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Quadrise Fuels Intnl (QFI)

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Monday 04 October, 2021

Quadrise Fuels Intnl

Final Results, Directorate Change & Notice of AGM

RNS Number : 8219N
Quadrise Fuels International PLC
04 October 2021
 

4 October 2021

   

Quadrise Fuels International plc

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

 

Final Results, Directorate Change, Investor Presentation and Notice of AGM

 

 

Quadrise Fuels International plc (AIM: QFI) announces its audited final results for the year ended 30 June 2021 and gives notice that the Company's Annual General Meeting ("AGM") will be held at 12 noon on 26 November 2021.

 

Highlights

 

· Substantial progress across Quadrise's project portfolio and accelerated development of low-carbon bioMS AR™ both during and post period end despite the significant challenges posed by the COVID-19 pandemic.

 

· Completion of significantly oversubscribed placing and open offer in March 2021 to raise net proceeds of £6.5m, ensuring that on the delivery of successful trials and entry of appropriate commercial supply agreements, the Company has the resources in place to reach sustainable commercial revenues in Q1 2023.  

 

· bioMSAR™ - Quadrise's innovative low-carbon bioMSAR™ fuel takes advantage of our proven emulsion fuel technology platform and utilises renewable glycerine as a clean fuel component. The glycerine content of bioMSAR™ can be adjusted to meet the client's required price/CO2 reduction goals, providing a cost-effective transition fuel solution to meet increasingly stringent decarbonisation requirements. Testing of bioMSAR™ at Aquafuel Research Ltd demonstrated over 20% CO2 and NOx emissions savings, as well as higher engine efficiency results. This was followed by a larger trial using 5 tons of bioMSAR™ at the VTT facility in Finland. The VTT testing demonstrated a 26% average reduction in CO2 emissions compared to marine diesel. Plans are underway to accelerate testing for bioMSAR™ use in a range of sectors that are demanding "drop in" transition fuels to advance decarbonisation.

 

· MSC - Following the signature of the Joint Development Agreement with MSC Shipmanagement to carry out LONO ('Letter Of No Objection') fuel trials on board their commercial container vessels, Quadrise is now working to finalise the preparatory work to enable these trials. As a result of positive results from bioMSAR™ testing on 4-stroke diesel engines, MSC expressed an interest in advancing the option of bioMSAR™ testing on their modern 2-stroke engines alongside MSAR® and this is our main focus, with a view to commencing commercial-scale 4,000-hour LONO trials in H1 2022.

 

· Utah - Our project in Utah involves using MSAR® technology to emulsify low-sulphur heavy oil from oil-sand deposits located at the Petroteq Oil Sands Plant ('POSP') at Asphalt Ridge in Utah, USA, which is operated by Greenfield Energy LLC ("Greenfield"). Due to both COVID-19 and adverse weather conditions, the POSP start-up and commissioning process experienced delays, resulting in the required oil samples from site not being received at QRF until August 2021. During August our Research, Development and Innovation ('RDI') team at QRF successfully converted these samples to both MSAR® and bioMSAR™, and in September a report was issued to Greenfield in accordance with our Commercial Trial Agreement. Quadrise is now working with Greenfield to review the requirements for future commercial implementation.

 

· Morocco - The Company's industrial client in Morocco is a major consumer of HFO. Since the successful pilot plant trial in October 2020, plans have been impacted by COVID related travel restrictions causing delays to the trial programme. Following the easing of these restrictions, the Company was able to visit the site ("Site B") in August 2021 in order to prepare for the next stage of the programme; the combustion of 60mt of MSAR®. Site B consumes around one third of the client's annual HFO consumption, and the trial is now expected to occur in Q4 2021. Testing of bitumen samples for the MSAR® fuel production has now been completed and production is scheduled to commence in Q4 with shipment of the trial equipment set for October 2021. The trial results and a feasibility study for MSAR® use at a second client site ('Site A') are expected to be delivered to the client in Q4 2021, with Quadrise receiving £0.1m. A subsequent commercial trial will then take place at Site A later in Q4 2021 or early Q1 2022 with shared trial costs reimbursed to Quadrise under a separate agreement. Assuming the successful conclusion of these trials, the intention would then be to conclude a commercial supply agreement covering one or more of the client's sites in Morocco during Q1 2022.

 

· Americas - Using the Group's regional agent network we are seeking to progress projects in Panama with power generators, in Mexico and Ecuador with the state oil companies and utilities respectively, and look forward to providing updates as these projects progress.

 

Financial Summary

 

· Loss after tax of £4.3m (2020: £4.8m), of which of £1.4m (2020: £1.4m) is attributable to production and development costs and £1.5m (2020: £1.8m) relates to administrative and corporate expenses. Non-cash charges of £1.6m (2020: £1.6m) comprise £1.3m (2020: £1.1m) of fair value adjustments to the Convertible Securities balance due and £0.3m relating to share option and warrant expenses (2020: £0.5m).

 

· Total assets of £10.7m as at 30 June 2021 (2020: £6.3m).

 

· Cash balances as at 30 June 2021 of £7.0m (2020: £2.4m).

 

· Cumulative tax losses of £58.4m (2020: £53.7m) available for set-off against future profits.

 

Mike Kirk, Chairman of QFI, said:

"The Company has made great progress during the year, with the launch of low-carbon bioMSAR™, progression of key projects and a hugely successful fundraise. As such, Quadrise is now strongly positioned to deliver on its promise and, having undertaken a progression in my role as Chairman since January 2020 when Jason Miles was appointed as Chief Executive Officer to ensure a seamless migration in executive duties, I believe that now is the right time for me to be handing over to a new Non-Executive Chairman. As such, I intend to step down as a director of the Company following the AGM in November. Laurie Mutch will take over as Interim Chairman from that time until a new Chairman is in place.

I am proud of what Quadrise has achieved and I have no doubt that the team, under Jason's leadership, will deliver the migration to sustainable commercial revenues. I would like to thank all of my colleagues within Quadrise, with whom it has been a pleasure to work with over the last 6 years."

 

Jason Miles, Chief Executive of QFI, said:

 

"This has been a year of substantial progress for Quadrise, notwithstanding the many challenges faced during the pandemic. For much of the period we, along with our clients, were subject to significant restrictions relating to travel and site access on our active projects.

We are immensely proud of the rapid progress made in taking bioMSAR™ from a concept tested in the laboratory, to a proven renewable transition fuel delivering leading reductions in CO2 emissions. This would not have been possible without the hard work and dedication of everyone within Quadrise and at our partners, including Aquafuel and Nouryon. There is no doubt that bioMSAR™ has been instrumental in increasing interest in the Company and, following the successful fundraisings earlier in the year, the Company has a path to sustainable commercial revenues by Q1 2023.

On behalf of the Company, I would like to express our sincere thanks to Mike Kirk for his valuable experience and input during his time as Chairman of Quadrise, he leaves the company in great shape to deliver the commercialisation of MSAR® and bioMSAR™."

 

Live Investor Presentation

 

The Company is also pleased to announce that  Mike Kirk, Chairman, and Jason Miles, CEO,  will provide  a live investor presentation relating to the Business Update  via the Investor Meet Company ("IMC") platform on Wednesday 6 October at 14.00 BST.

 

The Company is committed to ensuring that there are appropriate communication structures for all of its shareholders so that its strategy, business model and performance are clearly understood:

· The online presentation is open to all existing and potential shareholders

· Questions can be submitted pre-event via your IMC dashboard or at any time during the live presentation via the "Ask a Question" function. Although the Company may not be in a position to answer every question it receives, it will address the most prominent within the confines of information already disclosed to the market. Responses to the Q&A from the live presentation will be published at the earliest opportunity on the Investor Meet Company platform

Investor feedback can also be submitted directly to management post-event to ensure the Company can gather the views of its shareholder base

Investors can sign up to Investor Meet Company for free and add  Quadrise Fuels International plc   via

https://www.investormeetcompany.com/quadrise-fuels-international-plc/register-investor

 

Investors who have already registered and added to meet the Company, will be invited automatically.

 

Notice of Annual General Meeting

 

The Company's Annual General Meeting ("AGM") will be held at 12:00 noon on 26 November 2021 at the Park Plaza County Hall Hotel, 1 Addington Street, London, SE1 7RY.

 

 

For additional information, please contact:

 

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

Mike Kirk, Chairman

Jason Miles, Chief Executive Officer

 

Cenkos Securities plc    +44 (0)20 7397 8900

Nominated Adviser

Ben Jeynes

Katy Birkin

 

Peel Hunt LLP   +44 (0)20 7418 8900

Joint Broker

Richard Crichton

David McKeown

 

Shore Capital Stockbrokers Limited   +44 (0)20 7408 4090

Joint Broker

Toby Gibbs

Fiona Conroy

 

FTI Consulting     +44 (0)20 3727 1000

Public and Investor Relations

Ben Brewerton

Ntobeko Chidavaenzi

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 (as amended), which forms part of domestic UK law pursuant to the European Union (Withdrawal) Act 2018. Upon publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

Chairman's Statement

I am immensely proud of the progress that Quadrise has made during the 2021 financial year. Despite the significant challenges posed by the COVID-19 pandemic, the Company has made substantial progress across our project portfolio, accelerated the developm ent of low-carbon bioMS AR™ and secured the funding to take the Company through to commercial sustainability. These developments have only been possible because of the dedication of the entire Quadrise team and the support of our loyal shareholders.

Our new low-carbon bioMSAR™ fuel incorporates renewable glycerine to reduce CO2 emissions, whilst maintaining MSAR®'s lower NOx and lower particulate emissions. Initial development work on bioMSAR™ commenced in Spring 2020, with the fuel being formally launched in December 2020 . This rapid progress was instrumental in our ability to finalise the Joint Development Agreement with MSC in January 2021 and was followed by the successful placing and open offer in March 2021. This raised gross proceeds of £7.0m, was significantly oversubscribed and included two new major institutional investors. The funds raised ensure that, pending the positive conclusion of the current trial programmes and the agreement of appropriate commercial agreements, Quadrise now has the resources in place to reach forecast sustainable commercial revenues in Q1 2023.

Quadrise has always had strong Environmental, Social and Governance credentials, and we have worked hard during the year to promote these. Emphasis has been placed on Quadrise's environmental credentials, in particular, via the development and launch of bioMSAR . This stood Quadrise in good stead as the global response to delivering Net Zero in CO2 emissions accelerated at a pace that took most by surprise. As a result, bioMSAR caught the imagination of our current and prospective customers, as evidenced by MSC's decision to shift the basis for the forthcoming LONO trials and advance the use of bioMSAR alongside MSAR®.

The work with MSC in the marine sector sits alongside our other active projects in the industrial sector in Morocco and the upstream sector in Utah with Greenfield. All of these projects have progressed positively during the period, though not always at the pace we would have preferred. This has required the  RDI (Research, Development and Innovation) team at our QRF research facility, to provide both testing and operational support. In addition, this team has been key to the continued development and testing of bioMSAR™ and in producing the fuel for testing at Aquafuel Research Ltd ('Aquafuel') and the VTT facility in Finland .

Quadrise's established network of in-country partners played a crucial role during the financial year, as they maintained direct contact with our customers when travel restrictions meant this was not possible for Quadrise. But as restrictions ease, the Company looks forward to re-establishing direct contact with our customers. As Quadrise  progresses the delivery of its  key projects through 2022 and beyond, it  will be building on strong foundations.  The focus will be on the successful delivery of our current active projects, though there will also be  opportunities to advance other projects that are currently at an earlier stage of development. The year ahead promises to be an exciting one for Quadrise as it progresses its trial programmes, further develops its sustainable and net-zero fuel solutions, and transitions to commercial revenues and positive cashflows.

 

The small, tightly knit team at Quadrise will be fundamental to delivering this and I know that they will rise to the challenge.   The forthcoming executive appointment of a new COO to replace Mark Whittle completes the Company's senior executive team led by Jason Miles, CEO, with the new COO, working alongside David Scott, Head of Finance, Bernard Johnston, Head of Operations, and Patrick Brunelle, Head of RDI. 

 

With the Company now well positioned to deliver on the next phase of its development, it is, therefore, appropriate for me to hand over to a new Non-Executive Chair to lead the next stage of development of Quadrise following a period of transition to ensure a seamless hand-over of executive duties.  A search for a new Independent Non-Executive Chair will start imminently and I will formally leave the business on 26 November 2021 following the Company's Annual General Meeting. Laurie Mutch, will take over as Interim Chairman from that time until a until a new Chairman is in place. I would like to thank all of my colleagues at QFI, our excellent advisers and our loyal shareholders with whom it has been a pleasure to work with over the last 6 years or so. 

Results for the Year

The consolidated after-tax loss for the year to 30 June 2021 was £4.3m (2020: £4.8m), with the loss per share for the year reducing to 0.36p from 0.49p in 2020. Production and development costs of £1.4m (2020: £1.4m) comprise the costs of the Group's operational staff and consultants, and QRF running costs (equipment, consumables etc.). These costs are consistent with the previous year, as they largely relate to fixed costs.

Administration expenses of £1.5m (2020: £1.8m), comprise the Group's corporate staff and directors' costs, professional advisor fees, PR/IR costs and head office costs. These have decreased as a result of reduced professional fees, no directors' cash bonuses being awarded and lower office costs due to the move from our previous office in February 2021.

The loss for the year includes £1.6m of non-cash expenses (2020: £1.6m), relating to fair value adjustment charges to the Convertible Securities of £1.3m (2020: £1.1m) (see note 17) and share option charges of £0.3m (2020: £0.5m) arising due to the award of share options, which are expensed over the vesting period (see note 18).

At 30 June 2021, the Group had total assets of £10.7m (2020: £6.3m). The most significant balances were cash of £7.0m (2020 £2.4m), intangible assets of £2.9m (2020: £2.9m), and property, plant and equipment of £0.5m (2020: £0.6m). The Group has tax losses arising in the UK of approximately £58.4m (2019: £53.7m) that are available to be carried forward against future profits.

 

The Group raised £6.5m (net of costs) in March 2021 via a successful cash box placing and open offer. A further £0.5m (net) was raised via the issuance of the second and final tranche of Convertible Securities to Bergen. £2.6m was utilised in operating activities during the year (2020: £3.1m).

 

Mike Kirk

Chairman

1 October 2021

 

 

Chief Executive's Statement

Our global opportunity

 

During the past year, Quadrise has positioned itself to take advantage of a rapidly changing global energy landscape. This increasingly prioritises sustainable and economic pathways to a Net Zero future, presenting significant opportunities for Quadrise. Our 2020-21 Strategic Review resulted in the decision to accelerate the commercialisation of our bioMSAR™ technology, and in parallel develop a Net Zero fuel solution to offer to our global clients. We are well on our way towards commercialising bioMSAR™, which is a remarkable achievement for the Quadrise team during challenging times, and work has commenced on the development of a Net Zero carbon fuel. According to the Intergovernmental Panel for Climate Change (IPCC), the world has until 2030 to cut human-caused CO2 emissions by half, in addition to other greenhouse gas (GHG) emissions such as methane, to have a 50% chance of avoiding the worst effects of climate change by 2050. We believe that Quadrise's unique MSAR® and bioMSAR technology can play a significant role in helping the world achieve this goal.

 

bioMSAR™ and our transition to Net Zero

 

Our innovative low carbon bioMSAR™ fuel takes advantage of our proven emulsion fuel technology platform and utilises renewable glycerine, currently a by-product of biodiesel manufacture, as a clean fuel component. The glycerine content of bioMSAR™ can be adjusted to meet the client's required CO2 savings, providing a cost-effective transition fuel solution to meet increasingly stringent decarbonisation requirements. An international patent application for bioMSAR™ has been submitted jointly with Nouryon and complements our existing MSAR® IP.

 

Following successful laboratory and pilot testing of bioMSAR™ at QRF, an engine testing programme was initiated at Aquafuel to demonstrate potential application in our Cummins diesel generator. The NOx emissions savings and higher engine efficiency results surpassed our expectations. This successful proof of concept test was followed by a larger trial using 5 tons of bioMSAR™ at the VTT facility in Finland on a 4-stroke medium speed Wärtsilä engine of the type that is typically used in diesel power plants, cruise ships and ferries. Results on the Wärtsilä engine demonstrated a 26% average reduction in equivalent CO2 emissions, which was due to the renewable energy content and the higher engine efficiency. Further engine optimisation tests are planned for bioMSAR™ at Aquafuel, with plans underway to accelerate testing for bioMSAR™ use in a range of sectors that are demanding "drop in" transition fuels to advance decarbonisation.

 

During the year we joined the UK Chamber of Shipping and are delighted to be a part of their "Making Waves: The Future of Shipping" programme, to chart the role of Quadrise in driving efforts across the sector to tackle climate change and reduce shipping's footprint on the environment with bioMSAR™. The launch ahead of COP26 at London International Shipping Week in September 2021 was excellent timing. The marine sector has reduced CO2 emissions by 30% from 2008 to 2020, but still contributes 940 million tons or 2.5% of global emissions of CO2. Based on recent results from VTT testing, bioMSAR™ could reduce emissions of CO2 by over 25% from a large vessel consuming 25,000 tons of HFO annually, equating to 23,000 tons of CO2, which is equivalent to the annual emissions from 11,000 average petrol cars.

 

We strongly believe that both MSAR® and bioMSAR™ will have an important role to play in the transition to a sustainable future for energy. However, we also recognise that Net Zero fuel solutions will be mandatory in the future, potentially as early as 2030, and we have an RDI strategy in place to take advantage of this opportunity using our innovative and adaptable technology. Our RDI team are now in the early stages of investigating the use of other renewable fuels such as lignin (a renewable, wood-derived fuel source) to produce a fuel with a Net-Zero carbon contribution. We are also working with a team led by Professor Pat Harvey at the University of Greenwich to explore the production of glycerine and other products from algae. Algae could provide new supply opportunities for renewable fuels, as well as potentially further reducing the CO2 emissions of bioMSAR™ to net-zero in future.

 

Key projects

 

Currently, our key projects are in the marine, upstream and industrial sectors, with further projects in development involving significant downstream and powerplant applications. Our short-term focus is on demonstrating MSAR® and bioMSAR™ technology at commercial scale and progressing each of the opportunities into commercial supply agreements.

 

MSC - In January 2021 we were delighted to announce the signature of a Joint Development Agreement with MSC Shipmanagement to carry out LONO ('Letter Of No Objection') fuel trials on board their commercial container vessels. We are now working to finalise the preparatory work to enable these trials. This work has taken longer than anticipated, as the availability of engine manufacturer and Class Society resources has been limited at times and the marine sector is stretched due to COVID logistics challenges, and various evaluations and tests of future fuel options. As a result of positive results from bioMSAR™ testing on 4-stroke diesel engines, MSC expressed an interest in advancing the option of bioMSAR™ testing on their electronic 2-stroke engines alongside MSAR®. This is now our focus, with a view to commencing commercial-scale 4000-hour LONO trials in H1 calendar 2022.

 

Utah - Our project in Utah involves using MSAR® technology to emulsify low-sulphur 10-13° API heavy oil that can be recovered from the billions of barrels of oil-sand deposits located at Asphalt Ridge in Utah, USA. Oil samples were provided from the Petroteq Oil Sands Plant ("POSP") operated by our client, Greenfield Energy LLC ("Greenfield") which is owned by AIM-listed TOMCO Energy PLC. Due to both COVID and adverse weather conditions, the POSP start-up and commissioning process experienced delays, resulting in the required oil samples from site not being received at QRF until August 2021. During August our RDI team at QRF successfully converted these samples to both MSAR® and bioMSAR™, and in September a report was issued to Greenfield in accordance with our Commercial Trial Agreement, as announced. Quadrise are now working with Greenfield to finalise the plans for future commercial implementation.

 

Morocco - Our industrial client in Morocco is a major consumer of HFO. Since the successful pilot plant trial in October 2020, our plans have been impacted by COVID related travel restrictions causing delays to the trial programme. Following the easing of these restrictions, our Head of Operations, Bernard Johnston, was able to visit the site ("Site B") in August 2021 in order to prepare for the next stage of the programme; the combustion of 60mt of MSAR®. The site consumes around one third of the client's annual HFO consumption. The Site B trial is now expected to take place in Q4 2021. Testing of bitumen samples for the MSAR® fuel production has now been completed, with production scheduled to commence in Q4, and shipment of the trial equipment to the client site organised for October 2021. The Site B trial results and a feasibility study for MSAR® use at a second client site ('Site A') are expected to be delivered to the client in Q4 2021, with Quadrise receiving £0.1m. A subsequent commercial trial will then take place at "Site A" later in Q4 2021 or early Q1 2022 with shared trial costs reimbursed to Quadrise under a separate agreement. Assuming the successful conclusion of these trials, the intention would then be to conclude a commercial supply agreement covering one or more of the client's sites in Morocco during Q1 2022.

 

Americas - Using our regional agent network we are progressing projects in Panama with power generators, and in Mexico and Ecuador with the state oil companies and utilities respectively and look forward to providing updates as these projects progress.

 

Outlook

 

The downstream oil sector has had to adapt rapidly to changes in demand driven by the IMO 2020 restrictions on marine sulphur emissions as well as the COVID pandemic. These changes affected both the availability and values (relative to HFO) of refinery residuals utilised in MSAR® and bioMSAR™, unfavourably impacting MSAR® economics over the past year. However, during the latter part of 2021 the trends are looking increasingly positive, as despite changes to oil consumption, the underlying crude oil price has remained robust, which is positive for the upstream sector. The demand for HFO in the power and marine sectors has also remained strong, the latter driven by the increasing use of exhaust gas cleaning systems (or "scrubbers") to comply with IMO 2020. It is expected that distillate fuel demand will continue to recover in 2022 driven by the transportation sector. This will be positive for refinery margins and the HFO-distillate spread, underpinning the economic value of refinery residuals as an energy source for MSAR® and bioMSAR™ in our key markets. These trends will provide a positive backdrop to our ongoing discussions with refinery suppliers regarding potential supply of residue for our key projects.

 

The public attitude towards renewables and low emission fuel options is accelerating interest in bioMSAR™ and increasing the market opportunity in various sectors. During the next 12 months we plan to demonstrate the long-term economic and environmental benefits of MSAR® and bioMSAR™ projects through commercial-scale trials that, on successful completion, should lead to supply contracts and commercial revenues.. In parallel our RDI team are focused on finding new Net Zero carbon future fuel solutions.

 

Mark Whittle, Quadrise's former COO, who left the Group in September 2021, made a major contribution during his 6 years at Quadrise and left with our best wishes. I am glad to report that we have now selected and appointed a new COO, who will start in the next few months.  Having streamlined the team during the COVID-19 pandemic period we are now expanding, both in terms of permanent resources and experienced consultants in relevant sectors to enhance project delivery and extend the capabilities of QRF in Essex.

 

The Quadrise team look forward to an exciting 2022 for the Company and shareholders.

 

Jason Miles

Chief Executive Officer

1 October 2021

Strategic Report

For the year ended 30 June 2021

 

Principal Activity

 

The principal activity of the Company is to develop markets for its proprietary emulsion fuels, MSAR® and bioMSAR™ as low-cost, more environmentally friendly substitutes for conventional heavy fuel oil ("HFO") for use in power generation plants, industrial and upstream oil applications, and marine diesel engines.

 

Business Review and Future Developments

 

A full review of the Group's activities during the year, recent events and future developments is contained in the Chairman and CEO Statements on pages 5 and 6.

 

Key Performance Indicators

 

The Group's key performance indicators are:

 

· Development and commercial performance against the Group's business model and project timetables established with partners and clients, and

· Financial performance and position against the approved budgets and cashflow forecasts.

 

The Board regularly reviews the Group's business model, with a business development progress review held fortnightly with Non-Executive Directors. The commercial performance of the Company and each of the Company's key projects and business development opportunities is discussed at length in the Chairman and CEO Statements.

 

Each year, a detailed two-year budget and cash forecast is prepared by the Executive Directors and the Head of Finance, and following an extensive review process, is then approved by the Board. Performance against budget and updated cash projections are included within the monthly management accounts issued to and reviewed by the Board. For the year ended 30 June 2021, the financial performance of the Group was ahead of budget due to lower than forecast expenditure as a result of cost-reducing measures put in place due to the Covid-19 pandemic.

 

Going Concern

 

The Group had a cash balance of £7.0m as of 30 June 2021 following a successful fundraise in March 2021 which raised £6.5m (net of costs). The funds raised, in conjunction with the existing cash balance, are expected to be sufficient for the Group to reach commercial revenues and sustainable positive cashflows, with these expected to commence in Q1 2023. The Directors therefore have determined that it is appropriate to prepare the financial statements on a going concern basis. For further details behind the judgments and estimations used by the Directors in reaching this determination, refer to note 2.

 

Climate Change

 

As discussed in both the Chairman's and CEO's statements on pages 2 to 4, the Quadrise bioMSARTM technology offers an alternative to HFO with over 25% lower CO2 emissions. The directors believe that the growing global emphasis on the COP 26 Goals, specifically the goal of transition to global net-zero carbon by 2050, present Quadrise with increasing opportunities to assist marine, power and industrial clients in obtaining a cost-effective solution to lowering their carbon emissions. Government actions to reduce climate change therefore provide opportunities to Quadrise, but the Board acknowledges that the Company may also be presented with additional risks due to these actions. 

 

Risks, including those introduced by climate change and governmental actions to reduce climate change, are discussed in the next section. 

 

Principal Business Risks

 

Each year in the second quarter, the Audit Committee assists the Executive Team in a structured zero-based re-assessment of the Company's emerging and principal risks. This is conducted for each operational sector and organisational level including the Company's research and development facility, QRF, and then aggregated for the Company as a whole. The risk level is determined by its probability, impact on the Company, and whether the risk has increased or decreased over the last 12 months. A summary of "Principal Risks and Uncertainties" is reviewed at a Board meeting. Subsequently a Risk Mitigation Strategy and Action Plan is incorporated into the annual Business Planning exercise conducted in June.

 

The principal risks identified during this exercise, ranked in order of the likelihood of occurrence, are set out below. These may not include all the risk factors that could affect future results. Actual results could differ materially from those anticipated because of these and various other factors, and those set forth in the Group's other periodic and current reports filed with the authorities from time to time.



 

Environmental constraints, climate change and decarbonisation

The increasingly hostile attitude towards fossil fuels is a significant challenge resulting in a rapid move away from hydrocarbons towards fully renewable fuels. Whilst MSAR® provides considerable environmental advantages, and bioMSARTM offers the added benefits of carbon reduction, neither offer a net-zero carbon solution. The Group mitigates this risk by continuing to invest in research and development to pursue 'net-zero' carbon fuel solutions as part of its aim to be at net zero by 2030 and pursue business opportunities that will assist in the achievement of this goal. 

 

Market scope and risk

Aligned with the constraints above, and faced with the move away from hydrocarbons, the Company must still progress its MSAR ® and bioMSAR™ endeavours into a volume business. The Group mitigates this challenge by continuing to promote the environmental contribution of MSAR ® and bioMSAR™ and explaining the assured ongoing contribution of hydrocarbons to the global energy mix. The Company further mitigates this risk by increasing the potential applicability of Quadrise technology to various sectors, as evidenced by the opportunities in the upstream and industrial sectors discussed in the CEO's Statement. Nevertheless, the marketability of MSAR® fuels is affected by numerous factors beyond the control of the Group , for example the variability of price spreads between light and heavy oils, and the relative competitiveness of oil, gas and coal prices both for prompt and future delivery.

 

Commercial return

The Group has made considerable progress in its rapid development of bioMSAR™ whilst continuing to advance commercial opportunities for MSAR ®. and reduce its treat costs in the face of changes to fuel oil-gasoil spreads. During the product development of bioMSAR™ there remain the considerable challenges of testing, feedstock availability (see below), glycerine treatment options, formulation costs and commercial feasibility still to overcome. There is a risk the Group will not achieve a commercial return due to major unanticipated change in a key variable or, more likely, the aggregate impact of changes to several variables which results in sustained depressed margins.

 

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

 

Feedstock sourcing - MSAR ®

The removal of the Cepsa operational facilities obviously results in additional costs and delays in securing new sources of MSAR ® feedstock. In addition, IMO2020 has impacted high sulphur residue supply, and MSAR ® economics are vulnerable to changes in f uel oil-gasoil spreads. Securing low-cost residue looks increasingly challenging. There is a risk in respect of appropriately located residues and ongoing price competitive availability of such feedstock as oil refiners seek to extract more transportation fuels from each barrel of crude using residue conversion processes. The Group mitigates this risk where possible by utilising its deep understanding of the global refining industry, targeting qualifying suppliers matched to prospective major consumers. An MSAR ® commercial contract would motivate candidate feedstock suppliers to expedite feedstock supply.

 

Feedstock sourcing - bioMSAR™

The volumes and quality of renewable glycerine required for a commercial marine or industrial bioMSAR™ contract are beyond those readily accessible. To mitigate this the Company is rapidly increasing its knowledge of current and potential glycerine sources and engaging with suppliers. Clearly a commercial contract would again stimulate this market and thus expedite feedstock supply. The Company is also investigating the feasibility of algal production of glycerine with the University of Greenwich, as well as researching other renewable feedstocks that could be utilised together with, or instead of glycerine.

 

Delay in commercialisation of MSAR® and funding risks due to COVID-19

There is a risk that the commercialisation of MSAR ® and bioMSAR™ could be delayed further due to the global COVID-19 pandemic, or unforeseen technical and/or commercial challenges. This could mean that the Group may ultimately need to raise further equity funds to remain operational. Depending on market conditions and investor sentiment, there is a risk that the Group may be unable to raise the required funds when necessary. The Group mitigates this risk by maintaining strong control over its pre-revenue expenditure, keeping up the momentum on its key projects and maintaining regular contact with the financial markets and investor community. Further discussion of the impact of COVID-19 on the Group and the Group's mitigating action is included in the CEO's Statement.

 

Technological risk

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

 

Competition risks

There is a risk that new competition could emerge with similar technologies sufficiently differentiated to challenge Quadrise's process, although at the date of this report no evidence of significant competition has been noted. Were such competition to emerge, this could result, over time, in further price competition and pressure on margins beyond that assumed in the Group 's business planning. This risk is mitigated by the limited global pool of expertise in the emulsion fuel market combined with an enhanced R&D programme aimed at optimising cost and performance and protection of intellectual property. The Group also makes best use of scarce expertise by developing close relationships with strategic counterparties such as Nouryon while ensuring that key employees are suitably incentivised.

 

Environment, Social and Governance risks (ESG)

Quadrise is committed to providing safer, cleaner and more affordable energy. By leveraging our extensive RDI capabilities, and through continuous improvement processes, Quadrise aims to be carbon-neutral by 2030. Furthermore, the highest standards of corporate governance have always been a strength and this places the Company in  the  top tier of AIM companies.  We maintain this commitment by adopting the highest disclosure standards of the UK Corporate Governance Code , through the experience and commitment of our non-exec directors and by following stringent Board policies and procedures. The Company works to exceptional health, safety, environmental protection and quality standards, with strong risk management processes in place, all of which are supported by a first-class team of professional advisors. 

 

Other Business Risks

 

Dependence on key personnel

The Group 's business is dependent on obtaining and retaining the services of key personnel of the appropriate calibre as the business develops. The success of the Group will continue to be dependent on the expertise and experience of the Directors and the management team, and the loss of personnel could still have an adverse effect on the Group . The Group mitigates this risk by ensuring that key personnel are suitably incentivised and contractually bound. The Group's recruitment programme to find a successor to Mark Whittle is complete, with a new candidate joining the Company during the next few months.

 

Environmental risks

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

 

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

 

No profit to date

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

 

Corporate and regulatory formalities

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

 

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

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

 

Mike Kirk

Chairman

1 October 2021

 

 



 

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2021

 


Notes

 

Year ended

30 June 2021

£'000s

Year ended

30 June 2020

£'000s

Continuing operations




Revenue


17

-

Production and development costs


(1,377)

(1,357)

Other administration expenses


(1,527)

(1,821)

Fair value adjustments arising on Convertible Securities

10

(1,257)

(1,133)

Share option charge

11

(303)

(474)

Warrant charge

12

-

(65)

Foreign exchange loss


(9)

(1)

Operating loss

4

(4,456)

(4,851)

Finance costs


(4)

(146)

Finance income


50

7

Loss before tax


(4,410)

(4,990)

Taxation

5

150

147

Loss and total comprehensive loss for the year

from continuing operations to owners of the parent

(4,260)

(4,843)





Loss per share - pence




Basic

6

(0.36)p

(0.49)p

Diluted

6

(0.36)p

(0.49)p

 

 



 

Consolidated Statement of Financial Position   

As at 30 June 2021  

 


Notes

 

As at

30 June 2021

£'000s

As at

30 June 2020

£'000s

Assets




Non-current assets




Property, plant and equipment

7

460

582

Intangible assets

8

2,924

2,924

Non-current assets


3,384

3,506





Current assets




Cash and cash equivalents


7,006

2,380

Trade and other receivables


117

213

Prepayments


95

112

Stock


61

61

Current assets


7,279

2,766

TOTAL ASSETS


10,663

6,272

 

Equity and liabilities




Current liabilities




Trade and other payables


276

198

Convertible Securities

10

-

2,045

Current liabilities


276

2,243





Equity attributable to owners of the parent




Issued share capital


14,069

10,351

Share premium


77,189

75,431

Merger reserve


3,777

-

Share option reserve


3,344

3,927

Warrant reserve


1,017

1,122

Reverse acquisition reserve


522

522

Accumulated losses


(89,531)

(87,324)

Total shareholders' equity


10,387

4,029

TOTAL EQUITY AND LIABILITIES


10,663

6,272

 



 

Consolidated Statement of Changes in Equity

For the year ended 30 June 2021

   



Issued capital

£'000s


Share premium

£'000s

 

Merger reserve

£'000s

Share option reserve

£'000s

 

Warrant reserve £'000s

Reverse acquisition reserve

£'000s

 

Accumulated
losses

£'000s



Total

£'000s

1 July 2019

9,227

74,438

-

3,455

105

522

(82,985)

4,762

Loss and total comprehensive loss for the year

-

-

-

-


-

(4,843)

(4,843)

Fair value adjustments arising on Convertible Securities

-

-

-

-

-

-

502

502

Share option charge

-

-

-

474

-

-

-

474

Transfer of balances relating to expired share options

-

-

-

(2)

-

-

2

-

Warrant charge

-

-

-

-

65

-

-

65

Warrants issued as part of Open Offer and Subscription

-

(816)

-

-

816

-

-

-

Shares and warrants issued as part of Convertible Securities transaction

84

101

-

-

136

-

-

321

New shares issued

647

1,914

-

-

-

-

-

2,561

Share issue costs

-

(263)

-

-

-

-

-

(263)

Shares issued upon exercise of Convertible Security

393

57

-

-

-

-

-

450

30 June 2020

10,351

75,431

-

3,927

1,122

522

(87,324)

4,029

1 July 2020

10,351

75,431

-

3,927

1,122

522

(87,324)

4,029

Loss and total comprehensive loss for the year

-

-

-

-

-

-

(4,260)

(4,260)

Fair value adjustments arising on Convertible Securities

-

-

-

-

-

-

(1,564)

(1,564)

Share option charge

-

-

-

303

-

-

-

303

Transfer of balances relating to expired share options

-

-

-

(886)

-

-

886

-

Transfer of balances relating to expired warrants

-

-

-

-

(105)

-

105

-

New shares issued

2,599

639

3,777

-

-

-

-

7,015

Share issue costs

-


-

-

-

-

(502)

(502)

Shares issued upon exercise of Convertible Security

1,119

1,119

-

-

-

-

-

2,238

30 June 2021

14,069

77,189

3,777

3,344

1,017

522

(89,531)

10,387

 



 

Consolidated Statement of Cash Flows

For the year ended 30 June 2021

 


Notes

 

Year ended

30 June 2021

£'000s

Year ended

30 June 2020

£'000s

Operating activities




Loss before tax from continuing operations


(4,410)

(4,990)

Fair value adjustments arising on Convertible Securities

10

1,257

1,133

Convertible Securities finance costs (non-cash)

10

-

140

Depreciation

7

135

172

Loss on disposal of fixed assets


16

-

Finance costs paid

 

4

6

Finance income received

 

(50)

(7)

Share option charge

  11

303

474

Warrant charge


-

65

Working capital adjustments




Decrease/(increase) in trade and other receivables


96

(44)

Decrease/(increase)


17

(6)

Increase/(decrease) in trade and other payables


78

(90)

Cash utilised in operations


(2,554)

(3,147)





Finance costs paid

 

(4)

(6)

Taxation received

  5

150

147

Net cash outflow from operating activities


(2,408)

(3,006)





Investing activities




Finance income received

 

50

7

Purchase of property, plant and equipment

  7

(29)

(24)

Net cash outflow from investing activities


21

(17)





Financing activities




Issue of ordinary share capital

 

7,015

2,606

Issue costs

 

(502)

(263)

Increase in Convertible Securities

  10

500

2,000

Net cash inflow from financing activities


7,013

4,343





Net increase in cash and cash equivalents


4,626

1,320

Cash and cash equivalents at the beginning of the year


2,380

1,060

Cash and cash equivalents at the end of the year


7,006

2,380



 

Notes to the Financial Information

1.  Basis of Preparation and Significant Accounting Policies

The financial information for the year ended 30 June 2021 has been prepared in accordance with International Financial Reporting Standards ("IFRS's") in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and effective, or issued and early adopted, as at the date of these statements.

The financial information has been prepared on the historical cost basis, except for the revaluation of certain financial instruments. Details of the accounting policies applied are set out in the financial statements for the year ended 30 June 2021.

 

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

 

The financial information contained in this announcement does not constitute the Company's statutory financial statements for the year ended 30 June 2021 but has been extracted from them. These financial statements will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on these financial statements, and their report was unqualified and did not contain any statement under section 498(2) or (3) Companies Act 2006.

 

Statutory financial statements for the year ended 30 June 2020 have been delivered to the Registrar of Companies. The auditor's report on these financial statements was unqualified and did not contain any statement under section 498(2) or (3) Companies Act 2006.

 

The Directors do not propose a dividend in respect of the year ended 30 June 2021 (2020: nil).

 

This announcement was approved by the Board on 1 October 2021.

 

 



 

 

2.  Going Concern

 

As at 30 June 2021 the Group had a cash balance of £7.0m. The increase in funds during the year was the result of a successful fund-raising exercise, which raised £6. 5m after costs in March 2021 in two phases, a 'cash box' placing, which raised net funds of £5.5m and a 1-for-30 Open Offer to existing shareholders, which raised a further £1m.  

 

The funds raised, in conjunction with the existing cash balance, are expected to be sufficient for the Group to reach commercial revenues and sustainable positive cashflows, with these expected to commence in Q1 2023.  The basis for this expectation is the Group business model, budget and business plan, and sensitivity analysis, which have been reviewed and approved by the Board. The business model shows total forecast Group cashflows up to 30 June 2031 and the Group budget and business plan covers the next two financial years in detail. The model comprises the financial forecasts associated with each project opportunity deemed to have a realistic chance of progressing, with assumptions made about i) the operating mode (licence, tolling or merchant), ii) the equity percentage held in the venture, iii) the cost of chemicals and equipment, iv) margins and v) rates of growth. These assumptions are based on the latest market information, agreements with counterparties and the status of discussions. The Directors therefore have a reasonable basis for assuming that the Group's portfolio of projects and business development opportunities will result in the generation of commercially sustainable revenues in the near term.

 

The Directors carry out a detailed risk assessment process each year, with key risks and mitigating actions identified. Despite the ongoing global disruption caused by COVID-19, the Group has continued to progress its projects and business development activities utilising a combination of web-conferencing and, where possible, in-person meetings with the Group's in-country agents and representatives.  COVID-19 has had minimal impact on the Group's UK operations, with London based staff working remotely for the majority of the year, and QRF remaining fully operational throughout the year, albeit with social-distancing measures in place and highly restricted acceptance of third-party visitors. Significant cost savings have also been made since the outbreak of COVID-19 through careful management of discretionary expenditure and human resources.

The Directors also note the positive and sustained levels of engagement with partners, prospective clients and project stakeholders worldwide during the year, despite global COVID-19 disruption. Existing and prospective commercial partners make decisions based on long-term considerations, and the Directors believe that the economic and environmental advantages offered by MSAR®  and bioMSARTM are increasingly attractive in periods of global uncertainty as counterparties look to both generate savings and further improve their environmental performance.

 

The Directors acknowledge that project activities that require being on site at client premises have been delayed and could be subject to further delays depending upon the status of the pandemic and restrictions put in place by governments in the months ahead. Whilst these delays do not inherently affect the longer-term business case, the revenues resulting from projects may be impacted.

 

Based on the rationale for the key assumptions outlined above, the Directors have therefore made the judgement that the financial statements should be prepared on a going concern basis.

 

3.  Segmental Information

 

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

 

Geographical Segments

 

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

 

4.  Operating Loss

 

Operating loss is stated after charging:

Year ended

30 June 2021

£'000s

Year ended

30 June 2020

£'000s







Fees payable to the Company's auditor for the audit of the Company's annual accounts.

Fees payable to the Company's auditor and its associates for other services :

43

23

Audit of accounts of subsidiaries 

Tax compliance services

35

-

23

3

Consultants and other professional fees (including legal)

273

286

Depreciation of property, plant and equipment

135

172

Research and development costs

300

241



 

 

5.  Taxation

 


Year ended

30 June 2021

£'000s

Year ended

30 June 2020

£'000s

 

UK corporation tax credit

(150)

(147)

Total

(150)

(147)

 

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

 

Tax Reconciliation

Year ended

30 June 2021

£'000s

 

Year ended

30 June 2020

£'000s

Loss on continuing operations before taxation

(4,410)

(4,990)

Loss on continuing operations before taxation multiplied by

the UK corporation tax rate of 19% (2020: 19%)

 

(838)

 

(948)

Effects of:



Non-deductible expenditure

58

208

R&D tax credit

(150)

(147)

Temporary differences

24

(13)

Tax losses carried forward

756

753

Total taxation credit on loss from continuing operations

(150)

(147)

 

The Group has tax losses arising in the UK of approximately £58.4m (2020: £53.7m ) that are available, under current legislation, to be carried forward against future profits. £30.7m (2020: £26.6m) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £25.8m (2020: £25.8m) represent non-trade deficits arising on intangible assets within Quadrise International Limited, £0.2m (2020: £0.6m) represent pre-trading losses incurred by subsidiaries, £0.9m (2020: £nil) represent non-trade loan relationships, £0.8m (2020: £0.8m) represent management expenses incurred by Quadrise International Limited, an d £nil (2020: £0.1m) represent capital losses within Qua drise Fuels International plc.

 

A deferred tax asset representing these losses and other temporary differences at the statement of financial position date of approximately £11.1m (2020: £10.2m) has not been recognised as a result of existing uncertainties in relation to its realisation. 

 

6.  Loss Per Share

 

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

 


Year ended  30 June 2021

 

Year ended  30 June 2020

 

Loss for the year (£'000s)

(4,260)

(4,843)

 

Weighted average number of shares:



Basic

1,175,406,844

982,793,918

Diluted

1,175,406,844

982,793,918




Loss per share:



Basic

(0.36)p

Diluted

(0.36)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 28.3m dilutive share options and the 40.2m dilutive warrants issued by the Company and which are outstanding at year-end could potentially dilute earnings per share in the future if exercised when the Group is in a profit-making position.



 

 

7.  Property, plant and equipment

Consolidated


Leasehold Improvements

Computer Equipment

Software

Office Equipment

Plant and machinery

Total


£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

Cost







Opening balance - 1 July 2020

181

95

43

16

1,410

1,745

Additions

-

3

-

-

26

29

Disposals

(107)

-

-

-

(39)

(146)

Closing balance - 30 June 2021

74

98

43

16

1,397

1,628








Depreciation







Opening balance - 1 July 2020

(181)

(89)

(43)

(16)

(834)

(1,163)

Depreciation charge for the year

-

(3)

-

-

(132)

(135)

Disposals

107

-

-

-

23

130

Closing balance - 30 June 2021

(74)

(92)

(43)

(16)

(943)

(1,168)








Net book value at 30 June 2021

-

6

-

-

454

460

 

Consolidated


Leasehold Improvements

Computer Equipment

Software

Office Equipment

Plant and machinery

Total


£'000s

£'000s

£'000s

£'000s

£'000s

£'000s

Cost







Opening balance - 1 July 2019

181

91

43

16

1,390

1,721

Additions

-

4

-

-

20

24

Disposals

-

-

-

-

-

-

Closing balance - 30 June 2020

181

95

43

16

1,410

1,745








Depreciation







Opening balance - 1 July 2019

(166)

(78)

(41)

(16)

(690)

(991)

Depreciation charge for the year

(15)

(11)

(2)

-

(144)

(172)

Disposals

-

-

-

-

-

-

Closing balance - 30 June 2020

(181)

(89)

(43)

(16)

(834)

(1,163)








Net book value at 30 June 2020

-

6

-

-

576

582



 

8.  Intangible Assets

 

Consolidated


QCC royalty payments

MSAR® trade name

Technology and know-how

Total


£'000s

£'000s

£'000s

£'000s

Cost





Balance as at 1 July 2020 and 30 June 2021

7,686

3,100

25,901

36,687






Amortisation and Impairment





Balance as at 1 July 2020 and 30 June 2021

(7,686)

(176)

(25,901)

(33,763)






Net book value as at 30 June 2021

-

2,924

-

2,924

 

Cost





Balance as at 1 July 2019 and 30 June 2020

7,686

3,100

25,901

36,687

 






 

Amortisation and Impairment





 

Balance as at 1 July 2019 and 30 June 2020

(7,686)

(176)

(25,901)

(33,763)

 






 

Net book value as at 30 June 2020

-

2,924

-

2,924

 

 

Intangible assets comprise intellectual property with a cost of £36.7m, including assets of finite and indefinite life. Quadrise Canada Corporation's ("QCC's) royalty payments of £7.7m and the MSAR® trade name of £3.1m are termed as assets having indefinite life as it is assessed that there is no foreseeable limit to the period over which the assets would be expected to generate net cash inflows for the Group, as they arise from cashflows resulting from Quadrise and QCC gaining a permanent market share. The assets with indefinite life are not amortised, but the QCC royalty payments intangible asset became fully impaired in 2012.

 

The remaining intangibles amounting to £25.9m, primarily made up of technology and know-how, are considered as finite assets and were amortised over 93 months, being fully amortised in 2012. The Group does not have any internally generated intangibles.

 

MSAR® trade name intangible asset

 

In accordance with IAS 36 "impairment of assets" and IAS 38 "intangible assets", a review of impairment for indefinite life intangible assets is undertaken annually or at any time an indicator of impairment is considered to exist.  The discount rate applied to calculate the present value is for the cash generating unit ("CGU"). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of the CGU is assessed by reference to the value in use ("VIU"), being the net present value ("NPV") of future cash flow expected to be generated by the asset, and fair value less costs to sell ("FVLCS").

 

The recoverable amount of the MSAR® trade name intangible asset has been determined using a VIU model. The expected future cash flows utilised in the VIU model are derived by quantifying the royalties that would result if the asset was licensed from a third party in order to determine the income stream directly attributable to the asset in isolation. The royalties are based on a percentage of projected future revenues up to 30 June 2031 with an assumed growth rate being used beyond that date.

 

The key assumptions used in this calculation are as follows:

 

 

1)  The royalty rate used upon initial recognition of this intangible asset was 0.33% of revenues determined as part of a third-party intangible asset valuation exercise. This was increased to 0.5% of revenues from 2011 onwards to reflect the wider awareness of the MSAR® trademark in the market.

2)  The discount rate of 20% has been determined by management as conservative estimate based on the uncertainty inherent in the revenue forecasts. 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.

3)  The 2021 revenue forecast extends to 30 June 2031 which ensures that each project included within the forecast reaches full maturity.

4)  No growth has been forecast beyond the forecast period due to the uncertainty inherent in the revenue projections beyond the stage of project maturity.

 

The revenue forecast is based on the latest Company business model, which is regularly reviewed by management. The basis for the inclusion of projects and the estimation of growth rates, margins and project lifespans within the business model is based on the latest agreements with counterparties, commodity and chemical prices and the most recent discussions with customers, suppliers and other business partners.

 

The 'base-case' impairment assessment based on the above inputs shows a recoverable amount for the asset that is in excess of the net book value of asset and therefore no impairment has been identified, with the VIU exceeding the carrying value by   £1.74m (the 'headroom').

 

Management have performed sensitivity analyses whereby certain parameters were flexed downwards by reasonable amounts and certain scenarios were modelled for the CGU to assess whether the recoverable value would result in an impairment charge. In isolation, none of these scenarios would result in an impairment to the MSAR® Trade Name intangible asset. However, a combination of two or more of these scenarios could result in an impairment charge, but management do not consider this likely.

 

The following sensitivities were applied:

 

Results of sensitivity analysis

 

 

Amortisation of Intangible Assets

 

The Board has reviewed the accounting policy for intangible assets and has amortised those assets which have a finite life. All intangible assets with a finite life were fully amortised as at 30 June 2021.

 

 

9.  Investments

 

At the statement of financial position date, the Group held a 20.44% share in the ordinary issued capital of Quadrise Canada Corporation ("QCC"), a 3.75% share in the ordinary issued capital of Paxton Corporation ("Paxton"), a 9.54% share in the ordinary issued capital of Optimal Resources Inc. ("ORI") and a 16.86% share in the ordinary issued capital of Porient Fuels Corporation ("Porient"), all of which are incorporated in Canada.

 

QCC is independent of the Group and is responsible for its own policy-making decisions. There have been no material transactions between QCC and the Group during the period or any interchange of managerial personnel. As a result, the Directors do not consider that they have significant influence over QCC and as such this investment is not accounted for as an associate.

 

The Group has no immediate intention to dispose of its investments unless a beneficial opportunity to realise these investments arises.

 

Given that there is no active market in the shares of any of above companies, the Directors have determined the fair value of the unquoted securities at 30 June 2021. The shares in each of these companies were valued at CAD $nil on 1 July 2020 due to their business models being highly uncertain, with minimal possibility of any material value being recovered from their asset base. During the year there has been no indication that this situation has changed, therefore the directors have determined that the investments should continue to remain valued at CAD $nil at 30 June 2021. 



 

 

10.  Convertible Securities

 

On 22 August 2019, the Company entered into an agreement with Bergen Global Opportunity Fund LP ('the Investor') whereby the Investor would provide up to £4.0 million of interest free unsecured funding, provided in two tranches through the issue by the Company of Convertible Securities with a nominal value of up to £4.3 million, convertible into Ordinary Shares.

 

An initial tranche of Convertible Securities with a nominal value of £2.15 million was subscribed for by the Investor for £2.0 million on 30 August 2019. A second tranche of Convertible Securities, with a nominal value of up to £537.5k was subscribed for by the Investor for £0.5 million on 10 February 2021. Both tranches have 24 month maturity dates from the dates of their respective issuance, and any Convertible Securities not converted prior to such dates will automatically convert into Ordinary Shares at such time.  

 

Upon entry into the agreement, the Company issued 4.9 million 36 month warrants to subscribe for new Ordinary Shares to the Investor by way of a Warrant Instrument initially exercisable at 5.78p per Ordinary Share, subject to anti-dilution and exercise price reduction provisions. The Company also issued to the Investor 3,888,889 new Ordinary Shares in settlement of a commencement fee of £140,000 and a further 4,500,000 new Ordinary Shares to collateralise the Agreement subscribed for at nominal value by the Investor.

 

The Convertible Securities are only converted to the extent that the Company has corporate authority to do so, and it is a term of the agreement that the Company must retain sufficient authority to issue and allot (on a non-pre-emptive basis) a sufficient number of Ordinary Shares potentially required to be issued under the terms of the Agreement (and the Warrant Instrument).

 

The Agreement was completed and both tranches funded to the Company on the basis of the remaining Authority from the 2018 Annual General Meeting, and the updated authority obtained at the 27 September 2019 General Meeting of shareholders.

 

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Under the terms of the Convertible Securities agreement of 22 August 2019, the Company has no obligation to repay the securities in cash (unless the Company defaults on the terms) and the number of shares which may be issued upon conversion is variable. As there is  no residual interest in the assets of the Company after conversion of the Convertible Securities, the Convertible Securities meet the criteria to be classified entirely as a financial liability.

 

Tranches 1 and 2 of the  Convertible Securities instrument were designated at fair value on initial recognition. The fair value of tranche 1 was assessed as £1.86m, being the nominal value of £2.15m less interest and warrant charges. At 30 June 2020, the remaining nominal value of £1.70 million of tranche 1 was assessed to have a fair value of £2.05m. The fair value of tranche 2, which has a nominal value of £537.5k was assessed as £1.19m, with tranche 2 being fully converted on 30 April 2021, and therefore no balance remaining outstanding as at 30 June 2021. Upon each exercise of conversion rights, the portion of the Convertible Securities converted is assessed at fair value, with the resulting fair value adjustment being recorded in the Statement of Comprehensive Income.

 

The fair value adjustment charge arising for the year of £1.257m (2020:1,133m) comprises fair value adjustments arising upon initial recognition, revaluation as at balance sheet dates and upon subsequent conversion.

 

During the years ended 30 June 2020 and 2021, the Investor exercised their conversion rights as follows:

 

 

As at 30 June 2021, both tranches have been converted in full, and no nominal value remains outstanding to the investor under the terms of the Convertible Security instrument.

 



 

 

11.  Share Options

 

Movement in the year:

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

 


 

Number

30 June 2021

WAEP

(pence)

30 June 2021

 

Number

30 June 2020

WAEP

(pence)

30 June 2020






Outstanding as at 1 July

39,250,000

17.95

39,400,000

17.91

Granted during the year

10,000,000

7.50

-

-

Expired during the year

(6,500,000)

23.36

(150,000)

7.50

Exercised during the year

-

-

-

-

Options outstanding as at 30 June

42,750,000

14.69

39,250,000

17.95

Exercisable as at 30 June

28,312,500

18.36

29,250,000

20.09

 

The weighted average remaining contractual life of the 42.8 million options outstanding at the statement of financial position date is 5.17 years (2020: 5.05 years). The weighted average share price during the year was 2.98p (2020: 3.18p) per share.

 

The expected volatility of the options reflects the assumption that historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The expected life of the options is based on historical data available at the time of the option issue and is not necessarily indicative of future trends, which may not necessarily be the actual outcome. 

 

The Share Option Schemes are equity settled plans, and fair value is measured at the grant date of the option. Options issued under the Schemes vest over a two year or three year period provided the recipient remains an employee of the Group. Options also may be exercised within an agreed period of an employee leaving the Group at the discretion of the Board.

 

The Company issued 10 million share options to directors and employees during the year (2020: nil).

 

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

 




2021

2020

Stock price:



3.08p

-

Exercise Price



7.50p

-

Interest Rate



0.1%

-

Volatility



126.91%

-

Expected term (years)



4.0

-

 

 



 

12.  Warrants

 

Movement in the year:

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

 


 

Number

30 June 2021

WAEP

(pence)

30 June 2021

 

Number

30 June 2020

WAEP

(pence)

30 June 2020






Outstanding as at 1 July

45,228,026

6.56

5,000,000

3.16

Granted during the year

-

-

40,228,026

6.98

Exercised during the year

-

-

-

-

Expired during the year

(5,000,000)

3.16

-

-

Warrants outstanding as at 30 June

40,228,026

6.98

45,228,026

6.56

Exercisable as at 30 June

40,228,026

6.98

45,228,026

6.56

 






The warrants are equity settled warrants which vest immediately on grant date. Fair value is measured at the grant date of the option using the Black Scholes pricing model. The inputs into this model are: Stock price at the date of grant, exercise price, interest rate, expected term and expected volatility. The expected volatility of the warrants reflects the assumption that historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The expected life of the warrants is based on historical data available at the time of the option issue and is not necessarily indicative of future trends, which may not necessarily be the actual outcome. 

 

The weighted average inputs into the Black Scholes option pricing model were as follows:

 




2021

2020

Stock price:



-

3.93p

Exercise Price



-

6.98p

Interest Rate



-

0.75%

Volatility



-

 128%

Expected term (years)



   -

  2.89

 

The weighted average remaining contractual life of the 40.2 million warrants outstanding at the statement of financial position date is 1.15 years (2020: 1.99 years). The weighted average share price during the year was 2.98p (2020: 3.18p) per share.



 

11.  Related Party Transactions

 

Non-executive Director Laurence Mutch is also a Director of Laurie Mutch & Associates Limited, which has provided consulting services to the Group. The total fees charged for the year amounted to £45k (2020: £30k). The balance payable at the statement of financial position date was £nil (2020: £nil).

 

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

 

 

12. Events After the end of the Reporting Period

 

On 3 September 2021, the Company granted a total of 10,500,000 options over new ordinary shares of 1p each in the Company to executive directors of the Company in accordance with the provisions of the Company's Unapproved Share Option Plan 2016 ("2016 Plan"). The issue of these options follows the lapsing in full of the 10,000,000 options issued by the Company on 24 August 2020 due to the specific performance conditions of those options not having been met.

 

Director

Number of Performance Options

Plan

Exercise price

Mike Kirk

3,000,000

2016 Plan

 

7.5p

Jason Miles

7,500,000

2016 Plan

7.5p

Total

10,500,000

-

-

 

These Performance Options will vest as to 50% on the first anniversary of grant and the remaining 50% shall vest on the second anniversary of the date of grant. All vestings are subject to the satisfaction of specific performance conditions prior to the first anniversary of grant. The Performance Options will be exercisable from vesting until the eighth anniversary of the date of grant.

 

On 3 September 2021 Quadrise also granted 2,552,793 nominal value options ("NVO") over new ordinary shares of 1p each in the Company to the Company's executive directors in lieu of cash bonuses for the year ended 30 June 2021. The NVOs have been issued under the 2016 Plan.

 

Director

Number of NVOs

Plan

Exercise price

Mike Kirk

776,931

2016 Plan

 

1.0p

Jason Miles

1,775,862

2016 Plan

1.0p

Total

2,552,793

-

-

 

The NVOs will vest after 12 months from the date of grant, have no performance conditions and will be exercisable from vesting until the eighth anniversary of the date of grant.

 

On 3 September 2021, the Company granted 1,462,929 NVOs over new ordinary shares of 1p each in the Company to the Company's employees in lieu of cash bonuses for the year ended 30 June 2021. These NVOs were issued under the Company's Enterprise Management Incentive Plan, and w ill vest after 12 months from the date of grant, have no performance conditions and will be exercisable from vesting until the tenth anniversary of the date of grant.

 

 

13. Copies of the Annual Report

 

Copies of the annual report will be  available shortly from the Company's website at www.quadrisefuels.com and from the Company's registered office, Eastcastle House, 27-28 Eastcastle Street, London, W1W 8DH

 

 

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