21st Jun 2007 07:01
Biofutures International plc21 June 2007 Immediate Release 21 June 2007 Biofutures International plc 20 June 2007 Final audited results for the period ending 31 December 2006 Biofutures International plc, an investment company in the renewable fuelsindustries, is pleased to announce its maiden final results for the period ended31 December 2006. Highlights * IPO in May 2006 raising £3m* First investment completed in November 2006* Further equity issue in November 2006 raising £11m* Contract with Lurgi signed for first biodiesel plant* Bank funding in advanced stages of negotiation* Feedstock and off take agreements progressed* Membership of Roundtable on Sustainable Palm Oil Nicholas Gee, Executive Chairman, commented "I am pleased with the progress made since the Company was listed in May 2006.We have made our first acquisition, namely Zurex, a Malaysian company that has alicence to build a palm oil biodiesel plant. Good progress has been made withregard to this project. We are also in advanced stages of negotiations withseveral banks in Malaysia to raise debt finance to complete the first phase ofthe palm biodiesel plant." For further information please contact: Nicholas Gee: Executive ChairmanBiofutures International Plc 020 7466 5000 Joseph Marffy/Roxane MarffyRuegg & Co Limited 020 7584 3663 Daniel Briggs/Jeremy ChantryHichens Harrison & Co plc 020 7382 7776 Mark Edwards/Suzanne Brocks 020 7466 5000 Buchanan Communications Chairman's Statement Overview We have made good progress since our admission to the AIM market in May 2006.The Company raised £3 million upon its flotation with a view to seekinginvestments in the renewable fuels industries. In November we made our firstinvestment, acquiring the entire issued share capital of Zurex Corporation Sdn.Bhd. ("Zurex"). Zurex is a Malaysian company that holds a licence to produce biodiesel derivedfrom palm oil in Malaysia. The consideration was satisfied by the issue of 66.7million new ordinary shares in Biofutures to the shareholders of Zurex. At thesame time, Biofutures raised £11 million through the issue of 44 million newordinary shares at 25p per share. The money raised is being used to acquire the site and commence construction ofthe plant in Malaysia. Through Zurex, we have entered into a contract with POIC(Palm Oil Industrial Cluster) to acquire a 50 acre plot of land at Lahad Datu,Sabah, Malaysia. POIC is developing the Lahad Datu site as part of a federal andSabah state government long-term initiative. This initiative started in 2005 toensure Malaysia retains the economic value derived from its palm oil crop. We intend to construct a 200,000 tonnes per annum biodiesel plant at Lahad Datuand the site is large enough to expand plant capacity to one million tonnes perannum. In January 2007, we announced the first major milestone of this project:the signing of our contract with JJ-Lurgi Engineering, the company that willsupply the components for the construction of the palm oil biodiesel plant. Weexpect that construction of the plant will be completed by October 2008. Lurgiis one of the world's market leaders in the construction of biodiesel plants. Webelieve that by deploying their proven technology in our plant, we will be ableto deliver the project on time and to high product specification. We anticipatecontinuous production of palm oil biodiesel by October 2008. The project is currently in the tender phase. As with any project of this type,the Board will carry out a detailed review before commencing with the projectexecution phase, taking into consideration the construction tender process, theavailability of bank financing, and the price of palm oil. Group strategy Biofutures was set up as a vehicle for establishing or investing in the Asianand European renewable fuels industries. After the Company's IPO, the Boardreviewed various options in line with this investment and acquisition strategyand chose to invest in Zurex. The company presented itself as an idealinvestment opportunity, as it had already secured rights to the site in LahadDatu as well as a licence to manufacture palm oil biodiesel. The Board will also continue to investigate further investment opportunities inrenewable fuels, including second generation fuels. Funding The Company is currently seeking bank finance to enable the plant to be built.Several banks are in advanced stages of financing decisions to provide seniordebt for the project. Finalising senior debt finance has proved more challengingthan expected at the outset of the project. The Board is keeping this underreview and will not commit cash beyond its current resources. Board changes After the acquisition of Zurex in November 2006, two of its vendors, Wong KaiFatt and Lim Kwee Gee, joined the Board as Non-executive Directors. In February we also welcomed Chris Dennison to the Board as a Non-executiveDirector. In the same month, Lim Kwee Gee resigned as a Non-executive Directorfor personal reasons and Yeoh Keat Hoe was appointed Non-executive Director,replacing Lim Kwee Gee as the nominee of the vendors of Zurex. It is with deep sadness that we note the death of Phillip Carter, Non-executiveDirector, in May 2007. Phil was an inspirational business leader and was ofinvaluable support to the Board. We extend our heartfelt condolences to hisfamily and friends. Outlook With concern for long-term energy supply and increasing recognition that globalwarming and the effects of greenhouse gases are a reality, governments worldwideare taking measures to increase the use of renewable fuels. In addition toenvironmental concerns, many governments want to reduce dependence on fossilfuel imports, particularly from politically unstable countries. Biodiesel willplay an important part in combatting these problems and we believe that demandfor renewable fuels will undergo huge growth in the USA, Asia and Europe in themedium term. Nicholas GeeChairman Business Review Description of markets The Kyoto Protocol commits signatory nations to mandatory targets for thereduction of greenhouse gas emissions, including CO2. It covers over 160countries and over 55 per cent of global greenhouse gas emissions. Biodieselproduces up to 80 per cent less CO2 than mineral diesel when measured over itslife cycle. This has provided the main incentive in persuading individualgovernments to support the development of biofuels as an important contributionto meeting their overall emission targets. Today's key market for biodiesel is Europe which, thanks to the legislativeenvironment for the use of renewable fuels in road transport, is the most welldeveloped biodiesel market. The EU Directive of 5.75 per cent use of biofuels by2010 should push demand from 6 million to nearly 14 million tonnes a year. Thereis also a proposal to introduce a minimum target of 10 per cent by 2020 forbiofuel use. Germany, France and Italy are the largest European consumer markets, wherebiofuels also have distributor support and consumer acceptance. Germany is thelargest individual market for biodiesel in Europe, where the governmentintroduced a 4.4 per cent blending mandate in January 2007. France, the secondlargest market, has applied tax reductions to biofuels tied to quotas given toparticular producers. Italy, the third largest market, has applied a dutyexemption to a certain quota of biodiesel for a number of years, resulting in aflourishing market. In the UK, there is a 20p per litre reduction in fuel dutyfor biofuels, while from April 2008 a mandatory biodiesel blend will be phasedin progressively under the Renewable Transport Fuels Obligation. This requiresoil companies to include 2.5 per cent of renewables in transport fuel, rising to5 per cent in 2010-11. In the USA, alternative fuels such as biodiesel represent one part of thefederal government's plan to reduce dependence on imported oil. It has proposeda mandatory increase in the use of renewable fuels used in transport, with anaim to have replaced 15 per cent of forecast annual gasoline use by 2017. Stategovernment initiatives such as California's Low Carbon Fuel Standard are alsodriving uptake of renewable fuels. In January 2007 leaders at a 16-nation Asiansummit, which included China, Japan and India, agreed that the region shouldexplore the use of alternative fuels, with biofuels receiving immediateattention. The East Asian countries agreed to adopt common standards on biofuelsfor use in engines and motor vehicles and to promote freer trade in biofuels. This move is in addition to tangible developments in individual countries. TheThailand government has legislated that a 10 per cent biodiesel blend beintroduced nationally in 2012. This is likely to increase to a 20 per cent blendin 2020. In Malaysia, the biofuel bill is expected to be finalised in parliamentsoon, which will mandate a 5 per cent biodiesel blend in 2008. The Indonesiangovernment aims to replace 2 per cent of automotive diesel oil with biodiesel by2010, while the state-owned oil company aims to replace standard diesel witheither a B5 or B10 blend once enough biodiesel supply is available. Competitive strengths Biofutures offers numerous competitive advantages. Firstly, we have a strongmanagement team with years of experience in production business management,plant development and capital petroleum project management. Secondly, we believe that by deploying Lurgi's proven technology in our plant,we will be able to deliver the project on time and to high productspecification. Lurgi constructed its first biodiesel plant in 1988 and its firstplant in South East Asia in 1991 and has since constructed several otheroleochemical plants in that area. Over 25 Lurgi plants are now in operation andmore than 60 per cent of global biodiesel production in 2007 is expected to befrom Lurgi-constructed plants. Thirdly, we believe Biofutures is ideally positioned with our site in Malaysia,the world's biggest producer of palm oil. Our plant will be situated in adesignated palm oil hub with a deep water port and has been granted the pioneertax status afforded to biodiesel producers there. The plant is ideally locatedfor exporting biodiesel to the major growth markets for renewable fuels, namelythe United States, Europe and Asia. Drivers for growth We believe that the global demand for biofuels will treble by 2010 asgovernments promote their use by introducing regulations and tax incentives toencourage uptake. As well as these government initiatives, biofuels enjoyconsumer acceptance and several high-profile businesses have sought to attachtheir names to greener energy to enhance their image with customers. Biofuturesis perfectly positioned to meet the growing demand for biofuels. Progress with Zurex project Our commercial strategy is to use palm oil as the feedstock for the productionof biodiesel. We have selected palm oil because it has the highest yield peracre of current vegetable oils. By selecting a production site in Malaysia - theworld's largest producer of palm oil - we gain both security of palm oilsupplies and geographical accessibility to key sales markets, namely the FarEast, Europe and the USA. The site in Lahad Datu has also been selected for itslocation within a developing palm oil logistic hub with a deep water port. It issurrounded by more than 100 palm oil mills and is home to companies that producemore than 5 million tonnes of palm oil per annum. We intend to sell 100 per cent palm oil methyl ester to wholesalers, blenders orpetroleum refiners who will then blend our biodiesel with petroleum diesel. We have made good progress at the site in Lahad Datu, where we have paid adeposit of £1.2 million to acquire the land. In January we reached a keymilestone when we signed the contract with Lurgi to supply components for theconstruction of the biodiesel plant. The tender documents for a contractor tocommence construction of the plant are now at final stage. We continue to progress both feed stock and off take agreements. Draft contractsare agreed with several suppliers of palm oil and with a major globalpetrochemicals marketing company for the entire production from the first plant.These contracts will be confirmed once our bank finance for the project isfinalised. Financial Review Overview The loss for the period was £0.4m and is in line with expectations and reflectsthe administrative work undertaken to set up a listed company and project coststhat have not been capitalised. During the first period of trading the Companysuccessfully acquired Zurex, and the development of the site in Malaysia, onwhich the biodiesel palm oil plant will be located, has commenced. Cash Resources Cash and cash equivalents at the year end were £8.8m. The key features in the cash flows during the period are the proceeds from theshare issues during the period totalling £11.7m gross (£10.7m net of costs),with an additional sum included within debtors of £2.4m giving a total of£14.1m. The acquisition of Zurex was paid for by the issue of shares and as such hadminimal cash impact. Acquisition costs paid in cash totalled £0.3m. Land and project capital costs totalled £1.7m at the period end, including £1.2minitial deposit to secure the site required for the project. Debtors Included within debtors is £2.4m share issue proceeds, which were funds held bythe agent and received in January 2007. Goodwill and Intangibles Goodwill arising on the acquisition was £1.4m, with an additional deferredtaxation adjustment in respect of the intangibles of £4.6m. The intangibles of£15.5m (before deferred tax adjustment) relate to the group of intangiblesacquired with Zurex representing the licence held allowing Zurex to producebiodiesel, the option held to buy the land on the POIC site, and the valueattributable to the tax incentive granted to all POIC licence holders (5 yearstax fee, from the date production commences). Debt The Group currently has no debt, but we are in advanced stages of negotiationswith several banks in Malaysia to raise debt finance to complete the first phaseof the palm biodiesel plant. However, until these negotiations are completethere remains a risk that bank finance will not be available and, accordingly,alternative sources of finance may be needed. International Financial Reporting Standards The results for the period ending 31 December 2006 have been presented underInternational Financial Reporting Standards (IFRS). There are no transitionalreconciliations to present as these are the first set of financial statementsfor the Group. Julie PomeroyFinance Director REPORT of the INDEPENDENT AUDITORto the members of Biofutures International plc We have audited the group financial statements of Biofutures International plcfor the period ended 31 December 2006 which comprise the principal accountingpolicies, the group income statement, the group balance sheet, the group cashflow statement, the group statement of changes in equity and notes 1 to 22.These group financial statements have been prepared under the accountingpolicies set out therein. We have reported separately on the parent company financial statements for theperiod ended 31 December 2006. That report is modified by the inclusion of anemphasis of matter. This report is made solely to the company's members, as a body, in accordancewith Section 235 of the Companies Act 1985. Our audit work has been undertakenso that we might state to the company's members those matters we are required tostate to them in an auditor's report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the company and the company's members as a body, for our audit work,for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report and the groupfinancial statements in accordance with United Kingdom law and InternationalFinancial Reporting Standards (IFRSs) as adopted by the European Union are setout in the Statement of Directors' Responsibilities. Our responsibility is to audit the group financial statements in accordance withrelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland). We report to you our opinion as to whether the group financial statements give atrue and fair view and whether the group financial statements have been properlyprepared in accordance with the Companies Act 1985 and Article 4 of the IASRegulation. We also report to you whether in our opinion the information givenin the Directors' Report, Chairman's Statement, Business Review and FinancialReview is consistent with the financial statements. In addition we report to you if, in our opinion, we have not received all theinformation and explanations we require for our audit, or if informationspecified by law regarding directors' remuneration and other transactions is notdisclosed. We read other information contained in the Annual Report and consider whether itis consistent with the audited group financial statements. The other informationcomprises only the Directors' Report, the Business and Financial Review and theChairman's Statement. We consider the implications for our report if we becomeaware of any apparent misstatements or material inconsistencies with the groupfinancial statements. Our responsibilities do not extend to any otherinformation. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the group financial statements. It also includes an assessment ofthe significant estimates and judgments made by the directors in the preparationof the group financial statements, and of whether the accounting policies areappropriate to the group's circumstances, consistently applied and adequatelydisclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the group financialstatements are free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the group financial statements. Opinion In our opinion: • the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 31 December 2006 and of its loss for the period then ended; • the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; and • the information given in the Directors' Report is consistent with the financial statements. Separate opinion in relation to IFRSs As explained in Note 2 to the group financial statements, the group in additionto complying with its legal obligation to comply with IFRSs as adopted by theEuropean Union, has also complied with the IFRSs as issued by the InternationalAccounting Standards Board. In our opinion the group financial statements give a true and fair view, inaccordance with IFRSs, of the state of the group's affairs as at 31 December2006 and of its loss for the period then ended. Emphasis of matter Without qualifying our report we draw attention to "Uncertainty of Funding"included in note 20 to the financial statements, and to the section headed"funding" in the Chairman's Statement. The Group has yet to obtain the fundingrequired to continue the development of the plant in Malaysia. If funding is notobtained, the development may not reach the project execution phase. Theultimate outcome of the request for additional funding cannot presently bedetermined and so the financial statements do not account for any consequencesarising from discontinuing the project. GRANT THORNTON UK LLPREGISTERED AUDITORCHARTERED ACCOUNTANTS Leeds20 June 2007 The accompanying notes and accounting policies form an integral part of thesefinancial statements. Consolidated income Statement For the period from 17 February 2006 (date of incorporation) to 31 December 2006 Note £'000 2006 Administrative expenses (500) Operating loss 4 (500) Interest income 77 Loss before income tax (423) Income tax expense 7 - Loss for the period 15 (423) Loss per share for loss attributable to the equity holders 8 £ (0.01)of the Company during the year (expressed in pence) -basic Consolidated Balance SheetAt 31 December 2006 Note 2006 £'000 ASSETSNon-current assetsProperty, plant and equipment 9 1,703Goodwill 10 6,078Intangible Assets 10 10,850 18,631 Current assets Trade and other receivables 12 2,545Cash and cash equivalents 13 8,813 11,358 Total assets 29,989 EQUITYCapital and reserves attributable to the Company's equityholdersShare capital 14 1,477Share premium account 15 11,293Merger reserve 15 16,001Translation reserve 15 (2)Share based scheme reserve 15 1,089Retained earnings 15 (423) Total equity 29,435 LIABILITIES Current liabilitiesTrade and other payables 16 554 Total equity and liabilities 29,989 The financial statements were approved by the Board of Directors on 20 June2007. NW Gee, JP Pomeroy The accompanying accounting policies and notes form an integral part of thesefinancial statements. Consolidated Statement of Changes in Equity Share Merger Share Retained Translation Total capital & share based earnings reserve equity premium scheme reserve £'000 £'000 £'000 £'000 £'000 £'000 Currency translation (2) (2)Loss for the period (423) (423) Total recognisedincome and expensefor the period (423) (2) (425)Employee share-based compensation 1,089 1,089Shares issued 1,477 27,294 28,771 Total at 31December 2006 1,477 27,294 1,089 (423) (2) 29,435 Consolidated Cash Flow Statement 2006 Note £'000 Cash flows from operating activities Cash from operations 17 (760)Net cash used for operating activities (760) Cash flows from investing activitiesAcquisition of subsidiary, net of cash acquired 20 (259)Purchases of property, plant and equipment 9 (931)Interest received 77 Net cash used in investing activities (1,113) Cash flows from financing activitiesProceeds from issue of shares 14 10,686 Net cash generated from financing activities 10,686 Net increase in cash 8,813 Cash and cash equivalents at end of period 13 8,813 The accompanying accounting policies and notes form part of these financialstatements. Notes to the Financial Statements 1 General information The Company was incorporated on 17 February 2006. Biofutures International plc ("the Company") and its subsidiaries (together"Group plc" or "the Group") are involved in the renewable fuels industries. The Company is a public limited company incorporated and domiciled in England. These consolidated financial statements have been approved for issue by theBoard of Directors on 20 June 2007. 2 Summary of significant accounting policies 2.1 Basis of preparation These consolidated financial statements of Biofutures International plc are forthe period from 17 February 2006 (date of incorporation) to 31 December 2006.They have been prepared in accordance with International Financial ReportingStandards (IFRS) as adopted by the European Union and also as issued by theInternational Accounting Standards Board. The Parent Company financial statements have been prepared using United Kingdomaccounting policies. The Company is entitled to the merger relief offered by Section 131 of theCompanies Act 1985 in respect of the consideration received in excess of thenominal value of the equity shares issued in connection with the acquisition ofZurex. The policies set out below have been consistently applied. 2.2 Consolidation Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan one half of the voting rights. Subsidiaries are fully consolidated from thedate on which control is transferred to the Group. They are de-consolidated fromthe date on which control ceases. The purchase method of accounting is used toaccount for the acquisition of subsidiaries by the Group. The cost of anacquisition is measured as the fair value of the assets given, equityinstruments issued and liabilities incurred or assumed at the date of exchange,plus costs directly attributable to the acquisition. Identifiable assetsacquired and liabilities and contingent liabilities assumed in a businesscombination are measured initially at their fair values at the acquisition date,irrespective of the extent of any minority interest. The excess of the cost ofacquisition over the value of the Group's share of the identifiable net assetsacquired is recorded as goodwill. If the cost of acquisition is less than thefair value of the Group's share of the net assets of the subsidiary acquired,the difference is recognised directly in the income statement. Inter-Company transactions, balances and unrealised gains on transactionsbetween Group companies are eliminated. Unrealised losses are also eliminatedunless the transaction provides evidence of an impairment of the assettransferred. 2.3 Segment reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that issubject to risks and returns that are different from those of segments operatingin other economic environments. The Group's business segments are the primarybasis of segment reporting. 2.4 Foreign currency translation (a) Functional and presentational currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the "functional currency"). The consolidated financialstatements are presented in sterling, which is the Company's functional andpresentational currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation of year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement, exceptwhere hedge accounting is applied. (c) Consolidation of overseas subsidiary Income and expenditure for overseas subsidiaries are included based upon monthlyaverage exchange rates to give a fair approximation to the transaction rate.Balance sheet items included at the year end exchange rate. In accordance withIAS 21 exchange differences relating to inter company balances are included as again/loss within the subsidiaries income and expenditure account. All otherdifferences are included within the translation reserve. 2.5 Property, plant and equipment All property, plant and equipment (PPE) is shown at cost less subsequentdepreciation and impairment. Cost includes expenditure that is directlyattributable to the acquisition of the items. Subsequent costs are included inthe asset's carrying amount or recognised as a separate asset, as appropriate,only when it is probable that future economic benefits associated with the itemwill flow to the Group and the cost of the item can be measured reliably. Allother repairs and maintenance are charged to the income statement during thefinancial period in which they are incurred. Depreciation on assets is calculated using the straight-line method so as toallocate the cost of each asset less its residual value over its estimateduseful life. The assets' residual values and useful lives are reviewed, andadjusted if appropriate, at each balance sheet date. Land is not depreciated. Assets in the course of construction are not depreciated until they are broughtinto use, at which point they are re-categorised to their relevant description. 2.6 Intangible assets Goodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net identifiable assets of the acquired subsidiaryat the date of acquisition. Goodwill on acquisitions of subsidiaries is includedin intangible assets. Goodwill is tested annually for impairment and carried atcost less accumulated impairment losses. Gains and losses on the disposal of anentity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairmenttesting. Separable intangible assets are recognised separately from goodwill on allacquisitions. Such assets are carried at Fair Value. Such intangible assets arereviewed for impairment on an annual basis. The intangible assets acquired were an option to acquire land, a licence tomanufacture palm oil biodiesel and the value of a 5 year tax free incentive. Thegroup of assets are all intrinsically linked and have been valued as a "group"(see note 20). The Directors are of the opinion that these intangibles have anindefinite useful economic life, so no annual amortisation is charged. The groupof assets will be subject to annual impairment review. 2.7 Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of the receivables. The amount ofthe provision is the difference between the assets carrying amount and thepresent value of estimated future cash flows, discounted at the effectiveinterest rate. The amount of the provision is recognised in the incomestatement. 2.8 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 originalmaturity of three months or less. For the purpose of the cash flow statement,cash and cash equivalents are as defined above, net of outstanding bankoverdrafts. 2.9 Deferred income tax Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements. Thedeferred income tax is not accounted for if it arises from initial recognitionof an asset or liability in a transaction, other than a business combination,that at the time of the transaction affects neither accounting nor taxableprofit or loss. Deferred income tax is determined using tax rates (and laws)that have been enacted or substantially enacted by the balance sheet date andare expected to apply when the related deferred income tax asset is realised orthe deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. 2.10 Employee benefits (a) Pension obligations Group companies do not operate defined contribution schemes but contribute toindividual personal pension plans for certain employees by way of paying a 10%of their gross salary costs in lieu of a scheme contribution. (b) Share-based payments The share option programmes allow Group employees to acquire shares of theCompany. The fair value of options granted is recognised as an employee expensewith a corresponding increase in equity. The fair value is measured at grantdate and spread over the period during which the employees becomeunconditionally entitled to the options. The fair value of the options grantedis usually measured using a binomial model, taking account of the terms andconditions upon which the options were granted. The amount recognised as anexpense is adjusted to reflect the actual number of share options that vestwhere forfeiture is due to performance criteria not being met during the life ofthe option. 2.11 Financial instruments The Group's operations result in a number of financial risks that includeforeign currencies and interest rates, and credit risks. The Group's treasury policy is set by the Board and is reviewed regularly. Thepolicy involves the use of certain financial instruments in the management ofrisks. Surplus cash is placed on short-term deposit to maximise interest earned. 2.12 Judgements and estimates Directors have used their expert knowledge of the Biofuels Markets to arrive attheir estimate for the fair values included within the acquisitions note. 3 Financial risk management 3.1 Financial Risk Factors The Group's activities expose it to a variety of financial risks: credit risk,liquidity risk, cash flow risk and fair value interest rate risk. The Group'soverall risk management programmes focus on the unpredictability of financialmarkets and seek to minimise potential adverse effects on the Group's financialperformance. Risk management is carried out centrally under policies approved by the Board ofDirectors. (a) Credit risk The Group has no significant concentrations of credit risk. It has policies inplace to ensure that sales of products and services are made to customers withan appropriate credit history. (b) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash balancesand ensuring availability of funding through an adequate amount of committedcredit facilities. The Group aims to maintain flexibility in funding by keepingcommitted credit lines available in the form of an overdraft facility. (c) Cash flow and fair value interest rate risk The Group's cash flow interest rate risk arises from long-term borrowings.Borrowings issued at variable rates expose the Group to cash flow interest raterisk. No borrowings have been entered into during the period. 4 Segment information Primary reporting format - business segments At 31 December 2006, the Group is organised into two main business segments -(1) development and administration of investments ("Head Office") - (2) planningand construction of biodiesel; plant and related activities ("operational"). The segment results for the period ended 31 December 2006 are as follows: Operational Head Office Group £'000 £'000 £'000 Operating loss (9) (491) (500)Finance receipts - net - 77 77Loss before income tax (9) (414) (423) Income tax expense - - - Loss for the period (9) (414) (423) Segment assets consist primarily of land, plant and equipment, intangibleassets, receivables and operating cash. They exclude deferred taxation. Segment liabilities comprise operating liabilities. They exclude items such astaxation and corporate borrowings. Capital expenditure comprises additions to property, plant and equipmentincluding additions resulting from acquisitions from business combinations.Thesegment assets and liabilities at 31 December 2006 and capital expenditure forthe period then ended are as follows: Operational Head Office Group £'000 £'000 £'000 Assets 18,631 11,358 29,989 Liabilities 2 552 554 Capital expenditure (Notes 11 and 25) 1,703 - 1,703 . Secondary reporting format - geographical segments England Malaysia Group Assets 11,358 18,631 29,289 Additions to Assets (as above) - 1,703 1,703 The home country of the Company - where the main operating Company is located -is England. 5 Expenses by nature Period ended 31 December 2006 £'000 Employee benefit expense, (Note 6) Auditors'remuneration 143- Fees payable to the company's auditor forthe audit of the company's annual accounts 18- The audit of the company's subsidiary:pursuant to legislation 1- Tax services 3 Share based payment charge 65 Exchange rate differences 10 All of the above are classified as administrative expenses In addition to the above £80,775 has been paid to the auditors in respect ofCorporate Finance Services in relation to the acquisition of Zurex and there-admission to AIM; this amount has been debited to the share premium account. 6 Directors and employees Period ended 31 December 2006 £'000 Wages and salaries 102Social security costs 11Share based payments 30 Total 143 The employee benefit expenses during the year were as follows: The average number of employees during the period was as follows: Period ended 31 December 2006 Administration 3 Remuneration in respect of directors was as follows: Period ended 31 December 2006 £'000 Emoluments 102 Total 102 Period ended 31 December 2006 £'000 Current tax -Deferred tax - - 7 Income tax expenses There is no tax charge due to the losses arising in the period. Group lossesavailable to carry forward and utilise against future taxable profits are£216,414. Deferred tax relating to the acquisition during the year is detailed in Note 11. Period ended 31 December 2006 £'000 Loss before tax (423) Tax calculated at domestic tax rates applicableto losses in the respective countries (127)Benefit of tax losses carried forward tofuture periods 127 Tax charge - The tax on the Group's profit before tax differs from the theoretical amountthat would arise using the weighted average tax rate applicable to profits ofthe consolidated companies as follows: The weighted average applicable tax rate was 30%. 8 Loss per share Basic Basic loss per share is calculated by dividing the loss attributable to equityholders of the Company by the weighted average number of ordinary shares inissue during the period. Period ended 31 December 2006 Loss attributable to equity holders of theCompany £423,000Weighted average number of ordinary shares inissue 28,172,762Basic earnings per share in £ (0.01) Diluted Diluted earnings per share are calculated adjusting the weighted average numberof ordinary shares outstanding to assume conversion of all contracted dilutivepotential ordinary shares. The Company has only one category of dilutivepotential ordinary shares, share options. The options and warrants in issue are currently anti-dilutive and therefore nodiluted earnings per share figure has been included. Land Assets in the Total course of construction £'000 £'000 £'000Period ended 31 December 2006On acquisition of Zurex - cost 378 394 772Additions 775 156 931Disposals - - - Closing cost and net book amountat 31 December 2006 1,153 550 1,703 9. Property, plant and equipment No depreciation has been charged in the period as all assets relate to thecurrent construction project in Malaysia, which at the year end had not beenbrought to use. Goodwill on consolidation Group of intangibles Total £'000 £'000 £'000Fair value ofacquisition (Note20) 1,428 15,500 16,928 Deferred taxation(Note 11) 4,650 (4,650) 0 6,078 10,850 16,928 10 Intangible assets The carrying amount of goodwill is all allocated to the operational cashgenerating unit. Goodwill represents the fair value attributed to the knowledge of the Malaysiannationals required to hold the operational licence for the Biodiesel plant inMalaysia, acquired with Zurex (see Note 20). The intangible assets are included at their fair value and have been groupedtogether. These relate to the option to acquire the land, the licence tomanufacture palm oil and the value of a 5-year tax free incentive. The Group ofassets could not be separated as they are all intrinsically linked. The fairvalue of the Group of assets has been estimated by the Directors based upontheir assumptions of a market price for such a Group of assets. No provision for impairment is required because the Board have considered thefuture operational profitability over the next 10 years, discounted at a rate of10%, which will be higher than the carrying values detailed above. 11 Deferred income tax The net movement on the deferred income tax account is as follows: £'000 On acquisition of Zurex (Note 10) 4,650 Period ended 31 December 2006 4,650 The movement in deferred tax assets is as follows: Other Total £'000 £'000 Unutilised losses 216 216 2006 £'000 Deferred tax asset to be recovered after more than 12 months 216 Unprovided tax asset 216 12 Trade and other receivables 2006 £'000 Other 2,545 The carrying amounts of trade and other receivables approximate to their fairvalues. 2006 £'000 Cash at bank and in hand 779Short-term bank deposits 8,034 Total 8,813 13 Cash and cash equivalents The effective interest rate on short-term bank deposits was 5%. These depositshave an average maturity of 20 days. Number of shares £'000 At date of incorporation 2 -Conversion of £1 shares to pence shares 200 -Issue of shares19.04.06 (a) 6,659,800 6727.04.06 (b) 30,200,000 30223.11.06 (c) 44,200,000 44223.11.06 (d) 66,670,000 666 At 31 December 2006 147,730,000 1,477 14 Share capital All issued shares are fully paid. (a) These shares were issued to form the initial founder shares capital of theCompany at 1p and were issued at nominal value, raising £66,600. (b) Initial AIM admission which raised £3,020,000, with £2,718,000 being sharepremium (net of £78,000 issue costs and £891,000 share award cost) (c) Raised on re-admission of 1p shares at 25p issue price.£11,050,000 wasraised with £10,608,000 allocated to share premium (net of £931,000 issue costsand £133,000 share award costs). (d) Issued in consideration for the purchase of Zurex (Note 20) at issue priceof 25p. £16,667,500 raised with £16,000,800 included as merger reserve. Changes in authorised share capital Number Nominal value Total authorised £ capital £'000 At incorporation 50,000 1 50 19.04.06 - increase 950,000 1 1,000 19.04.06 - subdivision 1,000,000,000 0.01 1,00027.04.06 - increase 1,500,000,000 0.01 2,500 Share Share Merger Translation Share- Retained Total capital premium reserve reserve based Total Equity scheme earnings equity £'000 £'000 £'000 £'000 £'000 £'000 £'000Loss forthe period - - - - - (423) (423) Issue ofoptions and warrants - - - - 1,089 - 1,089Issue of shares 1,477 13,326 16,001 - - - 30,804Issue costs - (2,033) - - - - (2,033)Translationreserve - - - (2) - (2) At 31 December 2006 1,477 11,293 16,001 (2) 1,089 (423) 29,435 15 Statement of changes in equity Description and purpose of reserves: Share capital - represents the nominal value of the shares issued. Share premium - represents the premium over nominal value paid for the sharesissued. Merger reserve - represents the premium on shares issued as consideration forthe acquisition of Zurex, which was acquired by way of share for share exchange. Translation reserve - represents the difference between translation and year endexchange rates. Share-based scheme reserve - represents the balance of share award schemes notyet released to income and expenditure account. 2006 £'000 Trade payables 500Social security and other taxes 54 Total 554 16 Current liabilities The carrying amounts of trade and other payables approximate their fair values. 17 Cash generated from operations 2006 £'000 Loss for the period (423)Adjustments for:- net interest (77)- share-based payments (Note 19) 65Changes in working capital (excluding the effects of acquisition):- trade and other receivables (104)- trade and other payables (221) Cash generated from operations (760) 18 Contingencies There were no contingent liabilities at 31 December 2006. 19 Share-based payments Scheme Date of Number of Options Vesting Life of Fair original Option price option Value grant conditions LTIP (employees) 27/10/06 2,600,000 0p Share 3 years 546,000 priceLTIP(non-employees) 27/10/06 3,000,000 0p Share 3 years 630,000 priceWarrants 27/04/06 3,300,000 1p None 7 months 891,000Warrants 27/10/06 1,107,975 25p None 1 month 132,957 The Group has two contracted share option schemes and warrants in issue. Thecontracted options and warrants have been valued in accordance with theprovisions of IFRS 2. The fair value of services received in return for share options granted toemployees is measured by reference to the fair value of share options granted.The estimate of fair value of the services received is measured based on abinomial lattice model for both LTIP Schemes. The vesting period is used as aninput to those models. The following additional assumptions were used for theLTIP and warrants: LTIP Warrants Expected volatility based on the average volatilityof 4 closely comparable companies over a rolling 12month period: 60.00% 60.00%No expected dividends. 4.97% 4.65%Risk free interest rate: 4.97% 4.6% - 4.9% The valuation of the above resulted in a £65,000 charge included with thereported loss for the period and £1,024,000 debited to the share premiumaccount. 20 Acquisition of subsidiary Book Fair value Deferred tax Recognised value at adjustment adjustment carrying acquisition amount value £'000 £'000 £'000 £'000 Carrying values Intangible Assets - 15,500 (4,650) 10,850Property, plant and equipment 772 - - 772Trade and other payables (774) - - (774)Net identifiableassets and liabilities (2) 15,500 (4,650) 10,848Goodwill on acquisition 6,078 Consideration paid 16,926 On 24 November 2006 the Company acquired the entire share capital of ZurexCorporation Sdn.Bhd. ("Zurex"). Zurex is a Malaysia company which has the rightto acquire a site, and owns a licence to manufacture palm oil biodiesel. Theacquisition had the following effect on the Group's assets and liabilities: The intangible assets are included at their fair value and have been groupedtogether. These relate to the option to acquire the land, the licence tomanufacture palm oil biodiesel and the value of a 5-year tax free incentive. TheGroup of assets could not be separated as they are all intrinsically linked. Thefair value of the Group of assets have been estimated by the Directors basedupon their assumptions of a market price for such a Group of assets. A significant part of the acquisition cost can be attributed to the knowledge ofthe licence holders in Malaysia. Under IFRS no value can be attributed to suchintangibles. These circumstances contributed to the amount recognised asgoodwill. The consideration was in the form of 66,670,000 shares at a market price of 25p. Acquisition costs of £258,977 are also included in the consideration figure. The result of the subsidiary for the period to 31 December 2006 was as follows: £'000 Operating loss 372 Uncertainty over funding As in all business operations, there is risk in the development of any project.The Board has considered in depth the options available and the current marketconditions, and is of the opinion that the project and raising of finance shouldcontinue. The next critical review point will follow receipt of the tenders whena full review of the excecution phase will be carried out before a decision ismade to proceed to this stage. 21 Related party transactions During the period the Company paid the following amounts on behalf of thesubsidiary undertaking: £'000 Amounts paid on subsidiary's behalf 1,713 Amount owed by subsidiary at period end 1,713 22 Capital commitments £'000 Construction contract with JJ Lurgi 4,000 There were no contracted for capital commitments at the year end. The followingcommitments have been entered into since the year end: Independent Report of the Auditor (Parent Company) to the members of Biofutures International plc We have audited the financial statements of Biofutures International plc for theperiod ended 31 December 2006 which comprise the principal accounting policies,the balance sheet statement and notes 1 to 12. These financial statements havebeen prepared under the accounting policies set out therein. We have reported separately on the group financial statements of BiofuturesInternational plc for the period ended 31 December 2006. That report is modifiedby the inclusion of an emphasis of matter. This report is made solely to the company's members, as a body, in accordancewith Section 235 of the Companies Act 1985. Our audit work has been undertakenso that we might state to the company's members those matters we are required tostate to them in an auditor's report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the company and the company's members as a body, for our audit work,for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report, and the parentcompany financial statements in accordance with United Kingdom law andAccounting Standards (United Kingdom Generally Accepted Accounting Practice) areset out in the Statement of Directors' Responsibilities. Our responsibility is to audit the parent company financial statements inaccordance with relevant legal and regulatory requirements and InternationalStandards on Auditing (UK and Ireland). We report to you our opinion as to whether the parent company financialstatements give a true and fair view and whether the parent company financialstatements have been properly prepared in accordance with the Companies Act1985. In addition we report to you if, in our opinion, the company has not kept properaccounting records, if we have not received all the information and explanationswe require for our audit, or if information specified by law regardingdirectors' remuneration and other transactions is not disclosed. We consider the implications for our report if we become aware of any apparentmisstatements or material inconsistencies with the parent company financialstatements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the parent company financial statements. It also includes anassessment of the significant estimates and judgments made by the directors inthe preparation of the parent company financial statements, and of whether theaccounting policies are appropriate to the company's circumstances, consistentlyapplied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the parent companyfinancial statements are free from material misstatement, whether caused byfraud or other irregularity or error. In forming our opinion we also evaluatedthe overall adequacy of the presentation of information in the parent companyfinancial statements. Opinion In our opinion: • the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company's affairs as at 31 December 2006; • the parent company financial statements have been properly prepared in accordance with the Companies Act 1985. Emphasis of matter Without qualifying our report we draw attention to "Uncertainty of Funding"included in note 20 to the group accounts, and to the section headed "funding"in the Chairman's Statement. The Group has yet to obtain the funding required tocontinue the development of the plant in Malaysia. If funding is not obtained,the development may not reach the project execution phase. The ultimate outcomeof the request for additional funding cannot presently be determined and so thefinancial statements do not account for any consequences arising fromdiscontinuing the project. GRANT THORNTON UK LLPREGISTERED AUDITORCHARTERED ACCOUNTANTS Leeds20 June 2007 Financial Statement Balance Sheet (Parent Company) For the period ended 31 December 2006 Note 2006 £'000Fixed assetsInvestments 2 16,926 Current assetsDebtors 3 4,258Cash at bank and in hand 8,813 13,071 Creditors: amounts falling due within one year 4 (551) Net current assets 12,520 Net assets 29,446 Capital and reservesCalled up share capital 6 1,477Share premium account 7 11,293Merger reserve 7 16,001Share-based scheme reserve 7 1,089Profit and loss account 7 (414) Shareholders' funds 29,446 The financial statements were approved by the Board of Directors on 20 June 2007 NW Gee, J Pomeroy Principal accounting policies Basis of Preparation The financial statements have been prepared under the historical costconvention, with adjustments to reflect the fair value of intangibles acquiredas investments, and have been prepared under United Kingdom Generally AcceptedAccounting Practice. Under section 230 (4) of the Companies Act 1985, the Company is exempt from therequirement to present its own profit and loss account (as detailed in note 12).The Company is entitled to the merger relief offered by Section 131 of theCompanies Act 1985 in respect of the consideration received in excess of thenominal value of the equity shares issued in connection with the acquisition ofZurex. The principal accounting policies of the Company are set out below. Income from Investments Investment income comprises bank interest received. Deferred taxation Deferred tax is provided for using the tax rates estimated to arise when thetiming differences reverse and is accounted for to the extent that it isprobable that a liability or asset will crystallise. Unprovided deferred tax isdisclosed as a contingent liability. Debit balances arising in respect of advance corporation tax on dividendspayable or proposed are carried forward to the extent that they are expected tobe recoverable. Foreign currency Transactions in foreign currencies are translated at the exchange rate ruling atthe date of the transaction. Monetary assets and liabilities in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. Any gain or loss arising from a change in exchange rates subsequent to thedate of the transaction is included as an exchange gain or loss in the profitand loss account. 1 Tax on Loss on Ordinary Activities There is no tax charge due to the loss for the period. The loss available tocarry forward against future profits is £349,213. No deferred tax asset has been provided for the loss due to the anticipatedtiming of the utilisation of the losses. 2 Fixed Asset Investments 2006 £'000CostAdditions in period 16,926 At 31 December 2006 16,926 2006 £'000 Amounts owed by Group undertaking 1,713Other debtors 2,545 4,258 3 Debtors 2006 £'000 Trade creditors 492Other taxation and social security 55Accruals and deferred income 4 551 4 Creditors: Amounts Falling Due Within One Year 5 Deferred Taxation The deferred tax asset is unprovided at 31 December 2006. 2006 £'000 Other timing differences 105 2006 £'000 Authorised Ordinary shares of 1p each 2,500 Allotted, called up and fully paid Ordinary shares of 1p each 1,477 6 Share Capital Number of shares £'000 At date of incorporation 2 -Conversion of £1 shares to pence shares 200 -Issue of shares19.04.06 (a) 6,659,800 6727.04.06 (b) 30,200,000 30223.11.06 (c) 44,200,000 44223.11.06 (d) 66,670,000 666 At 31 December 2006 147,730,000 1,477 All issued shares are fully paid. (a) These shares were issued to form the initial founder shares capital of theCompany at 1p and were issued at nominal value, raising £66,600. (b) Initial AIM admission which raised £3,020,000, with £2,718,000 being sharepremium (net of £78,000 issue costs and £891,000 share award cost). (c) Raised on re-admission of 1p shares at 25p issue price.£11,050,000 wasraised with £10,608,000 allocated to share premium (net of £931,000 issue costsand £133,000 share award cost). (d) Issued in consideration for the purchase of Zurex (Note 20 in the groupaccounts) at issue price of 25p. £16,667,500 raised with £16,000,800 included asmerger relief reserve. Changes in authorised share capital Number Nominal Total authorised value £ capital £'000 At incorporation 50,000 1 50 19.04.06 - increase 950,000 1 1,000 19.04.06 - subdivision 1,000,000,000 0.01 1,00027.04.06 - increase 1,500,000,000 0.01 2,500 Share Merger Share-based Profit premium reserve scheme and loss account reserve account £'000 £'000 £'000 £'000 Arising on issues during 13,326 16,001 1,089 -the periodIssue costs (2,033) - - -Loss for the period - - - (414) At 31 December 2006 11,293 16,001 1,089 (414) 7 Share Premium Account and Reserves 8 Reconciliation of Movements in Shareholders' funds 2006 £'000 Loss for the financial period (414)Share issues in the period 29,860 Shareholders' funds at 31 December 2006. 29,446 9 Capital Commitments There were no contracted for capital commitments at the year end. 10 Contingencies There were no contingent liabilities at 31 December 2006. 11 Transactions with Directors and/or Other Related Parties The Company has taken advantage of the exemption in Financial Reporting StandardNo 8 "Related party disclosures" and has not disclosed transactions with Groupundertakings. There are no other related party transactions. 12 Result of the Company The Company has taken advantage of the exemption available under section 230 ofthe Companies Act 1985 and has not presented its own profit and loss account.The loss of the company for the period was £414,213. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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