PIZZODIGINO
Pacifico
Financial Report & Accounts for the 18 month period ended 30 June 2012
The audited accounts of NEOS Resources plc for the 18 month period ended 30 June 2012 are herby released to the market.
Executive Chairman's statement
Introduction
This is the first Annual report and accounts to be issued by NEOS Resources plc (the "Company") and its subsidiaries (the "Group") since I was appointed as Executive Chairman in June 2011 and the first in relation to the changed year reporting to 30th June.
There have been a number of significant changes to both the Board and operational structure of the Group over the last sixteen months. As announced in the Interim report in December 2011, the Board has refocused the Group on non-edible oils seeds found in India. This strategy was initiated in order to develop a pathway for scalability and with a view to future financial stability for the Group. In order to reflect these changes the Company's name was changed from D1 Oils plc to NEOS Resources plc in March 2012.
The Board has also changed the focus of the Group from research and development towards commodity trading. Over the past sixteen months, the management team has developed its knowledge regarding the complexities of the Indian markets including the commodity market spread pressures and the operational activities. The Board`s principal objective is for the Group to achieve profitability and cashflow sustainability within a manageable time horizon.
Ravi Jose was appointed as an executive director in July 2012, to join Nicholas Myerson and myself who had joined in June 2011. The executive team conducted a business review which resulted in the closing down of the Group's operations in Indonesia and Zambia and the disposal of the remaining Science & Technology research unit with the sale of the Animal Feed project, as a result of which the Group now focuses on trading operations in India.
I am pleased to report that the Group has made progress in developing the business in the core region of India during the period with relatively significant amounts of non-edible vegetable oils being produced and sold there.
The Group has now produced initial volumes of crude oil from Castor, Pongamia and Neem, as well as Jatropha, and has sold its products into a number of industrial applications. This is the first step in the implementation of a diversification strategy away from over reliance on future biofuel legislation.
During the period since June 2011, the Group running costs have been reduced by 66% from a rate of over £220,000 to under £75,000 per month. These reductions have been achieved through the closure of non-scalable Jatropha plantations in Malawi, Zambia and Indonesia, the sale of the Animal Feed programme, and overhead efficiencies achieved within the UK and India.
The Group revenue, whilst still relatively small scale, has trebled from a monthly average in the first half of 2011 of £30,000 to a current average of circa £90,000 per month which has been generated from approximately £450,000 of committed working capital in India.
Indian operations
Since the commencement of the season in July 2011, the Group has purchased approximately 3,700 tonnes of a combination of non-edible seeds, expelled approximately 1,200 tonnes of oil, and produced over 2,600 tonnes of seedcake. 825 tonnes of oil and 2,600 tonnes of seedcake were sold for £863,000. 400 tonnes of oil and 300 tonnes of seedcake were held in inventory at the period end.
The overhead costs for India have been reduced since June 2011 from a monthly average of £35,000 per month to £17,000 per month.
Management is planning to commit increased working capital for larger storage facilities for the seed, oil and seedcake, as well as to enter into variable tolling contracts thereby enabling the Group to withdraw from fixed leased crushing plants. These measures should assist in opportunities to buy seed and to sell the requisite oil and seedcake at the lowest and highest points, respectively, of the seasonal market cycles.
The Group is currently in the process of trial sampling with two large European based companies for the export of its crude Jatropha oil for applications in the leather tanning and biofuel markets. The Group is additionally in discussions with a multinational trader for the export of the Group's crude castor oil.
In order to drive the scalability of the business, management is currently in the process of exploring other domestic or export opportunities for non-edible seed and oil products.
Quinvita sale
In April 2010, the Group sold substantially all of the Jatropha plant science and technology activities, excluding its animal feed programme, to Quinvita Limited ("Quinvita"), a company formed by three previous members of management.
In April 2012, the Group concluded the sale of the remainder of the Animal Feed intellectual property assets to Quinvita for cash consideration of £300,000 and converted its holding of preference shares in the capital of Quinvita to a senior loan of £372,000. The loan attracts interest and is repayable by Quinvita at any time before April 2017.
Principal risks and uncertainties
The attention of shareholders is drawn to the Directors' Report which sets out the principal risks and uncertainties faced by the Group.
Going concern
The financial statements have been prepared on a going concern basis which assumes that the Company and the Group will continue in operating existence for the foreseeable future and meet its liabilities as they fall due. There are material uncertainties that the Directors have had to consider in deciding to prepare the financial statements on the going concern basis, which are summarised below.
Business planning uncertainty
Following the appointment of Steven Rudofsky and Nicholas Myerson on 24 June 2011, the Board commenced a fundamental review of the business. The review concluded that a strategy of producing, procuring and trading oils from multiple non-edible oilseed types offered the most viable long term prospects for the Group. Whilst the Board is confident it can deliver a non-edible oilseeds based strategy that is viable and cash generative over the longer term, until the business plan is finalised and executed over a number of harvest cycles, the Board cannot assess with certainty the implications of pursuing the revised strategy.
Funding uncertainty
The Group concluded a successful fundraising exercise in November 2011. The Directors informed the market at the time that they expected an additional fundraising would need to be initiated during the latter half of 2012. The Directors now believe that trading in line with the business plan and forecasts show that the Group will require additional cash funding during the second quarter of 2013. The Board believes that it retains the support of major shareholders for its plans. However, if the Directors are unable to secure the appropriate level of support for the strategy and associated future fundraising, the Company and the Group will be unable to continue as a going concern.
Directors' view
After making enquiries and considering these uncertainties, the Directors conclude that the implications of the business plan review and whether funding can be secured before cash resources are depleted are material uncertainties which may cast significant doubt about the Group and Company's ability to continue as a going concern in their current form. The Directors believe that these uncertainties can be managed and mitigated and the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Consequently the Directors believe that it is appropriate to prepare the financial statements on a going concern basis.
Should the business strategy not fulfil expectations and not generate cash for the Group, then the resultant restrictive ability to implement or fund the Group's business plan would mean the going concern basis would be invalid and adjustments may have to be made to reduce the value of the assets to their recoverable amount, to provide for any further liabilities which might arise and to reclassify fixed assets and long term liabilities to current assets and current liabilities.
Financial statements for 18 month period ended 30 June 2012
In December 2011, the Board changed the accounting reference date from 31 December to 30 June to align the accounting year end of the Group to the Indian Jatropha harvest season.
The financial results for the 18 month period ended 30 June 2012 reflect the activities prior to, during, and following the business review conducted by the new Board. As part of the review, operations in Indonesia and Zambia were closed down, and the Animal Feed business within the remaining Science and Technology sector was disposed of. All Science and Technology activity was reclassified as discontinued.
Group revenue was £0.9m (2010: £0.1m) for the period. The increase was due to an increased tonnage of vegetable oils sold, to 825 tonnes in the 18 month period.
The business achieved a positive throughput margin on all varieties of oil. Average processing costs were, however, in excess of throughput margin. This was due to two onerous fixed lease mills contracts which will have been terminated by the end of 2012, historical committed costs from previous management, and an adverse movement in castor prices, resulting in an impairment charge to cost of sales from inventory during the period. The knowledge gained from this season's expelling has resulted in improved practices amongst staff and the sourcing of favourable tolling contracts on a per kilogram of grain basis. The Directors are confident that concepts learned and changes applied to the business will generate gross profits.
Administration expenses were £3.0m for the 18 month period compared with £3.4m for the 12 month period in 2010 as a result primarily of withdrawing from the Indonesian and Zambian operations, and reducing the numbers of staff in the UK and India.
Interest received of £26,000 (2010: £35,000) relates to cash held on deposit in the UK (£13,400) and India (£6,000) plus £6,200 of accrued interest from the Quinvita receivable.
Group policy is to charge foreign exchange fluctuations on long term loans and equity in foreign subsidiaries with continuing operations to a foreign exchange equity reserve. Once an overseas subsidiary becomes discontinued, the foreign exchange reserve is released to the income statement. As a result of withdrawing from Indonesia and Zambia, finance costs include £0.3m in foreign exchange costs from impairment of loans in local currency and in foreign exchange equity reserves being charged to the income statement.
The loss on continuing activities before taxation was £3.7m (2010: £3.3m) and the loss per ordinary share was 2.3p (2010: 4.8p).
The Board
Barclay Forrest and Martin Jarvis left the Board on 14 July 2011 and 22 December 2011, respectively. The Board would like to thank them for their contribution to the business.
Nicholas Myerson and I joined the board as Executive Directors on 24 June 2011.
Ravi Jose joined the Board as an Executive Director on 26 July 2012. Graham Woolfman and Michael Moquette joined the Board as Non-Executive Directors on 14 July 2011 and 4 May 2012, respectively.
Staff
The period since June 2011 has been a time of very significant change for the Group. Operationally things remain challenging as the Group finalises the business model which the Board expects will enable profitability to be achieved. The Board would like to thank all of the staff for the capability, commitment and hard work that they have shown in what has been a challenging and fast-moving corporate environment.
Conclusion
The Board believes the Group is progressing towards achieving financial stability. This is dependent on developing and implementing a business plan that can result in scalability of the Group`s operations and a pathway to profitability.
There has been a significant shift in the focus of the Group and it is no longer dependent on biofuel legislation and the successful planting of one oilseed crop.
However, the business plan will require further funding in order for the Group to ultimately achieve profitability. The Board remains confident regarding procuring future funding based in part on the progress achieved by the Group over the last sixteen months.
I would like to thank our shareholders for their interest and support through a difficult, challenging and exciting time for the business.
Steven Rudofsky
Executive Chairman
25 October 2012
The audited accounts of NEOS Resources plc for the 18 month period ended 30 June 2012 are herby released to the market.
Executive Chairman's statement
Introduction
This is the first Annual report and accounts to be issued by NEOS Resources plc (the "Company") and its subsidiaries (the "Group") since I was appointed as Executive Chairman in June 2011 and the first in relation to the changed year reporting to 30th June.
There have been a number of significant changes to both the Board and operational structure of the Group over the last sixteen months. As announced in the Interim report in December 2011, the Board has refocused the Group on non-edible oils seeds found in India. This strategy was initiated in order to develop a pathway for scalability and with a view to future financial stability for the Group. In order to reflect these changes the Company's name was changed from D1 Oils plc to NEOS Resources plc in March 2012.
The Board has also changed the focus of the Group from research and development towards commodity trading. Over the past sixteen months, the management team has developed its knowledge regarding the complexities of the Indian markets including the commodity market spread pressures and the operational activities. The Board`s principal objective is for the Group to achieve profitability and cashflow sustainability within a manageable time horizon.
Ravi Jose was appointed as an executive director in July 2012, to join Nicholas Myerson and myself who had joined in June 2011. The executive team conducted a business review which resulted in the closing down of the Group's operations in Indonesia and Zambia and the disposal of the remaining Science & Technology research unit with the sale of the Animal Feed project, as a result of which the Group now focuses on trading operations in India.
I am pleased to report that the Group has made progress in developing the business in the core region of India during the period with relatively significant amounts of non-edible vegetable oils being produced and sold there.
The Group has now produced initial volumes of crude oil from Castor, Pongamia and Neem, as well as Jatropha, and has sold its products into a number of industrial applications. This is the first step in the implementation of a diversification strategy away from over reliance on future biofuel legislation.
During the period since June 2011, the Group running costs have been reduced by 66% from a rate of over £220,000 to under £75,000 per month. These reductions have been achieved through the closure of non-scalable Jatropha plantations in Malawi, Zambia and Indonesia, the sale of the Animal Feed programme, and overhead efficiencies achieved within the UK and India.
The Group revenue, whilst still relatively small scale, has trebled from a monthly average in the first half of 2011 of £30,000 to a current average of circa £90,000 per month which has been generated from approximately £450,000 of committed working capital in India.
Indian operations
Since the commencement of the season in July 2011, the Group has purchased approximately 3,700 tonnes of a combination of non-edible seeds, expelled approximately 1,200 tonnes of oil, and produced over 2,600 tonnes of seedcake. 825 tonnes of oil and 2,600 tonnes of seedcake were sold for £863,000. 400 tonnes of oil and 300 tonnes of seedcake were held in inventory at the period end.
The overhead costs for India have been reduced since June 2011 from a monthly average of £35,000 per month to £17,000 per month.
Management is planning to commit increased working capital for larger storage facilities for the seed, oil and seedcake, as well as to enter into variable tolling contracts thereby enabling the Group to withdraw from fixed leased crushing plants. These measures should assist in opportunities to buy seed and to sell the requisite oil and seedcake at the lowest and highest points, respectively, of the seasonal market cycles.
The Group is currently in the process of trial sampling with two large European based companies for the export of its crude Jatropha oil for applications in the leather tanning and biofuel markets. The Group is additionally in discussions with a multinational trader for the export of the Group's crude castor oil.
In order to drive the scalability of the business, management is currently in the process of exploring other domestic or export opportunities for non-edible seed and oil products.
Quinvita sale
In April 2010, the Group sold substantially all of the Jatropha plant science and technology activities, excluding its animal feed programme, to Quinvita Limited ("Quinvita"), a company formed by three previous members of management.
In April 2012, the Group concluded the sale of the remainder of the Animal Feed intellectual property assets to Quinvita for cash consideration of £300,000 and converted its holding of preference shares in the capital of Quinvita to a senior loan of £372,000. The loan attracts interest and is repayable by Quinvita at any time before April 2017.
Principal risks and uncertainties
The attention of shareholders is drawn to the Directors' Report which sets out the principal risks and uncertainties faced by the Group.
Going concern
The financial statements have been prepared on a going concern basis which assumes that the Company and the Group will continue in operating existence for the foreseeable future and meet its liabilities as they fall due. There are material uncertainties that the Directors have had to consider in deciding to prepare the financial statements on the going concern basis, which are summarised below.
Business planning uncertainty
Following the appointment of Steven Rudofsky and Nicholas Myerson on 24 June 2011, the Board commenced a fundamental review of the business. The review concluded that a strategy of producing, procuring and trading oils from multiple non-edible oilseed types offered the most viable long term prospects for the Group. Whilst the Board is confident it can deliver a non-edible oilseeds based strategy that is viable and cash generative over the longer term, until the business plan is finalised and executed over a number of harvest cycles, the Board cannot assess with certainty the implications of pursuing the revised strategy.
Funding uncertainty
The Group concluded a successful fundraising exercise in November 2011. The Directors informed the market at the time that they expected an additional fundraising would need to be initiated during the latter half of 2012. The Directors now believe that trading in line with the business plan and forecasts show that the Group will require additional cash funding during the second quarter of 2013. The Board believes that it retains the support of major shareholders for its plans. However, if the Directors are unable to secure the appropriate level of support for the strategy and associated future fundraising, the Company and the Group will be unable to continue as a going concern.
Directors' view
After making enquiries and considering these uncertainties, the Directors conclude that the implications of the business plan review and whether funding can be secured before cash resources are depleted are material uncertainties which may cast significant doubt about the Group and Company's ability to continue as a going concern in their current form. The Directors believe that these uncertainties can be managed and mitigated and the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Consequently the Directors believe that it is appropriate to prepare the financial statements on a going concern basis.
Should the business strategy not fulfil expectations and not generate cash for the Group, then the resultant restrictive ability to implement or fund the Group's business plan would mean the going concern basis would be invalid and adjustments may have to be made to reduce the value of the assets to their recoverable amount, to provide for any further liabilities which might arise and to reclassify fixed assets and long term liabilities to current assets and current liabilities.
Financial statements for 18 month period ended 30 June 2012
In December 2011, the Board changed the accounting reference date from 31 December to 30 June to align the accounting year end of the Group to the Indian Jatropha harvest season.
The financial results for the 18 month period ended 30 June 2012 reflect the activities prior to, during, and following the business review conducted by the new Board. As part of the review, operations in Indonesia and Zambia were closed down, and the Animal Feed business within the remaining Science and Technology sector was disposed of. All Science and Technology activity was reclassified as discontinued.
Group revenue was £0.9m (2010: £0.1m) for the period. The increase was due to an increased tonnage of vegetable oils sold, to 825 tonnes in the 18 month period.
The business achieved a positive throughput margin on all varieties of oil. Average processing costs were, however, in excess of throughput margin. This was due to two onerous fixed lease mills contracts which will have been terminated by the end of 2012, historical committed costs from previous management, and an adverse movement in castor prices, resulting in an impairment charge to cost of sales from inventory during the period. The knowledge gained from this season's expelling has resulted in improved practices amongst staff and the sourcing of favourable tolling contracts on a per kilogram of grain basis. The Directors are confident that concepts learned and changes applied to the business will generate gross profits.
Administration expenses were £3.0m for the 18 month period compared with £3.4m for the 12 month period in 2010 as a result primarily of withdrawing from the Indonesian and Zambian operations, and reducing the numbers of staff in the UK and India.
Interest received of £26,000 (2010: £35,000) relates to cash held on deposit in the UK (£13,400) and India (£6,000) plus £6,200 of accrued interest from the Quinvita receivable.
Group policy is to charge foreign exchange fluctuations on long term loans and equity in foreign subsidiaries with continuing operations to a foreign exchange equity reserve. Once an overseas subsidiary becomes discontinued, the foreign exchange reserve is released to the income statement. As a result of withdrawing from Indonesia and Zambia, finance costs include £0.3m in foreign exchange costs from impairment of loans in local currency and in foreign exchange equity reserves being charged to the income statement.
The loss on continuing activities before taxation was £3.7m (2010: £3.3m) and the loss per ordinary share was 2.3p (2010: 4.8p).
The Board
Barclay Forrest and Martin Jarvis left the Board on 14 July 2011 and 22 December 2011, respectively. The Board would like to thank them for their contribution to the business.
Nicholas Myerson and I joined the board as Executive Directors on 24 June 2011.
Ravi Jose joined the Board as an Executive Director on 26 July 2012. Graham Woolfman and Michael Moquette joined the Board as Non-Executive Directors on 14 July 2011 and 4 May 2012, respectively.
Staff
The period since June 2011 has been a time of very significant change for the Group. Operationally things remain challenging as the Group finalises the business model which the Board expects will enable profitability to be achieved. The Board would like to thank all of the staff for the capability, commitment and hard work that they have shown in what has been a challenging and fast-moving corporate environment.
Conclusion
The Board believes the Group is progressing towards achieving financial stability. This is dependent on developing and implementing a business plan that can result in scalability of the Group`s operations and a pathway to profitability.
There has been a significant shift in the focus of the Group and it is no longer dependent on biofuel legislation and the successful planting of one oilseed crop.
However, the business plan will require further funding in order for the Group to ultimately achieve profitability. The Board remains confident regarding procuring future funding based in part on the progress achieved by the Group over the last sixteen months.
I would like to thank our shareholders for their interest and support through a difficult, challenging and exciting time for the business.
Steven Rudofsky
Executive Chairman
25 October 2012
