AGM.L Regulatory News (AGM)

11th April 2017

Applied Graphene Materials plc

("Applied Graphene Materials", "the Group" or "the Company")

Interim results for the six months ended 31 January 2017

Applied Graphene Materials, the producer of specialty graphene materials, is pleased to announce its interim results for the period ended 31 January 2017.

Operational highlights

· First graphene production orders received from Century Composites for inclusion in a range of fishing rods

· Initial orders from SHD Composites for launch of MTC9800, a series of graphene enhanced pre-impregnated materials

· Collaboration with Airbus Space and Defence for satellite application with adoption expected in 2018

· Progressing final formulations with James Briggs Ltd for inclusion in aerosol primers

· Over 110 evaluation samples provided in the period, including 35 to new customers

· Increased intellectual property and know-how with further expansion of our graphene nanoplatelet product range

· Strengthened management and commercial teams across key areas

· Initiation of modular product capacity expansion to meet anticipated near term demand

Financial overview

· EBITDA* Loss of £2.0 million (2016: loss of £2.1 million)

· Loss before tax Loss of £2.1 million (2016: loss of £2.3 million)

· Cash at bank £5.6 million (2016: £10.2 million)

· Diluted EPS Loss of 9.3 pence per share (2016: loss of 13.2 pence)

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

Jon Mabbitt, Chief Executive Officer, commented:

"We have made strong progress during the period in the key areas of graphene formulation know-how and further strengthening of our commercial pipeline as we pursue volume production orders. In October we were pleased to announce our first production order and since then we have received additional production requirements. We continue to focus on the three core market sectors where we believe our products can add most value and where we see large scale and long term commercial opportunity.

Excellent progress has been made on scaling up of the Group's production facilities to increase manufacturing capacity to meet demand from early adopters and work is underway to further increase our capacity over the coming months.

Applied Graphene Materials is wholly focused on graphene material production and assisting its adoption by end users. We are differentiated from other producers of graphene by our ability to cost-effectively produce a tailored portfolio of graphene nanoplatelets, underpinned by our understanding of how to best unlock and transfer optimal material enhancements into host materials."

Ends

Applied Graphene Materials' results presentation, with audio commentary, will be available on our website at http://www.appliedgraphenematerials.com by 12th April 2017.

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

For further information, please contact:

Applied Graphene Materials +44 (0) 1642 438 214

Jon Mabbitt, Chief Executive Officer

Gareth Jones, Chief Financial Officer

N+1 Singer +44 (0) 207 496 3000

Richard Lindley / Nick Owen

Hudson Sandler +44 (0) 207 796 4133

Charlie Jack / Emily Dillon

Notes to Editors

Applied Graphene Materials was founded by Professor Karl Coleman in 2010 with its operations and processes based on technology that he initially developed at Durham University. The Group is based at the Wilton Site on Teesside and was admitted to AIM in November 2013, initially raising £11 million.

The Group has developed proprietary bottom-up processes which are capable of producing high purity graphene nanoplatelets using a continuous process. The manufacturing processes are based on sustainable, readily available raw materials and therefore do not rely on the supply of graphite, unlike a number of other graphene production techniques. Applied Graphene Materials owns the intellectual property and know-how behind these processes.

Applied Graphene Materials works in partnership with its customers using its knowledge and expertise to provide bespoke graphene dispersions and formats to deliver enhancements and benefits for a wide range of applications.

Business review

Overview

The Board is very pleased to report that Applied Graphene Materials received its first production order in October 2016 and since then has continued to expand its customer base and increase its commercial pipeline. Applied Graphene Materials remains singularly focused on exploiting the application technology arising from its proprietary manufacturing processes and graphene formulation know-how. The formulation expertise is being widely appreciated by our customers and development partners and our commitment to extend this capability is enabling us to become one of the go-to graphene nanoplatelet providers in Europe, the USA and many parts of Asia. The depth of our customer engagements has provided sufficient confidence in the prospective demand for our graphene that we have committed to expanding our capacity in a modular fashion such that we will be able to satisfy any short term additional demand.

As the business has continued to develop, the Board has recognised the need to ensure that critical roles are filled to ensure that the business has sufficient resources to meet its customer demands in the coming period. In the six months to 31 January 2017, we have recruited a number of key commercial roles, further strengthening our industry knowledge and geographical reach.

In addition, further to the announcement on 25 January 2017, we are pleased to have welcomed Gareth Jones to the Board as Chief Financial Officer.

Commercial progress 

During the period, we have continued to expand our pipeline of commercial opportunities in our three core target market sectors of coatings, composites and oils and lubricants. In these markets we see large scale commercial opportunities and believe that our graphene will add the most value. We are working closely with our development partners, several of which are leaders in their respective industries. In addition, whilst remaining focused on our core target markets, we have identified a limited number of specific opportunities in niche areas where we believe graphene can provide multifunctional benefits.

Our focus remains on converting opportunities with existing commercial partners to production orders, whilst at the same time establishing new joint development agreements and collaborations. Importantly, our pipeline of opportunities has grown substantially; although, given their nature, the vast majority of our customer engagements remain subject to commercial confidentiality.

The results of our work to date confirm that graphene has the potential to deliver truly disruptive technologies with applicability across many market sectors. Applied Graphene Materials remains focused on those markets and applications where we believe that the characteristics of our material are best suited to address customer requirements. In the near term, we are accessing our core target markets through graphene formulated using our know-how and formulation techniques, ideally added in a "plug-and-play" manner to existing customer processes or with minimum change, which helps to reduce the time to commercial adoption.

The process of customer acceptance and approval of our products is dynamic and continues to vary in duration by both market sector and its intended end use; however, we are seeing good progress. For example, the initial engagement with Century Composites began one year prior to the product's adoption in their range of fishing rods. However, given the initial success, they are now extending the adoption of our material into other rods. Similarly, our engagement with Airbus Space and Defence began in late 2015 and, following 18 months of product development work and data generation, they are now looking to fully qualify the material so it can be included in satellites scheduled to be launched in 2018.

Coatings

In the field of paints and coatings, application areas are wide ranging and include marine, aerospace, automotive, defence, industrial and structure protection. In 2013, the value of the anti-corrosion coatings market was around £8.1 billion worldwide, with primers representing approximately £1.4 billion. We continue to work closely with a range of customers, including global leaders, who are looking to include graphene in their existing formulations to improve barrier properties, particularly in primer layers. In addition, we are working on certain top coat applications where electrical performance is beneficial, such as the reduction of dirt pick up and in cases where barrier properties can assist with stain resistance. As previously disclosed, we are working on a joint development with James Briggs Ltd, a highly innovative formulator and supplier of aerosol paints and high performance materials across numerous markets. We are currently progressing final formulations for the intended inclusion of our graphene nanoplatelets in high performance aerosol paint primers.

Naturally, the stage of development varies from client to client, but we are well advanced with several partners who are in the later stages of incorporation prior to product launch. Graphene has the ability to provide both performance improvements as well as potential cost and environmental benefits. Utilising graphene requires very little addition by weight, due to the extremely high surface area of the nanoparticles, meaning that the graphene can be added with relatively little change to the existing coating formulation. Legislative directives are forcing re-formulation to remove zinc phosphate and strontium chromate as active ingredients in existing primers. This is creating a desire from the coatings industry to seek environmentally acceptable alternatives to these products. We remain confident that our graphene additives can win a proportion of this opportunity, providing cost savings and environmental benefits to the end user.

Composites

Applied Graphene Materials' management team has in-depth knowledge and strong relationships across the €7 billion composite materials market where we are vigorously pursuing a multiple channel approach. The main driver for inclusion of graphene has been to improve the toughening of the resin matrix. Customer trials with the likes of UWS and Spirit AeroSystems have also demonstrated encouraging improvements to inter-laminar shear strength, where the introduction of graphene is acting to knit together the individual composite layers.

We have successfully supplied sample quantities of our graphene pre-dispersed in epoxy resins to formulators and are now pushing forward with both intermediate material supply companies and end users who are interested in benefiting from these performance gains. SHD Composites has launched a range of pre-impregnated (prepreg) products, MTC9800, which are being supplied to potential users.

During the period, we were pleased to announce our first production orders with Century Composites who successfully included graphene impregnated composites into its newly launched carp rod and the range of rods has now been expanded, leading to further orders of graphene.

Early areas of adoption beyond the sports goods sector are expected to include motorsport, as well as some portion of the aerospace, automotive, energy and marine sectors. The collaborative project partially funded by National Aerospace Technology Exploitation Programme (NATEP) is nearing its initial phase of completion and has yielded some interesting results which we also hope to exploit in the near future. Producing tougher, lighter and more damage tolerant composite structures, through the development of novel graphene processing and deployment techniques, could lead to significantly lower operating costs for the aerospace industry.

Lubricants

In the functional fluids sector we continue to closely support Puraglobe and Millers Oils, our two publicly disclosed joint development agreements, to help identify how and where to incorporate graphene materials into their products. 

Due to the high specific surface area and heat and electrical conductive nature of graphene, we have a number of new engagements to look at use in lightweight battery applications. We have also successfully formulated some conductive inks that can be processed on traditional printing equipment to deliver circuitry. In other new engagements it is our customers who are identifying where graphene is proving beneficial and we are solely providing product support rather than in-depth market knowledge.

Technology and manufacturing

The Group owns the intellectual property for its proprietary production processes which are protected by existing patents and patent applications. Using these processes, Applied Graphene Materials has the ability to produce nanoplatelets to suit the specific application through our range of manufacturing processes and formulation know-how. The method of production used to create graphene nanoplatelets has a significant impact on the graphene's properties and it is therefore highly advantageous to be able to tailor the nanoplatelets to optimise the target properties for specific applications.

Understanding the mechanisms of property translation from nanoplatelets to bulk properties is essential to being able to optimally influence the enhancements that can be achieved in end products. Transferring the benefits of graphene is difficult and the know-how around formatting graphene, combined with the use of appropriate techniques for inclusion in the host material, is absolutely critical. Applied Graphene Materials has a toolbox of technologies that are utilised in order to optimally format graphene, and this knowledge base continues to be developed for the benefit of our commercial partners.

Over the last two years, we have refined and improved our production processes and made significant progress on production yields. This has enabled us to design a programme that will allow us to expand capacity through the addition of modular units which gives us the potential to better match production capacity to the anticipated areas of demand. This approach is highly flexible and more capital efficient than the expansion process originally envisaged. We have established robust control systems and have proven our ability to scale up the processes without affecting product quality.

Outlook

Our focus is on putting formatted graphene into our customers' hands which can be readily adopted into their production processes and bring performance enhancement benefits. The breadth and depth of our customer engagements has set the foundations for a long term, stable and highly attractive business. Significant progress has been made during the first half and we are confident in maintaining this momentum. Our intent remains to become a global graphene market leader and the Board believes that Applied Graphene Materials remains well placed to meet its ambitions.

Jon Mabbitt

Chief Executive Officer

11th April 2017

Financial review

Revenue

Revenue for the period was £53,000 (2016: £18,000) arising from the supply of evaluation quantities of graphene to commercial partners and our first production orders.

Other income

Other income, which comprises grant income, was £115,000 (2016: £65,000). Grants received related to funding for the development of new graphene applications, with a small amount for the creation of new jobs or the purchase of assets.

Loss on ordinary activities before tax

A loss on ordinary activities before tax of £2,053,000 (2016: loss of £2,326,000) was recognised. The prior year loss includes exceptional costs of £161,000 mainly connected to fees paid in relation to the issue of new shares.

Loss on ordinary activities before interest, tax, exceptional costs, depreciation and amortisation (EBITDA)

EBITDA for the Group reduced from a loss of £2,108,000 in 2016 to a loss of £1,957,000 for the period ended 31 January 2017. This reduction in losses reflects additional revenue derived from working with commercial partners, generation of material performance data and grants, together with the continued close management of costs.

Exceptional costs

Exceptional costs recognised in the period were £nil (2016: £161,000). The prior year costs principally relate to fees paid in relation to the issue of new shares in that period.

Net finance income

Net finance income for the period was £22,000 (2016: £18,000). The increase in net finance income arises from having higher cash balances on deposit during the period.

Loss on ordinary activities before tax, exceptional costs and amortisation (PBTA)

PBTA for the period improved from a loss of £2,165,000 in 2016 to a loss of £2,053,000 for the period ended 31 January 2017. This reduction in losses reflects ongoing progress made working with commercial partners together with the receipt of additional grant funding. The business has continued to invest in its production capabilities and business infrastructure, including headcount, to support the anticipated future growth and development of the business.

Tax

The Group has not recognised any tax assets in respect of trading losses arising in the current financial year or accumulated losses in previous financial years. The tax credit recognised in respect of the previous financial year arises from the receipt of R&D tax credits. In due course, the Group expects to receive R&D tax credits in respect of other financial years.

Earnings per share

Diluted earnings per share was a loss of 9.3 pence per share (2016: loss of 13.2 pence per share). Adjusted diluted earnings per share (before exceptional costs) was a loss of 9.3 pence per share (2016: loss of 12.3 pence per share).

Dividend

No dividend has been proposed for the period ended 31 January 2017 (2016: £nil).

Cash flow

Net cash used in operations was £2,040,000 (2016: £2,122,000). During the period, net working capital utilised increased by £161,000 (2016: reduction of £34,000). This increase principally relates to a reduction in trade creditors and accruals.

Capital expenditure of £272,000 (2016: £408,000) has been incurred in the period mainly relating to the development of the production process and related production assets. Net proceeds arising from the issue of shares totalled £145,000 (2016: £8,031,000).

Balance sheet

Net assets have reduced to £6,682,000 (2016: £10,408,000), principally reflecting the trading loss for the period.

Cash at bank at 31 January 2017 was £5,554,000 (2016: £10,231,000). Monies are on deposit with a small number of financial institutions for time periods ranging between instant access and up to one year in maturity.

Accounting policies

The Group's consolidated financial information has been prepared in accordance with International Financial Reporting Standards as adopted in the EU. The Group's significant accounting policies, which are consistent with those set out in the audited financial statements for the year ended 31 July 2016, have been applied consistently throughout the period.

Principal risks and uncertainties

Risk management forms an integral part of the business planning and review cycle. The Directors believe the following risks to be the most significant for potential investors. However, the risks listed do not necessarily comprise all of those associated with an investment in the Group and are not set out in any specific order or priority. Additional risks and uncertainties not currently known to the Directors, or which the Directors currently deem not to be significant, may also have an adverse effect on the Group and the information set out below does not purport to be an exhaustive summary of the risks affecting the Group. The Group's performance could be affected by changes in market or economic conditions and in legal, regulatory or tax requirements.

Broadly, risks are categorised into seven types: strategic and planning; financial and IT; operational and quality; technical; SHE and regulatory; commercial and reputation; and people. Significant risks facing the Group include:

· Acceptance of the Group's products - early stage of operations and acceptance of graphene. The Group is still at an early stage of development and the success of the Group will depend on the acceptance and attribution of value to graphene materials produced by the business. There can be no guarantee that either acceptance of graphene or attribution of value will be at anticipated levels or indeed forthcoming.

· Early stage of operations - existing capacity and scale up. The Group has not yet demonstrated its technology at either nameplate production capacity or increased capacities and is planning to further scale up its production processes. There can be no guarantee that scaled-up production processes will be operational to any anticipated timeframe or budget. Furthermore, the operation of the Group's production processes following scale-up involves risks and uncertainties beyond the Group's control. Failure to operate at either current or increased nameplate capacities would adversely impact the Group's business and financial position.

· Intellectual property - the Group's business is based on a combination of patent applications and know-how. The Group's success will depend in part on its ability to maintain adequate protection of its intellectual property and know-how. There is no certainty that patent applications will be granted, such applications and know-how will be a source of competitive advantage to the Group, or that others have not developed similar or better applications or know-how. Significant costs may be incurred in asserting intellectual property rights and there is no certainty that intellectual property could not become known in a manner (for example, cyber-attack) which may provide the Group with no recourse.

· Commercialisation, competition and pricing - technological advances may impede the commercial progress of graphene and may also result in worldwide production capacity exceeding demand. This could adversely impact the price of, and demand for, graphene. There is no guarantee that graphene will become an accepted material for use on a commercial scale or that demand for graphene will develop at all. The Group may also be unsuccessful in its efforts to realise benefits from the commercialisation of graphene. In such situations, the Group's business and financial position would be adversely impacted.

· Adequacy of financial resources - the available funding required to support the business through to profitability and cash generation may be insufficient. Currently, it is expected that additional capital will be required in future to fund the business. The Group may be unable to access additional debt or equity capital, or to raise funds on acceptable terms. In the event that the resources available to the Group are inadequate then this could have a materially adverse impact on the implementation of the Group's strategy, its business, financial condition and operations.

· Financial, operational and management information systems - the efficient operation and management of the Group depends on the proper operation and performance of financial, operational and management information systems. Any failure in such systems may result in a loss of control and may adversely impact the Group's ability to operate effectively and to fulfil its contractual obligations.

· Safety, health and environment - the Group's operations are subject to numerous safety, health and environmental (SHE) and regulatory requirements, both in the UK and overseas, which are likely to become more complicated, stringent and onerous as the Group grows or as time passes. Failure to comply in any way with SHE or regulatory requirements could result in the Group being unable to manufacture or supply graphene, incurring significant costs and liabilities, or being subject to claims and lawsuits which could adversely affect its operations and financial condition. Graphene is also a relatively new material with a limited number of studies having been undertaken into its effects on biological systems. If evidence emerges that graphene has a deleterious effect, then this may adversely impact the Group's business and financial position.

· Key personnel - the Group has in place an experienced and motivated senior management team and is beginning to build strength in depth. If the Group is unable to attract and retain suitably skilled and qualified people, then the Group's performance and prospects may be adversely impacted. The loss of one or more key personnel could have an adverse impact on the Group's operations, reputation, relationships and future prospects.

Cautionary statementThe Business and Financial reviews have been prepared for the shareholders of the Company, as a body, and no other persons. Their purpose is to assist shareholders of the Company in assessing the strategies adopted by the Group and the potential for those strategies to succeed, and for no other purpose. The Business and Financial reviews contain forward-looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements in the Business and Financial reviews will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation.

Gareth Jones

Chief Financial Officer

11th April 2017

Consolidated income statement and statement of comprehensive income

for the six months ended 31 January 2017

EBITDA comprises loss on ordinary activities before interest, tax, exceptional costs, depreciation and amortisation.

PBTA comprises loss on ordinary activities before tax, exceptional costs and amortisation.

Consolidated statement of changes in shareholders' equity

for the six months ended 31 January 2017

Notes to the Interim Report

for the six months ended 31 January 2017

1 General information

The principal activity of Applied Graphene Materials plc is the manufacture of, dispersion and development of applications for graphene. The Group operates principally in the United Kingdom.

The Company is incorporated and domiciled in the United Kingdom and its registered number is 8708426. The address of the registered office is The Wilton Centre, Redcar, Cleveland, TS10 4RF. The Company was incorporated on 27 September 2013.

The interim financial information was approved for issue on 11 April 2017.

2 Basis of accounting

The consolidated interim financial information for the period ended 31 January 2017 has been presented under the historical cost accounting convention, as modified by financial assets and liabilities at fair value through the income statement and share based payments at fair value, and in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated interim financial information has been prepared on a going concern basis.

The accounting policies used in the consolidated interim financial information are consistent with those set out in the audited financial statements for the year ended 31 July 2016. Further IFRS standards or interpretations may be issued that could apply to the Group's financial statements for the year ending July 2017. If any such amendments, new standards or interpretations are issued, then these may require the consolidated financial information provided in this report to be changed. The Group will continue to review its accounting policies in the light of emerging industry consensus on the practical application of IFRS.

The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, events or actions, actual events ultimately may differ from those estimates.

The consolidated interim financial information does not include all financial risk management information and disclosures required in the annual financial statements.

The consolidated interim financial information for the six months ended 31 January 2017 and for the six months ended 31 January 2016 contained within the Interim Report does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006 and is unaudited. The comparative figures for the year ended 31 July 2016 have been extracted from the audited financial statements, on which the Company's auditors have given an unqualified opinion.

3 Taxation

The Group has not recognised any tax assets in respect of trading losses arising in either the current financial year or accumulated losses in previous financial years. The tax credit recognised in respect of the previous financial year arises from the receipt of R&D tax credits.

4 Dividends

No dividend has been proposed for the period ended 31 January 2017 (2016: £nil).

5 Segmental analysis

The Group currently has one operating segment. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources and in assessing performance. The Group's Chief Executive Officer has been identified as the CODM. Revenue and profits arising from that operating segment are the same as presented on the face of the consolidated income statement and statement of comprehensive income.

6 Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares in issue during each period. The weighted average number of shares in issue during the period used in the calculation of basic earnings per share was as follows:

Adjusted earnings per share has been calculated so as to exclude the effect of exceptional costs including related tax charges and credits. Adjusted earnings used in the calculation of basic and diluted earnings per share reconciles to basic earnings as follows:

The Group was loss making for the periods ended 31 January 2017 and 31 January 2016 and also for the year ended 31 July 2016. Therefore, the dilutive effect 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 periods reported.

7 Notes to the cash flow statement

8 Share capital

On 8 January 2016, 4,858,335 Ordinary shares of 2 pence each were issued at a price of £1.75 per share to institutional and other investors.

On 18 August 2016, 166,204 Ordinary shares of 2 pence each were issued at a price of £0.583 per share to satisfy the exercise of EMI share options.

On 4 November 2016, 83,102 Ordinary shares of 2 pence each were issued at a price of £0.583 per share to satisfy the exercise of EMI share options.

9 Related party transactions

Transactions between Applied Graphene Materials plc and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Transactions with shareholders

The following transactions with shareholders of the Group were recorded, excluding VAT, during the period:

Remuneration of key management personnel

The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures:

10 Seasonality

The Group experiences no material variations in performance arising due to seasonality.

11 Availability of Interim Report

It is anticipated that the Interim Report will be sent to all shareholders on 28 April 2017. Electronic copies of the report will also be available on Applied Graphene Materials' website at www.appliedgraphenematerials.com.