TIDMGRPH
RNS Number : 9956S
Graphene NanoChem PLC
29 December 2016
Graphene NanoChem plc
(the "Company" or the "Group")
Further information on report and accounts
for the 12 months ended 31 December 2015
Graphene NanoChem (AIM: GRPH), the international provider of
nanotechnology performance enhancing solutions for global
industries, announced its results for the 12 months ended 31
December 2015 on 14 November 2016.
The Company's annual report and accounts were sent to
shareholders at the same time and are available on the Company's
website at
http://www.graphenenanochem.com/investor-relations/financials/annual-interim-reports.
The accounts for the 12 months ended 31 December 2015 contained a
disclaimer opinion from the Company's auditors, which was not
contained in the preliminary unaudited results and is now
replicated below.
The Company would like to highlight that since its auditor
issued its opinion disclaimer, the Company has entered into a
subscription agreement for the issuance of up to GBP2.5m of
Unsecured Convertible Loan Notes, announced on 23 December 2016.
The proceeds from the Loan Notes will support the working capital
requirements of the Company as it looks to complete its debt
rationalisation plan and continues to advance the progress of its
business turnaround plan as previously announced, particularly in
crystallizing opportunities in its water and enhanced polymer
divisions. On 28 December 2016, the Company also announced a
significant contract win with the receipt of its first commercial
order and deployment of PlatDrill in China, tapping into the new
burgeoning market for shale gas development in the southwest region
of the country.
Auditor's opinion disclaimer:
"We have audited the financial statements of Graphene Nanochem
plc for the year ended 31 December 2015 which comprise the
Consolidated Statement of Comprehensive Income, Consolidated
Statement of Financial Position, Consolidated Statement of Changes
in Equity, Consolidated Statement of Cash Flows and the Parent
Company Balance Sheet, Parent Company Statement of Changes in
Equity, Parent Company Statement of Cash Flows and the related
notes 1 to 30 and 1 to 15 for the Group and Company,
respectively.
The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. The financial reporting framework that has been
applied in the preparation of the Parent Company financial
statements is applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting
Practice).
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As explained more fully in the Statement of Directors'
Responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
BASIS FOR DISCLAIMER OF OPINION ON FINANCIAL STATEMENTS
The Group had become unable to meet its current loan obligations
which stood at GBP24,927,000 as at 31 December 2015 and which are
secured on the property, plant and equipment of the Company's
subsidiaries. Subsequent to the balance sheet date, one of the
Group's lenders agreed to restructure the terms of secured
borrowings amounting to GBP14,463,000 and the Group is in
discussion with its other lenders to dispose of property, plant and
equipment to settle the borrowings due to them.
The restructured borrowings of GBP14,463,000 are secured by a
second charge on the property, plant and equipment subject to
disposal and a guarantee given by the parent company and are
repayable in instalments or otherwise on demand. The directors have
provided us with evidence to support the current position with
regard to the debt restructure plans but discussions with the
lenders are not sufficiently advanced for us to form an opinion on
the possible outcome which is outside the control of the Group.
Consequently, the carrying amount of property, plant and equipment
of GBP20,631,000 disclosed in the financial statements at a forced
sale value estimated by the directors may require a material
adjustment and/or the lenders may take a different course of action
than proposed by the Group to recover their outstanding
borrowings.
In addition, there is an uncertainty with respect to the Group's
future operations which are expected to be funded via joint
ventures, specialist water treatment funds, private equity and an
anticipated equity fundraise. The directors have provided us with
evidence to support their fund raising plans, however we are unable
to determine if these will be successful or if the Group's planned
new business will be profitable or provide sufficient funds to
enable the Group and the Company to continue in operation for the
foreseeable future.
The continuation of the Group's and the Company's operations is
therefore dependent on the support from the lenders and the
discussions which are being held regarding an appropriate solution
to a restructuring of the Group. The continuity of the Group is
also dependent on its ability to secure profitable future contracts
and to successfully dispose of assets.
These events indicate material uncertainties as to the potential
value of assets and liabilities presented in the Statement of
Financial Position and cast significant doubt on the Group's and
the Company's ability to continue as a going concern.
Notwithstanding the fact that management have provided all
information presently available, the existence and scope of
multiple uncertainties are such that we have been unable to obtain
sufficient appropriate audit evidence regarding the effect of these
uncertainties.
DISCLAIMER OF OPINION ON FINANCIAL STATEMENTS
Because of the significance of the matters set out above, it is
not possible to form an opinion on the financial statements due to
the potential interaction of the uncertainties and their possible
cumulative effect on the financial statements. Accordingly we do
not express an opinion on the group or parent company financial
statements.
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT
2006
Notwithstanding our disclaimer of an opinion on the view given
by the financial statements, in our opinion the information given
in the Strategic Report and Directors' Report for the financial
year for which the financial statements are prepared is consistent
with the financial statements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
Arising from the limitation of our work referred to above:
- We have not obtained all the information and explanations that
we considered necessary for the purpose of our audit; and
- We were unable to determine whether adequate accounting records have been kept.
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
- Returns adequate for our audit have not been received from
branches not visited by us; or
- The financial statements are not in agreement with the
accounting records and returns; or
- Certain disclosures of directors' remuneration specified by law are not made.
Crowe Clark Whitehill LLP"
2015 Annual Report details on 'Going Concern'
In response to the disclaimer, the Company would like to
highlight section 2.2 of the financial notes in the 2015 annual
report, which provides detail on "Going Concern", as previously
announced:
"Faced with the challenges of a global downturn in the oil and
gas markets, the Group has taken decisive action to improve
operating efficiencies, reduce its cost base and recalibrate and
streamline its portfolio of businesses to maximize growth
opportunities.
As part of the execution of its rationalization plan, the Group
is in the process of exiting the low margin fuel additive and palm
oil refining businesses, which are not expected to have any
significant growth in margins. In view of the proposed structured
exit, the directors deemed it prudent to impair the assets of those
businesses that resulted in the Group incurring a loss for the year
ended 31 December 2015 of GBP33,283,000 after impairment charges of
GBP25,694,000 and as at that date the Group and Company had net
current liabilities of GBP26,572,000 and GBP117,000, respectively,
and the Group and Company had a shareholders' deficiency of
GBP5,893,000 and GBP76,000, respectively.
During the year ended 31 December 2015, the Group has been in
discussions with its financiers on outstanding loan repayment
obligations and as at that date the Group had total secured
borrowings of GBP24,927,000 which have been reported in the
consolidated statement of financial position as being repayable on
demand (Note 19).
Subsequent to the balance sheet date, the Group successfully
negotiated the restructure of borrowings amounting to GBP14,463,000
repayable in instalments to 2021 with a 2 year repayment moratorium
and a pay down in the aggregate amount of GBP315,000 for 2016 and
2017 respectively. The pay down of GBP315,000 has been made for
2016. The Group remains in discussion with its other major lenders
to dispose of property plant and equipment ("PPE") used in the
Group's palm oil refining and biodiesel businesses, in order to
settle the remaining borrowings of GBP10,464,000. The PPE has been
recorded at an estimated forced sale value as disclosed in Note 13
to the financial statements the value of which is in excess of the
borrowings due. The carrying amount of PPE of GBP20,631,000
disclosed in the financial statements are at a forced sale value
estimated by the directors that are based on independent valuation
of the assets undertaken by independent valuer's approved by the
lenders.
The status of the Group's current borrowings are as follows:
Lender Lender Lender
1 2 3
-------------------------------- ---------- --------- --------
Borrowings as per Audited GBP14.4m GBP8.9m GBP1.6m
Accounts at 31(st) December
2015
-------------------------------- ---------- --------- --------
Borrowings as per Audited GBP14.6m GBP9.2m GBP1.7m
Accounts at 31(st) December
2015 and interest accumulated
till 30(th) June 2016 (less
principal paid)
-------------------------------- ---------- --------- --------
Borrowings Restructured Yes No No
-------------------------------- ---------- --------- --------
Is there a corporate guarantee Yes No Yes
against the parent company
Graphene Nanochem plc?
-------------------------------- ---------- --------- --------
Assets Pledged GBP13.1m GBP5.1m
(written down to forced sale
value during the year)
-------------------------------- ---------- --------- --------
Asset Cover Ratio at 31(st)
December 2015 1.4x 3.0x
-------------------------------------------- --------- --------
Borrowings post sale of PPE GBP7.3m nil nil
at forced sale value *
-------------------------------- ---------- --------- --------
* Assuming that PPE from Lender 2 and Lender 3 are realised at forced-sale value to settle outstanding loans from Lender 2 and Lender 3 and the balance used to reduce Lender 1 borrowings.
Upon completion of the rationalisation plan, the Group's plans
to realise the sale of its non-core assets at its carrying value to
fully repay Lenders 2 and 3 with excess funds to be utilized to
reduce the liabilities of Lender 1. If this is successfully
achieved the Group should see a carrying value of a single debt
going forward in the range of GBP7.3 mil depending on additional
costs that would be deducted for the restructuring.
As part of the restructuring exercise as per the announcement
made on 11 April 2016, a receiver and manager has been appointed by
Lender 2 to manage the sale of the non-core assets. The Directors
recognise the uncertainty over the value of the assets subject to
disposal, even though these assets have been written down to forced
sale value. Furthermore, Lender 2, does not have a corporate
guarantee from the parent company limiting recourse to the parent
company and its effects to the Group as a Going Concern.
The Group is confident that the 3.0x asset cover over borrowings
of Lender 3 of GBP1.6m is sufficient to fully settle the borrowings
upon sale of the PPE.
The business will be carried on in a new wholly-owned
subsidiary, Platinum TechSolve Sdn. Bhd., and will leverage on the
Group's proprietary nanotechnology platforms and joint venture with
SCOMI to provide performance enhancing solutions within the
oilfield chemicals and water treatment sectors that have higher
margins and longer term opportunities. The Group is continuing its
chemicals sales through SCOMI that are providing the Group with
working capital through payment upon order. The Group also has a
pipeline of water treatment projects in Asia, Africa and the Middle
East, funding for which is expected to be met via joint ventures,
specialist water treatment funds, private equity, and a proposed
equity offering in the coming months.
The implementation of the rationalisation plan, which management
believes will be successful, is expected to significantly reduce
the Group's debt balance and interest rate expense, which will have
a positive impact of strengthening the Group's balance sheet.
Further, the utilization of operating cash flows in the near term
for advancement of the recalibrated business plan rather than
repayment of debt, bodes well for the Group as it focuses on
available resources and growth strategies on long term, higher
margin business opportunities.
In view of the net current liabilities and shareholders'
deficiency of the Group, the ongoing discussions with the Group's
financiers and the rationalization plan also being dependent upon
the Group having access to sufficient funds, the directors consider
there is a material uncertainty that casts significant doubt upon
the Group's ability to continue as a going concern. However the
Directors consider that it is appropriate to prepare the financial
statements of the Group and the Company on a going concern basis,
and accordingly, the financial statements do not include any
adjustments relating to the recoverability and classification of
assets and liabilities that may be necessary, if the going concern
basis of preparing the financial statements of the Group and of the
Company is not appropriate."
The Company wishes to also refer readers to the Company's
interim results for the six months ended 30 June 2016 and the
update to the debt rationalisation plan contained therein.
Auditor limitations
Regarding the auditor's comments that it was not able to obtain
all the information and explanations considered necessary for the
purpose of its audit, the Company confirms that all information was
provided to the auditor's partner company Crowe Clark Whitehill
Malaysia, who carried out the audit in situ. However, the Company
notes that Crowe Clark Whitehill in London was responsible for
signing off the accounts and therefore must acknowledge certain
limitations as the final signatory.
For further information:
Graphene NanoChem Tel: +603 2282 3080
Jespal Deol, Chief Executive
Officer
Panmure Gordon (NOMAD and
Broker)
Adam James / Tom Salvesen Tel: +44 (0) 20 7886
2500
Yellow Jersey PR Limited Tel: +44 (0) 7544
(Media) 275 882
Dominic Barretto / Harriet
Jackson
About Graphene NanoChem
Graphene Nanochem plc (AIM: GRPH), is an international provider
of nanotechnology performance enhancing solutions for global
industries. The Group employs nanoprocesses and nanomaterials to
design, engineer and enhance the performance of mainstream products
for a wide range of industrial applications. It has established two
major functional platforms in the energy and water sectors, and the
Group, through partnerships with established industry players, is
focused on building market opportunities in both sectors whilst
continuing its developmental work in other strategic application
areas of nanotechnology.
Headquartered in Malaysia, Graphene Nanochem was admitted to the
AIM of the London Stock Exchange on 26 March 2013, following the
reverse acquisition of Biofutures International plc, and trades
under the symbol GRPH.L. To find out more, please visit
www.graphenenanochem.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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