Directa Plus plc
Annual Report 2016

Plain-text annual report

Annual Report and Accounts for the year ended 31 December 2016 D i r e c t a P l u s p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 6 Directa Plus plc ComoNExT Science Park Via Cavour 2, 22074 Lomazzo (Co) Italy www.directa-plus.com     LEVERAGING THE QUALITIES OF A NEW RANGE OF GRAPHENE-BASED MATERIALS FOR CONSUMER, ENVIRONMENTAL AND INDUSTRIAL APPLICATIONS ELASTOMERS TEXTILES COMPOSITE MATERIALS ENVIRONMENT 3D PRINTING FILAMENTS RUBBER TECHNICAL ITEMS Contents Directors, Secretary & Advisers Financial & Operational Summary Chairman’s Statement Strategic Report - Chief Executive Officer’s Review Strategic Report - Chief Financial Officer’s Review Textiles Market Environmental Market Throughput Project & Manufacturing Directors’ Biographies Directors’ Report Corporate Governance Report Directors’ Remuneration Report Independent Auditor’s Report Consolidated Statement of Comprehensive Income 04 05 08 09 13 14 16 17 18 20 23 25 28 29 Consolidated & Company Statement of Financial Position 30 Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated & Company Statement of Cash Flows Notes to the Consolidated Financial Statements 31 32 33 34 3 Annual Report & Accounts 2016 Directors, Secretary & Advisers Directors, Secretary & Advisers The Board of Directors Sir Peter Middleton Non-Executive Chairman Giulio Cesareo CEO and Founder Marco Ferrari Chief Financial Officer David Gann Non-Executive Director Neil Warner Non-Executive Director Luca Lodi-Rizzini Non-Executive Director Elizabeth Robinson Non-Executive Director (resignation effective 12 May 2017) Richard Hickinbotham Non-Executive Director (appointment effective 12 May 2017) Company Secretary Marco Ferrari Registration Number 04679109 Auditors BDO LLP 55 Baker Street London W1U 7EU United Kingdom Legal Advisers As to English Law Fox Williams LLP 10 Finsbury Square London EC2A 1AF United Kingdom As to Italian Law Bird & Bird LLP Via Borgogna 8 20122 Milan Italy Registrar Capita Registrars Ltd The Registry 34 Beckenham Road Beckenham Kent BR3 4TU United Kingdom Financial PR Adviser Luther Pendragon Ltd 48 Gracechurch Street London EC3V 0EJ United Kingdom Registered Office 3rd Floor 11-12 St James’s Square London SW1Y 4LB United Kingdom Principle Place of Business Directa Plus plc ComoNExT Science Park Via Cavour 2 22074 Lomazzo (Co) Italy Nominated Advisor and Broker Cantor Fitzgerald Europe One Churchill Place Canary Wharf London E14 5RB United Kingdom Adviser to the Company Hamilton Venture Capital Ltd 5th Floor 50 Curzon Street London W1J 7UW United Kingdom 4 Annual Report & Accounts 2016 Financial & Operational Summary Financial & Operational Summary Key Performance Indicators Revenue from product sales (ex MDU) (€’m) Group revenues (€’m) Adjusted loss after tax**(€’m) Production (tonnes delivered) Number of active customers Total number of patents granted Financial Summary 2016 0.74 0.74 4.11 3.1 16 14 2015 0.39 1.39 1.73 1.3 7 12 ■ Revenue from graphene sales increased by 89% to €0.74 million (2015 revenues excluding MDU – Mobile Decontamination Units: €0.39 million) (2015 revenues including MDU: €1.39 million) ■ EBITDA* loss for the year increased to €3.7 million (2015: €2.7 million) ■ Adjusted EBITDA loss** for the year increased to €2.4 million (2015: €0.8 million) ■ Loss after tax for the year increased to €6.4 million (2015: €4.4 million) ■ Adjusted loss after tax*** for the year increased to €4.1 million (2015: €1.7 million loss) ■ Admitted to AIM on 27 May 2016, successfully raising £12.8 million (approximately €16.8 million) gross at 75 pence per share ■ Non-cash cost of the embedded derivative associated with convertible loan was €1.04 million (2015: €0.71 million) ■ Cash and cash equivalents at 31 December 2016 were €10.6 million (2015: €2.0 million) * EBITDA represent results from operating activities before depreciation and amortisation of €0.57m ** Adjusted EBITDA loss stated before IPO costs (€0.43m); exceptional write down (€0.84m) of receivables from a customer and related increase in inventory value (€0.15m); and share options costs (€0.15m). 2015 adjusted EBITDA loss stated before the provision of €1.93m against the Group’s D+ technology *** 2016 adjusted loss after tax stated before non-recurring IPO costs (€0.43m); the non-cash cost of the embedded derivative associated with a convertible loan (€1.04m); exceptional write down (€0.84m) of receivables from a customer and related increase of inventory value (€0.15m); and share options costs (€0.15m). 2015 adjusted loss after tax stated before the provision of €1.93m against the Group’s D+ technology and the non-cash cost of the embedded derivative associated with a convertible loan (€0.71m) 5 Annual Report & Accounts 2016 Financial & Operational Summary Financial & Operational Summary (continued) Operational Highlights ■ Delivered 3.1 tonnes of Graphene Plus (G+) materials (2015: 1.3 tonnes) ■ Throughput Project has successfully improved production process delivering increased efficiency and expanding the Group’s graphene product range ■ Two further patents granted during 2016 covering the liquid exfoliation phase and the entire G+ process ■ Two further patents filed in respect of Grafysorber® and elastomer applications ■ Total portfolio of 14 patents granted with a further 18 pending ■ Over 16 active customers (2015: 7 active customers), 8 of which are global players ■ Extended product portfolio from 6 to 10 to better satisfy customer needs and to address new markets Commercialisation Progress Textiles ■ Launched Directa Textile Solutions, through the acquisition of Osmotek Srl, to enhance the route-to-market for the Group’s textile applications ■ Colmar successfully launched first G+ enhanced clothing collection Environmental ■ Sold, in aggregate, first kilometre of Grafysorber® booms to a growing number of recurring customers Composites ■ Progressed two-year Joint Development Agreement (“JDA”) signed in 2015 with leading spectacles company, completing the industrialisation of a fine-tuned G+ enhanced polymer ■ Commercial launch of Grafylon®3D, a graphene-enhanced filament for 3D printing, developed in collaboration with FILOALFA Elastomers ■ Several victories achieved in various competitions by cyclists using the new G+ collection of Vittoria tyres, including a gold medal at the 2016 Summer Olympics 6 Annual Report & Accounts 2016 Financial & Operational Summary Post year-end Highlights Textiles ■ Colmar launched an expanded collection of 16 G+ enhanced sports garments (2015: 4) ■ Two JDAs signed with global textile producers and a third under discussion for high performance fabrics incorporating G+ material for sportswear and leisurewear Environmental ■ Discussions progressing regarding substantial opportunities to use Grafysorber® to clean contaminated water produced from oilfields in the Middle East ■ Advanced discussion for rental or sale of Mobile Decontamination Units in Eastern Europe, Middle East and North Africa ■ Agreement signed with IIT (Istituto Italiano di Tecnologia), a major Italian research centre, to develop the second generation of Grafysorber® for water treatment applications Composites ■ Expect to receive first industrial order for G+ material for brake pads in Q2 2017 ■ Major spectacles company launched the first spectacles collection enhanced by G+ Elastomers ■ JDA under negotiation with leading global footwear company to provide sustainable solution for high performance soles ■ Parker, a leading company in rubber-based applications, is continuing to test G+ material in a wider range of applications ■ Expecting a reduction in volume into the bicycle tyre segment in 2017, as the market adjusts to on-going levels of demand across Vittoria’s product range Outlook ■ Deepening engagement with existing and potential customers to provide more comprehensive solutions will mean timeframe to adoption will be up to 12 months longer than previously anticipated. As a result, and together with the now expected slowdown in volumes in 2017 into the tyre segment and the time required to conclude the ongoing discussions on rental or sales of MDUs, the Group now expects a significant reduction in anticipated revenues for 2017 7 Annual Report & Accounts 2016 Strategic Report Chairman’s Statement Sir Peter Middleton Chairman, 27 April 2017 directly in the supply chains of large companies ■ Flexible process with at least two different types of equipment in each production phase ■ On-going broadening of the customer base and securing JDAs for further penetration into key target markets ■ To maintain Directa Plus’ leading market position by being able to fine tune particles’ morphology to meet customers’ application needs The progress we have achieved in 2016 in implementing our strategy are discussed in the Chief Executive’s Review. The Board believes that a clear and focused strategy, together with a highly motivated and talented management team, patented technology and products, and strong financial discipline, means Directa Plus is well positioned to realise sustainable, long-term growth. Leading position amongst companies commercialising graphene and graphene- based products Directa Plus has developed a proprietary scalable manufacturing process to produce and supply high quality engineered graphene-based products which can be used by third parties in a wide variety of industrial and commercial applications. We look to partner with customers to support them in fully capturing the high-performance benefits of G+ graphene. Our graphene is already incorporated into several commercial applications in the smart textiles, environmental, composite materials and elastomers sectors. We plan to capture the growth opportunities from these existing applications as well as delivering against our pipeline of other prospects. Our manufacturing facility in Italy is capable of producing up to 30 tonnes per annum of non-toxic pristine graphene nanoplatelets – the most of any company in Europe, if not worldwide. We believe that this manufacturing capability and proven production process provides Directa Plus with an opportunity to become a leading player in the on-going and expanding commercialisation of graphene and associated nanomaterials. Finally, I would like to thank our customers, partners and shareholders for their continued support. Above all, I would like to thank our employees for their hard work and enthusiasm, which has enabled the business to achieve significant progress during 2016. We are deepening our relationships with existing and potential customers and working with them to provide more comprehensive solutions to incorporate our graphene into their products. This work being performed means the timeframe to adoption will be up to 12 months longer than previously anticipated and, with the reduced volumes into the tyre segment together with the time required to conclude the ongoing discussions on rental or sales of MDUs, we now expect a significant reduction in anticipated revenues for 2017. However, notwithstanding this disappointment, there is momentum building within the Group that puts Directa Plus on a solid footing for the future. I am proud to be presenting our maiden annual results following our listing in May 2016. It has been a momentous year for Directa Plus, one where we not only completed our IPO but also built upon the solid foundations set in the previous year. In the relatively short period since becoming a public company, we have continued to implement our strategy outlined at the time of our IPO and, whilst we have encountered some delay in the sale of Mobile Decontamination Units, we are pleased with the significant progress that the business has made. We now have over 16 active customers in 2016 (7 active customers in 2015) and revenues from the sale of graphene grew by 89% (excluding MDUs) in 2016 over 2015. Commercialisation Strategy In 2016, our priority was to move towards the commercialisation of our graphene-based products. During the year, the Board focused on setting out the Company’s strategy for growth, involving detailed examination of each of our primary target markets. The key elements of our commercial strategy are as follows: ■■ Position the business high in the value chain providing visibility to our G+ brand ■■ Low cost, modular, highly scalable, high-yield process able to produce revenues at each phase of production ■ A chemical-free process using only physics that results in our G+ materials being non-toxic and non-cytotoxic ■ Production of several grades of material designed for different applications able to be utilised 8 Annual Report & Accounts 2016 Strategic Report Chief Executive Officer’s Review Giulio Cesareo Chief Executive Officer and Founder, 27 April 2017 This was a significant year for Directa Plus with the successful IPO in May 2016 and the progress we made in the period. We gained new customers whilst existing customers whom we have been working with closely over the past year launched products with G+ inside them that were well received by the market. I am particularly pleased to report that the investment in our Throughput Project has delivered a substantial improvement in efficiency and increased our graphene product range. We achieved our objective of listing on AIM, raising £12.8 million that now enables us to capitalise on an exciting pipeline of commercial opportunities. We are working closely with existing and potential partners and making good progress with several global businesses. Commercial progress During 2016 we made good commercial progress across our end applications with more customers launching further products into the market and entering strategic JDAs. The exceptional performance of our G+ materials has been confirmed in extensive test programmes and our engagement with these customers has continued to deepen as they have sought our support in adjusting their production processes. We are now providing more comprehensive solutions to meet our customers’ needs and, accordingly, we are increasingly confident in the outlook for the Group, albeit we now believe the timeframe for adoption will be up to 12 months longer than previously anticipated. Textile Directa Textile Solutions Towards the end of the year we achieved a significant milestone with the launch of Directa Textile Solutions (DTS), enabling Directa Plus to move further up the textile value chain and positioning us closer to commercial brands. Our wholly-owned subsidiary, Directa Plus S.p.A., acquired a 60% interest in the issued share capital of Osmotek Srl (“Osmotek”), a company involved in the commercialisation and distribution of textile membranes, for a total consideration of €60,000. I am really pleased that we have secured this position at a very attractive cost to the business. DTS is able to market a complete range of graphene-based technical and high-performance membranes. These functional and multi-functional products are designed to enhance different textile applications, leveraging the thermal, electrical conductivities and bacteriostatic properties of G+ materials. As a result, we are now providing membranes incorporating G+ materials as a hi-tech solution for several global manufacturing firms. We are capturing value from this acquisition through enhanced sales of G+ material and through greater access to new markets such as technical, home- textiles and other opportunities. The orders booked for Q1 2017 are already ahead of our initial investment in Osmotek and we are pleased with the progress already being made from this acquisition. Colmar In January 2016 Colmar, the high-end sportswear company, launched its first Capsule collection, made up of four garments, incorporating our G+ materials and commenced selling the clothing online and in selected stores. The French national ski team have had successes at several competitions wearing the racing ski suits developed within this collection. Post year end, Colmar launched a second collection of 16 garments incorporating G+ materials. We are delighted that one of the new jackets, the Technologic G+, was selected as a Gold Winner in the ‘Ski’ category at ISPO Munich, an international multi-segment exhibition for sports businesses, which, each year, honors exceptional sporting goods. We also signed two JDAs with global textile producers and a third one is currently under discussion. Our customers greatly value G+ materials for their non-toxicity and this is a proven and major competitive advantage for us. Eurojersey In 2016 we also entered into a collaboration with Eurojersey S.p.A., part of the Carvico group, a producer of high quality warp-knit technical fabrics marketed under its Sensitive® brand, to produce a new range of highly performant technical fabrics targeting the sportswear, leisure and underwear sectors. Post period end, Eurojersey unveiled a number of prototype textiles, which we are now jointly developing into product samples that will be marketed to the customers of both companies. Significant Eurojersey customers include Lululemon, Victoria’s Secret, Rapha and GAP. 9 Annual Report & Accounts 2016 Strategic Report Chief Executive Officer’s Review (continued) Grant award Post period end, we were awarded a grant by the European Regional Development Fund via the Lombardy regional government in respect of a €1 million project focusing on the development of G+ membranes to enhance the thermal and electrical performance of membranes for fashion applications. The project is a collaboration between Directa Plus, the Politecnico of Milan University and two other companies, with Directa Plus as project leader. We expect to invest €308k and receive a grant of €126k following the completion of the project in December 2018. The grant is aligned with our textile development strategy, and targeted to reduce costs and expand the range of high- performance G+ textile products. Environmental Grafysorber® is a sustainable product, produced by Directa Plus, that enables the recovery and recycling of adsorbed oils. Grafysorber® also has significant and proven advantages compared with the most commonly used traditional materials, such as polypropylene. It is recyclable, non-flammable, and does not contain any toxic substances and is primarily used to soak up oil spills. It is usually produced and deployed at the site of the spill via our Mobile Decontamination Unit (MDU). This ability to produce the Grafysorber® on site and in the right quantity renders it a highly cost-effective solution compared with conventional solutions. We are now exploring the potential of Grafysorber® to remove pollutants other than hydrocarbons in applications that also include soil and air treatment. In particular, we are in detailed conversations around the use of Grafysorber® to clean contaminated water produced from oilfields in the Middle East, a market opportunity that could prove very exciting for us. During the year, we sold, in aggregate, our first kilometre of Grafysorber® booms and we are currently engaged in commercial discussions in Romania, Italy and Oman on the potential rental or sales of MDUs. for oil and gas processes, which is active in the Middle East region. We continue to progress discussions in the region on the advantages of our MDUs and our objective is to move into the decontamination of the produced water used in enhanced oil recovery. We consider this potentially represents a substantial market opportunity and we are encouraged that Grafysorber® remains a unique solution to the problem. Romania OIL DEPOL group, a leading Romanian decontamination company, purchased several hundred kilograms of Grafysorber® during the year to conduct a series of industrial tests on water that had been contaminated by oil. Following successful test results, OIL DEPOL and Demeco, another Romanian water treatment company, are now using Grafysorber® and there are ongoing negotiations with them, respectively, for the purchase or renting of an MDU. In addition, Setcar, a customer, has designed and developed an industrial unit to utilise loose Grafysorber®, which has been successfully deployed in Romania. Post year end, we entered discussions with OMV Petrom to establish Grafysorber® as the preferred solution for their upstream decontamination and oil recovery activities. Oman During the year we delivered Grafysorber® materials to our local partner, Blue Planet Engineering & Technical Services LLC, an Omani company providing technical and scientific services and products Italy Testing activity with ENI, one of the largest oil and gas companies in the world, was successfully completed in October 2016 and we are now in a good position to capitalise on this work. In July 2017 we will officially present the test results in conjunction with ENI at the 6th International Conference on Environmental Chemistry and Engineering in Rome. Post year end, we entered advanced negotiations to deliver products for decontamination activities to be performed in Nigeria and at some other contaminated sites. There are also several on-going tests for environmental decontamination and industrial applications in Italy. Composite Materials We made progress under a two- year JDA, signed during the year, with a global luxury accessories producer, to develop an entire generation of graphene-enhanced spectacles. The first product was commercially available Q1 2017. During the year, we launched Grafylon 10 Chief Executive Officer’s Review (continued) Annual Report & Accounts 2016 Strategic Report 3D, a new graphene-enhanced filament for 3D printing. It was developed and commercialised in collaboration with FILOALFA, a company specialised in producing filaments used in 3D printing. This is the first 3D printing product to contain our G+ material and the product is now available through a wide range of distribution channels. We also proceeded with a JDA signed in 2015 with one of the leading manufacturers of brake pads to conduct a joint R&D project. The collaboration is progressing well and we expect to generate revenue under this JDA in 2017. As part of the development work, we created new hybrid G+ materials that are now ready to enter different areas of applications and we are very excited by the market potential. Elastomers Vittoria conducted an intensive marketing campaign to promote the new G+ tyres collection (ITS - Intelligent Tire System) targeting on and off road and e-bike markets. There were several victories in various competitions by cyclists using these tyres, including a gold medal at the Olympics in August 2016. This resulted in a significant increase in revenues in 2016, but unfortunately we now expect a reduction in volume in 2017 as the market adjusts to on-going levels of demand across the Vittoria product range. We are currently in advanced negotiations with a leading global footwear company to conclude a JDA. G+ materials can provide thermal conductivity, greater durability and less deformation and we are excited by the potential of this market opportunity. Expanded product portfolio In order to better satisfy customer needs and address new markets, we continue to develop our product portfolio to expand the potential applications of G+ technology. During the year, we focused on providing the most suitable G+ material for the different applications, in order to accelerate G+ adoption in commercial products – developing new products and enhancing existing ones. We extended our product portfolio from six to 10 products, which enables the business to engage more quickly with customers and potential customers and to win the commercial opportunity and in a reduced timeframe. Throughput Project During 2016, we started the Throughput Project with the objective of improving our proprietary G+ manufacturing process, and we are pleased to report that we have achieved material improvements in production efficiency, exceeding our initial expectation, and an expansion of our graphene product range. There is the potential for further enhancements of these developments and we look forward to benefitting from these improvements in the future. IP Protection and Certification process A key focus of Directa Plus is the protection of our intellectual property. Two further patents were granted during 2016: one covering the liquid exfoliation phase and the other covering the entire G+ production process. A further two patents have been filed, in respect of Grafysorber® and elastomer applications. We now have a portfolio of 14 patents granted with a further 18 pending. In addition to ISO 9001:2015 certification, we received ISO 14001:2015 certification following an assessment of our environmental management system. This certification confirms that the business is operating to the highest level of Health, Safety and Environmental Protection. During the year we also conducted an intense toxicological analysis of our products, in particular of Grafysorber® and Pure G+, and received independent certification that they are non-toxic and non-cytotoxic. This is an important competitive advantage particularly for sales into the textile industry. Production footprint The Throughput Project has generated further production efficiency at our plant in Italy and thereby provides sufficient flexibility to meet forecast demand. Whilst the Board had planned to establish a manufacturing presence in Thailand to access the Far East markets, with the evolution of other advancing commercial opportunities with a number of leading global companies in different geographical locations, the Board has taken a prudent decision to delay that capital expenditure. The Board continues to assess where to locate our first plant outside Italy, monitoring in particular, potential sites in Asia, the Middle East and the USA. 11 Annual Report & Accounts 2016 Strategic Report Chief Executive Officer’s Review (continued) Outlook 2016 was a year of intense and focused learning resulting in improved internal capability and much deeper market knowledge. Directa Plus has begun 2017 with increased engagement with existing, new and potential customers and continues to attract interest from companies worldwide. Specifically, we expect the textiles segment to feature prominently this year. Colmar has launched its second collection of G+ clothing and we are in advanced discussions with some of the world’s largest clothing and footwear brands to incorporate our G+ materials into their new ranges of products. We anticipate working with these new customers this year to test and produce new enhanced products; however, revenues generated from these are now expected to be up to 12 months later than previously expected with the ramp up being delivered when the new products are launched into the mass market in 2018 and beyond. We also anticipate the environmental segment to be active during the year as we see increased interest from Europe, the Middle East and the USA for our Grafysorber® product. With a longer-than-expected timeframe to adoption together with the now expected slowdown in volumes in 2017 into the tyre segment and the time required to conclude the ongoing discussions on rental or sales of MDUs, it is disappointing to report that we now expect a significant reduction in anticipated revenues for 2017. However, in light of the significant opportunities and the building momentum within the business, the Board feels confident that we are well positioned to capture growth within our target markets and continues to look to the future with optimism. Below: The maiden Board of Directors of Directa Plus plc 12 Annual Report & Accounts 2016 Strategic Report Chief Financial Officer’s Review Marco Ferrari Chief Financial Officer, 27 April 2017 Key Performance Indicators The Board considers that there are a number of important financial and non-financial KPIs. Performance against these KPIs is in-line with the Board’s expectation and the detail regarding this performance has been summarised in my report. We have provided a summarised table of the KPIs below: In 2016, revenues were €0.74 million (2015: €1.39 million) with the decline being primarily a result of lower revenues due to the absence of sales of Mobile Decontamination Units (MDU) compared with revenues of €1.0 million in 2015. Revenues, excluding MDUs, increased by 89% year-on- year to €0.74 million (2015: €0.39 million) as more customers adopted our G+ graphene-based solutions. Revenue from product sales (ex MDU) (€’m) Group revenues (€’m) Adjusted loss after tax (€’m) Production (tonnes delivered) Number of active customers 2016 2015 0.74 0.74 0.39 1.39 4.11 1.73 3.1 1.3 16 7 Financial Review On 27 May 2016, Directa Plus plc was admitted to AIM, raising approximately £12.8 million (€16.8 million), primarily to increase production capacity, and to sustain as well as expedite the development of our commercial pipeline. The net amount, post IPO- related expenses, was approximately £11.0 million (€14.4 million). Prior to the IPO, we had been funded principally through the issue of convertible loan notes bearing interest at 8%. Holders of approximately 86% of these loan notes, with a value of €5.1 million (including accrued interest), elected to convert their holdings at the IPO into the Group’s equity. Holders of remaining 14% (€0.8 million) were repaid out of the IPO proceeds. Other income (which includes grants received by the Group) was €0.08 million (2015: €0.32 million). Whilst grants are important, we are primarily focused on commercial and applications development, rather than applying for grants that are inconsistent with the business’ principal strategies. An investment in tangible and intangible assets of €0.5 million (2015: €0.8 million) was incurred during the year, mainly relating to the development of products and production processes, IP activity and the purchase of new equipment. We built a large Application Development Area, enabling us to work more closely with customers and produce the most suitable G+ materials for them, thereby reducing the time it takes them to launch their end-user products in the market. During the year, we invested €0.06 million for a 60% shareholding in Directa Textile Solutions (formerly known as Osmotek Srl), fulfilling an important objective of the business to establish itself higher in the value chain. The €0.06 million was used to fund DTS’ working capital requirements. The EBITDA loss for the year increased to €3.7 million compared with €2.7 million for 2015. Adjusted EBIDTA is €2.4 million stated before IPO costs (€0.43m); exceptional write down (€0.84m) of receivables from a customer and related increase in inventory value (€0.15m); and share options costs (€0.15m). The loss for the year was €6.4 million compared with €4.4 million loss for 2015, with the decline primarily due to the expenses associated with the IPO that were charged to the income statement (€0.43 million), the non-cash cost of the embedded derivative associated with the convertible loan notes (€1.04 million) as described in note 19, the net effect of the write-down of receivables (€0.69 million) in respect of two MDUs sold in 2015 (announced on 2 December 2016) and the share options cost of €0.15 million (2015: nil). Excluding these exceptional items, the adjusted loss for the year was €4.1 million. Immediately after the IPO and before the Brexit referendum, we converted £7.5 million of the IPO proceeds to €9.5 million (based on an average exchange rate of £1: €1.26) as the costs of the Italian subsidiary are in Euros. The remaining amount in Sterling, of approximately £3.5 million, has been retained for the management of expenses in the UK. Finance expenses include €0.9 million due to the effect of the subsequent movement of Sterling against Euro on the Sterling deposits. Cash and cash equivalents at 31 December 2016 were €10.6 million (30 June 2016: €13.1 million) with the reduction primarily due to IPO expenses settled after 30 of June, investments and operational expenditure. 13 Annual Report & Accounts 2016 Strategic Report Textile Market Developed planar thermal pattern – delivering a unique solution to every customer First-mover advantage with end products on sale which incorporates G+ Textile Brands End User G+ Textile Auxiliaries Producer Directa Plus Non-toxic and non-cytotoxic Understand and control the value chain through Directa Textile Solutions Consultancy to Auxiliaries Producer Printing mills Advantages in the Textiles Market Consultancy on G+ Printing Already in development phase with new customers Directa Plus Directa Plus Textile membranes Apparels/Technical textile Graphene Producer Directa Plus Textile Auxiliaries Producer Membranes Producer Distribution/Commercial Directa Textile Solutions Textile Brands /Converters End User Directa Textile Solutions ■ Directa Textile Solutions is key to downstream integration Directa Textile Solutions ■ Directa Textile Solutions is key to downstream integration strategy ■ Two revenue streams: from the sale of membranes and sale of G+ strategy ■ Two revenue streams: from the sale of membranes and sale to the membrane producer of G+ to the membrane producer ■ Better able to communicate directly with major brands and provide a product that meets their exact needs   provide a product that meets their exact needs   ■ Better able to communicate directly with major brands and ■ Partnership with a leading producer of textile membranes, Novaresin, allows generation of more value and margin by controlling the process from development to sale ■ Partnership with a leading producer of textile membranes, Novaresin, allows generation of more value and margin by controlling the process from development to sale 14 Annual Report & Accounts 2016 Strategic Report Textile Market (continued) Printed textiles Brand new approach along the value chain in order to sell a certified planar thermal circuit, being proactive in solving client’s issues. G+ Directa Plus Textile Auxiliaries Producer Printing mills Textile Brands End User Consultancy to Auxiliaries Producer Consultancy on G+ Printing Directa Plus Directa Plus PLANAR THERMAL CIRCUIT Apparels/Technical textile Graphene Producer INSULATION Directa Plus Textile Auxiliaries Producer LINING Membranes Producer ■ Traditionally, textile development has focused on through-plane properties of fabric that regulate Textile Brands the relationship between the human body and the /Converters environment e.g. textile breathability or impermeability Distribution/Commercial Directa Textile Solutions End User OUTER LAYER R E T U O E R U T A R E P M E T Y D O B E R U T A R E P M E T ■ Now, thanks to bidimensional and planar nature of graphene, the in-plane properties can optimise fabric performance due to the interaction between the fabric and the human body Directa Textile Solutions ■ Directa Textile Solutions is key to downstream integration strategy ■ Two revenue streams: from the sale of membranes and sale of G+ ■ The planar thermal circuit created by G+ distributes heat generated by the body to prevent the creation of hot-spots and dissipates it when needed HOT SPOT to the membrane producer ■ Better able to communicate directly with major brands and ■ It is possible to adjust the body temperature provide a product that meets their exact needs   ■ Partnership with a leading producer of textile membranes, Novaresin, allows generation of more value and margin by controlling the process from development to sale without using an external source of energy, such as batteries, and without affecting the fabric’s other features such as breathability and impermeability 15 Annual Report & Accounts 2016 Strategic Report Environmental Market Directa Plus’ Environmental Solution Grafysorber and MDU Directa Plus Oil Company & Decontamination Company Oil Spill Remediation /Produced Water Treatment Equipment* to use Grafysorber Directa Plus *Currently under development Grafysorber® Grafysorber® produced in an MDU on site Grafysorber® supplied in pillow barriers Former Italian PM Matteo Renzi receiving briefing on Grafysorber ® at Directa HQ (April 2017) Proven advantages compared with most commonly used traditional materials such as polypropylene Solutions for two key applications – treating oil spills and produced water (in oil & gas) Environmental Market Oil adsorption capacity of Grafysorber® in pillows/barriers is at least five-times higher than polypropylene 16 Present Production Capacity Future Production Capacity Capex Required 3D Materials 30 tonnes +250% 105 tonnes €270,000 2D Materials 12 tonnes +516% 74 tonnes €435,000 Present Production Capacity Future Production Capacity* Capex Required 3D Materials 30 tonnes +250% 105 tonnes €270,000 Annual Report & Accounts 2016 2D Materials 12 tonnes +516% Throughput Project & Manufacturing 74 tonnes Strategic Report €435,000 Present Production Capacity Future Production Capacity* 3D Materials 30 tonnes +250% 105 tonnes 2D Materials 12 tonnes +516% 74 tonnes *Increase in production capacity will be driven by market demand Low energy use and near zero waste Low energy use and near zero waste Independently certified as non-toxic and non-cytotoxic Independently certified as non-toxic and non-cytotoxic No chemicals are used in production No chemicals are used in production Directa Plus’ Strengths Directa Plus’ Strengths Consistency of end product Consistency of end product Chemical-free and sustainable IP protected: 14 granted and 18 pending patents in core G+ technology ISO 9001:2015 and ISO 14001:2015 accredited Chemical-free and sustainable IP protected: 14 granted and 18 pending patents in core G+ technology ISO 9001:2015 and ISO 14001:2015 accredited Production methodology proven to deliver consistent quality, pristine GNPs Production methodology proven to deliver consistent quality, pristine GNPs A continuous efficient production process with high yield and minimal waste A continuous efficient production process with high yield and minimal waste Low production costs and no chemicals and solvents Low production costs and no chemicals and solvents Manufacturing Capability Manufacturing Capability A low cost of capital investment and a modular design facilitates ease of scale up A low cost of capital investment and a modular design facilitates ease of scale up Key features of production facility and production process Key features of production facility and production process Built a large Application Development Area at headquarters in Italy ■ Enables Directa Plus to work closely with its customers to produce the most suitable G+ materials for them and reduce the time it takes for the customers to launch their end-user products 17 Annual Report & Accounts 2016 Corporate Governance Directors’ Biographies Sir Peter Middleton Non-Executive Chairman Giulio Cesareo CEO and Founder Marco Ferrari Chief Financial Officer Prior to joining Directa Plus, Marco was a financial advisor at EY, involved in several M&A transactions, with a focus on energy, renewable energy and oil & gas industries. Other experience includes Deutsche Bank, Deloitte and Dezan Shira & Associates in China. Marco holds a degree in Business Administration and Master of Science in Administration Finance and Control from Università Commerciale ‘Luigi Bocconi’. Giulio Cesareo is one of the founders of Directa Plus. He began his professional career in 1982 in Italy working for Falck and Techint. From 1986 to 2004, he worked in the carbon and graphite field for Union Carbide, UCAR and Graftech, reaching the positions of the President and CEO of the Italian company and Vice President and General Manager of the Advanced Carbon and Graphite business unit. In his role at Union Carbide, Giulio managed business units in USA, France and Italy. Giulio Cesareo was awarded a degree in Mechanical Engineering from the Polytechnic University of Milan, an MBA and an Executive MBA from Bocconi University of Milan and attended Strategic and Financial Management Programs at Stanford University (USA). He serves as a board member of Fondazione Quarta, a non-profit organisation focussed on scientific research in areas of social activity and was also Board Member of: Centro di cultura scientifica “Alessandro Volta”, an organisation aimed at promoting the practical applications of a scientific culture. Sir Peter Middleton GCB is Chairman of Burford Capital, the Resort Group and Hamilton Ventures. He was Chairman of Marsh Ltd between 2005 and 2013, UK Chairman of Marsh & McLennan Companies between 2007 and 2014 and Chairman of Mercer Ltd between 2009 and 2014. He was also previously Chairman of Camelot Group plc and Chairman of the Centre for Effective Dispute Resolution. He was a Director, Chairman and Deputy Chairman of United Utilities from 1994-2007, a Board member of OJSC Mobile Telesystems from 2005-2007 and a board member of Bass plc from 1992-2001 and General Accident (later CGU) from 1992-1995. Sir Peter spent nearly 30 years at HM Treasury, working closely with nine Chancellors, and was Permanent Secretary from 1983 to 1991. Sir Peter became Group Chairman of Barclays Bank plc in April 1999 and retired in August 2004. He joined Barclays in 1991 as Group Deputy Chairman and Executive Chairman of BZW, became Chairman of Barclays Capital following the reorganisation of BZW in October 1997 and was Group Chief Executive from November 1998 until October 1999. He was also President of the British Bankers Association from 2004- 2006 and a member of the National Institute for Economic Research from 1996-2007. 18 Annual Report & Accounts 2016 Corporate Governance Directors’ Biographies (continued) David Gann Non-Executive Director Neil Warner Non-Executive Director Luca Lodi-Rizzini Non-Executive Director Neil Warner has strong financial and managerial experience in multi- national businesses. He is the senior independent director and chairman of the audit committee at Trifast plc and he is also a non-executive director of Vectura Group plc where he is chairman of the audit committee. Formerly he served as non-executive chairman of Enteq Upstream plc and as Finance Director at Chloride Group plc, a position he held for 14 years until its acquisition by Emerson Electric. Prior to this, Neil spent six years at Exel plc (formerly Ocean Group plc and now part of DHL following its acquisition by Deutsche Post in December 2005) where he held a number of senior posts in financial planning, treasury and control. He has also held senior positions in Balfour Beatty plc (formerly BICC Group plc), Alcoa and PricewaterhouseCoopers and was non-executive director of Dechra Pharmaceuticals plc where he was the senior independent director and Chair of the Audit Committee. David Gann CBE CEng FICE FCGI is a renowned expert on technological innovation and an accomplished business and academic leader. He is Imperial College London’s Vice- President (Innovation) and member of the College’s Executive Board. He has deep experience mentoring start-ups, supporting fast growth technology businesses and developing long-term strategic partnerships with multinational technology corporations. He is Professor of Innovation and Technology Management with a PhD in Industrial Economics. He is a Chartered Civil Engineer, a Fellow of the Institution of Civil Engineers, an Honorary Fellow of the Royal College of Art and Fellow, City & Guilds Institute. He was appointed Commander of the Order of the British Empire (CBE) in the 2010 Queen’s Birthday Honours for services to engineering, and received the 2014 Tjalling C. Koopmans Asset Award for extraordinary contributions to the economic sciences. David is a member of the London Enterprise Panel and Chairman of the Smart London Board. His industrial experience includes serving as Laing O’Rourke plc’s Group Executive for research and innovation between 2007-2011. He advises executives and boards on innovation and technology management, including Citigroup, IBM, Huawei, McLaren and Tata Group. Luca Lodi-Rizzini is a Managing Director at Credit Suisse, one of leading global investment banks. Luca is currently the Head of Institutional Equity Derivatives Sales for Europe. Having joined Credit Suisse in 2004, Luca was previously a Senior Equities Portfolio Manager at Eurizon Capital. Richard Hickinbotham Non-Executive Director (effective 12 May 2017) Richard Hickinbotham is an experienced City professional having served as Head of Equity Research at Cantor Fitzgerald Europe and Charles Stanley. Prior to this, he held a number of senior positions at Investec, including Global Head of Research and Co- Head of Investment Banking. He has also served as Head of Pan-European Small and Midcap Research at S.G. Warburg & Co. (acquired by UBS). Richard holds a BSc. in Mechanical Engineering from Imperial College, and is a qualified Chartered Accountant. 19 with the Company, on 23 May 2016 (with effect from 28 April 2016), to act as an Executive Director of the AIM-listed entity – having previously been employed by the Directa Plus S.p.A subsidiary since 13 October 2014. *** Elizabeth Robinson will resign as a director as of 12 May 2017. Directors’ Remuneration and Interests The Directors’ Remuneration Report is set out on pages 25 to 26. It includes details of Directors’ remuneration, interests in the ordinary shares of the Company and share options. Corporate Governance The Board’s Corporate Governance Statement is set out on pages 23 to 24. Annual Report & Accounts 2016 Corporate Governance Directors’ Report Principal Activities Directa Plus is a technological company pursuing the development of innovative manufacturing processes to produce and supply high quality engineered graphene-based products which can be used by third parties in a wide variety of industrial and commercial applications. The Company’s strategy is to partner with potential customers at an early stage and work with them to develop tailor-made graphene forms that have the desired morphology for each potential customer’s specific applications to enable them to capitalise on the high- performance benefits of graphene. The Company’s main country of operation and place of business is Italy and its registered office address is 3rd Floor, 11-12 St. James’s Square, London, SW1Y 4LB, UK. Business and Strategic Review The information that fulfils the requirements of the strategic report and business review, including details of the results for the year ended 31 December 2016, principal risks and uncertainties, research and development, KPIs and the outlook for future years, are set out in the Chairman’s Statement, Chief Executive Officer’s Review and Chief Financial Officer’s Review on pages 8 to 13 (The Strategic Report), and in this Directors’ Report. There are no post balance sheet events to report. Admission to AIM Directa Plus plc was admitted to trading on AIM, a market operated by the London Stock Exchange plc, on 27 May 2016, at which time 17,033,334 new ordinary shares were placed to raise gross proceeds of £12.8 million (approximately €16.8 million). Further information relating to movements in share capital is set out in Note 19 to the consolidated financial statements on pages 51 to 52. Dividends The Directors’ current intention is that for the foreseeable future, all future earnings of the Company will be reinvested in the business in order to fund the ongoing growth strategy. In the future, if it is commercially prudent to do so, the Board may consider the payment of a dividend. Directors The following Directors held office as indicated below for the year ended 31 December 2016 and up to the date of signing this report: Giulio Giuseppe Cesareo* Sir Peter Middleton Giuseppe Monti Luca Lodi-Rizzini Elizabeth Marie Robinson*** Marco Ferrari** David Michael Gann Neil William Warner ■ Marco Ferrari was appointed as a director on 28 April 2016. ■ David Michael Gann was appointed as a director on 28 April 2016. ■ Neil William Warner was appointed as a director on 28 April 2016. ■ Giuseppe Monti retired as a director on 23 May 2016. * Giulio Cesareo signed a letter of appointment with the Company, on 23 May 2016, to act as an Executive Director of the AIM-listed entity – having previously been employed by the Directa Plus S.p.A subsidiary since 23 November 2005. ** Marco Ferrari signed a letter of appointment 20 Annual Report & Accounts 2016 Corporate Governance Directors’ Report (continued) Share Capital and Substantial Shareholdings Details of the share capital of the Company as at 31 December 2016 are set out in Note 19 to the consolidated financial statements. At 27 April 2017, a total of 44,212,827 ordinary shares were outstanding. The following Shareholders own 3% or more of the ordinary shares: Shareholder Number of ordinary shares Percentage of Issued Ordinary Share Capital Quadrivio Capital SGR* 5,845,208 Dompe Group 5,126,666 13.22 11.60 Unicorn Asset Management Galbiga Immobiliare S.r.l.** Finanziaria Le Perray S.p.A. William David Cate Robert Angelo Mercuri 4,000,000 9.05 3,056,480 6.91 2,254,754 5.10 1,885,480 4.26 Paul Calarco 1,885,480 1,885,480 4.26 4.26 Jean-Marc Droulers 1,699,040 3.84 * Elizabeth Robinson, a Non-Executive Director of the Company (as at 27 April 2017), is an Investment Director of Quadrivio Capital SGR and therefore is deemed to be beneficially interested in the 5,845,208 ordinary shares held by funds managed by Quadrivio Capital SGR ** Giulio Cesareo, CEO of the Company and an Executive Director, and his family are the sole beneficiaries of the 3,056,480 ordinary shares held by Galbiga Immobiliare S.r.l. Research and Development The Company conducts research and development of products and processes of the G+ family. The development of new ready-to-use products and fine-tuned process ensures economic benefits for the Company going forward. New products allow the Company to enter into new markets, reducing the time-to-market, and new processes allow material improvement in production capacity and cost efficiency. Development expenditure on the research phase of internal projects is recognised in the consolidated statement of comprehensive income as incurred. Costs of research undertaken are mainly related to employee costs. Risk Management The Company’s financial risk management is discussed in Note 24 to the financial statements. The Directors regularly assess the Company’s key commercial risks, which are considered to be: ■ the dependence on the market’s acceptance of, and attribution of value to, the plasma super expansion technology and graphene based materials produced; ■ the Company’s ability to enter into arrangements with third parties in respect of the development, production and commercialisation of products based on the Company’s graphene technology as well as its negotiation of appropriate terms for supply agreements; ■ competition from organisations that have greater capital resources and/ or which have a product offering competitive to that of the Company, to the detriment of the Company; ■ technological advances in existing materials or in potential substitute materials occurring at a faster rate than the advances of graphene, which may impede the commercial progress of graphene; and ■ the continuing ability to establish, protect and enforce Directa Plus’ proprietary intellectual property rights (including but not limited to patents, know-how and trade secrets), covering production process, products and applications. The Company’s policies, procedures and practices used to identify, monitor and control a variety of risks may, in some cases, not be effective. The Company’s risk management methods rely on a combination of internally developed technical controls, standard practices, observation of market behavior and human supervision. Diversification of targets markets, applications and clients help to mitigate the risk of market acceptance of graphene products, avoiding undue dependence on a single customer’s product or application being commercially successful. Company patents may be challenged at any time and any unsuccessful defence may cause the Company to lose protection for its process and products and subsequently affect further development and sales. The Company is advised by suitably qualified and experienced patent agents. Meetings with the patent agents are scheduled on a regular basis to review both 21 Annual Report & Accounts 2016 Corporate Governance Directors’ Report (continued) patents portfolio and IP strategy. Internal controls are in place to avoid disclosure of patentable material and to protect existing patents. There can be no assurance that competitors will not succeed in developing products that are more effective or economic than any developed by the Company. In any case the Company is constantly monitoring news flow and new products on the market to try to have a clear comprehension of the competitive environment. Annual General Meeting The notice for the convening of the AGM 2017 together with the proposed resolutions will be contained in a Notice of AGM sent to all shareholders and available via the Company’s website. Statement of Directors’ Responsibilities The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare Company financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union. Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for the period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the AIM. In preparing these financial statements, the Directors are required to: ■ present fairly the financial position, financial performance and cashflows of the Company; ■ select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; ■ make judgements and estimates that are reasonable and prudent; ■ state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and ■ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. 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 enable them to ensure that the financial statements comply with the Companies Act 2006. 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. The Directors are responsible for ensuring the annual report and the financial statements are made available on the corporate website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Auditors Each of the persons who is a Director at the date of approval of this annual report confirms that: ■ so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and ■ the Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. BDO LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. By order of the Board 27 April 2017 22 Annual Report & Accounts 2016 Corporate Governance Corporate Governance Report The Board fully supports the underlying principles of corporate governance contained in the UK Corporate Governance Code, notwithstanding that, as its securities are not listed on the Official List, it is not required to comply with such recommendations. It has sought to comply with the provisions of the Corporate Governance Code, insofar as is practicable and appropriate for a public company of its size and nature, and recognises its overall responsibility for the Company’s systems of internal control and for monitoring their effectiveness. The Board and Committees Board The Board is responsible for formulating, reviewing and approving the Company’s strategy, budget and major items of capital expenditure. The Board consists of five Non-Executive Directors with relevant experience to complement the two Executive Directors and to provide an independent view to the Executive Directors. The Non-Executive Directors for the year ended 31 December 2016 and up to the date of approval of signing of this report are Sir Peter Middleton (Chairman), Prof. David Gann, Neil Warner, Luca Lodi-Rizzini and Elizabeth Robinson. The Executive Directors are Giulio Cesareo (Chief Executive Officer) and Marco Ferrari (Chief Financial Officer). The Board met on nine occasions during the period subsequent to the Company’s admission to AIM on 27 May 2016 and the financial year end on 31 December 2016. Directors’ attendance was as follows: Directors Sir Peter Middleton Giulio Giuseppe Cesareo Marco Ferrari David Michael Gann Neil William Warner Luca Lodi-Rizzini Elizabeth Marie Robinson Giuseppe Monti (retired as a director on 23 May 2016) Number of Meetings Attended 9 9 9 8 8 7 7 0 Audit committee The Audit Committee is comprised of Neil Warner, Luca Lodi-Rizzini and David Gann, and is chaired by Neil Warner. The Audit Committee, amongst other duties, determines and examines matters relating to the financial affairs of the Company including the terms of engagement of the Company’s auditors and, in consultation with the auditors, the scope of the audit. It receives and reviews reports from management and the Company’s auditors relating to the half yearly and annual accounts and the accounting and the internal control systems in use throughout the Company and its subsidiary undertakings. Remuneration committee The Remuneration Committee is comprised of Neil Warner, Luca Lodi-Rizzini and David Gann, and is chaired by Luca Lodi-Rizzini. The Remuneration Committee reviews and makes recommendations in respect of the Directors’ remuneration and benefits packages and that of senior employees, including share options and the terms of their appointment. The Remuneration Committee also makes recommendations to the Board concerning the allocation of share options to employees under the Share Scheme. Relations with shareholders Meetings with the analysts and institutional shareholders of the Company following the interim and annual results announcements and on an as-needed basis are attended by the Executive Directors to update the shareholders on the progress of the Company in terms of its business, financial performance and strategic direction. The Annual Report and accounts is published on the Company’s website, www.directa-plus.com, and can be accessed by shareholders. Shareholders will also have the opportunity to meet members of the Board at the Annual General Meeting of the Company where the Board members will be happy to respond to questions. Internal control The Directors are responsible for establishing and maintaining the Company’s system of internal control and reviewing its effectiveness. 23 Annual Report & Accounts 2016 Corporate Governance Corporate Governance Corporate Governance Report (continued) The Company has adopted a share dealing code for the Directors and certain applicable employees, which is appropriate for a company whose shares are admitted to trading on AIM (particularly relating to dealing during close periods in accordance with Rule 21 of the AIM Rules for Companies) and the Company takes all reasonable steps to ensure compliance by the Directors and any relevant employees. Going concern As at 31 December 2016, the Company had net assets of €13.6m (2015: net liabilities of €1.9m) as set out in the consolidated statement of financial position. The Directors have prepared and reviewed forecasts of the Company’s financial performance. As a result of this review, the Directors believe that the Company has sufficient resources and working capital to meet their present and foreseeable obligations for a period of at least twelve months from approval of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Company financial statements. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatement or loss. The main features of the internal control system are as follows: ■ Close management of the business by the Executive Directors. There are clearly delineated approval limits throughout the Company and a well-defined organisational structure. Controls are monitored at the appropriate level; ■ monthly management accounts are prepared and reviewed by the Board, including reviewing variances against prior months and against budgets; ■ clear segregation of duties within the Company’s finance function help ensure the Company’s assets are safeguarded and that proper financial records are maintained; and ■ a list of matters is reserved for the approval of the Board. Marco Ferrari is the Company Secretary (as well as the Chief Financial Officer) and is responsible for ensuring that the Company’s registers and filings are properly maintained and up to date. At this stage of its development, the Board does not feel it is necessary for the Company to have a full time or external company secretary. This will be kept under review. 24 24 Annual Report & Accounts 2016 Corporate Governance Directors’ Remuneration Report As the Company is AIM listed, the Directors are not required, under Section 420(1) of the Companies Act 2006, to prepare a Directors’ remuneration report for each financial year and so the Company makes the following disclosures voluntarily. The Remuneration Committee is responsible for recommending the remuneration and other terms of employment for the Executive Directors of Directa Plus plc. In determining remuneration for the year, the committee has given consideration to the requirements of the UK Corporate Governance Code. Remuneration policy The objective of the remuneration policy is to attract, retain and motivate high calibre executives to deliver outstanding shareholder returns and at the same time maintain an appropriate compensation balance with the other employees of the Company. Directors’ remuneration The normal remuneration arrangements for Executive Directors consists of base salary, performance bonuses and other benefits as determined by the Board. Each of the Executive Directors has a service agreement that can be terminated at any time by either party giving notice, the length of such notice period being determined pursuant to the applicable National Collective Bargaining Agreement (NCBA), governed by Italian law, depending upon accrued length of service. Non-Executive Directors are remunerated solely in the form of Director fees determined by the Board and are not entitled to pensions, annual bonuses or employee benefits. Each of the Non-Executive Directors’ appointment may be terminated by either party giving three months’ prior written notice. Directors are not involved in specific discussions on their own remuneration. Directors’ remuneration The remuneration of the Directors, in Euros, for the year ended 31 December 2016 was as follows and is audited: Salary €’000 Fees €’000 Benefits €’000 Bonus €’000 National Insurance contributions €’000 Pension contributions €’000 Total emoluments 2016 €’000 Non-Executive Chairman Sir Peter Middleton Executive Giulio Cesareo Marco Ferrari Non-Executive David Gann* Neil Warner* Luca Lodi-Rizzini Elizabeth Robinson Giuseppe Monti** - 270 112 - - - - - 61 - - 26 26 33 15 4 Total 382 165 - - - - - - - - 0 - 46 8 - - - - - - 9 5 - - - - - - 77 27 - - - - - 54 14 104 * The amounts reflect partial year payments since the Non-Executive Director’s appointment in April 2016. ** Giuseppe Monti retired as a director on 23 May 2016. 61 402 152 26 26 33 15 4 719 25 Annual Report & Accounts 2016 Corporate Governance Directors’ Remuneration Report (continued) As of 27 April 2017: Director Number of ordinary shares Number of ordinary shares under option*** Percentage of issued share capital Sir Peter Middleton Giulio Cesareo* Marco Ferrari David Gann Neil Warner Luca Lodi-Rizzini 20,000 3,056,480 6,666 20,000 20,000 6,667 Elizabeth Robinson** 5,845,208 100,000 545,176 265,176 60,000 60,000 60,000 Nil 0.05 6.91 0.02 0.05 0.05 0.02 13.22 * Giulio Cesareo and his family are the sole beneficiaries of the 3,056,480 ordinary shares held by Galbiga Immobiliare S.r.l. ** Elizabeth Robinson is an investment Director of Quadrivio Capital SGR and therefore is deemed to be beneficially interested in the 5,845,208 ordinary shares held by funds managed by Quadrivio Capital SGR. *** Of the share option charge in the year, €98,126 relates to options issued to the Directors. 26 Consolidated Financial Statements 2016 Annual Report & Accounts 2016 27 Annual Report & Accounts 2016 Annual Report & Accounts 2016 Consequat Duis autem vel eum iruire dolor in endrerit voluptat Independent Auditor’s Report for the year ended ?? ?????? 2016 to the members of Directa Plus plc We have audited the fi nancial statements of Directa Plus Plc for the year ended 31 December 2016 which comprises the consolidated statement of comprehensive income, the consolidated and Company statement of fi nancial position, the consolidated and Company statements of changes in equity, the consolidated and Company statement of cash fl ows, and the related notes. The fi nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company fi nancial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the fi nancial statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the fi nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors. Scope of the audit of the fi nancial statements A description of the scope of an audit of fi nancial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate. Opinion on fi nancial statements In our opinion: l the fi nancial statements give a true and fair view of the state of the Group’s and the parent Company’s aff airs as at 31 December 2016 and of the Group’s loss for the year then ended; l the group fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; l the parent company fi nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the fi nancial statements have been prepared in accordance with the requirements of the Companies Act 2006. l Opinion on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: l the information given in the strategic report and directors’ report for the fi nancial year for which the fi nancial statements are prepared is consistent with the fi nancial statements; and the strategic report and directors’ report have been prepared in accordance with applicable legal requirements. l Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identifi ed material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: l adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or l the parent company fi nancial statements are not in agreement with the accounting records and returns; or l certain disclosures of directors’ remuneration specifi ed by law are not made; or l we have not received all the information and explanations we require for our audit. Matt Crane (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor London United Kingdom 27 April 2017 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 28 Directa Plus_Financial Statements.indd 28 11/05/2017 08:16 Independent Auditor’s Report to the members of Directa Plus plc Annual Report & Accounts 2016 Consolidated Statement of Comprehensive Income for the year ended 31 December 2016 CONTINUING OPERATIONS Revenue Other income Changes in inventories of finished goods and work in progress Raw materials and consumables used Employee benefits expenses Depreciation and amortisation Other expenses Results from operating activities Fair value movement on embedded derivative Finance income Finance expenses Net finance costs Loss before tax Tax expense Loss after tax Loss from continuing operations Loss of the year Note 31 Dec 2016 € 31 Dec 2015 € 3 3 5 6 11/12 7 21 9 9 738,028 79,733 450,843 (169,643) (1,784,094) (572,402) (2,981,032) 1,392,232 315,977 (1,832,246) (342,209) (895,769) (492,140) (1,379,124) (4,238,567) (3,233,279) (1,039,473) 4,230 (1,151,135) (706,525) 7,032 (434,708) (2,186,378) (1,134,201) (6,424,945) (4,367,480) 10 – – (6,424,945) (4,367,480) (6,424,945) (4,367,480) (6,424,945) (4,367,480) 150 150 8,563 8,563 Other Comprehensive income items that will not be reclassified to profit or loss Defined Benefit Plan re-measurement gains and losses 22 Other comprehensive income for the year (net of tax) Total comprehensive income for the year (6,424,795) (4,358,917) Loss attributable to Owner of the Parent Non-controlling interests Consolidated Statement of Profit or Loss and Other Comprehensive Income Total comprehensive income attributable to: Owners of the Company Non-controlling interests (6,422,019) (2,926) (4,367,480) – (6,424,945) (4,367,480) (6,421,869) (2,926) (4,358,917) – (6,424,795) (4,358,917) Loss per share Basic loss per share (cents) Diluted loss per share (cents) 25 25 (0.19) (0.19) (0.22) (0.22) 29 Directa Plus_Financial Statements.indd 29 11/05/2017 08:16 Euismod tincidunt ut laroeet dolore magna for the year ended ?? ?????? 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Annual Report & Accounts 2016 Consolidated and Company Statement of Financial Position Consequat Duis autem vel eum iruire dolor in endrerit voluptat for the year ended 31 December 2016 for the year ended ?? ?????? 2016 Group Company Note 31 Dec 16 € 31 Dec 15 € 31 Dec 16 € 31 Dec 15 € Assets Intangible assets Investments Property, plant and equipment Non-current assets Inventories Trade and other receivables Prepayments Cash and cash equivalents Current assets Total assets Equity Share capital Share premium Retained Earnings 11 14 12 17 15 18 19 19 19 1,726,602 – 1,283,184 1,819,115 – 1,224,336 – 11,057,438 – – 7,057,438 1,903 3,009,786 3,043,451 11,057,438 7,059,341 606,065 1,092,892 77,446 10,570,211 112,903 1,305,214 35,659 2,031,650 – 262,693 50,401 8,011,689 – 30,353 4,041 319,339 12,346,641 3,485,426 8,324,783 353,733 15,356,400 6,528,877 19,382,221 7,413,074 Equity attributable to owners of Group Non-controlling interests 13,563,659 22,228 (1,892,401) – 19,349,879 – 142,628 19,973,996 (6,552,965) 503,100 3,885,816 (6,281,317) 142,628 19,973,996 (766,745) 503,100 3,885,816 (3,636,996) 751,920 – Total equity 19 13,585,887 (1,892,401) 19,349,879 751,920 Liabilities Loans and borrowings Employee benefi ts provision Non-current liabilities Loans and borrowing Embedded derivative Trade and other payables Current liabilities Total liabilities 20 22 20 21 23 454,600 227,358 688,821 170,952 681,958 859,773 238,134 – 850,421 6,082,915 706,525 772,065 – – – – – – – – 32,342 5,813,847 706,525 140,782 1,088,555 7,561,505 32,342 6,661,154 1,770,513 8,421,278 32,342 6,661,154 Total equity and liabilities 15,356,400 6,528,877 19,382,221 7,413,074 The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006, and has not presented its own statement of comprehensive income in these fi nancial statements. The Company loss after tax for the year was €3,279,968 (2015: loss €1,582,965). The fi nancial statements were approved and authorised for issue by the board and were signed on its behalf by: Neil Warner Chairman of the Audit Committee Date: 27 April 2017 The notes on pages 34 to 62 form part of these fi nancial statements 30 Directa Plus_Financial Statements.indd 30 11/05/2017 08:16 Annual Report & Accounts 2016 Annual Report & Accounts 2016 Consolidated Statement of Changes in Equity Euismod tincidunt ut laroeet dolore magna for the year ended 31 December 2016 for the year ended ?? ?????? 2016 Share capital € Share premium € Retained Earnings € Non- controlling interests € Total € Total equity € Balance at 31 December 2014 503,100 3,885,816 (1,922,400) 2,466,516 - 2,466,516 Total comprehensive income for the year Loss Total other comprehensive income Total comprehensive income for the year – – – – – – – – – (4,367,480) 8,563 (4,358,917) – (4,367,480) 8,563 (4,358,917) Balance at 31 December 2015 503,100 3,885,816 (6,281,317) (1,892,401) Total comprehensive income for the period Loss of the year Total other comprehensive income Total comprehensive income for the period Transactions with owners Share reduction Cancellation of share premium account Initial Public Offering Expenditure relating to the issuance of shares Share-based payment reserve Non-Controlling Interests in Directa Textiles Solutions acquisition Convertible loan (embedded derivative) – – – – – – – (6,422,019) 150 – (6,422,019) 150 – – (439,649) – 55,986 – – – (3,885,816) 16,739,965 (6,421,869) – 439,649 3,885,816 – (6,421,869) – – – 16,795,951 – – (1,960,652) – – 154,068 (1,960,652) 154,068 – – (1,960,652) 154,068 – 23,191 – 5,194,683 – 1,670,686 – 6,888,560 25,154 – 25,154 6,888,560 – – – – – – (2,926) – (2,926) – – – – – (4,367,480) 8,563 (4,358,917) (1,892,401) – (6,424,945) 150 (6,424,795) – – – 16,795,951 Balance at 31 December 2016 142,628 19,973,996 (6,552,965) 13,563,659 22,228 13,585,887 The notes on pages 34 to 62 form part of these financial statements Directa Plus_Financial Statements.indd 31 31 31 11/05/2017 08:16 Annual Report & Accounts 2016 Company Statement of Changes in Equity for the year ended 31 December 2016 for the year ended ?? ?????? 2016 Share Capital € Share premium € Retained earnings € Total equity € Balance at 31 December 2014 503,100 3,885,816 (2,054,031) 2,334,885 Loss for the year – – (1,582,965) (1,582,965) Balance at 31 December 2015 503,100 3,885,816 (3,636,996) 751,920 Loss for the year Share reduction Cancellation of share premium account Initial Public Off ering Expenditure relating to the issuance of shares Share-based payment reserve Convertible loan (embedded derivative) – (439,649) 55,986 – – 23,191 – – (3,885,816) 16,739,965 (1,960,652) – 5,194,683 (3,279,968) 439,649 3,885,816 – – 154,068 1,670,686 (3,279,968) – – 16,795,951 (1,960,652) 154,068 6,888,560 Balance at 31 December 2016 142,628 19,973,996 (766,745) 19,349,879 The notes on pages 34 to 62 form part of these fi nancial statements 32 Directa Plus_Financial Statements.indd 32 11/05/2017 08:16 Annual Report & Accounts 2016 Consolidated and Company Statement of Cash Flows for the year ended 31 December 2016 Cash flows from operating activities Loss for the year Adj for: Depreciation Amortisation of intangible assets Bad debt expense Fair value movement on derivative Share-based option payment cost IPO Costs Finance income Finance expense Increase/Decrease in: - inventories - trade and other receivables, prepayments - trade and other payables - provisions Net cash from operating activities Cash flows from investing activities Interest received Investment in intangible assets Investment in subsidiary Loan to associate Consideration paid for acquisition of subsidiary net of cash acquired Acquisition of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from IPO Interest paid Drawdown of financial debt Repayment of borrowings Note Group 2016 € 2015 € Company 2016 € 2015 € (6,424,945) (4,367,480) (3,279,970) (1,582,965) 317,258 267,105 909,763 1,039,473 154,068 427,903 (4,230) 1,151,136 (2,162,469) (450,843) (654,509) (8,101) 56,406 238,646 253,494 1,902,129 706,525 - - (7,032) 434,708 (839,010) (38,691) (764,012) 255,805 31,169 763 - 70,903 1,039,473 154,068 427,903 - 1,117,709 (469,151) - (349,603) (108,440) - 763 - - 706,525 - - - 403,177 (472,500) - (2,374) 125,767 - (3,219,516) (1,354,739) (927,194) (349,107) 4,230 (168,716) – (50,939) (58,718) (377,246) – (573,866) – – – (221,059) – – (4,000,000) (50,939) – – (3,250,000) (22,825) – – – – (651,389) (794,925) (4,050,939) (3,272,825) 14,408,156 (52,195) – (989,696) – – (106,110) 2,851,121 (134,082) – 14,408,156 (37,519) – (811,817) – – (81,610) 2,825,443 – 12 11 17 15 23 9 11 13 10 20 20 Net cash from (used in) financing activities 13,366,265 2,610,929 13,558,820 2,743,833 Net increase (decrease) in cash and cash equivalent Cash and cash equivalent at 1 January Foreign exchange on cash 9,495,360 2,031,650 (956,799) 461,265 1,570,385 8,580,687 319,339 (878,099) 1,197,438 – (888,337) – Cash and cash equivalent at 31 December 10,570,211 2,031,650 8,011,689 319,339 The notes on pages 34 to 62 form part of these financial statements Directa Plus_Financial Statements.indd 33 33 11/05/2017 08:16 Euismod tincidunt ut laroeet dolore magna for the year ended ?? ?????? 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements for the year ended 31 December 2016 1. Basis of preparation (a) Statement of compliance The consolidated fi nancial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board and as adopted by the European Union. The accounting policies set out below have been applied consistently to all periods presented in these consolidated fi nancial statements. The accounting policies have been consistently applied by all companies of the Group. All notes, except as otherwise indicated, are presented in Euros (“€”). (b) Basis of Consolidation Subsidiaries Subsidiaries are those enterprises controlled by the Group. Control exists where the Group has the power, directly or indirectly, to govern the fi nancial and operating policies of an enterprise so as to obtain benefi ts from its activities. The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests. Where the Company has control over an investee, it is classifi ed as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to aff ect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. Associates Where the Group has the power to participate in (but not control) the fi nancial and operating policy decisions of another entity, it is classifi ed as an associate. Associates are initially recognised in the consolidated statement of fi nancial position at cost. Subsequently associates are accounted for using the equity method, where the Group’s share of post-acquisition profi ts and losses and other comprehensive income is recognised in the consolidated statement of profi t and loss and other comprehensive income (except for losses in excess of the Group’s investment in the associate unless there is an obligation to make good those losses). Profi ts and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors’ interests in the associate. The investor’s share in the associate’s profi ts and losses resulting from these transactions is eliminated against the carrying value of the associate. Any premium paid for an associate above the fair value of the Group’s share of the identifi able assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is objective evidence that the investment in an associate has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-fi nancial assets. Transactions eliminated on consolidation The consolidated fi nancial statements present the results of the Company and its subsidiaries (“the Group”) as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. Non-controlling interest Non-controlling interest in the net assets of the consolidated subsidiaries are identifi ed separately from the Group’s equity. Non- controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder’s share changes in equity since the date of the combination. The non-controlling interest’s share of losses, where applicable, are attributed to the non-controlling interests irrespective of whether the non-controlling shareholders have a binding obligation and are able to make an additional investment to cover the losses. (c) Basis of measurement The fi nancial statements have been prepared on the historical cost basis unless otherwise stated. 34 Directa Plus_Financial Statements.indd 34 11/05/2017 08:16 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 1. Basis of preparation (continued) (d) Functional and presentation currency These financial statements are presented in Euros (”€”) and is considered by the Directors to be the most appropriate presentation currency to assist the users of the financial statements. The functional currency of the Company and operating subsidiary is Euros (“€”). (e) Use of estimates and judgements The preparation of the financial statements in conformity with IFRS, as adopted by the EU, requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. Critical estimates and assumptions that have the most significant effect on the amounts recognised in the financial statements and/ or have a significant risk of resulting in a material adjustment within the next financial year are as follows: Carrying value of capitalised development costs The Group capitalises development costs provided the conditions meet the criteria set out in IAS 38. The Directors are required to continually assess the commercial potential of the product in development and its useful life following launch. Impairment of the capitalised development cost depends of the sales potential and market readiness. Management has noted no indicators of impairment in the period. Intangible assets are amortised over their expected or known useful lives on a straight-line basis beginning from the point they are available for use. The estimated useful life is the lower of the legal duration (term of patents- usually 20 years) and the useful economic life. The estimated useful lives of intangible assets are regularly reviewed. Management currently estimates based on the development program the estimated useful life for intangible assets is currently 10 years. The useful economic life is based on management’s estimate of the time period over which the assets will generate future cash flows. Valuation of embedded derivative The embedded derivative relates to the conversion option contained in the convertible loan note issue by the Company. The option breaks the fixed for fixed conversion under IAS 19 and has therefore been fair valued as an embedded derivative. The probability of the IPO successfully completing was a key variable contained in the fair valuation and it was been carefully assessed and judged by Management and the Directors. For the year ended 31 December 2016 the IPO successfully completed and the embedded derivative was valued including a 100% chance of success. On conversion of the loan the embedded derivative has been appropriately extinguished. Valuation and recoverability of inventory – Note 17 Inventories are stated at the lower of cost or net realisable value. The cost of inventories comprises of net prices paid for materials purchased, production labour cost and factory overhead. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Inventory provisions are recognised for slow-moving, obsolete or unsalable inventory and are reviewed on a six months basis. This methodology is affected by forecast and judgment of Management about market demand and selling opportunities. If actual demand or usage were to be lower than estimated, inventory provisions for excess or obsolete inventory may be required, which could have a material adverse effect on our business, financial condition and results of operations. Management has noted no provision in slow moving or obsolete stock at 31 December 2016. Directa Plus_Financial Statements.indd 35 35 11/05/2017 08:16 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 1. Basis of preparation (continued) Defi ned benefi t scheme – Note 22 Provision for benefi ts upon termination of employment related to a provision accrued by Italian companies for employment retirement is determined using actuarial techniques, involving external experts. All key estimates applied have been included in note 19. Share Based Payments – Note 26 The cost of employee services received (compensation expenses) in exchange for awards of equity instruments are recognised based upon the grant date fair value of stock options. The grant date fair value of stock options is estimated using a Black-Scholes option valuation model. This Black-Scholes option valuation model requires the use of assumptions, including expected stock price volatility and the estimated life of each award. The risk-free interest rate used in the model is determined, based on a government bond with a life equal to the expected life of the equity-settled share-based payments. Probability to match the performance level set for performance share options is also a key variable to defi ne the fair value. New standards and interpretations not yet adopted Standards, Amendments to published Standards and Interpretations issued but not yet eff ective Certain standards, amendments to published standards and interpretations have been issued that are mandatory for accounting periods beginning on or after 1 January 2015 or later periods, but which the Group has not early adopted. – IFRS 9 Financial instruments (eff ective 1 January 2018) – IFRS 15 Revenue from contracts with customers (eff ective 1 January 2018) – IFRS 16 Leases (eff ective 1 January 2019) Amendments: – Amendments to IAS 12: Recognition of deferred tax assets for unrealised losses (eff ective 1 January 2017) Management is currently evaluating the impact of IFRS 9, 15 and 16 on the consolidated fi nancial statements. Given the nature of the business conducted in 2016 Management does not currently see any material impact from these standards, however as new sales contracts are signed Management is continually re-evaluating the impact of IFRS 15. All other standard updates have been deemed to have no material impact. 2. Signifi cant accounting policies (a) Functional and Foreign currency The individual fi nancial statements of each entity of the Group are presented by the currency of the primary economic environment in which the entity operates, which is the functional currency. The functional currency of the Company is Euros. The consolidated fi nancial statements are presented in Euros, which is the Group’s presentation currency. (i) Transaction and balances Transactions in foreign currencies are converted in to the respective functional currencies in initial recognition, using the exchange rates approximating to those ruling at the transaction dates. Monetary assets and liabilities at the end of the reporting period are translated at the rates ruling as of that date. Non-monetary assets and liabilities are not retranslated. All exchange diff erences are recognised in profi t or loss. On consolidation, the results of overseas operations not in Euro are translated at the rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date. Exchange diff erences arising on translating the opening net assets at closing rate and the results of overseas operations at actual rate are recognised in other comprehensive income. 36 Directa Plus_Financial Statements.indd 36 11/05/2017 08:16 2. Significant accounting policies (continued) (b) Financial instruments (i) Non-derivative financial assets The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group’s non-derivative financial assets comprise loans and receivables. (c) Loans and receivables Loans and receivables are financial assets with fixed or determinable payment terms that are not quoted in an active market. The Group’s loans and receivables comprise of trade and other receivables and loan receivable, which are recognised initially at fair value plus any directly attributable transaction costs and subsequently measured at amortised cost using the effective interest rate method less provisions for impairment. (d) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less, that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. (i) Non-derivative financial liabilities The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Other financial liabilities comprise trade and other payables. (e) Leases Finance leases At inception of an arrangement, the Group determines whether the arrangement is or contains a lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Operating leases Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Directa Plus_Financial Statements.indd 37 37 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 2. Signifi cant accounting policies (continued) (f) Share capital Ordinary shares Ordinary shares are classifi ed as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax eff ects. All costs that are directly attributable to raising new equity have been recognised against share premium. All costs that are attributed to both the IPO and raising new equity have been apportioned to share premium and the profi t or loss based on the ratio of old to new shares issued. Any costs which cannot be attributed to either the IPO or issued new equity have been expensed. (g) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment have diff erent useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment (calculated as the diff erence between the net proceeds from disposal and the carrying amount of the item) is recognised in profi t or loss. (ii) Subsequent costs Subsequent expenditure is capitalised only when it is probable that the future economic benefi ts associated with the expenditure will fl ow to the Group. Ongoing repairs and maintenance are expensed as incurred. (iii) Depreciation Items of property, plant and equipment are depreciated on a straight-line basis in the statement of comprehensive income over the estimated useful lives of each component. Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use. The estimated useful lives of signifi cant items of property, plant and equipment are as follows: l Computer equipment over 5 years l Industrial equipment, offi ce equipment and installations 15% yearly Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (h) Intangible assets Intangible assets are measured at cost less accumulated amortisation and Government grants received. Rights acquired and development expenditure are recognised at cost. Expenditure on internally developed products is capitalised if it can be demonstrated that: – it is technically feasible to develop the product for it to be sold – adequate resources are available to complete the development – there is an intention to complete and sell the product – the Group is able to sell the product – sale of the product will generate future economic benefi ts, and – expenditure on the project can be measured reliably. 38 Directa Plus_Financial Statements.indd 38 11/05/2017 08:16 2. Significant accounting policies (continued) Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed. The amortisation expense is included within the cost of sales line in the consolidated statement of comprehensive income. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated statement of comprehensive income as incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses. In accordance with IAS 38, the cost has been capitalised, in the category ‘Development Costs’ within Intangible Assets; based on time of employees directly engaged in the development of the G+ technology. For 2015 50% of the cost of 9 employees and 50% of the cost of the CEO Mr. Cesareo has been capitalised. For 2016 on average 33% of the cost of 4 employees has been capitalised and no cost of the CEO has been capitalised. Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation (i) Intangible assets are amortised on a straight-line basis in profit or loss over their estimated useful lives, from the date that they are available for use. l Software 3 years l Patents and research and development costs concerning G+ technology, are amortised over the lower of the legal duration of the patent (typically 20 years) and the economic useful life. These are currently amortised over 10 years l Other intangible assets 5 years i) (i) Impairment Non-derivative financial assets A financial asset not classified as at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial assets is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. (ii) Non-financial assets The carrying amounts of the Group’s non-financial assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or Cash Generating Unit (‘CGU’) exceeds its recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Directa Plus_Financial Statements.indd 39 39 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 2. Signifi cant accounting policies (continued) (j) Employee benefi ts Defi ned benefi t scheme surpluses and defi cits are measured at: – The fair value of plan assets at the reporting date; less – Plan liabilities calculated using the projected unit credit method discounted to its present value using yields available on high quality corporate bonds that have maturity dates approximating to the terms of the liabilities; plus – Unrecognised past service costs; less – The eff ect of minimum funding requirements agreed with scheme trustees. Remeasurements of the net defi ned obligation are recognised directly within equity. The remeasurements include: – Actuarial gains and losses – Return on plan assets (interest exclusive) – Any asset ceiling eff ects (interest exclusive). Service costs are recognised in profi t or loss, and include current and past service costs as well as gains and losses on curtailments. Net interest expense (income) is recognised in profi t or loss, and is calculated by applying the discount rate used to measure the defi ned benefi t obligation (asset) at the beginning of the annual period to the balance of the net defi ned benefi t obligation (asset), considering the eff ects of contributions and benefi t payments during the period. Gains or losses arising from changes to scheme benefi ts or scheme curtailment are recognised immediately in profi t or loss. Settlements of defi ned benefi t schemes are recognised in the period in which the settlement occurs. For more information please see note 22. (k) Revenue Revenue from the sale of goods is recognised in the statement of comprehensive income when the signifi cant risks and rewards of ownership have been transferred to the buyer, upon delivery of item. Revenue is recognised net of the related sales taxes. (l) Government grants Government grants are recognised when there is reasonable assurance that the entity will comply with the relevant conditions and the grant will be received. Grants are recognised in profi t or loss on a systematic basis as the entity recognises as expenses the costs that the grants are intended to compensate. Where a grant has been received as a contribution for property, plant and equipment, the income received has been credited against the asset in the statement of fi nancial position. (m) Finance income and fi nance costs Finance income comprises interest income on funds invested. Interest income is recognised in profi t or loss, using the eff ective interest method. Finance costs comprise interest expense on borrowings. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profi t or loss using the eff ective interest method. 40 Directa Plus_Financial Statements.indd 40 11/05/2017 08:16 2. Significant accounting policies (continued) (n) Taxation Tax expense comprises current and deferred tax. Current and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: l l temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and l taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognised for deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (o) Convertible Loan Notes The proceeds received on issue of the Group’s convertible loans are allocated into their liability and equity components. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the bond. The Group’s convertible loan notes do not contain an equity component. Derivatives embedded in host debt contracts, such as convertible loan notes, are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Directa Plus_Financial Statements.indd 41 41 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 3. Operating segments The Group considers that it operates in one main business area, being the manufacture and sale of graphene products. This business area currently forms the basis of the Group’s operating segments. The Group’s CEO (the chief operating decision maker) reviews internal management reports on a periodical basis. Other operations relate to the Group’s administrative functions conducted at its head offi ce and by its holding company. Directa Plus UK (Head Offi ce) €’000 Directa Plus Spa €’000 Operating Segments 2016 Revenue Other revenue Depreciation and amortisation Other expenses Results from operating activities Fair value movement on embedded derivative Finance Income Financial expenses Loss of the year Operating Segments 2015 Revenue Other revenue Depreciation and amortisation Other expenses Results from operating activities Fair value movement on embedded derivative Finance Income Financial expenses Loss of the year – – – (1,123) (1,123) (1,039) – (1,118) (3,280) – – – (473) (473) (707) – (404) (1,584) Total €’000 738 80 (572) (2,981) (4,239) (1,039) 4 (1,152) (6,425) 1,392 316 (492) (4,636) (3,232) (707) 7 (435) (4,367) 2015 € 1,392,232 287,070 28,907 738 80 (572) (1,858) (3,116) – 4 (34) (3,145) 1,392 316 (492) (4,163) (2,759) - 7 (31) (2,783) 2016 € 738,028 77,012 2,721 Information regarding the results of each reportable segment is included below. Sale of products Government grants Other revenue Total income 817,761 1,708,209 There is one client in 2016 which accounts for more than 10% of revenues for sales of products or services, the client revenues amount to €455,000 (62%). There were two main clients in 2015 which account for more than 10% of revenues for sales of products or services: the fi rst client revenues amount to €1,001,730 (72%), while the second client amount to €270,000 (19%). 42 Directa Plus_Financial Statements.indd 42 11/05/2017 08:16 3. Operating segments (continued) Geographical breakdown of revenues are: Italy Rest of the world Revenue 4. Government Grants Information regarding government grants: Genius MAT4BAT Brevetti Plus Voucher 2014 C Voucher 2014 F Total The key terms of Government grants are: Starting date Ending date Duration Total amount Final report submitted and accepted 2016 €’000 216 522 738 2016 € - 77,012 - - - 2015 €’000 1,170 222 1,392 2015 € 107,338 77,012 67,200 24,000 11,520 77,012 287,070 Mat4Bat September 2013 February 2017 42 304,700 Project still on-going Project closing is on February 2017 There are no capital commitments built into the ongoing grants. 5. Raw materials and consumables used The amount of €169,643 (2015: €342,209) refers to materials for production and consumption by laboratory. In 2015 the figure is higher because it included €214,482 relating to the manufacture of MDU (Mobile Decontamination Unit) which did not occur in 2016. Directa Plus_Financial Statements.indd 43 43 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 6. Employee benefi ts expenses Wages and salaries Social security costs Employee benefi ts Other costs Total Gross Capitalised cost in “Intangible assets” 2016 € 1,304,362 305,287 85,461 188,729 1,883,839 (99,745) 2015 € 1,024,882 252,723 50,465 37,261 1,365,331 (469,562) Total 1,784,094 895,769 As of 31 December 2016 Staff costs are higher than 31 December 2015 due to the implementation of the new Board of Directors for the Company and because in 2015 a larger amount of staff costs were capitalised, €469,562 compared with €99,745 for 2016. As of 31 December 2016 Other Costs are higher than 31 December 2015 due to €154,068 of share options expenses not included in 2015. €98,126 of the share option charge relates to options issued to the Directors. The average number of employees during the period was: Management Administration Staff Staff Total The Directors’ emoluments are the following: Wages and salaries Total See the remuneration report on pages 25 to 26 for further details. During 2016 the number of directors increased from 5 to 7. 2016 € 7 10 5 22 2016 € 2015 € 6 10 3 19 2015 € 718,710 495,355 718,710 495,355 44 Directa Plus_Financial Statements.indd 44 11/05/2017 08:16 7. Results from operating activities Results from operating activities includes: Audit of the Group and Company financial statements Audit of the subsidiaries’ financial statements Other non-audit services provided by Group’s auditor Operating leases Travel and marketing Bad debt expense Impairment provision for D+ 8. Leases Operating leases relate to the Group’s plant and machinery held on leases. Future minimum lease payments Less than one year Between one and five years More than five years Total Finance lease liabilities are payable as follows: Future minimum lease payments Less than one year Between one and five years More than five years Total Present value of minimum lease payments Less than one year Between one and five years More than five years 2016 € 32,112 18,000 264,184 143,951 217,647 909,763 – 2016 € 63,000 – – 2015 € – 10,000 – 124,528 185,143 – 1,902,129 2015 € 108,000 54,000 – 63,000 162,000 2016 € 61,735 183,039 – 244,774 2016 € 59,898 168,117 – 2015 € 88,499 223,298 – 311,797 2015 € 91,949 220,008 – Total 228,015 311,957 Directa Plus_Financial Statements.indd 45 45 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 9. Finance income and fi nance expenses Finance income includes: Interest income on cash balances held Total Finance expenses include: Interest on loans and other fi nancial costs Interest on fi nancial leasing Interest cost for benefi t plan Foreign exchanges losses Total 10. Taxation Current tax expenses Deferred tax expenses Total tax expenses Reconciliation of tax rate Loss before tax Italian statutory tax rate Impact of temporary diff erences Losses recognised Losses not utilised Total tax expenses 2016 € 4,230 4,230 2016 € 197,169 14,576 4,614 934,777 2015 € 7,032 7,032 2015 € 423,370 4,120 4,619 2,599 1,151,136 434,708 2016 € – – – 2016 € 2015 € – – – 2015 € (6,424,945) 24% (1,541,987) 74,534 (74,534) 1,541,987 (4,367,480) 27.5% (1,201,057) 87,300 (87,300) 1,201,057 – – Tax losses carried forward have been recognised as a deferred tax asset up to the point that they are recoverable against taxable temporary diff erences. All other tax losses are carried forward and not recognised as a deferred tax asset due to the uncertainty regarding future taxable profi ts. Tax losses carried forward are €13,483,787 (€7,864,956 in 2015). 46 Directa Plus_Financial Statements.indd 46 11/05/2017 08:16 11. Intangible assets Cost Development costs Patents Software Goodwill Others Total Balance at 31/12/2014 Additions Reclassification from inventory Balance at 31/12/2015 Additions Disposal 1,856,735 469,562 - 2,326,297 99,745 - 42,189 54,899 31,191 128,279 68,971 - Balance at 31/12/2016 2,426,042 197,250 Amortisation Balance at 31/12/2014 Amortisation 2015 Balance at 31/12/2015 Amortisation 2016 Reclassification 407,667 232,630 640,297 242,604 12,657 12,828 25,485 19,725 1,445 - - 1,445 - - 1,445 1,406 39 1,445 – Balance at 31/12/2016 882,901 45,210 1,445 - - - 0 22,268 - 38,102 18,214 - 56,316 (28,353) 1,938,471 542,675 31,191 2,512,337 190,984 (28,353) 22,268 27,963 2,674,968 - - - - 0 17,998 7,997 25,995 4,776 (11,961) 18,810 20,104 30,321 9,153 439,728 253,494 693,222 267,105 (11,961) 948,366 1,498,743 1,819,115 1,726,602 Carrying amounts Balance 31/12/2014 Balance 31/12/2015 Balance 31/12/2016 1,449,068 1,686,000 1,543,141 29,532 102,794 152,040 39 - - - - 22,268 Development costs are generated internally and relate to the capitalisation of personnel costs dedicated to the development of products and processes of the G+ family. In order to reliably define the capitalisation of the expenditures related to the development phase of the industrial process, the Company has duly reported the time-sheets of all the employees identifying daily the hours spent on the job. The development of the new ready to use products and fine-tuned process ensures economic benefits for the Company going forward. New products allow to enter into new markets, reducing the time-to-market and new process allow material improvement in production capacity and cost efficiency. Others intangible asset are mainly due to the website costs. Directa Plus_Financial Statements.indd 47 47 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 12. Property, plant and equipment Industrial equipment € Computer equipment € Offi ce equipment € Installations € Under construction € Total € Cost Balance at 31/12/2014 Additions Balance at 31/12/2015 Additions Disposals 45,478 2,001 47,479 91,181 – Balance at 31/12/2016 138,660 Depreciation Balance at 31/12/2014 Depreciation 2015 Balance at 31/12/2015 Depreciation 2016 Disposals Balance at 31/12/2016 Carrying amounts Balance 31/12/2014 Balance 31/12/2015 Balance 31/12/2016 17,393 6,972 24,365 28,988 – 53,353 28,085 23,114 85,307 23,031 6,074 29,105 4,841 (300) 33,646 12,488 4,203 16,691 4,747 (300) 21,138 10,543 12,414 12,508 17,874 38,085 55,959 35,839 (7,627) 84,171 9,648 5,156 14,804 10,700 (6,486) 19,018 8,226 41,155 65,153 1,194,281 443,099 1,637,380 186,747 (1,773) – 1,280,664 489,259 – – 1,769,923 377,248 (9,700) 58,640 - 1,822,354 58,640 2,137,471 267,413 222,315 489,728 272,823 (1,773) 760,778 – – – – – – 306,942 238,646 545,588 317,258 (8,559) 854,287 926,868 1,147,652 1,061,576 – – 58,640 973,722 1,224,335 1,283,184 Assets held under fi nancial leases with a net book value of €300,200 are included in the above table within installations. 13. Acquisitions On 11 November 2016 Directa Plus S.p.A. has acquired a 60% interest in the issued share capital of Osmotek Srl, a company involved in the commercialisation and distribution of textile membranes, for a total consideration of €60,000 to be invested in the business as working capital. Directa Plus S.p.A has assumed responsibility for the operations of Osmotek, which has been renamed Directa Textile Solutions Srl (“DTS”). The Directors of the Company believe that the Acquisition will enhance the route-to-market for its textile applications. The identifi able assets acquired and liabilities acquired are as follows: Cash and cash equivalents Trade and other receivables Inventories Trade and other payables Total identifi able net assets/liabilities Consideration paid Share of net assets at 60% Goodwill 61,282 45,742 42,319 (86,457) 62,886 60,000 (37,732) 22,268 Pro-forma consolidated revenues and loss as if the acquisition of Osmotek had occurred on January 1, 2016 are described below: Revenues Loss of the year* 895,443 (6,431,910) *The contribution to the Group losses for the full year would have been €14,430. 48 Directa Plus_Financial Statements.indd 48 11/05/2017 08:16 14. Investments in subsidiaries Details of the Company’s subsidiaries as at 31 December 2016 are as follows: Subsidiaries Country Principal activity Directa Plus Spa Italy Producer and supplier of graphene materials Directa Textile Solutions Srl Italy Directa Plus Asia Hong Kong commercialise textile membranes, including graphene- based technical and high-performance membranes marketing, distribution and trading of graphene-based products. Shareholding 2016 100% 60% 2015 100% 0% 49% 49% Subsidiaries Directa Plus Spa Directa Textile Solutions Srl Directa Plus Asia Place of Business Registered Office Place of Business Italy Italy Taiwan Via Cavour 2, Lomazzo (CO) Italy See registered office Via Cavour 2, Lomazzo (CO) Italy See registered office 38-44 D’Aguilar Street, Central, Hong Kong 372, Linsen North Rd, Taipei, TW The Company’s investment in Directa Plus Spa is as follows: At 31 December 2014 Additions At 31 December 2015 Additions At 31 December 2016 Directa Spa 3,162,346 3,895,092 7,057,438 4,000,000 11,057,438 15. Trade and other receivables Current Account receivables VAT receivables Other receivables Total Group Company 2016 € 356,075 696,075 40,742 2015 € 1,166,387 44,770 94,057 2016 € – 262,693 – 1,092,892 1,305,214 262,693 2015 € – 7,527 22,826 30,353 The VAT receivables position for 2016 can be split into €262,693 relating to IPO costs, €248,582 relating to operational costs in Directa Plus Spa and €184,800 reclaimable VAT previously paid. Directa Plus_Financial Statements.indd 49 49 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 15. Trade and other receivables (continued) As at 31 December 2016 Ageing of account receivables was: Days overdue 0-30 31-180 181-365 + Total 2016 € 340,216 14,622 1,237 2015 € 1,152,628 8,861 4,898 356,075 1,166,387 96% of account receivables in FY16 have ageing within 30 days. In the year €909,763 was written-off in relation to the 2 MDUs (€840,000) and to the loan provided to Directa Plus Asia (€69,763). 16. Deferred tax liabilities Deferred tax liabilities Deferred tax assets – losses Total 2016 € 276,711 (276,711) - 2015 € 353,600 (353,600) - Deferred tax assets have been recognised on losses brought forward to the extent that they can be off set against taxable temporary diff erences in line with the requirements of IAS 12. The deferred tax liabilities arise on the capitalisation of development costs and the accounting for the defi ned benefi t scheme. The deferred tax liabilities are detailed as follows: Capitalised development costs Other Total 2016 € 262,266 14,445 276,711 2015 € 341,362 12,238 353,600 Net balance 1 Jan 2015 € Recognised in profi t or loss € Recognised in OCI € Net balance 31 Dec 2015 € Deferred tax liabilities € Capitalised development costs Other Total 254,007 9,939 263,946 87,356 (56) 87,300 - 2,355 2,355 341,362 12,238 353,600 341,362 12,238 353,600 Net balance 1 Jan 2016 € Recognised in profi t or loss € Recognised in OCI € Net balance 31 Dec 2016 € Deferred tax liabilities € 341,362 12,238 353,600 (79,096) 4,562 (74,534) - (2,355) (2,322) 262,266 14,445 276,711 262,266 14,445 276,711 Capitalised development costs Other Total 50 Directa Plus_Financial Statements.indd 50 11/05/2017 08:16 17. Inventories (Consolidated only) Finished products (Graphene) Raw material Total 2016 € 595,796 10,269 606,065 2015 € 101,337 11,566 112,903 As at 31 December 2016 inventories are higher than last year due to two Mobile Decontamination Units (amounted €75,000 each) shown in finished products. 18. Cash and cash equivalent Bank balances Cash Total 19. Equity Share Capital Share Premium Retained earnings Non-controlling interests Balance at 31 December Share Capital At 1 January 2015 At 31 December 2015 Share reduction on 25 April 2016* Share sub-division on 19 May 2016** Share issue on 27 May 2016 – convertible loans*** Share issue on 27 May 2016 – IPO*** At 31 December 2016 Group Company 2016 € 2015 € 2016 € 10,570,000 211 2,030,881 769 8,011,689 - 2015 € 319,339 - 10,570,211 2,031,650 8,011,689 319,339 2016 € 142,628 19,973,996 (6,552,965) 22,228 2015 € 503,100 3,885,816 (6,281,317) - 13,585,887 (1,892,401) Number of ordinary shares Share Capital (€) 503,100 503,100 - 19,620,900 7,055,493 17,033,334 44,212,827 503,100 503,100 (439,649) - 23,191 55,986 142,628 * On 25 April 2016, the issued ordinary shares were redenominated from EUR to GBP into an aggregate nominal value of £398,908, comprising of 503,100 ordinary shares of £0.7929 each, at the spot rate of exchange of 0.7929. The aggregate nominal value of the issued ordinary shares was then reduced to £50,310 comprising 503,100 ordinary shares of £0.10 each. ** On 19 May 2016, each ordinary share of £0.10 in the issued share capital of the Company was sub-divided into 40 ordinary shares resulting in 20,124,0000 shares of £0.0025 each. *** On 27 May 2016, 24,088,827 ordinary shares with a nominal value of £0.0025 each were issued at the Company’s initial public offering. Of the 24,088,827 new ordinary shares, 7,055,493 shares were issued through the exercise of convertible loan notes. The remaining 17,033,334 shares were issued to institutional and other investors. Directa Plus_Financial Statements.indd 51 51 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 19. Equity (continued) Share Premium At 31 December 2015 Cancellation of share premium account on 25 April 2016 Shares issued on 27 May 2016 Expenditure relating to the raising of shares At 31 December 2016 Share premium 3,885,816 (3,885,816) 21,934,648 (1,960,652) 19,973,996 On 25 April 2016, the share premium account of the Company was cancelled and the amount of the 3,885,816 was credited to a distributable reserve. The eff ect on equity of the 17,033,334 shares issued at the initial public off ering in GBP and reported in EUR is summarised below. Expenditure of €1,960,652 relating to the raising of shares has been deducted from the share premium. Share capital Financial instruments issued by the Directa Plus Group are treated as equity only to the extent that they meet the defi nition of a fi nancial liability. The Directa Plus Group’s ordinary shares are classifi ed as equity instruments. Share premium To the extent that the Company’s ordinary shares are issued for a consideration greater than the nominal value of those shares (in the case of the Company, £0.0025 per share), the excess is deemed Share Premium. Costs directly associated with the issuing of those shares are deducted from the share premium account, subject to local statutory guidelines. Legal reserve The legal reserve relates to Directa Plus S.P.A and forms part of retained earnings. In Italy it is mandatory to create a legal reserve for 5% of net profi t. There was a net profi t of €11,312 in 2009 creating a legal reserve of €566. 20. Loans and borrowings Non-current Group Company 2016 € 169,043 285,557 2015 € 220,008 468,813 454,600 688,821 2016 € – – – 2015 € – – – Group Company 2016 € 187,164 50,970 – 2015 € 93,710 91,949 5,897,256 238,134 6,082,915 2016 € – – – – 2015 € – – 5,813,847 5,813,847 Debts for fi nancial leasing Loan Total Current Debts to other lenders Debts for fi nancial leasing Loan Total 52 Directa Plus_Financial Statements.indd 52 11/05/2017 08:16 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 20. Loans and borrowings (continued) Intesa San Paolo Atanor 2016 240,646 228,161 Current 92,327 90,923 Non current Repayment Interest rate 148,319 137,238 6-months EURIBOR 3M + 2.5% 3- months Fixed 0.5% Intesa San Paolo interest rates have been renegotiated after the IPO, from 5.2% to 2.5%. There are no securities related with above loans. The Group received two shareholder loans totalling Euro 185,185 in prior periods. They were interest free and switched into the convertible loans in 2015. Included in loans at 31 December 2015 are 39 convertible loans with drawdowns totalling €5,529,041. The convertible loans were repayable on or before 31/12/2016 and bear interest at 8%. Accrued interest is payable on each anniversary of the agreements or if earlier, when the Loans are payable in full. The proceeds received on issue of the Group’s convertible loans are allocated into their liability and equity components. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the bond. The Group’s convertible loan notes do not contain an equity component. Derivatives embedded in host debt contracts, such as convertible loan notes, are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. 21. Embedded derivative Embedded derivative Total 2016 € – – 2015 € 706,525 706,525 The embedded derivative relates to the conversion option contained in the convertible loan notes disclosed in note 19. The loan note holders had an option to convert at a 25% discount to the IPO listing price. This breaks the fixed for fixed conversion under IAS 39 and has therefore been fair valued as an embedded derivative. The key variable contained in the fair valuation is the probability that the IPO will occur and the conversion option becomes exercisable. This is deemed to be a key judgement applied by Management and is described below. As at 31 December 2015 Management reassessed the fair value of the embedded derivative. The factors that were considered are as follows: – A decision to undertake an AIM listing had been agreed but the Company was only at the start of the process in appointing advisors and initiating listing activity; – No marketing activity had commenced; – Average success rates for companies listing on the AIM market and the wider current IPO activity; – Macro-economic factors which would impact upon any IPO success. As at 27 May 2016, after the successful IPO the embedded derivative was updated to reflect a 100% chance of success and the embedded derivative extinguished on the issue of shares. Directa Plus_Financial Statements.indd 53 53 11/05/2017 08:16 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 21. Embedded derivative (continued) 86% of convertible loan note holders opted for conversion, with convertible loan value extinguished on the issue of shares, and 14% opted for cash repayment of their convertible loan value. When extinguishing the convertible loan and embedded derivative liabilities, the Company recognised a gain of €1,943,333. The 86% gain of €1,670,687, relating to holders opting to convert has been taken to retained earnings to match against the previous fair value movements. The gain of €272,646 relating to the 14% opting for cash repayment has been realised in the consolidated statement of comprehensive income for the period under fair value movement on embedded derivative. Convertible Loan Notes Embedded derivative liability € Loan notes € Share capital € Share premium € Retained earnings € Income statement € At 31 December 2015 5,809,842 706,525 Interest up until date of conversion Interest settled in period up to conversion Fair value movement Balance prior to conversion Conversion to shares Loan settled in cash Gain on extinguishment relating to cash settled 182,072 (10,115) 5,981,799 (5,142,563) (839,236) 1,312,119 2,018,644 (1,745,998) (272,646) 23,191 5,194,683 1,670,687 (1,312,119) 272,646 At 31 December 2016 - - 23,191 5,194,683 1,670,687 (1,039,473) 22. Employee benefi ts provision Employee benefi ts Total 2016 € 227,358 227,358 2015 € 170,952 170,952 Provisions for benefi ts upon termination of employment primarily related to provisions accrued by Italian companies for employee retirement, determined using actuarial techniques and regulated by Article 2120 of the Italian Civil code. The benefi t is paid upon retirement as a lump sum, the amount of which corresponds to the total of the provisions accrued during the employees’ service period based on payroll costs as revalued until retirement. Following the changes in the law regime, from January 1 2007 accruing benefi ts have been contributing to a pension fund or a treasury fund held by the Italian administration for post-retirement benefi ts (INPS). For companies with less than 50 employees it will be possible to continue this scheme as in previous years. Therefore, contributions of future TFR provisions to pension funds or the INPS treasury fund determines that these amounts will be treated in accordance to a defi ned contribution scheme, not subject to actuarial evaluation. Amounts already accrued before 1 January 2007 continue to be accounted for a defi ned benefi ts to be assessed on actuarial assumptions. 54 Directa Plus_Financial Statements.indd 54 11/05/2017 08:16 22. Employee benefits provision (continued) The breakdown for 2015 and 2016 is as follows: Amount at 31 December 2014 Service cost Interest cost Actuarial gain/losses Past service cost Benefit paid Amount at 31 December 2015 Service cost Interest cost Actuarial gain/losses Past service cost Benefit paid Amount at 31 December 2016 145,991 32,092 4,619 (8,563) - (3,187) 170,952 52,286 4,614 (150) - (344) 227,358 Variables analysis Detailed below are the key variables applied in the valuation of the defined benefit plan liabilities. Annual rate interest Annual rate inflation Annual increase TFR Tax on revaluation Social contribution Increase salary male Increase salary female Rate of turnover male Rate of turnover female Sensitivity analysis 2016 2.30% 1.10% 7.41% 17.00% 0.50% 1.20% 1.15% 1.70% 1.50% 2015 3.00% 1.30% 7.41% 17.00% 0.50% 1.50% 1.40% 1.70% 1.50% Detailed below are tables showing the impact of movements on key variables: Actuarial hypothesis – 2015 Male Female Male Female Increase salary Turnover Interest rate Inflation rate Decrease 10% Increase 10% Rate 1.35% 1.26% 1.53% 1.35% 2.70% 1.17% Variation DBO (1,599) (1,475) 6,135 (1,613) Rate 1.65% 1.54% 1.87% 1.65% 3.30% 1.43% Variation DBO 1,645 1,434 (5,749) 1,640 Directa Plus_Financial Statements.indd 55 55 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 22. Employee benefi ts provision (continued) Decrease 10% Increase 10% Actuarial hypothesis – 2016 Male Female Male Female Increase salary Turnover Interest rate Infl ation rate Rate 1.08% 1.04% 1.53% 1.35% 2.07% 0.99% Variation DBO (1,914) (1,649) 6,857 (1,916) Rate 1.32% 1.27% 1.87% 1.65% 2.53% 1.21% Variation DBO 1,959 1,602 (6.499) 1,943 23. Trade and Other payables Trade payables Employment costs Other payables Deferred income for public grant Total 24. Financial instruments Financial risk management Group Company 2016 € 529,468 203,278 117,675 - 2015 € 345,713 223,909 157,852 44,643 2016 € 910 - 31,432 - 2015 € 29,600 91,135 20,047 - 850,421 772,117 32,342 140,782 The Company has exposure to the following risks from its operations: Capital Risk The Company manages its capital to ensure to be able to continue as going concerns while maximising the return to shareholders. The Company considers that the current capital structure will provide suffi cient fl exibility to ensure that appropriate investment can be made, if required, to implement and achieve a long-term growth strategy. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in fi nancial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining suffi cient collateral where appropriate, as a means of mitigating the risk of fi nancial loss from defaults. The Group only transacts with entities that are rated the equivalent of investment grade and above. Trade receivables consist of a small number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the fi nancial condition of accounts receivable. The Group’s standard credit terms are 30 to 60 days from date of invoice. Invoices greater than 60 days old are assessed as overdue. Exposure to credit risk The carrying amount of fi nancial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows. 56 Directa Plus_Financial Statements.indd 56 11/05/2017 08:16 24. Financial instruments (continued) Group Trade and other receivables Cash and cash equivalent Total Note 13 18 2016 € 2015 € 1,092,892 10,570,211 1,305,214 2,031,650 11,663,103 3,336,864 All trade and other receivables are considered recoverable. Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The management review its facilities regularly to ensure it has adequate funds for operations and expansion plans. The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted. 2016 Financial liabilities Trade payables Debts for financial leasing Debts to other lenders Embedded derivative Loans Total 2015 Financial liabilities Trade payables Debts for financial leasing Loans Total Market risk Contractual cash flows Carrying amount € Up to 1 year € 1-5 years € 345,715 311,957 93,710 706,525 6,366,069 7,823,976 345,715 106,528 93,710 706,525 6,357,350 7,609,828 Contractual cash flows Carrying amount € Up to 1 year € 529,468 220,007 472,727 1,222,202 529,468 61,735 199,565 767,602 – 224,773 – – 489,134 713,907 1-5 years € – 180,059 293,476 473,535 Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. As at 31 December 2016 the Group is only exposed to variable interest rate risk on the Intesa San Paolo loan. If the interest rate has increased or decreased by 100 basis points during the year the impact on the profit or loss would have been +/- €2,406. Directa Plus_Financial Statements.indd 57 57 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 24. Financial instruments (continued) Currency risk The Group is exposed to currency risk. Immediately after Admission and before the Brexit referendum, £7.5 million of the IPO proceeds was converted to €9.5 million (based on an average exchange rate of £1: €1.26) as the costs of the Italian subsidiary are in Euros. The remaining amount of approximately £3.5 million is to manage expenses of the Company (such as UK advisors, LSE fees and costs related to the Board) in the UK. Cash held in EUR Cash held in GBP Cash held in USD EUR 7,066,131 3,503,345 734 As at 31 December 2016 if the exchange rate EUR/GBP increase by 10% the impact on P&L would be a loss equal to €0.32 million (if decrease by 10% would be a profi t equal to €0.39 million). Fair values The following table shows the carrying amounts and fair values of fi nancial assets and fi nancial liabilities carried at fair value, including their levels in the fair value hierarchy. Carrying amount Fair value Loans and receivables € Other fi nancial liabilities € Total € Level 1 € Level 2 € Level 3 € – - 706,525 706,525 706,525 706,525 – – 706,525 706,525 – – 31 Dec 2015 Financial liabilities not measured at fair value Embedded derivative Total Measurement of fair values: valuation techniques and signifi cant unobservable inputs – refer to note 18 for details regarding the fair value of the embedded derivative. The embedded derivative was released on conversion of the loan in 2016. Capital management The Group’s objective when managing capital is to safeguard its accumulated capital in order to provide an adequate return to shareholders by maintaining a suffi cient level of funds, in order to support continued operations. 25. Earnings per share The earnings per share calculations for 31 December 2016 are infl uenced by the large change in the number of ordinary shares during the period. This is due to the share sub-division which occurred on 19 May 2016, dividing each share into 40 new shares and increasing the number of shares by 19,620,900, and the Initial Public Off ering on 27 May 2016, which resulted in 24,088,827 new shares. The earnings per share have been calculated using the weighted average of ordinary shares. In order for the calculations of basic and diluted earnings per share for all periods presented to be comparable, the weighted number of ordinary shares has been adjusted retrospectively to refl ect the sub-division. The Company was loss making for all periods presented. Therefore the dilutive eff ect of share options has not been taken account of in the calculation of diluted earnings per share, since this would decrease the loss per share for each of the period reported. 58 Directa Plus_Financial Statements.indd 58 11/05/2017 08:16 25. Earnings per share (continued) At 1 January 2015 At 30 June 2015 At 31 December 2015 Existing shares Share sub-division on 19 May 2016 Issued on 27 May 2016 At 31 December 2016 Change in number of ordinary shares Total number of ordinary shares - - - 19,620,900 24,088,827 43,709,727 503,100 503,100 503,100 503,100 20,124,000 44,212,827 44,212,827 Days - - - 140 8 218 366 Weighted number of ordinary shares 20,124,000 20,124,000 20,124,000 7,697,705 439,869 26,334,416 34,471,990 Loss for the year Weighted average number of ordinary shares in issue Basic Diluted 2016 2015 2016 2015 (6,422,019) (4,367,480) (6,422,019) (4,367,480) during the year 34,471,990 20,124,000 34,471,990 20,124,000 Fully diluted average number of ordinary shares during the year Loss per share Adjusted EPS Losses of the year Non recurring IPO costs Fair value movement on embedded derivative Write down of Receivables Inventory Adjustment Share option cost Inventory write off 34,471,990 20,124,000 34,471,990 20,124,000 (0.19) (0.22) (0.19) (0.22) Basic Diluted 2016 2015 2016 2015 (6,422,019) 427,144 1,039,473 840,000 (150,000) 154,068 – (4,367,480) – 706,525 – – 1,933,319 (6,422,019) 427,144 1,039,473 840,000 (150,000) 154,068 – (4,367,480) – 706,525 – – 1,933,319 Adjusted Losses (4,111,334) (1,727,636) (4,111,334) (1,727,636) Average number of ordinary share 34,471,990 20,124,000 34,471,990 20,124,000 Adjusted LPS (0.12) (0.09) (0.12) (0.09) 26. Share Schemes The Company established the Employees’ Share Scheme for employees and executive directors and the NED Share Scheme for the Chairman and non-executive directors on 19 May 2016. The Employees’ Share Scheme is administered by the Remuneration Committee. The NED Share Scheme is administered by the Executive Directors. Directa Plus_Financial Statements.indd 59 59 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 26. Share Schemes (continued) The Directors are entitled to grant awards over up to 10 per cent of the Company’s issued share capital from time to time. Awards over a total of 1,675,609 Ordinary Shares were granted on or around the date of Admission, 27 May 2016. No awards have as yet been exercised, leaving a total of 1,675,609 outstanding as at the year end. The main terms of the Share Schemes are set out below: Eligibility All persons who at the date on which an award is granted under the Employees’ Share Scheme are employees (or employees who are also offi ce-holders) of a member of the Group are eligible to participate. The Board may also grant market value share options to non-executive directors under the NED Share Scheme. The Remuneration Committee decides to whom awards are granted under the Employees’ Share Scheme, the number of Ordinary Shares subject to an award, the exercise date(s) (subject to the below) and the performance conditions (if any) which must be achieved in order for the award to be exercisable. Types of Award Awards granted under the Employees’ Share Scheme can take the form of performance shares and/or market value share options. “Performance shares” are share options with an exercise price equal to the nominal value of a share, while “market value share options” are share options with an exercise price equal to the market value of a share at the date of grant. The right to exercise the award is generally dependent upon the participant remaining an offi cer or employee throughout the performance period and, except in the case of market value share options granted to the Chairman or non-executive directors, the satisfaction of performance conditions. This is subject to the good leaver provisions described below. Awards granted under the Share Schemes will not be pensionable. Individual Limits The value of Ordinary Shares over which an employee or executive director may be granted awards under the Employees’ Share Scheme in any fi nancial year of the Company shall not exceed 200 per cent of his basic rate of salary at the date of grant. The value of Ordinary Shares over which a non-executive director may be granted market value share options under the NED Share Scheme in any fi nancial year of the Company shall not exceed 150 percent of his annual rate of fees. Performance Targets The Remuneration Committee will impose objective targets which will determine the extent to which awards will vest. Targets for awards to be granted to executive directors and senior employees on or prior to Admission will be based on growth in EBITDA, share price and production targets in line with the Company’s forecasts prior to Admission. The Remuneration Committee may modify or amend the performance targets if changes to the Company or its business mean that the targets are no longer relevant or appropriate. However, any new or amended conditions will not be materially any more or less challenging than the original conditions were expected to be at the time they were imposed. The vesting of market value share options granted to non-executive directors will not be subject to performance conditions. Variation of share capital Awards granted under the Share Schemes may be adjusted to refl ect variations in the Company’s share capital. Vesting of awards Awards will vest on the third anniversary of the date of grant to the extent that the performance targets have been met. Vested awards may generally be exercised between the third and tenth anniversaries from the date of grant. 60 Directa Plus_Financial Statements.indd 60 11/05/2017 08:16 26. Share Schemes (continued) The inputs to the Black-Scholes model were as follows: Black Scholes Model 27 May 2016 27 May 2015 Share price Exercise price Expected volatility Compounded Risk-Free Interest Rate Expected life Number of options issued 75p 75p 70% 4.25% 3 years 576,069 75p 0.25p 70% 4.25% 3 years 1,099,540 Details of the number of share options outstanding are as follows: Outstanding at start of period Outstanding at end of period Exercisable period option price Granted Grant date Exercisable date 31 December 2015 31 December 2016 27. Related parties – – – – – – 1,099,540 576,069 1,099,540 576,069 0.25p 75.00p 27 May 2016 27 May 2016 27 May 2019 27 May 2019 1,675,609 1,675,609 The below figures represent remuneration of key management personnel for Directa Plus Spa, who are part of the Executive Management Team but not part of the Board of Directa Plus PLC. The remuneration is set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’. Short-term employee benefits and fees Social security costs For Directors remuneration please see Director’s Remuneration Report. Related party transactions The following are deemed as related party transactions: 2016 € 176,708 8,179 184,887 2015 € 80,000 6,138 86,138 During the years under review, Sir Peter Middleton, a director of the Company, acted as Chairman of Hamilton Venture Capital Ltd, a company which provided advisory services and office rental to Directa Plus PLC. During the year ended 30 December 2016, the Company was invoiced €569,993 for advisory services (2015: €286,212) and €12,767 for office rental (2015: nil). Sir P Middleton received no remuneration for this role and had no part in the provision of advice. During the year ended 31 December 2016, the Company was invoiced €3,792 (2015: €12,315) from its subsidiary for services provided by Director Giulio Cesareo. During the year ended 31 December 2016, the Company made interest free loan payments to Directa Plus Asia Limited of €48,563. As at 31 December 2016 the loan balance was reviewed and an impairment of €69,763 made, reducing the carrying value to nil (2015: €22,825). Directa Plus_Financial Statements.indd 61 61 11/05/2017 08:16 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016Annual Report & Accounts 2016 Annual Report & Accounts 2016 Notes to the Consolidated Financial Statements (continued) for the year ended 31 December 2016 27. Related parties (continued) As at 31 December 2016 the intercompany loan balance with Directa Plus S.P.A is nil (2015: €641,092). Giuseppe Lazzaroni acted as chairman of the Italian Company (resigned 30 September 2016) and received €7,500 remuneration (2015: €10,000). During the year ended 31 December 2016, the Company sold equipment and other services for €651 (2015: nil) to Galbiga Immobiliare Srl, a company under the control of Giulio Cesareo. The following are deemed as related party transactions as the parties are shareholders and loan note holders. The loans were settled in cash or shares on 27 May 2016 as part of the IPO, see note 21 for further details. Shareholder Date of loan Principal Interest in 2015 Interest repaid in 2015 Loan outstanding 31 December 2015 Interest in 2016 Loan outstanding 31 December 2016 Finanziaria Le Perray 08/10/2014 500,000 40,650 – 547,046 Giuseppe Lazzaroni 08/10/2014 225,000 17,968 17,605 229,192 Finanziaria Le Perray 31/12/2014 525,219 42,018 Como Ventures 07/04/2015 100,000 5,896 Quadrivio Capital 02/04/2015 500,000 30,027 Quadrivio Capital 05/02/2015 166,667 12,055 Como Ventures 05/02/2015 18,518 1,340 – – – – – 567,237 105,896 530,027 178,722 19,858 17,421 7,299 18,400 3,409 17,058 5,737 637 – – – – – – – 28. Contingent Liabilities The group has the following contingent liabilities relating to bank guarantees on operating lease arrangements and government grants. Operating leases Total 29. Post Balance Sheet events There have been no events after the reporting date that require disclosure after the reporting period. 2016 € 20,000 20,000 2015 € 20,000 20,000 62 Directa Plus_Financial Statements.indd 62 11/05/2017 08:16 Annual Report and Accounts for the year ended 31 December 2016 D i r e c t a P l u s p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 6 Directa Plus plc ComoNExT Science Park Via Cavour 2, 22074 Lomazzo (Co) Italy www.directa-plus.com     

Continue reading text version or see original annual report in PDF format above