(QFI.L) Quadrise Fuels International PLC Buy/Sell

RNS Number : 3254B
  Quadrise Fuels International PLC
  26 October 2009
   

Quadrise Fuels International plc ("Quadrise" or "the Company")

Final Results for the year ended 30 June 2009

Quadrise Fuels International plc (AIM: QFI), the producer of emulsion fuel as a low cost substitute for heavy fuel oil for use in power generation plants and industrial diesel engines, today announces its results for the year ended 30 June 2009 and gives notice for the convening of an Annual General Meeting ("AGM") of the Company to be held at Parnell House 25 Wilton Road, London SW1V 1YD on Thursday, 10 December 2009 at 11.00am.

HIGHLIGHTS

Financial

*     First revenues of £3.54 million (2008: £nil) arising from the sale of MSAR fuel during the Lithuanian trial.

*     No debt and £2.88 million (2008: £3.61 million) in cash reserves at 30 June 2009. 

*     Operating costs contained at modest levels through outsourcing and shared services. 

*     Loss after tax of £4.97 million (2008: £22.46 million), which includes a non-cash charge of £4.46 million (2008: £11.94 million) for amortisation and impairment of intangible assets.

*     Resultant loss per share 1.10 pence (2008: 4.86 pence).

Operational

*     A major commercial demonstration of the manufacture and combustion of MSAR fuel was completed successfully in Lithuania between July and September 2008. 

*     Substantial progress was made in the key oil burning power markets of Saudi Arabia and Mexico and quantitative case studies have been prepared for evaluation by the Company's client counter-parties.

*     Cost reduction initiative completed leading to annual cost savings of £400 000 p.a.

Commenting on the results, Bill Howe, Chief Executive of Quadrise, said:

*Successful completion of the Lithuanian trial was a major milestone for the Company and puts us in the leading position in the process to commercialise the manufacture of fuel emulsions from heavy refinery residues. We continue negotiations for implementation of the first MSAR project at Mazeikiai. Despite delays arising from energy price volatility and the current economic climate, we hope for a positive outcome on this matter during the first half of 2010.
 
*The visible success in Lithuania has been instrumental in opening our other target markets which have progressed more rapidly than we had anticipated. We are particularly pleased with progress in Saudi Arabia which was identified during our earliest strategy sessions as a key area for our technology; being a growth economy with a heavy emphasis on oil-fired power generation.
 
*2010 will be a watershed year for the Company. We approach it with a number of active business opportunities where the fundamentals work to our favour. If progressed through the full project development process by our clients these would result in considerable financial success for the Company*

For additional information, please contact:

Quadrise Fuels International plc    

Bill Howe, Chief Executive

+44 (0)20 7550 4930

Fairfax I.S. PLC    

Jeremy Porter

+44 (0)20 7598 5368

Capital MS&L    

James Madsen    

+44 (0)20 7255 5199

+44 (0)7738 324438

CHAIRMAN'S STATEMENT

I am pleased to present the annual results for Quadrise Fuels International plc ("Quadrise", "Company", "Group", "QFI") for the year ended 30 June 2009. 

Introduction 

The Company has continued to follow the strategy formulated in 2007 which set the optimum direction for the achievement of early revenue. Quadrise has continued to focus on the prime regions and project opportunities identified at that time. Management has made commendable progress with its market development activities. 

The past year has been particularly challenging due to the impact of the global economic crisis on energy markets with the attendant perceptions of risk and uncertainty. As would be expected this has led to increased resistance to change, and this has particularly affected companies promoting new technologies. In this, Quadrise has not been immune. Increased fuels market volatility has also been a feature during the reporting period with unexpected short term impacts on inter-fuels competition. These factors have, in combination, created a 'wait and see' approach on the part of prospective MSAR emulsion fuels clients who have deferred fuel selection decisions and are instead waiting for markets to return to a more normal pattern. 

Despite this difficult background, the Company continues to progress the conversion of the 2008 commercial demonstration success in Lithuania into its first 'reference site'. Expectations are this may be resolved in the first half of 2010. Meanwhile, significant progress has also been made on the market entry strategy for Saudi Arabia and Mexico - together representing the prime medium term markets for MSAR fuels.

Further work on the application of our MSAR fuels in diesel engines, for both land based power generation and the international marine markets, suggests these sectors are highly prospective. These markets are expected to form a significant part of the longer term Quadrise business mix. 

Financial Performance and Funding 

The prudent financial policy and practices adopted on formation have continued to benefit the Company. Quadrise has no debt exposure and continues to rely on its original equity funding. 

The recent turbulence and related uncertainty in financial markets have had a continued negative influence on junior energy companies listed on AIM. The institutional equity fund raising market has been extremely limited during the period under review, and has only very recently showed some signs of turning. The lack of access to capital has required the Company to further adapt both its business model and the medium term strategy in order to stretch existing resources to match funding availability. 

While viability and future prospects remain both sound and attractive, a more focused lower cost interim strategy has been adopted to conserve funds leading up to fully commercial contracts and steady revenues. 

The Company's financial performance in the period to 30 June 2009 was in line with budget. Costs were contained through effective control of both internal and contractor activities. The business activities and near term prospects of associate companies, Quadrise Canada Corporation and Paxton Corporation, have been similarly affected but, as with the Company, both are still considered to be viable over the longer term.

Board, Management and Associates 

The Company benefits from the services of a highly specialised and uniquely experienced team. Their contribution and commitment continues to rapidly extend the recognition, reach and reputation of Quadrise, adding significant longer term value for shareholders in the process. In the prime target markets of Saudi Arabia and Mexico, the team is building constructive relationships with leading business entities with a view to future commercial partnerships. 

The board is unchanged since my last report, but certain roles and responsibilities have been revised. Mr Hemant Thanawala and I have served the Company in an executive capacity under contract from International Energy Services Limited since admission to AIM, in the respective capacities of Finance Director and Executive Chairman. As a contribution to the strategic imperative to reduce the cost base it was agreed that charges for these services would be waived and that costs would be borne by International Energy Services Limited until 31 December 2010. As part of the same arrangement it was agreed that both board appointments would become non-executive effective 1 September 2009. 

Mr Thanawala has subsequently accepted appointment to the Audit Committee ensuring his continued specialist advice and counsel on financial matters.  

I should like to express appreciation to our non-executive board members for their valued and continuing advice and guidance. Mr Laurie Mutch continues to chair the Audit Committee and Dr Ian Duckels has the chair of the Compensation Committee. Both of these non-executive Directors offered to defer a portion of their fees as a contribution to the interim low cost strategy. This offer was accepted, with thanks, by the board. 

As in previous reports, the Company would like to acknowledge the very valuable contribution and continuing support of AkzoNobel in our key activities. The AkzoNobel Alliance Agreement is a cornerstone of our business and their help and our long term relationship is essential to the success of our key programmes. The Company could not aspire to have a more constructive business association and a more supportive alliance partner. 

Future Outlook 

The Quadrise business model is not complex, and neither is the introduction of our technology application into plant operations when considered in the context of the technical complexity of the specialised process and production industries with which we interface. An important feature, however, is that several parties need to be aligned in purpose, and to reach agreement on key terms and timing before commercial contracts can be executed. Typically, a refiner is required to host the production facility, and a power producer must contract to buy the MSAR fuel. The reality is that this multi-party feature adds commercial complexity and means that appreciably more time is required to close a deal than would be the case if one party controlled the combined activity chain. 

Notwithstanding these features, our expectation is that a contract will be closed which will lead to MSAR fuel supplies and revenues in 2010. Having a commercial 'reference site' will both accelerate the rate of acceptance and the pace of progress in our key target markets as well as the speed of development of new projects.

It is also our expectation that such an outcome should assist in providing a basis for securing future funding on reasonable terms in a recovering and accessible financial market. 

Ian Williams

Non-executive Chairman

23 October 2009

CHIEF EXECUTIVE'S REVIEW

Overview

The Company made significant progress during the course of the past year. Our prime prospect for technology commercialisation was successfully demonstrated in Lithuania where the alignment of a major oil refinery and large thermal power plant proved the technical and economic viability of our process and business model. It further provided the Company's first revenues from the sale of MSAR fuel. These successes opened doors for us in our other target markets more quickly than anticipated.

We are now at a watershed in respect of the Company's development. Successful crystallisation of the Lithuanian contract, and the ensuing momentum, should see the Company progressing several projects within our core geographic territories during 2010.

Business Strategy

Our forward strategy remains on course and largely unaltered; comprising the phased development approach reported in last year's annual report. As with any development activity of the type in which we are engaged plans are continuously nuanced to reflect changing circumstances and technology and commercial developments. Our approach is:

Short Term - Phase 1

Power plant refuelling opportunities with a particular focus on former Orimulsion customers who, subsequent to closure of the Orimulsion business, can no longer secure a supply of low cost liquid fuel. Lithuania is our prime short term target in this regard.

Mid Term - Phase 2

Power plant refuelling and new build fuel supply opportunities in geographic areas where oil-fired power is prolific; specifically in Saudi Arabia, Kuwait and Mexico. We now have interesting traction both in Saudi Arabia and Mexico.

Longer Term - Phase 3

Fuel provision to large industrial diesel engines; specifically stationary power generating diesels and marine propulsion diesels where there is reduced inter-fuels competition. We are now commencing preliminary marketing of our Phase 3 plans; underpinned by the successful outcome of the Lithuanian trial.

Review of Activities

Lithuania

During the financial year the Company completed a major demonstration of its MSAR technology at the 200,000 barrels per day Mazeikiai refinery and 1,800MWe Elektrenai power plant in Lithuania. Details of our progress have been released to shareholders by way of press announcements. The technical success of this demonstration, coupled with its duration and sheer magnitude, substantially altered the perceptions of QFI's business counter-parties and this has significantly enhanced QFI's ability to progress opportunities in its chosen markets.

Realisation of the Lithuanian project has unfortunately suffered a number of delays beyond the control of the Company. Following an election in Lithuania there was a substantial delay as a new Energy Ministry was formed early in 2009. Thereafter movements in the oil price and in particular the price of oil relative to natural gas created a climate in which it has been difficult to materialise an MSAR fuel supply contract to the satisfaction of all parties. More recently there have been changes within the executive level management at the Mazeikiai refinery. Notwithstanding these matters, the fundamentals of the Lithuanian project remain sound and there continues to be ongoing support from all interested parties to realise a positive outcome for our project. We remain hopeful that this project will proceed during the financial year ending June 2010 and are working hard to realise this key objective.

Saudi Arabia

Because of the large stock of existing oil-fired power plants, and the large new build capacity added annually in the Kingdom, this country has, from the outset, been a prime target for QFI endeavours. 

We have recently made an important breakthrough in securing recognition of the potential benefits of our technology in Saudi Arabia. In no small measure this was attributable to the clear demonstration in Lithuania that we had a fully viable process for manufacture of an oil-in-water emulsion fuel from heavy refinery residues, and at its point of application a clean burning and easily handled fuel product. A further key factor in convincing our Saudi Arabian counter-party was the inherent experience and long history of the QFI team in the application of heavy oil emulsion technology on a global basis. The combination of these two factors created great confidence regarding the status and commercial viability of our business proposition, and in the ability of QFI to successfully deliver value adding solutions.

Our initial case studies are currently under review by our client. There can be no guarantee as to the outcome but we are hopeful of reporting concrete progress during the first half of 2010.

Mexico

Similar fundamentals apply to the Mexican market as apply to Saudi Arabia. QFI is well advanced with establishing a commercial arrangement with counter-parties to leverage the benefits of MSAR technology in Mexico.

Diesel Engines

The diesel engine application represents a very significant element of the Company's business as we look forward. Whilst inter-fuels competition limits widespread implementation of MSAR projects in the central station power sector (other than in the geographies identified as a part of our Phase 2 activity), marine diesel engines and diesel power plants in areas devoid of natural gas have no choice but to burn a liquid fuel, and here MSAR has an intrinsic cost advantage. 

MSAR has already been successfully trialled in large industrial Rolls Royce and W?sil?iesel engines. We anticipate completing a further trial with W?sil?uring the first half of 2010 to demonstrate the manufacture and use of a new 'high energy density' emulsion fuel currently under development with AkzoNobel. This enhanced product will significantly widen the potential application of MSAR fuel in diesel engines and advance our Phase 3 activities towards ultimate commercialisation.

Quadrise Canada Corporation

QFI owns a 20.4% interest in Quadrise Canada Corporation (QCC) and is entitled to receive a 6.7% royalty on QCC's net income before tax from MSAR business in Canada (after recovery by QCC of all start-up and development costs). The long term outlook for QCC to exploit the opportunities in the Canadian heavy oil-fields in Alberta remains positive, particularly in the context of advances QCC have made in developing an ultra low cost liquid fuel by production of MSAR from difficult and highly processed oil residues. For the moment however QCC is subject to extended delays on its anticipated projects. Heavy oil projects of the type being developed in Canada are capital intensive and require a high oil price to profitably recover their capital and processing costs. Many projects are thus being deferred with reactivation anticipated from 2014. Recognising this situation and to preserve cash, QCC has taken steps to significantly curtail its activities and to reduce its operating costs to a minimum.

Alliance Agreement with AkzoNobel

AkzoNobel is QFI's technology licensor and provides QFI with pre-project testing of feedstocks to arrive at the optimum emulsion solutions on which QFI bases its proposals to clients. AkzoNobel achieves remuneration from QFI from royalties and the supply of speciality chemicals and proprietary equipment when QFI successfully secures a project.

During the year AkzoNobel continued its very positive support to Quadrise, and in respect of the Lithuanian commercial demonstration provided site based support beyond its obligations. QFI remains very positive concerning the ongoing co-operation and the mutual respect that exists between our organisations.

Financial

QFI operated within its budget during the year and continued to develop business opportunities on a highly selective basis and only where there existed positive fundamentals for success. In keeping with the established early-stage business and financial management strategy, Quadrise has maintained a low overhead base with continued outsourcing of non-core services. Further, proprietary systems and computer models have been developed to permit very cost effective in-house production of high quality project assessment data for prospective clients. These strategies will continue as we move forward. 

The delay to the Lithuania project has had a material impact on our projected forward cash flow and arising from this management initiated a programme of cost reductions with the constructive support of our majority shareholder International Energy Group AG. The full package of cost reductions became effective on 1 September 2009, and will realise the Company a total saving from all measures of approximately £400,000 per annum.

The after-tax loss for the year to 30 June 2009 is £5.0m (2008: £22.5m). Further details are provided in the Financial Review. 

At this time the precise contractual format for our active prospects in Lithuania, Saudi Arabia and Mexico is not fully crystallized. It is possible that some of these prospects might proceed with no requirement for capital from QFI. Various means of financing the Company's future operations are under review given the dynamics of this situation. Exclusive of specific project expenditure the company is funded from an operational perspective through to December 2010.

Management

The management team has continued to enthusiastically drive the Company forward. To realise a successful outcome to the Lithuanian trial many senior staff worked shifts, long hours and, for extended periods, were away from their homes and families. They did this willingly and are to be complemented on their positive approach as well as the outstanding success of the demonstration.

The Future

2009 was a year in which we experienced a very frustrating delay in Lithuania. However the success of the commercial demonstration has provided great impetus to our other projects and has allowed us to gain significant footholds and commence co-operatively developed case studies in what we believe to be highly prospective markets. We are hopeful that this increase in momentum will result in realisation of multiple opportunities during the coming year. 

Bill Howe

Chief Executive Officer

23 October 2009

FINANCIAL REVIEW

Results for the year

The consolidated after-tax loss for the year to 30 June 2009 is £5.0m (2008: £22.5m). This includes a charge of £4.5m (2008: £11.9m) for the amortisation and impairment of intangible assets, administration expenses of £3.2m (2008: £2.6m) and bank deposit interest income of £0.05m (2008: £0.3m). The non-cash share based payment expense, included in administration expenses, is £1.2m (2008: £0.4m).

The Company recorded its first revenues during the year amounting to £3.5m. These revenues arose from the sale of MSAR during the Lithuanian trial.

Despite the current difficult market conditions in Canada, no impairment of the investment in Quadrise Canada Corporation (QCC) has been accounted for (2008: £7.9m) on the basis of reported recent trades in QCC shares at our current holding value in the accounts.

Basic and diluted loss per share is 1.10p (2008: 4.86p).

Balance Sheet

At 30 June 2009, the Group had net assets of £21.0m (2008: £25.9m). The most significant balances are intangible assets of £11.6m (2008: £16.1m), available for sale investments of £6.4m (2008: £6.4m) and cash of £2.9m (2008: £3.6m).

Cash Flow

The Group ended the year with £2.9m of cash and cash equivalents (2008: £3.6m). The Group continues to remain debt free. The majority of the Group's cash was held with Coutts & Co during the year. At 30 June 2009, £1.5m (2008: £3.2m) was placed on short-term deposits.

Capital Structure

The Group had 461,726,857 ordinary shares of 1p each in issue at 30 June 2009, out of its authorised share capital of 1,000,000,000 ordinary shares. Following the Annual General Meeting (AGM) held on 12 September 2008, the Board presently has an authority to issue up to 300,000,000 ordinary shares under sections 80 and 89 of the Companies Act 1985. 

Treasury and Financial Risk Management

Control over treasury and risk management is exercised by the Board and its Audit Committee through the setting of policies and the regular review of forecasts and financial exposures. Presently, the Group's financial instruments comprise principally of cash and liquid resources and other items, such as accounts receivable and payable, which arise directly from its operations. It is still the Group's policy not to undertake any trading activity in financial instruments, including derivatives, unless expressly required to hedge physical commodity price exposure.

The principal risks arising from the Group's financial instruments are interest risk, liquidity risk and foreign exchange risk. The Board reviews and establishes appropriate policies for the management of such risks and monitors them on a regular basis.

Bill Howe

Chief Executive Officer

23 October 2009

Consolidated Income Statement

For the year ended 30 June 2009

                                                                 Year ended            Year ended
                                                 Note          30 June 2009          30 June 2008
                                                                     £'000s                £'000s
 Continuing operations
 Revenue from sale of goods                                           3,537                     -
 Other income                                       3                 1,196                    46
 Raw material, consumables,                                         (2,827)                     -
 transportation, tank rental
 and analysis costs
 Amortisation of intangible                         5               (2,970)               (5,708)
 assets
 Impairment of intangible                          10               (1,489)               (6,229)
 assets
 Impairment of available for                       11                     -               (7,921)
 sale investments
 Other administration expenses                                      (3,226)               (2,574)
 Foreign exchange gain / (loss)                                         690                 (326)
 Operating loss                                     4               (5,089)              (22,712)
 Finance costs                                      6                  (63)                     -
 Finance income                                     7                                            
                                                                   45                    255
 Loss before tax                                                                                 
                                                              (5,107)              (22,457)
 Taxation                                           8                   135                     -
 Loss for the year from continuing operations                       (4,972)              (22,457)
 attributable to equity holders of the company

 Loss per share - pence 
 Basic                                              9        (1.10) p                            
                                                                                   (4.86) p
 Diluted                                            9        (1.10) p                    (4.86) p

Consolidated Balance Sheet

As at 30 June 2009

                                              As at          As at 
                                 Note   30 June 2009   30 June 2008
                                              £'000s         £'000s
 Assets
 Non-current assets
 Property, plant and equipment                     -             20
 Intangible assets                 10         11,645         16,104
 Available for sale investments    11          6,447          6,447
 Non-current assets                           18,092         22,571

 Current assets
 Cash and cash equivalents                     2,878          3,607
 Trade and other receivables                     317            210
 Prepayments                                      30            123
 Current assets                                3,225          3,940
 TOTAL ASSETS                                 21,317         26,511

 Equity and liabilities                               
 Current liabilities                                  
 Trade and other payables                                    315       636
 Current liabilities                                         315       636
                                                      
 Equity attributable to equity holders of the parent  
 Issued capital                                            4,617     4,617
 Share premium                                            53,634    53,634
 Revaluation reserve                                         566       566
 Share option reserve                                      1,009       910
 Reverse acquisition reserve                                 522       522
 Accumulated losses                                     (39,346)  (34,374)
 Total shareholders' equity                               21,002    25,875
 TOTAL EQUITY AND LIABILITIES                             21,317    26,511

Consolidated Statement of Changes in Equity

For the year ended 30 June 2009

                                 Accumulated   Issued capital  Share premium  Revaluation reserve          Share option   Reverse acquisition
                                       losses          £'000s         £'000s               £'000s              reserves               reserve     Total
                                       £'000s                                                                    £'000s                £'000s    £'000s
 Shareholders' equity at 1 July
 2007                                (11,917)           4,617         53,634                2,002                   507                   522    49,365
 Impairment of available for
 sale investments                           -               -              -              (2,002)                     -                     -   (2,002)
 Revaluation of available for
 sale investments                           -               -              -                  566                     -                     -       566
 Total expenses recognised
 directly in equity

                                            -               -              -              (1,436)                     -                     -   (1,436)
 Loss for the year                   (22,457)               -              -                    -                     -                     -  (22,457)
 Total recognised income and
 expense for the year

                                     (22,457)               -              -              (1,436)                     -                     -  (23,893)
 Share option reserve                       -               -              -                    -                   403                     -       403
 Shareholders' equity at 30
 June 2008                           (34,374)           4,617         53,634                  566                   910                   522    25,875
 Loss for the year                    (4,972)               -              -                    -                     -                     -   (4,972)
 Total recognised income and
 expense for the year                 (4,972)               -              -                    -                     -                     -   (4,972)
 Share option reserve                       -               -              -                    -                    99                     -        99
 Shareholders' equity at 30
 June 2009                           (39,346)           4,617         53,634                  566                 1,009                   522    21,002

Consolidated Cash Flow Statement 

For the year ended 30 June 2009

                                                 Year ended         Year ended
                                                30 June 2009      30 June 2008
                                                      £'000s            £'000s
                                     Note
 Operating activities
 Loss before tax from continuing                     (5,107)          (22,457)
 operations
 IEG share option benefit to QFI                     (1,111)                 -
 employees
 Finance costs                          6                 63                 -
 Finance income                         7               (45)             (255)
 Amortisation of intangible assets      5              2,970             5,708
 Impairment of intangible assets       10              1,489             6,229
 Impairment of available for sale      11                  -             7,921
 investments
 Depreciation of property, plant                          20                 5
 and equipment
 Share based payment expense -                            99               403
 granted by the Company
 Share based payment expense -                         1,111                 -
 granted by IEG
 Foreign exchange loss                                     -               326
 Working capital adjustments
 Increase in trade and other                           (107)             (144)
 receivables
 Decrease / (increase) in                                 93             (116)
 prepayments
 Decrease in trade and other                           (321)             (118)
 payables
 Cash utilised in operations                           (846)           (2,498)

 Finance costs                          6               (63)                 -
 Taxation received                      8                135                 -
 Net cash outflow from operating                       (774)           (2,498)
 activities

 Investing activities
 Purchase of property, plant and                           -              (24)
 equipment
 Finance income                         7                 45               255
 Net cash inflow from investing                           45               231
 activities

 Net decrease in cash and cash                         (729)           (2,267)
 equivalents
 Cash and cash equivalents at the                      3,607             5,874
 beginning of the year
 Cash and cash equivalents at 30                       2,878             3,607
 June 2009

Notes to the Financial Statements

1. Basis of Preparation and Significant Accounting Policies

The financial information set out in this announcement does not constitute the company's statutory financial statements for the years ended 30 June 2009 or 2008 but has been extracted from them. Statutory financial statements for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.  

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The Group financial statements are presented in Sterling and all values are rounded to the nearest thousand Pounds (£'000) except when otherwise indicated.  

The financial information for the year ended 30 June 2009 has been prepared in accordance with the accounting policies adopted by the Group which are consistent with those adopted in the financial statements for the year ended 30 June 2009 and with the recognition and measurement criteria of International Financial Reporting Standards as adopted for use in the European Union (IFRS).

2. Segment Reporting

The Group is engaged in 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 diesel engines. In the opinion of the Directors, the Group's activities comprise one class of business. As a result, the Group's primary format for segment reporting is geographical segments.  

Geographical Segments

 Year ended 30 June 2009                               Europe  Canada    Total
                                                       £'000s  £'000s   £'000s

 Revenue - sale to external customers                   3,537       -    3,537

 Segment result                                       (3,893)       8  (3,885)

 Unallocated net expenses                                              (1,204)
 Operating loss                                                        (5,089)
 Finance costs                                                            (63)
 Finance income                                                             45
 Loss before tax                                                       (5,107)
 Taxation                                                                  135
 Loss for the year from continuing operations
 attributable to equity holders of the company                         (4,972)

 As at 30 June 2009       Europe  Canada   Total
                          £'000s  £'000s  £'000s
 Assets and Liabilities
 Segment assets           14,820   6,447  21,267
 Unallocated assets                           50
 Total assets                             21,317

 Segment liabilities         102       -     102
 Unallocated liabilities                     213
 Total liabilities                           315

 Other segment information
 Depreciation of property, plant and equipment     20  -     20
 Amortisation of intangible assets              2,970  -  2,970
 Impairment of intangible assets                1,489  -  1,489

 Year ended 30 June 2008                             Europe   Canada     Total
                                                     £'000s   £'000s    £'000s

 Revenue - sale to external customers                     -        -         -

 Segment result                                    (12,943)  (8,240)  (21,183)

 Unallocated corporate expenses                                        (1,529)
 Operating loss                                                       (22,712)
 Finance income                                                            255
 Loss before tax                                                      (22,457)
 Taxation                                                                    -
 Loss for the year from continuing operations
 attributable to equity holders of the company                        (22,457)

 As at 30 June 2008       Europe  Canada   Total
                          £'000s  £'000s  £'000s
 Assets and Liabilities
 Segment assets           20,004   6,447  26,451
 Unallocated assets                           60
 Total assets                             26,511

 Segment liabilities         239       -     239
 Unallocated liabilities                     397
 Total liabilities                           636

 Other segment information
 Additions to property, plant and equipment        24      -     24
 Depreciation of property, plant and equipment      5      -      5
 Amortisation of intangible assets              5,708      -  5,708
 Impairment of intangible assets                6,229      -  6,229
 Impairment of available for sale investments       -  7,921  7,921

3. Other Income 
 Other income includes:                         Year ended         Year ended 
                                               30 June 2009       30 June 2008
                                                     £'000s             £'000s

 Receivable from related parties                         54                 36
 Recoverable costs recharged                             27                  3
 Receipt of Directors fees from Quadrise                  4                  7
 Canada Corporation
 IEG share option benefit to QFI                      1,111                  -
 employees
 Total                                                1,196                 46

The IEG share option benefit to QFI employees of £1,111k (2008: £nil) relates to the share options granted by International Energy Group AG (IEG), from its own holding of shares in QFI, to certain Directors and employees of QFI. Due to the nature and condition of these grants, where the benefit of such incentive accrues to QFI as a whole rather than to a particular shareholder, the credit has been recognised in the Income Statement under Other Income.  

4. Operating Loss 
 Operating loss is stated after                 Year ended         Year ended 
 charging:                                     30 June 2009       30 June 2008
                                                     £'000s             £'000s

 Staff cost                                           1,051              1,174
 Auditor's remuneration:
   Audit services                                        35                 31
   Non-audit services - tax                               5                  4
   Non-audit services - other                             -                  2
 Consultants and other professional fees                380                360
 (including legal)
 Share based payment expense - granted                   99                403
 by the Company
 Share based payment expense - granted                1,111                  -
 by IEG
 Depreciation of property, plant and                     20                  5
 equipment
 Amortisation of intangible assets                    2,970              5,708
 Impairment of intangible assets                      1,489              6,229
 Impairment of available for sale                         -              7,921
 investments

Expenses have been analysed according to their nature to achieve more reliable and relevant information. The comparatives remain unchanged whether the analysis is done by nature or by function.

Staff cost includes the salaries of executive Directors employed directly by the Company.

5. Amortisation of Intangible Assets

The Board has reviewed the accounting policy for intangible assets and has adopted a policy for the amortisation of those assets which have a finite life. A key asset that fits this description is the combination of rights secured under the AkzoNobel Alliance Agreement, together with other unpatented technologies, industry know-how and trade secrets, which drive the principal business case for Quadrise. Under the present arrangements, while intended to continue on an evergreen basis, AkzoNobel or Quadrise may effectively terminate, at 12 months notice, the AkzoNobel Alliance Agreement at any time after 20 December 2011. Whilst the Directors believe that it is likely to be in the commercial best interests of both parties to continue the agreement beyond 20 December 2011, there can be no guarantee that this will occur. The Directors have, accordingly, amortised this intangible asset over the remaining lifespan of the agreement. At 30 June 2009, the remaining amortisation period for this intangible asset was 30 months. This amortisation policy has resulted in a non-cash charge of £2,970k (2008: £5,708k) to the income statement for the year ended 30 June 2009. Refer to note 10 for further details.

6. Finance Costs
                               Year ended         Year ended 
                              30 June 2009       30 June 2008
                                    £'000s             £'000s

 Corporate finance fees                 40                  -
 Bank charges                           23                  -
 Total                                  63                  -

7. Finance Income

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

8. Taxation

                                  Year ended         Year ended 
                                 30 June 2009       30 June 2008
                                       £'000s             £'000s

 UK corporation tax credit              (131)                  -
 Adjustment for prior year                (4)                  -
 Total                                  (135)                  -

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

 Tax Reconciliation                             Year ended         Year ended 
                                               30 June 2009       30 June 2008
                                                     £'000s             £'000s

 Loss on continuing operations before               (5,107)           (22,457)
 taxation
 Loss on continuing operations before
 taxation multiplied by the UK                     (1,430)             (6,288)
 corporation tax rate of 28% (2008:
 29.5%)
 Effects of:
 Expenses not deductible for tax                        954              5,655
 purposes
 Other tax adjustments                                  318                116
 Losses not utilised                                      3                517
 Surrender of tax losses for R&D credit                 151                  -
 Tax credit                                           (131)                  -
 Current taxation credit on loss from                 (135)                  -
 continuing operations

The tax rate applicable to the Group changed from 30% to 28% with effect from 1 April 2008. This resulted in an effective tax rate in the prior year of 29.5%.  

9. Loss Per Share 

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

                                                     Year ended    Year ended 
                                                    30 June 2009  30 June 2008

 Loss for the year from continuing operations            (4,972)      (22,457)
 (£'000s)

 Weighted average number of shares:
 Basic                                               461,726,857   461,726,857
 Diluted                                             461,726,857   461,726,857

 Loss per share: pence
 Basic                                                  (1.10) p      (4.86) p
 Diluted                                                (1.10) p      (4.86) 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 23.9m 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.

10. Intangible Assets
                   30 June 2009  30 June 2009  30 June 2009  30 June 2008  30 June 2008  30 June 2008
                         £'000s        £'000s        £'000s        £'000s        £'000s        £'000s
                     Indefinite        Finite         Total    Indefinite        Finite         Total
 Cost 
 Opening balance         10,786        25,901        36,687        10,786        25,901        36,687
 Additions                    -             -             -             -             -             -
 Closing balance         10,786        25,901        36,687        10,786        25,901        36,687

 Amortisation
 Opening balance        (5,078)      (15,505)      (20,583)             -       (8,646)       (8,646)
 Amortisation                 -       (2,970)       (2,970)             -       (5,708)       (5,708)
 Impairment             (1,489)             -       (1,489)       (5,078)       (1,151)       (6,229)
 Closing balance        (6,567)      (18,475)      (25,042)       (5,078)      (15,505)      (20,583)

 Net book value           4,219         7,426        11,645         5,708        10,396        16,104

Intangibles include intellectual property of £36.7m, which comprises both assets of finite and indefinite life. Quadrise Canada Corporation'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 are expected to generate net cash inflows for the Group. The assets with indefinite life are not amortised. The remaining intangibles amounting to £25.9m, primarily made up of technology and know-how, are considered as finite assets and amortised over 69 months. The Group does not have any internally generated intangibles.

The Board has reviewed the accounting policy and adopted an amortisation policy on those assets which have a finite life as further explained in Note 5. As a consequence of adopting this policy, a non-cash charge of £3.0m (2008: £5.7m) has been recognised in the income statement during the year.

The Group tests intangible assets annually for impairment, or more frequently if there are indications that they might be impaired. The recoverable amount of intangible assets is determined based on a value in use calculation using cash flow forecasts derived from the most recent financial budget information available. These cash flow forecasts extend to the year 2025 to ensure the full benefit of all potential projects is realised. The key assumptions used in these calculations include discount rates, turnover projections, growth rates, joint venture participation expectations, and expected gross margins. 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. For the MSAR?trade name and technology and know-how intangible, the growth rate used for the extrapolation of cash flows beyond budgeted projections is 2.5% and the pre-tax discount rate applied to the cash flow projections is 13%. These assumptions are consistent with the prior year. For Quadrise Canada Corporation's royalty payments, the growth rate used for the extrapolation of cash flows beyond budgeted projections is 1.5% and the pre-tax discount rate applied to the cash flow projections is 25%, against which a further 50% probability factor has been applied. These assumptions are consistent with the prior year with the exception of the extrapolation of 1.5% and the additional probability factor of 50%, which were both not previously applied. The additional probability factor of 50% reflects the current difficult market conditions in Canada and the extended delays on the anticipated Quadrise Canada Corporation projects.

Taking all these factors into account, the Directors performed a review of the fair value of the intangibles at 30 June 2009. As a result of this review, the Directors concluded Quadrise Canada Corporation's royalty payments should be written down to a net fair value of £1.1m. This resulted in a £1.5m impairment charge to the income statement for the year to 30 June 2009.

11. Available for Sale Investments

                      30 June 2009  30 June 2008
                            £'000s        £'000s
 Unquoted securities
 Opening balance             6,447        16,131
 Revaluation                     -           566
 Impairment                      -       (9,922)
 Foreign exchange                -         (328)
 Closing balance             6,447         6,447

Unquoted securities represent the Group's investment in Quadrise Canada Corporation (QCC) and Paxton Corporation (Paxton), both of which are incorporated in Canada. At the balance sheet date the Group held a 20.44% share in the ordinary issued capital of QCC and a 3.75% share in the ordinary issued capital of Paxton. 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 Company during the year 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. Furthermore, QCC share options and warrants in issue at the balance sheet date result in the Group having an effective holding in QCC of 17.13%.  

The Group does not intend to dispose of its available for sale investments in the immediate future.

The Directors performed a review of the fair value of the unquoted securities at 30 June 2009. Due to the lack of an active market in either of the securities, the Directors considered other factors such as past equity placing pricing and independent assessment of risked net present value of the enterprises to arrive at their conclusion of the fair value. 

The QCC shares were revalued to C$3.00 per share in the prior year based on the last grey market transaction. This resulted in an impairment charge of £9.9m, of which £2.0m was recognised in the revaluation reserve and the remaining £7.9m in the income statement. During the current year, as part of its financial plan to preserve cash resources, QCC issued warrants valued at C$3.00 per warrant to employees and the Board in lieu of cash payments for severance and Directors fees. In addition, there have been a number of recent transactions whereby QCC shares were reported sold or transferred between third parties at a price of C$3.00 or higher. As a result, the Directors have concluded that no impairment is necessary for the year ended 30 June 2009.  

The Paxton shares were revalued to C$3.00 per share in the prior year based on a successful placing of shares in May 2008. During the current year, there has been no indication of deterioration in Paxton's business prospects. As a result, the Directors have concluded that no impairment is necessary for the year ended 30 June 2009. 

During the current year, as part of its financial plan to preserve cash resources, QCC issued warrants to the Board in lieu of Directors fees. On 2 January 2009, Ian Williams, a non-executive Director of QCC, received 18,889 warrants as part of this plan. Each warrant entitles him to acquire one common share of QCC at a price of C$0.30 per common share. One third of the warrants vested immediately upon grant date, a further one third of the warrants vest on 2 January 2010 and the remaining one third vest on 2 January 2011. All warrants must be exercised by 2 January 2014.  Ian Williams transfers his QCC Director fees to the Company. Similarly, if all the warrants granted to Ian Williams are transferred to the Company and exercised at the balance sheet date, the Group's holding in the issued shared capital of QCC would increase from 20.44% to 20.52%. 

12. Related Party Transactions

Non-executive Directors Ian Williams and Hemant Thanawala provide services under a service agreement with International Energy Services Limited (IESL), a subsidiary of International Energy Group AG (IEG), the ultimate parent of Quadrise Fuels International plc. The service charge for the year amounted to £352k (2008: £449k), out of which £160k (2008: £164k) was incurred for Directors' and employees' salaries, and £192k (2008: £285k) was charged for rent and other office costs. Trade payables include £26k (2008: £120k) payable at the balance sheet date to IESL relating to these services.

Non-executive Director Laurie 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 £35k (2008: £37k), out of which £12k (2008: £14k) was for consulting services and £23k (2008: £23k) for non-executive Director fees. The balance payable at the balance sheet date was £5k (2008: £10k). 

Ian Duckels is also a Director of Ritoil Associates Limited. The total fees charged for the year related to non-executive Director fees and amounted to £19k (2008: £nil), with a balance of £5k (2008: £nil) payable at the balance sheet date.

Trade receivables of the Group include £166k (2008: £134k) receivable from other related parties, which consists of £137k (2008: £110k) from Quadrise Fuels US, £29k (2008: £19k) from Wilton Petroleum Limited for shared personnel costs and £nil (2008: £5k) from IEG for services rendered. Transactions with related parties are unsecured and made at normal market prices. The receivable from Wilton Petroleum Limited of £29k attracts interest at the 6 month GBP LIBOR rate plus 3% p.a effective from 1 January 2009 and may be settled in cash or by equity conversion at the option of QFI. All other outstanding balances at year-end are interest free and settlement occurs in cash. 

13. Commitments and Contingencies

The Group had not entered into any finance or operating leases as at the balance sheet date. Additionally the Group had no capital commitments or contingent liabilities as at the balance sheet date. 

14. Events After the Balance Sheet Date

On 21 August 2009, an agreement was reached between QFI and International Energy Services Limited (IESL), a related party, to reduce the level of service support from IESL with effect from 1 September 2009. The principal changes are:

*     Ian Williams and Hemant Thanawala, who had served, respectively, in an executive capacity as Executive Chairman and Finance Director, became non-executive Directors effective from 1 September 2009. From this date, Ian Williams will serve as non-executive Chairman and Hemant Thanawala, whilst non-executive, will continue to provide advice and assistance on financial management matters as and when required.  

*     IESL will not seek reimbursement from QFI for the services of Ian Williams and Hemant Thanawala in their revised roles for the period from 1 September 2009 to 31 December 2010.

15. Copies of the Annual Report

Copies of the annual report will be available on the Company's website at www.quadrisefuels.com and from the Company's registered office, Parnell House, 25 Wilton Road, London SW1V 1YD.

END

This information is provided by RNS
The company news service from the London Stock Exchange
 
  END 
 
FR FEWFIDSUSEFS

RNS Number : 7930X Quadrise Fuels International PLC 21 August 2009

21st August 2009

Quadrise Fuels International plc

("QFI" or "Company")

Amended Terms of Services with International Energy Services Limited and Board Reorganisation

International Energy Services Limited ("IESL") is a wholly owned subsidiary of International Energy Group AG which holds a 59% equity interest in the Company. Since admission to AIM on 19th April 2006, IESL has provided QFI with a range of functional support, principally in finance and administration, together with the services of representative directors who have served in an executive capacity. Having progressively developed its own capacity in these areas, QFI no longer requires the full range of services provided by IESL. In particular, QFI has its own full-time Financial Controller, fully qualified to assume responsibility for this function, who has been in the employ of the Company for the past 12 months.

The Company has therefore reached an agreement with IESL to reduce the level of service support, effective from 1st September 2009. The principal changes are:

1. Messrs. Ian Williams and Hemant Thanawala who have served, respectively, in an executive capacity as Executive Chairman and Finance Director, will become non-executive directors effective 1st September. Mr. Williams will serve as non executive Chairman and Mr. Thanawala, while non-executive, will continue to provide advice and assistance on financial management matters as and when required.

2. IESL will not seek reimbursement from QFI for the services of Ian Williams and Hemant Thanawala in their revised roles for the period from 1st September 2009 to 31 December 2010.

The Company appreciates the support of IESL in these matters. The revised terms will contribute to a material reduction in service fees thereby contributing to lower future corporate overheads and conservation of resources.

Enquiries:

Quadrise Fuels International plc Tel: +44 (0)20 7550 4930

Ian Williams, Chairman

Bill Howe, Chief Executive Officer

Hemant Thanawala, Finance Director

Fairfax I.S. plc Tel: +44 (0)20 7598 5368

Jeremy Porter

Capital MS&L Tel: +44 (0)20 7307 5330

Penny Freer

James Madsen

This information is provided by RNS The company news service from the London Stock Exchange

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