BIOFUTURES INTL : Biofutures International plc - Final Results

25 May 2011

Biofutures International plc

("Biofutures" or the "Company")

Final Results for the year to 31 December 2010

Biofutures International plc, is pleased to announce its final results for the year ended 31 December 2010.

Highlights

·      Completion and Commissioning of the Zurex refinery by 31 December 2010

·      Operational licences obtained

·      Commercial tie-ups with plantation owners, palm oil suppliers/traders and off-takers and tolling contracts for its services and products have been executed

·      Maiden revenues generated in 2011

Enquiries:

Biofutures International plc	Tel: + 603 6203 5136
Joe Wong, Chief Executive Officer
Daniel Stewart & Company plc	Tel: + 44 (0) 20 7776 6550
Antony Legge / Oliver Rigby (Nomad)
Colin Rowbury (Broker)

Copies of this final results announcement are available from the Company's website (www.biofuturesplc.com).  Copies of the Annual Report and Accounts are being sent to shareholders on Friday 27 May for approval at the Annual General Meeting to be held on 29 June 2011.

Chairman's statement

The year 2010 for the Company ended significantly with the commissioning by Zurex of its palm oil refining plant ("Refinery") at Lahad Datu, Sabah, Malaysia. This constituted a major milestone in the history of the Company from its original objective of building a biodiesel plant to that of becoming an investing company of which the embarkation to invest into the building of the Refinery became its maiden investment. This achievement could not have been made without the support of shareholders and the tireless efforts of the management team to secure the various approvals and licenses from the Malaysian Government as well as a loan facility of RM47 million (£9.9 million) from Bank Kerjasama Rakyat Malaysia Berhad for capital expenditure and working capital for the Refinery.

In preparation for the business ahead, I am happy to report that all licenses to import, purchase and store crude palm oil ("CPO") and to sell refined bleached deodorized palm oil ("RBD Palm Oil') and for its exports have been obtained.

Since the commissioning of the Refinery, the palm oil market has seen a surge in price purely due to speculative elements and artificial demands created by various players in the market. Palm oil being a commodity is also not spared its cyclical challenges link to weather changes and seasonal pricing based on global demand and supply. The management of the Company has adopted a cautious approach in managing these issues that is prevalent in this industry. Whilst the objective of the Company is to make money from the refining of CPO, such expectations must be tempered with a prudent and conservative approach to avoid buying CPO at a high price and selling the finished product RBD Palm Oil at a lower margin.

Being a new player in the market, the Company is looking at various ways of bringing down and controlling the production costs of refining CPO into RPD Palm Oil to maximize profitability of each metric tonne of RBD Palm Oil produced at the Refinery. Apart from entering into supply and off-take agreements of which the pricing is based on spot market price in view of inherent market risks and exposure, the Company is also looking at the option of 'hedging' on the price of CPO to better manage the fluctuation in palm oil prices. The Company has entered into a commercial arrangement for tolling to optimize use of the Refinery along with refining its own oil. The Company sees opportunity in the backdrop of the industry's tough business environment and will work to profit from these challenges going forward.

In June 2009, the Company announced that Zurex had issued a Notice of Arbitration to JJ-Lurgi Engineering Sdn Bhd ("JJ-Lurgi") in respect of the contract for the supply of equipment for the production of biodiesel ("Contract") entered into in January 2007. The matter was heard in August 2010 and the Arbitrator is expected to give his decision on the matter sometime in the third quarter of this year. For the uninitiated, Zurex is claiming RM9.89 million (£2.1 million) against JJ-Lurgi and JJ-Lurgi has a counter claim of RM2.87 (£0.6 million) against Zurex under the arbitration proceedings. A market announcement will be made as soon as the Arbitrator gives his decision on the matter. Now that the Refinery has been commissioned, the Company will apart from seeking strategic alliances and commercial tie-ups with plantation owners, palm oil suppliers/traders and off-takers for its product to maximize returns and minimize risks, look at other areas of investment in line with its investment objectives.  The Company believes that the completion of the Refinery as targeted is but a small step towards bigger and more exciting things to come.

Last but not least, the Company welcomes the appointment of Clive Purdy as an executive director to the Board of Directors. Mr. Purdy has been tasked with the portfolio of Finance Director in place of Julie Pomeroy, the previous Finance Director.

David Yeoh

Executive Chairman

24 May 2011

Note: An exchange rate of £1 = RM4.74 is used for all conversions in this statement

Business review

Refinery licenses

Zurex Corporation Sdn Bhd ("Zurex"), the Company's wholly-owned subsidiary, has obtained all the necessary licenses from the Malaysia  Industrial Development Authority and Malaysian Palm Oil Board to operate its palm oil refinery. It has also recently received a license to import crude palm oil.

Refinery operations

Zurex's 200,000 metric tonnes per year physical refinery ("Refinery") was commissioned at the end of 2010. In total, an investment of close to RM37.48 million (£7.9 million), comprising of RM7.28 million (£1.5 million) for the refining system and RM30.2 million (£6.4 million) for infrastructure, was made. The Company believes that the completion of the Refinery is its first Key Performance Indicator ("KPI"). Further KPIs are to maximize returns and minimize risks; and be in profit by 31 December 2011. Now that the refinery has been commissioned, the Company is actively seeking strategic alliances. Commercial tie-ups with plantation owners, palm oil suppliers/traders and off-takers and tolling contracts for its services and products have been executed.

Operating the Refinery at its most optimum level remains the focus of Zurex and to-date, a number of supply, off-take and tolling contracts have been executed.

Refinery site

Zurex's site is situated within Phase 1 of the Palm Oil Industrial Cluster ("POIC") in Lahad Datu, Sabah, Malaysia. POIC's management is developing the Lahad Datu area as part of a federal and local government long-term initiative to further promote downstream economic activities derived from the regionally ubiquitous oil palm. Phase 1 was the development of a 500 acre site, of which Zurex owns 14 acres.

Lahad Datu has been designated by the Malaysian government as the country's third port of delivery for palm oil futures. The Refinery is within a one kilometer radius of the POIC port, a designated oleo-chemicals handling deep water port. It is also close to more than 100 palm oil mills, and is home to companies with a combined annual production of more than 5 million tonnes or 30 percent of Malaysia's palm and palm kernel oil output.

Industry trend

In the year under review, global palm oil production grew marginally to about 46 million metric tonnes. Production was mainly affected by dryer than normal weather conditions during the previous year. This was compounded by wetter than normal harvesting conditions in 2010.

Demand for palm oil grew at approximately 3 percent to 46 million metric tonnes, with India, China and Europe being the largest consuming markets.

During the first half of 2010, concerns about a global recession kept palm oil prices steady. However, the second half of 2010 and for the most of the first quarter of 2011 saw a combination of tight supply levels, higher crude oil prices and a weaker US dollar that resulted in high and volatile palm oil prices.

Outlook and strategy

We are positive about the longer term prospects of the palm oil industry due to the growing demand from both food and non-food sectors. Regional production is expected to grow by more than 3 million metric tonnes to approximately 42 million metric tonnes in 2011. This is mainly due to the increase in production from previously planted areas in Indonesia. The Group's long term strategy is to explore the possibilities of owning its own plantation and to invest in downstream activities such as fractionation and manufacturing of higher value-added products, to enable it to optimize its investments into this ever growing sector.

Arbitration

Zurex's dispute with JJ-Lurgi Engineering Sdn Bhd in relation to the contract to supply components for Zurex's proposed biodiesel plant in Lahad Datu, Sabah was heard on August 23 to 26 August 2010 at the Regional Centre for Arbitration, Kuala Lumpur, Malaysia. The Arbitrator's decision is expected to be announced in the third quarter of 2011.

Note: An exchange rate of £1 = RM4.74 is used for all conversions in this Business Review

Financial Review

Overview

The Group has commissioned the Refinery at the end of 2010 as discussed in the Chairman's Statement. The Group has continued to control its costs and has not yet earned revenue. The loss for the year was £0.9 million (2009: £0.65 million loss).

Administrative expenses and interest income

Administrative expenses increased over the previous year to £1.01 million (2009: £0.73 million) due to the increase in employee and administrative costs for the Refinery.  Interest income increased from £0.08 million in 2009 to £0.11 million in the current year due to the rise in cash on deposit as well as slightly higher interest rates being obtained.

Cash resources

Available cash and cash equivalents at the year end were £1.75 million (2009: £1.1 million) and restricted cash balances which are secured against the Group's bank loans were £4.2 million (2009: £3.6 million).

The key features in the cash flows were property, plant and capitalised project costs paid in the year totalling £4.11 million (2009: £3.08 million). In addition, interest of £0.11 million (2009: £0.08 million) was received and bank loans were obtained which totalled £4.39 million (2009: £0.32) at the year end. A further £0.95 million was received from the share issue in December 2010.

Bank financing

In December 2009 the Group entered into a bank facility arrangement with Bank Kerjasama Rakyat Malaysia Bhd., a licensed bank in Malaysia, for the aggregate sum of up to RM47 million (£9.9 million at £1=RM4.74) consisting of two tranches, of which RM28.8 million is for capital expenditure and RM18.2 million for working capital. The borrowings have been made under Islamic banking principles and include an asset sale agreement and an asset purchase agreement.  Zurex has placed RM20 million on deposit with Bank Kerjasama Rakyat Malaysia Bhd. as security for the lending of monies.  A legal charge and debenture have been given to the Bank together with a corporate guarantee from Biofutures.  The effective rate of interest is set at 1.5% over the Bank's funding rate subject to a cap at 9.95%.  At the year end, RM22.3 million (£4.70 million at the year end rate of £1=RM 4.74) had been drawn down on this facility.

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.

The intangible assets are included at their fair value and have been grouped together. They relate to the purchase of the Lahad Datu land, the licence to manufacture palm oil biodiesel and the linked refinery licence subsequently obtained.  This group of assets could not be separated as they were considered to be all intrinsically linked. On the basis that the building of the Refinery has commenced, no write-down is currently required.

Contingencies

In June 2009, the Company issued a Notice of Arbitration to JJ-Lurgi. This relates to the dispute between the Company and JJ-Lurgi in connection with the contract between them dated 26 January 2007 for the supply of components for the construction of a 200,000 tonnes per annum palm oil biodiesel plant. The original contract was for RM38.4 million of which RM11.5 million had been paid (£8.10 million and £2.42 million respectively at an exchange rate of £1 = RM4.74). The Company, supported by legal advice, has taken the view that the contract had been terminated.  Zurex is claiming RM9.89 million (£2.08 million £1=RM4.74) against JJ-Lurgi and JJ-Lurgi has a counter claim of RM2.87 million (£0.60 million £1=RM4.74) against Zurex under the arbitration proceedings.

The ultimate outcome of the arbitration between the Company and JJ Lurgi cannot be determined until the decision of the Arbitrator is received which is expected in the third quarter of 2011. The Directors, having obtained legal advice, are of the opinion that the Company will be successful and accordingly, no liability has been recognised in the accounts (2009 - nil).

International Financial Reporting Standards

The results for the Group for the year ended 31 December 2010 have been prepared under International Financial Reporting Standards ("IFRS"). The results for the Company are prepared under UK GAAP with no significant changes in accounting policies from the prior years.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		2010	2009
	Notes	£000	£000
Continuing operations
Gross profit		-	-
Administrative expenses	5	(1,014)	(729)
Operating loss		(1,014)	(729)
Finance income		112	76
Loss before tax		(902)	(653)
Income tax expense	7	(4)	-
Loss for the period attributable to equity interests		(906)	(653)
Other comprehensive income
Net exchange differences on translating foreign operations		4,746	(2,261)
Other comprehensive income/(loss)net of tax		4,746	(2,261)
Total comprehensive income/(loss)		3,840	(2,914)
Loss per share
- Basic and diluted	8	(0.60)p	(0.43)p

The above items relate entirely to continuing operations.

The accompanying notes and accounting policies form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2009

		2010	2009
Assets	Notes	£000	£000
Non-current assets
Property, plant and equipment	9	9,246	5,486
Goodwill	10	7,793	6,722
Intangible assets	10	22,778	19,647
		39,817	31,855
Current assets
Inventories		28	-
Trade and other receivables	12	308	57
Fixed deposits	13	4,216	3,637
Cash and cash equivalents	13	1,750	1,118
		6,302	4,812
Total assets		46,119	36,667
Liabilities
Current liabilities
Trade and other payables	16	363	956
Current income tax liabilities		4	-
Borrowings	17	686	-
		1,053	956
Non-current liabilities
Borrowings	17	4,026	318
Deferred tax	11	5,695	4,912
		9,721	5,230
Total liabilities		10,774	6,186
Net assets		35,345	30,481
Equity
Share capital	14	1,664	1,510
Share premium account	15	12,089	11,293
Merger reserve	15	16,001	16,001
Translation reserve	15	9,625	4,879
Share-based payment reserve	15	225	1,042
Retained losses		(4,259)	(4,244)
Total equity		35,345	30,481

The accompanying accounting policies and notes form an integral part of these financial statements

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share capital £000	Share premium account £000	Merger reserve £000	Exchange differences on translation of foreign operations £000	Share based payments  reserve £000	Retained losses £000	Total equity £000
At 1 January 2009	1,510	11,293	16,001	7,140	1,059	(3,591)	33,412
Loss for the year	-	-	-	-	-	(653)	(653)
Translation reserve	-	-	-	(2,261)	-	-	(2,261)
Total comprehensive income	-	-	-	(2,261)	-	(653)	(2,914)
Transactions with owners:
Lapse of options	-	-	-	-	(17)	-	(17)
At 31 December 2009	1,510	11,293	16,001	4,879	1,042	(4,244)	30,481
Loss for the year	-	-	-	-	-	(906)	(906)
Translation reserve	-	-	-	4,746	-	-	4,746
Total comprehensive income	-	-	-	4,746	-	(906)	3,840
Transactions with owners:
Issue of shares	154	846	-	-	-	-	1,000
Share issue costs	-	(50)	-	-	-	-	(50)
Share options and warrant expense	-	-	-	-	74	-	74
Lapse of options	-	-	-	-	(891)	891	-
	154	796	-	-	(817)	891	1,024
At 31 December 2010	1,664	12,089	16,001	9,625	225	(4,259)	35,345

All reserves are attributable to the equity holders of the parent company.

CONSOLIDATED STATEMENT OF CASH FLOWS

		2010	2009
	Notes	£000	£000
Cash flows from operating activities
Cash used in operations	18	(591)	(362)
Net cash used in operating activities		(591)	(362)
Cash flows from investing activities
Purchases of property, plant and equipment		(4,107)	(3,081)
Interest received		112	76
Net cash used in investing activities		(3,995)	(3,005)
Cash flows from financing activities
Proceeds from issue of ordinary shares		1,000	-
Share issue costs		(50)	-
Placement of fixed deposits for loan security		-	(3,637)
Proceeds from borrowings		4,394	318
Net cash from/(used in) financing activities		5,344	(3,319)
Net increase/(decrease) in cash and cash equivalents		758	(6,686)
Cash and cash equivalents at beginning of year		1,118	7,812
Effect of exchange rate changes		(126)	(8)
Cash and cash equivalents at end of year	13	1,750	1,118

The accompanying accounting policies and notes form an integral part of this financial information.

1          General information

The Company was incorporated on 17 February 2006.

Biofutures International plc ("the Company") and its subsidiaries (together "the Group") are involved in the refining of palm oil.

The Company is a public limited company incorporated and domiciled in England. 

The financial information contained in this announcement is extracted from the audited consolidated financial statements which were approved for issue by the Board of Directors on 24 May 2011.

2          Summary of significant accounting policies

2.1       Basis of preparation

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 but it is derived from those accounts.  The financial information for the year ended 31 December 2009 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006.  The consolidated statement of financial position at 31st December 2010 ,the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related notes for the year then ended have been extracted from the Group's 2010 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under s498(2) or s498(3) of the Companies Act 2006.

The announcement has been agreed with the company's auditor for release.

The Company is entitled to the merger relief offered by Section 612 of the Companies Act 2006 in respect of the consideration received in excess of the nominal value of the equity shares issued in connection with the acquisition of Zurex.

The significant accounting policies set out below have been consistently applied, except where stated.

2.2       Going concern   

The Group is not yet producing revenue, but has constructed a refinery plant which will allow for the commencement of production of refined palm oil. The directors have prepared a ten year forecast based on the assumption that production of refined palm oil will commence in mid 2011 which indicates that the Group will be able to continue as a going concern for the foreseeable future.

The forecast indicates that, in addition to cash and cash equivalent balances at 31 December 2010 £1.75 million, the Group will require additional drawdowns on the loan facility with Bank Kersama Rakyat Malaysia Bhd. (see note 17). The required drawdowns do not exceed the available facility with that bank.

The ability of the Group to realise the forecast results is subject to uncertainties, however, the directors have a reasonable expectation that these uncertainties can be managed to successful outcomes, and, based on that assessment, the Group will have adequate resources to continue in operational existence for the foreseeable future. They have therefore prepared the financial information contained herein on a going concern basis. The financial statements therefore do not reflect any adjustments that would be required to be made if they were to be prepared on a basis other than the going concern basis.

2.3       Standards and Interpretations in issue not yet adopted

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group. The Directors anticipate that all of the pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement.

New standards and interpretations currently in issue but not effective for accounting periods commencing on 1 January 2010 are:

·      IFRS 9 Financial Instruments (effective 1 January 2013)

·      IAS 24 (Revised 2009) Related Party Disclosures (effective 1 January 2011)

·      Amendment to IAS 32 Classification of Rights Issues (effective 1 February 2010)

·      IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective 1 July 2010)

·      Prepayments of a Minimum Funding Requirement - Amendments to IFRIC 14 (effective 1 January 2011)

The Group has not early adopted these amended standards and interpretations. The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the periods of initial application.

2.4       Consolidation

The consolidated financial statements incorporate the accounts of the Company and its subsidiaries and have been prepared by using the principles of acquisition accounting ("the purchase method") which includes the results of the subsidiaries from their date of acquisition.  Intra-group sales, profits and balances are eliminated fully on consolidation.

2.5       Foreign currency translation

(a)        Functional and presentational currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in sterling, which is the Company's functional and presentational currency.

(b)        Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the 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 income statement.

            (c)        Consolidation of overseas subsidiary

Income and expenditure for overseas subsidiaries are included based upon monthly average exchange rates to give a fair approximation to the transaction rate.  Balance sheet items are included at the year-end exchange rate.  All other differences are included within the translation reserve, 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 income statement 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 balance sheet date.

Land is not depreciated.  Assets in the course of construction are not depreciated until they are brought into use, at which point they are re-categorised to their relevant category. Under IAS 23 'Borrowing costs' finance costs that are directly attributable to the construction of the plant are capitalised.

The principal annual depreciation rates used are as follows:-

·              Computer equipment 20%

·              Motor vehicles 20%

·              Leasehold additions 10%

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 purpose 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.

The intangible assets acquired were an option to acquire land, a licence to manufacture palm oil biodiesel, and the linked refinery licence subsequently obtained.  The group of assets are all intrinsically linked and have been valued as a "group" (see note 10). The Directors are of the opinion that these intangibles have an indefinite useful economic life, so no annual amortisation is charged. Intangible assets are tested annually for impairment along with the goodwill.

2.8       Impairment testing of goodwill, other intangible assets and property, plant and equipment

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).  As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.  Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows.

Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually.  All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount.  The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation.  Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill.  Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit.  With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.

2.9       Trade and other receivables

Trade and other receivables are initially recognised at fair value, which is usually the original invoiced amount plus transaction costs, and subsequently carried at amortised cost using the effective interest method less provisions made for impairment of receivables.

2.10    Trade and other payables

Trade and other payables are initially recognised at fair value, which is usually the original invoiced amount, and subsequently carried at amortised cost using the effective interest method.

2.11    Cash and cash equivalents

Cash and cash equivalents (readily convertible into a known amount of cash) include cash in hand and deposits held at call with banks with an original maturity of three months or less.  For the purpose of the cash flow statement, cash and cash equivalents are as defined above, net of outstanding bank overdrafts. Fixed deposits secured against bank loans are shown separately on the statement of financial position as they do not meet the definition of cash and cash equivalents.

2.12    Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.  The deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit nor loss.  Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

2.13    Employee Benefits

(a)        Pension obligations

Group companies do not operate defined contribution schemes but contribute to individual personal pension plans for certain employees by way of paying 10% of their gross salary costs in lieu of a scheme contribution accounted for as salary when payable.

(b)        Share based payments

The Company has made share-based payments in the year to certain directors and employees by way of share options. The fair value of these payments 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 their expiry dates. The expense is recognised 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.

2.14    Judgments and estimates

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(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.

(b)  Carrying value of property, plant and equipment

The Group has reviewed property, plant and equipment and exercised judgment on which assets will have a continuing benefit to the business (see Note 9).

3Subsidiaries

The Group has one principal subsidiary, Zurex Corporation Sdn. Bhd. ("Zurex") which is incorporated in Malaysia and is 100% owned by Biofutures.  Zurex has completed the construction and commissioning of a palm oil refinery.

4          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 the palm oil refining plant and related activities. The financial information contained in these financial statements therefore relates solely to this segment. The Group has not yet earned revenue and does not have any customers representing more than 10% of the turnover. The Group's non-current assets consist of land, plant and equipment and intangible assets and are located entirely in Malaysia.

5          Expenses by nature

	2010	2009
	£000	£000
Included within administrative expenses are:
Depreciation (note 9)	14	12
Employee benefit expense (note 6)	557	372
Auditors' remuneration
·      fees payable to the Company's auditor	20	19
·      fees payable to the subsidiary's auditor	2	2
·      Tax services	-	2
·      Other services	-	3
Share based payment  charge/(credit)	74	(17)
Exchange rate loss	(57)	(3)

6          Directors and employees

The employee benefit expense during the year was as follows:

	2010	2009
	£000	£000
Wages and salaries including termination payments	447	364
Social security costs	10	25
Share based payments	74	(17)
Pension costs - defined contribution	26	-
	557	372

The average number of employees during the year was as follows:

	2010	2009
	Number	Number
Administration	11	8

Remuneration in respect of Directors was as follows:

Director	Basic salary and fees £000	Share based payments £000	Termination payments £000	Pensions - defined contribution schemes £000	Total 2010 £000	Total 2009 £000
David Yeoh	108	23	-	6	137	103
Joe Wong	108	23	-	6	137	103
Patrick Howes	12	6	-	-	18	12
David Long	12	6	-	-	18	12
Julie Pomeroy	66	-	9	-	75	53
	306	58	9	12	385	283

The number of directors who accrued benefits under company pension schemes was as follows

	2010	2009
	Number	Number
Defined contribution schemes	2	-

The Board considers key management to currently comprise the Executive Directors and Henry Yong, a director of the Company's subsidiary.  Compensation for key management in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'was:

	2010	2009
	£000	£000
Short term employee benefits	331	324
Pension contributions - defined contribution	18	-
Share-based payments	45	(17)
	394	307

7          Income tax expense

Current tax:

The tax on the Group's loss before tax differs from the loss before taxation multiplied by the standard rate of corporation tax in the UK due to the following:

	2010	2009
	£000	£000
Loss before tax	(902)	(653)
Tax calculated at the standard rate of corporation tax in the UK: (28.0%) (2009:28%)	(253)	(183)
Tax losses utilised	(45)	(18)
Expenses not deductible for tax purposes	302	201
Tax charge - UK current tax charge	4	-

Factors Affecting Future Tax Charges

Deferred tax relating to the acquisition during 2006 is detailed in note 11.

8Loss per share

Basic

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

	2010	2009
Loss attributable to equity holders of the Company	£906,000	£653,000
Weighted average number of ordinary shares in issue	151,734,411	151,060,000
Basic loss per share in pence	(0.60)p	(0.43)p

Diluted

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 Company has only one category of dilutive potential ordinary shares.

The options and warrants in issue are currently anti-dilutive and accordingly the diluted loss per share is the same as the basic loss per share.

9          Property, plant and equipment

	Land £000	Leasehold  additions £000	Motor Vehicles £000	Office and Computer equipment £000	Assets in the course of Construction £000	Total £000
Cost
As at 1 January 2009	1,566	40	19	18	4,423	6,066
Foreign exchange adjustment	(137)	(3)	(2)	(2)	(388)	(532)
Additions	16	-	-	2	3,229	3,247
Rebates	(166)	-	-	-	-	(166)
Closing cost at 31 December 2009	1,279	37	17	18	7,264	8,615
Foreign exchange adjustment	93	6	3	3	1,268	1,373
Additions	-	-	15	2	3,934	3,951
Reclassification	-	-	-	-	(2,899)	(2,899)
Closing cost at 31 December 2010	1,372	43	35	23	9,567	11,040
Depreciation
As at 1 January 2009	104	8	7	5	3,293	3,417
Foreign exchange adjustment	(9)	(1)	(1)	-	(289)	(300)
Charge for year	-	4	4	4	-	12
Closing depreciation at 31 December 2009	95	11	10	9	3,004	3,129
Foreign exchange adjustment	15	2	2	1	479	499
Reclassification	-	-	-	-	(1,848)	(1,848)
Charge for year	-	4	6	4	-	14
Closing depreciation at 31 December 2010	110	17	18	14	1,635	1,794
Net book value as at 31 December 2010	1,262	26	17	9	7,932	9,246
Net book value as at 31 December 2009	1,184	26	7	9	4,260	5,486

The land shown above is in Lahad Datu, Sabah, Malaysia and has been pledged to a bank for banking facilities granted to the Group.

Assets in the course of construction represent the palm oil refining plant in Sabah, Malaysia. The plant was completed at the end of 2010 and is expected to be brought into use in 2011 at which time it will be re-categorised and depreciated over its useful economic life.

Included within assets in the course of construction are £189,000 of borrowing costs which have been capitalised in accordance with IAS 23 'Borrowing costs' as they were incurred on financing the construction costs.

10        Goodwill and intangible assets

	Goodwill	Intangibles	Total
	£000	£000	£000
As at 1 January 2009	7,584	21,539	29,123
Effect of change in deferred tax at Malaysian tax rate of 25%	(215)	-	(215)
Foreign exchange adjustment	(647)	(1,892)	(2,539)
As at 31 December 2009	6,722	19,647	26,369
Foreign exchange adjustment	1,071	3,131	4,202
As at 31 December 2010	7,793	22,778	30,571

The carrying amount of goodwill is all allocated to the operational cash generating unit.

The intangible assets are included at their fair value at acquisition less any subsequent impairment. They relate to the licence to manufacture palm oil biodiesel and the linked refinery licence subsequently obtained. An indefinite life has been assumed as the licences have 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.

The intangibles and goodwill is tested for impairment annually based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets covering a ten year period to more fairly reflect the long term nature of the plant. Cash flows beyond the ten year period have been calculated using a terminal value.

Management have estimated the key assumptions based on their knowledge of the industry and external sources of information.

The forecasts assume that the refinery plant will commence production in mid 2011.

The key assumptions used for value in use calculations in 2010 are as follows:

	2010	2009
Margin of refined palm oil over crude palm oil (per metric tonnes)	RM200	RM180
Growth rate	1%	3%
Discount rate	12%	12%
Annual production of palm oil (in metric tonnes)	194,000	200,000

Based on the above assumptions and the results of the impairment testing in accordance with IAS 36, no impairment is required. 

11        Deferred income tax

The movement on the deferred income tax liability was as follows:

	£000
As at 1 January 2009	5,600
Effect of change of Malaysian tax rate of 25%	(215)
Foreign exchange adjustment	(473)
As at  31 December 2009	4,912
Foreign exchange adjustment	783
As at 31 December 2010 - liability	5,695

The deferred tax liability arose on the acquisition of Zurex in 2006.

The movement in un-provided deferred tax asset is as follows:

		2010 £000	2009 £000
As at 1 January		45	60
Adjustment in respect of prior years		-	3
Losses in prior year utilised		(45)	(18)
As at 31 December		-	45

The deferred income tax asset is recoverable as follows:

	2010 £000	2009 £000
Deferred tax asset to be recovered after more than 12 months	-	45
Un-provided tax asset	-	45

The Group has unutilised tax losses of £nil (2009: £160,000) for which no tax asset has been provided.  The deferred tax asset is not provided in view of the uncertainty as to the timing of its recoverability.

12        Trade and other receivables

	2010 £000	2009 £000
Other receivables	569	57
Less: provision for impairment	(261)	-
	308	57

Credit risk

As the Company is currently not trading it has limited exposure to credit risk in respect of receivables. The above amounts are past due for more than 90 days.

Other receivables mainly relate to prepayments and deposits.

13Cash and cash equivalents

	2010 £000	2009 £000
Cash at bank and in hand	686	95
Short-term bank deposits	1,064	1,023
	1,750	1,118
Fixed deposits	4,216	3,637
	5,966	4,755

Short term deposits are monies held on money market made with recognised banks. 

The fixed deposit of RM20 million (2009: RM20 million) has been pledged to Bank Kerjasama Rakyat Malaysia Bhd. as security for the Group's bank borrowings (see note 17) and is therefore not available on demand to the Group. The fixed deposits have not been included in cash and cash equivalents for the purposes of the statement of cash flows.

Credit risk

The Group recognises the impact of credit risk and has diversified its cash holdings over 4 banks. 

Interest rate and liquidity risk

The effective interest rate on short-term bank deposits was 0.8% (2009: 1.6%).   These deposits have an average maturity of 30 days (2009: 49 days).

14        Share capital and options

	2010 Number	2010 £000	2009 Number	2009 £000
Authorised
Ordinary shares of 1p each	250,000,000	2,500	250,000,000	2,500
Issued and fully paid
At 1 January	151,060,000	1,510	151,060,000	1,510
Issue of shares	15,385,000	154	-	-
At 31 December	166,445,000	151,060,000	1,510

Options and warrants outstanding at 31st December 2010 were exercisable as follows:

Date of grant	Type of arrangement	Number granted	Exercise price	Expiry date
27/10/06	Warrants	1,107,975	25p	11/05/11
29/08/08	Options	1,510,600	4.875p	29/08/12
05/02/10	Options	4,129,007	4.046p	05/05/15
28/12/10	Warrants	15,385,000	10p	28/12/11
		22,132,582

            In total 2,286,004 of the outstanding share options granted on 5 February 2010 are conditional on the Group achieving profitability by set target dates up to 30 March 2012. The remaining 19,496,578 options and warrants are not subject to any unsatisfied vesting conditions and were exercisable at the year end date.

15        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.
Merger reserve	-	represents the premium on shares issued as consideration for the acquisition of Zurex, which was acquired by way of share for share exchange and qualified for merger relief.
Translation reserve	-	represents the differences arising on translation of foreign operations into the presentational currency.
Share based	-	represents the balance of share based payments recorded in the financial payments reserve statements but not yet exercised.

Management of capital

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.

The Group considers capital to be its equity reserves as shown in the consolidated balance sheet 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 to bring the palm oil refinery into operational use.

Capital at 31 December 2010 and 31 December 2009 was as follows:

	2010 £000	2009 £000
Total borrowings (note 17)	4,712	318
Less: cash and cash equivalents (note 13)	(1,750)	(1,118)
Net debt	2,962	800
Total equity	35,345	30,481
Total capital

16        Trade and other payables

	2010 £000	2009 £000
Trade payables	363	956
	363	956

The carrying amounts of trade and other payables are at fair value.

The trade creditor days of the Group for the year ended 31 December 2010 were 17 days (2009: 42 days)

17        Bank borrowings

	2010 £000	2009 £000
Current liabilities	686	-
Non current liabilities	4,026	318
	4,712	318

The bank borrowings arise under a facility with Bank Kerjasama Rakyat Malaysia Bhd., a licensed bank in Malaysia, for the aggregate sum of up to RM47 million (approximately £9.9 million £1=RM4.74) consisting of two tranches, of which RM28.8 million is for capital expenditure and RM18.2 million for working capital.  The borrowings have been made under Islamic banking principles and include an asset sale agreement and an asset purchase agreement. Zurex has placed RM20 million on deposit with Bank Kerjasama Rakyat Malaysia Bhd. as security for the lending of monies (see note 13). A legal charge and debenture have been given to the Bank together with a corporate guarantee from the Company.  The effective rate of interest is set at 1.5% over the Bank's funding rate subject to a cap at 9.95%.  Interest has been provided in these accounts.

The bank borrowings are secured by the following:

(a)  A pledge over a fixed deposit of RM20.0 million;

(b)  A legal charge over the land owned by the Group (see note 9);

(c)  Fixed and floating charges over all present and future assets of the Company's subsidiary; and

(d)  A corporate guarantee by the Company.

Maturity analysis of non current bank borrowing is as follows:

	2010 £000	2009 £000
Repayable between one and two years	709	318
Repayable between two and five years	3,317	-
	4,026	318

18Cash from operations

	2010	2009
	£000	£000
Operating loss	(1,014)	(729)
Adjustments for:
- depreciation	14	12
- Impairment of current assets	261	-
- share based payments (note 20)	74	(17)
Changes in working capital:
- inventories	(28)	-
- trade and other receivables	10	44
- trade and other payables	92	328
Cash used in operating activities

19        Contingencies

In June 2009, Zurex issued a Notice of Arbitration to JJ-Lurgi Engineering Sdn. Bhd. ("JJ Lurgi"). This relates to the dispute between Zurex and JJ-Lurgi in connection with the contract between them dated 26 January 2007 for the supply of components for the construction of a 200,000 tonnes per annum palm oil biodiesel plant.  The original contract was for RM38.4 million (£8.1 million at £1=RM4.74) of which RM11.5 million (£2.4 million at £1=RM4.74) had been paid.  The Company supported by legal advice, has taken the view that the contract had been terminated.  Zurex is claiming RM9.89 million (£2.1 million £1=RM4.74) against JJ-Lurgi and JJ-Lurgi has a counter claim of RM2.87 million (£0.6 million £1=RM4.74) against Zurex under the arbitration proceedings.

The ultimate outcome of the arbitration between the Company and JJ Lurgi cannot be determined presently for inclusion within these accounts, but the Directors are of the opinion that the Company will be able to support its case successfully and, accordingly, no liability has been recognised (2009 - nil).

20Share options and warrants

The Group recognised an expense of £74,000 (2009: £17,000 credit) in the Statement of comprehensive income in respect of its share based payment plans. Movements in the number of share options in issue, and the weighted average exercise price (WAEP), during the year were as follows:

	2010 Number	2010 WAEP (pence)	2009 Number	2009 WAEP (pence)
At 1 January	2,618,575	13.39	2,738,575	12.85
Granted during the year	20,657,011	8.56	-	-
Lapsed	(1,143,004)	4.06	(120,000)	1.00
At 31 December	22,132,582	9.37	2,618,575	13.39

The fair value of options granted were estimated using the Black-Scholes option-pricing model. The estimated fair values are based on the following weighted average assumptions:

	2010
Share price at grant date	3.53p
Exercise price	4.05p
Expected volatility	157%
Expected life	5 years
Expected dividend yield	Nil
Risk free interest rate	2%

The expected volatility is determined by using as a base the share price movements recorded since the share placing on AIM in May 2006.

21        Financial instruments

The Group's activities expose it to a variety of financial risks: credit risk, liquidity risk, cash flow risk, fair value interest-rate risk and foreign currency risk.  The Group's overall risk management 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 2010 are as follows:

	Group	Group
	2010	2009
	£000	£000
Current assets
Trade and other receivables	308	57
Cash and cash equivalents, fixed deposits	5,966	4,755
Loans and receivables carried at amortised cost	6,274	4,812
Current liabilities
Trade and other payables	363	955
Borrowings	686	-
Non current liabilities
Borrowings	4,026	318
Other financial liabilities carried at amortised cost	5,075	1,273

Risk management is carried out centrally under policies approved by the Board.

(a)        Credit risk

The Group's current main credit risks relates to monies held on deposit with various banking institutions.  Monies held on deposit are spread over four main financial institutions to reduce the credit risk. 

(b)        Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash balances and ensuring availability of funding. 

(c)        Cash flow and fair value interest rate risk

The Group's cash flow interest rate risk arises from money market deposits and bank borrowings. 

Deposits made at variable rates expose the Group to cash flow interest rate risk.  The Group's deposits are at a fixed rate for the duration of the deposit which range from 1 week to 3 months. 

Bank borrowings bear a variable rate of interest which expose the Group to cash flow interest rate risk.

No long term interest rate hedging contracts have been entered into.  The Group does not consider the risk to be significant in view of the nature of the Group's current activities.  If interest rates had changed by 0.5% during the year, the impact on the Group's profit and loss would have been £22,000 (2009: £24,000).

(d)        Foreign currency risk

The Group operates internationally and is exposed to foreign exchange risk arising primarily with respect to the Malaysian Ringgit and the UK Pound. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities.  

The Group does not currently have an active policy to hedge its foreign currency risks as it is primarily financing its overseas operations in local currency hence reducing its net foreign exchange exposure.

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

	2010	2009
The following amounts have been translated from Malaysian Ringgit:	£000	£000
Trade and other receivables	308	22
Cash and cash equivalents	4,351	4,136
Trade and other payables	(308)	(813)
Borrowings	(4,712)	(318)
Net exposure	(361)	3,027

For the year ended 31 December 2010, if the Malaysian Ringgit had weakened by 0.5 against Sterling with all other variables held constant, the post tax loss for the year would have been £47,000 (2009: £33,000) lower mainly as a result of foreign exchange gains/losses on translation of Malaysian Ringgit-denominated transactions.

Equity would have been £3,249,674 (2009: £2,498,000) lower, arising mainly from foreign exchange losses/gains on translation of Malaysian Ringgit-denominated assets and liabilities.

22        Capital commitments

	2010 £000	2009 £000
Contracted but not provided for:- Property, plant and equipment for the refinery plant	663	4,040

23        Related party transactions

Henry Yong is a director of both WS Bio and Zurex (although he is not a director of the Company), and accordingly the contracts entered into with WS Bio in February 2009 and December 2009 for the construction of the plant represent related party transactions, as follows:

	2010 £000	2009 £000
Assets in the course of construction by WS Bio included in property, plant and equipment.	3,699	3,144

Amounts payable to WS Bio at the year end date	306	354

The Directors are of the opinion that the transaction above was entered into in the normal course of business and have been established on terms and conditions that are not materially different from those obtainable in transactions with third parties.

The Company has provided a guarantee to WS Bio in respect of the contract between WS Bio and Zurex.

24        Control

The Company is under the control of its shareholders and not any one party.