REG - Independent Oil &Gas - Final Results <Origin Href="QuoteRef">IOG.L</Origin> - Part 2
16/07/2015 13:12
- Part 2: For the preceding part double click ID:nRSd5642Ra
variable returns. Control is reassessed whenever facts and
circumstances indicate that there may be a change in any of these elements of
control. De-facto control exists in situations where the Company has the
practical ability to direct the relevant activities of the investee without
holding the majority of the voting rights. In determining whether de-facto
control exists the Company considers all relevant facts and circumstances,
including:
- The size of the Company's voting rights relative to both the size and
dispersion of other parties who hold voting rights
- Substantive potential voting rights held by the Company and by other
parties
- Other contractual arrangements
- Historic patterns in voting attendance.
The consolidated financial statements present the results of the Company and
its subsidiaries as if they formed a single entity. Inter-company
transactions and balances between Group companies are therefore eliminated in
full. The financial statements of subsidiaries are included in the Group's
financial statements from the date that control commences until the date that
control ceases.
Joint arrangements
Joint arrangements are arrangements in which the Group shares joint control
with one or more parties. Joint control is the contractually agreed sharing
of control of an arrangement and exists only when decisions about the
activities that significantly affect the arrangement's returns require the
unanimous consent of the parties sharing control.
Joint arrangements are classified as either joint operations or joint ventures
based on the rights and obligations of the parties to the arrangement. In
joint operations, the parties have rights to the assets and obligations for
the liabilities relating to the arrangement, whereas in joint ventures, the
parties have rights to the net assets of the arrangement.
Joint arrangements that are not structured through a separate vehicle are
always joint operations. Joint arrangements that are structured through a
separate vehicle may be either joint operations or joint ventures depending on
the substance of the arrangement. In these cases, consideration is given to
the legal form of the separate vehicle, the terms of the contractual
arrangement and, when relevant, other facts and circumstances. When the
activities of an arrangement are primarily designed for the provision of
output to the parties, and the parties are substantially the only source of
cash flows contributing to the continuity of the operations of the
arrangement, this indicates the parties to the arrangements have rights to the
assets and obligations for the liabilities.
The Group accounts for all its joint arrangements as joint operations by
recognising the assets, liabilities, and expenses for which it has rights or
obligations, including its share of such items held or incurred jointly.
Oil and gas exploration, development and producing assets
The Group adopts the following accounting policies for oil and gas asset
expenditure, based on the stage of development of the assets.
1) Pre-licensing
Expenditure incurred prior to the acquisition of a licence interest is
expensed to the profit and loss as exploration costs written off.
2) Exploration and evaluation ("E&E")
The Group applies the full cost method of accounting for E&E costs, having
regard to the requirements of IFRS 6 'Exploration for and Evaluation of
Mineral Resources'. Under the full cost method of accounting, costs of
exploring and evaluating oil and gas properties are accumulated and
capitalised by reference to appropriate cash generating units ("CGUs"). Such
CGU's are based on geographic areas such as a licence area or a basin and are
not larger than an operating segment - as defined by IFRS 8 'Operating
segments'. The Group has one identified CGU, being the North Sea.
E&E costs may include costs of licence acquisition, technical services and
studies, geological and geophysical data acquisition, exploration drilling and
testing. These costs are initially capitalised within 'Intangible assets'.
Intangible E&E assets are not depreciated and are carried forward until the
existence (or otherwise) of commercial reserves has been determined. The
Group's definition of commercial reserves for such purpose is proven and
probable reserves on an entitlement basis.
If commercial reserves are discovered, the related E&E assets are assessed for
impairment, and any impairment loss is recognised in the statement of
comprehensive income. The carrying value, after any impairment loss, of the
relevant E&E assets is then reclassified to development and production assets
within property, plant and equipment and is amortised on a unit of production
basis over the life of the commercial reserves of the CGU to which they
relate.
Intangible E&E assets that relate to E&E activities that are not yet
determined to have resulted in the discovery of commercial reserves remain
capitalised as intangible E&E assets at cost, subject to impairment
assessments as set out below.
E&E assets are assessed for impairment when facts and circumstances suggest
that the carrying value of the E&E CGU to which they relate may exceed its
future recoverable amount. Where the E&E assets concerned fall within the
scope of an established CGU, the E&E assets are tested for impairment together
with all development and production assets associated with that CGU, as a
single cash generating unit. The aggregate carrying value is compared against
the expected recoverable amount of the CGU. The recoverable amount is the
higher of value in use and the fair value less costs to sell. Where the E&E
assets to be tested fall outside the scope of any established CGU, there will
generally be no commercial reserves and the E&E assets concerned will
generally be written off in full. Any impairment loss is recognised in the
statement of comprehensive income.
3) Development
All costs incurred after the technical feasibility and commercial viability of
producing hydrocarbons have been demonstrated are capitalised as oil and gas
development costs on a field-by-field basis. Subsequent expenditure is
capitalised only where it either enhances the economic benefits of the
development/producing asset or replaces part of the existing
development/producing asset. Such costs are charged to the profit and loss on
a unit of production basis.
4) Production
All costs of producing, transporting and processing oil and gas reserves are
expensed in the profit and loss in the period in which the oil and gas is
sold.
Disposals
Net proceeds from any disposal of an oil or gas asset are initially credited
against the previously capitalised costs of that asset and any surplus
proceeds are credited to the profit or loss. Net proceeds from any disposal
of development/producing assets are credited against the previously
capitalised cost of that asset and any surplus proceeds are credited to the
profit and loss.
Investments and loans
Shares in subsidiary undertakings are shown at cost. Loans to subsidiary
undertakings are stated at amortised cost.
Provisions are made for any impairment in value.
Financial instruments
(i) Financial assets
Cash and cash equivalents
Cash includes cash on hand and demand deposits with any bank or other
financial institution. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash which are
subject to an insignificant risk of changes in value.
Derivative financial instruments
Derivative financial instruments are held at fair value with any impairment
arising charged to the statement of comprehensive income.
(ii) Financial liabilities
Trade payables
Trade payables and other short-term monetary liabilities are held at amortised
cost which, in view of their short term nature, is not materially different
from their undiscounted cost.
Loans and borrowings
Loans and borrowings are initially recognised at fair value; less any issue
costs. They are subsequently held at amortised cost using the effective
interest method.
Convertible loan notes
Upon issue of a convertible loan note, the proceeds are split between the
liability component and the equity component at the date of issue. The fair
value of the equity component is included in equity and it not re-measured
whilst the liability component is included in liabilities, which is increased
by the effective rate of interest charged in each period. Upon conversion the
face value of the loan notes are transferred to the share capital and share
premium accounts. All convertible loan notes were extinguished in 2013.
Equity
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs, allocated between share capital and share
premium.
Share issue expenses and Share premium account
The costs of issuing new share capital are written off against the share
premium account arising out of the proceeds of the new issue.
Share-based payments
Share options are offered to personnel to incentivise and reward successful
corporate performance. The fair value of share options issued to Company
personnel is charged to the profit or loss, together with an increase in
equity reserves, over the relevant vesting period. Fair values are calculated
using the Black Scholes model and adjusted to reflect expected levels of
vesting and performance conditions. No expense is recognised for options that
do not ultimately vest except where vesting is only conditional upon a market
condition.
The fair value of warrants issued to brokers in relation to share placings,
calculated in the same way as for share options, is deducted from share
premium and taken to a share-based payment reserve.
Taxation
Tax on the profit or loss for the period comprises current and deferred tax.
Tax is recognised in the profit or loss except to the extent that it relates
to items recognised in other comprehensive income, in which case it is
recognised in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the period,
using tax rates enacted or substantively enacted at the reporting date, and
any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the statement of financial position differs to its
tax base, except for differences arising on the initial recognition of an
asset or liability in a transaction which is not a business combination and at
the time of the transaction affects neither accounting or taxable profit; and
investments in subsidiaries and jointly controlled entities where the Group is
able to control the timing of the reversal of the difference and it is
probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it
is probable that taxable profit will be available against which the difference
can be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the reporting date and are expected
to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either:
- the same taxable Group entity; or
- different Group entities which intend either to settle current tax assets
and liabilities on a net basis, or
- to realise the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax assets or
liabilities are expected to be settled or recovered.
Earnings/loss per share
Earnings/loss per share is calculated as profit/loss attributable to
shareholders divided by the weighted average number of ordinary shares in
issue for the relevant period. Diluted earnings per share is calculated using
the weighted average number of ordinary shares in issue plus the weighted
average number of ordinary shares that would be in issue on the conversion of
all relevant potentially dilutive shares to ordinary shares adjusted for any
proceeds obtained on the exercise of any options and warrants. Where the
impact of converted share would be anti-dilutive they are excluded from the
calculation.
Foreign currencies
The functional and presentation currency of the Group and the Company is
Pounds Sterling.
The Group translates foreign currency transactions into the functional
currency at the rate of exchange prevailing at the transaction date. Monetary
assets and liabilities denominated in foreign currency are translated into the
functional currency at the rate of exchange prevailing at the reporting date.
Exchange differences arising are taken to the consolidated statement of
comprehensive income except for those incurred on borrowings specifically
allocable to development projects, which are capitalised as part of the cost
of the asset.
Critical Accounting Estimates, Uncertainties and Judgements
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on
historical experience and factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgements about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
Key areas for the application of management judgement currently include:
Recoverability of capitalised oil and gas assets
Management is required to assess oil and gas assets for indicators of
impairment and have considered the economic value of these assets. Management
has estimated the future recoverable amounts of these assets based upon a
present value calculation of future cash flows expected to be derived from the
production of commercial reserves. Judgement has been used in estimating
geological and commercial change of success, production volumes, commodity
prices, foreign exchange rates, operating costs, capital expenditure and
discount rates.
Specifically, discount rates reflect the current market assessment of the
risks specific to the oil and gas sector and are based on the weighted average
cost of capital for the Group. Where appropriate, the rates are adjusted to
reflect the market assessment of any specific risks. The Group has applied a
discount rate of 10% for the current year.
Fair value of share options and warrants
The fair value of options and warrants is calculated using appropriate
estimates of expected volatility, risk free rates of return, expected life of
the options/warrants, the dividend growth rate, the number of options expected
to vest and the impact of any attached conditions of exercise. See note 14
for further details of these assumptions.
Valuation of derivatives associated with the Darwin Facility
As the ultimate value of these notes is dependent upon the value of the
Company's ordinary shares, management has determined the fair value of
derivatives (at inception and at the year-end) based on the market share price
of the Group of 25p and 6.75p respectively.
Modification of the Weatherford Loan repayment profile
Management has exercised judgement in concluding that the renegotiated terms
of the Weatherford Loan do not represent a significant qualitative or
quantitative modification to the terms of the existing loan agreement.
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 only affects that period or in the period
of revision and future periods if the revision affects both current and future
periods.
2 Segmental information
The Group complies with IFRS 8, Operating Segments, which requires operating
segments to be identified on the basis of internal reports about components of
the Group that are regularly reviewed by the directors to allocate resources
to the segments and to assess their performance. In the opinion of the
directors, the operations of the Group comprise one class of business, being
the exploration and development of oil and gas opportunities in the UK North
Sea.
3 Operating loss
The Group operating loss is stated after charging/(crediting) the following:
2014 2013
£000 £000
Fees payable to the Company's auditor:- for the audit of the Company's and Group's financial statements 22 25
- for the audit-related services - 2
- for services related to corporate finance transactions - 10
Exploration costs written offImpairment of oil and gas properties 641 8,254 2 -
Staff costs - fees and salaries 329 166
Staff costs - share-based incentives 1,343 359
Staff costs capitalised as oil and gas non-current assets (54) (25)
Foreign exchange loss/(gain) 77 (25)
_________ _________
4 Staff costs and directors' remuneration
All personnel were engaged under consultancy contracts until completion of the
AIM listing on 30th September 2013. Thereafter directors were engaged under
employment contracts.
During the year, the average number of personnel was:
2014Number 2013Number
Management/operational _______5 ______4
Directors _______6 ______5
2014 2013
Personnel costs £000 £000
Wages, salaries and fees 306 156
Social security costs 23 10
Share-based incentives 1,343 359
________ ________
1,672 525
________ ________
No pension plans are provided for directors or staff. Key management personnel
are deemed to be directors.
Directors' remuneration Salary Share-based incentives 2014Total 2013Total
£000 £000 £000 £000
Mark Routh 69 598 667 192
Peter Young 103 340 443 129
Mehdi Varzi 21 - 21 17
Marie-Louise Clayton 4 104 108 33
Michael Jordan 15 53 68 19
Thomas Hardy - - 11
Paul Murray - - - -
_______ ________ ________ ________
212 1,095 1,307 401
_______ ________ ________ ________
Social security costs for the year for key management personnel were £23,000
(2013 - £10,000).
The service agreements were effective from 1st September 2013 and those for
Mark Routh, Peter Young, Marie-Louise Clayton and Michael Jordan provided that
only 50% of the full contractual amount apply from that date until the sooner
of either the date on which the Company has raised not less than gross funds
of £10 million, or 31st December 2016. Effective 1st April 2014 these amounts
were amended to 30% for Mark Routh, 75% for Peter Young, and 0% for each of
Marie-Louise Clayton and Paul Murray. For each six-month interval, with the
first ending on 28th August 2014, the Company may settle the difference
between the reduced rate and the full rate either in cash or through the
granting of options over ordinary shares of the Company at the volume-weighted
average share price over the period to which they relate.
The service agreement for Mehdi Varzi provided for an amounts of £62,500 in
respect of the AIM listing and £30,000 to be settled in cash or options over
ordinary shares upon similar terms. These amounts were satisfied through the
issue of share options on 1st March 2015.
Amounts outstanding at the 31st December 2014 to which these terms relate
totalled £93,000 and were subsequently settled in shares on 1st March 2015.
Directors' interests in options on 1p ordinary shares of the Company at 31st
December 2014 were as follows:
Granted Total 31 Dec 2013 Awarded in 2014 Total 31 Dec 2014 Exercise price Expiry date
Mark Routh 23 Sept 2013 2,933,946 - 2,933,946 1p 30 June 2015
23 Sept 2013 1,500,000 - 1,500,000 29.74p 23 Sept 2023
23 Sept 2013 1,500,000 - 1,500,000 41.63p 23 Sept 2023
19 Nov 2014 - 162,114 162,114 1p 28 Feb 2017
19 Nov 2014 - 218,672 218,672 1p 31 Aug 2017
Peter Young 23 Sept 2013 1,700,000 - 1,700,000 1p 30 June 2015
23 Sept 2013 750,000 - 750,000 29.74p 23 Sept 2023
23 Sept 2013 750,000 - 750,000 41.63p 23 Sept 2023
19 Nov 2014 - 122,814 122,814 1p 28 Feb 2017
19 Nov 2014 - 71,405 71,405 1p 31 Aug 2017
Mehdi Varzi 19 Nov 2014 - 58,104 58,104 1p 31 Aug 2017
Marie-Louise 23 Sept 2013 570,000 570,000 1p 30 June 2015
Clayton1 19 Nov 2014 - 24,563 24,563 1p 28 Feb 2017
19 Nov 2014 - 45,699 45,699 1p 31 Aug 2017
Michael Jordan2 23 Sept 2013 290,000 290,000 1p 30 June 2015
19 Nov 2014 - 24,563 24,563 1p 28 Feb 2017
19 Nov 2014 - 24,754 24,754 1p 31 Aug 2017
Paul Murray 19 Nov 2014 - 51,878 51,878 1p 31 Aug 2017
1. These options have been granted to Clayton Consulting Partners Limited, a
company in which Marie-Louise Clayton is a majority shareholder and a
director.
2. These options have been granted to Acura Oil & Gas Limited, a company in
which Michael Jordan is the majority shareholder and a director.
Mark Routh as CEO and Peter Young as CFO were entitled to participate under
the Group's Long Term Incentive Plan ("LTIP"). No gains have been made upon
the exercise of share options to date. Exercising of LTIP options are
conditional upon conditions set out in the Remuneration Policy and continued
employment within the Company.
The Company paid £13,000 for Directors and Officers Liability insurance during
the year (2013: £11,000).
5 Finance expense
2014 2013
£000 £000
Interest on loans 100 140
Finance cost of derivative asset 61 -
Impairment of derivative financial asset 831 -
Other finance expense 145 35
________ ________
1,137 175
________ _________
The derivative financial asset represents the carrying value of notes held in
Darwin Strategic Limited. As the ultimate value of these notes is dependent
upon the value of the Company's ordinary shares, an impairment was recognised
against the carrying value of this asset and charged in the statement of
comprehensive income based upon the market value of the Company's ordinary
shares of £0.0675 at 31st December 2014 compared to £0.25 at the point of
issue in June 2014.
6 Taxation
a) Current taxation
There was no tax charge during the year since the Group had no income.
Expenditures to-date will be accumulated for offset against future tax
charges
The reasons for the difference between the actual tax charge for the year and
the standard rate of corporation tax in the United Kingdom applied to profits
for the year are as follows:
2014 2013
£000 £000
Loss for the year 12,145 1,031
Income tax expense - -
_________ _________
Loss before income taxes 12,145 1,031
Expected tax credit based on the standard rate of United Kingdom corporation tax at the domestic rate of 21.5% (2013: 23.25%) 2,611 239
Expenses not deductible for tax purposes (2,258) (142)
Unrecognised taxable losses carried forward (353) (97)
_________ _________
Total tax expense - -
_________ _________
b) Deferred taxation
Due to the nature of the Group's exploration activities there is a long lead
time in either developing or otherwise realising exploration assets. The
amount of deductible temporary differences, unused tax losses and unused tax
credits for which no deferred tax asset is recognised in the statement of
financial position is £534,000. A deferred tax asset will only be created if
there is reasonable certainty that profits will be earned in the foreseeable
future.
7 Loss per share
2014£000 2013£000
Loss for the year attributable to shareholders 12,145 1,031
_________ _________
Weighted average number of ordinary shares 63,303,336 50,434,060
_________ _________
Loss per share - pence 19.2p 2.0p
_________ ________
As the result for the year was a loss, no dilutive EPS is disclosed. As at
31st December 2014, potentially dilutive instruments in issue were 13,134,599
(2013 - 11,942,408).
8 Non-current assets
Exploration and Evaluation assets - Group
2014 2013
£000 £000
At cost
At beginning of the year 15,259 15,171
Additions 508 88
_________ _________
At end of the year 15,767 15,259
_________ _________
Impairments and write-downs - -
At beginning of the year - -
Impairment (8,254) -
_________ _________
At end of the year (8,254) -
_________ _________
Net book value
At 31 December 7,513 15,259
_________ _________
At 1 January 15,259 15,171
_________ _________
These costs comprise expenditures on the Group's Blythe and Skipper field
interests plus some small amounts on the newly awarded licence interests. On
3rd March 2014, the Blythe and Skipper licences were both extended by 18
months to 30th September 2015. Financial commitments on these licences are
covered in note 18.
As explained in the accounting policies section, following the significant
fall in oil prices in late 2014, an impairment test was carried out on the
carrying value of the Group's exploration and evaluation assets and a charge
of £8,254,000 was recognised in the statement of comprehensive income. This
comprises £6,169,000 for Skipper and £2,085,000 for Blythe.
9 Investments
Shares Loans
in Group to Group
companies companies Total
Company £000 £000 £000
At cost
At 1 January 2013 12,592 1,724 14,316
Additions - 401 401
_________ _________ _________
At 31 December 2013 12,592 2,125 14,717
Additions - 1,342 1,342
Impairment (8,254) - (8,254)
_________ _________ _________
At 31 December 2014 4,338 3,467 7,805
_________ _________ _________
The Company has undertaken not to seek repayment of loans to other Group
companies until each borrower has sufficient funds to make such payments.
In recognition of the impairment charge against the carrying value of the
Group's exploration and evaluation assets described in note 8 above, an
equivalent impairment of £8,254,000 against the carrying value of the
Company's investment in its subsidiaries was charged to the Company's profit
or loss.
The Company's principal subsidiaries are as follows:
Country of Area of
Directly held incorporation operation %
IOG Skipper Limited United Kingdom United Kingdom 100
IOG North Sea Limited United Kingdom United Kingdom 100
Both subsidiaries were incorporated in the United Kingdom on 13th May 2011 and
are engaged in the business of oil and gas exploration in the North Sea. The
financial reporting periods for each end on 31st December.
10 Interests in jointly controlled operations
Beneficial
Licences United Kingdom interest Operator
Skipper oil field 50% Alpha Petroleum Resources
Blythe gas field 50% Alpha Petroleum Resources
11 Trade and other receivables
2014 2013
£000 £000
Group and Company
VAT recoverable 3 117
Derivative financial asset _______307 _______ -_
The derivative financial asset represents the carrying value of notes held in
Darwin Strategic Limited. As the ultimate value of these notes is dependent
upon the value of the Company's ordinary shares, an impairment was recognised
against the carrying value of this asset and charged in Group's profit and
loss account based upon the market value of the Company's ordinary shares of
£0.0675 at 31st December 2014 compared to £0.25 at the point of issue in June
2014.
12 Current liabilities
2014 2013
£000 £000
Group
Loans 461 -
Trade payables 21 59
Amounts due to joint venture partners 8 4
Accruals 165 25
_________ _________
655 88
_________ _________
Company
Loans 461 -
Trade payables 21 59
Amounts due to joint venture partners 8 4
Accruals 149 5
_________ _________
639 68
_________ _________
On 4th June 2014, the Company received £517,500 under a loan arrangement with
Darwin Strategic Limited Repayment of the loan was to be £575,000 if paid
within six months with an additional £28,750 due if made during the following
six months. Of this £118,500 was repaid in July 2014. Amounts of £57,500 in
respect of the first six months and £4,106 in respect of part of the second
six months have been included in the amount outstanding at 31st December
2014.
During 2013 the Company raised additional finance totalling £172,000 through
the issue of loan notes. Interest accrued on the loan notes at a rate of 7.5%
per annum and totalled £48,000 at 30th September 2013. In view of the right
to conversion into equity of the loan notes, a fair value of £166,000 was
ascribed to the equity component and was reflected in the convertible debt
option reserve within capital and reserves. There was an additional interest
charge in 2013 of £112,000 to reflect the effective interest rate of the loan
notes.
Upon listing of the Company's shares on AIM on 30th September 2013,
outstanding loan notes plus accrued interest converted into ordinary shares at
a price of £0.1903 being 80% of the most recent offering price.
13 Non-current liabilities
2014 2013
£000 £000
Group
Trade creditors 1,586 1,471
_________ _________
Company
Trade creditors 24 24
_________ _________
During 2014 Group trade creditors denominated in US$ were increased by £77,000
(2013 - reduced by £25,000) through changes to the £/US$ exchange rate.
Of the Group's total trade creditors, £1,296,000 is due no later than 30th
September 2016, this date having been extended by fifteen months from the
previous repayment date of 31st March 2015 in return for increasing the
interest rate from 3% to 9% effective from 31st March 2015 and the issue of
500,000 warrants at that date. Trade creditors' book value equates to fair
value.
The balance of the Group's creditors and also the Company's creditors are not
due until after sustained production is achieved from the Skipper field.
14 Equity share capital
Share Share
capital premium Total
Number £000 £000 £000
Allotted, issued and fully paid
At 1 January 2013
- Ordinary shares of 1 pence each 47,323,417 473 13,078 13,551
Equity issued 8,715,000 87 1,916 2,003
Equity issue costs - - (157) (157)
Warrants issued - - (42) (42)
Loan note conversion 3,493,437 35 630 665
_________ _________ _________ _________
At 31 December 2013
- Ordinary shares of 1 pence each 59,531,854 595 15,425 16,020
2014
Equity issued 5,625,000 56 1,350 1,406
Issue costs - - (11) (11)
Equity issued 4,090,910 41 409 450
Warrants issued - - (10) (10)
_________ _________ _________ _________
At 31 December 2014
- Ordinary shares of 1 pence each 69,247,764 692 17,163 17,855
_________ _________ _________ _________
On 4th June 2014 the Company entered into an agreement with Darwin Strategic
Limited ("Darwin") pursuant to which Darwin subscribed for 5,625,000 ordinary
shares in the Company satisfied through the issue of 1,800,000 redeemable
subscription notes by Darwin to the Company. These have been recorded at the
market price for ordinary shares on the date of issue of 25 pence applied to
the total number of shares issued giving a total of £1,406,000.
The Company also agreed to issue 326,087 warrants to Darwin with an exercise
price of 46 pence expiring on 12th June 2017 to which a fair value of 3.09
pence each has been attributed using the Black Scholes model with a risk-free
interest rate of 0.43%, a weighted life expectancy of three years and a 50%
volatility factor resulting in a total charge of £10,000 to the share premium
account.
On 5th November 2014, the Company issued 4,090,910 ordinary shares at a
subscription price of 11 pence each.
On 30th September 2013, concurrent with its admission to AIM, the Company
issued 8,405,800 ordinary shares through a placing at a price of £0.238 each
to raise £2,000,000 before issue costs of £157,000. The Company also issued a
further 309,200 ordinary shares at a price of £0.01 each to raise £3,000 in
satisfaction of rights attached to previously issued shares which crystallised
upon listing.
Also upon admission to AIM all loan notes, plus associated interest, totalling
£665,000 were converted into ordinary shares at a 20% discount to the placing
price being £0.1904.
Share options and warrants
During the year the Company issued share options under its share option plan.
Number Price pence Grant Expiry
1 January 2014 11,373,946 14.72 23 Sept 2013
Staff options 334,054 1p 19 Nov 2014 28 Feb 2017
Staff options 470,512 1p 19 Nov 2014 31 Aug 2017
31 December 2014 12,178,512 13.82
The AIM bonus options may not be exercised before 1st January 2015. The LTIP
options may not be exercised for a minimum of three years after their grant
dates and then only vest when the market price of the Company's ordinary
shares exceeds 47.58 pence in respect of the 29.74 pence options and 59.48
pence in respect of the 41.63 pence options for 20 consecutive days and
provided conditions set by the Remuneration Committee at the time of the grant
are satisfied. Mark Routh as CEO and Peter Young as CFO were entitled to
participate under the Group's Long-Term Incentive Plan ("LTIP"). No gains
have been made upon the exercise of share options to date. Exercising of LTIP
options are conditional upon conditions set out in the Remuneration Policy and
continued employment within the Company.
The remaining average contractual life of the 12,178,512 share options
outstanding at 31st December 2014 was 3.68 years at that date. None of these
options were exercisable at that date.
The weighted average exercise price of the options was 13.82 pence at 31st
December 2014 (2013 - 14.72 pence).
The Company calculates the value of share-based compensation using the
Black-Scholes option pricing model to estimate the fair value of share options
and warrants at the date of grant.
The fair value of options granted in 2014 is calculated as £1,343,000 and this
has been charged to the profit or loss (2013 - £359,000). The exercise price
was determined as 1p.
On 1st July 2014 the Company also issued 326,087 warrants (2013 - 630,000)
that may be exercised at any time prior to the third anniversary of the issue
date. The fair value of warrants granted in 2014 is calculated as £10,000 and
this has been charged to the share premium account (2013 - £42,000). The
exercise price was determined as 46 pence.
The following assumptions were applied in the above calculations
2014 options Brokers' warrants
Risk free interest rate 4.3% 4.3%
Dividend yield nil nil
Weighted average life expectancy 3 years 3 years
Volatility factor 50% 50%
An estimated volatility of 50% has been applied.
15 Cash and cash equivalents
2014 2013
Group and Company £000 £000
Cash at bank 398 1,120
_________ _________
16 Company loss/profit for the year
The Company has taken advantage of the exemption allowed under Section 408 of
the Companies Act 2006 and has not presented its own Statement of
Comprehensive Income in these financial statements.
The Company loss for the year was £11,200,000 (2013: £732,000).
17 Financial instruments
Significant accounting policies
Details of the significant accounting policies in respect of financial
instruments are disclosed in Note 1 of the financial statements.
Financial risk management
The Board seeks to minimise its exposure to financial risk by reviewing and
agreeing policies for managing each financial risk and monitoring them on a
regular basis. At this stage, no formal policies have been put in place in
order to hedge the Group and Company's activities to the exposure to currency
risk or interest risk and no derivatives or hedges were entered into during
the year other than those related to the Darwin loan.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group and
Company's risk management objectives and policies and, whilst retaining
ultimate responsibility for them, it has delegated the authority for designing
and operating processes that ensure the effective implementation of the
objectives and policies to the Group's finance function. The Board receives
regular reports from the Chief Financial Officer through which it reviews the
effectiveness of the processes put in place and the appropriateness of the
objectives and policies it sets.
The Group is exposed through its operations to the following financial risks:
• Liquidity risk;
• Credit risk;
• Cash flow interest rate risk; and
• Foreign exchange risk
The overall objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group and Company's
competitiveness and flexibility. Further details regarding these policies are
set out below:
Principal financial instruments
The principal financial instruments used by the Group and Company, from which
financial instrument risk may arise are as follows:
• Cash and cash equivalents
• Derivative assets
• Trade and other payables
Liquidity risk
The Group's and Company's policy is to ensure that it will always have
sufficient cash to allow it to meet its liabilities when they become due. To
achieve this aim, it seeks to maintain readily available cash balances to meet
expected requirements for a period of at least twelve months for overheads and
as commitments dictate for capital spend.
Rolling cash forecasts identifying the liquidity requirements of the Group and
Company are produced frequently. These are reviewed regularly by management
and the Board to ensure that sufficient financial resources are made
available. All Group activities are funded through the Company.
At 31st December 2013 loan notes totalling £617,000 plus interest accrued of
£48,000 had been converted into equity leaving no loan notes outstanding.
Greater than Greater Total
6 months 6 months, less than undiscounted Carrying
or less than 12 months 12 months amount
2014 Group £000 £000 £000 £000 £000
Current assets
Derivative instrument - 307 - 307 307
Cash and cash equivalents 398 - - 398 298
________ _________ ________ _________ ________
398 307 - 705 705
________ _________ ________ _________ ________
Current financial liabilities
Loans 461 - - 461 461
Trade and other payables 194 - - 194 194
Non-current financial liabilities
Trade and other payables - - 1,772 1,772 1,772
________ _________ ________ _________ ________
655 - 1,772 2,427 2,427
________ _________ ________ _________ ________
2013 Group
Current assets
Cash and cash equivalents 1,120 - - 1,120 1,120
________ _________ ________ _________ ________
1,120 - - 1,120 1,120
________ _________ ________ _________ ________
Current financial liabilities
Loan notes -
Trade and other payables 88 - - 88 88
Non-current financial liabilities
Trade and other payables - - 1,681 1,681 1,681
________ _________ ________ _________ ________
88 - 1,681 1,769 1,769
________ _________ ________ _________ ________
Trade and other payables include projected interest for the remaining term of
loans.
Greater than Greater Total
6 months 6 months, less than undiscounted Carrying
or less than 12 months 12 months amount
2014 Company £000 £000 £000 £000 £000
Current assets
Derivative instrument 307 - 307 307
Cash and cash equivalents 398 - - 398 398
________ _________ ________ _________ ________
398 307 - 705 705
________ _________ ________ _________ ________
Current financial liabilities
Loans 461 - - 461 461
Trade and other payables 178 - - 178 178
Non-current financial liabilities
Trade and other payables - - 24 24 24
________ _________ ________ _________ ________
639 - 24 663 663
________ _________ ________ _________ ________
2013 Company £ £ £ £ £
Current assets
Cash and cash equivalents 1,120 - - 1,120 1,120
________ _________ ________ _________ ________
1,120 - - 1,120 1,120
________ _________ ________ _________ ________
Current financial liabilities
Trade and other payables 68 - - 68 68
Non-current financial liabilities
Trade and other payables - - 24 24 24
________ _________ ________ _________ ________
68 - 24 92 92
________ _________ ________ _________ ________
Trade and other payables include projected interest for the remaining term of
loans.
Credit risk
The credit risk on liquid funds is limited because the counterparties are
banks with credit ratings assigned by international credit rating agencies.
The Group places funds only with selected organisations with ratings of 'A' or
above as ranked by Standard & Poor's for both long and short term debt. All
funds are currently placed with NatWest bank.
Carrying Maximum
value exposure
Group and Company £000 £000
Cash and receivables
Cash and cash equivalents 398 398
_________ _________
398 398
_________ _________
The Group made investments and advances into subsidiary companies during the
year, recovery of which is dependent on future income generation of those
subsidiaries.
The Group's and Company's external trade and other receivables comprise UK VAT
and have not been impaired and which are non-interest bearing. The Group and
Company do not hold any collateral as security and do not hold any significant
provision in the impairment account for trade and other receivables as they
relate to third parties with no default history
Cash flow
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