Directa Plus (LSE:DCTA) — FY24 Results

0:00 Good afternoon, and welcome to the DIRECTA PLUS PLC investor presentation. Throughout the quarter presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. However, the company can view all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to split the following poll. I'd now like to hand you over to CEO, Julius Cesario. Good afternoon, sir.

0:31 Good afternoon to everybody. Thank you, Alessandro. It's a pleasure to be again in a position to talk with our investor. Let me introduce myself. My name is Giulio Cesario. I'm founder of DIRECTA PLUS, and I have forty year of experience in carbon, graphite and graphene arena, the first 20 with Union Carbide, the last 20 with DIRECTA PLUS. In front of me is sitting Giorgio Confanti, our CFO. Giorgio is going to introduce himself. Good afternoon, everybody. I've joined the company four years ago after some experience in M and A advisory and and audits. Now let's start by introducing the point that we consider the Erecta PLUS a leader in the graphene revolution.

1:25 Because we have a sustainable approach, we have a strong IP portfolio and we have a consolidated industrial presence. On the top of these three bullets, we have quality,

1:38 very good, pristine material, and we are able to produce different morphologies of graphene material. The price is well positioned and very interesting, and the technological advantage that we designed is since the beginning is continuously improving.

2:05 This slide show the advantage of our production system. Everything start with the thermal super expansion of natural graphite. We are expanding natural graphite at a temperature that is very close to 10,000 degrees centigrade, that is twice the temperature of the surface of the sun. And that means that we are able to generate enough distance between the pristine graphene and the platelets that allow us to move to the exfoliation phase without the need to use any chemistry, which is the real competitive advantage of our process.

2:56 On the bottom part of the slide, you can see that at the end of last year, we had 106 granted patents and 33 pending. When we will cover patents in the next slide, I will update you with the latest numbers.

3:21 Talking about 2024 highlights, no doubt that in 2024, we faced headwinds, mainly because of the difficult situation in the company we acquired due to the Ukraine war on the Black Sea. So in environmental, we suffer postponement of orders, but we were able also to recover because we decided to acquire the entire package of a healthcare company, removing company and that was the minority shareholder in deep financial crisis and that was the real constraint to work with a large oil and gas company.

4:21 And in fact, post period, we are immediately recovering a long standing customer relationship. And the two significant order we were able to achieve mid international AONV Petrol. Mid international is a company offering decontamination of drilling blue coil platform on the Black Sea. Air and BPETROM is our traditional customer. They are starting to place orders again. The percentage of environmental turnover in 2024 was 79%. In this type, similar situation with a 30 percentage of turnover of 21%, but we've again a post period recovering despite the weaker consumer spending and the

5:22 not very positive growing of the luxury brands. Just an example, one of our major workwear customer in 2023 placed order for 1,300,000 2024 because some slowdown in approval of tenders just order for €250,000 And 2025, the first quarter of the year, he ordered above €300,000 So the first half of the year, we will make more turnover than the entire 2024. And I think this is a significant thing with the fact that we are recovering also in fixed time. With regards to group operation, two important points.

6:17 We renewed the production team that, to my impression is the best we have ever had. And we are remodeling the production line. And this is going to create a significant quantum leap in terms of quality, price and volume. But I will cover with a specific slide. Now Giorgio will give an idea of the financial highlights during 2024.

6:50 Yes. In thanks, Julian. In terms of financials, we have already covered at the beginning of the presentation, but also in the past with investors, the fact that we had a decrease in revenues. So revenues were 6,700,000 in 2024, and this was mainly explained by two factors. The first one was the temporary delays in key customers' orders, and we are recovering in in 2025, but also a strategic decision to exit from some lower margin contracts. We are now concentrating ourselves on higher value opportunities. As I said, we are trading in the first quarter of twenty twenty five at robust level with revenues approximately 2,000,000, which is approximately 40% higher than the same period in 2024.

7:42 The adjusted EBITDA loss that we are showing in the table in this page has increased, and the increase was mainly driven by the loss in revenues, partially offset by an increase in the gross margin. And we will cover what we are doing also in order to improve our margins. The adjustments you see in the table are mainly explained by non cash items, especially the one off expense for the Liberty contract that we cover in in the next pages, which was mainly incurred in 2023, an inventory write off, which is the result of some more conservative policies on our provisioning policies on our inventory.

8:32 As we know, we we raised cash through a capital increase of 6,900,000 in mid twenty twenty four. So we are in a strong position of cash with approximately 5,000,000 at December 2024. The the next section of the presentation is is covering is four points, which are the main four strategic actions that we want to explain to investors. It can provide an update with what are the latest developments or the four main strategic actions that we discussed with investors the last time. So starting from the sector restructuring of after the acquisition. Giulio, starting from the sector restructuring.

9:20 Yes. Let me remind everybody that we acquired 51% of Zetka in November 2019 and we completed the acquisition of the full package of the company in May 2024. And immediately, we start to introduce quick and effective changes. The first one was to reconstitute the local Board of Director. We have a new Chairman and two new directors. I took the responsibility to be the Chairman of the company to send a very strong signal of presence and desire to move on a new and different direction with Safeguard.

10:09 But we also introduced a new general manager that is already in Braille. He's a young man with fifteen year of international engineering experience is not part of the smaller lingo polio of the local environmental company, which is a plus because they will look at things with a different perspective. And together, we are working on a headcount reduction that already started because December 2024, we had 165 employees. Today, we have 141, and we expect that in December 2025, we will have 130.

11:02 Same time, we are moving down in the senior leadership role. We have already a new sales director, and we are securing multiple new contracts, and we are able to renew some of the old important contracts. Second point is what we are doing on our cost base and our direct production cost. We have covered already in the past the fact that we have secured approximately 500,000 of targeted annualized cost savings. We'd identified a number of cost saving that are not impacting our our growth strategy in the short term.

11:51 And at the same time, we keep working on reducing our direct production costs. We made many improvements in our production line over the last years, but we have put in place two main actions recently. The first one that we covered in September is the replacement of our main energy source from argon gas into nitrogen, which is less is cheaper and also has some benefits on a on the environment. And on the other, in parallel, we are also working on remodeling our production line, and Julia will cover shortly what we are doing on this, which will generate some benefits in terms of of of cost, production costs. And third point, we are focusing on contracts with higher profitability.

12:37 So I will move to the next page, which Julie will Yes. This is a very basic picture of what we did on the production line with the objective to protect margins and preserving liquidity, but also to capture large order opportunities. And to be able to capture this larger opportunity was key for us to work on cost efficiency, product differentiation and volume increase. So in the upper part of the slide, you see the way our production line was designed. On the bottom part is the new major adjustment. And of course, I will not enter any engineering detail, but I would like to stress to our investor attention that we work on three main areas.

13:34 We introduced an automated control, drastically reducing the need to adjust parameter for fine tuning morphology at each department. We designed a system with the possibility to bypass one of the production step. And we introduced multiple precursors that mean that we are able to introduce raw material at different stage of the process. And the final results of all these activity that are almost completed are that we have will face a production line

14:18 at half cost, but free book capacity, which will allow us to play a significant competitive role in capturing large supply chain demand in the area of batteries, in the area of concrete, in the area of plastic and in the area of paints.

14:43 Third point is what we are doing on our sales team in order to convert our pipeline of opportunities. We have enlarged our sales group consisting in internal sales team, but also agents and distributors. We have a number of agents covering different geographical areas. Nowadays, we have approximately we have 13 agents covering different areas and different verticals and different applications. On the latest developments in terms of commercial commercialization on environment, we already mentioned the fact that we renewed our fourth contract in the first part of the year. We signed also the agreement with Media International for 1,500,000, and we resumed activities with OMV Pertrom, which is a key and successful case that we have demonstrated in the past. In textiles, we know that the performance was in 2024 was affected by this slowdown in the European stack market, but we we we used those last months in order to reposition our self from a strategic perspective, focusing on especially on defense and work or application because it's where we believe our technology is appreciated the most.

16:08 And then we keep working with major fashion brands, and we are looking at also high high technology electronic applications. And then all the other the other verticals and and opportunities. As Julio said, our new production plant will is opening as new doors to new opportunities, and our strategic goal is to start selling large volumes of graphene based technology, starting from the asphalts, but also batteries, elastomers, coating, cements and filtration.

16:42 Well, in the area where hidden value is and has not yet been transformed into cash in is the AP portfolio. What we decided to do in the second part of the year is to create a team with me as facilitator, and making an IP strategic classification. That means we will divide our IP in core, barriers to entry and IP bundle. By bundle, I mean we will put together all the different patents covering elastomers or fixed type.

17:29 End of twenty twenty four, we had, as I already mentioned, 106 granted patents and 33 pending. Today, have 114 granted and 41 pending. This is a significant amount of value not properly perceived by the market. And the goal is really to start to identify which are the patents that can be licensed and start to act, if possible, supported by professional people in order to present and promote our patents to the outside market.

18:24 So finally, the the group outlook. The the in this page, we wanted to show a chart

18:33 from an external source showing that the market is expected to have a significant increase in terms of demand of tones of graphene across different applications. And we are currently present in most of them, so we believe that we will benefit from the market growth in the near future. In order to do that, we need, of course, to rely on our partners because we are experts in producing graphene across different morphologies for different applications, but we need to rely on their expertise in terms of industry knowledge, technical capabilities and commercial network. And and we are seeing an increasing interest from partners. So we believe that the we are well positioned to benefit from that in the future.

19:20 Okay. Last slide. Just would like to stress again that our path toward profitability require consistent quality, and we have especially, we have the ability to fine tune the morphology, sustainable approach. We are the only company with no chemistry inside the production line, strong AP, which has government number and consolidated industrial presence. We are in the market even in small quantities since 2018.

19:59 So it's a long time, and we are learning a lot. So the momentum is positive. We are leveraging on sector to win large contracts, and we are building in sector a new credibility and a completely different image. We are reconfiguring the production to gain advantages without sacrificing the marginality, the gross margin. And we are expanding and making it stronger our sales team on a worldwide basis. So just to summarize, we are moving from the status of just graphene producer to the status of enabling technology platform, able to talk at various level with different kind of verticals and different kind

20:57 of companies. Well, that's great. Thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the top right hand corner of your screen. But just for the company to take a few moments to review the questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboards. As you can see, we have received questions throughout today's presentation and thank you to all the investors for submitting those. Giorgio, at this point, what I'll do is hand over to you to read out the questions, and then I'll pick up from you at the end. Okay. Thank you, Lisandro. We have we have a number of of questions, so I will read them, and then we will answer one by one.

21:45 The first one is, have you taken all the main decisions on the restructuring of SETCAR? Or is there more to come? Well, that's an interesting question. We started the restructuring since we introduced the new Board and supported by the new General Manager. We are now in the implementation phase, and that means that we are monitoring and adjusting the decision taken and we are tracking the processes via the KPIs. The next two steps are very important because are the steps designed really to consolidate the change is one is on cultural and leadership alignment.

22:41 We need with the new leadership to keep stable the new direction we impose to the company. And the last one is the post restructuring optimization that will require focus on growth, innovation and long term sustainability. Okay. The second question is Romania has had its challenges, and you announced the impact on Liberty Galaxy and the loss of a large tender you expected to win. Can you provide more detail on this? Yes. Let me start from Liberty Galati. We got a contract in September 2023. The order was from €5,500,000 to €8,000,000 But unfortunately, end of twenty twenty three, Galati announced crisis and on stop they stopped the blast furnace five, and they restarted the blast furnace February 'twenty four.

23:51 But after this restart, they stopped again. Let me add a personal comment. My working background is in steelmaking, and everybody that knows a little bit of steelmaking knows that you cannot top and start a blast furnace like a diesel engine. So it's a problem. But the good news is that we were good enough to deliver material during these working phases, but also to stop immediately as soon as they decided not to pay the supplier. And nowadays, DIRECTA has a credit of EUR 10,000 that allow us to receive communication on insolvency and reorganization.

24:48 And long story to pass the investor, the good news that I received an official document dated June 2025, where they are telling that Blessed Vernas number five will restart with significant financial support of the Romanian government. So this means that probably not immediately, but between now and the end of the year, we will start to deliver again the material to the capital. With regard to the big tender that we were talking in the past, the tender was awarded to another party under circumstances that raised concern during due to the transparency lack of the entire process. So we refrain from speculation.

25:46 We are looking what's going on. And in any case, was a smart decision to move this big number out of our forecast long time ago. Okay. Now the question is, how difficult is it for your competitors to replicate your new production line? Well, that's quite interesting. In some area, it's not impossible, but the real entrance barrier is the super expansion of material. So nobody is able to generate this intermediate material that allows us to exfoliate without damaging the structure of the existing granoplate granoplatelets and at such a low cost and high productivity.

26:43 There are signals of significant competitors, also U. K. Competitors, very well connected with large universities that are presenting as the latest state of the art and equipment that we installed in 2020 in our production line and that we modified drastically during the last four years, introducing a lot of engineering changes and also introducing developing significant internal know how. That means to me that some of the decision taken are now recognized by a competitor and especially the DIRECTA PLUS has still an interesting competitive advantage.

27:43 The next question is what type of new contracts does the new production line open you up to? I mentioned this before. The first target will be batteries with our partner company in USA in ANGI, that by the way, just opened an office in Loma, so where our production is located. Then we are targeting plastic. We're targeting elastomers. We started with elastomers, and now we are back again with focus on automotive. And the last one would be paint. Okay. Another question is CEO succession was trailed in the final results. Should this be a concern to investors?

28:33 That's an interesting question, and I'm happy to answer this. As in any company, we design and talk about succession plan since long time. Despite this is my little baby was key to define a proper procedure to introduce the new and future CEO. But and this, I would like to stress with a lot of emphasis to the investor. I'm not abandoning the company.

29:18 I'm not running away. I will stay in Melora as CEO till 2026 next Annual General Meeting if the investor will decide to confirm my position. And I would like to stay even longer, but we have a different role as ambassador of the G plus network. We've working on the three main activities, I mean, now the graphic software facilitator, we want really to start to sell more and more, and it finally is happening. IP licensing opportunity and special projects, large supply chain, Romania and why not US or Middle East opportunities.

30:13 There are other three questions. The the first one is, with the reported cost savings measures and production enhancements in place, what operational milestones should investors look out for to see whether it leads to stronger financial performance? I can answer that. I mean, that and we said we are working on generating cost efficiencies in three way in two ways. The first one is general expenses. So we have secured 500,000 of of cost savings that we believe will not have an impact on on our investing strategy in the near term. So we will see the results of those cost saving already in 2025. So the financial performance will be improved immediately.

30:58 On the gross margin, of course, it takes a longer time, but but we have been working on reducing our direct production cost since a few years. The the new additional improvement we are doing now will allow us also to have an increase in sales, we believe, because we will have access to new markets. So we'll see also an increase in sales thanks to those actions we have put in place. The the other question is, is the current cash position sufficient to cover expected burn and investment needs over the next year? Yes. We are trading approx approximately at a burn rate of 250 per month. So, in in considering working capital needs, but also investment needs. So, based on our forecast, we believe that we will have sufficient cash cash at least for the next year, but even even more.

31:54 The last question is, as far as I'm aware, there are there has been no follow through the G trials in England, such as with CAN Council, Country Council. Where are we currently with G Palme? Well, G Palme is slowly but moving in in the right direction. As I mentioned many time, it takes a lot of effort and energy to get the proper attention and certification from local authorities. In Italy, the motorway from Milan to Torren finally started. We are supporting our partner, Reteptimica, in conversation in USA and Middle East.

32:45 But we will be very happy to be part of this announcement. Perfect. Well, Giulio, Georgia, thanks very much for answering all of those questions from investors. Of course, the company can review the questions submitted today, and we'll publish a response on the Investor Meet company platform. But just before redirecting investors provide you their feedback, it's particularly important to the company. Giulio, could I just ask you for a few closing comments? Yes. Just a very basic comment, but I think that investors will appreciate because on graphene, there was a lot of excitement and then now there are some catechism.

33:43 Let me remind everybody that Roger Bacon in 1958 invented carbon fiber and invented carbon fiber in Union Carbide Lab facility in Parmalayo, where I've been for many, many times. And it took him almost forty year to widespread the industrial use. Gaming of positive isolated graphene in 2004, a DIRECTA was created in 2005. In 2018, we move already in some different verticals with products. Nowadays, everywhere, not just with us, but with any significant European producer, supply chains are placing a question and they seem ready to start to buy significant volume.

34:38 That means that it will not take as long as carbon fiber, but that means to me that without any doubt in the next three, four years, we will see the widespread of graphene industry use. Giulio, Giorgio, thank you very much for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations? On behalf of the management team of DIRECTA PLUS PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.