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Versarien plc

Versarien Plc Another year of great progress

Versarien Plc (LON: VRS), the advanced engineering materials group, has today announced its unaudited results for the year ended 31 March 2019.

Operational highlights

· Thirteen new graphene application collaborations and MOU agreements secured during the year, with one entered into post period, with partners based in the UK and overseas

· Versarien joined the Graphene Engineering Innovation Centre (“GEIC”) as a tier one member gaining access to development and scale-up facilities worth c.£60 million

· Continued investment in capital equipment as collaboration agreements progress

· Acquisition of Gnanomat S.L. (“GNA”), a company based in Spain developing energy storage technology

· Establishment of a US subsidiary, Versarien Graphene Inc., to exploit opportunities in North America

· UK Government continues to support the Company’s international expansion plans by seconding staff to Versarien, an ‘Export Champion’

· PolygreneTM launched, a new graphene enhanced polymer to improve thermal and electricity conductivity

· Mature businesses showing steady financial performance providing stability for the emerging businesses

Financial highlights

· Group revenues remained steady at £9.14 million (2018: £9.02 million)

· Adjusted LBITDA* of £1.1 million (2018: £0.8 million)

· Loss before tax of £2.8 million (2018: £1.6 million) after share based payments charge in the year of £0.7 million (2018: £0.1 million)

· Cash at 31 March 2019 of £4.3 million (2018: £2.3 million)

· Successful fundraising of £5.2 million gross in September 2018

· Net assets increased by 66% to £13.3 million (2018: £8.0 million)

*Adjusted LBITDA (Loss before interest, tax, depreciation and amortisation) excludes exceptional items and share based payment charges.

Post Period Highlights

· Versarien became the first company in the world to complete the US Graphene Council’s ‘Verified Graphene Producer’ programme validating our technology to customers and collaborators

· First graphene orders received from the USA and Japan

· Term Sheet signed with the Beijing Institute of Graphene Technology for China expansion

· EU ‘REACH’ approval to produce up to 10 tonnes of graphene per annum received

· Appointment of Susan Bowen as a Non-executive Director

Commenting on the results, Neill Ricketts, Chief Executive Officer of Versarien, said:

“The year to 31 March 2019 has, again, been one of great progress for Versarien particularly in our emerging technologies businesses, globally and in the UK. The graphene businesses have delivered on our strategy of expansion into global markets and progress is being seen in our existing collaborations, as well as new collaborations being entered into. We look forward to showcasing our new technologies at future investor events.

“Having spent some time examining opportunities for expansion into China, the Board concluded that the best one lies with BIGT and consequently signed a term sheet with them in April 2019. A wholly owned foreign enterprise is being established and will be managed by BIGT on behalf of Versarien, with planned investment from a BIGT managed fund. BIGT will focus on both the manufacture and sale of our graphene in China using our patented technology.

“Opportunities in South Korea, Japan and India are emerging as a result of the support given to us by the UK Government seconded staff and we have established operations in North America, albeit they are at an early stage.

“New graphene production equipment has been installed in the UK and is now up and running at our Cheltenham manufacturing site which will enable us to meet the initial expected demands of our graphene based products. Testing of new equipment is underway which, if successful, would expand our production capacity to up to 30 tonnes per annum of high quality graphene. Manufacture and sale of graphene at these levels requires certain permissions under EU regulations and I am pleased to report that we have been successful in our registration and are now accredited to produce significant volumes of graphene under the EU rules for chemical production.

“Our mature businesses have focussed on efficiency gains and overall have returned acceptable results whilst also looking at opportunities for inclusion of graphene in their future products. This includes using graphene in headphones and mobile phone cases, through to producing Hexotene enhanced ceramics for use in satellite engines.

“I would like to take this opportunity to thank our continually supportive investor base and our employees for their hard work as we look forward to the future with optimism and confidence.”

Chief Executive’s Statement

Versarien consists of two main business segments; Graphene and Plastic Products focussed on delivering graphene solutions through plastics and carbon fibre composites, and Hard Wear and Metallic Products focussed on delivering aluminium and tungsten carbide products.

Graphene and Plastic Products

The graphene businesses continue to make significant progress. We are very proud to be the first company in the world to receive independent verification from the US based Graphene Council that has declared our Nanene graphene nano-platelets meet their standards. Not only is this a confirmation of the quality of our product, but also provides us with a competitive advantage.

With the launch of PolygreneTM, we have again increased our range of graphene-based products, providing a polymer which can improve thermal and electrical conductivity.

The UK Government continues to provide support to Versarien with seconded staff and has also entered into partnership with us as an ‘Export Champion’. This support enables us to increase our global presence and succeed in our global strategy. In China we now have many MOUs (multiple with Fortune 500 companies) which are project related across a multitude of sectors, with work either currently on-going or with preliminary discussions and testing taking place. In South Korea we have two collaboration agreements now in place and discussions with around 20 companies which are on-going and we are engaging with JETRO, a core government organisation for attracting inward investment in Japan. In India we are looking at opportunities for a joint venture arrangement with a suitable partner.

I am pleased to provide an update on our current commercial collaborations:

Date entered intoDescriptionCurrent status
October 2017Collaboration with Israel Aerospace IndustriesDevelopment of applications continuing with multiple partners, including GEIC and Warwick Manufacturing Group (“WMG”). 
November 2017Collaboration with Global Consumer Goods CompanyBlow moulded bottle samples were successfully produced at customer facility. Samples currently being tested and assessed at customer facility and WMG. A new agreement has also been signed with a separate division of this company. The agreement will focus on the development of flexible packaging solutions and seek to utilise graphene properties in new and existing packaging. 
December 2017Agreement with Global Chemical MajorMasterbatch testing completed with notable improvements in puncture resistance. Further tests underway with Graphinks and Hexotene. 
January 2018Agreement with Global Apparel ManufacturerFirst sample garments produced and independently tested to industry standards by a recognised UK based test house. The results show wide improvement in key areas when compared to a non-graphene garment. The key areas included abrasion resistance, moisture and air permeability, water vapour and thermal resistance, stretch, wicking and drying rate. A Second batch of garments is currently being produced and will go to other engagement partners for wearer trials. 
February 2018Medical Technology collaboration at Addenbrooke’s hospitalInitial positive discussions have now been held with two leading global manufacturers of dressings and further multi-partner discussions will be held in the near future. 
February 2018Agreement with the shoemaker VivobarefootProduction relocation caused temporary delay to the project. Initial compounding of materials has now been successfully completed with different variations of materials and loadings. Further tests now underway and first samples to be produced. Commercial understanding over a launch product in place. 
March 2018Collaboration with Team Sky (now Team INEOS) for cycling equipment Project held up due to change of sponsor. The parties will re-engage in September 2019.
March 2018Collaboration with world leading aerospace groupSample parts have been sent to us for initial evaluation. 
April 2018Agreement with LuxusActive supply chain partner, who are working with us on various projects. 
May 2018Consumer goods collaboration for polymer structures in plasticsInitial testing at limited loadings showed a demonstrable improvement in potential use of plastics. Targets have now been set to achieve significant reductions in plastics use. Further development in bottle design and weight/percentageloadings has now commenced. 
June 2018Agreement with Arrow Green TechIP application submitted for initial water-soluble polymer. Engagement underway in India with multiple companies across various sectors. 
June 2018Commercial agreement with MediaDevilFirst earphones launched into the market in December 2018, with next generation products now being designed. In addition, new accessories such as phone cases with graphene have now been tested, with launch dates currently being planned. 
July 2018Collaboration with ZapGo LtdTrials continue with different materials and loadings. 
August-2018Sporting goods collaborationInitial trials of a new Polygrene mix show significant improvement in outer soles with further development now underway. In addition, work has commenced on a new design for another variation of football shoe. Confirmation that this partner will also feature in the wearer trials for the garments referred to in the update with the global apparel manufacturer. 
August-2018Collaboration with Axia Materials, South KoreaConsortium of companies exploring further funding opportunities and potential new partners.
August-2018Construction materials collaboration with AECOMCollaboration progressing well with additional collaboration agreement signed to investigate graphene enhanced concrete structures. 
October-2018Collaboration with Advanced InsulationTesting underway at customer facility.
December 2018Collaboration with Chinese Aerospace CompanyWork plan created with involved multiple partners, including GEIC and WMG.
December 2018MOU China RailwaySeveral projects are now underway including concrete projects which feature multiple partners, including GEIC.
December 2018LOI/MOU Tungshu OptoelectronicsOur collaboration with Tungshu is continuing with a number of projects identified. These include flexible packaging, thermal interfaces for heat dissipation in electronics,  thermoplastic components, various electrical devices and using graphene insole sensors in Tungshu’s smart wearables. 
March 2019Further collaboration with Chinese Aerospace CompanyWorkplan created with involved multiple partners, including GEIC and WMG.
May 2019Collaboration agreement with BP Polymers Initial workflow plan agreed and being implemented. 

The level of our graphene related sales is mainly dependent upon the rate at which our collaborations progress. The year under review has seen significant progress which is expected to validate our business model and provide future sales growth from the current minimal levels. Alongside the collaborations, we have seen an increase in interest following our Graphene Council verification with our first orders from partners in USA and Japan post period end.

During the year we have invested in new plant and equipment aimed at increasing annual production capacity to three tonnes of graphene and one tonne of Hexotene by the end of 2019. This should enable us to meet the expected demand for our high-quality graphene-based products.

We are now in discussions with many cities, provinces and companies in China, and have signed a Term Sheet with BIGT in April 2019. Final contracts have yet to be completed, so there cannot be certainty, but the intention is that other interested parties and regions will form tier two investment opportunities in joint ventures to be agreed.

Since its acquisition in October 2018, GNA has been awarded a patent by the Oficina Espanola de Patentes y Marcas, the Spanish patent office, covering a method of obtaining nanomaterials composed of carbonaceous material and metallic oxides. This has also been filed under the PCT regime.

GNA has also recruited a new Chief Technology Officer and successfully completed the testing of its pilot production plant. It has also entered into collaboration agreements with two supercapacitor manufacturers and is in dialogue with a further three global supercapacitor manufacturers, as well as participating in the European Battery Alliance.

AAC Cyroma, our plastics business, was principally a strategic purchase to allow us to incorporate graphene into plastic products as well as providing revenue and cash flow in its own right. Its revenues have remained stable and returned a reasonable result whilst working with the first mover collaborations, such as with Media Devil and its own customer base, with samples being provided for customer testing.

Hard Wear and Metallic Products

Our Hard Wear parts business has performed in line with the previous year and a recent review of operations has been conducted to improve operational efficiencies. It is particularly pleasing that it has seen an increase it its recent order books and is now involved in a project involving the use of Hexotene in ceramics. We have previously stated that the thermal/aluminum products business is non-core, but nonetheless recent restructuring has improved its business performance.

Key performance indicators

As a Group that consists of mature products supporting the development of early stage technology products, we concentrate on the following financial metrics:

Gross margin percentage27%28%
Loss before interest, tax, depreciation, amortisation, exceptional costs and share based charges(1,134)(801)
Cash used by Graphene and Plastic Products(1,305)(1,090)
Cash used by Hard Wear and Metallic Products(266)(82)
Cash raised/(utilised) by parent (before loans to/from subsidiaries)3,5672,101
Net Cash raised and generated/(used) by the Group1,996929

Current trading and outlook

The Group has started the new financial year very positively, with pleasing levels of revenue and profit from its Plastics and Hard Wear and Metallic businesses. With the investment in operational efficiencies made in the year ended 31 March 2019, we anticipate a further positive impact to the results in the current financial year.

We have also seen progress in the US, with four new collaboration agreements having been recently entered into in North America, and were pleased to announce that we received our first order in June 2019 for 12kg of our graphene from a US based company, operating in the oil and gas exploration sector. We also look forward to working with potential new US based partners following the American Graphene Summit in May 2019, where Versarien was a leading participant.

We also look to the future with great excitement regarding our expansion into China, South Korea and Japan which could bring significant growth for the graphene businesses. We have already seen our first order from a North American corporate research and development centre of a Japanese headquartered company. This customer is a global automotive components company that has operations in over 40 countries, employing in excess of 250,000 people.

This current year we expect, with confidence, to see the benefits of the many achievements and progress that we have accomplished during the year ended 31 March 2019, and the continued trend of increased orders for our products.

Neill Ricketts

Chief Executive Officer

Financial Review

Versarien’s revenue for the year ended 31 March 2019 was £9.1 million (2018: £9.0 million) with operating losses before exceptional costs, depreciation, amortisation and share based payment charges of £1.1 million (2018: £0.8 million).

Exceptional costs were £0.4 million (2018: £0.03 million) as a result of the Group’s focus on global expansion and growth through acquisition. The loss before tax for the year was £2.8 million (2018: £1.6 million), after share based payment charges of £0.7 million in the year (2018: £0.1 million).

It is the Board’s intention to continue to align shareholder and senior staff interests through the award of share options rather than just remuneration. IFRS 2 (share based payments) dictates the accounting treatment of such options using simulations such as Black Scholes or Monte Carlo to try and determine the fair value of such awards. These models contain many assumptions, but one which has a material impact on the valuation is share volatility. Versarien, in line with many other AIM quoted shares, has seen a high level of volatility since being admitted to AIM. The consequence of this is that such simulation models allow for large share price movements resulting in a high charge in the year of £0.7 million (2018: £0.1 million). This is a non-cash movement in the accounts and is simply an accounting transaction required under IFRS 2 to reflect the potential future value of the shares.

As part of the expansion of our graphene businesses in the UK and overseas, we have continued to invest heavily in them. We are confident, that whilst revenues of any material amount have yet to be achieved, with the investment that we have made, the accreditations awarded and progress of our collaborations this year, significant future revenues will be achieved. Adjusted LBITDA for the graphene businesses was £1.1 million (2018: £0.9 million).

Our plastics business, AAC Cyroma has had a steady year, returning revenues of £4.7 million (2018: £4.6 million) and EBITDA of £0.2 million (2018: £0.4 million).

Our mature Hard Wear and Metallic businesses have provided stability to support the development of the emerging businesses, with Total Carbide returning revenues of £3.2 million (2018: £3.2million) and EBITDA of £0.5 million (2018: £0.5 million) and Versarien Technologies similarly returning revenues of £1.2 million (2018: £1.2 million) and adjusted LBITDA of £0.1 million (2018 £0.1 million).

Group net assets at 31 March 2019 were £13.3 million (2018: £8.0 million) following the acquisition of Gnanomat S.L. (“GNA”). The consideration for the acquisition was £2,647,000 settled by cash of £0.7 million, by way of GNA issuing new shares in its company to Versarien, and the issue of 1,316,278 new ordinary shares of 1 pence each in Versarien to existing GNA shareholders at an agreed price of 150 pence per share. In September 2018 the Group successfully raised £5.2 million before expenses, and at the year end the Group had cash of £4.3m (2018: £2.3 million), of which £0.6 million (2018: £1.1 million) had been drawn under the invoice finance facilities. As at period end the Company had £0.6 million of headroom in its invoice finance facilities (2018: £0.7 million). The Directors consider this sufficient for our current activities over the coming twelve months having made certain assumptions, further details of which are contained below.

Cash outflow from operating activities was £1.7 million (2018: £1.9 million). The Group invested £0.7 million, net of cash, in acquisitions (2018: £nil), £0.4 million (2018: £0.1 million) in capitalised development costs, and £0.5 million (2018: £0.3 million) in plant and machinery.

Going concern

The financial statements, which are not yet approved, have been prepared on a going concern basis, which the Directors believe to be appropriate for the following reasons:

● The Group meets its day-to-day working capital requirements through careful cash management and the use of its invoice discounting facilities; and

● As at 31 March 2019, the Group had cash balances totalling £4.3 million with £0.6 million of headroom on its invoice discounting facilities.

The Directors have prepared detailed projections of expected future cash flows for a period of twelve months from the date of issue of this preliminary statement. These show that the Group is expected to have sufficient cash available to meet its obligations as they fall due for the foreseeable future (at least twelve months). These projections assume modest sales growth in the mature revenue generating businesses and the continued utilisation of the invoice finance facilities.

After due consideration, the Directors have concluded that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future (at least twelve months). For this reason, they continue to adopt the going concern basis in preparing the consolidated financial statements.

Chris Leigh

Chief Financial Officer

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