TIDMRM2
RNS Number : 7519C
RM2 International SA
30 June 2016
30 June 2016
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION DIRECTLY OR
INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES,
CANADA, AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA, THE REPUBLIC OF
IRELAND AND JAPAN OR IN ANY OTHER JURISDICTION IN WHICH OFFERS OR
SALES WOULD BE PROHIBITED BY APPLICABLE LAW.
This announcement is not an offer to sell or a solicitation to
buy securities in any jurisdiction, including the United States,
Canada, Australia, the Republic of South Africa, the Republic of
Ireland or Japan. Neither this announcement nor anything contained
herein shall form the basis of, or be relied upon in connection
with, any offer or commitment whatsoever in any jurisdiction.
Securities may not be offered for sale in the United States absent
registration or an exemption from registration.
RM2 International S.A.
Annual results 2015 and Conditional Placing of Convertible
Preferred Shares
RM2 International S.A. ("RM2" or the "Company"), the
vertically-integrated innovator in pallet development, manufacture,
supply and management, today announces its financial results for
the year ended 31 December 2015 and the conditional placing of
convertible preferred shares.
Financial Highlights
-- Revenues for the year ended 31 December 2015 of US$ 8.0 million
(2014: US$ 2.0 million)
-- Operating Loss after tax for the period of US$ 57.2 million
(2014: US$ 42.4 million)
-- Virtually debt-free with cash balance of US$ 34.5 million at
31 December 2015
-- Full year production of 300,000 pallets
After year-end
-- Appointment of Kevin Mazula as Chief Operating Officer
-- Commencement of pallet deployment with Canada's largest retailer,
Loblaw's
-- Strategic alliance with Zhenshi to manufacture RM2's BLOCKPal
pallet in China
-- Proposed issuance of convertible preferred shares to raise
an initial amount of US$ 20 million
-- Following the issuance of US$ 20 million convertible preferred
shares, the Company will have a sufficient net cash balance
of approximately US$ 23 million to fund operations
Chief Executive Officer, John Walsh, commented:
"RM2 faced serious challenges in 2015 related to the production
metrics at the Canadian facility. These challenges impacted both
production volumes and cost per unit ("CPU"), constraining our
ability to develop further penetration with our target customers.
The manufacturing partnership agreed with Zhenshi Holding Group
Company Limited announced in April, will, we believe, solve both of
these issues. Pallets from China are expected to be available for
deployment in North America in the first quarter of 2017. We remain
committed over the long term to North American production. We have
good cause to be highly confident of profitable deployment of
pallets delivered from China, all of which are earmarked for
customers in North America in 2017. We expect a healthy balance
between outright sales, leasing and rentals of pallets. Our new
COO, Kevin Mazula, has deep and extensive manufacturing and supply
chain manufacturing experience, including working in China, Europe
and North America. Kevin is responsible for the transition of those
manufacturing assets being transferred to China and the subsequent
commissioning and running of those assets there."
For further information:
RM2 International S.A. +44 (0)20 8820 1412
John Walsh, Chief Executive Officer
Jean-Francois Blouvac, Chief Financial Officer
RBC Capital Markets +44 (0)20 7397 8900
Tristan Lovegrove
Pierre Schreuder
Ema Jakasovic
Citigate Dewe Rogerson +44 (0)20 7638 9571
Rob Newman
Ellen Wilton
The material set forth herein is for informational purposes only
and does not constitute an offer of securities for sale in the
United States or any other jurisdiction in which such an offer or
solicitation is unlawful. The securities referred to herein have
not been and will not be registered under the United States
Securities Act of 1933, as amended (the "Securities Act"), or the
laws of any state, and may not be offered or sold within the United
States except pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act
and applicable state laws. No public offering of securities will be
made in the United States.
This announcement has been issued by and is the sole
responsibility of the Company. No representation or warranty,
express or implied, is or will be made as to, or in relation to,
and no responsibility or liability is or will be accepted by any
other person as to, or in relation to, the accuracy or completeness
of this announcement or any other written or oral information made
available to or publicly available to any interested party or its
advisers, and any liability therefore is expressly disclaimed.
Notes to Editors
RM2 International S.A. specialises in pallet development,
manufacture, supply and management to establish a leading presence
in global pallet supply and improve the supply chain of
manufacturing and distribution businesses through the effective and
efficient use and management of composite pallets. It is quoted on
the AIM market of the London Stock Exchange under the symbol
RM2.L.
For further information, please visit www.rm2.com
Chairman's and CEO's Statement
RM2's results for the year ended 31 December 2015 are discussed
below.
In 2015, more than 292,000 pallets were produced (c.30,000 in
2014) despite the suspension of production over the summer due to
the major design change from powder coating to gel coating.
The Company completed its capex programme regarding
manufacturing with the purchase of additional fabrication and
coating equipment in line with forecasts. Total manufacturing
assets account for approximately US$ 35.0 million.
The commercial pipeline has continued to develop with the
deployment of c. 230,000 pallets through rental agreements and the
sale of a further c. 30,000 pallets. The revenue generated by the
outright sale of pallets was US$ 3.7 million. In the rental
business, the pallets are mainly deployed with customers in the
United States and the United Kingdom. Rental and leasing of pallets
in 2015 generated revenues of US$ 2.7 million in 2015. Smaller
quantities of pallets are also on trial with a number of large
companies before larger volumes may be introduced in their
respective networks.
A significant portion of the available inventory at year-end is
allocated to the supply chain of Loblaw, Canada's largest retailer,
following the agreement announced in March 2016 that Loblaw has
begun accepting RM2's pallets in its supply chain.
The economic performance of the Company is still significantly
impacted by the early inefficiencies of the manufacturing process
in Canada.
The non-executive directors of the Company have elected to
receive 2016 board fees in the form of 10-year options vesting
after three years and granted at fair market value, exercisable
only when the average closing price of the shares exceeds 100p for
thirty days. These options are expected to be issued in the next
open market window.
Outlook
Manufacturing remained a challenge in 2015, with inefficiencies
in the process leading to significant deviations from standard
cost. Thorough analysis and review conducted with the input of
manufacturing advisers culminated with the Company signing in April
2016 a strategic agreement for the production of pallets by the
Zhenshi Holding Group Company Limited, respected manufacturing
leaders in China and owners of one of the world's largest
fiberglass producers. The agreement will allow for the mass
production of the RM2 BLOCKPal pallet in Tongxiang, at a facility
owned by Zhenshi. Initial production is expected to be deployed in
Q1 2017 and will target c. 1.5 million pallets per annum, with
projected growth to at least 5 million pallets per annum in the
medium term.
This agreement allows RM2 to address the volume demands of its
clients whilst significantly reducing CPU. Some of RM2's
manufacturing assets are in the process of being transferred to
China.
The Group appointed Kevin Mazula as Chief Operating Officer in
April 2016, to focus initially on overseeing the manufacturing
relationship with Zhenshi. Kevin brings over 20 years of managerial
experience, having successfully run and grown businesses over a
range of industries and geographies.
Although 2015 and the early part of 2016 was a period of
transition with a change to both the manufacturing process (new
gel-based friction coating) and in moving the principal
manufacturing location to China, the board is confident that RM2
now has the right product and manufacturing structure to make
significant progress. Initial production is expected to be deployed
from China in Q1 2017 and there continues to be strong interest in
the BLOCKPal from large corporations around the world.
Proposed Conditional Placing of Preferred Shares
The Company is submitting for approval at an Extraordinary
General Meeting to be held on July 18, 2016 resolutions of its
ordinary shareholders (the "Resolutions") to allow the issuance on
a non-pre-emptive basis of up to US$ 30 million of convertible
preferred shares (the "Preferred Shares") at an issue price of
GBP0.35 per share based on an exchange rate of GBP1: US$1.35 (the
"Price Per Share"). The Preferred Shares are a new class of
securities.
Woodford Investment Management LLP (as investment manager and
agent for it clients, including CF Woodford Equity Income Fund)
("Woodford") has confirmed their intention to subscribe in cash for
US$ 20 million of the Preferred Shares (the "Woodford Conditional
Placing"). The Woodford Conditional Placing is subject to
finalising terms of the investment and conditional on the
Resolutions being approved. The funds to be received on issuance of
Preferred Shares pursuant to the Woodford Conditional Placing (the
"Woodford Preferred Shares") are expected to provide sufficient
liquidity for the Company to meet its obligations over the next 12
months.
In addition to the proposed Woodford Conditional Placing, the
Company may seek subscriptions for up to a further US$ 10 million
of the Preferred Shares (pursuant to the authorisation granted by
the Resolutions) in due course and will make a further announcement
at the appropriate time if further Preferred Shares are to be
issued. There can be no certainty that this will be the case, nor
does this constitute an offer of securities. Any future
subscription of Preferred Shares will be on a private placement
basis to invited participants only.
Proceeds from the issuance of the Woodford Preferred Shares will
reinforce the Company's balance sheet and will be used to bridge
the gap between the decommissioning of a significant portion of the
Company's manufacturing assets in Canada and the initial receipt of
pallets produced by Zhenshi.
The Company's balance sheet is essentially debt-free, well
positioning it for approaches to lenders for asset-backed financing
for production and growth of the pallet rental pool.
The Board remains very confident that the BLOCKPal pallet - with
its superior strength, durability and sustainability - has the
potential to be a significantly disruptive innovation in a global
market and that the shift in RM2's manufacturing center to China
will be the catalyst for the transition to large-scale asset
commercialization and deployment.
Particulars of the Preferred Shares
The Company has provided an undertaking that application for
admission of the Preferred Shares on the AIM market of the London
Stock Exchange will be made as soon as practicably possible and in
any event within 365 days of subscription by Woodford.
The holders of the Preferred Shares shall be entitled to receive
a dividend, paid in preference to any dividend paid by the Company
in respect of its ordinary shares ("Ordinary Shares"), at a rate of
9% of the Price per Share per annum whenever funds are legally
available and when and as declared by the Board. The holders of the
Preferred Shares shall also be entitled to participate pro rata in
any dividends paid in respect of any Ordinary Shares calculated by
reference to the number of Ordinary Shares that the Preferred
Shares would be convertible into.
In the event of any liquidation, dissolution or winding up of
the Company, the holders of Preferred Shares will receive, before
and in preference to the holders of Ordinary Shares the Price per
Share (adjusted, if applicable, for anti-dilution, stock dividends,
splits, combinations and similar events) on each Preferred Share
(or, if greater, the amount that the Preferred Shares would receive
if they were converted into Ordinary Shares). The balance of any
proceeds will be distributed pro-rata to holders of Ordinary
Shares.
The Preferred Shares will convert at a rate of 1:1 in to
Ordinary Shares. A holder of Preferred Shares will have the right
to convert its Preferred Shares into Ordinary Shares at the then
applicable conversion rate at any time at the option of such holder
after 30 June 2019, subject to adjustments for anti-dilution, stock
dividends, splits, combinations and similar events. Upon
conversion, 100% of the cumulated but unpaid dividend shall remain
payable.
The Company shall (having providing 60 days written notice to
the holders of the Preferred Shares) redeem the Preferred Shares on
the fifth anniversary of the date of their issuance by paying in
cash an amount equal to the Price per Share plus any declared but
yet unpaid dividends.
If the Company issues additional securities (excluding any
issuances under its employee share option plan) at a lower purchase
price than the current Preferred Share conversion price, the
conversion price will be adjusted on a customary broad based
weighted average basis, subject to standard and customary carve
outs.
Pursuant, and subject, to the approval of the Resolutions, the
articles of association of the Company shall be amended to provide
that the Preferred Shares will each have one vote per Preferred
Share.
The Company has agreed not to pledge or otherwise encumber any
of its existing or future assets without the prior written consent
of holders of the majority of the Preferred Shares, which consent
shall not be unreasonably withheld.
Woodford rights and undertakings
The articles of association of the Company shall be amended to
provide that, if at any time any Shares of the Company held by
Woodford constitute more than 19.5% of the total voting share
capital of the Company, the voting rights attaching to such Shares
will be limited in aggregate to 19.5% of the total number of votes
exercisable at a general meeting of the Company, such votes to be
split on a fractional basis equally amongst Shares of the Company
held by Woodford.
Following written notice from Woodford to the Company, the Board
will nominate for election by the Company's shareholders such
director to the Board as Woodford may designate. For as long as
Woodford does not exercise its right to designate a director, it
will have the right to appoint an observer to attend Board
meetings. For as long as Woodford has designated a director
appointed to the Board, the quorum for Board meetings will include
that director.
Related Party Transaction
Woodford's proposed participation in the Woodford Conditional
Placing of Preferred Shares is a related party transaction under
Rule 13 of the AIM Rules. The Directors consider, having consulted
with the Company's nominated advisor, RBC Europe Limited (trading
as RBC Capital Markets) ("RBC"), that the proposed terms of
Woodford's participation are fair and reasonable insofar as the
other shareholders as a whole are concerned.
RM2 INTERNATIONAL S.A.
Société Anonyme
Consolidated financial statements and
Consolidated management report and
Report of the Réviseur d'Entreprises Agréé
For the year from 1 January to 31 December 2015
Registered Office : 5, rue de la Chapelle
L-1325 LUXEMBOURG
R.C.S. Luxembourg : B 132.740
RM2 International S.A.
Company Information
Directors & Advisers
Directors
R. Ian Molson Chairman
John Walsh Chief Executive
Officer
Jean-Francois Blouvac Chief Financial
Officer
Jan Dekker Non-Executive
Director
Charles Duro Non-Executive
Director
Lord Rose Non-Executive
Director
Amaury de Seze Non-Executive
Director
Paul Walsh Non-Executive
Director
Biographies of the Directors are available on the Company
website www.rm2.com
Registered Office 5 rue de la Chapelle
L-1325 Luxembourg
Grand Duchy of Luxembourg
Company number RCS Luxembourg B 132.740
Nominated adviser and
broker RBC Capital Markets
Riverbank House
London EC4R 3BF
Independent Auditor Grant Thornton Lux Audit S.A.
89A, Pafebruch
L-8308 Capellen
Luxembourg
Registrar Computershare Investor Services (Jersey)
Limited
Queensway House
Hilgrove Street
Jersey JE1 1ES
RM2 INTERNATIONAL S.A.
Consolidated management report
The Directors present their report on the affairs of RM2
International S.A. (the Company) and its subsidiaries, referred to
as the Group, together with the audited Consolidated Financial
Statements and Independent Auditors' report for the year ended 31
December 2015.
Principal Activities
The main activity of the Group is to manufacture, sell and lease
shipping pallets and to provide, where necessary, related
logistical services.
The Group operates principally within the upstream logistics
market which is focused on the supply of raw materials and
components to manufacturers, and target the sale or rental of its
pallets and their utilisation within closed loop supply chains of
its customers.
In addition, the Group's pallet tracking and management
software, the ERICA system provides 'real time' equipment balances
throughout supply chains.
Business Review and Key Performance Indicators
The business report considers the key performance indicators to
be the levels of production, the sales or leasing of pallets and
the cash reserves of the business.
Production capacity expanded during the course of 2015.
Approximately 292k pallets were produced in 2015 (c.60k in 2014) in
spite of the suspension of production over the summer due to the
major design change from powder coating to gel coating. The Group
completed its manufacturing capital expenditure programme with the
purchase of additional fabrication and coating equipment in line
with forecasts. Total cost of manufacturing assets amounts to circa
USD 35m.
The commercial pipeline has continuously developed with the
deployment of c.200k pallets through rental agreements and nearly
30k pallets sold. The revenue generated through outright sale of
pallets reached USD 3.8m (2014 USD 0.4m). The rental pool of
pallets is mainly deployed with historical customers in the United
States and in United Kingdom. Pallets are also on trial with a
number of potential large users before increased volumes are
introduced in their respective network. An
equivalent-full-year-pallet leasing of 115k units generated
revenues of USD 2.7m (2014 USD 182k.). A significant portion of the
remaining available inventory at year-end is allocated to the
supply chain of Loblaw, Canada's largest retailer, as announced in
early 2016.
The Company raised USD 45m through the issuance of new ordinary
shares in equity in October 2015. Net cash outflow for the year was
USD 48m (2014 inflow of USD 79m, after a capital raise of USD
225m). After one full year of production, the economic performance
of the Company is still significantly impacted by the continued
inefficiencies of the manufacturing process that have been
addressed post year end with the signing of the strategic
manufacturing agreement with Zhenshi Holding Group Company Limited
of China.
Cash reserves at 31 December 2015 stood at USD 34.5m (2014 USD
83m).
Going Concern
The Group's financial result for the fiscal year ended December
31, 2015 is a loss of USD 63m, the cash outflow is USD 47.9m
despite a capital increase of USD 45.4m in September 2015. Cash
reserves at 31 December 2015 stands at USD 34.5m.
The financial performance of the Group is heavily impacted by
manufacturing inefficiencies. The factory produced significantly
above the standard cost, contributing more than USD 35m to the
operating loss of USD 57.2m. During the course of 2015, Management
conducted several assessments of the manufacturing performance as
the factory produced lower than anticipated volumes and higher than
forecasted costs per unit. The conclusions from the assessments
demonstrated to Management that the production equipment was fit
for purpose but indicated that the manufacturing process in Canada
would take a further period of time to reach first level of
production of 1.5m pallets per year. Following these results,
Management implemented beginning in January 2016, a refocusing
strategy to achieve better production metrics and protect the cash
balance. Nearly half of the employees in Canada were laid-off end
of January 2016 and a second lay-off was implemented in March 2016
taking down the headcount in the plant to 64. Production was
reduced to c.30k pallets per month during the first quarter of 2016
(vs. 45k monthly produced in Nov and Dec 15). Late in 2015, the
Group was initially approached by one of its major fibreglass
suppliers, China Jushi Co. Ltd. a subsidiary of Zhenshi Holding
Group Company Limited with the view of strengthening commercial
ties through a manufacturing collaboration in China. Following
independent assessments of the manufacturing plant in Canada which
were presented in March 2016, the Board of Directors made the
decision to sign a contract manufacturing agreement with Zhenshi on
April 1, 2016. This collaboration is expected to allow the Group to
increase the capacity utilization of its industrial assets while
producing a pallet at substantially lower fixed production cost,
assuming Zhenshi is able to execute the plan in terms of volumes
and quality. The agreement with Zhenshi envisions the transfer and
re-commissioning of a substantial proportion of the manufacturing
equipment from the Group's manufacturing site in Canada to China,
which costs are supported by RM2. As a consequence of
de-commissioning machines in Canada, the Company significantly
reduced monthly manufacturing cash outflows to the payment of the
rent, the benefits provided by the lay-off, marginal operating
expenses and the scheduled payment of pending trade payables.
Pallets from China are expected to be deployed, as announced to the
market, in the first quarter of 2017. Should the de-commissioning,
the shipment and the re-commissioning of its equipment in China
take longer than anticipated or should the other costs
significantly be underestimated by Management, the production of
BLOCKpal pallets for lease and sale may be delayed and the going
concern of the Group be impacted.
The commercial pipeline of the Group remains promising and the
inventory built up prior to the signature of the manufacturing
agreement (c. 165k pallets) will allow the Group to deploy pallets
in top customers' network during the transition period. Management
have made assumptions on the anticipated level of leasing of the
BLOCKpal pallets that will be limited to the existing inventory end
of April 2016 and the revenues per pallet in line with those
received in 2015 for the period until production in China is fully
operational. The expected cash inflows from April 2016 to December
2016 accounts for USD 5.9m. Should the Group not be able to place
all the BLOCKpal pallets as assumed or achieve the targeted revenue
per pallet in the projections, then sales and rental revenues may
be lower than anticipated and impact the Group as a going
concern.
The business plan and cash flow forecast for the next 12 months,
period starting from January 1, 2016 which is considered as the
going concern analysis period, following the announcement of the
strategic alliance, with the Zhenshi group, have been prepared by
Management using conservative assumptions with respect to the
levels of production in the forthcoming 12 months during the period
while its principal production capabilities are transferred to
China (there will be no mass production from April 2016 until start
of Zhenshi production), the deployment of pallets and remaining
recurring operating expenses to run such activity. Management has
identified recurring cash outflows of circa USD 2m per month
(commercial entities and plant) and has also estimated and included
in the cash forecast one-time-costs relating to the decommissioning
of Canada and the move of the capital equipment to China of circa
USD 8.8m. Cash reserves stand at USD 8.7m as of end-April 2016
(including restricted cash of circa USD 2m). To finance the
transition period during 2016, the Group will announce the issuance
of at least USD 20.0m of convertible preferred shares, with a
cumulative preferred 9% dividend, payable each year. It is also in
detailed discussion to fund the purchase of the coming production
in China. In function of the number of pallets produced, the
initial financial commitment of the Group under the manufacturing
agreement would not be in excess of USD 90m. In light of these
financings, the Group expects to have adequate resources to carry
out its business plan. If the Group is unable to obtain adequate
financing or financing on terms satisfactory to it, when required,
its ability to continue to support its business growth and to
respond to business challenges could be significantly limited or
could affect its viability.
The Directors confirm the business model of the Group going
forward. Due to its longevity, each pallet will be in a position to
refund its production cost and the related financing cost and
contribute to the profit. The pool of pallets will grow
commensurately with the financing debt and in relation to the
revenue generated over the economical lifespan of the pallets. Once
mass production is achieved by Zhenshi, Management expects to sell
a portion of its annual production as it will contribute to a cash
surplus that maybe required to initiate the large loan financing.
Risk factors remain unchanged from those described in the Company's
IPO Admission Document in 2014, in particular but not limited to:
execution risk in manufacturing regarding volumes and quality;
capacity to contract large volumes of pallets with new and existing
customers; and ability to timely fund pallet deployment at a
reasonable cost.
As there are currently material uncertainties related to the
mentioned events or conditions that may cast significant doubt on
the Group's ability to continue as a going concern, therefore, the
Group may be unable to realize its assets and discharge its
liabilities in the normal course of business.
These assumptions are the Directors' best estimate of the future
development of the business. The Directors are satisfied that the
Group has adequate resources to continue in operational existence
for the foreseeable future as comforted by the subsequent events
and accordingly, continue to adopt the going concern basis in
preparing the consolidated financial statements.
Dividends
The Directors do not recommend the payment of a dividend (2014:
nil).
Capital Structure
Details of the authorised and issued share capital, together
with details of the movements in the Company's issued share capital
during the period are shown in Note 13.
All issued shares are fully paid.
Details of the share option scheme are set out in Note 21.
Supplier Payment Policy
The Group's policy is to settle terms of payment with suppliers
when agreeing to the terms of each transaction.
Subsequent Events
Subsequent events are described in note 26 to the Consolidated
Financial Statements.
Directors
The Directors who served the Company during the year and up to
the date of this report were as follows:
Executive Directors
John Walsh
Jean-Francois Blouvac
Non-Executive Directors
Ian Molson
Jan Dekker
Charles Duro
Lord Rose
Amaury de Seze
Paul Walsh
The Director's emoluments (translated into USD at average rate)
were in 2015 and 2014, as follows:
2015 2014
Salary Benefits Total Salary Benefits Total
& Fees & Fees
USD USD USD USD USD USD
Executive Directors
John Walsh 331,541 - 331,541 399,388 - 399,388
Jean-Francois Blouvac 363,689 22,345 386,034 236,898 7,647 244,545
Ashavani Mohindra - - - 247,158 9,886 257,044
------------------------ --------- -------- --------- --------- -------- ---------
695,230 22,345 717,575 883,444 17,533 900,977
Non-Executive Directors
Ian Molson 128,000 - 128,000 160,000 - 160,000
Jan Dekker 66,611 - 66,611 81,848 - 81,848
Charles Duro 66,611 - 66,611 81,848 - 81,848
Sir Stuart Rose 64,000 - 64,000 80,000 - 80,000
Amaury de Seze 64,000 - 64,000 80,000 - 80,000
Paul Walsh 64,000 - 64,000 80,000 - 80,000
------------------------ --------- -------- --------- --------- -------- ---------
453,222 - 453,222 563,696 - 563,696
------------------------ --------- -------- --------- --------- -------- ---------
1,148,452 22,345 1,170,797 1,447,140 17,533 1,464,673
------------------------ --------- -------- --------- --------- -------- ---------
Directors' interests
The Directors who held office at 31 December 2015 had the
following interests in the ordinary shares of the Company:
Number of shares % held Number of shares
at at at
31 December 31 December 2015 30 May 2016
2015
Ian Molson 11,000,000 2.8 11,000,000
John Walsh 26,439,717 6.6 26,439,717
Jean-Francois
Blouvac 1,000,000 0.3 1,000,000
Jan Dekker 2,500,000 0.6 2,500,000
Charles Duro 315,000 0.1 315,000
Sir Stuart Rose 1,150,000 0.3 1,150,000
Amaury de Seze 1,450,000 0.4 1,450,000
Paul Walsh 1,739,091 0.4 1,739,091
45,593,808 45,593,808
----------------- ----------------- ------------------ -----------------
Of the holdings above 15,625,180 (2014: 15,625,180) consist of
Restricted Shares set out below. A Director holding Restricted
Shares shall not sell, transfer, mortgage, charge, encumber or
otherwise dispose of any of his Restricted Shares as long as
certain performance conditions are not fully satisfied (the
"Performance Conditions"). The Performance Conditions are linked to
the volume weighted average quoted price of the Ordinary Shares
(the "Average Price") for a consecutive 30 day period (the
"Relevant Period"). If the Average Price is 50% higher than the
Placing Price (0.88 GBP) for the Relevant Period, the Performance
Condition in respect of one third of the Director's Restricted
Shares shall be fulfilled. If the Average Price is 75% higher than
the Placing Price for the Relevant Period, the Performance
Condition in respect of a further one third of the Director's
Restricted Shares shall be fulfilled. If the Average Price is 100%
higher than the Placing Price for the Relevant Period, the
Performance Condition in respect of the final third of the
Director's Restricted Shares shall be fulfilled. If any Performance
Conditions are not fully satisfied by ten years after the date of
the grant, the Director shall transfer any of his remaining
Restricted Shares to the Company at a purchase price equal to the
nominal value of the Restricted Shares, being USD 0.01 per
share.
Total number Total number Number of Number of
of shares of unvested restricted restricted
at options at shares (only) shares (only)
31 December 31 December at at
2015 2015 31 December 30 May 2016
2015
Ian Molson 11,000,000 2,250,000 4,600,000 4,600,000
John Walsh 26,439,717 - 6,552,680 6,552,680
Jean-Francois
Blouvac 1,000,000 - 1,000,000 1,000,000
Jan Dekker 2,500,000 750,000 - -
Charles Duro 315,000 250,000 22,500 22,500
Sir Stuart Rose 1,150,000 750,000 1,150,000 1,150,000
Amaury de Seze 1,450,000 750,000 1,150,000 1,150,000
Paul Walsh 1,739,091 750,000 1,150,000 1,150,000
45,593,808 5,500,000 15,625,180 15,625,180
----------------- ------------- ------------- --------------- ---------------
The terms of the unvested options is 10 year options vesting
over 3 years in equal annual instalments; struck at the money but
not exercisable until the stock closes above 100% for a thirty day
average closing price.
Corporate Responsibility
The Board recognises its employment, environmental and health
and safety responsibilities. It devotes appropriate resources
towards monitoring and improving compliance with existing
standards.
Employees
The Group is committed to achieving equal opportunities and to
complying with relevant anti-discrimination legislation. It is
established Group policy to offer employees and job applicants the
opportunity to benefit from fair employment, without regard to
their sex, sexual orientation, marital status, race, religion or
belief, age or disability. Employees are encouraged to train and
develop their careers.
The Group has continued its policy of informing all employees of
matters of concern to them as employees, both in their immediate
work situation and in the wider context of the Group's well-being.
Communication with employees is effected through the Board, the
Group's management briefings structure, formal and informal
meetings and through the Group's information systems.
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the Consolidated Financial Statements and for being satisfied
that the Consolidated Financial Statements give a true and fair
view. The Directors are also responsible for preparing the
Consolidated Financial Statements in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union.
Company law requires the Directors to prepare Consolidated
Financial Statements for each financial period which give a true
and fair view of the state of affairs of RM2 International S.A.
(the Company) and the Group and of the profit or loss of the
Company and the Group for that period. In preparing those Financial
Statements, the Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed
and explained in the Financial Statements; and
-- prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company
and the Group will continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Financial Statements. The Directors
are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions, and
disclose with reasonable accuracy at any time the financial
position of the Company and the Group.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Statement of disclosure to the Independent Auditor
All of the current Directors have taken all the steps that they
ought to have taken to make themselves aware of any information
needed by the Group's Independent Auditor for the purposes of his
audit and to establish that the Independent Auditor is aware of
that information. The Directors are not aware of any relevant audit
information of which the Independent Auditor is unaware.
Independent Auditor
The auditor, Grant Thornton Lux Audit S.A., will be proposed for
re-appointment at the forthcoming Annual General Meeting.
RM2 INTERNATIONAL S.A.
Corporate governance report
The Board is committed to proper standards of Corporate
Governance, managing the Group in an efficient, effective,
entrepreneurial and ethical manner for the benefit of shareholders
over the longer term.
In the context of the Group's strategy for growth, the Board
will continue to actively review its Corporate Governance at
regular intervals.
The Board is responsible for the Group's system of internal
control and reviewing its effectiveness. Such a system is designed
to manage rather than eliminate risk of failure to achieve business
objectives, and can only provide reasonable and not absolute
insurance against material misstatement or loss. The system of
internal financial control comprises of controls established to
provide reasonable assurance of:
-- The safeguarding of assets against unauthorised use or
disposal and;
-- The reliability of financial information used within the
business and for publication and the maintenance of proper
accounting records.
In addition the key procedures on the internal financial control
of the Group are as follows:
-- The Board reviews and approves budgets and monitors performance
against those budgets regularly with any variance being
fully investigated and;
-- The Group has clearly defined reporting and authorisation
procedures relating to the key financial areas.
The Annual General Meeting is the principal forum for dialogue
with shareholders.
Click on, or paste the following link into your web browser, to
view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/7519C_-2016-6-30.pdf
Consolidated statement of comprehensive income
For the year ended 31 December 2015
Notes 2015 2014
USD USD
Continuing operations
Revenue 15 8,000,137 2,000,416
Cost of sales 16 (44,512,394) (21,609,717)
------------------ -------------
Gross profit (36,512,257) (19,609,301)
Administrative expenses
Administrative expenses 17 (21,380,565) (18,260,590)
Cost in association with the
IPO - (4,570,385)
Other operating expenses 18 (175,768) (656,023)
Other operating income 18 904,676 670,927
------------------ -------------
Operating loss (57,163,914) (42,425,373)
Finance costs 18 (3,632,886) (5,666,397)
Finance income 18 1,955,972 776,629
------------------ -------------
Loss before tax (58,840,828) (47,315,141)
Income tax 19 160,230 97,391
------------------ -------------
Loss for the year i.1. (58,680,598) (47,217,750)
================== =============
Other comprehensive income
Other comprehensive income to
be reclassified in profit or
loss in subsequent periods:
Exchange difference on translation
of foreign operations (4,264,343) 1,370,822
------------------ -------------
Other comprehensive income for
the year, net of tax (4,264,343) 1,370,822
Total comprehensive income for
the year (62,944,941) (45,846,928)
================== =============
Loss for the year attributable
to:
Equity holders of the parent (58,680,598) (47,217,750)
------------------ -------------
(58,680,598) (47,217,750)
================== =============
Total comprehensive income for
the year attributable to:
Equity holders of the parent (62,944,941) (45,846,928)
------------------ -------------
(62,944,941) (45,846,928)
================== =============
Loss per share 22
Basic loss per share attributable
to ordinary equity holders of
the parent (0.17) (0.15)
Diluted loss per share attributable
to ordinary equity holders of
the parent (0.17) (0.15)
================== =============
RM2 INTERNATIONAL S.A.
Consolidated statement of financial position as at 31 December
2015
Notes 2015 2014
USD USD
Assets
Non-current assets
Intangible assets 8 3,349,359 3,606,693
Property, plant & equipment
- Other 5 36,252,950 26,260,546
Property, plant & equipment
- Pallet pool 6 17,484,281 2,754,506
Investment property 7 1,357,720 1,396,512
-------------- --------------
58,444,310 34,018,257
Current assets
Inventories 10 19,846,627 7,017,188
Trade and other receivables 11 8,315,843 3,889,105
Other current financial assets 9 62,074 59,548
Prepayments 1,942,980 2,830,642
Restricted Cash 12 1,816,039 2,149,975
Cash and cash equivalents 12 34,515,597 82,882,794
-------------- --------------
66,499,160 98,829,252
Total assets 124,943,470 132,847,509
============== ==============
Equity and liabilities
Equity 13
Issued capital 3,980,302 3,227,772
Share premium 263,317,090 219,357,851
Retained earnings (176,294,138) (117,613,540)
Share based payment reserve 19,044,095 16,958,803
Treasury stock (3,424) -
Foreign currency translation
reserve (2,865,606) 1,398,737
-------------- --------------
Equity attributable to equity
holders of the parent 107,178,319 123,329,623
-------------- --------------
Total equity 107,178,319 123,329,623
Non-current liabilities
Interest bearing loans and
borrowings 9.1 1,844,875 2,053,541
Deferred tax liabilities 19.2 184,330 403,286
-------------- --------------
2,029,205 2,456,827
Current liabilities
Interest bearing loans and
borrowings 9.1 116,440 28,573
Trade and other payables 14 14,466,289 6,160,275
Deferred income 630,841 678,397
Current tax liabilities 522,376 193,814
-------------- --------------
15,735,946 7,061,059
Total liabilities 17,765,151 9,517,886
Total equity and liabilities 124,943,470 132,847,509
============== ==============
RM2 INTERNATIONAL S.A.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2015
Consolidated statement of changes in equity
Attributable to equity holders of the parent
Notes Foreign Treasury Share
currency Stock based
Share Share Retained translation payment
capital premium earnings reserve reserve Total equity
USD USD USD USD USD USD USD
As at 1
January 2014 1,561,828 31,134,458 (100,836,892) 27,915 - 15,743,333 (52,369,358)
=============== ====== ========== ============= ============== ============ ========= =========== =============
Loss for the
year - - (47,217,750) - - - (47,217,750)
Other
comprehensive
income - - - 1,370,822 - - 1,370,822
--------------- ------ ---------- ------------- -------------- ------------ --------- ----------- -------------
Total
comprehensive
income - - (47,217,750) 1,370,822 - - (45,846,928)
Absorption of
losses 13 - (30,441,102) 30,441,102 - - - -
Shares issued
in the
period 13 1,665,944 223,097,977 - - - - 224,763,921
Cost of share
issue - (4,433,482) - - - - (4,433,482)
Share based
payments 21 - - - - - 1,215,470 1,215,470
Transaction
with owners 1,665,944 188,223,392 30,441,102 - - 1,215,470 221,545,908
As at 31
December 2014 3,227,772 219,357,851 (117,613,540) 1,398,737 - 16,958,803 123,329,623
--------------- ------ ---------- ------------- -------------- ------------ --------- ----------- -------------
Loss for the
year - - (58,680,598) - - - (58,680,598)
Other
comprehensive
income - - - (4,264,343) - - (4,264,343)
--------------- ------ ---------- ------------- -------------- ------------ --------- ----------- -------------
Total
comprehensive
income - - (58,680,598) (4,264,343) - - (62,944,941)
Shares issued
in the
period 13 752,530 44,672,999 - - - - 45,425,529
Cost of share
issue - (713,760) - - - - (713,760)
Repurchase of
shares
into treasury - - - - (3,424) - (3,424)
Share based
payments 21 - - - - - 2,085,292 2,085,292
Transaction
with owners 752,530 43,959,239 - - (3,424) 2,085,292 46,793,637
As at 31
December 2015 3,980,302 263,317,090 (176,294,138) (2,865,606) (3,424) 19,044,095 107,178,319
--------------- ------ ---------- ------------- -------------- ------------ --------- ----------- -------------
RM2 International S.A.
Consolidated Statement of Cash Flows
For the year ended 31 December 2015
Notes 2015 2014
Cash flows from operating activities USD USD
Loss before tax (58,840,828) (47,315,141)
Adjustment to reconcile profit
before tax to net cash flows
Amortisation and depreciation
of non-current assets 5/6/7/8 6,835,642 2,961,340
Share based payment charges 2,085,292 1,215,470
Transaction costs on capital
operations, including IPO - 4,570,385
Finance income (68,726) (332,634)
Finance expenses 60,240 822,896
Unrealised foreign exchange gains (355,126) 2,631,708
Net loss/(gain) on disposal of
PPE and intangible assets (435,591) 82,775
Variation in working capital
(Increase)/decrease in inventories (12,829,439) (5,492,396)
(Increase)/decrease in trade
and other receivables (3,541,287) (4,557,881)
Increase/(decrease) in trade
and other payables 8,759,729 2,247,291
Decrease/(increase) in restricted
cash 333,936 (2,149,975)
Income tax paid (171,882) (809,493)
Net cash flows from operating
activities (58,168,040) (46,125,654)
Cash flows from investing activities
(Increase)/decrease in intangible
assets (900,035) (1,065,674)
(Increase)/decrease PPE in course
of commissioning (15,578,162) (5,510,766)
Decrease/ (increase) in other
PPE 60,507 (9,799,439)
(Increase)/decrease in pallet
pool (17,895,718) (2,466,928)
Loans granted to third parties (2,524) 6,430
Finance income received 68,726 332,634
Net cash flows from investing
activities (34,247,206) (18,503,743)
Cash flows from financing activities
Issuance of capital 13 45,425,529 224,763,920
Transaction costs on capital
operations charged against share
premium account (713,760) (4,433,482)
Purchase of treasury shares (3,424) -
Transaction costs on capital
operations, including IPO - (4,570,385)
Repayment Proceeds from other
and related party borrowings (3,223) 28,277
Transaction costs on issue of
new borrowings - -
Interest paid (60,240) (308,359)
Repayment of other and related
party borrowings (117,575) (360,573)
Settlement of loans and costs
following IPO
Repayment of other and related
party borrowings - (24,700,000)
DPEI Warrant settlement - (40,000,000)
Interest paid on borrowings - (804,712)
Fees in relation to loans - (6,175,000)
Net cash flows from financing
activities 44,527,307 143,439,686
Net change in cash and cash equivalents (47,887,939) 78,810,289
============= =============
(Decrease)/increase in cash and
cash equivalents (47,887,939) 78,810,289
Cash and cash equivalents at
1 January 82,882,794 4,193,136
Exchange adjustment of cash and
cash equivalents (479,258) (120,631)
------------- -------------
Cash and cash equivalents at
31 December 12 34,515,597 82,882,794
============= =============
The board of directors have authorised for issue these
consolidated financial statements on the 29 June, 2016.
RM2 INTERNATIONAL S.A.
Notes to the Consolidated Financial Statements
1 Corporate information
RM2 International S.A. (the "Company") is a limited company
(Société Anonyme) incorporated and domiciled in Luxembourg with the
registration number B132.740. The registered office is located at
Rue de la Chapelle 5, L-1325 Luxembourg. The Company is the
ultimate parent entity of the RM2 Group (the "Group").
The Group is principally engaged in developing and selling
shipping pallets and providing related logistical services.
2 Basis of preparation
The consolidated financial statements comprise the consolidated
financial information of the Group as at 31 December 2015 and are
prepared under the historic cost convention as disclosed in the
accounting policies below.
The accounting policies which follow set out the policies
applied in preparing the consolidated financial statements.
2.1 Statement of compliance
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") and IFRIC interpretations as issued by the International
Accounting Standards Board ("IASB") and IFRS Interpretations
Committee (IFRIC) and as adopted by the European Union ("EU").
2.2 Basis of consolidation
The consolidated financial statements comprise the financial
information of the Group and its subsidiaries. Subsidiaries are
consolidated from the date of acquisition, being the date on which
the Group obtains control, and continue to be consolidated until
the date when such control ceases. The financial information of the
subsidiaries is prepared for the same reporting period as the
parent company, using consistent accounting policies. All
intra-group balances, transactions, unrealised gains and losses
resulting from intra-group transactions and dividends are
eliminated in full.
Subsidiaries and business combinations
Subsidiaries are all entities, including structured entities,
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control ceases.
The Group uses the acquisition method of accounting to account for
the acquisition of subsidiaries.
The consideration transferred on acquisition is measured as the
fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of exchange.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. The
excess of the consideration transferred over the fair value of the
Group's share of the identifiable net assets acquired is recorded
as goodwill. If the consideration transferred acquisition is less
than the fair value of the net assets of the subsidiary acquired,
the difference is recognised directly in profit or loss.
Acquisition costs are written off to profit or loss.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. Accounting policies of
subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
The subsidiaries of the Group are listed in note 23.
3 Summary of significant accounting policies
The principal accounting policies are summarised below:
3.1 Foreign currencies
The Group's consolidated financial statements are presented in
United States Dollars ("USD"), which is also the parent company's
functional currency. For each entity the Group determines the
functional currency and items included in the financial statements
of each entity are measured using that functional currency.
Transactions and balances
Transactions in foreign currencies are initially recorded by the
Group's entities at their respective functional currency spot rates
at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies
are translated at the functional currency spot rates of exchange at
the reporting date.
Differences arising on settlement or translation of monetary
items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates at
the dates of the initial transactions. Non-monetary items measured
at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value is determined. The
gain or loss arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of gain or
loss on change in fair value of the item (i.e. translation
differences on items whose fair value gain or loss is recognised in
other comprehensive income or profit or loss are also recognised in
other comprehensive income or profit or loss, respectively).
Group companies
On consolidation, the assets and liabilities of foreign
operations are translated into USD at the rate of exchange
prevailing at the reporting date and their income statements are
translated at average exchange rate prevailing during the financial
year. The exchange differences arising on translation for
consolidation are recognised in other comprehensive income. On
disposal of a foreign operation, the component of other
comprehensive income relating to that particular foreign operation
is recognised in profit or loss.
Any goodwill arising on the acquisition of a foreign operation
and any fair value adjustments to the carrying amounts of assets
and liabilities arising on the acquisition are treated as assets
and liabilities of the foreign operation and translated at the spot
rate of exchange at the reporting date.
3.2 Going concern
The Group's financial result for the fiscal year ended December
31, 2015 is a loss of USD 63m, the cash outflow is USD 47.9m
despite a capital increase of USD 45.4m in September 2015. Cash
reserves at 31 December 2015 stands at USD 34.5m.
The financial performance of the Group is heavily impacted by
manufacturing inefficiencies. The factory produced significantly
above the standard cost, contributing more than USD 35m to the
operating loss of USD 57.2m. During the course of 2015, Management
conducted several assessments of the manufacturing performance as
the factory produced lower than anticipated volumes and higher than
forecasted costs per unit. The conclusions from the assessments
demonstrated to Management that the production equipment was fit
for purpose but indicated that the manufacturing process in Canada
would take a further period of time to reach first level of
production of 1.5m pallets per year. Following these results,
Management implemented beginning in January 2016, a refocusing
strategy to achieve better production metrics and protect the cash
balance. Nearly half of the employees in Canada were laid-off end
of January 2016 and a second lay-off was implemented in March 2016
taking down the headcount in the plant to 64. Production was
reduced to c.30k pallets per month during the first quarter of 2016
(vs. 45k monthly produced in Nov and Dec 15). Late in 2015, the
Group was initially approached by one of its major fibreglass
suppliers, China Jushi Co. Ltd. a subsidiary of Zhenshi Holding
Group Company Limited with the view of strengthening commercial
ties through a manufacturing collaboration in China. Following
independent assessments of the manufacturing plant in Canada which
were presented in March 2016, the Board of Directors made the
decision to sign a contract manufacturing agreement with Zhenshi on
April 1, 2016. This collaboration is expected to allow the Group to
increase the capacity utilization of its industrial assets while
producing a pallet at substantially lower fixed production cost,
assuming Zhenshi is able to execute the plan in terms of volumes
and quality. The agreement with Zhenshi envisions the transfer and
re-commissioning of a substantial proportion of the manufacturing
equipment from the Group's manufacturing site in Canada to China,
which costs are supported by RM2. As a consequence of
de-commissioning machines in Canada, the Company significantly
reduced monthly manufacturing cash outflows to the payment of the
rent, the benefits provided by the lay-off, marginal operating
expenses and the scheduled payment of pending trade payables.
Pallets from China are expected to be deployed, as announced to the
market, in the first quarter of 2017. Should the de-commissioning,
the shipment and the re-commissioning of its equipment in China
take longer than anticipated or should the other costs
significantly be underestimated by Management, the production of
BLOCKpal pallets for lease and sale may be delayed and the going
concern of the Group be impacted.
The commercial pipeline of the Group remains promising and the
inventory built up prior to the signature of the manufacturing
agreement (c. 165k pallets) will allow the Group to deploy pallets
in top customers' network during the transition period. Management
have made assumptions on the anticipated level of leasing of the
BLOCKpal pallets that will be limited to the existing inventory end
of April 2016 and the revenues per pallet in line with those
received in 2015 for the period until production in China is fully
operational. The expected cash inflows from April 2016 to December
2016 accounts for USD 5.9m. Should the Group not be able to place
all the BLOCKpal pallets as assumed or achieve the targeted revenue
per pallet in the projections, then sales and rental revenues may
be lower than anticipated and impact the Group as a going
concern.
The business plan and cash flow forecast for the next 12 months,
period starting from January 1, 2016 which is considered as the
going concern analysis period, following the announcement of the
strategic alliance, with the Zhenshi group, have been prepared by
Management using conservative assumptions with respect to the
levels of production in the forthcoming 12 months during the period
while its principal production capabilities are transferred to
China (there will be no mass production from April 2016 until start
of Zhenshi production), the deployment of pallets and remaining
recurring operating expenses to run such activity. Management has
identified recurring cash outflows of circa USD 2m per month
(commercial entities and plant) and has also estimated and included
in the cash forecast one-time-costs relating to the decommissioning
of Canada and the move of the capital equipment to China of circa
USD 8.8m. Cash reserves stand at USD 8.7m as of end-April 2016
(including restricted cash of circa USD 2m). To finance the
transition period during 2016, the Group will announce the issuance
of at least USD 20.0m of convertible preferred shares, with a
cumulative preferred 9% dividend, payable each year. It is also in
detailed discussion to fund the purchase of the coming production
in China. In function of the number of pallets produced, the
initial financial commitment of the Group under the manufacturing
agreement would not be in excess of USD 90m. In light of these
financings, the Group expects to have adequate resources to carry
out its business plan. If the Group is unable to obtain adequate
financing or financing on terms satisfactory to it, when required,
its ability to continue to support its business growth and to
respond to business challenges could be significantly limited or
could affect its viability.
The Directors confirm the business model of the Group going
forward. Due to its longevity, each pallet will be in a position to
refund its production cost and the related financing cost and
contribute to the profit. The pool of pallets will grow
commensurately with the financing debt and in relation to the
revenue generated over the economical lifespan of the pallets. Once
mass production is achieved by Zhenshi, Management expects to sell
a portion of its annual production as it will contribute to a cash
surplus that maybe required to initiate the large loan financing.
Risk factors remain unchanged from those described in the Company's
IPO Admission Document in 2014, in particular but not limited to:
execution risk in manufacturing regarding volumes and quality;
capacity to contract large volumes of pallets with new and existing
customers; and ability to timely fund pallet deployment at a
reasonable cost.
As there are currently material uncertainties related to the
mentioned events or conditions that may cast significant doubt on
the Group's ability to continue as a going concern, therefore, the
Group may be unable to realize its assets and discharge its
liabilities in the normal course of business.
These assumptions are the Directors' best estimate of the future
development of the business. The Directors are satisfied that the
Group has adequate resources to continue in operational existence
for the foreseeable future as comforted by the subsequent events
and accordingly, continue to adopt the going concern basis in
preparing the consolidated financial statements.
3.3 Property, plant and equipment
Initial recognition and measurement
Property, plant and equipment ("PPE") are tangible assets used
by the Group for its own production or supply of goods or services,
or for administrative purposes and are expected to be used during
more than one period. PPE is recognised when it is probable that
future economic benefits associated with the asset will flow to the
Group and if the cost can be measured reliably.
PPE is initially recognised at cost. Such cost includes the
purchase price and all cost incurred in bringing the assets to the
location and condition for its operation in the manner intended by
management. The cost of the PPE includes also the borrowing costs
for long-term construction projects if the recognition criteria are
met.
The pallet pool is initially recognised at the standard cost of
production including all expenses directly attributable to the
manufacturing process and portions of related production overheads,
based on normal operating capacity.
When significant parts of property, plant and equipment will be
required to be replaced, the Group will recognise such parts as
individual assets with specific useful lives and depreciate them
accordingly. Likewise, when a major inspection will be performed,
its cost will be recognised in the carrying amount of the plant and
equipment as a replacement if the recognition criteria are
satisfied. All other repair and maintenance costs will be
recognised in profit or loss as incurred.
Finished goods (under inventory) represent pallets produced and
not yet sold or deployed via the pallet pool in property, plant and
equipment.
Subsequent measurement
PPE is subsequently measured at cost less any accumulated
depreciation and any accumulated impairment losses.
Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets as follows:
Buildings 30 years
Plant and equipment 3 to 20 years
Pallet Pool 5 years
PPE under construction not depreciated
An item of PPE and any significant part initially recognised is
derecognised upon disposal or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising on
de-recognition of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is
included in profit or loss when the asset is derecognised.
The residual values, useful lives and methods of depreciation of
PPE are reviewed at each financial year end and adjusted
prospectively, if appropriate. Further explanation on management
estimates and assumptions is disclosed in note 4.
The Group has not applied revaluation on any of its PPE. An
impairment is recognised in the pallet pool classified as fixed
assets. The recoverable amount is based on the quantity of pallets
classified as fixed asset at year end considering the average
quantity of lost and broken pallets to main clients extrapolated to
the entire pool.
3.4 Leases
The determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement at the inception
date. The arrangement is assessed for whether fulfilment of the
arrangement is dependent on the use of a specific asset or assets
or the arrangement conveys a right to use the asset or assets, even
if that right is not explicitly specified in an arrangement.
Group as a lessee
Leases where a significant portion of the risks and rewards of
ownership is retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to profit
or loss on a straight-line basis over the period of the lease.
The aggregate benefit of lease incentives are recognised as a
reduction to the expense recognised over the lease term on a
straight line basis.
Leases of property, plant and equipment where the Group has
substantially all the risks and rewards of ownership are classified
as finance leases. Finance leases are capitalised at the lease's
commencement date at the lower of the fair value of the leased
property or the present value of the minimum lease payments. Each
lease payment is allocated between the liability and finance
charges so as to achieve a constant rate on the finance balance
outstanding. The corresponding rental obligations, net of finance
charges, are included in long-term and short-term borrowings. The
interest element of the finance cost is charged to the profit or
loss over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each
period. The property, plant and equipment acquired under finance
leases are depreciated over the shorter of the useful life of the
asset or the lease term.
Group as a lessor
Leases in which the Group does not transfer substantially all
the risks and benefits of ownership of an asset are classified as
operating leases. Initial direct costs incurred in negotiating an
operating lease are added to the carrying amount of the leased
asset and recognized over the lease term on the same basis as
rental income. Contingent rents are recognized as revenue in the
period in which they are earned.
Revenue arising on operating leases for pallets is accounted for
as on a straight line basis or a usage basis in accordance with the
contract.
Rental income arising from operating leases on investment
properties is accounted for on a straight-line basis over the lease
terms and included in other operating income.
3.5 Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or
sale are capitalised as part of the cost of the asset. All other
borrowing costs are expensed in the period in which they occur.
Borrowing costs consist of interest and other costs that an entity
incurs in connection with the borrowing of funds.
3.6 Investment property
Investment properties are measured initially at cost, including
transaction costs. Subsequent to initial recognition, the Group has
decided to measure investment properties using the cost model.
Investment properties are measured similarly to property, plant and
equipment as described in note 3.3.
The fair value, which reflects market conditions at the
reporting date, is disclosed in the notes to the consolidated
financial statements.
Investment properties are derecognised either when they have
been disposed of or when they are permanently withdrawn from use
and no future economic benefit is expected from their disposal. The
difference between the net disposal proceeds and the carrying
amount of the asset is recognised in the income statement in the
period of de-recognition.
Transfers are made to or from investment property only when
there is a change in use. For a transfer from investment property
to owner-occupied property, the deemed cost for subsequent
accounting is the fair value at the date of change in use. If
owner-occupied property becomes an investment property, the Group
accounts for such property in accordance with the policy stated
under property, plant and equipment up to the date of change in
use.
3.7 Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is its fair value as at the date of
acquisition. Following initial recognition, intangible assets are
carried at cost less any accumulated amortisation and accumulated
impairment losses, if any.
The useful lives of intangible assets are assessed as finite,
except goodwill.
Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is
an indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an intangible
asset with a finite useful life are reviewed at least at the end of
each reporting period. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits
embodied in the asset is accounted for by changing the amortisation
period or method, as appropriate, and are treated as changes in
accounting estimates. The amortisation expense on intangible assets
with finite lives is recognised in profit or loss in the expense
category consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives (goodwill) are
not amortised, but are tested for impairment annually at the
cash-generating unit level (see note 8 for details and
assumptions). The assessment of indefinite life is reviewed
annually to determine whether the indefinite life continues to be
supportable.
Gains or losses arising from de-recognition of an intangible
asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in
profit or loss when the asset is derecognised.
Amortisation is calculated on the straight-line method to write
off the cost of each asset to their residual values, over their
estimated useful life. The annual amortisation periods are as
follows:
Software 3 years
Trade names 5 years
Customer Relationship 5 years
Licences and ERP System 3 to 7 years
Goodwill Not amortized
3.8 Research and development costs
Research costs are expensed as incurred. Development
expenditures on an individual project are considered as an
intangible asset when the Group can demonstrate:
- The technical feasibility of completing the intangible
asset so that the asset will be available for use or sale
- Its intention to complete and its ability to use or sell
the asset
- How the asset will generate future economic benefits
- The availability of resources to complete the asset
- The ability to measure reliably the expenditure during
development
Following initial recognition of the development expenditure as
an asset, the asset is carried at cost less any accumulated
amortisation and accumulated impairment losses. Amortisation of the
asset begins when development is complete and the asset is
available for use. It is amortised over the period of expected
future benefit. Amortisation is recorded in cost of sales. During
the period of development, the asset is tested for impairment
annually.
To date no amounts have been capitalised in respect of the
development phase of internal projects as management have assessed
that they are unable to demonstrate that they have met all of the
recognition criteria.
3.9 Inventories
Inventories are stated at the lower of cost or net realizable
value. Costs incurred in bringing each product to its present
location and condition are accounted for as follows:
Raw materials Purchase cost
Finished goods and work Standard cost of production including
in progress all expenses directly attributable to
the manufacturing process and portions
of related production overheads, based
on normal operating capacity.
Pallets are held as inventory prior to being deployed in the
pallet pool or sold direct to customer.
Net realisable value is the estimated selling price in the
ordinary course of business, less estimated costs of completion and
the estimated costs necessary to make the sale.
When the net realizable value of stock is lower than its cost,
provisions for impairment are created to reduce the value of the
stock to its net realizable value.
The cost of inventories is recognised as an expense in the
period in which the related revenue is recognised.
3.10 Impairment on non-financial assets
Non-financial assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may
not be recoverable. An impairment loss is recognised for the amount
by which the carrying amount of the asset exceeds its recoverable
amount, which is the higher of an asset's net selling price and
value in use or fair value less cost to sell determined by using
discounted cash flow method. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash generating units).
The future discounted cash flow method used to determine the
value in use or fair value less cost to sell is usually, but not
always, based on cash flow projections over for the next 3
years.
Impairment losses of continuing operations are recognised in
profit or loss in those expense categories consistent with the
function of the impaired asset.
For assets excluding goodwill, an assessment is made at each
reporting date as to whether there is any indication that
previously recognised impairment losses may no longer exist or may
have decreased. If such indication exists, the Group estimates the
asset's or cash-generating unit's recoverable amount. A previously
recognised impairment loss is reversed only if there has been a
change in the assumptions used to determine the asset's recoverable
amount since the last impairment loss recognised. The reversal is
limited so that the carrying amount of the asset does not exceed
its recoverable amount, nor exceed the carrying amount that would
have been determined, net of depreciation, had no impairment loss
been recognised for the asset in prior years. Such reversal is
recognised in profit or loss unless the asset is carried at a
revalued amount, in which case the reversal is treated as a
revaluation reserve.
For the purpose of impairment testing, goodwill acquired in a
business combination is allocated to each of the Cash Generating
Units (CGUs), or groups of CGUs, that is expected to benefit from
the synergies of the combination. Each unit or group of units to
which the goodwill is allocated represents the lowest level within
the entity at which the goodwill is monitored for internal
management purposes. Goodwill is monitored at the operating segment
level.
Goodwill impairment reviews are undertaken annually or more
frequently if events or changes in circumstances indicate a
potential impairment. The carrying value of the CGU containing the
goodwill is compared to the recoverable amount, which is the higher
of value in use and the fair value less costs of disposal. Any
impairment is recognised immediately as an expense and is not
subsequently reversed.
3.11 Financial instruments
3.11.1 Financial assets
3.11.1.1 Initial recognition and measurement
The Group classifies its financial assets in the following
categories: at fair value through profit and loss, loans and
receivables, held-to-maturity investments and available-for-sale.
The classification depends on the purpose for which the financial
assets were acquired. Management determines the classification of
its financial assets at initial recognition and re-evaluates this
designation at every reporting date.
All financial assets are recognised initially at fair value
plus, in the case of financial assets not at fair value through
profit or loss, directly attributable transaction costs.
The Group's financial assets include cash and short-term
deposits, trade and other receivables, other current and
non-current assets which are classified in the category of loans
and receivables and available-for-sale financial assets. The Group
does not have held-to-maturity investments.
3.11.2 Subsequent measurement
3.11.2.1 Loans and receivables:
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They are included in current assets except for maturities
greater than 12 months after the balance sheet date. These are
classified as non-current assets.
After initial measurement, they are subsequently measured at
amortised cost using the effective interest rate method ("EIR"),
less impairment. Amortised cost is calculated by taking into
account any discount or premium on acquisition and fees or costs
that are an integral part of the EIR. The EIR amortisation is
included in finance income in the statement of comprehensive
income. The losses arising from impairment are recognised in the
finance costs in the statement of comprehensive income.
3.11.3 De-recognition
De-recognition of financial assets. The Group derecognises
financial assets when (a) the assets are redeemed or the rights to
cash flows from the assets otherwise expired or (b) the Group has
transferred the rights to the cash flows from the financial assets
or entered into a qualifying pass-through arrangement while (i)
also transferring substantially all risks and rewards of ownership
of the assets or (ii) neither transferring nor retaining
substantially all risks and rewards of ownership, but not retaining
control. Control is retained if the counterparty does not have the
practical ability to sell the asset in its entirety to an unrelated
third party without needing to impose restrictions on the sale.
3.11.4 Impairment of financial assets
The Group assesses at each balance sheet date whether there is
objective evidence that a financial asset is impaired. A financial
asset is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more events that have
occurred after the initial recognition of the asset and that event
has an impact on the estimated future cash flows of the financial
asset or the group of financial assets that can be reliably
estimated. Evidence of impairment may include, but is not limited
to, indications that the debtors or a group of debtors are
experiencing significant financial difficulty, default or
delinquency in interest or principal payments.
3.11.4.1 Financial assets carried at amortised cost:
For financial assets carried at amortised cost, the Group first
assesses whether objective evidence of impairment exists
individually for financial assets that are individually
significant.
If there is objective evidence that an impairment loss has been
incurred, the amount of the loss is measured as the difference
between the assets carrying amount and the present value of
estimated future cash flows (excluding future expected credit
losses that have not yet been incurred). The present value of the
estimated future cash flows is discounted at the financial assets'
original effective interest rate. If a loan has a variable interest
rate, the discount rate for measuring any impairment loss is the
current effective interest rate.
The carrying amount of the asset is reduced through the use of
an allowance account and the amount of the loss is recognised in
the statement of comprehensive income. Interest income continues to
be accrued on the reduced carrying amount and is accrued using the
interest rate used to discount the future cash flows for the
purpose of measuring the impairment loss. The interest income is
recorded as part of finance income in the statement of
comprehensive income. If, in a subsequent year, the amount of the
estimated impairment loss increases or decreases because of an
event occurring after the impairment was recognised, the previously
recognised impairment loss is increased or reduced by adjusting the
allowance account. If a future write-off is later recovered, the
recovery is credited to finance costs in the statement of
comprehensive income.
3.12 Financial liabilities
3.12.1 Initial recognition and measurement
Financial liabilities are classified as financial liabilities at
fair value through profit or loss or other financial liabilities as
appropriate. The Group determines the classification of its
financial liabilities at initial recognition.
All financial liabilities are recognised initially at fair value
and in the case of loans and borrowings, plus directly attributable
transaction costs.
The Group's other financial liabilities include trade and other
payables, borrowings and long-term payables.
3.12.2 Subsequent measurement
The measurement of financial liabilities depends on their
classification as follows:
3.12.2.1 Other financial liabilities:
After initial recognition, other financial liabilities are
subsequently measured at amortised cost using the effective
interest rate method. Gains and losses are recognised in the
statement of comprehensive income when the liabilities are
derecognised as well as through the effective interest rate method
amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included in finance costs
in the statement of comprehensive income.
Other financial liabilities are classified as current
liabilities unless the Group has an unconditional right to defer
the settlement of the liability for at least 12 months after the
balance sheet date.
3.12.3 De-recognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are subsequently modified, such an exchange or
modification is treated as a de-recognition of the original
liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognised in the
statement of comprehensive income.
3.12.3.1 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the consolidated statement of financial
position if, and only if, there is a currently enforceable legal
right to offset the recognised amounts and there is an intention to
settle on a net basis, or to realize the assets and settle the
liabilities simultaneously.
3.13 Cash and cash equivalents
Cash and cash equivalents are carried in the statement of
financial position at fair value. For the purposes of the cash flow
statement, cash and cash equivalents are comprised of cash on hand
and deposits held on call with banks having an original maturity of
3 months of less. In the statement of financial position, bank
overdrafts are included in borrowings under current liabilities net
of any related restricted cash.
3.14 Taxes
Current income tax
Current income tax assets and liabilities for the current period
are measured at the amount expected to be recovered from or paid to
the taxation authorities. A provision is made for corporation tax
for the reporting period using the tax rates that have been
substantially enacted for each company at the reporting date in the
country where each company operates and generates taxable
income.
Current income tax relating to items recognised directly in
equity is recognised in equity and not in the statement of
comprehensive income.
Management periodically evaluates positions taken in the tax
returns with respect to situations in which applicable tax
regulations are subject to interpretations and establishes
provisions where appropriate.
Deferred income tax
Deferred income tax is provided for using the liability method
on all temporary differences arising between the tax bases of
assets and liabilities and the carrying amounts in the financial
statements. The deferred tax is calculated on currently enacted tax
rates that are expected to apply when the temporary differences
reverse. Where an overall deferred taxation asset arises, it is
only recognised in the financial statements where its
recoverability is foreseen with reasonable certainty.
Deferred income tax is provided on temporary differences arising
on investments in subsidiaries except where the timing of the
reversal of the temporary difference is controlled by the Group and
it is probable that the temporary difference will not reverse in
the foreseeable future.
3.15 Pensions and other post-employment benefits
A defined contribution plan is a pension plan under which the
Group pays fixed contributions into a separate entity. The Group
has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay
all employees the benefits relating to employee service in the
current and prior periods.
The Group pays contributions to publicly or privately
administered pension insurance plans on a mandatory, contractual or
voluntary basis. The Group has no further payment obligations once
the contributions have been paid. The contributions are recognised
as employee benefit expense when they are due.
The Group does not operate any defined benefit pension plan.
3.16 Provisions, contingent assets and liabilities
Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and a reliable estimate of the amount of the obligation
can be made. Where the Group expects a provision to be reimbursed,
for example under an insurance contract, the reimbursement is
recognised as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is
presented in the statement of comprehensive income net of any
reimbursement. Provisions are not recognised for future operating
losses.
Provisions are measured at the estimated expenditure required to
settle the present obligation, based on the most reliable evidence
available at the reporting date, including the risks and
uncertainties associated with the present obligation. Where there
are a number of similar obligations, the likelihood that an outflow
will be required in settlement is determined by considering the
class of obligations as a whole. Provisions are discounted to their
present values, where the time value of money is material.
Any reimbursement that the Group can be virtually certain to
collect from a third party with respect to the obligation is
recognised as a separate asset. However, this asset may not exceed
the amount of the related provision.
In those cases where the possible outflow of economic resources
as a result of present obligations is considered improbable or
remote, no liability is recognised.
Contingent assets
A contingent asset is a possible asset that arises from past
events and whose existence will be confirmed only by the occurrence
or non-occurrence of one or more uncertain future events not wholly
within the control of the entity.
Contingent assets are not recognised in the consolidated
financial statements. However, when the realisation of income from
the contingent asset is virtually certain, then the related asset
is not a contingent asset and its recognition is appropriate.
Contingent liabilities
Contingent liability is a possible obligation that arises from
past events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events
not wholly within the control of the entity, or is a present
obligation that arises from past events but is not recognised
because it is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation or the
amount of the obligation cannot be measured with sufficient
reliability.
Contingent liabilities are not recognised in the consolidation
financial statements.
3.17 Equity, reserves and dividend payments
Issued share capital represents the nominal value of shares that
have been issued. Share premium includes any premiums received on
issue of share capital. Any transaction costs associated with the
issuing of shares are deducted from share premium, net of any
related income tax benefits.
Other components of equity include the following:
- Foreign currency translation reserve - comprises foreign
currency translation differences arising from the translation
of financial statements of the Group's foreign entities
into US Dollars.
- The share premium account - comprises any premiums received
on issue of share capital. Any transaction costs associated
with the issuing of shares are deducted from share premium.
- The share based payment reserve corresponds to the accumulated
amount of instruments granted to employees regarding share
based payments equity settled (see note 3.19).
- Retained earnings - includes all current and prior period
retained profits and losses.
- Treasury stock represents Own Ordinary Shares.
All transactions with owners of the parent are recorded
separately within equity.
Dividend distributions payable to equity shareholders are
included in other liabilities when the dividends have been approved
in a general meeting prior to the reporting date.
3.18 Revenue
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured, regardless of when the payment is being made.
Revenue is measured at the invoiced value for the sale of goods net
of value added tax, rebates and discounts which represents the fair
value of the consideration received or receivable. The Group
assesses its revenue arrangements against specific criteria in
order to determine if it is acting as principal or agent. The Group
has concluded that it is acting as a principal in all of its
revenue arrangements. The following specific recognition criteria
must also be met before revenue is recognised:
Sales of goods
Revenue from the sale of goods is recognised when significant
risks and rewards of ownership of the goods have been transferred
to the buyer and the collectability of the related receivables is
reasonably assured, regardless of when the payment was made.
Rendering of services
Revenue relating to logistical services is recognised as the
services are performed.
Rental income
Pallets
Revenue arising on operating leases for pallets is accounted for
as on a straight line basis or a usage basis in accordance with the
contract.
Property income
Rental income arising from operating leases on investment
properties is accounted for on a straight-line basis over the lease
terms and included in revenue due to its operating nature.
Rental income is recognised within other operating income as it
is not considered as related to the primary activity of the
Group.
Interest income
Interest income is reported on an accruals basis using the
effective interest method.
3.19 Share based payments
The Group operates a number of equity-settled, share-based
compensation plans, under which the entity receives services from
employees as consideration for equity instruments of the Group. The
fair value of the employee services received in exchange for the
grant of the equity instruments is recognised as an expense. The
total amount to be expensed is determined by reference to the fair
value of the instruments granted. At the end of each reporting
period, the Group revises its estimates of the number of
instruments that are expected to vest based on the non-market
vesting conditions and service conditions. It recognises the impact
of the revision to original estimates, if any, in the income
statement, with a corresponding adjustment to equity.
3.20 Changes in accounting policies and disclosures
(i) The following standards, amendments to standards and new
interpretations are mandatory for the first time for the financial
period beginning January 1, 2015;
- IFRIC 21 "Levies". This interpretation sets out the accounting
for an obligation to pay a levy if that liability is within the
scope of IAS 37, "Provisions". The interpretation addresses what
the obligating event is that gives rise to pay and when a liability
should be recognized.
- Annual improvements to IFRSs 2011-2013 cycle:
* IFRS 1, "First time adoptions of IFRSs"
* IFRS 3, "Business combination"
* IFRS 13, "Fair value measurement"
* IAS 40, "Investment property"
(ii) New standards, amendments and interpretations issued but
not yet effective for the financial year beginning January 1, 2015
and not early adopted.
- Amendments to IAS 19 "Defined benefit plans: Employee
contributions" clarify the accounting treatment for contributions
from employees or third parties to a defined benefit plan. These
amendments are effective for annual reporting periods beginning on
or after February 1, 2015.
- Annual improvements to IFRSs 2010-2012 cycle:
* Amendment to IFRS 2, "Share-based payment"
* IFRS 3, "Business combinations"
* IFRS 8, "Operating segments"
* IFRS 13, "Fair value measurement"
* IAS 16, "Property, plant and equipment"
* IAS 38 "Intangible assets"
* IAS 37 "Provisions, contingent liabilities and
contingent assets"
* IAS 39, "Financial instruments"
These amendments are effective for annual reporting periods
beginning on or after February 1, 2015.
- Amendment to IFRS 11, "Joint arrangements" on the accounting
for the acquisition of an interest in a joint operation that
constitutes a business. These amendments are effective for annual
reporting periods beginning on or after January 1, 2016.
- Amendments to IAS 16, "Property, plant and equipment" and IAS
38, "Intangible assets" regarding amortization and depreciation.
These amendments are effective for annual reporting periods
beginning on or after January 1, 2016.
- Amendment to IAS 1, "Presentation of financial statements".
This "Disclosure initiative" encourages companies to apply
professional judgment in determining the information to disclose in
their financial statements. These amendments are effective for
annual reporting periods beginning on or after January 1, 2016 and
have not yet been endorsed by the European Union.
- Amendment to IAS 27, "Separate financial statements" regarding
the equity method. These amendments are effective for annual
reporting periods beginning on or after January 1, 2016 and have
not yet been endorsed by the European Union.
- Amendments to IFRS 10, "Consolidated financial statements",
IFRS 12 "Disclosure of interests in other entities" and IAS 28,
"Associates and joint ventures" regarding the sale or contribution
of assets between an investor and its associate or joint-venture.
These amendments are effective for annual reporting periods
beginning on or after January 1, 2016 and have not yet been
endorsed by the European Union.
- Annual improvement to IFRSs 2012-2014 cycle:
-- IFRS 5, "Non-current assets held for sale and discontinued operations"
-- IFRS 7, "Financial instruments: disclosures"
-- IAS 19, "Employee benefits"
-- IAS 34, "Interim financial reporting"
These amendments are effective for annual reporting periods
beginning on or after January 1, 2016 and have not yet been
endorsed by the European Union.
- IFRS 9, "Financial instruments" regarding the classification
and measurement of financial assets. IFRS 9 is effective for annual
reporting periods beginning on or after January 1, 2018 and has not
yet been endorsed by the European Union.
- IFRS 15, "Revenue from contracts with customers": this
standard presents new requirements for the recognition of revenue,
replacing IAS 18 "Revenue", IAS 11 "Construction contracts", and
several revenue-related Interpretations. The new standard
establishes a control-based revenue recognition model and provides
additional guidance in many areas not covered in detail under
existing IFRSs, including how to account for arrangements with
multiple performance obligations, variable pricing, customer refund
rights, supplier repurchase options, and other common complexities.
IFRS 15 is effective for annual reporting periods beginning on or
after January 1, 2018 and has not yet been endorsed by the European
Union.
- IFRS 14, "Regulatory deferral accounts". At this time the
European Union has decided not to endorse this interim standard and
wait for the final version of this standard.
- IFRS 16 "Leases" provides a single lessee accounting model,
requiring lessees to recognise assets and liabilities for all
leases unless the lease term is 12 months or less or the underlying
asset has a low value. Lessors continue to classify leases as
operating or finance. The standard is effective for annual periods
beginning on or after January 1st, 2019, subject to EU
adoption.
The Group has to assess the impact of the Standards and
Interpretations which are in issuance but not yet effective at the
date of the opening balance.
4 Significant accounting judgements, estimates and assumptions
The preparation of financial statements conforming to adopt IFRS
requires management to make judgments, estimates and assumptions
that affect the application of policies and reported amounts of
assets, liabilities, income and expenses. The estimates and
assumptions are based on historical experience and other factors
considered reasonable at the time, but actual results may differ
from those estimates. Revisions to these estimates are recognised
in the period in which they are made.
4.1 Judgments
In the process of applying the Group's accounting policies,
management has made the following judgments, which have the most
significant effect on the amounts recognised in the consolidated
financial information:
Recognition of deferred tax assets
The assessment of the probability of future taxable income
against which deferred tax assets can be utilised is based on the
Group's latest approved forecast, which is adjusted for significant
non-taxable income and expenses and specific limits to the use of
any unused tax loss or credit. The tax rules in the numerous
jurisdictions in which the Group operates are also carefully taken
into consideration. If a positive forecast of taxable income
indicates the probable use of a deferred tax asset in the
foreseeable future, especially when it can be utilised without a
time limit, that deferred tax asset is usually recognised in full.
The recognition of deferred tax assets that are subject to certain
legal or economic limits or uncertainties are assessed individually
by management based on the specific facts and circumstances.
The Group has not recognised any deferred tax assets as there is
no certainty of the timing of recovery. For further detail on
deferred tax, refer to note 19.
Trade Receivables
The Group regularly reviews and assesses the trade receivables
for the recoverability. The Group has made no provision against
overdue trade receivables as management are confident that they
will be recovered in full. The Group considers the followings
events as indicators of an impairment:
-- default of payments of the counterparty
-- financial difficulties of the counterparty
-- It becoming probable that the counterparty enter bankruptcy
or other financial reorganisation
-- granting to the counterparty a concession that the Group will not otherwise consider
Restricted Shares
During both years, the Group has issued restricted shares under
the "2013 Share Option Scheme".
Management has considered that the restricted shares issued to
date should be measured similarly to share options. As per the
agreement, the shares granted vest immediately and are accompanied
by a restricted share agreement. Management has considered that the
restrictions on shares were representative of market related
vesting conditions, as the holders of the restricted shares can
only dispose of their shares if the quotation price reaches
different thresholds, or in certain cases on the third year
anniversary following the date of the grant as long as the holder
has a business relationship with the Group.
Management has considered that achievement of these market
conditions would require time corresponding to the advantage
provided to the holders of restricted shares. Management has
estimated that Tranche 1 and 2 would be achieved within 5 years and
Tranche 3 within 10 years, therefore, Management has applied those
durations as vesting periods for the instruments. For the
restricted shares that vest on the third anniversary this date has
been used as the duration of the vesting period.
For further detail on share-based payments transactions, refer
to note 21.
4.2 Estimates and assumptions
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are described below. The Group based its assumptions and estimates
on parameters available when the consolidated financial information
were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or
circumstances arising beyond the control of the Group. Such changes
are reflected in the assumptions when they occur.
The Management has disclosed reasonably possible assumptions and
estimates, on the basis of its existing knowledge at year end.
Outcomes within the next financial years that are different from
these assumptions could require a material adjustment to the
carrying amount of the asset or liability affected.
Share-based payments
The Group measures the cost of equity-settled transactions by
reference to the fair value of the equity instruments at the date
at which they are granted. Estimating fair value for share-based
payment transactions requires determination of the most appropriate
valuation model, which is dependent on the terms and conditions of
the grant. This estimate also requires determination of the most
appropriate inputs to the valuation model including the expected
life of the share (options), volatility and risk-free interest
rate, dividend yield and making assumptions about them.
During both years, the Group issued restricted shares and
options under the 2013 Equity Incentive Plan.
The assumptions and models used for estimating fair value for
share-based payment transactions are disclosed in note 21.
Employee Stock Option Plan ("ESOP")
The Group has granted Employee Stock Option Plan to some of its
employees and managers. The fair value of the plan at grant date is
based upon actuarial assumptions estimated by the management and
disclosed in note 21.3.
Measurement of property, plant and equipment, pallet pool and
investment property
The Group holds a building property which is used for both Group
administrative purpose and rental to third parties. Therefore, the
management has determined that the building accounting should be
split between the part used by the Group, classified as property,
plant and equipment, and the part rented to third parties,
classified as investment property.
The initial cost of acquisition of the building is for both the
building construction and the land. In determining the part of the
acquisition cost related to the land, by default of explicit
description in the notarial deed, the Management has made the
assumption that 25% of the initial cost was related to the
land.
In determining the measurement of each part of the building (PPE
and investment property), the management has determined the split
based on the surface used for each purpose. Management has also
determined that the depreciation should be made using straight line
method and over a useful life of 30 years.
Due to the inability of Management to determine the residual
value at the end of the useful life, the Management has made the
assumption that the residual value is nil and, therefore, the
depreciation is computed on the entire value of the building
cost.
The pallet pool is recognised at an amount based on standard
cost of production (considering a theoretical annual nominal
quantity of 2,500,000 pallets) including all expenses directly
attributable to the manufacturing process and portions of related
production overheads, based on normal operating capacity, and
carried at this cost net of impairment and depreciation.
Finished goods and work in progress
Finished goods and work in progress are recognised at an amount
based on standard cost of production including all expenses
directly attributable to the manufacturing process and portions of
related production overheads, based on normal operating
capacity.
Management consider that this is a fair reflection of the cost
of the pallets.
Pallet Pool
The pallet pool is depreciated over 5 years. Management have
assessed the durability of the pallets supported by external
testing and consider that this is a fair reflection of their
estimated useful life. The residual value is estimated to be
nil.
Management will review the useful life of the pallets at each
reporting date.
Impairment of Goodwill
In assessing impairment, Management estimates the recoverable
amount of cash generating units based on expected future cash flows
and uses an interest rate to discount them. Estimation uncertainty
relates to assumptions about future operating results and the
determination of a suitable discount rate (see note 8 for details
and assumptions).
5 Property, plant and equipment - Others
Land & Plant & Construction Total
Building Equipment in progress
USD USD USD USD
Cost
As at 1 January
2014 1,942,669 12,824,716 3,537,463 18,304,848
Additions 110,702 9,688,738 5,510,766 15,310,206
Disposals (121,662) - - (121,662)
Exchange differences (194,542) (900,394) - (1,094,936)
---------- ------------- ------------- ------------
As at 31 December
2014 1,737,167 21,613,060 9,048,229 32,398,456
Additions 26,952 348,132 15,578,162 15,953,246
Transfer 8,648,204 (8,648,204)
Disposals (23,469) (23,469)
Exchange differences (17,892) (2,919,529) (890,657) (3,828,078)
---------- ------------- ------------- ------------
As at 31 December
2015 1,746,227 27,666,397 15,087,530 44,500,155
========== ============= ============= ============
Amortization and
impairment
As at 1 January
2014 178,274 979,453 3,537,463 4,695,190
Amortization charge
for the year 53,926 1,701,292 - 1,755,218
Disposals (38,888) - - (38,888)
Exchange differences (21,865) (251,745) - (273,610)
---------- ------------- ------------- ------------
As at 31 December
2014 171,447 2,429,000 3,537,463 6,137,910
Amortization charge
for the year 61,655 2,451,151 2,512,806
Impairment charge
for the year 87,062 87,062
Disposals (23,469) (23,469)
Exchange differences (3,083) (464,022) (467,104)
---------- ------------- ------------- ------------
As at 31 December
2015 230,019 4,479,722 3,537,463 8,247,205
Net book value
As at 31 December
2015 1,516,208 23,186,675 11,550,067 36,252,950
========== ============= ============= ============
As at 31 December
2014 1,565,720 19,184,060 5,510,766 26,260,546
========== ============= ============= ============
The Group has no liens and encumbrances on its property, plant
and equipment. The Group has capital commitments on the development
and acquisition of property, plant and equipment in Canada for USD
5,763,349 (2014: USD 2,249,326).
As at 31 December 2015 and 2014, the Group has several items as
PPE corresponding to machines that are not yet completed for the
production of pallets. These items are presented at construction in
progress and not amortized.
There were no borrowing costs capitalised during any period.
An external expert has been mandated to reassess the recoverable
amounts of all the plants and equipment as of 31 December 2015 that
are higher than their carrying amounts. It indicates the absence of
impairment to recognise at year end.
5.1 Impairment of property, plant and equipment
Management has reviewed the carrying value of the property,
plant and equipment at the yearend in light of the future cash
generation of the Group following strategic cost-saving
manufacturing agreement with Zhenshi Holding Group Company Limited.
The property, plant and equipment will be located in Canada and
China underpins the Group business. Management are of the opinion
that there is no impairment in the carrying value of the property,
plant and equipment.
5.2 Security on property, plant & equipment for liabilities
The Group has granted a security interest over the property held
in Switzerland in return for the CHF 1,900,000 bank loan amounting
to USD 1,914,060 (2014: CHF 2,000,000 - USD 2,021,220).
6 Property, plant and equipment - Pallet pool
The Group has decided to disclose the pallet pool as a separate
heading and therefore have disclosed the Pallet Pool in a separate
note.
Pallet Pool
USD
Cost
As at 1 January 2014 419,153
Additions 2,466,928
As at 31 December 2014 2,886,081
Additions 17,895,718
------------
As at 31 December 2015 20,781,799
Amortization and impairment
As at 1 January 2014 43,317
Depreciation charge
for the year 88,258
As at 31 December 2014 131,575
Depreciation charge
for the year 2,293,955
Impairment charge for
the year 871,988
As at 31 December 2015 3,297,518
Net book value
As at 31 December 2015 17,484,281
============
As at 31 December 2014 2,754,506
============
The impairment provision of USD 871,988 booked during the year
2015 has been recognised to cover lost and broken pallets.
7 Investment property
Investment
properties
USD
Cost
As at 1 January 2014 1,726,323
Exchange differences (174,642)
------------
As at 31 December 2014 1,551,681
Exchange differences -
As at 31 December 2015 1,551,681
Amortization and impairment
As at 1 January 2014 129,476
Amortization charge for the year 41,969
Exchange differences (16,276)
------------
As at 31 December 2014 155,169
Amortization charge for the year 38,792
As at 31 December 2015 193,961
Net book value
As at 31 December 2015 1,357,720
============
As at 31 December 2014 1,396,512
============
The investment property is a building used by the Group for both
administrative purpose and for rental. The cost of the property
related to the administrative purpose is classified within
property, plant and equipment. The cost for the rental part is
classified as investment property.
The Group has granted a security interest over the property held
in Switzerland in return for the CHF 1,900,000 bank loan USD
1,914,060 (2014: CHF 2,000,000 - USD 2,021,220).
7.1 Revenue from investment property
As at 31 December As at 31 December
2015 2014
USD USD
Rental income from investment
property (*) 289,570 329,450
(*) included within other operating income (see note 18.1).
7.2 Fair value of investment property
The investment property is measured at cost. The fair value of
the property as at 31 December 2015 has been determined by Régie
Châtel S.A., an independent external appraiser, on 18 February
2016. Régie Châtel S.A. is a specialist in valuing such investment
properties. The fair value of the property has been determined
using the rental income and the construction value. The valuation
has been determined with the following primary inputs:
2015 2014
Yield (%) 7% 7%
Average price for new construction (m3) 390 CHF/ 390 CHF/ m3
m3
Land price (m(2)) 250 CHF/m(2) 250 CHF/m(2)
Fair value determined for the part classified USD1,906,558 USD1,886,895
as investment property
(CHF 1,892,553) (CHF 1,867,085)
8 Intangible assets
Software Trade Customer Acquired Goodwill Total
names relationships licences
and similar
intangible
assets
USD USD USD USD USD USD
Cost
As at 1 January 2014 1,964,184 163,682 491,046 47,033 1,130,872 3,796,817
Additions 815,674 - - 250,000 - 1,065,674
Exchange differences (100,251) (8,354) (25,063) - (57,719) (191,387)
----------- ------------- --------------- ------------- ----------- -------------
As at 31 December
2014 2,679,607 155,328 465,983 297,033 1,073,153 4,671,104
Additions 900,035 900,035
Exchange differences (126,120) (7,311) (21,932) - (50,510) (205,873)
----------- ------------- --------------- ------------- ----------- -------------
As at 31 December
2015 2,553,487 148,017 444,051 1,197,068 1,022,643 5,365,266
Amortization and impairment
As at 1 January 2014 - - - 45,233 - 45,233
Amortization charge
for the year 943,151 32,736 98,209 1,799 - 1,075,895
Exchange differences (50,020) (1,674) (5,023) - - (56,717)
----------- ------------- --------------- ------------- ----------- -------------
As at 31 December
2014 893,131 31,062 93,186 47,032 - 1,064,411
Amortization charge
for the year 879,018 30,572 91,717 29,732 1,031,039
Exchange differences (69,830) (2,431) (7,282) - (79,543)
----------- ------------- --------------- ------------- ----------- -------------
As at 31 December
2015 1,702,319 59,203 177,621 76,764 2,015,907
Net book value
As at 31 December
2015 851,168 88,814 266,430 1,120,304 1,022,643 3,349,359
=========== ============= =============== ============= =========== =============
As at 31 December
2014 1,786,476 124,266 372,797 250,001 1,073,153 3,606,693
=========== ============= =============== ============= =========== =============
The Group has no intangible assets pledged as security for
liabilities.
The Group has no contractual commitment for the acquisition of
intangible assets.
The licence acquired in 2014 for USD 250,000 is for the use of
new pallets following development of those pallets. As these are
currently not being used, no amortization has been calculated on
this amount.
8.1 Impairment of Goodwill
The goodwill represents the intangible value of the business
acquired end of 2013 and known as "Equipment Tracking". Management
has identified the relevant Cash Generating Unit as it is merged
into the legal entity based in Wales with other pure RM2
departments (IT, EMEA Sales and RM2 pallets tracking).
Management has reviewed the carrying value of goodwill at the
year-end in light of the future five year cash generation of the
"Equipment Tracking" activities as the goodwill underpins this
specific business. A pre-tax discount rate of 15% that considers
the risk profile of the Group and the assumption of no growth rates
in the revenues based on the 2016 and after forecast revenues
(being the base case following the setup of the business). An
impairment has to be booked if the pre-tax discount rate reach
21%.
9 Financial assets and liabilities
As at 31 As at 31
December 2015 December
2014
USD USD
Loans and receivables
Trade and other receivables
(Note 11) 8,315,843 3,889,105
Deposits 62,074 59,548
--------------- -----------
Other current financial assets 62,074 59,548
Restricted Cash, Cash and
cash equivalents (Note 12) 36,331,636 85,032,769
Total current financial assets 36,393,710 85,092,317
Total loans and receivables 44,709,553 88,981,422
--------------- -----------
Total financial assets 44,709,553 88,981,422
=============== ===========
Total current 44,709,553 88,981,422
Financial liabilities
Financial liabilities at
amortised cost
Interest-bearing loans and
borrowings 1,961,315 2,082,114
Trade and other payables 14,042,759 5,412,615
Total financial liabilities
at amortised cost 16,004,074 7,494,729
Total financial liabilities 16,004,074 7,494,729
=============== ===========
Total current 14,159,199 5,441,188
Total non-current 1,844,875 2,053,541
=============== ===========
9.1 Interest-bearing loans and borrowings
As at 31 As at 31
December December
2015 2014
Effective Maturity USD USD
interest date
rate
Non-current interest-bearing
loans and borrowings
30 November
CHF 1,900,000 Bank loan 1.8% 2020 1,814,060 2,021,220
Hire purchase liabilities
in excess of one year 30,815 32,321
Total non-current interest-bearing
loans and borrowings 1,844,875 2,053,541
============ ============
Current interest-bearing
loans and borrowings
Short-term part of long 100,000 -
term bank loan
Hire purchase liabilities
within of one year 16,440 28,573
Total current interest-bearing
loans and borrowings 116,440 28,573
============ ============
Total interest-bearing loans
and borrowings 1,961,315 2,082,114
============ ============
CHF 1,900,000 bank loan
The loan is secured by a mortgage on the building held by the
Group in Switzerland for a total value of CHF 2,470,000 (2014: CHF
2,470,000) and by transfer of rental income to the lender.
9.2 Hedging activities and derivatives.
The Group has not entered into any hedging activity during each
period covered by the consolidated financial statements.
9.3 Fair values
The Group estimates that the fair value of the financial assets
and liabilities approximates their carrying amount as these are
mainly composed of short-term receivables and payables and mainly
composed of fixed interest long-term loans without advance
fees.
9.3.1.1 Fair value hierarchy
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
- Level 2: other techniques for which all inputs that have a
significant effect on the recorded fair value are observable,
either directly or indirectly
- Level 3: techniques that use inputs that have a significant
effect on the recorded fair value that are not based on observable
market data
The Group has no financial instruments carried at fair value as
at 31 December 2015 or 31 December 2014.
10 Inventories
As at 31 As at 31
December December
2015 2014
USD USD
Raw materials 10,456,947 3,157,326
Work in progress 2,268,138 1,448,420
Finished goods -pallets 7,121,542 2,411,442
19,846,627 7,017,188
Finished goods represent pallets produced and not yet sold or
deployed via the pallet pool in property, plant and equipment.
The cost of inventory sold and recognised as an expense during
the year was USD 2,407,751 (2014: USD 554,962).
As a consequence of its strategic alliance after year-end (refer
to Note 26), the substantial downturn of its production process and
the move of its devices in China, the Group has surplus of raw
inventories in its premises in Canada. In that respect, the Group
has initiated after year-end sales of this raw material to third
parties with a discount on their original acquisition value. These
conditions have no impact on the value of the inventories as of 31
December 2015.
11 Trade and other receivables
As at 31 As at 31
December December
2015 2014
USD USD
Trade receivables 3,541,955 648,353
Income tax receivables 66 2,275
Other tax receivables 2,373,410 2,179,364
Other receivables 2,400,412 1,059,113
Total trade and other receivables 8,315,843 3,889,105
========== ==========
The ageing of the trade receivables as at 31 December 2015 is
detailed below:
2015 2014
Neither past due nor impaired: 2,994,275 348,185
Past due but not impaired:
0 to 30 days 496,167 216,952
30 to 60 days 26,837 73,968
60 to 90 days 8,162 7,128
Over 90 days 16,514 2,120
---------- --------
3,541,955 648,353
========== ========
The Group has a provision for impairment of the Canadian HST
receivables for USD 41,946 (2014: USD 96,465).
The other tax receivables primarily relate to Harmonised Sales
Tax (VAT) balances due from Canada, VAT due from Luxembourg and VAT
due from United Kingdom.
12 Cash and short-term deposits
As at 31 December As at 31 December
2015 2014
USD USD
Restricted cash 1,816,039 2,149,975
------------------------------- ------------------
Total restricted cash 1,816,039 2,149,975
=============================== ==================
Cash at bank and in hand 4,515,597 4,639,083
Short-term deposits 30,000,000 78,243,711
------------------------------- ------------------
Total cash and short-term
deposits 34,515,597 82,882,794
=============================== ==================
Cash at banks earns interest at floating rates based on daily
bank deposit rates. During the year, short-term deposits are made
for varying periods of between one day and three months, depending
on the immediate cash requirements of the Group, and earned
interest at the respective short-term deposit rates.
At both period ends, the Group does not have any undrawn
committed borrowing facilities.
The Group has not pledged any part of its cash and short-term
deposits to fulfil collateral requirements other than USD 3,579 in
respect of rental of office space. In connection with the
operational lease of the factory premises located in Canada, a
letter of credit amounting to CAD 2,500,000 - USD 1,816,039 (2014:
CAD 2,500,000 - USD 2,149,975) has been issued to the landlord as
guarantee for lease payments and lease defaults. The related
deposit bank account is shown under restricted cash.
For the purpose of the statement of cash flows, cash and cash
equivalents comprise the following at 31 December:
As at 31 As at 31
December 2015 December 2014
USD USD
Cash at bank and in hand 4,515,597 4,639,083
Short-term deposits 30,000,000 78,243,711
--------------- ---------------
Total cash and cash equivalents 34,515,597 82,882,794
=============== ===============
13 Share capital and reserves
2015
On 12 March 2015, 253,000 restricted shares were granted to
certain employees. The restricted shares vest three years from the
date of grant if the recipients are still employed by the Group at
such time.
On 17 June 2015, the Company repurchased 333,334 previously
issued restricted shares. These shares are held as non-voting
treasury shares. These shares have been acquired from two former
employees benefiting from the ESOP plan. These shares have been
acquired at nominal value.
On 21 October 2015, the Company issued 75,000,000 ordinary
shares at GBP 0.40 per share.
On 3 November 2015, the Company awarded 5,500,000 options over
its ordinary shares of USD 0.01 each under its 2013 Stock Option
and Incentive Plan to its non-executive directors. The options have
an exercise price of 46.5p, being the closing share price on 2
November 2015, and duration of 10 years. The options will vest over
a 3 year period in equal annual instalments but cannot be exercised
until the stock closes above a thirty day average closing price of
100p.
On 3 November 2015, the Company awarded 800,000 options over its
ordinary shares of USD 0.01 each under its 2013 Stock Option and
Incentive Plan to some employees. The options have an exercise
price of 46.5p, being the closing share price on 2 November 2015,
and duration of 10 years. The options will vest over a 3 year
period in equal annual instalments.
As at 31 December 2015, RM2's issued share capital is
398,030,156 Ordinary Shares of USD 0.01 each in the capital of the
Company, of which 342,334 Ordinary Shares are held by the Company
as non-voting treasury stock.
The total number of voting rights in the Company is
397,687,822.
2014
On 6 January 2014, the Company completed the IPO issuing,
155,903,548 shares at GBP 0.88 on AIM and receiving net proceeds,
after payment of fees of USD 215,760,052. Following repayment of
USD 71,679,712 of development loans, fees and interest, the
Company's balance sheet was free of debt (other than the mortgage
on the office building in Switzerland) and retained USD 144,080,340
to finance capital expenditure, production of inventory and
overheads. The premium arising on the newly issued IPO shares has
been taken to the Share Premium Account.
On 6 January 2014, the Company issued 4,157,428 Ordinary Shares
at par to a significant shareholder.
On 24 January 2014, 2,316,405 restricted shares were granted to
certain Directors having Performance Conditions (see note 22).
On 3 April 2014, 900,000 restricted shares were granted to a
consultant subject to certain vesting conditions.
On 13 June 2014, 2,317,000 restricted shares were granted to
certain employees, 1,000,000 of which were subject to Performance
Conditions, and 1,317,000 of which were subject to certain vesting
conditions.
On 22 September 2014, 1,000,000 restricted shares were granted
subject to certain Performance Conditions.
Following such issuances, the Company had 322,777,156 Ordinary
Shares issued.
Conditions of the restricted shares
Conditions of the restricted shares issued with performance
criteria are as follows:
The Performance Conditions are linked to the volume weighted
average quoted price of the Ordinary Shares (the "Average Price")
for a consecutive 30 day period (the "Relevant Period"). If the
Average Price is 50 per cent higher than the Placing Price for the
Relevant Period, the Performance Condition in respect of one-third
of the Restricted Shares shall be fulfilled. If the Average Price
is 75 per cent higher than the Placing Price for the Relevant
Period, the Performance Condition in respect of a further one-third
of the Restricted Shares shall be fulfilled. If the Average Price
is 100 per cent higher than the Placing Price for the Relevant
Period, the Performance Condition in respect of the final third of
the Restricted Shares shall be fulfilled. If any Performance
Conditions are not fully satisfied by 19 November 2023, the
Director shall transfer any of his remaining Restricted Shares to
the Company at a purchase price equal to the nominal value of the
Restricted Shares, being USD 0.01 each.
The holders of the Restricted Shares cannot sell, transfer,
mortgage, charge, encumber or otherwise dispose of any of the
Restricted Shares as long as the performance conditions are not
fully satisfied. These Restricted Shares are considered by
Management as share-based payments and performance conditions as
market vesting conditions. For further detail on the share-based
payments transactions refer to note 21.
13.1 Authorised shares
Shares USD Par value
per share
At 1 January 2014 660,939,681 6,609,397 USD 0.01
-------------- ------------ -----------
IPO placement on 6 January 2014 (155,903,548) (1,559,036) USD 0.01
Subscription for new shares on
6 January 2014 (4,157,428) (41,574) USD 0.01
Subscription for restricted shares
on 24 January 2014 (2,316,405) (23,164) USD 0.01
Subscription for restricted shares
on 3 April 2014 (900,000) (9,000) USD 0.01
Subscription for restricted shares
on 13 June 2014 (2,317,000) (23,170) USD 0.01
Subscription for restricted shares
on 22 September 2014 (1,000,0000 (10,000) USD 0.01
At 31 December 2014 494,345,300 4,943,453 USD 0.01
Subscription for restricted shares
on 12 March 2015 (253,000) (2,530) USD 0.01
Subscription for new shares on
21 October 2015 (75,000,000) (750,000) USD 0.01
At 31 December 2015 419,092,300 4,190,923 USD 0.01
============== ============ ===========
The above table shows the authorised share capital available for
issue.
13.2 Ordinary shares issued and fully paid
Shares USD Par value
per share
At 1 January 2014 156,182,775 1,561,828 USD 0.01
IPO placement on 6 January 2014 155,903,548 1,559,036 USD 0.01
Subscription for new shares on
6 January 2014 4,157,428 41,574 USD 0.01
Subscription for restricted shares
on 24 January 2014 2,316,405 23,164 USD 0.01
Subscription for restricted shares
on 3 April 2014 900,000 9,000 USD 0.01
Subscription for restricted shares
on 13 June 2014 2,317,000 23,170 USD 0.01
Subscription for restricted shares
on 22 September 2014 1,000,000 10,000 USD 0.01
At 31 December 2014 322,777,156 3,227,772 USD 0.01
------------ ---------- -----------
Subscription for restricted shares
on 12 March 2015 253,000 2,530 USD 0.01
Subscription for new shares on
21 October 2015 75,000,000 750,000 USD 0.01
At 31 December 2015 398,030,156 3,980,302 USD 0.01
============ ========== ===========
As at 31 December 2015 and 2014, the issued share capital is
composed of one class of Ordinary Shares.
13.3 Share premium
USD
At 1January 2014 31,134,458
IPO placement on 6 January 2014 223,097,977
Transaction costs on issue of shares (4,433,482)
Absorption of the 31 December 2013 loss on 24
June 2014 (30,441,102)
-------------
At 31 December 2014 219,357,851
Subscription for new shares on 21 October 2015 44,672,999
Transaction costs on issue of shares (713,760)
At 31 December 2015 263,317,090
=============
The share premium available in 2013 for the compensation of
existing and future losses or to increase the subscribed share
capital was USD 30,441,102 and resulted from the reduction of
nominal value of the shares from USD 0.45 to USD 0.01 on 11 October
2013. The USD 30,441,102 was absorbed during 2014.
13.4 Nature and purpose of reserve
Currency translation reserve:
The currency translation reserve is used to record exchange
differences arising from the translation of the subsidiaries'
financial statements in foreign currencies to the Group reporting
currency.
This reserve cannot be distributed to shareholders.
Share based payment reserve:
The share based payment reserve corresponds to the accumulated
amount of instruments granted to employees regarding share based
payments equity settled.
13.5 Dividend distribution
As a result of the accumulated losses generated by the Group, no
dividend has been declared or paid.
13.6 Treasury stock
The Group repurchased treasury stock shares for an amount of USD
3,424. In accordance with the Luxembourg law, a non-distributable
reserve has been created in connection with this transaction on own
shares.
14 Trade and other payables
As at 31 As at 31
December December
2015 2014
USD USD
Trade payables 12,139,283 4,752,320
Employee compensation
payables 270,431 258,110
Other tax payables 423,531 747,662
Other payables 1,633,044 402,183
Total trade and
other payables 14,466,289 6,160,275
=========== ==========
Other payables includes an amount of USD 103,602 (2014: USD
120,471) due to related parties.
Terms and conditions of the above financial liabilities:
- Trade payables are non-interest bearing and are normally settled on 30-days terms
- Other payables are non-interest bearing and have an average term of 30 days terms
- For explanation on the Group's liquidity risk management processes, refer to Note 24.
15 Revenues and segment reporting
The Group has only one operating segment for the disclosure of
revenue.
Operating segment is reported in a manner consistent with the
internal reporting used by the chief operating decision-maker. The
chief operating decision-maker, who is responsible for allocating
resources and assessing performance of the operating segment, has
been identified as the Board of Directors of the parent company
that makes strategic decisions.
The Group has determined the operating segments based on the
reports reviewed by the Board of Directors, which are used to make
strategic decisions.
The Board of Directors is responsible for the Group's entire
business and considers the business to have a single operating
segment that represents the production, the sale and the rent of
pallets including related logistical services. The asset allocation
decisions are based on a single, integrated investment strategy,
and the Group's performance is evaluated on an overall basis.
The internal reporting provided to the Board of Directors for
the Group's assets, liabilities and performance is prepared on a
consistent basis with the measurement and recognition principles of
IFRS.
There were no changes in the reportable segments during the
year.
During the year 2015, there were three clients who represent
more than 10% of the Group's revenues totalling 70% (2014: two
clients each representing more than 10% of the Group's revenues -
the total of their revenues being 21%). The remaining revenues are
coming from approximately 20 customers.
Turnover
31 December 31 December
2015 2014
USD USD
Sold pallets 3,755,015 261,737
Leased pallets 2,740,530 182,388
Rendering of logistical services 1,504,592 1,556,291
8,000,137 2,000,416
------------ ------------
Geographical information
The breakdown of the revenue allocation by area is as
follows:
31 December 31 December
2015 2014
USD USD
USA 6,308,906 268,298
Europe 1,691,232 1,732,118
8,000,137 2,000,416
------------ ------------
The parent company is based in Luxembourg. The information for
the geographical area of non-current assets are presented for the
most significant areas where the Group has operations, being
Luxembourg (country of domicile), rest of Europe and North
America.
As at 31 As at 31
December 2015 December
2014
USD USD
Luxembourg 3,249,373 3,451,895
Rest of Europe 6,379,028 7,055,336
North America 48,815,909 23,511,029
58,444,310 34,018,260
--------------- -----------
Non-current assets for this purpose consist of property, plant
and equipment, investment properties and intangible assets.
16 Cost of sales
31 December 31 December
2015 2014
USD USD
Cost of pallets sold - blockpall 2,128,000 271,952
Cost of pallets sold - services 279,748 283,013
Amortization of pallet pool 2,293,955 88,258
Cost of software, licenses
and services 1,551,590 1,393,418
Factory absorption 32,325,152 16,767,957
Impairment and repairs 1,921,988 -
Other 4,011,961 2,805,119
44,512,394 21,609,717
============ ========================
Factory absorption is the variance between actuals costs to
produce pallets and the standard costs used in valuing the pallets
produced in inventory and assets.
17 Administrative expenses
31 December 31 December
2015 2014
USD USD
Administration payroll 1,939,126 2,501,519
Selling and distribution 9,853,251 6,408,427
Shared based payment 2,085,292 1,215,470
Depreciation 1,354,516 1,362,317
Other 6,148,380 6,772,857
21,380,565 18,260,590
============ ============
18 Other income and expenses
18.1 Other operating income
31 December 31 December
2015 2014
USD USD
Net gain/(loss) on disposal
of PPE 435,591 1
Rental income 289,570 329,450
Other 179,515 341,476
Total other operating income 904,676 670,927
============ ============
18.2 Other operating expenses
31 December 31 December
2015 2014
USD USD
Direct operating
expenses on rental-earning
investment properties 124,688 101,119
Other 51,080 554,904
Total other operating
expenses 175,768 656,023
============ ============
18.3 Finance income
31 December 31 December
2015 2014
USD USD
Interest income on loans and
receivables 26,100 290,538
Total interest income 26,100 290,538
Net foreign exchange gain 1,887,246 443,995
Other 42,626 42,096
Total finance income 1,955,972 776,629
============ ============
18.4 Finance costs
31 December 31 December
2015 2014
USD USD
Interest at amortised costs
on loans and borrowings 48,000 568,639
Total interest expenses 48,000 568,639
Net foreign exchange loss 3,572,646 4,843,501
Other 12,240 254,257
Total finance costs 3,632,886 5,666,397
============ ============
18.5 Employee benefits expenses
31 December 31 December
2015 2014
USD USD
Included in cost of sales
expenses:
Wages and salaries 15,561,765 10,750,890
Social security costs 2,110,804 937,990
Pension costs 29,574 21,147
Included in administrative
and selling/distribution expenses
:
Wages and salaries 6,472,676 5,382,260
Social security costs 384,496 642,665
Pension costs 221,057 131,242
Total employee benefits expenses 24,780,372 17,866,194
============ ============
Average number of full time
employees 513 274
============ ============
19 Income taxes
19.1 Income tax expenses
The major components of income tax expense for each period
are:
31 December 31 December
2015 2014
USD USD
Current income tax charge (13,484) 59,744
Deferred tax (146,746) (157,135)
Total Income tax (160,230) (97,391)
============ =======================
A reconciliation between tax expense and the accounting loss
multiplied by the domestic tax rate of each entity in its
jurisdiction for each period is as follows:
31 December 31 December
2015 2014
USD USD
Loss before tax (58,840,828) (47,315,141)
------------- -------------
Theoretical income tax (charge)/income
using applicable income tax rate (11,309,977) (13,148,122)
Reconciliation to actual income
tax charge
Unrecognised deferred tax assets
on losses carried forward 13,547,009 14,360,228
Non-deductible expenses from:
Director's fees, ESOP 802,704 494,695
Accelerated capital allowances 362,676 299,497
Other non-deductible expenses (3,586,562) (2,150,378)
Minimum income tax charge 35,188 52,918
Other (11,268) (6,230)
Income tax expenses (income) (160,230) (97,391)
============= =============
19.2 Deferred taxes
Deferred tax liabilities
On the acquisition of Equipment Tracking Limited on 10 December
2013, the valuation of the separable net assets of the company
created a deferred tax liability of USD 523,782.
During the year, the Group recognised a deferred tax charge on
the accelerated capital depreciation of the separable net assets of
USD 146,746 (2014: USD 157,135), the variation with the amount
recognised in profit and loss is due to currency translation.
As at year end, the Group has recognised deferred tax
liabilities for USD 184,330 (2014: 403,286).
Deferred tax assets
The Group has not recognised any deferred tax assets as there is
no certainty of the timing of recovery of those assets.
The relievable tax losses within the Group for which no deferred
tax asset has been recognised amount to USD 134,918,560 as at 31
December 2015 (2014: USD 187,484,145). If the Group were able to
recognise all unrecognised deferred tax assets, the loss would
decrease by USD 31,655,039 as at 31 December 2015 (2014: USD
53,762,795).
20 Pensions and other post-employment benefit plans
RM2 S.A. Swiss Branch, RM2 Limited and Equipment Tracking
Limited operate defined contribution pension schemes. The assets of
the schemes are held separately from those of the company in an
independently administered fund. The pension cost charge represents
contributions payable by the company to the fund. The related
charge for the year 2015 amounts to USD 261,180 (2014: USD
144,390).
21 Share-based payments
The Group has a number of share schemes as shown in the table
below.
The Company grants restricted shares, shares grants at par value
and share options at its discretion to employees, officers,
directors, consultants and advisors.
Restricted shares and share options are granted with vesting
periods of between the date of grant and ten years from the
issuance or the date of grant and may carry performance conditions
or time conditions for vesting. Should the restricted shares or
options remain unexercised after a period of ten years from the
date of grant, the options will expire and the restricted shares
will be repurchased from the holder. Options are exercisable at a
price equal to the Company's quoted market price on the date of
grant.
Each programme approved by the Company during the year is
detailed as follows:
21.1 2012 Equity Incentive Plan
The Remuneration Committee approved the issuance of 11,025,000
shares to certain founders of the Group on 16 July 2013. These
shares were immediately issued without any restriction for the
holders.
Management has determined the fair value of this share-based
payment transaction by reference to the placing price of the
shares.
21.2 2013 Equity Incentive Plan
The Remuneration Committee approved the issuance of 12,308,775
shares to certain Directors on 14 November 2013. These shares were
immediately issued and accompanied by a restricted share agreement
for each beneficiary of the awards.
Each restricted share agreement specifies that holders can only
dispose of their shares upon achievement of certain performance
conditions. The performance conditions are linked to the volume
weighted average quoted price of the Ordinary Shares (the "Average
Price") for a consecutive 30 day period (the "Relevant Period"). If
the Average Price is 50% higher than the Placing Price of GBP 0.88
for the Relevant Period, the Performance Condition in respect of
one-third of the Restricted Shares shall be fulfilled. If the
Average Price is 75% higher than the Placing Price for the Relevant
Period, the Performance Condition in respect of a further one-third
of the Restricted Shares shall be fulfilled. If the Average Price
is 100% higher than the Placing Price for the Relevant Period, the
Performance Condition in respect of the final third of the
Restricted Shares shall be fulfilled. If any Performance Conditions
are not fully satisfied by 19 November 2023, the Director shall
transfer any of his remaining Restricted Shares to the Company at a
purchase price equal to the nominal value of the Restricted Shares,
being USD 0.01 each.
Management has considered that, even if shares were immediately
issued to holders and then there was no effective period, the
performance conditions would be similar to vesting conditions. As a
result, Management has determined the duration of tranche 1 and 2
as at 5 years and of tranche 3 as at 10 years from grant date.
In determining the amount of shares that will be exercised
(available for disposal by holders) at 100%, the Management
considers that all beneficiaries would remain in the Group at the
date of the exercise.
21.3 Employee Stock Option Plan ("ESOP")
In 2014, the Remuneration Committee approved the issuance of a
total of 6,533,405 restricted shares and 600,000 options to
Directors, consultants and key employees. Part of these awards
4,316,405 are issued under the same conditions as the restricted
shares described above and part 2,217,000 vest on the third
anniversary of the grant date, assuming the beneficiary continues
to have a business relationship with the Company at such date. In
addition, the Remuneration Committee approved the issuance of
600,000 share options to key employees and management, vesting over
three years in equal tranches on the anniversary of the grant date
and with a strike price equal to fair market value on the date of
grant. The vesting of such options also automatically accelerates
should the volume-weighted average price of the Company's shares
exceed the Placing Price of GBP 0.88 by 100% for a period of 30
consecutive calendar days.
In 2015, the Remuneration Committee approved the issuance of
253,000 restricted shares to key employees. These shares vest on
the third anniversary of the grant date, assuming the beneficiary
continues to have a business relationship with the Company at such
date.
On 3 November 2015, the Company awarded 5,500,000 options over
its ordinary shares of USD 0.01 each under its 2013 Stock Option
and Incentive Plan to its non-executive directors. The options have
an exercise price of 46.5p, being the closing share price on 2
November 2015, and duration of 10 years. The options will vest over
a 3 year period in equal annual instalments but cannot be exercised
until the stock closes above a thirty day average closing price of
100p.
On 3 November 2015, the company awarded 800,000 options over its
ordinary shares of USD 0.01 each under its 2013 Stock Option and
Incentive Plan to some employees. The options have an exercise
price of 46.5p, being the closing share price on 2 November 2015,
and duration of 10 years. The options will vest over a 3 year
period in equal annual instalments.
Financial effect of share-based payment transactions:
The expense recognised for employee services received during the
year is shown in the following table:
31 December 31 December
2015 2014
USD USD
Expense arising from equity-settled share-based
payment transactions 2,085,292 1,215,470
----------- -----------
Total expense arising from share-based payment
transactions 2,085,292 1,215,470
=========== ===========
The Company does not have any liability arising from share-based
payment transactions as at 31 December 2015 (2014: Nil).
Movements during the year:
The following table illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share granted and share
options during the year:
Restricted shares Number of share
issued options
Outstanding at beginning of
year 18,833,180 600,000
Granted during the year 253,000 6,000,000
Forfeited-repurchased during
the year (333,334) (300,000)
Exercised during the year - -
------------------- ---------------
Outstanding at end of the year 18,752,846 6,300,000
--------------------------------- ------------------- ---------------
Tradable/Exercisable at end - -
of the year
--------------------------------- ------------------- ---------------
The weighted average remaining contractual life for the
restricted shares issued outstanding as at 31 December 2015 is 4.32
years (2014: 5.35 years).
The weighted average fair value of shares granted during the
year was USD 0.99 (2014: USD 0.50).
Where restricted shares have been issued with performance
conditions, Management considers that range of exercise price will
be from GBP 1.32 for tranche 1, from GBP 1.54 for tranche 2 and
from GBP 1.76 for tranche 3.
The weighted average share price at the date of exercise issue
was GBP 0.46 (2014: GBP 0.84).
21.4 Fair value of share based payments transactions
2012 Equity Incentive Plan - Shares issued to founders
The fair value of shares granted was estimated based on the
placing price of shares (GBP 0.88), as at 6 January 2014, as it is
considered to be the most representative value of the shares
granted to founders at the grant date, less the exercise price paid
by the holders of the shares (GBP 0.01).
2013 Equity Incentive Plan - Restricted shares issued
A modified Black-Scholes model has been used to determine the
fair value of the share based payment on the date of grant or
issue. The fair value is expensed to the income statement on a
straight line basis over the vesting period, which is determined
annually. The model assesses a number of factors in calculating the
fair value. These include the market price on the date of grant,
the exercise price of the share options, the expected share price
volatility of the market sector in which the Group operates, the
expected life of the options, the risk free rate of interest and
the expected level of dividends in future periods.
The calculation of the fair value of options issued requires the
use of estimates. Expected volatility has been estimated based on
similar sized companies listed on the AIM market of the London
Stock Exchange. It is assumed that all options will be
exercised.
2013
Restricted
Shares
Weighted average exercise price GBP 0.01
Expected volatility 17%
Expected life of restricted shares 5 and 10
years
Risk-free interest rate 1.9%-2.6%
Expected dividend yields Nil
------------------------------------ ------------- ----------- --------------
Model used Black-Scholes
2014 2014 2014
Restricted Restricted Option Shares
Shares Shares
Weighted average exercise GBP 0.01 GBP 0.01 GBP 0.645
price
Expected volatility 17% 17%
Expected life of restricted 5 and 10 3 years 3 years
shares years
Risk-free interest rate 1.9%-2.6% 1.1% 1.1%
Expected dividend yields Nil Nil Nil
----------------------------------- ------------- ----------- --------------
Model used Black-Scholes Black-Scholes
2015
Option Shares
Weighted average exercise GBP 0.465
price
Expected volatility 49%
Expected life of restricted 3 years
shares
Risk-free interest rate 1.2%
Expected dividend yields Nil
------------------------------------ ------------- ----------- --------------
Model used Black-Scholes
In determining the cost to be recognised during the period,
management considered that all shares would be exercised by holders
upon achievement of performance conditions.
22 Earnings per share
Basic earnings per share amounts are calculated by dividing the
net profit for the year attributable to ordinary equity holders of
the parent by the weighted average number of ordinary shares
outstanding during the year.
Diluted earnings per share amounts are calculated by dividing
the net profit attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of
ordinary shares that would be issued on conversion of all the
dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
31 December 31 December
2015 2014
USD USD
Net loss attributable to ordinary
equity holders of the parent
for basic earnings (58,680,598) (47,217,750)
==================== ====================
31 December 31 December
2015 2014
Weighted average number of
ordinary shares for basic
earnings per share 337,569,983 317,997,300
Weighted average number of
ordinary shares adjusted for
the effect of dilution 337,569,983 317,997,300
==================== ====================
Loss per share
Basic (0.17) (0.15)
Diluted (0.17) (0.15)
==================== ====================
Management considers that there is no dilutive effect from the
options as they would be negative.
23 Commitments and contingencies
23.1 Operating lease rentals - Group as lessor
Property
The Group has entered into commercial property lease on its
investment property, consisting in the Group's surplus space in the
Swiss office building. The non-cancellable lease has remaining
terms of as at 31 December 2021.
Future minimum rentals receivable under non-cancellable
operating leases as at 31 December are as follows:
31 December 31 December
2015 2014
USD USD
Within one year 227,196 329,452
After one year but not more
than five years 908,785 1,317,808
More than five years 227,196 658,904
1,363,177 2,306,164
============ ============
Pallets
As at 31 December 2015, the Group had contracted 6 customers
having mainly signed a 3-year-period agreement.
All agreements, whatever the duration, have a notice period for
cancellation which is mainly 90 days. Biggest customer has a 180
day notice period.
Future minimum rentals receivable under operating leases defined
as monthly flat fee at 31 December are as follows:
31 December 31 December
2015 2014
USD USD
Within one year 248,186 64,128
After one year but not more
than five years 126,424 128,256
More than five years - -
374,610 192,384
============ ============
Group's activity is completed by other trip-fee-agreements which
revenue is generated according to velocity metrics.
23.2 Operating lease commitments - Group as lessee
The Group has entered into commercial leases for office spaces
in United Kingdom and New Jersey and for a manufacturing facility
in Canada. These leases have an average life of between 6 months
and 3 years with renewal options included in the contracts. In
connection with the operational lease of the factory premises
located in Canada, a letter of credit amounting to CAD 2,500,000 -
USD 1,816,039 (2014:CAD 2,500,000 - USD 2,149,975) has been issued
to the landlord as a guarantee for lease payments and lease
defaults.
Future minimum rentals payable under non-cancellable operating
leases as at 31 December are as follows:
31 December 31 December
2015 2014
USD USD
Within one year 1,469,004 1,682,661
After one year but not more
than five years 4,632,336 5,550,376
More than five years 3,859,467 5,920,924
9,960,807 13,153,961
============ ============
23.3 Forward purchase of property, plant and equipment
The Group has commitment in relation with forward purchase for
the acquisition of property, plant and equipment, as follows:
As at As at
31 December 31 December
2015 2014
USD USD
Forward purchase for acquisition
of PPE 5,761,937 2,249,326
============= =============
23.4 Related party disclosures
23.4.1 Group subsidiaries
The consolidated financial information include the financial
statements of the Company and its subsidiaries. The Group has the
following subsidiaries included in these consolidated financial
information:
% of equity interest
Subsidiary name Country of incorporation 2015 2014
RM2 S.A., including Swiss
branch Luxembourg 100% 100%
RM2 Leasing S.A. (previously
RM2 IP S.A.) Luxembourg 100% 100%
RM2 Holland B.V. Netherlands 100% 100%
RM2 Europe Spó ka z.o.o. Poland 100% 100%
United States
RM2 USA Inc. of America 100% 100%
RM2 Limited (previously Victoria
Rises Ltd.) United Kingdom 100% 100%
RM2 Canada Inc. Canada 100% 100%
RM2 France E.u.r.l. (previously
RM2 France Sà r.l.) France 100% 100%
Equipment Tracking Limited United Kingdom 100% 100%
RM2 Holding S.à.r.l. Luxembourg 100% 100%
RM2 (Canada) Leasing Inc. Canada 100% N/A
All subsidiaries held by the Company are consolidated, except
for RM2 Total Solutions Inc., United States of America, and RM2
Pallet Investment Limited, Ireland, which are dormant
companies.
On 24 June 2014, the Extraordinary General Meeting of
Shareholders of RM2 International S.A. approved the contribution of
all assets and liabilities of RM2 International S.A. in a newly
incorporated entity in Luxembourg, RM2 Holding S.à r.l., with
accounting and tax effect as at 1 April 2014.
At 24 December 2014, RM2 Total Solutions International B.V.
legally merged into RM2 Holland B.V. as a result which RM2 Total
Solutions International B.V. ceased to exist.
At 16 December 2015, RM2 (Canada) Leasing Inc. has been
incorporated as a subsidiary of RM2 Holland B.V.. The company did
not generate any activities during 2015 and has not been
consolidated at 31 December 2015.
23.4.2 Transactions with related parties
All transactions between the Company and the Group's
subsidiaries, and between Group's subsidiaries, have been
eliminated for the preparation of these consolidated financial
information.
Income Expenses Amounts Amounts Assets
Year with related from related owed by owed to acquired
parties parties related related from related
parties parties parties
USD USD USD USD USD
Parent: Interest 2014 - 123,458 - - -
bearing
loans
Parent: Interest 2015 - - - - -
bearing
loans
Parent: Non-interest 2014 - - - 8,550 -
bearing loans
Parent: Non-interest 2015 - - - 8,550 -
bearing loans
Key Management
personnel:
Remuneration
Key Management 2014 - 1,464,673 111,921 - -
personnel:
Advances 2014 - - 107,549 - -
Key Management
personnel:
Remuneration 2015 - 1,170,797 - - -
Key Management
personnel:
Share-based payments 2014 - 1,215,470 - - -
Key Management
personnel;
Share-based payments 2015 - 2,085,292 - - -
Other - Advances 2014 - - 31,772 10,235 -
Other - Advances 2015 - - 1,477,205 - -
Other - Reimbursement
of costs incurred 2014 726,215 - - 120,471 -
Other - Reimbursement
of costs incurred 2015 445,770 - - 103,602 -
Other - Assets acquired 2014 - - - - 250,000
In 2015, the income from other related parties have been
recorded in other operating income for USD 137,558 (USD 339,925 in
2014) and have been deducted from Other Administrative expenses for
USD 308,212 (USD 386,291 in 2014).
Restricted share issues to related parties are disclosed in note
21.
23.4.3 Transactions with key management personnel
The Group granted compensation to the key management personnel
as follows:
As at As at
31 December 31 December
2015 2014
USD USD
Short-term employee benefits 1,170,797 1,464,673
============= =============
24 Financial risk management objectives and policies
The Group's financial liabilities comprise only loans and
borrowings and trade and other payables. The main purpose of these
financial liabilities is to finance the Group's operations. The
Group has loans and other receivables, trade and other receivables,
and cash and short-term deposits that arrive directly from its
operations.
The Group is exposed to market risk, credit risk, foreign
currency risk and liquidity risk in relation to the financial
instruments held. The Group's senior management oversees the
management of these risks. The Board of Directors reviews and
agrees policies for managing each of these risks which are
summarised below.
24.1 Market risks
Market risk is the risk that the fair value of future cash flows
of a financial instrument will fluctuate because of changes in
market prices. Market prices comprise three types of market risk:
interest rate risk, currency risk and other price risk, such as
commodity price risk or equity price risk. Financial instruments
affected by market risk include loans and borrowings, deposits and
available-for-sale investments.
The Group's management has determined that the Group was not
subject to interest rate risk as all significant loans and
receivables have been issued with fixed interest rate, or to
commodity price risk as the production of pallets does not require
raw material subject to market volatility.
The Group has only exposure to the foreign currency risk as a
result of its operations in various countries and using different
functional currencies.
The sensitivity analyses in the following sections relate to the
position as at 31 December 2014 and 2013. The sensitivity analyses
have been prepared on the basis that the amount of net debt, the
ratio of fixed to floating interest rates of the debt and
derivatives and the proportion of financial instruments in foreign
currencies are all constant and on the basis of the hedge
designations in place (at 31 December 2013: none).
The analyses exclude the impact of movements in market variables
on: the carrying values of pension and other post-retirement
obligations; provisions: and the non-financial assets and
liabilities of foreign operations.
24.1.1 Foreign currency risk
Foreign currency risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The Group's exposure to the risk
of changes in foreign exchange rates relates primarily to the
Group's operating activities (when revenue or expense is
denominated in a different currency from the Group's presentation
currency) and the Group's net investments in foreign subsidiaries
(translation risk).
The Group is aware of its non US Dollar exposures but does not
consider a hedging program to be needed currently. Raw materials
and capital expenditure are primarily in US Dollars whilst the
target revenue market is the USA. Any divergence from this would be
considered by management with a view to putting cover in place.
The Group has significant operations in the following
currencies: United States Dollar (USD) and Canadian Dollar (CAD)
and Great British Pound (GBP). The Group has other operations in
the following currencies which are not significant for the Group:
Swiss Franc (CHF), Euro (EUR) and Polish Zloty (PLN).
Sensitivity analysis
All intercompany movements have been excluded from this
sensitivity analysis. The following tables demonstrate the
sensitivity to a reasonably possible change in the CAD exchange
rate, with all other variables held constant. The impact on the
Group's profit before tax is due to changes in the fair value of
monetary assets and liabilities including non-designated foreign
currency derivatives. The Group's exposure to foreign currency
changes for all other currencies is not material.
In previous years the Group was exposed to movements in the CHF,
following a change in the functional currency of the Swiss branch
this is no longer a risk. The prior years' sensitivity analysis
assumed a +/- 6% change of the USD/CHF exchange rate for the year.
This percentage had been determined based on the average market
volatility in exchange rates in the 24 months to 31 December
2015.
The sensitivity analysis assumes +/- 30% of the USD/CAD exchange
rate of the previous 24 months is (2014: 8%).This percentage has
been determined based on the average market volatility in exchange
rates in the previous 24 months.
Year Change Effect on Effect on
in CHF profit before other comprehensive
rate tax income
USD USD
2015 - - -
- - -
2014 +6% (337,512) (337,512)
-6% 308,689 308,689
Year Change Effect on Effect on
in CAD profit before other comprehensive
rate tax income
USD USD
2015 +30% (2,811,766) (2,811,766)
-30% 5,048,460 5,048,460
2014 +8% (198,715) (198,715)
-8% 219,422 219,422
24.2 Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from its operating activities and from its financing activities,
including deposits with banks and financial institutions, foreign
exchange transactions and other financial instruments.
Credit risk from balances with banks and financial institutions
is not considered significant as the Group centrally manages the
cash held in Luxembourg and has made placements with lower-risk
counterparties mainly located in an A rating bank. Funding by the
Luxembourg Holding company to the subsidiaries is limited to their
current operational requirements.
24.2.1 Financial instruments and cash deposits
In 2013, the Group loan financial instruments were mainly
represented by loan receivables owed by PRC.
The Management estimated that the recoverability of the PRC
receivable was uncertain (see note 4) and has recorded impairment
on the full nominal amount of the receivables. The loan has been
cancelled in 2014.
Credit risk from balances with banks and financial institutions
is not considered significant as the Group has made placements with
lower-risk counterparties.
Trade and other receivables
The Group regularly reviews and assess the trade receivables for
the recoverability. The Group has made no provision against overdue
trade receivables as management are confident that they will be
recovered in full. The Group considers the followings events as
indicators of an impairment:
-- default of payments of the counterparty
-- financial difficulties of the counterparty
-- it becoming probable that the counterparty enter bankruptcy
or other financial reorganisation
-- granting to the counterparty a concession that the
Group will not otherwise consider
24.2.2 Ageing analysis of receivables
The Group regularly reviews and assess the trade receivables for
the recoverability. The Group has made no provision against overdue
trade receivables as management are confident that they will be
recovered in full.
The Group receivables ageing list at 31 December 2015 has been
partially collected during the 1(st) quarter of 2016. USD 1,350,000
was outstanding at the end of the 1(st) quarter as some of the
pallets sent to a customer needed repairs during the 1(st) semester
of 2016. The customer have confirmed payment following the
repairs.
24.3 Liquidity risk
The Group's objective is to maintain a balance between
continuity of funding and flexibility through the use of raising of
capital via equity issues or bridging facilities. Longer term the
Group will look to finance activities through bank and debt
facilities see Note 3.2.
Maturity Profile
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments.
31 December 2015 Due on Due within Due between Due between Due after Total
demand 3 months 3 and 1 and 5 years
12 months 5 years
USD USD USD USD USD USD
Non-current liabilities
Interest-bearing
loans and borrowings - 25,000 75,000 1,844,875 - 1,944,875
Bank borrowings - 25,000 75,000 1,844,875 - 1,944,875
Current liabilities - - - -
Interest-bearing
loans and borrowings - 16,440 - - - 16,440
Bank overdrafts - - - - - -
Other loans and
borrowings - 16,440 - - - 16,440
Loans from other
related parties - - - - - -
Trade and other
payables - 14,466,289 - - - 14,466,289
Trade payables - 12,139,283 - - - 12,139,283
Payables to other
related parties - 103,602 - - - 103,602
Employee compensation
payables - 270,431 - - - 270,431
Other tax payables - 423,531 - - - 423,531
Other payables - 1,529,442 - - - 1,529,442
Total financial
liabilities: - 14,507,729 75,000 1,844,875 - 16,427,604
========= ============= ============ ============ ========== =============
31 December 2014 Due on Due within Due between Due between Due after Total
demand 3 months 3 and 1 and 5 years
12 months 5
years
USD USD USD USD USD USD
Non-current liabilities
Interest-bearing
loans and borrowings - - - 2,053,541 - 2,053,541
Bank borrowings - - - 2,053,541 - 2,053,541
Current liabilities - - - -
Interest-bearing
loans and borrowings - 28,573 - - - 28,573
Bank overdrafts - - - - - -
Other loans and
borrowings - 28,573 - - - 28,573
Loans from other
related parties - - - - - -
Trade and other
payables - 6,354,090 - - - 6,354,090
Trade payables - 4,752,320 - - - 4,752,320
Payables to other
related parties - 120,471 - - - 120,471
Employee compensation
payables - 258,111 - - - 258,111
Other tax payables - 941,475 - - - 941,475
Other payables - 281,713 - - - 281,713
Total financial
liabilities: - 6,382,663 - 2,053,541 - 8,436,204
========= ============ ============ ============ ========== ============
24.4 Concentration of risk
Concentrations arise when a number of counterparties are engaged
in similar business activities, or activities in the same
geographical region, or have economic features that would cause
their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions.
Concentrations indicate the relative sensitivity of the Group's
performance to developments affecting a particular industry. The
Group do not consider that others are engaged in similar business
activities, but do monitor the situation.
25 Capital management
The Group manages the capital structure and makes adjustments to
it in the light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or
adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders in the future, return capital to
shareholders, issue new shares, or sell assets to reduce debt.
26 Subsequent events
Strategic alliance
On 1 April 2016, the Group entered into a strategic
manufacturing agreement with Zhenshi Holding Group Company Limited
of China ("Zhenshi"). Zhenshi is a major shareholder of China Jushi
Co. Ltd. ("Jushi"), one of the largest manufacturers of fibreglass
in the world, producing over 1.1 million tonnes of glass fibre
annually. Fibreglass is one of the key raw materials used in the
manufacture of RM2's BLOCKpal pallet. The initial term of the
agreement is 10 years, renewable at the sole discretion of the
Group. Concurrently with the execution of this agreement, the
parties agreed to enter into an equipment lease agreement for a
substantial portion of the Group's production capacities. The part
of Machinery that is not transferred to Jushi is subject to further
projects which may include future transfer to China or
re-deployment in North America.
As the decision to move a substantial part of its production
devices located in Canada to China has been made after 31 December
2015 and as the related effects of this event occurred afterwards,
there is no impact on the classification and the value of the
balance sheet items as of 31 December 2015.
The agreement provides for the mass production of the RM2
BLOCKpal pallet in Tongxiang, at a facility owned by Zhenshi Group
Huamei New Materials Co., Ltd, adjacent to the principal Jushi
glass fibre manufacturing plant. Initial production is expected to
be deployed in Q1 2017 and will target circa 1.5 million pallets
per annum subject to increase in the future. Per the agreement, RM2
committed to acquire a minimum number of pallets during the first
year following the start of the production by Jushi and subsequent
years. In function of the number of pallets produced, the first
year (following the start of the production) financial commitment
of the Group under the manufacturing agreement could not excess
$90.0m. Pallets produced at the facility will initially be deployed
with RM2's customers in North America and Europe.
This agreement should enable RM2 to address the projected volume
demands of its clients whilst significantly reducing Cost per Unit.
With the transfer of a substantial part of RM2's manufacturing
assets to China, no further mass production of pallets is expected
from April 2016 until the deliveries of pallets by Jushi to RM2,
expected to occur in the first quarter of 2017.
The Group appointed Kevin Mazula as Chief Operating Officer in
April 2016, to focus initially on overseeing the manufacturing
relationship with Zhenshi.
For further details, please refer to the note Going Concern (see
Note 3.2).
Financing
No later than 22 July, 2016, the Company, subject to the General
Assembly's approval, will issue Convertible Preferred Shares for a
minimum amount of USD 20.0m, at a price of GBP 0.35 each with a
cumulative dividend of 9% per annum, in preference to any dividend
on Ordinary Shares. The Convertible Preferred Shares may be
redeemed by the Company on the fifth anniversary date of their
issuance. The Convertible Preferred Shares owners have the right to
convert these at a rate of 1:1 to Ordinary Shares, at any time at
the option of the holder but after 30 June 2019. If the Company
issues additional securities at a lower purchase price than the
current Preferred Share conversion price, the conversion price will
be adjusted accordingly. The Convertible Preferred Shares will each
have one vote per share, subject to some limitations.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EASKEDDXKEEF
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June 30, 2016 02:01 ET (06:01 GMT)
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