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RM2 International SA (RM2)

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Monday 21 May, 2018

RM2 International SA

2017 Annual Results

RNS Number : 6503O
RM2 International SA
21 May 2018
 

21 May 2018

RM2 International S.A.

 

2017 Audited Annual Results

 

RM2 International S.A. ("RM2" or the "Company"), the sustainable smart pallet innovator, today announces its audited financial results for the year ended 31 December 2017.  The Company will today post its annual report, along with the accompanying notice of Annual General Meeting, to shareholders. The annual report will also be made available on the Company's website.

 

Financial Highlights

 

·     

Revenues for the year ended 31 December 2017 of US$ 6.6 million (2016: US$ 8.9 million)

·     

Operating loss after tax for the period of US$ 43.9 million, of which US$ 20.7m is non-recurring (2016: US$ 52.8 million)

 

Post year-end

 

·     

US$ 36 million raised (before fees and expenses) by way of a Placing (effected in two tranches; the first of which has been completed, with the second tranche conditional on the Company achieving certain milestones)

·     

Open Offer to shareholders launched today to raise up to approximately £4.3 million (before expenses) at an issue price of 1 pence per share

·     

Debt-free with unrestricted cash balance of US$ 16.7 million at 27 April 2017

·     

Significant opportunities with Fortune 500 companies, including initial deployment of RM2 ELIoT pallets, and ongoing major trials

·     

Converting some of these opportunities, deployed and financed on schedule, is expected to result in the Company generating positive EBITDA in 2019

 

 

Chief Executive Officer, Kevin Mazula, commented: 

"We are focusing the Company's sales efforts primarily on new deployment opportunities of RM2 ELIoT Smart Pallets. Our proposition is unique in helping customers to compress their supply chains.  We are successfully completing trials and signing key customer contracts.  We have worked hard to reduce the cost base by streamlining operating expenses, eliminating non value-added activities and unwinding the operations at the Canadian manufacturing site.  The successful completion of the US$ 36 million equity raise, with the first tranche of US$ 18 million having been drawn in mid-April 2018, should enable the Company to deploy a sufficient quantity of pallets to generate positive EBITDA in 2019." 

For further information:

 

RM2 International S.A.

+44 (0)20 7638 9571

Kevin Mazula, Chief Executive Officer

Jean-Francois Blouvac, Chief Financial Officer   

 

 

 

Strand Hanson Limited (Nominated & Financial Adviser and Broker)

+44 (0)20 7409 3494

James Spinney / Ritchie Balmer / James Bellman

 

 

Citigate Dewe Rogerson (Financial PR)

+44 (0)20 7638 9571

Simon Rigby / Ellen Wilton

 

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

 

Notes to Editors

 

RM2 International S.A. specialises in pallet development, supply and management to establish a leading presence in global pallet supply and improve the supply chain of manufacturing and distribution businesses through the effective and efficient use and management of composite pallets.  It is quoted on the AIM market of the London Stock Exchange under the symbol RM2.L.

 

For further information, please visit www.rm2.com

 

 

 

 

RM2 INTERNATIONAL S.A.

Société Anonyme

 

Consolidated financial statements and

Consolidated management report and

Report of the Réviseur d'Entreprises Agréé

For the year ended 31 December 20

 

 

 

 

Registered Office : 5, rue de la Chapelle

L-1325 LUXEMBOURG

R.C.S. Luxembourg : B 132.740

 

 

 

Table of contents

Page(s)

Company information

1

Consolidated management report

2- 10

Corporate governance report

11

Report of the Réviseur d'Entreprises Agréé

12 - 14

Consolidated statement of comprehensive income

15

Consolidated statement of financial position

16

Consolidated statement of changes in equity

17

Consolidated statement of cash flows

18

Notes to the consolidated financial statements

19-63

 

 

Company Information

 

 

 

Directors & Advisers

 

 

 

 

 

 

 

 

Directors

 

 

 

 

 

R. Ian Molson

Chairman

 

Kevin Mazula

Chief Executive Officer

 

Jean-Francois Blouvac

Chief Financial Officer

 

Jan Dekker

Non-Executive Director

 

Charles Duro

Non-Executive Director

 

Lord Rose

Non-Executive Director

 

Paul Walsh

Non-Executive Director

 

 

 

 

 

Biographies of the Directors are available on the Company's website www.rm2.com

 

 

 

Registered Office

5 rue de la Chapelle

 

L-1325 Luxembourg

 

Grand Duchy of Luxembourg

 

 

 

 

Company number

RCS Luxembourg B 132.740

 

 

Nominated adviser and broker

 

Strand Hanson Limited

26 Mount Row

London W1K 3SQ

 

 

 

 

 

 

Independent Auditor

Grant Thornton Audit & Assurance

 

89A, Pafebruch

 

L-8308 Capellen

 

Luxembourg

 

 

 

 

Registrar

Computershare Investor Services (Jersey) Limited

 

Queensway House

 

Hilgrove Street

 

Jersey JE1 1ES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated management report

 

The Directors present their report on the affairs of RM2 International S.A. (the Company) and its subsidiaries, referred to as the Group, together with the audited Consolidated Financial Statements and Independent Auditors' report for the year ended 31 December 2017.

Principal Activities

RM2, the sustainable smart pallet innovator, specializes in pallet development, supply and management and is seeking to establish a leading presence in global pallet supply and improve the supply chain of manufacturing and distribution businesses through the effective and efficient use, electronic tracking and management of smart composite pallets.

 

Business Review and Key Performance Indicators

Under new leadership, the Company focussed on the following objectives:

 

1.  

Focus sales efforts principally on new deployment opportunities of RM2 ELIoT Smart Pallets

2.  

Successfully complete the initial trials of RM2 ELIoT Smart Pallets with those potential customers

3.  

Complete the transition to a high quality, low-cost outsourced manufacturing model

4.  

Reduce exposure to previous low margin non-ELIoT enabled pallets deployments

5.  

Unwind operations at the Canadian manufacturing site, streamline operating expenses, eliminate non value-added activities and monetize non-core, legacy assets

6.  

Invest in RM2 ELIoT Smart Pallet add-on technologies

The business report considers the key performance indicators to be the business revenues, the level of production and the monitoring of related ramp-up costs, the outcomes of RM2 ELIoT testing and the cash reserves of the business. 

The Company displays below a simplified Profit and Loss with a breakdown of recurring and one-time impact with their related cash implication through three stages (cash, differed cash, and non-cash).

The "cash" items impact FY2017 cash flows under the usual payment terms and opening/ending balances. The "differed cash" items impact the cash flows of subsequent years such as 2018 and 2019.The "non-cash" items such as depreciation, amortization and impairment, don't impact FY2017 cash flows.

 

in $m

TOTAL

=

Recurring

+

One-Time

detail of One-Time

 

Outsourcing

Canada

Others

Revenue

6.6

 

5.7

 

0.8

0.0

0.0

0.8

"cash"

6.6

 

5.7

 

0.8

0.0

0.0

0.8

"differed cash"

0.0

 

0.0

 

0.0

0.0

0.0

0.0

"non-cash"

0.0

 

0.0

 

0.0

0.0

0.0

0.0

Cost of Goods

-34.8

 

-14.2

 

-20.7

-10.0

-6.7

-4.0

"cash"

-15.7

 

-5.0

 

-10.7

-3.9

-5.7

-1.2

"differed cash"

-4.9

 

0.0

 

-4.9

-4.9

0.0

0.0

"non-cash"

-14.3

 

-9.2

 

-5.0

-1.2

-1.0

-2.8

SG&A

-15.0

 

-13.7

 

-1.3

-1.9

0.0

0.6

"cash"

-14.1

 

-12.2

 

-1.9

-1.9

0.0

0.0

"differed cash"

0.6

 

0.0

 

0.6

0.0

0.0

0.6

"non-cash"

-1.5

 

-1.5

 

0.0

0.0

0.0

0.0

Other expenses

0.4

 

0.0

 

0.4

0.0

0.0

0.4

"cash"

0.4

 

0.0

 

0.4

0.0

0.0

0.4

"differed cash"

0.0

 

0.0

 

0.0

0.0

0.0

0.0

"non-cash"

0.0

 

0.0

 

0.0

0.0

0.0

0.0

Operating LOSS

-42.9

 

-22.2

 

-20.7

-11.9

-6.7

-2.2

"cash"

-22.8

 

-11.4

 

-11.4

-5.7

-5.7

0.0

"differed cash"

-4.3

 

0.0

 

-4.3

-4.9

0.0

0.6

"non-cash"

-15.8

 

-10.7

 

-5.0

-1.2

-1.0

-2.8

 

 

 

 

Revenues

The Company is now focussed on deploying RM2 ELIoT Smart Pallets which provide a clear value for its customers.  Several trials were initiated and completed in late 2017 and are continuing through 2018. 

Revenue generated by the Company including exceptional (i.e. beyond the normal course of business) items in 2017 was USD 6.6m, decreasing by USD 2.3m compared to the same period in the prior year. The decrease is attributable to a lower extraordinary item (i.e. beyond the normal course of business - sale of raw material) for USD 1.0m, a lower pallet velocity under rental for USD 0.8m, the impact of terminated contracts for tracking of third party assets in the Equipment Tracking business for USD 0.4m and slightly lower outright sales of pallets for USD 0.1m. The revenue generated from the pallet rental business, USD 4.9m, grew in EMEA and Canada by 33% and 56%, respectively, but did not offset the erosion of the business in the United States due to decreasing velocity and declining number of plants served in pallet loops by the Company's largest customer of non-ELIOT enabled pallets in the US, the contract which is in a wind-down mode. Excluding the one-time sale of raw material, recurring revenue for the Company reached USD 5.7m for 2017. The active pool of non-ELIOT enabled rental pallets amounted to 275k pallets as of 31 December 2017, an increase of 10k over year-end 2016.

 

Production and ramp-up costs

The Company completed the transition to an outsourced model in 2017.  Throughout this process, the Company worked closely with its partner in Mexico to ramp up with lower cost, higher quality production in Mexico tailored to market demand.  Focusing on process improvements and RM2 ELIoT Smart Pallet deployment led to a reduced production of non-ELIOT enabled pallets, with 78k pallets being produced in Mexico during the course of 2017.  This created a situation of excess capacity with its supplier.  The Company agreed to reimburse its partner an aggregate of USD 8.9m for the under-recovery of transition costs, of which USD 8.1m has been paid or accrued in 2017. USD 3.2m has been paid in 2017, with the remaining amount to be paid through periodic invoices and as surcharges to the unit cost. The full amount is to be satisfied no later than June 2019. The Company also incurred USD 0.7m of expenses in relation to the Chinese set-up, taking the total outsourcing cost recorded in 2017 as part of the Cost of Goods Sold to USD 8.8m.

 

The Canadian operations, which are in wind down mode over the year, triggered a cost of USD 5.7m while USD 5.0m of recurring expenses were incurred of which logistical expenses in relation with the pool of pallets deployed amounted to USD 4.0m and labour costs for the third party's assets tracking business in Wales amounted to USD 0.7m. The rest of Cost of Goods Sold (USD 15.4m) mainly concerns non-cash items. Business amortization and depreciation of tangible assets (equipment and pallets) amount for USD 9.2m and USD 5.0m of impairment were recorded by the company after fit-for-purpose review of manufacturing assets (USD 2.2m) and assessment of the fair market value of current assets (USD 2.8m) based on realizable value  for inventory of pallets not eligible for retrofitting and raw material inventory.

 

 

RM2 ELIoT deployment

Prior to deploying RM2 ELIoT pallets in large quantities, the Company tested the pallet in the field with several different customers and verified the processes to ensure that it could manufacture in volume.

 

1.  

A 200-unit product performance trial was successfully completed, demonstrating that the product can perform in many different environments (e.g., sub-freezing and desert conditions)

2.  

The product was certified by the appropriate agencies

3.  

A 2,000-unit process trial was successfully completed, demonstrating that the product can be manufactured in a controlled manner in volume

4.  

A larger scale trial of 500 units was conducted with one individual customer, demonstrating the advantages of higher volume analytics.

The current testing results are satisfactory; the Company's systems immediately flag pallets circulating outside of authorized loops, enabling a customer to better monitor its supply chain and reduce losses, and permitting the Company to generate updated balances and accurate invoices immediately.  The Company has entered into a Phase 1 agreement for an initial deployment of RM2 ELIoT pallets through 30 June 2018 with a Fortune 500 company in North America following a year-long trial with this blue-chip customer's supplier network.

 

In addition, the Company has also completed a major trial with a North American company and discussions on a large-scale implementation are expected to commence.  The Company has also expanded ongoing trials with other major US-based customers.

 

Cash reserves

Unrestricted cash reserves at 31 December 2017 stand at USD 3.9m, compared to USD 9.8m at 31 December 2016. The Company issued USD 20.0m of Convertible Preferred Shares in the course of the 2017 financial year. The Company's cash flow in 2017 is negative by USD 25.9m.

 

USD 5.2m was paid in 2017 for the pure acquisition of pallets, excluding the ramp up costs. USD 1.9m was received for the sale of raw materials, including 2016 open balances. Manufacturing activities generated a net cash outflow of USD 3.3m in 2017. This amount of net purchase of pallets (USD 3.3m) added to the cash items from the Profit and Loss chart above mentioned (USD 22.8m) bridges to the 2017 cash flows, after taking into account the payment terms and opening/ending balances.

 

The Company has undertaken a large downsizing over the second semester of 2017, including the renegotiation or termination of employment and consulting contracts and the renegotiation of various fees associated with its listing on the AIM market of the London Stock Exchange. These actions were completed by end of 2017. The Company continues to review opportunities to further reduce its cost base and achieve operational efficiencies.

 

Legal matters

The Company is involved in various claims, lawsuits and proceedings arising in the ordinary course of business, including matters relating to employees, VAT, transfer pricing, contracts and intellectual property. While there are uncertainties inherent in the ultimate outcome of such matters and it is impossible to determine at present the ultimate costs that may be incurred, management believes the resolution of such uncertainties and the incurrence of such costs will not have a material adverse effect on the Company's financial position, results of operations or cash flows.

 

Own shares

The Company acquired 19,000 and 2,500,000 of non-vested ESOP restricted ordinary shares with a nominal value of USD 0.01 for an amount of USD 190 and USD 25,000, on 27 February 2017 and 21 August 2017, respectively, following the resignation of employees. These shares are held by the Company as non-voting treasury shares. As of 31 December 2017, the Group owns 2,916,334 own ordinary shares, nominal value USD 0.01, and representing 0.72 % of issued ordinary shares.

 

Going Concern

FY2017 performance

 

The Group's financial result for the year ending 31 December 2017 is a loss of USD 43.9m (December 2016: loss of USD 52.8m). Despite a reduction of the overall loss by USD 8.9m compared to last year, the Company's performance was affected by a number of non-recurring items in the amount of USD 20.7m.

 

The differed cash portion and the non-cash portion of these non-recurring items amounting to USD 9.3m, are composed of impairment of not-fit-for-purpose equipment (USD 2.2m), current assets with a realizable value below book value (USD 2.8m) and the agreed contributions to cover transition and ramp-up costs in Mexico (USD 4.9m). The Company also released a VAT accrual in FY2017 as the refund was received in 2018 before the financial statements disclosure date (USD 0.6m).

 

The cash portion of these non-recurring items amount to USD 11.4 and relates to outsourcing ramp up costs (USD 5.7m) and Canadian operations in wind down mode (USD 5.7m).

 

Selling general and administrative expenses for the year ended on 31 December 2017 amounts to USD 15.0m, of which USD 1.9m related to one-time costs (VAT, custom duties) and USD 1.5m relates to non-cash items (share based payment, amortization and impairment).

 

The loss for the year, excluding these non-recurring items, is USD 22.2m, with a cash cost of recurring business below USD 12.0m a year.

 

2018 equity funding

 

On 29 March 2018, the Company announced that it had, conditionally and in two tranches, raised USD 36m before fees and expenses by a placing of new Ordinary Shares to existing institutional investors, certain directors and members of senior management. The issuance of the first tranche, which raised gross proceeds of USD 18,162,500 took place on 13 April 2018. The issuance of the second tranche will occur ten business days following a drawdown notice issued by the Company and  is subject to the satisfaction of certain key performance indicators, including reducing operating costs of the business to a pre-determined level, launching the next generation IoT Cat M RM2 ELIoT pallets and achieving commercial deployment of RM2 ELIoT pallets and reviewing the governance of the Company, as determined to the satisfaction of the Company's largest shareholder, Woodford Investment Management Limited, acting on behalf of certain discretionary managed funds for which it acts as discretionary investment fund manager.  Management has undertaken an action plan intended to ensure satisfaction of the key performance indicators to allow for the issuance of the second tranche of shares.

 

Road map

 

The Company intends to use the net proceeds of the Placing to fund: (i) the retrofitting of existing inventory of RM2 BLOCKPals with RM2 ELIoT track and trace devices, (ii) the production of new RM2 ELIoT Pallets and (iii) its sales and general administrative costs.

 

Management established a detailed road map for the production and deployment of pallets and cost reductions. Many variable items have been secured through agreements with the Mexican industrial partner, signed customer deployment and on-going monetization of historical assets, including the sale of Company's non-core building in Switzerland, the inventory of fibreglass and the pallets which are not designated to be retrofitted. The Company announced on 13 April 2018 that it has entered into a Phase 1 agreement for an initial deployment of RM2 ELIoT pallets through 30 June 2018 with a Fortune 500 company in North America following a year-long trial with this blue-chip customer's supplier network. Some items, such as deployments with other customers, are not yet fully secured. The Company is in an advanced phase of negotiation following the completion of a major trial with a North American company and discussions on a large-scale implementation are expected to commence.  The Company has also expanded ongoing trials with other major US-based customers and is confident of its ability to convert a number of these trials to contracts.

 

A platform to further growth

 

The Company has reactivated discussions with debt providers in the light of the recent equity raise and the beginning of customer conversion to RM2 ELIoT pallets. These preliminary discussions confirm management's belief that the unique offering the Company brings to the market with a superior material and individual electronical tracking, enable a debt-funded expansion. To the extent the existing and potential customers in the commercial pipeline convert to contracts representing demand for pallets exceeding installed production capacity, management would accelerate seeking debt funding in order to activate the additional production capacity beyond that currently installed in Mexico.

 

The Directors have analysed the Group's situation and applied their best estimates to assumptions of the future development of the business for the 12 month period after year end. The Directors acknowledge that the road map to the cash break-even position remains challenging but are confident that the two tranches of 2018 equity funding will provide the Group with sufficient funding to meet its operating and pallet deployments financial needs during this period. The Directors are confident that they will be able to meet the contractual conditions necessary to be able to call the second tranche of equity funding. For these reasons, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future and accordingly, continue to adopt the going concern basis in preparing the consolidated financial statements.

 

Dividends

The Directors will not be proposing a resolution for shareholders to approve the payment of a dividend with respect to 2017 (2016: nil).

Capital Structure

Details of the authorised and issued share capital, together with details of the movements in the Company's issued share capital during the period are shown in Note 14.

Details of the share option scheme are set out in Note 22.

Supplier Payment Policy

The Group's policy is to settle terms of payment with suppliers when agreeing to the terms of each transaction.

 

Subsequent Events

Subsequent events are described in Note 28 to the Consolidated Financial Statements.

 

Directors

The Directors who served the Company during the year and up to the date of this report were as follows:

Executive Directors

 

 

John Walsh

Stepped down June 30, 2017

Jasper Judd

Appointed June 30, 2017

Stepped down August 2, 2017

Kevin Mazula

Appointed August 3, 2017

Jean-Francois Blouvac

 

 

 

Non-Executive Directors

 

R. Ian Molson

 

Jan Dekker

 

Charles Duro

 

Frederic de Mevius

Stepped down March 29, 2018

Lord Rose

 

Amaury de Seze

Stepped down June 30, 2017

John Walsh

Paul Walsh

Stepped down March 29, 2018

 

 

The Director's emoluments (translated into USD at average rate) were in 2017 and 2016, as follows:

 

 

 

2017

 

 

2016

 

 

Salary & Fees

Benefits

Total

Salary & Fees

Benefits

Total

 

USD

USD

USD

USD

USD

USD

Executive Directors

 

 

 

 

 

 

Jean-Francois Blouvac

355,460

25,727

381,187

355,296

23,246

378,542

Kevin Mazula*

187,500

7,528

195,028

-

-

-

Jasper Judd

64,507

-

64,507

-

-

-

John Walsh

385,969

51,597

437,566

331,493

107,499

331,541

 

993,436

84,852

1,078,288

686,789

130,745

817,534

 

 

 

 

 

 

 

Non-Executive Directors

 

 

 

 

 

 

R. Ian Molson

-

-

-

-

-

-

Jan Dekker

-

-

-

-

-

-

Charles Duro

-

-

-

-

-

-

Frederic de Mevius

-

-

-

-

-

-

Lord Rose

-

-

-

-

-

-

Amaury de Seze

-

-

-

-

-

-

Paul Walsh

John Walsh

-

-

-

-

-

-

-

-

-

-

 

-

-

 

-

-

-

-

-

-

 

993,436

84,852

1,078,288

686,789

130,745

817,534

 

 

 

 

 

 

 

*from August 3, 2017

In 2017, with respect to the first half of 2017 (and the second half of 2016 with respect to Frédéric de Mevius), the Non-Executive Directors fees were settled by the issuance of 757,500 ordinary shares in the Company on 17 February 2017 at a price of GBP 0.275 per share. In 2016, the Non-Executive Directors fees were settled by the issuance of 1,275,500 ordinary shares in the Company on 8 July 2016 at a price of GBP 0.23 per share.  In each case, the Ordinary Shares are restricted from trading until volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.

Directors' interests

The Directors who held office at 31 December 2017 had the following interests in the ordinary shares (including Convertible Preferred Shares) of the Company:

 

Number of shares

 at

31 December 2017

% held

at

31 December 2017

Number of shares

at

30 April 2018

R. Ian Molson*

23,600,276

4.4

295,860,083

John Walsh**

26,439,717

4.9

-

Jean-Francois Blouvac

2,500,000

0.5

10,129,108

Jan Dekker

2,790,000

0.5

5,440,000

Charles Duro

627,500

0.1

5,038,064

Lord Rose

1,440,000

0.3

21,695,634

Kevin Mazula

-

0.0

7,629,108

Paul Walsh

2,029,091

0.4

9,080,500

Frederic de Mevius**

190,000

0.0

-

 

59,616,584

 

349,572,497

 

 

 

 

*includes associated family trusts, of which, 12,207,775 are Convertible Preferred Shares at 31 December 2017.

**Shareholdings are excluded from the April 30, 2018 table as these directors stepped down prior to April 30, 2018.

Of the holdings above 17,227,683 (2016: 16,900,180) consist of Restricted Shares set out below. A Director holding Restricted Shares shall not sell, transfer, mortgage, charge, encumber or otherwise dispose of any of his Restricted Shares as long as certain performance conditions are not fully satisfied (the "Performance Conditions"). The Performance Conditions are linked to the volume weighted average quoted price of the Ordinary Shares (the "Average Price") for a consecutive 30-day period (the "Relevant Period"). For restricted shares granted prior to February 2014, if the Average Price is 50% higher than the Placing Price (GBP 0.88) for the Relevant Period, the Performance Condition in respect of one third of the Director's Restricted Shares shall be fulfilled. If the Average Price is 75% higher than the Placing Price for the Relevant Period, the Performance Condition in respect of a further one third of the Director's Restricted Shares shall be fulfilled. If the Average Price is 100% higher than the Placing Price for the Relevant Period, the Performance Condition in respect of the final third of the Director's Restricted Shares shall be fulfilled. For Restricted Shares granted thereafter, if the Average Price is above 100p for a consecutive thirty-day period, the Performance Condition in respect of such Restricted Shares is fulfilled.  If any Performance Conditions are not fully satisfied by ten years after the date of the grant, the Director shall transfer any of his remaining Restricted Shares to the Company at a purchase price equal to the nominal value of the Restricted Shares, being USD 0.01 per share.

 

 

Total number of shares at

31 December 2017

Total number of unvested options at

31 December 2017

Number of restricted shares (only) at

31 December 2017

Number of restricted shares (only) at

30 April 2018*

R. Ian Molson**

23,600,276

2,250,000

4,992,500

-

John Walsh

26,439,717

-

6,552,680

-

Jean-Francois Blouvac

2,500,000

1,000,000

2,500,000

-

Jan Dekker

2,790,000

750,000

290,000

-

Charles Duro

627,500

250,000

312,500

-

Lord Rose

1,440,000

750,000

1,440,000

-

Paul Walsh

2,029,091

750,000

1,440,000

-

Frederic de Mevius

190,000

-

-

-

 

59,616,584

5,750,000

17,527,680

-

 

 

 

 

 

 

 

*By action of the Remuneration Committee on April 20, 2018, restrictions relating to the attainment of share price thresholds were removed with immediate effect.

**Of which, 12,207,775 are Convertible Preferred Shares at 31 December 2017.

 

The terms of the unvested options are 10-year options vesting over 3 years in equal annual instalments; struck at the money but not exercisable until the stock closes above 100% for a thirty-day average closing price.

 

Corporate Responsibility

The Board recognises its employment, environmental and health and safety responsibilities. It devotes appropriate resources towards monitoring and improving compliance with existing standards.

 

Employees

The Group is committed to achieving equal opportunities and to complying with relevant anti-discrimination legislation. It is established Group policy to offer employees and job applicants the opportunity to benefit from fair employment, without regard to their sex, sexual orientation, marital status, race, religion or belief, age or disability. Employees are encouraged to train and develop their careers.

The Group has continued its policy of informing all employees of matters of concern to them as employees, both in their immediate work situation and in the wider context of the Group's well-being. Communication with employees is effected through the Board, the Group's management briefings structure, formal and informal meetings and through the Group's information systems.

Total headcount of the company as of 31 December 2017 is 72.

 

Research & Development

The Group has performed R&D activity during the year, mainly on the development of the RM2 ELIoT technology. The related expenses have been recorded as costs to the profit and loss account.

 

Risks and uncertainties

These elements are described in Note 25 to the consolidated financial statements.

 

Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the Consolidated Financial Statements and for being satisfied that the Consolidated Financial Statements give a true and fair view. The Directors are also responsible for preparing the Consolidated Financial Statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

Company law requires the Directors to prepare Consolidated Financial Statements for each financial period which give a true and fair view of the state of affairs of RM2 International S.A. (the Company) and the Group and of the profit or loss of the Company and the Group for that period. In preparing those Financial Statements, the Directors are required to:

·     

select suitable accounting policies and then apply them consistently;

·     

make judgements and estimates that are reasonable and prudent;

·     

state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

·     

prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.

 

The Directors confirm that they have complied with the above requirements in preparing the Financial Statements. The Directors are responsible for keeping adequate accounting records that are sufficient to  show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group.

They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Statement of disclosure to the Independent Auditor

All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Group's Independent Auditor for the purposes of his audit and to establish that the Independent Auditor is aware of that information. The Directors are not aware of any relevant audit information of which the Independent Auditor is unaware.

 

Independent Auditor

The auditor, Grant Thornton Audit & Assurance, will be proposed for re-appointment at the forthcoming Annual General Meeting.

 

 

 

 

 

Corporate Governance report

The Board is committed to proper standards of Corporate Governance, managing the Group in an efficient, effective, entrepreneurial and ethical manner for the benefit of shareholders over the longer term.

In the context of the Group's strategy for growth, the Board will continue to actively review its Corporate Governance at regular intervals.

The Board is responsible for the Group's system of internal control and reviewing its effectiveness. Such a system is designed to manage rather than eliminate risk of failure to achieve business objectives and can only provide reasonable and not absolute insurance against material misstatement or loss. The system of internal financial control comprises of controls established to provide reasonable assurance of:

·     

The safeguarding of assets against unauthorised use or disposal and;

·     

The reliability of financial information used within the business and for publication and the maintenance of proper accounting records.

 

In addition, the key procedures on the internal financial control of the Group are as follows:

·     

The Board reviews and approves budgets and monitors performance against those budgets regularly with any variance being fully investigated and;

·     

The Group has clearly defined reporting and authorisation procedures relating to the key financial areas.

 

The Annual General Meeting is the principal forum for dialogue with shareholders.

 

To the Shareholders of
RM2 INTERNATIONAL S.A.
5, rue de la Chapelle
LU-1325 LUXEMBOURG

 

REPORT OF THE REVISEUR D'ENTREPRISES AGREE

 

 

Qualified Opinion

 

We have audited the consolidated Financial Statements of RM2 INTERNATIONAL S.A. and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

 

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion section of our report, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

Basis for Qualified Opinion

 

Property, plant and equipment - other include idle tangible assets located in Canada and in China, requiring impairment testing, showing a net book value amounting to 13,642,477 USD for which we could not obtain sufficient appropriate audit evidence to justify the net valuation because we have not been able to validate Management's estimates of the recoverable amount of these assets. As a result, we were unable to determine whether any adjustments were necessary on these positions. In addition, last year audit opinion was modified with regards to valuation net of the property plant and equipment. Our opinion on the current period's consolidated financial statements is also modified because of the possible effects of this matter on the comparability of the current period's figures and the corresponding figures in the preceding period.

 

We conducted our audit in accordance with the Law of July 23, 2016 on the audit profession (Law of July 23, 2016) and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the "Commission de Surveillance du Secteur Financier" (CSSF). Our responsibilities under those Law and standards are further described in the « Responsibilities of "Réviseur d'Entreprises Agréé" for the Audit of the consolidated Financial Statements » section of our report. We are also independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the consolidated Financial Statements, and have fulfilled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Other information

 

The Board of Directors is responsible for the other information. The other information comprises the information included in the consolidated management report and corporate governance report but does not include the consolidated Financial Statements and our report of "Réviseur d'Entreprises Agréé" thereon.

 

Our opinion on the consolidated Financial Statements does not cover the other information and we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the consolidated Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report this fact. We have nothing to report in this regard.

 

Responsibilities of the Board of Directors and Those Charged with Governance for the consolidated Financial Statements

 

The Board of Directors is responsible for the preparation and fair presentation of these consolidated Financial Statements in accordance with IFRSs as adopted by the European Union, and for such internal control as the Board of Directors determines is necessary to enable the preparation of the consolidated Financial Statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated Financial Statements, the Board of Directors is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. 

 

Those charged with governance are responsible for overseeing the Group's financial reporting process.

 

Responsibility of the Réviseur d'Entreprises Agréé for the audit of the consolidated Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report of "Réviseur d'Entreprises Agréé" that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Law dated July 23, 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated Financial Statements.

 

As part of an audit in accordance with the Law dated July 23, 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

 

•         

Identify and assess the risks of material misstatement of the consolidated Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

 

•         

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

 

 

•         

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

 

 

•         

Conclude on the appropriateness of the Board of Directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report of "Réviseur d'Entreprises Agréé" to the related disclosures in the consolidated Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report of "Réviseur d'Entreprises Agréé". However, future events or conditions may cause the Group to cease to continue as a going concern.

 

 

•         

Evaluate the overall presentation, structure and content of the consolidated Financial Statements, including the disclosures, and whether the consolidated Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

 

•         

Obtain sufficient appropriate audit evidence regarding the financial information of the entities and business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards.

 

Luxembourg, May 18, 2018

 

 

 

 

 

Thierry REMACLE

Réviseur d'Entreprises Agréé

Grant Thornton Audit & Assurance

 

 

Consolidated Statement of Comprehensive Income

 

For the year ended 31 December 2017

 

 

Notes

 

2017

2016

 

 

 

USD

Restated USD

Continuing operations

 

 

 

 

Revenues

16

 

6,557,044

8,882,129

Cost of sales

17

 

(34,849,544)

(43,118,539)

Gross profit

 

 

(28,292,500)

(34,236,410)

 

 

 

 

 

 

 

 

 

 

Administrative expenses

18

 

(15,001,932)

(18,005,942)

Other operating expenses

19.2

 

(81,909)

(101,960)

Other operating income

19.1

 

500,934

286,636

Operating loss

 

 

(42,875,408)

(52,057,676)

 

 

 

 

 

 

 

 

 

 

Finance costs

19.4

 

(2,708,809)

(3,063,894)

Finance income

19.3

 

1,945,887

2,234,567

Loss before tax

 

 

(43,638,330)

(52,887,003)

 

 

 

 

 

Income taxes

20

 

(218,694)

73,365

Loss for the year

 

 

i.1.                     (43,857,024)

(52,813,638)

 

 

 

 

 

Other comprehensive income

 

 

 

 

Other comprehensive income to be reclassified in profit or loss in subsequent periods:

 

 

 

 

Exchange difference on translation of foreign operations

 

 

1,675,226

1,182,368

Other comprehensive income for the year, net of tax

 

 

1,675,226

1,182,368

 

 

 

 

 

Total comprehensive income for the year

 

 

(42,181,798)

(51,631,270)

 

 

 

 

 

Loss for the year attributable to:

 

 

 

 

Equity holders of the parent

 

 

(43,857,024)

(52,813,638)

 

 

 

(43,857,024)

(52,813,638)

 

 

 

 

 

Total comprehensive income for the year attributable to:

 

 

 

 

Equity holders of the parent

 

 

(42,181,798)

(51,631,270)

 

 

 

(42,181,798)

(51,631,270)

 

 

 

 

 

Loss per share

23

 

 

 

Basic loss per share attributable to ordinary equity holders of the parent

 

 

(0.11)

(0.13)

Diluted loss per share attributable to ordinary equity and convertible preferred shares holders of the parent

 

 

(0.11)

(0.13)

 

 

 

Consolidated statement of financial position as at 31 December 2017

 

 

Notes

 

2017

2016

 

 

 

USD

USD

Assets

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

8

 

1,276,504

1,573,262

Property, plant & equipment - Other

5

 

28,717,071

35,789,520

Property, plant & equipment  - Pallet pool

6

 

7,026,363

10,700,444

Investment property

7

 

-

1,280,807

 

 

 

37,019,938

49,344,033

 

 

 

 

 

Current assets

 

 

 

 

Inventories

10

 

16,614,995

16,449,080

Trade and other receivables

11

 

3,550,848

5,214,960

Other current financial assets

9

 

10,039

22,866

Fixed assets held for sale

12

 

2,657,744

-

Prepayments

 

 

1,024,503

1,045,572

Restricted Cash

13

 

2,035,642

1,884,713

Cash and cash equivalents

13

 

3,866,217

9,794,905

 

 

 

29,759,988

34,412,096

 

 

 

 

 

Total assets

 

 

66,779,926

83,756,129

 

 

 

 

 

Equity and liabilities

 

 

 

 

Equity

14

 

 

 

Ordinary shares

14.2

 

4,070,627

4,003,052

Convertible preferred shares

14.3

 

1,348,157

423,280

Share premium

14.4

 

301,681,317

282,893,809

Retained earnings

 

 

(272,845,748)

(229,107,776)

Share based payment reserve

14.5

 

20,850,588

20,073,279

Treasury stock

14.7

 

(29,163)

(3,424)

Foreign currency translation reserve

14.5

 

(8,012)

(1,683,238)

Equity attributable to equity holders of the parent

 

 

55,067,766

76,598,982

Total equity

 

 

55,067,766

76,598,982

 

 

 

 

 

Non-current liabilities

 

 

 

 

Interest bearing loans and borrowings

9.1

 

-

1,688,007

Deferred tax liabilities

20.2

 

43,751

(12,425)

 

 

 

43,751

1,675,582

 

 

 

 

 

Current liabilities

 

 

 

 

Interest bearing loans and borrowings

9.1

 

1,745,527

105,002

Trade and other payables

15

 

9,278,493

4,266,021

Deferred income

 

 

563,474

629,060

Current tax liabilities

 

 

80,914

481,482

 

 

 

11,668,409

5,481,565

 

 

 

 

 

Total liabilities

 

 

11,712,160

7,157,147

 

 

 

 

 

Total equity and liabilities

 

 

66,779,926

83,756,129

 

 

 

Consolidated Statement of changes in equity

For the year ended 31 December 2017

 

 

 

 

 

 

 

Notes

Ordinary shares

Convertible preferred shares

Share premium

Retained earnings

Foreign currency translation reserve

Treasury

Stock

Share based payment reserve

Total equity

 

 

USD

USD

USD

USD

USD

USD

USD

USD

As at 1 January 2016

 

3,980,302

-

263,317,090

(176,294,138)

2,865,606

(3,424)

19,044,095

107,178,319

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

-

-

-

(52,813,638)

-

-

-

(52,813,638)

Other comprehensive income

 

-

-

-

-

1,182,368

-

-

1,182,368

Total comprehensive income

 

-

-

-

(52,813,638)

1,182,368

-

-

(51,631,270)

 

 

 

 

 

 

 

 

 

 

Shares issued in the year

14

22,750

-

-

-

-

-

-

22,750

Convertible preferred shares issued in the year

 

-

423,280

19,576,719

-

-

-

-

19,599,999

Cost of share issue

 

-

-

-

-

-

-

-

-

Repurchase of shares into treasury

 

-

-

-

-

-

-

-

-

Share based payments

22

-

-

-

-

-

-

1,029,185

1,029,185

Transaction with owners

 

22,750

423,280

19,576,719

-

-

-

1,029,185

21,051,933

As at 31 December 2016

 

4,003,052

423,280

282,893,809

(229,107,776)

(1,683,238)

(3,424)

20,073,279

76,598,982

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

-

-

-

(43,857,024)

-

-

-

(43,857,024)

Other comprehensive income

 

-

-

-

-

1,675,226

-

-

1,675,226

Total comprehensive income

 

                -

-

      -

     (43,857,024)

         1,675,226

  -  

     -  

(42,181,798)

 

 

 

 

 

 

 

 

 

 

Ordinary shares issued in the year

14

67,575

-

-

-

-

-

-

67,575

Convertible preferred shares issued in the year

14

 

-

 

924,877

 

19,075,123

 

-

 

-

 

-

 

-

20,000,000

Cost of share issue

 

-

-

(287,615)

119,052

-

-

-

(168,563)

Repurchase of shares into treasury

 

-

-

-

-

-

(25,739)

-

(25,739)

Share based payments

22

-

-

-

-

-

-

777,309

777,309

Transaction with owners

 

67,575

924,877

18,787,508

119,052

-

(25,739)

777,309

20,650,581

As at 31 December 2017

 

4,070,627

1,348,157

301,681,317

(272,845,748)

(8,012)

(29,163)

20,850,588

55,067,766

 

 

Consolidated Statement of Cash Flows

 

For the year ended 31 December 2017

 

 

 

Notes

 

2017

2016

Cash flows from operating activities

 

 

USD

USD

Loss before tax

 

 

(43,638,330)

(52,887,003)

Adjustment to reconcile profit before tax to net cash flows

 

 

 

 

Amortisation and depreciation of non-current assets

5/6/7/8

 

9,875,684

8,723,262

Impairment on of current and non-current assets

 

 

2,450,597

8,661,080

Share based payment charges

 

 

777,309

1,029,185

Finance income

 

 

(27,190)

(84,759)

Finance expenses

 

 

45,865

35,096

Unrealised foreign exchange gains

 

 

531,860

559,306

Net (gain)/ loss on disposal of PPE and intangible assets

 

 

(30,824)

35,376

Variation in working capital

 

 

 

 

(Increase)/decrease in inventory

 

 

(165,915)

3,397,547

Decrease/ (increase) in trade and other receivables

 

 

1,685,350

3,415,584

Increase/(decrease) in trade and other payables

 

 

4,946,888

(9,590,080)

(Increase)/decrease in restricted cash

 

 

(150,929)

(68,673)

Income/other tax paid

 

 

(596,028)

(101,431)

 

 

 

 

 

Net cash flows from operating activities

 

 

(24,295,663)

(36,875,510)

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

(Increase)/decrease in intangible assets

 

 

(802)

(25,633)

(Increase)/decrease PPE in course of commissioning

 

 

(347,767)

(2,557,381)

Decrease/ (increase) in other PPE

 

 

(224,760)

(2,786,014)

Proceeds from the sale of PPE

 

 

70,498

85,012

(Increase)/decrease in pallet pool

 

 

(1,166,989)

(2,434,564)

Loans granted to third parties

 

 

12,828

39,206

Finance income received

 

 

27,190

84,759

Net cash flows from investing activities

 

 

(1,629,802)

(7,594,615)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Issuance of capital

14

 

19,899,011

20,022,750

Purchase of treasury shares

 

 

(25,740)

-

Repayment Proceeds from other and related party borrowings

 

 

(15,383)

(34,710)

Interest paid

 

 

(45,865)

(35,096)

Repayment of other and related party borrowings

 

 

(32,099)

(158,635)

 

 

 

 

 

Net cash flows from financing activities

 

 

19,779,924

19,794,309

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(6,145,541)

(24,675,816)

 

 

 

 

 

(Decrease)/increase in cash and cash equivalents

 

 

(6,145,541)

(24,675,816)

Cash and cash equivalents at 1 January

 

 

9,794,906

34,515,597

Exchange adjustment of cash and cash equivalents

 

 

216,852

(44,875)

Cash and cash equivalents at 31 December

13

 

3,866,217

9,794,906

 

 

 

 

 

                 

The board of directors have authorised for issue these consolidated financial statements on 18 May 2018

 

Consolidated Statement of Cash Flows

 

For the year ended 31 December 2017

 

1     Corporate information

1.1    General information

RM2 International S.A. (the "Company") is a limited company (Société Anonyme) incorporated and domiciled in Luxembourg with the registration number B132.740. The registered office is located at 5, Rue de la Chapelle, L-1325 Luxembourg. The Company is the ultimate parent entity of the RM2 Group (the "Group").

RM2, the sustainable smart pallet innovator, specialises in pallet development, manufacture, supply and management and is seeking to establish a leading presence in global pallet supply and improve the supply chain of manufacturing and distribution businesses through the effective and efficient use, tracking and management of composite pallets.

1.2    Changing strategy

In 2016 the Company announced plans to wind down its manufacturing operations away from its own facility in Woodbridge, Canada and entered into two strategic contract manufacturing agreements with Zhenshi in China on 1 April 2016 and with Jabil in Mexico on 22 September 2016.  Jabil produces and sells finished pallets exclusively to RM2, and Zhenshi is under contract to do so once demand warrants, and in each case the Group retains the full ownership of the manufacturing equipment. These moves were designed to give the Group significant cost savings, greater capacity, increased flexibility and clarity over forecast production.

 

The Company recently exchanged letters with its Chinese subcontractor, Zhenshi, regarding a termination of the agreement and indemnities to cover costs incurred to date through the time of removal of the equipment from Zhenshi's site. Discussions are on-going. In light of these exchanges and its business plan, the Company is currently re-examining its footprint in China. The outcome of these exchanges is unknown at present, but alternatives under consideration could include revising the current agreement with Zhenshi, the amical or litigious termination of the contract and/or establishing an agreement with a different contract manufacturer. Regardless of the outcome of the subcontracting relationship, RM2 expects to continue to source fibreglass raw material for pallet production from Zhenshi's affiliate, Jushi.

 

The Company focuses now on the deployment of RM2 ELIoT pallets and has undertaken the retrofitting of its inventory of non-ELIOT enabled pallets located in Canada and Mexico.

More information is provided in Notes 3.2, 5, 23 and 26.

2     Basis of preparation

The consolidated financial statements comprise the consolidated financial information of the Group as at 31 December 2017 and are prepared under the historic cost convention as disclosed in the accounting policies below.

The accounting policies which follow set out the policies applied in preparing the consolidated financial statements. Where necessary, comparative figures have been amended to conform with change in presentation in the current year.

2.1    Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRIC interpretations as issued by the International Accounting Standards Board ("IASB") and IFRS Interpretations Committee ("IFRIC") and as adopted by the European Union ("EU").

2.2    Basis of consolidation

The consolidated financial statements comprise the financial information of the Group and its subsidiaries. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial information of the subsidiaries is prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. 

Subsidiaries and business combinations

Subsidiaries are all entities, including structured entities, over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group uses the acquisition method of accounting to account for the acquisition of subsidiaries.

The consideration transferred on acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the consideration transferred over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the consideration transferred acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss. Acquisition costs are written off to profit or loss.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

The subsidiaries of the Group are listed in Note 26.

3     Summary of significant accounting policies

The principal accounting policies are summarised below:

3.1    Foreign currencies

The Group's consolidated financial statements are presented in United States Dollars ("USD"), which is also the parent company's functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions and balances

Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.

Differences arising on settlement or translation of monetary items are recognised in profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively).

Group companies

On consolidation, the assets and liabilities of foreign operations are translated into USD at the rate of exchange prevailing at the reporting date and their income statements are translated at average exchange rate prevailing during the financial year. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.

 

3.2    Going concern

FY2017 performance

 

The Group's financial result for the year ending 31 December 2017 is a loss of USD 43.9m (December 2016: loss of USD 52.8m). Despite a reduction of the overall loss by USD 8.9m compared to last year, the Company's performance was affected by a number of non-recurring items in the amount of USD 20.7m.

 

The differed cash portion and the non-cash portion of these non-recurring items amounting to USD 9.3m, are composed of impairment of not-fit-for-purpose equipment (USD 2.2m), current assets with a realizable value below book value (USD 2.8m) and the agreed contributions to cover transition and ramp-up costs in Mexico (USD 4.9m). The Company also released a VAT accrual in FY2017 as the refund was received in 2018 before the financial statements disclosure date (USD 0.6m).

 

The cash portion of these non-recurring items amount to USD 11.4 and relates to outsourcing ramp up costs (USD 5.7m) and Canadian operations in wind down mode (USD 5.7m).

 

The Selling general and administrative expenses for the year ended on 31 December 2017 amounts to USD 15.0m, of which USD 1.9m related to one-time costs (VAT, custom duties) and USD 1.4m relates to non-cash items (share based payment, amortization and impairment).

 

The loss for the year, excluding these non-recurring items, is USD 22.2m, with a cash cost of recurring business below USD 12.0m a year.

 

 

2018 equity funding

 

On 29 March 2018, the Company announced that it had, conditionally and in two tranches, raised USD 36 m before fees and expenses by a placing of new Ordinary Shares to existing institutional investors, certain directors and members of senior management. The issuance of the first tranche, which raised gross proceeds of USD 18'162'500 took place on 13 April 2018. The issuance of the second tranche will occur ten business days following a drawdown notice issued by the Company and  is subject to the satisfaction of certain key performance indicators (the KPI), including reducing operating costs of the business to a pre-determined level, launching the next generation IoT Cat M RM2 ELIoT pallets and achieving commercial deployment of RM2 ELIoT pallets and reviewing the governance of the Company, as determined to the satisfaction of the Company's largest shareholder, Woodford Investment Management Limited, acting on behalf of certain discretionary managed funds for which it acts as discretionary investment fund manager.  Management has undertaken an action plan intended to ensure satisfaction of the key performance indicators to allow for the issuance of the second tranche of shares. The realization of second tranche is essential to enable the Group to face its financial obligations for the twelve months period following the closing date, and as such, to validate the fact that the going concern principle is applicable to these consolidated financial statements. In light of the current state of progress to achieve the targets related to KPI, the Management is of the opinion that the uncertainties over ability of Management to successfully achieve its target within the deadlines are not significant.

 

Road map

 

The Company intends to use the net proceeds of the Placing to fund: (i) the retrofitting of existing inventory of RM2 BLOCKPals with RM2 ELIoT track and trace devices, (ii) the production of new RM2 ELIoT Pallets and (iii) its sales and general administrative costs.

 

Management established a detailed road map for the production and deployment of pallets and cost reductions. Many variable items have been secured through agreements with the Mexican industrial partner, one signed customer deployment and the on-going monetization of historical assets, including the sale of Company's non-core building in Switzerland, the inventory of fibreglass and the pallets which are not designated to be retrofitted. The Company announced on 13 April 2018 that it has entered into a Phase 1 agreement for an initial deployment of RM2 ELIoT pallets through 30 June 2018 with a Fortune 500 company in North America following a year-long trial with this blue-chip customer's supplier network. Some items, such as deployments with other customers, are not yet secured. The Company is in an advanced phase of negotiation following the completion of a major trial with a North American company and discussions on a large-scale implementation are expected to commence.  The Company has also expanded ongoing trials with other major US-based customers and is confident of its ability to convert a number of these trials to contracts.

 

A platform to further growth

 

The Company is reactivating discussions with debt providers in the light of the recent equity raise and the beginning of customer conversion to RM2 ELIoT pallets. These preliminary discussions confirm management's belief that the unique offering the Company brings to the market with a superior material and individual electronical tracking, enable a debt-funded expansion. To the extent the existing and potential customers in the commercial pipeline convert to contracts representing demand for pallets exceeding installed production capacity, management would accelerate seeking debt funding in order to activate the additional production capacity beyond that currently installed in Mexico.

 

 

The Directors have analysed the Group's situation and applied their best estimates to assumptions of the future development of the business for the 12 months period after year end. The Directors acknowledge that the road map to the cash break-even position remains challenging but are confident that the two tranches of 2018 equity funding will provide the Group with sufficient funding to meet its operating and pallet deployments financial needs during this period. The Directors are confident that they will be able to meet the contractual conditions necessary to be able to call the second tranche of equity funding. For these reasons, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future and accordingly, continue to adopt the going concern basis in preparing the consolidated financial statements.

 

3.3    Property, plant and equipment

Initial recognition and measurement

Property, plant and equipment ("PPE") are tangible assets used by the Group for the production of pallets or supply of goods or services, or for administrative purposes and are expected to be used during more than one period. PPE is recognised when it is probable that future economic benefits associated with the asset will flow to the Group and if the cost can be measured reliably.

PPE is initially recognised at cost. Such cost includes the purchase price and all cost incurred in bringing the assets to the location and condition for its operation in the manner intended by management. The cost of the PPE includes also the borrowing costs for long-term construction projects if the recognition criteria are met.

Until 2016, the pallet pool was initially recognised at the standard cost of production including all expenses directly attributable to the manufacturing process and portions of related production overheads, based on normal operating capacity.

From 2017, the pallet pool is initially recognised at cost. Such costs include the purchase price and all costs incurred in bringing the assets to the location and condition for its operation in the manner intended by management.

When significant parts of property, plant and equipment will be required to be replaced, the Group will recognise such parts as individual assets with specific useful lives and depreciate them accordingly. Likewise, when a major inspection will be performed, its cost will be recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs will be recognised in profit or loss as incurred.

Finished goods (under inventory) represent pallets not yet sold or deployed via the pallet pool in property, plant and equipment.

Subsequent measurement

PPE is subsequently measured at cost less any accumulated depreciation and any accumulated impairment losses.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

Buildings

30 years

Plant and equipment

3 to 20 years

Pallet Pool - non-ELIoT

5 years

Pallet Pool - RM2 ELIoT

7 years

PPE under construction

not depreciated

 

 

An item of PPE and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss when the asset is derecognised.

 

The residual values, useful lives and methods of depreciation of PPE are reviewed at each financial year end and adjusted prospectively, if appropriate. Further explanation on management estimates and assumptions is disclosed in Note 4.

 

The Group has not applied revaluation on any of its PPE. An impairment is recognised in the pallet pool classified as fixed assets. The recoverable amount is based on the quantity of pallets classified as fixed asset at year end considering the average quantity of lost and broken pallets to main clients extrapolated to the entire pool.

 

3.4    Leases

 

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

 

Group as a lessee

 

Leases where a significant portion of the risks and rewards of ownership is retained by the lessor are classified as operating leases. Payments made under operating leases are charged to profit or loss on a straight-line basis over the period of the lease.

 

The aggregate benefit of lease incentives is recognised as a reduction to the expense recognised over the lease term on a straight-line basis.

 

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement date at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in long-term and short-term borrowings. The interest element of the finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.

 

Group as a lessor

 

Leases in which the Group does not transfer substantially all the risks and benefits of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

 

Revenue arising on operating leases for pallets is accounted for as on a straight-line basis or a usage basis in accordance with the contract.

 

Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms and included in other operating income.

 

3.5    Borrowing costs

 

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

 

3.6    Investment property

 

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, the Group has decided to measure investment properties using the cost model. Investment properties are measured similarly to property, plant and equipment as described in Note 3.3.

 

The fair value, which reflects market conditions at the reporting date, is disclosed in the Note 7.2 to the consolidated financial statements.

 

Investment properties are derecognised either when they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the income statement in the period of de-recognition.

 

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

 

The Company decided during the course of 2017 to sell its building in Switzerland and has therefore adapted the presentation in the accounts.

 

3.7    Intangible assets

 

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses, if any.

 

The useful lives of intangible assets are assessed as finite, except goodwill.

 

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible assets.

 

Intangible assets with indefinite useful lives (goodwill) are not amortised, but are tested for impairment annually at the cash-generating unit level (see Note 8 for details and assumptions). The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable.

 

Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.

 

Amortisation is calculated on the straight-line method to write off the cost of each asset to their residual values, over their estimated useful life. The annual amortisation periods are as follows:

 

Software                                                                                  3 years

 

Trade names                                                                            5 years

 

Customer Relationships                                                            5 years

 

Licences and ERP System                                                       3 to 7 years

 

Goodwill                                                                                  Not amortized

 

3.8    Fixed assets held for sale

 

Non-current assets are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and the sale is considered highly probable. They are measured at the lower of carrying amount and fair value less costs of disposal if their carrying amount is recovered principally through a sale transaction rather than through continuing use.

 

3.9    Research and development costs

 

Research costs are expensed as incurred. Development expenditures on an individual project are considered as an intangible asset when the Group can demonstrate:

 

-     The technical feasibility of completing the intangible asset so that the asset will be available for use or sale

 

-     Its intention to complete and its ability to use or sell the asset

 

-     How the asset will generate future economic benefits

 

-     The availability of resources to complete the asset

 

-     The ability to measure reliably the expenditure during development

 

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually.

 

To date no amounts have been capitalised in respect of the development phase of internal projects.

 

3.10  Inventories

 

Inventories are stated at the lower of cost or net realizable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows:

 

Raw materials

Purchase cost

Finished goods and work in progress

Until 2016, standard cost of production including all expenses directly attributable to the manufacturing process and portions of related production overheads, based on normal operating capacity. From 2017, the items are initially recognised at purchase price. 

Pallets are held as inventory prior to being deployed in the pallet pool or sold directly to customers.

 

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

 

When the net realizable value of stock is lower than its cost, provisions for impairment are created to reduce the value of the stock to its net realizable value.

 

The cost of inventories is recognised as an expense in the period in which the related revenue is recognised.

 

3.11  Impairment on non-financial assets

 

Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset's net selling price and value in use or fair value less cost to sell determined by using discounted cash flow method. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

 

The future discounted cash flow method used to determine the value in use or fair value less cost to sell is usually, but not always, based on cash flow projections over for the next 3 years.

 

Impairment losses of continuing operations are recognised in profit or loss in those expense categories consistent with the function of the impaired asset.

 

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset's or cash-generating unit's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation reserve.

 

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Cash Generating Units (CGUs), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

 

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.

 

3.12  Financial instruments

 

3.12.1 Financial assets

 

3.12.1.1  Initial recognition and measurement

 

The Group classifies its financial assets in the following categories: at fair value through profit and loss, loans and receivables, held-to-maturity investments and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date.

 

All financial assets are recognised initially at fair value plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.

 

The Group's financial assets include cash and short-term deposits, trade and other receivables, other current and non-current assets which are classified in the category of loans and receivables and available-for-sale financial assets. The Group does not have held-to-maturity investments.

 

3.12.2 Subsequent measurement

 

3.12.2.1  Loans and receivables:

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.

 

After initial measurement, they are subsequently measured at amortised cost using the effective interest rate method ("EIR"), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of comprehensive income. The losses arising from impairment are recognised in the finance costs in the statement of comprehensive income.

 

3.12.3 De-recognition

 

De-recognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership, but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose restrictions on the sale.

 

3.12.4 Impairment of financial assets

 

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include, but is not limited to, indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments.

 

3.13  Financial liabilities

 

3.13.1 Initial recognition and measurement

 

Financial liabilities are classified as financial liabilities at fair value through profit or loss or other financial liabilities as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

 

All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.

 

The Group's other financial liabilities include trade and other payables, borrowings and long-term payables.

 

3.13.2 Subsequent measurement

 

The measurement of financial liabilities depends on their classification as follows:

 

3.13.2.1  Other financial liabilities:

 

After initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the effective interest rate method amortisation process.

 

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the statement of comprehensive income.

 

Other financial liabilities are classified as current liabilities unless the Group has an unconditional right to defer the settlement of the liability for at least 12 months after the balance sheet date.

 

3.13.3 De-recognition

 

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are subsequently modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of comprehensive income.

 

3.13.3.1  Offsetting of financial instruments

 

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

 

3.14  Cash and cash equivalents, restricted cash

 

Cash and cash equivalents, restricted cash are carried in the statement of financial position at fair value. For the purposes of the cash flow statement, cash and cash equivalents are comprised of cash on hand and deposits held on call with banks having an original maturity of 3 months or less. In the statement of financial position, bank overdrafts are included in borrowings under current liabilities.

 

3.15  Taxes

 

Current income tax

 

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. A provision is made for corporation tax for the reporting period using the tax rates that have been substantially enacted for each company at the reporting date in the country where each company operates and generates taxable income.

 

Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of comprehensive income.

 

Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretations and establishes provisions where appropriate.

 

Deferred income tax

 

Deferred income tax is provided for using the liability method on all temporary differences arising between the tax bases of assets and liabilities and the carrying amounts in the financial statements. The deferred tax is calculated on currently enacted tax rates that are expected to apply when the temporary differences reverse. Where an overall deferred taxation asset arises, it is only recognised in the financial statements where its recoverability is foreseen with reasonable certainty.

 

Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

 

3.16  Pensions and other post-employment benefits

 

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

 

The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due.

 

The Group does not operate any defined benefit pension plan.

 

3.17  Provisions, contingent assets and liabilities

 

Provisions

 

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. Provisions are not recognised for future operating losses.

 

Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material.

 

Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision.

 

In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognised.

 

Contingent assets

 

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

 

Contingent assets are not recognised in the consolidated financial statements. However, when the realisation of income from the contingent asset is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.

 

Contingent liabilities

Contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity, or is a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability.

Contingent liabilities are not recognised in the consolidation financial statements.

3.18  Equity, reserves and dividend payments

Issued share capital represents the nominal value of shares that have been issued. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

Other components of equity include the following:

-    

Foreign currency translation reserve - comprises foreign currency translation differences arising from the translation of financial statements of the Group's foreign entities into US Dollars.

-    

The share premium account - comprises any premiums received on issue of share capital, both Ordinary and Preferred. Any transaction costs associated with the issuing of shares are deducted from share premium.

-    

The share-based payment reserve corresponds to the accumulated amount of instruments granted to employees regarding share based payments equity settled (see Note 3.20).

-    

Retained earnings - includes all current and prior period retained profits and losses.

-    

Treasury stock represents Own Shares.

-    

Convertible Preferred Shares (see Note 14.3).

All transactions with owners of the parent are recorded separately within equity.

Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date.

3.19  Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the invoiced value for the sale of goods net of value added tax, rebates and discounts which represents the fair value of the consideration received or receivable. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognised:

Sales of goods

Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods have been transferred to the buyer and the collectability of the related receivables is reasonably assured, regardless of when the payment was made.

Rendering of services

Revenue relating to logistical services is recognised as the services are performed.

Rental income

Pallets

Revenue arising on operating leases for pallets is accounted for as on a straight-line basis or a usage basis in accordance with the contract.

Operating leases for pallets are recognised within Revenues as these revenues are considered as related to the primary activity of the Group.

Property income

Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms and included in other operating income.

Property rental income is recognised within other operating income as it is not considered as related to the primary activity of the Group.

Interest income

Interest income is reported on an accruals basis using the effective interest method.

3.20  Share based payments

The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grant of the equity instruments is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the instruments granted. At the end of each reporting period, the Group revises its estimates of the number of instruments that are expected to vest based on the non-market vesting conditions and service conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

3.21  Changes in accounting policies and disclosures

The accounting policies are consistently applied by the Group's subsidiaries and are consistent with those used in the previous year, except as follows:

 

1. Amendments to standards adopted by the Group

 

The  following  amendments  to  standards  are  mandatory  for  the  financial  year  beginning  1 January 2017;

 

·     

Amendments to IAS 7, "Statement of Cash Flows", disclosure initiative;

 

·     

Amendments to IAS 12, "Income Taxes", recognition of deferred tax assets for unrealised losses;

 

·     

Annual improvements 2014 - 2016, amendment to IFRS 12, "Disclosures of Interests in Other Entities".

 

 

These amendments have no significant impact.

 

2. Standards and amendments to existing standards that are not yet effective and not been early adopted

 

The following new standards and amendments have been published but are not effective for the Group's accounting year beginning on 1 January 2017:

 

·     

IFRS  9,  "Financial  Instruments"  and  related  amendments  -  effective  from  1  January  2018. IFRS 9 replaces the classification and measurement guidance in IAS 39, "Financial Instruments: recognition and measurement".  IFRS  9  contains  revised  rules for  the  classification  and  the measurement  of  financial assets and liabilities and sets out new requirements for impairment of financial instruments and for hedge accounting. IFRS 9 is effective for annual reporting period beginning on or after January 1, 2018;

·     

IFRS 14, "Regulatory Deferral Accounts" - effective from 1 January 2016;

·     

FRS 15, "Revenue from Contracts with Customers" and related amendments - effective from 1 January 2018. IFRS 15 is a new comprehensive standard for revenue recognition and replaces IAS 18 "Revenue". IFRS 15 establishes a five-step model related to revenue recognition from contracts with customers.  IFRS 15 is effective for annual reporting period beginning on or after January 1, 2018;

·     

IFRS 16, "Leases" -  effective from 1 January 2019.  IFRS  16  defines  a  lease  as  a  contract,  or  part  of  a contract, that conveys the right to use an asset ("the underlying asset") for a period of time in exchange for consideration. IFRS 16 replaces IAS 17 "Leases". IFRS 16 requires lessees to recognise nearly all leases on the balance sheet which will reflect their right to use an asset for a period of time and the associated liability for payments. IFRS 16 is effective for annual reporting period beginning on or after January 1, 2018;

·     

IFRS 17, "Insurance Contracts" - effective from 1 January 2021;

·     

IFRIC  22,  "Foreign  Currency  Transactions  and  Advance  Consideration"  clarifies  the  accounting  for transactions that include the receipt or payment of advance consideration in a foreign currency giving rise to a non-monetary asset or liability - effective from 1 January 2018

·     

IFRIC 23, "Uncertainty over Income Tax Treatments" clarifies the accounting for income tax treatments that have yet to be accepted by tax authorities - effective from 1 January 2019;

·     

Annual improvements 2014 - 2016, cycle amendments to two standards: IFRS 1, "First-time Adoption of International Financial Reporting Standards" and IAS 28, "Investments in Associates and Joint Ventures" - effective from 1 January 2018;

·     

Annual improvements 2015 - 2017, cycle amendments to four standards: IFRS 3, "Business Combinations", IFRS 11, "Joint Arrangements", IAS 12 "Income Taxes" and IAS 23, "Borrowing Costs" - effective from 1 January 2019;

·     

Amendments to IAS 19, "Employee Benefits", Plan Amendment, Curtailment or Settlement - effective from 1 January 2019;

·     

Amendments to IAS 28, "Investments in Associates and Joint Ventures", Long-Term Interests in Associates and Joint Ventures - effective from 1 January 2019;

·     

Amendments  to  IAS  40,  "Investment  Property"  on  the  definition  of  change  in  use  -  effective  from  1 January 2018 ;

·     

Amendments  to  IFRS  2,  "Share-Based  Payment",  Classification  and  Measurement  of  Share-Based  Payment Transactions - effective from 1 January 2018;

·     

Amendments to IFRS 10, "Consolidated Financial Statements" and IAS 28, "Investments in Associates and Joint Ventures" - effective from 1 January 2018.

 

 

The Group has to assess the impact of the Standards and Interpretations which are in issuance but not yet effective at the date of the opening balance.

4     Significant accounting judgments, estimates and assumptions

The preparation of financial statements conforming to adopt IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and assumptions are based on historical experience and other factors considered reasonable at the time, but actual results may differ from those estimates. Revisions to these estimates are recognised in the period in which they are made.

4.1    Judgments

In the process of applying the Group's accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the consolidated financial information:

Recognition of deferred tax assets

The assessment of the probability of future taxable income against which deferred tax assets can be utilised is based on the Group's latest approved forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. The tax rules in the numerous jurisdictions in which the Group operates are also carefully taken into consideration. If a positive forecast of taxable income indicates the probable use of a deferred tax asset in the foreseeable future, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties are assessed individually by management based on the specific facts and circumstances.

The Group has not recognised any deferred tax assets as there is no certainty of the timing of recovery. For further detail on deferred tax, refer to Note 20.

Trade Receivables

The Group regularly reviews and assesses the trade receivables for the recoverability. The Group has made no provision against overdue trade receivables as management are confident that they will be recovered in full. The Group considers the followings events as indicators of an impairment:

·      default of payments of the counterparty

·      financial difficulties of the counterparty

·      It becoming probable that the counterparty enter bankruptcy or other financial reorganisation

·      granting to the counterparty a concession that the Group will not otherwise consider

Restricted Shares

The Group has issued restricted shares under the "2013 Option and Incentive Plan".

Management has considered that the restricted shares issued to date should be measured similarly to share options. In certain cases, the shares granted vest immediately and in others at the end of a three-year period. They are accompanied by a restricted share agreement. Management has considered that the restrictions on shares were representative of market related vesting conditions, as the holders of the restricted shares can only dispose of their shares if the quotation price reaches different thresholds, or in certain cases on a specified anniversary following the date of the grant as long as the holder continues to have a business relationship with the Group.

Management has considered that achievement of these market conditions would require time corresponding to the advantage provided to the holders of restricted shares. Management estimated at issuance date that Tranche 1 and 2 would be achieved within 5 years and Tranche 3 within 10 years, therefore, Management applied those durations as vesting periods for the instruments.  For the restricted shares that vest on a specified anniversary that anniversary date has been used as the duration of the vesting period.

Restricted shares issued in lieu on non-executive Directors remuneration have the same conditions as the restricted shares issued under the Plan.

For further detail on share-based payments transactions, refer to Note 22.

Preference shares

In July 2016, the Company issued 42,328,042 Class A Convertible Preferred Shares with a nominal value of USD 0.01 per share.

In June 2017, the Company issued 4,591,743 Class B1 Convertible Preferred Shares with a nominal value of USD 0.01 per share.

In June and July 2017, the Company issued an aggregate of 87,895,986 Class B2 Convertible Preferred Shares with a nominal value of USD 0.01 per share.

The Board has considered the accounting treatment of these Convertible Preferred Shares under IAS 32. They considered the three main tests to determine the disclosure and have determined that the Convertible Preferred Shares constitute equity instruments under IAS 32.

Group as a lessor - Industrial assets leased to the Chinese manufacturer

The Group has entered in 2016 into a lease agreement with respect to the industrial assets located at the site of its Chinese manufacturer. As the Group retains ownership of these assets, those are maintained in the Group's balance sheet. 

4.2    Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial information were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

The Management has disclosed reasonably possible assumptions and estimates, on the basis of its existing knowledge at year end. Outcomes within the next financial years that are different from these assumptions could require a material adjustment to the carrying amount of the asset or liability affected.

Share-based payments

The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share (options), volatility and risk-free interest rate, dividend yield and making assumptions about them.

During both years, the Group issued restricted shares and options under the 2013 Option and Incentive Plan.

The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 22.

Employee Stock Option Plan ("ESOP")

The Group has granted awards pursuant to the 2013 Option and Incentive Plan ("ESOP") to its directors and some of its employees and consultants. The fair value of the plan at grant date is based upon actuarial assumptions estimated by the management and disclosed in Note 22.2.

Measurement of property, plant and equipment and investment property

The Group holds a building property which is used for both Group administrative purpose and rental to third parties. Therefore, the management has determined that the building accounting should be split between the part used by the Group, classified as property, plant and equipment, and the part rented to third parties, classified as investment property.

The initial cost of acquisition of the building is for both the building construction and the land. In determining the part of the acquisition cost related to the land, by default of explicit description in the notarial deed, the Management has made the assumption that 25% of the initial cost was related to the land.

In determining the measurement of each part of the building (PPE and investment property), the management has determined the split based on the surface used for each purpose. Management has also determined that the depreciation should be made using straight line method and over a useful life of 30 years.

Due to the inability of Management to determine the residual value at the end of the useful life, Management has made the assumption that the residual value is nil and, therefore, the depreciation is computed on the entire value of the building cost.

The Company performs on a regular basis a fit-for-purpose review of its manufacturing equipment and records if need be the required impairment.

Finished goods and work in progress

Finished goods and work in progress are recognised at an amount based on standard cost of production including all expenses directly attributable to the manufacturing process and portions of related production overheads, based on normal operating capacity. 

The Company performs on a regular basis a review of its inventory and work in progress to assess the fair realization value and records any required impairment.

Pallet Pool

The non-ELIoT pallet pool is depreciated over 5 years. Management have assessed the durability of the pallets supported by external testing and consider that this is a fair reflection of their estimated useful life. The residual value is estimated to be nil.

The RM2 ELIoT pallet pool is depreciated over 7 years. Previously, the Company targeted high velocity (a KPI measuring the rotation rate of the pallet pool) deployment to be cost-competitive for customers. The introduction of RM2 ELIoT technology brings a competitive advantage to the Company through the replacement of the Lost Equipment Charge typically embedded in any pallet supply contract by a lower Recovery Fee. This leads to lower velocity deployments and therefore extended useful life of each pallet.

Management will review the useful life of the pallets at each reporting date.

Impairment of property, plant and equipment - China/Mexico

The Group is required to test, when an impairment test indicator is identified, whether tangible fixed assets have suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows.

In assessing impairment, Management estimates the recoverable amount of cash generating units based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about useful lifetime of ELIoT pallets, future operating results from pallets, capacity of production of the equipment and the determination of a suitable discount rate (see Note 5.3 for details and assumptions).

Impairment of Goodwill

The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows.

In assessing impairment, Management estimates the recoverable amount of cash generating units based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate (see Note 8 for details and assumptions).

 

5          Property plant and equipment - Others

 

 

 

Land & Building

Plant & Equipment

Others

 

Plant & Equipment

China/Mexico

 

Construction in progress

Total

 

 

USD

USD

USD

USD

USD

Cost

 

 

 

 

 

 

As at 1 January 2016

 

1,746,227

27,666,398

-

15,087,530

44,500,155

Additions

 

-

2,786,014

-

2,557,381

5,343,395

Transfer/reclassification

 

-

(12,257,165)

25,081,276

(12,824,111)

-

Disposals

 

-

(276,479)

-

-

(276,479)

Exchange differences

 

3,804

 597,279

-

412,343

1,013,426

As at 31 December 2016

 

1,750,031

18,516,047

25,081,276

5,233,143

50,580,497

Additions

 

-

181,567

43,191

347,767

572,525

Transfer/reclassification

 

 (1,648,658)

 (270,617)

270,617

-

 (1,648,658)

Disposals

 

-

 (97,414)

-

-

 (97,414)

Exchange differences

 

22,193

1,043,747

-

120,355

1,186,295

As at 31 December 2017

 

123,566

19,373,330

25,395,084

5,701,265

 

 

 

 

 

 

 

Amortization and impairment

 

 

 

 

 

 

As at 1 January 2016

 

230,020

4,479,722

-

3,537,463

8,247,205

Amortization charge for the year

 

64,200

3,302,950

-

-

3,367,150

Impairment charge for the year

 

71,163

3,182,360

-

-

3,253,523

Transfer

 

-

(3,682,648)

3,682,648

-

-

Disposals

 

-

(156,092)

-

-

(156,092)

Exchange differences

 

42,113

37,078

-

-

79,191

As at 31 December 2016

 

407,496

7,163,370

3,682,648

3,537,463

14,790,977

Amortization charge for the year

 

41,217

2,275,597

2,499,394

-

4,816,208

Impairment charge for the year

 

-

 (168,763)

1,235,341

1,220,766

2,287,344

Transfer

 

(288,518)

-

-

-

(288,518)

Disposals

 

-

 (57,740)

-

-                  

 (57,740)

Exchange differences

 

 (36,629)

364,532

-

-

327,903

As at 31 December 2017

 

123,566

9,576,996

7,417,383

4,758,229

21,876,174

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

As at 31 December 2017

 

-

9,796,334

17,977,701

943,036

28,717,071

As at 31 December 2016

 

1,342,535

11,352,677

21,398,628

1,695,680

35,789,520

 

 

 

 

 

 

 

 

As of 31 December 2017, the Group has no liens and encumbrances on its property, plant and equipment (2016: there was a mortgage - see Note 5.5 below). In 2017, the Group has no capital commitments on the development and acquisition of property, plant and equipment in Canada (2016: USD 184,476).

 

There were no borrowing costs capitalised during any period.

 

5.1    Land & Building

 

As at 31 December 2017 and 2016, these assets represent the leasehold improvements in the Canadian factory. The building located in Châtel, Switzerland used by the Group for both administrative purposes and for rental has been sold on 27 February 2018; as the decision to sell this asset has been made in 2017 and as the disposal is considered as highly probable, it has been reclassified under fixed assets held for sale on 31 December 2017 for USD 1,360,140. As at 31 December 2016, the cost of the property related to administrative purposes was classified within property, plant and equipment.

 

As part of the strategic reorganisation of the Group (see Note 1.2), the leasehold improvements have been fully impaired during the year 2016.

 

5.2    Plant & Equipment - Others

 

As at 31 December 2017, these assets represent mainly remaining and idle equipment located in the Canadian factory (North American segment). This remaining equipment still in Canada is mainly made of additional assembly capacities that will be transferred in 2018 to an industrial partner or will be stored in a smaller warehouse in Canada. The equipment dedicated to a future transfer continues to be depreciated over its expected lifetime.

 

This idle equipment in Plant & Equipment - Others has been subject to an impairment testing:

 

               

 

·     

Items considered as not usable in the future have been fully impaired;

·     

Other items amounting to USD 7,953,715 were not impaired as their fair value less cost of disposal exceeds their carrying amount; this fair value is extrapolated from an external valuation expert report (using in particular replacement cost) issued on 28 March 2016 on the asset's condition as of 31 December 2015.

 

As at 31 December 2017, the impairment deducted from this position amounts to USD 3,206,855 (2016: USD 3,182,360).

5.3    Plant & Equipment - China/Mexico

As a result of the new manufacturing strategy, the Group moved a significant portion of its industrial assets in Mexico and China in 2016 and early 2017. As of 31 December 2017, the net book value of transferred assets located in Mexico and China amounts to respectively USD 12,849,091 and USD 5,128,610. RM2 remains the owner of the equipment located in China and Mexico.

The Management performed a fit-for-purpose review and recorded an impairment on this basis. The Management also performed an impairment testing using the discounted (at a discount rate of 11.38%) cash flows generated by the set of equipment in Mexico and projected to the set of equipment in China. As the discounted cash flows exceed the net book value for the Mexican Cash Generating Units, there is no impairment to be recorded on these assets.

As at 31 December 2017, the impairment deducted from this position amounts to USD 1,235,341 (2016: USD 0).

5.4    Construction in progress

As at 31 December 2017 and 2016, the Group has several items as PPE corresponding to machines that are not yet completed for the production of pallets, located in Canada and Mexico. These items are presented as construction in progress and are not amortized.

In 2017, these items have been subject to a fit-for-purpose review and items considered as not usable in the future have been fully impaired.

As of 31 December 2017, the cumulated value correction deducted from this position amounts to USD 1,220,766 (2016: USD 0).

5.5    Security on property, plant & equipment for liabilities

The Group has granted a security interest over the property held in Switzerland in return for the CHF 1,700,000 bank loan amounting to USD 1,741,480 (2016: CHF 1,800,000 - USD 1,766,520). As at 31 December 2017, this asset has been transferred under the caption fixed assets held for sale (see Note 12).

 

 

6          Property, plant and equipment Pallet pool

The Group has decided to disclose the pallet pool as a separate heading and therefore has disclosed the Pallet Pool in a separate note.

 

 

Pallet Pool

 

 

USD

Cost

 

 

As at 1 January 2016

 

20,781,799

Additions

 

2,434,564

As at 31 December 2016

 

23,216,363

Additions

 

                           1,166,989

As at 31 December 2017

 

                         24,383,352

 

 

 

 

 

 

Amortization and impairment

 

 

As at 1 January 2016

 

3,297,518

Depreciation charge for the year

 

4,225,318

Impairment charge for the year

 

4,993,083

As at 31 December 2016

 

12,515,919

Depreciation charge for the year

 

4,784,386

Impairment charge for the year

 

56,684

As at 31 December 2017

 

17,356,989

 

 

 

Net book value

 

 

As at 31 December 2017

 

7,026,363

As at 31 December 2016

 

10,700,444

 

 

 

 

 

 

The impairment deducted from the net book value of the pallet pool is broken down as follows:

 

 

As at 31 December 2017

As at 31 December 2016

 

 

USD

USD

 

 

 

 

Impairment estimation for lost and broken pallets

 

994,798

1,506,155

Impairment estimation for loss making contracts

 

4,926,957

4,358,916

 

The Group recognized a value adjustment on the pool of pallets deployed (under the above caption Impairment estimation for loss making contracts). Pallets deployed into a specific customer (North American market) generate a positive free cash-flows which is below the expectations. The Group tested the related assets for impairment; as a consequence of this test, a value correction has been deducted from these assets as the realistic realization price based on market price is below the net book value.

 

 

7     Investment property

 

 

Investment property

 

USD

Cost

 

As at 1 January 2016

                1,546,753

Exchange differences

(39,920)

As at 31 December 2016

1,506,833

Exchange differences

66,022

Transfer to Fixed assets held for sale

(1,572,855)

As at 31 December 2017

                               -

 

 

Amortization and impairment

 

As at 1 January 2016

189,033

Amortization charge for the year

37,671

Exchange differences

(678)

As at 31 December 2016

226,026

Amortization charge for the year

                      39,323

Exchange differences

                        9,903

Transfer to Fixed assets held for sale

(275,252)

As at 31 December 2017       

                               -

 

 

Net book value

 

As at 31 December 2017

-

As at 31 December 2016

1,280,807

 

 

As at 31 December 2016, the investment property was a building used by the Group for both administrative purposes and for rental. Up to 2016, the cost of the property related to administrative purposes had been classified within property, plant and equipment. Up to 2016, the cost for the rental part had been classified as investment property. The building has been sold on 27 February 2018; as the decision to sell this asset has been made in 2017 and as the disposal is considered as highly probable, it has been reclassified under fixed assets held for sale on 31 December 2017 for USD 1,297,603 (see Note 12).

The Group has granted a security interest over the property held in Switzerland in return for the CHF 1,700,000 bank loan amounting to USD 1,741,480 (2016: CHF 1,800,000 - USD 1,766,520).

7.1    Revenue from investment property

 

 

As at 31 December 2017

As at 31 December 2016

 

 

USD

USD

 

 

 

 

Rental income from investment property (*)

 

297,265

284,822

 

 

 

 

(*) included within other operating income (see Note 19.1).

7.2    Fair value of investment property

The investment property is measured at cost. The fair value of the property as at 31 December 2016 had been determined by Régie Châtel S.A., an independent external appraiser, on 10 April 2017. Régie Châtel S.A. is a local specialist in valuing such investment properties. The fair value of the property had been determined using the rental income and the construction value. The valuation had been determined with the following primary inputs:

 

 

 

2016

Yield (%)

 

7%

Average price for new construction - administrative part (m3)

 

390 CHF/ m3

Land price (m²)

 

250 CHF/m²

 

 

 

Fair value determined for the part classified as investment property

 

USD  1,918,308

(CHF 1,954,665)

8     Intangible assets

 

Software

Trade names

Customer relationships

Acquired licences and similar intangible assets

Goodwill

Total

 

USD

USD

USD

USD

USD

USD

Cost

 

 

 

 

 

 

As at 1 January 2016

2,553,487

148,017

444,051

1,197,068

1,022,643

5,365,266

Additions

-

-

-

25,633

-

25,633

Exchange differences

 (424,503)

 (24,607)

 (73,821)

-

  (170,009)

 (692,940)

As at 31 December 2016

2,128,984

123,410

370,230

1,222,701

852,634

4,697,959

Additions

-

-

-

802

-

802

Exchange differences

198,563

11,510

34,530

-

79,522

324,125

As at 31 December 2017

2,327,547

134,920

404,760

1,223,503

932,156

5,022,886

 

 

 

 

 

 

 

Amortization and impairment

 

 

 

 

 

 

As at 1 January 2016

1,702,319

59,203

177,621

76,764

-

2,015,907

Amortization charge for the year

776,769

27,016

81,048

137,128

-

1,021,961

Impairment of the year

-

-

-

-

485,637

485,637

Exchange differences

 (350,104)

 (12,173)

 (36,531)

-

-

 (398,808)

As at 31 December 2016

 2,128,984

74,046

222,138

213,892

485,637

3,124,697

Amortization charge for the year

-

25,460

76,380

133,899

-

235,739

Impairment of the year

-

-

-

-

106,599

106,599

Exchange differences

198,563

8,430

25,290

-

47,064

279,347

As at 31 December 2017

 2,327,547

107,936

323,808

347,791

639,300

3,746,382

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

As at 31 December 2017

-

26,984

80,952

875,712

292,856

1,276,504

As at 31 December 2016

-

49,364

148,092

1,008,809

366,997

1,573,262

 

 

 

 

 

 

 

The Group has no intangible assets pledged as security for liabilities.

 

The Group has no contractual commitment for the acquisition of intangible assets.

 

A licence acquired in 2014 for USD 250,000 is for the use of new pallets following development of those pallets. As these are currently not being used, no amortization has been calculated on this amount. The management considers that no impairment is necessary on this licence.

8.1    Impairment of Goodwill

The goodwill represents the intangible value of the business acquired at the end of 2013 and known as "Equipment Tracking". Management has identified the relevant Cash Generating Unit as it is merged into the legal entity based in Wales with other pure RM2 departments (IT, EMEA Sales and RM2 pallets tracking).

 

Management has reviewed the carrying value in use of goodwill by assessing the future cash flows of the Cash Generating Unit to which the goodwill relates over the next 5 years. Using a 9% discount rate (2016: 9%), the weighted average costs of capital of the group, management have identified that there is an additional impairment as at 31 December 2017 amounting to USD 106,599 (2016: USD 485,637). If the weighted average costs of capital of the group had been 3% higher than management's estimate (for example 12% instead of 9%), the group would have recognized a further impairment against goodwill of USD 36,095.

 

9     Financial assets and liabilities

 

 

As at 31

December 2017

As at 31 December 2016

 

 

USD

USD

 

 

 

 

Loans and receivables

 

 

 

Trade and other receivables (Note 11)

 

3,550,848

5,214,960

 

 

 

 

Deposits

 

10,039

22,866

Other current financial assets

 

10,039

22,866

Restricted Cash, Cash and cash equivalents (Note 13)

 

5,901,859

11,679,618

Total current financial assets

 

5,911,898

11,702,484

Total cash, loans and receivables

 

9,462,746

16,917,444

Total financial assets

 

9,462,746

16,917,444

 

 

 

 

Total current

 

9,462,746

16,917,444

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

Financial liabilities at amortised cost

 

 

 

Interest-bearing loans and borrowings

 

1,745,527

1,793,009

Trade and other payables

 

9,278,493

4,266,021

Total financial liabilities at amortised cost

 

11,024,020

6,059,030

Total financial liabilities

 

11,024,020

6,059,030

 

 

 

 

Total current

 

11,024,020

4,371,023

Total non-current

 

-

1,688,007

 

 

 

 

9.1    Interest-bearing loans and borrowings

 

 

 

As at 31 December 2017

As at 31 December 2016

 

Effective interest rate

Maturity date

USD

USD

 

 

 

 

 

Non-current interest-bearing loans and borrowings

 

 

 

 

CHF 1,700,000 Bank loan

1.8%

30 November 2020

-

1,666,520

Hire purchase liabilities in excess of one year

 

 

-

21,487

 

 

 

 

 

Total non-current interest-bearing loans and borrowings

 

 

 

-

 

1,688,007

 

 

 

 

 

Current interest-bearing loans and borrowings

 

 

 

 

CHF 1,700,000 Bank loan (settled March 2018)

1.8%

30 November 2020

1,639,580

-

Short-term part of long term bank loan

 

 

101,900

100,000

Hire purchase liabilities within of one year

 

 

4,047

5,002

Total current interest-bearing loans and borrowings

 

 

 

1,745,527

 

105,002

 

 

 

 

 

Total interest-bearing loans and borrowings

 

 

  1,745,527

  1,793,009

 

 

 

 

 

CHF 1,700,000 bank loan

The loan is secured by a mortgage on the building held by the Group in Switzerland for a total value of CHF 2,470,000 (2016: CHF 2,470,000) and by transfer of rental income to the lender.

9.2    Hedging activities and derivatives.

The Group has not entered into any hedging activity during periods covered by the consolidated financial statements.

9.3    Fair values

The Group estimates that the fair value of the financial assets and liabilities approximates their carrying amount as these are mainly composed of short-term receivables and payables and mainly composed of fixed interest long-term loans without advance fees.

9.3.1.1  Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

-    

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

-    

Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly

-    

Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data

The Group has no financial instruments carried at fair value as at 31 December 2017 or 31 December 2016.

10   Inventories

 

 

As at 31 December 2017

As at 31 December 2016

 

 

USD

USD

 

 

 

 

Raw materials

 

1,478,998

2,383,828

Work in progress

 

952,969

1,593,966

Finished goods - pallets

 

14,183,028

12,471,286

 

 

16,614,995

16,449,080

 

 

 

 

The cost of inventory sold and recognised as an expense during the year was USD 1,215,533 (2016: USD 2,192,663).

10.1  Raw materials

As a consequence of its strategic alliance (see Note 1.2), the closing of the Canadian factory and the move of its plant and equipment to China and Mexico in 2016 and 2017, the Group has surplus of raw inventories in its premises in Canada. In order to speed up the ramp up of the Mexican manufacturer and as the Group has been successful in negotiating lower prices of raw material (fibreglass and resin) with suppliers of previous Canadian operations, the Group sold a portion of its inventory to Jabil using the new lower price in line with the expected and agreed production cost. The Group has initiated the sales of this raw material with a discount on their original acquisition value in 2016; these disposals have been continued in 2017.

On this basis, as at 31 December 2017, an impairment has been deducted from raw material for an amount of USD 1,987,761 (2016: USD 1,478,480).

Disposals of raw materials to new third parties continue in 2018, using the same pattern.

10.2  Work in progress

For the same reason, the stock of work in progress has been sold in 2016 and 2017 to the Mexican manufacturer with a discount on their cost of production. Disposals of raw materials will continue in 2018 on the same discount basis. 

 

As at 31 December 2017, based on a review of future usage and taking into account the disposals at prices below cost of production, an impairment has been deducted from work in progress for an amount of USD 481,762 (2016: USD 386,553).

10.3  Finished goods - pallets

Finished goods represent pallets produced and not yet sold or deployed via the pallet pool in property, plant and equipment.

The Group performed a review of pallet inventory that is designated to be retrofitted with the ELIoT technology. The remaining items not included in the retrofitting planning have been impaired to reflect the realisation value based on discounted market price.

As at 31 December 2017, based on this test, an impairment has been deducted from finished goods for an amount of USD 2,179,000 (2016: USD 0).

11   Trade and other receivables

 

 

As at 31 December 2017

As at 31 December 2016

 

 

USD

USD

Trade receivables

 

1,623,565

3,116,040

Income tax receivables

 

4,457

4,288

Other tax receivables

 

1,093,409

847,624

Other receivables

 

829,417

1,247,008

Total trade and other receivables

 

3,550,848

5,214,960

 

 

 

 

The ageing of the trade receivables as at 31 December 2017 is detailed below:

 

2017

2016

 

 

 

Neither past due nor impaired:

788,089

1,579,574

 

 

 

Past due but not impaired:

 

 

0 to 30 days

289,373

1,504,552

30 to 60 days

7,312

5,346

60 to 90 days

10,943

-

Over 90 days

527,847

26,568

 

1,623,565

3,116,040

 

 

 

 

As at 31 December 2017, the Group has deducted a value correction for impairment of the Canadian HST, Luxembourg and UK VAT receivables amounting to USD 107,567 (2016: USD 686,203).

The other tax receivables primarily relate to Harmonised Sales Tax (HST) balances due from Canada, VAT due from Luxembourg and VAT due from United Kingdom.

12   Fixed assets held for sale

 

 

As at 31 December 2017

As at 31 December 2016

 

 

USD

USD

Transfer from Property, Plant & Equipment

 

                       1,360,141

                                     -

Transfer from Investment Property

 

                       1,297,603

                                     -

Fixed assets held for sale

 

               2,657,744

                  -

 

As at 31 December 2017, the fixed assets held for sale represent a building used by the Group for both administrative purposes and for rental. Up to 2016, the cost of the property related to administrative purposes had been classified within property, plant and equipment and the cost of the property related to renting purposes has been classified under Investment property. The building has been sold on 27 February 2018; as the decision to sell this asset has been made in 2017 and as the disposal is considered as highly probable, it has been reclassified under fixed assets held for sale on 31 December 2017 for USD 2,657,744.

The Group has granted a security interest over the property held in Switzerland in return for the CHF 1,700,000 bank loan amounting to USD 1,741,480.

13   Cash and short-term deposits

 

 

As at 31 December 2017

As at 31 December 2016

 

 

USD

USD

Restricted cash

 

2,035,642

1,884,713

Total restricted cash

 

2,035,642

1,884,713

 

 

 

 

Cash at bank and in hand

 

3,851,257

9,742,077

Short-term deposits

 

14,960

52,828

Total cash and short-term deposits

 

3,866,217

9,794,905

 

Cash at banks earns interest at floating rates based on daily bank deposit rates. During the year, short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earned interest at the respective short-term deposit rates.

At both period ends, the Group does not have any undrawn committed borrowing facilities.

The Group has not pledged any part of its cash and short-term deposits to fulfil collateral requirements (2016: USD nil) in respect of rental of office space. In connection with the operational lease of the factory premises located in Canada, a letter of credit amounting to CAD 2,500,000 - USD 2,035,642 (2016: CAD 2,500,000 - USD 1,884,713) has been issued to the landlord as guarantee for lease payments and lease defaults. The related deposit bank account is shown under restricted cash.

For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 31 December:

 

 

As at 31

December 2017

As at 31

December 2016

 

 

USD

USD

Cash at bank and in hand

 

3,851,257

9,742,077

Short-term deposits

 

14,960

52,828

Total cash and cash equivalents

 

3,866,217

9,794,905

 

 

 

 

14   Share capital and reserves

2017

On 17 February 2017, 757,500 restricted shares were issued to certain Directors in lieu of cash compensation for the first half of 2017 (and the second half of 2016 with respect to Frédéric de Mevius). These shares are restricted from trading until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.

On 20 February 2017, the General Meeting of Shareholders decided the conversion of existing Convertible Preferred Shares into Class A Convertible Preferred Shares; it also decided the creation of a Class B Convertible Preferred Shares.

On 6 July 2017, 6,000,000 restricted shares were issued to key employees which are not exercisable until after three years and when the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds the lower of GBP 50p or 2.5 times the offering price of the first ordinary share placement following the issuance date of the restricted shares.  Following the resignation of the recipient of 2,500,000 restricted shares, these shares were forfeited and transferred to the Company to be held as non-voting treasury stock.

In June and July 2017, the Company issued a total of 92,487,729 Class B Convertible Preferred Shares of USD 0.01 in the capital of the Company. See also Note 14.3.

As at 31 December 2017, RM2's issued share capital is 407,062,656 Ordinary Shares of USD 0.01 each and an aggregate of respectively 42,328,042 and 92,487,729 Class A and B Convertible Preferred Shares of USD 0.01 in the capital of the Company, of which 2,916,334 Ordinary Shares are held by the Company as non-voting treasury stock.

The total number of voting rights in the Company as at 31 December 2017 was 538,962,093.

2016 

On 1 July 2016, the Company issued 2,755,000 options, of which 2,000,000 were issued to an executive director and certain employees and vest on the third anniversary of the grant, with an exercise price equal to GBP 0.23 and are not exercisable until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.

500,000 were issued to certain employees and vest over three years in equal tranches on the anniversary of the grant date, with an exercise price equal to GBP 0.23 and are not exercisable until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00, and 255,000 options were issued to certain employees and vest over three years in equal tranches on the anniversary of the grant date and have an exercise price equal to GBP 0.23.

On 8 July 2016, 1,275,000 restricted shares were issued to certain Directors in lieu of cash compensation for the year.  These shares are restricted from trading until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.

On 8 July 2016, 1,000,000 restricted shares were issued (with a vesting period of one year) to one key employees which are not exercisable until after three years or when the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00. 

In each case, employees must retain a business relationship with the Company on the relevant anniversary date for the options or restricted shares to vest.

In July 2016, the Company issued 42,328,042 Convertible Preferred Shares of USD 0.01 in the capital of the Company. See also Note 14.3.

As at 31 December 2016, RM2's issued share capital is 400,305,156 Ordinary Shares of USD 0.01 each and 42,328,042 Convertible Preferred Shares of USD 0.01 in the capital of the Company, of which 397,334 Ordinary Shares are held by the Company as non-voting treasury stock.

The total number of voting rights in the Company as at 31 December 2016 was 442,235,864.

14.1  Authorised shares

The below tables show the authorised share capital available for issue, respectively for Ordinary and Convertible Preferred Shares.

 

Shares

USD

Par value per share

Ordinary Shares

 

 

 

At 1 January 2016

18,787,144

187,871

USD 0.01

 

 

 

 

Issue of restricted shares on 8 July 2016

(2,275,000)

(22,750)

USD 0.01

Adjustment of authorised shares per EGM dated 22 July 2016 (*)

187,856

1,879

USD 0.01

 

 

 

 

At 31 December 2016

16,700,000

167,000

USD 0.01

 

 

 

 

Increase of authorized shares per EGM dated 20 February 2017

13,000,000

130,000

USD 0.01

Issue of restricted shares on 27 February 2017

(757,500)

(7,575)

USD 0.01

Issue of restricted shares on 6 July 2017

(6,000,000)

(60,000)

USD 0.01

Increase of authorized shares per EGM dated 31 July 2017

57,057,500

570,575

USD 0.01

At 31 December 2017

80,000,000

800,000

USD 0.01

 

(*) The Extraordinary General Meeting of Shareholders held on 22 July 2016 decided to set the authorised ordinary shares at 417,005,156 shares of USD 0.01 per share.

 

 

Shares

USD

Par value per share

 

Convertible Preferred Shares

 

 

 

 

At 1 January 2016

-

-

-

 

Authorised 22 July 2016

63,500,000

635,000

USD 0.01

 

Subscription Class A Convertible Preferred Shares 27 July 2016

(42,328,042)

(423,280)

USD 0.01

 

At 31 December 2016

21,171,958

211,720

USD 0.01

 

 

 

 

 

Cancellation Class A Convertible Preferred Shares 22 Feb 2017

(21,171,958)

(211,720)

USD 0.01

Increase of authorised Class B Preferred Shares on 22 Feb 2017

46,171,958

461,719

USD 0.01

Issue of Class B Preferred Shares on 22 June 2017

(4,591,743)

(45,917)

USD 0.01

Issue of Class B Preferred Shares on 3 July 2017

(41,580,213)

(415,802)

USD 0.01

Increase of authorized Class B preferred shares on 17 July 2017

46,315,771

463,158

USD 0.01

Issue of Class B Preferred Shares on 17 July 2017

(17,017,110)

(170,171)

USD 0.01

Issue of Class B Convertible Preferred shares on 30 July 2017

(29,298,663)

(292,987)

USD 0.01

At 31 December 2017

-

-

-

         

 

14.2  Ordinary shares issued and fully paid

 

Shares

USD

Par value per share

 

 

 

 

At 1 January 2016

398,030,156

3,980,302

USD 0.01

 

 

 

 

 

 

 

 

Issue of restricted shares on 8 July 2016

2,275,000

22,750

USD 0.01

 

 

 

 

At 31 December 2016

400,305,156

4,003,052

USD 0.01

 

 

 

 

Issue of restricted shares on 27 February 2017

757,500

7,575

USD 0.01

Issue of restricted shares on 6 July 2017

6,000,000

60,000

USD 0.01

 

 

 

 

At 31 December 2017

407,062,656

4,070,627

USD 0.01

 

 

 

 

14.3  Convertible Preferred Shares issued and fully paid

 

Shares

USD

Par value per

 share

 

 

 

 

At 1 January 2016

-

-

-

 

 

 

 

Issue of Class A for Convertible Preferred Shares on 27 July 2016

42,328,042

423,280

USD 0.01

At 31 December 2016

42,328,042

423,280

USD 0.01

 

 

 

 

Issue of Class B Convertible Preferred Shares on 22 June 2017

4,591,743

45,918

USD 0.01

Issue of Class B Convertible Preferred Shares on 3 July 2017

41,580,213

415,802

USD 0.01

Issue of Class B Convertible Preferred Shares on 17 July 2017

17,017,110

170,171

USD 0.01

Issue of Class B Convertible Preferred Shares on 31 July 2017

29,298,663

292,987

USD 0.01

 

 

 

 

At 31 December 2017

134,815,771

1,348,157

USD 0.01

 

 

 

 

The Class A and Class B Convertible Preferred Shares can both be converted into Ordinary shares of the Company. At issuance, the conversion was based on a 1:1 rate, subject to any anti-dilution protection from the issuance of equity at a lower share price. The shares were redeemable subject to availability of distributable reserves and were remunerated with a cumulative dividend in preference to any dividend on Ordinary Shares at a rate of 9% of the Price per Share per annum. No such dividends have been declared for the years 2017 and 2016. As of 13 April 2018, the Extraordinary General Meeting of Shareholders decided the conversion of all Class A and Class B Convertible Preferred Shares (an aggregated number of 134,815,771 convertible shares) into 2,848,028,916 Ordinary shares.

14.4  Share premium

 

USD

At 1 January 2016

263,317,090

Issue of restricted shares on 8 July 2016

-

Issue of Class A Convertible Preferred Shares on 27 July 2016

19,576,719

At 31 December 2016

282,893,809

Issue of Class B Convertible Preferred Shares on 22 June 2017

8,099,306

Issue of Class B Convertible Preferred Shares on 3 July 2017

1,954,083

Issue of Class B Convertible Preferred Shares on 17 July 2017

3,314,720

Issue of Class B Convertible Preferred Shares on 31 July 2017

5,707,013

Cost of share issue

(287,615)

At 31 December 2017

301,681,317

 

14.5  Nature and purpose of reserves

Foreign currency translation reserve:

The currency translation reserve is used to record exchange differences arising from the translation of the subsidiaries' financial statements in foreign currencies to the Group reporting currency.

This reserve cannot be distributed to shareholders.

Share based payment reserve:

The share-based payment reserve corresponds to the accumulated amount of instruments granted to employees regarding share based payments equity settled.

14.6  Dividend distribution

As a result of the accumulated losses generated by the Group, no dividend has been declared or paid.

14.7  Treasury stock

As of 31 December 2017, the Group repurchased treasury stock shares for an amount of USD 29,163 (2016: USD 3,424). In accordance with the Luxembourg law, a non-distributable reserve has been created in connection with this transaction on own shares.

15   Trade and other payables

 

 

As at 31 December 2017

As at 31 December 2016

 

 

USD

USD

 

 

 

 

Trade payables

 

2,907,776

2,741,938

Employee compensation payables

 

21,628

69,171

Other tax payables

 

124,826

98,942

Other payables

 

6,224,263

1,355,970

Total trade and other payables

 

9,278,493

4,266,021

 

Other payables includes a nil amount (2016: USD 8,550) due to related parties.

Terms and conditions of the above financial liabilities:

-    

Trade payables are non-interest bearing and are normally settled on 45-days terms

-    

Other payables are non-interest bearing and have an average term of 45 days terms

-    

For explanation on the Group's liquidity risk management processes, refer to Note 26.

16   Revenues and segment reporting

The Group has only one operating segment for the disclosure of revenue.

The operating segment is reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segment, has been identified as the Board of Directors of the parent company that makes strategic decisions.

The Group has determined the operating segments based on the reports reviewed by the Board of Directors, which are used to make strategic decisions.

The Board of Directors is responsible for the Group's entire business and considers the business to have a single operating segment that represents the production, the sale and the rent of pallets including related logistical services. The asset allocation decisions are based on a single, integrated investment strategy, and the Group's performance is evaluated on an overall basis.

The internal reporting provided to the Board of Directors for the Group's assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of IFRS.

There were no changes in the reportable segments during the year.

During the year 2017, there were three clients who represent more than 10% of the Group's revenues totalling 60% of 2017 revenues (2016: two clients representing more than 10% of the Group's revenues - the total of their revenues being 70%).  The remaining revenues are earned from approximately 80 customers (2016: 60 customers).

Turnover

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Sold pallets

 

291,752

441,537

Leased pallets

 

4,943,673

5,749,607

Rendering of logistical services

 

796,858

1,195,171

Disposal of raw material and work in progress

 

524,761

1,495,814

 

 

6,557,044

8,882,129

 

Geographical information

The breakdown of the revenue allocation by area is as follows:

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

North America

 

5,170,122

7,243,677

Europe

 

1,386,922

1,638,452

 

 

6,557,044

8,882,129

 

The parent company is based in Luxembourg. The information for the geographical area of non-current assets are presented for the most significant areas where the Group has operations, being Luxembourg (country of domicile), rest of Europe and North America.

 

 

As at 31

December 2017

As at 31 December 2016

 

 

USD

USD

 

 

 

 

Luxembourg

 

2,105,936

2,221,931

Rest of Europe

 

295,776

5,072,952

North America (including Mexico)

 

29,149,509

35,716,850

China

 

5,468,717

6,332,300

 

 

37,019,938

49,344,033

 

 

 

 

 

Non-current assets for this purpose consist of property, plant and equipment, investment properties and intangible assets.

17   Cost of sales

 

 

31 December 2017

31 December 2016

 

 

USD

restated

USD

Cost of pallets sold - BLOCKPal

 

  321,731

  125,229

Cost of pallets sold - raw material / WIP

 

748,198

1,840,302

Cost of pallets sold - services

 

145,605

227,132

Amortization of pallet pool

 

 4,752,926

 4,225,318

Amortization of production tool

 

 4,364,527

 3,132,910

Cost of software, licenses and services

 

695,625

1,226,523

Factory absorption Canada

 

  5,657,933

  20,257,051

Factory absorption new set-up

 

  12,062,760

  -

Logistic costs

 

4,041,928

4,639,428

Impairment and repairs

 

1,735,595

6,402,809

Other

 

322,716

1,041,837

 

 

34,849,544

43,118,539

 

In 2017, factory absorption new set-up was the variance between actual costs related to the transfer of production equipment to Mexico and China and the capitalized acquisition costs of the pallets produced in inventory and assets.

The company previously announced in its interim accounts dated 30 June 2017 that logistical expenses needed to operate the rental business were reclassified from Administrative expenses to Cost of sales.

The reclassification, which has no impact on the Equity, is designed to better display the direct costs in relation to the revenue.

The FY2016 restated figures that are disclosed in the financial statements include a reclassification of USD 3,414,105.

18   Administrative expenses

 

 

31 December 2017

31 December 2016

 

 

USD

Restated

USD

Payroll costs

 

6,537,941

7,361,268

Director's expenses

 

122,800

121,075

Travel and expenses

 

1,010,469

1,201,689

One Time Costs China (VAT, import duties…)

 

1,865,656

509,098

Consultant costs (AIM, Funding…)

 

1,311,280

1,828,599

Audit/Tax/Legal costs

 

805,780

836,429

Insurance

 

172,162

240,210

Eliot

 

1,021,504

82,666

Other

 

733,502

3,346,494

Total cash

 

13,581,094

15,527,528

Total cash - excluding One Time Costs

 

11,715,438

15,018,430

Shared based payment

 

777,308

1,029,185

Depreciation

 

643,530

1,449,229

 

 

15,001,932

18,005,942

 

 

19   Other income and expenses

19.1  Other operating income

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Net gain on disposal of PPE

 

30,824

-

Rental income

 

297,265

284,822

Other

 

172,845

1,814

Total other operating income

 

500,934

286,636

 

19.2  Other operating expenses

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Direct operating expenses on rental-earning investment properties

 

 

 

75,673

 

 

63,210

Net loss on disposal of PPE

 

-

35,374

Other

 

6,236

3,376

Total other operating expenses

 

81,909

101,960

19.3  Finance income

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Interest income on loans and receivables

 

-

12,152

Total interest income

 

-

12,152

 

 

 

 

Net foreign exchange gain

 

1,918,697

2,149,808

Other

 

27,190

72,607

Total finance income

 

1,945,887

2,234,567

 

 

 

 

19.4  Finance costs

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Interest at amortised costs on loans and borrowings

 

32,260

33,617

Total interest expenses

 

32,260

33,617

 

 

 

 

Net foreign exchange loss

 

2,662,944

3,028,798

Other

 

13,605

1,479

Total finance costs

 

2,708,809

3,063,894

19.5  Employee benefits expenses

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

 

 

 

 

Included in cost of sales expenses:

 

 

 

Wages and salaries

 

1,987,453

5,698,414

Social security costs

 

544,211

1,471,644

Pension costs

 

16,381

25,158

 

 

 

 

Included in administrative and selling/distribution expenses:

 

 

 

Wages and salaries

 

5,421,030

6,155,960

Social security costs

 

422,132

365,229

Pension costs

 

162,860

189,700

 

 

 

 

Total employee benefits expenses

 

8,554,067

13,906,105

 

 

 

 

Average number of full time employees

 

93

188

 

 

 

 

20   Income taxes

20.1  Income tax expenses

The major components of income tax expense for each year are:

 

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

 

 

 

 

Current income tax charge/(income)

 

195,292

56,311

Deferred tax charge/(income)

 

23,402

 (129,676)

 

 

 

 

Total Income tax charge/(income)

 

218,694

(73,365)

 

 

 

 

A reconciliation between tax expense and the accounting loss multiplied by the domestic tax rate of each entity in its jurisdiction for each year is as follows:

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Loss before tax

 

(43,638,330)

(52,887,003)

Theoretical income tax (charge)/income using applicable income tax rate

 

(6,885,837)

(9,323,979)

Reconciliation to actual income tax charge

 

 

 

Unrecognised deferred tax assets on losses carried forward

 

6,566,431

8,410,502

 

 

 

 

Non-deductible expenses from:

 

 

 

Director's fees, ESOP

 

163,141

183,609

Accelerated capital allowances

 

507,356

726,924

Other non-deductible expenses

 

(1,364)

33,333

 

 

 

 

Minimum income tax charge

 

(116,187)

(36,202)

Other

 

(233,540)

(67,552)

 

 

 

 

Income tax expenses (income)

 

218,694

(73,365)

 

20.2  Deferred taxes

Deferred tax liabilities

As per the acquisition of Equipment Tracking Limited on 10 December 2013, the valuation of the separable net assets of the company created a deferred tax liability of USD 523,782.

During the year, the Group recognised a deferred tax charge on the accelerated capital depreciation of the separable net assets of USD 20,368 (2016: USD 129,677), the variation with the amount recognised in profit and loss is due to currency translation.

As at year end, the Group has recognised deferred tax liabilities for USD 43,751 (2016: -12,425).

Deferred tax assets

The Group has not recognised any deferred tax assets as there is no certainty of the timing of recovery of those assets.

The relievable tax losses within the Group for which no deferred tax asset has been recognised amount to USD 152,779,881 as at 31 December 2017 (2016: USD 116,514,355).

21   Pensions and other post-employment benefit plans

RM2 S.A., Swiss Branch, RM2 Limited and Equipment Tracking Limited operate defined contribution pension schemes. The assets of the schemes are held separately from those of the company in an independently administered fund. The pension cost charge represents contributions payable by the company to the fund. The related charge for the year 2017 amounts to USD 179,241 (2016: USD 214,858).

22   Share-based payments

The Group has a number of share schemes as shown in the table below.

The Company grants restricted shares, shares grants at par value and share options at its discretion to employees, officers, directors, consultants and advisors.

Restricted shares and share options are granted with vesting periods of between the date of grant and ten years from the issuance or the date of grant and may carry performance conditions or time conditions for vesting. Should the restricted shares or options remain unexercised after a period of ten years from the date of grant, the options will expire and the restricted shares will be repurchased from the holder. Options are exercisable at a price equal to the Company's quoted market price on the date of grant.

Each programme approved by the Company is detailed as follows:

22.1  Employee Stock Option Plan ("ESOP")

On 1 July 2016, the Company issued 2,755,000 options, of which 2,000,000 were issued to an executive director and certain employees and vest on the third anniversary of the grant, with an exercise price equal to GBP 0.23 and are not exercisable until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.

500,000 were issued to certain employees and vest over three years in equal tranches on the anniversary of the grant date, with an exercise price equal to GBP 0.23 and are not exercisable until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00, and 255,000 options were issued to certain employees and vest over three years in equal tranches on the anniversary of the grant date and have an exercise price equal to GBP 0.23.

On 8 July 2016, 1,275,000 restricted shares were issued to certain Directors in lieu of cash compensation for the year.  These shares are restricted from trading until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.

On 8 July 2016, 1,000,000 restricted shares were issued (with a vesting period of one year) to one key employee which are not exercisable until after three years or when the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00. 

On 17 February 2017, 757,000 restricted shares were issued to certain Directors in lieu of cash compensation for the first half of 2017 (and the second half of 2016 with respect to Frédéric de Mevius).  These shares are restricted from trading until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.

On 6 July 2017, 6,000,000 restricted shares were issued to key employees which are not exercisable until after three years and when the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds the lower of GBP 50p or 2.5 times the offering price of the first ordinary share placement following the issuance date of the restricted shares.  Following the resignation of the recipient of 2,500,000 restricted shares, these shares were forfeited and transferred to the Company to be held as non-voting treasury stock.

In each case, employees must retain a business relationship with the Company on the relevant anniversary date for the options or restricted shares to vest.

 

Financial effect of share-based payment transactions:

The expense recognised for employee services received during the year is shown in the following table:

 

 

31 December 2017

31 December 2016

 

 

USD

USD

Expense arising from equity-settled share-based payment transactions

 

777,308

1,029,185

Total expense arising from share-based payment transactions

 

777,308

1,029,185

 

 

 

 

The Company does not have any liability arising from share-based payment transactions as at 31 December 2017 (2016: Nil).

Movements during the year:

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

 

 

 

Restricted shares issued

Number of share options

Outstanding at beginning of year

 

 

19,583,180

9,025,000

 

 

 

 

 

Granted during the year

 

 

6,757,500

14,500,000

Forfeited-repurchased during the year

 

 

(2,519,000)

(10,527,500)

Restriction removed during the year

 

 

-

-

Exercised during the year

 

 

-

-

Outstanding at end of the year

 

 

23,821,680

12,997,500

Tradable/Exercisable at end of the year

 

 

-

-

 

 

 

 

 

 

The weighted average remaining contractual life for the restricted shares issued outstanding as at 31 December 2017 is 2.77 years (2016: 3.36 years).

The weighted average fair value of shares granted during the year was USD 0.13 (2016: USD 0.09).

Where restricted shares have been issued with performance conditions, Management considers that range of exercise price will be from GBP 1.32 for tranche 1, from GBP 1.54 for tranche 2 and from GBP 1.76 for tranche 3 and GBP 0.50 for the latest issues.

The weighted average share price at the date of exercise issue was GBP 0.13 (2016: GBP 0.23).

 

22.2  Fair value of share based payments transactions

 

 

 

 

 

 

 

 

 

2016

Option Shares

 

 

 

 

 

Weighted average exercise price

 

 

 

GBP 0.23

Expected volatility

 

 

 

49%

Expected life of restricted shares

 

 

 

3 years

Risk-free interest rate

 

 

 

1.0 %

Expected dividend yields

 

 

 

Nil

Model used

 

 

 

Black-Scholes

 

 

 

 

2017

Option Shares

 

 

 

 

 

Weighted average exercise price

 

 

 

GBP 0.138

Expected volatility

 

 

 

54%

Expected life of restricted shares

 

 

 

3 years

Risk-free interest rate

 

 

 

0.61 %

Expected dividend yields

 

 

 

Nil

Model used

 

 

 

Black-Scholes

 

In determining the cost to be recognised during the period, management considered that all shares would be exercised by holders upon achievement of performance conditions.

23   Earnings per share

Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

The influence of the Convertible Preferred Shares and Options on the calculation of the diluted earnings per share involved an anti-dilutive effect.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

 

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Net loss attributable to ordinary equity holders of the parent for basic earnings

 

(43,857,023)

(52,813,638)

 

 

 

 

 

 

31 December 2017

31 December 2016

Weighted average number of ordinary shares for basic earnings per share

 

       

403,848,177

       

399,124,145

Weighted average number of ordinary shares adjusted for the effect of dilution

 

403,848,177

399,124,145

 

 

 

 

Loss per share

 

 

 

Basic

 

(0.11)

(0.13)

Diluted

 

(0.11)

(0.13)

 

Management considers that there is no dilutive effect from the options as they would be negative.

24   Contingent liabilities

Various warranty and legal claims were brought against the Group during the year. None were deemed necessary to be recognised as a provision as the Management considers these claims to be unjustified and the probability that they will require settlement at the Group's expense to be remote. This evaluation is consistent with external independent legal advice. See also Note 28 on Subsequent events.

25   Commitments and contingencies

25.1  Operating lease rentals - Group as lessor

Property, plant and equipment - others

The Group has entered in 2016 into a lease agreement on the industrial assets transferred to its Chinese manufacturer. The non-cancellable lease extends until 1 April 2018. Please also refer to the Subsequent Events Note 28.

Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Within one year

 

29,970

119,881

After one year but not more than five years

 

-

29,970

More than five years

 

-

-

 

 

29,970

149,851

 

 

Investment property

The Group has entered into commercial property lease on its investment property, consisting in the Group's surplus space in the Swiss office building. On 27 February 2018 the Swiss office building was sold and the Group entered into a rental agreement with the owner in respect to a portion of the premises beginning 1 March 2018.

Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Within one year

 

37,009

221,953

After one year but not more than five years

 

-

887,812

More than five years

 

-

221,953

 

 

37,009

1,331,718

 

 

 

 

 

Property, plant and equipment - pallet pool

Future minimum rentals receivable under operating leases defined as monthly flat fee at 31 December are as follows:

 

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Within one year

 

518,608

227,338

After one year but not more than five years

 

122,525

221,825

More than five years

 

-

-

 

 

641,133

449,163

 

 

 

 

 

Group's activity is completed by other trip-fee-agreements which revenue is generated according to velocity metrics.

25.2  Operating lease commitments - Group as lessee

The Group has entered into commercial leases for office spaces in United Kingdom and New Jersey and for a manufacturing facility and warehouse space in Canada. These leases have an average life of 2 and 5 years with renewal options included in the contracts. In connection with the operational lease of the factory premises located in Canada, a letter of credit amounting to CAD 2,500,000 - USD 2,035,642 (2016: CAD 2,500,000 - USD 1,884,713) has been issued to the landlord as a guarantee for lease payments and lease defaults.

Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:

 

 

 

31 December 2017

31 December 2016

 

 

USD

USD

 

 

 

 

Within one year

 

1,235,206

1,572,137

After one year but not more than five years

 

5,741,108

5,464,495

More than five years

 

377,162

2,585,742

 

 

7,353,476

9,622,374

 

 

 

 

 

 

Following the voluntary liquidation of the Canadian lessee, the Trustee may elect to cancel the remaining commercial lease (refer to the Subsequent Event Note 28)

 

25.3  Forward purchase of property, plant and equipment

The Group has commitment in relation with forward purchase for the acquisition of property, plant and equipment, as follows:

 

 

 

As at

31 December 2017

As at

31 December 2016

 

 

USD

USD

 

 

 

 

Forward purchase for acquisition of PPE

 

                -

                184,476

 

 

 

 

 

25.4  Forward purchase of pallets produced by manufacturers

Zhenshi (China) manufacturing agreement

In April 2016, the Group entered in a Manufacturing and Supply Agreement with Zhenshi Holding Group Company Limited where the Group committed to acquire at least 1,500k pallets per year; this quantity is however adjusted to the current effective capacity of production of the manufacturer and subject to certain conditions as the certification of the pallets and respect of technical specifications.

The Company recently exchanged letters with its Chinese subcontractor, Zhenshi, regarding a termination of the agreement and indemnities to cover costs incurred to date through the time of removal of the equipment from Zhenshi's site. Discussions are on-going. In light of these exchanges and its business plan, the Company is currently re-examining its footprint in China. The outcome of these exchanges is unknown at present, but alternatives under consideration could include revising the current agreement with Zhenshi, the amical or litigious termination of the contract and/or establishing an agreement with a different contract manufacturer. Regardless of the outcome of the subcontracting relationship, RM2 expects to continue to source fibreglass raw material for pallet production from Zhenshi's affiliate, Jushi.

Jabil (Mexico) manufacturing agreement

In September 2016, the Group entered in a Manufacturing Services Letter of Agreement with Jabil Circuit Inc. Following the first 12 months of production, the initial agreement has been modified such that the Company has agreed a new pricing mechanism to account for a fixed monthly cost regardless of volumes and a variable cost per pallet. As discussed in the Business Review and the Going Concern sections of the accounts, the unpaid commitment in favour of Jabil as of 31 December 2017 amounts to USD 4.9m, to be settled be no later than June 2019.

The Group is responsible for any excess or obsolete materials and inventory. Such items would be invoiced by Jabil to the Group.

Upon cancellation or termination of this agreement, if Jabil has not yet recovered payments from the Group sufficient to cover the total amount of Jabil's capital investment (an amount of USD 2,000,000), then Jabil shall invoice the Group for the unrecovered balance of such capital investment along with reasonable fees, costs of materials and expenses incurred by Jabil.

25.5  Convertible preferred shares

As mentioned in Note 14.3, the holders of the Preferred Shares shall be entitled to receive for each Share cumulative dividends in preference to any dividend on Ordinary Shares at a rate of 9% of the Price per Share per annum whenever funds are legally available and when and as declared by the Board. No such dividend has been declared for the year.

25.6  Related party disclosures

25.6.1 Group subsidiaries

The consolidated financial information includes the financial statements of the Company and its subsidiaries. The Group has the following subsidiaries included in these consolidated financial information:

 

 

 

% of equity interest

Subsidiary name

Country of incorporation

2017

2016

RM2 S.A., including Swiss branch

Luxembourg

100%

100%

RM2 Leasing S.A. (previously RM2 IP S.A.)

Luxembourg

Liquidated on Dec 28, 2017

100%

RM2 Holland B.V.

Netherlands

100%

100%

RM2 Europe Spółka z.o.o.

Poland

100%

100%

RM2 USA Inc.

United States of America

100%

100%

RM2 Limited (previously Victoria Rises Ltd.)

United Kingdom

100%

100%

7636156 Canada Inc. (previously RM2 Canada Inc.)

Canada

100%

100%

RM2 France E.u.r.l. (previously RM2 France Sà r.l.)

France

100%

100%

Equipment Tracking Limited

United Kingdom

100%

100%

RM2 Holding S.à.r.l.

Luxembourg

100%

100%

RM2 (Canada) Leasing Inc.

Canada

100%

100%

 

All subsidiaries held by the Company are consolidated, except for RM2 Total Solutions Inc., United States of America which is dormant company. 

RM2 Pallet Investment Limited, Ireland and RM2 Leasing SA, Luxembourg have been liquidated in 2017.

25.6.2 Transactions with related parties

All transactions between the Company and the Group's subsidiaries, and between Group's subsidiaries, have been eliminated for the preparation of these consolidated financial information.

 

 


Year

Income with related parties

Expenses from related parties

Amounts owed by related parties

Amounts owed to related parties

 

 

USD

USD

USD

USD

 

 

 

 

 

 

Parent: Non-interest bearing loans

2016

-

-

-

8,550

Parent: Non-interest bearing loans

2017

-

-

-

-

Key Management personnel: Remuneration

 

2016

 

-

 

817,534

 

-

 

-

Key Management personnel: Remuneration

 

2017

 

-

 

1,078,288

 

-

 

-

Key Management personnel: Loans (see also note 28)

2017

-

-

192,995

-

Key Management personnel: Share-based payments

 

2016

 

-

 

1,029,185

 

-

 

-

Key Management personnel; Share-based payments

 

2017

 

-

 

777,308

 

-

 

-

Other - Advances

2016

-

-

1,192,075

-

Other - Advances

2017

-

-

790,618

-

Other - Reimbursement of costs incurred

 

2016

 

333,235

 

-

 

-

 

-

Other - Reimbursement of costs incurred

 

2017

 

401,458

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

In 2017, the income from other related parties has been recorded in other operating income for USD 86,333 (2016: USD Nil) and has been deducted from Other Administrative expenses for USD Nil (2016: USD 277,648).

Restricted share issues to related parties are disclosed in Note 22.

25.6.3 Transactions with key management personnel

The Group granted compensation to the key management personnel as follows:

 

 

As at

31 December 2017

As at

31 December 2016

 

 

USD

USD

 

 

 

 

Employee compensation & benefits

 

1,078,288

710,035

 

 

 

 

26   Financial risk management objectives and policies

The Group's financial liabilities comprise only loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Group's operations. The Group has loans and other receivables, trade and other receivables, and cash and short-term deposits that arrive directly from its operations.

The Group is exposed to market risk, credit risk, foreign currency risk and liquidity risk in relation to the financial instruments held. The Group's senior management oversees the management of these risks. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.

26.1  Market risks

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of market risk: interest rate risk, currency risk and other price risk, such as commodity price risk or equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits and available-for-sale investments.

The Group's management has determined that the Group was not subject to interest rate risk as all significant loans and receivables have been issued with fixed interest rate, or to commodity price risk as the production of pallets does not require raw material subject to market volatility.

The Group has only exposure to the foreign currency risk as a result of its operations in various countries and using different functional currencies.

The sensitivity analyses in the following sections relate to the position as at 31 December 2017. The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place.

The analyses exclude the impact of movements in market variables on: the carrying values of pension and other post-retirement obligations; provisions: and the non-financial assets and liabilities of foreign operations.

26.1.1 Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's operating activities (when revenue or expense is denominated in a different currency from the Group's presentation currency) and the Group's net investments in foreign subsidiaries (translation risk).

The Group is aware of its non-US Dollar exposures but does not consider a hedging program to be needed currently. Raw materials and capital expenditure are primarily in US Dollars whilst the target revenue market is the USA. Any divergence from this would be considered by management with a view to putting cover in place.

The Group has significant operations in the following currencies: United States Dollar (USD) and Canadian Dollar (CAD). The Group has other operations in the following currencies which are not significant for the Group: Euro (EUR), Polish Zloty (PLN) and Great British Pound (GBP).

Sensitivity analysis

All intercompany movements have been excluded from this sensitivity analysis. The following tables demonstrate the sensitivity to a reasonably possible change in the CAD exchange rate, with all other variables held constant. The impact on the Group's profit before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives. The Group's exposure to foreign currency changes for all other currencies is not material.

The sensitivity analysis assumes +/- 10% of the USD/CAD exchange rate of the previous 24 months (2016: 15%).This percentage has been determined based on the average market volatility in exchange rates in the previous 24 months.

As at 31 December 2017 the Groups exposure to foreign currency was as follows:

Year

Change in CAD rate

Effect on profit before tax

Effect on other comprehensive income

 

 

USD

USD

 

 

 

 

2017

+10%

(798,139)

(798,139)

 

-10%

725,780

725,780

 

 

 

 

2016

+15%

(1,856,000)

(1,856,000)

 

-15%

1,593,095

1,593,095

 

 

 

 

26.2  Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

Credit risk from balances with banks and financial institutions is not considered significant as the Group centrally manages the cash held in Luxembourg and in Switzerland and has made placements with lower-risk counterparties mainly located in an A rating bank. Funding by the Luxembourg Holding company to the subsidiaries is limited to their current operational requirements.

 

26.2.1 Financial instruments and cash deposits

Trade and other receivables

The Group regularly reviews and assess the trade receivables for the recoverability. The Group has made no provision against overdue trade receivables as management are confident that they will be recovered in full. The Group considers the followings events as indicators of an impairment:

·      default of payments of the counterparty

·      financial difficulties of the counterparty

·      it becoming probable that the counterparty enter bankruptcy or other financial reorganisation

·      granting to the counterparty a concession that the Group will not otherwise consider

26.2.2 Ageing analysis of receivables

The Group regularly reviews and assess the trade receivables for the recoverability. The Group has made no provision against overdue trade receivables as management are confident that they will be recovered in full.

The Group receivables ageing list at 31 December 2017 has been mainly collected during the 1st quarter of 2018.

Liquidity risk

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of raising of capital via equity issues or bridging facilities. Longer term the Group will look to finance activities through bank and debt facilities. See Note 3.2.

Maturity Profile

The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments.

 

31 December 2017

Due on demand

Due within 3 months

Due between 3 and 12 months

Due between 1 and 5 years

Due after 5 years

Total

 

USD

USD

USD

USD

USD

USD

Non-current liabilities

 

 

 

 

 

 

Interest-bearing loans and borrowings

 

-

 

25,000

 

1,716,480

 

-

 

-

1,741,480

Bank borrowings

-

25,000

1,716,480

-

-

1,741,480

Current liabilities

-

-

-

-

-

-

Interest-bearing loans and borrowings

 

-

4,047

 

-

 

-

 

-

4,047

 

Bank overdrafts

-

-

-

-

-

-

Other loans and borrowings

 

-

 

4,047

 

-

 

-

 

-

 

4,047

Loans from other related parties

 

-

 

-

 

-

 

-

 

-

 

-

Trade and other payables

 

-

 

9,278,493

 

-

 

-

 

-

 

9,278,493

Trade payables

-

2,907,776

-

-

-

2,907,776

Payables to other related parties

 

-

 

-

 

-

 

-

 

-

 

-

Employee compensation payables

 

-

 

21,629

 

-

 

-

 

-

 

21,629

Other tax payables

-

124,825

-

-

-

124,825

Other payables

-

6,224,263

-

-

-

6,224,263

 

 

 

 

 

 

 

Total financial liabilities:

-

9,307,540

1,716,480

-

-

11,024,020

 

 

 

 

 

 

 

 

 

31 December 2016

Due on demand

Due within 3 months

Due between 3 and 12 months

Due between 1 and 5 years

Due after 5 years

Total

 

USD

USD

USD

USD

USD

USD

Non-current liabilities

 

 

 

 

 

 

Interest-bearing loans and borrowings

 

-

 

25,000

 

75,000

 

1,688,007

 

-

 

1,788,007

Bank borrowings

-

25,000

75,000

1,688,007

-

1,788,007

Current liabilities

-

-

-

 

-

 

Interest-bearing loans and borrowings

 

-

 

5,002

 

-

 

-

 

-

 

5,002

Bank overdrafts

-

-

-

-

-

-

Other loans and borrowings

 

-

 

5,002

 

-

 

-

 

-

 

5,002

Loans from other related parties

 

-

 

-

 

-

 

-

 

-

 

-

Trade and other payables

 

-

 

4,852,951

 

-

 

-

 

-

 

4,852,951

Trade payables

-

2,741,938

-

-

-

2,741,938

Payables to other related parties

 

-

 

8,550

 

-

 

-

 

-

 

8,550

Employee compensation payables

 

-

 

69,171

 

-

 

-

 

-

 

69,171

Other tax payables

-

98,942

-

-

-

98,942

Other payables

-

1,934,350

-

-

-

1,934,350

 

 

 

 

 

 

 

Total financial liabilities:

-

4,882,953

75,000

1,688,007

-

6,645,960

 

 

 

 

 

 

 

 

26.3  Concentration of risk

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group's performance to developments affecting a particular industry. The Group do not consider that others are engaged in similar business activities, but do monitor the situation.

27   Capital management

The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders in the future, return capital to shareholders, issue new shares, or sell assets to reduce debt.

28   Subsequent events

Capital Structure/Financing/Fee Shares

 

On 29 March 2018, the Company announced that it had conditionally raised USD 36m before fees and expenses by a placing (to be effected in two tranches) of 2,535,211,265 new Ordinary Shares (the "Placing") to existing institutional investors, certain directors and members of senior management at a Placing Price of 1 pence per Placing Share (the "Placing Price").  On 13 April 2018, following shareholder approval at an Extraordinary General Meeting of Shareholders of the authorized capital increase, the Company issued the first tranche of 1,279,049,295 new Ordinary Shares (gross proceeds of USD 18,162,500). The issuance of the second tranche of 1,256,161,970 new Ordinary Shares (gross proceeds of USD 17,837,500) will occur ten business days following a drawdown notice issued by the Company and is subject to the satisfaction of certain key performance indicators, including reducing operating costs of the business to a pre-determined level, launching the next generation IoT Cat M RM2 ELIoT pallets, achieving commercial deployment of RM2 ELIoT pallets and reviewing the governance of the Company as determined to the satisfaction of the Company's largest shareholder, Woodford Investment Management Limited, acting on behalf of certain discretionary managed funds for which it acts as discretionary investment fund manager.

 

The Group intends to use the net proceeds of the Placing to fund: (i) the retrofitting of existing inventory of RM2 BLOCKPals with RM2 ELIoT track and trace devices, (ii) the production of new RM2 ELIoT Pallets and (iii) its sales and general administrative costs.   

 

As part of the Placing, the holders of 120,457,808 Convertible Preferred Shares who subscribed for new Ordinary Shares in the Placing agreed to convert their Convertible Preferred Shares into 3,026,761,003 Ordinary Shares at the Placing Price (the "Participating Conversion Shares") and the holders of 14,357,963 Convertible Preferred Shares who did not subscribe in the Placing have agreed to convert their Convertible Preferred Shares into 130,146,937 Ordinary Shares in application of the anti-dilution provisions in the Company's Articles (the "Non-Participating Conversion Shares"). Both the Participating Conversion Shares and the Non-Participating Conversion Shares include the payment of all accrued dividends on such shares.  Following the closing of the Placing, no Convertible Preferred Shares remain outstanding and the Company's equity consists of a single class of Ordinary Shares.  Further information relating to the Placing is available in the Circular to Shareholders available on the Company's website, www.rm2.com/aim-rule-26/.

 

The Company has announced that it intends to launch shortly an open offer to all Shareholders to subscribe for shares in the Company at the Placing Price of up to the pound sterling equivalent of € 5.0m, the maximum permitted without requiring the Company to publish a prospectus under the EU Prospectus Directive.  The Open Offer would be made available to all Shareholders to allow those Shareholders who could not participate in the Placing to have the opportunity to invest. Authorization for the Open Offer was obtained from Shareholders at the General Meeting of the Company held on 13 April 2018.

 

On 20 April 2018, the Company issued 15,900,000 new Ordinary Shares ("Fee Shares") to certain non-executive Directors of the Company in lieu of cash compensation for the period H2 2017 - H1 2018 (beginning 1 July 2017 and ending 30 June 2018) as set forth in the table below:

 

Director

Number of Fee Shares issued

Resulting holding of Ordinary Shares

Jan Dekker

             2,650,000  

5,440,000

Charles Duro

             2,650,000  

5,038,064

R. Ian Molson*

             5,300,000  

295,860,083

Stuart Rose

             2,650,000  

21,695,634

Paul Walsh

             2,650,000  

9,080,500

* and associated family trusts

 

The determination of the number of Fee Shares was calculated using a price of 1.685 pence per share, being the average of the closing prices for the five trading days prior to and including 17 April 2018.

In addition, the Remuneration Committee decided to remove restrictions related to the attainment of share price thresholds previously applied with respect to the free disposition of restricted shares. This removal of restriction applies to 22,157,680 Ordinary Shares. The impact of this operation will amount to USD 1,176,086 in the result 2018.

 

As of 30 April 2018, RM2's issued share capital is composed of 4,858,919,891 Ordinary Shares of USD 0.01 each.

 

Board Membership

 

The Company announced on 29 March 2018 that Frederic de Mevius and John Walsh had stepped down from the Board of Directors.

 

Sale of Swiss Office Building

 

On 9 March 2018, the Company reported the sale of a non-core office building in Switzerland and repayment of the related mortgage, receiving net proceeds of approximately USD 2m (after reimbursement of the loan).

 

 

Voluntary Liquidation of 7636156 Canada, Inc. (previously RM2 Canada Inc.) 

 

Following the previously-disclosed winding down of its Canadian manufacturing operations which began in 2016, the Company announced on 1 May 2018 that it filed in the Province of Ontario, Canada for the voluntary liquidation of its indirect wholly-owned subsidiary, 7636156 Canada, Inc. 

 

Manufacturing

 

The Company recently exchanged letters with its Chinese subcontractor, Zhenshi, regarding termination of the agreement and indemnities to cover costs incurred to date through the time of removal of the equipment from Zhenshi's site. Discussions are on-going. In light of these exchanges and its business plan, the Company is re-examining its footprint in China. The outcome of these exchanges is unknown at present, but alternatives under consideration could include revising the current agreement with Zhenshi, the amical or litigious termination of the contract and/or establishing an agreement with a different contract manufacturer. Regardless of the outcome of the subcontracting relationship, RM2 expects to continue to source fibreglass raw material for pallet production from Zhenshi's affiliate, Jushi.

 

Retention bonus

 

On 30 July 2017, the Company agreed to extend a loan to Kevin Mazula, which would automatically convert to a bonus in the amount of USD 400,000 once the Company issue at least GBP 10m of new equity. The 13 April 2018 completion of the Placing fulfilled the condition of converting the loan to a bonus.

 

 

Open Offer

 

The Company announced on May 21, 2018 an open offer to existing shareholders to raise up to approximately GBP 4.3 million (before expenses) through the issue of up to 430,161,622 new ordinary shares in the Company at an issue price of 1 pence per share.

 

 


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