Directa Plus (LSE:DCTA) — Interim Results

0:01 Good afternoon, and welcome to the DIRECTA PLUS PLC Interim Results Investor Presentation. Throughout the quarter presentation, investors will be in listen only mode. Questions are encouraged and can be accessed at any time at the Q and A tab situated in the right 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 review all the questions switched today and public responses where it's appropriate to do so. Before we begin, I'd like to start the following poll.

0:28 And now I'd like to hand you to Julius Cesario, CEO. Good afternoon, sir. Good afternoon, and thank you, Alessandro. I would like to introduce myself. I'm cofounder and CEO of DIRECTA PLUS. I have almost thirty nine years of experience in graphene and graphite industry and ninety nine patents

0:53 on my name as inventor or co inventor. In front of me, we have our CFO. Good good afternoon, everybody. My name is Giorgio Bonfanti. I'm the group CFO of DIRECTA PLUS. I've joined the company more than three years ago after some previous experience in m and a advisory. So so in this presentation will be divided into four areas. The first one will give a a brief overview of the DIRECTA PLUS and what we do and what is our what our technology is. The second part will be on a few highlights on what happened in the first half of the year. Then we will discuss the main strategic actions we are putting in place for the upcoming months and then a final comment on on the group outlook.

1:46 Okay. With regard to the company, without any doubt, we are one of the leader in the graphene revolution.

1:57 The company has been designed with a unique proposition that is based on four cornerstones. The first one is the process that is unique with a strong IP, but is also able to utilize just physics and not chemistry. The second cornerstone is the product. We are able to deliver a pristine quality product at the best price, but also at a very high quality. Number three is time to market. Nowadays, we have 77 products already on the market, and we are able, whenever a partner ask us to develop or to support with ideas to move our graphene in their application within two or three months, we are able really to make a significant proposal. Last cornerstone are the partnerships.

2:59 We started a long time ago collaboration with leading companies, and we are we are increasingly on a monthly basis contacts with significant company in order to explode the utilization of our material. Over the years, we have been we have developed different kind of products and and technologies, graphene based, which are applying to different kind of verticals. At the moment, we have two main commercial advanced verticals that generate most of our turnover, which are environmental remediation services and textiles. But at the same time, we keep looking at other opportunities and other verticals like asphalt, rubber, concrete, plastic, paints, and batteries.

3:59 Okay. With regard to the unique production process is based on the thermal superexpansion of natural graphite, that is the our raw material. And of course, on the plasma torch that will allow us to reach very, very high temperature without a significant energy consumption. The second point is that our manufacturing model enable us to consider the opportunity to produce at customer location. In this way reducing drastically waste time to utilization and transportation cost.

4:45 Last point is that our yield is above 95%. So we are able to transform into final product most of the natural graphite. Two additional comments. You saw on the bottom part of the slide that nowadays we have 106 granted patents and 33 pending is a significant number for a graphene producer, but is as significant in the number of patents, the fact that we have 43 certification of nonimpact of our material on biological systems.

5:28 Next part is on a few highlights on what what happened in the first half of the year. Before jumping into the main part of the presentation, here here, we are showing in a snapshot what happened during the year starting from financials. In in June 2024, we have raised gross proceeds of approximately 6,900,000. Those funds will be used and are being used for, first of all, to support the acquisition of the minority stake in SETCAR. As we know, SETCAR is our subsidiary based in Romania through which we are providing environmental remediation services using RafiSolver, our technology.

6:14 So those 1,500,000 were will be were used to the acquisition of the minority interest, and then we will cover what we are doing with CECTA. Second point was to accelerate our goal of commercializing graphene even further, so increase sales, and then to reduce direct production costs. We will cover also here how we are investing our money. The revenue in the period were 3,390,000, decreased compared to the previous year. This was the result of some delayed conversing of some large contracts, but also renewed focus on delivering higher margins. And, again, in the next slide, I will give you a couple of details on this. In terms of operational highlights, we will cover the restructuring of SECAR after acquisition with with some more details on this, and we will discuss the delayed tenders processes that, however, are still open and still in our hands.

7:16 The textiles, we suffered some slowdown in the European market and from some customers, but we have been shifting and repositioning our strategic approach towards some final applications and then the new role of the r and d team in our in our company. So moving into the financials, as we said, delayed delayed revenues compared to last year, this was mainly impacted by three factors. The first one was the fact that we had some temporarily reduced sales from a major customer in the work where he had some internal issues, and he he is restarting to to send him orders now. So he will restart to to to give a full rate orders from 2025 onwards.

8:06 The second important point is the fact that we had a new renewed focus on delivering higher margin. After the acquisition of SECTA, we identified some contracts with very low margins, so we have decided to exit those contracts giving up to some revenues, but at the same time, generating some cost efficiencies, and we will cover more in detail later on. Third point is the delayed commencing of some large contracts, and we have a dedicated slide on this. The reduction in sales was the main factor driving the increase in EBITDA loss in the period from 1.3 to 1.8 million. However, we had we had an improved contribution margin from 44 to 52%. Contribution margin is an internal metric we keep monitored, which takes into account all the direct costs related to the business. So not only raw materials, but also transportation and to manufacturing.

9:05 Final comment on financial is the fact that we have, as of today, approximately 6,000,000 of cash and cash equivalents after the reimbursement of the loan to NAM. So we are a robust balance sheet in order to keep investing in line with our strategy.

9:25 From now on, we are going to cover the foundation for future future for growth. And let me start by telling that we adopted a new communication strategy to market that was suggested by our advisor and approved by the Board. And this strategy is driven by the delay we see in tenders and big orders and the senior of further delays. So we decided that not being able to control timing of decision was a very good move to take these numbers out of the forecast. So we are taking, in any case, several different action for the future growth. The first one is the SETCA restructuring plan that was identified end of twenty twenty three, and we start to think about restructuring even before the acquisition of SETCA.

10:36 Second action is to work on cost efficiency. We have an activity that is going on since the start up of the production plant, so continuous improvement and we have investment in the production line and we will cover in a specific slide. But we have also significant new efficiencies in overhead that are directly correlated with the restructuring of Safeguard. We are going to reinforce the sales team in order to be more aggressive in converting a strong pipeline of opportunities. And, of course, we have a very strong IP portfolio that needs to be utilized as a generator of value. And we started in a selective way to sell for the first time r and d activity to our main partners.

11:41 Now let's drill down on the different action. The first one is the SET Care restructuring. Let me remind everybody that the SET Care acquisition was driven by a clear strategy designed around three points. The first one is that we saw major market opportunities available. The second one was the need to move out of the presence of the minority shareholder that was a constraint to capture significant opportunity in the area. And the third one was that we identified a reasonable price for the acquisition of the remaining 49% that was 25% less than the money we paid when we acquired the first 51%.

12:33 So we completed in February 2024 the acquisition of Zetka and we gained the full control. We immediately put in place a restructuring plan that is a six months project and has different goals in front of us. The first one is to focus on the high value contract and to move out of the low margin contract that were utilized mainly to employ people. This is strategically not working anymore for us, and that's why we are restructuring those process.

13:27 Second point, we are working on governance, and we have a new procedure that will be in place in a very short time, new info flow. We have, in terms of organizational structure, a new board in place. I accepted the position of chairman. I will be in this position till the restructuring will be completed, and then we will move the duty in the hands of the proper person and professional. And we put in place also a new operation team that was not active before. Talking about the confidence on converting a strong pipeline of opportunities, I want to stress to your attention that I have in my hands letters and email received by the key customer confirming that all the opportunities are are are open. They it's just a question of in the different cases of delays that they they are expecting in in placing the order.

14:34 Second strategic action is in terms of cost efficiencies. We have identified two areas of improvement. The first one is direct cost reduction. We have announced a few times in the past months that we have been able to decrease our direct production cost by 60 to 70% depending on the final product, thanks to some improvements in our production line. Now we identified other areas of improvement. The first one is

15:05 the fact that we are substituting argon gas with nitrogen as the main energy source of our plant. This will will have some benefits in terms of production cost reduction. We we estimate approximately 10% for the production cost of graphic solar, but also some benefits in terms of sustainability. We know that nitrogen is widely available in nature. It's by far cheaper than argon gas, and we will produce it internally instead of buying from from the external. So this will improve our margins. But at the same time, as we said before, we are working on overheads efficiency In the context of the restructuring of sector, but also looking at the cost base of DIRECTA PLUS, we have so far identified at least 500,000 of costs reduced annually on a recurring basis without affecting the operations of the group. So

16:09 500,000 is something we already have in our pocket, but we are targeting nearly 1,000,000 on a recurring basis. What we are doing is rightsizing the workforce of of the group. As we said, we will not employ people in excess. We are finding some optimization in the regard. Second point, we have identified some efficiencies in terms of logistics and transportations, especially this is a cost which is important in environmental remediation services. Third point, we are streamlining some professional services with which are not directly tied to sales growth. With regards to the reinforced sales team, in order to convert the opportunity that are available, I would like to remind you that nowadays we have 14 people working on the market, on the border of the company.

17:08 Five are on our payroll, nine are on SSV. That means that nine are agents of distributor. I'm working personally to add four new agents or distributor, two people in Malaysia, one in Qatar, and one in Saudi Arabia. With regard to the environmental remediation that covers 81% nowadays of our turnover, there is new confidence in the fact that the pipeline will pay soon what we already promised to the market, but with this new communication strategy.

17:59 We announced at the beginning of the year a new contract with Ford for €1,900,000 Now we are working on a kind of framework contract. We are very close to finalize the contract and we expect also that the number will be bigger than the 2024 number. With regards to Liberty Galati, unfortunately, we faced delays in placing orders from this company due to the fact that the blast furnace operation are not continuous. It's been stopped, restarted and stopped again. And this is, of course, reflected

18:45 also in our number. I already covered the delayed intenders process that are still open. But the very good news is that I've been personally meeting significant companies in Qatar, in Saudi Arabia and Malaysia, and we have very important opportunities to start relationship also in these three areas. Talking about textile that nowadays is covering

19:17 19% of our turnover, Everybody knows that there was a slowdown in the European textile market, but we took this opportunity to reposition us in a strategic way. So now we are focusing a lot on two main application. One is workwear and the other one is defense. In defense, we are moving slowly, but with significant results in U. S. And also in U. K, mainly leveraging on the thermal effect of our plan of thermal circuit. Talking about the existing customer, we decided to protect them, but also not to run again after the fashion industry that is volatile.

20:08 All in one luxury customer of us will be able to present a very nice winter jacket

20:23 the end of this month to the market. Last point is that we are focusing also our self interest style on activity with high technology electronic application with a major, major player in The U. S. And global market.

20:47 We have two projects. One is with a textile dot with our graphene to gain anti staining, antimicrobial properties. And the second one is using our membrane to explore via their advanced software some properties inside their device.

21:17 That's everything regarding the markets and the reinforced team. Let's go now to concentrate ourself on the IP portfolio. We have a significant hidden value in our IP portfolio.

21:35 I want to reassure everybody that the production process is very, very well protected. But we are also finally realizing that in three areas that are directly correlated to our core business, One is water treatment and the other g plus membrane and thermal circuit. Water treatment is in the environmental core business. The other two gs plus membrane and thermal circuit in textile core business. We finally start to see the possibility

22:08 to seriously talk about licensing. An example is what's going on in The Middle East where a couple of very large companies are asking us to consider to give them the license to build production unit that will be, in any case, under our control in their area. Georgios will cover now the selected R and D activities. Yes. Because in recent time, we've been shifting our strategy from being r and d centric to be more focused on increasing sales, so on on commercial activities. What over the years, we have develop developing different kind of of of technologies and products across different verticals. What the r and d team is doing now is prioritizing their efforts in the industrial verticals in which we see faster returns. So what the r and d team is mainly doing is working closely with our clients and readjusting and improving the products and the services we are offering them.

23:16 Second part of their activities is related to the fact that they are still looking at longer term opportunities, but now they are focused on being paid by our partners. So we have some r and d

23:33 consulting contracts in place for in 2024 for a total amount of approximately 100,000, but the idea is to to increase it over the years being so fully or impartially funded by by our partners looking at longer opportunities. And this is also a signal of the fact that clients are paying for our technology, so they are seeing the opportunity in the in the medium long term. The final part of the presentation is on the outlook of the group starting from the market. The the chart on the left shows that the market demand in terms of tons of graphene is expected to significantly increase over the next year.

24:19 We are well positioned. We're well positioned because we have the know how. We have ready to go products in different verticals. We have a strong IP protection, and we have

24:31 a strong network of partners. We see we've been seeing over the last years an increasing interest from our partners in the technology. Of course, we are expert in the graphene production, and we need to leverage on them in order to get access to new verticals to leverage on their Salesforce and their know how in the different final applications. Okay. This is the last slide. So let me start by telling that the aim we have is of exiting the fiscal year twenty twenty five at the breakeven EBITDA rate. And on the path towards profitability, DIRECTAs will leverage on four significant pillars. The first one is a robust balance sheet that is the result of the capital increase we finalized a few months ago.

25:27 On a strong pipeline of opportunities that are our cross and delight, so far they were just the cross, but the engagement that we are having in pipeline is more and more encouraging now nowadays. On cost focus, as Giorgio mentioned, the ongoing activity in sector is significant and very aggressive. We foresee the opportunity to reduce on a recurring way cost from a minimum of €05,000,000 to a maximum of 1,000,000 And this will drastically impact also the speed to the breakeven.

26:13 And then last but not least, where our real value is the unique patented technology and on which we are starting to work with significant business cases in our end. Just to close, I would like to stress to your attention that we think in terms of what we know nowadays. So our unique unique set of skills, we are selling for the first time the R and D activity, and we are selling this activity to major, major corporation that shows that there is significant value in what we know and we are also able to fine tune the G plus pristine nanoparticles in order to facilitate use in different area and different application.

27:08 But we are also concentrating ourselves on what we own and mainly on our underutilized assets. There are three areas. The first one are customer opportunities that we want to explore and capture starting from the two major verticals we are concentrating on all our effort. It is already mentioned. At last but not least, infrastructure. And by infrastructure, I'm talking about SETCAR that has the possibility to drastically increase its own profitability, bringing a significant contribution to our numbers.

27:57 Now we are ready for the Q and A part of this session. Giulio Georgios, thank you very much for your presentation. What I'll do is I'll just bring your cameras back up now for the Q and A. Ladies and gentlemen, please do continue to submit your questions. You can do that just by using the Q and A tab, which is situated on the top right hand corner of your screen. But just for the company to take a few moments through 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 on the published q and a can be accessed by your investor dashboard. As you can see, we have received questions throughout today's presentation. And, Georgia, if I could hand over to you just to share the q and a, that'd great, and then I'll pick up from you at the end. Okay. Thank you, Alessandro. You will have a few questions. So I will start reading the first one, which is can you tell us more about the tenders and the movements with them?

28:47 Yes. Let me tell in a very candid way that on the major one that is a Romanian tender to clean a very, very large area contaminated since fifty year by important refinery. To my knowledge, we are the only company able to pass the due diligence. We started in the tender with eight competitors, but some of these competitors were not in a position to show the proper certification. One of the most important asset of CETCA is that we have all the certification for every kind of decontamination activity in Romania and out of Romania. So the only point out of our control is timing.

29:44 So we are confident, but we are also waiting for the final decision of of the customer. Second question is, you mentioned there have been challenges within the textile market. What's giving you confidence in the market now? I can make a very quick comment, but, Giorgio, you're welcome add. Our major customer in workwear had a slowdown out of this control generated by some of these major customers asking to reanalyze data and certification of a large order that was placed that involved several consultant, a lot of ongoing activity.

30:41 And, of course, he decided not to place the new order since this difficult phase was not over. Now the phase is over. The customer already placed a small order. I guess he will continue to place orders, but not at the speed that will allow us to recover what we lost since the beginning of the year. Yes. However, as we told you in during the presentation, we have been shifting our strategy in textiles. Now looking at the final applications where we believe that our properties are more appreciated by the final user. So that's why we see great potential in in worker and defense, but also in the high-tech applications.

31:28 So that that that that's why we believe that there is strong potentially in the textiles where our where our graphene can play a key role also for the the kind of properties it is it is transferring to the final applications. The third question is, with the challenges at SETCAR, are you still happy with your decision to increase your holding? Let me try to cover, you know, 10,000 feet strategic point of view. Absolutely, yes. As I already mentioned, SETCAR has authorization to operate. We are the only one with the certificate to enter and work inside the NATO basis. One of the largest, if not the largest NATO bases in Europe is under construction a few kilometers far away from our plant.

32:22 And last but not least, is located in Braila. He's on the river. He's on the border of Ukraine, and he's close to a a free zone. So could be significantly involved in the future reconstruction of Ukraine. Jorge, do you want to answer something? No. I mean, yes. The the real strength we see in sector, as we said during the presentation, is that the the real potential is the fact that we have the authorization authorization to work in the area. So what you're doing is improving the operations and the structure of the company to leverage on them in order to further expand the technology. So, yes, we we still believe that the the acquisition of SECTA and gaining full control was the right thing to do at the right time during the year.

33:20 The other question is the contract with Liberty Galati has experienced slow what challenges face, and how are you addressing these to ensure that the project meets its Well, the changes we faced are the stop and restart of the blast furnace. And of course, this require the right material to restart. And let's keep in mind that our product is able to substitute iron ore, but probably when you restart the operation prefer to go on with the traditional products. So we were obtaining accordingly to the request of the customer.

34:14 Other question is, what are the main growth drivers that you believe will unlock significant value for your shareholders over the next two, three years? Of course, we believe that we are working, as we said, we are currently working on the opportunities in which we see a shorter return. So at the moment for the group, we are working on environmental remediation services and textiles because those are the the products and services that are gaining commercial traction now. But for sure, in the future, we are keep monitoring and keep looking at higher potential opportunities. As we as we've seen in the in the chart before, we expect that the market will increase in demand in terms of volumes of graphene also in other verticals.

35:08 So that's why we keep looking at other opportunities in which we believe graphene can play a key role for the future. So for the short term, for sure, environmental remediation services, we have a strong pipeline. We see the clients gaining traction and clients appreciating the comp the the the the contribution of graphene to the final applications. It's the same, as we said, for the properties to defense, workwear, and and high-tech, but other opportunities that we have in our pipeline are still open to gain success in the future. The last question? The last question is, can you comment on new broker forecast for 2025, 10,000,000 EBITDA on 42,000,000 to Novo suggests EBITDA margin of 23%.

36:00 One company reaches profitability, it is the level of margin being targeted or could this raise further in the future? Based on what we have discussed earlier, we have reset in agreement with our advisers. We have reset our targets forecast for 2024, 2025, mainly considering in our targets what we have in our order book. So not keeping into account the large tenders. In our path towards profitability, of course, we are looking at, as I said, environmental remediation services and textiles that have a certain kind of marginality. We are looking at the gross margin of approximately 60% with an EBITDA margin that can be around 20%.

36:57 But, of course, the profitability and the margins of the group will depend on which kind of verticals in the longer term will be more relevant. For example, licensing contracts is something that can increase the margins for for the group. So different mix will will imply different kind of margins in in the group in the group. So difficult to answer after 2025 at this moment. Yes. But let me add something more more direct. This last experience I'm having personally in talking in The Middle East with large companies, we discovered that what they are looking for is not the product, but they are looking for the service.

37:47 So I see that and that we are starting to add the first phase of presenting some ideas and and possible contracts where we will license the technology. We will rent the production equipment, and of course, we will deliver and sell some material. But at the end of the day, out of the total number, we will have probably 70% of service and 30% of material. And these will drastically, drastically impact all the numbers and especially in term of EBITDA margin. Perfect. That's great. I just want to jump in and thank you for answering the questions from investors. Of course, the company can review all the questions submitted today. We will publish those responses on the Investor Meet company platform.

38:42 Just before redirecting investors to provide you their feedback, which is important to you both, Giulio, could I just ask you for a few closing comments? Well, the comment is that we took a very difficult decision. We saw erosion in our stock value for the last two years almost despite the positive news we passed. And finally, we decided that was the right time really to be quite aggressive in moving inside our numbers, just the contracts we are 100% sure. And I look forward to a very quick recovery as soon as the the other numbers will arrive and that will also rebalance, you know, all all all the different emotion generated by this very difficult decision.

39:47 Giulio, Georgia, thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but some shall be greatly valued by the company. 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.