Interim Results

Graphene NanoChem PLC

("Graphene NanoChem", the "Company" or the "Group")

Interim results for the six months ended 30 June 2015

Graphene NanoChem (AIM: GRPH), the performance nanochemicals and advanced materials company, is pleased to announce its unaudited interim results for the six months ended 30 June 2015.

Financial Highlights

· Gross revenue decreased to £7.0m (2014: £20.4m)

· Gross loss of £0.2m (Gross profit 2014: £0.1m)

· Loss before tax of £3.7m (2014: £3.5m)

· Loss per share of 3.3p per share (2014: 3.1p)

Operational Highlights

Sustainable evolution into high margin platforms of the oil and gas sector

· Strategic focus by the Group in building quality revenue streams from high margin products

· Full enhanced oil recovery product line developed - End to End product portfolio

· Successful evolution of upstream and downstream waste treatment technology business model to generate long term revenue visibility

· Commercial roll-out of 3 product lines from its oil recovery solutions to national oil and gas companies, generating quality revenue from higher margin products

· Strong momentum in securing long-term market opportunities from successful product testing and well trials - participation in new long term oilfield tenders via Scomi in Thailand, Indonesia, Vietnam, Qatar, Pakistan, UAE, Myanmar, Brunei, Turkmenistan, India and planned expansion into Oman, Egypt, Brazil and Saudi Arabia

· 3-year US$28 million tender win from PTT Thailand for the deployment of the PlatDrill Series into Myanmar via Scomi

· Highest level of biodegradation certification of the PlatDrill Series by the National Institute of Oceanography, India 

· Ongoing testing for the PlatDrill Series with the EPA (US Environmental Protection Agency) to comply with their standard for the expansion into the Gulf Of Mexico

· Successful well trial for PlatQuartZ in Turkmenistan with a leading Middle Eastern oil company with planned rollout under Scomi's current 3-year onshore drilling programme for a further 8 - 10 wells as well as participation in a new 4-year oilfield tender to be awarded in Q1 2016

· New order secured for the PlatQuartZ Series for a national oil and gas company in India for a 3-well drilling programme with planned participation in a new tender to be announced by the national oil and gas company in 2016

· Successful testing and approval of PlatQuartZ and GraphEat by a leading oil and gas company in Vietnam for participation in a series of new oilfield tenders for 30 wells for a period of one year starting Q1 2016

· Initial order for PlatSurF for 2 wells pursuant to a 50-well drilling programme in Thailand

· Commercial readiness in the deployment of PlatClean, the Group's water treatment solution, with the Group currently engaged in various testing and commercial discussions with a view to bringing the solutions to the Middle East market, in particular Oman, Qatar and Saudi Arabia

· Resizing and evolving away from the low margin fuel additive business to enable focused allocation of operational assets in earnings from higher margin products

· Cost control measures implemented which include staff reductions due to the resizing/exit from the fuel additive business

Technology Innovation

· 2 new patents filed, related to the Group's drilling and completion fluid formulation, and application as green lubricant

· Extension of its patent portfolio protection into the US

Outlook 

· The Group is making significant progress and gaining strong market traction in the execution of its high margin platforms

· The focus of the 2015 and 2016 financial years will be to leverage on the Group's partnership with Scomi in building the market platform and executing opportunities in higher margin business segments

· The Group is making good progress in opening markets due to its cost-saving value proposition for the industry notwithstanding the global downturn in the oil and gas market

· The Group is well advanced in discussion with its financial partners on rescheduling its debt, a key element of the Group's capital management plan that will align the Group's debt maturities with its current business plans

· The Group continues to engage with its financial partners with a view to raising additional funds through a corporate exercise to further enhance the Group's financial platform

Jespal Deol, Chief Executive Officer of Graphene Nanochem, commented: "This has been a period of further growth for the Group, as we continue our focus on executing opportunities in higher margin products within the performance chemical & material businesses with growth potential that would contribute to a stronger bottom line for the Group.

"The tender win in Myanmar and successful high profile trials of our products by oil and gas companies with follow on orders give significant underpinning to the potential of our solutions and opportunities in the industry.

"We have made good progress despite the challenging market conditions and we will continue to focus on our strategy for growth in securing sales through our partnership model whilst continuing to manage our cost base to ensure sustained growth for the business." 

For further information:

About Graphene NanoChem

Graphene Nanochem plc is a graphene commercialisation company that designs, formulates and markets a range of graphene-enhanced applications, from chemicals to performance materials, with improved performance characteristics when compared to conventional products. The Group is strategically focused in the oil and gas sector as its first commercialisation platform and has successfully completed an integrated suite of enhanced oil recovery applications to meet industry demand for cost effective high performance solutions, achieving market breakthrough in 2014. With that, the Group is now moving onto its next phase of development of market building and executing long term growth opportunities in the oil and gas industry.

Headquartered in Malaysia, Graphene Nanochem was admitted to the AIM of the London Stock Exchange on 26 March 2013, following the reverse acquisition of Biofutures International plc, and trades under the symbol GRPH.L.

To find out more, please visit www.graphenenanochem.com.

Chief Executive Officer's Statement

Business Overview

2015 is our market-building year.

Having achieved market breakthrough in 2014, significant progress has been made in the first half of this financial year in the implementation of our growth strategy of focusing on quality revenue stream from higher margin products to build Graphene NanoChem into a leading international provider of oil recovery solutions.

In the face of difficult market conditions, our nano-enhanced products and solutions with their unique value proposition of enabling superior technical and environmental performance and significant cost reduction, continue to gain traction with leading national and international oil and gas companies, supported by our partnership with Scomi Group, a leading global oilfield service provider.

Whilst we are making significant progress during this market-building period in terms of establishing presence and developing market share in South East Asia, India, Turkmenistan, Middle East and South America, market conditions continue to be challenging for the industry with the oil price having fallen over 50%, creating a volatile environment for operators and service companies.

We are anticipating current market conditions to continue into 2016 and the Group has taken steps in implementing cost control measures in its current business operations, which include the restructuring of its debt financing.

The focus on quality revenue streams and growth sector base and the restructuring of its cost base also sees the Group evolving away from the low margin fuel additive business and consequently reducing significant number of headcount from the fuel additive business segment.

These initiatives do not impact the Group's capability in delivering its high margin products and will not affect the Company's ability to convert current opportunities into revenue.

Update

Fuel Additives Business

Despite the stable revenue streams of the last 3 years, the Group has successfully managed to exit this lower margin fuel additive business line, given the limited margin potential combined with the ongoing focus on quality earning from new higher margin products. This is important as is substantially reduces the requirement for working capital and substantially increases the return on investment in deploying capital towards the Group's higher margin products and applications.

Oilfield Chemicals

The Oilfield Chemicals segment was the first step-up expansion for the Group in executing its planned roadmap towards end-market diversification into high value high margin products. The Group's Drilling Additives performance nanofluid products were first developed for commercial deployment into the oilfield chemicals market. Transitioning into the EOR market, the Group further expanded its EOR Oilfield Chemicals' portfolio to include well rejuvenation, recovery enhancement and protection fluids.

The key to our growth strategy is in establishing quality revenue streams from the commercialisation of high margin products and solutions developed by the Group for applications in the oil and gas sector. Significant progress has been made in the first half of this financial year, specifically in building the various stages of market acceptance for the products and presence for this new business segment, undergoing numerous testing and trials and translating opportunities into revenue streams.

The Group received its first contract from PTT Thailand for the deployment in Myanmar valued at USD28 million. A further testament to the high performance solution was the Testing and Evaluation Programme being signed with one of the world's top 5 international oil companies (IOC) marking a significant milestone of the phased expansion of Drilling Additives Series into new regions. Adding to credibility the Drilling Fluids performance was the recent independent Biodegradability Testing by the Council of Scientific & Industrial Research - National Institute of Oceanography, India, which concluded at 84.81%, the biodegradation level of the PlatDrill Series is 25% higher than the standard specified by the OECD guidelines. The Drilling Fluids Series has made major inroads breaking into the market with successful field formulation testing, product approval and tender participation in Thailand, Myanmar, Malaysia, Turkmenistan and Brazil for continued positive market prospects and growth.

The award of a trial well by a leading Middle Eastern oil company as part of the Phase 1 deployment in Turkmenistan has been successful. The product which provides superior performance in reducing torque and drag and enhances rate of penetration will be used by Scomi Oiltools as part of their key formulation in the new Water-based Mud Technology HyperDrill system, that is specifically formulated for deviated horizontal well drilling, seen as the ideal solution to overcome the challenging conditions of the deviated well covered by this trial.

With the record breaking performance in torque and drag reduction, the Drilling Fluids Series of products has seen the following developments: (i) recently commercially deployed in India by a national oil and gas (NOC) company for a 3-well drilling programme valued at US$ 270,000; (ii) awarded 1-well for trial in Vietnam with a major local NOC; (iii) awarded a 1-well trial in Indonesia with commercial deployment to take place by November 2015; and (iv) awarded a further 1-well trial in Pakistan with drilling commencing in Q4 2015. The product has also made geographical expansion into the markets of several IOCs and NOCs in Indonesia, Malaysia, Saudi Arabia, United Arab Emirates, and Qatar with current status ranging from incumbent product comparison testing, field formulation testing, tender participation and trials well awarded.

With respect to the EOR solution offering platform which enables complete solutions from the removal of emulsion blockages whether from drilling residue or from production waste up to the treatment of such drilling and production waste generated, the Group has seen efficient performance that enables the end user to benefit from these cost saving initiatives. These solutions have recently completed their testing phase and have moved towards the commercial deployment stage as evidenced by an approximate 50-well drilling programme in Thailand followed by the successful testing in Myanmar for an IOC drilling campaign scheduled to begin in November 2015 following the positive test results. Carrying forward the strong momentum from these successful trial and field performances the Group is now focused on developing its track record in the MENA region after receiving successful technical approval from an IOC in Egypt which will now move towards the commercial deployment phase.

Oilfield Services 

The need for a reliable and effective water treatment process to the OG industry remains a priority given the high cost structure and increase in environmental regulation for operations ongoing operations. This provides global opportunity for the Group's advanced water treatment solution and systems.

The Group's water treatment systems are to be deployed in the upstream sector on an equipment supply rental-based business model and has resulted in tender participations in multiple projects in Indonesia through the Group's partnership with Scomi Group that has a strong drilling waste management division as part of their core service offerings. The Group's modular skid mounted water treatment systems have been proposed, sampled and are in tender participation for projects in Oman, Egypt, Pakistan and Australia, illustrating a good market look and available opportunities in the region.

An important breakthrough this year has been the extension of the Group's treatment solution to the downstream sector. The Group is now bidding for two large petrochemical plant treatment systems, one in Egypt and one in Thailand. These potential contracts are long term in nature, some even stretching out to 15 years.

The Group continues to leverage on our advanced step-change solutions and partner's channel network with leading oil and gas companies to expand market share in the higher margin market segments, building on the positive momentums after making the transition from development phase to commercial deployment phase.

Financial Overview

The Group revenues for the period decreased 66% to £7.0m (2014: £20.40m). The Group anticipated the decline in revenues for the period in line with the overall rationalisation of its business to a suite of higher margin products and offerings within the performance chemicals and performance materials divisions as announced in June.

The Group progressively exited the capital intensive low margin fuel additives business during the period, as margins continued to decline with the collapse of oil prices. The oil price decline has enhanced the need for the Group's cost effective platform based performance applications with our JV partner Scomi Oiltools. The Group's lack of access to working capital resulted in a scale down in acceptance of sales orders during the period. The Group is rectifying its current working capital predicament through current engagement with its financial partners with anticipated positive outcomes in the very near term.

With the exit from the low margin fuel additives business, the Group will progressively increase its Return on Investment (ROI) by deploying much needed capital into identified performance chemicals and performance materials businesses. As announce in June, The Group's current business rationalisation is in line to meet the key financial targets set by the Board of Directors by 2018:

o improve revenue growth with quality earnings targeting CAGR of 25%;

o focus on gradual gross margins increase to 25% by 2018;

o returns on capital earnings of 15%; and

o reduce net debt to less than 2x EBITDA.

Gross loss for the period was £0.2m (gross profit 2014: £0.1m). The gross loss incurred for the period was due to the lack of economies of scale to cover fixed direct costs as the Group progressively exited the fuel additives business during the period.

Operating expenditure for the period was £0.3m (2014: £0.2m). With the wind up of the fuel additives business, reductions in overheads have been made across all segments of the business and were initiated during the period as the Group transitions from a low margin-high volume to a high-margin low volume business platform. The Group expects to reduce operational expenditure year on year.

The net asset position of £22.5m and a debt to equity ratio of 1.2 times for the end of the period provides the Group opportunity to leverage its balance sheet to fund the growth plans of the Group. As announced in June, the Group is in discussions with its financiers to restructure its current borrowings of £18.0m at the end of the period. The proposed debt rescheduling is a key element of the Group's capital management plan and will align the Group's debt maturities with its current business plans.

Cash and cash equivalents at the end of the period was £1.2m (2014: £2.8m). Prudent measures have been undertaken to conserve cash prior to the corporate restructuring options that are available to the Group in the near term that include debt rescheduling, raising new debt finance and the raising of additional funds from the capital markets.

In June, the Group indicated it would be reviewing options to raise funds to continue the development of the performance chemicals and the performance materials divisions. The future prospects of the Group remain robust through impending sales of high margin performance chemicals and long term lease revenues from the performance materials division specifically the proposed water treatment projects. The Group remains optimistic for project based off balance sheet financing for these projects supported by contractual lease based agreements with tier 1 customers.

As stated above, the Group is focused on achieving a positive outcome for the debt restructuring exercise it is currently undertaking with its financiers and remains confident for a positive outcome in the very near term.

The total comprehensive loss for the period was £3.8m (2014: £3.7m).

Summary and Outlook

Since the end of 2014 the Group has seen continuing progress in meeting a series of milestones with respect to its EOR products launches and rollouts into major markets. Whilst the Group is making significant progress in terms of our existing and new applications, the decline of the oil price has created a volatile environment for operators.

However, the sectors most severely impacted are tight gas (fracking) where well depletion occurs very rapidly and long term multibillion dollar projects in deep offshore environments. During the period we secured the breakthrough contract for Drilling Fluids for delivery in Q4 giving us the opportunity to show the cost effective nature of our application combined with the reduction of costly non-productive time. The recent deployment in India and developments in Vietnam, Indonesia, Pakistan, Malaysia, Saudi Arabia, UAE and Qatar serve as our technological and reputational spring board into other major markets that we are targeting both geographically such as MENA region and by application in terms of complete enhanced oil recovery sectors.

Importantly we are making the transition (in what is recognised being one of the most conservative industries in terms of the speed of adoption of new technology) from being viewed as new to being regarded as proven and established which of course help the marketing of our application as a superior standard.

Despite these events and the fact that no company in the oil and gas (OG) sector can be immune from current uncertainties in terms of procuring products and potential contract delays there are a number of positive dynamics that are encouraging for our EOR market space as well as for new strategic opportunities that we are targeting such as the entire Water treatment spectrum including downstream applications of our product line

Geographic Focus

Leveraging on the Scomi's group stronghold in the MENA region, the group is working together with Scomi to exploit opportunities in a region where breakeven prices are reported to be less than $10 a barrel. The price decline has given rise to a whole new sector focuses on the improvement of productivity of existing wells where the Groups EOR product line enable operators to reduce cost, reduce downtime, and enhance recovery in a cost effective manner. A very substantial number of wells drilled from the 1970's to date provide a large opportunity base that the Group, together with Scomi, is focused on exploiting

Water Treatment

Key drivers in water treatment in the OG industry continue to present opportunities for the Group. The MENA region focus gives rise to opportunities from 3 perspectives: 1. where water available for operation is limited and costly and therefore the requirement for reuse is highly valued; 2. as volumes of oil and gas procured are attained, water streams are becoming more difficult to treat with conventional technologies; and 3. increasingly stringent environmental regulations provide the incentives for the industry to necessitate investment. The Group's success is evident from the inroads it has made in markets in Oman, Saudi Arabia, Egypt and Qatar, where detailed negotiations are ongoing with oil operations to deploy the Group's system to solve the operating issues of the Operators.

In response to the continued difficult market position, the Group has adopted its position to focus on: 1. the restructuring of its debt facilities; 2. the reduction of cost; 3. the refocusing of its competencies from technology development to commercial exploitation which will enhance its prospects for new contract wins, preservation of existing revenue streams in order to enhance shareholder value.

Our progress in the EOR market space, combined with the extension of the Group's water treatment to the downstream segment of the industry further increases industry recognition and presents us with new opportunities which we are actively pursuing as part of our collaboration with the SCOMI group. Looking to the future, we look forward in updating the market with news of our debt rescheduling exercise and combined with our current contract wins and the successful evolution of our long term recurring earning models.

Whist we don't have a control of our customer timelines or expenditure budgets and project slippage is a challenge facing all oil and gas companies, we have adopted a risked approached together with our ongoing cost saving programme which, when combined with our anticipated Debt Restructuring as well our pursuit of fast-to-market opportunities, will enable us to continue our growth rapidly. The further expansion into downstream business with its long term annual revenue models will enable the Group to grow its standing within the industry as leading technology company as well as navigating current market conditions.

Financial statements

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Cont'd)

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

1 Basis of preparation

These unaudited interim condensed consolidated financial statements (the "interim financial statements") are for the six months ended 30 June 2015. They have been prepared using the recognition and measurement principles of IFRS (as adopted by the EU). IFRS include interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC). They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2014.

The interim financial statements have been prepared under the historical cost convention. These interim financial statements have been prepared in accordance with the accounting policies as set out on pages 32 to 46 in the Group's consolidated financial statements for the year ended 31 December 2014. The accounting policies have been applied consistently throughout the Group for the purpose of preparation of the interim financial statements. The financial information contained in these interim financial statements comprises the Group statement of financial position as at 30 June 2015 and 30 June 2015 and the Group statement of comprehensive income, the Group statement of cash flows and the Group statement of changes in equity for the half years ended 30 June 2015 and 30 June 2014.

The financial information set out in these interim financial statements are unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

2 Income tax

There was no tax charge due to the losses arising in the period except for a reversal of deferred tax during the period.

3 Net exchange differences on translating foreign operations

Income and expenditure for overseas subsidiaries are included based upon average exchange rates to give a fair approximation to the transaction rate. Balance sheet items are included at the exchange rate at the balance sheet date. All other differences are included within the translation reserve, including related goodwill and intangible assets, which are translated at the rate ruling at the balance sheet date (30 June 2015 £1 = RM 5.9313, 31 December 2014 £1 = RM 5.4497 and at 30 June 2014 £1= RM 5.4674).

4 Availability of half yearly report

The Company's half yearly report will be available in soft copy from the investors' section of the Company's website (http://www.graphenenanochem.com).

5. Loss per share

 Basic

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

Diluted

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all contracted dilutive potential ordinary shares. The Company doesn't have any dilutive potential ordinary shares at the reporting date.

Accordingly, the diluted loss per share is the same as the basic loss per share.