Quadrise plc (LON:QED), the supplier of MSAR® and bioMSAR™ emulsion technology and fuels, providing innovative lower cost and cleaner alternatives to fuel oil and biofuels, has announced its audited final results for the year ended 30 June 2024.
Operational Summary:
· Marine – The signature of the binding trial agreement between Quadrise, MSC Shipmanagement Ltd (MSC) and Cargill NV (Cargill) has been subject to delays, however, the parties are collaborating positively to finalise as soon as possible. Upon signature, installation and commissioning of the Company’s trial equipment at the MAC² terminal is planned in Q4 2024, ahead of fuel production and the Proof-of-Concept tests commencing in early Q1 2025. The bioMSAR™ LONO trial is planned to complete 6-8 months following the 2-month long Proof-of-Concept tests of MSAR® and bioMSAR™. During the LONO trial the parties intend to conclude a Commercial Supply Agreement and secure bioMSAR™ bunker supply operations to the marine sector by Cargill from MAC2 facilities in Antwerp and Bruges on a permanent basis in anticipation of a successful trial conclusion.
· Morocco – Following the successful industrial demonstration test at an OCP SA industrial site in Morocco, a Commercial Framework Agreement was signed with OCP in May 2024. Preparations for a 30-day commercial trial at OCP’s Jorf Lasfar site are now underway and in parallel Quadrise has opened discussions with candidate suppliers for long-term commercial MSAR® supply with a view to signing term supply agreements following successful trial completion.
· Utah – Following successful pilot drilling in Q2 2024, oil production testing commenced in July 2024 managed by Valkor. Oil production from the first well was confirmed in September 2024. Representative production barrels of heavy sweet oil were prepared by Valkor in September, samples of which are being shipped to Quadrise for analysis and formulation optimisation testing at QRF. Commercial marketing of MSAR® to commence once the samples have been tested. Valkor expect to drill additional oil wells on site by 2024 year-end to increase oil production to 500-800 barrels per day. Provided a minimum of US$15 million of project financing is successfully raised by Valkor, Valkor will pay Quadrise US$1.0 million under the terms of the Site License and Supply Agreement. A further US$0.5 million is then due from Valkor upon delivery of an MSAR® Manufacturing Unit to the project site in Utah. Valkor have confirmed to the Company that they are confident about their efforts to secure the necessary project financing to enable these activities.
· bioMSAR™ – During the period, testing commenced on blends of bioMSAR™ incorporating ‘B30’ marine biofuel (a blend of 30% biodiesel and 70% fuel oil) which, combined with glycerine, reduces the fossil fuel content of our emulsion blends, providing an additional potential pathway to bioMSAR™ Zero. When compared to diesel, the B30-based bioMSAR™ blends demonstrated over 38% well-to-wake CO2 reductions, enhanced diesel engine efficiency of 3-7%, and reductions in NOx emissions of 43%-59% compared with diesel fuel during testing. Testing is now underway on higher concentrations of waste-based bio-oils with the intention to produce our first prototypes of ‘B100’ bioMSAR™ Zero, a 100% sustainable biofuel. Quadrise is therefore on track to being able to demonstrate a commercial bioMSAR™ Zero product well ahead of the Company’s 2030 target.
Financial Summary:
· Loss after tax of £2.9m (2023: £3.1m), of which of £1.5m (2023: £1.7m) is attributable to production and development costs and £1.3m (2023: £1.3m) relates to administrative and corporate expenses.
· Total assets of £6.7m as at 30 June 2024 (2023: £5.3m).
· Cash balances as at 30 June 2024 of £3.0m (2023: £1.3m).
· Cumulative tax losses of £64.7m (2023: £62.1m) potentially available for set-off against any future profits.
Jason Miles, Chief Executive Officer of Quadrise, commented:
“The Company entered the 2024-25 financial year with strong momentum and is preparing to play its part in accelerating the global transition away from fossil fuels.
Energy economics, environmental considerations, and emissions regulations are increasingly driving the business case for MSAR® and bioMSAR™ technology. With strong market conditions, the Company is well-positioned to progress commercial trials with industry majors and build on traction gained during the period with new potential clients while advancing biofuel options for bioMSAR™ production and net-zero solutions.
The pending agreement with MSC and Cargill will formally kick off activities at the MAC² terminal during Q4 2024, to prepare for fuel supply to the MSC vessel trial from Q1 2025 onward followed by commercial supply upon success. Our team is also preparing to complete the OCP commercial trial in Morocco in early Q4 and has commenced discussions with candidate suppliers for long-term commercial MSAR® supply upon success. Heavy sweet oil from the Valkor projects in Utah has commenced production, with the State of Utah approving Valkor’s plans for future drilling. Conclusion of the MSAR® site license and planned equipment delivery to Valkor in Utah is therefore expected, pending successful resolution of eagerly awaited project financing by Valkor.
We acknowledge that progress during the period has been slower than we had previously anticipated, however the time for Quadrise technology delivery is now and the team are focused on achieving that goal.”
Notice of Annual General Meeting
Quadrise also gives notice that the Company’s Annual General Meeting (“AGM”) will be held at 12 noon on 22 November 2024 at the Park Plaza County Hall Hotel, 1 Addington Street, London, SE1 7RY.
Chair’s Statement
The 2023-24 financial year has been one of incremental progress, with the Company in a stronger position operationally and financially at year end than at the same time last year. Events after year end are further strengthening the Company’s position, with the awaited signature of a collaboration agreement with MSC and Cargill allowing sitework to commence for the vessel trials. With drilling samples from Valkor having now been prepared and trials in Morocco with OCP due to commence soon, the Company has entered the 2024-25 financial year with strong momentum and remains both eager and well placed to play its part in the global transition away from fossil fuels.
The global commercial and regulatory landscape has never been more favourable for the adoption of Quadrise technology. This was especially evident at the December 2023 COP 28 climate conference in Dubai, which saw nearly 200 countries reach a landmark agreement to phase out fossil fuels. This milestone is boosting global efforts to fast-track decarbonisation technologies, as governments, companies, and investors push to prevent the worst effects of climate change.
The shipping sector is now at the forefront of this transition, with shipping operators and their customers leading the way. At COP 28, CEOs of major shipping companies called for a deadline on the manufacture of newbuild fossil fuel-powered vessels and urged the IMO to establish regulations for green fuel adoption. Meanwhile, marine freight buyers like Amazon, Philips, and Nike joined the Zero Emission Maritime Buyers Alliance (ZEMBA) to promote zero-emission shipping. In September 2023, ZEMBA launched a request for proposals, seeking bids to transport 600,000 containers over three years on ships that offer a 90% reduction in emissions compared to traditional fossil fuels.
Quadrise technology focuses on the affordable and progressive decarbonisation of shipping through the replacement of heavy fuel oils. It enables production of MSAR® and lower carbon bioMSAR™ fuels, which are lower cost, cleaner, simpler and safer alternatives to heavy fuel oil and currently available biofuels. This allows shipping companies to meet their emissions targets whilst avoiding the need for new vessels or expensive and time-consuming retrofits.
Quadrise continues to build its profile within our target market sectors. Efforts to expand our client network this year have resulted in several promising opportunities arising with prospective commercial partners. As part of these efforts, the Company launched its second Sustainability Report in November 2023. This report provides an accessible reference point for leaders and decision-makers in the shipping and industrial sectors who are looking to decarbonise their businesses practically and economically.
The Sustainability Report sets out our firm ambition to develop a commercially competitive net-zero carbon emission fuel, ‘bioMSAR™ Zero’, by replacing the hydrocarbon element of bioMSAR™ fuel with zero-carbon or carbon-negative substitutes. Our goal is to have this fuel market-ready by 2030 and the development programme is already well underway with formulations tested to date that reduce CO2 by up to 38% on a ‘well to wake’ basis.
Whilst we look to develop new opportunities, our near-term approach remains unchanged, with continued focus on our key projects with MSC, Valkor and OCP. These represent the most appropriate use of our financial and other resources and provide the most material pathways to commercialisation and profitability in line with the Company’s core strategy.
Our project portfolio has been developed to address the Company’s strategy of creating demand points for our technology in key geographical locations, whilst stimulating supply around these areas. This will enable marine customers such as MSC to bunker our fuel worldwide and incentivise production partners to produce MSAR® and bioMSAR™. Our project with Valkor is directed towards the production of less carbon-intensive and very low sulphur versions of MSAR® and bioMSAR™ for marine and power customers in North America. Our project with OCP in Morocco is intended to generate MSAR® supply in the Mediterranean, whilst our prospective projects in Southeast Asia and Central America potentially provide further points of presence in those regions, preparing ourselves for the scaling of our business to meet demand.
In last year’s final results, I commented that the year had been one of “continued strategic and operational progress, but without a breakthrough”. The year ending 30 June 2024 may have been more of the same, with the clear promise shown around the time of the April 2024 fundraise then severely tested by project delays outside the direct control of the Company. Planned activities will provide a clear validation of Quadrise focus on the decarbonisation of shipping and enable us to plan in earnest for profitability and scaling of the business. We are not yet completely “in the clear”, as trials still need to be successfully navigated, but our technology is tested, and we are confident of success.
As I have stated on occasions before, our ambitions for the business are limited more by the availability of financial and operational resources than by the scale of the significant opportunities that Quadrise can address. Subject to financial circumstances, we intend to explore and advance complementary technologies to strengthen our decarbonisation proposition to customers. This will increase the Company’s impact on sustainability and ensure that our products and services are high on the list when potential clients are looking for solutions to reduce emissions.
On behalf of the Board, I would like to express my sincere appreciation to our loyal shareholders for their support. We recognise that this has been another year of frustration and slower than expected progress, but we are confident your patience will be rewarded.
Financial Results
The consolidated after-tax loss for the year to 30 June 2024 was £2.9m (2023: £3.1m), with the loss per share for the year reducing to 0.18p from 0.22p in 2023. Production and development costs of £1.5m (2023: £1.7m) comprise the costs of the Group’s R&D facility (‘QRF’) in Essex, its operational staff and consultants, and ongoing bioMSAR™ and MSAR® development costs. These costs are largely related to fixed costs with the reduction due to lower bioMSAR™ development and testing costs.
Administration expenses of £1.3m (2023: £1.3m), comprise the Group’s corporate staff and directors’ costs, professional advisor fees, PR/IR costs and head office costs.
At 30 June 2024, the Group had total assets of £6.7m (2023: £5.3m). The most significant balances were cash of £3.0m (2023: £1.3m), intangible assets of £2.9m (2023: £2.9m), and property, plant and equipment of £0.4m (2023: £0.4m). The Group has tax losses arising in the UK of approximately £64.7m (2023: £62.1m) that are potentially available to be carried forward against any future profits.
Andy Morrison
Non-executive Chair
27 September 2024
Chief Executive’s Statement
Addressing the Energy Transition Challenge
The shipping sector is responsible for roughly 3% of global GHG emissions and is therefore under increasing pressure from regulators and customers to decarbonise. The sector is now in the midst of great transformation, with numerous alternative fuel sources already in use or proposed as longer-term options. Each solution has its benefits and drawbacks, with some requiring entirely new vessels to be built (in the case of future fuels, such as liquified natural gas ‘LNG’ or methanol). Some require expensive retrofitting of existing vessels with them removed from active service for long periods of time, and some posing significant safety and logistical challenges (ammonia, nuclear).
Quadrise offers a solution for shipping operators to meet their decarbonisation targets whilst continuing to use their existing fleet with minimal capital investment, thus extending the life of vessels and reducing both fuel costs and emissions.
Revolutionary Quadrise Technology and Synthetic Fuels
Our patented Quadrise blending technology and fuels offer a practical and cost-effective path for operators in the marine sector, as well as those in the industrial and power sectors, to decarbonise, reduce energy costs and lower associated emissions safely. Our unique technology can blend a wide range of oil and water-soluble components to produce highly stable MSAR® and bioMSAR™ emulsion fuels.
· MSAR® is a synthetic fuel oil that is supplied at lower energy cost. When compared to conventional fuel oil, it reduces carbon dioxide (“CO2“) emissions by up to 10% in diesel engines by lowering fuel consumption (further lowering costs) as well as lowering emissions of nitrogen oxides and particulates. It is an oil-in-water emulsion, made by blending oil refinery residue streams (or heavy bitumen or crude oils) with water and specialised additives in a proprietary production process.
· bioMSAR™ incorporates renewable glycerine to produce a synthetic biofuel that offers all the benefits of MSAR® but with 20-30% less CO2 than fuel oil and cost savings of approximately 10% compared to standard biofuels. bioMSAR™ outperforms LNG and marine biofuel blends in terms of lower CO2 emissions per unit of energy “well to wake”. Other benefits include improved safety during use, and improved dispersibility and biodegradability in the unlikely event of a spill.
Immediately Deployable, Future-Proof Solutions
Our modular systems are commercially proven and ready for rapid deployment at scale to the downstream, power, industrial and global shipping sectors. The economic and environmental savings generated deliver immediate benefits to users as the world transitions towards net-zero fuel solutions at a pace that is still uncertain and governed by regulation, adoption and customer choice.
A Quadrise blending module is a low capital technology that can manufacture MSAR® or bioMSAR™ interchangeably, providing a lower-cost environmental solution to conventional liquid fuels today whilst offering the opportunity to transition to sustainable biofuels based on consumer choice.
With one eye on the future, we have an established R&D strategy that leverages our innovative, adaptable technology and our commercial application experience. We are collaborating with fellow innovators in the sustainable fuel sector to expand our portfolio of lower-cost, renewable, and abundant biofuel components.
Supply partners and collaborators include Cargill NV (who supply sustainable biofuels, bio-oils and glycerine), Vertoro BV (producers of a crude sugar oil “CSO™” that we have successfully tested in diesel engines ) and BTG Bioliquids BV (using their ‘FPBO’ biofuel products and sugar components produced by fast pyrolysis) derived from sustainable biomass such as agricultural and sawmill waste.
Our Quadrise Research Facility (QRF) in Essex is a valuable resource for “proof-of-concept” testing of a range of second-generation biofuel components offered by an increasing number of potential suppliers interested in the bioMSAR™ solution to ultimately provide a net-zero solution for hard-to-abate energy sectors.
Quadrise is the transition technology partner that creates low-carbon, low-emission and low-cost energy solutions. These solutions are more accessible than future fuel alternatives and are compatible and retrofit-ready with existing fleets, enhancing profitability, extending asset life, and reducing emissions and GHG impacts.
Key project status
Decarbonisation of Global Shipping: MSC
Our flagship project with MSC Shipmanagement, which operates the largest shipping container fleet in the world, will demonstrate that Quadrise can play an important role in the decarbonisation of shipping. The project covers trials of MSAR® and bioMSAR™ fuels on board an operationally active MSC vessel (the MSC Leandra V) ahead of commercial supply to MSC upon successful trial completion.
In preparation for the MSC vessel trial fuel supply, a Collaboration Agreement between Quadrise, Cargill NV and MAC² Solutions NV was signed in February 2024. The fuels for the trial will be produced using a Quadrise MSAR® Manufacturing Unit (‘MMU’) and associated equipment, which will be installed at the MAC² bunker facility in Antwerp, Belgium. MSAR® and bioMSAR™ fuels will then be produced using fuel oil and glycerine feedstocks supplied by Cargill, who will also be responsible for bunkering operations to supply the fuels to the MSC vessel. Planning for success, during the LONO trial the parties expect to conclude a Commercial Supply Agreement and secure bioMSAR™ bunker supply operations to the marine sector by Cargill from MAC2 facilities in Antwerp and Bruges on a permanent basis.
Following signature of the Collaboration Agreement, Quadrise have completed the purchase of critical-path trial equipment, including centrifuges and fuel filters, whilst MAC2 have obtained the permits required for the trial to proceed and have prepared the groundworks in readiness for installation of Quadrise equipment.
The signature of the binding agreement between Quadrise, MSC and Cargill has unfortunately taken longer than envisaged, however, the parties are collaborating positively to finalise this as soon as possible. The binding 3-way agreement establishes heads-of-terms covering associated binding bilateral agreements for toll manufacture, terminal services and fuel supply, which will also follow during Q4 2024, and in parallel trial preparations will commence as soon as the initial binding agreement has been signed.
The trial will comprise initial Proof of Concept (“POC”) tests of MSAR® and bioMSAR™, followed by 4,000 hours of operation on bioMSAR™ to obtain a Letter of No Objection (“LONO”) from the engine manufacturer, Wärtsilä. The bioMSAR™ LONO trial is expected to conclude 6-8 months following completion of the 2-month long POC tests. Approximately 10,000-12,000 tonnes of Quadrise fuels will be consumed over the period. In preparation for the vessel trial a Hazard Identification Study (“HAZID”) was completed in September 2023 by Lloyds Register as Class Society for the vessel. This involved experts from MSC, Wärtsilä and Quadrise. Installation and commissioning of the Quadrise trial equipment at MAC² is currently expected in Q4 2024, ahead of fuel production commencing in early Q1 2025.
In addition to the MSC project, the Company continues to develop strategic options and partnerships with other shipping companies with the intention of accelerating the commercialisation of both bioMSAR™ and MSAR® for marine applications.
In line with our strategy to decarbonise shipping, we are exploring opportunities in parallel to supply MSAR® to MSC and others from North-West Europe, the Mediterranean, North and Central America, and Southeast Asia to support demand from the major marine bunker hubs and our other clients.
Morocco: OCP
The Company’s key project with OCP S.A. (‘OCP’), a major international manufacturing and mining group in Morocco, will at the same time stimulate supply of MSAR® in the Mediterranean, a significant region for maritime trade and bunkering due to its strategic location.
In November 2023, Quadrise successfully completed an industrial demonstration test of MSAR® and bioMSAR™ at one of OCP’s major industrial sites in Morocco. The industrial unit tested was successfully operated at varying loads of up to 100%, equivalent to 33MW of energy that is supplied by a single burner. This is similar to the energy consumption of a medium-sized container ship. This was the first demonstration of bioMSAR™ in a commercial application.
Under the Commercial Framework Agreement (“CFA”) signed in May 2024, a further paid-for trial was agreed to expand the opportunity for both OCP and Quadrise, as well as the process to progress commercial supply discussions for MSAR®. The Company is thus currently finalising preparations for a 30-day MSAR® trial at OCP’s Jorf Lasfar site (‘Jorf’) whilst also completing the engineering studies necessary for commercial MSAR® use there. The MSAR® equipment has been shipped to site to prepare for the trial, which is scheduled to be completed in Q4 2024.
Quadrise has opened discussions with candidate suppliers for long-term commercial MSAR® production and delivery with a view to signing a term supply agreement following successful completion of the Jorf trial.
USA lower carbon fuels: Valkor, Utah
The project with Valkor targets the supply of very-low sulphur MSAR® and bioMSAR™ from extra-heavy oil deposits directly into the marine and power sectors. Quadrise technology will be installed at a central processing facility at Valkor’s Asphalt Ridge site in Utah, USA, with the finished products then transported to major ports and power stations. The available hydrocarbon reserves at Asphalt Ridge comprise billions of barrels, with Valkor having sizeable interests in several projects at this location. Unitisation and enhanced oil recovery plans for the project were approved by State of Utah’s Board of Oil, Gas and Mining in July 2024.
The properties of Valkor’s heavy oil will enable MSAR® or bioMSAR™ derived from it to comply with International Maritime Organisation regulations without the need for costly and carbon-intensive oil refining, providing highly marketable lower carbon, ultra-low sulphur emulsion fuel.
In June 2023, Quadrise signed a Site License and Supply Agreement (“SLS”) with Valkor, under which the Company granted Valkor the exclusive right and license to use its technology at the planned central processing facility and to market the finished products on a non-exclusive basis. Under the SLS, Valkor will pay Quadrise a US$1.0 million license fee subject to receipt by Valkor of project financing of at least US$15 million. Valkor will pay Quadrise a further US$0.5 million upon receipt of an MMU and a quarterly retainer of US$75,000 for engineering, project development and support services for at least two years.
Following successful pilot drilling in Q2 2024, oil production testing of the downhole electrical heating system commenced in July 2024 managed by Valkor. Oil production from the first well was confirmed in September 2024. Representative production barrels of 6-8°API extra-heavy sweet oil were prepared by Valkor in September, samples of which are being shipped to Quadrise for analysis and formulation optimisation testing at QRF. Commercial marketing to the marine, utilities and industrial sectors is expected to commence as soon as testing is completed by Quadrise. Initial marketing targets will include local power producers and marine vessels bunkering on the US West Coast. Valkor expect to drill additional oil wells by 2024 year-end to increase oil production to 500-800 barrels per day and are increasingly confident about their efforts to secure project financing.
Other Projects
During the period, Quadrise commenced discussions with an oil refinery in Southeast Asia that is interested in conducting a trial using MSAR® technology for internal thermal applications, as a precursor to commercial supply of a “Mini-MMU” producing 5 tons per hour. The refinery is situated near to bulk oil storage and offers potential opportunities to supply Singapore, the world’s largest bunker hub.
The expansion of availability of MSAR® and bioMSAR™ into other major marine hubs such as the Panama Canal is seen by the Board as being vital to the future scaling of the Company’s business. In 2023, Quadrise signed a Letter of Intent with Sparkle Power, a power generator in Panama for a commercial test of MSAR® and bioMSAR™. During this financial year, prolonged drought conditions in Panama reduced hydroelectric power supply capacity and Sparkle Power were called upon to provide additional emergency power. With no spare capacity available, they were not able to progress trial preparations. Environmental conditions have now improved, and discussions with Sparkle have resumed.
Together with our local agents, we also continue to explore other opportunities in the region to create demand and stimulate supply in and around Panama and Honduras, the latter being a large consumer of fuel oil for power generation.
bioMSAR™: the transition solution for net-zero energy
The Quadrise product development roadmap is focused on providing low-carbon, low-emission and low-cost solutions to address key transition challenges for maritime decarbonisation and other market sectors that we serve:
· Supplying a drop-in biofuel solution (bioMSAR™) rapidly, at commercial scale globally at terminals or on-board vessels.
· Ensuring the bioMSAR™ platform is sufficiently adaptable to incorporate a range of sustainable biofuel feedstocks.
· Delivering a commercially viable ‘bioMSAR™ Zero’ (labelled ‘B100’ – with 100% biogenic energy) solution before 2030.
Collaboration is key to this initiative, and we are working with several like-minded strategic partners to investigate lower cost, renewable and abundant biofuel feedstocks for bioMSAR™. Work on this important programme during the period has been very active:
bioMSAR™ incorporating biodiesel and bio-oil byproducts
During the period, testing commenced on blends of bioMSAR™ incorporating ‘B30’ biofuel, supplied by major trading companies. B30 is a blend of 30% fatty acid methyl esters (or ‘FAME’, which is also used in biodiesel) and 70% fuel oil and is currently the most widely available marine biofuel. Incorporation of B30 combined with glycerine further reduces the fossil fuel content of our emulsion blends, providing an additional potential pathway to bioMSAR™ Zero.
When compared to diesel, the B30-based bioMSAR™ blends demonstrated:
· Over 38% well-to-wake CO2 reductions based on the carbon intensity of the components.
· Enhanced diesel engine efficiency of 3-7% with a corresponding reduction in fuel consumption (further reducing overall CO2 emissions to 45%).
· Reductions in NOx emissions of 43%-59%.
During Q3 2024, testing continued, incorporating higher concentrations of waste-based bio-oils with the intention to produce our first prototypes of ‘B100’ bioMSAR™ Zero, a 100% sustainable biofuel. Following successful pilot testing at QRF, engine testing is now scheduled at Aquafuel Research Limited, where our 40kW Cummins diesel engine is situated. Quadrise is therefore on track to demonstrate a commercial bioMSAR™ Zero product well ahead of the Company’s 2030 target.
bioMSAR™ incorporating sustainable biomass-derived sugars and alcohols
Large-scale supply and wide availability of fuel options are seen as key customer requirements for scale-up into marine and industrial applications. The ability to use water-soluble biomass sugars within the Company’s unique oil-in-water emulsion fuels opens access to abundant bio-energy waste resources, presenting the Company with a significant opportunity.
In December 2023, a bioMSAR™ blend incorporating crude sugar oils (“CSO™”) provided by Vertoro BV was successfully tested on the Company’s Cummins engine. This testing showed reductions of up to 25% in CO2 emissions, engine efficiency improvements of 6-7% (taking total CO2 reductions to >30%) and reductions in NOx of around 30% compared with diesel.
In May 2024 Vertoro announced a partnership with Force Motor Yachts to design and supply a luxury yacht that will run on bioMSAR™ Zero incorporating CSO™. This initiative was formally launched at the Cannes Yacht Show in September 2024. The new Force yacht provides a floating laboratory and validation unit to accelerate access to Quadrise bioMSAR™ Zero and Blend-on-Board technologies to lower costs and emissions.
Work has also progressed during the year with BTG Bioliquids BV (“BTL”), whose technology produces pyrolysis sugars derived from biomass. BTL and Quadrise are working with prospective partners who can use BTL’s technology to supply sugars for incorporation into bioMSAR™ at commercial scale. Following successful pilot testing at QRF on bioMSAR™ incorporating around 20% BTL pyrolysis sugars, engine testing is now scheduled with results expected early Q4 2024.
Outlook
To paraphrase a recent report by Lloyd’s Register “The challenge of maritime decarbonisation is not that it is happening, but that it needs to happen so quickly.“
Energy economics, environmental considerations and emissions regulations are increasingly driving the business case for MSAR® and bioMSAR™ technology. Quadrise intends to make a significant contribution to the decarbonisation of shipping through the coming year with the signature of further license agreements and completion of commercial-scale trials, leading to supply contracts and commercial revenues from MSAR® and bioMSAR™ during the next 12 months.
Green fuel choices for the marine and industrial markets that Quadrise serves are still far off, and e-fuel availability at a competitive price remains a problem. This has led some proponents of future fuels to hedge their bets with new ship orders for conventional fuels. Those taking delivery of new “dual-fuel” liquified natural gas (LNG) vessels are complaining about limited fuel availability, with 80% still running on marine fuel oil or biofuels. As conventional bio and renewable diesel fuels face growing demand from other sectors, the need for lower-cost and more widely available biofuels is likely to rise.
Market and regulatory trends are set to create an increasingly favourable environment for the Company to advance its business. The implementation of new environmental regulations, particularly in Europe, such as the EU ETS and ‘Fit-for-55’ are expected to significantly boost biofuel use and technology investment, especially in the shipping sector. As conventional biofuels like biodiesel and renewable diesel, currently used in shipping, face growing demand from other sectors, the need for lower-cost and widely available non-conventional biofuels is likely to rise. These regulations, along with subsidies for renewable waste-based biofuel feedstocks such as glycerine, should enhance the attractiveness of bioMSAR™ for end-users. With strong market conditions, the Company is well-positioned to progress through commercial trials and gain further traction with key clients.
The focus of Quadrise on the decarbonisation of shipping and other sectors is an important statement of intent. License agreements and commercial-scale trials are designed to lead to supply contracts and commercial revenues from MSAR® and bioMSAR™. Looking ahead, our continued development of bioMSAR™ and net-zero solutions opens exciting opportunities to deploy our unique proven emulsion technology, helping our partners and clients to deliver a cleaner future for us all.
Quadrise has a small, highly motivated and capable team and our continued progress is only possible through the significant contribution of everyone working within the business and our shareholders for their loyal support. We are very aware that project delays outside of our control have disrupted our planned commercial progress this year, but we are doing all that we can to expedite successful outcomes in multiple continents and applications that should benefit us all.
Jason Miles
Chief Executive Officer
27 September 2024
Strategic Report
For the year ended 30 June 2024
Principal Activity
The principal activity of the Company is to develop markets for its proprietary emulsion fuels, MSAR® and bioMSAR™ as low-cost, more environmentally friendly substitutes for conventional heavy fuel oil (“HFO”) and biofuels for use in large marine diesel engines, power generation plants and industrial applications.
Business Review and Future Developments
A full review of the Group’s activities during the year, recent events and future developments is contained in the Chairman and CEO Statements.
Key Performance Indicators
The Group’s key performance indicators are:
· Performance against its annual plan, including project timetables established with partners and clients, and
· Financial performance and position against the approved budgets and cashflow forecasts.
The Board regularly reviews the Group’s progress against the key performance indicators above, with a review held at least monthly with Non-Executive Directors. The commercial performance of the Company and each of the Company’s key projects and business development opportunities are discussed at length in the Chairman and CEO Statements.
Each year, a detailed two-year budget and cash forecast is prepared by the Executive team and following a comprehensive review process, is then approved by the Board. Performance against budget and updated cash projections are included within the monthly management accounts issued to and reviewed by the Board.
For the year ended 30 June 2024, progress against the Group’s business model was slower than anticipated, with delays to key projects as discussed in the CEO statement. The financial performance of the Group was ahead of budget due to lower than forecast expenditure on operations, staff and consulting costs and net project expenditure.
Going Concern
The Group had a cash balance of £3.0m as of 30 June 2024. Based on the latest Company forecasts which assume the anticipated and important receipt of an aggregate of US$1.5m from Valkor as described above, these funds are expected to be sufficient to reach forecast commercial revenues and cover net project expenditure and fixed costs up to the end of June 2025. Additional funding will be required beyond this point to bridge the gap to the generation of sustainable positive cashflows, which are currently planned to commence in H1 2026. The Directors have determined that the continuation of the Group as a going concern will be dependent upon successfully raising sufficient funds in the future to bridge this gap and the prior receipt of the Valkor income. The Directors have a reasonable expectation that such funds will be raised, although no binding funding agreements are in place at the date of this report and have therefore determined that it is appropriate to prepare the financial statements on a going concern basis. However, in the absence of additional funding being in place at the date of this report, these conditions indicate the existence of a material uncertainty. This may cast significant doubt on the Company’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. For further details behind the judgments and estimations used by the Directors in reaching this determination, refer to note 2.4.
Longer term viability statement
In reaching its conclusion on the going concern assessment and longer-term viability of the Group, the Board reviewed the Group’s three-year cash flow forecasts which cover the period to revenue generation and positive cashflow. This period is applicable because it extends to the point at which the Group is forecast to be generating sustainable positive cashflows. The Board reviewed the underlying assumptions in this cashflow, together with sensitivity analysis performed on these projections. The Board believes these forecasts are based on a prudent assessment of the Group’s prospects and target markets, taking account of reasonably possible scenarios given current market and economic conditions. The risks outlined below have been considered by the Board in their determination of longer-term viability, most significantly ‘Delay in commercialisation of MSAR® and funding risks’ and ‘No profit to date’.
In its sensitivity analysis and review of underlying assumptions, which cover these risks, the Board looked at delays in project timelines or that certain projects might not be realised. The impact on the Company’s longer-term viability is that the timing and level of funds required to take the Group to the point of sustainable positive cashflows is then affected. However, the Board consider that the Group remains viable in the longer term under the sensitivities modelled.
The Board therefore has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, provided it is in receipt of the Valkor income and is able to raise the funding required as outlined in the Going Concern note above.
Climate Change
As discussed in both the Chairman’s and CEO’s statements, our bioMSAR™ technology offers an alternative to HFO with over 25% lower CO2 emissions. The Directors believe that the growing global emphasis on the COP 26 Goals, specifically the goal of transition to global net-zero carbon by 2050, present Quadrise with increasing opportunities to assist marine, power and industrial clients in obtaining a cost-effective solution to lowering their carbon emissions. Government actions to reduce climate change therefore provide opportunities to Quadrise, but the Board acknowledges that the Company may also be presented with additional risks due to these actions.
Risks, including those introduced by climate change and governmental actions to reduce climate change, are discussed in the next section.
Principal Business Risks
Each year in the second quarter, the Audit Committee assists the Executive Team in a structured zero-based re-assessment of the Company’s principal and emerging risks. The review considers each operational sector and organisational level including the Company’s research and development facility, QRF, and risks are then triaged for the Company as a whole. The risk level is determined by its probability, its potential impact on the Company, and whether these factors have increased or decreased over the last 12 months. A summary of “Principal Risks and Uncertainties” is reviewed at a Board meeting. Subsequently a Risk Mitigation Strategy and Action Plan is incorporated into the annual Business Planning exercise conducted in June each year.
The principal risks identified during this exercise, ranked in order of the likelihood of occurrence, are set out below. These may not include all the risk factors that could affect future results. Actual results could differ materially from those anticipated because of these and various other factors, and those set forth in the Group’s other periodic and current reports filed with the authorities from time to time.
Receipt of funds from Valkor
The Company’s cashflow forecasts assume the receipt of an aggregate of US$1.5m (approx. £1.2m) of revenues from Valkor, which, together with the £3.0m cash balance as at 30 June 2024 is expected to be sufficient to reach forecast commercial revenues and cover net project expenditure and fixed costs up to the end of June 2025. At the date of this report, there remains a risk that the $1.5m from Valkor is either not received or is significantly delayed, in which event the Company’s ability to progress its projects will be at risk without further funding. The Group mitigates this risk by maintaining strong control over its pre-revenue expenditure, as well as by actively evaluating strategic initiatives that would de-risk and/or facilitate the delivery of the Group’s key objectives.
Market scope and risk
Faced with pressure to move away from hydrocarbons, the Group still needs to progress its MSAR® and bioMSAR™ endeavours into a volume business. The Group addresses this challenge by continuing to promote the immediate and practical environmental contribution of MSAR® and bioMSAR™ to the shipping industry. The Group further mitigates this risk by promoting the applicability of Quadrise technology to other sectors such as in the power generation and industrial sectors discussed in the CEO’s Statement. The marketability of our technology and the fuels produced is affected by the variability of price spreads between light and heavy oils, the relative cost of biofuel components, and the relative competitiveness of oil, gas, biofuel and coal prices both for prompt and future delivery and other factors beyond the control of the Group.
Commercial return
The Group has made considerable progress in its rapid development and enhancement of bioMSAR™ to meet the requirement for cleaner biofuels, whilst continuing to advance commercial opportunities for MSAR® and reduce its treat costs in the face of reductions to fuel oil-gasoil spreads in the future. During the commercial roll-out of bioMSAR™ there remain the considerable challenges of testing, feedstock availability (see below), biofuel treatment options, formulation optimisation and commercial demand still to overcome. There is a risk the Group will not achieve a commercial return due to major unanticipated change in a key variable or, more likely, the aggregate impact of changes to several variables which results in sustained depressed margins.
The competitive position could be affected by government regulations concerning taxation, duties, specifications, importation and exportation of hydrocarbon fuels and environmental aspects. Freight costs contribute substantially to the final cost of supplied products and a major change in the cost of bulk liquid freight markets could have an adverse effect on the economics of the fuels business. The Group would mitigate this risk through establishing appropriate flexibilities in the contractual framework, offtake arrangements and price risk management through hedging.
Feedstock sourcing – MSAR®
The IMO2020 regulation designed to motivate the use of very low sulphur fuel oils has negatively impacted high sulphur residue supply, due to lack of alternative markets. There is a risk that appropriately located high sulphur residues cannot be sourced. The Group mitigates this risk by utilising its deep understanding of the global refining industry, targeting qualifying suppliers matched to prospective major consumers. There are economic and other advantages to refiners in running a proportion of high sulphur crude oils and the Group believes that the emergence of an MSAR® commercial business would motivate candidate feedstock suppliers to expedite high sulphur residue supply.
Feedstock sourcing – bioMSAR™
Sufficient quantities have been identified for immediate trial purposes, but the volumes and quality of renewable glycerine required for a substantial commercial marine or industrial bioMSAR™ contract are beyond those readily accessible. To mitigate this the Company is rapidly increasing its knowledge of current and potential glycerine sources and contracting with suppliers such as Cargill NV. Clearly a commercial contract would again stimulate this market and thus expedite feedstock supply. The Company is researching other renewable feedstocks that could be utilised together with, or instead of glycerine, such as Vertoro’s CSO™ and BTL’s pyrolysis sugar biofuels from sustainable biomass.
Delay in commercialisation and funding risks
There is a risk that the commercialisation of MSAR® and bioMSAR™ could be delayed further, or unforeseen technical and/or commercial challenges arise. This could mean that the Group may ultimately need to raise further equity funds to remain operational. Depending on market conditions and investor sentiment, there is a risk that the Group may be unable to raise the required funds when necessary. The Group mitigates this risk by maintaining strong control over its pre-revenue expenditure, keeping up the momentum on its key projects and maintaining regular contact with the financial markets and investor community.
Technological risk
There is a risk firstly that the markets for MSAR® and bioMSAR™ fuels adopt alternative fuels, making these technologies redundant or secondly that the technology used for their production may not be adequately robust for all applications. This is in respect of the character and nature of the feedstock and the parameters of transportation and storage pertaining to a specific project. This risk may jeopardise the early commercialisation of the technology and subsequent implementation of projects; or give rise to significant liabilities arising from defective fuel during plant operations. The Group mitigates this risk by ensuring that its highly experienced key personnel are closely involved with all areas of MSAR® and bioMSAR™ formulation and manufacture, and that the fuel is thoroughly tested before being put into operational use.
Competition risks
There is a risk that new competition could emerge with similar technologies sufficiently differentiated to challenge the Company’s process. Were such competition to emerge, this could result, over time, in further price competition and pressure on margins beyond that assumed in the Group’s business planning. This risk is mitigated by the limited global pool of expertise in the emulsion fuel market combined with an enhanced R&D programme aimed at optimising cost and performance and protection of intellectual property. The Group also makes best use of scarce expertise by developing close relationships with strategic counterparties such as Nouryon while ensuring that key employees are suitably incentivised.
Environment, Social and Governance risks (ESG)
Quadrise is committed to providing safer, cleaner and more affordable energy. By leveraging our extensive RDI capabilities, and through continuous improvement processes, Quadrise aims to be carbon-neutral by 2030. Furthermore, high standards of corporate governance have always been a strength and this places the Company in the top tier of AIM companies. We maintain this commitment by adopting the highest disclosure standards of the UK Corporate Governance Code, through the experience and commitment of our Non-executive Directors and by following stringent Board policies and procedures. The Company works to exceptional health, safety, environmental protection and quality standards, with strong risk management processes in place, all of which are supported by a first-class team of professional advisors.
Other Business Risks
Dependence on key personnel
The Group’s business is dependent on obtaining and retaining the services of key personnel of the appropriate calibre as the business develops. The success of the Group will continue to be dependent on the expertise and experience of the Directors and the management team, and the loss of personnel could still have an adverse effect on the Group. The Group mitigates this risk by ensuring that key personnel are suitably incentivised and contractually bound.
Environmental risks
The Group’s operations are subject to the environmental risks inherent in the oil processing and distribution industry. The Group is subject to environmental laws and regulations in connection with all its operations. Although the Group ensures compliance with all applicable environmental laws and regulations, there are certain risks inherent to its activities, such as accidental spills, leakages or other circumstances that could expose the Group to potential liability.
Further, the Group may require approval from the relevant authorities before it can undertake activities which are likely to impact the environment. Failure to obtain such approvals may prevent or delay such activities. The Group is unable to predict definitively the effect of additional environmental laws and regulations, which may be adopted in the future, including whether any such laws or regulations would materially increase the Group’s cost of doing business, or affect its operations in any area of its business. The Group mitigates this risk by ensuring compliance with environmental legislation in the jurisdictions in which it operates, and closely monitoring any pending regulation or legislation to ensure compliance.
No profit to date
The Group has incurred aggregate losses since its inception, and it is therefore not possible to evaluate its prospects based on past performance. There can be no certainty that the Group will achieve or sustain profitability or achieve or sustain positive cash flow from its activities.
Corporate and regulatory formalities
The conduct of petroleum processing and distribution requires compliance by the Group with numerous procedures and formalities in many different national jurisdictions. It may not in all cases be possible to comply with or obtain waivers of all such formalities. Additionally, functioning as a publicly listed Company requires compliance with the stock market regulations. The Group mitigates this risk through commitment to a high standard of corporate governance and ‘fit for purpose’ procedures, and by maintaining and applying effective policies.
Economic, political, judicial, administrative, taxation or other regulatory factors
The Group may be adversely affected by changes in economic, political, judicial, administrative, taxation or other regulatory factors, in the areas in which the Group operates and conducts its principal activities. The Group has no direct exposure to the Ukraine/Russia conflict and is not directly affected by the ongoing conflict in the Middle East.
Andy Morrison
Non-executive Chair
27 September 2024
