AI assistant
DIRECTA PLUS PLC — Earnings Release 2018
Apr 17, 2019
7601_10-k_2019-04-17_c405e53d-4667-4e84-80d6-12a67bcc00b3.html
Earnings Release
Open in viewerOpens in your device viewer
National Storage Mechanism | Additional information
You don't have Javascript enabled. For full functionality this page requires javascript to be enabled.
RNS Number : 4148W
Directa Plus PLC
17 April 2019
17 April 2019
Directa Plus plc
("Directa Plus" or the "Company")
Final Results for the Year to 31 December 2018
Directa Plus (AIM: DCTA), a producer and supplier of graphene-based products for use in consumer and industrial markets, announces its final results for the 12 months ended 31 December 2019.
Directa Plus's focus is principally on the two sectors where it has established strong commercial advantage through developing and launching products with a technological lead: Environmental, based on our Grafysorber® product for treating oil contaminated water; and, Textiles (based on our G+ products and technology).
Financial highlights
· Product and service sales revenue more than doubled to €2.25m (2017: €0.95m), total income (including grants) also more than doubled to €2.50m (2017: €1.23m)
· Loss after tax €3.96m (2017: €3.95m)
· Successful placing to raise £3.45m in December, with £1.32m received post period end
· Cash and cash equivalents at year end of €5.50m (2017: €6.93m), increased by placing proceeds of €1.47m received in January 2019
Proven, successful strategy maintained
· Target existing products and markets that can be significantly improved with the addition of Directa Plus products
· Focus on those vertical markets in which the Company can gain strong traction - textiles, environmental, elastomers and composites
· Seek further agreements with companies that have international footprints to use as springboards to wider global markets
· Maximise revenue opportunities by supplying expertise, know-how and services as well as materials
· Sharing in the proceeds of customers' growth from new products alongside supplying an essential ingredient
Target market progress
Textiles
· Workwear: new orders received from Alfredo Grassi
· Denim: new products launched with Arvind
· Ski wear: third collection launched with Colmar
· Cycling: launch of Aero Jersey with Oakley
· Luxury: new products to be developed with Loro Piana
Environmental
· Grafysorber® water treatment technology - moved into sales generation with integrated oil and gas services provider GSP
· Successful conclusion of field trials with OMV Petrom with commercial negotiations underway
· Successful participation in PDO (Oman's national oil company) Tier 2 Oil Spill Response Exercise
· Collaboration with Ambienthesis to investigate applications in remediation and reclamation markets
Elastomers
· Strategic agreement signed with Marangoni to enter automotive markets with the cold re-treading of bus and truck tyres
Composites
· Partnership with Iterchimica to use G+ products as an additive to extend the life and resilience of asphalts on roads and exclusivity agreement with global luxury accessories producer
Corporate
· Significant new patents filed or granted covering flame retardant properties and elastomeric formulae for tyres bringing the total number of patents to 18 granted and 23 pending
· CEO and Founder Giulio Cesareo joins the prestigious industry council of the US National Graphene Association
· New 19% shareholder, California based Nant Capital, controlled by well-known medical, science and media entrepreneur Patrick Soon-Shiong
Giulio Cesareo, Founder & CEO, said: "2018 has seen accelerating commercial traction with agreements and collaborations signed, and orders received, for products to be delivered over the next twelve months. We are gaining real, measurable commercial traction and maintaining our technological and commercial lead over our competitors, demonstrated by the number of products launched in our customers' markets and by the number of agreements already signed which are generating revenue. There is every reason to look forward with great excitement to the coming year's activity at Directa Plus as we move forward on a number of extremely promising fronts."
Key Performance Indicators and Financial Summary
| 2018 | 2017 | |
| Revenue from product and service sales (€'m) | 2.25 | 0.95 |
| Total Income* (€'m) | 2.50 | 1.23 |
| EBITDA** (€'m) | (3.24) | (3.16) |
| Loss after tax(€'m) | (3.96) | (3.95) |
| Cash and cash equivalents (€'m)*** | 5.50 | 6.93 |
| Total number of patents granted | 18 | 15 |
* Total Income comprises revenue from product and service sales (€2.25m), and other income including government grants (€ 0.13m) and RDEC - Research and Development Expenditure Credit (€0.10)
** EBITDA represents results from operating activities before depreciation and amortisation of €0.67m (2017: €0.63m). This is a non-GAAP measure. Management decided to use EBITDA to provide a clearer reflection of operations by stripping out interests, tax, depreciation and amortization.
*** Before receipt of £1.32m (€1.47m) following completion in January 2019 of the Conditional Placing and Open Offer announced in December 2018
For further information please visit http://www.directa-plus.com/ or contact:
| Directa Plus plc | +39 02 36714458 |
| Giulio Cesareo, CEO | |
| Marco Ferrari, CFO | |
| Cantor Fitzgerald Europe (Nominated Adviser and Joint Broker) | +44 20 7894 7000 |
| Rick Thompson, Philip Davies, Will Goode (Corporate Finance) | |
| Caspar Shand Kydd (Sales) | |
| N+1 Singer (Joint Broker) | +44 20 7496 3069 |
| Mark Taylor, Lauren Kettle | |
| Tavistock (Financial PR and IR) | +44 20 7920 3150 |
| Simon Hudson, Edward Lee |
This announcement has been released by Giulio Cesareo, Chief Executive, on behalf of the Company.
Chairman's Statement
I am pleased to be presenting the results of a very successful year, which has seen the Group gain significant commercial momentum as we advanced our operational and strategic targets, confirming our position as a leading producer and supplier of graphene-based products under our G+ brand. Our full year revenue of €2.5m reflects this progress - being more than double that of 2017.
This success has been due to the close working relationships we strive to maintain with our customers. A high degree of collaboration allows us to find and develop the best methods and applications for the use of G+ graphene to enhance products in our key industrial verticals: textiles; environmental improvement; elastomers; and composites - alongside customers' designers and engineers.
Treating sales and product development as part of the same ongoing process allows us to gain our customers' respect as a supplier and manufacturing partner, which is particularly important as a young company forging new commercial relationships. In addition, this partnership role allows us to establish Directa Plus higher in the manufacturing value chain - by moving closer to end users we are able to better understand consumer demand and capture a greater share of the profits than would be the case if we were simply a commodity supplier.
We are creating a next generation of products with significantly enhanced properties for our customers, and the progress we have made in each business vertical is detailed in the Chief Executive's Review.
To take a slightly wider view of our commercialisation strategy - there are a number of criteria we look for in identifying the industries in which we want to operate and companies with whom we want to partner.
In our view the best and fastest route to commercial success and profitability is to use G+ graphene to improve existing products and processes, rather than trying to develop entirely new categories. With this in mind, we are seeking to target existing markets with clear potential for substantial revenues where products can be improved through graphene applications.
Similarly, in potential partners we look for leading international businesses with significant global footprints who have the capability to manufacture and deploy products on a large scale. The potential benefits that this can bring in terms of revenue are clear, but in addition, working with some of the world's leading manufacturers in one sector gives us significant additional credibility and exposure when approaching new potential partners in other sectors.
We can offer existing and potential partners, as well as shareholders, firm guarantees about the quality of our G+ graphene and our environmental and sustainability credentials. The Group's G+ graphene manufacturing capability uses proprietary patented technology based on a plasma super expansion process. Starting from natural graphite, each step of our production process - expansion, exfoliation and drying - creates graphene-based materials and hybrid graphene materials ready for a variety of uses and available in various forms such as powder, liquid and paste.
This proprietary production process uses heat, rather than a chemical process, to process graphite into pristine graphene nanoplatelets, which enables Directa Plus to offer a sustainable, non-toxic product, without unwanted by-products. As the process is low cost and, crucially, scalable - we do not foresee any issues in meeting customer demand for our product.
At a corporate level I would like to welcome new shareholders from our successful capital raise in December and thank existing shareholders for their support in this fundraise. I would also like to welcome a new shareholder, Patrick Soon-Shiong, who bought, also through his controlled company Nant Capital, a 19% shareholding in Directa Plus after the end of the financial year.
Finally, I would like to thank our leadership team and our employees for their continued hard work. Directa Plus is enjoying an extremely exciting period of growth, with rapid developments in a wide number of areas, and the passion and energy that is contributed throughout the business is invaluable.
On behalf of the Board and myself I am confident in saying that Directa Plus is extremely well positioned for another year of growth and development, and I look forward to the Group's future success.
Sir Peter Middleton
Chairman
16 April 2019
Chief Executive Officer's Review
Directa Plus saw another year of significant progress during 2018, improving its position in key markets and making strides in the commercialisation strategy through new products and partnerships, clear vision and discipline in execution.
The two primary markets we focus on are textiles and environmental, followed by elastomers and composites. The majority of the Directa Plus' R&D resources are focused on the two primary markets to develop the next generation of G+ products to enhance performance, while in elastomers and composites, the goal of the Group is to market the G+ products already engineered for those markets.
Strategy and Business model
The Group is well placed to take advantage of market momentum, leveraging on the unique G+ graphene properties. By incorporating Directa Plus' unique graphene blends, identified by the G+ brand, our customers can revolutionise the performance, increase the competitiveness and extend the life cycle of their own end products.
Integrating our intellectual property into new products allows our customers to gain significant competitive advantage and as outlined in the Chairman's Statement, as a Group, we are committed to sharing in the proceeds of customers' growth from new products, rather than merely supplying an essential ingredient. The commercialisation model we follow is based on capturing for our shareholders a proportion of these additional revenues and profits. This could take the form of royalty payments, upfront enabling licence payments, joint-ventures to get closer to end-users, or a combination of all three.
We seek to embed our products first with Italian (and regional) companies with large international footprints proving the business cases to provide reference customers, before rolling out globally. The success of this strategy can be seen in our progress in each of our key sectors, where we have established strong commercial advantage through developing and launching products with a technological lead:
· Textiles, based on our G+ Planar Thermal Circuit technology;
· Environmental, based on our Grafysorber® product for treating oil contaminated water;
· Elastomers, based on our G+ product specifically engineered to enhance tyre performances; and
· Composite materials, based on our G+ products specifically engineered to enhance composite materials, mechanical performances, and to improve asphalt's life cycle
Expanded partnership and product lines
Textiles
There are broad market applications for the integration of G+ graphene products into textiles across multiple segments, as our Planar Thermal Circuit® revolutionises temperature control for natural and synthetic fabrics, and so for the end consumers of garments. These benefits are delivered via our G+ printing paste which can be printed on customers' fabrics and via our graphene enhanced membranes which can be laminated on customers' fabrics. Moreover, during the period, a testing phase started with a major world-wide membrane producer.
Our present subsectors of focus are workwear, denim, sportswear and luxury goods, where partners are already finding that G+ products that are non-toxic, dermatologically tested and hypoallergenic can significantly augment their product ranges.
Alfredo Grassi
In July 2018, Alfredo Grassi S.p.A (Grassi), placed an order with Directa Plus worth €0.70 million which we believe represents one of the largest amount of textile material to be treated with graphene nanoplatelets by any company in the world to date.
This new order followed Grassi's successful public tender to provide workwear incorporating G+ to an Italian government agency. This is the second such tender to be won by Grassi, having already supplied G+-enhanced workwear to an Italian state-owned company.
Workwear represents a significant target market for the Group's G+ technology and in Italy alone there are approximately 250,000 law enforcement, fire and safety and military personnel whose clothing needs to be renewed every three years. Directa Plus and Grassi continue to work together to develop and market new product lines in areas where Grassi is has a commercial presence.
In October, we received two more orders for the workwear market with an aggregate value for Directa Plus of approximately €500,000 of which €150,000 was delivered in FY18 and €350,000 is expected to be delivered in this financial year.
The Board remains excited about the future opportunities that workwear business could bring to Directa Plus on a global basis.
Arvind
It has been a pleasure to work closely with Arvind Limited, India's leading textile-to-retail-and-brands conglomerate, since we signed our first agreement covering textiles in May 2018, and in particular with the CEO of Arvind Denims, Mr Aamir Akhtar.
The May agreement set out an exclusive collaboration, to infuse the high-performance benefits of our graphene-based products into Arvind's denim fabrics. Arvind Denim produces over 100 million metres of fabrics and six million pairs of jeans per year, and supplies a portfolio of brands that are distinctive and relevant across diverse consumers, including Cherokee, Excalibur, Flying Machine, Gant, Levi's, Nautica, Pierre Cardin Paris, Tommy Hilfiger, and Wrangler.
Directa Plus' G+ Planar Thermal Circuit application can be printed directly onto denim to significantly increase comfort via heat dissipation, with additional benefits including energy harvesting, data transmission and a reduced odour effect. Arvind and Directa Plus jointly launched the world's first graphene enhanced G+ jeans, shirt and jackets at the Kingpins Show in Amsterdam in October 2018 - an invitation-only denim conference and trade show attended by all the key market players with the objective of shaping the future of denim. A further joint presentation entitled 'Graphene Plus upgraded for Functional Denim' was given by both companies at the Denim Première Vision event in London in December 2018.
Directa Plus and Arvind believe that the 'smart denim' that will result from the collaboration will yield some of the most innovative, widely-used fabrics in the denim market in the years ahead.
Colmar
Colmar, the high-end sports and activewear company launched its Winter 2018/19 collection, marking Colmar's third skiwear range with Directa Plus. The new collection has been expanded to consist of 31 garments incorporating G+, including male and female ski jackets and, for the first time, graphene-enhanced ski trousers. It follows the commercial success of two previous ski collections, as well as spring/summer garments.
Oakley
July saw the launch of a New Aero Jersey enhanced with Directa Plus' G+ graphene - a first of its kind cycling garment. Designed by Oakley®, in collaboration with Bioracer, a designer and manufacturer of innovative, customised clothing for cycling teams and individuals, as well as for other sporting activities. The Aero Jersey incorporates our G+ planar thermal circuit to distribute the heat generated by the cyclist's body and dissipates it when needed to significantly improve the comfort of the wearer and enable riders to use less energy to regulate their body temperature. We are already analyzing with the Oakley's innovation team further potential development and opportunities.
Environmental remediation
We established a number of key new relationships in our environmental vertical this year and demonstrated commercial viability most clearly by moving beyond proof of concept and testing into revenue generation with one of our customers.
Our proprietary Grafysorber® technology is a commercially-available graphene-based solution for treating water contaminated by hydrocarbons and is at least five times more effective than current technologies - adsorbing more than 100 times its own weight of oil-based pollutants. In addition, Grafysorber® is sustainably produced, non-flammable and reusable, with the adsorbed hydrocarbons recoverable.
Ambienthesis
The potential to expand our environmental remediation processes beyond hydrocarbons would add a new dimension to the vertical and greatly expand the industries and geographies we could service.
To that end we have signed a collaboration agreement with Ambienthesis S.p.A. a specialist in the reclamation, environmental remediation and treatment, recovery and disposal of hazardous and non-hazardous waste, listed on the Milan Stock Exchange.
Phase One of the agreement consists of the testing of products, plants and services, using the Group's G+ graphene products for the remediation of soil and groundwater and industrial waste waters at Ambienthesis' plant in Orbassano, Turin. The testing will start in the first half of 2019 and will take place using a mobile treatment plant provided by Directa Plus, specifically engineered for the project.
The outcome of Phase One will then define the basis of a potential commercial agreement between the parties as the second phase of the process. In line with our strategy, the collaboration with Ambienthesis allow us to prove a new business case in the environmental area that could be replicated and open very important commercial opportunities.
GSP
GSP is an integrated services provider to the Oil & Gas industry, with a global presence. It operates a diversified fleet which includes mobile offshore drilling rigs, offshore support vessels, construction vessels, heavy lift crane barges, ROVs and a Saturation Diving System. In November we announced the signing of a €200,000 contract to supply GSP with a graphene-based Grafysorber® mobile production unit and a set of G+ oil adsorption barriers.
The first sale of our Grafysorber® technology for environmental remediation represents a significant development for Directa Plus. We are committed to developing both new products and processes to capture significant revenue from the value chain and this contract is a key indicator of the potential of the vertical.
OMV Petrom
Industrial field testing of Grafysorber® was successfully completed in April last year at an oil treatment plant operated by OMV Petrom, a leading Romanian integrated Oil & Gas company and one of the largest in Southern Europe.
The purpose of the field tests was to trial the ability of Directa Plus' Grafysorber®, which was used in a dedicated treatment facility on an OMV Petrom site to remove petroleum hydrocarbons from produced water and sludges. We are now in the final negotiation phase with OMV Petrom for a multi-year commercial agreement for our water treatment solutions.
PDO
In December we successfully participated in a Tier 2 Oil Spill Response Exercise undertaken by Petroleum Development Oman, the leading exploration and production company in the Sultanate of Oman.
The Gulf Region is a key area for the further development of our environmental business based on the Grafysorber® product, and so this represents an important opportunity.
Elastomers
As demonstrated through our activity on cycle tyres, the incorporation of G+ is expected to materially enhance the performance of retreaded automotive tyres by increasing grip, durability and fuel efficiency as well as extending lifespan and addresses a much larger market. We are strengthening our business relationship with the main players in the tyre industry to commercially exploit the unique properties G+, leveraging on Directa Plus' IP.
Marangoni
A strategic agreement with Marangoni S.p.A., signed in April 2018, allows us, thanks to the unique properties of the G+ based product, to improve the performance of Marangoni compounds in truck and bus tyre retreading. On November 2018 G+ enhanced rings have been mounted on bus tire and installed on Milan ATM bus for field test; results of G+ tread durability versus reference are expected by June 2019. In the meanwhile the technical teams are working on an industrial assessment of the project with the goal to optimize all the relevant aspects of the G+ re-treading process - production process, tread design, formulation fine tuning, to be ready for industrial production by the end of 2019.
Based in Italy, Marangoni is an international group with 10 production facilities and 1,300 employees worldwide and is the market leader in the supply of technologies and materials for the cold retreading of truck and bus radial tyres.
Composites
The applications for composite materials are extremely broad and encompass a huge array of products providing a clear example of the benefits we can derive through entering the market via partnerships with existing large companies.
At present we are working on two main partnerships in the composites space - one with a global luxury accessories provider and another with Iterchimica S.p.A. one of the largest Italian companies in the field of additives for asphalt and paving technologies.
Fashion accessory producer
In April 2018, we entered into a 12-month exclusivity agreement and nine-month development agreement with an existing customer, a global luxury accessories producer, to produce accessories with increased mechanical properties derived from our G+ graphene-based products. Directa Plus has commenced work with the client at our Advanced Development Area facility, which has the added benefit of reducing the time it will take to bring the product to market.
The value of the exclusivity and the development agreement, ahead of entering into an anticipated commercial contract, amounts to approximately €130,000 in 2018.
Iterchimica
In partnership with Iterchimica we can report that we have laid the first road surface in the world with a supermodifier containing graphene, on a section of Rome's Strada Provinciale Ardeatina - a famously busy route.
This real-world application is part of a commercial test of Ecopave - based on Directa Plus's graphene product - Ecopave has been developed by Directa Plus with Iterchimica, to provide better roads, that are more sustainable and with less maintenance needs, with consequent benefits for public authorities, citizens and general contractors.
Ecopave materially increases the surface's physical and mechanical performance by increasing resilience to deformation and by decreasing sensitivity to variations in ambient temperature. Successful laboratory tests showed that Ecopave can increase fatigue resistance up to 250 per cent, extending significantly the service life of the road surface at a lower life cycle cost than existing tarmacs.
Additionally, once laid, Ecopave can be 100 per cent recycled which can reduce the extraction of new materials from quarries and first-use bitumen.
Test results received and disclosed post period end have proven the unique properties of Ecopave, exceeding the expectations. We are very confident on future market opportunities and conversation are ongoing with players in UK, USA and Oman.
Intellectual Property
Expanding and protecting our intellectual property is rightly a central element of our commercial strategy since the Directa Plus' foundation. We are at the forefront of the commercialisation of graphene and at the year end had 18 patents granted with an additional two granted post period end and 23 patents pending (plus 1 filed post period) in respect of our G+ technology covering process, applications and products.
Significant new patents this year cover flame retardant compositions of G+ without the addition of toxic chemicals and G+ elastomeric compositions for tyres.
Post period
Our senior management team has significant experience of operating in the United States and our reputation in this important market continues to grow. This was illustrated by my joining the influential and prestigious Industry Council of the US National Graphene Association in February of 2019. Moreover, I will take part in the "Graphene on Capitol Hill" event keynoted by senator Roger Wicker, chairman of the Senate Commerce Committee, on May 22nd 2019 in Washington D.C. Representatives from the Department of Defense (DOD), Department of Energy (DOE), National Aeronautics and Space Administration (NASA), and Economic Development Administration (EDA), as well as state legislators, members of the Congress, and international dignitaries will be in attendance to discuss invigorating graphene-focused collaborations between business and government in the national and international verticals.
I relish the opportunity to contribute to what is likely the world's leading forum on the development of graphene and its use in an increasing number of products.
The arrival of Dr. Patrick Soon-Shiong as a new shareholder is a significant endorsement for Directa Plus. Going forward we intend to explore any potential synergy with his company Nant to penetrate the US market to support G+ graphene momentum.
Finally, I would also like to note an exclusivity agreement signed with Loro Piana for the commercialisation of fabrics and garments enriched by our G+ technology. Loro Piana is one of the world's most renowned fabric manufacturers and it is a real privilege to be able to work together. The agreement is on a worldwide basis with an initial duration of three years for a minimum value of €800,000.
Outlook
2018 has seen accelerating commercial traction with agreements and collaborations signed, and orders received, for products to be delivered over the next twelve months. We are gaining real, measurable commercial traction and maintaining our technological and commercial lead over our competitors, demonstrated by the number of products launched in our customers' markets and by the number of agreements already signed which are generating revenue.
We have increasingly well-established relationships in all of our key target verticals: textiles; environmental remediation industries; elastomers; and composites verticals, with a number of globally recognised corporate leaders. Pleasingly, our commercialisation strategy of adding value and capturing value in the supply chain is working well - helping to strengthen our relationships with our customers.
As result of the continuous improvement project called "Throughput Project" we will be able to improve industrial layout to increase production efficiency, driving industrial margin.
As a company we always value practice over theory, recognising that in a fast-evolving future there will be a higher cost waiting and planning than doing.
There is every reason to look forward with great excitement to the coming year's activity at Directa Plus as we move forward on a number of extremely promising fronts.
Guilio Cesareo
Chief Executive Officer
16 April 2019
Chief Financial Officer's Review
I am pleased to present the results of what has been another busy and important year for the Group. We have continued to shape and improve the finance team, focusing our activities on accuracy, timing and efficiency of the internal reporting to support our commercial and strategic decision making.
Key Performance Indicators
The Board measures the performance of the Group through a number of important financial and non-financial KPIs. In a young business with a number of client verticals, identifying measurable data that will provide useful insight year-on-year is not always straightforward but the KPIs below should help shareholders understand the Group's progress. Our financial KPIs show significant improvement compared to 2017.
The table below summarises the KPIs with further details contained later in my report:
| 2018 | 2017 | |
| Revenue from product and service sales (€'m) | 2.25 | 0.95 |
| Total Income* (€'m) | 2.50 | 1.23 |
| EBITDA** (€'m) | (3.24) | (3.16) |
| Loss after tax (€'m) | (3.96) | (3.95) |
| Reported basic loss per share | (0.09)p | (0.09)p |
| Cash and cash equivalents*** (€'m) | 5.50 | 6.93 |
| Total number of patents granted | 18 | 15 |
* Total Income comprises revenue from product and service sales (€2.25m), and other income including government grants (€ 0.13m) and RDEC and other income (€0.12)
** EBITDA represents results from operating activities before depreciation and amortisation of €0.67m (2017: €0.63m). This is a non-GAAP measure. Management decided to use EBITDA to provide a clearer reflection of operations by stripping out interests, tax, depreciation and amortization.
*** Before receipt of £1.32m (€1.47m) following completion in January 2019 of the Conditional Placing and Open Offer announced in December 2018
Financial Review
Total Income increased by 108% to €2.5 million (2017: €1.2 million).
Revenue from product and service sales grew by 137% to €2.25 million (2017: €0.95 million) with the increase coming mainly from higher revenue in our textiles segment to €1.66 million (2017: €0.77 million).
Other income, which mainly includes grants and R&D Expenditure Credit (RDEC) received by the Group, was €0.25 million (2017: €0.28 million). RDEC is an Italian government incentive scheme designed to encourage companies to invest in R&D by providing a tax credit and accounted for €0.10 million (2017: € 0.08 million).
Income from Government grants was driven by grants that are directly supporting key development activities, namely the GRATA textiles project and the Eco Pave asphalts project, as described in the CEO review, which accounted for €0.06 million (2017: € 0.03 million) and €0.07 million (2017: 0.04 million) respectively.
The EBITDA loss for the period was in line with management expectation and was slightly higher at €3.24million compared with a €3.16 million loss for 2017, primarily due to increased raw materials and consumables costs, and a change in the inventory that partially offset the increase of the top line. Over the period, we remained focused on improving the value captured within the textile supply chain and managing relationships and agreements with clients and suppliers, to lay the foundations for improving margins in the next future.
The loss after tax for the year was flat at €3.96 million compared with €3.95 million for 2017. This reflects both the increase in revenue and higher expenditure on raw materials, and changes in inventories and other expenses.
Across the Group we have continued to invest in new equipment and technology. We invested €0.12 million (2017: €0.34 million) related mainly to the purchase of industrial equipment to improve our manufacturing process. Moreover, laboratory equipment to support the development of applications, particularly in our textile and environmental markets, were also acquired during the period. Investment in intangible assets of €0.21 million (2017: €0.12 million) mainly related to capitalised development costs and IP activity.
As at 31 December 2018, inventories totalled €0.86 million (2017: €1.0 million), ensuring that Directa Plus can supply key clients in a timely manner as it receives increasing orders.
In the short term the Group's priorities continue to focus on the reduction in cash consumption and improvement in profitability. Cash and cash equivalents at 31 December 2018 were €5.5 million (2017: €6.9 million) with the reduction principally due to:
· increased cash outflow from operating activities totalling €3.0 million (2017: €2.8 million);
· modest investments in tangible and intangible assets of €0.3 million (2017: €0.5 million) for reasons set out above;
· cash in from financing activities equal to €2.0 million (2017: expense of €0.3 million) which includes borrowing repayments, interest costs and the Firm Placing undertaken in December 2018 and concluded in January 2019, of which the details of which are set out below.
Details about Patents granted are covered in the CEO's statement.
A description of the principal risks and uncertainties facing the Group is included within the Directors' Report.
Capital Raise
The capital raise was undertaken between December 2018 and January 2019 raising the total gross amount of £3.45 million, with the Company's joint brokers Cantor Fitzgerald Europe and N+1 Singer responsible for placing the shares. The capital raise consisted of a placing and an open offer.
The placing of 6,300,000 new Ordinary Shares issued at price of 50 pence per share raising gross proceeds of £3.15 million was divided in two steps:
· a Firm Placing on 17 December 2018 raising £2.13 million (gross), through the placing of 4,256,000 ordinary shares with a nominal value of £0.0025 each, to be reported in FY18 accounts. Proceeds of capital raise are reported in Euro and are equal to €2.37 million of gross proceeds and €2.14 million of net proceeds
· a post period end Conditional placing (being subject to shareholder approval at general meeting) settled on 9 January 2019 raising£1.02 million (€1.14 million) equal to 2,044,000 ordinary shares with a nominal value of £0.0025 each with the proceeds to be shown on the 2019 balance sheet.
The post period Open Offer in early January 2019 in which shareholders were invited to participate raised an additional £0.30 million (€0.33 million) that will be shown on the 2019 balance sheet.
The funds will help sustain the Group until we reach cash flow break-even, and specifically the Board intends to use the proceeds of the Placing to:
· exploit commercial opportunities across a developing pipeline;
· build sales and marketing reach;
· develop the next generation of higher performing products;
· improve industrial layout to drive industrial margin; and
· maintain competitive advantage and barriers to entry.
Marco Ferrari
Chief Financial Officer
16 April 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| In euro | Note | 31 Dec 2018 | 31 Dec 2017 |
| Continuing operations | |||
| Revenue | 3 | 2,253,293 | 952,199 |
| Other income | 3/4 | 248,695 | 281,493 |
| Changes in inventories of finished goods and work in progress | 5 | (133,382) | 390,291 |
| Raw materials and consumables used | 6 | (1,299,078) | (607,338) |
| Employee benefits expenses | 7 | (2,112,650) | (2,203,558) |
| Depreciation and amortisation | 12/13 | (674,919) | (633,784) |
| Other expenses | 8 | (2,197,670) | (1,973,687) |
| Results from operating activities | (3,915,711) | (3,794,384) | |
| Finance Income | 10 | 4,440 | 5,501 |
| Finance expenses | 10 | (45,143) | (157,309) |
| Net finance costs | (40,703) | (151,808) | |
| Loss before tax | (3,956,414) | (3,946,192) | |
| Tax expense | 11 | (414) | (1,239) |
| Loss after tax from continuing operations | (3,956,828) | (3,947,431) | |
| Loss of the year | (3,956,828) | (3,947,431) | |
| Other Comprehensive income items that will not be reclassified to profit or loss | |||
| Defined Benefit Plan re-measurement gains and losses | 20 | 1,219 | (4,704) |
| Other comprehensive (expense)/income for the year (net of tax) | 1,219 | (4,704) | |
| Total comprehensive (expense)/income for the year | (3,955,609) | (3,952,135) | |
| Loss attributable to | |||
| Owner of the Parent | (3,961,259) | (3,948,133) | |
| Non-controlling interests | 4,431 | 702 | |
| (3,956,828) | (3,947,431) | ||
| Total comprehensive (expense)/income attributable to: | |||
| Owners of the Company | (3,960,040) | (3,952,837) | |
| Non-controlling interests | 4,431 | 702 | |
| (3,955,609) | (3,952,135) | ||
| Loss per share | |||
| Basic loss per share | 23 | (0.09) | (0.09) |
| Diluted loss per share | 23 | (0.09) | (0.09) |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| Group | Company | ||||
| In euro | Note | 31-Dec-18 | 31-Dec-17 | 31-Dec-18 | 31-Dec-17 |
| Assets | |||||
| Intangible assets | 12 | 1,467,478 | 1,572,309 | - | - |
| Investments | 14 | - | - | 16,180,336 | 14,180,336 |
| Property, plant and equipment | 13 | 1,062,435 | 1,284,412 | - | - |
| Non-current assets | 2,529,913 | 2,856,721 | 16,180,336 | 14,180,336 | |
| Inventories | 5 | 862,284 | 995,666 | - | - |
| Trade and other receivables | 15 | 2,059,217 | 1,161,711 | 158,594 | 109,240 |
| Cash and cash equivalent | 17 | 5,503,884 | 6,929,446 | 3,968,016 | 4,493,006 |
| Current assets | 8,425,385 | 9,086,823 | 4,126,610 | 4,602,246 | |
| Total assets | 10,955,298 | 11,943,544 | 20,306,946 | 18,782,582 | |
| Equity | |||||
| Share capital | 18 | 154,465 | 142,628 | 154,465 | 142,628 |
| Share premium | 18 | 22,104,240 | 19,973,996 | 2,2104,240 | 19,973,996 |
| Retained Earnings | 18 | (14,044,656) | (10,250,225) | (2,055,143) | (1,380,478) |
| Equity attributable to owners of Group | 8,214,049 | 9,866,399 | 20,203,562 | 18,736,146 | |
| Non-controlling interests | 27,361 | 22,930 | - | ||
| Total equity | 8,241,410 | 9,889,329 | 20,203,562 | 18,736,146 | |
| Liabilities | |||||
| Loans and borrowings | 19 | 57,011 | 211,791 | - | - |
| Employee benefits provision | 20 | 335,132 | 282,031 | - | - |
| Non-current liabilities | 392,143 | 493,822 | - | - | |
| Loans and borrowing | 19 | 226,823 | 244,780 | - | - |
| Trade and other payables | 21 | 2,094,922 | 1,315,613 | 103,385 | 46,436 |
| Current liabilities | 2,321,745 | 1,560,393 | 103,385 | 46,436 | |
| Total liabilities | 2,713,888 | 2,054,215 | 103,385 | 46,436 | |
| Total equity and liabilities | 10,955,298 | 11,943,544 | 20,306,947 | 18,782,582 |
The financial statements were approved and authorised for issue by the board and signed on its behalf by:
Neil Warner,
Chairman of the Audit Committee
16 April 2019
The notes below form part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Share | Share | Retained Earnings |
Total | Non-controlling | Total | |
| In euro | Capital | premium | interests | Equity | ||
| Balance at 31 December 2016 | 142,628 | 19,973,996 | (6,552,965) | 13,563,659 | 22,228 | 13,585,887 |
| Total comprehensive (expense)/income for the year | - | - | - | - | - | - |
| Loss for the year | - | - | (3,948,133) | (3,948,133) | 702 | (3,947,431) |
| Total other comprehensive (expense)/income | - | - | (4,704) | (4,704) | - | (4,704) |
| Total comprehensive (expense)/income for the period | - | - | (3,952,837) | (3,952,837) | 702 | (3,952,135) |
| Share-based payment | - | - | 255,578 | 255,578 | - | 255,578 |
| Non-controlling interests on Directa Textiles Solutions | - | - | - | - | - | - |
| Balance at 31 December 2017 | 142,628 | 19,973,996 | (10,250,224) | 9,866,400 | 22,930 | 9,889,329 |
| Total comprehensive (expense)/income for the year | ||||||
| Loss of the year | - | - | (3,961,259) | (3,961,259) | 4,431 | (3,956,828) |
| Total other comprehensive (expense)/income | - | - | 1,219 | 1,219 | 1,219 | |
| Total comprehensive (expense)/income for the period | - | - | (3,960,040) | (3,960,040) | 4,431 | (3,955,609) |
| Capital raised | 11,837 | 2,355,548 | - | 2,367,385 | - | 2,367,385 |
| Expenditure related to the issuance of shares | - | (225,304) | - | (225,304) | - | (225,304) |
| Share-based payment | - | - | 165,610 | 165,610 | - | 165,610 |
| Balance at 31 December 2018 | 154,465 | 22,104,240 | (14,044,656) | 8,214,049 | 27,361 | 8,241,410 |
COMPANY STATEMENT OF CHANGES IN EQUITY
| In euro | Share Capital |
Share Premium |
Retained Earnings |
Total Equity |
| Balance at 31 December 2016 | 142,628 | 19,973,996 | (766,745) | 19,349,879 |
| Loss for the year | - | - | (900,374) | (900,374) |
| Share-based payment reserve | - | - | 286,641 | 286,641 |
| Balance at 31 December 2017 | 142,628 | 19,973,996 | (1,380,478) | 18,736,146 |
| Loss for the year | - | - | (779,197) | (779,197) |
| Capital raised | 11,837 | 2,355,548 | - | 2,367,385 |
| Expenditure related to the issuance of shares | - | (225,304) | - | (225,304) |
| Share-based payment | - | - | 104,532 | 104,532 |
| Balance at 31 December 2018 | 154,465 | 22,104,240 | (2,055,143) | 20,203,562 |
CONSOLIDATED STATEMENT OF CASH FLOW
| Group | Company | ||||
| In euro | Note | 2018 | 2017 | 2018 | 2017 |
| Cash flows from operating activities | |||||
| Loss for the year before tax | (3,956,414) | (3,946,191) | (779,197) | (900,374) | |
| Adjustments for: | |||||
| Depreciation | 13 | 357,014 | 347,042 | - | - |
| Amortisation of intangible assets | 12 | 317,905 | 286,742 | - | - |
| Share-based payment expense | 165,610 | 255,578 | 104,532 | 163,743 | |
| Finance income | 10 | (4,440) | (5,501) | (3,194) | - |
| Finance expense | 10 | 45,143 | 157,309 | 22,610 | 131,647 |
| Tax expenses | - | (1,239) | |||
| (3,075,182) | (2,906,260) | (655,249) | (604,984) | ||
| Increase/Decrease in: | |||||
| - inventories | 5 | 133,382 | (390,291) | - | - |
| - trade and other receivables | 15 | (897,506) | 13,344 | (49,354) | 203,854 |
| - trade and other payables | 21 | 758,397 | 442,867 | 56,949 | 14,094 |
| - provisions and employee benefits | 20 | 47,175 | 44,051 | - | - |
| Net cash from operating activities | (3,033,734) | (2,796,291) | (647,654) | 387,036 | |
| Cash flows from investing activities | |||||
| Interest received | 10 | 4,440 | 5,501 | 3,194 | - |
| Investment in intangible assets | 12 | (207,158) | (122,347) | - | - |
| Investment in subsidiary | - | - | (2,000,000) | (3,000,000) | |
| Loan to associate | - | - | - | - | |
| Acquisition of property, plant and equipment | 13 | (120,456) | (340,071) | - | - |
| Net cash used in investing activities | (323,174) | (456,917) | (1,996,806) | (3,000,000) | |
| Cash flows from financing activities | |||||
| Proceeds from Capital raise | 2,367,385 | - | 2,367,385 | - | |
| Expenditure related to the issuance of shares | (225,304) | - | (225,304) | - | |
| Interest paid on loans and borrowings | 10 | (16,329) | (20,481) | (941) | (3,378) |
| New Borrowings | 66,607 | ||||
| Repayment of borrowings | 19 | (239,344) | (236,164) | - | - |
| Net cash from (used in) financing activities | 1,953,015 | (256,645) | 2,141,140 | (3,378) | |
| Net increase (decrease) in cash and cash equivalent | (1,403,893) | (3,509,853) | (503,320) | (3,390,414) | |
| Cash and cash equivalent at beginning of the year | 6,929,446 | 10,570,211 | 4,493,006 | 8,011,689 | |
| Exchange (losses)/gains on cash and cash equivalents | (21,669) | (130,912) | (21,669) | (128,269) | |
| Cash and cash equivalent at end of the year | 5,503,884 | 6,929,446 | 3,968,016 | 4,493,006 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
1. Basis of preparation
The financial information contained in this announcement does not constitute statutory financial statements within the meaning of Section 435 of the Companies Act 2006.
a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) as adopted for use in the European Union and with those parts of Company Act 2006 to companies preparing their financial statements under the adopted IFRS.
The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the preceding year, unless otherwise stated.
The financial statements have been prepared on a going concern basis as since the Directors believe that the Group has adequate resources to remain in operation for the foreseeable future.
All notes, except as otherwise indicated, are presented in Euros ("€").
b) Basis of consolidation
I. Subsidiaries
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.
The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests.
II. Transaction eliminated on consolidation
The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.
III. Non-controlling interest
Non-controlling interest in the net assets of the consolidated subsidiaries are identified separately from the Group's equity. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder's share changes in equity since the date of the combination. The non-controlling interest's share of losses, where applicable, are attributed to the non-controlling interests irrespective of whether the non-controlling shareholders have a binding obligation and are able to make an additional investment to cover the losses.
c) Functional and presentation currency
These financial statements are presented in Euro ("€") and is considered by the Directors to be the most appropriate presentation currency to assist the users of the financial statements. The functional currency of the Company and operating subsidiary is Euro ("€").
d) Use of estimates and judgements
The preparation of the financial statements in conformity with IFRS, as adopted by the EU, requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities.. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period.
Critical estimates and assumptions that have the most significant effect on the amounts recognised in the financial statements and/or have a significant risk of resulting in a material adjustment within the next financial year are as follows:
I. Carrying value of capitalised development costs
The Group capitalises development costs provided the recognition conditions meet the criteria set out in IAS 38. During the year costs have been capitalised in relation to projects to enhance and develop the production process and the industrial application for G+ Graphene. The majority of the capitalised costs relate to internal employee costs and Management are able to separately identify time spent on these projects through the group's internal time card management program. Management and the directors continually assess the commercial potential of the technology and products in development. The costs capitalised in period have resulted in the development of new IP and Management has assessed that there is sufficient evidence to support that economic benefit will flow.
Intangible assets are amortised over their expected or known useful lives on a straight-line basis beginning from the point they are available for use. The estimated useful life is the lower of the legal duration (term of patents - usually 20 years) and the useful economic life. The estimated useful lives of intangible assets are regularly reviewed. Management currently estimates based on the development program the estimated useful life for intangible assets is currently 10 years. The useful economic life is based on management's estimate of the time period over which the assets will generate future cash flows.
II. Valuation and recoverability of Inventory
Inventories are stated at the lower of cost or net realisable value. The cost of inventories comprises of net prices paid for materials purchased, production labour cost and factory overhead. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Inventory provisions are recognised for slow-moving, obsolete or unsalable inventory and are reviewed on a six monthly basis. The valuation of Inventory includes key estimates and judgments made by Management including normal production capacity, market demand and selling opportunities. If actual demand or usage were to be lower than estimated, inventory provisions for excess or obsolete inventory may be required.
III. Defined benefit scheme
Provision for benefits upon termination of employment related to amounts accrued by Italian companies for employment retirement. In determining this provision Management employs actuarial techniques, including the involvement of an external experts. All key estimates applied have been included in note 20.
IV. Revenues recognition
The revenues recognition in conformity with IFRS 15 requires management to make judgements, estimates and assumptions. Regarding the sale of equipment in the year the Management have reviewed the contract and analysed it with reference to IFRS 15. Three performance obligations were identified including the sale of equipment, the provision of training and a two year warranty. The cost of the training was determined based on the average cost per hour of the employees providing the training while the warranty costs calculation was based on internal calculation and historical maintenance data. The consideration relating to the warranty has been deferred and will be recognise in line with the performance obligation.
e) New standards adopted for the period
I. IFRS 9 - Financial instruments
IFRS 9 'Financial Instruments' was published in July 2014 and was effective and adopted on 1 January 2018. It is applicable to financial assets and financial liabilities, and covers the classification, measurement, impairment and de-recognition of financial assets and financial liabilities together with a new hedge accounting model. The Group's financial assets comprise trade and other receivables and cash and short-term deposits.
The adoption of IFRS 9 has changed the Group's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss (ECL) approach. IFRS 9 requires the Group to recognise an allowance for ECLs for all debt instruments not held at fair value through profit or loss and contract assets in the scope of IFRS 15.
As all of the Group's trade receivables and other current receivables which the Group measures at amortised cost are short term (i.e., less than 12 months) and considering the client's credit rating and risk management policies in place, the change to a forward-looking ECL approach did not have a material impact on the amounts recognised in the financial statements. Adoption of IFRS 9 has also not resulted in any restatement of comparative balances.
II. IFRS 15 - Revenues form contract with customers
IFRS 15 is effective for the year beginning 1 January 2018, therefore it has been adopted for the period. IFRS 15 provides a single principles based five-step model to be applied to all sales contracts, where the key focus is on the transfer of control of goods and services to customers. It replaces models included in IAS 11 (Construction Contracts) and IAS 18 (Revenue). Management decided to implement new internal procedures and controls in order to prevent any potential revenue recognition issues arising. Particular attention was given to contracts which bundled both the sale of goods and on-going services including after sales warranties.. Management has put controls in place to both identify each performance obligation in the sales contracts, how the consideration is derived and ensuring revenue is only recognised when control is passed. The company adopted a modified retrospective approach whereby the comparatives are not restated and are presented using the principals set out in IAS 18. Adopting IFRS 15 did not have an impact on revenue recognised in the current period. Initial application of IFRS 15 did also not have any impact on brought forward reserves.
New standards and interpretations not yet adopted
III. IFRS 16 - Leases
IFRS 16 is effective for the year beginning 1 January 2019. IFRS 16 provides a single lessee accounting model, requiring companies to recognise right of use assets and lease liabilities for all applicable leases. Therefore existing operating leases will be accounted for similarly to finance leases under the current IAS 17, resulting in the recognition of additional assets within property, plant and equipment in respect of the right of use of the lease assets, and additional lease liabilities. The operating leases charges currently reflected within operating expenses (and EBITDA) will be eliminated and instead depreciation and finance charges will be recognised in respect of the lease assets and liabilities. On adoption of IFRS 16, the adjustments expected is an increase of Asset and Debt of circa €0.56 million.
2. Significant accounting policies
a) Functional and foreign currency
The financial statements of each Group company are measured using the currency of the primary economic environment in which that company operates (the functional currency). The consolidated financial statements record the results and financial position of each Group company in Euro, which is the functional currency of the Company and the presentational currency for the consolidated financial statements.
I. Transaction and balances
Transactions in foreign currencies are converted in to the respective functional currencies at initial recognition, using the exchange rates at the transaction date. Monetary assets and liabilities at the end of the reporting period are translated at the rates ruling at the reporting date. Non-monetary assets and liabilities are not retranslated. All exchange differences are recognised in profit or loss. On consolidation, the results of overseas operations not in Euro are translated at the rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at closing rate and the results of overseas operations at actual rate are recognised in other comprehensive income.
b) Financial instruments
There are no other categories of financial assets other than those listed below:
I. Trade and other receivables and amounts due from subsidiaries
Trade receivables are recognised and carried at the original invoice amount less any provision for impairment. Other receivables and amounts due from subsidiaries are recognised and measured at the original invoice amount less any provision for impairment. The Group and Company apply the expected credit loss model in respect of trade receivables. The Group and Company track changes in credit risk and recognise a loss allowance based on lifetime ECLs for each customer at each reporting date.
II. Cash and cash equivalents
Cash and cash equivalents comprise demand deposits with an original maturity up to three months, are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.
There are no other categories of financial liabilities other than those listed below:
III. Trade and other payables
Trade payables are stated at their amortised cost.
IV. Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the asset of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.
c) Leases
a. Finance leases
At inception of an arrangement, the Group determines whether the arrangement is or contains a lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
b. Operating leases
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
d) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
e) Property, plant and equipment
a. Recognition and measurement
Property, plant and equipment are measured at cost less accumulated depreciation, Government grants received (where applicable) and accumulated impairment losses.
Costs capitalised include expenditure that are directly attributable to the acquisition of the asset.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) are recognised in profit or loss.
b. Subsequent costs
Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. Ongoing repairs and maintenance are expensed as incurred.
c. Depreciation
Items of property, plant and equipment are depreciated on a straight-line basis in the statement of comprehensive income over the estimated useful lives of each component.
Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use.
The estimated useful lives of significant items of property, plant and equipment are as follows:
· Computer equipment 20% yearly
· Industrial equipment, office equipment and plant and machinery 15% yearly
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted where appropriate.
f) Intangible assets
Intangible assets are measured at cost less accumulated amortisation and Government grants received (where applicable).
Patent rights acquired and development expenditure are recognised at cost.
Expenditure on internally developed products is capitalised if it can be demonstrated that:
- it is technically feasible to develop the product
- adequate resources are available to complete the development
- there is an intention to complete and sell the product
- the Group is able to sell the product
- sale of the product will generate future economic benefits, and
- expenditure on the project can be measured reliably.
Capitalised development costs are amortised over the period the Group expects to benefit from selling the products developed (Useful Economic Life). The amortisation expense is included within the cost of sales in the consolidated statement of comprehensive income.
Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated statement of comprehensive income as incurred.
Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses.
Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.
a. Amortisation
Intangible assets are amortised on a straight-line basis in profit or loss over their estimated useful lives, from the date that they are available for use.
· Patents and research and development costs concerning G+ technology, are amortised over the lower of the legal duration of the patent (typically 20 years) and the economic useful life. These are currently amortised over 10 years.
· Other intangible assets 5 years
g) Inventories
Inventories are stated at the lower of cost or net realisable value. The cost of inventories comprises of net prices paid for materials purchased, production labour cost and factory overhead. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Inventory provisions are recognised for slow-moving, obsolete or unsalable inventory and are reviewed on a six months basis.
h) Impairment
At each reporting date, the carrying amounts of the Company's assets are reviewed to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated to determine the extent of the impairment, if any. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. An impairment loss is recognized in operations if the carrying amount of an asset exceeds its recoverable amount. For an asset that does not generate independent cash flows, the recoverable amount is determined for the cash generating unit to which the asset belongs. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
i) Employee benefits
Defined benefit scheme surpluses and deficits are measured at:
- The fair value of plan assets at the reporting date; less
- Plan liabilities calculated using the projected unit credit method discounted to its present value using yields available on high quality corporate bonds that have maturity dates approximating to the terms of the liabilities; plus
- Unrecognised past service costs; less
- The effect of minimum funding requirements agreed with scheme trustees.
Remeasurements of the net defined obligation are recognised directly within equity. The remeasurements include:
- Actuarial gains and losses
- Return on plan assets (interest exclusive)
- Any asset ceiling effects (interest exclusive).
Service costs are recognised in profit or loss, and include current and past service costs as well as gains and losses on curtailments.
Net interest expense (income) is recognised in profit or loss, and is calculated by applying the discount rate used to measure the defined benefit obligation (asset) at the beginning of the annual period to the balance of the net defined benefit obligation (asset), considering the effects of contributions and benefit payments during the period.
Gains or losses arising from changes to scheme benefits or scheme curtailment are recognised immediately in profit or loss.
Settlements of defined benefit schemes are recognised in the period in which the settlement occurs.
For more information please see note 20.
j) Revenues
The majority of the Group's revenue is derived from a single performance obligation, being the sale of goods with revenue recognised at a point in time when control of the goods has transferred to the customer. This is generally when the goods are delivered to the customer. However, for export sales, control might also be transferred when delivered either to the port of departure or port of arrival, depending on the specific terms of the contract with a customer. There is limited judgement needed in identifying the point control passes: once physical delivery of the products to the agreed location has occurred, the Group no longer has physical possession, usually will have a present right to payment (as a single payment on delivery) and retains no control of the goods in question. If other performance obligations are identified Management will deploy the required process to identify the value of each obligation to allow the recognition in line with IFRS 15. The Group also has revenue from contracts with bundled performance obligations, being the sale of goods, the provision of training, and a two-year warranty. The cost of the training was determined based on the average cost per hour of the employees providing the training while the warranty costs calculation was based on internal calculation and historical maintenance data. The consideration relating to the warranty has been deferred and will be recognise in line with the performance obligation.
k) Government grants
Government grants are recognised when there is reasonable assurance that the entity will comply with the relevant conditions and the grant will be received. Grants are recognised in profit or loss on a systematic basis where the Group has recognised the initial expenses that the grants are intended to compensate. Where a grant has been received as a contribution for property, plant and equipment, or capitalised development costs, the income received has been credited against the asset in the statement of financial position.
l) Finance income and finance costs
Finance income comprises interest income on funds invested. Interest income is recognised in the profit or loss, using the effective interest method. Finance costs comprise interest expense on borrowings.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.
m) Investments in subsidiaries (Company only)
Investments are stated at their cost less any provision for impairment (then refer to h) Impairment).
n) Taxation
Tax expense comprises current and deferred tax. Current and deferred tax is recognised in the profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for:
· temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
· temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and
· taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised for deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
3. Operating segments
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision makers (CEO, CFO, COO and CTO), as defined in IFRS 8, in order to allocate resources to the segments and to assess its performance.
For management purposes, considering also the materiality the Group is organized into the following segments:
- Textile
- Others
For 2018 this breakdown was appropriate for the nature on the underlying businesses. Textile was considered by the Management the strategic segment able to sustain the growth. Management's strategic needs are constantly monitored and an update of the segments will be provided if required. Any further update of the segment analysis will be reflected in this section.
Segment profit/(loss) represents the profit/(loss) earned by each segment, including all the direct costs that are directly correlated with the segment. Overhead, assets and liabilities not directly attributable to the segment have been allocated using the revenues as main driver.
As the business evolves this is an area that will be assessed on a regular basis and additional segmental reporting will be provided at the appropriate time. Comparative figures have been calculated in 2018 on the basis that the operating segments existed in the previous financial despite in 2017 a proper segment analysis was not in place.
| 2018 | ||||
| Textile | Others | Head office | Consolidated | |
| Revenue | 1,664,847 | 588,446 | - | 2,253,293 |
| Cost of Sales* | (1,426,378) | (229,203) | - | (1,655,581) |
| Gross Profit | 238,469 | 359,243 | - | 597,712 |
| Other income | 57,899 | 71,334 | 119,462 | 248,695 |
| Other expenses: | ||||
| R&D expense | (226,744) | (220,940) | - | (447,684) |
| Advisory | (187,362) | (62,086) | (656,597) | (906,045) |
| Operating expenses | (798,009) | (305,623) | (1,626,254) | (2,729,886) |
| Depreciation & amortisation | (490,609) | (187,894) | - | (678,503) |
| Operating Loss | (1,406,357) | (345,966) | (2,163,388) | (3,915,711) |
| Financial costs | - | - | (40,703) | (40,703) |
| Tax | (414) | - | - | (414) |
| Loss of the year | (1,406,771) | (345,966) | (2,204,091) | (3,956,828) |
| Total Asset | 7,969,050 | 2,986,248 | - | 10,955,298 |
| Total Liabilities | (2,234,212) | (479,676) | - | (2,713,888) |
| 2017 | ||||
| Textile | Others | Head office | Consolidated | |
| Revenue | 765,182 | 187,017 | - | 952,199 |
| Cost of Sales* | (391,323) | 119,523 | - | (271,800) |
| Gross Profit | 373,859 | 306,540 | - | 680,399 |
| Other income | 63,158 | 133,684 | 84,651 | 281,493 |
| Other expenses: | ||||
| R&D expense | (246,236) | (209,422) | - | (455,658) |
| Advisory | (25,293) | (16,733) | (617,306) | (659,332) |
| Operating expense | (1,427,294) | (552,592) | (1,027,616) | (3,007,502) |
| Depreciation & amortisation | (456,893) | (176,891) | - | (633,784) |
| Operating Loss | (1,718,698) | (515,414) | (1,560,272) | (3,794,384) |
| Financial cost | - | - | (151,808) | (151,808) |
| Tax | (1,239) | - | - | (1,239) |
| Loss of the year | (1,719,937) | (515,414) | (1,712,080) | (3,947,431) |
| Total Asset | 8,641,783 | 3,301,761 | - | 11,943,544 |
| Total Liabilities | (1,600,701) | (453,513) | - | (2,054,215) |
*Includes Changes in inventories of finished goods
| 2018 | 2017 | |
| € | € | |
| Sale of products | 2,066,876 | 858,218 |
| Sale of services | 186,417 | 93,981 |
| Government grants | 129,232 | 196,842 |
| Other revenue | 119,463 | 84,651 |
| Total Income | 2,501,988 | 1,233,692 |
Geographical breakdown of revenues are:
| 2018 | 2017 | |
| € | € | |
| Italy | 1,840,139 | 786,400 |
| Rest of the world | 413,154 | 165,799 |
| Total | 2,253,293 | 952,199 |
The Group has transacted with two main customers in 2018, which account for more than 10% of Group revenues for sales of products and services. This largest customer's revenues amount to €939,752 (42%), whilst the next highest revenue earning customer provided €242,517 (11%).
Other revenues of €119,463 includes R&D Expenditure Credit (RDEC) for €101,267. The RDEC is an Italian incentive scheme (art.3 DL 145/2013) designed to encourage companies to invest in research and development. The credit can be used to reduce corporation tax or to offset outstanding payables related to social security.
4. Government Grants
Information regarding government grants:
| 2018 € |
2017 € |
|
| MAT4BAT | - | 62,351 |
| Grata Ecopave |
57,899 71,333 |
63,158 71,333 |
| Total | 129,232 | 196,842 |
In relation to government grants (Grata and Ecopave), the operational activities refer to FY18 and related to these projects have been completed. Company has complied with the relevant conditions of the grants.
The key terms of Government grants are:
| MAT4BAT | Grata | Ecopave | |
| Starting date | 2013 | 2017 | 2016 |
| Ending date | 2017 | 2019 | 2019 |
| Duration (months) | 42 | 31 | 36 |
| Total amount | 304,700 | 126,324 | 214,100 |
| Final report submitted and accepted | Yes | Project still on-going | Project still on-going |
There are no capital commitments built into the ongoing grants. Government grants have been recognized in Other Income.
5. Change in Inventory & Inventory
| 2018 € |
2017 € |
|
| Finished products | 750,853 | 877,082 |
| Spare Parts | 102,400 | 102,400 |
| Raw material | 9,031 | 16,184 |
| Total | 862,284 | 995,666 |
As at 31 December 2018 total inventory value is lower than 2017, the movement is mainly driven by the reduction of finished products inventory due to the increasing sales during the year. Spare parts inventory was required to enhance maintenance efficiency and is composed of a small number of critical items with a material cost per unit. The spare parts inventory value is maintained steady in 2018.
6. Raw materials and consumables
| 2018 | 2017 | |
| € | € | |
| Raw material & consumables | 170,007 | 127,052 |
| Textile products | 1,129,071 | 480,286 |
| Total | 1,299,078 | 607,338 |
Total raw materials and consumables are €1,299,078 (2017: €607,338) of which €1,129,071 (2017: €480,286) refers to textile products. The movement is mainly driven by the increasing sales in textile segment.
7. Employee benefits expenses
| 2018 | 2017 | |
| € | € | |
| Wages and salaries | 1,557,471 | 1,585,058 |
| Social security costs | 384,998 | 346,515 |
| Employee benefits | 84,779 | 75,519 |
| Share option expense | 165,611 | 255,578 |
| Other costs | 18,346 | 22,952 |
| Total | 2,211,205 | 2,285,622 |
| Capitalised cost in "Intangible assets" | (98,555) | (82,064) |
| Total charged to the Income Statement | 2,112,650 | 2,203,558 |
The average number of employees (excluding non-executive directors) during the period was as follows:
| 2018 | 2017 | |
| Sales and Administration | 8 | 8 |
| Engineering, R&D and production | 17 | 17 |
| Total | 25 | 25 |
The total number of employees, employed by the Group on 31 December 2018 was 26 (2017: 24)
The Directors' emoluments (including non-executive directors) are as follows:
| 2018 € |
2017 € |
||
| Wages and salaries | 828,311 | 845,847 | |
| Total | 828,311 | 845,847 |
8. Results from operating activities:
| Results from operating activities includes: | ||
| 2018 € |
2017 € |
|
| Audit of the Group and Company financial statements | 41,180 | 34,927 |
| Audit of the subsidiaries' financial statements | 18,000 | 18,000 |
| Other non-audit services provided by Group's auditor | 2,292 | 30,188 |
| Tool Manufacturing | 282,352 | 145,597 |
| Operating leases | 154,046 | 210,083 |
| Travel | 193,771 | 153,640 |
| Marketing | 172,382 | 58,072 |
Tool manufacturing expanses are referred mainly to fabrics printing service and increased to €282,352 (2017: €145,597) for the effect of the increasing sales in textile sector. Operating leases includes the renting of the Italian production facility (€129,806) and office rent of the Parent company (€14,341). Marketing expenses increased to 172,382 (2017: 58,072) during the period due to increased marketing activities related to G+ brand.
9. Leases
Operating leases relate to the Group's Head Office and plant and machinery held on operating leases.
Future minimum lease payments
| 2018 € |
2017 € |
|
| Less than one year | 59,083 | 59,092 |
| Between one and five years | - | - |
| More than five years | - | - |
| Total | 59,083 | 59,092 |
Finance lease liabilities are payable as follows:
Future minimum lease payments
| 2018 € |
2017 € |
|
| Less than one year | 61,735 | 61,735 |
| Between one and five years | 59,570 | 121,305 |
| More than five years | - | - |
| Total | 121,305 | 183,040 |
| Present value of minimum lease payments | 2018 € |
2017 € |
| Less than one year | 59,898 | 59,898 |
| Between one and five years | 54,567 | 108,369 |
| More than five years | - | - |
| Total | 114,465 | 168,267 |
10. Net Finance expenses
Finance expenses include:
| 2018 € |
2017 € |
|
| Interest Income | (4,440) | (5,501) |
| Interest on loans and other financial costs | 8,499 | 9,715 |
| Interest on financial leasing | 7,830 | 10,766 |
| Interest cost for benefit plan | 7,145 | 5,918 |
| Foreign exchanges losses | 21,669 | 130,910 |
| Total | 40,703 | 151,808 |
At 31 December 2018 interest on loans and other financial costs amount to €8,499 (2017: €9,715). The slight reduction is a consequence of debt repayments made in the year. Foreign exchange losses of €21,669 (2017: €130,910) are mainly related to Sterling to Euro movement in the Group's Sterling bank account.
11. Taxation
| 2018 € |
2017 € |
|
| Current tax expenses | 414 | 1,239 |
| Deferred tax expenses | - | - |
| Total tax expenses | 414 | 1,239 |
Reconciliation of tax rate
| 2018 € |
2017 € |
|
| Loss before tax | (3,956,414) | (3,946,191) |
| Italian statutory tax rate | 24% | 24% |
| (949,539) | (947,086) | |
| Impact of temporary differences | 42,327 | 38,880 |
| Losses recognised | (41,913) | (37,641) |
| Impact of tax rate in foreign jurisdiction | 38,960 | 49,610 |
| Losses not utilised | 910,579 | 897,476 |
| Total tax expenses | 414 | 1,239 |
Tax losses carried forward have been recognised as a deferred tax asset up to the point that they are recoverable against taxable temporary differences. All other tax losses are carried forward and not recognised as a deferred tax asset due to the uncertainty regarding generating future taxable profits. Tax losses carried forward are €20,467,507 (€ 16,791,913 in 2017).
12. Intangible assets
| Development | |||||
| Cost | Cost | Patents | Goodwill | Others | Total |
| € | € | € | € | € | |
| Balance at 31/12/2016 | 2,426,042 | 197,250 | 22,268 | 29,408 | 2,674,968 |
| Additions | 82,064 | 47,394 | - | 2,393 | 132,450 |
| Balance at 31/12/2017 | 2,508,106 | 244,643 | 22,268 | 32,401 | 2,807,418 |
| Additions | 123,305 | 77,269 | - | 12,500 | 213,074 |
| Balance at 31/12/2018 | 2,631,411 | 321,912 | 22,268 | 44,901 | 3,020,492 |
| Amortisation | |||||
| Balance at 31/12/2016 | 882,901 | 45,210 | - | 18,811 | 948,367 |
| Amortisation 2017 | 257,101 | 24,464 | - | 5,177 | 286,742 |
| Balance at 31/12/2017 | 1,140,002 | 69,674 | - | 23,988 | 1,235,109 |
| Amortisation 2018 | 279,289 | 32,191 | - | 6,424 | 317,905 |
| Balance at 31/12/2018 | 1,419,291 | 101,865 | - | 30,312 | 1,553,014 |
| Carrying amounts | |||||
| Balance 31/12/2016 | 1,543,141 | 152,040 | 22,268 | 9,153 | 1,726,602 |
| Balance 31/12/2017 | 1,368,104 | 174,969 | 22,268 | 6,969 | 1,572,309 |
| Balance 31/12/2018 | 1,212,120 | 220,046 | 22,268 | 14,489 | 1,467,478 |
As disclosed in note 1(d) development costs capitalised in the year are mainly based on time spent by employees who are directly engaged in the development of the G+ technology.
13. Property, plant and equipment
| Cost | Industrial Equipment |
Computer Equipment |
Office Equipment |
Plant & Machinery |
Total |
| € | € | € | € | € | |
| Balance at 31/12/2016 | 138,660 | 33,646 | 84,171 | 1,880,994 | 2,137,471 |
| Additions | 21,909 | 2,218 | 19,549 | 304,591 | 348,267 |
| Balance at 31/12/2017 | 160,570 | 35,864 | 103,720 | 2,185,585 | 2,485,739 |
| Additions | 11,822 | 9,573 | 3,600 | 110,041 | 135,036 |
| Balance at 31/12/2018 | 172,392 | 45,437 | 107,320 | 2,295,626 | 2,620,775 |
| Depreciation | |||||
| Balance at 31/12/2016 | 53,353 | 21,138 | 19,018 | 760,778 | 854,287 |
| Depreciation 2017 | 25,615 | 4,324 | 14,092 | 303,008 | 347,039 |
| Balance at 31/12/2017 | 78,968 | 25,462 | 33,110 | 1,063,786 | 1,201,326 |
| Depreciation 2018 | 26,661 | 4,857 | 15,145 | 310,351 | 357,014 |
| Balance at 31/12/2018 | 105,629 | 30,319 | 48,255 | 1,374,137 | 1,558,340 |
| Carrying amounts | |||||
| Balance 31/12/2016 | 85,307 | 12,508 | 65,153 | 1,120,216 | 1,283,184 |
| Balance 31/12/2017 | 81,601 | 10,402 | 70,610 | 1,121,799 | 1,284,412 |
| Balance 31/12/2018 | 66,763 | 15,118 | 59,065 | 921,489 | 1,062,435 |
Assets held under financial leases with a net book value of € 146,879 are included in the above table within Plant & Machinery.
14. Investments in subsidiaries
Details of the Company's subsidiaries as at 31 December 2018 are as follows:
| Shareholding | ||||
| Subsidiaries | Country | Principal activity | 2018 | 2017 |
| Directa Plus Spa | Italy | Producer and supplier of graphene based materials and related products | 100% | 100% |
| Directa Textile Solutions Srl | Italy | Commercialise textile membranes, including graphene-based technical and high-performance membranes | 60% | 60% |
| Subsidiaries | Place of Business | Registered Office | Place of Business |
| Directa Plus Spa | Italy | Via Cavour 2, Lomazzo (CO) Italy | See registered office |
| Directa Textile Solutions Srl | Italy | Via Cavour 2, Lomazzo (CO) Italy | See registered office |
The Company's investment as capital contributions in Directa Plus Spa are as follows:
| Directa Spa | |
| At 31 December 2016 | 11,057,438 |
| Additions | 3,122,898 |
| At 31 December 2017 | 14,180,336 |
| Additions | 2,000,000 |
| At 31 December 2018 | 16,180,336 |
15. Trade and other receivables
Current
| Group | Company | |||
| 2018 | 2017 | 2018 | 2017 | |
| € | € | € | € | |
| Account receivables | 1,367,425 | 552,612 | - | 34,345 |
| Tax Receivables | 374,673 | 397,305 | 31,634 | 24,219 |
| Other receivables | 317,119 | 211,794 | 129,960 | 50,676 |
| Total | 2,059,217 | 1,161,711 | 158,594 | 109,240 |
Group Tax Receivables are composed of Italian VAT receivables of €241,772, UK VAT receivables of €31,634 and a RDEC Tax Credit receivable of €101,267.
Other receivables are mainly composed of governments grants €151,986, prepayments €160,298.
As at 31 December 2018 the ageing of account receivables was:
| Days overdue | 2018 | 2017 |
| € | € | |
| 0-30 | 1,263,847 | 539,015 |
| 31-180 | 97,554 | 7,878 |
| 181-365 + | 6,024 | 5,719 |
| Total | 1,367,425 | 552,612 |
In 2018, 92% of account receivables have an ageing of 30 days and relate to an order delivered close to the year end. The total trade receivables write-off for the year was €3,584 (0.3% of the gross account receivables).
16. Deferred tax liabilities
| 2018 | 2017 | ||
| € | € | ||
| Deferred tax liabilities | 195,504 | 237,831 | |
| Deferred tax assets - losses | (195,504) | (237,831) | |
| Total | - | - |
Deferred tax assets have been recognised on losses brought forward to the extent that they can be offset against taxable temporary differences in line with the requirements of IAS 12.
The deferred tax liabilities arise on the capitalisation of development costs and the accounting for the defined benefit scheme. The deferred tax liabilities are detailed below:
| 2018 | 2017 | ||||||||
| € | € | ||||||||
| Capitalised development costs | 191,885 | 227,076 | |||||||
| Other | 3,619 | 10,755 | |||||||
| Total | 195,504 | 237,831 | |||||||
| Net balance 01 Jan 2017 | Recognised in profit or loss | Recognised in OCI | Net balance 31 Dec 2017 | Deferred tax liabilities | |||||
| € | € | € | € | € | |||||
| Capitalised development costs Other |
262,266 14,445 |
(35,191) (3,689) |
- - |
227,075 10,756 |
227,075 10,756 |
||||
| Total | 276,711 | (38,880) | - | 237,831 | 237,831 | ||||
| Net balance 01 Jan 2018 | Recognised in profit or loss | Recognised in OCI | Net balance 31 Dec 2018 | Deferred tax liabilities | |||||
| € | € | € | € | € | |||||
| Capitalised development costs Other |
227,075 10,756 |
(35,190) (7,137) |
- - |
191,885 3,619 |
191,885 3,619 |
||||
| Total | 237,831 | (42,327) | - | 195,504 | 195,504 | ||||
17. Cash and cash equivalents
| Group | Company | |||
| 2018 | 2017 | 2018 | 2017 | |
| € | € | € | € | |
| Cash at bank | 5,503,568 | 6,929,012 | 3,968,016 | 4,493,006 |
| Cash in hand | 316 | 434 | - | - |
| Total | 5,503,884 | 6,929,446 | 3,968,016 | 4,493,006 |
18. Equity
| 2018 | 2017 | ||
| € | € | ||
| Share Capital | 154,465 | 142,628 | |
| Share Premium | 22,104,240 | 19,973,996 | |
| Retained earnings | (14,044,656) | (10,250,225) | |
| Non-controlling interests | 27,361 | 22,930 | |
| Balance at 31 December | 8,241,410 | 9,889,329 |
Share Capital
| Number of | ||
| ordinary | Share | |
| shares | Capital (€) | |
| At 1 January 2016 | 503,100 | 503,100 |
| Share reduction on 25 April 2016* | - | (439,649) |
| Share sub-division on 19 May 2016** | 19,620,900 | - |
| Share issue on 27 May 2016 - convertible loans*** | 7,055,493 | 23,191 |
| Share issue on 27 May 2016 - IPO*** | 17,033,334 | 55,986 |
| At 31 December 2016 | 44,212,827 | 142,628 |
| At 31 December 2017 | 44,212,827 | 142,628 |
| Share issue on 17 December 2018 - capital raise **** | 4,256,000 | 11,837 |
| At 31 December 2018 | 48,468,827 | 154,465 |
*On 25 April 2016, the issued ordinary shares were redenominated from EUR to GBP into an aggregate nominal value of £398,908, comprising 503,100 ordinary shares of £0.7929 each, at the spot rate of exchange of 0.7929. The aggregate nominal value of the issued ordinary shares was then reduced to £50,310 comprising 503,100 ordinary shares of £0.10 each.
**On 19 May 2016, each ordinary share of £0.10 in the issued share capital of the Company was sub-divided into 40 ordinary shares resulting in 20,124,000 shares of £0.0025 each.
*** On 27 May 2016, 24,088,827 ordinary shares with a nominal value of £0.0025 each were issued at the Company's initial public offering. Of the 24,088,827 new ordinary shares, 7,055,493 shares were issued through the exercise of convertible loan notes. The remaining 17,033,334 shares were issued to institutional and other investors.
**** On 17 December 2018, 4,256,000 ordinary shares with a nominal value of £0.0025 each were issued as effect of the Company's capital raise.
Share Premium
| Share | |
| In euro | premium |
| € | |
| At 01 January 2016 | 3,885,816 |
| Cancellation of share premium account on 25 April 2016 | (3,885,816) |
| Shares issued on 27 May 2016 | 21,934,648 |
| Expenditure relating to the raising of shares | (1,960,652) |
| At 31 December 2016 | 19,973,996 |
| At 31 December 2017 | 19,973,996 |
| Shares issued on 18 December 2018 | 2,355,548 |
| Expenditure relating to the raising of shares | (225,304) |
| At 31 December 2018 | 22,104,240 |
On 25 April 2016, the share premium account of the Company was cancelled and the amount of €3,885,816 was credited to a distributable reserve. Expenditure of €1,960,652 relating to the raising of shares has been deducted from the share premium.
On 18 December 2018, 4,256,000 ordinary shares with a share premium value of £0.4975 each were issued as effect of the Company's capital raise and the amount of €2,355,548 was credit to Share premium reserve.
Expenditure of €225,304 referred to direct cost related to the raising of shares was deducted from the share premium.
Share capital
Financial instruments issued by the Directa Plus Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Directa Plus Group's ordinary shares are classified as equity instruments.
Share premium
To the extent that the company's ordinary shares are issued for a consideration greater than the nominal value of those shares (in the case of the company, £0.0025 per share), the excess is deemed Share Premium. Costs directly associated with the issuing of those shares are deducted from the share premium account, subject to local statutory guidelines.
19. Loans and borrowings
Non-current
| Group | Company | |||
| 2018 | 2017 | 2018 | 2017 | |
| € | € | € | € | |
| Finance leases | 57,011 | 115,132 | - | - |
| Loans | - | 96,659 | - | - |
| Total | 57,011 | 211,791 | - | - |
Current
| Group | Company | |||
| 2018 | 2017 | 2018 | 2017 | |
| € | € | € | € | |
| Finance leases | 58,122 | 53,906 | - | |
| Loans | 168,701 | 190,874 | - | |
| Total | 226,823 | 244,780 | - |
| 2018 € |
Current € |
Non current € |
Repayment | Interest rate | |
| Intesa San Paolo | 50,798 | 50,798 | - | 6-months | EURIBOR 3M + 2.5% |
| Finlombarda (Atanor) | 45,860 | 45,860 | - | 3- months | Fixed 0.5% |
| Intesa San Paolo | 66,607 | 66,607 | - | 3-months | Fixed 3.6% |
All of the above loans are unsecured.
Net Debt Reconciliation
| Cash flows | ||||||
| 01 January 2018 |
Accrued Interest | Capital Repayment | Interest Paid | Cash inflow from short term loan | 31 December 2018 | |
| € | € | € | € | € | € | |
| Borrowings | 287,533 | 8,499 | (185,439) | (8,499) | 66,607 | 168,701 |
| Lease liabilities | 169,038 | 7,830 | (53,905) | (7,830) | - | 115,133 |
| Total | 456,571 | 16,329 | (239,344) | (16,329) | 66,607 | 283,834 |
20. Employee benefits provision
| 2018 | 2017 | |
| € | € | |
| Employee benefits | 335,132 | 282,031 |
| Total | 335,132 | 282,031 |
Provisions for benefits upon termination of employment primarily related to provisions accrued by Italian companies for employee retirement, determined using actuarial techniques and regulated by Article 2120 of the Italian Civil code. The benefit is paid upon retirement as a lump sum, the amount of which corresponds to the total of the provisions accrued during the employees' service period based on payroll costs as revalued until retirement. Following the changes in the law regime, from January 1 2007 accruing benefits have been contributing to a pension fund or a treasury fund held by the Italian administration for post-retirement benefits (INPS). For companies with less than 50 employees it will be possible to continue this scheme as in previous years. Therefore, contributions of future TFR provisions to pension funds or the INPS treasury fund determines that these amounts will be treated in accordance to a defined contribution scheme, not subject to actuarial evaluation. Amounts already accrued before 1 January 2007 continue to be accounted for a defined benefit plan and to be assessed on actuarial assumptions.
The breakdown for 2017 and 2018 is as follows:
€
| Amount at 31 December 2016 | 227,358 |
| Service cost | 44,764 |
| Interest cost | 5,918 |
| Actuarial gain/losses | 4,704 |
| Past service cost | - |
| Benefit paid | (714) |
| Amount at 31 December 2017 | 282,031 |
| Service cost | 52,059 |
| Interest cost | 7,145 |
| Actuarial gain/losses | (1,219) |
| Past service cost | - |
| Benefit paid | (4,883) |
| Amount at 31 December 2018 | 335,132 |
Variables analysis
Detailed below are the key variables applied in the valuation of the defined benefit plan liabilities.
| 2018 | 2017 | |
| Annual rate interest | 2.30% | 2.30% |
| Annual rate inflation | 1.10% | 1.10% |
| Annual increase TFR | 7.41% | 7.41% |
| Tax on revaluation | 17.00% | 17.00% |
| Social contribution | 0.50% | 0.50% |
| Increase salary male | 1.20% | 1.20% |
| Increase salary female | 1.15% | 1.15% |
| Rate of turnover male | 1.70% | 1.70% |
| Rate of turnover female | 1.50% | 1.50% |
Sensitivity analysis
Detailed below are tables showing the impact of movements on key variables:
| Actuarial hypothesis - 2018 | Decrease 10% | Increase 10% | |||
| Variation | Variation | ||||
| Rate | DBO € | Rate | DBO € | ||
| Increase salary | Male | 1.08% | (2,868) | 1.32% | 2,934 |
| Female | 1.04% | 1.27% | |||
| Turnover | Male | 1.53% | (2,088) | 1.87% | 2,386 |
| Female | 1.35% | 1.65% | |||
| Interest rate | 2.07% | 10,099 | 2.53% | (9,561) | |
| Inflation rate | 0.99% | (2,816) | 1.21% | 2,8561 |
21. Trade and Other payables
| Group | Company | |||
| 2018 € |
2017 € |
2018 € |
2017 € |
|
| Trade payables | 1,459,732 | 768,016 | 15,397 | 23,403 |
| Employment costs | 482,357 | 397,567 | - | - |
| Other payables | 152,833 | 150,030 | 87,988 | 23,033 |
| Total | 2,094,922 | 1,315,613 | 103,385 | 46,436 |
22. Financial instruments
Financial risk management
The Group's business activities expose the Group to a number of financial risks:
a) Market risk
Market risk arises from the Group's use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value of future cash flow of a financial instrument will fluctuate because of changes in interest rates or foreign exchange rates. As at 31 December 2018 the Group is only exposed to variable interest rate risk on the Intesa San Paolo loan. If the interest rate had increased or decreased by 100 basis points during the year the reported loss after taxation would not have been materially different to that reported.
b) Capital Risk
The Group's objectives for managing capital are to safeguard the Group's ability to continue as going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. There were no changes in the Group's approach to capital management during the year.
c) Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group's credit risk is primarily attributable to its trade receivables. Every new customer is internally analysed for creditworthiness before the Group's standard payment and delivery terms and conditions are offered. Advance payment usually applies for the first order and where a customer has a low credit rating. The Group's standard payment terms are 30 to 60 days from date of invoice.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. The Group works with leading banks and financial institutions, both in UK and in Italy, independently rated with the equivalent of investment grade and above.
d) Exposure to credit risk
Group
| Note | 2018 € |
2017 € |
|
| Trade receivables | 15 | 1,367,425 | 552,6012 |
| Cash and cash equivalent | 17 | 5,503,884 | 6,929,012 |
| Total | 6,871,309 | 7,481,624 |
The largest customer within trade receivables account for 45.6% of debtors. Management continually monitor this dependence on the largest customers and are continuing to develop the commercial pipeline to reduce this dependence, spreading revenues across a variety of customers.
e) Liquidity risk
It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. The Group manages liquidity risk by maintaining adequate reserves and banking facilities and by continuously monitoring forecast and actual cash flows. The Board reviews regularly the cash position to ensure there are sufficient resources for working capital requirements and to meet the Group's financial commitments.
| 2018 | Carrying amount € |
Up to 1 year € |
1 -5 years € |
|
| Financial liabilities | ||||
| Trade payables | 1,459,732 | 1,459,732 | - | |
| Debts for financial leasing | 118,325 | 61,735 | 56,590 | |
| Loans | 168,701 | 168,701 | ||
| Total | 1,746,758 | 1,690,168 | 56,590 | |
| 2017 | Carrying amount € |
Up to 1 year € |
1 -5 years € |
|
| Financial liabilities | ||||
| Trade payables | 768,016 | 768,016 | - | |
| Debts for financial leasing | 180,060 | 61,735 | 118,325 | |
| Loans | 287,533 | 190,874 | 96,659 | |
| Total | 1,235,609 | 1,020,625 | 214,984 | |
f) Currency risk
The Group usually raises money issuing shares in pounds, it follows that the Group usually holds sterling bank accounts as result of capital raise. Sterling bank accounts are mainly used to manage expenses of the Company (such as UK advisors, LSE fees and costs related to the Board) in UK. The cash held in Sterling continues to be subject to currency risk.
| EUR | |
| Cash held in EUR | 2,804,659 |
| Cash held in GBP | 2,699,225 |
As at 31 December 2017 if the exchange rate EUR/GBP increase by 10% the impact on P&L would be a loss equal to €0.25 million (if decrease by 10% would be a profit equal to €0.3 million).
23. Earnings per share
| Change in number of ordinary shares | Total number of ordinary shares | Days | Weighted number of ordinary shares | ||
| At 1 January 2015 | - | 503,100 | - | 20,124,000 | |
| At 30 June 2015 | - | 503,100 | - | 20,124,000 | |
| At 31 December 2015 | - | 503,100 | - | 20,124,000 | |
| Existing shares | 503,100 | 140 | 7,697,705 | ||
| Share sub-division on 19 May 2016 | 19,620,900 | 20,124,000 | 8 | 439,869 | |
| Issued on 27 May 2016 | 24,088,827 | 44,212,827 | 218 | 26,334,416 | |
| At 31 December 2016 | 43,709,727 | 44,212,827 | 366 | 34,471,990 | |
| At 31 December 2017 | 44,212,827 | 365 | 44,212,827 | ||
| Existing shares | 44,212,827 | 351 | 42,516,993 | ||
| Issued on 18 December 2018 | 4,256,000 | 48,468,827 | 14 | 1,859,078 | |
| At 31 December 2018 | 4,256,000 | 48,468,827 | 365 | 44,376,071 |
| Basic | Diluted | |||
| 2018 € |
2017 € |
2018 € |
2017 € |
|
| Loss for the year | (3,956,828) | (3,947,431) | (3,956,828) | (3,947,431) |
| Weighted average number of ordinary shares in issue during the year | 44,376,071 | 44,212,827 | 44,376,071 | 44,212,827 |
| Fully diluted average number of ordinary shares during the year | 44,376,071 | 44,212,827 | 44,376,071 | 44,212,827 |
| Loss per share | (0.09) | (0.09) | (0.09) | (0.09) |
24. Share Schemes
The Company established the Employees' Share Scheme for employees and executive directors and the NED Share Scheme for the Chairman and non-executive directors on 19 May 2016. The Employees' Share Scheme is administered by the Remuneration Committee. The NED Share Scheme is administered by the Executive Directors.
The Directors are entitled to grant awards over up to 10 per cent of the Company's issued share capital from time to time. Awards over a total of 1,675,609 Ordinary Shares were granted on or around the date of Admission (27 May 2016). No awards have yet been exercised, leaving a total of 1,639,877 outstanding as at the year end, as cancellation occurred for those employees who left the Group in 2018. The main terms of the Share Schemes are set out below:
Eligibility
All persons who at the date on which an award is granted under the Employees' Share Scheme are employees (or employees who are also office-holders) of a member of the Group and are eligible to participate. The Board may also grant market value share options to non-executive directors under the NED Share Scheme. The Remuneration Committee decides to whom awards are granted under the Employees' Share Scheme, the number of Ordinary Shares subject to an award, the exercise date(s) (subject to the below) and the performance conditions (if any) which must be achieved in order for the award to be exercisable.
Types of Award
Awards granted under the Employees' Share Scheme can take the form of performance shares and/or market value share options. "Performance shares" are share options with an exercise price equal to the nominal value of a share, while "Market value share options" are share options with an exercise price equal to the market value of a share at the date of grant. The right to exercise the award is generally dependent upon the participant remaining an officer or employee throughout the performance period and, except in the case of market value share options granted to the Chairman or non-executive directors, the satisfaction of performance conditions. This is subject to the good leaver provisions described below. Awards granted under the Share Schemes will not be pensionable.
Individual Limits
The value of Ordinary Shares over which an employee or executive director may be granted awards under the Employees' Share Scheme in any financial year of the Company shall not exceed 200 per cent of his basic rate of salary at the date of grant. The value of Ordinary Shares over which a non-executive director may be granted market value share options under the NED Share Scheme in any financial year of the Company shall not exceed 150 percent of his annual rate of fees.
Performance Targets
The Remuneration Committee will impose objective targets which will determine the extent to which awards will vest. Targets for awards to be granted to executive directors and senior employees on or prior to Admission are based on growth in EBITDA, share price and production capacity targets in line with the Company's forecasts prior to Admission.
The Remuneration Committee may modify or amend the performance targets if changes to the Company or its business mean that the targets are no longer relevant or appropriate. However, any new or amended conditions will not be materially any more or less challenging than the original conditions were expected to be at the time they were imposed. The vesting of market value share options granted to non-executive directors will not be subject to performance conditions.
Variation of share capital
Awards granted under the Share Schemes may be adjusted to reflect variations in the Company's share capital.
Vesting of awards
Awards will vest on the third anniversary of the date of grant to the extent that the performance targets have been met. Vested awards may generally be exercised between the third and tenth anniversaries from the date of grant.
The inputs to the Black-Scholes model were as follows:
| Black Scholes Model | 31 Dec 2018 Market value shares | 31 Dec 2018 Performance shares |
| Share price | 75p | 75p |
| Exercise price | 75p | 0.25p |
| Expected volatility | 70% | 70% |
| Compounded Risk-Free Interest Rate | 4.25% | 4.25% |
| Expected life | 3 years | 3 years |
| Number of options issued* | 540,337 | 1,099,540 |
*Number of options issued is an input of the Black-Scholes model and refers to the total outstanding options granted by the Company. This is not representing any option issued in the period.
Details of the number of share options outstanding are as follows:
| Outstanding at start of period | Granted | Cancelled during the period | Outstanding at end of period | Exercisable period option price | Grant date | Exercisable date | |
| 31 December 2016 | - | 1,675,609 | 1,675,609 | ||||
| 1,099,540 | - | - | 1,099,540 | 0.25p | |||
| 576,070 | 60,000 | - | 636,070 | 75.00p | 12 May 2017 | 12 May 2020 | |
| 31 December 2017 | 1,675,610 | 60,000 | - | 1,735,610 | |||
| - | - | (95,733) | (95,733) | ||||
| 31 December 2018 | 1,735,610 | (95,733) | 1,639,877 |
Cancelation of share options during the period relates to the resignation of two employees and one Non-Executive Director.
25. Related parties
The below figures represent remuneration of key management personnel for Directa Plus Spa, who are part of the Executive Management Team but not part of the Board of Directa Plus PLC. The remuneration is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'.
| 2018 | 2017 | |
| € | € | |
| Short-term employee benefits and fees | 235,646 | 227,162 |
| Social security costs | 64,819 | 46,498 |
| 300,465 | 273,660 |
For Directors remuneration please see Director's Remuneration Report in the Annual Report.
- Contingent Liabilities
The group has the following contingent liabilities relating to bank guarantees on operating lease arrangements and government grants.
| 2018 € |
2017 € |
||
| Operating leases | 105,640 | 105,640 | |
| Total | 105,640 | 105,640 |
27. Post Balance Sheet events
As part of the capital raise that was undertaken in December 2018, a Conditional placing occurred post period, on 9 January 2019, to raise £1.02 million equal to 2,044,000 ordinary shares with a nominal value of £0.0025 each. That will be shown on the 2019 balance sheet. As part of the same process, the Company undertook an Open Offer in early January 2019 in which shareholders will have been invited to participate. The Open Offer raised an additional £0.3 million that will be shown on the 2019 balance sheet.
-ends-
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
END
FR CKADPKBKBCQD