GRAPHENE NANOCHEM PLC Chairman's Statement
TAN SRI DATO' SRI ABI MUSA ASA'ARI MOHAMED NOR
Non-Executive Chairman
Amid a difficult and challenging period for the oil and gas industry, we took the decisive action to execute a holistic turnaround plan for Graphene NanoChem in 2016 with the firm intention to address our challenges head on, internally and externally. Our objective is to create a leaner and more nimble Group that focuses on its fundamental competence of delivering disruptive, high margin applications of our platform nanotechnologies.
Our focus in the last 18 months has been to execute some of the key steps that would allow us to recalibrate our business, reduce our cost base, realistically address our debt position and to diversify our industry focus in businesses that have exciting growth opportunities. We have made significant strides forward, achieving two important milestones in our turnaround plan during the period.
Firstly, we successfully completed subject to customary conditions our debt rationalisation plan with our key financiers agreed and a repayment structure for remaining debt mapped against the Group's recalibrated business plan. Secondly, the Group's exit from the asset-heavy low margin fuel additive business has significantly contributed in reducing our cost base through head count reduction and relocation of operations to more appropriate facilities. Next on our agenda is the disposal of our non-core assets with proceeds to be applied towards further paring down of our financing debt. We anticipate that the debt restructuring exercise undertaken to now be unconditional by the 3 Quarter, 2017 post completion of the administrative process.
Achieving these two milestones was critical to provide the Group with a solid platform to execute its business strategy under the turnaround plan, more so in the current operating environment, which has been an extremely volatile period for the oil and gas industry worldwide with the oil price dipping below US$30 per barrel in January 2016.
Running our business against this macro background has been arduous for all of us at Graphene NanoChem and our performance for the year was within the Group's expectation. The last 12 months has been particularly demanding as we persevere with our turnaround plan of transitioning Graphene NanoChem into an asset-light, leaner and more diversified Group focusing on its core competency of value-add integration.
Despite the external challenges, we can take some measure of satisfaction that our key strategy has been kept on track and has, in some areas advanced.
The Scomi Group remains our key partner in the Nanofluids Division, supporting the commercial deployment of our value-add solutions into the oil and gas market. Whilst the industry slowdown has severely affected the division, we take great comfort on the number of successes of the deployment of our solutions in the field, specifically in creating the field performance track record. In the meantime we continue to work with the Scomi Group in various business development activities and initiatives bringing our solutions to market, gain market share and leverage into an anticipated industry recovery in due course.
We do not have the luxury or the financial muscle to wait the industry out and it is quite evident that the way forward for us is to accelerate the pace of our industry diversifications and continue building, within our current constraints. At its core Graphene NanoChem remains unique, offering technology platform that can be applied across diverse applications in multiple industries.
Our Water Division was launched in March 2016 and we are taking a more diverse approach in applications by targeting small and mid-size projects in multiple market segments. Our go-to-market model remains the same - in partnership with established industry partners - with whom we actively work with to pursue several project opportunities and if successful, will provide the Group with a significant market breakthrough and opportunity to expand.
We continue to pursue our diversification efforts strategy into 2017, with our polymer solutions for enhanced building materials ('EBM') introduced early this year and was successfully deployed in a pilot project undertaken for a global aerospace company.
Our progress to date has been due to our strong entrepreneurial culture; necessary for a relatively small company commercialising new technologies in well-established market place.
Our business recalibration exercise and working capital constraint had however led us to take a conservative approach in business development in 2016. We still have a lot more work to do to move the Group forward but our business platform is solid with exciting growth opportunities in new areas.
The next step is to actively secure business opportunities that would translate to quality revenue streams for the Group in the various application areas that we have developed, as we continue to complete the transition of the Group.
Much has been achieved in 2016 and we will continue to further progress our transition plan for Group with the steadfast support of our business stakeholders - from our shareholders, members of the board, financiers business partners and not the least, all the people at Graphene NanoChem to whom I wish to extend my gratitude and personal appreciation.
Tan Sri Dato' Seri Abi Musa Asa'ari bin Mohamed Nor
Non-Executive Chairman
CEO's Review
DATO JESPAL DEOL
Chief Executive Officer
The intervening years have been full of significant challenges which the Group has had to overcome. On the back of a debt burden and limited liquidity, we have had to endure the prolonged downturn of the oil and gas industry, an industry which is closely tied to our growth plan.
During 2015, we took the decision to address these challenges head on and the year under review has seen continued progress of our holistic turnaround plan to restructure our debt, reduce our cost base and streamline our operations to focus on our core competency of value adding while protecting our growth prospects and flexibility to diversify into new markets ('Turnaround Plan'). The delivery of the Turnaround Plan was the Group's primary goal for the year.
It certainly has been a formidable task for the Group and while there is still more to do, much has been achieved today to allow us to take the next step forward to our goal of creating a leaner, more agile and simplified company that is capable of exploiting new opportunities in our markets and delivering sustained revenue streams.
Our primary focus was debt reduction and a significant milestone achievement for us is the successful completion, subject to customary conditions precedent of Phase 1 of our Turnaround Plan which was the Group's debt rationalisation. This resulted in the conversion of our short term debt into a longer term debt and a repayment tenue mapped against the business plan of the Group as well as the reduction of the Group's total debt to its banking financiers ('Financiers') from £24.94 million in 2015 to £20.30 million in 2016. This effectively allows the Group to conserve cash outflow against debt repayment and deploy its funds towards stabilising the business.
Graphene NanoChem is also well underway in Phase 2 of our Turnaround Plan. We have now restructured Graphene Nanochem's financial objectives, more specifically in reducing our cost base and streamlining our business operations to create realisable value in select industry sectors. In line with our strategy to align our cost base with the business prospects, we continue to manage the process of our exit from the capital heavy non-core businesses of the Group which saw the winding-up and liquidation of our two wholly-owned subsidiaries involved in the low margin fuel additive business and a consequently significant reduction in the Group's headcount and administrative cost. The Group is also in active discussion for the disposal of its non-core assets that, if successful, would further reduce the Group total debt to its Financiers and add working capital to the Group. We anticipate that the restructuring exercise it has undertaken to now be unconditional by the 3 Quarter 2017 post completion of the administrative process.
Of considerable importance is that this progress supports our strategic move towards an asset light approach business structure that enables us to refocus operations on our core competence of value addition leveraging on strategic partnerships, business collaborations and outsourcing models to deliver our solutions.
We have now entered into the third phase of our Turnaround Plan, and to this end, our business platforms have been structured around three core areas that offer a diverse range of applications for potential and use - Nanofluids, Water Treatment and Polymers for Building Materials.
OVERVIEW
The performance of the Group reflects the heavy restructuring that was carried out during the financial year together with the substantially prolonged downturn of the oil and gas industry, driven by sustained low oil prices. The year began with Brent crude prices experiencing the sharpest fall in 30 years to US$26 per barrel in January 2016 against the high of US$105 per barrel in June 2014. The average Brent crude oil prices trended at US$43.73 per barrel in 2016 as compared 2015 average price of US$52.39 in 2015, due to low demand and over supply. The net impact was substantial reduction of industry activities and overall industry slowdown compounded further by a weak world economy in 2016 with global GDP growth at 2.3% which was significantly lower than the average of nearly 3% over the past 20 years. The decline in activity had led to stunted market openings for our solutions and the consequent losses reported by the Group.
Pursuant to the winding up of its fuel additive business subsidiaries and resulting £16.22m impairment charge, the Group recorded a combined loss from impairment and discontinued operations of £10.49m for the period and a total comprehensive loss for the year of £8.34m.
Amid the slow rebound of the industry and market speculation that the 'bottom cycle' has been reached for GNC it was evident that as a small company, the way forward is to align its operations with the short and medium term outlook of the industry and most importantly to leverage on its technology platforms to diversify.
Whilst we are confident of the market fundamentals of the oil and gas industry, we continue to remain cautious of the timing of its recovery and we need to operate on that basis. Our diversification into the Water Treatment and Building Materials sectors allows us to mitigate single sector exposure and the opportunity to balance changes in supply and market demand, variable economic conditions and shifts in market environment.
Despite ongoing challenges, we have a solid business platform to build a future for the Group. We have had some significant wins that validates the value proposition offered by our products and we are continuing to make good progress in building the markets for our solutions.
Nanofluids
Our Nanofluids platform comprises an end-to-end spectrum of cost efficient solutions that tackle the oil and gas industry pain points, from addressing drilling challenges and time, recovery and production rates to regulatory health and safety and environmental concerns associated with oil and gas exploration and production activities.
The Scomi Group remains our primary market partner for our oilfield solutions and the Group continues to work closely with Scomi Group which has presence in 48 locations in 22 countries worldwide. The prolonged downturn in the oil and gas sector has to a large extent effected margins and volumes of some of our oilfield solutions, and to this end our strategy is to focus on products that have maintained higher margins and withstood oversupply in the industry whilst retaining our operational capability to benefit from an industry upturn. Together with the Scomi Group, we continue to actively work in bringing our solutions into new markets focusing on the Middle East and North African (MENA) regions and South East Asia. This includes supporting new project bids by the Scomi Group.
Water
Working in collaboration with specialist equipment manufacturers, we apply our platform technology to tailor, enhance and integrate systems and solutions to meet the varied water treatment, recycling and reuse need of various industry sectors. Within the Water Division, we remain focused in bidding for and developing small to mid-sized projects within US$50 - US$150 million, where there is a niche unaddressed space in which larger companies are not active. Our target areas are treatment of produced and industrial water, sewage water, clean drinking water and desalination process where our technology platform has a competitive advantage.
Working with industry partners, we are making progress in identifying market opportunities and participating in project bids. We collaborate with the Drilling Waste Management Division of the Scomi Group to market our offshore solutions within the energy sector, focusing on recurring revenue-base model structure. Our strategic partnership with Millennium Engineering Corporation Sdn. Bhd. an experienced water and wastewater treatment company with over 60 credited projects further enhances our market reach and provides us with the execution capability in the deployment of our solutions into the lucrative global water market. Key regions that we are targeting are Asia, MENA and Africa, with off balance sheet financing structures identified for larger scale projects.
Polymer - Building Materials
A new core application area that we have been working on to create future value is in polymers, specifically in developing enhanced materials for Industrialised Building Systems ('IBS') that offers the advantages of quality, fit-for-purpose and cost effective materials with enhanced strength and durability that will support an IBS value proposition of increasing efficiency, productivity and speed, reducing time frames, costs and construction wastes and delivering affordable solutions. Population growth, urbanization and industrialization and expected growth in residential property constructions have led to huge requirement for innovative solutions for IBS. Low market penetration of IBS products is providing growth opportunities for existing participants and new entrants.
Our polymer solutions offering was deployed this year in a paid pilot project in Malaysia where our enhanced material was approved and successfully used to convert and modify a warehouse building for a tier-1 international aerospace company that designs and manufacture commercial jetliners and aircrafts for the defense industry, a testament to the strong value proposition of our solutions.
We are excited with the prospect of this sector and have been in detailed discussions with several potential partners for us to collaborate in exploring the opportunities in the IBS sector, focusing on affordable homes, student and worker accommodations projects where several recurring business models potential exist.
OUTLOOK
We are pleased to have achieved the targeted milestones of our Turnaround Plan in 2016 and we will continue to progress our plan forward.
To aid financial flexibility and strengthen the balance sheet, we are pleased that in December 2016, Darwin Capital Limited entered into an agreement with the Group to subscribe for up to £2.50m Senior Unsecured Zero Coupon Convertible Loan Notes with detachable Warrants ('Loan Notes and Warrants') to support working capital requirements of the Group. To date, Darwin has subscribed to £1.75m of the Loan Notes and Warrants.
We are in no doubt that there is still more work to be done before the Turnaround Plan is complete. We anticipate that the debt restructuring exercise has undertaken now to be concluded by 3 quarter 2017. We certainly expect to spend the balance of the year 2017 and much of 2018, executing measures that would reassure our stakeholders that we are capable of successfully transforming Graphene NanoChem into a leaner, more agile and simplified company that is capable of exploiting new opportunities in our markets and deliver sustained revenue streams.
The volatility of the oil and gas market has resulted in working capital constraint for the Group and that is something that the Group will continue to address. We remain cautious about the recovery of the oil and gas sector but once there is improvement, we are well placed to benefit from opportunities that arise. We are confident that having strategically diversified the business, we are now well positioned to take advantage of new opportunities.
Our main priority now is securing contract wins and accordingly we are currently engaging in a number of activities to do just that. We look forward with confidence and optimism. That is where our immediate focus is.
Dato' Jespal Deol
Chief Executive
Financial Review
SUSHIL SINGH SIDHU
Chief Financial Officer
In the year under review, the Group's primary area of focus was to continue progressing the Group's business reorganization which started during the previous financial year. The focus of this process is Group debt rationalization and exit from the non-core businesses with focus on the nanofluids, water, and polymers divisions.
During the period and in line with the reorganization of the Group, the Group's non-core wholly owned subsidiary, namely Platinum Nanochem Sdn Bhd and its wholly owned subsidiary Platinum Green Chemicals Sdn Bhd, were wound up and are not expected to have a material impact on the Group's core business portfolio. The winding up of these two companies has resulted in a consequential loss of control of Platinum Nano G Sdn Bhd. These events have resulted in an impairment expense of £16.22m and gain from discontinued operations of £5.73m for the period.
In line with the events above, the Group's consolidated financial statement has been prepared on a deconsolidated basis that includes restating of the 2015 comparable figures in accordance with International Standards of Financial Reporting (IFRS).
The Group has made good progress on its debt rationalization plan with its Financial Institutions (FI') and has subject to customary conditions precedent reduced its debt balance by 19% from £24.94m (pre-deconsolidation) in 2015 to £20.30m in 2016. The lower and deferred debt repayment schedules enable utilization of operating cashflows in the near term for advancement of the recalibrated business plan rather than repayment of debt.
Having exited from the crude palm oil refining business, the Group is in the process of selling the assets of the business with proceeds from the proposed sale to be utilized for further reduction of FI debt and general working capital needs of the Group. We anticipate the sales to be completed by 3 quarter 2017.
Against a backdrop of a weak world economy in 2016 and lower average Brent crude oil prices of $43.73 per barrel as opposed to 2015 average prices of $52.39, demand for oilfield chemicals within the oilfield drilling sector remained low which affected sales. This was also compounded by an oversupply of chemicals driving lower prices thus effecting margins. After elimination made for discontinued operations, Revenues for the period increased by 3.7x to £0.26m in 2016, and the Group showed a Gross Profit of £0.04m for the period as opposed to a Gross Loss of £0.10m from the preceding period. Albeit small, this profit validates the Group's move away to an asset light model which does not incur a fixed element of cost associated with major plant operations.
With the downturn affecting margins of some of our oilfield chemical products, the Group is developing a marketing strategy with the its oil and gas sector partner the Scomi Group, focused on products that have maintained higher margins and withstood oversupply in the industry. These products are primarily in the recovery sector of the oil field business, and the Group remains confident in margin maintenance due to the superior performance of the products over its competitors.
In diversifying its revenue base, the Group continues business development within the water and polymers divisions, both focused on realizing future sales based on current and future partnerships.
Depreciation and amortization charges have decreased significantly by 58% to £0.37m in 2016 compared to £0.88m in 2015 primarily due lower carrying value for assets post impairment in the previous financial year.
Total comprehensive loss for the year was £8.34m (2015: £33.28m) inclusive of impairment expenses and gains from discontinued operations.
Loss per share has decreased by 75% to 7.16p from 28.56p in the previous period.
Statement of Financial Position and Cashflows
Post deconsolidation total assets for the period have decreased by 71% to £6.49m (2015: £22.42m) and total liabilities have decreased by 21% to £22.44m (2015: £28.31m) resulting in a net liability position of £15.95m (2015: £5.89m).
Net cash outflow from operating activities for the year was £0.28m (2015: net cash inflow of £2.39m). The Group's year end cash balance stood at £0.63m (2015: £0.56m) as at 31 May 2017, the Group's cash and cash equivalent totaled £0.61m.
Notwithstanding the Group's current cash position and the going concern - emphasis of matter statement, the Directors believe that, the future prospects of the Group are robust as the Group moves from its business reorganization phase to new business implementation phase in the three divisions anchored on strong technology solutions and strategic partnerships.
Capital Structure and Funding
To improve financial flexibility and strengthen the balance sheet during the period, Darwin Capital Limited entered into an agreement with the Group to subscribe for up to £2.50m Senior Unsecured Zero Coupon Convertible Loan Notes (Loan Notes) with detachable Warrants with an exercise price of 18.4375p per Warrant (Warrants). To date, Darwin has subscribed to £750,000 of the Loan Notes and 1,016,949 Warrants in Tranche 1. In Tranche 2, Darwin has subscribed to £1,000,000 of the Loan Notes and 1,355,932 Warrants. The funds raised from the issuance of the Loan Notes have been utilised for working capital needs of the Group in line with the business turnaround.
As at 31st December 2016 the Group had 116,536,536 ordinary shares in issue (2015: 116,526,536). Since the year end, the group issued 17,472,730 new ordinary shares to Darwin in connection with the conversion of all Loan Notes under Tranche 1 and as the date of this report, the Group has 134,009,266 ordinary shares in issue.
The Group continues to manage and safeguard capital prudently for the benefit of its stakeholders. The Group will strive to achieve its business plans by managing its cash resources and maintaining an optimal capital structure with the ultimate aim of increasing shareholder value.
Sushil Singh Sidhu
Chief Financial Officer
Our Strategy
KEY PERFORMANCE INDICATORS
The Group has a range of performance indicators, both financial and non-financial, to monitor and manage the business. These are set at the individual customer level and for business units as well as for the Group as a whole. The Group's key performance indicators ('KPIs') are: headline operating margin, headline operating profit, net cash and net debt. These measures are used continually to manage the business, improve performance and compare results against targets.
PRINCIPAL RISKS & UNCERTAINTIES
Risk management forms an integral part of the business planning and review cycle. The Directors believe in the following risks to be the most significant for potential investors. However, the risks listed do not necessarily comprise all of those associated priority. Additional risks and uncertainties not currently known to the Directors, or which the Directors currently deem not to be significant, may also have an adverse effect on the Group and the information set out below does not purport to be an exhaustive summary of the risks affecting the Group. In particular, the Group's performance may be affected by the changes in market or economic conditions and in legal, regulatory and tax requirements. The Group has put in place controls and strategies to minimise these risks where possible.
Continued Market Volatility
Risk
The general economic climate remains volatile and is affected by numerous factors beyond the Group's control, many of which could impact its operations, business and profitability. These factors include supply and demand of capital, growth in gross domestic products, employment trends, international economic trends, currency exchange rate fluctuations, interest rates' volatility, inflation rate, global and regional political events and international events, as well as a range of other market forces, all of which have an impact on product demand and business costs. The price of oil and gas and how it determines the exploration and production activities in the oil and gas industry will continue to be the key driver in the rollout of the Group's nanofluids solutions
Controls:
Exposure to this risk remains high, and may continue to have an adverse impact on the Group's business. The Group mitigates the risk by maintaining tight inventory controls and proactive regular contact with customers through its partners, and thereby equipping itself with the ability to assess market demand and for the management to respond accordingly. The Board has also initiated several cost reduction programmes in the effort to significantly lower the Group's cost base, resulting in a more nimble organisation.
Reliance On Partners
Risk:
The Group is reliant on its relationship with the Scomi Group for the commercial rollout of its nanofluids solutions. Although progress is being made on gaining new accounts, applications as well as geographical reach, the substantial decrease in volumes across the oil and gas industry as a consequence of low prices, has resulted in a decline in activity during the year. Whilst Scomi Group remains as one of the world's leading oilfield service companies and its access to emerging markets provides the Group with a strong go-to-market platform, the exposure of the Group to one primary partner to the market remains high.
Controls:
With the aim of minimising the effect of this risk, the Group has progressed the commercial rollout of its water and polymer solutions into diversified markets and geographies, some of which are independent of Scomi Group. The Board will continue to rollout its products and develop partnerships / alliances in its effort to be more autonomous and reduce its dependency on Scomi Group.
New Products, Projects and Technology Innovation
Risk:
All new technologies and products involve business risk both in terms of possible abortive expenditure, reputational risk, and potential customer claims or onerous contracts. The same is true in transferring technology and project executions The nature of the competitive market the Group operates in makes innovation a key to success, absence of which could erode margins and/or result in loss of market share even though such risks may have a material impact on the Group.
Controls:
The Group counters this risk by continuously investing in research and development resources and continuously focusing on application development path. The Board remains focused on ensuring quality assurance standards are constantly monitored, measured and regulated
Early Stage of Commercialisation and New Markets
Risk:
Whilst the Group has made initial sales of its nanofluids, the Group is still at early stage of commercial development. There are a number of operational, strategic and financial risks associated with early stage commercialisation efforts. The Group will continue to face risks frequently encountered by early stage companies looking to bring new applications to market. In particular, its future growth and prospects will depend on its ability to develop applications which have broad commercial appeal, to secure commercialisation partners on appropriate terms and to continue to improve its commercialisation functions and to secure sales on a timely basis, whilst at the same time maintaining effective cost controls.
Controls:
There are no guarantees that the Group will be able to implement the strategy detailed in its growth strategy successfully or at all. The Group will however approach this challenge and strive to implement its growth strategy in a competitive market through effective management planning and operational controls. The Group will mitigate such risks by using specialists in those areas where it currently believes it is still exposed.
Intellectual Property
Risk:
The Group is fundamentally based on a platform of intellectual properties ('IP'), which includes a combination of proprietary technologies owned by it (wholly or partly) or licensed to it. The Group's success depends on its ability, and the ability of any third party with which it may partner, in creating a defensible IP portfolios with adequate protection covering its intellectual property rights so as to preserve its exclusive rights in respect of its technology, to preserve the confidentiality of its own and its third party partners' know-how and to be able to operate without having third parties circumvent the rights that it owns, has licensed or has been licensed. The Group's products and technologies may in the process be alleged to infringe third parties' intellectual property or rights that may be granted in the future. The consequent risk will be that the Group is sued for infringement, and would need to demonstrate that its product or methods either do not infringe the relevant third party rights or that the rights of the third party are invalid.
Controls:
The Group will continue to closely monitor its IP in the areas in which it operates and additionally undertake its IP development efforts with due diligence so as to avert the emergence of such allegations or, at least put up the best credible defence to be successful in defending any such proceedings.
Dependence on Recruitment and Retention of Key Personnel
Risk:
The Group's business, future success and planned expansion of its operations will depend upon its ability to attract, train and retain qualified and appropriately skilled personnel and on the efforts and abilities of its executive officers and certain other key employees, particularly those with sales and sales management responsibilities, who are key to the Group's growth. The lack of an appropriately skilled workforce or comprehensive succession plans would adversely impact the Group's ability to perform. The Group's operations could be adversely affected if for any reason we were unable to attract or retain such officers or key employees.
Controls:
The Group aims to mitigate this risk by in-house staff development, that is by giving its staff clear objectives and career paths. Remuneration packages are also regularly reviewed to ensure that key executives receive remuneration and benefits that closely commensurate best practices in market.
Industry Operating Environment
Risk:
In the past, cessation or delay of customers' test programmes has inhibited the Group's growth. The Group has little or no influence over the duration of testing, which nearly always takes longer than originally projected by its partner or the end customers. It is common for test programmes, particularly in safety-critical applications such as oilfield chemicals, to take several years to complete. It is also a risk that significant application development time is spent on test programmes that do not result in sales.
Controls:
The Group mitigates the risk by establishing as early as possible the likelihood of a customer's test programme coming to fruition and that the potential commercial opportunities for the Group justifies embarking on the programme in the first place.
Bid Success and Contract Performance
Risk:
The Group is dependent on the success of its bid activities across its targeted sectors and applications. Bidding, by its nature, can be long and expensive and investment in such activity needs to be closely monitored to ensure adequate returns. The success and performance of the Group also depends on our businesses' ability to successfully execute their contractual obligations on terms that provide the expected returns. There is a risk that a particular project (including but not limited to, capital expenditure in relation to production expansion, meeting agreed standards or timescale and/or product development and commercialisation) could experience unforeseen delays and incur unexpected expenses, adversely impacting the implementation of the Group's strategy and the Group's reputation, business, financial condition and results of operations.
Controls:
The Group has developed and laid down its 'gatekeeping' process to assess on a business by business and project to project basis, or if necessary at a Group level, the risk and reward balance in deciding to bid for or execute contracts whether on our own account or in partnership with others. Further, the Group maintains rigorous quality standards in all of its operations and carefully assesses the terms on which it agrees to enter into contractual relationships at appropriate levels of responsibility.
Dependence of third party suppliers
Risk:
As part of the asset light model implemented by the Group in the past year, manufacturing is outsourced to third party suppliers enabling the Group to operate without the complexities of maintaining a plant. A third party supplier's failure to supply materials or components in a timely manner, or failure to supply materials and components that meet the Group's quality, quantity or cost requirements, or the Group's inability to obtain substitute sources for these materials and components in a timely manner or on terms acceptable to it, could harm its ability to meet its contractual obligations to its customers.
Controls:
Whilst the Group's contract manufacturers will manage their own supply chains, the Group will continue to hold good working relationships with (i) key component suppliers (which are likely to be used by contract manufacturers) and (ii) a more extensive supply chain to support its on-going development activities. The Group will establish good working relationships that ensure technical information about the Group's products are shared and enhanced collaboratively. The Group is also actively reviewing its contracting structure passing on delivery commitments to the suppliers in exchange for better prices incentivising them to commit to flawless delivery to its customers thus allowing the Group to meet its contractual obligations.
Litigation and Claims
Risk:
In addition to such litigation from time to time in the ordinary course of business which it managers with appropriate professional advice, the Group faces prospective risk of litigations arising from its winding up of / closing down its non-core fuel additive subsidiaries.
Controls:
The Group will continue to exercise due diligence in its day to day business operations in addition to be carefully guided, by specialists if necessary, to undertake and achieve its corporate re-structuring objective.
Environmental and Regulatory Considerations
Risk:
In addition to general UK and international laws, the Group's activities are subject to significant additional obligations, particularly in the jurisdictions that it operates in. In the context of changes in the regulatory environment, there is a risk that the Group can fail to adopt policies/processes to ensure compliance with emerging requirements. It is also difficult to predict the impact of future changes to laws or regulations or the introduction of new law or regulations that affect the Group and, from time to time, interpretation of existing laws or regulations may also change or the approach to enforcement may become more rigorous. It could also lead to high levels of scrutiny by regulators, enforcement agencies or authorities with associated increase in operational costs.
Control:
The Board recognises its roles and responsibilities as good corporate citizens in, not only the territories in which it is resident but also the territories in which it engages in business. The Group will consequently therefore ensure that it is adequately resourced, either in-house or out-sourced, with specialists who are knowledgeable with the laws of the territories in which it undertakes businesses so that the Group is properly advised on its roles and responsibilities as good citizens in all the territories where it has physical presence.
Financial Risk
Risk:
There are a number of financial risks, which will be outside the control of the Group, and which can affect revenues and/or costs, and neither the Company nor its subsidiaries currently hedges against such risks. These includes going concern risks (please refer to Note 2.2), varying international exchange rates, interest rates, world commodity prices, energy prices and supplies, raw materials prices and supplies, inflation and international trends in trade, tariffs and protectionism and changes in legal and regulatory framework.
Controls:
There can be no assurance that such variables will not have a material adverse impact on the Group's financial position or results of operations. The Board however will endeavour to continue to mitigate this risk by boosting the Group's financial capability through constantly accessing sources of finance / capital such as its successful fund raise of up to £2.5 million in Unsecured Convertible Loan Notes from Darwin Strategic Capital during the financial year 2016, of which £1.75 million has been subscribed for to date.
Approval of Strategic Report
Part I of this Annual Report comprises the Strategic Report for the Group which has been drawn up and presented in accordance with, and in reliance upon, applicable English company law, in particular Chapter 4A of the Companies Act 2006, and the liabilities of the Directors in connection with this Annual Report shall be subject to the limitations and restrictions provided by such law.
It should be noted that the Strategic Report has been prepared for the Group as a whole and are deemed to form part of this report, and therefore gives greater emphasis to those matters, which are significant to Graphene NanoChem and its subsidiary undertakings when viewed as a whole.
Approved by the Board and signed on behalf of the Board.
Dato' Jespal Sushil Sidhu
Chief Executive Officer Finance Director
Independent Auditor's Report
TO THE MEMBERS OF GRAPHENE NANOCHEM PLC
We have audited the financial statements of Graphene Nanochem Plc for the year ended 31 December 2016 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors' Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
• give a true and fair view of the state of the Group's affairs as at 31 December 2016 and of the Group's profit or loss for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Emphasis of matter - Going concern
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2.2 to the financial statements concerning the Group ability to continue as a going concern. The Group incurred a net loss of £11,142,000 during the year ended 31 December 2016 and, at that date, the Group's had net current liabilities of £4,358,000. These conditions, along with the other matters explained in note 2.2 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report and the Directors' Report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
• the financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Mark Ling (Senior statutory auditor) 1 Westferry Circus
For and on behalf of PKF Littlejohn LLP Canary Wharf
Statutory auditor London E14 4HD
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
2016 | 2015 | ||
Notes | £'000 | £'000 | |
Continuing operations | |||
Revenue | 6 | 258 | 55 |
Cost of sales | (214) | (150) | |
Gross (loss)/profit | 44 | (95) | |
Other Income | 8 | 20 | 10 |
Selling and distribution expenses | - | - | |
Administrative expenses | 9 | 1,398 | (755) |
Bad debts written off | 9 | (16,222) | (146) |
Impairment of fixed assets | 14 | - | (2,538) |
Impairment of goodwill | 15 | - | (1,392) |
Impairment of intangible assets | 15 | - | (4,401) |
Finance income | 11 | - | 2 |
Finance costs | 11 | (1,739) | (141) |
Depreciation and amortization | (370) | (880) | |
Operating loss from continuing operations | (16,869) | (10,336) | |
Share of loss in a joint venture | 4 | (5) | - |
Loss before tax from continuing operations | (16,874) | (10,336) | |
Income tax credit | 12 | - | 1,202 |
Loss for the year from continuing operations | (16,874) | (9,134) | |
Discontinued operations | |||
Profit/(loss) for the year from discontinued operations | 7 | 5,732 | (23,789) |
Loss for the year attributable to the owners of the parent | (11,142) | (32,923) | |
Other comprehensive loss: items that may be subsequently reclassified to profit or loss | |||
Net exchange differences on translating foreign operations | 2,802 | (360) | |
Total other comprehensive loss, net of tax | 2,802 | (360) | |
Total comprehensive loss | (8,340) | (33,283) | |
Earnings per share from continuing and discontinued operations attributable to owners of the parent | |||
Basic earnings per share | |||
- From continuing operations | (12.08)p | (8.15)p | |
- From discontinued operations | 7 | 4.92p | (20.41)p |
- From total comprehensive loss | 13 | (7.16)p | (28.56)p |
Diluted earnings per share | |||
- From continuing operations | (11.57)p | (8.15)p | |
- From discontinued operations | 13 | 4.71p | (20.41)p |
- From total comprehensive loss | 13 | (6.86)p | (28.56)p |
The accompanying accounting policies and notes form an integral part of these financial statements
Consolidated Statement of Financial Position
As at 31 December 2016
2016 | 2015 | ||
Notes | £'000 | £'000 | |
Assets | |||
Non-current assets | |||
Property, plant and equipment | 14 | 5,640 | 5,095 |
Intangible assets | 15 | 41 | 41 |
Investment in a joint venture | 4 | 60 | 19 |
5,741 | 5,155 | ||
Non-current assets directly associated with discontinued operations | - | 15,536 | |
5,741 | 20,691 | ||
Current assets | |||
Inventories | 16 | 16 | 56 |
Trade and other receivables | 17 | 105 | 115 |
Cash and cash equivalents | 18 | 630 | 21 |
751 | 192 | ||
Current assets directly associated with discontinued operations | - | 1,537 | |
751 | 1,729 | ||
Total assets | 6,492 | 22,420 | |
Liabilities | |||
Current liabilities | |||
Trade and other payables | 19 | 2,143 | 134 |
Borrowings | 20 | 2,966 | 1,560 |
5,109 | 1,694 | ||
Current liabilities directly associated with discontinued operations | - | 26,607 | |
5,109 | 28,301 | ||
Non-current liabilities | |||
Borrowings | 20 | 17,334 | - |
17,334 | - | ||
Non-current liabilities directly associated with discontinued operations | - | 12 | |
17,334 | 12 | ||
Total liabilities | 22,443 | 28,313 | |
Net (liabilities) | (15,951) | (5,893) | |
Equity | |||
Share capital | 22 | 23,307 | 23,307 |
Share premium account | 22 | 139,639 | 139,639 |
Shares to be issued | 206 | - | |
Reverse acquisition reserve | 22 | - | (99,305) |
Translation reserve | 22 | (1,349) | (4,151) |
Irredeemable convertible preference shares | 23 | - | 1,924 |
Accumulated losses | (177,754) | (67,307) | |
Shareholders' (deficiency) /equity | (15,951) | (5,893) |
The accompanying accounting policies and notes form an integral part of these financial statements.
Company Registration No: 05712979
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
2016 | 2015 | ||
£'000 | £'000 | ||
Cash Flows From Operating Activities | |||
Loss before taxation | (16,875) | (34,125) | |
Adjustments for: | |||
Depreciation of property, plant and equipment | 370 | 1,811 | |
Amortisation of intangible assets | 1 | 855 | |
Impairment loss on disposal of former group undertaking | 13,277 | - | |
Loss/(gain) on disposal of property, plant and equipment | - | 5 | |
Inventory written off | 45 | 693 | |
Bad debts written off | - | 146 | |
Interest income | - | (2) | |
Property, plant and equipment written off | - | 2,350 | |
Impairment of goodwill | - | 2,039 | |
Impairment of intangible assets | - | 9,815 | |
Impairment of tangible fixed assets | - | 13,840 | |
Share of loss in a joint venture | 5 | 20 | |
Impairment loss in joint venture | 56 | - | |
Finance costs | 1,739 | 1,840 | |
Unrealised foreign exchange loss | 17 | - | |
Warrant issue | 81 | - | |
(Increase)/decrease in : | |||
Trade and other receivables | 15 | 4,769 | |
Inventories | - | 592 | |
Increase /(decrease) in : | |||
Trade and other payables | 989 | (492) | |
Cash Generated From Operations | (280) | 4,156 | |
Net interest paid | - | (1,840) | |
Income tax refund | - | 72 | |
Net Cash From/(Used In) Operating Activities | (280) | 2,388 | |
Cash Flows From Investing Activities | |||
Purchase of property, plant and equipment, net | - | (2,577) | |
Subscription of shares in a joint venture | (119) | - | |
Net cash used by discontinued operations | (2,711) | - | |
Net Cash Used In Investing Activities | (2,830) | (2,577) | |
Cash Flows From Financing Activities | |||
Issuance of Loan Notes | 675 | - | |
Advances by related companies | 209 | - | |
Net proceeds from/(repayment of) borrowings | (360) | (1,336) | |
Net Cash Generated From/(Used In) Financing Activities | 524 | (1,336) | |
Net (Decrease) In Cash and Cash Equivalents | (2,586) | (1,525) | |
Cash and Cash Equivalents at beginning of year | 558 | 2,227 | |
Effect of exchange rate differences on cash and cash equivalents | 2,658 | (144) | |
Cash and Cash Equivalents at end of year (note 18) | 630 | 558 | |
The accompanying accounting policies and notes form an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 31 December 2016
1 General information
Graphene Nanochem Plc is a public limited Company incorporated and domiciled in England.
In 2013, the Company was formed through the reverse takeover of Platinum Nanochem Sdn. Bhd. ('PNC') by Biofutures International plc ('Biofutures') where £32.5 million was raised through a placing of 23.2 million ordinary shares with new investors. The enlarged Group's shares were readmitted to the AIM market on 26 March 2013 under the name of Graphene Nanochem plc.
The consolidated financial statements are presented as a continuation of the financial statements of Platinum Nanochem Sdn. Bhd. The consideration transferred was calculated after determining the fair value of the assets and liabilities of Biofutures at the transfer date. The consideration comprises the value of the additional shares that would need to have been purchased in Biofutures to acquire the entire share capital.
The Company and its subsidiaries were involved in the design, formulation and manufacturing of intermediate and performance chemicals and advanced nano-materials. During the year ended 31 December 2016 and subsequent to the balance sheet date, the Group commenced a restructuring of its business.
2 Summary of significant accounting policies
2.1 Basis of preparation
These consolidated financial statements of the Group are for the year ended 31 December 2016. They have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The consolidated financial statements have been prepared under the historical cost convention except where accounting standards require the use of fair values.
The financial statements of the Company have been prepared using FRS 102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland ('UK GAAP').
These consolidated financial statements are presented in Pounds Sterling ('£') which is the functional and presentation currency of the parent, and rounded to the nearest thousand ('£'000'). The functional currency of the subsidiaries is the Malaysian Ringgit as that is the currency of their primary economic environment. The directors have chosen to present these financial statements in Pounds Sterling due to the international exposure and shareholders of the entity.
The significant accounting policies set out below have been consistently applied, except where stated.
On publishing the parent Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual Statement of Comprehensive Income statement and related notes that form a part of these approved financial statements.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
2.2 Going concern
Although the Group recorded a net loss of £11,142,000 for the financial year ended 31 December 2016, the significant progress in the holistic business restructuring that includes the successful launching of two new divisions in the Water & Polymers markets, coupled with the similarly positive debt restructuring, gives the Directors optimism that the Group will continue to be operational in the foreseeable future.
The Group is in advanced discussions to dispose of identified non-core assets to a third party although no binding agreement has been entered into at the date of this report. In conjunction with the proposed disposal, the Group will utilize the proceeds from the sale to make full settlement of its debt owing to its primary short term financier and pay down the restructured debt of its primary long term financier. The successful conclusion of the above disposal and utilization of proceeds mentioned will positively impact the Group's indebtedness.
In addition to the above proposed disposal, the Group has successfully raised funds via an agreement with Darwin Capital Limited to subscribe for up to £2.50m Senior Unsecured Zero Coupon Convertible Loan Notes with detachable Warrants in three separate tranches to support working capital requirements of the Group. Tranche 1 of £0.75m and Tranche 2 of £1.00m has been subscribed to in December 2016 and May 2017 respectively.
The Directors have prepared financial forecasts which suggests that based on conversion of the anticipated sales pipelines, successful conclusion on the matters discussed above that the Group is able to continue to meet its obligations as and when they fall due.
The Directors have at the time of approving the financial statements, have considered the going concern assumption, and have concluded with reasonable expectation that the Group would continue as a going concern and have adequate resources to continue in operational existence for the foreseeable future. As the Directors consider that it is appropriate to prepare the financial statements of the Group and the Company on a going concern basis, the financial statements do not include any adjustments relating to the recoverability and classification of the assets and liabilities that may be necessary, if the going concern basis of preparing the financial statements of the Group and Company is not appropriate.
2.3 Standards and Interpretations effective in the current period
(a) Accounting developments during 2016
The International Accounting Standards Board (IASB) issued various amendments and revisions to International Financial Reporting Standards and IFRIC interpretations. The amendments and revisions were applicable for the period ended 31 December 2016 but did not results in any material changes to the financial statements of the Group or Company.
The following standards were adopted by the Group during the year:
• IAS 1 (Amendment) - Disclosure initiatives (effective 1 January 2016)*
• IAS 16 and IAS 38 (Amendments) - Clarification of acceptable methods of depreciation and amortisation (effective 1 January 2016)*
• IAS 19 - Employee benefits (Amendments) (effective 1 January 2016)*
• IAS 27 (Amendment) - Equity method in separate financial statements (effective 1 January 2016)*
• IAS 28 - Investment in associates (Amendments) (effective 1 January 2016)*
• IFRS 10 - Consolidated financial statements (effective 1 January 2016)*
• IFRS 11 (Amendment) - Accounting for acquisitions of interest in joint operations (effective 1 January 2016)*
• IFRS 12 - Disclosure of interest in other entities (effective 1 January 2016)*
• Annual improvement Cycle 2012-2014
*EU effective date
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
2.3 Standards and Interpretations effective in the current period (continued)
(b) Accounting developments not yet adopted
Various new standards and amendments have been issued by the IASB up to the date of this report which are not applicable until future periods and have not yet been endorsed by the European Union.
At the date of authorisation of these financial statements, the following standards and interpretations, were in issue but not yet effective, and have not been early adopted by the Group:
• IAS 7 - Statement of Cash Flow amendments (effective 1 January 2017)
• IAS 12 (Amendment) - Recognitions of Deferred Tax Assets for Unrealised Losses (effective 1 January 2017)
• IFRS 9 - Financial Instruments (2015) (effective 1 January 2018)*
• IFRS 15 - Revenue from contracts with customers (effective 1 January 2018)*
• IFRS 16 - Leases (effective 1 January 2019)
• IFRS 2 - Classification and Measurement of Share-based Payment Transactions
• IFRIC 22 - Foreign Currency Transactions and Advance Consideration (effective 1 January 2018)
• IAS 40 - Transfers of Investment Property (effective 1 January 2018)
• Annual improvement Cycle 2014-2016 (effective 1 January 2017/2018)
The Directors are actively considering the effects upon the financial statements and at the time of approval do not consider that the financial statements will be subject to material changes.
None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below:
IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the 'hedged ratio' to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted subject to EU endorsement. The Group is yet to assess IFRS 9's full impact.
IFRS 15, 'Revenue from contracts with customers'deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted subject to EU endorsement. The Group is assessing the impact of IFRS 15.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
2.3 Standards and Interpretations effective in the current period (continued)
(b) Accounting developments not yet adopted (continued)
IFRS 16 'Leases'specifies how an IFRS reporter will recognise, measure, prepare and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor IAS 17. The standard replaces IAS 17 'Leases' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2019, with earlier adoption permitted if IFRS 15 'Revenue from contracts with customers' has also been applied (subject to EU endorsement).
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group
2.4 Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and all its subsidiaries made up to 31 December 2016.
Subsidiaries are entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Subsidiaries are consolidated from the date on which control is transferred to the Group up to the effective date on which control ceases, as appropriate.
Intragroup transactions, balances, income and expenses are eliminated on consolidation. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
2.4 Basis of Consolidation
(a) Business Combinations
Acquisitions of businesses are accounted for using the acquisition method. Under the acquisition method, the consideration transferred for acquisition of a subsidiary is the fair value of the assets transferred, liabilities incurred and the equity interests issued by the Group at the acquisition date. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs, other than the costs to issue debt or equity securities, are recognised in profit or losswhen incurred.
In a business combination achieved in stages, previously held equity interests in the acquiree are remeasured to fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss.
Non-controlling interests in the acquiree may be initially measured either at fair value or at the non-controlling interests' proportionate share of the fair value of the acquiree's identifiable net assets at the date of acquisition. The choice of measurement basis is made on a transaction-by-transaction basis.
The consolidated financial statements have been issued in the name of the legal parent (i.e. the accounting acquiree), but presented as a continuation of the financial statements of the legal subsidiary (i.e. the accounting acquirer).
The following principles have been applied:
(i) The assets and liabilities of the legal subsidiary shall be recognised and measured in the consolidated financial statements at their pre-combination carrying amounts;
(ii) The assets and liabilities of the legal parent shall be recognised and measured in the consolidated financial statements at their fair values at the acquisition date;
(iii) The retained profits and other equity balances (such as revaluation reserves and foreign exchange reserves) recognised in the consolidated financial statements shall be the retained profits and other equity balances of the legal subsidiary immediately before the business combination;
(iv) The amount recognised as issued equity instruments (i.e. share capital and share premium) in the consolidated financial statements shall be determined by adding to the issued equity of the legal subsidiary immediately before the business combination the fair value of the legal parent (i.e. the deemed cost of the business combination); and
(v) The equity structure appearing in the consolidated financial statements shall reflect the equity structure of the legal parent, including the equity instruments issued by the legal parent to effect the combination.
(b) Joint Arrangements
Joint arrangements are arrangements of which the Group has joint control, established by contracts requiring unanimous consent for decisions about the activities that significantly affect the arrangements' returns.
Joint arrangements are reclassified and accounted for as follows:
· Ajoint arrangement is classified as 'joint operation' when the Group or the Company has rights to the assets and obligations for the liabilities relating to an arrangement. The Group account for each of its share of the assets, liabilities and transactions, including its share of those held or incurred jointly with the other investors, in relation to the joint operation.
· A joint arrangement is classified as 'joint venture' when the Group has rights only to the net assets of the arrangements. The Group accounts for its interest in the joint venture using the equity method.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
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 of each individual entity using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the year end 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 profit or loss.
(c) Consolidation of overseas subsidiaries
Income and expenditure for overseas subsidiaries are included based upon monthly average exchange rates to give a fair approximation to the transaction rate. Items of statement of financial position are included at the year-end exchange rate. All other differences are included within the translation reserve, including related goodwill and intangible assets, which are translated at the rate ruling at the year-end date.
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 profit and loss during the financial period in which they are incurred.
Depreciation on assets is calculated using the straight-line method 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 statement of financial position date.
The principal annual depreciation rates used to depreciate other assets are as follows:
Leasehold land | Over the lease period of 65 and 99 years |
Buildings | 2% |
Motor vehicles | 20% |
Computer Equipment Furniture, fittings and equipment | 10-40% 20% |
Plant and machinery | 5 - 20% |
Renovations | 10-20% |
Capital work-in-progress represents assets under construction, and which are not ready for commercial use at the end of the reporting period. Capital work-in-progress is stated at cost, and will be transferred to the relevant category of assets and depreciated accordingly when the assets are completed and ready for commercial use.
Cost of capital work-in-progress includes direct cost, related expenditure and interest cost on borrowings taken to finance the acquisition of the assets to the date that the assets are completed and put in use.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
2.6 Property, plant and equipment (Continued)
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when the cost is incurred and it is probable that the future economic benefits associated with the asset will flow to the Company and the cost of the asset can be measured reliably. The carrying amount of parts that are replaced is derecognised. The costs of the day-to-day servicing of equipment are recognised in profit or loss as incurred. Cost also comprises the initial estimate of dismantling and removing the asset and restoring the site on which it is located for which the Company is obligated to incur when the asset is acquired, if applicable.
An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising from derecognition of the asset is recognised in profit or loss. The revaluation reserve included in equity is transferred directly to retained profits on retirement or disposal of the asset.
2.7 Goodwill and 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 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 purposes of impairment testing.
Identifiable intangible assets are recognised separately from goodwill on all acquisitions. Such assets are carried at fair value at the date of acquisition (i.e. as deemed cost). Such intangible assets are reviewed for impairment on an annual basis. Intangible assets are tested annually for impairment along with the goodwill.
Intangible assets comprise of the followings:
(a) Research and development expenditure
Research expenditure is recognised as an expense when it is incurred.
Development expenditure is recognised as an expense except that costs incurred on development projects are capitalised as non-current assets to the extent that such expenditure is expected to generate future economic benefits.
Development expenditure is capitalised if, and only if an entity can demonstrate all of the following:
(i) its ability to measure reliably the expenditure attributable to the asset under development;
(ii) the product or process is technically and commercially feasible;
(iii) its future economic benefits are probable;
(iv) its intention to complete and the ability to use or sell the developed asset; and
(v) the availability of adequate technical, financial and other resources to complete the asset under development.
Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses, if any. Development expenditure initially recognised as an expense is not recognised as assets in the subsequent period.
The development expenditure is amortised on a straight-line method over a period of 8 to 15 years when the products are ready for sale or use. In the event that the expected future economic benefits are no longer probable of being recovered, the development expenditure is written down to its recoverable amount.
(b) Licences
Separately acquired licence is shown at historical cost. Licence has a finite useful life and is carried at cost less accumulated amortisation. Impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. Any impairment is recognised immediately as an expense.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
(c) Patents
Separately acquired patents are shown at historical cost. Patents have a finite useful life and are carried at cost less accumulated impairment. Impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of the asset is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense.
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 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in-first-out basis and comprises the purchase price and incidentals incurred in bringing the inventories to their present location and condition.
Net realisable value represents the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale.
Reviews are made periodically by management on damaged, obsolete and slow-moving inventories. These reviews require judgement and estimates. Possible changes in these estimates could result in revisions to the valuation of inventories.
2.10 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 impairment of receivables.
An impairment loss is recognised when there is objective evidence that a financial asset is impaired. Management specifically reviews its loans and receivables financial assets and analyses historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in the customer payment terms when making a judgment to evaluate the adequacy of the allowance for impairment losses. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. If the expectation is different from the estimation, such difference will impact the carrying value of receivables.
2.11 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.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
2.12 Borrowing costs
Borrowing costs, directly attributable to the acquisition, construction or production of a qualifying asset, are capitalised as part of the cost of those assets, until such time as the assets are ready for their intended use or sale. Capitalisation of borrowing costs is suspended during extended periods in which active development is interrupted.
All other borrowing costs are recognised in profit or loss as expenses in the period in which they incurred.
2.13 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.
2.14 Financial Instruments
Financial instruments are recognised in the statements of financial position when the Group has become a party to the contractual provisions of the instruments.
Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument classified as a liability, are reported as an expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity.
Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously.
A financial instrument is recognised initially at its fair value. Transaction costs that are directly attributable to the acquisition or issue of the financial instrument (other than a financial instrument at fair value through profit or loss) are added to/deducted from the fair value on initial recognition, as appropriate. Transaction costs on the financial instrument at fair value through profit or loss are recognised immediately in profit or loss.
Financial instruments recognised in the statements of financial position are disclosed in the individual policy statement associated with each item.
(a) Financial Assets
On initial recognition, financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables financial assets, or available-for-sale financial assets, as appropriate.
(i) Financial Assets at Fair Value Through Profit or Loss
As at the end of the reporting period, there were no financial assets classified under this category.
(ii) Held-to-maturity Investments
As at the end of the reporting period, there were no financial assets classified under this category.
(iii) Loans and ReceivablesFinancial Assets
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivablesfinancial assets. Loans and receivables financial assets are measured at amortised cost using the effective interest method, less any impairmentloss. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
(iv) Available-for-sale Financial Assets
As at the end of the reporting period, there were no financial assets classified under this category except for loan and receivables.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
2.14 Financial Instruments (Continued)
(b) Financial Liabilities
All financial liabilities are initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method other than those categorised as fair value through profit or loss.
Fair value through profit or loss category comprises financial liabilities that are eitherheld for trading or aredesignated toeliminate or significantly reduce a measurement or recognition inconsistency that would otherwise arise.Derivatives are also classified as held for trading unless they are designated as hedges.
(c) Equity Instruments
(i) Ordinary Shares
Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from proceeds.
Dividends on ordinary shares are recognised as liabilities when approved for appropriation.
(ii) Irredeemable Convertible Preference Shares ('ICPS')
Preference shares are classified as equity if they are non-redeemable, or are redeemable but only at the Company's option, and any dividends are discretionary. Dividends on preference shares are recognised as distributions within equity.
Preference shares are classified as financial liabilities if they are redeemable on a specific date or at the option of the preference shareholders, or if dividend payments are not discretionary. Dividends thereon are recognised as interest expense in profit or loss as accrued.
(d) Derecognition
A financial asset or part of it is derecognised when, and only when, the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in profit or loss.
A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
2.15 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts and returns. The Group recognises revenue when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the entity, and when specific criteria have been met for each of the Group's activities, as described below.
(a) Sales of goods
Sales of refined palm oil, biofuels and nanofluids are recognised when the risks of obsolescence and loss have been transferred to the customers, and either the customers have accepted the products in accordance with the sales contract, the acceptance provisions have lapsed or the Group has objective evidence that all criteria for acceptance have been satisfied.
(b) Rendering of services
Palm oil tolling services are recognised when services are performed in accordance with the service contract.
(c) Finance income
Interest income is recognised on an accrual basis using the effective interest method.
2.16 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 nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the statement of financial position 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.
2.17 Employee Benefits
(a) Pension obligations
Group companies do not operate defined contribution schemes but contribute to individual personal pension plan for certain employees by way of paying 12% of their gross salary costs in lieu of a scheme contribution as required by Malaysian law, which is accounted for as salary when payable.
(b) Share-based payments
The fair value of previous share options is calculated by the Company using the Black Scholes option pricing model, as the Directors believe that the options are likely to be exercised nearer to their expiry dates. The expense is recognised in the profit and loss on a straight line basis over the period from the date of award to the date of vesting, based on the Company's best estimate of shares that will eventually vest. A credit is recognised on the same basis in the share-based payment reserve.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
2.18 Fair value measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using a valuation technique. The measurement assumes that the transaction takes place either in the principal market or in the absence of a principal market, in the most advantageous market. For non-financial asset, the fair value measurement takes into account a market's participant ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
For financial reporting purposes, the fair value measurements are analysed into level 1 to level 3 as follows:
Level 1:Inputs are quoted prices (unadjusted) in active markets for identical assets or liability that the entity can access at the measurement date;
Level 2:Inputs are inputs, other than quoted prices included within level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3:Inputs are unobservable inputs for the asset or liability.
The transfer of fair value between levels is determined as of the date of the event or change in circumstances that caused the transfer.
2.19 Contingent liabilities and contingent assets
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.
A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision. A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group. Contingent assets are not recognised but are disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.
2.20 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 to 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.
(a) Impairment of goodwill and intangible assets
Determining whether goodwill and intangible assets are impaired requires an estimation of the value-in-use of the cash-generating units to which goodwill and intangible assets have been allocated. The value-in-use calculation requires the Directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. (see note 15 for details). In view of the Group's planned exit from the palm oil refining and biodiesel businesses, goodwill and intangible assets have been fully impaired at the balance sheet date.
Notes to the Financial Statements
For the year ended 31 December 2016
2 Summary of significant accounting policies (Continued)
2.20 Judgements and estimates (Continued)
(b) Impairment of property, plant and equipment
The carrying amounts of property, plant and equipment are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated, which requires management judgement.
(c) Impairment of trade receivables
An impairment loss is recognised when there is objective evidence that a trade receivable is impaired. Management has specifically reviewed trade receivables having specific regard to; historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in the customer payment terms when making a judgment to evaluate the adequacy of the allowance for impairment losses. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. If the expectation is different from the estimation, such difference will impact the carrying value of receivables. See Note 26 (b) for details regarding the Group's trade receivables.
(d) Borrowings
As disclosed in Note 20, a novation agreement was completed to novate the loan amounting to £17,695,000 from its primary long term financier Malaysian Debt Ventures ('MDV') from Platinum Nanochem Sdn. Bhd. to Platinum Techsolve Sdn. Bhd. on 26 August 2016. During the year the Group also entered into a Consent Judgement with its primary short term financier Bank Kerjasama Rakyat Berhad ('BKRB') with the terms of payment stipulated in the aforesaid judgement. Subsequent to the financial year ended 31 December 2016 however, the Group has requested and been granted deferments in payments by BKRB. The carrying values of outstanding borrowings in Note 20 include accrued interest to date but exclude any penalties that the Group may incur once settlement has been reached with other lenders involving disposal of property, plant and equipment held by the banks as security.
(e) Discontinued operations
Note 7 discusses the loss of control of Platinum Nanochem Sdn. Bhd. and its wholly owned subsidiaries Platinum Green Chemicals Sdn. Bhd. and Platinum Nano G Sdn. Bhd. in more detailed. The board has had difficulties in accessing complete financial information of these discontinued operations and hence has constructed financial statements from the Statement of Affairs submitted to the respective administrators, receivers and liquidators using best estimates and judgement.
(f) Contingent liabilities
As disclosed in Note 25 to the financial statements, the provided a corporate guarantee for banking facilities granted to its subsidiary.
(g) Going concern
Management of the Group has made a number of significant judgments about the applicability of the going concern basis of presentation of the financial statements. These are set out in note 2.2.
Notes to the Financial Statements
For the year ended 31 December 2016
3 Subsidiaries
Graphene Nanochem plc has the following subsidiaries:
Name of subsidiaries | Effective equity interest | Registered address | Principal activities | |
2016 | 2015 | |||
% | % | |||
Platinum Nanochem Sdn. Bhd. | - | 100 | Suite 1008 10th Floor Wisma Lim Foo Yong, 86 Jalan Raja Chulan 50200 Kuala Lumpur, Malaysia | Investment holding and provision of management services |
Platinum Techsolve Sdn. Bhd. | 100 | 100 | Suite 1008 10th Floor Wisma Lim Foo Yong, 86 Jalan Raja Chulan 50200 Kuala Lumpur, Malaysia | Trading of oilfield chemicals products, water treatment products & polymers |
Platinum Performance Chem Sdn Bhd. | 100 | 100 | Suite 1008 10th Floor Wisma Lim Foo Yong, 86 Jalan Raja Chulan 50200 Kuala Lumpur, Malaysia | Refining of crude palm oil, trading of oilfield chemical products |
Platinum Nanochem Sdn. Bhd. has the following subsidiaries:
Name of subsidiaries | Effective equity interest | Registered address | Principal activities | |
2016 | 2015 | |||
% | % | |||
Platinum Green Chemicals Sdn. Bhd. | - | 100 | Suite 1008 10th Floor Wisma Lim Foo Yong, 86 Jalan Raja Chulan 50200 Kuala Lumpur, Malaysia | Manufacturing of advanced chemicals and biofuels |
Platinum Nano G Sdn. Bhd. | - | 100 | Suite 1008 10th Floor Wisma Lim Foo Yong, 86 Jalan Raja Chulan 50200 Kuala Lumpur, Malaysia | Manufacturing of advanced nano materials |
Platinum Techsolve Sdn. Bhd. has the following subsidiaries and joint venture:
Name of subsidiaries | Effective equity interest | Registered address | Principal activities | |
2016 | 2015 | |||
% | % | |||
Scomi Platinum Sdn. Bhd. | 50 | 50 | Suite 1008 10th Floor Wisma Lim Foo Yong, 86 Jalan Raja Chulan 50200 Kuala Lumpur, Malaysia | Manufacturing and trading of oilfield chemical products |
All the above subsidiaries are incorporated in Malaysia.
Please refer to Note 7 for discontinued operations during the year.
4 Investment in a joint venture
2016 | 2015 | |
£'000 | £'000 | |
Investment in a joint venture | 78 | 78 |
Capital injection into joint venture | 44 | - |
Share of loss | (5) | (20) |
Foreign exchange adjustment | (57) | (39) |
60 | 19 | |
Scomi Platinum Sdn Bhd, a 50% owned joint venture in the Group which is principally engaged in manufacturing of speciality chemicals and other graphene-enhanced green chemicals. The Group accounted for the joint venture by using the equity method.
Notes to the Financial Statements
For the year ended 31 December 2016
Summarised financial information in respect of the Group's joint venture are set out below:
Year ended 31 December 2016 | Year ended 31 December 2015 | |
£'000 | £'000 | |
Revenue | - | - |
Loss after tax | (10) | (40) |
Group's share of results for the year | (5) | (20) |
Total assets | 160 | 158 |
Total liabilities | (40) | (120) |
Net assets | 120 | 38 |
Group's share of joint venture net assets | 60 | 19 |
5 Operating segments
Management has determined the operating segments based on the reports reviewed by The Board that are used to make strategic decisions.
Management has determined that the Group has one operating segment, which is refining and manufacturing and trading of oilfield chemicals (2015: one operating segment, refining and manufacturing of palm oil and biofuels as well as production of oilfield products). The financial information contained in these financial statements therefore relates solely to this segment. The Group's non-current assets consist of property, plant and equipment, goodwill and intangible assets, and are located entirely in Malaysia.
6 Revenue
2016 | 2015 | |||
£'000 | £'000 | |||
Revenue from sales of second generation biofuels and refined palm oil | - | 46 | ||
Revenue from sales of oil field products | 258 | 9 | ||
258 | 55 | |||
7 Discontinued Operations
During the financial year, the Group lost control of the following entities:
i) Platinum Green Chemicals Sdn. Bhd.
Platinum Green Chemicals Sdn. Bhd. is a wholly owned subsidiary of Platinum Nanochem Sdn. Bhd., which in turn is a wholly owned subsidiary of Graphene Nanochem Sdn. Bhd. The Company's core operations are in the discontinued fuel additive business.
On 11 July 2016, KPMG Deal Advisory Sdn. Bhd. was appointed as receivers and managers of Platinum Green Chemicals Sdn. Bhd. The appointment was made by Bank Pembangunan Malaysia Berhad vide the Security Deed and Debenture held and pursuant to Sections 188(1), 189(1) and 189(2) of the Malaysian Company Act 1965. Upon this appointment, the powers of the directors were suspended with regards to all affairs and business of the Company. Subsequent to this appointment, a winding up order for Platinum Green Chemicals Sdn. Bhd. via Section 218 of the Malaysian Companies Act 1965 was received on 1 August 2016.
ii) Platinum Nanochem Sdn. Bhd.
Platinum Nanochem Sdn. Bhd. a wholly owned subsidiary of Graphene Nanochem Sdn. Bhd. and parent Company of Platinum Green Chemicals Sdn. Bhd. and Platinum Nano G Sdn. Bhd. The Company's core operations are in the discontinued fuel additive business.
On 15 July 2016, a winding up order was received for Platinum Nanochem Sdn. Bhd. pursuant to Section 218 of the Malaysian Companies Act 1965. Upon receipt of this order, the powers of the directors were suspended with regards to all affairs and business of the Company and its subsidiaries.
Notes to the Financial Statements
For the year ended 31 December 2016
7 Discontinued Operations (continued)
iii) Platinum Nano G Sdn. Bhd.
Platinum Nano G Sdn. Bhd. is a wholly owned subsidiary of Platinum Nanochem Sdn. Bhd., which in turn is a wholly owned subsidiary of Graphene Nanochem Sdn. Bhd. The Company's core operations are in the business of providing high technology and manufacturing of advanced materials.
On 15 July 2016, a winding up order was received for its parent Company Platinum Nanochem Sdn. Bhd. pursuant to Section 218 of the Malaysian Companies Act 1965. The directors deem this event as a loss of control of Platinum Nano G Sdn. Bhd. and subsequently have deconsolidated this entity from the Group accounts.
The results of Platinum Nanochem Sdn. Bhd. (till 15 July 2016), Platinum Green Chemicals Sdn. Bhd. (till 11 July 2016) and Platinum Nano G Sdn. Bhd. (till 15 July 2016) are presented below:
2016 | 2015 | ||
£'000 | £'000 | ||
Revenue | 900 | 7,916 | |
Cost of sales | (683) | (8,468) | |
Gross profit | 217 | (552) | |
Other Income | (13) | 242 | |
Selling and distribution expenses | (126) | (114) | |
Administrative expenses | 5,980 | (2,498) | |
Impairment of fixed assets | - | (11,302) | |
Impairment of goodwill | - | (647) | |
Impairment of intangible assets | - | (5,414) | |
Finance costs | (325) | (1,699) | |
Depreciation and amortisation | (1) | (1,785) | |
Loss before tax for discontinued operations | 5,732 | (23,769) | |
Tax | - | (20) | |
Profit / (Loss) after tax for discontinued operations | 5,732 | (23,789) |
2016 | 2015 | ||
£'000 | £'000 | ||
Assets | |||
Property, plant and equipment | 15,054 | 15,536 | |
Inventories | 198 | 193 | |
Trade and other receivables | 240 | 807 | |
Cash and cash equivalents | 513 | 537 | |
Total assets directly associated with discontinued operations | 16,005 | 17,073 | |
Liabilities | |||
Trade and other payables | 21,297 | 3,229 | |
Borrowings | 10,726 | 23,384 | |
Total liabilities directly associated with discontinued operations | 32,023 | 26,613 | |
Net (liabilities) directly associated with discontinued operations | (16,018) | (9,540) |
Notes to the Financial Statements
For the year ended 31 December 2016
7 Discontinued Operations (continued)
Basic Earnings per share from Discontinued Operations attributable to the Equity Holders of the Group during the year
2016 | 2015 | ||||||
Profit/(loss) from discontinued operation attributable to equity holders of the parent | £5,732,000 | (£23,789,000) | |||||
Weighted average number of ordinary shares in issue | 116,536,536 | 116,536,536 | |||||
Basic earnings/(loss) per share in pence from discontinued operations | 4.92p | (20.41)p | |||||
8 Other Income
2016 | 2015 | ||
£'000 | £'000 | ||
Realised gain on foreign currency exchange | - | 242 | |
Rental income | 20 | 10 | |
Other income from discontinued operations | - | (242) | |
20 | 10 | ||
9 Administrative expenses & bad debts written off
2016 | 2015 | |||
£'000 | £'000 | |||
Included within administrative expenses are: | ||||
Employee benefit expenses | 186 | 835 | ||
Rental of premises | 35 | 62 | ||
Rental of equipment | - | 28 | ||
Rental of motor vehicle | - | 4 | ||
Rental of office equipment | - | 2 | ||
Property, plant and equipment written off | - | 2,340 | ||
Bad debts written off on loss of control of subsidiaries | 16,222 | 146 | ||
Inventory written off | 45 | 694 | ||
Compensation for loss to customer | 86 | - | ||
Auditor's remuneration: | ||||
- Fees payable to the Group's auditor for the audit of the Group's annual accounts | 30 | 32 | ||
- Fees payable to the subsidiaries' auditor for the audit of the subsidiaries' annual accounts | 4 | 24 |
Notes to the Financial Statements
For the year ended 31 December 2016
10 Directors and employees
The employee benefit expense during the year was as follows:
2016 | 2015 | |||
£'000 | £'000 | |||
Salary and wages | 174 | 766 | ||
Pension costs-defined contribution | 11 | 69 | ||
Social security cost | 1 | - | ||
186 | 835 |
The number of employees inclusive of executive directors at year end was 14 (2015: 45).
2016 | 2015 | |||
Number | Number | |||
Directors & Managerial | 5 | 9 | ||
Administrative | 5 | 11 | ||
Operational | 4 | 25 | ||
14 | 45 |
Remuneration in respect of Directors was as follows:
Director | Basic salary and fees | Pension-Defined contribution schemes | Total 2016 | Total 2015 | |
£'000 | £'000 | £'000 | £'000 | ||
Tan Sri Abi Musa | 12 | - | 12 | 12 | |
Dato Jespal Deol | 3 | - | 3 | 12 | |
Sushil Sidhu | 2 | - | 2 | 12 | |
AM Cleverly Esq & Mrs JCM Cleverly | - | - | - | 12 | |
Dato' Larry Gan | 12 | - | 12 | 12 | |
Patrick Dennis Howes | 24 | - | 24 | 24 | |
Dato' Mohamed Sallehuddin | 12 | - | 12 | 12 | |
65 | - | 65 | 96 | ||
The salary and benefit payable to directors totaling £60,000 was accrued as at 31 December 2016
The number of Directors who accrued benefits under Company pension schemes was as follows:
2016 | 2015 | |||
Number | Number | |||
Defined contribution schemes | 2 | 2 |
11 Finance income/costs
2016 | 2015 | ||
£'000 | £'000 | ||
Finance cost | |||
Interest on bank borrowings | 1,739 | 1,803 | |
Interest paid to suppliers | - | 37 | |
Finance costs from discontinued operations | - | (1,699) | |
1,739 | 141 | ||
Finance income | |||
Interest income | - | 2 | |
- | 2 | ||
Notes to the Financial Statements
For the year ended 31 December 2016
12 Income tax
2016 | 2015 | ||
£'000 | £'000 | ||
Current income tax | - | - | |
Deferred tax | - | ||
Origination or recognition of temporary differences | - | (1,202) | |
- | - | (1,202) | |
The tax on the Group's loss before tax differs from the loss before taxation multiplied by the standard rate of corporation tax in Malaysia due to the following:
2016 | 2015 | ||
£'000 | £'000 | ||
Loss before tax | (16,269) | (38,665) | |
Tax calculated at the standard rate of corporation tax in Malaysia: 24% (2015:25%) | (3,905) | (9,666) | |
Expenses not deductible for tax purposes | 4,342 | 4,893 | |
Deferred tax credit not recognised during the year | (437) | 3,571 | |
- | (1,202) | ||
The temporary differences attributable to the deferred tax assets and deferred tax | |||
liabilities which are not recognised in the financial statements are as follows: | |||
Deferred tax assets: | |||
- Unabsorbed capital allowances | 8,660 | 20,934 | |
- Unutilised tax losses | 2,880 | 28,999 | |
- Allowances for doubtful debts | 516 | 459 | |
12,056 | 50,392 | ||
Deferred tax liabilities: | |||
- Accelerated capital allowances | - | (13,782) | |
12,056 | 36,610 | ||
The net deferred tax assets are not provided in view of the uncertainty on the timing of their recoverability. The tax rate applied is reflecting the average tax rate weighted in proportion to accounting profit earned in each geographical territory.
13 Earnings per share
Basic
Basic earnings 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 year.
2016 | 2015 | ||
Loss attributable to equity holders of the Company | (£14,072,000) | (£9,494,000) | |
Profit/(loss) from discontinued operation attributable to equity holders of the parent | £5,732,000 | (£23,789,000) | |
Total | (£8,340,000) | (£33,283,000) | |
Weighted average number of ordinary shares in issue | 116,536,536 | 116,536,536 | |
Notes to the Financial Statements
For the year ended 31 December 2016
13 Earnings per share (continued)
Basic (continued) Earnings per share from continuing and discontinued operations attributable to owners of the parent | |||
Diluted earnings per share | |||
- From continuing operations | (12.08)p | (8.15)p | |
- From discontinued operations | 4.92p | (20.41)p | |
- From total comprehensive loss | (7.16)p | (28.56)p | |
Diluted
Diluted earnings per share is a performance metric calculated to gauge the quality of earnings if all convertible securities were exercised. Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all contracted dilutive potential ordinary shares. The Directors have computed the diluted earnings per share by assuming that all convertible securities on issue at year end is converted at a price of 18.4375p.
2016 | 2015 | ||
Conversion of 30 Loan Notes, par value £25,000 each | 4,067,797 | - | |
Conversion of 1,016,949 Warrants, exercise price 18.4375p | 1,016,949 | - | |
Total additional shares post conversion | 5,084,746 | - | |
Enlarged number of shares of Group | 121,621,282 | 116,536,536 | |
Earnings per share from continuing and discontinued operations attributable to owners of the parent | |||
Diluted earnings per share | |||
- From continuing operations | (11.57)p | (8.15)p | |
- From discontinued operations | 4.71p | (20.41)p | |
- From total comprehensive loss | (6.86)p | (28.56)p |
Notes to the Financial Statements
For the year ended 31 December 2016
14 Property, plant and equipment
Leasehold land | Leasehold Buildings | Furniture, fittings and equipment | Computer & Software | Plant and machinery | Motor vehicles | Renovation | Capital work-in-progress | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Cost | |||||||||
As at 1 January 2015 | 2,733 | 1,217 | 348 | - | 33,780 | 403 | 340 | 8,599 | 47,420 |
Additions | - | - | 29 | - | 2,201 | 345 | - | 2 | 2,577 |
Disposal | - | - | - | - | (5) | - | - | - | (5) |
Transfer | - | - | (150) | - | (2,077) | (449) | - | - | (2,676) |
Written off | (69) | (378) | (7) | - | (6,030) | - | (65) | (7,291) | (13,840) |
Foreign exchange adjustment | (396) | (176) | (42) | - | (2,535) | (41) | (44) | (1,310) | (4,544) |
Discontinued operations | (1,554) | (112) | (178) | - | (21,504) | (258) | (231) | - | (23,837) |
As at 31 December 2015 | 714 | 551 | - | - | 3,830 | - | - | - | 5,095 |
Additions | - | - | - | 145 | - | - | - | - | 145 |
Disposal | - | - | - | - | - | - | - | - | - |
Written off | - | - | - | - | - | - | - | - | - |
Impairment | - | - | - | - | - | - | - | - | - |
Foreign exchange adjustment | 106 | 82 | - | - | 571 | - | - | - | 759 |
As at 31 December 2016 | 820 | 633 | - | 145 | 4,401 | - | - | - | 5,999 |
Accumulated depreciation | |||||||||
As at 1 January 2015 | 298 | 120 | 253 | - | 6,964 | 189 | 242 | - | 8,066 |
Additions | 50 | 5 | 30 | - | 1,669 | 38 | 19 | - | 1,811 |
Disposal | - | - | (121) | - | (89) | (116) | - | - | (326) |
Foreign exchange adjustment | (47) | (17) | (31) | - | (1,098) | (21) | (36) | - | (1,250) |
Discontinued operations | (301) | (108) | (131) | - | (7,446) | (90) | (225) | - | (8,301) |
As at 31 December 2015 | - | - | - | - | - | - | - | - | - |
Additions | 18 | 14 | - | 44 | 294 | - | - | - | 370 |
Written off | - | - | - | - | - | - | - | - | - |
Foreign exchange adjustment | (1) | (1) | - | - | (9) | - | - | - | (11) |
As at 31 December 2016 | 17 | 13 | - | 44 | 285 | - | - | - | 359 |
Net book value as at 31 December 2016 | 803 | 620 | - | 101 | 4,116 | - | - | - | 5,640 |
Net book value as at 31 December 2015 | 714 | 551 | - | - | 3,849 | - | - | - | 5,095 |
Notes to the Financial Statements
For the year ended 31 December 2016
14 Property, plant and equipment (continued)
The leasehold land, buildings, plant and machinery owned by Platinum Performance Chem Sdn. Bhd. have been pledged to licensed banks as security for banking facilities granted to the Group as disclosed in Note 20.
The title of the leasehold land owned by Platinum Performance Chem Sdn. Bhd. at Lahad Datu, Sabah, Malaysia is yet to be transferred to the subsidiary Company as it is held under master title.
The Group's property, plant and equipment, including capital work in progress, was subject to independent valuations once every 3 years which assessed both their current market value and forced sale value. The valuations were performed in accordance with Malaysian Valuation Standards and The Royal Institution of Surveyors, Malaysia. In the previous financial year, fixed assets have been impaired to their estimated forced sale values, as determined by the valuations.
Notes to the Financial Statements
For the year ended 31 December 2016
15 Goodwill and Intangible assets
Licenses | Development Costs | Patent | Goodwill | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | |
Cost | |||||
As at 1 January 2015 | 7,524 | 6,391 | 3 | 3,171 | 17,089 |
Disposal | - | - | (3) | - | (3) |
Impairment | (4,942) | (4,873) | - | (2,039) | (11,854) |
Transfer | - | (24) | 24 | - | - |
Foreign exchange adjustment | (62) | (620) | - | (1,132) | (1,814) |
Discontinued operations | (2,502) | (874) | - | - | (3,376) |
As at 31 December 2015 | 18 | - | 24 | - | 42 |
Disposal | - | - | - | - | - |
Impairment | - | - | - | - | - |
Transfer | - | - | - | - | - |
Foreign exchange adjustment | - | - | - | - | - |
As at 31 December 2016 | 18 | - | 24 | - | 42 |
Accumulated amortization | |||||
As at 1 January 2015 | 2,087 | 546 | 1 | - | 2,634 |
Addition during the year | 421 | 433 | - | - | 854 |
Elimination of depreciation | - | - | (1) | - | (1) |
Foreign exchange adjustment | (5) | (105) | - | - | (110) |
Discontinued operations | (2,502) | (874) | - | - | (3,376) |
As at 31 December 2015 | 1 | - | - | - | 1 |
Addition during the year | - | - | - | - | - |
Elimination of depreciation | - | - | - | - | - |
Foreign exchange adjustment | - | - | - | - | - |
As at 31 December 2016 | 1 | - | - | - | 1 |
Net book value as at 31 December 2016 | 17 | - | 24 | - | 41 |
Net book value as at 31 December 2015 | 17 | - | 24 | - | 41 |
Goodwill
The carrying amount of goodwill has been fully impaired in the previous financial year.
Licenses
i) License for the usage of development, exploitation and commercialisation of graphite nano-fibres and its derivatives; and
ii) License for the manufacture of palm oil biodiesel and the linked refinery license subsequently obtained. A useful economic life of 20 years has been assumed as the license has no termination date and the Group has full rights to the land. The production of palm oil is also such an important commodity in Malaysia that its production and demand is expected to continue indefinitely.
Development Costs
The carrying amount of development costs has been fully impaired in the previous financial year.
Notes to the Financial Statements
For the year ended 31 December 2016
15 Goodwill and Intangible assets (Continued)
The goodwill and intangible assets are tested for impairment annually at the statement of financial position date, the Group evaluates, among other factors, the duration and extent to which their carrying amount is less that its cost and the recoverable amounts. This including factors such as market conditions, changes in business, operational strategies and significant changes expected to take place in the near future.
The directors are of the opinion that the Group will not generate sufficient future profits and cash flows from its palm oil and biodiesel businesses and accordingly the goodwill and intangible assets related those businesses have been fully impaired.
16 Inventories
2016 | 2015 | |||
£'000 | £'000 | |||
At cost, | ||||
Raw material | - | 8 | ||
Finished goods | - | 192 | ||
Consumable goods | 16 | 31 | ||
Inventories associated with discontinued operations | - | (175) | ||
16 | 56 | |||
At net realisable value, | ||||
Finished goods | - | 18 | ||
Inventories associated with discontinued operations | - | (18) | ||
16 | 56 | |||
The amount of inventories recognised as an expense during the year to 31 December 2016 was £nil (2015: £8,493,000). The amount of inventories written off during the year to 31 December 2016 was £45,000 (2015: £nil)
17 Trade and other receivables
2016 | 2015 | ||
£'000 | £'000 | ||
Trade receivables | - | 511 | |
Other receivables | 27 | 132 | |
Deposits | 28 | 164 | |
Prepayments | 50 | 115 | |
Trade and other receivables from discontinued operations | - | (807) | |
105 | 115 |
The normal trade credit term is 30-60 days (2015: 30-90 days).
Included in prepayments, there are advances paid to trade creditors for the purchase of raw materials amounting to approximately £nil (2015: £106,000).
Notes to the Financial Statements
For the year ended 31 December 2016
18 Cash and cash equivalents
2016 | 2015 | |||
£'000 | £'000 | |||
Fixed deposits with licensed banks | - | 3 | ||
Cash and bank balances | 630 | 555 | ||
Cash and cash equivalents from discontinued operations | - | (537) | ||
630 | 21 | |||
The deposits with licensed banks at the end of the reporting period bore an effective interest rate of nil (2015: 3%) per annum. The deposits have a maturity period of nil (2015: 30 days).
19 Trade and other payables
2016 | 2015 | ||
£'000 | £'000 | ||
Trade payables | - | 1,838 | |
Other payables | 1,964 | 606 | |
Accruals | 179 | 919 | |
Trade and other payables from discontinued operations | - | (3,229) | |
2,143 | 134 |
Within other payables is the amount of £436,000 in respect of short term loans. These loans bear no interest, are security free and are repayable at various dates on or before 31 December 2017.
The trade and other payables (excluding short term loans) of the Group are due for payment within 30-60 days (2015: 30-60 days).
20 Bank borrowings
2016 | 2015 | |
£'000 | £'000 | |
The details of bank borrowings are: | ||
Term loans | 20,300 | 10,464 |
Finance lease | - | 16 |
Revolving credits | - | 14,463 |
Bank Borrowings from discontinued operations | - | (23,383) |
20,300 | 1,560 | |
The bank borrowings are repayable as follows: | ||
Shown as current liabilities | ||
Term loans | 2,966 | 10,464 |
Finance lease | - | 5 |
Revolving credits | - | 14,463 |
Borrowings directly related to discontinued operations | - | (23,372) |
2,966 | 1,560 | |
Shown as non-current liabilities | ||
Term loans | ||
Between one and two years | 3,608 | - |
Between two and five years | 13,726 | - |
More than five years | - | - |
17,334 | - | |
Finance lease | ||
Between one and two years | - | 12 |
Finance lease directly related to discontinued operations | - | (12) |
20,300 | 1,560 |
Notes to the Financial Statements
For the year ended 31 December 2016
20 Bank borrowings (continued)
Term loans and Revolving credits
The term loans and revolving credits are secured as follows:
(a) first party first fixed charge over the leasehold land, buildings, plant and machinery of certain subsidiaries as disclosed In Note 14;
(b) fixed and floating charge over all present and future assets of certain subsidiaries; both movable and immovable;
(c) assignment of all the subsidiaries' right under the relevant contract/agreements related to the capital work-in-progress assignable to the bank, applicable insurance, permits and liquidated damages, performance bonds/guarantees and licenses;
(d) deed of assignment of contract proceeds over executed sales off-take agreements between the borrower and the buyer; and
(e) irrevocable joint and several guarantees by the Company, all directors of a subsidiary and certain directors of the Company.
Term loans bear weighted average effective interest rates ranged from 7.25% to 8.10% (2015: 7.25% to 8.10%) per annum and revolving credits bear weighted average effective interest rates ranged from 7.25% to 8.0% (2015: 7.25% to 8.0%) per annum.
Finance lease bears a weighted average effective Interest rate of nil (2015: 6.96%) per annum.
On 26 August 2016, a novation agreement was completed to novate the loan amounting to £17,695,000 from Malaysian Debt Ventures ('MDV') from Platinum Nanochem Sdn. Bhd. to Platinum Techsolve Sdn. Bhd. The said facility has a tenure from 1 November 2015 to 31 December 2021 and bears an effective finance charge of 8% per annum on daily rest payable semi-annually in advance subject to periodic review at discretion of MDV.
During the year the Group also entered into a Consent Judgement with its short term financier, Bank Kerjasama Rakyat Berhad ('BKRB'), with the terms of payment stipulated in the aforesaid judgement. Subsequent to the financial year ended 31 December 2016, the Group has requested and been granted deferments in payments by BKRB.
21 Deferred tax liability
£'000 | ||
The movement on the deferred tax liability are as follows: | ||
As at 1 January 2015 | 1,202 | |
Recognised in statement of comprehensive income | (1,202) | |
As at 31 December 2015 | - | |
Recognised in statement of comprehensive income | - | |
As at 31 December 2016 | - | |
22 Share capital and options
2016 | 2015 | 2016 | 2015 | |
Number of shares | £'000 £'000 | |||
Issued and Fully Paid-Up: | ||||
At 1 January and 31 December | ||||
Ordinary shares of 0.20p each | - | 116,536,536 | - | 23,307 |
Ordinary shares of 0.01p each | 116,536,536 | - | 1,165 | - |
Deferred shares of 0.19p each | 116,536,536 | - | 22,142 | - |
233,073,072 | 116,536,536 | 23,307 | 23,307 | |
Notes to the Financial Statements
For the year ended 31 December 2016
22 Share capital and options (continued)
At the Company's last Annual General Meeting held on 6 December 2016, approval was given by Shareholders, inter alia for a Capital Reorganisation, whereby each Existing Ordinary Share of £0.20 nominal value was to be sub-divided into one New Ordinary Shares of £0.01 nominal value and a 2016 Deferred Share of £0.19 nominal value.
After the Share Capital Reorganisation there will be no change to the number of ordinary shares in issue which means there will be 116,536,536 New Ordinary Shares in issue. The Deferred Shares will have no value or voting rights and will not be issued with a share certificate in respect of the Deferred Shares and they will not be listed on AIM.
Description and purpose of reserves
The reserves included in the Consolidated Statement of Changes in Equity are as follows:
Share capital - represents the nominal value of the shares issued.
Share premium - represents the premium over nominal value paid for the shares issued, less costs of issuing shares.
Translation reserve - represents the differences arising on translation of foreign operations into the presentational currency.
Reverse acquisition reserve - represented the premium on shares issued as consideration for the reverse acquisition of Platinum Nanochem Sdn. Bhd. which was acquired by way of share for share exchange.
23 Preference Shares
2016 | 2015 | ||
£'000 | £'000 | ||
Irredeemable convertible preference shares | |||
As at 1 January | 1,924 | 2,249 | |
Foreign exchange adjustment | 286 | (325) | |
Preference Shares written off directly related to discontinued operations | (2,210) | - | |
As at 31 December | - | 1,924 |
Irredeemable convertible preference shares
In the year ended 31 December 2013, the subsidiary of the Company issued 12,250,000 irredeemable convertible preference shares of RM1 each as consideration for the acquisition of plant and machinery.
The rights attached to the irredeemable convertible preference shares ('ICPS') are as follows:
(a) The ICPS shall not carry any fixed rate of dividend. The ICPS holder shall be entitled, on an As If Converted Basis, to such dividend and at such rate as may be declared over the ordinary shares of the subsidiary from time to time. 'As If Converted Basis' means the notional conversion of all the ICPS held by a holder on the date falling immediately prior to the record date for the dividends on the ordinary shares of the subsidiary.
(b) The ICPS holder does not have the right to vote at any liquidation, dissolution, winding up or other repayment of capital of the subsidiary. The holder of the ICPS shall participate rateably with the holders of ordinary shares of the subsidiary in any surplus assets.
(c) All of the outstanding ICPS shall be converted on a one to one basis by the subsidiary into fully paid new ordinary shares in the share capital of the subsidiary within fourteen (14) days from the successful commissioning of a 50 tonne per annum facility for the production of various forms of carbonaceous materials.
Notes to the Financial Statements
For the year ended 31 December 2016
23 Preference Shares (continued)
Irredeemable convertible preference shares (continued)
(d) The holder of the ICPS shall carry no right to vote at any general meeting of the subsidiary except with regard to the following circumstances:-
(i) upon any resolution which directly varies the rights attached to the ICPS; and
(ii) upon any resolution for the winding up of the subsidiary.
(e) The new ordinary shares will rank pari passu in all respects with the then existing ordinary shares of the subsidiary.
The ICPS is held by Platinum Nanochem Sdn. Bhd. and has been written off during the financial year as the Group has lost control of this subsidiary. Please refer to Note 7 for further details.
24 Share Warrants
At financial year end, the Company had issued to Darwin Capital Limited 1,016,949 Ordinary Shares Warrants at an exercise price of 18.4375 pence per new Ordinary Share. The Warrants can be exercised over a five-year period from 23 December 2016.
25 Contingent liabilities
At the date of the report, the Company provided a corporate guarantee for banking facilities granted to its subsidiary amounting to £17,695,000 (2015: £15,905,000).
26 Financial instruments
The Group's activities expose it to a variety of financial risks: market risks (including foreign currency risk, interest rate risk and equity price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The Group's treasury policy is set by the Board and is reviewed regularly. Further detail regarding risk exposure and risk management policies is provided below.
The carrying amounts of the Group's financial assets and liabilities as at 31 December 2016 are as follows:
2016 | 2015 | ||
£'000 | £'000 | ||
Current assets | |||
Trade and other receivables | 105 | 922 | |
Cash and bank balances | 630 | 558 | |
Current assets directly associated with discontinued operations | - | (1344) | |
Loans and receivables carried at amortised cost | 735 | 136 | |
Current liabilities | |||
Trade and other payables | 2,143 | 3,370 | |
Borrowings | 2,966 | 24,932 | |
Current liabilities directly associated with discontinued operations | - | (26,614) | |
5,109 | 1,688 | ||
Non-current liabilities | |||
Borrowings | 17,334 | 12 | |
Non-current liabilities directly associated with discontinued operations | - | (6) | |
Other financial liabilities carried at amortised cost | 22,443 | 1,694 |
Risk management is carried out centrally under policies approved by the Board.
Notes to the Financial Statements
For the year ended 31 December 2016
26 Financial instruments (continued)
(a)Market risk (continued)
The Group is exposed to foreign currency risk on transactions and balances that are denominated in currencies other than Pound Sterling. The currencies giving rise to this risk are primarily United States Dollar and Malaysian Ringgit. Foreign currency risk is monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level. On occasion, the Group enters into forward foreign currency contracts to hedge against its foreign currency risk.
The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:
United | |||
2016 | States | Malaysian | |
Dollar | Ringgit | Total | |
£'000 | £'000 | £'000 | |
Trade and other receivables | - | 86 | 86 |
Fixed deposits with licenced banks | - | - | - |
Cash and bank balances | - | 139 | 139 |
Trade and other payables | - | 733 | 733 |
Borrowings | - | 20,300 | 20,300 |
Net exposure | - | 21,258 | 21,258 |
Foreign Currency Risk (continued)
United | |||
States | Malaysian | ||
2015 | Dollar | Ringgit | Total |
£'000 | £'000 | £'000 | |
Trade and other receivables | 106 | 804 | 910 |
Fixed deposits with licenced banks | - | 3 | 3 |
Cash and bank balances | - | 407 | 407 |
Trade and other payables | (2) | (2,601) | (2,603) |
Borrowings | - | (24,944) | (24,944) |
Net exposure | 104 | (26,331) | (26,227) |
For the year ended 31 December 2016, if the Malaysian Ringgit had strengthened or weakened by up to 5% against the Sterling with all other variables held constant, the impact on the loss before tax would have been increased and decreased by £637,000 (2015: £1,315,000).
Cash flow and fair value interest rate risk
The Group's cash flow interest rate risk arises from money market deposits and bank borrowings. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to interest rate risk arises mainly from money market deposits and bank borrowings. The Group's policy is to obtain the most favourable interest rates available. Any surplus funds of the Group will be placed with licensed financial institutions to generate interest income.
Bank borrowings bear a variable rate of interest which expose the Group to cash flow interest rate risk. The Group does not consider the risk to be significant in view of the nature of the Group's current activities. A 100 basis point change represents management's estimate of a possible change in interest rates at the reporting date. If interest rates had been 100 basis points higher and all other variables remained constant, the impact on the Group's profit and loss would have been £203,000 (2015: £249,000).
Notes to the Financial Statements
For the year ended 31 December 2016
26 Financial instruments (continued)
(b) Credit risk (continued)
The Group's exposure to credit risk, or the risk of counterparties defaulting, arises mainly from trade and other receivables. The Group manages its exposure to credit risk by the application of credit approvals, credit limits and monitoring procedures on an ongoing basis. For other financial assets (including quoted investments, cash and bank balances and derivatives), the Group minimises credit risk by dealing exclusively with high credit rating counterparties.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of the trade and other receivables as appropriate. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for Groups of similar assets in respect of losses that have been incurred but not yet identified. Impairment is estimated by management based on prior experience and the current economic environment.
(i) Credit risk concentration profile
The Group's major concentration of credit risk relates to the amounts owing by three (3) customers which constituted approximately % (2015 - 81%) of its trade receivables at the end of the reporting period.
The revenue generated by the three customers were as follows:
Customer 1 - £258,451 [100%] (2015 - £727,352 Percentage of revenue [9%])
Customer 2 - nil [-%] (2015 - £595,715 Percentage of revenue [7%])
Customer 3 - nil [-%] (2015 - £85,162 Percentage of revenue [1%])
Prior figures were part of discontinued operations in the current year.
(ii) Exposure to credit risk
As the Group does not hold any collateral, the maximum exposure to credit risk is represented by the carrying amount of the financial assets as atthe end of the reporting period.
(iii) Ageing analysis
2016 | ||||
There are no trade receivables in the statement of financial position at 31 December 2016 | ||||
Gross | Individual | Collective | Carrying | |
Amount | Impairment | Impairment | Value | |
£'000 | £'000 | £'000 | £'000 | |
2015 | ||||
Not past due | 285 | - | - | 285 |
Past due: | ||||
- 1 to 3 months | 226 | - | - | 226 |
- 3 to 6 months | 146 | (146) | - | - |
657 | (146) | - | 511 | |
Trade receivables that are past due but not impaired. Prior figures were part of discontinued operations in the current year.
The Group believes that no impairment allowance is necessary in respect of these trade receivables. They are substantially companies with good collection track record and no recent history of default.
A significant portion of trade receivables that are neither past due nor impaired are regular customers that have been transacting with the Group. The Group uses ageing analysis to monitor the credit quality of the trade receivables. Any receivables having significant balances past due or more than 180 days, which are deemed to have higher credit risk, are monitored individually.
Notes to the Financial Statements
For the year ended 31 December 2016
26 Financial instruments (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in settling its financial obligations that are settled with cash or another financial asset. The Directors' objective is to maintain, as much as possible, a level of its cash and bank balances adequate enough to ensure that there will be sufficient liquidity to meet its liabilities when they fall due. The following set forth the remaining contractual maturities of financial liabilities as at:
£'000 | On demand | < 1 year | 1-2 years | 2-5 years | Total |
31 December 2016 | |||||
Trade and other payables and accruals | 2,143 | - | - | - | 2,143 |
Borrowings | - | 2,966 | 3,608 | 13,726 | 20,300 |
2,143 | 2,966 | 3,608 | 13,726 | 22,443 | |
31 December 2015 | |||||
Trade and other payables and accruals | 3,370 | - | - | - | 3,370 |
Borrowings | 24,927 | 5 | 11 | - | 24,943 |
28,297 | 5 | 11 | - | 28,313 |
(d) Fair value information
As at the end of the reporting period, there were no financial instruments carried at fair values. Thefair values of the financial assets and financial liabilities approximated their carrying amounts due to relatively short-term maturity of the financial instruments (maturing within the next 12 months). The fair values are determined by discounting the relevant cash flows at rates equal to the current market interest rate plus appropriate credit rating, where necessary.
Set out below is a comparison by class of the carrying amounts of fair value of the Group's financial instruments, other than those whose carrying amounts are a reasonable approximation of fair value:
£'000 | Type | Carrying value | Fair value |
31 December 2016 | |||
Financial assets | |||
Property, plant and equipment | Level 3 | 5,640 | 5,640 |
Intangible assets | Level 3 | 41 | 41 |
5,681 | 5,681 | ||
31 December 2015 | |||
Financial assets | |||
Property, plant and equipment | Level 3 | 20,631 | 20,631 |
Intangible asset | Level 3 | 41 | 41 |
20,672 | 20,672 |
(e) Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
Notes to the Financial Statements
For the year ended 31 December 2016
26 Financial instruments (continued)
(e) Capital risk management
The Group considers capital to be its equity reserves as shown in the consolidated statement of financial position plus net debt. At the current stage of the Group's life cycle, the Group's objective in managing its capital is to ensure that funds raised meet the cash requirements. Capital at 31 December 2016 and 31 December 2014 was as follows:
2016 | 2015 | 2014 | |
£'000 | £'000 | £'000 | |
Total borrowings (Note 20) | 20,300 | 24,943 | 30,441 |
Less: Cash and cash equivalents (Note18) | (630) | (558) | (2,227) |
Net debt | 19,670 | 24,385 | 28,214 |
Total equity | (15,426) | (5,893) | 27,715 |
4,244 | 18,492 | 55,929 |
27 Operating lease commitments
Leases as lessee
The Group leases two office premises and office equipment under operating leases. The lease period of office premises is two years with an option to renew after that date and office equipment is five years.
2016 | 2015 | |
£'000 | £'000 | |
Not more than one year | 1 | 28 |
Later than one year and not later than five years | 2 | 3 |
3 | 31 |
28 Related party transactions
Identities of related parties
(a) In relation to the information detailed elsewhere in the financial statements, the Group has a controlling related party relationship with its subsidiary as disclosed in Note 3 to the financial statements.
(b) Other than those disclosed elsewhere in the financial statements, the Group and the Company also carried out the following significant transactions with the related parties during the financial year:-
2016 | 2015 | ||
£'000 | £'000 | ||
Key management personnel: | |||
- Salaries and other benefits | 65 | 308 | |
- Defined contribution plan | - | 34 | |
The salary and benefit payable to key management totaling £60,000 was accrued as at 31 December 2016.
29 Control
The Company is under the control of its shareholders and not any one party.
30 Significant event
During the financial year on the 23 December 2016, the Group executed a subscription agreement with Darwin Capital Limited for the issuance of up to £2.5m of Senior Unsecured Zero Coupon Convertible Loan Notes ('Loan Notes') with detachable Warrants in 3 separate tranches. In tranche 1 a total of 30 Loan Notes of £ 25,000 each, was issued along with 1,016,949 detachable warrants. These warrants can be exercised over a five-year period from 23 December 2016.
Notes to the Financial Statements
For the year ended 31 December 2016
31 Subsequent events
Post financial year end Darwin Capital Limited converted the 30 Loan Notes issued from tranche 1 as follows:
Date | Loan Notes Issued | Aggregate Value | Loan Notes Converted | Aggregate Value | New Ordinary Shares Issued | Loan Note Balance |
23 December 2016 | 30 | £750,000 | - | - | - | 30 |
03 February 2017 | - | - | (4) | (£100,000) | 1,349,674 | 26 |
08 March 2017 | - | - | (6) | (£150,000) | 3,052,279 | 20 |
03 April 2017 | - | - | (10) | (£250,000) | 6,130,011 | 10 |
12 April 2017 | - | - | (10) | (£250,000) | 6,940,766 | - |
On 15 May 2017, the Group issued a further 40 Loan Notes in tranche 2 with an aggregate value of £1,000,000 with 1,355,932 detachable warrants at an exercise price of 18.4375 pence per new Ordinary Share. The Warrants can be exercised over a five-year period from 15 May 2017.
At date of this report the enlarged share capital of the Group consists of 134,009,266 ordinary shares at 1p each and total detachable warrants outstanding are 2,372,881
Independent Auditor's Report
TO THE MEMBERS OF GRAPHENE NANOCHEM PLC
We have audited the financial statements of Graphene Nanochem Plc for the year ended 31 December 2016 which comprise the Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors' Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
• give a true and fair view of the state of the Company's affairs as at 31 December 2016 and of the Company's profit for the year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Emphasis of matter - Going concern
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2.2 to the Consolidated Group's financial statements concerning the Company's ability to continue as a going concern. While the Company made a net profit of £1,669,000 during the year ended 31 December 2016, at that date, the Company had net current assets of £1,657,000. These conditions, along with the other matters explained in note 2.6 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report and the Directors' Report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
• the financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit
Mark Ling (Senior statutory auditor) 1 Westferry Circus
For and on behalf of PKF Littlejohn LLP Canary Wharf
Statutory auditor London E14 4HD
Statement of Financial Position
(Parent Company)
As At 31 December 2016
2016 2015
Notes £000 £000
Fixed assets
Property, plant & equipment 5 101 -
Intangible assets 7 41 41
142 41
Current assets
Other debtors 8 19 12
Amount owed by subsidiaries 8 3,632 -
Cash at bank and in hand 41 -
3,692 12
Current liabilities
Bank overdraft - (12)
Creditors: amounts falling due within one year 9 (2,035)(117)
(2,035)(129)
Net current assets / (liabilities) 1,657(117)
Net assets / (liabilities)1,799 (76)
Capital and reserves
Share capital 10 23,307 23,307
Share premium account 11 37,639 37,639
Shares to be issued 206 -
Profit and loss account 11 (59,353) (61,022)
Shareholders' funds11 1,799 (76)
On publishing the parent Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual Statement of Comprehensive Income statement and related notes that form a part of these approved financial statements.
The profit for the year is £1,669,000 (2015: Loss £50,726,000)
Company Registration No: 05712979
Graphene NanoChem plc published this content on 30 June 2017 and is solely responsible for the information contained herein.
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