Final Results

30th Jun 2009 18:01



30 June 2009 AIM: GBF

GEM Biofuels Plc

("GEM" or the "Company")

Preliminary Results for the Year Ended 31 December 2008

GEM Biofuels Plc (AIM: GBF), the emerging feedstock supplier to the global biodiesel industry, today announces its preliminary results for the year ended 31 December 2008.

Corporate Highlights

Appointment of Didier van Bignoot as Country Manager, Madagascar and Chief Agronomist

Operational Highlights

22,000 hectares of Jatropha established during 2008 plantation season 

Successful trial introduction of new partly-mechanised plantation establishment methodology 

Financial Highlights

Cash as at 31 December 2008 £1.07 million (2007: £2.17 million)

Group loss for the year: £1.39 million (2007: £0.98 million)

Post Period Highlights

Conclusion in February 2009, of the 2008/2009 planting season during which a further 21,600 hectares of Jatropha were planted, bringing the total planted to 55,700 hectares.

Mr Paul Benetti, Chief Executive Officer, comments, "During 2008 GEM has demonstrated the viability of Jatropha as a plantation crop and made further progress on our strategy of developing low-cost, sustainable and Company-managed Jatropha plantations. Having examined the business models of other crude jatropha oil ("CJO") projects, GEM remains committed to the owner/manager plantation model and believes that it is the only strategy  that can deliver commercial quantities of certifiable CJO at the required quality and price in a sustainable manner. Furthermore, we believe jatropha is probably the only non-food feedstock that can supply sustainable commercial volumes of biodiesel in a carbon neutral manner at a price point competitive with fossil fuel." 

Mr Simon Hunt, Non-Executive Chairman, added, "The Company is now established as a world leader in company-managed Jatropha plantations, with a plantation business of 55,700 hectares. We look forward to taking the next step in the development of its business operations and in turn enhancing value for all shareholders."

Enquiries:

GEM Biofuels Plc	Shore Capital and Corporate Limited	Walbrook PR Ltd
Paul Benetti Chief Executive Officer	Dru Danford / Stephane Auton	Louise Goodeve / Leah Kramer
+61 (0) 8 6365 3038 / +61 (0) 407 039 379 (mobile)	+44 (0) 20 7408 4090	T: +44 (0) 20 7933 8780

Notes to Editors

About GEM Biofuels 

GEM Biofuels was founded in 2004 to capitalise on the opportunity presented by the local agricultural and socio-economic conditions in Madagascar to produce Jatropha oil for use as a biodiesel feedstock. Operations are based in the South of the island where the Jatropha tree grows wild.

The Company has secured 50 year agreements giving exclusive rights over 452,500 hectares (in excess of 1 million acres) to establish plantations, ranging in size from 2,500 - 50,000 hectares with a further 40,000 hectares of natural forest containing substantial numbers of mature Jatropha trees.

To date the Company has planted 55,700 hectares of Jatropha and a total of 200,000 hectares is expected to be planted by 2011. Based on this, the Group's production of Crude Jatropha Oil is expected to be in excess of 230,000 tonnes per annum in 2017, once all of the trees planted have matured. 

GEM Biofuels Plc was admitted to trading on AIM in October 2007.

Jatropha 

Jatropha is a small tree/shrub, growing to about 5 metres in height and is well suited for use in the production of biodiesel. Jatropha trees are relatively drought resistant and suitable for cultivation in sub tropical regions. The high oil yielding seeds are mildly toxic and as such Jatropha is not a food and its use in biodiesel production does not affect the cost of living of the indigenous population. Biodiesel refined from Jatropha oil complies with international standards, including EN14214 in Europe, the major market for biodiesel.

Whilst the current production of Jatropha seed for commercial purposes is small, it is substantially increasing due to its attractiveness as a biodiesel feedstock because of its ability to grow on marginal land and the fact that it is non-edible.

  Report of the Chairman and of the Chief Executive Officer

We are pleased to announce the results of GEM BioFuels Plc ("GBF" or the "Company") for the year ended 31 December 2008 and following is our report to shareholders for the year.

The 2008 year has been one of significant change in the biofuels industry and, with several high profile 'exits' from the industry and a widening realisation that many of the claims about the plant have been exaggerated, the Jatropha sector has not been immune. However with these changes has come an increasing understanding that when managed properly, by companies such as GBF where realistic yield expectations and appropriate agronomic practices are in place, it is possible that Jatropha can produce sufficient oil to be an excellent biodiesel feedstock.

Political and environmental concerns continue to rapidly drive an already substantial biodiesel feedstock market thereby creating exciting opportunities and various organisations have approached these multiple opportunities in a number  of ways.

The fast moving nature of legislative developments (as recently as December 2008) means that early movers within the biodiesel feedstock industry who rely on 'outgrower farming methods' and seed purchase arrangements may find the businesses incompatible with the markets' future requirements regarding quality, quantity, sustainability and price.

GBF remains focussed on the development of a low-cost, sustainable, crude Jatropha oil ("CJO") supply business utilising Company owned/managed plantations. Having reviewed business plans and revenue models of numerous crude vegetable oil projects around the world, we remain convinced that the owner/managed plantation business model is the only one that provides the control necessary to deliver commercial quantities of certifiable CJO at the required quality and price in a sustainable manner.

We continue to believe that Jatropha (which is able to directly displace mineral diesel) is one of only a few non-food feedstocks that, when properly managed, can supply sustainable commercial volumes of biodiesel in a carbon neutral manner at a price point competitive with fossil fuel. With an expected long-term cost of production in commercial quantities of around $30-$35 per barrel Jatropha should provide refiners with an economical alternative to mineral diesel for distribution into the transport fuel markets. In addition, we believe its carbon-neutral and sustainable nature will likely enable Jatropha-biodiesel to trade at a premium to fossil diesel and other vegetable oils due to its environmental properties and the fiscal incentives this will deliver.

Plantation Operations

During the year under review (including to the completion of the most recent planting season in February 2009), the Company established 39,600 hectares of Jatropha plantation in Southern Madagascar, which brings the total plantation area successfully established by the Company to 55,700 hectares.

Since commencing operations in 2006, GEM has built a wealth of experience in planting campaigns and as such is now well equipped to deal with the multitude of potential influences on the establishment and operation of Jatropha plantations. 

Recent inspection of the Jatropha plantations established during the 2007/08 season found positive growth progress. GEM estimates that around 70% of plantings should be successful in growing to maturity and producing Jatropha seed. 

The 2008/09 season has seen GEM move up to 150km North of its Toliara operational base in South West Madagascar. This region is more remote from local labour sources and infrastructure is less developed. The 2008/09 season was planned as a 'mixed' campaign (i.e. partly manual and partly mechanised as opposed to the 2007/08 season which was carried out on an entirely manual basis) in order to avoid lengthy transport of labour and moreover, test out a newly developed plantation establishment methodology, which was expected to yield both cost and operating efficiencies.

This 'mechanised' approach has since proven both effective and cost efficient, however management took the decision to curtail the program at 21,600 hectares due primarily to the inefficiency of the local tractors used.

The Company will continue to focus on its target of establishing 200,000 hectares of Jatropha in Madagascar. Based on the success of the 2008/2009 campaign, management believes that, inclusive of the purchase of the necessary equipment, it will be more cost effective to implement significant mechanisation going forward. The Company believes that this can result in operating cost savings as high as 30%, however this will necessitate an additional planting season in order to be fully implemented.

Financial Review

In the year ended 31 December 2008, the Group's loss on ordinary activities after taxation was £1,394,417 (2007: £977,926), or a loss per ordinary share of 5.05p (2007: 4.53p). The Group's cash balance at the end of the year was £1,070,753 (2007: £2,169,831).

Management

GBF's senior management group was further enhanced during 2008 with the appointment of Mr Didier van Bignoot to the role of Chief Agronomist and Country Manager in Madagascar. Didier's experience in developing economy agriculture provides additional experience in agricultural and plantation management and in dealing with the specific issues in developing countries, particularly in Africa and South America. He has already made significant contributions to the Company's strategy for future operations.

2008 has seen the continued hard work and dedication of our team applied to implementing our strategy and building our business and we would like to thank all our staff across the Group for their efforts. We look forward to their continuing support as we expand and further develop the GBF business into Africa's leading player in the 'non traditional' vegetable oil supply business.

Outlook

The Company's proposition, "that Jatropha is a significant, alternative oilseed crop which meets the growing requirement for energy crops that will not compete with food crops for available land or threaten biodiversity" is gaining increasing credibility around the world. 

This is particularly so in Africa (where the Company is focussed) and our position as a leader in the Company owned/managed Jatropha plantation business differentiates us significantly in a market that increasingly requires biofuels that are competitive and also sustainable.

The Group's operations represent an opportunity to benefit not only from the growing biodiesel market, but they also provide an excellent basis from which to exploit other sustainable activities such as the alternative fuel production and the uses of the biomass from the vegetable oil extraction process.

For details on the Groups financing plans for the future, please refer to note 2b to the financial statements.

Simon D Hunt

Non-Executive Chairman

Paul R Benetti

Chief Executive Officer

  

Consolidated and Company Income Statements  for the year ended 31 December 2008
	Note		2008 Group £	2007 Group £		2008 Company £	2007 Company £
Administrative expenses	5		(1,279,755)	(1,032,495)		(1,118,515)	(714,778)
Finance income	8		63,172	20,743		63,172	20,743
Other gains and (losses)			(173,027)	56,141		(161,544)	19,081
Finance costs	8		(4,807)	(22,315)		(3,533)	(20,801)
Loss before tax			(1,394,417)	(977,926)		(1,220,420)	(695,755)
Tax expense	9		-	-		-	-
LOSS FOR THE YEAR			(1,394,417)	(977,926)		(1,220,420)	(695,755)
Loss per ordinary share	20
Basic loss per ordinary share (pence)			5.05	4.53		4.42	3.22
Diluted loss per ordinary share (pence)			5.05	4.53		4.42	3.22

Consolidated and Company Balance Sheets as at 31 December 2008
	Note		2008 Group £	2007 Group £		2008 Company £	2007 Company £
ASSETS
Non current assets
Goodwill	11		1,086,527	787,614		-	-
Property, plant and equipment	12		64,358	47,650		4,412	1,860
Plantation assets	13		614,619	168,379		-	-
Investment in subsidiary	19		-	-		1,036,500	751,350
Other assets			270	-		-	-
			1,765,774	1,003,643		1,040,912	753,210
Current Assets
Inventories	14		11,185	5,654		-	-
Loan to subsidiary	10		-	-		1,839,368	854,706
VAT refundable			53,027			53,027
Cash and cash equivalents			1,070,753	2,169,831		849,738	2,003,713
			1,134,965	2,175,485		2,742,133	2,858,419
TOTAL ASSETS			2,900,739	3,179,128		3,783,045	3,611,629
LIABILITIES
Current liabilities
Trade and other payables	15		80,024	144,049		80,024	139,230
TOTAL LIABILITIES			80,024	144,049		80,024	139,230
NET CURRENT ASSETS			1,054,941	2,031,436		2,662,109	2,719,189
NET ASSETS			2,820,715	3,035,079		3,703,021	3,472,399
EQUITY
Issued capital	16		276,015	276,015		276,015	276,015
Share premium	16		4,391,866	4,391,866		4,391,866	4,391,866
Currency translation reserve			596,515	(188,716)		836,314	(219,906)
Share option reserve	22		589,043	194,221		589,043	194,221
Accumulated losses			(3,032,724)	(1,638,307)		(2,390,217)	(1,169,797)
TOTAL EQUITY			2,820,715	3,035,079		3,703,021	3,472,399

Statements of Changes in Equity

for the year ended 31 December 2008

	Note	Share Capital	Share Premium	Currency Translation Reserve	Share Option Reserve	Accumulated Losses	Total
		£	£	£	£	£	£
2008 GROUP
Balance at 1 January 2008		276,015	4,391,866	(188,716)	194,221	(1,638,307)	3,035,079
Loss for the year		-	-	-	-	(1,394,417)	(1,394,417)
Issue of options		-	-	-	394,822	-	394,822
Translation into presentation currency		-	-	785,231	-	-	785,231
Balance as at 31 December 2008		276,015	4,391,866	596,515	589,043	(3,032,724)	2,820,715
2007 GROUP
Balance at 1 January 2007		200,000	1,564,708	(190,294)	-	(660,381)	914,033
Loss for the year		-	-	-	-	(977,926)	(977,926)
Issue of shares during the year	18	76,015	3,689,210	-	-	-	3,765,225
Issue of options		-	-	-	194,221	-	194,221
Share issue cost		-	(862,052)	-	-	-	(862,052)
Translation into presentation currency		-	-	1,578	-	-	1,578
Balance as at 31 December 2007		276,015	4,391,866	(188,716)	194,221	(1,638,307)	3,035,079
2008 COMPANY
Balance at 1 January 2007		276,015	4,391,866	(219,906)	194,221	(1,169,797)	3,472,399
Loss for the year		-	-	-	-	(1,220,420)	(1,220,420)
Issue of options		-	-	-	394,822	-	394,822
Translation into presentation currency		-	-	1,056,220	-	-	1,056,220
Balance as at 31 December 2007		276,015	4,391,866	836,314	589,043	(2,390,217)	3,703,021
2007 COMPANY
Balance at 1 January 2007		200,000	1,564,708	(202,652)	-	(474,042)	1,088,014
Loss for the year		-	-	-	-	(695,755)	(695,755)
Issue of shares during the year	18	76,015	3,689,210	-	-	-	3,765,225
Issue of options		-	-	-	194,221	-	194,221
Share issue cost		-	(862,052)	-	-	-	(862,052)
Translation into presentation currency		-	-	(17,254)	-	-	(17,254)
Balance as at 31 December 2007		276,015	4,391,866	(219,906)	194,221	(1,169,797)	3,472,399

Cash Flow Statements for the year ended 31 December 2008
	Note		2008 Group £	2007 Group £		2008 Company £	2007 Company £
Cash flows from operating activities
Cash used in operations	17		(1,022,490)	(822,531)		(782,945)	(542,214)
Cash flows from investing activities
Purchases of property, plant and equipment			(38,207)	(30,300)		(4,147)	(1,206)
Purchases of plantation assets			(391,316)	(98,843)		-	-
Interest received			63,172	20,743		63,172	20,743
Interest paid			(4,807)	(2,396)		(3,533)	(882)
Loans to subsidiary			-	-		(660,287)	(376,772)
Net cash used in investing activities			(371,158)	(110,796)		(604,795)	(358,117)
Cash flows from financing activities
Proceeds from issue of shares			-	3,500,000		-	3,500,000
Proceeds from converting RAB Loan Notes to shares			-	250,000		-	250,000
Payment for share issue costs			-	(862,052)		-	(862,052)
Net cash provided by financing activities			-	2,887,948		-	2,887,948
Net (decrease)/increase in cash and cash equivalents			(1,393,648)	1,954,621		(1,387,740)	1,987,617
Cash and cash equivalents at the beginning of the year			2,169,831	212,615		2,003,713	15,833
Effects of exchange rate changes on the balance of cash held in foreign currencies			294,570	2,595		233,765	263
Cash and cash equivalents at the end of the year			1,070,753	2,169,831		849,738	2,003,713

1. GENERAL INFORMATION

GEM BioFuels PLC (the "Company") is a company domiciled and incorporated in the Isle of Man, and was incorporated on 6 December 2005. The Company's ordinary shares are traded on AIM.

The consolidated and company accounts for GEM BioFuels Plc and its subsidiary (the "Group") have been prepared for the year ended 31 December 2008.

The Company's registered address is 34 North Quay, Douglas, Isle of Man IM1 4LB.

The functional currency of the company and the consolidated financial statements is the United States Dollars ('USD') as it is the currency of the primary economic environment in which the Group operates. The consolidated financial statements are presented in Pounds Sterling (presentation currency) for the convenience of readers. The translation between the functional and presentation currency is in accordance with the policy set out in Section 2(h) below.

2.  SIGNIFICANT ACCOUNTING POLICIES

(a)  Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as they apply to the financial statements of the Group for the year ended 31 December 2008.

At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective:

IFRS 2 Amendment to IFRS 2 - Share-based Payment Vesting Conditions and Cancellations 

IFRS 3 Business Combinations (revised January 2008) 

IFRS 8  Operating Segments 

IAS 1 Presentation of Financial Statements (revised 2007) 

IAS 23 (revised) Borrowing Costs IAS 27 Consolidated and Separate Financial Statements (revised 2008) 

IFRC 11 IFRS 2 - Group and Treasury Share Transactions

IFRIC 12 Service Concession Arrangements

IFRIC 13 Customer Loyalty Programs

IFRIC 14 IAS 19 The Limit on Defined Benefit Assets, Minimum Funding Requirements

The directors anticipate that all of the above standards and interpretations will be adopted when effective and that the adoption of these Standards and Interpretations will have no material impact on the financial statements of the Group in the period of initial application except for the impact of IFRS 2. With regard to IFRS 2, management anticipate that the amendment may have a material impact on the accounts, however this impact has not been quantified.

(b)  Basis of preparation

The Group financial statements are prepared on the historical cost basis.

The accounting policies have been consistently applied to the results, gains and losses, assets, liabilities and cash flows of entities included in the consolidated financial statements. 

The preparation of financial statements in conformity with IFRSs requires the Directors to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that year or in the year of the revision and future periods if the revision affects both current and future years.

The financial report has been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. 

The Company and the Group have incurred a net loss after tax for the year ended 31 December 2008 of £1,220,420 and £1,394,417 respectively (2007: £695,755 and £977,926 respectively) and experienced net cash outflows from operations of £782,945 and £1,022,490 respectively (2007: £542,214 and £822,531 respectively). As at 31 December 2008 the Company and the Group had net current assets of £2,662,109 and £1,054,941 respectively (2007: £2,719,189 and £2,031,436 respectively). 

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group and the Company's ability to continue as a going concern and mean that it may be unable to realise its assets and discharge its liabilities in the normal course of business.

During the year to the date of this report the Directors have taken steps to ensure the Company and the Group continue as going concerns. These steps have included: 

(i) Entering into discussions with a number of potential investors regarding the raising of additional equity funds to progress the Company's project in Madagascar.

(ii) Appointment of Shore Capital and Haywood Securities to assist the company in raising additional equity funds.

(iii) The Company has not obtained any debt funding and has no external debts at the date of this report. Further the Company does not have any significant commitments. 

(iv) Entering into discussions with a number of potential off-take parties. 

(v) The Directors have reviewed the quantum and timing of all discretionary expenditure and wherever necessary these costs will be minimised or deferred to suit the Company's and Group's cashflows. 

The ability of the Company and the Group to continue as going concerns and to pay their debts as and when they fall due is dependent on a combination of the following:

(i) Successful completion of the proposed capital raising of £2.18 million by September 2009; and

(ii) Ongoing and active management of the expenditure incurred by the Group to protect current cash levels. 

The Directors have reviewed the Company's and the Group's overall position and outlook in respect of the matters identified above and are of the opinion that the use of the going concern basis is appropriate in the circumstances. 

Notwithstanding this, there are a number of matters upon which the going concern of the Company and the Group is dependent and should these matters not be satisfactorily resolved, and in particular should the proposed capital raising by September 2009 not be successful, there is significant uncertainty whether the Company and the Group will be able to continue as going concerns. 

Should the Company and the Group be unable to continue as going concerns, they may be required to realise their assets and extinguish their liabilities other than in the normal course of business and at amounts different from those stated in the financial report. 

The financial report does not include any adjustments relating to the recoverability and classification of recorded assets amounts or the amounts and classification of liabilities that may be necessary should the Company and the Group be unable to continue as going concerns. 

 (c)  Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

 (d)  Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceed the cost of the business combination, the excess is recognised immediately in profit or loss.

(e)  Goodwill

Goodwill is allocated as described in Section (d). After initial recognition, goodwill is measured at cost less any accumulated impairment losses. This impairment review is performed at least annually. Goodwill which is recognised as an asset is reviewed for impairment at least annually.

(f)  Revenue recognition

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. 

(g)  Leases

Leases are classified as finance leases whenever the terms of the lease substantially transfer the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group only has operating leases. Initial direct costs incurred in negotiating and arranging an operating lease is added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

(h)  Foreign currencies

The functional currency of the Company and subsidiaries is considered to be the United States Dollars as the currency of the primary economic environment in which the Group operates. For the purpose of the consolidated financial statements, the results and financial position of the Company and Group are expressed in Pounds Sterling.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the year in which they arise except for:

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during that year, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or as expenses in the year in which the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(i)  Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

(j)  Financial instruments

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Trade receivables

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. 

The allowance recognised is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Investments

Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, including transaction costs.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company or the Group after deducting all of its liabilities.

Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments and hedge accounting

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group does not use derivative financial instruments for speculative purposes.

Debt and equity instruments

Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. 

Compound instruments

The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or upon the instruments reaching maturity. The equity component initially brought to account is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects and is not subsequently remeasured.

(k)  Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

(l)  Property, plant and equipment

Items of property, plant and equipment are initially recorded at cost, being the fair value of consideration provided plus incidental costs, including an amount for dismantling costs where applicable. Items of plant and equipment, including motor vehicles, fixtures and fittings and leasehold improvements are depreciated from the date of acquisition using the straight line method over their estimated useful lives. Depreciation rates are reviewed annually.

The depreciation rates used for each class of asset are as follows:

Motor vehicles 25%

Fixtures and equipment  5% - 40%

(m)  Plantation assets

A biological asset is a living animal or plant. The Group has determined that it has a biological asset being the Jatropha trees in Madagascar. A biological asset is required to be recognised when the company controls the asset as a result of a past event, it is probable that the future economic benefits associated with the asset will flow to the entity and the fair value or cost of the asset can be measured reliably.

The biological asset should be measured on initial recognition and at each balance sheet date at its fair value less estimated point of sale costs, except where the fair value cannot be measured reliably. Fair value is not reliably measurable when market determined prices are not available and for which alternative measures of fair value are clearly unreliable.

Costs incurred may approximate fair value when little biological transformation has taken place since the initial cost occurrence.

Changes in the fair value (gains and/or losses) of the biological asset are recorded in the income statement in the period in which the change occurs.

(n) Government Grants

Government grants relating to land are measured at fair value less estimated point of sale costs and treated as deferred income and released to profit or loss over the expected useful lives of the assets concerned. Where the grant relates to biological assets accounted for on an historical cost basis, the grant and related assets are recorded at nominal value.

 

(o)  Impairment of assets

At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not subsequently reversed.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately.

(p)  Inventories

Inventories are valued at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a first in first out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

(q)  Share-based payments

Equity-settled share-based payments with employees and others providing similar services are measured at the fair 

value of the equity instrument at the grant date. Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Further details on how the fair value of equity-settled share-based transactions has been determined can be found in note 22.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest.

At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit and loss over the remaining vesting period, with corresponding adjustment to the equity-settled employee benefits reserve.

No amount has been recognised in the financial statements in respect of other equity-settled share based payments.

Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods and services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date.

3.  CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Group's accounting policies, which are described in note 2, the Directors have made the following judgements that have the most significant effect on the amounts recognised in the financial statements.

Impairment of goodwill

Following a detailed review of the business combinations acquired, the Directors are satisfied that the carrying amount of the goodwill is justified and no impairment loss is to be recognised at the year end.

Impairment of biological assets

Following a review of the Company's plantation and forest assets, the Company has determined that as at 31 December 2008 the biological asset will be measured at the cost of initial planting as little if any biological transformation had occurred at 31 December 2008 and accordingly cost reflected the best approximation of fair value.

Valuation of Share Based payments

Share options are required to be valued at the grant date. The Directors have made certain assumptions which underpin the value assigned to the options. Refer to note 22 for details of the assumptions made.

4.  SEGMENT REPORTING

The Group's primary reporting format is its geographical segment, while its secondary reporting format is its business segment.

The Group has one geographical segment being Madagascar.

The Group has one business segment, which is the production of feedstock for the Biodiesel market.

5. ADMINISTRATIVE EXPENSES

Operating loss is stated after charging:

	2008 Group £	2007 Group £		2008 Company £	2007 Company £
Legal & professional fees	106,588	175,256		102,026	151,199
Consultants' fees	4,546	46,902		-	13,874
Depreciation	31,805	21,801		1,814	709
Rental fees	33,324	55,406		14,040	2,490
Wages and salaries	778,993	418,703		720,104	391,142
Other administrative expenses	240,499	234,816		196,531	92,494
Loss on disposal of property, plant and equipment	-	16,741		-	-
Non-Executive Directors' fees	84,000	62,870		84,000	62,870
	1,279,755	1,032,495		1,118,515	714,778

Included within the Administrative expenses are the following amounts of Auditor's remuneration:

	2008 Group £	2007 Group £		2008 Company £	2007 Company £
Audit fees	36,661	29,460		36,661	29,460
Corporate finance service	-	61,306		-	61,306
	36,661	90,766		36,661	90,766
Capitalised to share premium account	-	(61,306)		-	(61,306)
	36,661	29,460		36,661	29,460

6. STAFF NUMBERS AND COSTS

 

The average number of persons employed by the Group (including Directors) during the year, by category, was as follows:

	2008 Number		2007 Number
Executive directors	3		2
Technical	2		2
Administration	33		28
Total	38		32

 

The costs incurred in respect of these employees (including Directors) were:

	2008 £		2007 £
Total (including social security costs)	778,993		418,703

 

The average number of persons employed by the Company (including Directors) during the year, by category, was as follows:

	2008 Number		2007 Number
Executive directors	3		2
Administration	1		2
Total	4		4

 

The costs incurred in respect of these employees (including Directors) were:

	2008 £		2007 £
Total (including social security costs)	720,120		391,142

7. DIRECTORS' REMUNERATION

	Basic Salary £	Fees £	Share Options(ii) £	Total 2008 £	Total 2007 £
Executive directors
Paul R Benetti	145,000	-	182,157	327,157	150,128
Adam W Broadhurst (i)	136,500	-	121,456	257,956	159,590
Frank B Tiller (i)	36,000	-	15,228	51,228	11,174
Non-executive directors
Simon D Hunt (i)	-	36,000	45,579	81,579	38,522
Malcolm F Williams (i)	-	24,000	30,401	54,401	12,348
Pritesh R Desai	-	24,000	-	24,000	12,000
	317,500	84,000	394,821	796,321	383,762

Appointed as a Director on 15 October 2007.

Further details of the share options issued to directors are set out in note 22.

8. NET FINANCING INCOME

	2008 Group £	2007 Group £		2008 Company £	2007 Company £
Interest income from financial institutions	63,172	20,743		63,172	20,743
Gross interest expenses (i)	(4,807)	(22,315)		(3,533)	(20,801)
Net financing income	58,365	(1,572)		59,639	(58)

Included in the prior year gross interest expense of £22,315 (Group) and £20,801 (Company) is an amount of £19,919 of non cash interest relating to the RAB convertible notes. Refer to note 16 for further details. 

9. INCOME TAX EXPENSE

The Income Tax (Amendment) Act 2006 provides that a standard zero rate of income tax will apply to the company in the Isle of Man for 2006/07 and subsequent years of assessment. Therefore no provision for liability to Isle of Man income tax has been included in these accounts. 

The company's subsidiary pays tax at a rate of 30% on its taxable profits. No tax charge has been recorded in the current period in respect of the operations of the subsidiary due to losses arising. A deferred tax asset has not been recognised in respect of these losses due to the unpredictability of future income streams in the company. The charge for the period can be reconciled to the loss per the income statement as follows:

	Group  2008 £		Group  2007 £
Loss before tax	(1,394,417)		(977,926)
Tax at the domestic rate of 0%	-		-
Effect of different tax rates of subsidiary operating in another jurisdiction	(122,875)		(84,651)
Unrecorded deferred tax asset	122,875		84,651
Tax expense for the year	-		-

10. LOAN TO SUBSIDIARY

The company has lent an additional £984,662 during the year to Green Energy Madagascar sarl ('Green Energy'), a wholly owned subsidiary, bringing the total amount loaned by the company to Green Energy as at 31 December 2008 to £1,839,368 (2007: £854,706). The loan is repayable on demand and attracts no interest.

The recoverability of the loan to the subsidiary is dependent on the Group continuing as a going concern. The financial statements have been prepared on a going concern basis notwithstanding the uncertainties faced by the Company and Group. Refer section 1(b) for further details.

 

11. GOODWILL

			Group £
Balance at 1 January 2007			802,244
Effects of foreign currency exchange differences			(14,630)
Balance at 1 January 2008			787,614
Effects of foreign currency exchange differences			298,913
Balance at 31 December 2008			1,086,527

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating unit (CGU) that is expected to benefit from that business combination. The Group's only CGU is Green Energy Madagascar sarl.

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

The recoverable amount of the CGU is determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the year. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the following five years. 

The rate used to discount the forecast cash flows is 16% (2007: 15%).

The recoverability of the goodwill is dependent on the Company and Group continuing as going concerns. The financial statements have been prepared on a going concern basis notwithstanding the uncertainties faced by the Company and Group. Refer Section 1(b) for further details. 

 

12. PROPERTY, PLANT AND EQUIPMENT

GROUP COST		Motor Vehicles £	Fixtures and equipment £	Total £
At 1 January 2008		51,248	30,398	81,646
Additions		20,289	17,918	38,207
Exchange difference		16,719	10,087	26,806
At 31 December 2008		88,256	58,403	146,659
ACCUMULATED DEPRECIATION
At 1 January 2008		26,802	7,194	33,996
Charge for the year		20,338	11,467	31,805
Exchange difference		12,034	4,466	16,500
At 31 December 2008		59,174	23,127	82,301
NET BOOK VALUE
At 31 December 2008		29,082	35,276	64,358

  

COST				Motor Vehicles £		Fixtures and equipment £		Total £
At 1 January 2007			38,332		27,084		65,416
Additions			9,974		20,326		30,300
Disposals			-		(21,513)		(21,513)
Exchange difference			2,942		4,501		7,443
At 31 December 2007			51,248		30,398		81,646
ACCUMULATED DEPRECIATION
At 1 January 2007			11,344		3,228		14,572
Charge for the year			13,733		8,068		21,801
Disposals			-		(4,772)		(4,772)
Exchange difference			1,725		670		2,395
At 31 December 2007			26,802		7,194		33,996
NET BOOK VALUE
At 31 December 2007			24,446		23,204		47,650

COMPANY COST			Fixtures and equipment £	Total £
At 1 January 2008			3,208	3,208
Additions			4,147	4,147
Exchange difference			1,217	1,217
At 31 December 2008			8,572	8,572
ACCUMULATED DEPRECIATION
At 1 January 2008			1,348	1,348
Charge for the year			1,814	1,814
Exchange difference			998	998
At 31 December 2008			4,160	4,160
NET BOOK VALUE
At 31 December 2008			4,412	4,412

COST			Fixtures and equipment £	Total £
At 1 January 2007			2,039	2,039
Additions			1,206	1,206
Exchange difference			(37)	(37)
At 31 December 2007			3,208	3,208
ACCUMULATED DEPRECIATION
At 1 January 2007			646	646
Charge for the year			709	709
Exchange difference			(7)	(7)
At 31 December 2007			1,348	1,348
NET BOOK VALUE
At 31 December 2007			1,860	1,860

 

 

13 . PLANTATION ASSETS

COST	2008 Group £	2007 Group £		2008 Company £	2007 Company £
At 1 January	168,379	58,500		-	-
Additions during year	391,316	98,843		-	-
Exchange difference	54,924	11,036		-	-
At 31 December	614,619	168,379		-	-

Following a review of the Company's plantation assets, the Company has determined that as at 31 December 2008 the biological asset will be measured at the cost of initial planting as little, if any biological transformation has occurred at that date. Accordingly, cost reflected the best approximation of fair value.

The recoverability of plantation assets is dependent on the Company and Group continuing as going concerns. The financial statements have been prepared on a going concern basis, notwithstanding the uncertainties faced by the Company and the group. Refer Section 1(b) for further details.

14 INVENTORIES

	2008 Group £	2007 Group £		2008 Company £	2007 Company £
Raw material stock	11,185	5,654		-	-
Total	11,185	5,654		-	-

 

15. TRADE AND OTHER PAYABLES

	2008 Group £	2007 Group £		2008 Company £	2007 Company £
Trade payables	48,656	53,283		48,656	48,464
Accrued expenses	31,368	90,766		31,368	90,766
	80,024	144,049		80,024	139,230

Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days. For most suppliers no interest is charged on the trade payables. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. 

Included in the Group trade payables above is £nil (2007: £18,512) which relates to amounts owed to a director. The amount is unsecured and interest free and payable on demand. Refer to note 21 for further details. The directors consider that the carrying amount of trade payables approximates to their fair value.

16. SHARE CAPITAL AND SHARE PREMIUM

Authorised:		Number of Ordinary Shares of 1p each	£
31 December 2007		200,000,000	2,000,000
31 December 2008		200,000,000	2,000,000

Issued		Number of Shares Issued and Fully Paid	Share Capital £	Share Premium £
Balance at 1 January 2007		20,000,000	200,000	1,564,708
Issue of placing shares at 1p each		5,833,334	58,333	3,441,667
Issue of conversion shares at 1p each		1,768,167	17,682	247,543
AIM admission costs		-	-	(862,052)
Balance at 31 December 2007 and at 1 January 2008		27,601,501	276,015	4,391,866
Issue of option exercise shares at 1p each		-	-	-
At 31 December 2008		27,601,501	276,015	4,391,866

On 15 October 2007, the company completed the placing of 5,833,334 ordinary shares. The company received cash consideration of £3,500,000 for this placing prior to expenses of £862,052.

On 27 March 2007 the Company and RAB entered into a further investment agreement under which RAB agreed to subscribe in cash for US$500,000 of convertible loan notes to be issued under a loan note instrument. The loan notes were secured by way of a debenture over all the assets and business of the Company.

A total of 500,000 US$1 loan notes were issued with repayment required after 2 January 2008 upon receipt of a repayment notice from RAB. The loan notes bore interest at 1 per cent per month until 1 January 2008 and if still outstanding increasing to 1.5 per cent per month until 1 April 2008 and thereafter at 2 per cent per month if still outstanding.

The loan notes were deemed to be a compound financial instrument. The directors deemed the effective interest rate to be consistent with the rate applicable to a debt instrument and accordingly recorded the US$500,000 as a liability. 

On 15 October 2007, the company issued 1,768,167 ordinary shares in satisfaction of the conversion of US$500,000 in loan notes at the conversion price of US$0.30 per share. 

Share Capital

Share capital represents the nominal value of shares issued by the company.

Share Premium

Share premium represents the premium over nominal value raised on the issue of shares by the company.

The Company has one class of ordinary shares which carry no right to income.

Holders of the ordinary shares are entitled to receive dividends and other distributions and to attend and vote at any general meeting.

 

17. NOTES TO THE CASH FLOW STATEMENT

	2008 Group £	2007 Group £		2008 Company £	2007 Company £
Loss for the year	(1,394,417)	(977,926)		(1,220,420)	(695,755)
Adjustments for:
Finance costs	4,807	22,315		3,533	20,801
Loss on disposal of property, plant and equipment	-	16,741		-	-
Share option expense	394,822	194,221		394,822	194,221
Foreign exchange loss/(gain)	126,518	(7,165)		212,711	(8,225)
Interest income received and receivable	(63,172)	(20,743)		(63,172)	(20,743)
Depreciation of property, plant and equipment	31,805	21,801		1,814	709
Operating cash flows before movements in working capital	(899,637)	(750,756)		(670,712)	(508,992)
Increase in inventories	(5,531)	(2,061)		-	-
(Increase)/decrease in other assets	(53,297)	9,000		(53,027)	-
(Decrease)/increase in payables	(64,025)	(78,714)		(59,206)	(33,222)
Net cash used in operating activities	(1,022,490)	(822,531)		(782,945)	(542,214)

18. ACQUISITION OF SUBSIDIARIES

 

On 21 December 2005 GEM BioFuels Plc acquired GEM, a company incorporated in Madagascar. 

19. GROUP ENTITIES

Significant subsidiaries		Country of incorporation	Ownership interest
Green Energy Madagascar sarl		Madagascar	100%

 

There were no acquisitions or disposals of investments during the year. The movement in the investment in subsidiary is due to foreign exchange differences.

 

20. LOSS PER ORDINARY SHARE

				2008 Number		2007 Number
Weighted average number of shares				27,601,501		21,596,315
		2008 Group	2007 Group		2008 Company		2007 Company
Loss per ordinary share - basic - diluted		5.05 5.05	4.53 4.53		4.42 4.42		3.22 3.22

The number of shares in issue at 31 December 2008 was 27,601,501 (2007: 27,601,501). For the purpose of calculating the diluted loss per share 1,820,000 (2007: 1,986,666) options have not been included as the share options are not dilutive.

21. RELATED PARTIES

Transactions between the Company and its subsidiary, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Amounts outstanding between the Company and subsidiary are disclosed in note 10.

Trading transactions

During the year, there were no transactions with companies in the Group or transactions with related parties having certain common Directors other than those referred to below:

The Company paid £12,000 (2007: £2,500) in rent for office space in Perth, Australia under a 'cancellable, month-to-month' operating lease to DAPRB Pty Ltd, a company in which Paul Benetti is a director. The contract is based on normal commercial terms.

The Company has an outstanding loan of approximately £nil (2007: £18,000), which it owes to Paul Benetti, a Director of the Company. The loan arose as a result of expenses prior to the Company's successful capital raising and is interest free and repayable on demand. Subsequent to the end of the financial year, this loan has been repaid.

The Company paid £4,000 (2007: £8,500) in consultancy fees for the provision of Administrative support to Zettai 1 Pty Ltd, a company of which Paul Benetti is a director and his wife, Caroline Benetti owns 100% of the issued capital. These payments were based on normal commercial rates.

Loans

There are no other outstanding loans granted or guarantees provided by the Company to or for the benefit of any of the Directors, nor are there any outstanding loans or guarantees provided by the Directors to or for the benefit of the Company.

22. SHARE-BASED PAYMENTS

Employee share option plans

The Group has two ownership-based compensation schemes for Directors and executives of the Group. In accordance with the provisions of these plans, as approved by shareholders at a previous general meeting, awards are made to Directors and executives at the discretion of the Board of Directors either on appointment, at salary review time, or any other time that the Directors deem appropriate. Other than the Broadhurst options, there are no specific performance or vesting criteria attaching to the options and it is at the discretion of the Board of Directors to establish these criteria for option award if they deem it desirable. The Broadhurst options vest subject to certain conditions relating to the establishment and performance of the Company's operations in Madagascar. All of the conditions relating to vesting have been met.

The table below shows the contract and vesting periods of the options granted at 31 December 2008:

		Number	Exercise Price	Vesting Period	Contract Period
Broadhurst Tranche 1 Broadhurst Tranche 2		166,666 560,000	1p 60p	Vested Performance based	5 years  5 years
Other Directors		1,260,000	60p	50% in 12 month 50% in 24 months	5 years

The expected life of the options has been assessed at 2.5 years (2007: 2.5 years) for options which vest 1 year from grant and 3 years (2007: 3 years) for options which vest after 1 year from grant.

The fair value of the awards is calculated using the Black-Scholes model and subsequently adjusted for gain dependency, assessed at 15%, and forfeitures, assessed at 10% over the life of the award. A volatility adjustment considered appropriate for the sector and the age of the Group is included in the calculation. In forming the volatility assumption, the Directors have considered the volatility of the share price since the date of listing. The volatility of companies operating in the same sector has also been reviewed. Based on these factors, volatility has been assessed at 60% for the award grants made during the year. Appropriate risk-free rates (as defined by the Bank of England) of 5.0% has been applied to individual awards and to the calculation. A zero dividend yield has been assumed.

The expenditure recognised in the income statement of the Group and the Company for the share-based payments in respect of employee services received during the year to 31 December 2008 is £394,822 (2007: £194,221). The expense all relates to equity-settled, share-based payment transactions.

The tables below illustrates the number and weighted average exercise price (WAEP) of, and movements in, two share options streams during the year.

Directors Options		2008 Number	2008 WAEP  £	2007 Number	2007 WAEP £
Outstanding at incorporation Outstanding at 1 January		- 1,820,000	- 60p	- -	- -
Granted during the year		-	-	1,820,000	60p
Forfeited during the year		-	-	-	-
Exercised during the year		-	-	-	-
Outstanding at 31 December		1,820,000	60p	1,820,000	60p
Exercisable at 31 December		910,000	60p	-	-

The exercise price for Directors' Options outstanding at the end of the year was 60p (2007: 60p). The weighted average remaining contractual life of the options in issues at 31 December 2008 is 3.8 years (2007: 4.8 years).

Broadhurst Options		2008 Number	2008 WAEP  £	2007 Number	2007 WAEP £
Outstanding at incorporation Outstanding at 1 January		- 166,666	- 1p	- -	- -
Granted during the year		-	-	166,666	1p
Forfeited during the year		-	-	-	-
Exercised during the year		-	-	-	-
Outstanding at 31 December		166,666	1p	166,666	1p
Exercisable at 31 December		166,666	1p	166,666	1p

As at 31 December 2008, the exercise price for Broadhurst Options outstanding was 1p (2007: 1p) and the weighted average remaining contractual life of the options in issues was 3.8 years (2007: 4.8 years).

23. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Liquidity risk

The Group seeks to manage financial risk to ensure sufficient liquid funds are available to meet foreseeable needs whilst investing cash assets safely and profitably. All of the Group's financial liabilities at 31 December 2008 £26,997 (2007: £144,049) and the Company's financial liabilities at 31 December 2008 £26,997 (2007: £139,230) are payable with 3 months.

Foreign currency risk

An amount of the Group's capital and operating expenditures is denominated in Malagasy Ariary (MGA). The Group does not hedge its exposure. The table below demonstrates the sensitivity of the Group's loss before tax and equity to a reasonably possible change in the MGA exchange rate.

	Increase/ decrease in MGA rate	Effect on loss before tax £	Effect on Equity £
2008	+5%	(28,071)	(28,071)
	-5%	31,026	31,026
2007	+5%	(8,542)	(8,542)
	-5%	9,442	9,442

Managing capital

The Group aims to optimise its capital structure by holding an appropriate level of debt relative to equity in order to maximise shareholder value. The appropriate level of debt is set with reference to a number of factors and financial ratios including expected operating and capital expenditure cash flows, contingent liabilities and the level of unrestricted cash as well as the general economic environment. The Group aims to control its capital structure by issuing new shares and raising debt finance to the extent that it is possible on commercially acceptable terms. The Group's developing nature and the economic conditions prevailing in the biofuels industry are restricting the Group's ability to raise debt finance and exert any significant degree of control over its gearing ratio. As a result, the Group is currently financed exclusively from equity.

Fair value of financial assets and financial liabilities

The table below is a category by category comparison of the carrying amounts and fair values of all of the Group's financial instruments that are carried in the financial statements.

	Book Value 2008 £	Fair Value 2008 £	Book Value 2007 £	Fair Value 2007 £
Financial assets
Cash and cash equivalents	1,070,753	1,070,753	2,169,831	2,169,831

24. COMMITMENTS

The Group has no significant capital commitments towards existing or forecasted investments.

The Directors are not aware of any commitments as at 31 December 2008 other than the property lease agreements. The properties are used for the processing and packing of vegetable matter and for office accommodation. The terms of the lease vary between two and five years with a maximum commitment of £30,000 per annum.

	2008 Group £	2007 Group £		2008 Company £	2007 Company £
Minimum lease payments under the operating leases recognized as an expense in the year	33,324	55,406		-	2,490

At the balance sheet date, the Group had outstanding commitments for the future minimum lease payments under non-cancellable operating leases, which fall due as follows:

	2008 Group £	2007 Group £		2008 Company £	2007 Company £
Within one year	22,000	14,285		-	-
In the second year to the fifth year	18,000	3,571		-	-
After five years	-	-		-	-
	40,000	17,856		-	-

25. ULTIMATE CONTROLLING PARTY

During the year to 31 December 2008, the ultimate controlling party of the Company and the Group is RAB Special Situations (Master) Fund Limited ('RAB'), a company incorporated in the Cayman Islands.

26. RISK EXPOSURE

Credit risk

The Group's principal financial assets are bank balances and cash, prepaid expenses and other receivables and investments. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The Group has no significant concentration of credit risk.

 

Market and liquidity risk

Market risk is the risk that changes in interest rates, foreign exchange rates, equity prices and other rates, prices, volatilities, correlations or other market conditions, such as liquidity, will have an adverse impact on the Group's financial position or results. The principal market risk to which the Group is exposed is interest rate risk, which is not hedged given the scale and nature of the Group's operations. 

Currency risk

Currency risk arises when transactions are conducted in a currency other than the functional currency of the Group, which is not hedged given the scale and nature of the Group's operations.

27. EVENTS AFTER THE BALANCE SHEET DATE

There have been no events after the balance sheet date.

28. CONTINGENT LIABILITIES 

	2008 Group £	2007 Group £		2008 Company £	2007 Company £
Commercial disputes	35,933	-		35,933	-

Green Energy Madagascar Sarl is a defendant in legal actions in two commercial disputes. The first relates to the early termination of a lease and the second relates to expenses incurred during a 2007 seed collection campaign. The directors believe, based on legal advice, that the actions can be successfully defended and therefore no losses will be incurred. The legal claim is expected to be settled in the course of the next 12 months. 

The audited Annual Report and Financial Statements for the financial year ended 31 December 2008 will be sent to shareholders and published at www.gembiofuels.com today.

ENDFR EAKKEDDNNEFE

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