Final Results

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^® 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^® 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^® 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^® 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^® formulations for specific project applications - in terms of both cost and performance. For some applications we are now able to make MSAR^® 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 £2.2 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

·     £2.2 million in cash reserves and no debt at 30 June 2018 (30 June 2017: £5.0 million)

·     Loss after tax of £3.3 million (2017: £4.1 million) of which £2.0m (2017: £2.4m) relates to production and development costs, and £1.5m (2017: 1.8m) relates to admin and corporate expenses.  

·     Cumulative tax losses of £49.5 million (2016: £47.3 million) available for set-off against future profits.

·     Total assets of £6.5 million at 30 June 2018 (2017: £9.5 million), which includes the Group's MSAR^® 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^® 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^® 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                                                                                     [phone]

Mike Kirk, Executive Chairman

Jason Miles, Chief Operating Officer

Smith & Williamson Corporate Finance Limited                                                        [phone]

Nominated Adviser

Dr Azhic Basirov

Ben Jeynes

Katy Birkin

Peel Hunt LLP                                                                                                                     [phone]

Joint Broker

Richard Crichton 

Ross Allister

Stockdale Securities Limited                                                                                           [phone]

Joint Broker

Andy Crossley    

Daniel Harris

FTI Consulting                                                                                                                    [phone]

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^® 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^® compatibility from candidate refineries and hosting visits for prospective major clients to witness MSAR^® 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^®. 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^® technology at scale and, through this, to build investor confidence and value which we are determined to achieve.

MSAR^® 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^® 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^® 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^® 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^® 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^® project opportunities in the Americas and Asia on an exclusive basis, with a number of identified counterparties, to enter into commercial agreements for MSAR^® 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^® "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^® 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^® 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^® 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 £330/t, further improving the economics for both MSAR^® 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^® formulations for specific project applications - in terms of both cost and performance. In addition, for some applications we are now able to make MSAR^® 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^® 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 £3.3m (2017: £4.1m). This included production and development costs of £2.0m (2017: £2.4m), administration expenses of £1.5m (2017: £1.8m), a share option charge of £0.1m (2017: £0.2m), interest income of £18k (2017: £19k) and a tax credit of £294k (2017: £213k).

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 £6.5m (2017: £9.5m). The most significant balances were intangible assets of £2.9m (2017: £2.9m), property, plant and equipment of £1.0m (2017: £1.1m), and cash of £2.2m (2017: £5.0m). Further information on intangible assets is provided in note 8.

Cash Flow

The Group ended the year with £2.2m of cash and cash equivalents (2017: £5.0m) with £3.0m having been utilised in its operating activities during the year (2017: £4.3m). 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 £49.5m (2017: £47.3m) that are available, under current legislation, to be carried forward against future profits. £21.5m (2017: £19.1m) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £25.8m (2017: £25.8m) represent non-trade deficits arising on intangible assets within Quadrise International Limited, £1.3m (2017: £1.6m) represent pre-trading losses incurred by subsidiaries, £0.8m (2017: £0.8m) represent management expenses incurred by Quadrise International Limited, and £0.1m (2017: £0.1m) 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^® in the near term.

We have been working extremely hard during 2018 to develop a broader platform and pipeline of opportunities for MSAR^® 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^® 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^® 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^® 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 £2.2 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^® 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^®") 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 £2.2m 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^® 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.

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, 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^® 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^® 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.

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

21 September 2018

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2018

	Notes	Year ended 30 June 2018 £'000s	Year ended 30 June 2017 £'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 30 June 2018 £'000s	As at 30 June 2017 £'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

	Issued capital £'000s	Share premium £'000s	Share option reserve £'000s	Reverse acquisition reserve £'000s	Accumulated losses £'000s	Total £'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 30 June 2018 £'000s	Year ended 30 June 2017 £'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 (£'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 £2.2m 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 30 June 2018 £'000s	Year ended 30 June 2017 £'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          Tax compliance services	15 8	17 7
Consultants and other professional fees (including legal)	269	219
Depreciation of property, plant and equipment	230	211

5.     Taxation

	Year ended 30 June 2018 £'000s	Year ended 30 June 2017 £'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 30 June 2018 £'000s	Year ended 30 June 2017 £'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 £49.5m (2017: £47.3m) that are available, under current legislation, to be carried forward against future profits. £21.5m (2017: £19.1m) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £25.8m (2017: £25.8m) represent non-trade deficits arising on intangible assets within Quadrise International Limited, £1.3m (2017: £1.6m) represent pre-trading losses incurred by subsidiaries, £0.8m (2017: £0.8m) represent management expenses incurred by Quadrise International Limited, and £0.1m (2017: £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 £8.4m (2017: £8.0m) 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          30 June 2018	Year ended            30 June 2017
Loss for the year (£'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 Improvements	Computer Equipment	Software	Office Equipment	Plant and machinery	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'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 Improvements	Computer Equipment	Software	Office Equipment	Plant and machinery	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'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 payments	MSAR® trade name	Technology and know-how	Total
	£'000s	£'000s	£'000s	£'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 £36.7m, including assets of finite and indefinite life. Quadrise Canada Corporation's ("QCC's) royalty payments of £7.7m and the MSAR^® trade name of £3.1m are termed as assets having indefinite life as it is assessed that there is no foreseeable limit to the period over which the assets would be expected to generate net cash inflows for the Group, as they arise from cashflows resulting from Quadrise and QCC gaining a permanent market share. The assets with indefinite life are not amortised, but the QCC royalty payments intangible asset became fully impaired in 2012.

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 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^® 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^® 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:

	Number 30 June 2018	WAEP (pence) 30 June 2018	Number 30 June 2017	WAEP (pence) 30 June 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 £nil (2017: £30k). The balance payable at the statement of financial position date was £nil (2017: £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.

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.

 

END

 

 

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