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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 May 2019 to May 2024
TIDMRM2
RNS Number : 6503O
RM2 International SA
21 May 2018
21 May 2018
RM2 International S.A.
2017 Audited Annual Results
RM2 International S.A. ("RM2" or the "Company"), the sustainable smart pallet innovator, today announces its audited financial results for the year ended 31 December 2017. The Company will today post its annual report, along with the accompanying notice of Annual General Meeting, to shareholders. The annual report will also be made available on the Company's website.
Financial Highlights
Hot Features
Premium
-- Revenues for the year ended 31 December 2017 of US$ 6.6 million (2016: US$ 8.9 million)
-- Operating loss after tax for the period of US$ 43.9 million, of which US$ 20.7m is non-recurring
(2016: US$ 52.8 million)
Post year-end
-- US$ 36 million raised (before fees and expenses) by way of a Placing (effected in two tranches;
the first of which has been completed, with the second tranche conditional on the Company
achieving certain milestones)
-- Open Offer to shareholders launched today to raise up to approximately GBP4.3 million (before
expenses) at an issue price of 1 pence per share
-- Debt-free with unrestricted cash balance of US$ 16.7 million at 27 April 2017
-- Significant opportunities with Fortune 500 companies, including initial deployment of RM2
ELIoT pallets, and ongoing major trials
-- Converting some of these opportunities, deployed and financed on schedule, is expected to
result in the Company generating positive EBITDA in 2019
Chief Executive Officer, Kevin Mazula, commented:
"We are focusing the Company's sales efforts primarily on new deployment opportunities of RM2 ELIoT Smart Pallets. Our proposition is unique in helping customers to compress their supply chains. We are successfully completing trials and signing key customer contracts. We have worked hard to reduce the cost base by streamlining operating expenses, eliminating non value-added activities and unwinding the operations at the Canadian manufacturing site. The successful completion of the US$ 36 million equity raise, with the first tranche of US$ 18 million having been drawn in mid-April 2018, should enable the Company to deploy a sufficient quantity of pallets to generate positive EBITDA in 2019."
For further information:
RM2 International S.A. +44 (0)20 7638 9571 Kevin Mazula, Chief Executive Officer Jean-Francois Blouvac, Chief Financial Officer Strand Hanson Limited (Nominated & Financial Adviser and Broker) +44 (0)20 7409 3494 James Spinney / Ritchie Balmer / James Bellman Citigate Dewe Rogerson (Financial PR) +44 (0)20 7638 9571 Simon Rigby / Ellen Wilton
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").
Notes to Editors
RM2 International S.A. specialises in pallet development, 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
RM2 INTERNATIONAL S.A.
Société Anonyme
Consolidated financial statements and
Consolidated management report and
Report of the Réviseur d'Entreprises Agréé
For the year ended 31 December 20
Registered Office : 5, rue de la Chapelle
L-1325 LUXEMBOURG
R.C.S. Luxembourg : B 132.740
Table of contents Page(s) ----------------------------------------------------------- Company information 1 Consolidated management report 2- 10 Corporate governance report 11 Report of the Réviseur d'Entreprises Agréé 12 - 14 Consolidated statement of comprehensive income 15 Consolidated statement of financial position 16 Consolidated statement of changes in equity 17 Consolidated statement of cash flows 18 Notes to the consolidated financial statements 19-63
Company Information
Directors & Advisers
Directors
R. Ian Molson Chairman
Kevin Mazula Chief Executive Officer
Jean-Francois Blouvac Chief Financial Officer
Jan Dekker Non-Executive Director
Charles Duro Non-Executive Director
Lord Rose Non-Executive Director
Paul Walsh Non-Executive Director
Biographies of the Directors are available on the Company's 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
Strand Hanson Limited
26 Mount Row
London W1K 3SQ
Independent Auditor Grant Thornton Audit & Assurance
89A, Pafebruch
L-8308 Capellen
Luxembourg
Registrar Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
Jersey JE1 1ES
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 2017.
Principal Activities
RM2, the sustainable smart pallet innovator, specializes in pallet development, supply and management and is seeking 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, electronic tracking and management of smart composite pallets.
Business Review and Key Performance Indicators
Under new leadership, the Company focussed on the following objectives:
1. Focus sales efforts principally on new deployment opportunities of RM2 ELIoT Smart Pallets
2. Successfully complete the initial trials of RM2 ELIoT Smart Pallets with those potential customers
3. Complete the transition to a high quality, low-cost outsourced manufacturing model
4. Reduce exposure to previous low margin non-ELIoT enabled pallets deployments
5. Unwind operations at the Canadian manufacturing site, streamline operating expenses, eliminate
non value-added activities and monetize non-core, legacy assets
6. Invest in RM2 ELIoT Smart Pallet add-on technologies
The business report considers the key performance indicators to be the business revenues, the level of production and the monitoring of related ramp-up costs, the outcomes of RM2 ELIoT testing and the cash reserves of the business.
The Company displays below a simplified Profit and Loss with a breakdown of recurring and one-time impact with their related cash implication through three stages (cash, differed cash, and non-cash).
The "cash" items impact FY2017 cash flows under the usual payment terms and opening/ending balances. The "differed cash" items impact the cash flows of subsequent years such as 2018 and 2019.The "non-cash" items such as depreciation, amortization and impairment, don't impact FY2017 cash flows.
in $m TOTAL = Recurring + One-Time detail of One-Time
Outsourcing Canada Others
Revenue 6.6 5.7 0.8 0.0 0.0 0.8
"cash" 6.6 5.7 0.8 0.0 0.0 0.8
"differed cash" 0.0 0.0 0.0 0.0 0.0 0.0
"non-cash" 0.0 0.0 0.0 0.0 0.0 0.0
Cost of Goods -34.8 -14.2 -20.7 -10.0 -6.7 -4.0
"cash" -15.7 -5.0 -10.7 -3.9 -5.7 -1.2
"differed cash" -4.9 0.0 -4.9 -4.9 0.0 0.0
"non-cash" -14.3 -9.2 -5.0 -1.2 -1.0 -2.8
SG&A -15.0 -13.7 -1.3 -1.9 0.0 0.6
"cash" -14.1 -12.2 -1.9 -1.9 0.0 0.0
"differed cash" 0.6 0.0 0.6 0.0 0.0 0.6
"non-cash" -1.5 -1.5 0.0 0.0 0.0 0.0
Other expenses 0.4 0.0 0.4 0.0 0.0 0.4
"cash" 0.4 0.0 0.4 0.0 0.0 0.4
"differed cash" 0.0 0.0 0.0 0.0 0.0 0.0
"non-cash" 0.0 0.0 0.0 0.0 0.0 0.0
Operating LOSS -42.9 -22.2 -20.7 -11.9 -6.7 -2.2
"cash" -22.8 -11.4 -11.4 -5.7 -5.7 0.0
"differed cash" -4.3 0.0 -4.3 -4.9 0.0 0.6
"non-cash" -15.8 -10.7 -5.0 -1.2 -1.0 -2.8
Revenues
The Company is now focussed on deploying RM2 ELIoT Smart Pallets which provide a clear value
for its customers. Several trials were initiated and completed in late 2017 and are continuing
through 2018.
Revenue generated by the Company including exceptional (i.e. beyond the normal course of business)
items in 2017 was USD 6.6m, decreasing by USD 2.3m compared to the same period in the prior
year. The decrease is attributable to a lower extraordinary item (i.e. beyond the normal course
of business - sale of raw material) for USD 1.0m, a lower pallet velocity under rental for
USD 0.8m, the impact of terminated contracts for tracking of third party assets in the Equipment
Tracking business for USD 0.4m and slightly lower outright sales of pallets for USD 0.1m.
The revenue generated from the pallet rental business, USD 4.9m, grew in EMEA and Canada by
33% and 56%, respectively, but did not offset the erosion of the business in the United States
due to decreasing velocity and declining number of plants served in pallet loops by the Company's
largest customer of non-ELIOT enabled pallets in the US, the contract which is in a wind-down
mode. Excluding the one-time sale of raw material, recurring revenue for the Company reached
USD 5.7m for 2017. The active pool of non-ELIOT enabled rental pallets amounted to 275k pallets
as of 31 December 2017, an increase of 10k over year-end 2016.
Production and ramp-up costs
The Company completed the transition to an outsourced model in 2017. Throughout this process,
the Company worked closely with its partner in Mexico to ramp up with lower cost, higher quality
production in Mexico tailored to market demand. Focusing on process improvements and RM2 ELIoT
Smart Pallet deployment led to a reduced production of non-ELIOT enabled pallets, with 78k
pallets being produced in Mexico during the course of 2017. This created a situation of excess
capacity with its supplier. The Company agreed to reimburse its partner an aggregate of USD
8.9m for the under-recovery of transition costs, of which USD 8.1m has been paid or accrued
in 2017. USD 3.2m has been paid in 2017, with the remaining amount to be paid through periodic
invoices and as surcharges to the unit cost. The full amount is to be satisfied no later than
June 2019. The Company also incurred USD 0.7m of expenses in relation to the Chinese set-up,
taking the total outsourcing cost recorded in 2017 as part of the Cost of Goods Sold to USD
8.8m.
The Canadian operations, which are in wind down mode over the year, triggered a cost of USD
5.7m while USD 5.0m of recurring expenses were incurred of which logistical expenses in relation
with the pool of pallets deployed amounted to USD 4.0m and labour costs for the third party's
assets tracking business in Wales amounted to USD 0.7m. The rest of Cost of Goods Sold (USD
15.4m) mainly concerns non-cash items. Business amortization and depreciation of tangible
assets (equipment and pallets) amount for USD 9.2m and USD 5.0m of impairment were recorded
by the company after fit-for-purpose review of manufacturing assets (USD 2.2m) and assessment
of the fair market value of current assets (USD 2.8m) based on realizable value for inventory
of pallets not eligible for retrofitting and raw material inventory.
RM2 ELIoT deployment
Prior to deploying RM2 ELIoT pallets in large quantities, the Company tested the pallet in the field with several different customers and verified the processes to ensure that it could manufacture in volume.
1. A 200-unit product performance trial was successfully completed, demonstrating that the product
can perform in many different environments (e.g., sub-freezing and desert conditions)
2. The product was certified by the appropriate agencies
3. A 2,000-unit process trial was successfully completed, demonstrating that the product can
be manufactured in a controlled manner in volume
4. A larger scale trial of 500 units was conducted with one individual customer, demonstrating
the advantages of higher volume analytics.
The current testing results are satisfactory; the Company's systems immediately flag pallets
circulating outside of authorized loops, enabling a customer to better monitor its supply
chain and reduce losses, and permitting the Company to generate updated balances and accurate
invoices immediately. The Company has entered into a Phase 1 agreement for an initial deployment
of RM2 ELIoT pallets through 30 June 2018 with a Fortune 500 company in North America following
a year-long trial with this blue-chip customer's supplier network.
In addition, the Company has also completed a major trial with a North American company and
discussions on a large-scale implementation are expected to commence. The Company has also
expanded ongoing trials with other major US-based customers.
Cash reserves
Unrestricted cash reserves at 31 December 2017 stand at USD 3.9m, compared to USD 9.8m at
31 December 2016. The Company issued USD 20.0m of Convertible Preferred Shares in the course
of the 2017 financial year. The Company's cash flow in 2017 is negative by USD 25.9m.
USD 5.2m was paid in 2017 for the pure acquisition of pallets, excluding the ramp up costs.
USD 1.9m was received for the sale of raw materials, including 2016 open balances. Manufacturing
activities generated a net cash outflow of USD 3.3m in 2017. This amount of net purchase of
pallets (USD 3.3m) added to the cash items from the Profit and Loss chart above mentioned
(USD 22.8m) bridges to the 2017 cash flows, after taking into account the payment terms and
opening/ending balances.
The Company has undertaken a large downsizing over the second semester of 2017, including
the renegotiation or termination of employment and consulting contracts and the renegotiation
of various fees associated with its listing on the AIM market of the London Stock Exchange.
These actions were completed by end of 2017. The Company continues to review opportunities
to further reduce its cost base and achieve operational efficiencies.
Legal matters
The Company is involved in various claims, lawsuits and proceedings arising in the ordinary
course of business, including matters relating to employees, VAT, transfer pricing, contracts
and intellectual property. While there are uncertainties inherent in the ultimate outcome
of such matters and it is impossible to determine at present the ultimate costs that may be
incurred, management believes the resolution of such uncertainties and the incurrence of such
costs will not have a material adverse effect on the Company's financial position, results
of operations or cash flows.
Own shares
The Company acquired 19,000 and 2,500,000 of non-vested ESOP restricted ordinary shares with
a nominal value of USD 0.01 for an amount of USD 190 and USD 25,000, on 27 February 2017 and
21 August 2017, respectively, following the resignation of employees. These shares are held
by the Company as non-voting treasury shares. As of 31 December 2017, the Group owns 2,916,334
own ordinary shares, nominal value USD 0.01, and representing 0.72 % of issued ordinary shares.
Going Concern
FY2017 performance
The Group's financial result for the year ending 31 December 2017 is a loss of USD 43.9m (December
2016: loss of USD 52.8m). Despite a reduction of the overall loss by USD 8.9m compared to
last year, the Company's performance was affected by a number of non-recurring items in the
amount of USD 20.7m.
The differed cash portion and the non-cash portion of these non-recurring items amounting
to USD 9.3m, are composed of impairment of not-fit-for-purpose equipment (USD 2.2m), current
assets with a realizable value below book value (USD 2.8m) and the agreed contributions to
cover transition and ramp-up costs in Mexico (USD 4.9m). The Company also released a VAT accrual
in FY2017 as the refund was received in 2018 before the financial statements disclosure date
(USD 0.6m).
The cash portion of these non-recurring items amount to USD 11.4 and relates to outsourcing
ramp up costs (USD 5.7m) and Canadian operations in wind down mode (USD 5.7m).
Selling general and administrative expenses for the year ended on 31 December 2017 amounts
to USD 15.0m, of which USD 1.9m related to one-time costs (VAT, custom duties) and USD 1.5m
relates to non-cash items (share based payment, amortization and impairment).
The loss for the year, excluding these non-recurring items, is USD 22.2m, with a cash cost
of recurring business below USD 12.0m a year.
2018 equity funding
On 29 March 2018, the Company announced that it had, conditionally and in two tranches, raised
USD 36m before fees and expenses by a placing of new Ordinary Shares to existing institutional
investors, certain directors and members of senior management. The issuance of the first tranche,
which raised gross proceeds of USD 18,162,500 took place on 13 April 2018. The issuance of
the second tranche will occur ten business days following a drawdown notice issued by the
Company and is subject to the satisfaction of certain key performance indicators, including
reducing operating costs of the business to a pre-determined level, launching the next generation
IoT Cat M RM2 ELIoT pallets and achieving commercial deployment of RM2 ELIoT pallets and reviewing
the governance of the Company, as determined to the satisfaction of the Company's largest
shareholder, Woodford Investment Management Limited, acting on behalf of certain discretionary managed funds for which it acts as discretionary investment fund manager. Management has undertaken an action plan intended to ensure satisfaction of the key performance indicators to allow for the issuance of the second tranche of shares. Road map The Company intends to use the net proceeds of the Placing to fund: (i) the retrofitting of existing inventory of RM2 BLOCKPals with RM2 ELIoT track and trace devices, (ii) the production of new RM2 ELIoT Pallets and (iii) its sales and general administrative costs. Management established a detailed road map for the production and deployment of pallets and cost reductions. Many variable items have been secured through agreements with the Mexican industrial partner, signed customer deployment and on-going monetization of historical assets, including the sale of Company's non-core building in Switzerland, the inventory of fibreglass and the pallets which are not designated to be retrofitted. The Company announced on 13 April 2018 that it has entered into a Phase 1 agreement for an initial deployment of RM2 ELIoT pallets through 30 June 2018 with a Fortune 500 company in North America following a year-long trial with this blue-chip customer's supplier network. Some items, such as deployments with other customers, are not yet fully secured. The Company is in an advanced phase of negotiation following the completion of a major trial with a North American company and discussions on a large-scale implementation are expected to commence. The Company has also expanded ongoing trials with other major US-based customers and is confident of its ability to convert a number of these trials to contracts. A platform to further growth The Company has reactivated discussions with debt providers in the light of the recent equity raise and the beginning of customer conversion to RM2 ELIoT pallets. These preliminary discussions confirm management's belief that the unique offering the Company brings to the market with a superior material and individual electronical tracking, enable a debt-funded expansion. To the extent the existing and potential customers in the commercial pipeline convert to contracts representing demand for pallets exceeding installed production capacity, management would accelerate seeking debt funding in order to activate the additional production capacity beyond that currently installed in Mexico. The Directors have analysed the Group's situation and applied their best estimates to assumptions of the future development of the business for the 12 month period after year end. The Directors acknowledge that the road map to the cash break-even position remains challenging but are confident that the two tranches of 2018 equity funding will provide the Group with sufficient funding to meet its operating and pallet deployments financial needs during this period. The Directors are confident that they will be able to meet the contractual conditions necessary to be able to call the second tranche of equity funding. For these reasons, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future and accordingly, continue to adopt the going concern basis in preparing the consolidated financial statements.
Dividends
The Directors will not be proposing a resolution for shareholders to approve the payment of a dividend with respect to 2017 (2016: 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 14.
Details of the share option scheme are set out in Note 22.
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 28 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 Stepped down June 30, 2017
Jasper Judd Appointed June 30, 2017
Stepped down August 2, 2017
Kevin Mazula Appointed August 3, 2017
Jean-Francois Blouvac
Non-Executive Directors
R. Ian Molson
Jan Dekker
Charles Duro
Frederic de Mevius Stepped down March 29, 2018
Lord Rose
Amaury de Seze Stepped down June 30, 2017
John Walsh Stepped down March 29, 2018
Paul Walsh
The Director's emoluments (translated into USD at average rate) were in 2017 and 2016, as follows:
2017 2016
Salary & Fees Benefits Total Salary & Fees Benefits Total
USD USD USD USD USD USD
Executive Directors
Jean-Francois Blouvac 355,460 25,727 381,187 355,296 23,246 378,542
Kevin Mazula* 187,500 7,528 195,028 - - -
Jasper Judd 64,507 - 64,507 - - -
John Walsh 385,969 51,597 437,566 331,493 107,499 331,541
993,436 84,852 1,078,288 686,789 130,745 817,534
Non-Executive Directors
R. Ian Molson - - - - - -
Jan Dekker - - - - - -
Charles Duro - - - - - -
Frederic de Mevius - - - - - -
Lord Rose - - - - - -
Amaury de Seze - - - - - -
Paul Walsh - - - - - -
John Walsh - - - - - -
- - - - - -
------------------------ ------------- -------- --------- ------------- -------- -------
993,436 84,852 1,078,288 686,789 130,745 817,534
*from August 3, 2017
In 2017, with respect to the first half of 2017 (and the second half of 2016 with respect to Frédéric de Mevius), the Non-Executive Directors fees were settled by the issuance of 757,500 ordinary shares in the Company on 17 February 2017 at a price of GBP 0.275 per share. In 2016, the Non-Executive Directors fees were settled by the issuance of 1,275,500 ordinary shares in the Company on 8 July 2016 at a price of GBP 0.23 per share. In each case, the Ordinary Shares are restricted from trading until volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.
Directors' interests
The Directors who held office at 31 December 2017 had the following interests in the ordinary shares (including Convertible Preferred Shares) of the Company:
Number of shares % held Number of shares
at at at
31 December 2017 31 December 2017 30 April 2018
R. Ian Molson* 23,600,276 4.4 295,860,083
John Walsh** 26,439,717 4.9 -
Jean-Francois Blouvac 2,500,000 0.5 10,129,108
Jan Dekker 2,790,000 0.5 5,440,000
Charles Duro 627,500 0.1 5,038,064
Lord Rose 1,440,000 0.3 21,695,634
Kevin Mazula - 0.0 7,629,108
Paul Walsh 2,029,091 0.4 9,080,500
Frederic de Mevius** 190,000 0.0 -
59,616,584 349,572,497
----------------------- ------------------ ------------------ -----------------
*includes associated family trusts, of which, 12,207,775 are Convertible Preferred Shares at 31 December 2017.
**Shareholdings are excluded from the April 30, 2018 table as these directors stepped down prior to April 30, 2018.
Of the holdings above 17,227,683 (2016: 16,900,180) 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"). For restricted shares granted prior to February 2014, if the Average Price is 50% higher than the Placing Price (GBP 0.88) 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. For Restricted Shares granted thereafter, if the Average Price is above 100p for a consecutive thirty-day period, the Performance Condition in respect of such Restricted Shares is 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 of Total number of Number of restricted Number of restricted
shares at unvested options at shares (only) at shares (only) at
31 December 2017 31 December 2017 31 December 2017 30 April 2018*
R. Ian Molson** 23,600,276 2,250,000 4,992,500 -
John Walsh 26,439,717 - 6,552,680 -
Jean-Francois Blouvac 2,500,000 1,000,000 2,500,000 -
Jan Dekker 2,790,000 750,000 290,000 -
Charles Duro 627,500 250,000 312,500 -
Lord Rose 1,440,000 750,000 1,440,000 -
Paul Walsh 2,029,091 750,000 1,440,000 -
Frederic de Mevius 190,000 - - -
----------------------- ---------------------- ---------------------- --------------------- ----------------------
59,616,584 5,750,000 17,527,680 -
----------------------- ---------------------- ---------------------- --------------------- ----------------------
*By action of the Remuneration Committee on April 20, 2018, restrictions relating to the attainment of share price thresholds were removed with immediate effect.
**Of which, 12,207,775 are Convertible Preferred Shares at 31 December 2017.
The terms of the unvested options are 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.
Total headcount of the company as of 31 December 2017 is 72.
Research & Development
The Group has performed R&D activity during the year, mainly on the development of the RM2 ELIoT technology. The related expenses have been recorded as costs to the profit and loss account.
Risks and uncertainties
These elements are described in Note 25 to the consolidated financial statements.
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 Audit & Assurance, will be proposed for re-appointment at the forthcoming Annual General Meeting.
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.
To the Shareholders of
RM2 INTERNATIONAL S.A.
5, rue de la Chapelle
LU-1325 LUXEMBOURG
REPORT OF THE REVISEUR D'ENTREPRISES AGREE Qualified Opinion We have audited the consolidated Financial Statements of RM2 INTERNATIONAL S.A. and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion section of our report, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Basis for Qualified Opinion Property, plant and equipment - other include idle tangible assets located in Canada and in China, requiring impairment testing, showing a net book value amounting to 13,642,477 USD for which we could not obtain sufficient appropriate audit evidence to justify the net valuation because we have not been able to validate Management's estimates of the recoverable amount of these assets. As a result, we were unable to determine whether any adjustments were necessary on these positions. In addition, last year audit opinion was modified with regards to valuation net of the property plant and equipment. Our opinion on the current period's consolidated financial statements is also modified because of the possible effects of this matter on the comparability of the current period's figures and the corresponding figures in the preceding period. We conducted our audit in accordance with the Law of July 23, 2016 on the audit profession
(Law of July 23, 2016) and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the "Commission de Surveillance du Secteur Financier" (CSSF). Our responsibilities under those Law and standards are further described in the << Responsibilities of "Réviseur d'Entreprises Agréé" for the Audit of the consolidated Financial Statements >> section of our report. We are also independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the consolidated Financial Statements, and have fulfilled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other information The Board of Directors is responsible for the other information. The other information comprises the information included in the consolidated management report and corporate governance report but does not include the consolidated Financial Statements and our report of "Réviseur d'Entreprises Agréé" thereon. Our opinion on the consolidated Financial Statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report this fact. We have nothing to report in this regard. Responsibilities of the Board of Directors and Those Charged with Governance for the consolidated Financial Statements The Board of Directors is responsible for the preparation and fair presentation of these consolidated Financial Statements in accordance with IFRSs as adopted by the European Union, and for such internal control as the Board of Directors determines is necessary to enable the preparation of the consolidated Financial Statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated Financial Statements, the Board of Directors is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group's financial reporting process. Responsibility of the Réviseur d'Entreprises Agréé for the audit of the consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report of "Réviseur d'Entreprises Agréé" that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Law dated July 23, 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated Financial Statements.
As part of an audit in accordance with the Law dated July 23, 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the consolidated Financial Statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
-- Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Board of Directors.
-- Conclude on the appropriateness of the Board of Directors use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group's ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our report of "Réviseur d'Entreprises Agréé" to the related
disclosures in the consolidated Financial Statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our report of "Réviseur d'Entreprises Agréé". However, future events
or conditions may cause the Group to cease to continue as a going concern.
-- Evaluate the overall presentation, structure and content of the consolidated Financial Statements,
including the disclosures, and whether the consolidated Financial Statements represent the
underlying transactions and events in a manner that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the financial information of the entities
and business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the Group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our independence and where applicable,
related safeguards.
Luxembourg, May 18, 2018
Thierry REMACLE
Réviseur d'Entreprises Agréé
Grant Thornton Audit & Assurance
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
Notes 2017 2016
USD Restated USD
Continuing operations
Revenues 16 6,557,044 8,882,129
Cost of sales 17 (34,849,544) (43,118,539)
------------------ -------------
Gross profit (28,292,500) (34,236,410)
Administrative expenses 18 (15,001,932) (18,005,942)
Other operating expenses 19.2 (81,909) (101,960)
Other operating income 19.1 500,934 286,636
------------------ -------------
Operating loss (42,875,408) (52,057,676)
Finance costs 19.4 (2,708,809) (3,063,894)
Finance income 19.3 1,945,887 2,234,567
------------------ -------------
Loss before tax (43,638,330) (52,887,003)
Income taxes 20 (218,694) 73,365
------------------ -------------
Loss for the year i.1. (43,857,024) (52,813,638)
================== =============
Other comprehensive income
Other comprehensive income to be reclassified in profit or loss in
subsequent periods:
Exchange difference on translation of foreign operations 1,675,226 1,182,368
------------------ -------------
Other comprehensive income for the year, net of tax 1,675,226 1,182,368
Total comprehensive income for the year (42,181,798) (51,631,270)
================== =============
Loss for the year attributable to:
Equity holders of the parent (43,857,024) (52,813,638)
------------------ -------------
(43,857,024) (52,813,638)
================== =============
Total comprehensive income for the year attributable to:
Equity holders of the parent (42,181,798) (51,631,270)
------------------ -------------
(42,181,798) (51,631,270)
================== =============
Loss per share 23
Basic loss per share attributable to ordinary equity holders of the
parent (0.11) (0.13)
Diluted loss per share attributable to ordinary equity and convertible
preferred shares holders
of the parent (0.11) (0.13)
================== =============
Consolidated statement of financial position as at 31 December 2017
Notes 2017 2016
USD USD
Assets
Non-current assets
Intangible assets 8 1,276,504 1,573,262
Property, plant & equipment - Other 5 28,717,071 35,789,520
Property, plant & equipment - Pallet pool 6 7,026,363 10,700,444
Investment property 7 - 1,280,807
-------------- --------------
37,019,938 49,344,033
Current assets
Inventories 10 16,614,995 16,449,080
Trade and other receivables 11 3,550,848 5,214,960
Other current financial assets 9 10,039 22,866
Fixed assets held for sale 12 2,657,744 -
Prepayments 1,024,503 1,045,572
Restricted Cash 13 2,035,642 1,884,713
Cash and cash equivalents 13 3,866,217 9,794,905
-------------- --------------
29,759,988 34,412,096
Total assets 66,779,926 83,756,129
============== ==============
Equity and liabilities
Equity 14
Ordinary shares 14.2 4,070,627 4,003,052
Convertible preferred shares 14.3 1,348,157 423,280
Share premium 14.4 301,681,317 282,893,809
Retained earnings (272,845,748) (229,107,776)
Share based payment reserve 14.5 20,850,588 20,073,279
Treasury stock 14.7 (29,163) (3,424)
Foreign currency translation reserve 14.5 (8,012) (1,683,238)
-------------- --------------
Equity attributable to equity holders of the parent 55,067,766 76,598,982
-------------- --------------
Total equity 55,067,766 76,598,982
-------------- --------------
Non-current liabilities
Interest bearing loans and borrowings 9.1 - 1,688,007
Deferred tax liabilities 20.2 43,751 (12,425)
-------------- --------------
43,751 1,675,582
Current liabilities
Interest bearing loans and borrowings 9.1 1,745,527 105,002
Trade and other payables 15 9,278,493 4,266,021
Deferred income 563,474 629,060
Current tax liabilities 80,914 481,482
-------------- --------------
11,668,409 5,481,565
Total liabilities 11,712,160 7,157,147
Total equity and liabilities 66,779,926 83,756,129
============== ==============
Consolidated Statement of changes in equity
For the year ended 31 December 2017
Notes Foreign Share
Convertible currency based
Ordinary preferred Share Retained translation Treasury payment
shares shares premium earnings reserve Stock reserve Total equity
USD USD USD USD USD USD USD USD
As at 1
January 2016 3,980,302 - 263,317,090 (176,294,138) 2,865,606 (3,424) 19,044,095 107,178,319
=============== ====== ================== ============ ============= ================= ================== ========= =========== =============
Loss for the
year - - - (52,813,638) - - - (52,813,638)
Other
comprehensive
income - - - - 1,182,368 - - 1,182,368
--------------- ------ ------------------ ------------ ------------- ----------------- ------------------ --------- ----------- -------------
Total
comprehensive
income - - - (52,813,638) 1,182,368 - - (51,631,270)
Shares issued
in the
year 14 22,750 - - - - - - 22,750
Convertible
preferred
shares issued
in the
year - 423,280 19,576,719 - - - - 19,599,999
Cost of share - - - - - - - -
issue
Repurchase of - - - - - - - -
shares
into treasury
Share based
payments 22 - - - - - - 1,029,185 1,029,185
Transaction
with owners 22,750 423,280 19,576,719 - - - 1,029,185 21,051,933
As at 31
December 2016 4,003,052 423,280 282,893,809 (229,107,776) (1,683,238) (3,424) 20,073,279 76,598,982
--------------- ------ ------------------ ------------ ------------- ----------------- ------------------ --------- ----------- -------------
Loss for the
year - - - (43,857,024) - - - (43,857,024)
Other
comprehensive
income - - - - 1,675,226 - - 1,675,226
--------------- ------ ------------------ ------------ ------------- ----------------- ------------------ --------- ----------- ------------- Total comprehensive income - - - (43,857,024) 1,675,226 - - (42,181,798) Ordinary shares issued in the year 14 67,575 - - - - - - 67,575 Convertible preferred shares issued in the year 14 - 924,877 19,075,123 - - - - 20,000,000 Cost of share issue - - (287,615) 119,052 - - - (168,563) Repurchase of shares into treasury - - - - - (25,739) - (25,739) Share based payments 22 - - - - - - 777,309 777,309 Transaction with owners 67,575 924,877 18,787,508 119,052 - (25,739) 777,309 20,650,581 As at 31 December 2017 4,070,627 1,348,157 301,681,317 (272,845,748) (8,012) (29,163) 20,850,588 55,067,766 --------------- ------ ------------------ ------------ ------------- ----------------- ------------------ --------- ----------- ------------- Consolidated Statement of Cash Flows Notes 2017 2016 For the year ended 31 December 2017 Cash flows from operating activities USD USD Loss before tax (43,638,330) (52,887,003) Adjustment to reconcile profit before tax to net cash flows Amortisation and depreciation of non-current assets 5/6/7/8 9,875,684 8,723,262 Impairment on of current and non-current assets 2,450,597 8,661,080 Share based payment charges 777,309 1,029,185 Finance income (27,190) (84,759) Finance expenses 45,865 35,096 Unrealised foreign exchange gains 531,860 559,306 Net (gain)/ loss on disposal of PPE and intangible assets (30,824) 35,376 Variation in working capital (Increase)/decrease in inventory (165,915) 3,397,547 Decrease/ (increase) in trade and other receivables 1,685,350 3,415,584 Increase/(decrease) in trade and other payables 4,946,888 (9,590,080) (Increase)/decrease in restricted cash (150,929) (68,673) Income/other tax paid (596,028) (101,431) Net cash flows from operating activities (24,295,663) (36,875,510) Cash flows from investing activities (Increase)/decrease in intangible assets (802) (25,633) (Increase)/decrease PPE in course of commissioning (347,767) (2,557,381) Decrease/ (increase) in other PPE (224,760) (2,786,014) Proceeds from the sale of PPE 70,498 85,012 (Increase)/decrease in pallet pool (1,166,989) (2,434,564) Loans granted to third parties 12,828 39,206 Finance income received 27,190 84,759 Net cash flows from investing activities (1,629,802) (7,594,615) Cash flows from financing activities Issuance of capital 14 19,899,011 20,022,750 Purchase of treasury shares (25,740) - Repayment Proceeds from other and related party borrowings (15,383) (34,710) Interest paid (45,865) (35,096) Repayment of other and related party borrowings (32,099) (158,635) Net cash flows from financing activities 19,779,924 19,794,309 Net change in cash and cash equivalents (6,145,541) (24,675,816) (Decrease)/increase in cash and cash equivalents (6,145,541) (24,675,816) Cash and cash equivalents at 1 January 9,794,906 34,515,597 Exchange adjustment of cash and cash equivalents 216,852 (44,875) Cash and cash equivalents at 31 December 13 3,866,217 9,794,906
The board of directors have authorised for issue these consolidated financial statements on 18 May 2018
Consolidated Statement of Cash Flows
For the year ended 31 December 2017
1 Corporate information
1.1 General 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 5, Rue de la Chapelle, L-1325 Luxembourg. The Company is the ultimate parent entity
of the RM2 Group (the "Group").
RM2, the sustainable smart pallet innovator, specialises in pallet development, manufacture,
supply and management and is seeking 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, tracking and management of composite pallets.
1.2 Changing strategy
In 2016 the Company announced plans to wind down its manufacturing operations away from its
own facility in Woodbridge, Canada and entered into two strategic contract manufacturing agreements
with Zhenshi in China on 1 April 2016 and with Jabil in Mexico on 22 September 2016. Jabil
produces and sells finished pallets exclusively to RM2, and Zhenshi is under contract to do
so once demand warrants, and in each case the Group retains the full ownership of the manufacturing
equipment. These moves were designed to give the Group significant cost savings, greater capacity,
increased flexibility and clarity over forecast production.
The Company recently exchanged letters with its Chinese subcontractor, Zhenshi, regarding
a termination of the agreement and indemnities to cover costs incurred to date through the
time of removal of the equipment from Zhenshi's site. Discussions are on-going. In light of
these exchanges and its business plan, the Company is currently re-examining its footprint
in China. The outcome of these exchanges is unknown at present, but alternatives under consideration
could include revising the current agreement with Zhenshi, the amical or litigious termination
of the contract and/or establishing an agreement with a different contract manufacturer. Regardless
of the outcome of the subcontracting relationship, RM2 expects to continue to source fibreglass
raw material for pallet production from Zhenshi's affiliate, Jushi.
The Company focuses now on the deployment of RM2 ELIoT pallets and has undertaken the retrofitting
of its inventory of non-ELIOT enabled pallets located in Canada and Mexico.
More information is provided in Notes 3.2, 5, 23 and 26.
2 Basis of preparation
The consolidated financial statements comprise the consolidated financial information of the
Group as at 31 December 2017 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. Where necessary, comparative figures have been amended to conform with
change in presentation in the current year.
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 26.
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
FY2017 performance
The Group's financial result for the year ending 31 December 2017 is a loss of USD 43.9m (December
2016: loss of USD 52.8m). Despite a reduction of the overall loss by USD 8.9m compared to
last year, the Company's performance was affected by a number of non-recurring items in the
amount of USD 20.7m.
The differed cash portion and the non-cash portion of these non-recurring items amounting
to USD 9.3m, are composed of impairment of not-fit-for-purpose equipment (USD 2.2m), current
assets with a realizable value below book value (USD 2.8m) and the agreed contributions to
cover transition and ramp-up costs in Mexico (USD 4.9m). The Company also released a VAT accrual
in FY2017 as the refund was received in 2018 before the financial statements disclosure date
(USD 0.6m).
The cash portion of these non-recurring items amount to USD 11.4 and relates to outsourcing
ramp up costs (USD 5.7m) and Canadian operations in wind down mode (USD 5.7m).
The Selling general and administrative expenses for the year ended on 31 December 2017 amounts
to USD 15.0m, of which USD 1.9m related to one-time costs (VAT, custom duties) and USD 1.4m
relates to non-cash items (share based payment, amortization and impairment).
The loss for the year, excluding these non-recurring items, is USD 22.2m, with a cash cost
of recurring business below USD 12.0m a year.
2018 equity funding
On 29 March 2018, the Company announced that it had, conditionally and in two tranches, raised
USD 36 m before fees and expenses by a placing of new Ordinary Shares to existing institutional
investors, certain directors and members of senior management. The issuance of the first tranche,
which raised gross proceeds of USD 18'162'500 took place on 13 April 2018. The issuance of
the second tranche will occur ten business days following a drawdown notice issued by the
Company and is subject to the satisfaction of certain key performance indicators (the KPI),
including reducing operating costs of the business to a pre-determined level, launching the
next generation IoT Cat M RM2 ELIoT pallets and achieving commercial deployment of RM2 ELIoT
pallets and reviewing the governance of the Company, as determined to the satisfaction of
the Company's largest shareholder, Woodford Investment Management Limited, acting on behalf
of certain discretionary managed funds for which it acts as discretionary investment fund
manager. Management has undertaken an action plan intended to ensure satisfaction of the key
performance indicators to allow for the issuance of the second tranche of shares. The realization
of second tranche is essential to enable the Group to face its financial obligations for the
twelve months period following the closing date, and as such, to validate the fact that the
going concern principle is applicable to these consolidated financial statements. In light
of the current state of progress to achieve the targets related to KPI, the Management is
of the opinion that the uncertainties over ability of Management to successfully achieve its
target within the deadlines are not significant.
Road map
The Company intends to use the net proceeds of the Placing to fund: (i) the retrofitting of
existing inventory of RM2 BLOCKPals with RM2 ELIoT track and trace devices, (ii) the production
of new RM2 ELIoT Pallets and (iii) its sales and general administrative costs.
Management established a detailed road map for the production and deployment of pallets and
cost reductions. Many variable items have been secured through agreements with the Mexican
industrial partner, one signed customer deployment and the on-going monetization of historical
assets, including the sale of Company's non-core building in Switzerland, the inventory of
fibreglass and the pallets which are not designated to be retrofitted. The Company announced
on 13 April 2018 that it has entered into a Phase 1 agreement for an initial deployment of
RM2 ELIoT pallets through 30 June 2018 with a Fortune 500 company in North America following
a year-long trial with this blue-chip customer's supplier network. Some items, such as deployments
with other customers, are not yet secured. The Company is in an advanced phase of negotiation
following the completion of a major trial with a North American company and discussions on
a large-scale implementation are expected to commence. The Company has also expanded ongoing
trials with other major US-based customers and is confident of its ability to convert a number
of these trials to contracts.
A platform to further growth
The Company is reactivating discussions with debt providers in the light of the recent equity
raise and the beginning of customer conversion to RM2 ELIoT pallets. These preliminary discussions
confirm management's belief that the unique offering the Company brings to the market with
a superior material and individual electronical tracking, enable a debt-funded expansion.
To the extent the existing and potential customers in the commercial pipeline convert to contracts
representing demand for pallets exceeding installed production capacity, management would
accelerate seeking debt funding in order to activate the additional production capacity beyond
that currently installed in Mexico.
The Directors have analysed the Group's situation and applied their best estimates to assumptions
of the future development of the business for the 12 months period after year end. The Directors
acknowledge that the road map to the cash break-even position remains challenging but are
confident that the two tranches of 2018 equity funding will provide the Group with sufficient
funding to meet its operating and pallet deployments financial needs during this period. The
Directors are confident that they will be able to meet the contractual conditions necessary
to be able to call the second tranche of equity funding. For these reasons, the Directors
are satisfied that the Group has adequate resources to continue in operational existence for
the foreseeable future 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 the production
of pallets 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.
Until 2016, the pallet pool was 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.
From 2017, the pallet pool is initially recognised at cost. Such costs include the purchase
price and all costs incurred in bringing the assets to the location and condition for its
operation in the manner intended by management.
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 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 - non-ELIoT 5 years
Pallet Pool - RM2 ELIoT 7 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 is 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
Note 7.2 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.
The Company decided during the course of 2017 to sell its building in Switzerland and has
therefore adapted the presentation in the accounts.
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 Relationships 5 years
Licences and ERP System 3 to 7 years
Goodwill Not amortized
3.8 Fixed assets held for sale
Non-current assets are classified as held for sale when their carrying amount is to be recovered
principally through a sale transaction and the sale is considered highly probable. They are
measured at the lower of carrying amount and fair value less costs of disposal if their carrying
amount is recovered principally through a sale transaction rather than through continuing
use.
3.9 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.
3.10 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 Until 2016, standard cost of production
work in progress including all expenses directly attributable
to the manufacturing process and portions
of related production overheads, based
on normal operating capacity. From 2017,
the items are initially recognised at
purchase price.
Pallets are held as inventory prior to being deployed in the pallet pool or sold directly
to customers.
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.
3.11 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.
3.12 Financial instruments
3.12.1 Financial assets
3.12.1.1 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.
3.12.2 Subsequent measurement
3.12.2.1 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.
3.12.3 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.
3.12.4 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.
3.13 Financial liabilities
3.13.1 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.
3.13.2 Subsequent measurement
The measurement of financial liabilities depends on their classification as follows: 3.13.2.1 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. 3.13.3 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. 3.13.3.1 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. 3.14 Cash and cash equivalents, restricted cash Cash and cash equivalents, restricted cash 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 or less. In the statement of financial position, bank overdrafts are included in borrowings under current liabilities. 3.15 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. 3.16 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. 3.17 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.
3.18 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, both
Ordinary and Preferred. 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 3.20).
- Retained earnings - includes all current and prior period retained profits and losses.
- Treasury stock represents Own Shares.
- Convertible Preferred Shares (see Note 14.3).
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.
3.19 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.
Operating leases for pallets are recognised within Revenues as these revenues are considered as related to the primary activity of the Group.
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 other operating income.
Property 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.
3.20 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.
3.21 Changes in accounting policies and disclosures
The accounting policies are consistently applied by the Group's subsidiaries and are consistent with those used in the previous year, except as follows:
1. Amendments to standards adopted by the Group
The following amendments to standards are mandatory for the financial year beginning 1 January 2017;
-- Amendments to IAS 7, "Statement of Cash Flows", disclosure
initiative;
-- Amendments to IAS 12, "Income Taxes", recognition of deferred
tax assets for unrealised losses;
-- Annual improvements 2014 - 2016, amendment to IFRS 12,
"Disclosures of Interests in Other Entities".
These amendments have no significant impact.
2. Standards and amendments to existing standards that are not yet effective and not been early adopted
The following new standards and amendments have been published but are not effective for the Group's accounting year beginning on 1 January 2017:
-- IFRS 9, "Financial Instruments" and related amendments - effective from 1 January 2018. IFRS
9 replaces the classification and measurement guidance in IAS 39, "Financial Instruments:
recognition and measurement". IFRS 9 contains revised rules for the classification and the
measurement of financial assets and liabilities and sets out new requirements for impairment
of financial instruments and for hedge accounting. IFRS 9 is effective for annual reporting
period beginning on or after January 1, 2018;
-- IFRS 14, "Regulatory Deferral Accounts" - effective from 1 January 2016;
-- FRS 15, "Revenue from Contracts with Customers" and related amendments - effective from 1
January 2018. IFRS 15 is a new comprehensive standard for revenue recognition and replaces
IAS 18 "Revenue". IFRS 15 establishes a five-step model related to revenue recognition from
contracts with customers. IFRS 15 is effective for annual reporting period beginning on or
after January 1, 2018;
-- IFRS 16, "Leases" - effective from 1 January 2019. IFRS 16 defines a lease as a contract,
or part of a contract, that conveys the right to use an asset ("the underlying asset") for
a period of time in exchange for consideration. IFRS 16 replaces IAS 17 "Leases". IFRS 16
requires lessees to recognise nearly all leases on the balance sheet which will reflect their
right to use an asset for a period of time and the associated liability for payments. IFRS
16 is effective for annual reporting period beginning on or after January 1, 2018;
-- IFRS 17, "Insurance Contracts" - effective from 1 January 2021;
-- IFRIC 22, "Foreign Currency Transactions and Advance Consideration" clarifies the accounting
for transactions that include the receipt or payment of advance consideration in a foreign
currency giving rise to a non-monetary asset or liability - effective from 1 January 2018
-- IFRIC 23, "Uncertainty over Income Tax Treatments" clarifies the accounting for income tax
treatments that have yet to be accepted by tax authorities - effective from 1 January 2019;
-- Annual improvements 2014 - 2016, cycle amendments to two standards: IFRS 1, "First-time Adoption
of International Financial Reporting Standards" and IAS 28, "Investments in Associates and
Joint Ventures" - effective from 1 January 2018;
-- Annual improvements 2015 - 2017, cycle amendments to four standards: IFRS 3, "Business Combinations",
IFRS 11, "Joint Arrangements", IAS 12 "Income Taxes" and IAS 23, "Borrowing Costs" - effective
from 1 January 2019;
-- Amendments to IAS 19, "Employee Benefits", Plan Amendment, Curtailment or Settlement - effective
from 1 January 2019;
-- Amendments to IAS 28, "Investments in Associates and Joint Ventures", Long-Term Interests
in Associates and Joint Ventures - effective from 1 January 2019;
-- Amendments to IAS 40, "Investment Property" on the definition of change in use - effective
from 1 January 2018 ;
-- Amendments to IFRS 2, "Share-Based Payment", Classification and Measurement of Share-Based
Payment Transactions - effective from 1 January 2018;
-- Amendments to IFRS 10, "Consolidated Financial Statements" and IAS 28, "Investments in Associates
and Joint Ventures" - effective from 1 January 2018.
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 judgments, 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 20.
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
The Group has issued restricted shares under the "2013 Option and Incentive Plan".
Management has considered that the restricted shares issued to date should be measured similarly
to share options. In certain cases, the shares granted vest immediately and in others at the
end of a three-year period. They 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 a specified anniversary
following the date of the grant as long as the holder continues to have 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 estimated at issuance
date that Tranche 1 and 2 would be achieved within 5 years and Tranche 3 within 10 years,
therefore, Management applied those durations as vesting periods for the instruments. For
the restricted shares that vest on a specified anniversary that anniversary date has been
used as the duration of the vesting period.
Restricted shares issued in lieu on non-executive Directors remuneration have the same conditions
as the restricted shares issued under the Plan.
For further detail on share-based payments transactions, refer to Note 22.
Preference shares
In July 2016, the Company issued 42,328,042 Class A Convertible Preferred Shares with a nominal
value of USD 0.01 per share.
In June 2017, the Company issued 4,591,743 Class B1 Convertible Preferred Shares with a nominal
value of USD 0.01 per share.
In June and July 2017, the Company issued an aggregate of 87,895,986 Class B2 Convertible
Preferred Shares with a nominal value of USD 0.01 per share.
The Board has considered the accounting treatment of these Convertible Preferred Shares under
IAS 32. They considered the three main tests to determine the disclosure and have determined
that the Convertible Preferred Shares constitute equity instruments under IAS 32.
Group as a lessor - Industrial assets leased to the Chinese manufacturer
The Group has entered in 2016 into a lease agreement with respect to the industrial assets
located at the site of its Chinese manufacturer. As the Group retains ownership of these assets,
those are maintained in the Group's balance sheet.
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 Option and
Incentive Plan.
The assumptions and models used for estimating fair value for share-based payment transactions
are disclosed in Note 22.
Employee Stock Option Plan ("ESOP")
The Group has granted awards pursuant to the 2013 Option and Incentive Plan ("ESOP") to its
directors and some of its employees and consultants. The fair value of the plan at grant date
is based upon actuarial assumptions estimated by the management and disclosed in Note 22.2.
Measurement of property, plant and equipment 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, 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 Company performs on a regular basis a fit-for-purpose review of its manufacturing equipment
and records if need be the required impairment.
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.
The Company performs on a regular basis a review of its inventory and work in progress to
assess the fair realization value and records any required impairment.
Pallet Pool
The non-ELIoT 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.
The RM2 ELIoT pallet pool is depreciated over 7 years. Previously, the Company targeted high
velocity (a KPI measuring the rotation rate of the pallet pool) deployment to be cost-competitive
for customers. The introduction of RM2 ELIoT technology brings a competitive advantage to
the Company through the replacement of the Lost Equipment Charge typically embedded in any
pallet supply contract by a lower Recovery Fee. This leads to lower velocity deployments and
therefore extended useful life of each pallet.
Management will review the useful life of the pallets at each reporting date.
Impairment of property, plant and equipment - China/Mexico
The Group is required to test, when an impairment test indicator is identified, whether tangible
fixed assets have suffered any impairment. The recoverable amount is determined based on value
in use calculations. The use of this method requires the estimation of future cash flows and
the determination of a discount rate in order to calculate the present value of the cash flows.
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 useful lifetime of ELIoT pallets, future operating
results from pallets, capacity of production of the equipment and the determination of a suitable
discount rate (see Note 5.3 for details and assumptions).
Impairment of Goodwill
The Group is required to test, on an annual basis, whether goodwill has suffered any impairment.
The recoverable amount is determined based on value in use calculations. The use of this method
requires the estimation of future cash flows and the determination of a discount rate in order
to calculate the present value of the cash flows.
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 & Plant & Construction Total
Building Equipment Equipment in progress
Others China/Mexico
USD USD USD USD USD
Cost
As at 1 January
2016 1,746,227 27,666,398 - 15,087,530 44,500,155
Additions - 2,786,014 - 2,557,381 5,343,395
Transfer/reclassification - (12,257,165) 25,081,276 (12,824,111) -
Disposals - (276,479) - - (276,479)
Exchange differences 3,804 597,279 - 412,343 1,013,426
--------------- ---------------- ---------------- ---------------- -------------
As at 31 December
2016 1,750,031 18,516,047 25,081,276 5,233,143 50,580,497
Additions - 181,567 43,191 347,767 572,525
Transfer/reclassification (1,648,658) (270,617) 270,617 - (1,648,658)
Disposals - (97,414) - - (97,414)
Exchange differences 22,193 1,043,747 - 120,355 1,186,295
--------------- ---------------- ---------------- ---------------- -------------
As at 31 December
2017 123,566 19,373,330 25,395,084 5,701,265 50,593,245
=============== ================ ================ ================ =============
Amortization and
impairment
As at 1 January
2016 230,020 4,479,722 - 3,537,463 8,247,205
Amortization charge
for the year 64,200 3,302,950 - - 3,367,150
Impairment charge
for the year 71,163 3,182,360 - - 3,253,523
Transfer - (3,682,648) 3,682,648 - -
Disposals - (156,092) - - (156,092)
Exchange differences 42,113 37,078 - - 79,191
--------------- ---------------- ---------------- ---------------- -------------
As at 31 December
2016 407,496 7,163,370 3,682,648 3,537,463 14,790,977
Amortization charge
for the year 41,217 2,275,597 2,499,394 - 4,816,208
Impairment charge
for the year - (168,763) 1,235,341 1,220,766 2,287,344
Transfer (288,518) - - - (288,518)
Disposals - (57,740) - - (57,740)
Exchange differences (36,629) 364,532 - - 327,903
--------------- ---------------- ---------------- ---------------- -------------
As at 31 December
2017 123,566 9,576,996 7,417,383 4,758,229 21,876,174
Net book value
As at 31 December
2017 - 9,796,334 17,977,701 943,036 28,717,071
=============== ================ ================ ================ =============
As at 31 December
2016 1,342,535 11,352,677 21,398,628 1,695,680 35,789,520
=============== ================ ================ ================ =============
As of 31 December 2017, the Group has no liens and encumbrances on its property, plant and
equipment (2016: there was a mortgage - see Note 5.5 below). In 2017, the Group has no capital
commitments on the development and acquisition of property, plant and equipment in Canada
(2016: USD 184,476).
There were no borrowing costs capitalised during any period.
5.1 Land & Building
As at 31 December 2017 and 2016, these assets represent the leasehold improvements in the
Canadian factory. The building located in Châtel, Switzerland used by the Group for both
administrative purposes and for rental has been sold on 27 February 2018; as the decision
to sell this asset has been made in 2017 and as the disposal is considered as highly probable,
it has been reclassified under fixed assets held for sale on 31 December 2017 for USD 1,360,140.
As at 31 December 2016, the cost of the property related to administrative purposes was
classified
within property, plant and equipment.
As part of the strategic reorganisation of the Group (see Note 1.2), the leasehold improvements
have been fully impaired during the year 2016.
5.2 Plant & Equipment - Others
As at 31 December 2017, these assets represent mainly remaining and idle equipment located
in the Canadian factory (North American segment). This remaining equipment still in Canada
is mainly made of additional assembly capacities that will be transferred in 2018 to an
industrial
partner or will be stored in a smaller warehouse in Canada. The equipment dedicated to a future
transfer continues to be depreciated over its expected lifetime.
This idle equipment in Plant & Equipment - Others has been subject to an impairment testing:
-- Items considered as not usable in the future have been fully impaired;
-- Other items amounting to USD 7,953,715 were not impaired as their fair value less cost of
disposal exceeds their carrying amount; this fair value is extrapolated from an external valuation
expert report (using in particular replacement cost) issued on 28 March 2016 on the asset's
condition as of 31 December 2015.
As at 31 December 2017, the impairment deducted from this position amounts to USD 3,206,855
(2016: USD 3,182,360).
5.3 Plant & Equipment - China/Mexico
As a result of the new manufacturing strategy, the Group moved a significant portion of its
industrial assets in Mexico and China in 2016 and early 2017. As of 31 December 2017, the
net book value of transferred assets located in Mexico and China amounts to respectively USD
12,849,091 and USD 5,128,610. RM2 remains the owner of the equipment located in China and
Mexico.
The Management performed a fit-for-purpose review and recorded an impairment on this basis.
The Management also performed an impairment testing using the discounted (at a discount rate
of 11.38%) cash flows generated by the set of equipment in Mexico and projected to the set
of equipment in China. As the discounted cash flows exceed the net book value for the Mexican
Cash Generating Units, there is no impairment to be recorded on these assets.
As at 31 December 2017, the impairment deducted from this position amounts to USD 1,235,341
(2016: USD 0).
5.4 Construction in progress
As at 31 December 2017 and 2016, the Group has several items as PPE corresponding to machines
that are not yet completed for the production of pallets, located in Canada and Mexico. These
items are presented as construction in progress and are not amortized.
In 2017, these items have been subject to a fit-for-purpose review and items considered as
not usable in the future have been fully impaired.
As of 31 December 2017, the cumulated value correction deducted from this position amounts
to USD 1,220,766 (2016: USD 0).
5.5 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 1,700,000 bank loan amounting to USD 1,741,480 (2016: CHF 1,800,000 - USD 1,766,520).
As at 31 December 2017, this asset has been transferred under the caption fixed assets held
for sale (see Note 12).
6 Property, plant and equipment Pallet pool
The Group has decided to disclose the pallet pool as a separate heading and therefore has disclosed the Pallet Pool in a separate note.
Pallet Pool
USD
Cost
As at 1 January 2016 20,781,799
Additions 2,434,564
As at 31 December 2016 23,216,363
Additions 1,166,989
-----------------------------------
As at 31 December 2017 24,383,352
Amortization and impairment
As at 1 January 2016 3,297,518
Depreciation charge for the year 4,225,318
Impairment charge for the year 4,993,083
As at 31 December 2016 12,515,919
Depreciation charge for the year 4,784,386
Impairment charge for the year 56,684
As at 31 December 2017 17,356,989
Net book value
As at 31 December 2017 7,026,363
===================================
As at 31 December 2016 10,700,444
===================================
The impairment deducted from the net book value of the pallet pool is broken down as follows:
As at 31 December 2017 As at 31 December 2016
USD USD
Impairment estimation for lost and broken pallets 994,798 1,506,155
Impairment estimation for loss making contracts 4,926,957 4,358,916
The Group recognized a value adjustment on the pool of pallets deployed (under the above caption Impairment estimation for loss making contracts). Pallets deployed into a specific customer (North American market) generate a positive free cash-flows which is below the expectations. The Group tested the related assets for impairment; as a consequence of this test, a value correction has been deducted from these assets as the realistic realization price based on market price is below the net book value.
7 Investment property
Investment
property
USD
Cost
As at 1 January 2016 1,546,753
Exchange differences (39,920)
----------------------------
As at 31 December 2016 1,506,833
Exchange differences 66,022
Transfer to Fixed assets held for sale (1,572,855)
----------------------------
As at 31 December 2017 -
Amortization and impairment
As at 1 January 2016 189,033
Amortization charge for the year 37,671
Exchange differences (678)
----------------------------
As at 31 December 2016 226,026
Amortization charge for the year 39,323
Exchange differences 9,903
Transfer to Fixed assets held for sale (275,252)
----------------------------
As at 31 December 2017 -
Net book value
As at 31 December 2017 -
============================
As at 31 December 2016 1,280,807
============================
As at 31 December 2016, the investment property was a building used by the Group for both administrative purposes and for rental. Up to 2016, the cost of the property related to administrative purposes had been classified within property, plant and equipment. Up to 2016, the cost for the rental part had been classified as investment property. The building has been sold on 27 February 2018; as the decision to sell this asset has been made in 2017 and as the disposal is considered as highly probable, it has been reclassified under fixed assets held for sale on 31 December 2017 for USD 1,297,603 (see Note 12).
The Group has granted a security interest over the property held in Switzerland in return for the CHF 1,700,000 bank loan amounting to USD 1,741,480 (2016: CHF 1,800,000 - USD 1,766,520).
7.1 Revenue from investment property
As at 31 December 2017 As at 31 December 2016
USD USD
Rental income from investment property (*) 297,265 284,822
(*) included within other operating income (see Note 19.1).
7.2 Fair value of investment property
The investment property is measured at cost. The fair value of the property as at 31 December 2016 had been determined by Régie Châtel S.A., an independent external appraiser, on 10 April 2017. Régie Châtel S.A. is a local specialist in valuing such investment properties. The fair value of the property had been determined using the rental income and the construction value. The valuation had been determined with the following primary inputs:
2016
Yield (%) 7%
Average price for new construction - administrative part (m3) 390 CHF/ m3
Land price (m(2)) 250 CHF/m(2)
Fair value determined for the part classified as investment property USD 1,918,308
(CHF 1,954,665)
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 2016 2,553,487 148,017 444,051 1,197,068 1,022,643 5,365,266
Additions - - - 25,633 - 25,633
Exchange differences (424,503) (24,607) (73,821) - (170,009) (692,940)
----------- ---------- --------------- ------------- ----------- -----------
As at 31 December 2016 2,128,984 123,410 370,230 1,222,701 852,634 4,697,959
Additions - - - 802 - 802
Exchange differences 198,563 11,510 34,530 - 79,522 324,125
----------- ---------- --------------- ------------- ----------- -----------
As at 31 December 2017 2,327,547 134,920 404,760 1,223,503 932,156 5,022,886
Amortization and impairment
As at 1 January 2016 1,702,319 59,203 177,621 76,764 - 2,015,907
Amortization charge
for the year 776,769 27,016 81,048 137,128 - 1,021,961
Impairment of the year - - - - 485,637 485,637
Exchange differences (350,104) (12,173) (36,531) - - (398,808)
----------- ---------- --------------- ------------- ----------- -----------
As at 31 December 2016 2,128,984 74,046 222,138 213,892 485,637 3,124,697
Amortization charge
for the year - 25,460 76,380 133,899 - 235,739
Impairment of the year - - - - 106,599 106,599
Exchange differences 198,563 8,430 25,290 - 47,064 279,347
----------- ---------- --------------- ------------- ----------- -----------
As at 31 December 2017 2,327,547 107,936 323,808 347,791 639,300 3,746,382
Net book value
As at 31 December 2017 - 26,984 80,952 875,712 292,856 1,276,504
=========== ========== =============== ============= =========== ===========
As at 31 December 2016 - 49,364 148,092 1,008,809 366,997 1,573,262
=========== ========== =============== ============= =========== ===========
The Group has no intangible assets pledged as security for liabilities.
The Group has no contractual commitment for the acquisition of intangible assets.
A 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. The management considers that no impairment is necessary on this licence.
8.1 Impairment of Goodwill
The goodwill represents the intangible value of the business acquired at the 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 in use of goodwill by assessing the future cash flows of the Cash Generating Unit to which the goodwill relates over the next 5 years. Using a 9% discount rate (2016: 9%), the weighted average costs of capital of the group, management have identified that there is an additional impairment as at 31 December 2017 amounting to USD 106,599 (2016: USD 485,637). If the weighted average costs of capital of the group had been 3% higher than management's estimate (for example 12% instead of 9%), the group would have recognized a further impairment against goodwill of USD 36,095.
9 Financial assets and liabilities
As at 31 As at 31
December 2017 December
2016
USD USD
Loans and receivables
Trade and other receivables
(Note 11) 3,550,848 5,214,960
Deposits 10,039 22,866
--------------- -----------
Other current financial assets 10,039 22,866
Restricted Cash, Cash and cash
equivalents (Note 13) 5,901,859 11,679,618
Total current financial assets 5,911,898 11,702,484
Total cash, loans and receivables 9,462,746 16,917,444
--------------- -----------
Total financial assets 9,462,746 16,917,444
=============== ===========
Total current 9,462,746 16,917,444
Financial liabilities
Financial liabilities at amortised
cost
Interest-bearing loans and
borrowings 1,745,527 1,793,009
Trade and other payables 9,278,493 4,266,021
Total financial liabilities
at amortised cost 11,024,020 6,059,030
Total financial liabilities 11,024,020 6,059,030
=============== ===========
Total current 11,024,020 4,371,023
Total non-current - 1,688,007
=============== ===========
9.1 Interest-bearing loans and borrowings
As at 31 As at 31
December December
2017 2016
Effective Maturity USD USD
interest date
rate
Non-current interest-bearing
loans and borrowings
30 November
CHF 1,700,000 Bank loan 1.8% 2020 - 1,666,520
Hire purchase liabilities
in excess of one year - 21,487
Total non-current interest-bearing
loans and borrowings - 1,688,007
============ ============
Current interest-bearing loans
and borrowings
CHF 1,700,000 Bank loan (settled 30 November
March 2018) 1.8% 2020 1,639,580 -
Short-term part of long term
bank loan 101,900 100,000
Hire purchase liabilities
within of one year 4,047 5,002
Total current interest-bearing
loans and borrowings 1,745,527 105,002
============ ============
Total interest-bearing loans
and borrowings 1,745,527 1,793,009
============ ============
CHF 1,700,000 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 (2016: 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 periods 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 2017 or 31 December 2016.
10 Inventories
As at 31 December 2017 As at 31 December 2016
USD USD
Raw materials 1,478,998 2,383,828
Work in progress 952,969 1,593,966
Finished goods - pallets 14,183,028 12,471,286
16,614,995 16,449,080
The cost of inventory sold and recognised as an expense during the year was USD 1,215,533 (2016: USD 2,192,663).
10.1 Raw materials
As a consequence of its strategic alliance (see Note 1.2), the closing of the Canadian factory and the move of its plant and equipment to China and Mexico in 2016 and 2017, the Group has surplus of raw inventories in its premises in Canada. In order to speed up the ramp up of the Mexican manufacturer and as the Group has been successful in negotiating lower prices of raw material (fibreglass and resin) with suppliers of previous Canadian operations, the Group sold a portion of its inventory to Jabil using the new lower price in line with the expected and agreed production cost. The Group has initiated the sales of this raw material with a discount on their original acquisition value in 2016; these disposals have been continued in 2017.
On this basis, as at 31 December 2017, an impairment has been deducted from raw material for an amount of USD 1,987,761 (2016: USD 1,478,480).
Disposals of raw materials to new third parties continue in 2018, using the same pattern.
10.2 Work in progress
For the same reason, the stock of work in progress has been sold in 2016 and 2017 to the Mexican manufacturer with a discount on their cost of production. Disposals of raw materials will continue in 2018 on the same discount basis.
As at 31 December 2017, based on a review of future usage and taking into account the disposals at prices below cost of production, an impairment has been deducted from work in progress for an amount of USD 481,762 (2016: USD 386,553).
10.3 Finished goods - pallets
Finished goods represent pallets produced and not yet sold or deployed via the pallet pool in property, plant and equipment.
The Group performed a review of pallet inventory that is designated to be retrofitted with the ELIoT technology. The remaining items not included in the retrofitting planning have been impaired to reflect the realisation value based on discounted market price.
As at 31 December 2017, based on this test, an impairment has been deducted from finished goods for an amount of USD 2,179,000 (2016: USD 0).
11 Trade and other receivables
As at 31 December 2017 As at 31 December 2016
USD USD
Trade receivables 1,623,565 3,116,040
Income tax receivables 4,457 4,288
Other tax receivables 1,093,409 847,624
Other receivables 829,417 1,247,008
Total trade and other receivables 3,550,848 5,214,960
======================= =======================
The ageing of the trade receivables as at 31 December 2017 is detailed below:
2017 2016
Neither past due nor impaired: 788,089 1,579,574
Past due but not impaired:
0 to 30 days 289,373 1,504,552
30 to 60 days 7,312 5,346
60 to 90 days 10,943 -
Over 90 days 527,847 26,568
---------- ----------
1,623,565 3,116,040
========== ==========
As at 31 December 2017, the Group has deducted a value correction for impairment of the Canadian HST, Luxembourg and UK VAT receivables amounting to USD 107,567 (2016: USD 686,203).
The other tax receivables primarily relate to Harmonised Sales Tax (HST) balances due from Canada, VAT due from Luxembourg and VAT due from United Kingdom.
12 Fixed assets held for sale
As at 31 December 2017 As at 31 December 2016
USD USD
Transfer from Property, Plant & Equipment 1,360,141 -
Transfer from Investment Property 1,297,603 -
------------------------------- --------------------------------------
Fixed assets held for sale 2,657,744 -
=============================== ======================================
As at 31 December 2017, the fixed assets held for sale represent a building used by the Group for both administrative purposes and for rental. Up to 2016, the cost of the property related to administrative purposes had been classified within property, plant and equipment and the cost of the property related to renting purposes has been classified under Investment property. The building has been sold on 27 February 2018; as the decision to sell this asset has been made in 2017 and as the disposal is considered as highly probable, it has been reclassified under fixed assets held for sale on 31 December 2017 for USD 2,657,744.
The Group has granted a security interest over the property held in Switzerland in return for the CHF 1,700,000 bank loan amounting to USD 1,741,480.
13 Cash and short-term deposits
As at 31 December 2017 As at 31 December 2016
USD USD
Restricted cash 2,035,642 1,884,713
----------------------- -----------------------
Total restricted cash 2,035,642 1,884,713
======================= =======================
Cash at bank and in hand 3,851,257 9,742,077
Short-term deposits 14,960 52,828
----------------------- -----------------------
Total cash and short-term deposits 3,866,217 9,794,905
======================= =======================
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 (2016: USD nil) 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 2,035,642 (2016: CAD 2,500,000 - USD 1,884,713) 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 2017 December 2016
USD USD
Cash at bank and in hand 3,851,257 9,742,077
Short-term deposits 14,960 52,828
--------------- ---------------
Total cash and cash equivalents 3,866,217 9,794,905
=============== ===============
14 Share capital and reserves
2017
On 17 February 2017, 757,500 restricted shares were issued to certain Directors in lieu of cash compensation for the first half of 2017 (and the second half of 2016 with respect to Frédéric de Mevius). These shares are restricted from trading until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.
On 20 February 2017, the General Meeting of Shareholders decided the conversion of existing Convertible Preferred Shares into Class A Convertible Preferred Shares; it also decided the creation of a Class B Convertible Preferred Shares.
On 6 July 2017, 6,000,000 restricted shares were issued to key employees which are not exercisable until after three years and when the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds the lower of GBP 50p or 2.5 times the offering price of the first ordinary share placement following the issuance date of the restricted shares. Following the resignation of the recipient of 2,500,000 restricted shares, these shares were forfeited and transferred to the Company to be held as non-voting treasury stock.
In June and July 2017, the Company issued a total of 92,487,729 Class B Convertible Preferred Shares of USD 0.01 in the capital of the Company. See also Note 14.3.
As at 31 December 2017, RM2's issued share capital is 407,062,656 Ordinary Shares of USD 0.01 each and an aggregate of respectively 42,328,042 and 92,487,729 Class A and B Convertible Preferred Shares of USD 0.01 in the capital of the Company, of which 2,916,334 Ordinary Shares are held by the Company as non-voting treasury stock.
The total number of voting rights in the Company as at 31 December 2017 was 538,962,093.
2016
On 1 July 2016, the Company issued 2,755,000 options, of which 2,000,000 were issued to an executive director and certain employees and vest on the third anniversary of the grant, with an exercise price equal to GBP 0.23 and are not exercisable until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.
500,000 were issued to certain employees and vest over three years in equal tranches on the anniversary of the grant date, with an exercise price equal to GBP 0.23 and are not exercisable until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00, and 255,000 options were issued to certain employees and vest over three years in equal tranches on the anniversary of the grant date and have an exercise price equal to GBP 0.23.
On 8 July 2016, 1,275,000 restricted shares were issued to certain Directors in lieu of cash compensation for the year. These shares are restricted from trading until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.
On 8 July 2016, 1,000,000 restricted shares were issued (with a vesting period of one year) to one key employees which are not exercisable until after three years or when the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.
In each case, employees must retain a business relationship with the Company on the relevant anniversary date for the options or restricted shares to vest.
In July 2016, the Company issued 42,328,042 Convertible Preferred Shares of USD 0.01 in the capital of the Company. See also Note 14.3.
As at 31 December 2016, RM2's issued share capital is 400,305,156 Ordinary Shares of USD 0.01 each and 42,328,042 Convertible Preferred Shares of USD 0.01 in the capital of the Company, of which 397,334 Ordinary Shares are held by the Company as non-voting treasury stock.
The total number of voting rights in the Company as at 31 December 2016 was 442,235,864.
14.1 Authorised shares
The below tables show the authorised share capital available for issue, respectively for Ordinary and Convertible Preferred Shares.
Shares USD Par value per share
Ordinary Shares
At 1 January 2016 18,787,144 187,871 USD 0.01
------------ --------- --------------------
Issue of restricted shares on 8 July 2016 (2,275,000) (22,750) USD 0.01
Adjustment of authorised shares per EGM dated 22 July 2016 (*) 187,856 1,879 USD 0.01
At 31 December 2016 16,700,000 167,000 USD 0.01
Increase of authorized shares per EGM dated 20 February 2017 13,000,000 130,000 USD 0.01
Issue of restricted shares on 27 February 2017 (757,500) (7,575) USD 0.01
Issue of restricted shares on 6 July 2017 (6,000,000) (60,000) USD 0.01
Increase of authorized shares per EGM dated 31 July 2017 57,057,500 570,575 USD 0.01
At 31 December 2017 80,000,000 800,000 USD 0.01
============ ========= ====================
(*) The Extraordinary General Meeting of Shareholders held on 22 July 2016 decided to set the authorised ordinary shares at 417,005,156 shares of USD 0.01 per share.
Shares USD Par value per share
Convertible Preferred Shares
At 1 January 2016 - - -
------------- ---------- --------------------
Authorised 22 July 2016 63,500,000 635,000 USD 0.01
Subscription Class A Convertible Preferred Shares 27 July 2016 (42,328,042) (423,280) USD 0.01
At 31 December 2016 21,171,958 211,720 USD 0.01
============= ========== ====================
Cancellation Class A Convertible Preferred Shares 22 Feb 2017 (21,171,958) (211,720) USD 0.01
Increase of authorised Class B Preferred Shares on 22 Feb 2017 46,171,958 461,719 USD 0.01
Issue of Class B Preferred Shares on 22 June 2017 (4,591,743) (45,917) USD 0.01
Issue of Class B Preferred Shares on 3 July 2017 (41,580,213) (415,802) USD 0.01
Increase of authorized Class B preferred shares on 17 July 2017 46,315,771 463,158 USD 0.01
Issue of Class B Preferred Shares on 17 July 2017 (17,017,110) (170,171) USD 0.01
Issue of Class B Convertible Preferred shares on 30 July 2017 (29,298,663) (292,987) USD 0.01
At 31 December 2017 - - -
============= ========== ====================
14.2 Ordinary shares issued and fully paid
Shares USD Par value per share
At 1 January 2016 398,030,156 3,980,302 USD 0.01
------------ ---------- --------------------
Issue of restricted shares on 8 July 2016 2,275,000 22,750 USD 0.01
At 31 December 2016 400,305,156 4,003,052 USD 0.01
------------ ---------- --------------------
Issue of restricted shares on 27 February 2017 757,500 7,575 USD 0.01
Issue of restricted shares on 6 July 2017 6,000,000 60,000 USD 0.01
At 31 December 2017 407,062,656 4,070,627 USD 0.01
============ ========== ====================
14.3 Convertible Preferred Shares issued and fully paid
Shares USD Par value per
share
At 1 January 2016 - - -
------------ ---------- --------------
Issue of Class A for Convertible Preferred Shares on 27 July 2016 42,328,042 423,280 USD 0.01
At 31 December 2016 42,328,042 423,280 USD 0.01
------------ ---------- --------------
Issue of Class B Convertible Preferred Shares on 22 June 2017 4,591,743 45,918 USD 0.01
Issue of Class B Convertible Preferred Shares on 3 July 2017 41,580,213 415,802 USD 0.01
Issue of Class B Convertible Preferred Shares on 17 July 2017 17,017,110 170,171 USD 0.01
Issue of Class B Convertible Preferred Shares on 31 July 2017 29,298,663 292,987 USD 0.01
At 31 December 2017 134,815,771 1,348,157 USD 0.01
============ ========== ==============
The Class A and Class B Convertible Preferred Shares can both be converted into Ordinary shares of the Company. At issuance, the conversion was based on a 1:1 rate, subject to any anti-dilution protection from the issuance of equity at a lower share price. The shares were redeemable subject to availability of distributable reserves and were remunerated with a cumulative dividend in preference to any dividend on Ordinary Shares at a rate of 9% of the Price per Share per annum. No such dividends have been declared for the years 2017 and 2016. As of 13 April 2018, the Extraordinary General Meeting of Shareholders decided the conversion of all Class A and Class B Convertible Preferred Shares (an aggregated number of 134,815,771 convertible shares) into 2,848,028,916 Ordinary shares.
14.4 Share premium
USD
------------
At 1 January 2016 263,317,090
------------
Issue of restricted shares on 8 July 2016 -
Issue of Class A Convertible Preferred Shares on 27 July 2016 19,576,719
At 31 December 2016 282,893,809
Issue of Class B Convertible Preferred Shares on 22 June 2017 8,099,306
Issue of Class B Convertible Preferred Shares on 3 July 2017 1,954,083
Issue of Class B Convertible Preferred Shares on 17 July 2017 3,314,720
Issue of Class B Convertible Preferred Shares on 31 July 2017 5,707,013
Cost of share issue (287,615)
At 31 December 2017 301,681,317
============
14.5 Nature and purpose of reserves
Foreign 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.
14.6 Dividend distribution
As a result of the accumulated losses generated by the Group, no dividend has been declared or paid.
14.7 Treasury stock
As of 31 December 2017, the Group repurchased treasury stock shares for an amount of USD 29,163 (2016: USD 3,424). In accordance with the Luxembourg law, a non-distributable reserve has been created in connection with this transaction on own shares.
15 Trade and other payables
As at 31 December 2017 As at 31 December 2016
USD USD
Trade payables 2,907,776 2,741,938
Employee compensation payables 21,628 69,171
Other tax payables 124,826 98,942
Other payables 6,224,263 1,355,970
Total trade and other payables 9,278,493 4,266,021
======================= =======================
Other payables includes a nil amount (2016: USD 8,550) due to related parties.
Terms and conditions of the above financial liabilities:
- Trade payables are non-interest bearing and are normally settled on 45-days terms
- Other payables are non-interest bearing and have an average term of 45 days terms
- For explanation on the Group's liquidity risk management processes, refer to Note 26.
16 Revenues and segment reporting
The Group has only one operating segment for the disclosure of revenue.
The 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 2017, there were three clients who represent more than 10% of the Group's revenues totalling 60% of 2017 revenues (2016: two clients representing more than 10% of the Group's revenues - the total of their revenues being 70%). The remaining revenues are earned from approximately 80 customers (2016: 60 customers).
Turnover
31 December 2017 31 December 2016
USD USD
Sold pallets 291,752 441,537
Leased pallets 4,943,673 5,749,607
Rendering of logistical services 796,858 1,195,171
Disposal of raw material and work in progress 524,761 1,495,814
6,557,044 8,882,129
----------------- -----------------
Geographical information
The breakdown of the revenue allocation by area is as follows:
31 December 2017 31 December 2016
USD USD
North America 5,170,122 7,243,677
Europe 1,386,922 1,638,452
6,557,044 8,882,129
----------------- -----------------
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 2016
December 2017
USD USD
Luxembourg 2,105,936 2,221,931
Rest of Europe 295,776 5,072,952
North America (including Mexico) 29,149,509 35,716,850
China 5,468,717 6,332,300
37,019,938 49,344,033
--------------- -----------------------
Non-current assets for this purpose consist of property, plant and equipment, investment properties and intangible assets.
17 Cost of sales
31 December 2017 31 December 2016
USD restated
USD
Cost of pallets sold - BLOCKPal 321,731 125,229
Cost of pallets sold - raw material / WIP 748,198 1,840,302
Cost of pallets sold - services 145,605 227,132
Amortization of pallet pool 4,752,926 4,225,318
Amortization of production tool 4,364,527 3,132,910
Cost of software, licenses and services 695,625 1,226,523
Factory absorption Canada 5,657,933 20,257,051
Factory absorption new set-up 12,062,760 -
Logistic costs 4,041,928 4,639,428
Impairment and repairs 1,735,595 6,402,809
Other 322,716 1,041,837
34,849,544 43,118,539
================= =================
In 2017, factory absorption new set-up was the variance between actual costs related to the transfer of production equipment to Mexico and China and the capitalized acquisition costs of the pallets produced in inventory and assets.
The company previously announced in its interim accounts dated 30 June 2017 that logistical expenses needed to operate the rental business were reclassified from Administrative expenses to Cost of sales.
The reclassification, which has no impact on the Equity, is designed to better display the direct costs in relation to the revenue.
The FY2016 restated figures that are disclosed in the financial statements include a reclassification of USD 3,414,105.
18 Administrative expenses
31 December 2017 31 December 2016
USD Restated
USD
Payroll costs 6,537,941 7,361,268
Director's expenses 122,800 121,075
Travel and expenses 1,010,469 1,201,689
One Time Costs China (VAT, import duties...) 1,865,656 509,098
Consultant costs (AIM, Funding...) 1,311,280 1,828,599
Audit/Tax/Legal costs 805,780 836,429
Insurance 172,162 240,210
Eliot 1,021,504 82,666
Other 733,502 3,346,494
----------------- -----------------
Total cash 13,581,094 15,527,528
----------------- -----------------
Total cash - excluding One Time Costs 11,715,438 15,018,430
Shared based payment 777,308 1,029,185
Depreciation 643,530 1,449,229
15,001,932 18,005,942
================= =================
19 Other income and expenses
19.1 Other operating income
31 December 2017 31 December 2016
USD USD
Net gain on disposal of PPE 30,824 -
Rental income 297,265 284,822
Other 172,845 1,814
Total other operating income 500,934 286,636
================= =================
19.2 Other operating expenses
31 December 2017 31 December 2016
USD USD
Direct operating expenses on rental-earning investment properties 75,673 63,210
Net loss on disposal of PPE - 35,374
Other 6,236 3,376
Total other operating expenses 81,909 101,960
================= =================
19.3 Finance income
31 December 2017 31 December 2016
USD USD
Interest income on loans and receivables - 12,152
Total interest income - 12,152
Net foreign exchange gain 1,918,697 2,149,808
Other 27,190 72,607
Total finance income 1,945,887 2,234,567
================= =================
19.4 Finance costs
31 December 2017 31 December 2016
USD USD
Interest at amortised costs on loans and borrowings 32,260 33,617
Total interest expenses 32,260 33,617
Net foreign exchange loss 2,662,944 3,028,798
Other 13,605 1,479
Total finance costs 2,708,809 3,063,894
================= =================
19.5 Employee benefits expenses
31 December 2017 31 December 2016
USD USD
Included in cost of sales expenses:
Wages and salaries 1,987,453 5,698,414
Social security costs 544,211 1,471,644
Pension costs 16,381 25,158
Included in administrative and selling/distribution expenses:
Wages and salaries 5,421,030 6,155,960
Social security costs 422,132 365,229
Pension costs 162,860 189,700
Total employee benefits expenses 8,554,067 13,906,105
================= =================
Average number of full time employees 93 188
================= =================
20 Income taxes
20.1 Income tax expenses
The major components of income tax expense for each year are:
31 December 2017 31 December 2016
USD USD
Current income tax charge/(income) 195,292 56,311
Deferred tax charge/(income) 23,402 (129,676)
Total Income tax charge/(income) 218,694 (73,365)
================= =================
A reconciliation between tax expense and the accounting loss multiplied by the domestic tax rate of each entity in its jurisdiction for each year is as follows:
31 December 2017 31 December 2016
USD USD
Loss before tax (43,638,330) (52,887,003)
----------------- -----------------
Theoretical income tax (charge)/income using applicable income tax rate (6,885,837) (9,323,979)
Reconciliation to actual income tax charge
Unrecognised deferred tax assets on losses carried forward 6,566,431 8,410,502
Non-deductible expenses from:
Director's fees, ESOP 163,141 183,609
Accelerated capital allowances 507,356 726,924
Other non-deductible expenses (1,364) 33,333
Minimum income tax charge (116,187) (36,202)
Other (233,540) (67,552)
Income tax expenses (income) 218,694 (73,365)
================= =================
20.2 Deferred taxes
Deferred tax liabilities
As per 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 20,368 (2016: USD 129,677), 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 43,751 (2016: -12,425).
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 152,779,881 as at 31 December 2017 (2016: USD 116,514,355).
21 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 2017 amounts to USD 179,241 (2016:
USD 214,858).
22 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 is detailed as follows:
22.1 Employee Stock Option Plan ("ESOP")
On 1 July 2016, the Company issued 2,755,000 options, of which 2,000,000 were issued to an
executive director and certain employees and vest on the third anniversary of the grant, with
an exercise price equal to GBP 0.23 and are not exercisable until the volume weighted average
quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP
1.00.
500,000 were issued to certain employees and vest over three years in equal tranches on the
anniversary of the grant date, with an exercise price equal to GBP 0.23 and are not exercisable
until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day
period equals or exceeds GBP 1.00, and 255,000 options were issued to certain employees and
vest over three years in equal tranches on the anniversary of the grant date and have an exercise
price equal to GBP 0.23.
On 8 July 2016, 1,275,000 restricted shares were issued to certain Directors in lieu of cash
compensation for the year. These shares are restricted from trading until the volume weighted
average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds
GBP 1.00.
On 8 July 2016, 1,000,000 restricted shares were issued (with a vesting period of one year)
to one key employee which are not exercisable until after three years or when the volume weighted
average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds
GBP 1.00.
On 17 February 2017, 757,000 restricted shares were issued to certain Directors in lieu of
cash compensation for the first half of 2017 (and the second half of 2016 with respect to
Frédéric de Mevius). These shares are restricted from trading until the volume weighted
average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds
GBP 1.00.
On 6 July 2017, 6,000,000 restricted shares were issued to key employees which are not exercisable
until after three years and when the volume weighted average quoted price of the Ordinary
Shares for a consecutive 30-day period equals or exceeds the lower of GBP 50p or 2.5 times
the offering price of the first ordinary share placement following the issuance date of the
restricted shares. Following the resignation of the recipient of 2,500,000 restricted shares,
these shares were forfeited and transferred to the Company to be held as non-voting treasury
stock.
In each case, employees must retain a business relationship with the Company on the relevant
anniversary date for the options or restricted shares to vest.
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 2017 31 December 2016
USD USD
Expense arising from equity-settled share-based payment transactions 777,308 1,029,185
---------------- ----------------
Total expense arising from share-based payment transactions 777,308 1,029,185
================ ================
The Company does not have any liability arising from share-based payment transactions as at 31 December 2017 (2016: 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 issued Number of share options
Outstanding at beginning of year 19,583,180 9,025,000
Granted during the year 6,757,500 14,500,000
Forfeited-repurchased during the year (2,519,000) (10,527,500)
Restriction removed during the year - -
Exercised during the year - -
---------------------------------------- -------------------------- -----------------------
Outstanding at end of the year 23,821,680 12,997,500
Tradable/Exercisable at end of the year - -
The weighted average remaining contractual life for the restricted shares issued outstanding
as at 31 December 2017 is 2.77 years (2016: 3.36 years).
The weighted average fair value of shares granted during the year was USD 0.13 (2016: USD
0.09).
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 and GBP 0.50 for the latest issues.
The weighted average share price at the date of exercise issue was GBP 0.13 (2016: GBP 0.23).
22.2 Fair value of share based payments transactions
2016
Option Shares
Weighted average exercise price GBP 0.23
Expected volatility 49%
Expected life of restricted shares 3 years
Risk-free interest rate 1.0 %
Expected dividend yields Nil
----------------------------------- --------------
Model used Black-Scholes
2017
Option Shares
Weighted average exercise price GBP 0.138
Expected volatility 54%
Expected life of restricted shares 3 years
Risk-free interest rate 0.61 % 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.
23 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.
The influence of the Convertible Preferred Shares and Options on the calculation of the diluted
earnings per share involved an anti-dilutive effect.
The following reflects the income and share data used in the basic and diluted earnings per
share computations:
31 December 2017 31 December 2016
USD USD
Net loss attributable to ordinary equity holders of the parent for
basic earnings (43,857,023) (52,813,638)
==================== ====================
31 December 2017 31 December 2016
Weighted average number of ordinary shares for basic earnings per share 403,848,177 399,124,145
Weighted average number of ordinary shares adjusted for the effect of
dilution 403,848,177 399,124,145
==================== ====================
Loss per share
Basic (0.11) (0.13)
Diluted (0.11) (0.13)
==================== ====================
Management considers that there is no dilutive effect from the options as they would be negative.
24 Contingent liabilities
Various warranty and legal claims were brought against the Group during the year. None were deemed necessary to be recognised as a provision as the Management considers these claims to be unjustified and the probability that they will require settlement at the Group's expense to be remote. This evaluation is consistent with external independent legal advice. See also Note 28 on Subsequent events.
25 Commitments and contingencies
25.1 Operating lease rentals - Group as lessor
Property, plant and equipment - others
The Group has entered in 2016 into a lease agreement on the industrial assets transferred to its Chinese manufacturer. The non-cancellable lease extends until 1 April 2018. Please also refer to the Subsequent Events Note 28.
Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:
31 December 2017 31 December 2016
USD USD
Within one year 29,970 119,881
After one year but not more than five years - 29,970
More than five years - -
29,970 149,851
================= =================
Investment 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. On 27 February 2018 the Swiss office building was sold and the Group entered into a rental agreement with the owner in respect to a portion of the premises beginning 1 March 2018.
Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:
31 December 2017 31 December 2016
USD USD
Within one year 37,009 221,953
After one year but not more than five years - 887,812
More than five years - 221,953
37,009 1,331,718
================= =================
Property, plant and equipment - pallet pool
Future minimum rentals receivable under operating leases defined as monthly flat fee at 31 December are as follows:
31 December 2017 31 December 2016
USD USD
Within one year 518,608 227,338
After one year but not more than five years 122,525 221,825
More than five years - -
641,133 449,163
================= =================
Group's activity is completed by other trip-fee-agreements which revenue is generated according
to velocity metrics.
25.2 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 and warehouse space in Canada. These leases have an average
life of 2 and 5 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 2,035,642 (2016: CAD 2,500,000 - USD 1,884,713) 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 2017 31 December 2016
USD USD
Within one year 1,235,206 1,572,137
After one year but not more than five years 5,741,108 5,464,495
More than five years 377,162 2,585,742
7,353,476 9,622,374
================= =================
Following the voluntary liquidation of the Canadian lessee, the Trustee may elect to cancel
the remaining commercial lease (refer to the Subsequent Event Note 28)
25.3 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 2017 31 December 2016
USD USD
Forward purchase for acquisition of PPE - 184,476
================== =======================
25.4 Forward purchase of pallets produced by manufacturers
Zhenshi (China) manufacturing agreement
In April 2016, the Group entered in a Manufacturing and Supply Agreement with Zhenshi Holding
Group Company Limited where the Group committed to acquire at least 1,500k pallets per year;
this quantity is however adjusted to the current effective capacity of production of the manufacturer
and subject to certain conditions as the certification of the pallets and respect of technical
specifications.
The Company recently exchanged letters with its Chinese subcontractor, Zhenshi, regarding
a termination of the agreement and indemnities to cover costs incurred to date through the
time of removal of the equipment from Zhenshi's site. Discussions are on-going. In light of
these exchanges and its business plan, the Company is currently re-examining its footprint
in China. The outcome of these exchanges is unknown at present, but alternatives under consideration
could include revising the current agreement with Zhenshi, the amical or litigious termination
of the contract and/or establishing an agreement with a different contract manufacturer. Regardless
of the outcome of the subcontracting relationship, RM2 expects to continue to source fibreglass
raw material for pallet production from Zhenshi's affiliate, Jushi.
Jabil (Mexico) manufacturing agreement
In September 2016, the Group entered in a Manufacturing Services Letter of Agreement with
Jabil Circuit Inc. Following the first 12 months of production, the initial agreement has
been modified such that the Company has agreed a new pricing mechanism to account for a fixed
monthly cost regardless of volumes and a variable cost per pallet. As discussed in the Business
Review and the Going Concern sections of the accounts, the unpaid commitment in favour of
Jabil as of 31 December 2017 amounts to USD 4.9m, to be settled be no later than June 2019.
The Group is responsible for any excess or obsolete materials and inventory. Such items would
be invoiced by Jabil to the Group.
Upon cancellation or termination of this agreement, if Jabil has not yet recovered payments
from the Group sufficient to cover the total amount of Jabil's capital investment (an amount
of USD 2,000,000), then Jabil shall invoice the Group for the unrecovered balance of such
capital investment along with reasonable fees, costs of materials and expenses incurred by
Jabil.
25.5 Convertible preferred shares
As mentioned in Note 14.3, the holders of the Preferred Shares shall be entitled to receive
for each Share cumulative dividends in preference to any dividend on 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. No such dividend has been declared for the year.
25.6 Related party disclosures
25.6.1 Group subsidiaries
The consolidated financial information includes 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 2017 2016
RM2 S.A., including Swiss branch Luxembourg 100% 100%
RM2 Leasing S.A. (previously RM2 IP S.A.) Luxembourg Liquidated on Dec 28, 2017 100%
RM2 Holland B.V. Netherlands 100% 100%
RM2 Europe Spó ka z.o.o. Poland 100% 100%
RM2 USA Inc. United States of America 100% 100%
RM2 Limited (previously Victoria Rises Ltd.) United Kingdom 100% 100%
7636156 Canada Inc. (previously 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% 100%
All subsidiaries held by the Company are consolidated, except for RM2 Total Solutions Inc.,
United States of America which is dormant company.
RM2 Pallet Investment Limited, Ireland and RM2 Leasing SA, Luxembourg have been liquidated
in 2017.
25.6.2 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 with related Expenses from Amounts owed by Amounts owed to
Year parties related parties related parties related parties
USD USD USD USD
Parent: Non-interest
bearing loans 2016 - - - 8,550
Parent: Non-interest 2017 - - - -
bearing loans
Key Management
personnel:
Remuneration 2016 - 817,534 - -
Key Management
personnel:
Remuneration 2017 - 1,078,288 - -
Key Management 2017 - - 192,995 -
personnel: Loans
(see also note 28)
Key Management
personnel:
Share-based
payments 2016 - 1,029,185 - -
Key Management
personnel;
Share-based
payments 2017 - 777,308 - -
Other - Advances 2016 - - 1,192,075 -
Other - Advances 2017 - - 790,618 -
Other -
Reimbursement of
costs incurred 2016 333,235 - - -
Other -
Reimbursement of
costs incurred 2017 401,458 - - -
In 2017, the income from other related parties has been recorded in other operating income for USD 86,333 (2016: USD Nil) and has been deducted from Other Administrative expenses for USD Nil (2016: USD 277,648).
Restricted share issues to related parties are disclosed in Note 22.
25.6.3 Transactions with key management personnel
The Group granted compensation to the key management personnel as follows:
As at As at
31 December 2017 31 December 2016
USD USD
Employee compensation & benefits 1,078,288 710,035
================== ==================
26 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.
26.1 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
2017. 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.
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.
26.1.1 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). The Group has other operations in the following currencies which
are not significant for the Group: Euro (EUR), Polish Zloty (PLN) and Great British Pound
(GBP).
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.
The sensitivity analysis assumes +/- 10% of the USD/CAD exchange rate of the previous 24 months
(2016: 15%).This percentage has been determined based on the average market volatility in
exchange rates in the previous 24 months.
As at 31 December 2017 the Groups exposure to foreign currency was as follows:
Year Change in CAD rate Effect on profit before tax Effect on other comprehensive income
USD USD
2017 +10% (798,139) (798,139)
-10% 725,780 725,780
2016 +15% (1,856,000) (1,856,000)
-15% 1,593,095 1,593,095
26.2 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 in Switzerland 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.
26.2.1 Financial instruments and cash deposits
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
26.2.2 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 2017 has been mainly collected during the
1(st) quarter of 2018.
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 2017 Due on demand Due within 3 Due between 3 Due between 1 Due after 5 Total
months and 12 months and 5 years years
USD USD USD USD USD USD
Non-current
liabilities
Interest-bearing
loans and
borrowings - 25,000 1,716,480 - - 1,741,480
Bank borrowings - 25,000 1,716,480 - - 1,741,480
Current - - - - - -
liabilities
Interest-bearing
loans and
borrowings - 4,047 - - - 4,047
Bank overdrafts - - - - - -
Other loans and
borrowings - 4,047 - - - 4,047
Loans from other
related parties - - - - - -
Trade and other
payables - 9,278,493 - - - 9,278,493
Trade payables - 2,907,776 - - - 2,907,776
Payables to
other related - - - - - -
parties
Employee
compensation
payables - 21,629 - - - 21,629
Other tax
payables - 124,825 - - - 124,825
Other payables - 6,224,263 - - - 6,224,263
Total financial
liabilities: - 9,307,540 1,716,480 - - 11,024,020
=============== =============== =============== =============== ================ ============
31 December 2016 Due on demand Due within 3 Due between 3 Due between 1 Due after 5 Total
months and 12 months and 5 years years
USD USD USD USD USD USD
Non-current
liabilities
Interest-bearing
loans and
borrowings - 25,000 75,000 1,688,007 - 1,788,007
Bank borrowings - 25,000 75,000 1,688,007 - 1,788,007
Current - - - -
liabilities
Interest-bearing
loans and
borrowings - 5,002 - - - 5,002
Bank overdrafts - - - - - -
Other loans and
borrowings - 5,002 - - - 5,002
Loans from other
related parties - - - - - -
Trade and other
payables - 4,852,951 - - - 4,852,951
Trade payables - 2,741,938 - - - 2,741,938
Payables to
other related
parties - 8,550 - - - 8,550
Employee
compensation
payables - 69,171 - - - 69,171
Other tax
payables - 98,942 - - - 98,942
Other payables - 1,934,350 - - - 1,934,350
Total financial
liabilities: - 4,882,953 75,000 1,688,007 - 6,645,960
=============== =============== =============== =============== ================ ============
26.3 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.
27 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.
28 Subsequent events
Capital Structure/Financing/Fee Shares
On 29 March 2018, the Company announced that it had conditionally raised USD 36m before fees
and expenses by a placing (to be effected in two tranches) of 2,535,211,265 new Ordinary Shares
(the "Placing") to existing institutional investors, certain directors and members of senior
management at a Placing Price of 1 pence per Placing Share (the "Placing Price"). On 13 April
2018, following shareholder approval at an Extraordinary General Meeting of Shareholders of
the authorized capital increase, the Company issued the first tranche of 1,279,049,295 new
Ordinary Shares (gross proceeds of USD 18,162,500). The issuance of the second tranche of
1,256,161,970 new Ordinary Shares (gross proceeds of USD 17,837,500) will occur ten business
days following a drawdown notice issued by the Company and is subject to the satisfaction
of certain key performance indicators, including reducing operating costs of the business
to a pre-determined level, launching the next generation IoT Cat M RM2 ELIoT pallets, achieving
commercial deployment of RM2 ELIoT pallets and reviewing the governance of the Company as
determined to the satisfaction of the Company's largest shareholder, Woodford Investment Management
Limited, acting on behalf of certain discretionary managed funds for which it acts as discretionary
investment fund manager.
The Group intends to use the net proceeds of the Placing to fund: (i) the retrofitting of
existing inventory of RM2 BLOCKPals with RM2 ELIoT track and trace devices, (ii) the production
of new RM2 ELIoT Pallets and (iii) its sales and general administrative costs.
As part of the Placing, the holders of 120,457,808 Convertible Preferred Shares who subscribed
for new Ordinary Shares in the Placing agreed to convert their Convertible Preferred Shares
into 3,026,761,003 Ordinary Shares at the Placing Price (the "Participating Conversion Shares")
and the holders of 14,357,963 Convertible Preferred Shares who did not subscribe in the Placing
have agreed to convert their Convertible Preferred Shares into 130,146,937 Ordinary Shares
in application of the anti-dilution provisions in the Company's Articles (the "Non-Participating
Conversion Shares"). Both the Participating Conversion Shares and the Non-Participating Conversion
Shares include the payment of all accrued dividends on such shares. Following the closing
of the Placing, no Convertible Preferred Shares remain outstanding and the Company's equity
consists of a single class of Ordinary Shares. Further information relating to the Placing
is available in the Circular to Shareholders available on the Company's website, www.rm2.com/aim-rule-26/.
The Company has announced that it intends to launch shortly an open offer to all Shareholders
to subscribe for shares in the Company at the Placing Price of up to the pound sterling equivalent
of EUR 5.0m, the maximum permitted without requiring the Company to publish a prospectus under
the EU Prospectus Directive. The Open Offer would be made available to all Shareholders to
allow those Shareholders who could not participate in the Placing to have the opportunity
to invest. Authorization for the Open Offer was obtained from Shareholders at the General
Meeting of the Company held on 13 April 2018.
On 20 April 2018, the Company issued 15,900,000 new Ordinary Shares ("Fee Shares") to certain
non-executive Directors of the Company in lieu of cash compensation for the period H2 2017
- H1 2018 (beginning 1 July 2017 and ending 30 June 2018) as set forth in the table below:
Director Number of Fee Shares issued Resulting holding of Ordinary Shares
Jan Dekker 2,650,000 5,440,000
---------------------------- -------------------------------------
Charles Duro 2,650,000 5,038,064
---------------------------- -------------------------------------
R. Ian Molson* 5,300,000 295,860,083
---------------------------- -------------------------------------
Stuart Rose 2,650,000 21,695,634
---------------------------- -------------------------------------
Paul Walsh 2,650,000 9,080,500
---------------------------- -------------------------------------
* and associated family trusts
The determination of the number of Fee Shares was calculated using a price of 1.685 pence per share, being the average of the closing prices for the five trading days prior to and including 17 April 2018.
In addition, the Remuneration Committee decided to remove restrictions related to the attainment of share price thresholds previously applied with respect to the free disposition of restricted shares. This removal of restriction applies to 22,157,680 Ordinary Shares. The impact of this operation will amount to USD 1,176,086 in the result 2018. As of 30 April 2018, RM2's issued share capital is composed of 4,858,919,891 Ordinary Shares of USD 0.01 each. Board Membership The Company announced on 29 March 2018 that Frederic de Mevius and John Walsh had stepped down from the Board of Directors. Sale of Swiss Office Building On 9 March 2018, the Company reported the sale of a non-core office building in Switzerland and repayment of the related mortgage, receiving net proceeds of approximately USD 2m (after reimbursement of the loan). Voluntary Liquidation of 7636156 Canada, Inc. (previously RM2 Canada Inc.) Following the previously-disclosed winding down of its Canadian manufacturing operations which began in 2016, the Company announced on 1 May 2018 that it filed in the Province of Ontario, Canada for the voluntary liquidation of its indirect wholly-owned subsidiary, 7636156 Canada, Inc. Manufacturing The Company recently exchanged letters with its Chinese subcontractor, Zhenshi, regarding termination of the agreement and indemnities to cover costs incurred to date through the time of removal of the equipment from Zhenshi's site. Discussions are on-going. In light of these exchanges and its business plan, the Company is re-examining its footprint in China. The outcome of these exchanges is unknown at present, but alternatives under consideration could include revising the current agreement with Zhenshi, the amical or litigious termination of the contract and/or establishing an agreement with a different contract manufacturer. Regardless of the outcome of the subcontracting relationship, RM2 expects to continue to source fibreglass raw material for pallet production from Zhenshi's affiliate, Jushi. Retention bonus On 30 July 2017, the Company agreed to extend a loan to Kevin Mazula, which would automatically convert to a bonus in the amount of USD 400,000 once the Company issue at least GBP 10m of new equity. The 13 April 2018 completion of the Placing fulfilled the condition of converting the loan to a bonus. Open Offer The Company announced on May 21, 2018 an open offer to existing shareholders to raise up to approximately GBP 4.3 million (before expenses) through the issue of up to 430,161,622 new ordinary shares in the Company at an issue price of 1 pence per share.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR AMMMTMBJTTFP
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May 21, 2018 02:00 ET (06:00 GMT)
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