DCTA Directa Plus Plc

25 September 2024

Directa Plus plc

("Directa Plus" or the "Company" or, together with its subsidiaries, the "Group")

Half Year Report for the Period Ended 30 June 2024

Directa Plus (AIM: DCTA), a leading producer and supplier of graphene-based products for use in consumer and industrial markets, announces its half year results for the six months ended 30 June 2024.

Financial highlights

* Contribution margin is a managerial metric calculated as (Revenue - Direct variable costs) / Revenue

**EBITDA loss represents results from operating activities before tax, interest, depreciation and amortisation.

Target markets progress

Environmental remediation: 81% of period revenue (H1 2023: 71%)

Textiles: 19% of period revenue (H1 2023: 29%)

Other

Giulio Cesareo, Founder & CEO of Directa Plus, said: "We are experiencing shorter term headwinds, together with an extended timeline for the award of a substantial tender for Setcar, such that we now expect the Group's revenues in FY2024 will be materially below market expectations*. Nevertheless, we believe we are in a strong position to convert new material contracts from our growing pipeline of opportunities, including for Setcar, and benefit from a robust financial platform.

In line with our strategic aim of strengthening our commercial capabilities to drive growth, we are also focused on further reducing direct production costs and restructuring Setcar to achieve short term returns, with the aim of exiting FY2025 at a breakeven EBITDA run rate."

*In so far as the Board is aware, prior to this announcement, consensus market expectations for FY24 were for revenue of c. €17m, adjusted LBITDA of c. €1m.

For further information please visit http://www.directa-plus.com/ or contact:

About Directa Plus

Directa Plus (www.directa-plus.com) is one of the largest producers and suppliers of graphene-based products for use in consumer and industrial markets. The Company's graphene manufacturing capability uses proprietary patented technology based on a plasma super expansion process. Starting from natural graphite, each step of Directa Plus' production process - expansion, exfoliation and drying - creates graphene-based materials and hybrid graphene materials ready for a variety of uses and available in various forms such as powder, liquid and paste.

This proprietary production process uses a physical process, rather than a chemical process, to process graphite into pristine graphene nanoplatelets, which enables Directa Plus to offer a sustainable, non-toxic product, without unwanted by-products. Directa Plus' products are made of hybrid graphene materials and graphene nano-platelets. The products (marketed as G+®) have multiple applications due to its properties. These G+® products can be categorised into various families, with different products being suitable for specific practical applications.

Directa Plus was established in 2005 and is based in Lomazzo (Como, Italy) and has been listed on the AIM market of the London Stock Exchange since May 2016. The Company holds the Green Economy Mark from London Stock Exchange which recognises companies that contribute to the global green economy.

Chief Executive Officer's statement

The Group made steady progress in the first half of the financial year laying the foundations for future growth. Notably, the Group completed the £6.9m capital raise in June 2024, which supported the acquisition of the Group's increased stake in Setcar to 99.5%, where we are seeing an increase in opportunities, and which will also enable the Group to make specific investments in new commercial and technical capabilities and to deliver on the large pipeline of opportunities ahead, providing confidence in our ability to deliver substantial returns to shareholders. We believe that we remain in a strong position to convert significant open opportunities into orders.

Following the acquisition of a further 49% in Setcar, we immediately identified areas to improve performance as we see great potential and are actively involved in restructuring the subsidiary to provide the necessary framework and resources to deliver growth and to materially improve profitability. This includes enhancing its organisational structure, optimising operations, and ensuring the availability of funds to support upcoming contracts.

To further drive expansion, we will invest part of the funds from the recent raise in strengthening our commercial and technical capabilities, which will enable us to access new markets and seize emerging opportunities.

In parallel, we are committed to further reducing direct production costs and increase margins. We are implementing new equipment in our production line that allows for the substitution of argon gas with nitrogen. This change is expected to yield material cost efficiencies and environmental benefits in terms of sustainability due to the exploitation of a highly common energy source generated internally. We expect to gain margin and, in certain areas, align the selling price of our products more competitively and facilitate entry into high-volume markets.

Simultaneously, we are working to reduce our cost base, and we have identified potential overhead efficiencies amounting to more than €0.5 million annually, which will be fully in place from 2025 onwards without compromising our operations.

We remain focused on executing all four pillars of our strategy - Process, Product, Time to Market and Partnerships - in the key verticals, to ensure we can deliver the best quality graphene at the best possible price in the most sustainable way, whilst supporting the industrialisation of existing and new vertical applications.

Looking ahead, whilst we have been prudent on FY24, highlighting the anticipated impact on revenue for the full year as a result of the continued delay in tender processes, the Group's short-term priorities remain focused on reducing cash consumption and enhancing profitability. We continue to work on the conversion of the large pipeline of opportunities ahead and to achieve a breakeven EBITDA run rate during our next financial year.

Financial performance

For H1 FY24, Directa Plus delivered revenues of €3.39m, of which c. €2.74m (81%) from Environmental remediation services and c. €0.65m (19%) from Textiles.

Revenue in the period is lower than the prior comparable period (€4.59m) as a result of the delayed commencement of some large contracts, but also our strategic focus on delivering higher margins, value added services, cessation of low margin contracts and laying the foundations for future growth. This action has already resulted in an improvement of the Group's contribution margin[1] which in the period increased to 52% (44% in H1 2023).

The higher contribution margin partially offset the reduction in revenue in the period, which led to a LBITDA of €1.81m (€1.25 in H1 2023) and a loss for the period of €2.48m (€1.91m in H1 2023).

The £6.9 million gross fundraise approved by Shareholders at the end of June supported the acquisition of the minority interests in Setcar and ensured that the Group has the financial resources to fund its growth, invest in line with its strategic plan and accelerate its path to profitability.

We are continuing to take steps to improve revenue quality, increase sales, rationalise the cost base and enhance our performance in the second half of the year and beyond.

¹Contribution Margin is a managerial metric calculated as (Revenue - Direct variable costs) / Revenue

Increased stake in Setcar to drive growth

Part of the fundraise supported the €1.5m acquisition of an additional 49% in Setcar (to 99.95%), the Group's environmental subsidiary, and to invest in select capital equipment and personnel to accelerate the adoption of our proven nanomaterial-based solutions and products. To complete the final payment for the acquisition of our stake in Setcar, Directa Plus had previously entered into a short term €1 million loan agreement with Nant Capital LLC, which was repaid immediately following the capital raise, and the Board would like to thank its shareholder for its ongoing support.

The opportunity to acquire a larger stake in Setcar, alongside its growing pipeline of opportunities, was compelling to us. Whilst this impacts profitability in the shorter term, it gives the Group full control to drive efficiencies in Setcar and to create a better platform to expand the Environmental business internationally, which we believe is in the best interests of our shareholders.

As detailed above, we are in the process of restructuring Setcar to focus on high value contracts and on the business of Grafysorber based products and services, and will invest in both equipment and people to support international expansion. Investment in equipment will enable the Group to accelerate the delivery of new products and remediation services using Grafysorber. We have also identified areas where we will strengthen the team with key personnel and professional support to deliver the higher value contracts and expand sales of Grafysorber.

Review of Operations

Environmental (81% of revenue)

The Environmental division continues to be the biggest source of Group's revenue and in recent years we have secured some significant new contracts globally thanks to our well-proven and unique Grafysorber® technology. It is a hybrid graphene-based solution for treating water sludges and emulsions containing hydrocarbons and is at least five times more effective than current technologies - absorbing more than 100 times its own weight of oil-based pollutants which may then be recovered.

The Group's environmental remediation activities are principally carried out through Setcar, which has great market potential where we see an exciting opportunity to take further control of the environmental supply chain and capture maximum value from the commercial offering made possible by our Grafysorber® technology. Through integration with Setcar, Grafysorber® has been developed over the past few years, resulting in the opportunity to secure larger contracts where we have identified multiple market opportunities and international expansion for this division. We have a substantial and growing pipeline of opportunities and we have open discussions with potential clients in Europe, Asia, Middle East and US that - at different stages - are looking with interest to our technology and could generate significant value for the Group.

During the period, Setcar renewed its contract with FORD Otosan, an automotive business in Romania owned by Ford Motor Company, for the fifth time, to deliver Total Waste Management Services (TWM) for a total contract value of €1.9m. Since the first contract was signed with FORD Otosan in 2020, the annual contract value has now increased by a total of c. 46%.

The contract with Liberty Galati, to provide a solution for the treatment of oily mills scale produced in the manufacturing of steel, has started albeit at an initially slower pace than expected, but in the period we have continued to work to optimise our technical solution and are preparing to fulfil the services at the proper speed and quality.

As detailed above, in parallel, we are further improving the competitiveness of our Grafysorber® solutions through specific investments in our production line, substituting argon gas with nitrogen as the main energy source that will reduce direct productions costs and deliver enhanced absorption.

Textiles (19% of revenue)

Consumer spending has slowed in the current cost-conscious climate, impacting the European textile market in the first half of FY24. In parallel, we also experienced a temporary slowdown in sales to a major workwear client that we expect to be recovered in the near future. As a result, our textiles vertical experienced a slowdown in revenues during this period. However, we have continued to develop opportunities in defence and workwear applications, where we see great potential, and to deepen our presence in the luxury textile market where we still see strong demand and interest from well-known brands in the development of innovative, technical new products to add to their collections.

Notwithstanding this, we remain confident in our ability to continue to evolve the business internationally, not only in Europe but also in the US and UK. This is demonstrated by our collaboration with Heathcoat Fabrics, a revered leader in the design and manufacture of advanced knitted and woven fabrics, in the UK announced in March 2024. Heathcoat Fabrics will integrate Directa Plus' G+® Planar Thermal Circuit technology into its portfolio to provide excellent thermal dissipation properties, helping to control and regulate the user's body temperature (test results have demonstrated up to >60% improvements in heat dissipation).

Whilst protecting our existing customer base, we are increasing our strategic focus within textiles to serve growing interest in high technology electronic applications, where the thermal conductivity and antimicrobial properties of our G+® graphene are well appreciated.

Additional industrial verticals

We are currently prioritising our efforts in the industrial verticals where we anticipate returns in the nearer term. We have developed a number of solutions that are ready to be sold on the market, such Gipave® for asphalts.

The asphalt applications of Directa Plus's G+ graphene technology have great potential, and the product developed with Iterchimica, GiPave® provides exceptional results in terms of increased durability and a reduced carbon footprint. During the period we made further steps forward with GiPave® and were proud to announce the installation of GiPave® at the Imola Circuit for Emilia-Romagna Grand Prix in May 2024 as part of the Formula 1 World Championship, making it the first circuit to feature green, sustainable and high-tech asphalt utilising graphene and recycled plastics. The Group also achieved further important recognition in May as GiPave® was chosen for an extensive resurfacing operation in Rome, ahead of the 2025 Jubilee. By integrating our advanced materials into real-world applications, we are paving the way towards more sustainable infrastructure solutions globally.

In parallel, all R&D activities are now paid for by our partners in order to fully fund ongoing activities. We are active and exploring a range of collaborations across additional industrial verticals, including some open collaborations and joint developments in the electronics sector.

Intellectual Property

As at August 2024, the Group's patent portfolio comprised 106 patents granted and 33 pending, grouped into 22 patent families. This has increased from 86 patents granted and 39 pending, in December 2023. The Board sees significant value in this portfolio, which covers a wide range of processes and applications. Discussions on licensing contracts are ongoing with potential for further patent applications and awards in 2024.

Outlook

The extended timeline for the award of a substantial tender in Romania being sought by Setcar is, alongside the impact of some shorter-term delays to on-going business, expected to adversely impact the Group's financial performance in FY2024. As a result, the Group's revenues in FY2024 are now anticipated to be approximately €7 million, materially below current market expectations which had, in particular, assumed an earlier tender award.

Despite these shorter-term impacts, we are seeing increasing traction in graphene technology and its applications globally and I am confident we have the right strategy and team in place to capture this growing market demand. Bolstered by the successful capital raise in the half, with a more efficient organisational structure, we are well positioned to make specific investments in new commercial and technical capabilities and to deliver on the large pipeline of opportunities, in particular in Romania where the Board remains confident that the tender will be finalised in the coming months.

Giulio Cesareo
Chief Executive Officer

24 September 2024

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2024

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2024