TIDMQFI
RNS Number : 6186B
Quadrise Fuels International PLC
24 September 2018
24 September 2018
Quadrise Fuels International plc
("Quadrise", "QFI", the "Company" and together with its
subsidiaries the "Group")
Final Results for the year ended 30 June 2018
Quadrise Fuels International plc (AIM: QFI) announces its
audited final results for the year ended 30 June 2018 and gives
notice that the Company's Annual General Meeting ("AGM") will be
held at 12:00 noon on 30 November 2018.
Operational summary for the period and since the period end
-- Business development opportunities:
o In July 2018, Quadrise signed an MoU with Freepoint
Commodities LLP ("Freepoint"), and we are now working with
Freepoint to prioritise MSAR(R) projects in the Americas and Asia
on an exclusive basis. A number of high priority commercial
opportunities have been identified that we hope to develop at
pace.
o In November 2017 the signature of an MoA with JGC Corporation
("JGC") was announced. JGC is the leading Japanese EPC contractor,
with strong and established relationships with the major Japanese
refiners, utility companies and shipping operators. Since signature
of the MoA, we have been working with JGC and have met local
refiners and consumers in Japan to review potential MSAR(R)
projects and these discussions are continuing positively.
-- Kingdom of Saudi Arabia ("KSA") Power Generation:
o During the period under review, Quadrise acted in a central
co-ordination role, working with companies in Europe, the KSA and
the USA, to enable the planned commercial scale boiler trial to be
ready to proceed at the end of December 2017 - a major feat for a
company of Quadrise's scale.
o Unfortunately, due to the inability of our oil company partner
in the KSA to reach agreement with the local power company, the
project could not proceed as planned.
o Quadrise will continue to pursue opportunities in the KSA, the
world's largest market for the consumption of heavy fuel oil for
power generation, and ensure that it is engaged at the appropriate
level with parties who appreciate the economic and environmental
benefits arising from adoption of MSAR(R) within the KSA.
-- Marine Bunker Fuels:
o Quadrise strongly believes that the use of high sulphur fuel
and on-board exhaust gas cleaning systems ("EGCS" or "scrubbers")
will be the lowest cost option to comply with the January 2020
International Marine Organisation ("IMO") sulphur emissions
regulations. During 2018 EGCS installations have risen, and the
economics of MSAR(R) combined with EGCS are becoming increasingly
favourable with the onset of 2020. This dynamic has assisted our
ongoing engagements with refiners, shippers and engine
manufacturers.
o Our discussions with Maersk have continued in relation to the
Royalty Agreement and other associated issues and
opportunities.
-- Research and Development:
o During the year, we moved the Quadrise Research Facility
("QRF") to a new location better suited to our needs and with 65%
lower fixed costs.
o Quadrise continues to make progress in optimising MSAR(R)
formulations for specific project applications - in terms of both
cost and performance. For some applications we are now able to make
MSAR(R) that is suitable for both marine and power applications
from a single formulation - that could negate the need for separate
storage of marine and power products - further improving project
economics.
-- Financing considerations:
o We have continued to maintain a close control on costs, which
remain well within budgeted limits, without any adverse impact on
our business development or operational activities. At 30 June
2018, the Company had cash reserves of GBP2.2 million which will
enable continued development of the business into early 2019 with a
number of initiatives, including equity funding, under
consideration to provide longer term financing for the business.
The directors have a high degree of confidence that sufficient
progress can be demonstrated with business development
opportunities to provide support for a potential fundraising and we
will provide an update on our plans in due course.
Financial summary for the period
-- GBP2.2 million in cash reserves and no debt at 30 June 2018 (30 June 2017: GBP5.0 million)
-- Loss after tax of GBP3.3 million (2017: GBP4.1 million) of
which GBP2.0m (2017: GBP2.4m) relates to production and development
costs, and GBP1.5m (2017: 1.8m) relates to admin and corporate
expenses.
-- Cumulative tax losses of GBP49.5 million (2016: GBP47.3
million) available for set-off against future profits.
-- Total assets of GBP6.5 million at 30 June 2018 (2017: GBP9.5
million), which includes the Group's MSAR(R) manufacturing facility
at the Cepsa refinery in Spain, and further investment in our
R&D capacity at QRF.
Commenting on the results, Mike Kirk, Executive Chairman of QFI,
said:
This has been a significant year for Quadrise, and whilst there
was a major setback with our planned project in the KSA when our
client could not deliver on its promises to progress the trial, I
am very proud of the work delivered by the Quadrise team.
After a prolonged period of stasis in the marine bunker market,
the developments during the first half of calendar year 2018
provide a very positive outlook for Quadrise. We are using these
catalysts to accelerate our business development activities with
refiners and fuel consumers in the power, marine and industrial
markets to progress MSAR(R) projects.
Despite the challenges during the year, we have, through our
activities, reduced risk in certain key areas. We realise that the
path to success may not always be smooth, but we remain well placed
to deliver on the substantial opportunities that we have; both
directly and through our collaborative agreements with our partners
including Freepoint and JGC.
We are focused on building a sustainable business through the
adoption of MSAR(R) technology at scale and through this to build
investor confidence and value.
Notice of Annual General Meeting
The AGM of the Company is to be held at 110 Rochester Row,
London SW1P 1JP on 30 November 2018 at 12.00 noon.
For additional information, please contact:
Quadrise Fuels International plc +44 (0)20 7031 7321
Mike Kirk, Executive Chairman
Jason Miles, Chief Operating Officer
Smith & Williamson Corporate Finance Limited +44 (0)20 7131
4000
Nominated Adviser
Dr Azhic Basirov
Ben Jeynes
Katy Birkin
Peel Hunt LLP +44 (0)20 7418 8900
Joint Broker
Richard Crichton
Ross Allister
Stockdale Securities Limited +44 (0)20 7601 6108
Joint Broker
Andy Crossley
Daniel Harris
FTI Consulting +44 (0)20 3727 1000
Public and Investor Relations
Ben Brewerton
Sara Powell
Ntobeko Chidavaenzi
Chairman's Statement
2018 Overview
This has been a significant year for Quadrise and one which has
seen some major challenges, most notably the inability of our oil
company partner in the Kingdom of Saudi Arabia ("KSA") to reach
agreement with the local power company to progress the commercial
scale trial project, as they had promised. This was hugely
disappointing. However, I am very proud of the progress that the
team at Quadrise made in its central co-ordination role, working
with companies in Europe, the KSA and the USA to enable this large,
complex project to be ready to proceed at the end of December 2017
- this was a major feat for a company of our scale.
We do, however, realise that shareholder value is ultimately
delivered by results and not effort, that these disappointments
have eroded shareholder confidence, and that we need to demonstrate
that the long-term support provided by our shareholders is
justified. We have seen some significant shifts during the first
half of calendar year 2018 in the global markets for liquid fuels
that are positive for Quadrise in the medium-term. In the
short-term, these market shifts are providing a supportive backdrop
for Quadrise to work with refiners and fuel consumers in the power,
marine and industrial markets to progress MSAR(R) projects.
Given the dynamic nature of the markets that we are working in,
progress will not always be smooth, though we are well positioned
to capitalise on the significant opportunities that we see. We do
not wish to underestimate the risks that we continue to face, but
it is also important to recognise that we have actively reduced a
number of these during the year through our business development
activities and our work on major projects, including the planned
commercial-scale trial in the KSA.
Our approach to business development has evolved during the year
following a strategic decision to broaden our engagement in our
global markets, whilst ensuring that we retain appropriate focus
and control. Outcomes of this process were the agreements with JGC
Corporation ("JGC") and, more recently, Freepoint Commodities LLP
("Freepoint") which are enabling us to work collaboratively to
access their established networks for mutual benefit. The Company
has also signed agreements with agents to explore specific
opportunities, and continues commercial dialogue with a number of
major corporations where there is a similar alignment of interests
in the fuel and bitumen industries respectively.
Alongside this, we have continued to invest in our Research,
Development and Innovation ("RDI") activities, testing residues for
MSAR(R) compatibility from candidate refineries and hosting visits
for prospective major clients to witness MSAR(R) being manufactured
from their samples at Quadrise Research Facility's ("QRF") new
site. QRF's new site has been operational since the second quarter
of 2018, with improved RDI functionality at a substantially reduced
cost to the previous location.
The other cost reduction initiatives implemented during the
early part of the financial year have not adversely impacted our
activities and demonstrate that we are aligned with our
shareholders and remain focused on delivering long-term shareholder
value. We continued to review our approach throughout the year to
make further savings where appropriate, and will continue to do
so.
We retain a close working relationship with our technology
partner, Akzo Nobel, with whom we have a Joint Development
Agreement and a Co-Operation and Exclusive Purchase and Supply
Agreement for the chemicals used to create MSAR(R) . The businesses
that we work with within Akzo Nobel form part of the Speciality
Chemicals operations that are being purchased by Carlyle Group.
This transaction is expected to complete during calendar year 2018.
The agreements with Quadrise will not be affected by the
transaction and we look forward to continuing to work with our
partners under their new ownership and brand.
Collectively, these actions will, we believe, enable us to build
a sustainable business based on the commercial adoption of MSAR(R)
technology at scale and, through this, to build investor confidence
and value which we are determined to achieve.
MSAR(R) Market Opportunities
Background
Our technology enables significant value to be created in the
refinery, by delivering a low-cost, modular, scalable, upgrading
technology to significantly increase refinery yields of high value
distillates whilst creating a superior synthetic HFO for use in
power, marine and industrial applications.
Business Development
Whilst MSAR(R) uses existing HFO infrastructure, it does, like
some oil products, require effective segregation during
transportation and storage and minor modifications in
engines/boilers. It is supplied under term-contracts between the
refiner and the consumer. This requires Quadrise to bring together
both the refiners and the consumers to establish a viable MSAR(R)
project. Historically, our team has been organised on sector lines,
focused on the refining, power and marine markets. During 2018, we
have moved to a structure that is project-based and brings together
the skills required in process engineering, project delivery and
operations/development for each specific application as required.
This change has further improved our ability to progress our
business development targets and, ultimately, evolve these to
commercial projects.
The key value driver for MSAR(R) is the price differential, or
spread, between high sulphur fuel oil and low sulphur distillate
fuels. During the period, the spread has traded in the range of
$163/t to $257/t (compared to $143/t to $193/t in the prior
period). These changes are already being factored into the forward
prices, with the differential between gas oil and fuel oil for 2020
currently over $330/t. This further enhances the economics and
creates significant opportunities for Quadrise in both the power
and marine markets. In November 2017 we announced the signature of
an MoA with JGC, the leading Japanese EPC contractor, with strong
and established relationships with the major Japanese refiners,
utility companies and shipping operators. Since this time, we have
been working with JGC and have met local refiners and consumers in
Japan to review potential MSAR(R) projects and these discussions
are continuing.
More recently in July 2018 we signed an MoU with Freepoint, an
established global merchant of physical commodities and a financer
of upstream and mid-stream commodity-producing assets. Since
signing the MoU, we have been working with the Freepoint team to
prioritise MSAR(R) project opportunities in the Americas and Asia
on an exclusive basis, with a number of identified counterparties,
to enter into commercial agreements for MSAR(R) production and
supply arrangements with fuel producers and consumers and develop
the high priority ones at pace.
Power Generation Opportunities
The fact that the MSAR(R) "Production to Combustion" trial
project in the KSA did not proceed as planned is hugely
disappointing. The KSA remains the world's largest market for the
consumption of oil for power generation and Quadrise will continue
to pursue opportunities there, as we believe use of MSAR(R) fuel
could save the government over $1 billion per year in fuel costs,
reduce power plant emissions and provide local job creation
throughout the supply chain. This will, however, require a
different approach to ensure that we are engaged within the KSA at
the appropriate level, with parties who can see the significant
benefits that would arise from adoption of MSAR(R) and are able to
direct the relevant parties to co-operate to enable delivery.
We are continuing to develop other opportunities in the power
sector in other selected markets in the Middle East, Africa, the
Americas and the Far East (with the potential to supply from Europe
for some projects). Quadrise will continue to address these either
directly, or through our relationships with YTL-PowerSeraya, JGC
and/or Freepoint, and others as appropriate.
Marine MSAR(R) Bunker Fuel
The marine market is experiencing a substantive change with
regards to the forthcoming International Marine Organisation
("IMO") regulations that are due to commence on 1 January 2020.
Most recently there has been wider acceptance of the exhaust gas
cleaning system ("EGCS", or "scrubber") solution, with significant
momentum building and large orders recently announced across all
major segments including tankers, bulkers and container ships. This
is being driven by: a) increased concern over distillate fuel
availability and compatibility potentially impacting operations;
and b) increasing oil prices and a widening of the price spread
between high and low sulphur fuels leading to material increases in
fuel costs for shippers. The forward price differential between gas
oil and fuel oil for early 2020 has now increased to over GBP330/t,
further improving the economics for both MSAR(R) and EGCS
opportunities, and we are using this dynamic to increase our
engagement with shippers and engine manufacturers.
Whilst there will be a mix of compliance options, Quadrise
continue to believe that the use of high sulphur fuel and on-board
EGCS will be the lowest cost option, with most market analysts
forecasting a rise in EGCS installations to 2020 and beyond,
resulting in one third of today's high sulphur marine fuel demand
in compliant use. The developments outlined above highlight a
substantive change in marine industry sentiments over the last 12
months.
Since the trial was suspended and then terminated early by
Maersk in 2017, we have continued our discussions with them in
relation to the Royalty Agreement and other associated issues and
opportunities.
RDI and Operations Activities
During the year, we moved QRF to a new location that has a
dedicated pilot plant for testing, laboratory analysis,
engineering/operations support, and office accommodation. The team
at QRF managed this move in a very short period whilst continuing
to support major project activity at the same time. The new
facility is better suited to our needs than the previous location
and its annualised fixed costs are over 65% lower.
Our approach to Research and Development remains focused on
supporting our business development activities. We continued to
make progress during the year in optimising MSAR(R) formulations
for specific project applications - in terms of both cost and
performance. In addition, for some applications we are now able to
make MSAR(R) that is suitable for both marine and power
applications from a single formulation This could negate the need
for separate storage of marine and power products thereby further
improving project economics.
Our collaboration with Dr Spence Taylor at the University of
Surrey continued and has provided further valuable insight into the
mechanisms that underpin the creation of stable, cost effective,
MSAR(R) emulsion fuels. This work has now reached a stage where we
can progress the findings in-house at QRF and therefore when the
current programme of work is finalised in October 2018, our formal
agreement for collaborative research with the University of Surrey
will come to an end. However, we will retain the opportunity to
work with Dr Spence Taylor on a consultancy basis as required.
Results for the Year
The consolidated after-tax loss for the year to 30 June 2018 was
GBP3.3m (2017: GBP4.1m). This included production and development
costs of GBP2.0m (2017: GBP2.4m), administration expenses of
GBP1.5m (2017: GBP1.8m), a share option charge of GBP0.1m (2017:
GBP0.2m), interest income of GBP18k (2017: GBP19k) and a tax credit
of GBP294k (2017: GBP213k).
Basic and diluted loss per share was 0.38p (2017: 0.48p).
Statement of Financial Position
At 30 June 2018, the Group had total assets of GBP6.5m (2017:
GBP9.5m). The most significant balances were intangible assets of
GBP2.9m (2017: GBP2.9m), property, plant and equipment of GBP1.0m
(2017: GBP1.1m), and cash of GBP2.2m (2017: GBP5.0m). Further
information on intangible assets is provided in note 8.
Cash Flow
The Group ended the year with GBP2.2m of cash and cash
equivalents (2017: GBP5.0m) with GBP3.0m having been utilised in
its operating activities during the year (2017: GBP4.3m). The Group
continues to remain debt free.
Capital Structure
The Company had 862,204,976 ordinary shares of 1p each in issue
at 30 June 2018. The Company's current issued share capital stands
at 862,204,976 ordinary shares of 1p each all with voting
rights.
Taxation
The Group has tax losses arising in the UK of approximately
GBP49.5m (2017: GBP47.3m) that are available, under current
legislation, to be carried forward against future profits. GBP21.5m
(2017: GBP19.1m) of the tax losses carried forward represent
trading losses within Quadrise Fuels International plc, GBP25.8m
(2017: GBP25.8m) represent non-trade deficits arising on intangible
assets within Quadrise International Limited, GBP1.3m (2017:
GBP1.6m) represent pre-trading losses incurred by subsidiaries,
GBP0.8m (2017: GBP0.8m) represent management expenses incurred by
Quadrise International Limited, and GBP0.1m (2017: GBP0.1m)
represent capital losses within Quadrise Fuels International
plc.
Outlook - Current trading and prospects.
Notwithstanding the challenges faced in key markets where the
Company has dedicated its resources over the period, Quadrise
continues to believe that there are substantial opportunities in
the power generation and marine markets for MSAR(R) in the near
term.
We have been working extremely hard during 2018 to develop a
broader platform and pipeline of opportunities for MSAR(R)
technology across a larger number of projects. Whilst we still have
some way to go to progress these to commercial contracts, there has
been a real change in the marine market, driven by the forthcoming
IMO 2020 regulations, that has fundamentally improved the economics
for MSAR(R) projects. Alongside this, adding to our existing
relationships with YTL-PowerSeraya and JGC, our MoU with Freepoint
will enable us to progress new projects and to potentially
accelerate existing project opportunities globally across a range
of sectors, and we are working quickly to progress these at the
earliest possible opportunity.
We are looking at opportunities to utilise our MSAR(R)
manufacturing unit ("MMU") currently installed at the Cepsa
refinery for new projects at other locations. As Cepsa are planning
a major refinery upgrade, we are working co-operatively with them
to ensure that we can relocate our equipment in a timely manner,
ideally directly to a new 2019 active project. If this does not
prove to be practicable, we will relocate the MMU and associated
equipment to the manufacturer's facility in Denmark, to enable any
modifications to be made to the unit prior to deployment to a new
MSAR(R) project.
We have continued to maintain a close control on costs, which
remain well within budgeted limits, without any adverse impact on
our business development or research and operations support
activities. As a result, we had, at the end of the period, cash
resources of GBP2.2 million which will enable continued development
of the business into early 2019 with a number of initiatives,
including equity funding, under consideration to provide longer
term financing for the business. The directors have a high degree
of confidence that sufficient progress can be demonstrated with
business development opportunities to provide support for a
potential fundraising and we will provide an update on our plans in
due course .
Hemant Thanawala stepped down from his role as Finance Director
in August 2017 and became a non-executive director. I would like to
thank him for his contribution to the business since its formation
and his valuable ongoing input in his current non-executive
capacity. All of the non-executive directors have continued to
provide valuable guidance to the business during board and
committee meetings and also as required between meetings.
Jason Miles spearheads our business development activities and
is supported by our senior managers in Operations, Projects and
RDI. Everyone within QFI has a made a significant contribution
during the year, at times in very challenging and frustrating
circumstances, and I thank them for their continued support to
enable us to deliver our growth potential. And I also thank our
shareholders for their continued patience as we put our new
strategy into effect. This will, we believe, enable us to build a
sustainable business based on the commercial adoption of MSAR(R)
technology at scale globally and, through this, to build investor
confidence and value which we are determined to achieve.
Mike Kirk
Executive Chairman
21 September 2018
Strategic Report
For the year ended 30 June 2018
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 the Group's 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.
Going Concern
The Group had a cash balance of GBP2.2m as at 30 June 2018. The
Directors acknowledge that this cash balance will not be sufficient
to cover the Group's operating requirements up to 30 June 2019.
These conditions indicate the existence of material uncertainty
regarding the Group's and Company's ability to continue as a going
concern.
The Directors have determined that the continuation of the Group
as a going concern is dependent upon successfully raising
sufficient funds in the short term, and that they have a reasonable
expectation that such funds will be raised, although no binding
funding agreements are in place at the date of this report. The
Directors therefore have determined that it is appropriate to
prepare the financial statements on a going concern basis
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.
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.
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, the relative
competitiveness of oil, gas and coal prices both for prompt and
future delivery, and the future use of hydrocarbons for energy,
utilities, transportation, petrochemicals and industrial
applications. The Group cannot mitigate this risk by its nature,
other than by increasing the potential applicability of MSAR(R)
technology to various sectors but pays close attention to these
markets in order to react in a timely and effective manner and
focus our efforts.
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.
Competition risks
There is a risk that new competition could emerge with similar
technologies sufficiently differentiated to challenge the MSAR(R)
process. This could result, over time, in further price competition
and pressure on margins beyond that assumed in the Group's business
planning. This risk is mitigated by the limited global pool of
expertise in the emulsion fuel market combined with an enhanced
R&D programme aimed at optimising cost and performance and
protection of intellectual property. The Group also makes best use
of scarce expertise by developing close relationships with
strategic counterparties such as AkzoNobel while ensuring that key
employees are suitably incentivised.
Other Business Risks
Dependence on key personnel
The Group's business is dependent on obtaining and retaining the
services of key personnel of the appropriate calibre as the
business develops. The appointment in recent years of key General
Managers into a revised organisation structure, the conversion of
former consultants to key full-time posts and appointment of
chemical technologists and process engineers has reduced risk and
equipped the Company to meet future demands. The success of the
Group will continue to be dependent on the expertise and experience
of the Directors and the management team, and the loss of personnel
could still have an adverse effect on the Group. The Group
mitigates this risk by ensuring that key personnel are suitably
incentivised and contractually bound.
Environmental risks
The Group's operations are subject to environmental risks
inherent in the oil processing and distribution industry. The Group
is subject to environmental laws and regulations in connection with
all of its operations. Although the Group intends to be in
compliance, in all material respects, with all applicable
environmental laws and regulations, there are certain risks
inherent to its activities, such as accidental spills, leakages or
other circumstances that could subject the Group to extensive
liability.
Further, the Group may require approval from the relevant
authorities before it can undertake activities which are likely to
impact the environment. Failure to obtain such approvals may
prevent or delay the Group from undertaking its desired activities.
The Group is unable to predict definitively the effect of
additional environmental laws and regulations, which may be adopted
in the future, including whether any such laws or regulations would
materially increase the Group's cost of doing business, or affect
its operations in any area. The Group mitigates this risk by
ensuring compliance with environmental legislation in the
jurisdictions in which it operates, and closely monitoring any
pending regulation or legislation to ensure compliance.
No profit to date
The Group has incurred aggregate losses since its inception and
it is therefore not possible to evaluate its prospects based on
past performance. There can be no certainty that the Group will
achieve or sustain profitability or achieve or sustain positive
cash flow from its activities.
Corporate and regulatory formalities
The conduct of petroleum processing and distribution requires
compliance by the Group with numerous procedures and formalities in
many different national jurisdictions. It may not in all cases be
possible to comply with or obtain waivers of all such formalities.
Additionally, functioning as a publicly listed Group requires
compliance with stock market regulations. The group mitigates this
risk through commitment to a high standard of corporate governance
and 'fit for purpose' procedures, and by maintaining and applying
effective policies.
Economic, political, judicial, administrative, taxation or other
regulatory factors
The Group may be adversely affected by changes in economic,
political, judicial, administrative, taxation or other regulatory
factors, in the areas in which the Group operates and conducts its
principal activities.
Mike Kirk
Executive Chairman
21 September 2018
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2018
Notes Year ended Year ended
30 June 2018 30 June 2017
GBP'000s GBP'000s
Continuing operations
Revenue 9 126
Production and development costs (2,002) (2,367)
Other administration expenses (1,518) (1,818)
Share option charge 10 (53) (242)
Foreign exchange loss (3) (10)
---------------------------------- ------ -------------- --------------
Operating loss 4 (3,567) (4,311)
Finance costs (7) (10)
Finance income 18 19
---------------------------------- ------ -------------- --------------
Loss before tax (3,556) (4,302)
Taxation 5 294 213
---------------------------------- ------ -------------- --------------
Loss and total comprehensive loss
for the year
from continuing operations (3,262) (4,089)
------------------------------------------ -------------- --------------
Loss per share - pence
Basic 6 (0.38)p (0.48)p
Diluted 6 (0.38)p (0.48)p
---------------------------------- ------ -------------- --------------
Consolidated Statement of Financial Position
As at 30 June 2018
Notes As at As at
30 June 2018 30 June 2017
GBP'000s GBP'000s
Assets
Non-current assets
Property, plant and equipment 7 961 1,056
Intangible assets 8 2,924 2,924
Non-current assets 3,885 3,980
------------------------------- ------ -------------- --------------
Current assets
Cash and cash equivalents 2,229 5,045
Trade and other receivables 188 302
Prepayments 122 153
Stock 61 61
------------------------------- ------ -------------- --------------
Current assets 2,600 5,561
------------------------------- ------ -------------- --------------
TOTAL ASSETS 6,485 9,541
------------------------------- ------ -------------- --------------
Equity and liabilities
Current liabilities
Trade and other payables 400 247
-------------------------------- --------- ---------
Current liabilities 400 247
-------------------------------- --------- ---------
Equity attributable to equity
holders of the parent
Issued share capital 8,622 8,622
Share premium 73,642 73,642
Share option reserve 3,432 3,704
Reverse acquisition reserve 522 522
Accumulated losses (80,133) (77,196)
-------------------------------- --------- ---------
Total shareholders' equity 6,085 9,294
-------------------------------- --------- ---------
TOTAL EQUITY AND LIABILITIES 6,485 9,541
-------------------------------- --------- ---------
Consolidated Statement of Changes in Equity
For the year ended 30 June 2018
Share Reverse
Issued Share option acquisition Accumulated
capital premium reserve reserve losses Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
1 July 2016 8,096 69,216 4,704 522 (74,349) 8,189
Loss and
total comprehensive
loss for
the year - - - - (4,089) (4,089)
Share option
charge - - 242 - - 242
---------------------- ---------- ---------- ---------- ------------- -------------- ----------
Transfer
of balances
relating
to expired
share options - - (1,242) - 1,242 -
---------------------- ---------- ---------- ---------- ------------- -------------- ----------
New shares
issued net
of issue
costs 526 4,426 - - - 4,952
---------------------- ---------- ---------- ---------- ------------- -------------- ----------
30 June
2017 8,622 73,642 3,704 522 (77,196) 9,294
---------------------- ---------- ---------- ---------- ------------- -------------- ----------
1 July 2017 8,622 73,642 3,704 522 (77,196) 9,294
Loss and
total comprehensive
loss for
the year - - - - (3,262) (3,262)
Share option
charge - - 53 - - 53
---------------------- ---------- ---------- ---------- ------------- -------------- ----------
Transfer
of balances
relating
to expired
share options - - (325) - 325 -
---------------------- ---------- ---------- ---------- ------------- -------------- ----------
30 June
2018 8,622 73,642 3,432 522 (80,133) 6,085
---------------------- ---------- ---------- ---------- ------------- -------------- ----------
Consolidated Statement of Cash Flows
For the year ended 30 June 2018
Notes Year ended Year ended
30 June 2018 30 June 2017
GBP'000s GBP'000s
Operating activities
Loss before tax from continuing
operations (3,556) (4,302)
Depreciation 7 230 211
Finance costs paid 7 10
Finance income received (18) (19)
Share option charge 10 53 242
Working capital adjustments
Decrease/(increase) in
trade and other receivables 114 (5)
Decrease/(increase) in
prepayments 31 (33)
Increase/(decrease) in
trade and other payables 153 (329)
Increase in stock - (61)
--------------------------------- --------- -------------- --------------
Cash utilised in operations (2,986) (4,286)
--------------------------------- --------- -------------- --------------
Finance costs paid (7) (10)
Taxation received 5 294 213
Net cash outflow from operating
activities (2,699) (4,083)
--------------------------------- --------- -------------- --------------
Investing activities
Finance income received 18 19
Purchase of property, plant
and equipment 7 (135) (111)
Net cash outflow from investing
activities (117) (92)
--------------------------------- --------- -------------- --------------
Financing activities
New shares issued net of
issue costs - 4,952
Net cash inflow from financing
activities - 4,952
Net (decrease)/increase
in cash and cash equivalents (2,816) 777
Cash and cash equivalents
at the beginning of the
year 5,045 4,268
--------------------------------- --------- -------------- --------------
Cash and cash equivalents
at the end of the year 2,229 5,045
--------------------------------- --------- -------------- --------------
Notes to the Financial Information
1. Basis of Preparation and Significant Accounting Policies
The financial information for the year ended 30 June 2017 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 2018.
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 contained in this announcement does
not constitute the Company's statutory financial statements for the
year ended 30 June 2018 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. The report highlights a
material uncertainty in relation to going concern as follows:
Material Uncertainty Related to Going Concern
We draw attention to Note 3 of the financial statements which
indicates further funding will be required to finance the Group's
and Parent Company's operations. The Directors are confident that
the Parent Company will be able to raise these funds however there
is no binding agreement in place at the date of this report.
These conditions indicate the existence of a material
uncertainty and may cast doubt on the ability of the Group and
Parent Company to continue as a going concern. Our opinion is not
modified in respect of this matter. The financial statements do not
include the adjustments that would result if the Group and Parent
Company were unable to continue as a going concern.
Statutory financial statements for the year ended 30 June 2017
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 2018 (2017: nil).
This announcement was approved by the Board on 21 September
2018.
2. Going Concern
The Group's business activities and financial position, together
with the factors likely to affect its future development,
performance and position are set out in the Chairman's
Statement.
The Group had a cash balance of GBP2.2m as at 30 June 2018. The
Directors acknowledge that this cash balance will not be sufficient
to cover the Group's operating requirements up to 30 June 2019.
These conditions indicate the existence of material uncertainty
which may cast significant doubt about the Group's and Company's
ability to continue as a going concern.
The Directors determine that the continuation of the Group as a
going concern is dependent upon successfully raising sufficient
funds in the short term, and have a reasonable expectation that
such funds will be raised, although no binding funding agreement is
in place at the date of this report. The Directors therefore have
determined that it is appropriate to prepare the financial
statements on a going concern basis
The financial statements do not include the adjustment which
would result if the Group and Company were unable to continue as a
going concern.
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.
The Group's only geographical segment during the year was the
UK.
4. Operating Loss
Operating loss is stated after charging: Year ended Year ended
30 June 2018 30 June 2017
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: 15 17
Audit of accounts of subsidiaries 15 17
Tax compliance services 8 7
Consultants and other professional
fees (including legal) 269 219
Depreciation of property, plant and
equipment 230 211
5. Taxation
Year ended Year ended
30 June 2018 30 June 2017
GBP'000s GBP'000s
UK corporation tax credit (294) (213)
Total (294) (213)
--------------------------- -------------- --------------
No liability in respect of corporation tax arises as a result of
trading losses.
Tax Reconciliation Year ended Year ended
30 June 2018 30 June 2017
GBP'000s GBP'000s
Loss on continuing operations before
taxation (3,262) (4,302)
Loss on continuing operations before
taxation multiplied by
the UK corporation tax rate of 19%
(2017: 20%) (620) (860)
Effects of:
Non-deductible expenditure 51 91
R&D tax credit (294) (213)
Tax losses carried forward 569 769
Total taxation credit on loss from
continuing operations (294) (213)
-------------------------------------- ---------------- ----------------
The Group has tax losses arising in the UK of approximately
GBP49.5m (2017: GBP47.3m) that are available, under current
legislation, to be carried forward against future profits. GBP21.5m
(2017: GBP19.1m) of the tax losses carried forward represent
trading losses within Quadrise Fuels International plc, GBP25.8m
(2017: GBP25.8m) represent non-trade deficits arising on intangible
assets within Quadrise International Limited, GBP1.3m (2017:
GBP1.6m) represent pre-trading losses incurred by subsidiaries,
GBP0.8m (2017: GBP0.8m) represent management expenses incurred by
Quadrise International Limited, and GBP0.1m (2017: 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 GBP8.4m (2017: GBP8.0m) has not been recognised as a
result of existing uncertainties in relation to its
realisation.
6. 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 2018 30 June 2017
Loss for the year (GBP'000s) (3,262) (4,089)
Weighted average number of shares:
Basic 862,204,976 846,102,956
Diluted 862,204,976 846,102,956
Loss per share:
-------------------------------------- -------------- --------------
Basic (0.38)p (0.48)p
-------------------------------------- -------------- --------------
Diluted (0.38)p (0.48)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 22.0m 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.
7. 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 2017 107 91 43 16 1,352 1,609
Additions 59 - - - 76 135
Closing balance
- 30 June 2018 166 91 43 16 1,428 1,744
------------------ -------------- ----------- --------- ----------- --------------- ---------
Depreciation
Opening balance
- 1 July 2017 (67) (47) (31) (15) (393) (553)
Depreciation
charge for the
year (42) (16) (5) (1) (166) (230)
------------------ -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 30 June 2018 (109) (63) (36) (16) (559) (783)
------------------ -------------- ----------- --------- ----------- --------------- ---------
Net book value
at 30 June 2018 57 28 7 - 869 961
------------------ -------------- ----------- --------- ----------- --------------- ---------
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 2016 99 89 43 16 1,251 1,498
Additions 8 2 - - 101 111
Closing balance
- 30 June 2017 107 91 43 16 1,352 1,609
------------------ -------------- ----------- --------- ----------- --------------- ---------
Depreciation
Opening balance
- 1 July 2016 (46) (30) (24) (12) (230) (342)
Depreciation
charge for the
year (21) (17) (7) (3) (163) (211)
------------------ -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 30 June 2017 (67) (47) (31) (15) (393) (553)
------------------ -------------- ----------- --------- ----------- --------------- ---------
Net book value
at 30 June 2017 40 44 12 1 959 1,056
------------------ -------------- ----------- --------- ----------- --------------- ---------
8. Intangible Assets
Consolidated
QCC royalty MSAR(R) Technology Total
payments trade name and know-how
GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Balance as at 1 July
2017 and 30 June 2018 7,686 3,100 25,901 36,687
Amortisation and Impairment
Balance as at 1 July
2017 and 30 June 2018 (7,686) (176) (25,901) (33,763)
Net book value as
at 30 June 2018 - 2,924 - 2,924
----------------------------- ------------ ------------ -------------- ---------
Cost
Balance as at 1 July
2016 and 30 June 2017 7,686 3,100 25,901 36,687
Amortisation and Impairment
Balance as at 1 July
2016 and 30 June 2017 (7,686) (176) (25,901) (33,763)
Net book value as
at 30 June 2017 - 2,924 - 2,924
----------------------------- -------- -------- ------------ -----------
Intangible assets comprise intellectual property with a cost of
GBP36.7m, including assets of finite and indefinite life. Quadrise
Canada Corporation's ("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, as they arise from
cashflows resulting from Quadrise and QCC gaining a permanent
market share. The assets with indefinite life are not amortised,
but the QCC royalty payments intangible asset became fully impaired
in 2012.
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, being fully amortised in 2012. The
Group does not have any internally generated intangibles.
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 30 June 2035 to ensure the full
benefit of all current projects is realised. The rationale for
using a timescale up to 2035 with the growth projections forecast,
is that as time progresses, Quadrise expects to gain an increasing
foothold in the existing HFO market ( 450m tonnes p.a.) which is
already well established. The key assumptions used in these
calculations include discount rates, turnover projections, growth
rates, joint venture participation expectations, expected gross
margins and the lifespan of the project. Management estimates the
discount rates using pre-tax rates that reflect current market
assessments of the time value of money and risks specific to
expected future projects. Turnover projections, growth rates,
margins and project lifespans are all estimated based on the latest
business models and the most recent discussions with customers,
suppliers and other business partners.
For the MSAR(R) trade name intangible, the pre-tax discount rate
applied to the cash flow projections is 20% (2017: 12%) and the
growth rate used for the extrapolation of cash flows beyond
budgeted projections is 0% (2017: 2.5%). As a result of the
operational developments during the financial year, the Directors
have adjusted the rates used in the 2018 'value in use'
calculations.
A 5% increase in the discount rate used would result in no
impairment charge for the MSAR(R) trade name intangible.
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 2018.
9. Available for
Sale Investments
At the statement of financial position date, the Group held a
20.44% share in the ordinary issued capital of Quadrise Canada
Corporation ("QCC"), a 3.75% share in the ordinary issued capital
of Paxton Corporation ("Paxton"), a 9.54% share in the ordinary
issued capital of Optimal Resources Inc. ("ORI") and a 16.86% share
in the ordinary issued capital of Porient Fuels Corporation
("Porient"), all of which are incorporated in Canada.
QCC is independent of the Group and is responsible for its own
policy-making decisions. There have been no material transactions
between QCC and the Group during the period or any interchange of
managerial personnel. As a result, the Directors do not consider
that they have significant influence over QCC and as such this
investment is not accounted for as an associate.
The Group has no immediate intention to dispose of its available
for sale investments unless a beneficial opportunity to realise
these investments arises.
Given that there is no active market in the shares of any of
above companies, the Directors have determined the fair value of
the unquoted securities at 30 June 2018. The shares in each of
these companies were valued at CAD $nil on 1 July 2017. Shareholder
communications received during the year to 30 June 2018 indicate
that the business models for each of these companies remain highly
uncertain, with minimal possibility of any material value being
recovered from their asset base. On that basis, the directors have
determined that the investments should continue to remain valued at
CAD $nil at 30 June 2018.
10. Share Options
Movement in the year:
The following table illustrates the number and weighted average
exercise prices ("WAEP") of, and movements in, share options during
the year:
WAEP WAEP
Number (pence) Number (pence)
30 June 30 June 30 June 30 June
2018 2018 2017 2017
Outstanding as at 1
July 24,000,000 27.41 33,133,333 23.60
Granted during the year - - 500,000 9.03
Repurchased by grantor
during the year - - (5,000,000) 1.00
Expired during the year (1,500,000) 35.16 (3,633,333) 32.26
Exercised during the
year - - (1,000,000) 0.01
Options outstanding
as at 30 June 22,500,000 26.90 24,000,000 27.41
------------------------- ------------ --------- ------------ ---------
Exercisable as at 30
June 22,000,000 27.30 20,583,333 29.95
------------------------- ------------ --------- ------------ ---------
The weighted average remaining contractual life of the 22.5
million options outstanding at the statement of financial position
date is 4.23 years (2017: 5.23 years). The weighted average share
price during the year was 5.55p (2017: 9.59p) per share.
The expected volatility of the options reflects the assumption
that historical volatility is indicative of future trends, which
may not necessarily be the actual outcome. The expected life of the
options is based on historical data available at the time of the
option issue and is not necessarily indicative of future trends,
which may not necessarily be the actual outcome.
The Share Option Schemes are equity settled plans, and fair
value is measured at the grant date of the option. Options issued
under the Schemes vest over a two year or three year period
provided the recipient remains an employee of the Group. Options
may be also exercised within one year of an employee leaving the
Group at the discretion of the Board.
The Company issued no share options to employees during the year
(2017: 0.5 million). In 2017, the weighted average exercise price
of options issued was 9.03p and the weighted average fair value was
2.60p.
The fair value was calculated using the Black Scholes option
pricing model. The weighted average inputs were as follows
2018 2017
Stock price: - 5.94p
Exercise Price - 9.03p
Interest Rate - 0.25%
Volatility - 72.3%
Expected term - 4 years
==== =========
11. Related Party Transactions
Non-executive Director Laurence Mutch is also a Director of
Laurie Mutch & Associates Limited, which has provided
consulting services to the Group. The total fees charged for the
year amounted to GBPnil (2017: GBP30k). The balance payable at the
statement of financial position date was GBPnil (2017: GBPnil).
QFI defines key management personnel as the Directors of the
Company. There are no transactions with Directors, other than their
remuneration as disclosed in the Report of Directors'
Remuneration.
12. Copies of the Annual Report
Copies of the Annual Report (including the Notice of Annual
General Meeting) will be posted to shareholders and will be
available shortly from the Company's website at
www.quadrisefuels.com and from the Company's registered office,
Gillingham House, 38-44 Gillingham Street, London, SW1V 1HU.
13. Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEUFMFFASEIU
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