RNS Number : 5844V
Quadrise Fuels International PLC
06 November 2017
 

6 November 2017

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Quadrise Fuels International plc

("Quadrise", "QFI", the "Company" and together with its subsidiaries the "Group")

 

Final Results for the year ended 30 June 2017

 

 

Quadrise Fuels International plc (AIM: QFI) announces its audited final results for the year ended 30 June 2017 and gives notice that the Company's Annual General Meeting will be held on 8 December 2017.

 

Operational summary for the period and since the period end

 

Material progress has been made in a number of areas:

 

·    Power Generation MSAR® Fuel - Saudi Arabia:             

o Significant work undertaken to progress contracts covering a commercial scale project in the Kingdom of Saudi Arabia ("KSA"), comprising MSAR® fuel production, and its transportation to and storage at a nominated power plant site, where the combustion testing on MSAR® will take place. Quadrise has undertaken a central coordination role in progressing the KSA project.

o Progress to date has clearly demonstrated Quadrise's ability to coordinate a complex, commercial scale project working with large multinational organisations, demonstrating to them the many benefits that Quadrise's MSAR® technology can provide.

o Quadrise looks forward to providing updates on the KSA commercial scale project in due course.

·    Marine  MSAR® Bunker Fuels:         

Commissioning and successfully operating the commercial scale MSAR® manufacturing facility at the Cepsa refinery in Spain and producing around 7,000 metric tons of Marine MSAR®.

Bunkering the MSAR® to the Seago Istanbul and burning this whilst the vessel was on normal operational service - with no fuel related issues during 9 months of operations.

The Company was formally notified by Maersk of its intention to let the Operational Trial Agreement between the parties expire once the MSAR® fuel on-board the test vessel was consumed. This was a result of Maersk's decision to use <0.5% sulphur fuels to meet IMO 2020 regulations, rather than installing exhaust gas cleaning systems on vessels.

Maersk confirmed that their experience with MSAR® during the trial had been positive, and subsequently provided QFI with the Interim Letter of No Objection ("LONO") and the Interim Inspection Report produced by Wärtsilä.

Quadrise is using the positive results of the trial, together with the Interim LONO and the Interim Inspection Report to develop opportunities with other operators to commercialise MSAR®.

·    Cost reduction initiatives:       

A number of actions have been taken since the year end to reduce cash expenditure, which collectively amount to savings in excess of £500,000, representing 18% of the Company's annualised fixed costs. These actions are designed to have no adverse impact on  Quadrise's ongoing operational and business development capabilities.



 

Financial summary for the period

 

·     £5.0 million in cash reserves and no debt at 30 June 2017 (30 June 2016: £4.3 million) following a successful placing in October 2016 which raised £4.0 million, and an open offer in November 2016 which raised a further £1.0 million.

 

·     Loss after tax of £4.1 million (2016: £4.8 million) of which £0.2 million (2016: £0.8 million) relates to non-cash charges for share options.

 

·     Cumulative tax losses of £47.3 million (2016: £41.1 million) available for set-off against future profits.

 

·     Total assets of £9.5 million at 30 June 2017 (2016: £8.8 million), which includes the Group's MSAR® manufacturing facility at the Cepsa refinery in Spain, and further investment in our R&D capacity at the Quadrise Research Facility.

 

 

Commenting on the results, Mike Kirk, Executive Chairman of QFI, said:

 

"Substantial work has been undertaken during the period to progress the KSA project to a point that it can commence as soon as all parties have signed the project contracts. Whilst it is disappointing that these contracts have not yet been signed, this is a very complex project involving many entities within, and outside of, KSA and we look forward to providing updates on this project, as appropriate, in due course.  

 

The opportunities in the KSA power market are substantial, and pending the successful conclusion of the project in 2018, Quadrise will be working towards accessing this market at scale, subject to concluding commercial agreements. 

 

The early conclusion of the marine trial was disappointing. The IMO's decision in October 2016 to implement the 0.5% sulphur limit with effect from January 2020, rather than 2025, was a shock to the marine bunker sector and led to a period of stasis from both refiners and operators. 

 

Industry consensus indicates that non-compliant fuel with scrubbers will be the lowest-cost option, though as yet uncertainty over fuel availability and enforcement action, together with capital constraints is limiting definitive action at this time by most marine operators. However, a number of cruise and ferry operators already have a substantial installed base of scrubber equipped vessels. For example, Carnival Cruises has indicated that it expects the vast majority of its vessels to be equipped with scrubbers by 2020 at a cost of $1 billion - but delivering a potential saving in fuel costs of $700 million per annum. 

 

The anticipated substantial widening of the product spread between HFO and distillates is supportive of Quadrise's business model in the medium to longer term and provides a positive backdrop for our continued business development activities in both the power and marine sectors during the current year and beyond."

 

Notice of Annual General Meeting

 

The Annual General Meeting ("AGM") of the Company is to be held at 110 Rochester Row, London SW1P 1JP on 8 December 2017 at 12.00 noon.



 

 

For additional information, please contact:

 

Quadrise Fuels International plc                                                                                     +44 (0)20 7031 7321             

Mike Kirk

Jason Miles

 

Smith & Williamson Corporate Finance Limited                                                        +44 (0)20 7131 4000             

Dr Azhic Basirov

Ben Jeynes

Katy Birkin

 

Peel Hunt LLP                                                                                                                     +44 (0)20 7418 8900

Richard Crichton 

Ross Allister

Chris Burrows

 

FTI Consulting                                                                                                                    +44 (0)20 3727 1000

Ben Brewerton

Sara Powell

 

 



 

Chairman's Statement

I am pleased to present our audited final results for the year ended 30 June 2017 together with an update on significant events since the year end.

Introduction

 

In the power market, Quadrise has made material progress during 2017. Since signing the Memorandum of Understanding ("MoU") with our client in the Kingdom of Saudi Arabia ("KSA") in August 2016, we have undertaken significant work, including detailed engineering studies, to progress a commercial scale project comprising MSAR® fuel production and its storage and consumption at a nominated power plant site. Working in conjunction with various entities within KSA and from Europe and the US, Quadrise has taken a central coordination role, and has progressed the project to a point that it can commence immediately once all parties have agreed the multiple bilateral contracts and the triparty contract that define the overall project. We look forward to providing updates on this project, as appropriate, in due course. 

We are confident that the delivery of the KSA power project will demonstrate the value of Quadrise's MSAR® technology and fuel in KSA on a commercial scale, and the Company will continue to work with our partners to further evaluate commercial options for MSAR® production and supply in KSA to both marine and power plant consumers. This will help to ensure that, pending a successful trial and positive decision on the use of MSAR® in KSA, our technology could be deployed rapidly at a commercial scale.

 

Quadrise was able to make significant progress in a number of areas in the marine market during the year including: commissioning the commercial scale MSAR® manufacturing facility at the refinery in Spain; reliably producing around 7,000 tonnes of marine MSAR®; and bunkering the MSAR® to the Maersk Line A/S ("Maersk") nominated vessel, Seago Istanbul, whilst the vessel was on normal operational service. Although there were no fuel related issues during the course of the marine operational and LONO ('Letter Of No Objection') trial, Maersk decided to conclude the trial early following their policy decision to use low sulphur (0.5%) fuel for IMO 2020 compliance. Maersk confirmed that their experience with MSAR® during the trial had been positive and subsequently provided QFI with the Interim LONO and the Interim Inspection Report produced by Wärtsilä.

 

The intended migration to early stage commercial revenues during calendar 2017 was dependent on a decision by Maersk to adopt the use of MSAR® post the interim inspection. Maersk's policy decision to use low sulphur fuel now means they will not use MSAR® and we are progressing other opportunities to develop the marine bunker market.

As a pre-revenue company, Quadrise has always been conscious of the need to control costs, but given the delay in progressing to early stage commercial revenues, the Company has taken a number of actions to reduce cash expenditure during the current year by in excess of £500,000, representing 18% of the Company's underlying annualised fixed costs, whilst retaining its ability to deliver its active projects and pursue business development opportunities in the power and marine markets. 

Power Generation MSAR® Fuel

 

KSA is the world's largest market for the consumption of crude-oil and HFO for power generation, and the scale and nature of the oil and power generation industries in the region offer an enormous opportunity for Quadrise. It was therefore identified as a primary target market for Quadrise and we were delighted to announce in early August 2016 the signing of an MoU to progress discussions for a major production to combustion project in KSA. As noted above, since signing the MoU we have undertaken material work to progress this commercial scale project, both with our client and their technical advisors in KSA and at our research facility, QRF. This is a complex, commercial-scale project bringing together many major global organisations, with Quadrise undertaking a central coordination role.  It has clearly demonstrated our ability, with limited resources compared to our customers/partners, to bring on board, and work on equal terms with, large multinational organisations, demonstrating to them the many benefits that Quadrise's MSAR® technology and professional services can provide.

 

During the remainder of this calendar year we will be working to advance the KSA project, and will continue with the practical work required to enable the trial timetable to be met.

 

We continue to develop other opportunities in the power sector in selected markets in KSA, the Middle East, Africa and Asia. Our relationship with YTL Power Seraya remains strong, though the opportunities remain longer-term and linked to the availability of suitable residue streams at a major refinery in the region.

 

Marine MSAR® Bunker Fuel

 

Quadrise worked with Maersk for over five years through a series of land-based and sea-borne trials, culminating in the recent operational trial to achieve a LONO from Wärtsilä after a 4,000 hour engine inspection, with an Interim Inspection planned for midway. It was a major achievement to commence production of MSAR® at the Cepsa Gibraltar San Roque Refinery, adjacent to the Algeciras Mediterranean bunker hub, within 9 months of contract signature. Over a period of 8 months through to February 2017, we were reliably producing MSAR® to meet the vessel schedule, latterly running on a 24 hour, two shift basis, and in total around 7,000 tonnes of MSAR® were successfully manufactured at Cepsa. Good progress was made during the trial on board the Seago Istanbul which ran until March 2017 with no material issues encountered with the use of MSAR® fuel on the 68MW Wärtsilä RT-Flex engine. In March 2017, the trial was unfortunately suspended due to the vessel being damaged in a collision with a sea buoy.  When the vessel was dry-docked to make repairs the planned interim inspection of the engine was carried out by Wärtsilä.  Maersk confirmed that they were pleased with the performance of MSAR® during the trial and following the interim inspection Wartsila provided an Interim LONO and an interim inspection report both of which confirmed that the MSAR® fuel had performed well during the trial.

 

During this period the International Maritime Organisation (IMO) had been working to reduce harmful impacts of shipping on the environment under Annex VI to the International Convention for the Prevention of Pollution from Ships (MARPOL Convention). The 70th session of the Marine Environment Protection Committee (MEPC) meeting on 24 to 28 October 2016 considered the report on the "Assessment of the availability of fuel oil" relating to Article 14 of MARPOL (dealing with Sulphur Oxides and Particulate emissions). A decision was taken by MEPC to adopt the lower global cap for marine fuel sulphur of no more than 0.5% by weight on 1st January 2020, rather than defer the implementation to 1st January 2025. The decision was a significant shock to the majority of industry stakeholders.

 

As a result of the MEPC70 outcome, and after a detailed review of compliance options, Maersk took a policy decision in May 2017 to only use low sulphur fuel for IMO 2020 compliance and as a consequence decided to conclude the trial at the interim phase. Whilst Maersk's decision was disappointing, the trial demonstrated that MSAR® can be used on an operational vessel with a normal crew, with no adverse impact on the engine or the normal operations of the vessel.

 

Quadrise is using the positive results of the trial, together with the interim LONO and the Inspection Report to develop opportunities with other operators to commercialise MSAR® in the marine bunker market. The MEPC70 decision means that many operators will have to decide whether to use more expensive low sulphur (predominantly) diesel fuel to meet the regulations or use high sulphur HFO with on-board exhaust gas cleaning systems ("EGCS", also known as scrubbers) for compliance. Quadrise and many commentators believe that high sulphur fuel and on-board EGCS will be the lowest cost option, although at this stage only a small number of operators have confirmed their position. Carnival Cruises has indicated that it will, from 2020, have installed EGCS on almost 100% of its fleet and it expects to save approximately $700 million per year on fuel post 2020, repaying the $1 billion capital cost of installing EGCS in around 18 months. It has also been reported that a major order by MSC for new large container vessels will use EGCS.

 

Whilst Quadrise will focus on producing high sulphur MSAR®, it should be noted that with appropriate residue streams there is the potential to produce low-sulphur MSAR® (below 0.5% equivalent, as was the case at times during production at Cepsa) albeit such "low sulphur" opportunities are likely to be a less significant market for Quadrise than "high sulphur", where the fuel cost savings are likely to be higher. MSAR® also provides other benefits including a reduction in NOx and particulates emissions which are likely to be of increasing importance.

 

Our work with a number of oil majors to evaluate the suitability of specific refining residues for Marine MSAR® production continues and these relationships also provide opportunities to explore options for MSAR® production and conversion of refinery units and steam generation plants.

 

MSAR® Economics Remain Sound - Strong Growth Potential

 

The key value driver for MSAR® is the price differential, or spread, between high sulphur HFO and low sulphur distillate fuels. During the last year, the spread has traded in the range of $143/t to $193/t and is currently at $201/t. However, the key factors that are expected to drive the market in the run-up to 2020 are an increase in demand for low sulphur distillate products in the marine bunker market and a consequential reduction in demand for high sulphur HFO products until EGCS are more widely adopted. Forecasts in the market indicate that this is expected to increase the spread to a range of $320/t to $400/t which provides a significant opportunity for Quadrise and MSAR® technology in both the power and marine markets.

 

Business Development

 

Quadrise targets specific sectors of very large global bulk fuels markets, and our present and intended clients are large companies which presently account for a substantial share of the production and combustion of HFO - refiners for production, and the power generation and marine bunkering sectors for consumption. We believe that there are significant synergies in this approach, as the major producers and consumers are co-located around a small number of refining and bunker fuel hubs in Europe, the Middle East and Asia.

 

Quadrise engages in significant and sustained business development activity to enable collaborative projects to be developed between the producers and the consumers. We deliver our business development activities along sector lines, to align with our clients in the refining, power and marine markets. We believe that the ability to develop both the power and marine markets offers significant advantages to the producers, as it both increases the available product market potential and de-risks its development through the building of multiple potential customers in different market segments.

 

Research, Development and Operations Activities

 

We continued to invest in our research and development, operations and technical support activities during the year. We now have two pilot-scale development MMUs at the Quadrise Research Facility ("QRF"), including an enhanced unit that can be used to test highly viscous residues which must be heated to elevated temperatures to be emulsified. We have also expanded our laboratory facilities at QRF to be able to test the performance of MSAR® produced in these development MMUs. Another process engineer was recruited during the period, to further enhance our operational and business development capabilities.

 

Our programme of research at the University of Surrey has been successful in enhancing our understanding of the mechanisms that underpin the creation of stable MSAR® emulsion fuels and we renewed our arrangements for a further year in November 2016. These arrangements will continue into 2018 in a focused, cost-efficient manner to enhance value for the Company.



 

We retain our 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®, both of which were extended to November 2018 during the year.

 

Cost Reduction Initiatives

 

As outlined previously, following the period end, the Company took action to materially reduce cash costs, whilst retaining our ability to deliver active projects and pursue business development opportunities in the power and marine markets.

 

As a result, Hemant Thanawala, agreed to step down as Finance Director, on 10th August 2017, but remains on the Board as a Non-executive Director and a member of the Audit and Compensation Committees from the same date. This enabled the Board to restructure, reducing the number of Executive Directors from three to two. The Finance Director functions were absorbed within the existing senior team with the Financial Controller, David Scott FCA, maintaining a focus on sound cash management, allied with strong project accounting. These steps enabled a significant reduction in administration costs.

 

As Executive Chairman, I agreed to reduce my cash salary by 50% with effect from 1st September 2017 for 12 months (subject to review and potential renewal at the end of the period) with a potential future uplift of 25% on the deferred element. In addition, the Non-executive Directors of the Company, including Mr Thanawala, agreed to reduce their directors' fees by approximately 33% to £24,000 per annum, with the balance being deferred, for potential future payment with an uplift of 25%. These potential future payments will be contingent on the Company delivering demonstrable progress during the next year.

 

We have also streamlined the senior management team and now operate with two General Managers, who in combination with the Chief Operating Officer and Executive Chairman cover the refining, power and marine segments. The senior team has significant experience in these segments and practical experience of delivering projects that require multiple stakeholders to be brought together for successful delivery. In addition, the laboratory personnel roles at QRF have been reduced by one. The Company's advisers have also agreed to a significant reduction in fees.

In total, these actions will deliver cash-cost savings in excess of £500,000 in the current financial year, representing 18% of the Company's annualised fixed costs.

Results for the Year

The consolidated after-tax loss for the year to 30 June 2017 was £4.1m (2016: £4.8m). This included production and development costs of £2.4m (2016: £2.2m), administration expenses of £1.8m (2016: £2.0m), a share option charge of £0.2m (2016: £0.8m), interest income of £19k (2016: £41k) and a tax credit of £213k (2016: £149k).

 

Basic and diluted loss per share was 0.48p (2016: 0.59p).

 

Statement of Financial Position

 

At 30 June 2017, the Group had total assets of £9.5m (2016: £8.8m). The most significant balances were intangible assets of £2.9m (2016: £2.9m), property, plant and equipment of £1.1m (2016: £1.2m), and cash of £5.0m (2016: £4.3m). Further information on intangible assets is provided in note 13 to the Group Financial Statements.

 

Cash Flow

 

The Group ended the year with £5.0m of cash and cash equivalents (2016: £4.3m) with £5.0m having been raised through the placing and open offer during the year, and £4.3m having been utilised in its operating activities during the year (2016: £3.7m). The Group continues to remain debt free.

 

 

Capital Structure

 

The Company had 809,585,162 ordinary shares of 1p each in issue at 30 June 2016. As announced on 12 and 31 October 2016,  the Company issued a total of 52,619,814 new ordinary shares during the year, raising £5.0m (after expenses). The shares placed and issued fell within the authorities granted to the Board under sections 551 and 570 of the Companies Act 2006 at the Annual General Meeting ("AGM") of 27 November 2015. These authorities will be reviewed again at the next AGM, as appropriate. 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 £47.3m (2016: £41.1m) that are available, under current legislation, to be carried forward against future profits. £19.1m (2016: £11.7m) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £25.8m (2016: £25.8m) represent non-trade deficits arising on intangible assets within Quadrise International Limited, £1.6m (2016: £1.6m) represent pre-trading losses incurred by subsidiaries, £0.8m (2016: £1.9m) represent management expenses incurred by Quadrise International Limited, and £0.1m (2016: £0.1m) represent capital losses within Quadrise Fuels International plc.

Outlook - Current trading and prospects.

We have made significant progress in relation to the trial in KSA since signing the MoU in August 2016 - with extensive work including detailed engineering studies and design work being carried out to ensure that MSAR® fuel production can commence at the earliest possible opportunity, ahead of the combustion element of the trial commencing in the second half of 2018.  It should also be noted that the work to date has already seen MSAR® positioned as an alternative fuel source for KSA's future power generation requirements, and subject to agreement and conclusion of contractual arrangements, and the successful outcome of the trial project, provides the opportunity for commercial scale roll-out at pace.

 

Our work in the marine bunker market continues and we are utilising the positive outcomes of the operational and LONO trial to work with operators who see the use of high-sulphur fuel and EGCS as providing the lowest cost of compliance with the IMO 2020 sulphur standards. During the current financial year and beyond, we expect to see the industry accelerate its plans to actively manage the impact of the forthcoming standards on both operating costs and operational flexibility and this will provide increased opportunities for Quadrise to develop the market for marine MSAR®.

 

 

 

 

Mike Kirk

Executive Chairman

3 November 2017



 

Strategic Report

For the year ended 30 June 2017

 

Principal Activity

 

The principal activity of the Company is to develop markets for its proprietary emulsion fuel ("MSAR®") as a low cost substitute for conventional heavy fuel oil ("HFO") for use in power generation plants and industrial and marine diesel engines.

 

Business Review and Future Developments

 

A full review of the Group's activities during the year, recent events and future developments is contained in the Chairman's Statement.

 

Key Performance Indicators

 

The Group's key performance indicators are development and commercial performance against Group business plans and project timetables established with clients, and financial performance and position against the approved budgets and cashflow forecasts. The Board regularly reviews the Group business plans, project timetables, budgets and cashflow forecasts in order to optimise the application of available resources. Consideration of the Group's performance against Key Performance Indicators is contained in the Chairman's Statement.

 

Going Concern

 

The Group had £5.0m in treasury as at 30 June 2017. Having conducted a full review of the updated business plan, budgets and associated commitments at the year end, the Directors concluded that the Group has adequate financial resources to continue in operational existence for at least the forthcoming year and therefore continue to adopt the going concern basis in preparing the accounts. Refer to Note 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® fuels is affected by numerous factors beyond the control of the Group. These include variability of price spreads between light and heavy oils and the relative competitiveness of oil, gas and coal prices both for prompt and future delivery. The Group cannot mitigate this risk by its nature, but pays close attention to the energy markets in order to be able to react in a timely and effective manner.

 

Feedstock sourcing

There is a risk in respect of appropriately located and ongoing price competitive availability of heavy oil residue feedstock as oil refiners seek to extract more transportation fuels from each barrel of crude using residue conversion processes. The Group mitigates this risk where possible by utilising its deep understanding of the global refining industry, targeting qualifying suppliers matched to prospective major consumers.

 

Commercial risks

There is a risk the Group will not achieve a commercial return due to major unanticipated change in a key variable or, more likely, the aggregate impact of changes to several variables which results in sustained depressed margins. Experience during early 2015 demonstrated that the price spread between heavy fuel oil and diesel fuel was relatively robust while crude oil prices collapsed. As this price spread drives the Quadrise 'value-add', the structure of the oil products market itself mitigates the principal margin risk.

 

The competitive position could be affected by changes to government regulations concerning taxation, duties, specifications, importation and exportation of hydrocarbon fuels and environmental aspects. Freight costs contribute substantially to the final cost of supplied products and a major change in the cost of bulk liquid freight markets could have an adverse effect on the economics of the fuels business. The Group would mitigate this risk through establishing appropriate flexibilities in the contractual framework, offtake arrangements and price risk management through hedging.

 

Technological risk

There is a risk that the technology used for the production of MSAR® fuel may not be adequately robust for all applications in respect of the character and nature of the feedstock and the particular parameters of transportation and storage pertaining to a specific project. This risk may jeopardise the early commercialisation of the technology and subsequent implementation of projects; or give rise to significant liabilities arising from defective fuel during plant operations. The Group mitigates this risk by ensuring that its highly experienced key personnel are closely involved with all areas of MSAR® formulation and manufacture, and that the MSAR® fuel is thoroughly tested before being put into operational use.

 

Delay in commercialisation of MSAR® and funding risks

There is a risk that the commercialisation of MSAR® could be delayed further due to unforeseen technical and/or commercial challenges. This could mean that the Group may need to raise further equity funds to remain operational. Depending on market conditions and investor sentiments, there is a risk that the Group may be unable to raise the requested funds when necessary. The Group mitigates this risk by maintaining strong control over its pre-revenue expenditure, keeping up the momentum on its key projects as far as possible, and maintaining regular contact with the financial markets and investor community.

 

Competition risks

There is a risk that new competition could emerge with similar technologies sufficiently differentiated to challenge the MSAR® process. This could result, over time, in further price competition and pressure on margins beyond that assumed in the Group's business planning. This risk is mitigated by the limited global pool of expertise in the emulsion fuel market combined with an enhanced R&D programme aimed at optimising cost and performance and protection of intellectual property. The Group also makes best use of scarce expertise by developing close relationships with strategic counterparties such as AkzoNobel while ensuring that key employees are suitably incentivised.

 

Other Business Risks

 

Dependence on key personnel

The Group's business is dependent on obtaining and retaining the services of key personnel of the appropriate calibre as the business develops. The appointment in recent years of key General Managers into a revised organisation structure, the conversion of former consultants to key full time posts and appointment of chemical technologists and process engineers has reduced risk and equipped the Company to meet future demands. The success of the Group will continue to be dependent on the expertise and experience of the Directors and the management team, and the loss of personnel could still have an adverse effect on the Group. The Group mitigates this risk by ensuring that key personnel are suitably incentivised and contractually bound.

 

Environmental risks

The Group's operations are subject to environmental risks inherent in the oil processing and distribution industry. The Group is subject to environmental laws and regulations in connection with all of its operations. Although the Group intends to be in compliance, in all material respects, with all applicable environmental laws and regulations, there are certain risks inherent to its activities, such as accidental spills, leakages or other circumstances that could subject the Group to extensive liability.

 

Further, the Group may require approval from the relevant authorities before it can undertake activities which are likely to impact the environment. Failure to obtain such approvals may prevent or delay the Group from undertaking its desired activities. The Group is unable to predict definitively the effect of additional environmental laws and regulations, which may be adopted in the future, including whether any such laws or regulations would materially increase the Group's cost of doing business, or affect its operations in any area. The Group mitigates this risk by ensuring compliance with environmental legislation in the jurisdictions in which it operates, and closely monitoring any pending regulation or legislation to ensure compliance.

 

No profit to date

The Group has incurred aggregate losses since its inception and it is therefore not possible to evaluate its prospects based on past performance. There can be no certainty that the Group will achieve or sustain profitability or achieve or sustain positive cash flow from its activities.

 

Corporate and regulatory formalities

The conduct of petroleum processing and distribution requires compliance by the Group with numerous procedures and formalities in many different national jurisdictions. It may not in all cases be possible to comply with or obtain waivers of all such formalities. Additionally, functioning as a publicly listed Group requires compliance with stock market regulations. The group mitigates this risk through commitment to a high standard of corporate governance and 'fit for purpose' procedures, and by maintaining and applying effective policies.

 

Economic, political, judicial, administrative, taxation or other regulatory factors

The Group may be adversely affected by changes in economic, political, judicial, administrative, taxation or other regulatory factors, in the areas in which the Group operates and conducts its principal activities.

 

 

 

 

 

Mike Kirk

Executive Chairman

3 November 2017



 

 

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2017

 


Notes

 

Year ended

30 June 2017

£'000s

Year ended

30 June 2016

£'000s

Continuing operations




Revenue


126

2

Production and development costs


(2,367)

(2,156)

Other administration expenses


(1,818)

(1,965)

Share option charge

12

(242)

(802)

Foreign exchange loss


(10)

(18)

Operating loss


(4,311)

(4,939)

Finance costs

5

(10)

(8)

Finance income

6

19

41

Loss before tax


(4,302)

(4,906)

Taxation

7

213

149

Loss and total comprehensive loss for the year

from continuing operations

(4,089)

(4,757)





Loss per share - pence




Basic

8

(0.48)p

(0.59)p

Diluted

8

(0.48)p

(0.59)p

         



 

Consolidated Statement of Financial Position                                   

As at 30 June 2017                                                                                                              

 


Notes

 

As at

30 June 2017

£'000s

As at

30 June 2016

£'000s

Assets




Non-current assets




Property, plant and equipment

9

1,056

1,156

Intangible assets

10

2,924

2,924

Non-current assets


3,980

4,080





Current assets




Cash and cash equivalents


5,045

4,268

Trade and other receivables


302

297

Prepayments


153

120

Stock


61

-

Current assets


5,561

4,685

TOTAL ASSETS


9,541

8,765

 

Equity and liabilities




Current liabilities




Trade and other payables


247

576

Current liabilities


247

576





Equity attributable to equity holders of the parent




Issued share capital


8,622

8,096

Share premium


73,642

69,216

Share option reserve


3,704

4,704

Reverse acquisition reserve


522

522

Accumulated losses


(77,196)

(74,349)

Total shareholders' equity


9,294

8,189

TOTAL EQUITY AND LIABILITIES


9,541

8,765

 

                                               

 

Consolidated Statement of Changes in Equity

For the year ended 30 June 2017

 

                 



Issued capital

£'000s


Share premium

£'000s

Share option reserve

£'000s

Reverse acquisition reserve

£'000s

 

Accumulated
losses

£'000s



Total

£'000s










1 July 2015

8,096

69,216

4,210

522

(69,900)

12,144


Loss and total comprehensive loss for the year

-

-

-

-

(4,757)

(4,757)


Share option charge

-

-

802

-

-

802


Transfer of balances relating to expired share options

-

-

(308)

-

308

-


30 June 2016

8,096

69,216

4,704

522

(74,349)

8,189


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


 

 

 



 

 

Consolidated Statement of Cash Flows

For the year ended 30 June 2017

 


Notes

 

Year ended

30 June 2017

£'000s

Year ended

30 June 2016

£'000s

Operating activities




Loss before tax from continuing operations


(4,302)

(4,906)

Depreciation

9

211

148

Loss on disposal of fixed assets

9

-

2

Finance costs

     5

10

8

Finance income

      6

(19)

(41)

Share option charge

     12

242

802

Working capital adjustments




(Increase)/decrease in trade and other receivables


(5)

36

(Increase)/decrease in prepayments


(33)

118

(Decrease)/increase in trade and other payables


(329)

154

Increase in stock


(61)

-

Cash utilised in operations


(4,286)

(3,679)





Finance costs

        5

(10)

(8)

Taxation received

       7

213

149

Net cash outflow from operating activities


(4,083)

(3,538)





Investing activities




Finance income

       6

19

41

Purchase of property, plant and equipment

       9

(111)

(596)

Net cash outflow from investing activities


(92)

(555)





Financing activities




New shares issued net of issue costs


4,952

-

Net cash inflow from financing activities


4,952

-





Net increase/(decrease) in cash and cash equivalents


777

(4,093)

Cash and cash equivalents at the beginning of the year


4,268

8,361

Cash and cash equivalents at the end of the year


5,045

4,268



 

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 2017.

 

The financial information is prepared in Pounds Sterling and all values are rounded to the nearest thousand Pounds (£'000) except where otherwise indicated.

 

The financial information contained in this announcement does not constitute the Company's statutory financial statements for the year ended 30 June 2017 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 2016 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 2017 (2016: nil).

 

This announcement was approved by the Board on 3 November 2017.

 

 

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 £5.0m in treasury as at 30 June 2017. The Directors have carried out a detailed assessment of going concern as part of the financial reporting process, and having conducted a full review of the updated business plan, budgets and associated commitments at the year end, have concluded that the Group has adequate financial resources to continue in operational existence for at least the forthcoming year and therefore continue to adopt the going concern basis in preparing the accounts.

 

3.     Segmental Information

 

For the purpose of segmental information the reportable operating segment is determined to be the business segment. The Group principally has one business segment, the results of which are regularly reviewed by the Board. This business segment is a business to produce emulsion fuel (or supply the associated technology to third parties) as a low cost substitute for conventional heavy fuel oil ("HFO") for use in power generation plants and industrial and marine diesel engines.

 

Geographical Segments

 

The Group's only geographical segment during the year was the UK.

 

 

4.     Operating Loss

 

Operating loss is stated after charging:

Year ended

30 June 2017

£'000s

Year ended

30 June 2016

£'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:

17

19

Audit of accounts of subsidiaries         

Tax compliance services

17

7

19

20

Consultants and other professional fees (including legal)

219

282

Depreciation of property, plant and equipment

211

148

 



 

5.     Finance Costs


Year ended

30 June 2017

£'000s

 

Year ended

30 June 2016

£'000s

Bank charges

10

8

Total

10

8

 

 

6.     Finance Income

 

All finance income recognised during the current and prior year has arisen from interest on bank deposits and loans.

 

 

7.     Taxation


Year ended

30 June 2017

£'000s

Year ended

30 June 2016

£'000s

 

UK corporation tax credit

(213)

(149)

Total

(213)

(149)

 

No liability in respect of corporation tax arises as a result of trading losses.

 

Tax Reconciliation

Year ended

30 June 2017

£'000s

 

Year ended

30 June 2016

£'000s

Loss on continuing operations before taxation

(4,302)

(4,906)

Loss on continuing operations before taxation multiplied by

the UK corporation tax rate of 20% (2016: 20.75%)

 

(860)

 

(981)

Effects of:



Non-deductible expenditure

91

169

R&D tax credit

(213)

(149)

Tax losses carried forward

769

812

Total taxation credit on loss from continuing operations

(213)

(149)

 

The Group has tax losses arising in the UK of approximately £47.3m (2016: £41.1m) that are available, under current legislation, to be carried forward against future profits. £19.1m (2016: £11.7m) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £25.8m (2016: £25.8m) represent non-trade deficits arising on intangible assets within Quadrise International Limited, £1.6m (2016: £1.6m) represent pre-trading losses incurred by subsidiaries, £0.8m (2016: £1.9m) represent management expenses incurred by Quadrise International Limited, and £0.1m (2016: £0.1m) represent capital losses within Quadrise Fuels International plc.

 

A deferred tax asset representing these losses and other timing differences at the statement of financial position date of approximately £8.0m (2016: £8.2m) has not been recognised as a result of existing uncertainties in relation to its realisation.

 

8.     Loss Per Share

 

The calculation of loss per share is based on the following loss and number of shares:

 


Year ended          30 June 2017

 

Year ended            30 June 2016

 

Loss for the year (£'000)

(4,089)

(4,757)

 

Weighted average number of shares:



Basic

846,102,956

809,585,162

Diluted

846,102,956

809,585,162




Loss per share:



Basic

(0.48)p

(0.59)p

Diluted

(0.48)p

(0.59)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 20.6m dilutive share options issued by the Company and which are outstanding at the year-end could potentially dilute earnings per share in the future if exercised when the Group is in a profit making position.

 

9.     Property, plant and equipment


Consolidated


Leasehold Improvements

Computer Equipment

Software

Office Equipment

Plant and machinery

Total


£'000

£'000

£'000

£'000

£'000

£'000

Cost







Opening balance - 1 July 2016

99

89

43

16

1,251

1,498

Additions

8

2

-

-

101

111

Disposals

-

-

-

-

-

-

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)

Disposals

-

-

-

-

-

-

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

 

Consolidated

 

 

Leasehold Improvements

Computer Equipment

Software

Office Equipment

Plant and machinery

Total


£'000

£'000

£'000

£'000

£'000

£'000

Cost







Opening balance - 1 July 2015

99

70

43

16

682

910

Additions

-

19

-

-

577

596

Disposals

-

-

-

-

(8)

(8)

Closing balance - 30 June 2016

99

89

43

16

1,251

1,498








Depreciation







Opening balance - 1 July 2015

(26)

(14)

(15)

(9)

(136)

(200)

Depreciation charge for the year

(20)

(16)

(9)

(3)

(100)

(148)

Disposals

-

-

-

-

6

6

Closing balance - 30 June 2016

(46)

(30)

(24)

(12)

(230)

(342)








Net book value at 30 June 2016

53

59

19

4

1,021

1,156




 

 

10.   Intangible Assets

 

Consolidated


QCC royalty payments

MSAR® trade name

Technology and know-how

Total


£'000

£'000

£'000

£'000

Cost





Opening balance - 1 July 2016

7,686

3,100

25,901

36,687

Additions

-

-

-

-

Closing balance - 30 June 2017

7,686

3,100

25,901

36,687






Amortisation and Impairment





Opening balance - 1 July 2016

(7,686)

(176)

(25,901)

(33,763)

Amortisation

-

-

-

-

Closing balance - 30 June 2017

(7,686)

(176)

(25,901)

(33,763)






Net book value at 30 June 2017

-

2,924

-

2,924

 

Consolidated


QCC royalty payments

MSAR® trade name

Technology and know-how

Total


£'000

£'000

£'000

£'000

Cost





Opening balance - 1 July 2015

7,686

3,100

25,901

36,687

Additions

-

-

-

-

Closing balance - 30 June 2016

7,686

3,100

25,901

36,687






Amortisation and Impairment





Opening balance - 1 July 2015

(7,686)

(176)

(25,901)

(33,763)

Amortisation

-

-

-

-

Closing balance - 30 June 2016

(7,686)

(176)

(25,901)

(33,763)






Net book value at 30 June 2016

-

2,924

-

2,924

 

Intangible assets comprise intellectual property with a cost of £36.7m, including assets of finite and indefinite life. Quadrise Canada Corporation's ("QCC") royalty payments of £7.7m and the MSAR® trade name of £3.1m are termed as assets having indefinite life as it is assessed that there is no foreseeable limit to the period over which the assets would be expected to generate net cash inflows for the Group, as they arise from cashflows resulting from Quadrise and QCC gaining a permanent market share. The assets with indefinite life are not amortised. The remaining intangibles amounting to £25.9m, primarily made up of technology and know-how, are considered as finite assets and were amortised over 93 months, being fully impaired in 2012. The Group does not have any internally generated intangibles.

 

The Group tests intangible assets annually for impairment, or more frequently if there are indications that they might be impaired. The recoverable amount of intangible assets is determined based on a value in use calculation using cash flow forecasts derived from the most recent financial model information available. These cash flow forecasts extend to the year 2032 to ensure the full benefit of all current projects is realised. The rationale for using a timescale up to 2032 with the growth projections forecast, is that as time progresses, Quadrise expects to gain an increasing foothold in the existing HFO market (~ 450m tonnes p.a.) which is already well established. The key assumptions used in these calculations include discount rates, turnover projections, growth rates, joint venture participation expectations, expected gross margins and the lifespan of the project. Management estimates the discount rates using pre-tax rates that reflect current market assessments of the time value of money and risks specific to expected future projects. Turnover projections, growth rates, margins and project lifespans are all estimated based on the latest business models and the most recent discussions with customers, suppliers and other business partners.

 

For the MSAR® trade name and technology and know-how intangible, the growth rate used for the extrapolation of cash flows beyond budgeted projections is 2.5% (2016: 2.5%) and the pre-tax discount rate applied to the cash flow projections is 12% (2016: 12%).

 

A 5% increase in the discount rate used would result in no impairment charge for the MSAR® trade name intangible asset or the Technology and know-how intangible asset. A 5% decrease in the discount rate used would also result in no impairment charge.

 

Amortisation of Intangible Assets

 

The Board has reviewed the accounting policy for intangible assets and has amortised those assets which have a finite life. All intangible assets with a finite life were fully amortised as at 30 June 2017.

 



 

11.     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 2017. The shares in each of these companies were valued at CAD $nil on 1 July 2016. Shareholder communications received during the year to 30 June 2017 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 2017.   

 

12.   Share Options

 

Movement in the year:

The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, share options during the year:

 


 

Number

30 June 2017

WAEP

(pence)

30 June 2017

 

Number

30 June 2016

WAEP

(pence)

30 June 2016






Outstanding as at 1 July

33,133,333

23.60

40,450,000

22.08

Granted during the year

500,000

9.03

6,000,000

12.81

Repurchased by grantor during the year

(5,000,000)

1.00

-

-

Expired during the year

(3,633,333)

32.26

(8,316,667)

20.68

Exercised during the year

(1,000,000)

0.01

(5,000,000)

0.80

Options outstanding as at 30 June

24,000,000

23.60

33,133,333

23.60

Exercisable as at 30 June

20,583,333

29.95

26,300,000

26.07

 

The weighted average remaining contractual life of the 24 million options outstanding at the statement of financial position date is 5.23 years (2016: 4.75 years). The weighted average share price during the year was 9.59p (2016: 13.38p) 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.

 

On 1 July 2016, a total of 6 million share options granted by International Energy Group AG ("IEG") over its own shares in QFI were held by Hemant Thanawala and Jason Miles. Hemant Thanawala exercised 1 million of these options during the financial year, with the remaining 5 million options being repurchased from Jason Miles by IEG.

 

The Company issued 0.5 million share options to employees during the year (2016: 6.0 million) the weighted average exercise price of these options was 9.03p (2016: 12.81p) and the weighted average fair value was 2.60p (2016: 6.92p). The exercise price of the options issued during the year was 9.03p (2016: 12.1p to 18.1p).

 

The fair value was calculated using the Black Scholes option pricing model. The weighted average inputs were as follows

 




2017

2016

Stock price:



5.94p

12.80p

Exercise Price



9.03p

12.81p

Interest Rate



0.25%

0.5%

Volatility



72.3%

73.2%

Expected term



  4 years

  4 years

 



 

 

13.  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 £43k (2016: £41k). The balance payable at the statement of financial position date was £nil (2016: £12k).

 

Mike Kirk provided consulting services to the group prior to his appointment as Executive Chairman on 1 April 2016. The total fees charged for the year amount to £nil (2016: £12k). The balance payable at the statement of financial position date was £nil (2016: £nil).

 

QFI defines key management personnel as the Directors of the Company. There are no transactions with Directors, other than their remuneration as disclosed in the Report of Directors' Remuneration.

 

 

14.  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.

 

15. 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 company news service from the London Stock Exchange
 
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