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Infrastrata PLC   -  INFA   

Final results and notice of annual general meeting

Released 07:00 07-Jan-2019

RNS Number : 3038M
Infrastrata PLC
07 January 2019
 

               

 

 

7 January 2019

 

InfraStrata plc

 

("InfraStrata" or the "Company")

 

Final results for the year ended 31 July 2018 and notice of annual general meeting

 

InfraStrata plc (AIM: INFA), the only UK quoted company focused on gas storage, is pleased to announce its final results for the year ended 31 July 2018.

 

The full Annual Report and Financial Statements for the year ended 31 July 2018, and a notice of annual general meeting ("AGM"),as well as a letter in respect of electronic communications, will be available later today from the Company's website, www.infrastrataplc.com, and will be posted to shareholders today. The AGM will be held at the offices of Kerman & Co LLP, 200 Strand, London WC2R 1DJ on 31 January 2019 at 11:00 a.m.

 

 

For further information, please contact:

 

InfraStrata plc

John Wood, Chief Executive

 

c/o Yellow Jersey

+44 (0)20 3735 8825

Allenby Capital Limited (AIM Nominated Adviser & Joint Broker)

Jeremy Porter / Liz Kirchner

 

+44 (0)20 3328 5656

SI Capital Limited (Joint Broker)

Nick Emerson

 

+44 (0) 20 3871 4038

Yellow Jersey

Tim Thompson  

+44 (0)20 3735 8825

 

 

-ENDS-

 

Notes to editors:

 

InfraStrata is an independent gas storage company focused on the UK and Ireland. Further information is available on the Company's website: www.infrastrataplc.com 

 

Background on the Islandmagee Storage Project

 

The Islandmagee gas storage project is a proposed salt cavern gas storage facility located on Islandmagee in County Antrim, Northern Ireland. The Board of InfraStrata believes that the proposed 500 million cubic metres Natural Gas Cavern Storage facility will provide over 25% of the UK's Natural Gas Storage once constructed. The facility will be situated adjacent to the Scotland Northern Ireland (gas) Pipeline (SNIP) and the Moyle 500 Megawatt Electricity Interconnector. Work commenced in 2007 with the acquisition of 3D seismic data to image the Permian salt in the Larne Lough area. During 2012, planning permission was granted for the project and a gas storage licence was issued by the Utility Regulator. In 2015 a well was drilled to core the salt and confirm the technical feasibility of the project, supported in part by the European Commission. The Front End Engineering and Design (FEED) element of the Project was completed in November 2018 and the FEED report was submitted to the European Union in December 2018 in accordance with the Company's grant conditions.  To date approximately £13.5m has been invested in the project.

 

Further information is available on the company's website: www.infrastrataplc.com

 

 

 

The Front End Engineering & Design (FEED) and Insitu Downhole Testing programme for the Islandmagee gas storage project is co-financed by the European Union's Connecting Europe Facility.

 

Disclaimer releasing the European Union from any liability in terms of the content of the dissemination materials:

 

"The sole responsibility of this publication lies with the author. The European Union is not responsible for any use that may be made of the information contained therein."

 

Chairman's Statement

 

It has been a privilege to serve as Chairman of InfraStrata plc (the "Company") since November 2017 and it has been a transformational year. I am delighted to be writing the yearly statement once more looking back at what we have achieved and looking forward, moving into the next phase.

 

We are a very different organisation today compared with a year ago and we are in a very different position both technically and commercially with the Islandmagee gas storage project. The board appreciates the patience of all shareholders and whilst we have made considerable progress, there remains much to do. During the year our board has been redefined and we thank past members and welcome the new. The board is very active and not only provides sound oversight but also supports the Executive Management team wherever and whenever needed. We should thank Adrian Pocock for his time on the board, his entrepreneurial spirit, drive and passion to set up this journey. We also thank Karen Campbell for her efforts on the board and welcome Arun Raman. As a qualified accountant, Arun now heads our Audit committee, as well as bringing hands on experience of commercialising and operating gas storage facilities. Arun is a great addition to the board. As recently announced, Matt Beardmore has decided to resign from the board due to extraneous family issues reducing his ability to undertake the travel and time commitments required of a non-executive director. Matt was an integral part of the board providing invaluable support particularly in regard to EU matters and we can still benefit from Matt's expertise as required. We will continue to strengthen the board as the Company develops.

 

The key to success, for us as a one project company at present, is to have quality executives able to deliver on strategy. Execution is the key to success. To this end we were very pleased that John Wood, a very capable engineer with considerable project delivery expertise, chose to join InfraStrata first as COO and then as CEO. John is an 'engineer's engineer', and his drive and commitment has enabled us to deliver the Front End Engineering and Design study, something the Company has struggled to initiate in the past. John has shown deep commitment to InfraStrata by investing personally in the business. Therefore, we have a board of three: one executive and two active non-executives.  Whilst controlling overheads and G&A expenditure, the need for a CFO became very apparent and we were again pleased that Andy Duncan agreed to join, initially on a part-time basis. Andy has both a financial and engineering background and over the last decade his strong finance and particularly project financing expertise has been honed in several well-known banks. We would be remiss in not recognising Judith Tweed our local director of Islandmagee Energy Limited. Her continued support and focus on community matters is highly appreciated. The three-man board, CFO and Judith are fully committed to taking the Company forwards and completing the necessary actions to commence the construction of the Islandmagee gas storage project in County Antrim, Northern Ireland (the "Project"). Delivery of the Project is front and centre to our strategy of building an energy focused infrastructure business.

 

Since I last wrote the Chairman's statement, the need for this Project has increased further. Finally, it is now recognised that energy security in Northern Ireland, and the UK as a whole, is an issue that politicians can no longer ignore. Gas storage at Islandmagee is good for Northern Ireland, good for the UK and good for the EU. We still hold Project of Common Interest (PCI) status with the EU and we have applied for further grant funding. Brexit will not affect these initiatives as the UK government has confirmed that it will honour any EU grants previously awarded.  The UK government guarantee scheme, run by the Infrastructure Projects Authority, remains available to the Company, if required.

 

We are now well into winter after an unseasonably warm summer - how short memories are, when the 'Beast from the East' hit the UK in late February/early March 2018 and the National Grid issued a warning, we were hours away from running out of gas. Gas prices spiked to over 350 pence per therm; significant multiples to the normal price and an all-time high. Gas price volatility has been increasing and it seems is here to stay. The Project is not only essential to provide gas rapidly when needed but is also attractive commercially for capacity owners and gas trading companies. The combination of our planned fast cycle storage facility and gas price volatility makes our Project attractive to many capacity users. We as a Company remain convinced that the Project will not only provide shareholders with a return on their investment, capacity users a commercial opportunity and good profits, and project investors long term cash flow returns to service their equity investments, but also, importantly, to provide security of energy supply to the island of Ireland and the UK.

 

The Company conducted several equity capital market fundraises during the period and, whilst dilutive to shareholders, they enabled us to commence the FEED work. It is recognised that funding will always remain an issue until regular revenue is achieved. The Company manages cash flow very closely and reviews all options to progress the Project whilst conserving cash.

 

Consistent with our corporate strategy of exiting all exploration activities, we have, since the financial year end, sold a small, remaining royalty interest in certain exploration assets that we had an opportunity to monetise.

 

The Company has adopted the QCA code for corporate governance, this communicates the board's aim in "doing the right thing" for its shareholders and stakeholders in the medium to long term.  We have improved our Investor Relations activity and community relationships, and we will do more as priorities allow.  As we move into the next phase of the Project commercialisation before construction commences, we continue to prioritise safety, the environment and the wellbeing of all those working with us. There is still much to do in the Company. We have a committed board and employees that can attract world class contractors, capacity users and project financiers. I continue to thank all our stakeholders, investors, contractors and of course our team.

 

We look forward to another positive year for the Company.

 

Graham Lyon

Non-Executive Chairman

4 January 2019

 

Strategic Report

 

OPERATIONAL REVIEW - ISLANDMAGEE GAS STORAGE PROJECT

 

Since joining the business firstly as a consultant, then as COO and more recently as CEO, it has become clear to me that many individuals have expended a lot of effort over the past decade to get the Islandmagee gas storage project to its current position.  I would like to place on record my thanks to all involved.

 

Historically, the Company made significant progress on the Project concept and technical feasibility but was unable to develop an economic model that was attractive enough to secure equity and debt funding. This year, our efforts have been focused predominantly on commercialisation of the Project.

 

The Company has historically had a geological and technically-led approach.  Early in 2018, a Concept Feasibility Study by Costain confirmed that the Project could be technically viable. However, the economic and commercial viability of a project with a total gas storage capacity of 450mcm is challenging when the daily accessible market in Northern Ireland is only 7.3 mscm/d (Winter) and 3.3 mscm/d (Summer).

 

The board quickly recognised that a new concept was required to establish a commercially sustainable project.  This was to undertake a phased development approach. Therefore, Phase 1 would consist of 2 or possibly 3 caverns to be followed by Phase 2 which envisaged developing the remaining 5-6 caverns as and when increased market demand permitted. Increased market demand is expected to arise via reversal of the Scotland Northern Ireland (gas) Pipeline ("SNIP") which is currently only incoming to Northern Ireland.  The initial models demonstrated that given the quantum of plant and equipment required in Phase 1, the Project delivered an acceptable Return on Investment (ROI) to potential equity providers.

 

Phase 1 in Figure 1 (found on page 3 of the Annual Report) envisages uni-directional flow of natural gas through the SNIP from mainland UK (Moffatt) to Northern Ireland. This current infrastructure offers adequate capacity for the 2 caverns that are proposed to be commercialised in this phase.

 

For Phase 2, the pipeline export capacity is expected to rise to circa 22 mscm/d after the SNIP is enabled for reverse flow and the accessible market includes mainland UK. An engineering study has been undertaken and Mutual Energy (as operator) has agreed to fully evaluate expediting these works after the Final Investment Decision (FID) has been taken on Phase 1.  The reversal of the South-North Pipeline into the Republic of Ireland is also being considered by the operator which will facilitate additional export capacity. 

 

Phase 2 in Figure 1 (found on page 3 of the Annual Report) indicates the reverse flow options, where the circled items have already been the subject of engineering studies and have been technically evaluated by the operator.

 

In 2016, the Company was awarded a grant by the EU under the Connecting Europe Facility ("CEF") for 50% of the cost of FEED and related in situ downhole testing for up to a maximum of €4.024m. An advance payment of €1.6m (£1.4m) was received in July 2016 and has since been held in a Euro denominated bank account and drawn down to settle 50% of the FEED costs as the Project has progressed.  The balance of the grant is likely to be received from the EU during Q2 2019 following completion of the EU audit of the FEED study. The FEED study had initially been scheduled for 12 months but was undertaken in less than 8 months. I wish to place on record my sincere thanks to all concerned who helped us achieve this major milestone within this highly compressed time frame.

 

After the close of the financial year (31 July 2018) and in advance of the FEED outcome we submitted a substantial grant application for £40m to the EU. All of our economic modelling work has assumed that we will have no EU grant, so any potential award will be an upside. Depending on the feedback to be received from the EU we may resubmit a strengthened application with the now completed FEED report to enhance our chances of success.  In addition, we have also established P90 (90% confidence interval) cost estimates of £114m for Phase 1 and £151m for Phase 2 which, when modelled, lead to enhanced project IRR returns and healthy cashflow generation over the lifetime of the Project.

 

From a strategic perspective, it is our intention to be far more than just a one project organisation.  To that end we have adopted a strategy that seeks to ensure the Company starts generating an income in the mid-term to cover running costs at the plc level.

 

In order to further develop the potential of the Islandmagee site, we have taken the decision to rebrand the Project subsidiary to Islandmagee Energy Limited thereby not restricting ourselves to gas storage only. 

 

In addition to the current scope of work on which the FEED study has recently been completed, we are evaluating several incremental projects in relation to the Islandmagee site and surrounding areas. Figure 2 http://www.rns-pdf.londonstockexchange.com/rns/3038M_1-2019-1-6.pdf (can also be found on page 4 of the Annual Report) gives a snapshot of the potential opportunities that we are currently evaluating.

 

STRATEGIC REVEW OF THE BUSINESS

 

In order for InfraStrata to achieve sustainable business growth and deliver long term value to our shareholders, we need to ensure that our business is not just a one project organisation.  The key focus of our business going forward will therefore be to develop and monetise energy related global infrastructure projects with a working and cash generating life of 20 - 40 years. 

 

The model, whilst relatively simple, will allow us to continue to enhance our balance sheet year on year. Income will be generated from four main areas of operations; each new project may be different and have specific issues that need to be critically assessed.  Therefore, individual technical and commercial models will be developed to ensure that maximum value is derived from every potential project. The four areas of expertise (shown in Figure 3 http://www.rns-pdf.londonstockexchange.com/rns/3038M_2-2019-1-6.pdf - can also be found on page 5 of the Annual Report) that we hold and that we expect to lead to income generation and incremental shareholder value are:

 

Ø Front End Project Development to FID (Final Investment Decision) - carried equity interest

 

Ø Construction Management & Project Delivery - management fee agreement

 

Ø Asset Operation, Management & Optimisation - management and operations fee agreement

 

Ø Retained equity income generation - project profit sharing via dividend distribution

 

 

Our strategic goal is to have numerous projects at various stages of their respective lifecycles. The board will identify and assess projects that substantially fit the following criteria:

·      Energy infrastructure

·      Key strategic requirement for the assets

·      Political stability in the project location

·      Long life operations of between 20 and 40 years

·      Risk of development can be mitigated to an acceptable level

·      State backed projects where grants for feasibility, design and construction may be available.

 

Finally, when the business is sufficiently mature it will allow the board to consider returning cash to shareholders whilst retaining sufficient funds to invest in new value enhancing projects.  

 

ISLANDMAGEE GAS STORAGE - PROJECT #1a

 

Much has been detailed in recent years in relation to the feasibility of storing gas underground in salt caverns; it is not a new concept and globally gas is stored in hundreds of salt caverns.  The technical evaluation that has been worked on for many years is the more straight-forward part of commercialising our facility.

 

In order for the Final Investment Decision to be taken, the following items need to be in place:

 

·      Successful FEED Study and positive P90 cost outcomes

·      EPC Tender Proposal from Construction Company

·      Offtake Agreement from one or a consortium of Offtake Partners

·      Project Equity Partner

·      Project Debt Partner

 

Successful FEED Study and positive P90 Results

 

When I joined the business, we immediately began the process of undertaking the FEED study, with the clear intention of completing it within time and on budget. Accordingly, work scopes were clarified and contracts were awarded to Costain for the surface works and DEEP KBB for the sub-surface elements.  With the significantly low headcount within the Company and to ensure that our commercial interests were protected, we engaged the services of, as owner's engineers, WSP for surface works and Atkins for sub-surface works.

 

The FEED works commenced in April 2018 and were successfully completed in November 2018. The milestones shown in Figure 4 (table below and found on page 6 of the Annual Report) were set out prior to commencement and they were all achieved ahead of schedule and either on or under budget.

 

 

Milestone

Month

Description

 

Status

1

April

Contract Award Costain

InfraStrata

√ - Completed

2

May

Contract Award DEEP

InfraStrata

√ - Completed

3

May

Appointment of Subsurface Expert

InfraStrata

√ - Completed

4

May

Issue FEED schedule, project and quality plans

Costain

√ - Completed

5

May

Current Design Agreed

Costain

√ - Completed

6

June

Current Design Agreed

DEEP KBB

√ - Completed

7

June

Appoint Owners Engineer

InfraStrata

√ - Completed

8

July

Issue Process Flow Diagrams

Costain

√ - Completed

9

August

Gas & Leaching layout review

Costain

√ - Completed

10

August

All Process & Instrumentation Diagrams

Costain

√ - Completed

11

Oct.

Engineering Design Complete

Costain

√ - Completed

12

Oct.

All Investigation work on samples complete

DEEP KBB

√ - Completed

13

Oct.

Cavern Design & Rock Mechanics Complete

DEEP KBB

√ - Completed

14

Nov.

Surface FEED Deliverables & Estimates

Costain

√ - Completed

15

Nov.

Subsurface FEED Deliverables & Estimates

DEEP KBB

√ - Completed

16

Dec.

Submit FEED Reports To EU

InfraStrata

√ - Completed

 

Fig 4  Milestones that were completed during FEED contracts undertaken by Costain & DEEP KBB

 

FEED has been successful and duly delivered with a set of results that confirm there are no technical issues restricting the facility from being constructed.  As part of the FEED studies, a "P90" cost estimate has been undertaken for delivering the Project determined by probabilistic analysis.  P90 values are established to provide a high level of confidence (90% confidence) such that the Project outturn cost will have a 90% chance to be below this estimate and a 10% chance above. The P90 estimate is consistent with the economic modelling undertaken on the Project thus far. On this basis, the Company will proceed into the next phase of development with a high level of confidence from a technical, cost and economic viewpoint.

 

Caverns

Economic Model

FEED Estimate

Change from ranges used during Economic modelling

Phase 1 (2 Caverns)

£100 to £120m

£114m

+£14m to -£4m

Phase 2 (6 Caverns)

£200 to £210m

£151m

-£49m to -£59m

Phase 1 & 2 (8 Caverns)

£300 to £330m

£265m

-£30m to -£65m

 

EPC Tender Proposal

 

In May 2018 InfraStrata issued an expression of interest to a long list of potential EPC ("Engineering, Procurement & Construction") Contract organisations. I am pleased to report that there was a return from 28 interested parties. After the initial round of assessment this list has now been reduced to 10 organisations. The full EPC tender package was issued in December 2018, with the tender returns due to be submitted in February 2019.

 

Offtake Agreement from one or a consortium of Offtake Partners

 

For several years, discussions have been taking place with potential offtake partners in regard to utilising the storage capacity that will be made available post construction. The challenge that every storage operator has been facing until recently is that UKCS production together with gas import capabilities into the UK have made it economically unattractive to build new gas storage facilities. The Rough gas storage facility in the North Sea, with a working volume of circa 3,010 mcm, was until recently, the predominant asset that enabled balancing of the UK gas network in periods of peak demand in winter and over-supply in summer. The availability of an existing facility therefore offered very limited economic incentive to build and monetise any new gas storage facilities.

 

However, the situation has dramatically changed. UKCS gas production is facing significant decline and is not able to contribute more than 25%-30% of the UK's annual gas requirement. The Rough gas storage facility has now been permanently closed and is in the process of being decommissioned. With the closure of Rough, the UK has effectively lost 70% of its storage capacity. The current situation has created a structural imbalance in the UK gas market in which the UK now relies heavily on imports, through interconnectors between the EU and UK / Norway and UK and, more recently, LNG (liquefied natural gas) cargoes. The relative inflexibility and supply risks to the UK are now manifesting themselves clearly; record high winter and summer gas prices as observed during winter 2017/18 and summer 2018 respectively. Unusual weather events such as the "Beast from the East" and the "Mini-Beast from the East" in spring 2018 exposed the inflexibility of and tightness in the UK gas market.

 

All of the above has now presented a unique opportunity; one that enables the construction and effective monetisation of new gas storage facilities in the UK. Market participants, i.e. producers, traders, network operators and consumers, are all now willing to pay for gas storage at rates that make these projects commercially viable. To a large degree, there is now a clear realisation that underground gas storage in-country is possibly the only method to provide adequate security of supply given declining gas production, variability of LNG cargoes and other connected nations having similar increased gas demands of their own during periods of peak demand.  

 

With a 70% reduction in storage capacity following the closure of Rough, the Islandmagee gas storage facility is the only new facility in the UK that has successfully completed FEED and is construction ready.  In so far as the directors are aware, none of the other facilities that have planning permission, as depicted in Figure 5 (found on page 7 of the Annual Report), have completed FEED.  Therefore, the Company is at least 3 years ahead of other facilities.

 

We are effectively in pole position to take advantage of these changed market dynamics and successfully monetise the Project. We are currently in discussions with six potential offtake partners. We are further exploring the option of putting together a consortium of offtake partners if this will enhance the value proposition for the Company and our shareholders.

 

Project Equity Partner

 

Our Project is very attractive to funds requiring long life cash generation (for example pension funds) given the length of operation and the large cash generation potential.  Various term sheets have been received and are currently being evaluated. Each is very different and needs further analysis work to bring it back to a neutral base in order to undertake a fair and objective evaluation of all the offers. Interest has not been limited to the UK alone and we have term sheets from overseas institutional investors. Clearly, we need to choose an equity partner who shares a common vision of the Company becoming a leader in energy infrastructure over the next few years.

 

Project Debt Partner

 

The Company is pre-qualified for the UK Government Guarantee Scheme. The scheme supports project companies by providing an additional source of liquidity should there be insufficient funding in the commercial lending market.  It does this by providing a guarantee that can be used to support the additional debt.

 

The level of debt that the Project will require is being modelled currently. Several potential equity project partners have indicated that they may fund a substantial portion of Phase 1 of the Project and, therefore, a large amount of debt finance may not be required.  Reaching a deal on the absolute level of equity finance will allow us to fully engage on the debt element as required.  Currently, we are engaged in discussions with four banks who may fund either individually or via a consortium in order to fund the debt portion of Phases 1 & 2 of the Project.

 

OPERATIONAL REVIEW - FINANCE

 

The Group recognised cash revenues of £Nil (2017: £Nil).  Management and administrative expenses totalled £863,413 (2017: £725,820). The Group incurred a loss of £963,413 (2017: loss of £964,131). The loss for 2018 when added to the cumulative losses of £27,725,224 brought forward leaves a retained loss of £28,272,541 to be carried forward. Management and administrative expenditure are further analysed in note 4 to the financial statements.

 

Gross capital expenditure on the Islandmagee gas storage project during the year ended 31 July 2018 was £1,378,069 (2017: £475,188), comprising costs associated with the FEED and other general Project costs. There was no Exploration and Evaluation capital expenditure (2017: £6,902). All of the Company's petroleum exploration licence interests have now been assigned or relinquished and no further expenditure is expected.

 

A historical potential liability from a 2017 loan facility from Baron Oil Plc ('Baron') remains whereby Baron is entitled to receive an additional £200,000 (the "Additional Payment") in the event of a sale or disposal by InfraStrata or its subsidiaries of substantially all of their assets, which comprise interests in the Islandmagee project, and/or a change in control of InfraStrata or its subsidiaries within two years from the date of the loan agreement. In the event of a partial disposal of InfraStrata's or its subsidiaries' interests in the Islandmagee project (whereby InfraStrata and InfraStrata UK Limited retain control of Islandmagee Energy Limited ("IMEL")), the Additional Payment will be reduced to £100,000, with the remaining £100,000 payable in the event of a subsequent disposal or change in control of IMEL or the Islandmagee gas storage project during the two-year period. The accounting treatment of this contingent settlement financial liability is described in note 19 to the financial statements.

 

On 20 October 2017, the Company issued 125,000,000 shares of 0.01 penny at 0.4 pence each to raise £500,000 before expenses.  Further, on 30 January 2018 the Company issued another 125,000,000 shares of 0.01 penny at 0.3 pence each to raise £375,000 before expenses.  These shares were also accompanied by 62,500,000 warrants exercisable at 0.6p.  Finally, on 10 April 2018 and 30 April 2018, the Company issued 266,265,387 and 119,151,279 shares respectively of 0.01 penny at 0.24 pence each to raise a total of £925,000 before expenses.  These shares were also accompanied by 192,708,333 warrants exercisable at 0.48p.  This last funding was to provide matched funding to the grant provided by the EU and to enable the Company to commence FEED for the Project.

 

During the year, the Company was able to utilise its shares as consideration for services provided by contractors, management and directors.  The total number of shares issued in this respect was 18,482,353 at prices varying from 0.3p to 0.484p. In November 2018, a further 3,253,660 shares were issued as consideration for services provided by contractors at a weighted average price of 0.5694p.

 

The Group's cash and cash equivalents at 31 July 2018 were £1,790,979 (2017 - £1,548,169) including approximately £916,294 (€1,042,743) as the balance of the €1.6 million received in advance from the EU.

 

Since 31 July 2018, the following warrants have been exercised:

 

·      On 24 August 2018, 10,416,666 warrants at 0.48p;

·      On 29 August 2018, 5,833,333 warrants at 0.6p;

·      On 29 August 2018, 4,166,666 warrants at 0.48p;

·      On 4 September 2018, 4,166,666 warrants at 0.48p;

·      On 29 November 2018, 18,617,666 warrants at 0.6p;

·      On 6 December 2018, 333,333 warrants at 0.6p;

·      On 11 December 2018, 1,049,000 warrants at 0.6p.

·      On 14 December 2018 1,356,162 warrants at 0.48p

·      On 17 December 2018 4,693,466 warrants at 0.6p

·      On 2 January 2019 1,768,838 warrants at 0.48p

·      On 3 January 2019 6,139,867 warrants at 0.6p

·      On 3 January 2019 4,508,427 warrants at 0.48p

·      On 4 January 2019 5,000,000 warrants at 0.6p

 

In total 68,050,090 warrants have been exercised, bringing the total consideration received for warrants exercised to £376,640.45.

 

KEY PERFORMANCE INDICATORS

 

As a board, we seek to outline, monitor and successfully deliver against each of the following Key Performance Indicators ('KPIs'):

 

·      Company strategy - short term and long term

·      Strengthening of controls - operational, financial and commercial

·      Raising finance - equity and debt

·      Project specific KPIs

·      HSE (health, safety and environment) compliance

·      AIM and MAR (Market Abuse Regulation) related compliance

·      Corporate filings in a timely manner

·      Stakeholder engagement - shareholders, investors, landowners, AIM advisers, brokers etc. 

 

Whilst we still have a lot of work to do to meet these KPIs, we are regularly tracking them against the targets set by the board along with clear plans put in place to meet these targets.  All KPIs are monitored, reviewed and discussed at the monthly board meetings in order to keep the executive team aligned to the core objectives of "doing the right thing" for increasing shareholder value.

 

 

PRINCIPAL RISKS & UNCERTAINTIES

 

The board is responsible for the effectiveness of the Group's risk management activities and internal control processes. As a participant in the gas storage development industry, the Group is exposed to a wide range of business risks in the conduct of its operations. The Group is exposed to financial, project, operational, strategic and external risks which are further described below. These risks are not exhaustive and additional risks or uncertainties may arise or become material in the future.  A robust process of risk management and mitigation has been introduced into the business and all risks associated with the Islandmagee Energy project have been fully assessed.

 

Financing - the risk of not obtaining sufficient financing

 

Access to adequate working capital is critical to our ability to pursue our existing and future projects and to continue as a going concern. A deterioration of the capital markets may reduce our ability to raise new equity funding. We work closely with our professional advisers and brokers to identify the optimum approach and timing to secure new equity financing to provide working capital. 

 

The Group seeks to manage risk for our shareholders by attracting investment through quality partners where possible thereby minimising our own commitments to pay project development costs. We do not make financial commitments unless such funding has been secured either through joint venture partners as new investment in our projects or we have a high degree of confidence that it will be secured.

 

Strategic and external risks - failure to manage and grow the business while creating shareholder value

 

There is no assurance that the Group's gas storage development will be successful, however this risk has been substantially reduced by successfully completing the FEED works for the Project. We place a premium on recruitment and retention of suitably skilled personnel, compliance with applicable legislation and careful management of cash resources and requirements. 

 

The successful progression of the Group's activities depends not only on technical success, but also on the ability of the Group to obtain appropriate financing through equity or debt financing or disposing of interests in projects or via other means.

 

We place great emphasis on regular communication with shareholders, including the release of announcements for the interim and annual results, and after significant developments. We seek to ensure that through such communications our shareholders are aware of our strategy and operations and that management has their continuing support. The Company's system of Corporate Governance is set out in the Report of the Directors (found on pages 10 to 14 of the Annual Report).

 

Operational risks - damage to shareholder value, environment, personnel or communities caused by operational failures

 

InfraStrata has restructured its board with relevant skills to manage the operational risks of our projects and ensure they are progressed in the shortest possible timescales in a cost effective manner. We have built up our core competencies in project development and have developed excellent relationships with government and public stakeholders in the geographical areas in which we operate.

 

Our management team works alongside strong and experienced joint venture partners in all projects and is supported by a highly effective network of carefully selected service delivery specialists, such as environmental consultants and drilling engineering services. In this way we seek to mitigate the potential risk that we fail to be seen to be acting in a socially responsible manner and/or fail to maintain good local community relations.

 

On behalf of the board

 

John Wood

Chief Executive Officer

4 January 2019

 

Consolidated statement of comprehensive income for the year ended 31 July 2018

 

 

 

Notes

 

2018

 

2017

 

 

 

£

 

£

Continuing operations

 

 

 

 

 

Revenue

 

 

-

 

-

 

 

 

 

 

 

Cost of sales

 

 

-

 

-

 

 

 

 

 

 

Gross profit

 

 

-

 

-

 

 

 

 

 

 

Management and administrative expenses

4

 

(863,413)

 

(725,820)

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(863,413)

 

(725,820)

 

 

 

 

 

 

Finance expense

19

 

(100,000)

 

(58,000)

 

 

 

 

 

 

Finance income

9

 

-

 

361

 

 

 

 

 

 

 

Loss before taxation

 

 

 

(963,413)

 

 

(783,459)

 

 

 

 

 

 

Taxation

10

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year from continuing operations

 

3

 

(963,413)

 

(783,459)

(Loss) profit for the year from discontinued operations

3

 

-

 

(180,672)

 

 

 

 

 

 

(Loss) profit for the year attributable to the equity holders of the parent

 

 

 

(963,413)

 

 

(964,131)

 

 

 

 

 

 

Other comprehensive income

 

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive (loss) profit for the year attributable to the equity holders of the parent

 

 

 

(963,413)

 

 

(964,131)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share

11

 

 

 

 

Continuing operations

Discontinued operations

Continuing and discontinued operations

 

 

(0.15)p

-

(0.15)p

 

(0.30)p

(0.07)p

(0.37)p

 

Consolidated statement of financial position as at 31 July 2018

 

 

Notes

 

2018

 

2017

 

 

 

£

 

£

Non-current assets

 

 

 

 

 

Intangible fixed assets:

   Gas Storage Development

   Exploration & Evaluation

Property, plant and equipment

 

13

14

15

 

 

7,479,690

-

440,100

 

 

6,591,302

-

440,100

Deferred liability

19

 

 

-

 

42,000

 

 

 

 

 

 

Total non-current assets

 

 

7,919,790

 

7,073,402

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

Trade and other receivables

17

 

222,491

 

98,718

Deferred liability

19

 

42,000

 

100,000

Cash and cash equivalents

20

 

1,790,979

 

1,548,169

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

2,055,470

 

1,746,887

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

21

 

(840,523)

 

(149,625)

Grant received in advance

18

 

(924,642)

 

(1,440,913)

Short-term borrowings

19

 

(163,344)

 

-

Short-term financial liability

19

 

(200,000)

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

(2,128,509)

 

(1,590,538)

 

 

 

 

 

 

 

 

 

 

 

 

Net current (liabilities) / assets

 

 

(73,039)

 

156,349

 

 

 

 

 

 

Financial liability

19

 

(200,000)

 

(200,000)

 

 

 

 

 

 

 

 

 

 

 

 

Net assets

 

 

7,646,751

 

7,029,751

 

 

 

 

 

 

 

Shareholders' funds

 

 

 

 

 

Share capital

23

 

10,919,117

 

10,853,460

Share premium

 

 

15,719,784

 

14,297,307

Merger reserve

24

 

8,988,112

 

8,988,112

Share based payment reserve

25

 

6,847

 

616,096

Warrant reserve

26

 

285,432

 

-

Retained earnings

 

 

(28,272,541)

 

(27,725,224)

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

 

7,646,751

 

7,029,751

 

 

 

 

 

 

 

 

 

Consolidated statement of changes in equity for the year ended 31 July 2018

 

 

Share capital
 
Share premium
Merger reserve
Share based payment reserve
Warrant reserve
Retained earnings
Total equity

 

£

£

£

£

£

£

£

 

 

 

 

 

 

 

 

 

Balance at 31 July 2016

 

10,834,660

 

 

13,440,878

 

 

8,988,112

 

616,096

-

(26,761,093)

 

7,118,653

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

-

-

-

-

-

(964,131)

(964,131)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive profit for the year

-

 

-

-

-

-

(964,131)

(964,131)

 

Shares issued

 

18,800

 

921,200

 

-

 

-

 

-

 

-

 

940,000

Share issue costs

-

(64,771)

-

-

-

-

(64,771)

 

 

 

 

 

 

 

 

 

Balance at 31 July 2017

10,853,460

14,297,307

8,988,112

616,096

-

(27,725,224)

7,029,751

 

 

 

 

 

 

 

 

Loss for the year

-

-

-

-

-

(963,413)

(963,413)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss for the year

-

-

-

-

-

(963,413)

(963,413)

 

 

Shares issued (Note 23)

65,657

 

 

1,824,073

-

 

 

-

 
 
-

 

 

-

 

 

1,889,730

 

 

 

 

 

 

 

 

Share issue costs

-

(116,164)

-

-

-

-

(116,164)

 

 

 

 

 

 

 

 

Warrant issue

-

(285,432)

-

-

285,432

-

-

 

 

 

 

 

 

 

 

Share Option expense

-

-

-

6,847

-

-

6,847

 

 

 

 

 

 

 

 

Transfer on forfeiture of share options

-

-

-

(616,096)

-

616,096

-

 

 

 

 

 

 

 

 

Due to Moyle Investments on first gas storage (note 27).

-

-

-

-

-

(200,000)

(200,000)

 

 

 

 

 

 

 

 

 

Balance at 31 July 2018

10,919,117

15,719,784

8,988,112

6,847

285,432

(28,272,541)

7,646,751

 

 

 

 

Consolidated statement of cash flows for the year ended 31 July 2018

 

 

Notes

2018

 

2017

 

 

£

 

£

Operating activities

 

 

 

 

Operating loss for the year

 

(863,413)

 

(725,820)

Depreciation

 

-

 

644

(Increase) decrease in trade and other receivables

 

(123,827)

 

1,083,854

Increase (decrease) in trade and other payables

 

690,952

 

(1,543,430)

Shares issued in lieu of fees

 

89,750

 

-

Exchange differences

 

(26,590)

 

82,027

Share option expense

 

6,847

 

-

Cash (used in) discontinued operations 

 

-

 

(154,311)

 

 

 

 

 

 

 

 

 

 

Net cash (used in) continuing and discontinued operating activities

 

(226,281)

 

(1,257,036)

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

Interest received

 

-

 

361

Purchase of intangible assets:

Gas Storage Development

Exploration and Evaluation (discontinued)

 

 

(1,378,069)

-

 

 

(475,188)

(6,902)

 

 

 

 

 

 

 

 

 

 

Net cash (used in) generated from investing activities

 

(1,378,069)

 

(481,729)

 

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds on issue of ordinary shares

 

1,683,816

 

875,229

Drawdown of short-term borrowings

 

163,344

 

200,000

Repayment of short-term borrowings

 

-

 

(1,600,364)

 

 

 

 

 

 

 

 

 

 

Net cash generated (used in) from financing activities

 

1,847,160

 

(525,135)

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

242,810

 

(2,263,900)

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

1,548,169

 

3,812,069

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

1,790,979

 

1,548,169

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents consist of:

 

 

 

Cash at bank

20

1,790,979

 

1,548,169

 

 

 

 

 

 

 

 

 

 

 

 

1,790,979

 

1,548,169

 

 

 

 

 

 

Significant non-cash transactions

 

As disclosed in Note 19, in 2017 the Group recognised a financial liability in respect of contractual payments which may become due in any future disposal of its assets and a corresponding deferred liability which has been amortised in that year and the current year.

 

In 2018 the Group entered into an obligation to pay Moyle Investments £200,000 on first storage of gas in recognition of the support by Moyle of the gas storage project at Islandmagee.

 

These transactions are non-cash items and do not appear in the statement of cash flows.

 

 

Notes to the financial information for the year ended 31 July 2018

 

1.         General information

 

InfraStrata plc is a company incorporated in England & Wales under the Companies Acts 2006 and is domiciled in the United Kingdom and its shares are admitted to trading on the AIM market of the London Stock Exchange.  The Company's registered office is 200 Strand, London, England, WC2R 1DJ.

 

2.         Accounting policies

 

The financial statements are based on the accounting policies set out below which have been consistently applied.

 

Basis of preparation

 

InfraStrata plc adopted International Financial Reporting Standards (IFRS) as adopted by the European Union effective in July 2018, as the basis for preparation of its financial statements. The financial information has been prepared under the historical cost convention as modified by the revaluation of certain financial assets.

 

Going concern

 

Discussions are currently ongoing with potential equity partners towards funding project and corporate costs. The directors have prepared cash flow projections which indicate that, following completion of this funding, the Group and parent Company will have sufficient funds to meet their corporate costs and the forecast equity contribution for the Islandmagee gas storage project (the "Project") to the end of 2019. On this basis the directors have prepared the financial statements on a going concern basis.

 

The next phase of the development of the Project is the co-ordinated assembly of the contracts and long term funding arrangements for the Final Investment Decision to be made.  These include a long-term Gas Storage Agreement with an offtaker, an EPC contract with a managing contractor, and debt and equity financing.  Only in the event that all of these elements are in place can the board confirm FID. 

 

Under the terms of the EU Grant for FEED works, a report has been submitted to the EU in compliance with the terms of the Grant award, and the activities undertaken will be subject to EU audit.  Satisfaction of EU audit will release the balance of the EU funding to the Company. Payment of this existing grant obligation is not expected to be affected by Brexit.

 

Should the Project not proceed with a positive FID as expected, the ability of the subsidiaries to repay inter-company debt due to the parent Company would be in doubt.

 

The directors remain confident that the project is economically viable and following the successful completion of FEED, further funding for the Company and the project will be secured. Having reviewed the value of gas storage assets in accordance with the principles set out below, and the value of balances due to the parent Company from its subsidiaries, the directors are of the opinion that these assets are not impaired in value.

 

However, the success of the current fundraising is uncertain, as is the outcome of the FID. The directors have concluded that without additional funding the group would be unable to meet its corporate and project costs and thus a material uncertainty exists that may cast significant doubt upon the Group's ability to continue as a going concern and therefore the Group may be unable to realise its assets and discharge its liabilities in the normal course of business. Were the Group no longer a going concern, or if the FID is not positive, the Group's capitalised project development costs totalling £7,479,690 and amounts due to the Company from its subsidiaries amounting to £8,831,740 may become impaired in value. A provision would be required for the future liabilities arising as a consequence of the Group ceasing business and assets and liabilities currently classified as non-current would be reclassified as current.

 

Adoption of new and revised standards

 

IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers have been adopted by the EU and minor changes to other standards arising from annual improvements have been issued but are yet to be adopted. None of these standards are considered to have a material effect on the Group financial statements. IFRS 16 Leases has also been issued; as the Group currently has no material leases, this is not expected to have a significant impact. The Group continues to assess the impact of the new standards on its financial statements.

 

Basis of consolidation

 

The financial information incorporates the financial information of the Company and entities controlled by the Company. Control is achieved where the Company has power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

 

Business combinations and goodwill

 

On acquisition, the assets and liabilities and contingent liabilities of subsidiaries are measured at their fair values at the date of acquisition. Any excess of cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to profit or loss in the period of acquisition. Goodwill arising on consolidation is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss, and is not subsequently reversed. The financial effect of any change in ownership interest of a subsidiary that does not result in a change in control is recognised in equity

 

Segment reporting

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker as required by IFRS 8 "Operating Segments". The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. The accounting policies of the reportable segments are consistent with the accounting policies of the Group as a whole. Segment profit or loss represents the profit or loss attributable to equity holders of the parent attributable to each segment. This is the measure of profit that is reported to the Board of Directors for the purpose of resource allocation and the assessment of segment performance. When assessing segment performance and considering the allocation of resources, the Board of Directors review information about segment assets and liabilities.

 

Property plant and equipment

 

Property plant and equipment is stated at cost less accumulated depreciation and any recognised impairment loss. The initial cost of an asset comprises its purchase price or construction cost and any costs directly attributable to bringing the asset into operation.

 

Depreciation is charged so as to write off the cost of assets, over their estimated useful lives, using the straight-line method, once the asset has been brought into use, on the following basis:

 

Office equipment       

20-33%

Freehold land

0%

 

The carrying values of property plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

 

Capitalisation and impairment of intangible gas storage assets

 

Costs of development of gas storage facilities are capitalised as intangible assets once it is probable that future economic benefits that are attributable to the assets will flow to the Group and until consent to construct has been awarded, at which time the capitalised costs are transferred to plant and equipment provided there being reasonable certainty of construction proceeding. The nature of these costs includes all direct costs incurred in project development, including any directly attributable finance costs. No amortisation or depreciation is provided until the storage facility is available for use.

 

An impairment test is performed annually and whenever events or circumstances arising during the development phase indicate that the carrying value of a development asset may exceed its recoverable amount.  The aggregate carrying value is compared against the expected recoverable amount of the cash generating unit, generally by reference to the present value of the future net cash flows expected to be derived from storage revenue.  The present value of future cash flows is calculated on the basis of future storage prices and cost levels as forecast at the statement of financial position date.

 

The cash generating unit applied for impairment test purposes is generally an individual gas storage facility.  Where the carrying value of the facility is greater than the present value of its future cash flows a provision is made.  Any such provisions are charged to cost of sales.

 

Government grants

 

Government grants are recognised only when there is reasonable assurance that the Group will comply with the conditions attaching to the grant and that the grants will be received. Capital grants are recognised to match the related development expenditure and are deducted in arriving at the carrying value of the related assets. Any grants that are received in advance of recognition are deferred.

 

Investments

 

Investments in subsidiaries are stated at cost less provision for impairments.

 

Taxation

 

Tax expense represents the sum of the tax currently payable and any deferred tax. The taxable result differs from the net result as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date. Deferred tax

 

The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised.

 

Deferred tax is charged or credited to the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

 

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

 

Foreign currency

 

Transactions in foreign currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the statement of financial position date and gains or losses are taken to operating profit.

 

Operating leases

 

Rental costs under operating leases are charged on a straight-line basis over the lease term.

 

Share based payment transactions

 

Employees (including senior executives) of the Group receive part of their remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity settled transactions).

 

The cost of equity settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised for equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The statement of comprehensive income charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

 

Where an equity settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

 

Retirement benefit costs

 

The Company has a defined contribution plan which requires contributions to be made into an independently administered fund. The amount charged to the statement of comprehensive income in respect of pension costs reflects the contributions payable in the year. Differences between contributions payable during the year and contributions actually paid are shown as either accrued liabilities or prepaid assets in the statement of financial position.

 

Financial instruments

 

Financial assets and financial liabilities are recognised on the statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

 

Trade, other receivables and cash and cash equivalents are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest method. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due. The amount of any provision is recognised in the statement of comprehensive income. Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less.

 

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

 

Financial liabilities and equity instruments issued by the Group are classified in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Convertible financial instruments denominated in foreign currencies are not treated as compound financial instruments on initial recognition or subsequently, including when the repayment of the instrument is agreed at a specific sterling rate using funds held in escrow.

 

Interest bearing bank loans, overdrafts and other loans are recorded at the proceeds received, net of direct issue costs. Finance costs are accounted for on an accruals basis in the statement of comprehensive income using the effective interest method.

 

Revenue

 

Revenue is recognised as the fair value of the consideration received or receivable and represents the amounts receivable for services delivered during the normal course of business. Revenue is recognised as the services are delivered.

 

Judgements in applying accounting policies and key sources of estimation uncertainty

 

Amounts included in the financial statements involve the use of judgement and/or estimation. These estimates and judgements are based on management's best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the financial statements, and the key areas are summarised below.

 

Judgements

 

Capitalisation of gas storage costs - note 13

 

The assessment of whether costs incurred on gas storage development should be capitalised or expensed involves judgement. Any expenditure where it is not probable that future economic benefits will flow to the Group are expensed. Management considers the nature of the costs incurred and the stage of project development and concludes whether it is appropriate to capitalise the costs. The key assumptions depend on whether it is probable that the expenditure will result future economic benefits that are attributable to the assets.

 

Estimates

 

Review of gas storage project asset carrying values- note 13

 

The assessment of capitalised project costs for any indications of impairment involves judgement. When facts or circumstances suggest that impairment exists, a formal estimate of recoverable amount is performed, and an impairment loss recognised to the extent that the carrying amount exceeds recoverable amount. Recoverable amount is determined to be the higher of fair value less costs to sell and value in use. The key assumptions are the net income expected to be generated from the facilities, the cost of construction and the date from which the facilities become operational. Management assigns values and dates to these inputs after taking into account market information, engineering design costing and the project programme. A discount rate of 8% (2017 - 8%) is applied in determining gas storage project net present values.  Salt cavern gas storage projects are long term investments and cash flows are therefore projected over periods greater than 5 years. Engineering design provides for a project life of 40 years (2017 - 40 years).  It is assumed that 100% (2017 - 100%) of a project's capacity will be sold from the date that the capacity becomes operational.

 

3.         Segment information

 

The directors have determined the Group's operating segments by reference to the risk profile of the Group's activities, which are affected predominately by location of the Group's assets. The Group's continuing gas storage operations are located in Northern Ireland. In 2018 there were no petroleum exploration activities. In 2017 exploration activities were classified as discontinued operations.

 

2018

 

 

 

 

Discontinued

Operations

-exploration

 

 

 

Continuing operations - gas storage

 

Total

Northern Ireland

Central income and costs

Total

 

£

£

£

£

Revenue

-

-

-

-

Management & administrative expenses

-

(673,567)

(189,846)

(863,413)

Impairment of Exploration & Evaluation assets

-

-

-

-

Finance expense

-

-

(100,000)

(100,000)

Finance income

-

-

-

-

 

 

 

 

 

Pre and post tax loss for the year

-

(673,567)

(289,846)

(963,413)

 

 

 

 

 

Analysis of:

 

 

 

 

Assets by segment

-

9,125,197

850,063

9,975,260

Liabilities by segment

-

(1,620,720)

(707,789)

(2,328,509)

 

 

 

 

 

 

 

 

 

 

 

-

7,504,477

142,274

7,646,751

 

 

 

 

 

           

 

 

 

2017

 

 

 

 

Discontinued

Operations

-exploration

 

 

 

Continuing operations - gas storage

 

Total

Northern Ireland

Central income and costs

Total

 

£

£

£

£

Revenue

15,273

-

-

-

Management & administrative expenses

(169,584)

(541,942)

(183,878)

(725,820)

Impairment of Exploration & Evaluation assets

(26,361)

-

-

-

Finance expense

-

-

(58,000)

(58,000)

Finance income

-

-

361

361

 

 

 

 

 

Pre and post tax loss for the year

(180,672)

(541,942)

(241,517)

(783,459)

 

 

 

 

 

Analysis of:

 

 

 

 

Assets by segment

44,702

8,466,155

309,432

8,775,587

Liabilities by segment

(44,702)

(1,454,689)

(291,147)

(1,745,836)

 

 

 

 

 

 

 

 

 

 

 

-

7,011,466

18,285

7,029,751

 

 

 

 

 

 

 

 

           

 

In 2017, cash flows relating to discontinued operations comprised net cash used in discontinued operations of £154,311, and net cash used in investing activities of £6,902.

 

4.

Loss before taxation

 

2018

£

2017

£

 

Fees payable to the Group's auditor and its associates:

- for the audit of the Company's annual financial statements

 

 

17,050

 

17,050

 

- for the audit of the Company's subsidiaries

 

12,950

12,950

 

- other services relating to taxation

 

9,010

11,645

 

- all other services

 

3,400

3,400

 

Depreciation

 

-

644

 

Net foreign exchange loss

 

2,005

371

 

Operating lease rentals - land and buildings

 

-

14,275

 

 

 

 

 

 

 

 

Project management & company administrative expenditure

 

 

 

2018

£

 

 

2017

£

 

 

Management & administrative expenditure paid in cash 

Advisor costs relating to Islandmagee Storage 

 

 

764,811

-

 

820,714

11,771

 

Advisor costs relating to Strategic Review and General Meeting

 

-

61,904

 

Non-cash items:

    Share based payments, including share option charge

 

 

96,597

 

-

 

    Exchange differences

 

2,005

371

 

    Depreciation

 

-

644

 

 

 

 

 

 

 

 

 

863,413

 

895,404

 

Attributable to: 

 

 

 

 

Continuing operations

 

863,413

725,820

 

Discontinued operations

 

-

169,584

 

 

 

 

 

 

 

 

 

863,413

 

895,404

 

 

 

 

 

5.

Employee information

 

 

2018

Number

2017

Number

 

 

Average number of Executive Directors and staff

 

 

3

 

3

 

 

 

 

 

 

Staff costs for the above persons and non-executive directors:

 

£

£

 

Wages and salaries

 

255,868

446,282

 

Social security costs

 

22,091

48,093

 

Defined contribution pension plan expenditure and other costs

 

441

3,509

 

Other staff costs

 

6,242

14,020

 

Share based payments, including share option charge

 

69,847

-

 

 

 

 

 

 

 

 

 

354,489

 

511,904

 

 

 

 

 

 

               

 

 

6.

Directors' and key management emoluments and compensation

 

 Group and Company

       

 

2018

 

Salary & fees

Benefits

Share based payments

Pension

Total

2018

 

 

£

£

£

£

£

Executive Directors

 

 

 

 

 

 

John Wood (appointed 26 June 2018)

Adrian Pocock (ceased 12 September 2018)

 

 

Non-Executive Directors

Graham V Lyon (appointed 7 November 2017)

Matthew Beardmore (appointed 7 November 2017, resigned 18 December 2018)

Arun S Raman (appointed 26 July 2018)

Peter Wale (resigned 9 November 2017)

Karen Campbell (appointed 7 November 2017 resigned 26 June 2018)

7,115

-

-

142

7,257

80,000

-

-

125

80,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,000

21,667

 

-

-

-

 

-

15,000

25,000

 

-

-

-

 

-

33,000

46,667

 

-

6,617

21,400

-

-

8,000

15,000

-

-

14,617

36,400

 

 

 

 

 

 

 

Key Management

 

 

 

 

 

 

Andy Duncan (appointed 26 June 2018)

 

6,667

-

-

133

6,800

 

 

 

 

 

 

 

 

 

161,466

-

63,000

400

224,866

 

Share option expense

 

 

 

 

 

6,847

Employers national insurance contributions

 

 

 

 

11,585

 

 

 

 

 

 

 

 

 

 

243,298

 

 

 

2017

 

Salary & fees

Benefits

Pension

Total

2017

 

 

£

£

£

£

Executive Directors

 

 

 

 

 

Adrian Pocock (appointed 27 June 2017)

Andrew Hindle (ceased 27 June 2017)

Stewart McGarrity (ceased 27 June 2017)

Anita Gardiner (resigned 25 June 2017)

Non-Executive Directors

Peter Wale (appointed 27 June 2017)

Kenneth Ratcliff (ceased 27 June 2017)

Maurice Hazzard (ceased 27 June 2017)

7,404

-

-

7,404

82,305

3,337

-

85,642

105,010

2,670

-

107,680

104,635

750

-

105,385

 

 

 

 

2,468

-

-

2,468

28,385

13,979

-

-

-

-

28,385

13,979

 

 

 

 

 

 

 

 

344,186

6,757

-

350,943

 

Share based payment

 

 

 

 

-

Employers national insurance contributions

 

 

 

42,314

 

 

 

 

 

 

 

393,257

 

 

 

 

 

 

 

 

 

Aggregate emoluments above include an amount of £63,000 for the value of shares issued to former and current directors in recognition of work performed beyond contracted roles and an expense of £6,847 relating to the share options granted to all directors of the Company on 19 February 2018. The share issues took place on 24 July 2018 and further detail is included in note 28 on Related Parties. Further detail of share options is included in note 7 below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive Directors and directors' indemnity insurance premiums of £16,095 (2017: £15,914) were paid in respect of all directors.  In July 2018, the Company established a company workplace pension scheme and all eligible employees were auto enrolled as required under current legislation.

 

 

 

7.

Share based payment plans

 

 

 

 

 

A share-based payment plan was created in the year ended 31 July 2008. All directors and employees are entitled to a grant of options subject to the Board of Directors' approval. The options do not have a cash settlement alternative. The options granted were Enterprise Management Incentive share options for qualifying employees.  These options have now lapsed following the departure of these employees.

 

The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year.

 

 

 

 

 

2018

 

2018

 

2017

 

2017

 

 

 

 

Number

 

WAEP

 

Number

 

WAEP

 

 

 

 

 

 

£

 

 

 

£

 

 

 

Outstanding at the beginning of the year

6,379,167

 

0.1807

 

6,379,167

 

0.1807

 

 

 

Granted during the year

30,000,000

 

0.01

 

-

 

-

 

 

 

Forfeited during the year

(6,379,167)

 

0.1807

 

-

 

-

 

 

 

Outstanding at the end of the year

30,000,000

 

0.01

 

6,379,167

 

0.1807

 

 

 

 

Exercisable at the end of the year

 

-

 

 

-

 

 

6,379,167

 

 

0.1807

 

 

 

 

A total of 30,000,000 options over new ordinary shares of 0.01p each in the Company ("Options") were granted to all the directors of the Company on 19 February 2018, with G Lyon, A Pocock, M Beardmore and K Campbell receiving 7,500,000 Options each. After the reporting period 7,500,000 options lapsed as a result of Adrian Pocock's departure from the business on 12 September 2018.

 

The Options are subject to performance criteria and vest in tranches as follows:

 

-     one third of Options held upon completion of the FEED;

-     one third of Options held upon commencement of construction of the Project following a successful conclusion of the Financial Investment Decision; and

-     one third of Options held upon the date of first gas stored at the Project.

 

The Options vest immediately in the event of a sale of the Company, its subsidiary (subject to the Project comprising an asset of the subsidiary) or the Project, and in customary "good leaver" circumstances.

 

Options are exercisable in three tranches noted above with estimated dates ranging from December 2018 through to end 2022 at a price of 1 penny per share (a premium of 270 per cent. to the closing share price on 16 February 2018). The options will expire after five years. The weighted average remaining option life for the share options outstanding at 31 July 2018 is 5 years (2017: 4 years).

 

The fair value of equity settled options granted is estimated as at the date of the grant using a Black-Scholes model, taking into account the terms and conditions upon which the options were granted and the following inputs: share price volatility of 105%, risk free interest rate of 1.1%, no dividends to be paid over the option lives, assumed early exercise when the share price exceeds twice the exercise price and no directors leaving during the option life. The vesting conditions were not included in the model. 

 

 

 

 

 

 

 

 

 

 

 

 

8.

Retirement benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Group operates a defined contribution retirement plan for all qualifying employees who wish to participate. The assets of the scheme are held separately from those of the Group in funds under the control of independent trustees. The total cost charged to expenses of £441 (2017: £3,509) represents contributions payable to the scheme by the Group at rates specified in the rules of the scheme for the year. As at 31 July 2018, employer and employee contributions of £Nil (2017: £Nil) due in respect of the current period had not been paid over to the scheme.

 

                                                   

 

9.

Finance income

 

2018

£

2017

£

 

 

 

 

 

 

Interest on bank deposits

 

-

361

 

 

 

 

 

 

 

 

10.

Income tax

 

2018

£

2017

£

 

 

The major components of income tax expense for the years ended 31 July 2018 and 2017 are:

 

 

 

 

 

 

 

 

 

 

 

a) Income tax recognised in profit or loss

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

Current income tax charge/(credit)

 

-

-

 

 

Adjustments in respect of current income tax of previous years

 

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Current tax

 

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax charge/(credit)

 

 

 

 

 

-       origination and reversal of timing differences

 

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deferred tax

 

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

b) A reconciliation between tax expense and the product of accounting loss from continuing operations for the years ended 31 July 2018 and 2017 is as follows:

 

 

 

 

 

 

 

 

 

 

 

Accounting loss before tax from continuing operations

 

(963,413)

(783,459)

 

 

 

 

 

 

 

 

Loss on continuing activities multiplied by the standard rate of tax (19%; 2017: 19.67%)

 

 

(183,048)

 

(154,106)

 

 

Expenses not permitted for tax purposes

 

-

11,535

 

 

Tax losses carried forward

Items not subject to tax

 

183,048

-

142,571

-

 

 

 

 

 

 

 

 

 

 

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

                 

 

The accounting loss from discontinued operations is £Nil (2017 - loss - £180,672). No tax charge / credit arises in 2018 or in 2017 due to expenses not permitted for tax purposes and losses carried forward.

 

c) Factors that may affect the future tax charge

 

The Group has trading losses of £6,565,719 (2017: £5,700,467) which may reduce future tax charges. Future tax charges may also be reduced by capital allowances on cumulative capital expenditure.

 

No balance is recognised due to the uncertainty of future results.

 

11.

Earnings per share

 

 

2018

£

 

2017

£

 

(Loss) profit

 

 

 

 

The (loss) profit for the purposes of basic and diluted loss per share being the net (loss) profit attributable to equity shareholders

 

 

 

 

 

Continuing operations

 

(963,413)

(783,459)

 

Discontinued operations

 

-

(180,672)

 

Continuing and discontinued operations

 

(963,413)

(964,131)

 

 

 

 

 

 

Number of shares

 

 

 

 

Weighted average number of ordinary shares for the purposes of:

Basic earnings per share

 

 

 

647,957,629

 

259,405,983

 

Basic and diluted earnings per share

 

 

 

 

Continuing operations

Discontinued operations

Continuing and discontinued operations

 

 

(0.15)p

-

(0.15)p

 

(0.30)p

(0.07)p

(0.37)p

 

 

 

 

 

 

 

For 2018 and 2017, the share options were not dilutive as a loss was incurred in both years.

 

 

12.

 

Loss attributable to InfraStrata plc

 

 

 

 

 

 

               

The loss for the period dealt with in the financial statements of InfraStrata plc was £284,784 (2017 £214,326). As provided by s408 of the Companies Act 2006, no statement of comprehensive income is presented in respect of InfraStrata plc.

 

13.

Intangible assets - Gas Storage Development

 

 

Group

 

Company

 

 

 

 

£

£

 

 

Cost

 

 

 

 

 

 

At 1 August 2016

 

 

6,116,114

-

 

 

 

Additions

 

 

 

475,188

 

 

-

 

 

Grant accrual during year (note 18)

 

-

-

-

 

 

 

 

At 31 July 2017

 

 

 

6,591,302

 

 

-

 

 

 

Additions

 

1,378,069

-

 

 

 

 

 

 

 

 

Grant accrual during year (note 18)

 

(489,681)

 

 

 

 

 

 

 

 

 

Net book value

At 31 July 2018

 

 

7,479,690

 

-

 

 

 

 

 

 

 

                   

Capitalised finance costs

 

Additions during the year to 31 July 2018 include capitalised finance costs totalling £Nil (2017 - £16,002).

 

Capital and other commitments

 

In the event that the project does not proceed to development IMEL would have an obligation to reinstate the area of the well-pad which has already been constructed. This is an unrecognised contingent liability estimated at £100,000 (2017: £100,000). At 31 July 2018 the Group had capital commitments with the principal FEED contractors of £3,712,375 (2017: £Nil) relating to the FEED project, of which £2,454,105 was not provided for in the financial statements.

 

 

 

 

 

 

14.

Intangible assets - Exploration & Evaluation

 

 

Group

 

Company

 

 

 

£

£

 

Cost

 

 

 

 

 

At 1 August 2016

 

 

19,459

 

19,459

 

 

 

 

 

 

Additions

 

6,902

6,902

 

Disposals

-

-

 

Impairments

(26,361)

(26,361)

 

 

 

 

 

 

 

At 31 July 2017

 

 

 

-

 

-

 

 

Additions

Disposals

Impairments

 

 

-

-

-

-

-

-

 

Net book value

At 31 July 2018

 

 

-

 

 

-

             

 

The Company had a retained Net Profits Interest in each of exploration licences P1918, P2222 and P2235 at 31 July 2018. No value was ascribed to the Net Profits Interests retained on each of the licence interests as it was not possible to determine a reliable fair value for these instruments at that time. These assets were sold after the year end - see note 29.

 

15.

Property, plant and equipment 

 

 

 

Group

Freehold

land

Office

equipment

 

Total

 

 

£

£

£

 

Cost

 

 

 

 

At 1 August 2016

440,100

83,776

523,876

 

Additions

                                                  -

-

-

 

Written-off

-

(83,776)

(83,776)

 

 

At 31 July 2017

 

440,100

 

-

 

440,100

 

Additions

-

-

-

 

 

At 31 July 2018

 

440,100

 

-

 

440,100

 

 

 

 

 

 

Depreciation

 

 

 

 

At 1 August 2016

-

83,132

83,132

 

Charge for the year

-

644

644

 

 

Written-off

 

(83,776)

(83,776)

 

 

At 31 July 2017 and 31 July 2018 

 

-

 

-

 

-

 

 

Net book value

 

 

 

 

At 31 July 2018

440,100

-

 

440,100

 

 

 

 

 

 

At 31 July 2017

440,100

-

440,100

 

           

 

 

 

 

 

 

Company

Freehold

land

Office equipment

 

Total

 

 

£

£

£

 

Cost

 

 

 

 

At 1 August 2016

-

18,630

18,630

 

Written-off

-

(18,630)

(18.630)

 

 

 

 

 

 

 

At 31 July 2017 and 31 July 2018

-

-

-

 

 

 

 

 

 

Depreciation

 

 

 

 

At 1 August 2016

-

17,986

17,986

 

Charge for the year

Written-off

-

644

644

 

 

 

 

 

 

 

 

 

 

 

 

At 31 July 2017 and 31 July 2018

-

18,630

18,630

 

 

 

 

 

 

Net book value

 

 

 

 

At 31 July 2018

-

-

 

-

 

 

At 31 July 2017

 

-

 

-

 

-

 

 

 

 

 

 

 

                     

 

16.

Investments

 

 

 

 

 

Company

 

Investment in subsidiaries

 

 

 

 

 

2018

£

 

2017

£

 

Cost

Balance at 1 August 2017 and 31 July 2018

 

15,247,011

 

 

15,247,011

 

 

Impairment

 

 

 

 

Balance at 1 August 2017 and 31 July 2018

(15,247,011)

 

(15,247,011)

 

 

Net book value

Balance at 31 July 2018

 

 

-

 

 

 

 

-

 

 

Investment in subsidiaries

 

The Company's subsidiary undertakings at 31 July 2018, all of which are wholly owned, are as follows:

 

 

 

 

 

InfraStrata UK Limited

Holding and corporate

England

 

 

 

 

 

 

 

InfraStrata UK Limited owns the following subsidiary undertakings:

 

 

 

 

Islandmagee Energy Limited ("IMEL")

Sub surface gas storage developer

Northern Ireland

 

                       

 

InfraStrata UK Limited's registered office address is 200 Strand, London, England, WC2R 1DJ. Islandmagee Energy Limited's registered office address is 8 Portmuck Road, Islandmagee, Larne, Co Antrim, Northern Ireland, BT40 3TW.

 

In December 2017, the Company's wholly-owned subsidiary, InfraStrata UK Limited increased its ownership in IMEL from 90% to 100% by acquiring the remaining 10% interest from Moyle Energy Investments Limited.

 

The Company has impaired its investment in InfraStrata UK Limited and loan receivable from InfraStrata UK Limited as required.

 

17.

Trade and other receivables

Group

2018

Group

2017

Company

2018

Company

2017

 

 

£

£

£

£

 

 

Amounts due from Group undertakings

-

-

8,831,740

7,113,671

 

Trade receivables

-

44,702

-

44,702

 

Other receivables

198,538

32,708

197,707

31,549

 

Prepayments

23,953

21,308

23,953

21,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

222,491

98,718

9,053,400

7,211,230

 

 

 

 

 

 

 

 

 

 

 

 

 

An element of the Company and Group's credit risk is attributable to its trade and other receivables.  Based on prior experience and an assessment of the current economic environment, the directors did not consider any provision for irrecoverable amounts was required and consider that the carrying amounts of these assets approximates to their fair value.

 

18.       Grants received in advance

 

In May 2016, the Company signed a grant agreement with the European Commission's Connecting Europe Facility in relation to the Islandmagee gas storage project for a maximum of €4.024 million or up to 50% of the costs of Front End Engineering and Design ("FEED") for the project. An advance of 40% of the maximum grant amounting to €1.6 million was received and held in a Euro denominated bank account (included in Cash and cash equivalents in the statement of financial position).

 

At 31 July 2018 €557,257 of this grant had been drawn down by the Company, in accordance with the drawdown criteria set by the European Commission. At the prevailing year end exchange rate the cash balance included in the statement of financial position is £916,294 (2017: £1,432,408) and the grant received in advance is £924,642 (2017: £1,440,913). 

 

19.

Financial liabilities

Group

2018

Group

2017

Company

2018

Company

2017

 

 

Current liabilities

£

£

£

£

 

 

Baron Loan

200,000

-

200,000

-

 

Costain Loan

163,344

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

363,344

-

200,000

-

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Baron Loan

-

200,000

-

200,000

 

Moyle Investments  

200,000

-

200,000

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200,000

200,000

200,000

200,000

 

 

 

 

 

 

 

Baron Loan

 

Following repayment and cancellation of a loan with Baron Oil dated 5 January 2017 loan, Baron remains  entitled to receive an additional £200,000 in the event of a sale or disposal by InfraStrata or its subsidiaries,  IMEL and InfraStrata UK, of substantially all of their assets, which comprise interests in the Islandmagee gas  storage project, and/or a change in control of InfraStrata, IMEL or InfraStrata UK, within two years from the  date of the loan agreement. 

 

Under IAS 39 - Financial Instruments the Company is required to recognise the fair value of this contingent settlement financial liability at inception and to subsequently recognise the liability at its amortised cost. The full liability of £200,000 is now recognised as a short-term financial liability in the consolidated statement of financial position, as this liability will expire in January 2019.

 

At inception, IAS 39 requires that the liability initially recognised be deferred thus creating a corresponding asset which is amortised as an expense to the consolidated statement of comprehensive income the over the two year period from 5 January 2017.

 

Amortisation for the year ended 31 July 2018 of £100,000 has been classified as a finance expense in the statement of comprehensive income. The remaining asset of £42,000 continues to be recognised as a deferred liability, but is now classed entirely within current assets as it will be fully amortised within twelve months of this report.

 

Costain Loan

 

In April 2018, IMEL concluded a Secured Development Loan Agreement with Costain Oil, Gas & Process Limited ("Costain"). Costain is the principal contractor in the FEED programme and in return for its services to IMEL, it agreed to provide a secured loan so as to facilitate the further development of the Islandmagee gas storage project. The loan is secured on the assets of Islandmagee Energy Limited. At 31 July 2018 the Costain loan required to be repaid, together with accrued interest of 10% per annum, on the earlier of FID being taken to proceed with the Project; or any sale of IMEL or the Project itself; or 31 July 2019. The loan terms were amended on 25 September 2018 to change the backstop date from 31 July 2019 to 31 December 2019.

 

At 31 July 2018, IMEL had drawn down £163,344 of this loan and this is disclosed as short-term borrowings in the Group accounts.

 

Moyle Investments

 

In December 2017, the Company's wholly-owned subsidiary, InfraStrata UK Limited increased its ownership in IMEL from 90% to 100% by acquiring the remaining 10% interest from Moyle Energy Investments Limited at par value. In recognition of the support by Moyle of the gas storage project at Islandmagee, InfraStrata plc will pay Moyle £200,000 on first storage of gas.

 

 

20.

 

Cash and cash equivalents

 

Group

2018

 

Group

2017

 

Company

2018

 

Company

2017

 

 

 

£

£

£

£

 

 

 

 

 

 

 

 

 

Cash at bank

1,790,979

1,548,169

1,671,002

1,545,779

 

 

 

 

 

 

 

 

 

The directors consider that the carrying amount of these assets approximates their fair value.  The credit risk on liquid funds is limited because the counter-parties are banks with high credit ratings.

 

 

 

21.

Trade and other payables

 

 

Group

2018

 

 

Group

2017

 

 

Company

2018

 

 

Company

2017

 

 

 

£

£

£

£

 

 

 

 

 

 

 

 

 

Trade creditors

560,803

71,889

555,822

64,935

 

 

Preference shares (note 23)

12,500

12,500

12,500

12,500

 

 

Other taxation and social security

Other creditors

7,474

13,135

18,949

-

7,474

-

18,949

-

 

 

Accruals

246,611

 

46,287

 

229,425

20,802

 

 

 

 

 

 

 

840,523

149,625

805,221

117,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The directors consider that the carrying amount of trade and other payables approximates to their fair value.

 

 

 

 

 

 

 

22.

Financial assets and liabilities

 

 

 

 

 

 

 

 

 

 

 

 

                                 

The Group and Company's financial instruments comprise cash and cash equivalents, long and short-term borrowings and items such as trade and other receivables and trade and other payables which arise directly from the Group's operations. The Group's operations expose it to a variety of financial risks including credit risk, interest rate risk, foreign currency exchange risk and liquidity risk. Given the size of the Group, the directors have not delegated the responsibility of monitoring financial risk management to a subcommittee of the board. The objectives of the financial instrument policies are to reduce the Group and Company's exposure to financial risk. The policies set by the Board of Directors are implemented by the Company's finance staff.

 

Credit risk

 

The credit risk on liquid funds is limited because the Group and Company policy is to only deal with counter parties with high credit ratings. The Group has held all funds in Bank of Scotland during the last two years. In the directors' view there is a low risk of the bank holding the Group's funds at year end failing in the foreseeable future.

 

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

 

 

 

Group

2018

Group

2017

Company

2018

Company

2017

 

 

£

£

£

£

 

 

Trade and other receivables

 

26,978

 

70,349

 

26,978

 

70,349

 

Due from subsidiary undertakings

-

-

8,831,740

7,113,671

 

Cash and cash equivalents

1,790,979

1,548,169

1,671,002

1,545,779

 

 

 

 

 

 

 

The reconciling items between the trade and other receivables presented above and that presented in note 17 are VAT receivable and prepayments. No receivables are past due but not impaired.

 

Interest rate risk

 

The Company and Group are exposed to interest rate risk as a result of positive cash balances, denominated in sterling and in euros, which earn interest at variable rates. Any surplus cash is held on deposit with Bank of Scotland. An effective interest rate increase or decrease by 1% on the cash and cash equivalents balance at year end would result in a before tax financial effect of an increase or decrease of £17,910 (2017: £15,482).

 

As disclosed in note 19, the Group and Company's long-term borrowings at 31 July 2018 bear interest at a fixed rate of 10% per annum.

 

Foreign currency risk

 

At 31 July 2018, €1.04million (£916,294) of the funds received in advance in respect of a grant for the FEED study on Islandmagee gas storage project was held in a Euro denominated bank account. Euro suppliers are being paid directly from the Euro account to reduce foreign currency risk and otherwise drawdown amounts are converted into sterling using the best available market rates. Entitlement to draw down from the Euro grant is subject to strict criteria set by the EU and this is closely monitored before any transactions take place.

 

 

 

 

 

The currency risk disclosures are as follows:

 

 

 

 

 

 

 

 

Group

2018

 

Group

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Euros

 

Euros

 

 

Cash and cash equivalents

£916,294

 

£1,432,408

 

 

Grant received in advance

(£947,357)

 

(£1,440,913)

 

 

Trade payables and accruals

(£114,060)

 

-

 

 

 

 

 

 

 

 

 

The book value of financial assets and liabilities disclosed is considered to be equal to fair value.

 

 

 

 

 

Liquidity risk

 

The total carrying value of Group and Company financial liabilities is disclosed in note 19 (financial liability) and in note 21 (trade and other payables). The Company seeks to issue share capital, gain loan funding and / or dispose of assets when external funds are required. The reconciling items between the contractual maturities presented below and that presented in notes 19 and 21 are taxes and accruals. The following table shows the contractual maturities of the Group's and Company's financial liabilities, all of which are measured at amortised cost.

 

 

 

 

Group

2018

Group

2017

Company

2018

Company

2017

 

 

 

£

£

£

£

 

 

Trade & other payables

 

 

 

 

 

 

Within one month

560,803

71,889

555,822

64,395

 

 

More than one month less than one year

-

-

-

-

 

 

Financial liability (Note 19)

 

 

 

 

 

 

Within one month

-

-

-

-

 

 

More than one month less than one year

363,344

-

200,000

-

 

 

More than one year

 

200,000

-

200,000

-

 

 

 

 

                                     

 

23.

Share capital and redeemable preference shares

 

 

 

 

 

 

 

 

Share capital classed as equity

2018

2017

 

 

 

Number

£

Number

£

 

 

 

Ordinary shares of 0.01p

 

1,032,607,285

 

103,261

 

376,041,599

 

37,604

 

 

Deferred shares of 1p

895,424,391

8,954,244

895,424,391

8,954,244

 

 

Second deferred shares of 0.01p

18,616,118,301

1,861,612

18,616,118,301

1,861,612

 

 

 

 

 

 

 

 

 

 

 

10,919,117

 

10,853,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allotted, called up and fully paid Ordinary shares

1p Ordinary Shares

0.01p Ordinary Shares

Total

 

 

Number

£

Number

£

£

 

 

-              At 31 July 2016

 

188,041,599

 

1,880,416

 

-

 

-

 

1,880,416

 

 

 

 

 

 

 

 

Share subdivision

(188,041,599)

(1,880,416)

188,041,599

18,804

(1,861,612)

 

Issue of 0.01p Ordinary shares

 

-

 

-

 

188,000,000

 

18,800

 

18,800

 

 

 

 

 

 

 

 

 

At 31 July 2017

 

-

 

-

 

376,041,599

 

37,604

 

37,604

 

 

 

 

 

 

 

 

Issue of 0.01p Ordinary Shares

 

 

656,565,686

65,657

65,657

 

 

 

 

 

 

 

 

 

At 31 July 2018

 

-

 

-

 

1,032,607,285

 

103,261

 

103,261

 

 

 

 

 

 

 

                       

 

 

Allotted, called and fully paid

Deferred Shares

1p Deferred Shares

0.01p Second Deferred Shares

Total

 

 

Number

£

Number

£

£

 

 

At 31 July 2016

895,424,391

8,954,244

 

-

 

-

 

8,954,244

 

 

 

 

 

 

 

 

Share subdivision

-

-

18,616,118,301

1,861,612

1,861,612

 

 

 

 

 

 

 

 

 

At 31 July 2017 and 31 July 2018

895,424,391

8,954,244

 

18,616,118,301

 

1,861,612

 

10,815,856

 

 

 

 

 

 

 

 

 

 

Redeemable preference shares of £1 each

(classified as liabilities)

 

 

 

 

Allotted called up and part paid

 

 

 

 

 

 

Number

 

£

 

At 31 July 2018, 2017 and 2016

 

 

 

 

50,000

12,500

 

                     

 

On 20 October 2017, the Company issued 125,000,000 shares of 0.01 penny at 0.4 pence each to raise £500,000 and incurred expenses of £42,414.  Further, on 30 January 2018 the Company issued another 125,000,000 shares of 0.01 penny at 0.3 pence each to raise £375,000, with expenses of £27,500.  These shares were also accompanied by 62,500,000 warrants exercisable at 0.6p.  Finally, on 10 April 2018 and 30 April 2018, the Company issued 266,265,387 and 119,151,279 shares of 0.01 penny at 0.24 pence each to raise a total of £925,000 with expenses of £46,250.  These shares were also accompanied by 192,708,333 warrants exercisable at 0.48p.

 

At various dates through the year, 14,030,304 shares were issued to directors at a market value of £63,000 (see note 6) and 7,118,716 shares were issued to suppliers in respect of fees due extinguishing liabilities of £26,750.

 

Details of share issues post year end are given in note 29.

 

Preference shares

 

The preference shares carry the right to an annual dividend out of distributable profits of 0.00001% per annum on the amount for the time being paid up on each such share and do not carry any voting rights. The Company may redeem the shares at any time by giving preference shareholders one week's notice. Preference shareholders may require the Company to redeem their shares at any time by giving six months' notice. In each case, any redemption is at par and is subject to the provisions of the Companies Act. The preference shares are treated as short-term liabilities and included within trade payables.

 

Authorised share capital

 

The Company's articles do not specify an authorised share capital.

 

 

Objectives, policies and processes for managing capital

 

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to achieve its operational objectives.

 

The Group defines capital as being share capital plus reserves. The Board of Directors monitors the level of capital as compared to the Group's forecast cash flows and long-term commitments and when necessary issues new shares. Dilution of existing shareholder value is considered during all processes which may result in an alteration of share capital in issue.

 

Ordinary share capital in issue is managed as capital and the redeemable preference shares in issue are managed as current liabilities.

 

The Group is not subject to any externally imposed capital requirements.

 

 

 

 

 

24.

Merger reserve

 

 

 

 

 

 

 

 

Company

 

The merger reserve arose on the demerger of the Portland Gas Group of companies from Egdon Resources Plc when the Company issued shares at a premium to their nominal value on acquisition of InfraStrata UK Limited. The reserve is not distributable.

 

Group

 

The merger reserve represents the difference between the nominal value of the shares issued on the demerger and the combined share capital and share premium of InfraStrata UK Limited at the date of the demerger.

 

 

 

25.

Share based payment reserve

 

 

 

 

 

 

 

 

The reserve for share based payments is used to record the value of equity settled share based payments awarded to employees and transfers out of this reserve are made upon the exercise or expiration of the share awards.

 

A share-based payment plan was created in the year ended 31 July 2008 and the options granted were Enterprise Management Incentive share options for qualifying employees. These options have now lapsed following the departure of these employees and there was a transfer out of £616,096 from the share based payment reserve to reflect this during the year.

 

There were 30,000,000 new options issued in February 2018, details of which are included in note 7. An expense of £6,847 was charged to the P&L in respect of these options and the same value transferred in to the share based payment reserve.

 

For further information on the share based payment scheme see note 7.

 

26.

Warrant reserve

 

 

 

 

 

 

 

 

 

The reserve for warrants was created during the year and used to record the fair value of warrants issued, as described in note 23. The fair value of the warrants was calculated using the Black-Scholes methodology, with the following inputs:

 

-       Share price volatility - 105%

-       Warrant life - January 2018 issue - 1 year; April 2018 issue - 3 years

-       Future dividends over the life of the warrants - none

-       Risk free interest rate - based on return on 5 year gilts at the date of issue - 1 to 1.1%

-       Early exercise - assumed when the share price is expected to be twice the warrant exercise price

 

The volatility was determined by reference to past volatility over a period similar to the warrant lives.

 

 

 

27.

Reconciliation of liabilities arising from financing activities

                   

 

 

Group

As at 1 August 2017

Cash-flows

Non-cash movement

 

Transfer

As at 31 July 2018

 

 

 

 

 

 

 

 

Short term liabilities

 

 

 

 

 

 

  Baron Loan

-

-

-

200,000

200,000

 

  Costain Loan

-

163,344

 

 

163,344

 

 

Non-current liabilities

 

 

 

 

 

 

  Baron Loan

200,000

-

 

(200,000)

-

 

  Moyle Investments 

-

-

200,000

-

200,000

 

 

 

 

 

 

 

 

 

200,000

163,344

 

200,000

 

-

 

563,344

 

 

 

 

 

 

 

 

 

The non-cash movement relates to the obligation to pay Moyle Investments £200,000 on first storage of gas in recognition of the support by Moyle of the gas storage project at Islandmagee. The cost of this is written off directly in Group equity. 

 

 

 

 

Company

As at 1 August 2017

Cash-flows

Non-cash movement

 

Transfer

As at 31 July 2018

 

 

 

 

 

 

 

 

 

 

Short term liabilities

 

 

 

 

 

 

 

  Baron Loan

-

-

-

200,000

200,000

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

  Baron Loan

200,000

-

 

(200,000)

-

 

 

  Moyle Investments 

-

-

200,000

-

200,000

 

 

 

 

 

 

 

 

 

 

 

 

200,000

-

 

200,000

 

-

 

400,000

 

 

 

 

 

 

 

 

 

 

 

The non-cash movement relates to the obligation to pay Moyle Investments £200,000 on first storage of gas in recognition of the support by Moyle of the gas storage project at Islandmagee. The asset arising on the recognition of this liability was an increase in the inter-company balance due from Islandmagee Energy Limited's immediate parent company.

                   

 

28.

Related party transactions

 

 

 

The executive services of Graham Lyon are provided through Soncer Limited, a private Oil and Gas leadership consulting firm, in which Graham is sole Director. The executive fees paid during the period were £16,000 and the balance outstanding at 31 July 2018 was £2,400 including VAT.

 

Prior to his employment in June 2018, the consultancy services of John Wood were provided through Teramar Limited, in which John is sole Director. Consulting and advisory fees including expenses during the period were £48,000 and the balance outstanding at 31 July 2018 was £nil.

 

Prior to his employment as Chief Financial Officer in June 2018, the consultancy services of Andy Duncan were provided through Semper Consulting Limited, in which Andy is Director. Consulting and advisory fees including expenses during the period were £28,000 and the balance outstanding at 31 July 2018 was £nil.

 

Prior to her employment in June 2018, the advisory and non-executive services of Judith Tweed were provided through her sole trader business St Ronans, based in Islandmagee. Advisory and non-executive fees including expenses during the period were £10,947. The balance outstanding at 31 July 2018 was £nil.

 

 

 

 

 

 

 

 

 

 

Company

 

The Company has related party relationships with its subsidiaries in the course of normal operations. InfraStrata plc recovered overhead, technical and project management costs from Islandmagee Energy Limited (formerly Islandmagee Storage Limited - see note 29) of £660,946 (2017: £520,513). Gross balances due to/from subsidiaries were £Nil (2017: £Nil) / £17,250,063 (2017: £15,531,994). The amounts due from Group undertakings, which are unsecured, are stated net of an impairment provision of £8,418,323 (2017: £8,418,323).

 

 

29.

Events after the reporting period

 

Since the 31 July 2018, the following warrants have been exercised:

 

·      On 24 August 2018, 10,416,666 warrants at 0.48p;

·      On 29 August 2018, 5,833,333 warrants at 0.6p;

·      On 29 August 2018, 4,166,666 warrants at 0.48p;

·      On 4 September 2018, 4,166,666 warrants at 0.48p;

·      On 29 November 2018, 18,617,666 warrants at 0.6p;

·      On 6 December 2018, 333,333 warrants at 0.6p;

·      On 11 December 2018, 1,049,000 warrants at 0.6p.

·      On 14 December 2018 1,356,162 warrants at 0.48p

·      On 17 December 2018 4,693,466 warrants at 0.6p

·      On 2 January 2019 1,768,838 warrants at 0.48p

·      On 3 January 2019 6,139,867 warrants at 0.6p

·      On 3 January 2019 4,508,427 warrants at 0.48p

·      On 4 January 2019 5,000,000 warrants at 0.6p

 

In total 68,050,090 warrants have been exercised, bringing the total consideration received for warrants exercised to £376,640.45.

 

In August 2018, Adrian Pocock stepped down from the Chief Executive position in favour of John Wood.  After a period of handover, Mr Pocock subsequently left the Company on 12 September 2018.  The Chairman's Statement and the Strategic Report note activities since the financial year close of 31 July 2018.

 

On 25 September 2018 the repayment date of the Costain loan facility was amended from 31 July 2019 to 31 December 2019.

 

In October 2018 the Company changed the name of its gas storage project company Islandmagee Storage Limited, which is owned 100% by InfraStrata, to Islandmagee Energy Limited.

 

On 2 October 2018 InfraStrata plc disposed of its net profits interests in three offshore UK oil and gas licences (the "Net Profits Interests") to Westmount Energy Limited for a consideration of £100,000. No value was previously ascribed to the net profits interests in the Company's financial statements.

 

On 29 October 2018 InfraStrata plc's 100% owned subsidiary, Islandmagee Energy Limited exercised some historic options to purchase land that is required to progress the Islandmagee gas storage project (the "Project").

 

Lot Number

Purchase Price

Completion Date

1

£116,000.00

15.04.19

1.1

£66,000.00

15.04.19

2

£88,000.00

15.04.19

5

£210,000.00

Completed 31.12.18

5.1

73,802.00

Completed 31.12.18

 

The Company's existing cash resources were used to finance the purchase of lots 5 and 5.1 and in conjunction with its discussions for the next phase of Project funding, the Company is exploring new sources of finance for those lot acquisitions due for completion by 15 April 2019.

 

In November 2018, 3,253,660 shares were issued as consideration for services provided by contractors at a weighted average price of 0.5694p.

 

On 24 December 2018, the Company incorporated Islandmagee Energy Hub limited as a new wholly-owned subsidiary of InfraStrata UK Limited.

 

 

30.

Control of the Group

 

 

 

 

 

There is no ultimate controlling party of InfraStrata plc.

         

 

 


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