--------------------------------- --------- -------------- --------------
Finance costs 6 (7) (6)
Taxation received 8 72 64
Net cash outflow from operating
activities (2,663) (2,226)
--------------------------------- --------- -------------- --------------
Investing activities
Finance income 7 56 7
Purchase of property, plant
and equipment 10 (220) (129)
Net cash outflow from investing
activities (164) (122)
--------------------------------- --------- -------------- --------------
Financing activities
Issue of Ordinary share
capital (net of issue costs) - 10,106
Exercise of share options 107 80
Net cash inflow from financing
activities 107 10,186
Net (decrease)/increase
in cash and cash equivalents (2,720) 7,838
Cash and cash equivalents
at the beginning of the
year 11,081 3,243
--------------------------------- --------- -------------- --------------
Cash and cash equivalents
at the end of the year 8,361 11,081
--------------------------------- --------- -------------- --------------
Notes to the Financial Information
1. Basis of Preparation and Significant Accounting Policies
The financial information for the year ended 30 June 2015 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 2015.
The financial information is prepared in Pounds Sterling and all
values are rounded to the nearest thousand Pounds (GBP'000) except
where otherwise indicated.
The financial information does not constitute the Company's
statutory financial statements for the year ended 30 June 2015 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 2014
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 2015 (2014: nil).
This announcement was approved by the Board on 9 October
2015.
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.
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The Group had GBP8.4m in treasury as at 30 June 2015. 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 main geographical segments during the year were the
UK and Canada. The following table presents certain asset
information regarding the Group's geographical segments.
30 June 2015 30 June 2014
GBP'000s GBP'000s
Non-current assets
UK 3,634 3,536
Canada - 1,439
--------------------- ------------- -------------
Total 3,634 4,975
--------------------- ------------- -------------
4. Other Income
Other income includes: Year ended Year ended
30 June 2015 30 June 2014
GBP'000s GBP'000s
Recoverable costs recharged to related
parties 39 51
Total 39 51
---------------------------------------- ------------------- -------------------
5. Operating Loss
Operating loss is stated after charging: Year ended Year ended
30 June 2015 30 June 2014
GBP'000s GBP'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: 18 14
Audit of accounts of subsidiaries 18 15
Tax compliance services 11 8
Consultants and other professional
fees (including legal) 238 179
Depreciation of property, plant and
equipment 108 77
Amortisation of intangible assets - 685
6. Finance Costs
Year ended Year ended
30 June 2015 30 June 2014
GBP'000s GBP'000s
Bank charges 7 6
Total 7 6
-------------- ------------------ ------------------
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 Year ended
30 June 2015 30 June 2014
GBP'000s GBP'000s
UK corporation tax credit (72) (64)
Total (72) (64)
--------------------------- -------------- --------------
No liability in respect of corporation tax arises as a result of
trading losses.
Tax Reconciliation Year ended Year ended
30 June 2015 30 June 2014
GBP'000s GBP'000s
Loss on continuing operations before
taxation (4,975) (5,976)
Loss on continuing operations before
taxation multiplied by
the UK corporation tax rate of 20.75%
(2014: 22.5%) (1,032) (1,345)
Effects of:
Non-deductible expenditure 500 227
R&D tax credit (72) (64)
Tax losses carried forward 533 1,118
Total taxation credit on loss from
continuing operations (72) (64)
---------------------------------------- ----------------- -----------------
The Group has tax losses arising in the UK of approximately
GBP40.7m (2014: GBP34.8m) that are available, under current
legislation, to be carried forward against future profits. GBP11.2m
(2014: GBP8.3m) of the tax losses carried forward represent trading
losses, GBP25.8m (2014: GBP23.7m) represent non-trade deficits
arising on intangible assets within Quadrise International Limited,
GBP1.7m (2014: GBP1.2m) represent pre-trading losses incurred by
subsidiaries, GBP1.9m (2014: GBP1.5m) represent management expenses
incurred by Quadrise International Limited, and GBP0.1m (2014:
GBP0.1m) 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 GBP8.1m (2014: GBP7.3m) 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 Year ended
30 June 2015 30 June 2014
Loss for the year (GBP'000s) (4,898) (5,835)
Weighted average number of shares:
Basic 808,656,176 783,491,125
Diluted 808,656,176 783,491,125
Loss per share:
-------------------------------------- -------------- --------------
Basic (0.61)p (0.74)p
-------------------------------------- -------------- --------------
Diluted (0.61)p (0.74)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 31.0m 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 Computer Software Office Plant Total
Improvements Equipment Equipment and machinery
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'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
------------------ -------------- ----------- --------- ----------- --------------- ---------
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Property, plant and equipment
Consolidated
Leasehold Computer Software Office Plant Total
Improvements Equipment Equipment and machinery
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Opening balance
- 1 July 2013 17 14 17 16 531 595
Additions 94 7 - - 28 129
Disposals (17) - - - - (17)
------------------ -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 30 June 2014 94 21 17 16 559 707
------------------ -------------- ----------- --------- ----------- --------------- ---------
Depreciation
Opening balance
- 1 July 2013 (12) (4) (5) (3) (11) (35)
Depreciation
charge for the
year (11) (3) (4) (3) (56) (77)
Disposals 17 - - - - 17
------------------ -------------- ----------- --------- ----------- --------------- ---------
Closing balance
30 June 2014 (6) (7) (9) (6) (67) (95)
------------------ -------------- ----------- --------- ----------- --------------- ---------
Net book value
at 30 June 2014 88 14 8 10 492 612
------------------ -------------- ----------- --------- ----------- --------------- ---------
11. Intangible Assets
Consolidated
QCC royalty MSAR(R) trade Technology Total
payments name and know-how
GBP'000s GBP'000s GBP'000s GBP'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
------------------ ------------ -------------- -------------- ---------
Consolidated
QCC royalty MSAR(R) trade Technology Total
payments name and know-how
GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Opening balance
- 1 July 2013 7,686 3,100 25,901 36,687
Additions - - - -
------------------ ------------ -------------- -------------- ---------
Closing balance
- 30 June 2014 7,686 3,100 25,901 36,687
------------------ ------------ -------------- -------------- ---------
Amortisation and
Impairment
Opening balance
- 1 July 2013 (7,686) (176) (25,216) (33,078)
Amortisation - - (685) (685)
Closing balance
- 30 June 2014 (7,686) (176) (25,901) (33,763)
------------------ ------------ -------------- -------------- ---------
Net book value
at 30 June 2014 - 2,924 - 2,924
------------------ ------------ -------------- -------------- ---------
Intangible assets comprise intellectual property with a cost of
GBP36.7m, including assets of finite and indefinite life. QCC's
royalty payments of GBP7.7m and the MSAR(R) trade name of GBP3.1m
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. The
assets with indefinite life are not amortised. The remaining
intangibles amounting to GBP25.9m, 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 2031 to ensure the
full benefit of all current projects is realised. 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(R) trade name and technology and know-how
intangible, the growth rate used for the extrapolation of cash
flows beyond budgeted projections is 2.5% (2014: 2.5%) and the
pre-tax discount rate applied to the cash flow projections is 12%
(2014: 12%).
A 5% increase in the discount rate used would result in no
impairment charge for the MSAR(R) 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 GBPnil (2014: GBP0.685m) was
recorded in the statement of comprehensive income for the year
ended 30 June 2015.
12. Available for Sale Investments
Consolidated Consolidated
30 June 2015 30 June
GBP'000s 2014
GBP'000s
Unquoted securities
Opening balance 1,439 2,631
Changes in fair
value (1,035) (186)
Impairment charge (404) (1,006)
Closing balance - 1,439
--------------------- ------------- -------------
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 year 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 2015. 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 QCC shares were valued at CAD $nil on 1 July 2014.
Shareholder communications received during the period to 30 June
2015 indicate that the business model of QCC remains uncertain, as
does the possibility of any material value being recovered from
QCC's asset base. On that basis, the directors have determined that
the investment should continue to remain valued at CAD $nil at 30
June 2015.
The Paxton shares were valued at CAD$4.00 per share as at 1 July
2014. Shareholder communications received since 1 July 2014 show
that Paxton is no longer considered to be a going concern and steps
are being taken to wind up its operations. Based on this, the
Directors have determined that a full provision should be made
against the value of the 652,874 shares held in Paxton, resulting
in a charge of GBP404k.
ORI shares were valued at CAD $nil per share on 1 July 2014. The
viability of ORI's business model continues to remain highly
doubtful and no material amounts are expected to be realised from
its remaining assets. On that basis, the directors have determined
that the investment should continue to remain valued at CAD $nil at
30 June 2015.
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