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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Rm2 International S.a. | LSE:RM2 | London | Ordinary Share | LU1914372336 | ORD USD0.01 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 8.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMRM2
RNS Number : 7519C
RM2 International SA
30 June 2016
30 June 2016
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA, THE REPUBLIC OF IRELAND AND JAPAN OR IN ANY OTHER JURISDICTION IN WHICH OFFERS OR SALES WOULD BE PROHIBITED BY APPLICABLE LAW.
This announcement is not an offer to sell or a solicitation to buy securities in any jurisdiction, including the United States, Canada, Australia, the Republic of South Africa, the Republic of Ireland or Japan. Neither this announcement nor anything contained herein shall form the basis of, or be relied upon in connection with, any offer or commitment whatsoever in any jurisdiction. Securities may not be offered for sale in the United States absent registration or an exemption from registration.
RM2 International S.A.
Annual results 2015 and Conditional Placing of Convertible Preferred Shares
RM2 International S.A. ("RM2" or the "Company"), the vertically-integrated innovator in pallet development, manufacture, supply and management, today announces its financial results for the year ended 31 December 2015 and the conditional placing of convertible preferred shares.
Financial Highlights
Hot Features
Premium
-- Revenues for the year ended 31 December 2015 of US$ 8.0 million
(2014: US$ 2.0 million)
-- Operating Loss after tax for the period of US$ 57.2 million
(2014: US$ 42.4 million)
-- Virtually debt-free with cash balance of US$ 34.5 million at
31 December 2015
-- Full year production of 300,000 pallets
After year-end
-- Appointment of Kevin Mazula as Chief Operating Officer
-- Commencement of pallet deployment with Canada's largest retailer,
Loblaw's
-- Strategic alliance with Zhenshi to manufacture RM2's BLOCKPal
pallet in China
-- Proposed issuance of convertible preferred shares to raise
an initial amount of US$ 20 million
-- Following the issuance of US$ 20 million convertible preferred
shares, the Company will have a sufficient net cash balance
of approximately US$ 23 million to fund operations
Chief Executive Officer, John Walsh, commented:
"RM2 faced serious challenges in 2015 related to the production metrics at the Canadian facility. These challenges impacted both production volumes and cost per unit ("CPU"), constraining our ability to develop further penetration with our target customers. The manufacturing partnership agreed with Zhenshi Holding Group Company Limited announced in April, will, we believe, solve both of these issues. Pallets from China are expected to be available for deployment in North America in the first quarter of 2017. We remain committed over the long term to North American production. We have good cause to be highly confident of profitable deployment of pallets delivered from China, all of which are earmarked for customers in North America in 2017. We expect a healthy balance between outright sales, leasing and rentals of pallets. Our new COO, Kevin Mazula, has deep and extensive manufacturing and supply chain manufacturing experience, including working in China, Europe and North America. Kevin is responsible for the transition of those manufacturing assets being transferred to China and the subsequent commissioning and running of those assets there."
For further information:
RM2 International S.A. +44 (0)20 8820 1412 John Walsh, Chief Executive Officer Jean-Francois Blouvac, Chief Financial Officer RBC Capital Markets +44 (0)20 7397 8900 Tristan Lovegrove Pierre Schreuder Ema Jakasovic Citigate Dewe Rogerson +44 (0)20 7638 9571 Rob Newman Ellen Wilton
The material set forth herein is for informational purposes only and does not constitute an offer of securities for sale in the United States or any other jurisdiction in which such an offer or solicitation is unlawful. The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), or the laws of any state, and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state laws. No public offering of securities will be made in the United States.
This announcement has been issued by and is the sole responsibility of the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by any other person as to, or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.
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 and CEO's Statement
RM2's results for the year ended 31 December 2015 are discussed below.
In 2015, more than 292,000 pallets were produced (c.30,000 in 2014) despite the suspension of production over the summer due to the major design change from powder coating to gel coating.
The Company completed its capex programme regarding manufacturing with the purchase of additional fabrication and coating equipment in line with forecasts. Total manufacturing assets account for approximately US$ 35.0 million.
The commercial pipeline has continued to develop with the deployment of c. 230,000 pallets through rental agreements and the sale of a further c. 30,000 pallets. The revenue generated by the outright sale of pallets was US$ 3.7 million. In the rental business, the pallets are mainly deployed with customers in the United States and the United Kingdom. Rental and leasing of pallets in 2015 generated revenues of US$ 2.7 million in 2015. Smaller quantities of pallets are also on trial with a number of large companies before larger volumes may be introduced in their respective networks.
A significant portion of the available inventory at year-end is allocated to the supply chain of Loblaw, Canada's largest retailer, following the agreement announced in March 2016 that Loblaw has begun accepting RM2's pallets in its supply chain.
The economic performance of the Company is still significantly impacted by the early inefficiencies of the manufacturing process in Canada.
The non-executive directors of the Company have elected to receive 2016 board fees in the form of 10-year options vesting after three years and granted at fair market value, exercisable only when the average closing price of the shares exceeds 100p for thirty days. These options are expected to be issued in the next open market window.
Outlook
Manufacturing remained a challenge in 2015, with inefficiencies in the process leading to significant deviations from standard cost. Thorough analysis and review conducted with the input of manufacturing advisers culminated with the Company signing in April 2016 a strategic agreement for the production of pallets by the Zhenshi Holding Group Company Limited, respected manufacturing leaders in China and owners of one of the world's largest fiberglass producers. The agreement will allow for the mass production of the RM2 BLOCKPal pallet in Tongxiang, at a facility owned by Zhenshi. Initial production is expected to be deployed in Q1 2017 and will target c. 1.5 million pallets per annum, with projected growth to at least 5 million pallets per annum in the medium term.
This agreement allows RM2 to address the volume demands of its clients whilst significantly reducing CPU. Some of RM2's manufacturing assets are in the process of being transferred to China.
The Group appointed Kevin Mazula as Chief Operating Officer in April 2016, to focus initially on overseeing the manufacturing relationship with Zhenshi. Kevin brings over 20 years of managerial experience, having successfully run and grown businesses over a range of industries and geographies.
Although 2015 and the early part of 2016 was a period of transition with a change to both the manufacturing process (new gel-based friction coating) and in moving the principal manufacturing location to China, the board is confident that RM2 now has the right product and manufacturing structure to make significant progress. Initial production is expected to be deployed from China in Q1 2017 and there continues to be strong interest in the BLOCKPal from large corporations around the world.
Proposed Conditional Placing of Preferred Shares
The Company is submitting for approval at an Extraordinary General Meeting to be held on July 18, 2016 resolutions of its ordinary shareholders (the "Resolutions") to allow the issuance on a non-pre-emptive basis of up to US$ 30 million of convertible preferred shares (the "Preferred Shares") at an issue price of GBP0.35 per share based on an exchange rate of GBP1: US$1.35 (the "Price Per Share"). The Preferred Shares are a new class of securities.
Woodford Investment Management LLP (as investment manager and agent for it clients, including CF Woodford Equity Income Fund) ("Woodford") has confirmed their intention to subscribe in cash for US$ 20 million of the Preferred Shares (the "Woodford Conditional Placing"). The Woodford Conditional Placing is subject to finalising terms of the investment and conditional on the Resolutions being approved. The funds to be received on issuance of Preferred Shares pursuant to the Woodford Conditional Placing (the "Woodford Preferred Shares") are expected to provide sufficient liquidity for the Company to meet its obligations over the next 12 months.
In addition to the proposed Woodford Conditional Placing, the Company may seek subscriptions for up to a further US$ 10 million of the Preferred Shares (pursuant to the authorisation granted by the Resolutions) in due course and will make a further announcement at the appropriate time if further Preferred Shares are to be issued. There can be no certainty that this will be the case, nor does this constitute an offer of securities. Any future subscription of Preferred Shares will be on a private placement basis to invited participants only.
Proceeds from the issuance of the Woodford Preferred Shares will reinforce the Company's balance sheet and will be used to bridge the gap between the decommissioning of a significant portion of the Company's manufacturing assets in Canada and the initial receipt of pallets produced by Zhenshi.
The Company's balance sheet is essentially debt-free, well positioning it for approaches to lenders for asset-backed financing for production and growth of the pallet rental pool.
The Board remains very confident that the BLOCKPal pallet - with its superior strength, durability and sustainability - has the potential to be a significantly disruptive innovation in a global market and that the shift in RM2's manufacturing center to China will be the catalyst for the transition to large-scale asset commercialization and deployment.
Particulars of the Preferred Shares
The Company has provided an undertaking that application for admission of the Preferred Shares on the AIM market of the London Stock Exchange will be made as soon as practicably possible and in any event within 365 days of subscription by Woodford.
The holders of the Preferred Shares shall be entitled to receive a dividend, paid in preference to any dividend paid by the Company in respect of its ordinary shares ("Ordinary Shares"), at a rate of 9% of the Price per Share per annum whenever funds are legally available and when and as declared by the Board. The holders of the Preferred Shares shall also be entitled to participate pro rata in any dividends paid in respect of any Ordinary Shares calculated by reference to the number of Ordinary Shares that the Preferred Shares would be convertible into.
In the event of any liquidation, dissolution or winding up of the Company, the holders of Preferred Shares will receive, before and in preference to the holders of Ordinary Shares the Price per Share (adjusted, if applicable, for anti-dilution, stock dividends, splits, combinations and similar events) on each Preferred Share (or, if greater, the amount that the Preferred Shares would receive if they were converted into Ordinary Shares). The balance of any proceeds will be distributed pro-rata to holders of Ordinary Shares.
The Preferred Shares will convert at a rate of 1:1 in to Ordinary Shares. A holder of Preferred Shares will have the right to convert its Preferred Shares into Ordinary Shares at the then applicable conversion rate at any time at the option of such holder after 30 June 2019, subject to adjustments for anti-dilution, stock dividends, splits, combinations and similar events. Upon conversion, 100% of the cumulated but unpaid dividend shall remain payable.
The Company shall (having providing 60 days written notice to the holders of the Preferred Shares) redeem the Preferred Shares on the fifth anniversary of the date of their issuance by paying in cash an amount equal to the Price per Share plus any declared but yet unpaid dividends.
If the Company issues additional securities (excluding any issuances under its employee share option plan) at a lower purchase price than the current Preferred Share conversion price, the conversion price will be adjusted on a customary broad based weighted average basis, subject to standard and customary carve outs.
Pursuant, and subject, to the approval of the Resolutions, the articles of association of the Company shall be amended to provide that the Preferred Shares will each have one vote per Preferred Share.
The Company has agreed not to pledge or otherwise encumber any of its existing or future assets without the prior written consent of holders of the majority of the Preferred Shares, which consent shall not be unreasonably withheld.
Woodford rights and undertakings
The articles of association of the Company shall be amended to provide that, if at any time any Shares of the Company held by Woodford constitute more than 19.5% of the total voting share capital of the Company, the voting rights attaching to such Shares will be limited in aggregate to 19.5% of the total number of votes exercisable at a general meeting of the Company, such votes to be split on a fractional basis equally amongst Shares of the Company held by Woodford.
Following written notice from Woodford to the Company, the Board will nominate for election by the Company's shareholders such director to the Board as Woodford may designate. For as long as Woodford does not exercise its right to designate a director, it will have the right to appoint an observer to attend Board meetings. For as long as Woodford has designated a director appointed to the Board, the quorum for Board meetings will include that director.
Related Party Transaction
Woodford's proposed participation in the Woodford Conditional Placing of Preferred Shares is a related party transaction under Rule 13 of the AIM Rules. The Directors consider, having consulted with the Company's nominated advisor, RBC Europe Limited (trading as RBC Capital Markets) ("RBC"), that the proposed terms of Woodford's participation are fair and reasonable insofar as the other shareholders as a whole are concerned.
RM2 INTERNATIONAL S.A.
Société Anonyme
Consolidated financial statements and
Consolidated management report and
Report of the Réviseur d'Entreprises Agréé
For the year from 1 January to 31 December 2015
Registered Office : 5, rue de la Chapelle
L-1325 LUXEMBOURG
R.C.S. Luxembourg : B 132.740
RM2 International S.A.
Company Information
Directors & Advisers
Directors
R. Ian Molson Chairman
John Walsh Chief Executive
Officer
Jean-Francois Blouvac Chief Financial
Officer
Jan Dekker Non-Executive
Director
Charles Duro Non-Executive
Director
Lord Rose Non-Executive
Director
Amaury de Seze Non-Executive
Director
Paul Walsh Non-Executive
Director
Biographies of the Directors are available on the Company
website www.rm2.com
Registered Office 5 rue de la Chapelle
L-1325 Luxembourg
Grand Duchy of Luxembourg
Company number RCS Luxembourg B 132.740
Nominated adviser and
broker RBC Capital Markets
Riverbank House
London EC4R 3BF
Independent Auditor Grant Thornton Lux Audit S.A.
89A, Pafebruch
L-8308 Capellen
Luxembourg
Registrar Computershare Investor Services (Jersey)
Limited
Queensway House
Hilgrove Street
Jersey JE1 1ES
RM2 INTERNATIONAL S.A.
Consolidated management report
The Directors present their report on the affairs of RM2 International S.A. (the Company) and its subsidiaries, referred to as the Group, together with the audited Consolidated Financial Statements and Independent Auditors' report for the year ended 31 December 2015.
Principal Activities
The main activity of the Group is to manufacture, sell and lease shipping pallets and to provide, where necessary, related logistical services.
The Group operates principally within the upstream logistics market which is focused on the supply of raw materials and components to manufacturers, and target the sale or rental of its pallets and their utilisation within closed loop supply chains of its customers.
In addition, the Group's pallet tracking and management software, the ERICA system provides 'real time' equipment balances throughout supply chains.
Business Review and Key Performance Indicators
The business report considers the key performance indicators to be the levels of production, the sales or leasing of pallets and the cash reserves of the business.
Production capacity expanded during the course of 2015. Approximately 292k pallets were produced in 2015 (c.60k in 2014) in spite of the suspension of production over the summer due to the major design change from powder coating to gel coating. The Group completed its manufacturing capital expenditure programme with the purchase of additional fabrication and coating equipment in line with forecasts. Total cost of manufacturing assets amounts to circa USD 35m.
The commercial pipeline has continuously developed with the deployment of c.200k pallets through rental agreements and nearly 30k pallets sold. The revenue generated through outright sale of pallets reached USD 3.8m (2014 USD 0.4m). The rental pool of pallets is mainly deployed with historical customers in the United States and in United Kingdom. Pallets are also on trial with a number of potential large users before increased volumes are introduced in their respective network. An equivalent-full-year-pallet leasing of 115k units generated revenues of USD 2.7m (2014 USD 182k.). A significant portion of the remaining available inventory at year-end is allocated to the supply chain of Loblaw, Canada's largest retailer, as announced in early 2016.
The Company raised USD 45m through the issuance of new ordinary shares in equity in October 2015. Net cash outflow for the year was USD 48m (2014 inflow of USD 79m, after a capital raise of USD 225m). After one full year of production, the economic performance of the Company is still significantly impacted by the continued inefficiencies of the manufacturing process that have been addressed post year end with the signing of the strategic manufacturing agreement with Zhenshi Holding Group Company Limited of China.
Cash reserves at 31 December 2015 stood at USD 34.5m (2014 USD 83m).
Going Concern
The Group's financial result for the fiscal year ended December 31, 2015 is a loss of USD 63m, the cash outflow is USD 47.9m despite a capital increase of USD 45.4m in September 2015. Cash reserves at 31 December 2015 stands at USD 34.5m.
The financial performance of the Group is heavily impacted by manufacturing inefficiencies. The factory produced significantly above the standard cost, contributing more than USD 35m to the operating loss of USD 57.2m. During the course of 2015, Management conducted several assessments of the manufacturing performance as the factory produced lower than anticipated volumes and higher than forecasted costs per unit. The conclusions from the assessments demonstrated to Management that the production equipment was fit for purpose but indicated that the manufacturing process in Canada would take a further period of time to reach first level of production of 1.5m pallets per year. Following these results, Management implemented beginning in January 2016, a refocusing strategy to achieve better production metrics and protect the cash balance. Nearly half of the employees in Canada were laid-off end of January 2016 and a second lay-off was implemented in March 2016 taking down the headcount in the plant to 64. Production was reduced to c.30k pallets per month during the first quarter of 2016 (vs. 45k monthly produced in Nov and Dec 15). Late in 2015, the Group was initially approached by one of its major fibreglass suppliers, China Jushi Co. Ltd. a subsidiary of Zhenshi Holding Group Company Limited with the view of strengthening commercial ties through a manufacturing collaboration in China. Following independent assessments of the manufacturing plant in Canada which were presented in March 2016, the Board of Directors made the decision to sign a contract manufacturing agreement with Zhenshi on April 1, 2016. This collaboration is expected to allow the Group to increase the capacity utilization of its industrial assets while producing a pallet at substantially lower fixed production cost, assuming Zhenshi is able to execute the plan in terms of volumes and quality. The agreement with Zhenshi envisions the transfer and re-commissioning of a substantial proportion of the manufacturing equipment from the Group's manufacturing site in Canada to China, which costs are supported by RM2. As a consequence of de-commissioning machines in Canada, the Company significantly reduced monthly manufacturing cash outflows to the payment of the rent, the benefits provided by the lay-off, marginal operating expenses and the scheduled payment of pending trade payables. Pallets from China are expected to be deployed, as announced to the market, in the first quarter of 2017. Should the de-commissioning, the shipment and the re-commissioning of its equipment in China take longer than anticipated or should the other costs significantly be underestimated by Management, the production of BLOCKpal pallets for lease and sale may be delayed and the going concern of the Group be impacted.
The commercial pipeline of the Group remains promising and the inventory built up prior to the signature of the manufacturing agreement (c. 165k pallets) will allow the Group to deploy pallets in top customers' network during the transition period. Management have made assumptions on the anticipated level of leasing of the BLOCKpal pallets that will be limited to the existing inventory end of April 2016 and the revenues per pallet in line with those received in 2015 for the period until production in China is fully operational. The expected cash inflows from April 2016 to December 2016 accounts for USD 5.9m. Should the Group not be able to place all the BLOCKpal pallets as assumed or achieve the targeted revenue per pallet in the projections, then sales and rental revenues may be lower than anticipated and impact the Group as a going concern.
The business plan and cash flow forecast for the next 12 months, period starting from January 1, 2016 which is considered as the going concern analysis period, following the announcement of the strategic alliance, with the Zhenshi group, have been prepared by Management using conservative assumptions with respect to the levels of production in the forthcoming 12 months during the period while its principal production capabilities are transferred to China (there will be no mass production from April 2016 until start of Zhenshi production), the deployment of pallets and remaining recurring operating expenses to run such activity. Management has identified recurring cash outflows of circa USD 2m per month (commercial entities and plant) and has also estimated and included in the cash forecast one-time-costs relating to the decommissioning of Canada and the move of the capital equipment to China of circa USD 8.8m. Cash reserves stand at USD 8.7m as of end-April 2016 (including restricted cash of circa USD 2m). To finance the transition period during 2016, the Group will announce the issuance of at least USD 20.0m of convertible preferred shares, with a cumulative preferred 9% dividend, payable each year. It is also in detailed discussion to fund the purchase of the coming production in China. In function of the number of pallets produced, the initial financial commitment of the Group under the manufacturing agreement would not be in excess of USD 90m. In light of these financings, the Group expects to have adequate resources to carry out its business plan. If the Group is unable to obtain adequate financing or financing on terms satisfactory to it, when required, its ability to continue to support its business growth and to respond to business challenges could be significantly limited or could affect its viability.
The Directors confirm the business model of the Group going forward. Due to its longevity, each pallet will be in a position to refund its production cost and the related financing cost and contribute to the profit. The pool of pallets will grow commensurately with the financing debt and in relation to the revenue generated over the economical lifespan of the pallets. Once mass production is achieved by Zhenshi, Management expects to sell a portion of its annual production as it will contribute to a cash surplus that maybe required to initiate the large loan financing. Risk factors remain unchanged from those described in the Company's IPO Admission Document in 2014, in particular but not limited to: execution risk in manufacturing regarding volumes and quality; capacity to contract large volumes of pallets with new and existing customers; and ability to timely fund pallet deployment at a reasonable cost.
As there are currently material uncertainties related to the mentioned events or conditions that may cast significant doubt on the Group's ability to continue as a going concern, therefore, the Group may be unable to realize its assets and discharge its liabilities in the normal course of business.
These assumptions are the Directors' best estimate of the future development of the business. The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future as comforted by the subsequent events and accordingly, continue to adopt the going concern basis in preparing the consolidated financial statements.
Dividends
The Directors do not recommend the payment of a dividend (2014: nil).
Capital Structure
Details of the authorised and issued share capital, together with details of the movements in the Company's issued share capital during the period are shown in Note 13.
All issued shares are fully paid.
Details of the share option scheme are set out in Note 21.
Supplier Payment Policy
The Group's policy is to settle terms of payment with suppliers when agreeing to the terms of each transaction.
Subsequent Events
Subsequent events are described in note 26 to the Consolidated Financial Statements.
Directors
The Directors who served the Company during the year and up to the date of this report were as follows:
Executive Directors John Walsh Jean-Francois Blouvac Non-Executive Directors Ian Molson Jan Dekker Charles Duro Lord Rose Amaury de Seze Paul Walsh
The Director's emoluments (translated into USD at average rate) were in 2015 and 2014, as follows:
2015 2014
Salary Benefits Total Salary Benefits Total
& Fees & Fees
USD USD USD USD USD USD
Executive Directors
John Walsh 331,541 - 331,541 399,388 - 399,388
Jean-Francois Blouvac 363,689 22,345 386,034 236,898 7,647 244,545
Ashavani Mohindra - - - 247,158 9,886 257,044
------------------------ --------- -------- --------- --------- -------- ---------
695,230 22,345 717,575 883,444 17,533 900,977
Non-Executive Directors
Ian Molson 128,000 - 128,000 160,000 - 160,000
Jan Dekker 66,611 - 66,611 81,848 - 81,848
Charles Duro 66,611 - 66,611 81,848 - 81,848
Sir Stuart Rose 64,000 - 64,000 80,000 - 80,000
Amaury de Seze 64,000 - 64,000 80,000 - 80,000
Paul Walsh 64,000 - 64,000 80,000 - 80,000
------------------------ --------- -------- --------- --------- -------- ---------
453,222 - 453,222 563,696 - 563,696
------------------------ --------- -------- --------- --------- -------- ---------
1,148,452 22,345 1,170,797 1,447,140 17,533 1,464,673
------------------------ --------- -------- --------- --------- -------- ---------
Directors' interests
The Directors who held office at 31 December 2015 had the following interests in the ordinary shares of the Company:
Number of shares % held Number of shares
at at at
31 December 31 December 2015 30 May 2016
2015
Ian Molson 11,000,000 2.8 11,000,000
John Walsh 26,439,717 6.6 26,439,717
Jean-Francois
Blouvac 1,000,000 0.3 1,000,000
Jan Dekker 2,500,000 0.6 2,500,000
Charles Duro 315,000 0.1 315,000
Sir Stuart Rose 1,150,000 0.3 1,150,000
Amaury de Seze 1,450,000 0.4 1,450,000
Paul Walsh 1,739,091 0.4 1,739,091
45,593,808 45,593,808
----------------- ----------------- ------------------ -----------------
Of the holdings above 15,625,180 (2014: 15,625,180) consist of Restricted Shares set out below. A Director holding Restricted Shares shall not sell, transfer, mortgage, charge, encumber or otherwise dispose of any of his Restricted Shares as long as certain performance conditions are not fully satisfied (the "Performance Conditions"). 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% higher than the Placing Price (0.88 GBP) for the Relevant Period, the Performance Condition in respect of one third of the Director's Restricted Shares shall be fulfilled. If the Average Price is 75% higher than the Placing Price for the Relevant Period, the Performance Condition in respect of a further one third of the Director's Restricted Shares shall be fulfilled. If the Average Price is 100% higher than the Placing Price for the Relevant Period, the Performance Condition in respect of the final third of the Director's Restricted Shares shall be fulfilled. If any Performance Conditions are not fully satisfied by ten years after the date of the grant, 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 per share.
Total number Total number Number of Number of
of shares of unvested restricted restricted
at options at shares (only) shares (only)
31 December 31 December at at
2015 2015 31 December 30 May 2016
2015
Ian Molson 11,000,000 2,250,000 4,600,000 4,600,000
John Walsh 26,439,717 - 6,552,680 6,552,680
Jean-Francois
Blouvac 1,000,000 - 1,000,000 1,000,000
Jan Dekker 2,500,000 750,000 - -
Charles Duro 315,000 250,000 22,500 22,500
Sir Stuart Rose 1,150,000 750,000 1,150,000 1,150,000
Amaury de Seze 1,450,000 750,000 1,150,000 1,150,000
Paul Walsh 1,739,091 750,000 1,150,000 1,150,000
45,593,808 5,500,000 15,625,180 15,625,180
----------------- ------------- ------------- --------------- ---------------
The terms of the unvested options is 10 year options vesting over 3 years in equal annual instalments; struck at the money but not exercisable until the stock closes above 100% for a thirty day average closing price.
Corporate Responsibility
The Board recognises its employment, environmental and health and safety responsibilities. It devotes appropriate resources towards monitoring and improving compliance with existing standards.
Employees
The Group is committed to achieving equal opportunities and to complying with relevant anti-discrimination legislation. It is established Group policy to offer employees and job applicants the opportunity to benefit from fair employment, without regard to their sex, sexual orientation, marital status, race, religion or belief, age or disability. Employees are encouraged to train and develop their careers.
The Group has continued its policy of informing all employees of matters of concern to them as employees, both in their immediate work situation and in the wider context of the Group's well-being. Communication with employees is effected through the Board, the Group's management briefings structure, formal and informal meetings and through the Group's information systems.
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Consolidated Financial Statements and for being satisfied that the Consolidated Financial Statements give a true and fair view. The Directors are also responsible for preparing the Consolidated Financial Statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.
Company law requires the Directors to prepare Consolidated Financial Statements for each financial period which give a true and fair view of the state of affairs of RM2 International S.A. (the Company) and the Group and of the profit or loss of the Company and the Group for that period. In preparing those Financial Statements, the Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed
and explained in the Financial Statements; and
-- prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company
and the Group will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the Financial Statements. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, and disclose with reasonable accuracy at any time the financial position of the Company and the Group.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Statement of disclosure to the Independent Auditor
All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Group's Independent Auditor for the purposes of his audit and to establish that the Independent Auditor is aware of that information. The Directors are not aware of any relevant audit information of which the Independent Auditor is unaware.
Independent Auditor
The auditor, Grant Thornton Lux Audit S.A., will be proposed for re-appointment at the forthcoming Annual General Meeting.
RM2 INTERNATIONAL S.A.
Corporate governance report
The Board is committed to proper standards of Corporate Governance, managing the Group in an efficient, effective, entrepreneurial and ethical manner for the benefit of shareholders over the longer term.
In the context of the Group's strategy for growth, the Board will continue to actively review its Corporate Governance at regular intervals.
The Board is responsible for the Group's system of internal control and reviewing its effectiveness. Such a system is designed to manage rather than eliminate risk of failure to achieve business objectives, and can only provide reasonable and not absolute insurance against material misstatement or loss. The system of internal financial control comprises of controls established to provide reasonable assurance of:
-- The safeguarding of assets against unauthorised use or
disposal and;
-- The reliability of financial information used within the
business and for publication and the maintenance of proper
accounting records.
In addition the key procedures on the internal financial control of the Group are as follows:
-- The Board reviews and approves budgets and monitors performance
against those budgets regularly with any variance being
fully investigated and;
-- The Group has clearly defined reporting and authorisation
procedures relating to the key financial areas.
The Annual General Meeting is the principal forum for dialogue with shareholders.
Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/7519C_-2016-6-30.pdf
Consolidated statement of comprehensive income
For the year ended 31 December 2015
Notes 2015 2014
USD USD
Continuing operations
Revenue 15 8,000,137 2,000,416
Cost of sales 16 (44,512,394) (21,609,717)
------------------ -------------
Gross profit (36,512,257) (19,609,301)
Administrative expenses
Administrative expenses 17 (21,380,565) (18,260,590)
Cost in association with the
IPO - (4,570,385)
Other operating expenses 18 (175,768) (656,023)
Other operating income 18 904,676 670,927
------------------ -------------
Operating loss (57,163,914) (42,425,373)
Finance costs 18 (3,632,886) (5,666,397)
Finance income 18 1,955,972 776,629
------------------ -------------
Loss before tax (58,840,828) (47,315,141)
Income tax 19 160,230 97,391
------------------ -------------
Loss for the year i.1. (58,680,598) (47,217,750)
================== =============
Other comprehensive income
Other comprehensive income to
be reclassified in profit or
loss in subsequent periods:
Exchange difference on translation
of foreign operations (4,264,343) 1,370,822
------------------ -------------
Other comprehensive income for
the year, net of tax (4,264,343) 1,370,822
Total comprehensive income for
the year (62,944,941) (45,846,928)
================== =============
Loss for the year attributable
to:
Equity holders of the parent (58,680,598) (47,217,750)
------------------ -------------
(58,680,598) (47,217,750)
================== =============
Total comprehensive income for
the year attributable to:
Equity holders of the parent (62,944,941) (45,846,928)
------------------ -------------
(62,944,941) (45,846,928)
================== =============
Loss per share 22
Basic loss per share attributable
to ordinary equity holders of
the parent (0.17) (0.15)
Diluted loss per share attributable
to ordinary equity holders of
the parent (0.17) (0.15)
================== =============
RM2 INTERNATIONAL S.A.
Consolidated statement of financial position as at 31 December 2015
Notes 2015 2014
USD USD
Assets
Non-current assets
Intangible assets 8 3,349,359 3,606,693
Property, plant & equipment
- Other 5 36,252,950 26,260,546
Property, plant & equipment
- Pallet pool 6 17,484,281 2,754,506
Investment property 7 1,357,720 1,396,512
-------------- --------------
58,444,310 34,018,257
Current assets
Inventories 10 19,846,627 7,017,188
Trade and other receivables 11 8,315,843 3,889,105
Other current financial assets 9 62,074 59,548
Prepayments 1,942,980 2,830,642
Restricted Cash 12 1,816,039 2,149,975
Cash and cash equivalents 12 34,515,597 82,882,794
-------------- --------------
66,499,160 98,829,252
Total assets 124,943,470 132,847,509
============== ==============
Equity and liabilities
Equity 13
Issued capital 3,980,302 3,227,772
Share premium 263,317,090 219,357,851
Retained earnings (176,294,138) (117,613,540)
Share based payment reserve 19,044,095 16,958,803
Treasury stock (3,424) -
Foreign currency translation
reserve (2,865,606) 1,398,737
-------------- --------------
Equity attributable to equity
holders of the parent 107,178,319 123,329,623
-------------- --------------
Total equity 107,178,319 123,329,623
Non-current liabilities
Interest bearing loans and
borrowings 9.1 1,844,875 2,053,541
Deferred tax liabilities 19.2 184,330 403,286
-------------- --------------
2,029,205 2,456,827
Current liabilities
Interest bearing loans and
borrowings 9.1 116,440 28,573
Trade and other payables 14 14,466,289 6,160,275
Deferred income 630,841 678,397
Current tax liabilities 522,376 193,814
-------------- --------------
15,735,946 7,061,059
Total liabilities 17,765,151 9,517,886
Total equity and liabilities 124,943,470 132,847,509
============== ==============
RM2 INTERNATIONAL S.A.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2015
Consolidated statement of changes in equity
Attributable to equity holders of the parent
Notes Foreign Treasury Share
currency Stock based
Share Share Retained translation payment
capital premium earnings reserve reserve Total equity
USD USD USD USD USD USD USD
As at 1
January 2014 1,561,828 31,134,458 (100,836,892) 27,915 - 15,743,333 (52,369,358)
=============== ====== ========== ============= ============== ============ ========= =========== =============
Loss for the
year - - (47,217,750) - - - (47,217,750)
Other
comprehensive
income - - - 1,370,822 - - 1,370,822
--------------- ------ ---------- ------------- -------------- ------------ --------- ----------- -------------
Total
comprehensive
income - - (47,217,750) 1,370,822 - - (45,846,928) Absorption of losses 13 - (30,441,102) 30,441,102 - - - - Shares issued in the period 13 1,665,944 223,097,977 - - - - 224,763,921 Cost of share issue - (4,433,482) - - - - (4,433,482) Share based payments 21 - - - - - 1,215,470 1,215,470 Transaction with owners 1,665,944 188,223,392 30,441,102 - - 1,215,470 221,545,908 As at 31 December 2014 3,227,772 219,357,851 (117,613,540) 1,398,737 - 16,958,803 123,329,623 --------------- ------ ---------- ------------- -------------- ------------ --------- ----------- ------------- Loss for the year - - (58,680,598) - - - (58,680,598) Other comprehensive income - - - (4,264,343) - - (4,264,343) --------------- ------ ---------- ------------- -------------- ------------ --------- ----------- ------------- Total comprehensive income - - (58,680,598) (4,264,343) - - (62,944,941) Shares issued in the period 13 752,530 44,672,999 - - - - 45,425,529 Cost of share issue - (713,760) - - - - (713,760) Repurchase of shares into treasury - - - - (3,424) - (3,424) Share based payments 21 - - - - - 2,085,292 2,085,292 Transaction with owners 752,530 43,959,239 - - (3,424) 2,085,292 46,793,637 As at 31 December 2015 3,980,302 263,317,090 (176,294,138) (2,865,606) (3,424) 19,044,095 107,178,319 --------------- ------ ---------- ------------- -------------- ------------ --------- ----------- -------------
RM2 International S.A.
Consolidated Statement of Cash Flows
For the year ended 31 December 2015
Notes 2015 2014
Cash flows from operating activities USD USD
Loss before tax (58,840,828) (47,315,141)
Adjustment to reconcile profit
before tax to net cash flows
Amortisation and depreciation
of non-current assets 5/6/7/8 6,835,642 2,961,340
Share based payment charges 2,085,292 1,215,470
Transaction costs on capital
operations, including IPO - 4,570,385
Finance income (68,726) (332,634)
Finance expenses 60,240 822,896
Unrealised foreign exchange gains (355,126) 2,631,708
Net loss/(gain) on disposal of
PPE and intangible assets (435,591) 82,775
Variation in working capital
(Increase)/decrease in inventories (12,829,439) (5,492,396)
(Increase)/decrease in trade
and other receivables (3,541,287) (4,557,881)
Increase/(decrease) in trade
and other payables 8,759,729 2,247,291
Decrease/(increase) in restricted
cash 333,936 (2,149,975)
Income tax paid (171,882) (809,493)
Net cash flows from operating
activities (58,168,040) (46,125,654)
Cash flows from investing activities
(Increase)/decrease in intangible
assets (900,035) (1,065,674)
(Increase)/decrease PPE in course
of commissioning (15,578,162) (5,510,766)
Decrease/ (increase) in other
PPE 60,507 (9,799,439)
(Increase)/decrease in pallet
pool (17,895,718) (2,466,928)
Loans granted to third parties (2,524) 6,430
Finance income received 68,726 332,634
Net cash flows from investing
activities (34,247,206) (18,503,743)
Cash flows from financing activities
Issuance of capital 13 45,425,529 224,763,920
Transaction costs on capital
operations charged against share
premium account (713,760) (4,433,482)
Purchase of treasury shares (3,424) -
Transaction costs on capital
operations, including IPO - (4,570,385)
Repayment Proceeds from other
and related party borrowings (3,223) 28,277
Transaction costs on issue of
new borrowings - -
Interest paid (60,240) (308,359)
Repayment of other and related
party borrowings (117,575) (360,573)
Settlement of loans and costs
following IPO
Repayment of other and related
party borrowings - (24,700,000)
DPEI Warrant settlement - (40,000,000)
Interest paid on borrowings - (804,712)
Fees in relation to loans - (6,175,000)
Net cash flows from financing
activities 44,527,307 143,439,686
Net change in cash and cash equivalents (47,887,939) 78,810,289
============= =============
(Decrease)/increase in cash and
cash equivalents (47,887,939) 78,810,289
Cash and cash equivalents at
1 January 82,882,794 4,193,136
Exchange adjustment of cash and
cash equivalents (479,258) (120,631)
------------- -------------
Cash and cash equivalents at
31 December 12 34,515,597 82,882,794
============= =============
The board of directors have authorised for issue these consolidated financial statements on the 29 June, 2016.
RM2 INTERNATIONAL S.A.
Notes to the Consolidated Financial Statements
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, L-1325 Luxembourg. The Company is the ultimate parent entity of the RM2 Group (the "Group").
The Group is principally engaged in developing and selling shipping pallets and providing related logistical services.
2 Basis of preparation
The consolidated financial statements comprise the consolidated financial information of the Group as at 31 December 2015 and are prepared under the historic cost convention as disclosed in the accounting policies below.
The accounting policies which follow set out the policies applied in preparing the consolidated financial statements.
2.1 Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRIC interpretations as issued by the International Accounting Standards Board ("IASB") and IFRS Interpretations Committee (IFRIC) and as adopted by the European Union ("EU").
2.2 Basis of consolidation
The consolidated financial statements comprise the financial information of the Group and its subsidiaries. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial information of the subsidiaries is prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.
Subsidiaries and business combinations
Subsidiaries are all entities, including structured entities, over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group uses the acquisition method of accounting to account for the acquisition of subsidiaries.
The consideration transferred on acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the consideration transferred over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the consideration transferred acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss. Acquisition costs are written off to profit or loss.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
The subsidiaries of the Group are listed in note 23.
3 Summary of significant accounting policies
The principal accounting policies are summarised below:
3.1 Foreign currencies
The Group's consolidated financial statements are presented in United States Dollars ("USD"), which is also the parent company's functional currency. For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.
Transactions and balances
Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.
Differences arising on settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively).
Group companies
On consolidation, the assets and liabilities of foreign operations are translated into USD at the rate of exchange prevailing at the reporting date and their income statements are translated at average exchange rate prevailing during the financial year. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.
3.2 Going concern
The Group's financial result for the fiscal year ended December 31, 2015 is a loss of USD 63m, the cash outflow is USD 47.9m despite a capital increase of USD 45.4m in September 2015. Cash reserves at 31 December 2015 stands at USD 34.5m.
The financial performance of the Group is heavily impacted by manufacturing inefficiencies. The factory produced significantly above the standard cost, contributing more than USD 35m to the operating loss of USD 57.2m. During the course of 2015, Management conducted several assessments of the manufacturing performance as the factory produced lower than anticipated volumes and higher than forecasted costs per unit. The conclusions from the assessments demonstrated to Management that the production equipment was fit for purpose but indicated that the manufacturing process in Canada would take a further period of time to reach first level of production of 1.5m pallets per year. Following these results, Management implemented beginning in January 2016, a refocusing strategy to achieve better production metrics and protect the cash balance. Nearly half of the employees in Canada were laid-off end of January 2016 and a second lay-off was implemented in March 2016 taking down the headcount in the plant to 64. Production was reduced to c.30k pallets per month during the first quarter of 2016 (vs. 45k monthly produced in Nov and Dec 15). Late in 2015, the Group was initially approached by one of its major fibreglass suppliers, China Jushi Co. Ltd. a subsidiary of Zhenshi Holding Group Company Limited with the view of strengthening commercial ties through a manufacturing collaboration in China. Following independent assessments of the manufacturing plant in Canada which were presented in March 2016, the Board of Directors made the decision to sign a contract manufacturing agreement with Zhenshi on April 1, 2016. This collaboration is expected to allow the Group to increase the capacity utilization of its industrial assets while producing a pallet at substantially lower fixed production cost, assuming Zhenshi is able to execute the plan in terms of volumes and quality. The agreement with Zhenshi envisions the transfer and re-commissioning of a substantial proportion of the manufacturing equipment from the Group's manufacturing site in Canada to China, which costs are supported by RM2. As a consequence of de-commissioning machines in Canada, the Company significantly reduced monthly manufacturing cash outflows to the payment of the rent, the benefits provided by the lay-off, marginal operating expenses and the scheduled payment of pending trade payables. Pallets from China are expected to be deployed, as announced to the market, in the first quarter of 2017. Should the de-commissioning, the shipment and the re-commissioning of its equipment in China take longer than anticipated or should the other costs significantly be underestimated by Management, the production of BLOCKpal pallets for lease and sale may be delayed and the going concern of the Group be impacted.
The commercial pipeline of the Group remains promising and the inventory built up prior to the signature of the manufacturing agreement (c. 165k pallets) will allow the Group to deploy pallets in top customers' network during the transition period. Management have made assumptions on the anticipated level of leasing of the BLOCKpal pallets that will be limited to the existing inventory end of April 2016 and the revenues per pallet in line with those received in 2015 for the period until production in China is fully operational. The expected cash inflows from April 2016 to December 2016 accounts for USD 5.9m. Should the Group not be able to place all the BLOCKpal pallets as assumed or achieve the targeted revenue per pallet in the projections, then sales and rental revenues may be lower than anticipated and impact the Group as a going concern.
The business plan and cash flow forecast for the next 12 months, period starting from January 1, 2016 which is considered as the going concern analysis period, following the announcement of the strategic alliance, with the Zhenshi group, have been prepared by Management using conservative assumptions with respect to the levels of production in the forthcoming 12 months during the period while its principal production capabilities are transferred to China (there will be no mass production from April 2016 until start of Zhenshi production), the deployment of pallets and remaining recurring operating expenses to run such activity. Management has identified recurring cash outflows of circa USD 2m per month (commercial entities and plant) and has also estimated and included in the cash forecast one-time-costs relating to the decommissioning of Canada and the move of the capital equipment to China of circa USD 8.8m. Cash reserves stand at USD 8.7m as of end-April 2016 (including restricted cash of circa USD 2m). To finance the transition period during 2016, the Group will announce the issuance of at least USD 20.0m of convertible preferred shares, with a cumulative preferred 9% dividend, payable each year. It is also in detailed discussion to fund the purchase of the coming production in China. In function of the number of pallets produced, the initial financial commitment of the Group under the manufacturing agreement would not be in excess of USD 90m. In light of these financings, the Group expects to have adequate resources to carry out its business plan. If the Group is unable to obtain adequate financing or financing on terms satisfactory to it, when required, its ability to continue to support its business growth and to respond to business challenges could be significantly limited or could affect its viability.
The Directors confirm the business model of the Group going forward. Due to its longevity, each pallet will be in a position to refund its production cost and the related financing cost and contribute to the profit. The pool of pallets will grow commensurately with the financing debt and in relation to the revenue generated over the economical lifespan of the pallets. Once mass production is achieved by Zhenshi, Management expects to sell a portion of its annual production as it will contribute to a cash surplus that maybe required to initiate the large loan financing. Risk factors remain unchanged from those described in the Company's IPO Admission Document in 2014, in particular but not limited to: execution risk in manufacturing regarding volumes and quality; capacity to contract large volumes of pallets with new and existing customers; and ability to timely fund pallet deployment at a reasonable cost.
As there are currently material uncertainties related to the mentioned events or conditions that may cast significant doubt on the Group's ability to continue as a going concern, therefore, the Group may be unable to realize its assets and discharge its liabilities in the normal course of business.
These assumptions are the Directors' best estimate of the future development of the business. The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future as comforted by the subsequent events and accordingly, continue to adopt the going concern basis in preparing the consolidated financial statements.
3.3 Property, plant and equipment
Initial recognition and measurement
Property, plant and equipment ("PPE") are tangible assets used by the Group for its own production or supply of goods or services, or for administrative purposes and are expected to be used during more than one period. PPE is recognised when it is probable that future economic benefits associated with the asset will flow to the Group and if the cost can be measured reliably.
PPE is initially recognised at cost. Such cost includes the purchase price and all cost incurred in bringing the assets to the location and condition for its operation in the manner intended by management. The cost of the PPE includes also the borrowing costs for long-term construction projects if the recognition criteria are met.
The pallet pool is initially recognised at the standard cost of production including all expenses directly attributable to the manufacturing process and portions of related production overheads, based on normal operating capacity.
When significant parts of property, plant and equipment will be required to be replaced, the Group will recognise such parts as individual assets with specific useful lives and depreciate them accordingly. Likewise, when a major inspection will be performed, its cost will be recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs will be recognised in profit or loss as incurred.
Finished goods (under inventory) represent pallets produced and not yet sold or deployed via the pallet pool in property, plant and equipment.
Subsequent measurement
PPE is subsequently measured at cost less any accumulated depreciation and any accumulated impairment losses.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
Buildings 30 years Plant and equipment 3 to 20 years Pallet Pool 5 years PPE under construction not depreciated
An item of PPE and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss when the asset is derecognised.
The residual values, useful lives and methods of depreciation of PPE are reviewed at each financial year end and adjusted prospectively, if appropriate. Further explanation on management estimates and assumptions is disclosed in note 4.
The Group has not applied revaluation on any of its PPE. An impairment is recognised in the pallet pool classified as fixed assets. The recoverable amount is based on the quantity of pallets classified as fixed asset at year end considering the average quantity of lost and broken pallets to main clients extrapolated to the entire pool.
3.4 Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
Group as a lessee
Leases where a significant portion of the risks and rewards of ownership is retained by the lessor are classified as operating leases. Payments made under operating leases are charged to profit or loss on a straight-line basis over the period of the lease.
The aggregate benefit of lease incentives are recognised as a reduction to the expense recognised over the lease term on a straight line basis.
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement date at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in long-term and short-term borrowings. The interest element of the finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and benefits of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
Revenue arising on operating leases for pallets is accounted for as on a straight line basis or a usage basis in accordance with the contract.
Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms and included in other operating income.
3.5 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
3.6 Investment property
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, the Group has decided to measure investment properties using the cost model. Investment properties are measured similarly to property, plant and equipment as described in note 3.3.
The fair value, which reflects market conditions at the reporting date, is disclosed in the notes to the consolidated financial statements.
Investment properties are derecognised either when they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the income statement in the period of de-recognition.
Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.
3.7 Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses, if any.
The useful lives of intangible assets are assessed as finite, except goodwill.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives (goodwill) are not amortised, but are tested for impairment annually at the cash-generating unit level (see note 8 for details and assumptions). The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable.
Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.
Amortisation is calculated on the straight-line method to write off the cost of each asset to their residual values, over their estimated useful life. The annual amortisation periods are as follows:
Software 3 years Trade names 5 years Customer Relationship 5 years Licences and ERP System 3 to 7 years Goodwill Not amortized 3.8 Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are considered as an intangible asset when the Group can demonstrate:
- The technical feasibility of completing the intangible
asset so that the asset will be available for use or sale
- Its intention to complete and its ability to use or sell
the asset
- How the asset will generate future economic benefits
- The availability of resources to complete the asset
- The ability to measure reliably the expenditure during
development
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually.
To date no amounts have been capitalised in respect of the development phase of internal projects as management have assessed that they are unable to demonstrate that they have met all of the recognition criteria.
3.9 Inventories
Inventories are stated at the lower of cost or net realizable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows:
Raw materials Purchase cost
Finished goods and work Standard cost of production including
in progress all expenses directly attributable to
the manufacturing process and portions
of related production overheads, based
on normal operating capacity.
Pallets are held as inventory prior to being deployed in the pallet pool or sold direct to customer.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
When the net realizable value of stock is lower than its cost, provisions for impairment are created to reduce the value of the stock to its net realizable value.
The cost of inventories is recognised as an expense in the period in which the related revenue is recognised.
3.10 Impairment on non-financial assets
Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset's net selling price and value in use or fair value less cost to sell determined by using discounted cash flow method. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).
The future discounted cash flow method used to determine the value in use or fair value less cost to sell is usually, but not always, based on cash flow projections over for the next 3 years.
Impairment losses of continuing operations are recognised in profit or loss in those expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset's or cash-generating unit's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation reserve.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Cash Generating Units (CGUs), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.
3.11 Financial instruments
3.11.1 Financial assets
3.11.1.1 Initial recognition and measurement
The Group classifies its financial assets in the following categories: at fair value through profit and loss, loans and receivables, held-to-maturity investments and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date.
All financial assets are recognised initially at fair value plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.
The Group's financial assets include cash and short-term deposits, trade and other receivables, other current and non-current assets which are classified in the category of loans and receivables and available-for-sale financial assets. The Group does not have held-to-maturity investments.
3.11.2 Subsequent measurement
3.11.2.1 Loans and receivables:
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.
After initial measurement, they are subsequently measured at amortised cost using the effective interest rate method ("EIR"), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of comprehensive income. The losses arising from impairment are recognised in the finance costs in the statement of comprehensive income.
3.11.3 De-recognition
De-recognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership, but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose restrictions on the sale.
3.11.4 Impairment of financial assets
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include, but is not limited to, indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments.
3.11.4.1 Financial assets carried at amortised cost:
For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial assets' original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income. Interest income continues to be accrued on the reduced carrying amount and is accrued using the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the statement of comprehensive income. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the statement of comprehensive income.
3.12 Financial liabilities
3.12.1 Initial recognition and measurement
Financial liabilities are classified as financial liabilities at fair value through profit or loss or other financial liabilities as appropriate. The Group determines the classification of its financial liabilities at initial recognition.
All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.
The Group's other financial liabilities include trade and other payables, borrowings and long-term payables.
3.12.2 Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
3.12.2.1 Other financial liabilities:
After initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the effective interest rate method amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the statement of comprehensive income.
Other financial liabilities are classified as current liabilities unless the Group has an unconditional right to defer the settlement of the liability for at least 12 months after the balance sheet date.
3.12.3 De-recognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are subsequently modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of comprehensive income.
3.12.3.1 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
3.13 Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position at fair value. For the purposes of the cash flow statement, cash and cash equivalents are comprised of cash on hand and deposits held on call with banks having an original maturity of 3 months of less. In the statement of financial position, bank overdrafts are included in borrowings under current liabilities net of any related restricted cash.
3.14 Taxes
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. A provision is made for corporation tax for the reporting period using the tax rates that have been substantially enacted for each company at the reporting date in the country where each company operates and generates taxable income.
Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of comprehensive income.
Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretations and establishes provisions where appropriate.
Deferred income tax
Deferred income tax is provided for using the liability method on all temporary differences arising between the tax bases of assets and liabilities and the carrying amounts in the financial statements. The deferred tax is calculated on currently enacted tax rates that are expected to apply when the temporary differences reverse. Where an overall deferred taxation asset arises, it is only recognised in the financial statements where its recoverability is foreseen with reasonable certainty.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
3.15 Pensions and other post-employment benefits
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due.
The Group does not operate any defined benefit pension plan.
3.16 Provisions, contingent assets and liabilities
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. Provisions are not recognised for future operating losses.
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material.
Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision.
In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognised.
Contingent assets
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
Contingent assets are not recognised in the consolidated financial statements. However, when the realisation of income from the contingent asset is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.
Contingent liabilities
Contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity, or is a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability.
Contingent liabilities are not recognised in the consolidation financial statements.
3.17 Equity, reserves and dividend payments
Issued share capital represents the nominal value of shares that have been issued. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.
Other components of equity include the following:
- Foreign currency translation reserve - comprises foreign
currency translation differences arising from the translation
of financial statements of the Group's foreign entities
into US Dollars.
- The share premium account - comprises any premiums received
on issue of share capital. Any transaction costs associated
with the issuing of shares are deducted from share premium.
- The share based payment reserve corresponds to the accumulated
amount of instruments granted to employees regarding share
based payments equity settled (see note 3.19).
- Retained earnings - includes all current and prior period
retained profits and losses.
- Treasury stock represents Own Ordinary Shares.
All transactions with owners of the parent are recorded separately within equity.
Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date.
3.18 Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the invoiced value for the sale of goods net of value added tax, rebates and discounts which represents the fair value of the consideration received or receivable. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognised:
Sales of goods
Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods have been transferred to the buyer and the collectability of the related receivables is reasonably assured, regardless of when the payment was made.
Rendering of services
Revenue relating to logistical services is recognised as the services are performed.
Rental income
Pallets
Revenue arising on operating leases for pallets is accounted for as on a straight line basis or a usage basis in accordance with the contract.
Property income
Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms and included in revenue due to its operating nature.
Rental income is recognised within other operating income as it is not considered as related to the primary activity of the Group.
Interest income
Interest income is reported on an accruals basis using the effective interest method.
3.19 Share based payments
The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grant of the equity instruments is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the instruments granted. At the end of each reporting period, the Group revises its estimates of the number of instruments that are expected to vest based on the non-market vesting conditions and service conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
3.20 Changes in accounting policies and disclosures
(i) The following standards, amendments to standards and new interpretations are mandatory for the first time for the financial period beginning January 1, 2015;
- IFRIC 21 "Levies". This interpretation sets out the accounting for an obligation to pay a levy if that liability is within the scope of IAS 37, "Provisions". The interpretation addresses what the obligating event is that gives rise to pay and when a liability should be recognized.
- Annual improvements to IFRSs 2011-2013 cycle:
* IFRS 1, "First time adoptions of IFRSs"
* IFRS 3, "Business combination"
* IFRS 13, "Fair value measurement"
* IAS 40, "Investment property"
(ii) New standards, amendments and interpretations issued but not yet effective for the financial year beginning January 1, 2015 and not early adopted.
- Amendments to IAS 19 "Defined benefit plans: Employee contributions" clarify the accounting treatment for contributions from employees or third parties to a defined benefit plan. These amendments are effective for annual reporting periods beginning on or after February 1, 2015.
- Annual improvements to IFRSs 2010-2012 cycle:
* Amendment to IFRS 2, "Share-based payment"
* IFRS 3, "Business combinations"
* IFRS 8, "Operating segments"
* IFRS 13, "Fair value measurement"
* IAS 16, "Property, plant and equipment"
* IAS 38 "Intangible assets"
* IAS 37 "Provisions, contingent liabilities and
contingent assets"
* IAS 39, "Financial instruments"
These amendments are effective for annual reporting periods beginning on or after February 1, 2015.
- Amendment to IFRS 11, "Joint arrangements" on the accounting for the acquisition of an interest in a joint operation that constitutes a business. These amendments are effective for annual reporting periods beginning on or after January 1, 2016.
- Amendments to IAS 16, "Property, plant and equipment" and IAS 38, "Intangible assets" regarding amortization and depreciation. These amendments are effective for annual reporting periods beginning on or after January 1, 2016.
- Amendment to IAS 1, "Presentation of financial statements". This "Disclosure initiative" encourages companies to apply professional judgment in determining the information to disclose in their financial statements. These amendments are effective for annual reporting periods beginning on or after January 1, 2016 and have not yet been endorsed by the European Union.
- Amendment to IAS 27, "Separate financial statements" regarding the equity method. These amendments are effective for annual reporting periods beginning on or after January 1, 2016 and have not yet been endorsed by the European Union.
- Amendments to IFRS 10, "Consolidated financial statements", IFRS 12 "Disclosure of interests in other entities" and IAS 28, "Associates and joint ventures" regarding the sale or contribution of assets between an investor and its associate or joint-venture. These amendments are effective for annual reporting periods beginning on or after January 1, 2016 and have not yet been endorsed by the European Union.
- Annual improvement to IFRSs 2012-2014 cycle: -- IFRS 5, "Non-current assets held for sale and discontinued operations" -- IFRS 7, "Financial instruments: disclosures" -- IAS 19, "Employee benefits" -- IAS 34, "Interim financial reporting"
These amendments are effective for annual reporting periods beginning on or after January 1, 2016 and have not yet been endorsed by the European Union.
- IFRS 9, "Financial instruments" regarding the classification and measurement of financial assets. IFRS 9 is effective for annual reporting periods beginning on or after January 1, 2018 and has not yet been endorsed by the European Union.
- IFRS 15, "Revenue from contracts with customers": this standard presents new requirements for the recognition of revenue, replacing IAS 18 "Revenue", IAS 11 "Construction contracts", and several revenue-related Interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities. IFRS 15 is effective for annual reporting periods beginning on or after January 1, 2018 and has not yet been endorsed by the European Union.
- IFRS 14, "Regulatory deferral accounts". At this time the European Union has decided not to endorse this interim standard and wait for the final version of this standard.
- IFRS 16 "Leases" provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance. The standard is effective for annual periods beginning on or after January 1st, 2019, subject to EU adoption.
The Group has to assess the impact of the Standards and Interpretations which are in issuance but not yet effective at the date of the opening balance.
4 Significant accounting judgements, estimates and assumptions
The preparation of financial statements conforming to adopt IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and assumptions are based on historical experience and other factors considered reasonable at the time, but actual results may differ from those estimates. Revisions to these estimates are recognised in the period in which they are made.
4.1 Judgments
In the process of applying the Group's accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the consolidated financial information:
Recognition of deferred tax assets
The assessment of the probability of future taxable income against which deferred tax assets can be utilised is based on the Group's latest approved forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. The tax rules in the numerous jurisdictions in which the Group operates are also carefully taken into consideration. If a positive forecast of taxable income indicates the probable use of a deferred tax asset in the foreseeable future, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties are assessed individually by management based on the specific facts and circumstances.
The Group has not recognised any deferred tax assets as there is no certainty of the timing of recovery. For further detail on deferred tax, refer to note 19.
Trade Receivables
The Group regularly reviews and assesses the trade receivables for the recoverability. The Group has made no provision against overdue trade receivables as management are confident that they will be recovered in full. The Group considers the followings events as indicators of an impairment:
-- default of payments of the counterparty -- financial difficulties of the counterparty
-- It becoming probable that the counterparty enter bankruptcy or other financial reorganisation
-- granting to the counterparty a concession that the Group will not otherwise consider
Restricted Shares
During both years, the Group has issued restricted shares under the "2013 Share Option Scheme".
Management has considered that the restricted shares issued to date should be measured similarly to share options. As per the agreement, the shares granted vest immediately and are accompanied by a restricted share agreement. Management has considered that the restrictions on shares were representative of market related vesting conditions, as the holders of the restricted shares can only dispose of their shares if the quotation price reaches different thresholds, or in certain cases on the third year anniversary following the date of the grant as long as the holder has a business relationship with the Group.
Management has considered that achievement of these market conditions would require time corresponding to the advantage provided to the holders of restricted shares. Management has estimated that Tranche 1 and 2 would be achieved within 5 years and Tranche 3 within 10 years, therefore, Management has applied those durations as vesting periods for the instruments. For the restricted shares that vest on the third anniversary this date has been used as the duration of the vesting period.
For further detail on share-based payments transactions, refer to note 21.
4.2 Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial information were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
The Management has disclosed reasonably possible assumptions and estimates, on the basis of its existing knowledge at year end. Outcomes within the next financial years that are different from these assumptions could require a material adjustment to the carrying amount of the asset or liability affected.
Share-based payments
The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share (options), volatility and risk-free interest rate, dividend yield and making assumptions about them.
During both years, the Group issued restricted shares and options under the 2013 Equity Incentive Plan.
The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 21.
Employee Stock Option Plan ("ESOP")
The Group has granted Employee Stock Option Plan to some of its employees and managers. The fair value of the plan at grant date is based upon actuarial assumptions estimated by the management and disclosed in note 21.3.
Measurement of property, plant and equipment, pallet pool and investment property
The Group holds a building property which is used for both Group administrative purpose and rental to third parties. Therefore, the management has determined that the building accounting should be split between the part used by the Group, classified as property, plant and equipment, and the part rented to third parties, classified as investment property.
The initial cost of acquisition of the building is for both the building construction and the land. In determining the part of the acquisition cost related to the land, by default of explicit description in the notarial deed, the Management has made the assumption that 25% of the initial cost was related to the land.
In determining the measurement of each part of the building (PPE and investment property), the management has determined the split based on the surface used for each purpose. Management has also determined that the depreciation should be made using straight line method and over a useful life of 30 years.
Due to the inability of Management to determine the residual value at the end of the useful life, the Management has made the assumption that the residual value is nil and, therefore, the depreciation is computed on the entire value of the building cost.
The pallet pool is recognised at an amount based on standard cost of production (considering a theoretical annual nominal quantity of 2,500,000 pallets) including all expenses directly attributable to the manufacturing process and portions of related production overheads, based on normal operating capacity, and carried at this cost net of impairment and depreciation.
Finished goods and work in progress
Finished goods and work in progress are recognised at an amount based on standard cost of production including all expenses directly attributable to the manufacturing process and portions of related production overheads, based on normal operating capacity.
Management consider that this is a fair reflection of the cost of the pallets.
Pallet Pool
The pallet pool is depreciated over 5 years. Management have assessed the durability of the pallets supported by external testing and consider that this is a fair reflection of their estimated useful life. The residual value is estimated to be nil.
Management will review the useful life of the pallets at each reporting date.
Impairment of Goodwill
In assessing impairment, Management estimates the recoverable amount of cash generating units based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate (see note 8 for details and assumptions).
5 Property, plant and equipment - Others
Land & Plant & Construction Total
Building Equipment in progress
USD USD USD USD
Cost
As at 1 January
2014 1,942,669 12,824,716 3,537,463 18,304,848
Additions 110,702 9,688,738 5,510,766 15,310,206
Disposals (121,662) - - (121,662)
Exchange differences (194,542) (900,394) - (1,094,936)
---------- ------------- ------------- ------------
As at 31 December
2014 1,737,167 21,613,060 9,048,229 32,398,456
Additions 26,952 348,132 15,578,162 15,953,246
Transfer 8,648,204 (8,648,204)
Disposals (23,469) (23,469)
Exchange differences (17,892) (2,919,529) (890,657) (3,828,078)
---------- ------------- ------------- ------------
As at 31 December
2015 1,746,227 27,666,397 15,087,530 44,500,155
========== ============= ============= ============
Amortization and
impairment
As at 1 January
2014 178,274 979,453 3,537,463 4,695,190
Amortization charge
for the year 53,926 1,701,292 - 1,755,218
Disposals (38,888) - - (38,888)
Exchange differences (21,865) (251,745) - (273,610)
---------- ------------- ------------- ------------
As at 31 December
2014 171,447 2,429,000 3,537,463 6,137,910
Amortization charge
for the year 61,655 2,451,151 2,512,806
Impairment charge
for the year 87,062 87,062
Disposals (23,469) (23,469)
Exchange differences (3,083) (464,022) (467,104)
---------- ------------- ------------- ------------
As at 31 December
2015 230,019 4,479,722 3,537,463 8,247,205
Net book value
As at 31 December
2015 1,516,208 23,186,675 11,550,067 36,252,950
========== ============= ============= ============
As at 31 December
2014 1,565,720 19,184,060 5,510,766 26,260,546
========== ============= ============= ============
The Group has no liens and encumbrances on its property, plant and equipment. The Group has capital commitments on the development and acquisition of property, plant and equipment in Canada for USD 5,763,349 (2014: USD 2,249,326).
As at 31 December 2015 and 2014, the Group has several items as PPE corresponding to machines that are not yet completed for the production of pallets. These items are presented at construction in progress and not amortized.
There were no borrowing costs capitalised during any period.
An external expert has been mandated to reassess the recoverable amounts of all the plants and equipment as of 31 December 2015 that are higher than their carrying amounts. It indicates the absence of impairment to recognise at year end.
5.1 Impairment of property, plant and equipment
Management has reviewed the carrying value of the property, plant and equipment at the yearend in light of the future cash generation of the Group following strategic cost-saving manufacturing agreement with Zhenshi Holding Group Company Limited. The property, plant and equipment will be located in Canada and China underpins the Group business. Management are of the opinion that there is no impairment in the carrying value of the property, plant and equipment.
5.2 Security on property, plant & equipment for liabilities
The Group has granted a security interest over the property held in Switzerland in return for the CHF 1,900,000 bank loan amounting to USD 1,914,060 (2014: CHF 2,000,000 - USD 2,021,220).
6 Property, plant and equipment - Pallet pool
The Group has decided to disclose the pallet pool as a separate heading and therefore have disclosed the Pallet Pool in a separate note.
Pallet Pool
USD
Cost
As at 1 January 2014 419,153
Additions 2,466,928
As at 31 December 2014 2,886,081
Additions 17,895,718
------------
As at 31 December 2015 20,781,799
Amortization and impairment
As at 1 January 2014 43,317
Depreciation charge
for the year 88,258
As at 31 December 2014 131,575
Depreciation charge
for the year 2,293,955
Impairment charge for
the year 871,988
As at 31 December 2015 3,297,518
Net book value
As at 31 December 2015 17,484,281
============
As at 31 December 2014 2,754,506
============
The impairment provision of USD 871,988 booked during the year 2015 has been recognised to cover lost and broken pallets.
7 Investment property
Investment
properties
USD
Cost
As at 1 January 2014 1,726,323
Exchange differences (174,642)
------------
As at 31 December 2014 1,551,681
Exchange differences -
As at 31 December 2015 1,551,681
Amortization and impairment
As at 1 January 2014 129,476
Amortization charge for the year 41,969
Exchange differences (16,276)
------------
As at 31 December 2014 155,169
Amortization charge for the year 38,792
As at 31 December 2015 193,961
Net book value
As at 31 December 2015 1,357,720
============
As at 31 December 2014 1,396,512
============
The investment property is a building used by the Group for both administrative purpose and for rental. The cost of the property related to the administrative purpose is classified within property, plant and equipment. The cost for the rental part is classified as investment property.
The Group has granted a security interest over the property held in Switzerland in return for the CHF 1,900,000 bank loan USD 1,914,060 (2014: CHF 2,000,000 - USD 2,021,220).
7.1 Revenue from investment property
As at 31 December As at 31 December
2015 2014
USD USD
Rental income from investment
property (*) 289,570 329,450
(*) included within other operating income (see note 18.1).
7.2 Fair value of investment property
The investment property is measured at cost. The fair value of the property as at 31 December 2015 has been determined by Régie Châtel S.A., an independent external appraiser, on 18 February 2016. Régie Châtel S.A. is a specialist in valuing such investment properties. The fair value of the property has been determined using the rental income and the construction value. The valuation has been determined with the following primary inputs:
2015 2014
Yield (%) 7% 7%
Average price for new construction (m3) 390 CHF/ 390 CHF/ m3
m3
Land price (m(2)) 250 CHF/m(2) 250 CHF/m(2)
Fair value determined for the part classified USD1,906,558 USD1,886,895
as investment property
(CHF 1,892,553) (CHF 1,867,085)
8 Intangible assets
Software Trade Customer Acquired Goodwill Total
names relationships licences
and similar
intangible
assets
USD USD USD USD USD USD
Cost
As at 1 January 2014 1,964,184 163,682 491,046 47,033 1,130,872 3,796,817
Additions 815,674 - - 250,000 - 1,065,674
Exchange differences (100,251) (8,354) (25,063) - (57,719) (191,387)
----------- ------------- --------------- ------------- ----------- -------------
As at 31 December
2014 2,679,607 155,328 465,983 297,033 1,073,153 4,671,104
Additions 900,035 900,035
Exchange differences (126,120) (7,311) (21,932) - (50,510) (205,873)
----------- ------------- --------------- ------------- ----------- -------------
As at 31 December
2015 2,553,487 148,017 444,051 1,197,068 1,022,643 5,365,266
Amortization and impairment
As at 1 January 2014 - - - 45,233 - 45,233
Amortization charge
for the year 943,151 32,736 98,209 1,799 - 1,075,895
Exchange differences (50,020) (1,674) (5,023) - - (56,717)
----------- ------------- --------------- ------------- ----------- -------------
As at 31 December
2014 893,131 31,062 93,186 47,032 - 1,064,411
Amortization charge
for the year 879,018 30,572 91,717 29,732 1,031,039
Exchange differences (69,830) (2,431) (7,282) - (79,543)
----------- ------------- --------------- ------------- ----------- -------------
As at 31 December
2015 1,702,319 59,203 177,621 76,764 2,015,907
Net book value
As at 31 December
2015 851,168 88,814 266,430 1,120,304 1,022,643 3,349,359
=========== ============= =============== ============= =========== =============
As at 31 December
2014 1,786,476 124,266 372,797 250,001 1,073,153 3,606,693
=========== ============= =============== ============= =========== =============
The Group has no intangible assets pledged as security for liabilities.
The Group has no contractual commitment for the acquisition of intangible assets.
The licence acquired in 2014 for USD 250,000 is for the use of new pallets following development of those pallets. As these are currently not being used, no amortization has been calculated on this amount.
8.1 Impairment of Goodwill
The goodwill represents the intangible value of the business acquired end of 2013 and known as "Equipment Tracking". Management has identified the relevant Cash Generating Unit as it is merged into the legal entity based in Wales with other pure RM2 departments (IT, EMEA Sales and RM2 pallets tracking).
Management has reviewed the carrying value of goodwill at the year-end in light of the future five year cash generation of the "Equipment Tracking" activities as the goodwill underpins this specific business. A pre-tax discount rate of 15% that considers the risk profile of the Group and the assumption of no growth rates in the revenues based on the 2016 and after forecast revenues (being the base case following the setup of the business). An impairment has to be booked if the pre-tax discount rate reach 21%.
9 Financial assets and liabilities
As at 31 As at 31
December 2015 December
2014
USD USD
Loans and receivables
Trade and other receivables
(Note 11) 8,315,843 3,889,105
Deposits 62,074 59,548
--------------- -----------
Other current financial assets 62,074 59,548
Restricted Cash, Cash and
cash equivalents (Note 12) 36,331,636 85,032,769
Total current financial assets 36,393,710 85,092,317
Total loans and receivables 44,709,553 88,981,422
--------------- -----------
Total financial assets 44,709,553 88,981,422
=============== ===========
Total current 44,709,553 88,981,422
Financial liabilities
Financial liabilities at
amortised cost
Interest-bearing loans and
borrowings 1,961,315 2,082,114
Trade and other payables 14,042,759 5,412,615
Total financial liabilities
at amortised cost 16,004,074 7,494,729
Total financial liabilities 16,004,074 7,494,729
=============== ===========
Total current 14,159,199 5,441,188
Total non-current 1,844,875 2,053,541
=============== ===========
9.1 Interest-bearing loans and borrowings
As at 31 As at 31
December December
2015 2014
Effective Maturity USD USD
interest date
rate
Non-current interest-bearing
loans and borrowings
30 November
CHF 1,900,000 Bank loan 1.8% 2020 1,814,060 2,021,220
Hire purchase liabilities
in excess of one year 30,815 32,321
Total non-current interest-bearing
loans and borrowings 1,844,875 2,053,541
============ ============
Current interest-bearing
loans and borrowings
Short-term part of long 100,000 -
term bank loan
Hire purchase liabilities
within of one year 16,440 28,573
Total current interest-bearing
loans and borrowings 116,440 28,573
============ ============
Total interest-bearing loans
and borrowings 1,961,315 2,082,114
============ ============
CHF 1,900,000 bank loan
The loan is secured by a mortgage on the building held by the Group in Switzerland for a total value of CHF 2,470,000 (2014: CHF 2,470,000) and by transfer of rental income to the lender.
9.2 Hedging activities and derivatives.
The Group has not entered into any hedging activity during each period covered by the consolidated financial statements.
9.3 Fair values
The Group estimates that the fair value of the financial assets and liabilities approximates their carrying amount as these are mainly composed of short-term receivables and payables and mainly composed of fixed interest long-term loans without advance fees.
9.3.1.1 Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
- Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly
- Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data
The Group has no financial instruments carried at fair value as at 31 December 2015 or 31 December 2014.
10 Inventories
As at 31 As at 31
December December
2015 2014
USD USD
Raw materials 10,456,947 3,157,326
Work in progress 2,268,138 1,448,420
Finished goods -pallets 7,121,542 2,411,442
19,846,627 7,017,188
Finished goods represent pallets produced and not yet sold or deployed via the pallet pool in property, plant and equipment.
The cost of inventory sold and recognised as an expense during the year was USD 2,407,751 (2014: USD 554,962).
As a consequence of its strategic alliance after year-end (refer to Note 26), the substantial downturn of its production process and the move of its devices in China, the Group has surplus of raw inventories in its premises in Canada. In that respect, the Group has initiated after year-end sales of this raw material to third parties with a discount on their original acquisition value. These conditions have no impact on the value of the inventories as of 31 December 2015.
11 Trade and other receivables
As at 31 As at 31
December December
2015 2014
USD USD
Trade receivables 3,541,955 648,353
Income tax receivables 66 2,275
Other tax receivables 2,373,410 2,179,364
Other receivables 2,400,412 1,059,113
Total trade and other receivables 8,315,843 3,889,105
========== ==========
The ageing of the trade receivables as at 31 December 2015 is detailed below:
2015 2014
Neither past due nor impaired: 2,994,275 348,185
Past due but not impaired:
0 to 30 days 496,167 216,952
30 to 60 days 26,837 73,968
60 to 90 days 8,162 7,128
Over 90 days 16,514 2,120
---------- --------
3,541,955 648,353
========== ========
The Group has a provision for impairment of the Canadian HST receivables for USD 41,946 (2014: USD 96,465).
The other tax receivables primarily relate to Harmonised Sales Tax (VAT) balances due from Canada, VAT due from Luxembourg and VAT due from United Kingdom.
12 Cash and short-term deposits
As at 31 December As at 31 December
2015 2014
USD USD
Restricted cash 1,816,039 2,149,975
------------------------------- ------------------
Total restricted cash 1,816,039 2,149,975
=============================== ==================
Cash at bank and in hand 4,515,597 4,639,083
Short-term deposits 30,000,000 78,243,711
------------------------------- ------------------
Total cash and short-term
deposits 34,515,597 82,882,794
=============================== ==================
Cash at banks earns interest at floating rates based on daily bank deposit rates. During the year, short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earned interest at the respective short-term deposit rates.
At both period ends, the Group does not have any undrawn committed borrowing facilities.
The Group has not pledged any part of its cash and short-term deposits to fulfil collateral requirements other than USD 3,579 in respect of rental of office space. In connection with the operational lease of the factory premises located in Canada, a letter of credit amounting to CAD 2,500,000 - USD 1,816,039 (2014: CAD 2,500,000 - USD 2,149,975) has been issued to the landlord as guarantee for lease payments and lease defaults. The related deposit bank account is shown under restricted cash.
For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 31 December:
As at 31 As at 31
December 2015 December 2014
USD USD
Cash at bank and in hand 4,515,597 4,639,083
Short-term deposits 30,000,000 78,243,711
--------------- ---------------
Total cash and cash equivalents 34,515,597 82,882,794
=============== ===============
13 Share capital and reserves
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 46.5p, 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 100p.
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 46.5p, 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.
2014
On 6 January 2014, the Company completed the IPO issuing, 155,903,548 shares at GBP 0.88 on AIM and receiving net proceeds, after payment of fees of USD 215,760,052. Following repayment of USD 71,679,712 of development loans, fees and interest, the Company's balance sheet was free of debt (other than the mortgage on the office building in Switzerland) and retained USD 144,080,340 to finance capital expenditure, production of inventory and overheads. The premium arising on the newly issued IPO shares has been taken to the Share Premium Account.
On 6 January 2014, the Company issued 4,157,428 Ordinary Shares at par to a significant shareholder.
On 24 January 2014, 2,316,405 restricted shares were granted to certain Directors having Performance Conditions (see note 22).
On 3 April 2014, 900,000 restricted shares were granted to a consultant subject to certain vesting conditions.
On 13 June 2014, 2,317,000 restricted shares were granted to certain employees, 1,000,000 of which were subject to Performance Conditions, and 1,317,000 of which were subject to certain vesting conditions.
On 22 September 2014, 1,000,000 restricted shares were granted subject to certain Performance Conditions.
Following such issuances, the Company had 322,777,156 Ordinary Shares issued.
Conditions of the restricted shares
Conditions of the restricted shares issued 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-based payments transactions refer to note 21.
13.1 Authorised shares
Shares USD Par value
per share
At 1 January 2014 660,939,681 6,609,397 USD 0.01
-------------- ------------ -----------
IPO placement on 6 January 2014 (155,903,548) (1,559,036) USD 0.01
Subscription for new shares on
6 January 2014 (4,157,428) (41,574) USD 0.01
Subscription for restricted shares
on 24 January 2014 (2,316,405) (23,164) USD 0.01
Subscription for restricted shares
on 3 April 2014 (900,000) (9,000) USD 0.01
Subscription for restricted shares
on 13 June 2014 (2,317,000) (23,170) USD 0.01
Subscription for restricted shares
on 22 September 2014 (1,000,0000 (10,000) USD 0.01
At 31 December 2014 494,345,300 4,943,453 USD 0.01
Subscription for restricted shares
on 12 March 2015 (253,000) (2,530) USD 0.01
Subscription for new shares on
21 October 2015 (75,000,000) (750,000) USD 0.01
At 31 December 2015 419,092,300 4,190,923 USD 0.01
============== ============ ===========
The above table shows the authorised share capital available for issue.
13.2 Ordinary shares issued and fully paid
Shares USD Par value
per share
At 1 January 2014 156,182,775 1,561,828 USD 0.01
IPO placement on 6 January 2014 155,903,548 1,559,036 USD 0.01
Subscription for new shares on
6 January 2014 4,157,428 41,574 USD 0.01
Subscription for restricted shares
on 24 January 2014 2,316,405 23,164 USD 0.01
Subscription for restricted shares
on 3 April 2014 900,000 9,000 USD 0.01
Subscription for restricted shares
on 13 June 2014 2,317,000 23,170 USD 0.01
Subscription for restricted shares
on 22 September 2014 1,000,000 10,000 USD 0.01
At 31 December 2014 322,777,156 3,227,772 USD 0.01
------------ ---------- -----------
Subscription for restricted shares
on 12 March 2015 253,000 2,530 USD 0.01
Subscription for new shares on
21 October 2015 75,000,000 750,000 USD 0.01
At 31 December 2015 398,030,156 3,980,302 USD 0.01
============ ========== ===========
As at 31 December 2015 and 2014, the issued share capital is composed of one class of Ordinary Shares.
13.3 Share premium
USD
At 1January 2014 31,134,458
IPO placement on 6 January 2014 223,097,977
Transaction costs on issue of shares (4,433,482)
Absorption of the 31 December 2013 loss on 24
June 2014 (30,441,102)
-------------
At 31 December 2014 219,357,851
Subscription for new shares on 21 October 2015 44,672,999
Transaction costs on issue of shares (713,760)
At 31 December 2015 263,317,090
=============
The share premium available in 2013 for the compensation of existing and future losses or to increase the subscribed share capital was USD 30,441,102 and resulted from the reduction of nominal value of the shares from USD 0.45 to USD 0.01 on 11 October 2013. The USD 30,441,102 was absorbed during 2014.
13.4 Nature and purpose of reserve
Currency translation reserve:
The currency translation reserve is used to record exchange differences arising from the translation of the subsidiaries' financial statements in foreign currencies to the Group reporting currency.
This reserve cannot be distributed to shareholders.
Share based payment reserve:
The share based payment reserve corresponds to the accumulated amount of instruments granted to employees regarding share based payments equity settled.
13.5 Dividend distribution
As a result of the accumulated losses generated by the Group, no dividend has been declared or paid.
13.6 Treasury stock
The Group repurchased treasury stock shares for an amount of USD 3,424. In accordance with the Luxembourg law, a non-distributable reserve has been created in connection with this transaction on own shares.
14 Trade and other payables
As at 31 As at 31
December December
2015 2014
USD USD
Trade payables 12,139,283 4,752,320
Employee compensation
payables 270,431 258,110
Other tax payables 423,531 747,662
Other payables 1,633,044 402,183
Total trade and
other payables 14,466,289 6,160,275
=========== ==========
Other payables includes an amount of USD 103,602 (2014: USD 120,471) due to related parties.
Terms and conditions of the above financial liabilities:
- Trade payables are non-interest bearing and are normally settled on 30-days terms - Other payables are non-interest bearing and have an average term of 30 days terms - For explanation on the Group's liquidity risk management processes, refer to Note 24. 15 Revenues and segment reporting
The Group has only one operating segment for the disclosure of revenue.
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 represents 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.
During the year 2015, there were three clients who represent more than 10% of the Group's revenues totalling 70% (2014: two clients each representing more than 10% of the Group's revenues - the total of their revenues being 21%). The remaining revenues are coming from approximately 20 customers.
Turnover
31 December 31 December
2015 2014
USD USD
Sold pallets 3,755,015 261,737
Leased pallets 2,740,530 182,388
Rendering of logistical services 1,504,592 1,556,291
8,000,137 2,000,416
------------ ------------
Geographical information
The breakdown of the revenue allocation by area is as follows:
31 December 31 December
2015 2014
USD USD
USA 6,308,906 268,298
Europe 1,691,232 1,732,118
8,000,137 2,000,416
------------ ------------
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 and North America.
As at 31 As at 31
December 2015 December
2014
USD USD
Luxembourg 3,249,373 3,451,895
Rest of Europe 6,379,028 7,055,336
North America 48,815,909 23,511,029
58,444,310 34,018,260
--------------- -----------
Non-current assets for this purpose consist of property, plant and equipment, investment properties and intangible assets.
16 Cost of sales
31 December 31 December
2015 2014
USD USD
Cost of pallets sold - blockpall 2,128,000 271,952
Cost of pallets sold - services 279,748 283,013
Amortization of pallet pool 2,293,955 88,258
Cost of software, licenses
and services 1,551,590 1,393,418
Factory absorption 32,325,152 16,767,957
Impairment and repairs 1,921,988 -
Other 4,011,961 2,805,119
44,512,394 21,609,717
============ ========================
Factory absorption is the variance between actuals costs to produce pallets and the standard costs used in valuing the pallets produced in inventory and assets.
17 Administrative expenses
31 December 31 December
2015 2014
USD USD
Administration payroll 1,939,126 2,501,519
Selling and distribution 9,853,251 6,408,427
Shared based payment 2,085,292 1,215,470
Depreciation 1,354,516 1,362,317
Other 6,148,380 6,772,857
21,380,565 18,260,590
============ ============
18 Other income and expenses
18.1 Other operating income
31 December 31 December
2015 2014
USD USD
Net gain/(loss) on disposal
of PPE 435,591 1
Rental income 289,570 329,450
Other 179,515 341,476
Total other operating income 904,676 670,927
============ ============
18.2 Other operating expenses
31 December 31 December
2015 2014
USD USD
Direct operating
expenses on rental-earning
investment properties 124,688 101,119
Other 51,080 554,904
Total other operating
expenses 175,768 656,023
============ ============
18.3 Finance income
31 December 31 December
2015 2014
USD USD
Interest income on loans and
receivables 26,100 290,538
Total interest income 26,100 290,538
Net foreign exchange gain 1,887,246 443,995
Other 42,626 42,096
Total finance income 1,955,972 776,629
============ ============
18.4 Finance costs
31 December 31 December
2015 2014
USD USD
Interest at amortised costs
on loans and borrowings 48,000 568,639
Total interest expenses 48,000 568,639
Net foreign exchange loss 3,572,646 4,843,501
Other 12,240 254,257
Total finance costs 3,632,886 5,666,397
============ ============
18.5 Employee benefits expenses
31 December 31 December
2015 2014
USD USD
Included in cost of sales
expenses:
Wages and salaries 15,561,765 10,750,890
Social security costs 2,110,804 937,990
Pension costs 29,574 21,147
Included in administrative
and selling/distribution expenses
:
Wages and salaries 6,472,676 5,382,260
Social security costs 384,496 642,665
Pension costs 221,057 131,242
Total employee benefits expenses 24,780,372 17,866,194
============ ============
Average number of full time
employees 513 274
============ ============
19 Income taxes
19.1 Income tax expenses
The major components of income tax expense for each period are:
31 December 31 December
2015 2014
USD USD
Current income tax charge (13,484) 59,744
Deferred tax (146,746) (157,135)
Total Income tax (160,230) (97,391)
============ =======================
A reconciliation between tax expense and the accounting loss multiplied by the domestic tax rate of each entity in its jurisdiction for each period is as follows:
31 December 31 December
2015 2014
USD USD
Loss before tax (58,840,828) (47,315,141)
------------- -------------
Theoretical income tax (charge)/income
using applicable income tax rate (11,309,977) (13,148,122)
Reconciliation to actual income
tax charge
Unrecognised deferred tax assets
on losses carried forward 13,547,009 14,360,228
Non-deductible expenses from:
Director's fees, ESOP 802,704 494,695
Accelerated capital allowances 362,676 299,497
Other non-deductible expenses (3,586,562) (2,150,378)
Minimum income tax charge 35,188 52,918
Other (11,268) (6,230)
Income tax expenses (income) (160,230) (97,391)
============= =============
19.2 Deferred taxes
Deferred tax liabilities
On the acquisition of Equipment Tracking Limited on 10 December 2013, the valuation of the separable net assets of the company created a deferred tax liability of USD 523,782.
During the year, the Group recognised a deferred tax charge on the accelerated capital depreciation of the separable net assets of USD 146,746 (2014: USD 157,135), the variation with the amount recognised in profit and loss is due to currency translation.
As at year end, the Group has recognised deferred tax liabilities for USD 184,330 (2014: 403,286).
Deferred tax assets
The Group has not recognised any deferred tax assets as there is no certainty of the timing of recovery of those assets.
The relievable tax losses within the Group for which no deferred tax asset has been recognised amount to USD 134,918,560 as at 31 December 2015 (2014: USD 187,484,145). If the Group were able to recognise all unrecognised deferred tax assets, the loss would decrease by USD 31,655,039 as at 31 December 2015 (2014: USD 53,762,795).
20 Pensions and other post-employment benefit plans
RM2 S.A. Swiss Branch, RM2 Limited and Equipment Tracking Limited operate defined contribution pension schemes. The assets of the schemes are held separately from those of the company in an independently administered fund. The pension cost charge represents contributions payable by the company to the fund. The related charge for the year 2015 amounts to USD 261,180 (2014: USD 144,390).
21 Share-based payments
The Group has a number of share schemes as shown in the table below.
The Company grants restricted shares, shares grants at par value and share options at its discretion to employees, officers, directors, consultants and advisors.
Restricted shares and share options are granted with vesting periods of between the date of grant and ten years from the issuance or the date of grant and may carry performance conditions or time conditions for vesting. Should the restricted shares or options remain unexercised after a period of ten years from the date of grant, the options will expire and the restricted shares will be repurchased from the holder. Options are exercisable at a price equal to the Company's quoted market price on the date of grant.
Each programme approved by the Company during the year is detailed as follows:
21.1 2012 Equity Incentive Plan
The Remuneration Committee approved the issuance of 11,025,000 shares to certain founders of the Group on 16 July 2013. These shares were immediately issued without any restriction for the holders.
Management has determined the fair value of this share-based payment transaction by reference to the placing price of the shares.
21.2 2013 Equity Incentive Plan
The Remuneration Committee approved the issuance of 12,308,775 shares to certain Directors on 14 November 2013. These shares were immediately issued and accompanied by a restricted share agreement for each beneficiary of the awards.
Each restricted share agreement specifies that holders can only dispose of their shares upon achievement of certain performance conditions. 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% higher than the Placing Price of GBP 0.88 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% 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% 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.
Management has considered that, even if shares were immediately issued to holders and then there was no effective period, the performance conditions would be similar to vesting conditions. As a result, Management has determined the duration of tranche 1 and 2 as at 5 years and of tranche 3 as at 10 years from grant date.
In determining the amount of shares that will be exercised (available for disposal by holders) at 100%, the Management considers that all beneficiaries would remain in the Group at the date of the exercise.
21.3 Employee Stock Option Plan ("ESOP")
In 2014, the Remuneration Committee approved the issuance of a total of 6,533,405 restricted shares and 600,000 options to Directors, consultants and key employees. Part of these awards 4,316,405 are issued under the same conditions as the restricted shares described above and part 2,217,000 vest on the third anniversary of the grant date, assuming the beneficiary continues to have a business relationship with the Company at such date. In addition, the Remuneration Committee approved the issuance of 600,000 share options to key employees and management, vesting over three years in equal tranches on the anniversary of the grant date and with a strike price equal to fair market value on the date of grant. The vesting of such options also automatically accelerates should the volume-weighted average price of the Company's shares exceed the Placing Price of GBP 0.88 by 100% for a period of 30 consecutive calendar days.
In 2015, the Remuneration Committee approved the issuance of 253,000 restricted shares to key employees. These shares vest on the third anniversary of the grant date, assuming the beneficiary continues to have a business relationship with the Company at such date.
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 46.5p, 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 100p.
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 46.5p, 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.
Financial effect of share-based payment transactions:
The expense recognised for employee services received during the year is shown in the following table:
31 December 31 December
2015 2014
USD USD
Expense arising from equity-settled share-based
payment transactions 2,085,292 1,215,470
----------- -----------
Total expense arising from share-based payment
transactions 2,085,292 1,215,470
=========== ===========
The Company does not have any liability arising from share-based payment transactions as at 31 December 2015 (2014: Nil).
Movements during the year:
The following table illustrates the number and weighted average exercise price (WAEP) of, and movements in, share granted and share options during the year:
Restricted shares Number of share
issued options
Outstanding at beginning of
year 18,833,180 600,000
Granted during the year 253,000 6,000,000
Forfeited-repurchased during
the year (333,334) (300,000)
Exercised during the year - -
------------------- ---------------
Outstanding at end of the year 18,752,846 6,300,000
--------------------------------- ------------------- ---------------
Tradable/Exercisable at end - -
of the year
--------------------------------- ------------------- ---------------
The weighted average remaining contractual life for the restricted shares issued outstanding as at 31 December 2015 is 4.32 years (2014: 5.35 years).
The weighted average fair value of shares granted during the year was USD 0.99 (2014: USD 0.50).
Where restricted shares have been issued with performance conditions, Management considers that range of exercise price will be from GBP 1.32 for tranche 1, from GBP 1.54 for tranche 2 and from GBP 1.76 for tranche 3.
The weighted average share price at the date of exercise issue was GBP 0.46 (2014: GBP 0.84).
21.4 Fair value of share based payments transactions
2012 Equity Incentive Plan - Shares issued to founders
The fair value of shares granted was estimated based on the placing price of shares (GBP 0.88), as at 6 January 2014, as it is considered to be the most representative value of the shares granted to founders at the grant date, less the exercise price paid by the holders of the shares (GBP 0.01).
2013 Equity Incentive Plan - Restricted shares issued
A modified Black-Scholes model has been used to determine the fair value of the share based payment on the date of grant or issue. The fair value is expensed to the income statement on a straight line basis over the vesting period, which is determined annually. The model assesses a number of factors in calculating the fair value. These include the market price on the date of grant, the exercise price of the share options, the expected share price volatility of the market sector in which the Group operates, the expected life of the options, the risk free rate of interest and the expected level of dividends in future periods.
The calculation of the fair value of options issued requires the use of estimates. Expected volatility has been estimated based on similar sized companies listed on the AIM market of the London Stock Exchange. It is assumed that all options will be exercised.
2013
Restricted
Shares
Weighted average exercise price GBP 0.01
Expected volatility 17%
Expected life of restricted shares 5 and 10
years
Risk-free interest rate 1.9%-2.6%
Expected dividend yields Nil
------------------------------------ ------------- ----------- --------------
Model used Black-Scholes
2014 2014 2014
Restricted Restricted Option Shares
Shares Shares
Weighted average exercise GBP 0.01 GBP 0.01 GBP 0.645
price
Expected volatility 17% 17%
Expected life of restricted 5 and 10 3 years 3 years
shares years
Risk-free interest rate 1.9%-2.6% 1.1% 1.1%
Expected dividend yields Nil Nil Nil
----------------------------------- ------------- ----------- --------------
Model used Black-Scholes Black-Scholes
2015
Option Shares
Weighted average exercise GBP 0.465
price
Expected volatility 49%
Expected life of restricted 3 years
shares
Risk-free interest rate 1.2%
Expected dividend yields Nil
------------------------------------ ------------- ----------- --------------
Model used Black-Scholes
In determining the cost to be recognised during the period, management considered that all shares would be exercised by holders upon achievement of performance conditions.
22 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:
31 December 31 December
2015 2014
USD USD
Net loss attributable to ordinary
equity holders of the parent
for basic earnings (58,680,598) (47,217,750)
==================== ====================
31 December 31 December
2015 2014
Weighted average number of
ordinary shares for basic
earnings per share 337,569,983 317,997,300
Weighted average number of
ordinary shares adjusted for
the effect of dilution 337,569,983 317,997,300
==================== ====================
Loss per share
Basic (0.17) (0.15)
Diluted (0.17) (0.15)
==================== ====================
Management considers that there is no dilutive effect from the options as they would be negative.
23 Commitments and contingencies
23.1 Operating lease rentals - Group as lessor
Property
The Group has entered into commercial property lease on its investment property, consisting in the Group's surplus space in the Swiss office building. The non-cancellable lease has remaining terms of as at 31 December 2021.
Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:
31 December 31 December
2015 2014
USD USD
Within one year 227,196 329,452
After one year but not more
than five years 908,785 1,317,808
More than five years 227,196 658,904
1,363,177 2,306,164
============ ============
Pallets
As at 31 December 2015, the Group had contracted 6 customers having mainly signed a 3-year-period agreement.
All agreements, whatever the duration, have a notice period for cancellation which is mainly 90 days. Biggest customer has a 180 day notice period.
Future minimum rentals receivable under operating leases defined as monthly flat fee at 31 December are as follows:
31 December 31 December
2015 2014
USD USD
Within one year 248,186 64,128
After one year but not more
than five years 126,424 128,256
More than five years - -
374,610 192,384
============ ============
Group's activity is completed by other trip-fee-agreements which revenue is generated according to velocity metrics.
23.2 Operating lease commitments - Group as lessee
The Group has entered into commercial leases for office spaces in United Kingdom and New Jersey and for a manufacturing facility in Canada. These leases have an average life of between 6 months and 3 years with renewal options included in the contracts. In connection with the operational lease of the factory premises located in Canada, a letter of credit amounting to CAD 2,500,000 - USD 1,816,039 (2014:CAD 2,500,000 - USD 2,149,975) has been issued to the landlord as a guarantee for lease payments and lease defaults.
Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:
31 December 31 December
2015 2014
USD USD
Within one year 1,469,004 1,682,661
After one year but not more
than five years 4,632,336 5,550,376
More than five years 3,859,467 5,920,924
9,960,807 13,153,961
============ ============
23.3 Forward purchase of property, plant and equipment
The Group has commitment in relation with forward purchase for the acquisition of property, plant and equipment, as follows:
As at As at
31 December 31 December
2015 2014
USD USD
Forward purchase for acquisition
of PPE 5,761,937 2,249,326
============= =============
23.4 Related party disclosures
23.4.1 Group subsidiaries
The consolidated financial information include the financial statements of the Company and its subsidiaries. The Group has the following subsidiaries included in these consolidated financial information:
% of equity interest
Subsidiary name Country of incorporation 2015 2014
RM2 S.A., including Swiss
branch Luxembourg 100% 100%
RM2 Leasing S.A. (previously
RM2 IP S.A.) Luxembourg 100% 100%
RM2 Holland B.V. Netherlands 100% 100%
RM2 Europe Spó ka z.o.o. Poland 100% 100%
United States
RM2 USA Inc. of America 100% 100%
RM2 Limited (previously Victoria
Rises Ltd.) United Kingdom 100% 100%
RM2 Canada Inc. Canada 100% 100%
RM2 France E.u.r.l. (previously
RM2 France Sà r.l.) France 100% 100%
Equipment Tracking Limited United Kingdom 100% 100%
RM2 Holding S.à.r.l. Luxembourg 100% 100%
RM2 (Canada) Leasing Inc. Canada 100% N/A
All subsidiaries held by the Company are consolidated, except for RM2 Total Solutions Inc., United States of America, and RM2 Pallet Investment Limited, Ireland, which are dormant companies.
On 24 June 2014, the Extraordinary General Meeting of Shareholders of RM2 International S.A. approved the contribution of all assets and liabilities of RM2 International S.A. in a newly incorporated entity in Luxembourg, RM2 Holding S.à r.l., with accounting and tax effect as at 1 April 2014.
At 24 December 2014, RM2 Total Solutions International B.V. legally merged into RM2 Holland B.V. as a result which RM2 Total Solutions International B.V. ceased to exist.
At 16 December 2015, RM2 (Canada) Leasing Inc. has been incorporated as a subsidiary of RM2 Holland B.V.. The company did not generate any activities during 2015 and has not been consolidated at 31 December 2015.
23.4.2 Transactions with related parties
All transactions between the Company and the Group's subsidiaries, and between Group's subsidiaries, have been eliminated for the preparation of these consolidated financial information.
Income Expenses Amounts Amounts Assets
Year with related from related owed by owed to acquired
parties parties related related from related
parties parties parties
USD USD USD USD USD
Parent: Interest 2014 - 123,458 - - -
bearing
loans
Parent: Interest 2015 - - - - -
bearing
loans
Parent: Non-interest 2014 - - - 8,550 -
bearing loans
Parent: Non-interest 2015 - - - 8,550 -
bearing loans
Key Management
personnel:
Remuneration
Key Management 2014 - 1,464,673 111,921 - -
personnel:
Advances 2014 - - 107,549 - -
Key Management
personnel:
Remuneration 2015 - 1,170,797 - - -
Key Management
personnel:
Share-based payments 2014 - 1,215,470 - - -
Key Management
personnel;
Share-based payments 2015 - 2,085,292 - - -
Other - Advances 2014 - - 31,772 10,235 -
Other - Advances 2015 - - 1,477,205 - -
Other - Reimbursement
of costs incurred 2014 726,215 - - 120,471 -
Other - Reimbursement
of costs incurred 2015 445,770 - - 103,602 -
Other - Assets acquired 2014 - - - - 250,000
In 2015, the income from other related parties have been recorded in other operating income for USD 137,558 (USD 339,925 in 2014) and have been deducted from Other Administrative expenses for USD 308,212 (USD 386,291 in 2014).
Restricted share issues to related parties are disclosed in note 21.
23.4.3 Transactions with key management personnel
The Group granted compensation to the key management personnel as follows:
As at As at
31 December 31 December
2015 2014
USD USD
Short-term employee benefits 1,170,797 1,464,673
============= =============
24 Financial risk management objectives and policies
The Group's financial liabilities comprise only loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Group's operations. The Group has loans and other receivables, trade and other receivables, and cash and short-term deposits that arrive directly from its operations.
The Group is exposed to market risk, credit risk, foreign currency risk and liquidity risk in relation to the financial instruments held. The Group's senior management oversees the management of these risks. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.
24.1 Market risks
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of market risk: interest rate risk, currency risk and other price risk, such as commodity price risk or equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits and available-for-sale investments.
The Group's management has determined that the Group was not subject to interest rate risk as all significant loans and receivables have been issued with fixed interest rate, or to commodity price risk as the production of pallets does not require raw material subject to market volatility.
The Group has only exposure to the foreign currency risk as a result of its operations in various countries and using different functional currencies.
The sensitivity analyses in the following sections relate to the position as at 31 December 2014 and 2013. The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place (at 31 December 2013: none).
The analyses exclude the impact of movements in market variables on: the carrying values of pension and other post-retirement obligations; provisions: and the non-financial assets and liabilities of foreign operations.
24.1.1 Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's operating activities (when revenue or expense is denominated in a different currency from the Group's presentation currency) and the Group's net investments in foreign subsidiaries (translation risk).
The Group is aware of its non US Dollar exposures but does not consider a hedging program to be needed currently. Raw materials and capital expenditure are primarily in US Dollars whilst the target revenue market is the USA. Any divergence from this would be considered by management with a view to putting cover in place.
The Group has significant operations in the following currencies: United States Dollar (USD) and Canadian Dollar (CAD) and Great British Pound (GBP). The Group has other operations in the following currencies which are not significant for the Group: Swiss Franc (CHF), Euro (EUR) and Polish Zloty (PLN).
Sensitivity analysis
All intercompany movements have been excluded from this sensitivity analysis. The following tables demonstrate the sensitivity to a reasonably possible change in the CAD exchange rate, with all other variables held constant. The impact on the Group's profit before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives. The Group's exposure to foreign currency changes for all other currencies is not material.
In previous years the Group was exposed to movements in the CHF, following a change in the functional currency of the Swiss branch this is no longer a risk. The prior years' sensitivity analysis assumed a +/- 6% change of the USD/CHF exchange rate for the year. This percentage had been determined based on the average market volatility in exchange rates in the 24 months to 31 December 2015.
The sensitivity analysis assumes +/- 30% of the USD/CAD exchange rate of the previous 24 months is (2014: 8%).This percentage has been determined based on the average market volatility in exchange rates in the previous 24 months.
Year Change Effect on Effect on
in CHF profit before other comprehensive
rate tax income
USD USD
2015 - - -
- - -
2014 +6% (337,512) (337,512)
-6% 308,689 308,689
Year Change Effect on Effect on
in CAD profit before other comprehensive
rate tax income
USD USD
2015 +30% (2,811,766) (2,811,766)
-30% 5,048,460 5,048,460
2014 +8% (198,715) (198,715)
-8% 219,422 219,422
24.2 Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
Credit risk from balances with banks and financial institutions is not considered significant as the Group centrally manages the cash held in Luxembourg and has made placements with lower-risk counterparties mainly located in an A rating bank. Funding by the Luxembourg Holding company to the subsidiaries is limited to their current operational requirements.
24.2.1 Financial instruments and cash deposits
In 2013, the Group loan financial instruments were mainly represented by loan receivables owed by PRC.
The Management estimated that the recoverability of the PRC receivable was uncertain (see note 4) and has recorded impairment on the full nominal amount of the receivables. The loan has been cancelled in 2014.
Credit risk from balances with banks and financial institutions is not considered significant as the Group has made placements with lower-risk counterparties.
Trade and other receivables
The Group regularly reviews and assess the trade receivables for the recoverability. The Group has made no provision against overdue trade receivables as management are confident that they will be recovered in full. The Group considers the followings events as indicators of an impairment:
-- default of payments of the counterparty
-- financial difficulties of the counterparty
-- it becoming probable that the counterparty enter bankruptcy
or other financial reorganisation
-- granting to the counterparty a concession that the
Group will not otherwise consider
24.2.2 Ageing analysis of receivables
The Group regularly reviews and assess the trade receivables for the recoverability. The Group has made no provision against overdue trade receivables as management are confident that they will be recovered in full.
The Group receivables ageing list at 31 December 2015 has been partially collected during the 1(st) quarter of 2016. USD 1,350,000 was outstanding at the end of the 1(st) quarter as some of the pallets sent to a customer needed repairs during the 1(st) semester of 2016. The customer have confirmed payment following the repairs.
24.3 Liquidity risk
The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of raising of capital via equity issues or bridging facilities. Longer term the Group will look to finance activities through bank and debt facilities see Note 3.2.
Maturity Profile
The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments.
31 December 2015 Due on Due within Due between Due between Due after Total
demand 3 months 3 and 1 and 5 years
12 months 5 years
USD USD USD USD USD USD
Non-current liabilities
Interest-bearing
loans and borrowings - 25,000 75,000 1,844,875 - 1,944,875
Bank borrowings - 25,000 75,000 1,844,875 - 1,944,875
Current liabilities - - - -
Interest-bearing
loans and borrowings - 16,440 - - - 16,440
Bank overdrafts - - - - - -
Other loans and
borrowings - 16,440 - - - 16,440
Loans from other
related parties - - - - - -
Trade and other
payables - 14,466,289 - - - 14,466,289
Trade payables - 12,139,283 - - - 12,139,283
Payables to other
related parties - 103,602 - - - 103,602
Employee compensation
payables - 270,431 - - - 270,431
Other tax payables - 423,531 - - - 423,531
Other payables - 1,529,442 - - - 1,529,442
Total financial
liabilities: - 14,507,729 75,000 1,844,875 - 16,427,604
========= ============= ============ ============ ========== =============
31 December 2014 Due on Due within Due between Due between Due after Total
demand 3 months 3 and 1 and 5 years
12 months 5
years
USD USD USD USD USD USD
Non-current liabilities
Interest-bearing
loans and borrowings - - - 2,053,541 - 2,053,541
Bank borrowings - - - 2,053,541 - 2,053,541
Current liabilities - - - -
Interest-bearing
loans and borrowings - 28,573 - - - 28,573
Bank overdrafts - - - - - -
Other loans and
borrowings - 28,573 - - - 28,573
Loans from other
related parties - - - - - -
Trade and other
payables - 6,354,090 - - - 6,354,090
Trade payables - 4,752,320 - - - 4,752,320
Payables to other
related parties - 120,471 - - - 120,471
Employee compensation
payables - 258,111 - - - 258,111
Other tax payables - 941,475 - - - 941,475
Other payables - 281,713 - - - 281,713
Total financial
liabilities: - 6,382,663 - 2,053,541 - 8,436,204
========= ============ ============ ============ ========== ============
24.4 Concentration of risk
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group's performance to developments affecting a particular industry. The Group do not consider that others are engaged in similar business activities, but do monitor the situation.
25 Capital management
The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders in the future, return capital to shareholders, issue new shares, or sell assets to reduce debt.
26 Subsequent events
Strategic alliance
On 1 April 2016, the Group entered into a strategic manufacturing agreement with Zhenshi Holding Group Company Limited of China ("Zhenshi"). Zhenshi is a major shareholder of China Jushi Co. Ltd. ("Jushi"), one of the largest manufacturers of fibreglass in the world, producing over 1.1 million tonnes of glass fibre annually. Fibreglass is one of the key raw materials used in the manufacture of RM2's BLOCKpal pallet. The initial term of the agreement is 10 years, renewable at the sole discretion of the Group. Concurrently with the execution of this agreement, the parties agreed to enter into an equipment lease agreement for a substantial portion of the Group's production capacities. The part of Machinery that is not transferred to Jushi is subject to further projects which may include future transfer to China or re-deployment in North America.
As the decision to move a substantial part of its production devices located in Canada to China has been made after 31 December 2015 and as the related effects of this event occurred afterwards, there is no impact on the classification and the value of the balance sheet items as of 31 December 2015.
The agreement provides for the mass production of the RM2 BLOCKpal pallet in Tongxiang, at a facility owned by Zhenshi Group Huamei New Materials Co., Ltd, adjacent to the principal Jushi glass fibre manufacturing plant. Initial production is expected to be deployed in Q1 2017 and will target circa 1.5 million pallets per annum subject to increase in the future. Per the agreement, RM2 committed to acquire a minimum number of pallets during the first year following the start of the production by Jushi and subsequent years. In function of the number of pallets produced, the first year (following the start of the production) financial commitment of the Group under the manufacturing agreement could not excess $90.0m. Pallets produced at the facility will initially be deployed with RM2's customers in North America and Europe.
This agreement should enable RM2 to address the projected volume demands of its clients whilst significantly reducing Cost per Unit. With the transfer of a substantial part of RM2's manufacturing assets to China, no further mass production of pallets is expected from April 2016 until the deliveries of pallets by Jushi to RM2, expected to occur in the first quarter of 2017.
The Group appointed Kevin Mazula as Chief Operating Officer in April 2016, to focus initially on overseeing the manufacturing relationship with Zhenshi.
For further details, please refer to the note Going Concern (see Note 3.2).
Financing
No later than 22 July, 2016, the Company, subject to the General Assembly's approval, will issue Convertible Preferred Shares for a minimum amount of USD 20.0m, at a price of GBP 0.35 each with a cumulative dividend of 9% per annum, in preference to any dividend on Ordinary Shares. The Convertible Preferred Shares may be redeemed by the Company on the fifth anniversary date of their issuance. The Convertible Preferred Shares owners have the right to convert these at a rate of 1:1 to Ordinary Shares, at any time at the option of the holder but after 30 June 2019. If the Company issues additional securities at a lower purchase price than the current Preferred Share conversion price, the conversion price will be adjusted accordingly. The Convertible Preferred Shares will each have one vote per share, subject to some limitations.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EASKEDDXKEEF
(END) Dow Jones Newswires
June 30, 2016 02:01 ET (06:01 GMT)
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