RM2.L Regulatory News (RM2)

27 September 2017

RM2 International S.A.

Interim Results

RM2 International S.A. ("RM2" or the "Company"), the sustainable pallet innovator, today announces its unaudited interim results for the six months to 30 June 2017. The interim results have also this morning been made available on the Company's website: http://rm2.com/overview/ 

Financial and operating summary during and post period end

Shareholders are encouraged to read the Chairman's Statement for further detail on the Company's current financial position and strategy going forward.

Kevin Mazula, RM2's CEO, commented: "This has been a period of significant change at RM2. However, we are making steady progress at our two manufacturing sites in Mexico and China and the business is making good strides towards having a low-cost, well-balanced and flexible manufacturing platform on two continents. 

"In addition, the feedback from the market about our track and trace technology is very encouraging and strengthens our view that this technology will provide RM2 with a significant competitive advantage."

The information contained within this announcement is considered to be inside information prior to its release, as defined in Article 7 of the Market Abuse Regulation No. 596/2014, and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

For further information:

Notes to Editors

RM2 International S.A. specialises in pallet development, manufacture, supply and management to establish a leading presence in global pallet supply and improve the supply chain of manufacturing and distribution businesses through the effective and efficient use and management of composite pallets. It is quoted on the AIM market of the London Stock Exchange under the symbol RM2.L. For further information, please visit www.rm2.com 

Chairman's Statement

In the six-month period to 30 June 2017 and subsequently, RM2 continued with the large-scale changes necessary to complete the change from a wholly-owned manufacturing operation to an outsourced model. Although we have experienced some delays in China, we are committed, subject to securing the necessary funding, to confirming a 12-month forecast for Chinese manufacturing by the end of November 2017. In Mexico, after an initial ramp-up in volumes, we are now working together with our partner Jabil on a second production phase focused on efficiency in order to meet a lower targeted unit production cost. In February 2017, the BlockPalTM pallet was approved by one of the largest US retailers for use by its suppliers, effective from 1 February 2017. This encouraging development represents a significant milestone for the validation of the BlockPalTM product and significantly enhances its profile and potential customer base.

ELIoT pallet samples are operating in trials with a number of current and prospective customers and due to greater demand for testing, the Company launched another round of production for circa 2,000 new ELIoT- enabled pallets. The current testing results are highly satisfactory; the Company's systems immediately flags pallets circulating outside of authorised loops, enabling a customer to better monitor its supply chain and reduce losses, and permitting the Company to generate updated balances and accurate invoices without needing to wait for customer reporting.

In light of the continued positive feedback from customers on our ELIoT-enabled smart pallets (which are both trackable and traceable) we are investigating the cost-effectiveness of retro-fitting the existing inventory of pallets with the smart technology in order to deliver these smart pallets into the market quicker.

After the period end, on 3 August 2017, Kevin Mazula - who had been RM2's Chief Operating Officer since April 2016 - was appointed Chief Executive Officer. He replaced Jasper Judd who stepped down as CEO and left the company on that date.

Financial Performance

Revenue generated by the Company including exceptional items in H1 2017 was USD 3.7m, stable compared to the same period last year. The Company's rental activity in the period decreased slightly to USD 2.5m (H1 2016: USD 2.7m). The active pool of rental pallets amounted to 272k pallets as of June 30, 2017, an increase of 7k over year-end 2016. The Group's financial result for the period ended June 30, 2017 is a loss of USD 19.2m, a decrease of USD 4.6m versus H1 2016, mainly due to the reduction of factory absorption in the new manufacturing set-up.

A second tranche of convertible preferred shares, totalling USD20m was subscribed in H1 2017, with USD 14m of the subscription funds being received in the reporting period and the remaining USD 6m received by end- July 2017.

Non-restricted cash reserves at July 31, 2017 stood at USD 16.6m following the receipt of the remaining cash from the convertible subscription (USD 6.0m) announced by the Company on 30 June 2017. The run-rate cash burn of the Company for the following five months of the year remains forecasted at USD 1.4m per month (USD 1.0m excluding Canada, USD 0.4m for Canada). Taking into account the above and additional payments to be processed in the coming months relating to manufacturing, the Company has sufficient cash reserves to operate through the end of February 2018. This estimation excludes new purchases of pallets which are expected to be covered by new funding the Company is working on implementing.

Should the Company be successful in monetizing certain historical assets (including the office building in Switzerland, pallets in inventory and fiberglass in inventory), such potential additional cash inflows would provide funds for the operation of the business potentially through the end of Q3 2018 and/or participate to the pallet purchases.

Future Funding & Outlook

Following the Board's decision not to pursue an equity offering in July (as announced on 24 July 2017), the Company has been actively exploring and making advances on financing alternatives for pallet production. Management believes that funding will be available for pallet production upon receipt of purchase orders for ELIoT-enabled pallets. Nevertheless, the outcome of the Company's current discussions as well as the amount to be raised are subject to uncertainties.

The Company confirms that it is in an advanced discussions with one particular party, which has conducted extensive due diligence on the Company over the past few weeks, and hopes to be able to conclude negotiations in the coming weeks. However, the Company stresses that there is no guarantee any agreement will be reached with this party or on terms acceptable to the Company. Should the Company not be able to secure sufficient additional funding, it will not be able to face liabilities generated by contractual commitments, including those for manufacturing and operations.

As noted above, significant progress has been made through the field testing of ELIoT-enabled pallets and management estimates that, subject to securing the necessary funding, the deployment of 400k ELIoT pallets will allow the Company to generate sufficient net free cash flow to offset its cost of business.

In conclusion, although this has been a difficult and disruptive period for RM2, demand for our durable and innovative pallet remains strong. The Board remains confident that RM2 will obtain funding to support its future growth ambitions. Further updates will be made as and when appropriate.

Consolidated Statement of Comprehensive Incomes

For the six months ended 30 June 2017

1 Corporate information

RM2 International S.A. (the "Company") is a limited company (Société Anonyme) incorporated and domiciled in Luxembourg with the registration number B132.740. The registered office is located at Rue de la Chapelle 5, L1235 Luxembourg. The Company is the ultimate parent entity of the RM2 Group (the "Group").

The Group is principally engaged in developing, leasing and selling shipping pallets and in providing related logistical services.

This unaudited interim consolidated financial information do not constitute statutory accounts.

2 Basis of preparation

While being compliant with AIM Rule 18 minimum requirements, the unaudited interim consolidated financial information does not include all the information and disclosures required in the annual financial information, and should be read in conjunction with the Group's historical financial information for the year ended 31 December 2016.

The accounting policies and basis of preparation adopted are consistent with those followed in the preparation of the Group's historical financial information for the year ended 31 December 2016. None of the newly applicable IFRS standards and amendments had an impact on the Group's interim consolidated financial information.

2.1 Early adopted standards

The Group did not early adopt any new or amended standards and does not plan to early adopt any of the standards issued but not yet effective.

3 Significant accounting judgements, estimates and assumptions

When preparing the unaudited interim consolidated financial information, Management undertakes a number of judgements, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the judgements, estimates and assumptions made by Management, and will seldom equal the estimated results.

The judgements, estimates and assumptions applied in the interim consolidated financial information, including the key sources of estimation uncertainty, were the same as those applied in the Group's historical financial information for the year ended 31 December 2016.

The Company reclassified logistical expenses, removing them from Administrative Expenses to record them in Cost of Goods. This reclassification, which amounts to USD 1.8m for H1 2017 (H1 2016: USD 2.0m), more accurately reflects the direct and variable costs required to generate revenue.

3.1 Going Concern

The Group's financial result for the period ended June 30, 2017 is a loss of USD 19.2m, a decrease of USD 4.6m versus H1 2016, mainly due to the reduction of factory absorption in the new manufacturing set-up. The factory absorption in Canada dropped by USD 7.3m, while the Company has agreed to support a manufacturing non-recurring cost of USD 2.5m, which will be applied through a temporary price increase per pallet purchased over the first 24 months of production. The Company recorded an impairment charge at December 31, 2016 with respect to certain equipment, raw material and pallets. These assets and impairment charges were reviewed as at June 30, 2017 and the Company has determined it is not necessary to modify these amounts at the present time. The cash outflow, before financing activities, for the first semester 2017 was USD 10.2m, which is USD 20.0m lower than the first semester 2016 (cash outflow of USD 30.2m). This improvement is principally attributable to: i) the reduction of the cash factory absorption for USD 7.3m, ii) the reduction of manufacturing capital expenditures compared to last year and a smaller quantity of pallets purchased at a lower price versus H1 2016 resulting in a USD 5.4m impact and iii) the working capital variance for USD 6.8m between the two periods. On the latter item, it is to be noted that H1 2016 was negatively impacted by updating payments to suppliers. Net cash outflow in H1 2017 was reduced by the receipt in June 2017 of USD14m of the USD20m Convertible Preferred Shares subscribed in H1 2017.

The Canadian plant, in dismantling mode during much of 2016, generated a loss of USD 4.7m for the first semester 2017 which includes non-cash depreciation of USD 1.8m, one-time costs of USD 1.2m and running cash-costs (mainly building and payroll) of USD 1.7m for 6 months.

Non-restricted Cash reserves at June 30, 2017 stood at USD 13.8m (excluding the USD 6m issuance proceeds from the convertible preferred shares received in July 2017).

Situation through December 2017

Non-restricted Cash reserves at July 31, 2017 stood at USD 16.6m following the receipt of the remaining cash from the convertible subscription (USD 6.0m). Over the first seven months of 2017, the cash cost of business is USD 1.0 per month, excluding Canadian remaining structure (outflow of USD 0.4m per month), two cash advances to secure the ELIoT technology (outflow of USD 0.5m) and key people retention (outflow of USD 0.3m) and HST backlog's refund (inflow of USD 1.0m).

The cash burn of the Company, excluding any one-time cost, for the following five months of the year remains forecasted at USD 1.4m per month (USD 1.0m excluding Canada, USD 0.4m for Canada). The cash forecast for the last 5 months of the year includes, on top of this USD 1.4m of recurring cash burn, potential liabilities in Canada for a total of USD 1.5m (the exit of the storage building, the termination of the heath care program, and various claims issues by local bodies). Regarding the VAT litigation in Luxembourg, the Company appealed according to its understanding of the local law. Heretofore no further request from local authorities is to be reported. The total one-time costs for the fiscal year 2017, which were previously estimated to be USD 5.1m, are now forecasted to be USD 5.8m, following the decision of the Company to program a major maintenance reset for the production equipment, of which USD 2.1m is expected to be paid over H2 2017.

Taking into account the foregoing and the manufacturing commitments as of the date hereof (pallets purchased from Jabil, sale of raw material to Jabil, Letter of Credit for China), the Company has sufficient cash reserves to operate through the end of February 2018. This estimation excludes new purchases of pallets which are expected to be covered by new funding the Company is working on implementing. Should the Company be successful in monetizing certain historical assets (including the office building in Switzerland, pallets in inventory and fiberglass in inventory), such potential additional cash inflows would provide funds for the operation of the business potentially through the end of Q3 2018 and/or participate to the pallet purchases. The success of implementing new funding and the Company's ability to monetize historical assets will impact the cash reserves available to the Company.

As at June 30, 2017, the Company intended to allocate the proceeds from the issuance of Convertible Preferred Shares to meet its current cost of business through the end of December 2017 (without taking into account cost-cutting initiatives to monetize its balance sheet). Pending the conclusion of new financing, the Company anticipates employing the proceeds from the issuance of Convertible Preferred Shares for short term manufacturing obligations (pallet purchases). Payments to be processed in the coming months relating to manufacturing are expected to be in the range of USD 4.0m, including the Letter of Credit expected to be issued in support of purchase orders for pallets from China.

Manufacturing commitments & funding

The purchase orders sent to China for 30k pallets, which were initially expected to be delivered through June to August 2017, are expected to be rescheduled from January through March 2018 in agreement with Zhenshi and the Company intends to confirm a 12-month production forecast for China by the end of November 2017.

After an initial ramp-up in volumes, the Company and Jabil now enter a second phase focused on efficiency in order to rapidly meet the targeted unit production cost. The volume of production at the Mexican facility will be adjusted to reflect customer demand for ELIoT-enabled pallets and improved efficiency. Reduction in the previously-targeted rate of production ramp-up can be expected to impact the Company's activities, revenue and growth in the short term.

Given the positive reception by potential customers of ELIoT-enabled pallets in field tests, Management believes it may be efficient and cost-effective to capture the existing and growing demand for smart pallets by retrofitting the existing inventory of pallets with ELIoT technology as a first step. Following the Board's decision not to pursue an equity offering in July 2017, the Company has been actively exploring and making advances on financing alternatives. Management believes that funding will be available for pallet production upon receipt of purchase orders for ELIoT-enabled pallets. Nevertheless, the outcome of the Company's current discussions as well as the amount to be raised are subject to uncertainties. Should the Company not be able to secure sufficient additional funding, it will not be able to face liabilities generated by its contractual commitments, including those for manufacturing and operations.

Management estimates the deployment of 400k ELIoT pallets via leases will allow the Company to generate sufficient net free cash flow to offset its cost of business. If the Company is not able to finance and purchase 400k ELIoT-enabled pallets, then it will not be able to offset its cost of business.

4 Business Review and Key Performance Indicators

The Chairman's statement deals with the review of the business for the first 6 months of 2017.

The business report considers the key performance indicators to be the sale or leasing of pallets, the level of production, assets in inventory and the cash reserves of the business.

Revenue generated by the Company including exceptional items in the first semester 2017 was USD 3.7m, stable compared to the same period last year. The Company's rental activity in the period decreased slightly to USD 2.5m (H1 2016: USD 2.7m). The addition of new business in the meat processing and global food sector in both North America and EMEA for USD 0.3m partially offset a decrease in activity from a large customer in the printing industry (decrease of USD 0.5m). The active pool of rental pallets amounted to 272k pallets as of June 30, 2017, an increase of 7k over year-end 2016. Pallet sales decreased from USD 0.3m (H1 2016) to USD 0.1m for H1 2017. The tracking of third-party assets business unit (Equipment Tracking), located in Wales, suffered from the loss of a large customer which occurred in July 2016, with a drop of revenue from 0.6m (H1 2016) to USD 0.3m. An additional USD 0.7m was recognized in sales revenue in H1 2017 as an exceptional item attributed to the sale of raw material and WIP to Jabil (H1 2016: nil).

As mentioned in the subsequent events note for 2016 year-end results, 41k pallets were produced in Mexico during the six-month period ended June 30, 2017. The Company and its contractor, Jabil, are now entering a second phase of their collaboration which focuses on the efficiency of the production process in order to reach as quickly as possible the targeted production cost per unit. The targeted production cost per unit is expected to be reached by year-end, enabling a sustainable increase in volume. The transfer of production capacities in China will be fully completed after the final shipment of pultrusion injection boxes and dies from Canada. The company is in discussions to set-up a Letter of Credit for the purchase of 30k pallets from China.

The Company reclassified logistical expenses, removing them from Administrative Expenses to record them in Cost of Goods. This reclassification, which amounts to USD 1.8m for H1 2017 (H1 2016: USD 2.0m), more accurately reflects the direct and variable costs required to generate revenue. After taking into account this reclassification, Cost of Goods decreased by USD 5.3m to USD 13.6m for H1 2017 (H1 2016: USD 18.8m). The factory absorption in Canada decreased by USD 7.3m as pallets were no longer produced in Toronto in the period. Costs incurred in Canada include lease expenses, payroll of the transition team and support staff, and one-time costs arising from the decommissioning of the site. The reduction in Canada factory absorption is offset by the agreement with Jabil regarding the ramp up costs supported by the Company. The remaining decrease (USD 0.5m) is explained by reduced logistical costs (USD 0.2m) and the impact of restructuring measures in Wales following the loss of a major customer (USD 0.4m). Cost of Goods variance was negatively impacted by the sale of raw material to Jabil in H1 2017 (USD 0.7m, net of accrual) and positively impacted by the lack of raw material waste in H1 2016 (USD 1.5m) due to the cessation of production. The remaining USD 0.2m decrease in Cost of Goods is explained by lower sales of pallets (RM2 Blockpal and Equipment Tracking). The Company recorded an impairment charge at December 31, 2016 with respect to certain equipment, raw material and pallets. These assets and impairment charges were reviewed as at June 30, 2017 and the Company has determined it is not necessary to modify these amounts at the present time.

ELIoT pallet samples are operating in trials with a number of current and prospective customers and due to greater demand for testing, the Company launched another round of production for circa 2,000 new ELIoT-enabled pallets. The current testing results are highly satisfactory; the Company's systems immediately flags pallets circulating outside of authorized loops, enabling a customer to better monitor it supply chain and reduce losses, and permitting the Company to generate updated balances and accurate invoices without needing to wait for customer reporting.

A second tranche of convertible preferred shares, totalling USD20m was subscribed in H1 2017, with USD 14m of the subscription funds being received in the reporting period and the remaining USD 6m received by end-July 2017. The Company announced on July 24, 2017 that following two weeks of market soundings, the Board determined that the best interests of the Company and its shareholders would not be served by completing an equity offering at that time. The Board further announced that it continues to pursue various other financing alternatives, which may include the issuance of equity and/or debt instruments.

Unrestricted cash reserves at 30 June 2017 stand at USD 13.8m (excluding the USD 6m issuance proceeds from the convertible preferred shares received in July 2017).

Unrestricted cash reserves at 31 December 2016 stood at USD 9.8m.

Cash flow excluding the issuance proceeds from the convertible preferred shares for H1 2017 was negative by USD 10.2m, of which USD 3.5m related to one-time costs related to the transfer of manufacturing to Mexico and China. Cash flow was positively impacted by working capital variations attributable principally to the timing of supplier payments.

5 Significant events and transactions

 Despite continuing difficult economic circumstances, the Group's management believes that the Group position remains manageable due to the following factors:

Overall, the Group is in a manageable position thanks to a high quality commercial pipeline, which is expected to be profitably deployed once adequate financing is in place. The Group's objectives and policies for managing capital, credit risk and liquidity risk are described in its recent annual financial statements

6 Revenues and segment reporting

The Group has only one operating segment for the disclosure of revenue. However the revenue analysis is broken down by revenue stream as disclosed here below.

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

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

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

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

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

The Group has a diversified customer portfolio. During the period there was one client which represented more than 10% of the Group's revenues.

Turnover

Geographical information

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

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

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

7 Cost of sales

8 Administrative expenses

9 Other operating income and expenses

10 Property, plant and equipment- other

11 Property, plant and equipment - Pallet pool

12 Intangible assets

13 Inventories

14 Trade receivables

15 Trade payables

16 Interest-bearing loans and borrowings

Prior to June 30, 2017 the Company received USD14m of the USD20m subscribed. At 30 June 2017 $10,515,108 of the funds received were converted to issued convertible preferred shares; the remaining value of $3,484,892 were posted to shareholder's account pending the formal issuance of convertible preferred shares on July 2, 2017.

17 Share capital and reserves

2017

On 17 February 2017, 757,500 ordinary shares with a nominal value of USD 0.01 per share were issued to non-executive Directors in lieu of cash compensation with respect to the first semester of 2017.

On 22 June 2017, the Company issued 4,591,743 new Convertible Preferred shares with a nominal value of USD 0.01 per share in the capital of the Company.

On 30 June 2017, the Company issued 2,500,000 shares to an executive director with a nominal value of USD 0.01 per share.

On 30 June 2017, the Company issued 41,580,213 Convertible Preferred shares with a nominal value of USD 0.01 per share in the capital of the Company.

2016

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

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

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

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

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

In July 2016, the Company issued 42,328,042 Convertible Preferred Shares of USD 0.01 in the capital of the Company. See also Note 13.3.

2015

On 12 March 2015, 253,000 restricted shares were granted to certain employees. The restricted shares vest three years from the date of grant if the recipients are still employed by the Group at such time.

On 17 June 2015, the Company repurchased 333,334 previously issued restricted shares. These shares are held as non-voting treasury shares. These shares have been acquired from two former employees benefiting from the ESOP plan. These shares have been acquired at nominal value.

On 21 October 2015, the Company issued 75,000,000 ordinary shares at GBP 0.40 per share.

On 3 November 2015, the Company awarded 5,500,000 options over its ordinary shares of USD 0.01 each under its 2013 Stock Option and Incentive Plan to its non-executive directors. The options have an exercise price of GBP 0.465, being the closing share price on 2 November 2015, and duration of 10 years. The options will vest over a 3 year period in equal annual instalments but cannot be exercised until the stock closes above a thirty day average closing price of GBP 1.00.

On 3 November 2015, the Company awarded 800,000 options over its ordinary shares of USD 0.01 each under its 2013 Stock Option and Incentive Plan to some employees. The options have an exercise price of GBP 0.465, being the closing share price on 2 November 2015, and duration of 10 years. The options will vest over a 3 year period in equal annual instalments.

As at 31 December 2015, RM2's issued share capital is 398,030,156 Ordinary Shares of USD 0.01 each in the capital of the Company, of which 342,334 Ordinary Shares are held by the Company as non-voting treasury stock.

The total number of voting rights in the Company is 397,687,822.

Conditions of certain restricted shares

Conditions of the 14,625,180 restricted shares issued in 2013 and 2014 with performance criteria are as follows:

The Performance Conditions are linked to the volume weighted average quoted price of the Ordinary Shares (the "Average Price") for a consecutive 30-day period (the "Relevant Period"). If the Average Price is 50 per cent higher than the Placing Price for the Relevant Period, the Performance Condition in respect of one-third of the Restricted Shares shall be fulfilled. If the Average Price is 75 per cent higher than the Placing Price for the Relevant Period, the Performance Condition in respect of a further one-third of the Restricted Shares shall be fulfilled. If the Average Price is 100 per cent higher than the Placing Price for the Relevant Period, the Performance Condition in respect of the final third of the Restricted Shares shall be fulfilled. If any Performance Conditions are not fully satisfied by 19 November 2023, the Director shall transfer any of his remaining Restricted Shares to the Company at a purchase price equal to the nominal value of the Restricted Shares, being USD 0.01 each.

The holders of the Restricted Shares cannot sell, transfer, mortgage, charge, encumber or otherwise dispose of any of the Restricted Shares as long as the performance conditions are not fully satisfied. These Restricted Shares are considered by Management as share-based payments and performance conditions as market vesting conditions. For further detail on the share-base

Ordinary shares issued and fully paid

Convertible Preferred Shares issued and fully paid

Share premium

18 Earnings per share

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

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

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

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

19 Publication of announcement and the Interim Results

A copy of this announcement will be available at the Company's registered office 14 days from the date of this announcement and on its website.

This announcement is not being mailed to shareholders. The Interim Results will be posted to shareholders shortly and will be made available on the Company's website.

20 Subsequent events

Production in Mexico

The Company and its manufacturer in Mexico, Jabil, are now entering a new phase of their collaboration. After a first semester of production of circa 40k pallets, the focus is now on refining unit production costs. Thanks to RM2's previous experience in Canada and Jabil's engineering expertise, the two companies are reshaping the production plan for the coming six to twelve months following the introduction of the ELIoT technology in the manufacturing process.

Production in China

Purchase orders with initial delivery dates for June, July and August, 2017 are expected to be rescheduled for Q1 2018 in common agreement between the Company and its contract manufacturer, Zhenshi. This rescheduling is the result of the introduction of the ELIoT technology in the production process and the expected demand for ELIoT-enabled pallets in light of the successful initial customer trials. The Company has agreed to audit the costs associated with this delay of the production start date with a view to making a financial contribution towards such costs in China. The Company intends to confirm a 12-month production forecast by the end of November 2017.

Exit of Canada

Early August 2017, the Company signed an early termination agreement with respect to the lease of the warehouse in Canada. The Company negotiated a termination fee of USD 320k in exchange for a full discharged of the obligations under the lease agreement, which otherwise would have run through July 1, 2020. The reduction of monthly rental costs is USD 55k.

The Company continues to seek to reduce or eliminate the obligations arising from its rental agreement for its former production facility in Canada. The Company currently uses this facility for its own storage needs as some manufacturing assets, inventory and raw materials remain in Canada.

Sales and ELIoT

The Company is managing the transition to its proprietary technology-based pallet solution that is leading to significant customer interest and opening previously un-addressable markets to RM2.

The Company is in deep discussions with those customers which have had the opportunity to initially trial the first wave of ELIoT-enabled pallets samples beginning in Q2 2017. These North American customers are in industries which require robust pallets due to heavy loads, hygienic pallets due to contact with food, and/or heightened visibility of the location of pallets due to recurrent losses.

The initial phase of internal development of the IT portal to capture the ELIoT data is now complete and the phase of user-acceptance testing has begun. The user-testing protocol is designed to identify potential issues before the solution is more broadly rolled-out to customers.

Funding

 The Company announced on July 24, 2017 that following two weeks of market soundings, the Board determined that the best interests of the Company and its shareholders would not be served by completing an equity offering at that time. The Board further announced that it continues to pursue various other financing alternatives, which may include the issuance of equity and/or debt instruments.

Share issuances, Treasury shares

On July 6, 2017, the Company issued a total of 6,000,000 restricted shares to executive directors and key employees.

Following the resignation of Jasper Judd as Chief Executive Officer and as a member of the Board of Directors in August 2017, 2,500,000 restricted shares were forfeited and are now held as treasury shares.

On 28 July, 2017, the final USD 6m tranche of the issuance of USD 20m of Convertible Preferred Shares was completed, with the Company issuing 46,315,773 Convertible Preferred shares with a nominal value of USD 0.01 per share in the capital of the Company.

As at 27 September 2017, RM2's issued share capital is 407,062,656 Ordinary Shares of USD 0.01 each and 134,815,771 Convertible Preferred Shares of USD 0.01 in the capital of the Company, of which 2,916,334 Ordinary Shares are held by the Company as non-voting treasury stock.

The total number of voting rights in the Company is 538,962,093.