Final Results

RNS Number : 5509N
Directa Plus PLC
21 May 2020
 

21 May 2020

 

Directa Plus plc

("Directa Plus" or the "Company")

 

Final Results for the Year to 31 December 2019

 

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.  The Company's focus remains on developing and delivering products and services in the Environmental Remediation and Textile industrial verticals, whilst continuing to progress graphene enhancements to products in other areas where Directa Plus can identify commercial opportunities.

 

Summary

 

Financial highlights

· Product sales and service revenue increased to €2.63m (2018: €2.25m)

· Total income (including grants) increased to €2.81m (2018: €2.50m)

· Loss after tax €3.40m (2018: €3.96m), in line with market expectations

· Successful placing to raise €8.52m (£7.41m) in October

· Acquisition of a 51 per cent majority holding in Setcar S.A. completed in November and has been earnings accretive

· Cash and cash equivalents at year end of €10.91m (2018: €5.50m), providing the Group with the financial capacity to support our growth ambitions and to withstand at least until the end of 2021 the uncertainties and challenges created by the COVID-19 pandemic

 

Proven, successful strategy maintained

· Target existing products and markets that can be significantly improved with the addition of Directa Plus products

· Working with established manufacturers and vendors worldwide, we are able to gain market insight and access, further develop our technologies, bring products to market faster, and capture maximum value from the supply chain by providing expertise, know-how and services as well as materials

· Focus on those vertical markets in which the Company can gain strong traction - textiles, environmental remediation, elastomers and composites

 

COVID-19

· The Company has been concerned first and foremost with the health and wellbeing of our employees as well as those of our industrial partners and the wider community

· We have been able to maintain production and remain effective as a business through remote working

· A new Emergency COVID-19 project, using G+® graphene, could offer the right balance of filtration and breathability in masks whilst providing similar anti-bacterial  performance to gowns and gloves. We are currently undertaking studies to investigate the potential of a new anti-viral molecule coupled with G+® graphene.

 

Target market progress

Textiles

· New agreement signed with partner and customer Alfredo Grassi covering workwear and military outerwear in Europe and North Africa

· Potential new alliances for the workwear and transportation markets on a worldwide basis under evaluation, with a specific focus on the UK and the US

· Exclusive agreement with Loro Piana for the commercialisation of Loro Piana fabrics and garments enriched by G+® technology, with an initial duration of three years and a minimum value of €800,000

 

Environmental Remediation

· Award of first Grafysorber® full service contract in July to treat sludges and by-products for an international oil and gas company operating European onshore wells

· Transformational acquisition of a 51 per cent majority holding in Setcar S.A. completed in November and has been earnings accretive

o a further 47 per cent was acquired by the parent company of our industrial partner GSP Group, a leading provider of offshore integrated services for the oil and gas industry with rigs operating in Romania, Turkey, Greece and Mexico

o well regarded business, established in 1994, that fulfils our key strategic objective of fully integrating into the value chain in one of our most important verticals

· Under the new partners' ownership, Setcar gained its first contract in December to provide a suite of environmental decontamination services on the Trinity - 1X gas project in Block 30 offshore Romania for approximately US$1 million

· In February 2020, Setcar gained a contract to supply environmental services to GSP Offshore, part of GSP, with a value of approximately €700,000 per annum over seven years

· Grant of European patent in April 2020 covering the use of Grafysorber® to decontaminate water containing hydrocarbons resulting from the production of oil

 

Asphalt

· Successful real world trials of G+® enhanced asphalt supermodifier, Gipave, developed with partner Iterchimica, on public roads in Rome and Oxfordshire in the UK

· Post year end, in January 2020, six-month trial began on a high traffic taxiway used for intercontinental aircraft at Rome's Fiumicino airport

· Agreement signed in April 2020 covering the exclusive supply of G+® graphene to Iterchimica in the asphalt and bitumen sector worldwide for an initial duration of three years

 

Corporate

· Current patent portfolio increased to 30 patents granted, seven of which were granted post year-end,  with important grants and filings in both the US and China in 2019

· EU grant received in January 2020 to develop an environmentally sustainable technology to digitally print G+® graphene on fabrics

· OEKO-TEX® independent non-toxic certification (an Eco Passport) received in February 2020 for our G+® printing paste technology

· Frost and Sullivan Technology Innovation Award granted to the Company in May 2020 for unique Grafysorber performances in environmental remediation industry

 

Giulio Cesareo, Founder & CEO, said:   "Without question 2019 was a landmark year for the Group in so many respects with the Group making great strides in our textile and environmental remediation verticals, as well as in the global asphalt market and with the acquisition of Setcar. 

 

"Whilst we are well positioned in our key verticals with a growing recognition for Directa Plus and for the outstanding benefits of our G+ technology, we do not expect to be entirely immune from the effects of COVID-19 and hence have withdrawn forward guidance to stakeholders until the volatility in related markets reduces.

 

"April year to date revenues of €1.8m are almost treble those of the same period last year, we have a strong order book and attractive prospects including in, but not limited to, the COVID-19 related personal protective equipment markets. With this in mind, our COVID-19 scenario planning base case revenues, albeit a reduction against initial expectations, nonetheless show a notable near trebling of revenue for the year.

 

"We have a robust balance sheet with year-end net cash of €10.9m that provides us with the financial capacity therefore to support our growth ambitions and to withstand the uncertainties and challenges created by the COVID-19 pandemic.

 

"At Directa Plus we seek to be a farsighted Company, helping to build a better future and our ambition remains undimmed.  We do not intend to let Covid-19 prevent us from capturing new opportunities across all of our key markets."

 

Key Performance Indicators and Financial Summary

 

2019

2018

Revenue from product and service sales (€'m)

2.63

2.25

Total Income* (€'m)

2.81

2.50

LBITDA** (€'m)

(2.71)

(3.24)

Loss after tax ***(€'m)

(3.40)

(3.96)

Cash and cash equivalents (€'m)

10.91

5.50

Total number of patents granted****

23

18

 

*Total Income comprises revenue from product and service sales (€2.63m), and other income including government grants (€ 0.06m) and RDEC - Research and Development Expenditure Credit (€0.10m).

** LBITDA represents results from operating activities before depreciation and amortisation of €0.84m (2018: €0.67m). Management believes that EBITDA provides a better reflection of operational performance by removing interest, tax, depreciation and amortisation. EBITDA is a non-GAAP measure .

*** The loss for the year of €3.40m is split between a €3.58m loss owned by the Company and a €0.18m profit in respect of non-controlling interests.

****Number of grants in portfolio at the end of the period

 

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 report that 2019 was a transformational year for Directa Plus. Towards the end of the year, we completed the purchase of a 51.0 per cent interest in the environmental services company Setcar and further strengthened the Group's balance sheet through an oversubscribed Placing and Open Offer. Despite the added demands of our acquisition of Setcar, strong commercial momentum was sustained across the business, re-enforcing our position as a leading producer and supplier of differentiated graphene-based products under our G+ brand. Our full year revenue of €2.81m was up 17 per cent over the prior year including a €0.88m contribution from Setcar since its acquisition in November 2019. We have a robust balance sheet with year-end net cash of €10.9m that provides us with the financial capacity to support our growth ambitions and to withstand the uncertainties and challenges created by the COVID-19 pandemic.

 

The Group's graphene manufacturing operations and headquarters are located in Lomazzo in the Lombardy region of Northern Italy, which has been one of Europe's worst affected areas for COVID-19. As such the Board has been concerned first and foremost with the health and wellbeing of our employees as well as those of our industrial partners and the wider community in which we operate. It is a testament to our executive team that the decision was taken early to reduce the headcount at our factory to a minimum and to move all remaining staff to work remotely. As a result, our manufacturing operations are continuing with the production of G+® products and our development activities continue apace. On behalf of the Board I would like particularly to thank our leadership team and our employees for their dedication and hard work in a difficult and very challenging environment.

 

The benefits of our G+® graphene are becoming increasingly well recognised by our existing and potential partners with whom we are closely engaged. Our low cost, scalable manufacturing plant uses a proprietary and patented chemical-free process to produce pristine graphene-based materials and hybrid graphene materials for a variety of uses. Our G+ product is proven to be non-toxic and is available in various forms such as powder, liquid and paste and can be tailored to optimise the performance and characteristics of our partners end products. We are creating a generation of new products with exceptional properties and the progress we are making in our targeted business verticals is detailed within the Chief Executive's Review,

 

The acquisition of Setcar was an important milestone for the Group in our commercialisation strategy for our patented Grafysorber® oil decontamination and remediation product. Our partner GSP has extensive operations with an established infrastructure, including strong third party customer relationships, to promote the unparalleled benefits of Grafysorber®. The acquisition of Setcar has enabled the Group to capture additional value for shareholders through the provision of added value upstream services and by moving away from the provision of Grafysorber® alone. We are delighted to welcome the Setcar team to Directa Plus and look forward to delivering on our ambitions in this key market vertical alongside further progress in textiles, our other key vertical.

 

Our reputation is of course fundamental to our future success and set alongside our growing knowledge pool and technical ability, our forward-thinking approach continues to create new opportunities. Post year-end we signed a worldwide agreement with asphalt additive company Iterchimica following four years of investment in R&D and extensive trials of Gipave, the asphalt additive based on G+® graphene. The Board believes there is a significant opportunity for Gipave to capture a material share of the asphalt and bitumen paving market based on its proven real-world performance.

 

Extensive work is currently being undertaken also to assess the potential for G+® to be incorporated into medical devices such as masks, gowns and gloves. We have long known of the strong anti-bacterial and thermal properties of our graphene but there may be a similar anti-viral effect also and we hope that G+® may be able to assist in the fight against COVID-19.

 

In closing, I should like to thank our shareholders, new and old, for their continued loyalty and support. Directa Plus continues to position itself for a strong future and our ability to grow which reflects our stakeholders' confidence in the business and strategy. 2020 brings with it greater challenges and uncertainties than usual as a result of COVID-19. We shall not escape its impact, particularly in fashion related textiles, but there are also reasons to be optimistic.

 

We now have a strong confirmed forward order book for 2020 and a growing number of differentiated products across large, diverse end markets. In environmental services, we expect to continue to make progress this year through Setcar providing growing revenues and profits that will enable us to invest further in the business. In textiles, new product launches, potentially including bacteria and virus inhibiting materials, as well as geographical expansion, place the Group in a good position to support textile producers in meeting the needs triggered by COVID-19. The Board remains confident that 2020 will see further positive progress and developments.

 

Sir Peter Middleton

Chairman

20 May 2020

 

Chief Executive Officer's Review

 

Introduction

2019 saw great progress for Directa Plus not only in our key verticals of environmental remediation solutions and textiles, but also in the other industrial sectors where we have developed graphene enhanced products and services where we see material opportunities.

 

Strategy and Business Model

We continue to believe that successful innovations are collaborative, starting from existing ideas, resources and contacts and facilitated through the introduction of competencies and assets from partners.  These are then combined together in a new market context, resulting in new next generation products or significant improvements to existing products. 

 

We believe that our commercial strategy has been validated as the best path for Directa Plus. By working with established manufacturers and vendors, we are able to gain market insight and access, further develop our technologies, bring products to market faster, and capture maximum value from the supply chain.

 

We always seek to develop the right business model to suit the product and partnership. This ethos means that we retain and actively promote flexibility and optionality throughout our Company.

 

Our R&D efforts throughout 2019 supported our strategy and we have generated significant new intellectual property assets, across our industrial landscape. We continue to find new ways to improve and optimise products and services for end users with the use and development of our graphene based technology.

 

Directa Plus's stature as a differentiated producer and supplier of graphene continues to build strongly and during the year this was additionally recognised through an invitation to join the Industry Council of the US National Graphene Association (NGA), the main body in the US advocating and promoting the commercialisation of graphene. Membership of the NGA's Industry Council is available to a select group of influential graphene companies that are positioned to assume a leading role in the development of the global graphene market. Directa is very proud to be part of the organisation.

 

Potential for G+® to protect against the spread of COVID-19

As you will know, Northern Italy, where our graphene manufacturing facility and corporate offices are situated has been badly impacted by COVID-19 and the measures necessary to prevent its spread. Despite this, I am pleased to report that the Group have been able to maintain production and remain effective as a business through remote working. Keeping all our employees safe and ensuring their wellbeing is of the utmost importance to us.

 

Against this backdrop, Directa Plus has been dedicating R&D efforts to find ways to help alleviate the spread of COVID-19. Whilst we have known of graphene's strong bacteriostatic properties for some time, there are indications that there may similarly be an anti-viral effect that can be utilised by applying graphene to fabric. As such, we have been working on a new project, Emergency COVID, which uses graphene in the production of medical devices such as masks, gloves and gowns to provide enhanced prevention properties that could make an important contribution in the easing of restrictions in the second phase response to the pandemic.

 

We believe that Personal Protective Equipment, enhanced appropriately by G+® graphene, could offer the right balance of filtration and breathability in masks whilst providing anti-bacterial and potentially anti-viral performance that would also be effective in clothing such as gowns and gloves. This could result in a safer "go to work" and "go to sport" environment for all citizens and I hope to be able to report this time next year that Directa Plus has been able to play its part in turning the tide against COVID-19.

 

Textiles

The intelligent use of graphene in modifying fabrics can provide a variety of performance benefits to the wearer of garments made using these enhanced fabrics. Improved thermal regulation delivers much higher levels of comfort and, for example, more efficient output for sportspeople, manual or physical workers, and can expand the range of fabrics suitable to different climactic conditions. Graphene is applied to garments through our proprietary fabric printing technology and through laminated graphene membranes. We are also working on novel ways to introduce graphene to the weave of fabrics themselves.

 

Directa Plus's progress in the period was extremely pleasing, in particular the partnership with Alfredo Grassi and our exclusive agreement with Loro Piana, as further detailed below.

 

Alfredo Grassi

Our long-standing industrial partnership with Alfredo Grassi S.p.A (Grassi), was deepened in May 2019 with an agreement to collaborate in the further development of graphene enhanced workwear and to expand into military outerwear.

 

The agreement between Directa Plus and Grassi provides for exclusive co-operation in these key sectors, leveraging on the established advantages of our Planar Thermal Circuit™. The main objectives are:

· To promote the uptake of graphene enhanced, advanced workwear and military outerwear in Italy, most of Europe, and North Africa;

· To develop new products suitable for end users in relevant industrial verticals;

· To build a greater joint understanding of market trends and drivers affecting demand for such products; and

· To offer end users the maximum level of sustainability along the entire supply chain

 

We are also evaluating potential new alliances for the workwear vertical on a global basis with a specific focus on the UK and the US and will update shareholders at the appropriate time.

 

Loro Piana

In March 2019 we announced an exclusive agreement with Loro Piana for the commercialisation of Loro Piana fabrics and garments enriched by Directa's G+ technology, with an initial duration of three years and a minimum value of €800,000.

 

Loro Piana is renowned for the quality of its fabrics and garments, even amongst the global luxury fashion industry, and for its extreme sensitivity to the environment along its entire value chain. These principles align perfectly with Directa Plus's own culture and we look forward to jointly developing and achieving significant innovations in high quality fabrics.

 

Environmental remediation

Environmental remediation solutions are amongst Directa Plus's most commercially advanced activities. The Group is successfully gaining and fulfilling contracts using our proprietary Grafysorber® technology. Grafysorber® is used to treat 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. Furthermore, Grafysorber® is sustainably produced in common with all our products, and it is non-flammable and reusable, with the adsorbed hydrocarbons recoverable.

 

Oil & Gas supply and service contract

In July, Directa was awarded an environmental remediation contract worth approximately €150,000 to treat several thousand cubic meters of sludges and by-products for an international oil and gas company, operating European onshore wells. Directa is providing a full service to the customer through the supply of a mobile treatment unit and operating the recovery process.

 

Setcar S.A .

The key development in the year was the announcement of our acquisition of a 51 per cent majority holding in Setcar S.A. in September 2019, with completion finalised in November 2019. Setcar was established in 1994 and is a highly regarded environmental remediation services business based in Braila, Romania, and operating in the Black Sea region. Setcar has been a commercial partner of Directa Plus since 2014 and previously has contributed to the industrial development of our Grafysorber mobile decontamination units, so we are familiar with their capabilities and clear sighted on the potential opportunities.

 

The acquisition fulfils our key strategic objective of fully integrating into the value chain in one of our most important verticals. We are working with established industrial partners to provide a service solution to take advantage of their expertise and existing commercial relationships, whilst also capturing maximum value from the supply chain.

 

Directa Plus acquired 51 per cent of Setcar with a further 47.03 per cent acquired by the parent company of our industrial partner GSP Group, a leading provider of offshore integrated services for the oil and gas industry with rigs operating in Romania, Turkey, Greece and Mexico, for a combined total consideration of €4.1 million and we expect the acquisition has been earnings accretive. The acquisition was funded out of the proceeds of a £7.4 million capital raise that is detailed in our Chief Financial Officers report.

 

Following its acquisition, Setcar gained its first contract to provide a suite of environmental decontamination services on the Trinity - 1X gas project in Block 30 offshore Romania. The value of the Contract is estimated to be approximately US$1 million invoiced between 2019 and first quarter 2020 and evidences the first step in what we envisage to be a highly successful relationship for Setcar, Directa, and our partner GSP. Post-year end, in February 2020, Setcar also signed a contract to supply environmental services to GSP Offshore, part of GSP, to the value of approximately €700,000 per annum over a period of seven years. We are pleased with the integration of Setcar into the Group and look forward to achieving further progress.

 

Other applications for G+®

The Group has made significant strides elsewhere in our deployment of our graphene technology in other industrial verticals, particularly in elastomers and composite materials.

 

Iterchimica

Last year we reported that as part of our partnership with Iterchimica we had jointly undertaken the first real world trials of a road surface enhanced with a supermodifier containing G+ graphene, on a section of Rome's Strada Provinciale Ardeatina. This and subsequent trials have been highly successful and the product has now been branded as Gipave. Gipave works by increasing a road surface's resistance to deformation through its ability to manage temperature fluctuations, leading to less cracking and warping. The useful life of a Gipave road surface is extended and there is a material reduction in the maintenance requirement, ultimately saving money for public highways agencies, road users, and taxpayers. Once laid, Gipave can be 100 per cent recycled which can reduce the extraction of new materials from quarries and first-use bitumen.

 

In April 2019 we able to report on the Rome trial, comparing asphalt concrete with the super modifier to a traditional asphalt surfacing, noting impressive results:

· Enhanced service life - fatigue resistance improvement was measured at over 250 per cent;

· Improved resistance to the passage of vehicles - mechanical tests showed an Indirect Tensile Strength increase of 35 per cent;

· Greater resistance to deformation at the same load - Stiffness Modulus was measured at different temperatures, showing an improvement of 46 per cent at 40°C;

· Lower permanent plastic deformation - rutting values (track left by tyres) was 35 per cent lower at 60°C.

 

Following the success of the Italian trial, Gipave was deployed in November 2019 on a busy section of road in Curbridge, Oxfordshire in the UK and is helping to prove the benefits of the product in different climactic conditions.

 

After the year end, in January 2020, a six-month trial also began at Rome's Fiumicino airport on taxiway Alpha Alpha, a high traffic taxiway used for intercontinental aircraft such as Boeing 777s and Airbus A380s. In view of COVID-19 restrictions we will be working with the airport to assess and evaluate the on-going parameters of the trial. In April 2020, Directa Plus signed a worldwide cooperation agreement with Iterchimica, covering. the exclusive supply of G+ graphene to Iterchimica in the asphalt and bitumen sector worldwide for an initial duration of three years.

 

Intellectual Property

Our culture of R&D and our vision to bring the benefits of graphene to industrial sectors where we see the greatest opportunity ensures that Directa Plus is constantly growing its suite of intellectual property assets. Our patent portfolio is currently composed of 30 patents (seven of which were granted post-year end) and 24 pending patents. In 2019 we were granted five patents.

 

Achievements in 2019:

· An Italian patent covering the use of G+® graphene in the manufacture of golf balls was granted in May 2019;

· A Chinese patent, covering Directa Plus' unique process for manufacturing pristine graphene nanoplatelets, was granted in April 2019

· Directa Plus's unique exfoliation technology is chemical free, has an extremely high yield, and can be varied to produce graphene nanoplatelets with specific morphologies, with high production volume capability. This technology and process is protected under granted patents in Europe. In October 2019 we successfully gained a United States patent and continue to look to expand IP protection worldwide;

· A further US patent was awarded in July 2019 covering the technology that allows Directa Plus to create an ink based on its G+® graphene product. In addition to its thermal properties, the G+ ink can be used in textile applications to provide flame retardant properties or electrical conductivity, as well as for coating applications in, for example, the production of battery electrodes; and

· In September 2019, we were granted an Italian patent for polyurethane film containing G+® graphene nanoplatelets, developed with the Company's membrane partner, Novaresin. We are currently in the process of extending this patent protection internationally. The new membrane will be marketed under the brands Grafytherm™ and Grafyshield™ and provides water protection as well as breathability alongside G+ performance in respect of thermal and electrical conductivity, infrared absorption and bacteriostaticity. The membrane will be deployed initially in the apparel industry.

 

Post year end

· In January 2020, Directa signed an agreement with Comerio Ercole SpA ("Comerio") to pursue joint research and development projects using the Company's G+ technology to develop products in the rubber and tyres, plastic and non-woven materials industries;

· Also in January 2020, the Company received an EU grant to develop an environmentally sustainable technology to digitally print its G+ graphene on fabrics;

· The Group secured an OEKO-TEX® certification in February 2020 for Directa's proprietary G+ graphene printing paste technology. An Eco Passport by OEKO-TEX® is an independent non-toxic certification system for chemicals, colourants and auxiliaries used in the textile and leather industry; and

· In April 2020, we were granted a European patent covering Grafysorber's use to decontaminate water containing hydrocarbons resulting from the production of oil. This significantly increases our potential addressable market in Europe in our environmental vertical.

 

Outlook

Without question, 2019 was a landmark year for Directa Plus with the Group making great strides, in particular in our key textile and environmental remediation verticals. The acquisition of Setcar has bedded in well into the Group and is proving to be as transformative as we expected. We continue to make strong progress in other sectors, such as asphalts, where our G+ technology and partnerships also bring material opportunities.

 

It is extremely sad therefore that 2020 has started with such uncertainty for the global economy and the global community due to the spread of COVID-19. We have nevertheless responded quickly to the crisis to ensure the absolute safety and wellbeing of our employees and to protect our business. Whilst we are well positioned in our key verticals with a growing recognition for Directa Plus and for the outstanding benefits of our G+ technology, we do not expect to be entirely immune from the effects of COVID-19 and as a result of heightened uncertainties have withdrawn forward guidance to stakeholders at this time until volatility in related markets reduces.

 

Nevertheless, I am pleased to report that our April year to date revenues of €1.8m are almost treble those of the same period last year and we have a strong order book. Under our COVID-19 scenario planning, our base case scenario shows a notable near trebling of revenue for the year, albeit a reduction against initial expectations. In addition to this we hope to benefit from a number of attractive prospects, not least in COVID-19 related applications. We have a robust balance sheet with year-end net cash of €10.9m that additionally provides us with the financial capacity to support our growth ambitions and to withstand the uncertainties and challenges created by the COVID-19 pandemic.

 

The concept of "lean into the future" is key to us and we shall continue to look to understand new market needs and to leverage on the incredible enabling properties of our G+® graphene in order to satisfy them. In this respect, we hope to be able to play a meaningful role in the provision of Personal Protection Equipment, taking advantage of the bacteriostatic and potential antiviral properties of our G+ graphene. We will of course keep stakeholders appraised of the new opportunities we will target and on the likely impacts of COVID-19 as the situation becomes clearer.

 

Directa Plus seeks to be a farsighted company, helping to build a better future and our ambition as a Group remains undimmed. We do not intend to let Covid-19 prevent us from capturing new opportunities across all of our key markets.

 

Giulio Cesareo

Chief Executive Officer

20 May 2020

 

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. In addition, I can report that the managing the acquisition of Setcar SA and the post-acquisition finance and accounting activities went smoothly.

 

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 sector 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 2018.

 

The table below summarises the KPIs with further details contained later in my report:

 

2019

2018

Revenue from product sales and service (€'m)

2.63

2.25

Total Income* (€'m)

2.81

2.50

LBITDA** (€'m)

(2.71)

(3.24)

Loss after tax *** (€'m)

(3.40)

(3.96)

Reported basic loss per share(€)

(0.07)

(0.09)

Cash and cash equivalents (€'m)

10.91

5.50

Total number of patents granted****

23

18

 

*Total Income comprises revenue from product and service sales (€2.63m), and other income including government grants (€ 0.06m) and RDEC - Research and Development Expenditure Credit (€0.10m)

** LBITDA represents results from operating activities before depreciation and amortisation of €0.84m (2018: €0.67m). Management believes that LBITDA provides a better reflection of operational performance by removing interest, tax, depreciation and amortisation. EBITDA is a non-GAAP measure .

*** The loss for the year of €3.40m is split between a €3.58m loss owned by the Company and a €0.18m profit in respect of non-controlling interests.

****Number of grants in portfolio at the end of the period

 

Financial Review

Revenue from product and service sales grew by 17 per cent to €2.63 million (2018: €2.25 million) with the increase driven from higher revenue in our environmental remediation segment, occurred following the acquisition of Setcar, of €0.88 million (2018: 0.22 million). Revenues in our textile segment were flat at €1.65 million (2018: 1.66 million) consolidating on the significant progress that was made in 2018.

 

Other income, which mainly includes grants and R&D Expenditure Credit (RDEC) received by the Group, was €0.16 million (2018: €0.13 million). RDEC is an Italian government incentive scheme designed to encourage companies to invest in R&D by providing a tax credit and this accounted for €0.10 million (2018: € 0.10 million). Income from Government grants was driven by grants that are directly supporting key development activities, namely the GRATA textiles project and the Gipave asphalts project and accounted for €0.06 million in total. As a result, Directa's total income increased by 12 per cent to €2.81 million (2018: €2.50million).

 

The EBITDA loss for the period was in line with management expectation at €2.71 million compared with a €3.24 million loss for 2018 and reflects both the increase in revenue and higher expenditure on raw materials, and also changes in inventories and other expenses. The loss after tax reduced to €3.40 million compared with €3.96 million for 2018.

 

As at 31 December 2019, inventories totalled €1.10 million (2018: €0.86 million), a level that ensures that the Group can meet growing demand from key clients in a timely manner.

 

In the short term the Group's priorities continue to be focused on a reduction in cash consumption and an improvement in profitability. Cash and cash equivalents at 31 December 2019 were €10.91 million (2018: €5.5 million).

 

Acquisition of Setcar SA

On 25 November 2019 Directa Plus S.p.A. acquired 51 per cent of Setcar SA. Setcar has been jointly acquired with GVC, a company ultimately owned by the GSP group, a leading provider of offshore integrated services for the oil and gas industry with rigs in operation in Romania, Turkey, Greece and Mexico, who acquired 47.03% holding. The total consideration is €4.1 million of which the consideration payable by the Company is €2.1 million.

 

Of the total consideration of €4.1 million, €2.1 million is to be paid in cash to the owners of Setcar as follows:

· €0.6 million upon Completion

· €0.4 million on 30 April 2020

· €0.85 million on the first anniversary of Completion

· €0.25 million on the second anniversary of Completion.

 

Immediately following Completion, Directa Plus and GVC provided a loan to Setcar, in proportion to their respective shareholdings, in order to facilitate the payment of a €2 million dividend to the vendors of Setcar.

 

The total consideration for the acquisition of Setcar is allocated to the identifiable assets acquired and liabilities assumed at fair value (Purchase Price Allocation or PPA). The identifiable finite-lived assets are then depreciated/amortized over their remaining useful lives. The Company used an independent specialist to provide the fair value on a per asset basis. The revaluation amounted to the fair value uplift of assets is €1.6 million (excluding deferred tax liabilities) with total assets after the revaluation to €5.6 million (excluding deferred tax liabilities) and Net Assets to €3.8 million.

 

Capital Raise

During the financial year the Group benefitted from the proceeds of two separate capital raises for total gross proceeds of £8.73 million:

· £1.32 million (approximately €1.47 million) in respect of a conditional placing and open offer (disclosed in the 2018 Annual Report) which settled on 9 January 2019; and

· £7.41 million (approximately €8.61 million) in respect of a placing and open offer of 9,882,547 ordinary shares in aggregate (comprising 9,648,000 Placing Shares and 234,547 Open Offer Shares)  with a nominal value of £0.0025 each and a price of 75p that settled on 21 October 2019.

 

Proceeds from the placing and open offer and conditional placing and open offer will be applied as follows:

· €2.1 million in respect of the completion of the acquisition of the Group's 51 per cent. interest in Setcar S.A.; and

· €7.9 million to sustain the Group to cash flow break-even, and specifically to:

o exploit commercial opportunities across a developing pipeline, including the fast-growing environmental remediation market;

o build the Group's sales and marketing reach;

o develop Directa's next generation of higher performing products;

o improve graphene production layout to drive margin growth; and

o maintain competitive advantage and barriers to entry.

 

Marco Ferrari

Chief Financial Officer

20 May 2020

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

In euro

Note

31 Dec 2019

31 Dec 2018

Continuing operations

 

 

 

Revenue

3

2,631,819

2,253,293

Other income

3/5

183,033

248,695

Changes in inventories of finished goods and work in progress

6

87,537

(133,382)

Raw materials and consumables used

7

(1,185,360)

(1,299,078)

Employee benefits expenses

8

(2,148,923)

(2,112,650)

Depreciation and amortisation

13/14

(837,055)

(674,919)

Other expenses

9

(2,286,054)

(2,197,670)

Results from operating activities

 

(3,555,002)

(3,915,711)

 

 

 

 

Finance Income

11

164,536

4,440

Finance expenses

11

(35,972)

(45,143)

Net finance costs

 

128,563

(40,703)

 

 

 

 

Loss before tax

 

(3,426,439)

(3,956,414)

Tax expense

12

25,225

(414)

Loss after tax from continuing operations

 

(3,401,214)

(3,956,828)

 

 

 

 

Loss of the year

 

(3,401,214)

( 3,956,828)

Other Comprehensive income items that will not be reclassified to profit or loss

 

 

 

Defined Benefit Plan re-measurement  gains and losses

22

(12,802)

1,219

Other comprehensive (expense)/income for the year (net of tax)

 

(12,802)

1,219

Total comprehensive (expense)/income for the year

 

(3,414,016)

(3,955,609)

Loss attributable to

 

 

 

Owner of the Parent

 

(3,585,215)

(3,961,259)

Non-controlling interests

 

184,001

4,431

 

 

(3,401,214)

(3,956,828)

 

Total comprehensive (expense)/income attributable to:

 

 

 

Owners of the Company

 

(3,598,017)

(3,960,040)

Non-controlling interests

 

184,001

4,431

 

 

(3,414,016)

(3,955,609)

Loss per share

 

 

 

Basic loss per share

25

(0.07)

(0.09)

Diluted loss per share

25

(0.07)

(0.09)

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

Group

Company

In euro

Note

31-Dec-19

31-Dec-18

31-Dec-19

31-Dec-18

Assets

 

 

 

 

 

Intangible assets

13

2,202,452

1,467,478

-

-

Investments

15

-

-

21,180,336

16,180,336

Property, plant and equipment

14

4,730,752

1,062,435

-

-

Trade and other receivables

16

109,698

-

-

-

Non-current assets

 

7,042,902

2,529,913

21,180,336

16,180,336

Inventories

6

1,095,936

862,284

-

-

Trade and other receivables

16

2,943,286

2,059,217

203,404

158,594

Cash and cash equivalent

18

10,906,076

5,503,884

7,669,360

3,968,016

Current assets

 

14,945,298

8,425,385

7,872,765

4,126,610

Total assets

 

21,988,200

10,955,298

29,053,101

20,306,946

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

19

190,512

154,465

190,512

154,465

Share premium

19

31,395,612

22,104,240

31,395,612

2,2104,240

Foreign currency translation reserve

 

4,147

-

-

-

Retained Earnings

19

(17,656,325)

(14,044,656)

(2,616,723)

(2,055,143)

Equity attributable to owners of Group

 

13,933,946

8,214,049

28,969,401

20,203,562

Non-controlling interests

19

1,240,194

27,361

-

-

Total equity

 

15,174,140

8,241,410

28,969,401

20,203,562

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Lease liabilities

21

439,690

57,011

-

-

Employee benefits provision

24

416,095

335,132

-

-

Other payables

24

196,690

-

-

-

Deferred tax liabilities

17

135,059

-

-

-

Non-current liabilities

 

1,187,534

392,143

-

-

Loans and borrowing

20

484,701

168,701

-

-

Lease liabilities

21

184,900

58,121

-

-

Trade and other payables

24

4,956,926

2,094,922

83,699

103,385

Current liabilities

 

5,626,527

2,321,745

83,699

103,385

Total liabilities

 

6,814,061

2,713,888

83,699

103,385

Total equity and liabilities

 

21,988,200

10,955,298

29,053,101

20,306,947

 

The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own statement of comprehensive income in these financial statements. The Company loss after tax for the year was €558,846 (2018: € 779,197).

 

The financial statements were approved and authorised for issue by the board and were signed on its behalf by Giulio Cesareo, Chief Executive Officer, and Marco Ferrari, Chief Financial Officer, 20 May 2020

 

The notes below form part of these financial statements

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

 

 

 

 

In euro

Share capital

Share premium

Foreign currency translation reserve

Retained earnings

Total

Non-controlling interests

Total equity

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

Total comprehensive (expense)/income for the year

 

 

 

 

 

 

 

Loss of the year

-

-

-

(3,585,215)

(3,585,215)

184,001

(3,401,214)

Total other comprehensive (expense)/income

-

-

-

(12,802)

(12,802)

 

(12,802)

Total comprehensive (expense)/income for the period

-

-

-

(3,598,017)

(3,598,017))

184,001

(3,414,016)

Capital raised

36,047

10,043,120

-

-

10,079,167

-

10,079,167

Expenditure related to the issuance of shares

-

(751,748)

-

-

(751,748)

-

(751,748)

Translation reserve

 

 

4,147

-

4,147

 

4,147

Share-based payment

-

-

-

(13,652)

(13,652)

-

(13,652)

Setcar non-controlling interest of acquisition

 

 

 

 

 

1,028,831

1,028,831

Balance at 31 December 2019

190,512

31,395,612

4,147

(17,656,325)

13,933,946

1,240,194

15,174,140

 

COMPANY STATEMENT OF CHANGES IN EQUITY

In euro

Share capital

Share premium

Retained

 earnings

Total

 equity

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

Loss for the year

-

-

(558,846)

(558,846)

Capital raised

36,047

10,043,120

-

10,079,167

Expenditure related to the issuance of shares

-

(751,748)

-

(751,748)

Share-based payment

-

-

(2,733)

(2,733)

Balance at 31 December 2019

190,512

31,395,612

(2,616,722)

28,969,402

 

CONSOLIDATED AND COMPANY STATEMENT OF CASH FLOWS

 

 

Group

Company

In euro

Note

2019

2018

2019

2018

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Loss for the year before tax

 

(3,426,439)

(3,956,414)

(558,846)

(779,197)

Adjustments  for:

 

 

 

 

 

Depreciation

14

452,309

357,014

-

-

Amortisation of intangible assets

13

384,746

317,905

-

-

Share-based payment expense

 

(13,652)

165,610

(2,733)

104,532

Finance income

11

(164,535)

(4,440)

(164,529)

(3,194)

Finance expense

 

35,829

45,143

2,081

22,610

 

 

(2,731,742)

(3,075,182)

(724,028)

(655,249)

Increase/Decrease in:

 

 

 

 

 

- inventories

6

(79,451)

133,382

-

-

- trade and other receivables

16

240,963

(897,506)

(44,811)

(49,354)

- trade and other payables

24

(714,799)

758,397

(19,685)

56,949

- provisions and employee benefits

22

59,342

47,175

-

-

Net cash from operating activities

 

(3,225,687)

(3,033,734)

(788,524)

(647,654)

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Interest received

11

2,874

4,440

3,982

3,194

Investment in intangible assets

13

(232,546)

(207,158)

-

-

Investment in subsidiary

15

-

-

(5,000,000)

(2,000,000)

Net cash arisen from business acquisition

 

(137,345)

-

-

-

Acquisition of property, plant and equipment

14

(161,589)

(120,456)

-

-

Net cash used in investing activities

 

(528,606)

(323,174)

(4,996,018)

(1,996,806)

Cash flows from financing activities

 

 

 

 

 

Proceeds from Capital raise

 

10,079,167

2,367,385

10,079,167

2,367,385

Expenditure related to the issuance of shares

 

(751,747)

(225,304)

(751,747)

(225,304)

Interest paid

 

(9,773)

(16,329)

-

(941)

New Borrowings

 

-

66,607

-

-

Repayment of borrowings

20

(190,193)

(239,344)

-

-

Interest of lease liabilities

 

(16,124)

-

-

-

Repayment of lease liabilities

 

(115,133)

-

-

-

Net cash from (used in) financing activities

 

8,996,197

1,953,015

9,327,420

2,141,140

Net increase (decrease) in cash and cash equivalent

 

5,241,904

(1,403,893)

3,540,797

(503,320)

Cash and cash equivalent at beginning of the year

 

5,503,884

6,929,446

3,968,016

4,493,006

Exchange (losses)/gains on cash and cash equivalents

 

160,548

(21,669)

160,548

(21,669)

Cash and cash equivalent at end of the year

 

10,906,076

5,503,884

7,669,360

3,968,016

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2019

 

1.  Basis of preparation

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.

 

All notes, except as otherwise indicated, are presented in Euros ("€").

 

I.  Going Concern

The COVID-19 pandemic has had a significant, immediate impact on the global economies and on the operations and operational funding of participants in international supply chains.

 

The COVID-19 pandemic has not, to date, had a significant adverse impact on the Group's operations but the directors are aware that if the current situation becomes prolonged then this may change. Further details of the current assessment of the impact on the business are set out in the strategic report. Based on very recent projections, the directors believe that:

a)  the demand for graphene products will be volatile, although the positive outlook and general market appetite is confirmed;

b)  the demand of environmental services will impacted in the next few months mainly in relation to the oil & gas segment due to the fact of the depressed oil price with the combined impact of COVID-19..

 

Management believes that the Group has the systems and protocols in place to address these challenges. At the date of approval of these financial statements it is not clear how long the current circumstances are likely to last and what the long-term impact will be.

 

As at 31 December 2019, the Group had net assets of €15.17m (2018: €8.2m) and cash and cash equivalent of €10.91m (2018: €5.50m) . The directors prepare annual budgets and forecasts in order to ensure that they have sufficient liquidity in place in the business. In addition, in response to the rapidly evolving COVID-19 situation, the directors, in formulating the plan and strategy for the future development of the business, considered a base case scenario involving c.25% reduction in forecast revenues. The directors have also stress tested  the base case scenario by applying a further material reduction in forecast revenues, and mitigation or deferral of capital and operational expenditure. In both these scenarios, the Group is projected to have the financial capacity to support its viability, following the uncertainties and challenges created by the COVID-19 pandemic, until at least the end of 2021.

 

The directors review regularly updates to the scenario planning such that it can put in place mitigating actions and maintain the viability of the company and will keep stakeholders informed as necessary.

 

The directors have taken steps to utilise the various support mechanisms, such us redundancy funds or equivalent and soft loan specifically foreseen by governments to support companies during the general global economy slowdown due to COVID-19.  Moreover, the directors considers several options in terms of regional and European grants able to provide funding in the following months to sustain the R&D activities. Operational and financial KPI are strictly monitored. 

 

Having regard to the above, and based on their latest assessment of the budgets and forecasts for the business of the company, the directors consider that there are sufficient funds available to the Group to enable it to meet its liabilities as they fall due for a period of not less than twelve months from the date of approval of the financial statements. The directors therefore consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

 

b)  Basis of consolidation

I.  Business combination

The Group accounts for business combination using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair value of the assets acquired, liabilities incurred or assumed and equity instruments issued. Costs attributable to the business combination are expensed as incurred.

 

The acquiree's identifiable assets and liabilities which meet the recognition conditions are recognised at the fair values at the acquisition date.

 

Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there is a present obligation at acquisition date that arises from past events and its fair value can be measured reliably.

 

Any difference arising between the fair value and the tax base of the acquiree's assets and liabilities that give rise to a taxable or deductible difference result in the recognition of a deferred tax liability or asset.

 

Non-controlling interest arising from a business combination is measured either at their share of the fair value of the assets and liabilities of the acquiree.

 

Goodwill is not amortised but it is tested on an annual basis for impairment.

 

II.  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.

 

III.  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.

 

IV.  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 of the Italian operating subsidiary is Euro ("€"). The functional currency of the Romanian subsidiary is RON.

 

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 carrying value of capitalised development costs is reviewed whenever events or changes in circumstances indicate that that the carrying value of an asset may not be recoverable and at a minimum at each reporting date. 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.

 

II.  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.

 

III.  Revenues recognition

Following the acquisition of Setcar during the year, Management has reviewed the key contracts pertaining to the environmental services provided and determined that revenue is recognised over time rather than at a point in time as this is the best representation of when the performance obligations under the contracts is provided.  This is considered a key judgement for this financial period as these revenue streams differ from those earned by the Group in the past.

 

IV.  Business combination

Control assessments are performed by the management, per the requirements of IFRS 10, to establish control in the business combination. Management believe that Directa Plus SpA has control of Setcar SA under IFRS 10 provisions based on the following:

· Directa Plus SpA owns directly 51% of the share capital issued by Setcar SA.

· Based on the Articles of Association (AoA) in place, Directa Plus SpA can control the General Meeting of Setcar SA. From the control of the general meeting derives the control of the BoD.

· The operations of the Company are supervised and managed by Razvan Popescu, appointed as Director by Directa Plus.

 

Based on the control provided in the measures above:

· Directa Plus is exposed to variable returns from its involvement with the investee

· Directa Plus has the ability to use its power over the investee to affect the amount of the investor's returns.

 

Business combinations are accounted for using the acquisition method of accounting. The determination of fair value of acquired assets and liabilities often requires management to make estimates and assumptions. The excess of the purchase price over the estimated fair value of the net assets acquired is then assigned to goodwill. Goodwill is assigned to individual CGUs based on the relative fair value and/or the CGUs that are expected to benefit from the synergies of the business combination. Refer to note 4 for further details in acquisitions.

 

Sales order backlog has been recognised as an intangible. Whilst there are long term framework agreements in place with customers, Management have considered a short useful economic life to reflect that purchase orders can vary annually and there are no guaranteed orders for longer than one year.

 

e)  New standards adopted for the period

I. IFRS 16 - Leases

In January 2016, the IASB issued IFRS 16 "Leases" ("IFRS 16"), which requires entities to recognise right-of use ("ROU") assets and lease obligations on the statement of financial position. The Group adopted IFRS 16 on 1 January 2019 using the modified retrospective approach. The modified retrospective approach does not require restatement of prior period financial information, instead recognising the cumulative effect as an adjustment to the opening retained earnings and the Group applied the standard prospectively.

 

The Group has applied the standard while using the following optional expedients permitted under the standard:

· Short-term leases - those with terms of 12 months or less at date of adoption

· Low-value leases

 

On 1 January 2019, the Group recognised a cumulative increase to ROU assets of €0.57 million for leases previously classified as operating leases, directly offset to the lease obligations. The weighted average borrowing rate used to determine the lease obligation at adoption was approximately 2.5%. The assets and lease obligations related to the adoption of IFRS 16, relate to the production facility.

 

The Company depreciates the ROU assets on a straight-line basis over the length of the lease unless management determines this is not representative of the useful life, in which case, management will estimate the useful life of the asset to be used. 

 

Minimum operating lease commitments as at 31 December 2018

59,083

 Less: short-term leases not recognised under IFRS 16

(5,083)

 Plus: effect of extension options reasonably certain to be exercised

438,000

 Undiscounted lease payments

492,000

 Less: effect of discounting using the incremental borrowing rate as at the date of initial application

(35,181)

 Lease liabilities for leases classified as operating type under IAS 17

456,819

 Plus: leases previously classified as finance type under IAS 17

115,132

 Lease liability as at 1 January 2019

571,951

 

II.  IFRIC 23

IFRIC 23 interpretation addresses the accounting for income taxes when there is uncertainty over tax treatments. It clarifies that an entity must consider the probability that the tax authorities will accept a treatment retained in its income tax filings, assuming that they have full knowledge of all relevant information when making their examination. In such a case, the income taxes shall be determined in line with the income tax filings. The adoption of this standard has had no effect on the financial results of the Group.

 

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 and other receivables and amounts due from subsidiaries are recognised and carried at the original invoice amount less any provision for impairment.

 

The Group recognises a loss allowance for expected credit losses ("ECL") on financial assets that are measured at amortised cost which comprise mainly trade receivables. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.

 

The Group always recognises lifetime ECL on trade receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.

 

II.  Cash and cash equivalents

Cash and cash equivalents comprise demand deposits with an original maturity up to 3 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)  Share capital

 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are netted off against share premium.

 

d)  Property, plant and equipment

I. 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.

 

II. 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.

 

III.  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:

· IT equipment from 3 to 5 years

· Industrial equipment, office equipment and plant and machinery from 5 to 10 years

 

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted where appropriate.

 

e)  Intangible assets

Intangible assets are measured at cost less accumulated amortisation and Government grants received (where applicable). The carrying value of intangible assets is reviewed annually for impairment.

 

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.

 

I.  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. The estimated useful lives of significant intangible assets are as follows:

· 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.

· Brand: 25 years

· Orderbook: 1 year

· Others: 1 year

 

f)  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.

 

g)  Goodwill

Goodwill represents the excess of the cost of a business combination over the Group's interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired.

 

Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree.  Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss.

 

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

 

h)  Impairment

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end.  Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (CGUs). The Group's CGUs generally align with each subsidiary. The recoverable amount is then estimated. The recoverable amount of an asset or a CGU is the greater of its net present value and its fair value less costs to sell.

 

Net present value is generally computed as the present value of the future cash flows, discounted to 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 asset.

 

An impairment loss is recognised if the carrying amount of an asset or a CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.

 

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. 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 and amortisation, if no impairment loss had been recognised.

 

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 Group operates diverse businesses and accordingly applies different methods for revenue recognition, based on the principles set out in IFRS 15.

 

The revenue and profits recognised in any reporting period are based on the delivery of performance obligations and an assessment of when control is transferred to the customer. In determining the amount of revenue and profits to record, and associated balance sheet items, management is required to review performance obligations within individual contracts. This may involve some judgemental areas.

 

Revenue is recognised either when the performance obligation in the contract has been performed (so 'point in time' recognition) or 'over time' as control of the performance obligation is transferred to the customer.

 

For each performance obligation to be recognised over time, the Group applies a revenue recognition method that faithfully depicts the Group's performance in transferring control of the goods or services to the customer. This decision requires assessment of the real nature of the goods or services that the Group has promised to transfer to the customer.

 

·     Revenues from sale of graphene based products are typically recognised at a point in time when goods are delivered to the customer as with this, the customer gains the right of control over the goods. 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.  

·   Revenues from sale of equipment (such as Mobile Production Units) are typically recognised at point in time when goods are delivered to the customers and site acceptance test is successfully performed.

·     Revenues from services relates mainly to environmental services provided by Setcar which are recognised:

o on an over time basis when contracts include an obligation to process waste once the process occurred according with the contract in place.

o at the point in time when the waste is delivered to our platform with no further performance obligations.

 

Where cost has been incurred to undertake a performance obligation but this has not been realised at the year end the attributable costs are carried forward as work in progress.

 

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 organised into the following segments:

-  Textile

-  Environmental

-  Others

 

For 2019 the Environmental segment was introduced to reflect the nature of the underlying business of Setcar. Textile and Environmental were considered by the Management the strategic segments 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 a specific segment have been allocated as Head Office. 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.

 

2019

-

Textile

Environmental

Others

Head office

Consolidated

Revenue

1,650,534

876,398

104,888

-

2,631,819

Cost of Sales*

(1,138,022)

(329,651)

10,450

-

(1,457,223)

Gross Profit

512,512

546,747

115,337

-

1,174,596

Other income

116,062

9,180

57,792

-

183,033

Other expenses:

 

 

 

 

 

R&D expense

(240,592)

(149,165)

(110,960)

-

(500,718)

Advisory

(58,504)

(1,696)

-

(1,018,924)

(1,079,124)

Operating expenses

(945,743)

(682,113)

(556)

(867,322)

(2,495,734)

Depreciation & amortisation

(525,334)

(263,345)

(48,376)

-

(837,055)

Operating Loss

(1,141,599)

(540,393)

13,237

(1,886,246)

(3,555,002)

Financial costs

-

-

-

128,563

128,563

Tax

-

25,225

-

-

25,225

Loss of the year

(1,141,599)

(515,168)

13,237

(1,757,683)

(3,401,214)

Total Assets

13,655,846

7,029,252

1,316,061

-

22,001,159

Total Liabilities

(2,502,635)

(4,125,358)

(198,283)

-

(6,826,276)

                     

2018

 

Textile

Environment

Others

Head office

Consolidated

Revenue

1,664,847

382,931

205,515

-

2,253,293

Cost of Sales*

(1,426,378)

(84,137)

(145,066)

-

(1,655,581)

Gross Profit

238,469

298,793

60,449

-

597,712

Other income

57,899

71,334

-

119,462

248,695

Other expenses:

 

 

 

 

 

R&D expense

(226,744)

(101,400)

(119,540)

-

(447,684)

Advisory

(187,362)

(46,674)

(15,412)

(656,597)

(906,045)

Operating expenses

(798,009)

(184,027)

(83,256)

(1,626,254)

(2,729,886)

Depreciation & amortisation

(490,609)

(129,367)

(58,527)

-

(678,503)

Operating Loss

(1,406,357)

(91,341)

(216,286)

(2,163,388)

(3,915,711)

Financial costs

-

 

-

(40,703)

(40,703)

Tax

(414)

 

-

-

(414)

Loss of the year

(1,406,771)

(91,341)

(216,286)

(2,204,091)

(3,956,828)

Total Assets

7,969,050

278,190

2,708,058

-

10,955,298

 

Total Liabilities

(2,234,212)

(11,604)

(468,072)

-

(2,713,888)

 

                       

*Includes changes in inventories of finished goods

 

 

 

2019

2018

 

 

Sale of products

 

1,732,074

2,066,876

Sale of services

 

899,746

186,417

Government grants

 

58,762

129,232

Other

 

124,271

119,463

Total Income

 

2,814,853

2,501,988

 

 

 

 

Geographical breakdown of revenues are:

 

 

2019

2018

 

 

 

Italy

1,642,122

1,840,139

 

Romania

850,738

192,840

 

Rest of the world

138,959

220,314

 

Total

2,631,819

2,253,293

 

 

The Group has transacted with two main customers in 2019, which account for more than 10% of Group revenues for sales of products and services. This largest customer's revenues amount to €947,828 (33%), whilst the next highest revenue earning customer provided €413,851 (15%). 23% of the Group's revenues for sales of products and services were recognised on an over time basis.

 

Other Income of €183,033 includes Government Grants for €58,762 and R&D Expenditure Credit (RDEC) for 100,706. 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.  Business combination

On 25 November 2019 Directa Plus S.p.A. ("DP") acquired 51% of the issued share capital of Setcar SA ("Setcar")  in order to integrate the control over the environmental services value chain becoming able to provide directly, as Group, water treatment and soil treatment services. DP management has performed a control assessment as required under IFRS10 - Consolidated Financial Statement and concluded that DP directs the relevant activities of Setcar and, by virtue of this, has control over Setcar SA (details covered in the Key Judgement section").

 

Setcar's Balance sheet

Book Value

Adjustment

Fair value

000' EUR

000' EUR

000' EUR

Non-current assets

 

 

 

Setcar brand

68

317

385

Order backlog

-

181

181

Other intangible assets

-

17

17

PPE

2,329

1,118

3,447

Non-current receivables

118

-

118

Total non-current assets

2,514

1,633

4,147

Total current assets

1.448

-

1,448

Total assets

3,962

1,633

5,595

Net assets

2,337

1,472

3,810

Non-current liabilities

 

 

 

Loans and Borrowings non-current

90

-

90

Provisions non-current

67

-

67

Deferred tax liabilities

-

161

161

Total non-current liabilities

157

161

318

Total current liabilities

1,467

-

1,467

Total liabilities

1,625

161

1,785

 

Current assets include cash and cash equivalent at the date of acquisition equal to €174,801. On Completion, Directa Plus Plc paid their share (51%) of €600,000. Total cash paid less cash and cash equivalent acquired is €137,345.

 

Measurement of fair value

The valuation techniques used for measuring the fair value of material assets acquired were as follows:

 

Asset

Valuation Technique

Property - Office Buildings

Income approach - rent capitalisation

Property - Industrial platform and land

Market approach

Plant and Equipment

Cost approach

Orderback log

Income approach - MEEM (Multiperiod excess earnings method)

Brand

Royalties method

 

The Company used an independent specialist to assist the Management with the calculation of the fair value on a per asset basis. The revaluation amounted to the fair value uplift of assets is €1.6 million (excluding deferred tax liabilities) with fair value of net assets acquired of €3.8 million and goodwill of €0.3 million.

 

Consideration transferred

The Setcar's assets and liabilities were acquired for a consideration price of €2.1 million paid in cash to the Sellers as follows:

· €0.6 million upon Completion.

· €0.4 million on 30 April 2020 - Payment of the Second Instalment will be subject to maintaining the Net Asset Value of the Company as of Completion Date at a level at least equal to the Net Asset Value of the Company from the date of the Accounts.

· €0.85 million on the first anniversary of Completion - The payment of the Third Instalment will be performed provided that within one year after the Completion Date it is not proven that any of the Seller's Warranties listed in Annex 2 of this Agreement was incorrect, inaccurate, incomplete or misleading;

· €0.25 million on the second anniversary of Completion. - representing a security for Warranty Claims that may be raised against the Company and/or the Sellers.

 

Following Completion, DP and GVC provide a €2 million loan to Setcar, in proportion to their respective shareholdings in the company, in order to facilitate the payment of a €2 million dividend to the vendors of Setcar.

 

The total purchase consideration is therefore equal to a €4.1 million, of which the consideration payable by the Company is €2.1 million.

 

Based on the financial due diligence undertaken, Management has estimated that the full contingent consideration will be paid as no expectation of the decline in the Net Asset Value in Setcar or any warranties have arisen.

 

Detailed calculation as follows:

Purchase goodwill calculation

 

EUR 000

Indicative fair value

Total purchase consideration

2,107

Consideration paid by NCI

1,985

Book value of assets acquired

3,962

Fair value adjustment on assets acquired

1,633

Fair value of assets acquired

5,595

 

 

Book value of liabilities assumed

(1,624)

Contingent and unrecorded liabilities assumed

-

Indicative net deferred tax adjustment

(161)

Fair value of liabilities assumed

(1,785)

 

 

Fair value of net assets acquired

3,810

Indicative purchase goodwill

282

 

If the acquisition would have occurred on 1 January 2019:

· increased of consolidated revenue for the eleven months ended 25 November 2019 would have been €3.2 million

· increased of consolidated loss for the eleven months ended 25 November 2019 would have been €0.3 million

 

5.  Government Grants

Information regarding government grants:

 

 

 

2019

2018

Grata

Ecopave

 

5,262

53,500

57,899

71,333

Total

 

58,762

129,232

 

In relation to government grants (Grata and Ecopave), the operational activities refer to FY19 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:

 

 

 

Grata

Ecopave

Starting date

 

 

2017

2017

Ending date

 

 

2019

2020

Duration (months)

 

 

31

36

Total amount

 

 

126,324

214,000

Final report submitted and accepted

 

 

Yes

Project still on-going

 

There are no capital commitments built into the ongoing grants. Government grants have been recognised in Other Income.

 

6. Inventory 

 

 

2019

2018

Finished products

 

825,920

750,853

Spare Parts

 

110,393

102,400

Raw material

 

19,162

9,031

Working in progress

 

140,461

-

Total

 

1,095,936

862,284

 

As at 31 December 2019 total inventory value is higher than 2018, the movement is mainly driven by Setcar's working in progress which refers to cost and services sustained for ongoing projects.. 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.

 

7. Raw materials and consumables

 

2019

2018

 

Raw material & consumables

236,191

170,007

Textile products

949,169

1,129,071

Total

1,185,360

1,299,078

 

Total raw materials and consumables are €1,185,360 (2018: €1,299,078) of which €949,169 (2018: € 1,129,071 ) refers to textile products.

 

8. Employee benefits expenses

 

2019

2018

 

Wages and salaries

1,741,293

1,557,471

Social security costs

442,893

384,998

Employee benefits

94,239

84,779

Share option expense

(13,652)

165,611

Other costs

5,998

18,346

Total

2,270,771

2,211,205

Capitalised cost in "Intangible assets"

(121,848)

(98,555)

Total charged to the Income Statement

2,148,923

2,112,650

 

The average number of employees (excluding non-executive directors) during the period was as follows:

 

 

2019

2018

Sales and Administration

12

8

Engineering, R&D and production

26

17

Total

38

25

 

The total number of employees, employed by the Group on 31 December 2019 was 169 (2018: 27), 143 were Setcar's employees.

 

The Directors' emoluments (including non-executive directors) are as follows:

 

2019

2018

 
 
 

 

775,708

828,311

 

Total

775,708

828,311

 

 

A detailed analysis of the remuneration of the directors is detailed within the Directors' Remuneration Report

 

9. Results from operating activities

Results from operating activities includes:

 

 

2019

2018

Audit of the Group and Company financial statements

81,997

41,180

Audit of the subsidiaries' financial statements

31,500

18,000

Other non-audit services provided by Group's auditor

4,528

2,292

Tool Manufacturing

179,614

282,352

Travel

221,397

193,771

Technical consultancies

427,362

478,879

Marketing

26,804

172,382

 

Tool manufacturing expenses are referred mainly to fabrics printing service and decreased to €179,614 (2018: €282,352) thanks to the negotiation of new contracts with the suppliers. Technical consultancies and travel are approximately in line with previous year expenditure, meanwhile Marketing expenses decreased to €26,804 (2018: €172,382) due to the suspension of the relationship with the existing  agency in Italy in 2019 to remap marketing activities for the 2020 year.

 

11. Net Finance expenses

Finance expenses include:

 

2019

2018

Interest Income

(3,988)

(4,440)

Interest on loans and other financial costs

10,454

8,499

Interest on financial leasing

16,700

7,830

Interest cost for benefit plan

8,819

7,145

Foreign exchanges losses/(gains)

(160,548)

21,669

Total

(128,563)

40,703

 

Foreign exchange income of €160,548 (2018: €21,669) are mainly related to Sterling to Euro movement in the Group's Sterling bank account.

 

12. Taxation

 

2019

2018

Current tax expense

449

414

Deferred tax expense/ (recovery)

(25,674)

-

Total tax expenses

(25,225)

414

 

Reconciliation of tax rate

 

2019

2018

Loss before tax

(3,426,439)

(3,956,414)

Italian statutory tax rate

24%

24%

 

(822,345)

(949,539)

Impact of temporary differences

62,887

42,327

Losses recognised

(37,662)

(41,913)

Impact of tax rate in foreign jurisdiction

27,942

38,960

Losses not utilised

794,403

910,579

Total tax expenses

(25,225)

414

 

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 €24,040,737 (€ 20,467,507 in 2018).

 

13. Intangible assets

 

Cost

Development Cost

Patents

Goodwill

Others

Brands

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

Additions

121,848

116,021

-

14,600

-

252,469

Acquired through acquisition

11,765

-

281,284

190,079

384,124

867,252

Balance at 31/12/2019

2,765,023

437,933

303,552

249,580

384,124

4,140,213

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

Amortisation 2019

312,504

43,483

-

22,357

6,402

384,746

Balance at 31/12/2019

1,731,795

145,348

-

52,769

6,402

1,937,761

 

 

 

 

 

 

 

Carrying amounts

 

 

 

 

 

 

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

Balance 31/12/2019

1,033,228

292,584

303,552

196,811

377,722

2,202,452

 

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.

 

Management has assessed the goodwill for impairment as at 31 December 2019. Given the short period between the valuation of acquisition and the year-end, no impairment has been noted.

 

14. Property, plant and equipment

Cost

Industrial Equipment

Computer Equipment

Office Equipment

Plant &Machinery

Land

Asset right of use

Under

constr.

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

Additions

32,052

11,117

55,131

123,843

-

456,819

-

678,962

Acquired from acquisition

1,031,249

-

17,018

1,782,559

608,395

-

2,445

3,441,666

Balance at 31/12/2019

1,235,693

 

56,554

 

179,469

 

4,202,028

 

608,395

 

456,819

 

2,445

 

6,741,402

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

Depreciation 2019

89,702

5,794

19,332

263,344

-

76,136

-

452,309

Balance at 31/12/2019

193,331

36,114

67,587

1,637,482

-

76,136

-

2,010,649

 

Carrying amounts

 

 

 

 

 

 

 

 

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

Balance 31/12/2019

1,042362

20,440

111,882

2,564,546

608,395

380,683

2,445

4,730,753

 

Asset held under financial leases with a net book value of € 533,957 are included in the above table within Plant & Machinery.

 

15. Investments in subsidiaries

Details of the Company's subsidiaries as at 31 December 2018 are as follows:

 

 

 

Shareholding

Subsidiaries

Country

Principal activity

2019

2018

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%

Setcar  S.A.

Romania

Waste management and decontamination services business

51%

-

 

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

Setcar S.A.

Romania

Str. Gradinii Publice 6, Braila Romania

See registered office

 

The Company's investment as capital contributions in Directa Plus Spa are as follows:

 

Directa Spa

At 31 December 2017

14,180,336

Additions

2,000,000

At 31 December 2018

16,180,336

Additions

5,000,000

At 31 December 2019

21,180,336

 

16. Trade and other receivables

Current

 

Group

Company

 

2019

2018

2019

2018

 

Account receivables

2,169,307

1,367,425

-

-

Tax Receivables

460,521

374,673

44,117

31,634

Other receivables

313,458

317,119

159,287

129,960

Total

2,943,286

2,059,217

203,404

158,594

Non-Current

 

Group

Company

 

2019

2018

2019

2018

 

Other receivables

109,698

-

-

-

Total

109,698

-

-

-

 

Group account receivables of €2,169,308 are mainly composed by three major clients, which cover 77% of the total amount.

 

Group Tax Receivables are composed of Italian VAT receivables of €177,952, UK VAT receivables of €44,117, Setcar VAT receivables of €137,746 and a RDEC Tax Credit receivable of €100,707.

 

Other receivables are mainly composed of governments grants €182,715 and prepayments €126,704.

 

Non-current other receivables of €109,698 refer to specific projects where the collection of a certain amount, although due, is postponed to the end of the project itself.  

 

As at 31 December 2019 the ageing of account receivables was:

 

 

 

  Days overdue

2019

2018

 

 0-60

1,929,268

1,306,070

 61-180

154,397

54,418

 181-365 +

124,492

26,569

Allowance of impairment

(38,849)

(19,631)

 Total

2,169,308

1,367,425

 

In 2019, 89% of account receivables have an ageing less of 60 days and refers to an order delivered close to the year end.

 

As at 31 December 2019 the Group recognised provision for €19,218.

 

17. Deferred tax liabilities

 

 

2019

2018

 

 

Deferred tax liabilities

 

294,191

195,504

Deferred tax assets - losses

 

(159,132)

(195,504)

Total

 

135,059

-

 

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 from the capitalisation of development costs, defined benefit scheme and from the acquisition of Setcar. The deferred tax liabilities are detailed below:

 

2019

2018

 

Deferred tax liabilities cost capitalised

156,695

191,885

Deferred tax liabilities other

2,437

3,619

Deferred tax liabilities arising from acquisition

135,059

-

Deferred tax assets - losses exc. Setcar

(159,132)

(195,504)

Total

135,059

-

 

18. Cash and cash equivalents

 

Group

Company

 

2019

2018

2019

2018

 

Cash at bank

10,890,718

5,503,568

7,669,360

3,968,016

Cash in hand

15,357

316

-

-

Total

 

10,906,075

5,503,884

7,669,360

3,968,016

19. Equity

 

2019

2018

 

Share Capital

190,512

154,465

Share Premium

31,395,612

22,104,240

Foreign currency translation reserve

4,147

-

Retained earnings

(17,656,325)

(14,044,656)

Non-controlling interests

1,240,194

27,361

Balance at 31 December

15,174,139

8,241,410

 

Share Capital

 

Number of Ordinary Shares

Share Capital (€)

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

Share issue on 09 January 2019 - capital raise **

2,647,609

7,350

Share issue on 21 October 2019 - capital raise ***

9,882,547

28,697

At 31 December 2019

60,998,983

190,512

 

* 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.

**   On 09 January 2019, 2,647,609 ordinary shares with a nominal value of £0.0025 each were issued as effect of the Company's capital raise.

*** On 21 October 2019, 9,882,547 ordinary shares with a nominal value of £0.0025 each were issued as effect of the Company's capital raise.

 

Share Premium

 

In euro

 

Share premium

 

 

 

 

 

 

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

 

 

Shares issued on 18 January 2019

 

1,462,728

 

 

Expenditure relating to the raising of shares

 

(140,939)

 

 

Shares issued on 21 October 2019

 

8,580,393

 

 

Expenditure relating to the raising of shares

 

(610,808)

 

 

At 31 December 2019

 

31,395,612

 

 

On 09 January 2019, 2,647,609 ordinary shares with a share premium value of £0.7475 each were issued as effect of the Company's capital raise and the amount of €1,462,728 was credit to Share premium reserve.

Expenditure of €140,939 referred to direct cost related to the raising of shares was deducted from the share premium. 

 

On 21 October 2019, 9,882,547 ordinary shares with a share premium value of £0.7475 each were issued as effect of the Company's capital raise and the amount of € 8,580,393 was credit to Share premium reserve.

Expenditure of €610,808 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.

 

Foreign currency translation reserve

Exchange differences resulting from the consolidation process of Setcar are recognised in the translation reserve for an amount of €4,147.

 

Non- controlling interest

Non-controlling interest refers to the minority shareholders of the company who own less than 50% of the overall share capital.

 

As at 31 December 2019 it is composed of 49% of Setcar S.A. and 40% of Directa Textile Solutions Srl.

 

20. Loans and borrowings

 

Group

Company

 

2019

2018

2019

2018

 

Loans and borrowings

168,701

-

-

Total

484,701

168,701

-

-

 

 

 

 

 

Repayment

Interest rate

2019

Current

Non-current

BANK OF TRANSILVANIA

353,506

353,506

-

12-months

ROBOR 6M + 6.52%/year

GVC INVESTMENT COMPANY LMT

124,537

-

-

12-months

6%/year

 

Reconciliation of liabilities arising from financing activities

 

 

 

Cash flows

Non Cash flows

 

 

01 January 2019

Interest Paid

Capital Repayment

Accrued Interest

Liabilities acquired

31 December 2019

Borrowings

168,701

(1,167)

(162,043)

1,167

478,043

484,701

Total

168,701

(1,167)

(162,043)

1,167

478,043

484,701

 

21. Leases liabilities

The following table details the movement in the Group's lease obligations for the period ended 31 December 2019:

   

 

2019

2018

 

 

Non-current lease liabilities

 

439,690

57,011

Current lease liabilities

 

184,900

58,121

Total

 

624,590

115,133

 

In the previous year, the Group only recognised lease assets and lease liabilities in relation to leases that were classified as 'finance leases' under IAS 17, 'Leases'; according to the new adoption of IFRS 16 in FY2019 the group has also realised additional Right of use assets, liabilities and depreciation expenses. The assets are presented in property, plant and equipment in note 11.

 

22. Employee benefits provision

 

2019

2018

 

Employee benefits

416,095

335,132

Total

416,095

335,132

 

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 2018 and 2019 is as follows:

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

Service cost

65,788

Interest cost

8,819

Actuarial gain/losses

12,802

Past service cost

-

Benefit paid

(16,007)

Amount at 31 December 2019

406,534

 

Variables analysis

Detailed below are the key variables applied in the valuation of the defined benefit plan liabilities. 

 

 

2019

2018

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 - 2019

Decrease 10%

Increase 10%

 

 

 

Variation

 

Variation

 

 

Rate

DBO €

Rate

DBO €

Increase salary

Male

1.08%

(3,079)

1.32%

3,119

Female

1.04%

1.27%

Turnover

Male

1.53%

(2,724)

1.87%

2,619

Female

1.35%

1.65%

Interest rate

 

2.07%

11,201

2.53%

(10,631)

Inflation rate

 

0.99%

(3,203)

1.21%

3,219

             

 

23. Trade and Other payables

 

Non-current

 

Group

Company

 

2019

2018

2019

2018

Other payables

66,629

-

-

-

Contingent consideration at fair value through P&L

130,061

-

-

-

Total

196,690

-

-

-

 

Current

 

 

 

 

 

Group

Company

 

2019

2018

2019

2018

Trade payables

1,055,856

1,459,732

1,702

15,397

Employment costs

419,331

482,357

-

-

Other payables

2,831,436

152,833

81,997

87,988

Contingent consideration at fair value through P&L

650,303

-

-

-

Total

4,956,926

2,094,922

83,699

103,385

 

Other payables mainly refer to the remaining portion of debt due to Setcar's previous shareholders.

 

24. 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 2019 the Group is only exposed to variable interest rate risk for a short term revolving 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.

 

The Group's cash and cash equivalents and restricted cash are held with major financial institutions. The Group monitors credit risk by reviewing the credit quality of the financial institutions that hold the cash and cash equivalents and restricted cash.

 

The Group's trade receivables consist of receivables for revenue mainly in Italy and Romania. Management believes that the Group's exposure to credit risk is manageable and currently the Group's standard payment terms are 30 to 60 days from date of invoice are largely met from the clients. At the end of the period, 89% of account receivables have an ageing less of 60 days and refers to orders delivered close to the year end. As at 31 December 2019 the Group recognised a bad debt provision for €19,218.

 

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 the exposure to credit risk is approved and monitored on an ongoing basis individually for all significant customers. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. The Group does not require collateral in respect of financial assets.

 

d)  Exposure to credit risk

Group

 

Note

 

2019

2018

Trade receivables

16

 

2,169,308

1,367,425

Cash and cash equivalent

18

 

10,906,076

5,503,884

Total

 

 

13,075,384

6,871,309

 

The largest customer within trade receivables account for 18.6% 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.

 

2019

Carrying amount

Up to 1 year

1 -5 years

Financial liabilities

 

 

 

Trade payables

1,055,856

1,055,856

-

Lease Liabilities

649,287

193,598

455,689

Loans

484,701

484,701

-

Total

2,189,844

1,734,155

455,689

 

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

 

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 GBP

  4,483,520

 

As at 31 December 2019 if the exchange rate EUR/GBP increase by 10% the impact on P&L would be a loss equal to €0.41 million (if decrease by 10% would be a profit equal to €0.50 million).

 

The Group holds accounts also in other currency (such as USD and RON) but just for business purposes and for not material amount.

 

25. Earnings per share

 

 

Change in number of ordinary shares

Total number of ordinary shares

Days

Weighted number of ordinary shares

 

 

At 01 January 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

 

 

Existing shares

 

48,468,827

9

1,195,122

 

 

Issued on 09 Jan 2019

2,647,609

51,116,436

285

39,912,834

 

 

Issued on 21 Oct 2019

9,882,547

60,998,983

71

11,865,556

 

 

At 31 December 2019

12,530,156

60,998,983

365

52,973,511

 

 

 

Basic

Diluted

 

2019

2018

2019

2018

Loss attributable to the owners of the Parent

(3,585,215)

(3,961,259)

(3,401,214)

(3,956,828)

Weighted average number of ordinary shares in issue during the year

52,973,511

44,376,071

53,054,737

44,376,071

Fully diluted average number of ordinary shares during the year

52,973,511

44,376,071

53,054,737

44,376,071

Loss per share

(0.07)

(0.09)

(0.07)

(0.09)

 

The effect of anti-dilutive potential ordinary shares are ignored in calculating the diluted loss per share.

 

26. 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 2019 Market value shares

31 Dec 2019 Performance shares

Share price

69p

-

Exercise price

75p

-

Expected volatility

36%

-

Compounded Risk-Free Interest Rate

4.25%

-

Expected life

3 years

-

Number of options issued*

60,000

-

 

*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 during the period

Cancelled during the period

Expired during the period

Vested during the period

Outstanding at end of period

Exercisable period option price

Grant date

Exercisable date

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

 

 

 

 

 

-

(25,523)

(733,066)

(821,288)

 

 

 

 

31 December 2019

1,639,877

 

(25,523)

(733,066)

(821,288)

60,000

75p

12 May 2017

12 May 2020

 

Cancelation of share options during the period relates to the resignation employees. Share options expired over the period refers to those performance share option that did not meet the performance criteria on the third anniversary of the granting. Vested share options are Market share options and Performance share options that met the criteria on the third anniversary. No vested options were exercised in the period.

 

27. Related parties

 

The below figures represent remuneration of key management personnel for the Group, 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'.

 

 

2019

2018

 

Short-term employee benefits and fees

251,353

235,646

Social security costs

69,037

64,819

 

320,390

300,465

 

For Directors remuneration please see Director's Remuneration Report.

 

28. Contingent Liabilities and Commitments

The group has the following contingent liabilities relating to bank guarantees on operating lease arrangements and government grants.

 

 

2019

2018

Bank guarantees

 

114,440

105,640

Total

 

114,440

105,640

 

29. Post Balance Sheet events

The COVID-19 pandemic has had a significant, immediate impact on the global economies and on the operations. It is considered a non-adjusting post balance sheet event as the WHO called the Pandemic on 11th March 2020.

 

The COVID-19 pandemic has not, to date, had a significant adverse impact on the Group's operations but the directors are aware that if the current situation becomes prolonged then this may change. Management believes that the Group has the systems and protocols in place to address these challenges. At the date of approval of these financial statements it is not clear how long the current circumstances are likely to last and what the long-term impact will be.

 

-ends-


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