Versarien Regulatory News (VRS)

17 July 2019

Versarien Plc

("Versarien" or the "Company" or the "Group")

Preliminary Results for the year ended 31 March 2019

Versarien Plc (AIM:VRS), the advanced engineering materials group, is pleased to announce its unaudited results for the year ended 31 March 2019.

Operational highlights

Financial highlights

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

Post Period Highlights

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."

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Notes to Editors:

About Versarien

Versarien Plc (AIM:VRS), is an advanced engineering materials group. Leveraging proprietary technology, the Group creates innovative engineering solutions for its clients in a diverse range of industries. Versarien has six subsidiaries operating under two divisions:

Graphene and Plastics

2-DTech Limited, which specialises in the supply, characterisation and early stage development of graphene products. www.2-dtech.com

AAC Cyroma Limited, which specialises in the supply of vacuum-formed and injection-moulded products to the automotive, construction, utilities and retail industry sectors. Using Versarien's existing graphene manufacturing capabilities, AAC will have the ability to produce graphene-enhanced plastic products. www.aaccyroma.co.uk  

Cambridge Graphene Ltd, supplies novel inks based on graphene and related materials, using patented processes to develop graphene materials technology.

www.cambridgegraphene.com

Gnanomat S.L. ("GNA"), based in the Parque Cientifico Madrid, Spain, is a company capable of utilising Versarien's graphene products in an environmentally friendly, scalable production process for energy storage devices that offer high power density, fast recharging and long lifetime for use in electrical vehicles and portable electronics products. www.gnanomat.com

Hard Wear and Metallic Products

Versarien Technologies Limited has developed an additive process for creating advanced micro-porous metals targeting the thermal management industry and supplies extruded aluminium. www.versarien-technologies.co.uk 

Total Carbide Limited, a leading manufacturer in sintered tungsten carbide for applications in arduous environments such as the oil and gas industry. www.totalcarbide.com 

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:

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:

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

Group statement of comprehensive Income (unaudited)

Year ended 31 March 2019

There is no other comprehensive income for the year.

Group statement of financial position (unaudited)

As at 31 March 2019

Group statement of changes in equity (unaudited)

Year ended 31 March 2019

Statement of Group cash flows (unaudited)

Year ended 31 March 2019

Notes to the Financial Statements (unaudited)

1. Basis of preparation

The consolidated financial statements consolidate the results of the Company and its subsidiaries (together referred to as the "Group").

The financial information included in this preliminary announcement does not constitute statutory accounts of the Group for the years ended 31 March 2019 or 31 March 2018. The financial information for the year ended 31 March 2018 is derived from statutory accounts upon which the auditors have reported. Their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The auditors work on the statutory accounts of the Group for the year ended 31 March 2019 is not yet complete.

Both the consolidated financial statements and the Company financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS").

2. Segmental reporting

At 31 March 2019 the Group was organised into two business segments. Central costs are reported separately.

Information reported to the Group's Chief Executive Officer for the purposes of resource allocation and assessment of performance is focused on the two principal business segments of Graphene and Plastic Products and Hard Wear and Metallic Products and, accordingly, the Group's reportable segments under IFRS 8 are based on these activities.

Segment profit/(loss) represents the profit/(loss) earned by each segment, including a share of central administration costs, which are allocated on the basis of actual use or pro rata to sales. This is the measure reported to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance.

The segment analysis for the period ended 31 March 2019 is as follows:

The segment analysis for the period ended 31 March 2018 is as follows:

Geographical information

The Group's revenue from external customers and information about its segment assets by geographical location are detailed below:

3. Exceptional items

4. Dividends

As stated in the Company's AIM Admission Document, the Board will not be declaring or proposing any dividends until such time as the commercialisation of its product portfolio has generated sufficient distributable reserves from which to do so.

5. Loss per ordinary share

The calculation of the basic loss per share for the period ended 31 March 2019 and 31 March 2018 is based on the losses attributable to the shareholders of Versarien Plc divided by the weighted average number of shares in issue during the year. The calculation of diluted loss per share is based on the basic loss per share adjusted to allow for the issue of shares on the assumed conversion of all dilutive options. However, in accordance with IAS 33 "Earnings Per Share" potential ordinary shares are only considered dilutive when their conversion would decrease the profit per share or increase the loss per share. As at 31 March 2019 there were 14,985,100 (2018: 8,222,830) potential ordinary shares which have been disregarded in the calculation of diluted loss per share as they were considered non-dilutive at that date.

6. Intangible assets

The impairment of Other Intangibles in 2018 relates to development costs in Versarien Technologies Limited as per exceptional items, note 3.

Other intangible assets

7. Property, plant and equipment

Plant and equipment include the following amounts where the Group is a lessee under finance leases and hire purchase contracts:

8. Called up share capital and share premium

9. Cash used in operations

10. Report and accounts

Copies of the 2019 Annual Report and Accounts will be posted to shareholders in due course once they are finalised and approved. Further copies may be obtained by contacting the Company Secretary at the registered office. In addition, the 2019 Annual Report and Accounts will be available to download from the investor relations section on the Company's website www.versarien.com.

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