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RNS Number : 3871X
Biofutures International plc
24 June 2008
For Immediate Release 24 June
2008
Biofutures International plc
Final audited results for the year ended 31 December 2007
Biofutures International plc, the AIM listed investing company which seeks to
establish, invest in, or acquire assets, partnerships, joint ventures,
businesses or companies in Europe, Asia and the Middle East in the energy and
utility sectors and
their related infrastructures announces final results for the year ended 31
December 2007.
Copies of this final results announcement are available from the Company's
website (www.biofuturesplc.com). Copies of the Annual Report and Accounts will
be sent to shareholders by 30 June 2008 for approval at the Annual General
Meeting to be held on
30 July 2008.
Enquiries:
Julie Pomeroy, Group Finance Director,
Biofutures International plc
Tel: 0117 920 0092
Emily Morgan,
Blomfield Corporate Finance
Tel: 01275 871717
Paul Vann
Winningtons Financial
Tel: 0117 920 0092
Chairman's statement
2007 has been a challenging year for the Group. We started the year actively
engaged in, through our subsidiary Zurex Corporation Sdn.Bhd ('Zurex'), the
design and construction of the 200,000 metric tonnes biodiesel plant at Lahad
Datu, Sabah,
Malaysia. During the early months of 2007, there was a major rise in the cost of
crude palm oil, the intended feedstock for the biodiesel plant, which had a
significant adverse impact on the potential profitability of our business. Since
October 2006, the
price of crude palm oil has increased from US$430 per metric tonne to above
US$1000 per metric tonne today. In April 2008 the price of crude palm oil rose
to over US$1350 per metric tonne. The reasons for this high price include
seasonal climate effects
and some speculative activity in the trading of the commodity. However, the
fundamental macroeconomic driver of increased prices is rising global food
demand.
These factors, together with the prevailing market price for palm-based
biodiesel which has fallen below our projected cost of production, have meant
that it has not been possible to find debt financing on acceptable terms. Even
if acceptable debt
financing had been found, the biodiesel plant could not have commenced
operations due to the negative margins of biodiesel relative to the price of
crude palm oil. We announced in September 2007 that contracts with suppliers had
been put on hold and that
negotiations were taking place with a view to re-engineering the proposed
biodiesel plant.
In May 2008, we announced that we had terminated our contract to purchase 50
acres of land at Lahad Datu, Sabah, Malaysia and agreed, in its place, to
purchase 14 acres of land at the same location. We also subsequently announced
the findings of our
review of the project and concluded that the biodiesel plant as originally
conceived was currently not economically viable.
The global trend shows an increased demand for palm oil and with it a rise in
prices. The margin between crude palm oil and refined palm oil has also
increased significantly. Accordingly, we are considering the possibility of
refining palm oil which
also allows us to retain the flexibility to consider the production of palm oil
biodiesel should economic circumstances permit in the future. The refining of
palm oil requires similar technologies to those which would have been utilised
in the
pre-treatment stage of the palm oil biodiesel plant, and thus the pre-treatment
plant can be redesigned to become a palm oil refinery. This route would also
allow us to use some of the Lurgi plant equipment that had already been built
and fabricated prior
to us putting the Zurex project on hold.
Group Strategy
At the Extraordinary General Meeting (EGM) in June 2008, the Company became an
Investing Company. The Group's strategy is to continue to review the biodiesel
plant project to be carried out by Zurex including potentially re-engineering it
into a palm
oil refinery. This refinery, through the addition of a trans-esterification
module or an esterification module and associated ancillary equipment, could be
expanded to produce palm oil biodiesel should it become economically viable to
do so. In addition,
the Group's strategy is to invest in or acquire projects, assets, partnerships,
joint ventures, businesses or companies (public or private) in Europe, Asia and
the Middle East in the energy and utility sectors and their related
infrastructures.
Board Changes
At the Annual General Meeting (AGM) in July 2007, Nick Gee, Chris Price and
Chris Dennison were not re-elected. The Board thanks them for their support and
efforts over the period of their directorships. Dr Joe Wong and I became
Executive Directors
following the AGM. We also welcomed to the Board Dr Patrick Howes as a Non
Executive Director with effect from 31 August 2007 and David Long as a Non
Executive Director on 5 February 2008. The untimely death of Non Executive
Director Phillip Carter
occurred in May 2007. Phil will be missed by all who knew and worked with him.
Outlook
The broader investment strategy adopted at the June EGM provides the Company
with the flexibility to utilise its current cash resources for the benefit of
shareholders. The palm oil refining project will be reviewed in detail as it
allows the Company
to utilise its current assets, as well as potentially being a financially
attractive project. The Company will also seek other investments which should
add to shareholder value.
David Yeoh
Executive Chairman
Business review
Zurex Project
Zurex was acquired in November 2006 to construct a 200,000 metric tonnes per
annum biodiesel plant at Lahad Datu, Sabah, Malaysia. We had a contract to
acquire a 50 acre site that was large enough to expand the biodiesel plant
capacity to one million
metric tonnes per annum. In January 2007, we signed an agreement with JJ-Lurgi
Engineering ('Lurgi'), the company that was to supply the components for the
construction of the palm oil biodiesel plant. We progressed to the detailed
design for the plant
and site, and also reached tendering stage for the main contractor to construct
the plant. We had also progressed with discussions both with feed stock
providers for the supply of crude palm oil, and with off-takers on the sale of
our biodiesel and
glycerine products. During this period, the management were actively seeking
bank financing that would be necessary to complete the biodiesel plant.
The rise in palm oil prices has meant that bank financing could not be obtained
on acceptable terms. Even if acceptable debt financing had been found, the
biodiesel plant could not have commenced operations due to the negative margins
of biodiesel
relative to the price of crude palm oil. In September 2007 the project was put
on hold.
Since this time, the management has been working to terminate or vary its
various agreements and contractual obligations at minimum cost to the Company as
well as taking action to reduce the cost base of the Company. This included
closing our
Newcastle office.
In May 2008, we announced that we had terminated our contract to purchase the 50
acres of land at Lahad Datu, Sabah, Malaysia and agreed, in its place, to
purchase 14 acres of land at the same location. This agreement leaves us with
sufficient acreage
to build a refining plant (and to add the additional modules to convert it to a
200,000 metric tonnes biodiesel plant should economics allow in the future) and
will allow us to save approximately £2.90 million which would otherwise have
been spent on
acquiring the 50 acre plot of land.
The management has also been actively pursuing alternative options for the
Company. We have continued our discussions with Lurgi and are carrying out due
diligence on the feasibility of re-engineering the project so that a palm oil
refinery plant can
be built, utilising the Lahad Datu land and some of the equipment already
constructed or procured by Lurgi.
The EGM on 6 June 2008 approved the Company becoming an Investing Company. As an
Investing Company Biofutures will therefore have to make an acquisition or
acquisitions which constitute a reverse takeover under the AIM Rules for
Companies or otherwise
implement its Investing Strategy to the satisfaction of the London Stock
Exchange within 12 months of having received the consent of Shareholders at the
EGM. If this does not occur, trading in the Company's ordinary shares will be
suspended. Such an
investment could be an investment in the palm oil refinery project.
Financial Review
Overview
The EGM on 6 June 2008 approved the Company becoming an Investing Company. As
discussed above, our strategy is to continue to review the biodiesel plant
project including potentially re-engineering it into a palm oil refinery.
Accordingly it has been
necessary to review the carrying values of goodwill, intangibles and property,
plant and equipment in the balance sheet.
If the refinery plant proceeds, some of the capital expenditure incurred to date
will have a continuing value to the business. Accordingly, this capital
expenditure has been retained in the balance sheet at cost. Those assets which
have no enduring
value have been written-off or written-down to their estimated net realisable
value. The total write-down was £2.5 million (2006:£nil), of which £2.4 million
has been included in operating loss and £0.1 million in interest expense.
Further write-downs will be required if the refinery project does not proceed.
This write-down, together with administration and salary costs, resulted in a
loss for the year of £2.9 million (2006:(£0.4 million)).
Cash Resources
Available cash and cash equivalents at the year end were £8.3 million (2006:£8.8
million).
The key features in the cash flows were the receipt of the balance of the
proceeds from the shares issued in November 2006 of £2.4 million (2006:£10.7
million) which were received in January 2007 and the payment of £0.3million
(2006:£0.3m) in respect of accrued costs associated with the Zurex acquisition
in 2006. Property, plant and capitalised project costs paid in the year totalled
£2.4 million (2006:£0.9 million). In addition interest of £0.5 million
(2006:£0.1 million) was received.
Goodwill
Goodwill represents the fair value attributed to the knowledge of the Malaysian
nationals required to hold the operational licence for the biodiesel plant in
Malaysia, acquired with Zurex (see note 20). Although the biodiesel plant will
not be built
at this point in time, permission is currently being sought to add a further
licence which will permit refining and sale of palm oil. In view of Zurex's
existing licence, this additional licence is expected to be forthcoming before
the end of 2008. At
this time the Board will also need to ensure that the project remains
economically viable. Based on the assumption that the refinery project will be
built, no impairment is currently considered necessary. However, if the refinery
plant is not built, a
significant write-off is likely to be required.
Intangibles
The intangible assets are included at their fair value and have been grouped
together. They relate to the purchase of the Lahad Datu land, the licence to
manufacture palm oil biodiesel and the value of a 5 year tax free incentive.
This group of assets
could not be separated as they were considered to be all intrinsically linked.
As announced on 20 May 2008 the Directors believe that the biodiesel plant is
currently not economically viable due to the significant rise in the cost of
crude palm oil. The
Directors are now considering re-engineering the work done to date to allow it
to become a palm oil refinery plant instead. 14 acres of land has been acquired
and permission is currently being sought for an additional licence to allow the
Company to
undertake the palm oil refinery project. The intangible assets have been
reviewed based on the assumption that the refinery plant will be built. On this
basis, no write-down is currently required. However, if the refinery plant is
not built, a significant
write-off is likely to be required as the intangible assets may have limited
value in the current market conditions.
International Financial Reporting Standards
The results for the Group for the year ending 31 December 2007 have been
prepared under International Financial Reporting Standards (IFRS).
REPORT of the INDEPENDENT AUDITOR TO THE MEMBERS OF BIOFUTURES INTERNATIONAL PLC
We have audited the group and parent company financial statements (the
''financial statements'') of Biofutures International plc for the period ended
31 December 2007 which comprise the group income statement, the group and parent
company balance
sheets, the group cash flow statement, the group statement of changes in
members' equity the principal accounting policies and notes 1 to 22. These
financial statements have been prepared under the accounting policies set out
therein.
This report is made solely to the company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to
state to them
in an auditor's report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the
company and the company's members as a body, for our audit work, for this
report, or for the
opinions we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the group
financial statements in accordance with United Kingdom law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union, and for
preparing the
parent company financial statements in accordance with United Kingdom law and
United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice) are set out in the Statement of Directors'
Responsibilities.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view, whether the financial statements have been properly prepared in
accordance with the Companies Act 1985. We also report to you whether in our
opinion the
information given in the Directors' Report is consistent with the financial
statements.
In addition we report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors'
remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. The other information
comprises the Chairman's Statement, the Business Review the Financial Review and
the Directors'
Report. We consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the financial
statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgments made by the directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the group's and
company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material
misstatement, whether caused by fraud or other irregularity or error. In forming
our opinion we also evaluated the overall adequacy of the presentation of
information in the financial statements.
Opinion
In our opinion:
* the group financial statements give a true and fair view, in accordance with
IFRSs as adopted by the European Union, of the state of the group's affairs as
at 31 December 2007 and of its loss for the period then ended
* the group financial statements have been properly prepared in accordance with
the Companies Act 1985
* the parent company financial statements give a true and fair view, in
accordance with United Kingdom Generally Accepted Accounting Practice, of the
state of the parent company's affairs as at 31 December 2007
* the information given in the Chairman's Statement, Business Review, Financial
Review and Directors' Report is consistent with the financial statements.
As explained in Note 2.1 to the group financial statements, the group in
addition to complying with its legal obligation to comply with IFRSs as adopted
by the European Union, has also complied with the IFRSs as issued by the
International Accounting
Standards Board.
In our opinion the group financial statements give a true and fair view, in
accordance with IFRSs, of the state of the group's affairs as at 31 December
2007 and of its loss for the period then ended.
Emphasis of matter - uncertainty over the carrying value of intangibles (Group)
and fixed asset investment (Company)
Without qualifying our opinion we draw attention to the Group Strategy section
of the Chairman's Report; the Financial Review and note 9 to the financial
statements, which explain that the Board is considering re-engineering the palm
oil plant project, by
requesting an additional licence and modifying the plant, such that it would
operate a palm oil refinery rather than a biodiesel production facility. If the
refinery project is not progressed, the carrying value of the intangible assets
and goodwill in
the Group, and the cost of investment in the Company, would need to be assessed
for impairment, which may have a significant impact on the financial statements.
GRANT THORNTON UK LLP
REGISTERED AUDITOR
CHARTERED ACCOUNTANTS
LEEDS
24 June 2008
CONSOLIDATED INCOME STATEMENT
For the year ended December 2007
2007 2006*
Note £000 £000
Administrative expenses (891) (500)
Impairment 9 (2,400) -
Operating loss 4 (3,291) (500)
Interest expense (76) -
Interest income 484 77
Loss before income tax (2,883) (423)
Income tax expense 7 - -
Loss for the period (2,883) (423)
Loss per share for loss attributable to the equity
holders of the Company during the year (expressed in
pence)
- basic and diluted 8 (1.94)p (1.50)p
All of the Group's trading activities relate to continuing operations.
The accompanying notes and accounting policies form an integral part of these
financial statements.
* The 2006 comparative relates to the period commencing 17 Feb to 31 December
2006
CONSOLIDATED BALANCE SHEET
At 31 December 2007
2007 2006
Note £000 £000
ASSETS
Non-current assets
Property, plant and equipment 9 1,938 1,703
Goodwill 10 6,078 6,078
Intangible assets 10 10,850 10,850
18,866 18,631
Current assets
Trade and other receivables 12 68 2,545
Cash and cash equivalents 13 8,329 8,813
8,397 11,358
Total assets 27,263 29,989
EQUITY
Capital and reserves attributable to the Company's
equity holders
Share capital 14 1,510 1,477
Share premium account 15 11,293 11,293
Merger reserve 15 16,001 16,001
Translation reserve 15 37 (2)
Share based scheme reserve 15 1,033 1,089
Retained earnings (3,306) (423)
Total equity 26,568 29,435
LIABILITIES
Current liabilities
Trade and other payables 16 695 554
Total equity and liabilities 27,263 29,989
The financial statements were approved by the Board of Directors on 24 June 2008
D Yeoh
JP Pomeroy
The accompanying accounting policies and notes form an integral part of these
financial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Sharecapital£000 Sharepremiumaccount£ Mergerreserve£000 Exchange differences Share based
scheme Retainedearnings£000 Totalequity£000
000 on translationof
reserve£000
foreign
operations£000
As at incorporation - - - -
- -
Loss for the period - - - -
- (423) (423)
Issue of shares 1,477 13,326 16,001 -
- 30,804
Issue of options and warrants - - - -
1,089 - 1,089
Issue costs - (2,033) - -
- - (2,033)
Translation reserve - - - (2)
- - (2)
At 31 December 2006 1,477 11,293 16,001 (2)
1,089 (423) 29,435
Opening balance translation - - - (5)
- - (5)
adjustments*
Loss for the period - - - -
- (2,883) (2,883)
Issue of shares 33 - - -
- - 33
Cancellation of options - - - -
(56) - (56)
Translation reserve - - - 44
- - 44
At 31 December 2007 1,510 11,293 16,001 37
1,033 (3,306) 26,568
All reserves are attributable to the equity holders of the parent company
*The opening balance adjustment arises from restatement of Zurex's equity.
CONSOLIDATED CASH FLOW STATEMENT
2007 2006*
Note £000 £000
Cash flows from operating activities
Cash generated from operations 17 (891) (760)
Net cash generated from operating activities (891) (760)
Cash flows from investing activities
Costs relating to acquisition of subsidiary (275) (259)
Purchases of property, plant and equipment (2,359) (931)
Interest received 484 77
Net cash used in investing activities (2,150) (1,113)
Cash flows from financing activities
Proceeds from issue of shares 2,474 10,686
Net cash generated from financing activities 2,474 10,686
Effect of exchange rate changes 83 -
Net decrease in cash and cash equivalents (484) 8,813
Cash at beginning of period 8,813 -
Cash and cash equivalents at end of period 13 8,329 8,813
The accompanying accounting policies and notes form part of these financial
statements
* The 2006 comparative relates to the period commencing 17 Feb to 31 December
2006
BIOFUTURES INTERNATIONAL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2007
1 General information
The Company was incorporated on 17 February 2006.
Biofutures International plc ('the Company') and its subsidiaries (together
'Group plc' or 'the Group') were involved in the Asian and European renewable
fuels industries.
The Company is a public limited company incorporated and domiciled in England.
These consolidated financial statements have been approved for issue by the
Board of Directors on 24 June 2008.
2 Summary of significant accounting policies
2.1 Basis of preparation
These consolidated financial statements of Group plc are for the year ended 31
December 2007. They have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union and also
as issued by the
International Accounting Standards Board.
The Company is entitled to the merger relief offered by section 131 of the
Companies Act 1985 in respect of the consideration received in excess of the
nominal value of the equity shares issued in connection with the acquisition of
Zurex.
The policies set out below have been consistently applied.
2.2 New Accounting Standards
New accounting standards and interpretations which have been adopted in this
year and their impact on the Group financial statements are set out below.
* IFRS 7 'Financial instruments: disclosures' and the complementary amendment to
IAS 1 'Presentation of financial statements - capital disclosures' introduces
new disclosure requirements relating to financial instruments. It does not have
any impact
on the classification and valuation of the Group's financial instruments, though
it has impacted on certain disclosures.
* IFRIC 8 'Scope of IFRS 2' requires consideration of transactions involving the
issuance of equity instruments, where the identifiable consideration received is
less than the fair value of the equity instruments issued in order to establish
whether
or not they fall within the scope of IFRS 2. This interpretation does not have
any impact on this year's Consolidated Financial Statements.
New accounting standards, revisions to accounting standards and interpretations
that are not yet effective and have not been early adopted are set out below.
* Amendment to IFRS 2 'Share based payment', issued in January 2008, states that
all cancellations, whether by the Company or by other parties, should receive
the same accounting treatment. The treatment for such cancellations is to charge
the full
remaining charge to the income statement on the date of cancellation. This
amendment will apply for annual periods commencing on or after 1 January 2009
and will cause a change in accounting policies for the Group for year ended 31
December 2009 where
employee cancellations will result in an additional charge. The impact on
adoption of this standard cannot be estimated as the level of employee
cancellations in future periods is unknown, though it may impact on options
already granted
* IFRS 8 'Operating segments' (effective for annual periods beginning on or
after 1 January 2009) - This standard replaces IAS 14 'Segment reporting' and
requires a 'management approach', under which segment information is presented
on the same basis
as that used for internal reporting purposes. Management does not anticipate
that this will result in any material change to the current presentation.
* Amendment to IFRS 3 'Business combinations' (effective for business
combinations in annual periods beginning on or after 1 July 2009) - The
amendment continues to apply the acquisition method to business combinations,
with some significant changes.
For example, all payments to purchase a business are to be recorded at fair
value at the acquisition date, with some contingent payments subsequently
remeasured at fair value through income. Goodwill may be calculated based on the
parent's share of net
assets or it may include goodwill related to the minority interest. All
transaction costs will be expensed. This amendment may impact the Group's
accounting for future business combinations.
* Revised IAS 1 'Presentation of financial statements' -the standard may impact
on the presentation of the statement of changes in equity.
The following standards, amendments to standards and interpretations, have not
yet been adopted and are not expected to have an impact on the Consolidated
Financial Statements:
* IFRIC 10 'Interim financial reporting and impairment'
* IFRIC 7 'Applying the restatement approach under IAS 29, Financial reporting
in hyper-inflationary economies'
* IFRIC 9 'Re-assessment of embedded derivatives'
* IAS 23 (Amendment) 'Borrowing costs'
* Amendment to IAS 27 'Consolidated and separate financial statements'
* IFRIC 11 'IFRS 2 - Group and treasury share transactions'
* IFRIC 12 'Service concession arrangements'
* IFRIC 13 'Customer loyalty programmes'
* IFRIC 14 'IAS 19 - The limit on a defined benefit asset, minimum funding
requirements and their interaction'.
2.3 Consolidation
Subsidiaries are all entities over which the Group has the power to govern the
financial and operating policies generally accompanying a shareholding of more
than one half of the voting rights. Subsidiaries are fully consolidated from the
date on
which control is transferred to the Group. They are de-consolidated from the
date on which control ceases. The purchase method of accounting is used to
account for the acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the
fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange, plus costs directly attributable to
the acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in
a business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any minority interest. The
excess of the cost of acquisition over the value of the Group's share of the
identifiable net assets
acquired is recorded as goodwill. If the cost of acquisition is less than the
fair value of the Group's share of the net assets of the subsidiary acquired,
the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the asset
transferred.
2.4 Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or
services within a particular economic environment that is subject to risks and
returns that are different from those of segments operating in other economic
environments. The Group's business segments are the primary basis of segment
reporting.
2.5 Foreign currency translation
(a) Functional and presentational currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the 'functional currency'). The consolidated financial
statements are
presented in sterling, which is the Company's functional and presentational
currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet date are
reported at
the rate of exchange prevailing at that date. All exchange gains arising on
retranslation of assets and liabilities are dealt with in the income statement.
(c) Consolidation of overseas subsidiary
Income and expenditure for overseas subsidiaries are included based upon monthly
average exchange rates to give a fair approximation to the transaction rate.
Balance sheet items are included at the year end exchange rate. All other
differences are
included within the translation reserve.
2.6 Property, plant and equipment
All property, plant and equipment (PPE) is shown at cost less subsequent
depreciation and impairment. Cost includes expenditure that is directly
attributable to the acquisition of the items. Subsequent costs are included in
the asset's carrying amount
or recognised as a separate asset, as appropriate, only when it is probable that
future economic benefits associated with the item will flow to the Group and the
cost of the item can be measured reliably. All other repairs and maintenance are
charged to
the income statement during the financial period in which they are incurred.
Depreciation on assets is calculated using the straight-line method at 10% to
20% so as to allocate the cost of each asset less its residual value over its
estimated useful life. The assets' residual values and useful lives are
reviewed, and adjusted
if appropriate, at each balance sheet date.
Land is not depreciated. Assets in the course of construction are not
depreciated until they are brought into use, at which point they are
re-categorised to their relevant description.
The principal annual depreciation rates used are as follows:-
* Computer and software 20%
* Office equipment 20%
* Motor vehicle 20%
* Renovation 10%
2.7 Intangible assets
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group's share of the net identifiable assets of the acquired subsidiary
at the date of acquisition. Goodwill on acquisitions of subsidiaries is included
in
intangible assets. Goodwill is tested annually for impairment and carried at
cost less accumulated impairment losses. Gains and losses on the disposal of an
entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing.
Identifiable intangible assets are recognised separately from goodwill on all
acquisitions. Such assets are carried at fair value. Such intangible assets are
reviewed for impairment on an annual basis.
The intangible assets acquired were an option to acquire land, a licence to
manufacture palm oil biodiesel and the value of a 5 year tax free incentive. The
group of assets are all intrinsically linked and have been valued as a 'group'
(see Note 20).
The Directors are of the opinion that these intangibles have an indefinite
useful economic life, so no annual amortisation is charged. The group of assets
will be subject to annual impairment review.
2.8 Impairment testing of goodwill, other intangible assets and property,
plant and equipment
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). As a result, some assets are tested individually for impairment and some
are tested at
cash-generating unit level. Goodwill is allocated to those cash-generating units
that are expected to benefit from synergies of the related business combination
and represent the lowest level within the Group at which management monitors the
related cash
flows.
Goodwill, other individual assets or cash-generating units that include
goodwill, other intangible assets with an indefinite useful life, and those
intangible assets not yet available for use are tested for impairment at least
annually. All other
individual assets or cash-generating units are tested for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable.
An impairment loss is recognised for the amount by which the asset's or
cash-generating unit's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell, and
value in use based on an internal discounted cash flow evaluation. Impairment
losses recognised for cash-generating units, to which goodwill has been
allocated, are credited initially to the carrying amount of goodwill. Any
remaining impairment loss is
charged pro rata to the other assets in the cash generating unit. With the
exception of goodwill, all assets are subsequently reassessed for indications
that an impairment loss previously recognised may no longer exist.
2.9 Trade and other receivables
Trade and other receivables are initially recognised at fair value, which is
usually the original invoiced amount plus transaction costs and subsequently
carried at amortised cost using the effective interest method less provisions
made for doubtful
receivables.
2.10 Trade and other payables
Trade and other payables are initially recognised at fair value, which is
usually the original invoiced amount, and subsequently carried at amortised cost
using the effective interest method.
2.11 Cash and cash equivalents
Cash and cash equivalents (readily convertible into a known amount of cash)
include cash in hand and deposits held at call with banks with an original
maturity of three months or less. For the purpose of the cash flow statement,
cash and cash
equivalents are as defined above, net of outstanding bank overdrafts.
2.12 Deferred income tax
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. The
deferred income tax is not
accounted for if it arises from initial recognition of an asset or liability in
a transaction, other than a business combination, that at the time of the
transaction affects neither accounting nor taxable profit or loss. Deferred
income tax is determined
using tax rates (and laws) that have been enacted or substantially enacted by
the balance sheet date and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary differences
can be utilised.
2.13 Employee Benefits
(a) Pension obligations
Group companies do not operate defined contribution schemes but contribute to
individual personal pension plans for certain employees by way of paying 10% of
their gross salary costs in lieu of a scheme contribution.
(b) Share based payments
The share option programmes allow Group employees to acquire shares of the
Company. The fair value of options granted is recognised as an employee expense
with a corresponding increase in equity. The fair value is measured at grant
date and spread
over the period during which the employees become unconditionally entitled to
the options. The fair value of the options granted is usually measured using a
binomial model, taking account of the terms and conditions upon which the
options were granted.
The amount recognised as an expense is adjusted to reflect the actual number of
share options that vest where forfeiture is due to performance criteria not
being met during the life of the option.
2.14 Financial instruments
The Group's operations result in a number of financial risks that include
foreign currencies and interest rates, and credit risks.
The Group's treasury policy is set by the Board and is reviewed regularly. The
policy involves the use of certain financial instruments in the management of
risks.
Surplus cash is placed on short term deposit to maximise interest earned.
2.15 Judgements and estimates
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing a
material
adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed below.
Directors have used their expert knowledge of the Malaysian biofuels and oil
refining markets to estimate the carrying values of goodwill and to estimate the
carrying value of certain assets. Similarly their knowledge was used to arrive
at the
estimate of the fair values included within the acquisitions note.
(a) Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in
accordance with the accounting policy stated above (note 10).
(b) Intangibles
The Group has had to make judgements on which intangible assets are
intrinsically linked
(c) Estimated impairment of Intangibles
The Group uses net present value calculations based on expected future cash
flows to measure the value of the intangibles. These calculations require the
use of estimates (note 10).
(d) Estimate of useful life of intangibles
The Directors have to estimate the useful life of intangibles. They have taken
into account the nature of the assets and their expected life (note 10).
(e) Carrying value of property, plant and equipment
The Group has reviewed property, plant and equipment and exercised judgement on
which assets will have a continuing benefit to the business. In addition
judgements have had to be made, based on discussions with third parties, on the
likely carrying
value of assets that may not be required following the review of the Zurex
Project (see note 9).
(f) Impairment of other assets
In view of the decision that the biodiesel project as originally envisaged is
currently not viable, the Group has had to review all assets and make judgements
that no impairment is required currently, other than that made in respect of
property plant
and equipment assets
3 Financial risk management
3.1 Financial risk factors
The Group's activities expose it to a variety of financial risks: credit risk,
liquidity risk, cash flow risk, fair value interest-rate risk and foreign
currency risk. The Group's overall risk management programmes focuses on the
unpredictability of
financial markets and seeks to minimise potential adverse effects on the Group's
financial performance.
Risk management is carried out centrally under policies approved by the Board of
Directors.
(a) Credit risk
The Group has no significant concentrations of credit risk.
(b) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash balances
and ensuring availability of funding.
(c) Cash flow and fair value interest rate risk
The Group's cash flow interest rate risk arises from money market deposits.
Deposits made at variable rates expose the Group to cash flow interest rate
risk. All the Group's deposits are at variable rates but the Group does not
consider the risk to be
significant. If interest rates had changed by 0.5% during the year, the impact
on the Group's profit and loss would have been £42,000 (2006:£8,000).
(d) Foreign currency risk
The Company has investments in operations outside the United Kingdom denominated
in currencies other than sterling. As a result the value of the Company's
non-sterling financial assets and cash flows can be affected by movements in
exchange rates in
particular the Malaysian/Sterling exchange rate. The Group does not currently
have an active policy to hedge its foreign currency risks because it is not
considered significant (2006: nil).
The carrying amounts of the Group's foreign currency denominated monetary assets
and monetary liabilities at the reporting date are as follows:
Year ended 31 Period ended 31 December 2006
December 2007
The following amounts have £000 £000
been translated from Malaysian
Ringgit:
Trade and other receivables 10 -
Cash and cash equivalents 33 -
Trade and other payables (412) (2)
Net exposure (369) (2)
For the year ended 31 December 2007, if the Malysian Ringgit had
weakened/strengthened by 0.5 Ringgit against the UK Pound Sterling with all
other variables held constant, post tax profit for the year would have been
£184,000 (2006:£26,000)
lower/higher mainly as a result of foreign exchange gains/losses on translation
of Malaysian Ringgit-denominated transactions
Equity would have been £139,000 (2006:£115,000) lower/higher, arising mainly
from foreign exchange losses/gains on translation of Malaysian
Ringgit-denominated assets and liabilities.
The amounts presented for financial assets or financial liabilities at fair
value through profit or loss include interest income and expenses.
4 Segment information
Primary reporting format - business segments
At 31 December 2007, the Group is organised into two main business segments -
(1) development and administration of investments ('head office') - (2) planning
and construction of biodiesel plant and related activities, 'operational'
The segment results for the year ended 31 December 2007 are as follows:
Year ended 31 December Period ended 31 December 2006
2007 £000
£000
Operating loss
Operational (2,591) (9)
Head Office (700) (491)
(3,291) (500)
Loss before Income Tax
Operational (2,667) (9)
Head Office (216) (414)
(2,883) (423)
Loss for the period
Operational (2,667) (9)
Head Office (216) (414)
(2,883) (423)
The segment assets and liabilities at 31 December 2007 and capital expenditure
for the year then ended are as follows:
Year ended 31 Period ended 31 December 2006
December 2007 £000
£000
Assets
Operational 18,908 18,631
Head Office 8,355 11,358
27,263 29,989
Liabilities
Operational 411 2
Head Office 284 552
695 554
Capital expenditure (note 9)
Operational 2,762 1,703
Head Office - -
2,762 1,703
Segment assets consist primarily of land, plant and equipment, intangible
assets, receivables and operating cash. They exclude deferred taxation.
Segment liabilities comprise operating liabilities. They exclude items such as
taxation and corporate borrowings.
Capital expenditure comprises additions to property, plant and equipment (note
9), including additions resulting from acquisitions through business
combinations (note 9 and note 20).
Secondary reporting format - geographical segments
The home country of the Company is England.
Year ended 31 Period ended 31 December 2006
December 2007 £000
£000
Assets
Malaysia 18,908 18,631
England 8,355 11,358
27,263 29,989
Liabilities
Malaysia 411 2
England 284 552
695 554
Capital expenditure (note 9)
Malaysia 2,762 1,703
England - -
2,762 1,703
5 Expenses by nature
Year ended 31 Period ended 31
December 2007 December 2006
£000 £000
Depreciation 7 -
Employee benefit expense (note 430 143
6)
Auditors' remuneration
* fees payable to the 26 18
company's auditors for the
audit of the company's annual
accounts
* The audit of the company's 1 1
subsidiary: pursuant to
legislation
* Tax services 9 3
Share based payment (56) 65
(credit)/charge
Exchange rate differences (109) 10
All of the above are classified as administrative expenses
In addition to the above £nil (2006:£80,775) has been paid to the auditors in
respect of additional services. In 2006 the monies were paid in respect of
Corporate Finance Services in relation to the acquisition of Zurex and the
re-admission
to AIM; this amount has been debited to the share premium account.
6 Directors and employees
The employee benefit expense during the year was as follows:
Year ended 31 December Period ended 31 December 2006
2007
£000 £000
Wages and salaries 351 102
Social security costs 45 11
Termination payments 55 -
Share based payments (21) 30
430 143
The average number of employees during the period was as follows:
Year ended 31 December 2007 Period ended 31 December 2006
£000 Number
Administration 7 3
Remuneration in respect of directors was as follows:
Year ended 31 December Period ended 31 December 2006
2007
£000 £000
Wages and salaries 315 102
Termination payments 55 -
370 102
Highest paid Director Year ended 31 December Period ended 31 December 2006
2007
£000 £000
Wages and salaries 95 76
Termination payments 50 -
Share based payments (23) 23
122 99
The Board of Directors consider key management to currently comprise the three
Executive Directors (see page 4) and Nicholas Gee who left the Company in 2007.
Compensation for key management was:
Year ended 31 December 2007 Period ended 31 December 2006
£000 £000
Wages & salaries 267 94
Social security costs 39 11
Compensation for loss of 50 -
office
Share based payments (21) 30
l 335 135
The termination payments were made to Directors who were not re-elected at the
2007 AGM.
7 Income tax expense
There is no tax charge due to the losses arising in the year (2006:£nil).
Deferred tax relating to the acquisition during 2006 is detailed in note 11.
The tax on the Group's profit before tax differs from the loss before taxation
multiplied by the standard rate of corporation tax in the UK due to the
following:
Year ended Period ended
31 31 December
December 2006
2007
£000 £000
Loss before tax (2,883) (423)
Tax calculated at the standard rate of corporation (865) (127)
tax in the UK: (30%) (2006:30%)
Benefit of tax losses carried forward to future 65 127
periods for which no deferred tax asset has been
recognised
Overseas expenses not deductible 800 -
Tax charge - -
Factors Affecting Future Tax Charges
The standard rate of UK corporation tax changes from 30% to 28% from 1 April
2008, the effect of which will be quantified from this date.
8 Loss per share
Basic
Basic loss per share is calculated by dividing the loss attributable to equity
holders of the Company by the weighted average number of ordinary shares in
issue during the period.
Year ended Period ended
31 December 31 December
2007 2006
Loss attributable to equity holders of the Company £2,883,000 £423,000
Weighted average number of ordinary shares in issue 148,979,891 28,172,762
Basic and diluted loss per share in pence (1.94)p (1.50)p
Diluted
Diluted loss per share is calculated adjusting the weighted average number of
ordinary shares outstanding to assume conversion of all contracted dilutive
potential ordinary shares. The Company has only one category of dilutive
potential ordinary
shares.
The options and warrants in issue are currently anti-dilutive and accordingly
the diluted loss per share is the same as the basic loss per share
9 Property, plant and equipment
Land Leasehold Motor Vehicles Computer equipment Assets in the course Total
additions £000 £000 of Construction
£000 £000 £000 £000
Cost
On incorporation - - - - - -
On acquisition of Zurex 378 - - - 394 772
Additions 775 - - - 156 931
Disposals
As at 31 December 2006 1,153 - - - 550 1,703
Foreign exchange adjustment 33 - - - 24 57
Additions - 30 14 8 2,710 2,762
Disposals - - - - - -
Closing cost at 31 December 1,186 30 14 8 3,284 4,522
2007
Depreciation
On incorporation and as at 31 - - - - - -
December 2006
Foreign exchange adjustment 3 - - - 98 101
Charge for year - 3 3 1 - 7
Impairment in year 76 - - - 2,400 2,476
Disposals - - - - - -
Closing depreciation at 31 79 3 3 1 2,498 2,584
December 2007
Net book value as at 31 1,107 27 11 7 786 1,938
December 2007
Net book value as at 31 1,153 - - - 550 1,703
December 2006
Land impairment
The Company's subsidiary, Zurex, held the rights to acquire 50 acres of land at
Lahad Datu in Sabah for a purchase consideration of RM 26,136,000, of which 30%
(approximately £1.2m) had been paid, until 16 May 2008. This contract was
rescinded on
16 May 2008 and replaced with a second agreement whereby Zurex has contracted to
acquire a 14 acre plot for RM 7,318,080 (approximately £1.1m). The difference in
amounts will be used to pay interest of RM 519,140 (approximately £76,000) and
the
balance of RM 3,580 (approximately £500) offsetting the fees due in respect of
the transaction which total RM 21,400 (approximately £3,000). Accordingly the
value of land has been impaired to the value of RM 522,720 (approximately
£76,000)
in these accounts and this has been reflected in the income statement through
interest and administration expenses accordingly.
Impairment of assets in the course of construction
Zurex was established to build a 200,000 tonnes per annum palm oil biodiesel
plant on the land at Lahad Datu, Sabah. As announced on 20 May 2008 the
Directors believe that the biodiesel plant is currently not economically viable
due to the significant
rise in the cost of palm oil. The Directors are now considering re-engineering
the works done to date to allow it to become a palm oil refinery plant instead.
This would also give the flexibility to consider the production of palm oil
biodiesel should
economic circumstances permit in the future. The Board have reviewed the capital
expenditure to date and consider that certain costs incurred will not have
enduring value for the re-engineered project and according have written off this
expenditure where
it has no resale value. Certain assets are also likely to be sold and are
included at their estimated realisable value. Should the re-engineered project
not proceed, further expenditure will need to be written off to their realisable
value
The impairment charge has been included in the income statement as follows:
Year ended 31 Period ended 31 December 2006
December
2007
£000 £000
Impairment 2,400 -
Included within interest 76 -
Administration expenses - -
Total charge 2,476 -
10 Intangible assets
Goodwill on consolidation Group of Intangibles Total
£000 £000
£000
Fair value of acquisition 1,428 15,500 16,928
(note 20)
Deferred taxation (note 11) 4,650 (4,650) -
As at 31 December 2006 and 6,078 10,850 16,928
2007
The carrying amount of goodwill is all allocated to the operational cash
generating unit.
The intangible assets are included at their fair value and have been grouped
together. They relate to the option to acquire the land, the licence to
manufacture palm oil biodiesel and the value of a 5 year tax free incentive. The
group of assets could
not be separated as they were considered to be all intrinsically linked.
Zurex was established to build a 200,000 tonnes per annum palm oil biodiesel
plant on the land at Lahad Datu, Sabah. As announced on 20 May 2008 the
Directors believe that the biodiesel plant is currently not economically viable
due to the significant
rise in the cost of palm oil. The directors are now considering re-engineering
the works done to date to allow it to become a palm oil refinery plant instead.
14 acres of land has now been acquired and permission is currently being sought
to acquire an
additional licence to permit palm oil refining. The detailed feasibility study
is still in progress and the decision on whether to proceed will depend on the
outcome of this study. The intangible assets have been reviewed based on the
assumption that the
refinery plant will be built and that construction will commence within the next
12 months.
The projected cash flows over the next 10 years, discounted at a rate of 10%,
will be higher than the carrying values detailed above. The projections to
support the carrying value assume
* Margin of refined palm oil over crude palm oil - RM 300 per tonne.
* Income and costs rise at 5% per annum.
* 10 years has been used to more fairly reflect the potential operational life
of the plant.
* No terminal values have been used in calculating the discounted value of the
cashflows.
* Discount rate of 10%,
Based on the above assumptions no provision for impairment is required. However,
should the refinery plant not be progressed, a significant write off of up to
the full carrying value is likely to be required.
Goodwill represents the fair value attributed to the knowledge of the Malaysian
nationals required to hold the operational licence for the biodiesel plant in
Malaysia, acquired with Zurex (note 20). Although the biodiesel plant will not
be built under
immediate plans, an additional licence is currently being sought to permit palm
oil refining. Accordingly, no impairment is currently considered necessary.
However, should the refinery plant not be progressed, a significant write-off of
up to the full
carrying value is likely to be required.
11 Deferred income tax
There was no movement on the deferred income tax account during the year:
£000
As at 31 December 2006 and 2007 4,650
The deferred tax liability arose on the acquisition of Zurex in 2006 (note 20)
The movement in deferred tax assets is as follows:
2007 2006
£000 £000
As at 1 January (or incorporation) 216 -
Adjustment in respect of prior years (126) -
Unutilised losses arising during the period 65 216
Carried forward at 31 December 155 216
The deferred income tax asset is recoverable as follows:
2007 2006
£000 £000
Deferred tax asset to be recovered after more than 12 months 155 216
Unprovided tax asset 155 216
The deferred tax asset is not provided in view of the uncertainty as to the
timing of its recoverability.
12 Trade and other receivables
2007 2006
£000 £000
Other 68 2,545
The carrying amounts of other receivables are at fair value.
13 Cash and cash equivalents
2007 2006
£000 £000
Cash at bank and in hand 229 779
Short-term bank deposits 8,100 8,034
8,329 8,813
The effective interest rate on short-term bank deposits was 5.6%. These deposits
have an average maturity of 8 days.
14 Share capital
2007 2007 2006 2006
Number £000 Number £000
Authorised
Ordinary shares of 1p each 250,000,000 2,500 250,000,000 2,500
Issued
At 1 January (or incorporation) 147,730,000 1,477 2 0
Issue of shares - 30 July 2007 (a) 3,330,000 33 147,729,998 1,477
At 31 December 151,060,000 1,510 147,730,000 1,477
All issued shares are fully paid.
(a) These shares were issued following the exercise of warrants that had been
granted to the brokers prior to readmission. The exercise price was 1p
15 Statement of changes in equity
Description and purpose of reserves:
Share capital - represents the nominal value of the shares issued.
Share premium - represents the premium over nominal value paid for
the shares issued.
Merger reserve - represents the premium on shares issued as
consideration for the acquisition of Zurex, which was acquired by way of share
for share exchange and qualified for merger relief.
Translation reserve - represents the differences arising on translation of
foreign operations into the presentational currency.
Share based scheme reserve - represents the balance of share award schemes not
yet released to the income statement.
16 Current liabilities
2007 2006
£000 £000
Trade payables 627 500
Social security and other taxes 68 54
695 554
The carrying amounts of trade and other payables are at fair value.
17 Cash generated from operations
Year ended 31 Period ended 31 December 2006
December 2007 £000
£000
Operating loss (3,291) (500)
Adjustments for:
- depreciation 7
- impairment (note 9) 2,400
- share based payments (note (56) 65
19)
Changes in working capital
(excluding the effects of
acquisition):
- trade and other receivables 36 (104)
- trade and other payables 18 (221)
13
Cash generated from operations (891) (760)
18 Contingencies
There were no contingent liabilities at 31 December 2007 (2006:£nil).
19 Share based payments
The Group has three contracted share option schemes and warrants in issue. The
contracted and proposed options have been valued in accordance with the
provisions of IFRS 2. As a result of lapses there was a net credit of £56,000
(2006 charge
£65,000) to the income statement in respect of share based payments.
Date of original
grant Option price Vesting conditions Life of option Number of options Exercised
Lapsed Carried forward
Scheme
LTIP (employee) 27/10/06 0p Share Price 3 years 2,600,000 -
2,480,000 120,000
LTIP (non employee) 27/10/06 0p Share Price 3 years 3,000,000 -
3,000,000 -
Warrant 27/04/06 1p None 7 months 3,330,000 3,330,000
- -
Warrant 27/10/06 25p None 1 month 1,107,975 -
- 1,107,975
-
The fair value of services received in return for share options granted to
employees is measured by reference to the fair value of share options granted.
The estimate of fair value of the services received is measured based on a
binomial lattice model
for both LTIP Schemes. The vesting period ...truncated