GRAPHENE NANOCHEM PLC 
By Graphene NanoChem plc
("Graphene NanoChem" or the "Group")
Final Results
3 June 2013
Graphene NanoChem, the nanotechnology and advanced materials company, announces the Group's audited preliminary results for the 12 month period to 31 December 2012. These results relate to the business conducted by the Group, trading as Biofutures International plc ("Biofutures"), prior to its acquisition of Platinum NanoChem Sdn Bhd, placing to raise £32.5 million, change of name to Graphene NanoChem plc and readmission to trading on AIM on 26 March 2013.
Financial Highlights
· Revenue of £1.6 million (2011 : £0.7 million)
· Operating loss of £12.0* million (2011 : £13.7 million)
· Loss before tax of £12.5* million (2011 : £13.8 million)
· Adjusted loss before tax of £2.5** million (2011 Adjusted profit before tax : £1.2 million***)
· Loss per share of 5.85p per share (2011 : 7.57p)
*includes £10.0 million of exceptional items reflecting the reduction in the carrying value of Biofutures' intangible assets to a level commensurate to the value ascribed to Biofutures at the reverse takeover (£11.7 million).
** 2012 Adjusted loss before tax of £2.5 million excludes £10.0 million impairment loss on intangible assets
*** 2011 Adjusted profit before tax of £1.2 million excludes £7.5m impairment loss on goodwill and £5.0 million impairment loss on intangible assets
Post balance sheet events
· Change in the Company's name from Biofutures International plc to Graphene NanoChem plc
· Successful completion of a £32.5 million placing
· Completion of the reverse takeover of Platinum NanoChem Sdn. Bhd. by Biofutures International plc
· 1 for 20 share consolidation of the issued ordinary shares in the Company
· Significant progress for the Group's second generation biofuels with:
o Tier 1 oil and gas customer agreeing to double its purchase of PlatClear in 2014
o The addition of Petron Fuel as a PlatAmber customer in Malaysia in 2013
Outlook
Since the completion of the reverse takeover and placing two months ago, there has been substantial progress in a number of areas. The expansion of the Group's graphene production facility from 1 metric tonne (MT) per annum to 250MT is on schedule. The Group expects to make the first deliveries of its Graphene-enhanced drilling fluid, PlatDrill, to Scomi Group as planned in summer 2013. There have been further encouraging discussions with a very wide variety of partners on commercial opportunities for Graphene enhancement, which gives the Directors great confidence in the future for the Advanced Nanomaterials division and the Group's joint venture strategy.
In the Speciality Chemicals division, there continues to be very strong demand for the Group's existing second generation biofuels; PlatAmber for the Malaysian market and PlatClear for the EU market. To date this year the Group has shipped approximately 11,900MT of second generation biofuels to its existing Tier 1 oil and gas customers, as well as the first 250MT to Petron Fuel in Malaysia. In addition, the Directors believe that the Group's projected sales of second generation biofuels in 2014 and beyond are well supported by recently announced contracts and ongoing discussion with existing customers.
The Group is in the final stages of securing a RM18 million (£3.8 million) working capital facility from Bank Rakyat which will allow the Zurex refinery in Lahad Datu to recommence commercial refining of CPO and pre-treatment for the Group Speciality Chemicals division in July 2013. There has been a marked positive change in the commercial environment for refiners in Malaysia in 2013. Consequently the Directors expect the Zurex refinery to make a contribution of £0.8 million to the Group's gross profit for the year.
Diversification into higher-margin speciality chemicals such as esterquats and scaled-up production of PlatDrill requires the completion of the division's production plant expansion plan, which will increase capacity from 80,000MT to 120,000MT per annum. The Directors had expected to run the plant at reduced capacity during the expansion. The Malaysian Department of the Environment has indicated that this will not be permitted and it is probable that the plant will have to close for approximately eight weeks of 2013. The Group expects to meet its sales targets of second generation biofuels during this period, but will face a reduction in expected margins owing to the requirement to outsource refining capacity in order to meet its contracted delivery schedule. Mindful of the impending implementation of the Malaysian B10 mandate in 2016, which is expected to double the Malaysian biofuels market, the Directors consider that fulfilling deliveries to its second generation biofuel customers is of utmost importance to the long-term prospects of the Group. They have thus taken the decision to delay the shutdown until the end of 2013 to allow as much production to take place as possible prior to closure, as well as advancing scheduled maintenance to during the shutdown period. As a consequence, the Group now expects being able to launch its higher-margin PlatQuat product towards the end of Q1 2014 and to be at full capacity for this product by the beginning of Q3 2014. Loss before tax (after adjustment for exceptional items) for 2013 is expected to be in the region of £3.8 million. The Directors' expectations for 2014, are that profit before tax (after adjustment for exceptional items) for 2014 will be in the region of £13-14 million. The Group's balance sheet is very strong with cash on hand at 31 May 2013 (the last practicable date prior to this announcement) of £21.2 million, and management expect to maintain a comfortable cash balance throughout the next year
Annual Report and Accounts and Annual General Meeting
The financial information set out below, which was approved by the Board on 31 May 2013, is derived from the full Group accounts for the year ended 31 December 2012 and does not constitute the statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group accounts on which the auditors have given an unqualified report, which does not contain a statement under section 498(2) or (3) of the Companies Act 2006 in respect of the accounts for 2012, will be delivered to the Registrar of Companies in due course.
In accordance with AIM Rule 20 the annual report and accounts of the Group will today be sent to shareholders and will be available on the Company's website atwww.graphenenanochem.com.
The documents to be sent to shareholders include a notice convening the Annual General Meeting of Graphene NanoChem Plc which will be held at Academy House, London Road, Camberley, Surrey, GU15 3HL at 10.00 a.m. on 28 June 2013.
Jespal Deol, Chief Executive Officer of Graphene NanoChem commented: "Since the Group's balance sheet was strengthened in late March, there has been substantial progress. The foundations of the Group lie in the speciality chemicals and prospects for the second generation biofuels business are very promising. Meanwhile the investment programme expanding both the speciality chemicals plant and the Group's graphene production to 250 tonnes per annum gathers pace."
For further information:
Graphene NanoChem Jespal Deol, Chief Executive Officer | Tel: +603 2282 3080 |
Panmure Gordon (NOMAD and Broker) Callum Stewart/Hannah Woodley Tom Nicholson | Tel: +44(0) 20 7886 2500 Tel: +65 8614 7553 |
Chairman's Statement
I was appointed Chairman on the conclusion of the successful reverse takeover of Graphene NanoChem Plc (formerly Biofutures International Plc), and in my first statement as Chairman, I am pleased to provide an introduction to the newly enlarged Graphene NanoChem Plc.
The 2012 operating environment for the palm oil refining industry was highly challenging for the former Biofutures Group, primarily due to higher local Crude Palm Oil ("CPO") prices caused by taxation differences between Malaysian producers and regional competitors from Indonesia, which has a lower tax regime for domestic CPO consumption. This resulted in low or negative refining margins for Malaysia's palm oil refining businesses.
During the year, following a review of its operating environment, the then Biofutures Group directed its focus onto considering strategic acquisition options to turn around the business and create shareholder value. This led to the execution of a Share Sale Agreement in December 2012 for the reverse takeover of Biofutures Group, by Platinum Nanochem Group ("Reverse Takeover") which, I am happy to report, was successfully completed on 26 March 2013.
The Reverse Takeover is a positive step forward for the Biofutures Group which will allow it to improve the range, quality and scale of its revenues whilst diversifying away from the risks to which the business was then subject. For the Platinum Group, the Reverse Takeover will help to accelerate its expansion plan through the integration of the well placed Lahad Datu refinery site ("Lahad Datu Assets") owned by the Biofutures Group. The business restructuring and integration process is proceeding to plan.
Our business today combines the use of nanotechnology to produce chemicals from waste and residue materials and nanomaterials to enhance the performance of our chemicals to further diversify their applications and uses. The enlarged Group now comprises two divisions:
• the specialty chemicals division, focusing on the oil and gas industry, particularly the fuel additive and drilling fluids market segments, with potential to expand into the personal care market place; and
• the advanced nanomaterials division
Our core focus is in the biobased chemicals market, where demand for environmentally safe, high performance chemicals is gaining strong traction amid growing global concerns over depleting fossil fuel resources and the environmental impact of petroleum-derived products. Strategically located in Southeast Asia, the Group is well placed to access the abundant sources of renewable feedstock materials available in the region, particularly from the palm oil industry.
The ability to internally produce graphene nanomaterials provides the Group with the potential to enhance and add significant value to its chemicals, particularly in moving towards the higher value performance chemicals market. Parallel to this we are also pursuing development of graphene nanomaterials in other areas of applications through licensing and joint venture strategies with industry partners.
Today we hold a strong portfolio of manufacturing assets in both Peninsular and East Malaysia, which, with our two core nanotechnology platforms provide the enlarged Graphene NanoChem group with the building blocks for a sustained growth plan for the business.
In tandem with the Reverse Takeover, we also completed the placement of 23,214,286 new ordinary shares in the Company raising approximately £32.5 million cash for the business.
2013 will be an integration and investment year for us where the focus of the enlarged Group will be in reducing manufacturing cost by improving operations efficiency, expanding the capacity of the nanochemicals business, and scaling up the production of its graphene nanomaterials facility. Enhancing our human capital will also be a priority in 2013 to support our planned growth.
We expect to see the benefits from these investments coming through during the first half of 2014 and into 2015 and we look forward to continued growth during both 2014 and 2015.
Tan Sri Dato' Sri Abi Musa Asa'ari Bin Mohamed Nor
Non-Executive Chairman
Business Review
Graphene is an emerging class of nanomaterials with a wide range of intrinsic properties, from enhanced electrical and thermal conductivity to exceptional mechanical and load bearing capacity and performance. The commercial value of graphene lies in the ability of the material to transfer its intrinsic properties into other materials, creating an array of higher value products possessing specifically enhanced property values. In essence, incorporating graphene into existing products or materials enables not only performance improvements but also new applications. The use of graphene could lead to ultra thin and flexible mobile phones, high definition televisions no thicker than wallpaper and that can be rolled-up into a tube, batteries lasting ten times longer and many more. The potential is unlimited.
Biofutures' 200,000 metric tonnes per year refinery, was successfully commissioned and operated in June 2011. In all, an investment of close to RM46.0 million (£9.2 million), comprising of RM7.28 million (£1.49 million) for the refining system and RM38.0 million (£7.76 million) for the balance infrastructure, was made into Lahad Datu Assets.
The Malaysian refining industry went through a pronounced slump in 2012, partly attributed to new government policies in Indonesia (since 1 October 2011), which provided Indonesian-based downstream players with relatively cheap CPO at costs that rendered Malaysian-based independent refiners uncompetitive and operating on negative margins for each tonne of CPO refined. This pressure, coupled with lower demand from Europe in 2012, led to reduced plant utilisation and negative refining margins for many Malaysian refiners, including the Biofutures group. In 2012, the utilisation of the Biofutures group's refinery was limited to less than five per cent.
The introduction of Malaysia's new export structure for the palm oil industry, which took effect on 1 January 2013, is a significant milestone for the palm oil industry. Palm oil refiners can now source CPO at prices locally that enable them to compete with their Indonesian peers. Under the new tax regime, the Malaysian government has reduced the export duty for CPO to between 4.5 per cent. and 8.5 per cent. (from approximately 23 per cent. previously) and removed the duty-free CPO export quota.
Despite the recent improvement in the taxation regime, the operating environment for independent, small-scale, Malaysian refiners will remain very challenging. Competition from large-scale integrated operators and from Indonesian competitors is intense and RBDPO production remains a low margin business.
Following the Reverse Takeover, the Group is now well positioned to diversify the risks associated with the refining business and explore commercial opportunities in high growth downstream activities, specifically through production of higher-margin "green" chemicals from renewable sources. The Group is planning to retrofit its proprietary technology to the Lahad Data Assets in 2015.
The long term strategy is to continuously invest in the production of high value chemicals on a step-up basis and develop a strong portfolio of performance chemicals derived from renewable sources, enhanced by the use of in-house produced graphene nanomaterials. Parallel with that the enlarged Group will also pursue development opportunities for its graphene nanomaterials in other high value areas of applications such as polymers and composites, energy storage and electrical and electronics through industry partnerships and licensing model.
Financial Review
The Financial Review reports trading results relating solely to the former Biofutures Group for the financial years 2012 and 2011. The Financial Review does not include any trading results of the Platinum Nanochem Group as the Reverse Takeover was only completed on 26 March 2013.
Overview
The Group has generated a total revenue of £1.59 million. However, due to continuous commodity price fluctuation in the palm oil industry during the year, the Group has incurred a gross loss of £0.03 million. Total operating costs amounted to £13.57 million (2011: £14.37 million). Included in the operating costs is an impairment loss on intangible assets amounting to £10.0 million. The impairment loss is included in the consolidated statement of comprehensive income as an exceptional item. The loss for the year was £9.74 million (2011: £12.60 million loss).
Administrative expenses, finance costs and interest income
Administrative expenses slightly increased from £1.13 million in 2011 to £1.95 million in the current year. Finance costs in profit or loss during the year was £0.58 million (2011: £0.22 million) Interest income increase from £0.08 million in 2011 to £0.11 million in the current year.
Cash resources
Available cash and cash equivalents at year-end dropped to £1.05 million (2011: £1.19 million).
The key features in the cash flows were net cash used in operating activities amounted to £1.44 million (2011: £1.72 million), and property, plant and capitalised project costs paid in the year totaling £0.47 million (2011: £1.03 million). In addition, finance costs totaling £0.58 million (2011: £0.22 million) were incurred and interest of £0.11 million (2011: £0.08 million) was received. Proceeds from borrowings were £1.66 million (2011: £2.11 million).
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 (£9.53 million at £1=RM4.93) 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 the parent company. 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, an accumulated RM41 million (£8.30 million at the year-end rate of £1=RM4.93) had been drawn down on this facility.
Goodwill
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.
Based on the key assumptions described in note 13 and the results of the impairment testing in accordance with IAS 36 in the prior year, an impairment loss had been recognised to fully write-down the carrying amount of goodwill to Nil in the year 2011
Intangibles
The intangible assets are included at their fair value and have been grouped together. They relate to the purchase of the Lahad Datu land, the license to manufacture palm oil biodiesel and the linked refinery license subsequently obtained. This group of assets could not be separated as they were considered to be all intrinsically linked.
Based on the key assumptions described in note 13 and the results of the impairment testing in accordance with IAS 36 during the year, an impairment loss of £10.00 million was recognised to further write-down the carrying amount of intangible assets to £6.04 million. The impairment loss has been recognised in the consolidated statement of comprehensive income under exceptional items.
Contingencies
At the date of the report, there does not exist any contingent liability in respect of the Group which has arisen since the end of the financial year. There is no contingent or other liability has become enforceable, or likely to become enforceable at the date of the report, which will or may substantially affect the ability of the Group to meet its obligations as and when they fall due.
International financial reporting standards
The results for the Group for the year ended 31 December 2012 have been prepared under International Financial Reporting Standards as adopted by the European Union ("IFRS"). The results for the Company are prepared under UK GAAP.
Consolidated Statement Of Comprehensive Income
For the year ended 31 December 2012
2012 2011
Notes £000 £000
Continuing operations
Revenue 5 1,588670
Cost of sales(1,620)(769)
Gross loss (32)(99)
Administrative expenses 6 (1,947)(1,125)
Exceptional items 8 (10,000)(12,480)
Operating loss(11,979)(13,704)
Finance costs 9 (583)(223)
Finance income 9 10780
Loss before tax(12,455)(13,847)
Income tax credit 10 2,7111,249
Loss for the year attributable to the owners of the parent(9,744)(12,598)
Other comprehensive income
Net exchange differences on translating foreign operations 11(1,340)
Other comprehensive loss, net of tax11(1,340)
Total comprehensive loss(9,733)(13,938)
Loss per share
- Basic and diluted 11 (5.85)p(7.57)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
As at 31 December 2012
2012 2011
Notes £000 £000
Assets
Non-current assets
Property, plant and equipment 12 9,7179,684
Goodwill 13 --
Intangible assets 13 6,03516,864
15,75226,548
Current assets
Inventories 14 116111
Trade and other receivables 15693714
Fixed deposits 16 4,0514,059
Cash and cash equivalents 16 1,0481,188
5,9086,072
Total assets21,66032,620
Liabilities
Current liabilities
Trade and other payables 17 252373
Bank borrowings 18 4831,167
7351,540
Non-current liabilities
Bank borrowings 18 7,8155,483
Deferred income tax 19 1,5094,216
9,3249,699
Total liabilities 10,05911,239
Net assets 11,60121,381
Equity
Share capital 201,6641,664
Share premium account 21 12,08912,089
Merger reserve 21 -9,573
Translation reserve 21 5,1475,136
Share-based payment reserve 21 -66
Accumulated losses (7,299)(7,147)
Total equity 11,60121,381
The accompanying accounting policies and notes form an integral part of these financial statements
Company Registration No: 05712979
Consolidated Statement Of Changes In Equity
For the year ended 31 December 2012
Exchange
differences on Share-
Share translation based
Share premium Merger of foreign payment Accumulated Total
capital account reserve operations reserve losses equity
£000 £000 £000 £000 £000 £000 £000
At 1 January 20111,664 12,089 16,001 9,625 225 (4,259) 35,345
Loss for the year - - - - - (12,598) (12,598)
Translation reserve - - - (1,340) - - (1,340)
Total comprehensive income - - - (1,340) - (12,598) (13,938)
Transactions with owners:
Lapse of options - - - - (133) 133 -
Share-based payments credit - - - - (26) - (26)
Transfer of reserves in respect
of impairment loss - see note 21 - - (6,428) (3,149) - 9,577 -
- - (6,428) (3,149) (159) 9,710 (26)
At 31 December 20111,664 12,089 9,573 5,136 66 (7,147) 21,381
Loss for the year - - - - - (9,744) (9,744)
Translation reserve - - - 11 - - 11
Total comprehensive income - - - 11 - (9,744) (9,733)
Transactions with owners:
Lapse of options - - - - (19) 19 -
Share-based payments credit - - - - (47) - (47)
Transfer of reserves in respect
of impairment loss - see note 21 - - (9,573) - - 9,573 -
- - (9,573) - (66) 9,592 (47)
At 31 December 2012 1,664 12,089 - 5,147 - (7,299) 11,601
All reserves are attributable to the equity holders of the parent company.
Consolidated Statement Of Cash Flows
For the year ended 31 December 2012
2012 2011
Notes £000 £000
Cash flows from operating activities
Cash used in operations 22 (874)(1,492)
Interest paid (583)(223)
Tax refunded/(paid) 15(5)
Net cash used in operating activities (1,442)(1,720)
Cash flows from investing activities
Purchases of property, plant and equipment (465)(1,028)
Proceeds from disposal of property, plant and equipment -8
Interest received 10780
Net cash used in investing activities (358)(940)
Cash flows from financing activities
Proceeds from bank borrowings 1,6622,114
Net cash generated from financing activities 1,6622,114
Net decrease in cash and cash equivalents (138)(546)
Cash and cash equivalents at beginning of year 1,1881,750
Effect of exchange rate changes (2)(16)
Cash and cash equivalents at end of year16 1,0481,188
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 2012
1 General information
The Company was incorporated on 17 February 2006. During the period, Graphene NanoChem Plc ("the Company"), which operated then as Biofutures International Plc, was an Investing Company, with one wholly owned active subsidiary involved in the refining of palm oil. Following the reverse takeover of the Company, the Company acquired Platinum Nanochem Sdn Bhd, which together with Zurex Corporation Sdn Bhd form 100% owned subsidiaries of the Company (together the "Group") and changed its name to Graphene NanoChem Plc. The Company now operates as a trading company involved in the design, formulation and manufacturing of intermediate and performance chemicals and advanced nanomaterials.
The Company is a public limited company incorporated and domiciled in England.
These consolidated financial statements have been approved for issue by the Board of Directors on 31 May 2013.
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 2012. They have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
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 Corporation Sdn. Bhd., a company incorporated in Malaysia.
The significant accounting policies set out below have been consistently applied, except where stated.
2.2 Going concern
Following the Reverse Takeover in March 2013, as described in Note 29 of the notes to the consolidated financial statements, the Group has recently completed the placement of 23,214,286 new ordinary shares and raised approximately £32.5 million cash for the business. The Directors have prepared a detailed business plan and cash flow forecasts for at least 12 months from the date of approval of these financial statements.
The Directors have therefore, at the time of approving the financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. As a result, the financial statements 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 on or after the effective date of the pronouncement.
New standards and interpretations currently in issue but not effective for accounting periods commencing on 1 January 2012 are:
• IFRS 7 Amendment Disclosures offsetting financial assets and financial liabilities (effective 1 January 2013)
• IFRS 9 Financial Instruments (effective 1 January 2015)
2.3 Standards and Interpretations in issue not yet adopted (continued)
• IFRS 10 Consolidated Financial Statements (effective 1 January 2013)
• IFRS 11 Joint Arrangements (effective 1 January 2013)
• IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013)
• IFRS 13 Fair Value Measurement (effective 1 January 2013)
• IAS 1 Presentation of Items of Other Comprehensive Income (effective 1 July 2012)
• IAS 19 Employee Benefits revised (effective 1 January 2013)
• IAS 27 Separate Financial Statements revised (effective 1 January 2013)
• IAS 28 Investments in Associates and Joint Ventures revised (effective 1 January 2013)
• IAS 32 Amendment offsetting financial assets and financial liabilities (effective 1 January 2014)
• Mandatory Effective Date and Transition Disclosures - Amendments to IFRS 9 and IFRS 7 (effective 1 January 2015)
• Annual Improvements 2009-2011 Cycle (effective 1 January 2013)
• Transition Guidance - Amendments to IFRS 10, IFRS 11 and IFRS 12 (effective 1 January 2013)
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 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 subsidiary
Income and expenditure for overseas subsidiaries are included based upon monthly average exchange rates to give a fair approximation to the transaction rate. Statement of financial position 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 profit and loss during the financial period in which they are incurred.
2.6 Property, plant and equipment (continued)
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.
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-categorized to their relevant category. Under IAS 23 "Borrowing costs", the finance costs that are directly attributable to the construction of the building and plant are capitalised.
The principal annual depreciation rates used to depreciate other assets are as follows:
• Leasehold additions 10%
• Building 2%
• Motor vehicles 20%
• Furniture, fittings and equipment 20%
• Plant and machinery 5%
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 13). The Directors are of the opinion that these intangibles would have a useful economic life of 20 years, commencing in 2012 when full production of refined palm oil begins. These 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 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using weighted average method. Cost of raw materials comprises the original cost of purchase plus the cost of bringing the items to its present location and condition. Cost of refined oil products includes raw materials, direct labour and appropriate proportions of manufacturing overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less costs of completion and applicable variable selling expenses.
2.13 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 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) Interest income is recognised on an accrual basis using the effective interest method and is categorised under finance income.
2.14 Exceptional items
Exceptional items are material items which derive from events or transactions that fall within the ordinary activities of the Group and which individually or, if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence if the financial statements are to give a true and fair view. They are usually one-off items that will not recur.
2.15 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.
2.16 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 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.
2.17 Judgements and estimates
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
(a) Impairment of goodwill and intangible assets
Impairment of goodwill and intangible assets is calculated on the basis of writing down the carrying amount to the net assets value of the enlarged group following a reverse takeover exercise approved by shareholders at an Extraordinary General Meeting held on 26 March 2013.
(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.
3 Subsidiaries
The Group has one principal subsidiary, Zurex Corporation Sdn. Bhd. ("Zurex") which is incorporated in Malaysia and is 100% owned by the Company. Zurex holds a manufacturing licence and operates a palm oil refinery in Sabah, Malaysia.
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 activity. The financial information contained in these financial statements therefore relates solely to this segment. The Group has produced revenue and does not have any customers representing more than 10% of the revenue. The Group's non-current assets consist of property, plant and equipment, goodwill and intangible assets, and are located entirely in Malaysia.
5 Revenue
2012 2011
£000 £000
Revenue from sale of refined palm oil 1,585590
Revenue from oil tolling services 380
1,588670
6 Administrative expenses
2012 2011
£000 £000
Included within administrative expenses are:
Depreciation (note 12) 412221
Employee benefit expense (note 7) 391437
Amortisation of intangible assets (note 13) (844)-
Auditors' remuneration
• fees payable to the Company's auditor for audit of the financial statements 2022
• fees payable to the subsidiary's auditor -2
• non-audit services payable to the Company's auditor - interim review of financial statements 22
- tax compliance services 2-
Impairment loss on other receivables -252
Share-based payments credit (47)(26)
Exchange rate loss 21
7 Directors and employees
The employee benefit expense during the year was as follows:
2012 2011
£000 £000
Wages and salaries including termination payments 360405
Social security costs 14
Share-based payments credit (47)(26)
Pension costs - defined contribution 3028
344411
7 Directors and employees (continued)
The average number of employees during the year was as follows:
2012 2011
Number Number
Refinery 1918
Administration 47
Remuneration in respect of Directors was as follows:
Pensions -
Basic Share-based defined
salary and payments contribution Total Total
Director fees credit schemes 2012 2011
£000 £000 £000 £000 £000
Joe Wong 104 (27) 5 82114
Patrick Howes 12 - - 1212
David Long 12 - - 1212
David Yeoh 27 - 1 2888
Clive Purdy - - - -18
155 (27) 6 134244
The number of Directors who accrued benefits under Company pension schemes was as follows:
2012 2011
Number Number
Defined contribution schemes 22
Key management personnel include the Directors of the Company 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:
2012 2011
£000 £000
Short-term employee benefits 216264
Pension contributions - defined contribution 1118
Share-based payments (credit)/charge (47)(26)
180256
8 Exceptional items
2012 2011
£000 £000
Impairment loss on goodwill -7,480
Impairment loss on intangible assets 10,0005,000
10,00012,480
Further details on the impairment loss on goodwill and intangible assets can be found in Note 13.
9 Finance costs and finance income
2012 2011
£000 £000
Finance costs:
Interest expense on bank borrowings 583223
583223
Finance income:
Interest revenue on fixed deposits 107 80
10780
10 Income tax credit
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:
2012 2011
£000 £000
Loss before tax (12,455)(13,847)
Tax calculated at the standard rate of corporation tax in the UK: (24%) (2011: 26%) (2,989)(3,600)
Tax saving on differential tax rate in Malaysia 1648
Expenses not deductible for tax purposes (2,732)887
Tax incentive obtained 22093
Unutilised tax losses 6372
Deferred income tax liability no longer required 2,7111,250
Tax charge - UK current year's tax credit(2,711)(1,250)
UK prior year's tax charge -1
(2,711)(1,249)
Factors Affecting Future Tax Charges
Deferred tax relating to the acquisition during 2006 is detailed in note 19. Following the impairment of the intangible assets during the year, a proportion of the deferred tax liability has been released.
11 Loss per share
Basic
(i) Include impairment loss of goodwill and intangible assets
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.
2012 2011
Loss attributable to equity holders of the Company £9,744,000£12,598,000
Weighted average number of ordinary shares in issue 166,445,000166,445,000
Basic loss per share in pence(5.85)p(7.57)p
11 Loss per share (continued)
(ii) Exclude impairment loss of goodwill and intangible assets
Basic loss per share is calculated by dividing the loss excluding impairment loss of goodwill and intangible assets by the weighted average number of ordinary shares in issue during the year.
2012 2011
Profit/(loss) attributable to equity holders of the Company £256,000£118,000
Weighted average number of ordinary shares in issue 166,445,000166,445,000
Basic profit/(loss) per share in pence0.15p(0.07)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.
12 Property, plant and equipment
Furniture, Assets
Fittings in the
Leasehold Motor and Plant and course of
Land additions Building Vehicles equipment machinery Construction Total
£000 £000 £000 £000 £000 £000 £000
Cost
As at 1 January 2011 1,372 43 - 35 23 - 9,567 11,040
Foreign exchange
adjustment (51) (2) - (1) (1) - (357) (412)
Additions - - 5 - 7 1,016 - 1,028
Reclassification - - 1,016 - - 8,194 (9,210) - Disposals - (41) - - (5) - - (46)
Closing cost at
31 December 20111,321 - 1,021 34 24 9,210 - 11,610
Foreign exchange
adjustment (3) - (2) - - (18) - (23)
Additions - 1 - - - 464 - 465
Closing cost at
31 December 2012 1,318 1 1,019 34 24 9,656 - 12,052
Depreciation
As at 1 January 2011 110 17 - 18 14 - 1,635 1,794
Foreign exchange
adjustment (4) (1) - (1) (1) - (60) (67)
Charge for year - 2 20 6 5 188 - 221
Reclassification (106) - - - - 1,681 (1,575) -
Disposals - (18) - - (4) - - (22)
Closing depreciation at
31 December 2011- - 20 23 14 1,869 - 1,926
12 Property, plant and equipment (continued)
Furniture, Assets
Fittings in the
Leasehold Motor and Plant and course of
Land additions Building Vehicles equipment machinery Construction Total
£000 £000 £000 £000 £000 £000 £000
Foreign exchange
adjustment - - - - - (3) - (3)
Charge for year - - 20 3 3 386 - 412
Closing depreciation at
31 December 2012 - - 40 26 17 2,252 - 2,335
Net book value as at
31 December 2012 1,318 1 979 8 7 7,404 - 9,717
Net book value as at
31 December 20111,321 - 1,001 11 10 7,341 - 9,684
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 assets were completed and brought into use during 2011 and, accordingly had been re-categorised as building and plant and machinery as appropriate.
Included within previous year's 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. Borrowing costs have been capitalised at an effective interest rate of 7.76% and relate wholly to the construction of the assets.
13 Goodwill and intangible assets
Goodwill Intangibles Total
£000 £000 £000
As at 1 January 20117,793 22,778 30,571
Foreign exchange adjustment (313) (914) (1,227)
Impairment during the financial year (7,480) (5,000) (12,480)
As at 31 December 2011- 16,864 16,864
Foreign exchange adjustment - 15 15
Amortisation - (844) (844)
Impairment during the financial year - (10,000) (10,000)
As at 31 December 2012 - 6,035 6,035
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. A useful economic life of 20 years 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.
13 Goodwill and intangible assets (continued)
The intangible assets and goodwill are tested for impairment annually at the statement of financial position date and as and when other events or changes in circumstances indicate that the carrying amount may not be fully recoverable.
The impairment in the year is calculated based on the value of net assets acquired by Platinum NanoChem Sdn. Bhd., following a reverse takeover exercise took place on 26 March 2013. The net assets of the Group acquired by Platinum NanoChem Sdn. Bhd. is £11.6 million. Based on the above assumption, a total impairment loss of £10.0 million, which is recognised as a charge in the statement of comprehensive income as exceptional items.
The impairment for the prior year is based on value-in-use calculation and 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 refinery. 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 key assumptions used for value in use calculations are as follows:
2011
Margin of refined palm oil over crude palm oil (per metric tonnes) RM250
Growth rate 1%
Discount rate 12%
Annual production of palm oil (in metric tonnes) 194,000
Sensitivity analysis has been performed over the key assumptions which indicate the following impact, meaning reduction or increase in headroom:
Impact in 2011
Sensitivity £'000
Margin of refined palm oil over crude palm oil (per metric tonnes) 1% 262
Growth rate 1% 706
Discount factor 1% (1,478)
In the prior year, based on the above assumptions and the results of the impairment testing in accordance with IAS 36, a total impairment loss of £14.23 million, which represents the net difference between the carrying amount of the investment in subsidiary and its recoverable amount, is recognised as a charge in the statement of comprehensive income as exceptional items.
The principal risks which will apply to future reviews of intangible assets continue to include the commodity price changes in palm oil industry and changes in Malaysia government's palm oil policies.
14 Inventories
2012 2011
£000 £000
At cost:
Consumable goods 116111
116111
15 Trade and other receivables
2012 2011
£000 £000
Trade receivables 628629
Other receivables 251524
Less: provision for impairment (250)(503)
121
Prepayments and deposits 6464
693714
Credit risk
Trade receivables
The carrying amounts recorded above represents the Group's maximum exposure to credit risk and the amount is neither past due nor impaired.
The Group's normal trade credit term range from 30 to 90 days (2011: 30 to 90 days). Other credit terms are assessed and approved on a case by case basis.
Other receivables
Movements in impairment during the financial year are as follows:
£000
As at 1 January 2011261
Foreign exchange adjustment (10)
Impairment during the financial year 252
As at 31 December 2011503
Foreign exchange adjustment (1)
Impairment during the financial year (252)
As at 31 December 2012250
Analysis of the other receivables aging is as follows:
2012 2011
£000 £000
Neither past due nor impaired -5
Past due for more than 90 days but not impaired 116
121
Impaired 250503
251524
16 Cash and cash equivalents
2012 2011
£000 £000
Cash at bank and in hand 776312
Short-term bank deposits 272876
1,0481,188
Fixed deposits 4,0514,059
5,0995,247
16 Cash and cash equivalents (continued)
Short term deposits are monies held on money market accounts with recognised banks.
The fixed deposit of RM20 million (2011: RM20 million) has been pledged to Bank Kerjasama Rakyat Malaysia Bhd. as security for the Group's bank borrowings (see note 18) 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% (2011: 0.8%). These deposits have an average maturity of 30 days (2011: 30 days).
17 Trade and other payables
2012 2011
£000 £000
Other payables 227328
Accruals 2545
252373
The carrying amounts of trade and other payables are at fair value.
18 Bank borrowings
2012 2011
£000 £000
Current liabilities 4831,167
Non-current liabilities 7,8155,483
8,2986,650
The Company's subsidiary's 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 £9.5 million £1=RM4.93) 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 16). A legal charge and debenture have been given to the Bank together with a corporate guarantee from the Company. The term loan bears an effective interest rate of 8.31% (2011: 7.76%) per annum.
The bank borrowings are secured by the following:
(a) A pledge over a fixed deposit of RM20.0 million (see note 16);
(b) A legal charge over the land owned by the Group (see note 12);
(c) Fixed and floating charges over all present and future assets of the Company's subsidiary; and
(d) A corporate guarantee by the Company.
18 Bank borrowings (continued)
Maturity analysis of non-current bank borrowings is as follows:
2012 2011
£000 £000
Repayable between one and two years 5241,252
Repayable between two and five years 7,2914,231
7,8155,483
The above bank borrowings are repayable within 7 years inclusive of 12 months grace period beginning from the first drawdown dates by a total monthly instalment of £84,696.
19 Deferred income tax
The movement on the deferred income tax liability was as follows:
£000
As at 1 January 20115,695
Foreign exchange adjustment (229)
Deferred income tax liability released as a result of impairment (1,250)
As at 31 December 20114,216
Foreign exchange adjustment 4 Deferred income tax liability released as a result of impairment (2,500)
Deferred income tax liability released as a result of amortisation (211)
As at 31 December 2012 - liability1,509
The deferred tax liability arose on the acquisition of Zurex in 2006.
The movement in the unrecognised deferred tax asset is as follows:
2012 2011
£000 £000
As at 1 January 72-
Current year's tax losses 6372
Over provision in respect of prior year (1)-
Results from changes in tax rate (9)-
As at 31 December12572
The deferred income tax asset is recoverable as follows:
2012 2011
£000 £000
Deferred tax asset to be recovered after more than 12 months 12572
Unrecognised tax asset12572
The Group has unutilised tax losses of £545,000 (2011: £276,000) for which no tax asset has been provided. The deferred tax asset is not provided in view of the uncertainty on the timing of its recoverability.
20 Share capital and options
2012 2012 2011 2011
Number £000 Number £000
Authorised:
Ordinary shares of 1p each 250,000,000 2,500250,000,000 2,500
Issued and fully paid:
At 1 January 166,445,000 1,664166,445,000 1,664
At 31 December166,445,000 1,664166,445,000 1,664
Options and warrants outstanding at 31 December 2012 were exercisable as follows:
Type ofNumber Exercise Expiry
Date of grant arrangement granted price date
05/02/10 Options 1,412,896 4.046p 05/05/15
Share options are not subject to any unsatisfied vesting conditions and were exercisable at the year end date.
21 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.
There are direct transfers of merger relief reserve of £9.573 million (2011: £6.428 million) and translation reserve of £nil (2011: £3.149 million) to profit or loss in the Consolidated Statement of Changes in Equity in respect of an impairment loss on the Group's goodwill and intangible assets as a result of impairment on investment in subsidiary.
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 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 to bring the palm oil refinery into operational use.
21 Description and purpose of reserves (continued)
Capital at 31 December 2012 and 31 December 2011 was as follows:
2012 2011
£000 £000
Total borrowings (note 18) 8,2986,650
Less: cash and cash equivalents (note 16) (1,048)(1,188)
Net debt 7,2505,462
Total equity 11,60121,381
Total capital18,85126,843
22 Cash used in operations
2012 2011
£000 £000
Operating loss (11,979)(13,704)
Adjustments for:
- amortisation of intangible assets 844-
- depreciation 412221
- Impairment loss on other receivables -252
- Impairment loss on goodwill -7,480
- Impairment loss on intangible assets 10,0005,000
- Loss on disposal of property, plant and equipment -16
- Unrealised loss on foreign exchange 21
- share-based payments credit (note 24) (47)(26)
Changes in working capital:
- inventories (5)(84)
- trade and other receivables 20(669)
- trade and other payables (121)21
Cash used in operating activities (874)(1,492)
23 Contingencies
At the date of the report, there does not exist any contingent liability in respect of the Group which has arisen since the end of the financial year. There is no contingent or other liability has become enforceable, or likely to become enforceable at the date of the report, which will or may substantially affect the ability of the Group to meet its obligations as and when they fall due.
24 Share-based payments
The share-based payment credit was £47,000 (2011: £26,000 debit) in the Consolidated 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:
2012 2012 2011 2011
Number WAEP Number WAEP
(pence) (pence)
At 1 January 4,376,288 4.3322,132,582 9.37
Lapsed before the end of vesting period (1,452,792) 4.046(1,263,319) 4.046
Lapsed after the end of exercise period (1,510,600) 4.875(16,492,975) 11.01
At 31 December 1,412,8964.0464,376,288 4.33
25 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 2012 are as follows:
Group Group
2012 2011
£000 £000
Current assets
Trade and other receivables 693714
Cash and cash equivalents, fixed deposits 5,0995,247
Loans and receivables carried at amortised cost 5,7925,961
Current liabilities
Trade and other payables 252373
Borrowings 4831,167
Non-current liabilities
Borrowings 7,8155,483
Other financial liabilities carried at amortised cost 8,5507,023
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 exposes 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 £37,000 (2011: £45,000).
25 Financial instruments (continued)
(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:
2012 2011
The following amounts have been translated from Malaysian Ringgit: £000 £000
Trade and other receivables 691699
Cash and cash equivalents 4,9194,559
Trade and other payables (235)(321)
Borrowings (8,298)(6,650)
Net exposure(2,923)(1,713)
For the year ended 31 December 2012, 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 £1,290,000 (2011: £104,000) lower mainly as a result of foreign exchange gains/losses on translation of Malaysian Ringgit-denominated transactions.
Equity would have been £1,784,000 (2011: £744,497) lower, arising mainly from foreign exchange losses/gains on translation of Malaysian Ringgit-denominated assets and liabilities.
26 Capital commitments
2012 2011
£000 £000
Contracted but not provided for:
Property, plant and equipment for the refinery plant -315
27 Related party transactions
Henry Yong is a director of both WS Bio and Zurex (although he is not a director of the Parent 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:
2012 2011
£000 £000
Purchases from WS Bio during the year - 613
Amounts payable to WS Bio at the year end date - 307
The Directors are of the opinion that the transaction above was entered into in the normal course of business and has been established on terms and conditions that are not materially different from those obtainable in transactions with third parties.
The Parent Company has provided a guarantee to WS Bio in respect of the contract between WS Bio and Zurex.
28 Control
The Company is under the control of its shareholders and not any one party.
29 Events after the Reporting Date
On 26 March 2013 at an Extraordinary General Meeting, the shareholders of the Company approved a reverse takeover under Rule 14 of the AIM Rules. The reverse takeover of the Biofutures Group, by Platinum Nanochem Group has resulted in a new enlarged group, Graphene NanoChem Plc. In tandem with the Reverse Takeover, the group completed the placement of 23,214,286 new ordinary shares in the company raising approximately £32.5 million cash for the business.
The Reverse Takeover provides an opportunity to enhance shareholder value and move the group from its current position and considerable exposure to volatile commodity prices into the manufacture of added-value products with higher margins within niche markets.
At this stage, the Directors have yet to finalise the business combinations accounting for the new enlarged group due to the elapsed time since the acquisition date of 26 March 2013 and, as such, the required fair value accounting and disclosures required by IFRS3 (revised) have yet to be completed. They will be presented in the group's interim financial statements for the six months ending 30 June 2013.
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