TIDMQFI
RNS Number : 6524S
Quadrise Fuels International PLC
21 March 2016
21 March 2016
Quadrise Fuels International plc
("QFI", "Quadrise", the "Company" and together with its
subsidiaries the "Group")
Interim results for the six months ended 31 December 2015
Quadrise, the emerging supplier of MSAR(R) , a low-cost
alternative to fuel oil in the shipping, refining and power
generation markets, is pleased to announce its unaudited interim
results for the six months ended 31 December 2015.
HIGHLIGHTS
Financial
-- Cash reserves of GBP6.50 million as at 31 December 2015
(GBP9.81 million as at 31 December 2014), sufficient to carry the
group through to sustainable early revenues from its major
projects, based on the current programme timescales.
-- Operating loss for the 6 months to 31 December 2015 of
GBP2.37 million (operating loss of GBP2.25 million for 6 months to
31 December 2014), of which GBP0.46 million relates to a non-cash
charge for share options. The increase in expenditure in the
reporting period compared to the same period last year relates
principally to the engagement of additional management resources to
support the increasing project, research and development
activities.
Operational
-- Major "Milestones" were reached, as planned, during the past
9 months including progression of lead project programmes,
strengthening business development support and service capacity,
and expansion of a highly cost effective and focussed R&D
function.
-- Contracts were executed with Maersk Line A/S ("Maersk Line")
and Compañia Española De Petróleos S.A.U. ("CEPSA") to proceed with
the Letter of No Objection ("LONO") programme in 2016 using Marine
MSAR(R) to be produced at the CEPSA San Roque refinery and supplied
via the Algeciras bunkering port. The project is proceeding as
planned with fuel availability targeted by mid-2016. The commercial
scale MSAR(R) Manufacturing Unit ("MMU") and associated equipment
to be supplied by Quadrise has been fabricated and shipping to the
refinery commenced early March 2016. The LONO programme will start
when Marine MSAR(R) supplies are available for loading at
Algeciras, and will continue for up to 10 months to provide
approximately 4,000 hours of engine operating data. Interim engine
inspections and related assessments are planned. Consideration and
commencement of the near term commercial roll-out should take place
through 2017, with implementation contingent on LONO progress.
-- Quadrise International Limited ("QIL") is finalising terms,
to be executed shortly with the Saudi client, which will record the
agreement to proceed with the commercial scale "Production to
Combustion" pilot demonstration project in which MSAR(R) fuel will
be produced in a major refinery, shipped to storage at a large
coastal power plant complex, and trialled in a 400 MW generation
unit. The target date range for the combustion trial, which sets
the timetable for all contributing parties, has been set. The
coordinating engineering contractor will be responsible for
integrating the activity programme in which the responsibilities
and contributions of all participants will be defined. Despite the
inherent complexity of this project, which involves process and
plant change in two large but separate industrial complexes, the
trial is expected to start in the Autumn of 2016 and be completed
by Spring 2017.
-- Support resources and specialist management capacity have
been expanded in preparation for the anticipated transition to
multi-site, multi-client and geographically diverse operations. The
Quadrise Research Facility ("QRF") global service base in the UK
has been further expanded with facilities to support the extended
scope of operations, logistics and product development services.
Further selective recruitment of technical support staff is planned
through 2016. A contract for Research Services executed with the
University of Surrey provides access to both facilities and deep
specialist expertise on a cost effective basis. Assigned projects
complement and contribute to the Group R&D programme which is
tightly focussed on key business imperatives informed by in-depth
risk analysis.
-- The board is delighted to have appointed Mike Kirk, who
joined the Quadrise board as a non-executive director in December
2015, to succeed Ian Williams as Executive Chairman of the Group
from 1 April 2016. The board has an excellent mix of complementary
backgrounds, skills and expertise to direct the affairs of the
Group both in transition and in the anticipated ensuing growth
phase.
Commenting, Ian Williams, Executive Chairman, said:
"I am especially pleased to report that progress of lead
projects has become better aligned with forecasts. Assurance of
delivery has also been strengthened over the review period by the
transition of projects into multi-party coordinated development
programmes.
Much has been learnt by the Quadrise team who are now very well
equipped to exploit future opportunities which are certain to
follow successful lead project results. The future for our
specialised business looks more positive than ever before and the
Company is fully prepared and ready to meet the challenges of
expansion and growth.
I feel very privileged to have had the opportunity to lead the
Company to this stage and, as a shareholder, to leave in the
knowledge that it is in very safe and highly capable hands".
-ENDS-
For further information, please refer to the Company's website
at www.quadrisefuels.com or contact:
Quadrise Fuels International Plc
Ian Williams, Executive Chairman +44 (0)20 7031 7321
Hemant Thanawala, Finance Director
Nominated Adviser
Smith & Williamson Corporate Finance Limited
Dr Azhic Basirov +44 (0)20 7131 4000
Ben Jeynes
Broker
Peel Hunt LLP
Richard Crichton +44 (0)20 7418 8900
Ross Allister
Alastair Rae
Public & Investor Relations
Pelham Bell Pottinger
Rollo Crichton-Stuart +44 (0)20 7861 3232
Greg Wood
Chairman's Statement
Business Overview
This interim report updates shareholders on material
developments during the six months ended 31 December 2015 together
with events and activities taking place after the balance sheet
date.
The global oil and energy market conditions became progressively
even more challenging through the review period, with oil and gas
prices reflecting a combination of weakening demand for resources
generally, geopolitical instability, escalating tensions and
unconstrained supply. The resultant pressure on margins and
viability across the sector globally continued to feed negative
perceptions. The value of associated industries and businesses has
been marked down severely, largely reflecting uncertainty and
concerns about prospects for and implications of a deferred return
to 'normality'.
Fortunately our shareholders have largely come to understand
that the price of oil itself has only a limited indirect impact on
the "Quadrise value-add". Instead it is the "price spread", or
price differential, between Heavy Fuel Oil ("HFO") and distillate
fuels (essentially diesel), which drives the value added by the
Quadrise MSAR(R) technology. The recently prevailing US$30-35 per
barrel crude oil prices have not impacted the programmes currently
underway in our lead projects in the marine and power generation
sectors where the economics remain sound. While the "price spread"
between HFO and distillate fuels has narrowed it is still
sufficient at present and projected levels to support conversion to
MSAR(R) production for suitably configured semi-complex refineries.
It is reassuring that the Quadrise business model has proved to be
robust when subjected to conditions that represent a severe stress
test. The combination of very low capital cost, short lead times
and sustained demand in the global marine and selected power
generation markets continue to amply support the attraction of
conversion to MSAR(R) fuels production. Considering the size of the
target markets and the refiner's ability to offer price and
performance benefits even when the prices for conventional fuels
are relatively low, the Company's latest assessments indicate that
projected performance in "normalised" market circumstances may have
been conservative. This has also been evidenced by the level of
interest evident in continuing confidential discussions with
refiners considering participation in the envisaged future global
Marine MSAR(R) supply network.
Viewed on an objective basis Quadrise is actually advantaged by
prevailing current oil and energy market conditions when compared
with more conventional participants in the oil sector such as
independent exploration and production companies and integrated oil
companies. This, however, has yet to be widely recognised which
frustrates Group management and shareholders alike, despite
concerted efforts to create a deeper appreciation of the market
drivers for the Quadrise business model. Management has therefore
undertaken some research and analysis to better understand
perceptions and correlations. While some investors still have
difficulty recognising the Quadrise "value proposition", it is
positive news-flow which correlates most closely with investor
perceptions. Given the nature of the lead projects, and their
respective planned programmes, the expected ability to provide more
regular progress reporting (as is intended through 2016/17) should
assist in differentiating Quadrise from the more conventional
companies in the oil and gas sector with which some investors
appear to associate the Company.
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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. Quadrise engages with refiners on
the production and supply end of the value chain, and ship and
steam and power generation plant owners and operators on the
combustion end of the value chain. On the production side Quadrise
contracts to license the application of our proprietary MSAR(R)
technology and to supply specialised products and services which
enable the refiner to produce a low cost and better performing
substitute for conventional HFO.
By using only low value heavy residue from the crude oil
refining process, and ultimately selling it as MSAR(R) emulsion
fuel, the refiner is able to substantially increase the yield of
high value distillate (principally diesel) fuels from their oil
refinery. This adds significant value to the refining process at
very low capital cost allowing the MSAR(R) fuel to be priced
competitively and provides financial incentives to the user to
switch from conventional HFO. Directionally, the progressive
tightening of combustion emissions standards by regulatory bodies,
at national and global levels, has positive implications for
Quadrise MSAR(R) fuels in our target markets.
Quadrise is the "integrator" whose technology enables a win-win
outcome for all participants by step-changing the process economics
of residual fuel production, and simultaneously improving
environmental performance relative to conventional HFO.
The HFO markets are very large at a global level, currently some
450 million tons per annum with a value approximating US$70 billion
even at current market prices. The Marine market accounts for
approximately 40% of this demand, most of which is for "open ocean"
heavy bunker fuel oil. Given the scale of the HFO markets, and the
objective of selective substitution for MSAR(R) fuel, Quadrise is
not dependent on demand growth to create opportunity. Selective
large scale substitution will be attractive to major bulk fuel
users throughout the economic cycle. Also relevant is that the
associated industries (shipping, power generation and refining) are
all relatively mature. Large players dominate and competition is
relentless. A material adjustment in cost or yield impacting large
volumes of production or consumption aggregates to very material
financial benefits and competitive advantage.
While the transition to continuous operations has taken longer
than had been originally anticipated, even a modest participation
by MSAR(R) fuels in these large global markets will very quickly
transform the Company, bringing with it all of the demands and
pressures this implies. This impending prospect, and the early
stages of transition now in progress, have prompted changes to
strengthen and better focus the organisation. Following on the
appointment of sector focussed senior executives in 2015, the
future requirements for effective management of operations,
provision of services to refinery sites and research and
development were assessed. This has led to a programme of changes
involving expansion of facilities in the QRF, Quadrise's UK
Research and Service base, association with the University of
Surrey and coordination and integration of research and development
including AkzoNobel support resources in Sweden. The resultant
Quadrise coordinated R&D programme is tightly focussed on
defined present and future business requirements.
Marine MSAR2(R) Bunker Fuel
The 200 million ton per annum global marine bunker fuel market
has a value of approximately US$30 billion at current oil prices
and is dominated by a relatively small number of very large
shipping companies. In March 2010, Quadrise entered into a Joint
Development Agreement ("JDA") with A.P. Moller-Maersk ("Maersk") to
develop a qualifying Marine MSAR(R) fuel to participate in this
very large market. Maersk is one of the world's largest shipping
companies and marine fuel users, and is the global leader in
container transportation.
The fuel supply system for international shipping is focussed on
five "bunker hubs", of which Singapore is currently the volume
leader. The largest hubs are also regional oil and petrochemical
refining centres with all of the associated capacity to produce,
store, blend and supply a full range of oil products to the
shipping industry.
Marine MSAR(R) has entered the last stage of pre-commercial
accreditation. Having commenced in 2010, development progressed
through an extensive programme of seaborne service trials leading
to the confirmation by Maersk that Marine MSAR(R) had satisfied the
"Proof of Concept" ("POC") requirements in mid-2014.
For acceptance as a qualifying bunker fuel, a pre-requisite is
the issue of a "Letter of no Objection" ("LONO") by the marine
engine manufacturers. Two of the leading manufacturers, Wartsila
and MAN Diesel have participated in the POC stage and have a
considerable data base on associated trial results from both land
based tests and "seaborne service".
In order to issue a LONO, the engine manufacturer requires
performance data from extended operations for confirmation that
results are compatible with the trial results already to hand.
Typical requirements are for a total of 4,000 operating hours on a
single engine powering a vessel in seaborne service. As the MSAR(R)
fuels will only be used in open ocean operation the elapsed time
required is up to 10 months. Intermediate inspections are planned
and it is possible that periodic assessments could shorten or
lengthen the LONO programme. This extensive programme - which could
continue through to spring 2017 - also provides an ideal
opportunity to refine and further de-risk fuel handling and
operating practices especially with regard to techniques for fuel
switching while in service.
Following an extended period of review, evaluation of
alternatives and negotiation, the Company and CEPSA announced in
September 2015 that agreement had been reached between Maersk Line,
Quadrise and CEPSA for the installation of a commercial scale
MSAR(R) Manufacturing Unit ("MMU") at the CEPSA San Roque refinery
(adjacent to the Algeciras Mediterranean bunker hub). The
manufacture of Marine MSAR(R) - initially to supply the
requirements for the LONO programme - targets fuel availability by
mid-2016. All elements and requirements for the first full
specification, and potentially, permanent installation of a
commercial scale MMU have been defined and integrated into a
detailed project programme. Shipment of Quadrise equipment to the
San Roque refinery has commenced to dovetail with completion of
civil works and installation and commissioning of the MMU in early
Q2 2016. The high level of enthusiasm in CEPSA management is
evident in the very professional coordination of the programme, and
their public statements and press releases regarding the MSAR(R)
operational trial and the future opportunities that it
presents.
Shareholders were also advised that the Company has agreed with
Maersk to novate the long standing Royalty Agreement to Maersk Line
(the Maersk group shipping company) and to extend the term of the
contract from December 2022 to the tenth anniversary of the date of
first fully commercial production of Marine MSAR(R) . Another
important clarifying change to the agreement is the inclusion of a
contractual commitment, by Maersk Line and Quadrise, to the
commercialisation of Marine MSAR(R) to the shipping industry in the
global marine fuels market subject to success with the extended
operational trail and associated LONO certification. The latter
aspect is already receiving the attention of both parties with
current focus on broadening the supply base to extend future
availability. Confidential discussions are proceeding on a
selective basis with a number of refining companies to this
end.
On environmental matters the new standards for Emission Control
Areas ("ECAs") have been in force since January 2015 and are being
enforced. Indications are that switching to high cost, low sulphur
marine diesel fuel has been the principal means of compliance. A
number of larger operators have, however, opted to comply with
emission standards using a combination of HFO and emissions
scrubbers. Quadrise is following these developments closely as they
may present an opportunity for future ECA compliance across all key
parameters by the use of Marine MSAR(R) and emission scrubbers. As
the focus moves from sulphur to even lower NOx (nitrogen oxide)
standards, and particulate (black soot) emissions become regulated,
it may become possible to achieve ECA compliance with the "MSAR(R)
plus scrubber" combination that would eliminate the switch to more
costly fuels when entering and operating in these areas. As far as
future "open ocean" standards and operations are concerned, the
combination of Marine MSAR(R) and emission scrubbers appears to
offer the most economic means of compliance.
The future potential for liquefied natural gas ("LNG") as a
propulsion fuel for the marine market has gained more attention in
a world anticipating significant additions on the supply side from
conventional natural gas production and shale gas exploitation. Gas
prices remain low and future projections suggest that this is
unlikely to change in the medium term. However, pressures on the
viability of the heavily indebted US shale gas industry and the
high cost of development of US LNG export facilities could well
constrain supplies from the US. In addition the field development
and liquefaction plant costs present major challenges for the
viability of new conventional projects which could lead to further
deferments and cancellations. Oil prices have also fallen
sufficiently to make HFO competitive to delivered LNG per unit of
energy. It is, however, generally acknowledged that LNG will find a
niche in the global marine market, but that its market share is
likely to be constrained in the medium term if gas prices remain
depressed. Clearly, large global shipping companies would not wish
to be competitively
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disadvantaged by LNG developments and will seek to participate
to advantage where it fits their operations. The Company does not
anticipate that the entry of LNG into the marine market will have
any material impact on the post LONO Marine MSAR(R)
commercialisation and roll-out programme. The marine fuels market
is very large and there is more than enough room for a range of
competing fuels.
When LONO certification and other regulatory formalities have
been completed the early commercial phase will get underway,
subject to contract. The initial focus will be to service the
Maersk Line nominated requirements which will be prioritised by
location. As supply availability is expanded surpluses may become
available to meet the requirements of associate and third party
shipping operators and refiners' margins will be maximised by
running their MMU's at full capacity. Since the capital cost of an
MMU is relatively modest and "site and services" will generally
have been designed and permitted for multi-MMU operation, capacity
expansion is relatively low cost and requires short lead times.
These features should enable a rapid run-up of supply capacity
through the period to 2020 and beyond - this at a time when it is
anticipated that the international marine bunker fuels market
should have moved back to a growth phase.
Saudi Arabia
The scale and nature of the oil and power generation industries
in the Kingdom of Saudi Arabia ("KSA") offers an enormous
opportunity for both conversion from fuel oil to MSAR(R) production
in very large refineries, and for the substitution of crude oil and
HFO currently used in thermal power and other large scale
applications. Quadrise and our local partner, the Rafid Group, have
been working on a sustained basis for over 5 years with the oil
industry in KSA to create an opportunity to demonstrate the MSAR(R)
production process and trial MSAR(R) combustion in KSA thermal
power generation on a commercial scale. This has involved several
in-depth studies, reports, proposals and evaluation programmes
undertaken jointly with the refineries and the planning and
development division of the KSA national oil company.
After consideration of several alternatives a proposal for a
'fast track' pilot trial to demonstrate and test all facets from
"production to combustion" was accepted in principle. This led to
the designation of both the refining complex at which the MSAR(R)
will be produced and the major coastal power station at which the
combustion trial will take place.
Having undertaken projects of this kind elsewhere, Quadrise have
been able to share its experience and assist with the scoping of
requirements both in the refinery and the power station. Both the
refining complex and the power station are very large and
relatively complex by international standards and fitting the
MSAR(R) project into their respective operating programmes on a
coordinated basis requires considerable and detailed preparatory
work. Fortunately the refining company was able to arrange for the
installation of "tie ins" for the supply of hot heavy residue to
the MMU production site during a planned maintenance shut down at
the end of 2015.
The closer definition of requirements through the "production -
supply - combustion" chain continues to inform the practicalities
and sequence of preparatory engineering and site and services
requirements and the associated timings of key elements on the
critical path. Present indications are that the installations for
the combustion trial will commence in the autumn of 2016 and will
be completed by spring 2017.
Agreement has very recently been reached on the form and nature
of the documentation required to record the intentions, principles
and terms which will guide the relationship. Such documentation
will record all material aspects of the joint activities to be
undertaken, the associated objectives and the responsibilities of
the parties. In practice preparations have not been unduly delayed
by the contractual aspects and early elements of the programmes
have been progressed by all parties where possible.
Quadrise specialists will have a very active role across all
facets and in some cases will have direct responsibility for the
performance management of operations including MSAR(R) plant
commissioning, production and quality assurance.
The Company has full confidence that our Quadrise MSAR(R)
technology will produce high quality and stable emulsion fuel and
that the combustion trials will successfully demonstrate the
considerable benefits offered by substitution. Equally relevant are
first the potential benefits for the refining sector in terms of
the added value of distillate production and, second, the potential
benefits for the power sector not just in economic terms but also
in the positive impact on particulate and NOx emissions. In the
case of particulates that contain 'black soot' carbon from oil use,
as MSAR(R) combustion eliminates carbon particulates and converts
virtually all of the oil content to energy, conversion from HFO and
crude oil should largely eliminate the considerable cost currently
incurred in capturing and disposing 'black soot' in very large
thermal power plants.
While the terms of the 2016/17 pilot programme do not commit any
participants to proceed to a full commercial scale application
programme, Quadrise understands that the future KSA power
generation fuels strategy will include opportunity fuels such as
residual emulsions.
When considering their relative merits, it is difficult to see
how any alternatives would come close to the benefits offered by
MSAR(R) substitution in existing KSA refineries currently supplying
HFO. For the Saudi Electric Company ("SEC") alone, a domestic
conversion could potentially result in the substitution of one
third of the 33 million tons consumed by SEC per annum. The
benefits, which could be expected to amount to several billion US
Dollars over a 5 year period, and the associated returns on
investment, would be exceptional. Such a programme, on whatever
scale applied, will also surely serve to demonstrate to the global
refining and the power generation industries the prospects of both
the economic and environmental benefits offered by conversion from
HFO to MSAR(R) .
Future Programmes
Asia
The association with YTL Power Seraya remains close and the
prospective benefits continue to be material at present oil prices
and price spreads, though lower gas prices are affecting
competition in the Singapore power generation market. The Seraya
project is dependent on MSAR(R) production by a major regional
refiner and this is only likely to start when shipping companies
are prepared to contract for Marine MSAR(R) bunker supplies in
Singapore in the post LONO commercialisation programme from 2017
onwards. In such circumstances refiners will not be dependent on
only one client and the risk of capitalising market entry will be
reduced by having both marine and thermal power markets to
service.
Major Global Oil, Energy and Engineering Companies
Quadrise has continuing associations with Oil Majors for whom
several technical evaluations have been completed or are underway
to confirm the suitability of specific oil processing residues for
use in the manufacturing of Marine and Thermal Power MSAR(R) fuels.
Given the likely locations of the processing residues, the
associated opportunity is largely linked to the marine fuels
market. The next logical step would involve a project in a large
oil refining complex, and such a commitment would likely be
dependent on confirmation of results from the 2016/17 LONO
programme.
As reported in relation to the Marine programme, Quadrise has
engaged with refiners - Majors, Independents and National Oil
Companies - in the context of future expansion of the MSAR(R)
supply points. These discussions provide opportunities to explore
options for MSAR(R) production and conversion of refinery power and
steam generation plant or sale to proximate HFO fired consumers.
The potential use of MSAR(R) as an energy source for water
desalination and kiln firing in cement manufacturing is also under
consideration providing the scale of operations justify the modest
investment.
The growing awareness of Quadrise technology by the process
engineering industry has led to a number of enquiries usually
relating to possibilities in programmes under development or
consideration in their specialised field - mostly energy
associated. The Company has agreed on a highly selective basis to
work jointly in confidence on evaluating the technical and
commercial merits of such applications where the indicated scale
and potential warrants attention. All such work is done on a
cost-plus basis with recovery from the partner/client.
Refinery Power and Steam Generation Refuelling
Early studies confirmed the benefits of producing MSAR(R) and
substituting for HFO and other fuels used for on-site steam and
power generation in oil refineries on a selective basis. The
Company has since developed the criteria for selection and
identified prospective clients. The first requirement in a
marketing programme is to create a "reference site" where the
application could be both proven and demonstrated. With this in
view, a suitable opportunity was identified with a mid-sized
refining company and, as previously reported, a programme was
agreed and progressed. The client company's policy requires that
its name remains confidential until the detailed evaluation and
feasibility study is completed and the contract executed for
project implementation. By end 2015 Quadrise, working in
association with the refinery engineers and the steam and power
plant manufacturers, had completed the review and tabled the
associated reports which confirmed the attractions of the
proposition. External factors have since intervened and it has been
agreed that any further work be postponed until the refining
company confirms a date for the programme to be re-activated As the
report endorsed the project as being low cost, feasible and
profitable, and the refinery is considered intrinsically viable and
competitive in the
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present market, the project is considered to be postponed rather
than cancelled at this time.
Exploratory discussions have started with a number of parties on
similar and related opportunities. Some effort is usually required
to reach a stage where the exchange of confidential technical
information required for preliminary assessments becomes possible.
As these studies and evaluations can be time consuming, and given
limited resources, selectivity is applied in committing to such
additional programmes.
Risk Management, Resources and Service Capacity
The Group's business plan is comprehensively reviewed, updated
and considered for approval by the QFI board on an annual basis. In
the 2015 cycle the process was enhanced by the addition of a
comprehensive "Risk Management Review" designed to identify and
rank the principal risks affecting planned performance, and how
they could best be mitigated. This process is now integral to the
management of the Company and directly affects aspects such as
R&D focus and capacity, selective conversion of specialist
consultants to executive employees, expansion of the QRF facilities
and capacity to provide a range of operating and technical services
to diverse MSAR(R) manufacturing and storage locations, management
of partner and client relations etc.
The MMU installation in the CEPSA refinery is designed to meet
standards applicable to "permanent continuous operation". The same
applies to all associated new construction and plant change -
storage, pipelines and pump-sets etc. While not unusually complex,
as would be expected in refinery operations, the standards are
exacting. Quadrise specialists contribute to a multi-party team
effort from definition to execution and commissioning. Whilst this
has, of course, been done several times before on a smaller and
less complex scale, the San Roque programme has proved a very
useful experience. The Company is now better informed and prepared
to assess future requirements and our personnel are gaining
valuable experience. This will also help to inform judgements on
future staffing requirements and the timing and focus of
recruitment.
Financial Position
The Group recorded a loss of GBP2.4 million (of which GBP1.9
million was cash expenditure) for the six months to 31 December
2015 (H1 2014 loss was GBP2.2 million). There were no exceptional
costs during the period. The increase in expenditure in the
reporting period compared to the same period last year relates
principally to the engagement of additional management resources to
support the increasing project, research and development
activities
The Group held cash and cash equivalents of GBP6.5 million as at
31 December 2015. No additional equity funding has been raised
since March 2014 and the Company continues to operate on a debt
free basis without any term loan exposures. Tight control of costs
continued through the period with operating expenditure held below
budget at the half year.
A review of the 2016 business plan and funding assessment
confirmed that the Group holds sufficient funds to progress the
lead programmes through to early commercial revenues from the
Marine programme as now anticipated during 2017. This assessment
has taken account of the increase in overhead costs related to
organisational changes and future business support capacity
preparation.
The 2017 business plan and associated budgets will be formulated
during Q2 2016 for consideration and approval by the QFI board
before mid-year. The Group continues to favour the "License Model"
in the near term. This business mode minimises capital funding
requirements for plant, facilities and fuel inventory. However, as
various projects progress and new prospects arise it may be
appropriate to review the mode of business and the related Group
funding strategy and requirements. Judgements on these matters will
be informed by the future business plan and related risk management
review and the board could be expected to apply a prudent approach
in judgements on risk, reserve requirements, and funding strategy,
including the relevance of the financial standing of the Group in
its relations with present and future partners and clientele.
Board and Management Continuity
As announced in February, Mr Mike Kirk has been appointed to the
position of Executive Chairman of the Company effective 1 April
2016. This is the culmination of an 18 month programme in which the
board has paid considerable attention to preparing the Company for
the challenges represented by the now imminent transition to fully
commercial operations. While attending to organisation
restructuring and recruitment at senior executive level, attention
was also focussed on assurance of effective continuity at the QFI
board level. The board is delighted to have secured Mike Kirk's
services, initially as a non-executive director in December 2015,
and subsequently as Executive Chairman designate. Continuation of
the role of Executive Chairman was seen to best serve the present
stage of development of the business, and considerable effort has
been applied to best assure effective continuity and to complement
the specialised experience, strength and capabilities of the QFI
board as a whole.
Outlook
Both the Marine and Saudi Arabia lead programmes have reached
defining stages in their development and their commercial
realisation is more assured than ever before. Awareness of Quadrise
within the refining industry has also received a considerable boost
by the public associations with Maersk, CEPSA and the KSA
participants. The Company is engaged with more refining companies
and potential MSAR(R) fuel users than ever before and new prospects
have been identified for development by our expanded executive team
when resources permit. We have every confidence in our technology
and capacity to add value, and look forward with great expectation
to the forthcoming results from the Marine and Saudi
programmes.
While general concern in the energy sector is focussed on the
oil price outlook and widespread economic uncertainties, these very
factors may be said to strengthen the case for both refiners and
large scale HFO users to produce and consume MSAR(R) fuels. The
win-win formula remains valid and viable at current oil prices and
HFO to diesel price spreads, implying that the hoped for oil price
recovery should provide a progressive enhancement and further
improve the returns for conversion and substitution in the future.
As reported elsewhere the introduction and application of ever more
stringent standards on combustion emissions creates more challenges
for the oil industry and further opportunities for Quadrise with
its material competitive advantage in NOx and particulates,
especially in thermal power generation.
2016 promises to be a busy and eventful year, which should set
the trend for the future. The outlook for shareholder value is
surely informed by these circumstances and expectations. Quadrise
is resourced and equipped to participate fully in these exciting
programmes, and is fully committed to meet partner and client
expectations, cognisant of the part that success will play in the
determining the future value of the Company.
Ian Williams
Chairman
18 March 2016
Condensed Consolidated Statement of Comprehensive Income
For the 6 months ended 31 December 2015
Note 6 months 6 months Year ended
ended 31 ended 31 30 June
December December 2015
2015 2014 Audited
Unaudited Unaudited GBP'000
GBP'000 GBP'000
Continuing operations
Revenue 2 58 66
Other income - 26 39
Production and development
costs (834) (552) (1,268)
Adjustment to available
for sale investments 7 - - (404)
Other administration expenses (1,083) (700) (1,540)
Share option charge (460) (1,082) (1,914)
Foreign exchange gain/(loss) 7 3 (3)
---------------------------------- ----- ----------- ----------- -----------
Operating loss (2,368) (2,247) (5,024)
Finance costs (4) (3) (7)
Finance income 19 29 56
---------------------------------- ----- ----------- ----------- -----------
Loss before tax (2,353) (2,221) (4,975)
Taxation - - 72
---------------------------------- ----- ----------- ----------- -----------
Loss for the period from continuing
operations (2,353) (2,221) (4,903)
----------------------------------------- ----------- ----------- -----------
Other Comprehensive Income
Changes in fair value of
available for sale investments 7 - - (1,035)
---------------------------------- ----- ----------- ----------- -----------
Other comprehensive loss
for the period net of tax - - (1,035)
---------------------------------- ----- ----------- ----------- -----------
Total comprehensive loss for
the period (2,353) (2,221) (5,938)
----------------------------------------- ----------- ----------- -----------
Loss for the period attributable
to:
Owners of the Company (2,353) (2,216) (4,898)
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Non-controlling interest - (5) (5)
Total comprehensive loss
attributable to:
Owners of the Company (2,353) (2,216) (5,933)
Non-controlling interest - (5) (5)
Loss per share - pence
Basic 4 (0.29)p (0.27)p (0.61) p
Diluted 4 (0.29)p (0.27)p (0.61) p
---------------------------------- ----- ----------- ----------- -----------
Condensed Consolidated Statement of Financial Position
As at 31 December 2015
Note As at As at As at
31 December 31 December 30 June
2015 2014 2015
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Property, plant and equipment 5 1,043 627 710
Intangible assets 6 2,924 2,924 2,924
Available for sale investments 7 - 1,439 -
------------- ---------
Non-current assets 3,967 4,990 3,634
-------------------------------- ----- ------------- ------------- ---------
Current assets
Cash and cash equivalents 6,495 9,805 8,361
Trade and other receivables 230 177 333
Prepayments 81 270 238
-------------------------------- ----- ------------- ------------- ---------
Current assets 6,806 10,252 8,932
-------------------------------- ----- ------------- ------------- ---------
TOTAL ASSETS 10,773 15,242 12,566
-------------------------------- ----- ------------- ------------- ---------
Equity and liabilities
Current liabilities
Trade and other payables 522 320 422
-------------------------------- --------- --------- ---------
Current liabilities 522 320 422
-------------------------------- --------- --------- ---------
Equity attributable to
equity holders of the parent
Issued share capital 8,096 8,088 8,096
Share premium 69,216 69,117 69,216
Revaluation reserve - 1,035 -
Share option reserve 4,605 4,127 4,210
Reverse acquisition reserve 522 522 522
Accumulated losses (72,188) (67,967) (69,900)
-------------------------------- --------- --------- ---------
Total shareholders' equity 10,251 14,922 12,144
-------------------------------- --------- --------- ---------
TOTAL EQUITY AND LIABILITIES 10,773 15,242 12,566
-------------------------------- --------- --------- ---------
Condensed Consolidated Statement of Changes in Equity
For the 6 months ended 31 December 2015
Issued Reverse Non-controlling
share Share Revaluation Share acquisition Accumulated interests
capital premium reserve option reserve losses Total GBP'000s Total
GBP'000s GBP'000s GBP'000s reserve GBP'000s GBP'000s GBP'000s GBP'000s
GBP'000s
As at 1 July
2015 8,096 69,216 - 4,210 522 (69,900) 12,144 - 12,144
Loss for the
period - - - - - (2,353) (2,353) - (2,353)
Total
comprehensive
loss for the
period - - - - - (2,353) (2,353) - (2,353)
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Share option
charge - - - 460 - - 460 - 460
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Transfer of
balances
relating
to expired
share options - - - (65) - 65 - - -
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Shareholders'
equity at
31 December
2015 8,096 69,216 - 4,605 522 (72,188) 10,251 - 10,251
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Issued Reverse Non-controlling
share Share Revaluation Share acquisition Accumulated interests
capital premium reserve option reserve losses Total GBP'000s Total
GBP'000s GBP'000s GBP'000s reserve GBP'000s GBP'000s GBP'000s GBP'000s
GBP'000s
As at 1 July
2014 8,072 68,633 1,035 3,045 522 (65,126) 16,181 (120) 16,061
Loss for the
period - - - - - (2,216) (2,216) (5) (2,221)
Total
comprehensive
income for
the period - - - - - (2,216) (2,216) (5) (2,221)
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Share option
charge - - - 1,082 - - 1,082 - 1,082
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Acquisition
of Minority
Interest 16 484 - - - (625) (125) 125 -
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Shareholders'
equity at 31
December 2014 8,088 69,117 1,035 4,127 522 (67,967) 14,922 - 14,922
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Issued Reverse Non-controlling
share Share Revaluation Share acquisition Accumulated interests
capital premium reserve option reserve losses Total GBP'000s Total
GBP'000s GBP'000s GBP'000s reserve GBP'000s GBP'000s GBP'000s GBP'000s
GBP'000s
As at 1
January
2015 8,088 69,117 1,035 4,127 522 (67,967) 14,922 - 14,922
Loss for the
period - - - - - (2,682) (2,682) - (2,682)
Fair value
adjustments - - (1,035) - - - (1,035) - (1,035)
Total
comprehensive
income for
the period - - (1,035) - - (2,682) (3,717) - (3,717)
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Share option
charge - - - 832 - - 832 - 832
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Exercise of
share options 8 99 - (43) - 43 107 - 107
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Transfer of
balances
relating
to expired
share options - - (706) - 706 - - -
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Shareholders'
equity at 30
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June 2015 8,096 69,216 - 4,210 522 (69,900) 12,144 - 12,144
--------------- --------- ---------- ------------- ---------- ------------ ------------- ---------- ---------------- ----------
Condensed Consolidated Statement of Cash Flows
For the 6 months ended 31 December 2015
Note 6 months 6 months Year ended
ended 31 ended 31 30 June
December December 2015
2015 2014 Audited
Unaudited Unaudited GBP'000
GBP'000 GBP'000
Operating activities
Loss before tax from continuing
operations (2,353) (2,221) (4,975)
Finance costs 4 3 7
Finance income (19) (29) (56)
Depreciation 5 64 49 108
Loss on disposal of fixed
assets 2 - 14
Adjustment to available
for sale investments 7 - - 404
Share option charge 460 1,082 1,914
Working capital adjustments
Decrease/(increase) in
trade and other receivables 103 (7) (163)
Decrease/(increase) in
prepayments 157 (194) (162)
Increase in trade and other
payables 100 79 181
--------------------------------- ----- ----------- ----------- -----------
Cash utilised in operations (1,482) (1,238) (2,728)
--------------------------------- ----- ----------- ----------- -----------
Finance costs (4) (3) (7)
Taxation received - - 72
----------- -----------
Net cash outflow from operating
activities (1,486) (1,241) (2,663)
--------------------------------- ----- ----------- ----------- -----------
Investing activities
Finance income 19 29 56
Purchase of fixed assets 5 (399) (64) (220)
Net cash outflow from investing
activities (380) (35) (164)
--------------------------------- ----- ----------- ----------- -----------
Financing activities
Exercise of share options - - 107
Net cash inflow from financing
activities - - 107
Net decrease in cash and
cash equivalents (1,866) (1,276) (2,720)
Cash and cash equivalents
at the beginning of the
period 8,361 11,081 11,081
--------------------------------- ----- ----------- ----------- -----------
Cash and cash equivalents
at the end of the period 6,495 9,805 8,361
--------------------------------- ----- ----------- ----------- -----------
Notes to the Group Condensed Financial Statements
1. General Information
Quadrise Fuels International plc ("QFI", "Quadrise" or the
"Company") and its subsidiaries (together with the Company the
"Group") are engaged principally in the manufacture and marketing
of emulsified fuel for use in power generation, industrial and
marine diesel engines and steam generation applications. The
Company's ordinary shares are quoted on the AIM market of the
London Stock Exchange.
QFI was incorporated on 22 October 2004 as a limited company
under the Companies Act 1985 with registered number 05267512. It is
domiciled and registered at Gillingham House, 38-44 Gillingham
Street, London, SW1V 1HU.
2. Summary of Significant Accounting Policies
2.1 Basis of Preparation
The interim accounts have been prepared in accordance with IAS
34 'Interim financial reporting' and on the basis of the accounting
policies set out in the annual report and accounts for the year
ended 30 June 2015, which have been prepared in accordance with
International Financial Reporting Standards as adopted for use by
the European Union. The interim accounts are unaudited and do not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006.
The same accounting policies, presentation and methods of
computation have been followed in these unaudited interim financial
statements as those which were applied in the preparation of the
Group's annual statements for the year ended 30 June 2015, upon
which the auditors issued an unqualified opinion, and which have
been delivered to the registrar of companies.
The interim accounts have been drawn up using accounting
policies and presentation expected to be adopted in the Group's
full financial statements for the year ended 30 June 2016.
A number of new standards and amendments to standards and
interpretations have been issued but are not yet effective and in
some cases have not yet been adopted by the European Union.
The Directors do not expect that the adoption of these standards
will have a material impact on the financial information of the
Group in future periods.
The interim accounts for the six months ended 31 December 2015
were approved by the Board on 18 March 2016.
The directors do not propose an interim dividend.
3. Segmental Information
For the purpose of segmental information the reportable
operating segment is determined to be the business segment. The
Group principally has one business segment, the results of which
are regularly reviewed by the Board. This business segment is a
business to produce emulsion fuel (or supply the associated
technology to third parties) as a low cost substitute for
conventional Heavy Fuel Oil ("HFO") for use in power generation
plants and industrial and marine diesel engines.
Geographical Segments
The Group's main geographical segments during the period were
the UK and Canada. The following table presents certain asset
information regarding the Group's geographical segments.
31 December 31 December 30 June
2015 2014 2015
Unaudited Unaudited Audited
GBP'000s GBP'000s GBP'000s
Non-current assets
UK 3,967 3,551 3,634
Canada - 1,439 -
-------------------- ------------ ------------ ---------
Total 3,967 4,990 3,634
-------------------- ------------ ------------ ---------
4. Loss Per Share
The calculation of loss per share is based on the following loss
and number of shares:
6 months 6 months Year ended
ended 31 ended 30 June
December 31 December 2015
2015 2014 Audited
Unaudited Unaudited
Loss for the period from
continuing operations (GBP'000s) (2,353) (2,216) (4,898)
Weighted average number
of shares:
Basic 809,585,162 807,859,828 808,656,176
Diluted 809,585,162 807,859,828 808,656,176
Loss per share:
----------------------------------- ------------ ------------- ------------
Basic (0.29)p (0.27) p (0.61)p
----------------------------------- ------------ ------------- ------------
Diluted (0.29)p (0.27) p (0.61)p
----------------------------------- ------------ ------------- ------------
Basic loss per share is calculated by dividing the loss for the
period from continuing operations of the Group by the weighted
average number of ordinary shares in issue during the period.
For diluted loss per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
potential dilutive options and warrants over ordinary shares.
Potential ordinary shares resulting from the exercise of share
options and warrants 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 28.95
million share options issued by the Company and which are
outstanding at the period-end could potentially dilute earnings per
share in the future if exercised when the Group is in a profit
making position.
5. Property, plant and equipment
Leasehold Computer Software Office Plant Total
improvements equipment equipment and machinery
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Opening balance
- 1 July 2015 99 70 43 16 682 910
Additions - 5 - - 394 399
Disposals - - - - (6) (6)
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 31 December
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2015 99 75 43 16 1,070 1,303
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Depreciation
Opening balance
- 1 July 2015 (26) (14) (15) (9) (136) (200)
Depreciation charge
for the period (9) (8) (4) (2) (41) (64)
Disposals - - - - 4 4
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 31 December
2015 (35) (22) (19) (11) (173) (260)
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Net book value
at 31 December
2015 64 53 24 5 897 1,043
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Leasehold Computer Software Office Plant Total
improvements equipment equipment and machinery
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Opening balance
- 1 July 2014 94 21 17 16 559 707
Additions - 30 26 - 8 64
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 31 December
2014 94 51 43 16 567 771
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Depreciation
Opening balance
- 1 July 2014 (6) (7) (9) (6) (67) (95)
Depreciation charge
for the period (9) (2) (2) (2) (34) (49)
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 31 December
2014 (15) (9) (11) (8) (101) (144)
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Net book value
at 31 December
2014 79 42 32 8 466 627
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Leasehold Computer Software Office Plant Total
improvements equipment equipment and machinery
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Opening balance
- 1 July 2014 94 21 17 16 559 707
Additions 5 49 26 - 140 220
Disposals - - - - (17) (17)
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 30 June 2015 99 70 43 16 682 910
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Depreciation
Opening balance
- 1 July 2014 (6) (7) (9) (6) (67) (95)
Depreciation charge
for the year (20) (7) (6) (3) (72) (108)
Disposals - - - - 3 3
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 30 June 2015 (26) (14) (15) (9) (136) (200)
--------------------- -------------- ----------- --------- ----------- --------------- ---------
Net book value
at 30 June 2015 73 56 28 7 546 710
--------------------- -------------- ----------- --------- ----------- --------------- ---------
6. Intangible Assets
QCC royalty MSAR(R) Technology
payments trade name and know-how Total
Unaudited Unaudited Unaudited Unaudited
GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Opening balance -
1 July 2015 7,686 3,100 25,901 36,687
Additions - - - -
------------------- ------------ ------------ -------------- ----------
Closing balance -
31 December 2015 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 -
31 December 2015 (7,686) (176) (25,901) (33,763)
------------------- ------------ ------------ -------------- ----------
Net book value at
31 December 2015 - 2,924 - 2,924
------------------- ------------ ------------ -------------- ----------
QCC royalty MSAR(R) Technology
payments trade and know-how Total
name
Unaudited Unaudited Unaudited Unaudited
GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Opening balance -
1 July 2014 7,686 3,100 25,901 36,687
Additions - - - -
------------------- ------------ ---------- -------------- ----------
Closing balance -
31 December 2014 7,686 3,100 25,901 36,687
------------------- ------------ ---------- -------------- ----------
Amortisation and
Impairment
Opening balance -
1 July 2014 (7,686) (176) (25,901) (33,763)
Amortisation - - - -
Closing balance -
31 December 2014 (7,686) (176) (25,901) (33,763)
------------------- ------------ ---------- -------------- ----------
Net book value at
31 December 2014 - 2,924 - 2,924
------------------- ------------ ---------- -------------- ----------
QCC royalty MSAR(R) Technology
payments trade name and know-how Total
Audited Audited Audited Audited
GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Opening balance -
1 July 2014 7,686 3,100 25,901 36,687
Additions - - - -
------------------- ------------ ------------ -------------- ----------
Closing balance -
30 June 2014 7,686 3,100 25,901 36,687
------------------- ------------ ------------ -------------- ----------
Amortisation and
Impairment
Opening balance -
1 July 2014 (7,686) (176) (25,901) (33,763)
Amortisation - - - -)
Closing balance -
30 June 2015 (7,686) (176) (25,901) (33,763)
------------------- ------------ ------------ -------------- ----------
Net book value at
30 June 2015 - 2,924 - 2,924
------------------- ------------ ------------ -------------- ----------
Intangibles comprise intellectual property with a cost of
GBP36.69m, including assets of finite and indefinite life. Quadrise
Canada Corporation ("QCC") royalty payments of GBP7.69m and the
MSAR(R) trade name of GBP3.10m are termed as assets having
indefinite life as it is assessed that there is no foreseeable
limit to the period over which the assets are expected to generate
net cash inflows for the Group. The assets with indefinite life are
not amortised. The remaining intangibles amounting to GBP25.90m,
primarily made up of technology and know-how, are considered as
finite assets and are now fully amortised. 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. As at 30 June 2015, the QCC royalty payments asset was
fully impaired and the MSAR(R) trade name asset had a net book
value of GBP2.92m. For the six month period to 31 December 2015,
there was no indication that the MSAR(R) trade name asset may be
impaired.
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