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Applied Graphene Materials PLC

Applied Graphene Materials plc commercial momentum continues to build

Applied Graphene Materials (LON: AGM), the producer of specialty graphene materials and dispersions, has announced its full year results for the year ended 31st July 2019.

Operational and commercial highlights

  • Good commercial progress being made, albeit yet to lead to revenue growth due to time to introduce and test materials rigorously for customer product launch
  • Customer/AGM new product launches:
    • JBL formally launched its Hycote anti-corrosion primer
    • Alltimes launched its Advantage Graphene roof coating product for construction use
    • Applied Nano Surfaces is scaling up production of a low-friction aerosol-based coating product, Tricolit®
    • Thermal adhesive product launched by an independent high performance product specialist
    • AGM’s water based application launched in July 2019
  • Two new distributors appointed  – CAME in Italy and Carst and Walker in South Africa following full launch of our Genable® standard dispersion product range
  • Strong technical data to demonstrate the efficacy of AGM’s graphene dispersions presented at major coatings industry conferences
  • Manufacturing patent granted in key territory in May 2019

Financial overview

  • Total income              £0.12 million (2018: £0.20 million)
  • EBITDA*                     Loss of £4.83 million (2018: loss of £4.54 million)
  • Cash at bank              £6.13 million (2018: £10.44 million)
  • Basic EPS                  Loss of 7.9 pence per share (2018: loss of 8.2 pence)
  • Adjusted EPS             Loss of 7.9 pence per share (2018: loss of 7.5 pence)

* EBITDA comprises loss before interest, tax, exceptional costs, depreciation and amortisation.

Post year end

·      R&D tax credit of £0.62m received in August 2019 further strengthens the Company’s cash position

·      On 9 October 2019 the Company entered into a consultation period with staff to re-align its resources which will reduce costs

·      The re-alignment will further extend the Company’s cash runway

Adrian Potts, Applied Graphene Materials Chief Executive Officer, commented:

“This year we have continued to consolidate our industry-leading IP in the integration of graphene into coatings, in collaboration with our commercial partners. Our dispersion technology is critical to building the strong technical foundations that will support the success and long-term sustainability of our business.

As announced, revenue development this year has been slower to materialise than expected. The route to launch graphene-enhanced products takes time to realise full potential, due to the varied and often lengthy testing processes and the complexity of effectively transferring graphene’s exceptional properties. The restructuring process we are implementing will re-align our business to focus on our core dispersion technology and will reduce our cost base to sustain the business while we focus on achieving conversion of our pipeline of approximately 100 active engagements, and in particular our core near term customers, into meaningful revenues.

Our commercial momentum continues to build, and we have been pleased to announce progress on a number of partnerships, as well as product launches by Alltimes Coatings, and James Briggs which are on schedule for this calendar year. Meanwhile, we are also progressing a large number of collaborations with customers under non-disclosure agreements, and look forward to updating the market on these in due course.”

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Applied Graphene Materials’ results presentation, with audio commentary, is expected to be made available on its website at http://www.appliedgraphenematerials.com in due course.

Overview

This year the Company has made key technical progress with our commercial partners and on strengthening our graphene product offering. These are important foundations which will ultimately establish this business commercially for its sustainable future. Time to develop revenues continues to be significant, due mainly to the time that it takes to introduce and test materials rigorously for approval and adoption for eventual customer product launch.

The positive milestone momentum we are experiencing with our commercial partners gives us confidence in the outlook and commercialisation of further collaborations currently in our pipeline. The repeatable demonstration that our graphene dispersions, when correctly incorporated and used, produce substantial improvements in barrier performance in coatings, toughness in composites and thermal/mechanical performance in adhesives is encouraging – and we have seen this in product launches through the year as customers transition from testing to commercially viable products. Alongside these positive steps, we are seeing solid progress with customers who are still evaluating our products and going through scale up trials of their own and demonstrating strong results.

We have also been able to fully launch our own new standardised products in the year which has enabled us to extend our route to market via third party distributors. We have purposely selected technically-based distributors to enable the technical-sell to work well and provide the best opportunity for success.

Technical progress in the coatings sector has been excellent. We have further extended our anti-corrosion and barrier technologies using our graphene nanoplatelet dispersions and established new water-based coating additives. Achieving the stable distribution of nanomaterials into water-based dispersions is a major breakthrough for the industry. We are now able to participate in the significant water-based coatings market which is expanding as a result of increasing regulation against environmentally detrimental solvent-based alternatives. The testing by customers in this sector tends to be to a shorter timeline, potentially giving our products a faster route to market. All participation in the coatings market requires performance data to prove products and to this end we have invested in further test equipment throughout the year to enable more efficient running of testing programmes. We have also applied industry standard accelerated testing methods to enable a faster, iterative approach to formulating optimised solutions.

Achieving consistent graphene performance in composite materials is a technical challenge, but we have again seen success in this area and are starting to gain further traction with two different product offerings. The direct use of Genable® dispersions has enabled companies like Infinite Composites Technologies to excel with composite structural integrity in the area of pressure vessel technology for use in space with NASA, while our Structural Ink technology has been demonstrated in composite structures for tooling. .

With specialty products such as our thermal adhesives, it has proven to be a long pathway to final qualification of the materials for use on satellites. However, the critical milestone of qualification is close and we have recently supplied trial materials for packaging in the final approved format.

We are currently in a consultation period with staff regarding this proposed restructuring. We are focused on the core strengths of the business of efficient dispersion manufacturing and development, technical strength and exceptional customer service.

Commercial progress

The graphene industry continues to develop as it seeks to integrate the nanoplatelet format of graphene into effective applications. We believe our strength in dispersion technology is our unique selling proposition and represents the keys to the successful technical adoption by customers seeking to realise the performance benefits which graphene as nanoplatelets has to offer.

Our technology group continues to focus on the effective realisation of graphene’s remarkable performance characteristics through its application in coatings and composite materials technology development. Around three quarters of our activity is in the coatings space, which we regard as the key area to grow our revenue going forward. This sits alongside long-standing projects such as our qualification effort with Airbus Space and Defence with our thermal paste adhesive formulated products.

In the coatings sector, we have purposely prioritised our focus on smaller companies to gain commercial traction, whilst continuing to maintain our engagement with the majors. We find these smaller, more agile entities, tend to be both hungry for innovation and also see the opportunity to integrate new technology into their market offerings in a relatively shorter timeline, notwithstanding that the product still needs testing iteratively and intensively in their own formulations. Our end-to-end technical service offering is a key enabler, often through use of our own facilities.

It clearly takes time to successfully integrate new technology to enable customer product launches and realise revenues. With coatings technology, the reality of revenue is directly tied to the time it takes to integrate graphene materials into complex coatings chemistries and then for customers to test them over many weeks and months. It is not uncommon for a test set to last for 3,000 hours (18 weeks) once a promising customer formulation has been determined and initially evaluated for a number of weeks prior to this formal testing process.

The key benefit that customers have in partnering with AGM is our integrated, end-to-end approach to customer engagement. I firmly believe we have the keys to this breakthrough technology, which are as follows:-

  • developing a deep understanding of each customer’s objectives and formulation;
  • ensuring good clarity of the commercial viability of the product offering;
  • ensuring the optimal graphene appropriate for purpose is selected;
  • dispersing graphene correctly in an easy to use intermediate additive;
  • active formulation effort in collaboration with the customer;
  • initial testing;
  • longer term testing; and
  • successful results and product launch to generate revenue streams.

This model of engagement reads across to all sectors that we are involved in and reflects the depth and quality of activity we have with each customer that wants to seriously engage with our innovative graphene technology offerings.

With composite materials technology, we continue to develop the potential of graphene for mechanical performance enhancements and are also now seeing positive momentum with our innovative Structural Ink® technology. An outstanding example of mechanical performance improvements achieved with the addition of graphene has been seen in the area of mechanical damage limitation following extreme cyclic of composite parts for the space industry with our customer Infinite Composite Technologies.

We also remain absolutely committed to specialty materials development such as the qualification project we have ongoing with Airbus for thermal adhesives technologies. These materials are now at a level of maturity to be promoted further afield to other potential customers in the Space and Defence sector..

We are currently managing around 100 active customer engagements that we believe have prospects for ultimately generating revenues. We continue to manage the project count effectively and focus on those that are most likely to succeed. We selectively consider newer engagements, when they appear commercially and technically viable and where we believe there is genuine appetite from the customer to engage towards a commercially viable product.

Pipeline overview

The number of programs in the pipeline as at 31 July 2019 and the movements since 31 January 2019 are as follows:

At 31 July 2019Stage of development     
Approval timeAgreement on scope of sampling and engagementInitial testing and interpretation of resultsRepeat testing for consistency and review of resultsFinal product trials formulation and specificationFinal commercial agreementTotal
Short001034
Medium122164548
Long52153034
Technology scouting or time frame unclear currently4920015
Total21511478101
Change since 31 January 2019      
Short-11-8-4-4-1-28
Medium-6-4-722-13
Long-2943014
Technology scouting or time frame unclear currently-281007
Total-215-611-20

As part of our ongoing assessment of these opportunities, the total number of active engagements has fallen during the last 6 months due to the elimination of early stage projects where success was deemed less likely allowing us to focus on projects with a greater chance of success.

Coatings sector

Our teams continue to work closely with customers to realise the barrier, chemical resistance and anti-corrosion performance benefits that the impermeable nature of graphene nanoplatelets offers in coatings formulations. Key to this technology generating long term success is AGM’s unique expertise in dispersing graphene into the customer’s often unique coating chemistry.

Making graphene materials easy for coatings customers to integrate through achieving appropriate dispersions typically in matrix resins, solvents and water is foundational to a successful outcome. The integration of such dispersions is the fundamental means of enabling the transfer of the particular graphene characteristics into the customer’s host material. Our Genable® range of standard dispersions offers ease of selection and ease of use and ise supported with substantial data and “how-to” technical application information. We can also customise dispersions to suit their specific chemistry needs as required. The launch of the complete range of Genable® dispersions has enabled us to develop a new route to market through technical distributors. It was particularly pleasing to be able to sign up CAME (Italy) and Carst & Walker (South Africa and Australasia), both of whom operate in the coatings sector and are able to support the technical approach with novel materials. Whilst still in the early stages of the relationship, both of the new distributors have made an encouraging start with samples being issued to a range of potential new projects. We are also look forward to announcing further distribution agreements in other territories with the expectation that these will be an additional route to revenue growth.

Following extensive and rigorous testing, James Briggs Ltd (JBL) formally launched its Hycote anti-corrosion automotive aerosol primer at the Automechanika trade event earlier in 2019. As a zinc-free primer system, the paint has positive environmental and performance features. We anticipate a sales ramp up through both their distribution channels and direct retail selling in the current financial year. Initial production orders have been fulfilled to support early inventory.

In July 2019, coatings innovator Alltimes Coatings Ltd (Stroud, UK) launched its Advantage Graphene roof coating product for construction use. The Advantage Graphene system is the result of extensive product development and a rigorous testing programme and has ultimately produced a liquid roof coating system that delivers an industry-leading level of anti-corrosion performance and life expectancy. AGM’s graphene technology has also helped enhance other key coating performance attributes and ultimately provides building contractors and owners with a cost-effective solution. Due to its exceptional corrosion resistance performance, Advantage Graphene is being offered with an unparalleled, industry leading 30-year product warranty, extended from 20 years with Alltimes Coatings’ previous product. As part of the promotion of this new technology, one of the buildings at the Wilton site where AGM is located is to have its roof repainted with the Alltimes Advantage Graphene paint – an early practical demonstration of the material in use.

We continue our intensive customer technical support across a large number of engagements in order to accelerate the number of products our customers can bring to market to create revenue for them and AGM.

Further product launches are anticipated from UK coatings innovators Blocksil Ltd (Lichfield, UK) and HMG. Blocksil has developed a new product, ‘Graphene Enhanced Top Coat MT’, a ground-breaking high performance, anti-corrosion coating for applications across a broad range of harsh industrial environments. The new graphene-loaded coatings system delivers leading mechanical and physical properties in a single coat. Graphene Enhanced Top Coat MT is sustainable, VOC free and easily applied. Retaining full flexibility and adhesion, the enhanced product delivers excellent UV resistance alongside improved levels of toughness and fire resistance. Blocksil is actively engaged with end users and specifiers across industries with high value assets and infrastructure operating under harsh environmental conditions.

We continue our active engagement with HMG, collaboratively formulating and testing a new graphene enhanced product for the protective coatings sector. Again, this uses graphene’s property of impermeability and AGM’s dispersion technology to deliver the possibilities of enhanced product performance. Testing should run out to early 2020 and we look forward to a positive outcome and product launch accordingly.

We are collaborating with a significant number of further coatings companies involved in assessing the performance of our dispersions in their coatings systems. The level of testing and evaluation ranges from initial formulating through to full scale up trials on the production shop of a USA-based customer working on mitigation of aluminium corrosion. Real world use of our graphene dispersions has thus demonstrated that the materials can be added, mixed, sprayed and used practically, repeatedly and consistently which is vital proof of feasibility for customers seeking to confidently introduce this new platform technology.

Away from the world of anti-corrosion, we have qualified our A-GNP10 nanoplatelets, supplied through a customised dispersion for Applied Nano Surfaces (Uppsala, Sweden) for their innovative graphene-fortified low friction coatings Tricolit®-GO. This coating features low friction and high abrasion resistance and is an aerosolised product. ANS Tricolit®-GO is part of the ANS Tricolit® range of thermoset surface coatings serving to reduce friction and wear. Materials can be sprayed, dipped or brushed and are suitable for treatment of nonferrous materials which cannot be tribo-conditioned. We are finalising scale up plans now that materials are ready to be promoted.

Product development continued apace in the year to support further adjacent opportunities in the coatings sector and to broaden the scope of our product range. We launched our innovative acrylic water-based technology to meet the expectations of the evolving environmental pressure on the coatings industry applicable to Direct-to-Metal (DTM) applications. We see water-based coating development remaining a focus for coatings industry formulators, with tightening of regulations brought in to lessen the detrimental impact that solvent-based coatings have on both worker health and the environment. Water-based coatings tend to inherently need improved anti-corrosion performance, and we believe this new product range has the potential to extend anti-corrosion performance, enabling broader industrial protective coating appeal. We are delighted to have presented this significant technological progress to our customers, reaffirming AGM as the leader in the development of cutting-edge graphene applications tailored to add significant value for paints and coatings manufacturers. We see good potential with a number of engagements with this new product package.

The market for coatings in the anti-corrosion general industrial sub-sector, is substantial and we see good opportunity to develop revenues through:-

  • Continuing proof of concept;
  • Continuing product launches from successful customer adoption;
  • Continuing presentations of our products and their positive advantages; and
  • Continuing in depth customer engagement to enable realisation.

Composites sector

Very low density, outstanding specific performance, and durability are key attributes necessary for the composite materials sector. The inclusion of graphene can improve these fundamentals without adding significant weight. As with the coatings industry, the real challenge to success is in creating a discrete array of nanoplatelets within the host material to enable the realisation of the performance of the graphene that has been added. AGM’s dispersion technology using either our standard Genable® dispersions or a customised offering often in a specific matrix resin or such as a printable format, again provides the key to successful outcomes in the end product, with the combination of performance described above being achieved.

Recent traction with our products, and typical of the technical success we aspire to, is with USA-based customer Infinite Composites Technologies. AGM and Infinite Composite Technologies have a long-standing relationship in the development of innovative composite material for pressure vessel technology incorporating graphene technology. Working closely together to initially investigate the potential application of AGM’s graphene materials, the technology has been progressively developed to its current advanced state.

After the period end we announced that Infinite Composites has successfully incorporated AGM’s Graphene Nanoplatelets into two resin systems for cryogenic pressure vessels being considered for use in multiple NASA spaceflight missions, including Materials on the International Space Station Experiments (MISSE), Artemis, and Lunar Gateway. The addition of AGM’s graphene nanoplatelets (GNPs) has enabled the tanks to complete their first liquid oxygen loading test at -300ºF pressurised to 600 psi. Analysis of the composite indicated that the addition of GNPs eliminated nearly all microfractures in resin samples after exposure to the cryogenic environment versus the control samples. These results using AGM’s graphene in real composites applications subject to extreme testing further underpin the performance and value of the use of GNPs for the effective management of attributes such as fracture toughness and robustness of composite structures for long-term durability. Whether into resin formulation directly for winding processing of pressure tanks or direct integration into composite prepregs, AGM’s dispersion technology offers an appropriate solution that is easy to integrate into the resin mixing stage of the customer’s process.

AGM’s Structural Ink® technology platform as a means of selectively printing high quality formulated ink-based graphene where it is needed continues to demonstrate significant performance uplifts in composite fracture toughness. We are starting to see the benefits from the equipment investment we made last year for further product optimisation and process scale up. We are able to print graphene with high precision at very low added weight to enhance the interlaminar performance of composite structures. With potential application initially in sports and leisure applications where toughness is important, we are also investigating how to broaden the scope of applicability to other materials and sectors – building on, for example, the printing work completed in the Composites Tooling Engineering Services (CTES) tooling project discussed below.

CTES and Nano Enhanced Aerospace Interiors (NEAT) projects funded under the National Aerospace Technology Exploitation Programme (NATEP) were completed in the year and yielded positive results.

CTES, with industrial partners AGM, CTES Ltd, SHD Composites Ltd and GKN Aerospace investigated the use of graphene in composite tooling applications where carbon or glass fibre prepregs are used to create forming and curing fixtures for composite part manufacturing. Accuracy, quality of surface finish and longevity are key attributes required for composite tooling forming/curing fixtures used in the industry. The use of graphene inks printed into the tooling laminate as well as graphene in the prepreg structure have demonstrated enhanced performance for tooling applications and we anticipate further demonstration of this technology in the near future, again using graphene both in the prepreg and with using printing methods. Broader dissemination of the team’s developments are now underway.

The 18 month NEAT project with partners Composites Evolution Ltd and Coventive Composites has yielded a prepreg product that can be used in aircraft interiors with enhanced mechanical performance as well as critical fire, smoke and toxicity performance. The customer is at the early stage of field trialling these innovative materials with end-users with a view to demonstrating a balance of performance advantage, optimised design, improved processing and enhanced surface finish.

Functional materials

As previously noted, the qualification of thermal paste adhesive product TP300 continues with Airbus Space and Defence, with anticipated completion and initial revenues now anticipated in calendar H1 2020. Following the four years of development effort, we are now offing materials engineers in the Space and Defence industries two unique thermally conductive epoxy paste adhesive systems, AGM TP300 and TP400. These novel epoxy adhesive systems exhibit high levels of thermal conductivity (3 and 6 W/mK respectively), combined with excellent mechanical, adhesive and outgassing performance. Most significantly, these properties are achieved with cured resin density as low as 40% that of competitive conventional conductive adhesive systems on the market. TP300 and TP400 are therefore highly versatile, providing end users with significant savings in both mass and cost. The format of the materials makes them ideal for structural bonding and gap filling adhesive needs where payload weight is critical.

In April 2019, an independent high-performance product specialist launched a graphene filled epoxy system which offers high thermal conductivity and low density. This product is ideal for bonding flat surfaces and where contact pressure can be applied. The product advantages are:

· High thermal conductivity

· Low co-efficient of thermal expansion

· High compressive strength

· Wide service temperature range

· Superior dimensional stability

· Thick non-drip consistency

Technological and manufacturing capabilities

We launched the Genable® standard dispersions product range during the early part of the year as a result of sustained formulating effort. This enabling technology, backed by testing data, means that customers can integrate our products with confidence into their complex formulations.

Our formulations team completed development of new stabilised water-based dispersion chemistry to meet the trend for improved environmentally friendly products in the coatings industry. Water-based formulating is a complex process in the dispersion of graphenes and I am pleased with the progress our technical team has made in overcoming this challenge to support this market opportunity. Initially with acrylics chemistry for opportunities such as the DTM (Direct-to-metal) coatings market, we look forward to the imminent further release of epoxy versions to enable a fuller dialogue with customers keen to assess our materials in this format.

We continue with the product development cycle to address the challenges of harsher environmental conditions and therefore more rigorous testing in the C4 / C5 categories (factories and bridges over water) for barrier technology. The testing regime is substantial, involving multi-faceted evaluation, but I am convinced that the quality of work and end results based on current performance will enable a strong opportunity to ensure a positive customer experience with our products and deliver revenue bearing engagements.

In recognition of the performance that the Genable® 3000 series product makes to anti-corrosion performance on steel coatings, AGM’s product was nominated as a finalist in the Materials Performance Corrosion Innovation Awards for 2019, a programme run in parallel with the USA-based National Association of Corrosion Engineers (NACE). The product enables coatings performance enhancements in applications subject to high humidity and aggressive atmosphere, including inshore areas of medium to high salinity

Aware of the need to see products through to end product integration in a safe and reliable manner, AGM also made a substantial commitment to evaluate the performance of nano-materials in various coatings configurations to review the associated environmental, health and safety considerations. The results are positive thus far and again reflect the professional approach to address the regulatory requirements we are taking in the adoption of this class of materials technology into a coatings industry that is relatively conservative. We continue to be leaders in the EU REACH consortium dealing with graphene nano-materials regulatory issues, having regular input to the evolving landscape.

Patent filings and IP protection continued in the year as we seek to protect the know-how we have generated.

Marketing our technical expertise

In the year we also made a commitment to disseminate our technical information to a much wider audience. We presented at multiple technical conferences including the European Coatings Show, the National Association of Corrosion Engineers (NACE) conference in USA etc, and this has created further positive dialogue at a detailed customer level to enable consideration of both the benefits of graphene additions and also the key of “how-to” integrate effectively. This quality of dialogue and information transfer is key to successful customer adoption of graphene in the future.

Re-alignment of resources

Whilst the Company has continued to make strong technical progress with its customers and remains well positioned in its focused sectors, revenue development takes time to realise in full. It remains challenging for the Group to predict the timing of larger-scale commercial orders as a result of the significant testing processes that AGM and its customers must undertake to enable long term adoption. During the year, the testing programmes of some of the Group’s customer graphene enhanced products have been longer than anticipated.

Experience over recent years has clearly demonstrated that AGM’s core expertise is in dispersion and application know-how to integrate the performance benefits of graphene nanoplatelets in an effective way in customer products. The Board has therefore decided to focus its resources and activities around meeting customer opportunities through the dispersion and end-use application of graphene as the best means of revenue growth.

As a result, the Board announced it has entered a period of consultation with its employees with a view to implementing a re-alignment of its operations towards dispersion and application know-how and customer support. The Company will focus its resources on growing revenues from its significant pipeline of approximately 100 active engagements, in particular from its more advanced customer engagements. The Group will therefore largely maintain its resources in business development and retain its strength in the technical team to support customers running product trials and in longer range product and dispersion technology development, whilst streamlining manufacturing. The objective here is to maintain an appropriate level of graphene manufacturing capability whilst focusing on our core strength of dispersion and application technology.

The cash operating cost base of the Company of £4.3m in the year to 31 July 2019 is, subject to consultation, expected to fall by circa £0.9m and £1.1m for the years ending 31 July 2020 and 2021, respectively. The cost of implementation of these changes is, subject to consultation, circa £0.2m. These actions will extend the Company’s cash run-way to at least Q4 2021.

The Group is well funded, with net cash of £6.1m as at 31 July 2019 and it received an R&D tax credit of £0.6m in August 2019 in respect of the year ended 31 July 2018.

The Company’s absolute priority and focus remains to support its partners in successfully incorporating graphene nanoplatelets, achieving product launches and growing revenues.

The Company has built an exceptional technology base and the re-alignment will by no means impact its technical capabilities, nor its ability to scale up production at the appropriate time to meet future demand.

Outlook

The Board believes that AGM is well placed and is confident that, with the reduced cost base and existing cash resources, the Company will have sufficient time to significantly grow revenues in the emerging graphene market.

The technical progress we are making in our customer collaborations continues to be absolutely critical to our success, in light of the complexity of transferring graphene’s exceptional enhancement properties into a final customer product, which has remained a challenge for the industry. AGM remains well positioned thanks to its solid platform of graphene application and integration IP in its focused customer sectors.

The Board is encouraged by momentum in our commercial pipeline. We are seeing positive traction with the launches of graphene-enhanced products by customers in all three of our operating sectors.

We look forward to the emerging graphene market developing further and to delivering on the technical promise with our products.

Adrian Potts

Chief Executive Officer

16 October 2019