Directa Plus (LSE:DCTA) — Interim Results

0:00 Good morning and welcome to the DIRECTA PLUS PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Giulio Cesario, CEO. Good

0:32 morning, sir. Good morning to everybody. My name is Giulio Cesario. I'm the cofounder of DIRECTA PLUS. I founded the company in February 2005. I have thirty eight years of experience in graphite and graphene industry, of which nineteen with Union Carbide Corporation and nineteen with DIRECTA PLUS. And with DIRECTA PLUS, I have with my name of as inventor or co inventor,

1:03 72 patents. In front of me, there is our CFO, Giorgio Bonfante, who will introduce himself. Good morning to everybody. The CFO, as you just said, of DIRECTA PLUS. I've joined the company back in May 2021 after some years of experience in audit and m and a advisory.

1:28 So we've begun to DIRECTA. Nowadays, it's entering a new growing phase of the interrogating sector with the proper traction, improving margins, reducing EBITDA loss and securing new contracts. The four cornerstone of our DS plus strategy are a unique proposition. We have a production process that is in place since 2014 and has been already scaled. We have a green pristine quality product that is very consistent in quality and low cost and low price. Time to market was key at the beginning, but now in the key verticals, we were able to compress time to market below the six months and key verticals are textile and environmental for us.

2:26 And we are leveraging very much on the powerful partnership where we have customers that transform themselves in partners and they're opening also us the path to contact and capture other business opportunities. The production process is unique. It's designed just on physic without any chemistry. It's a top down process. It's a process that enable us at the proper time also to produce a customer location. We will see in the next few slides a couple of example. The yield is close to 100%, doesn't exist the 100% yield, but is for sure in the range of 97 percent, 98%.

3:20 The patent

3:26 group is significant because nowadays we have 85 branded patent and 37 paintings, four families on production process, and 18 of the two total 22 family on products and applications.

3:45 In terms of products and services, we have always together with the strong r and d activity, we have always prioritized the launch of new products on the market. And always our goal has always been to shorten time to market. So since the company foundation, we have launched more than 77 products on the market. Most of them are in the textiles, but across all verticals. And we provide a way a wide range of environmental remediation services. Out of the verticals you see in the page, two of them, environmental remediation and textiles, are the two commercial advance ones that cover almost entirely our our turnover at the moment. We have some ready to go products, asphalt, composite, and rubbers.

4:37 And some of them, like asphalt, are very close to switching to commercially advanced because we are looking for some significant orders in the near future. And then we have new products because we keep looking at high value opportunities in in the longer term. So now we have an extent extensive experience. We have effective products, and we are capable of rapid refinement to meet the market needs. So we wanted to make a deep dive on our two main verticals starting from environmental remediation. As we said, we are offering services through our Romanian subsidiary, SECTA, services leveraging on for the treatment of water contaminated by hydrocarbons, but also treating produced waters, recovering crude oil also from sludges and the recovery of raw materials from the industrial waste.

5:35 And SECCAR uses GRAPHISORBER, which is the technology developed internally by DIRECTA PLUS. GRAPHISORBER is the second step of our technological process. It's a product with significant properties. It's at least five time more effective than actual technologies in absorbing pollutants. And by pollutants, I'm talking a different group of family of hydrocarbon and other chain chemicals is safe, is nonflammable and easy to handle. And two example, the reduction of waste with the recovery of hydrocarbons and the recovery of other potential raw material. We have the example of Liberty order that we will cover in the next few slides and OME Petron, but also the possibility to produce on-site via mobile production unit is what we are going to do with the new just open project with OMD PETROL, and we will cover it also in the next few slides. Couple of comments on the textiles vertical.

7:00 We can incorporate our g plus graphene into fabrics through four different technologies that you see listed here. So the planar of secret, membranes, dime, and coatings. The properties that we apply and we transfer to the to the fabrics are mainly linked to heat dissipation, heat retention, antimicrobial properties, and antistatic properties. You see names of main customers and partners on the right side of the slide and talking about planar thermal silk with the convention, grassy and MC armor. If you are looking at membranes, no doubt that Xenia is ready to start a significant role tying Candiani for the echodermium.

7:53 And coating now is capturing a lot of attention and requests in the automotive arena and Italy design is a partner in this area. We are entering the second half of twenty twenty three. As I mentioned before, we've improved margin. We're growing the business pipeline, but we have also the objective to breakeven at the end of twenty twenty four. And we expect to take significant advantage also from the traction that will arrive on the entire greenfield sector. Talking about the highlights, environmental remediation is gaining rapid commercial traction.

8:45 The last announcement we made with regards to Liberty Galati order is an important example. We got a €5,500,000 order that can be expanded to 8,000,000 for the next three years and is the largest single contract to date for DIRECTA PLUS. It's a massive opportunity and the objective here is to transform an industrial waste into a valuable secondary resource. With regard to the second opportunity to treat on a continuous basis produced water, we are ready to install in OMV PETROM area close to a well our decontamination process.

9:39 And we expect to move from what we did for OMV PETROM in the past on a base size

9:47 to a continuous process activity. Textile, vice versa, high growth business. We see a lot of growth opportunities. The desire of customers and partners is to incorporate new technologies with a maximum focus on the sustainability. We signed last year a supply agreement with MCRM or Miguel Caballero company in Colombia to add the PLUS PLC with to bulletproof vest.

10:26 And we're talking now to expand from this product to to the membrane, and we have significant expectation for the contract of the next year. We are working with Alfredo Grasi, which is an historical customer of us, growing very fast, mainly as we mentioned before on Plano Terma Siokus, but also Membrane, and he's opening us the door to start connecting ourselves with other significant workwear company. And we launched with the help of Candiani, the codeine fabric, leveraging on the activity we had in the past with Arvind, and that was not able to arrive with the proper momentum to the market. Now this new kind of denim has antimicrobial properties and thermal properties.

11:34 The first one is reducing the washing request, and the other one is transforming a product because of the thermal effect in the into an all season product. So also Candiani is talking with very large cheese brands, and we have a very good expectation. Other opportunities are what we are doing with Spectrum Group in US. It's a strategic adviser that is opening up the door to explore the defense arena in US. We would be in Washington in a couple of weeks from now presenting our technology again in graphic software and and textile.

12:26 There is a significant opportunity with ITERKIMICA, and we will try to cover with couple of details in in the next slides. And we are also looking with significant attention to our distributor of Cafe Shield in Europe, mainly focused on the aerospace industry.

12:54 Let's move to the financial review starting from revenues. We can clearly see from the chart here on the left that we have been growing in terms of turnover over the last years with a compound annual growth rate of 63%. And in 2023, despite a slowdown in the first half, mainly due to late commencing of of of contracts, we expect to reach approximately 12,000,000 of revenues by year end, so which is

13:24 still a double digit growth compared to the previous year. We have an important order book and an important pipeline of opportunities. In terms of revenues breakdown, you see it on the right. 71% is due is linked to the environmental remediation services and 29% to textiles, which have been growing recently, also thanks to the new contracts that we have been discussing recently. What is important here to highlight is the fact that despite the slowdown in revenue, we more than balance that with higher margins and an improved EBITDA loss. So if if I move to the next page,

14:05 we can see that we have put in place four main actions in order to mitigate the cost increase experienced last year. The first one was focusing only on projects with higher returns. So we decided to focus the with the to projects with returns in the short term with higher returns. Second point, we have been renegotiating the main contracts. It was quite successful, which is also recognition of the value that the the the the clients consider is given by our technology. Third point, we have disclosed that in the past. We have made a significant investment in our equipment that allowed us to drop our direct production cost even by 70% in a few months.

14:58 And four point, we've been generating some general expenses optimization. So the results are shown in the in are shown in the in the left part of the slide. Our gross margin improved from 42 to 46%, leading to a reduced EBITDA loss from 1.4 to 1.25 and a reduced loss before tax from 2.2 to 1.9.

15:22 Let me stress a very important point for the investor at this stage that we foresee the trend of reducing EBITDA will be confirmed at fiscal year end with a 30.5%

15:41 improve in our EBITDA law reduction in our EBITDA loss. Just one comment on cash. At June, we had 4,230,000 of cash and cash equivalents, perfectly in line with our expectations. So we keep investing in in line with our strategic plan. So we are going through a positive momentum that will carry through also next year. With regards to the cornerstone of the group strategy, these are the four cornerstone. And in my opinion, the challenge for a company like DIRECTA is to get better at innovating from both technology side and customer side. In this slide, the upper part is the technology side. The bottom one is the customer side.

16:33 At the beginning of our life, we tried to push our technology inside some customer products. Now with the knowledge and the support of the partners, we are able really to move exciting and compelling new benefits to customer listening their demand and and their and their desire. Common denominator of everything is for us sustainability and safety, and green nanotechnology for DIRECTA should not provide just the green product, but there is to be green in terms of attention to raw materials, occupational safety and health. The next slide is will be covered by Giorgio and give you an idea of the expected trend in terms of graphene demand. Yes. This analysis on the market is was provided by future markets in 2023, and it clearly shows that the global graphene demand is expected to significantly increase over the next ten years.

17:42 You you see on on the left three scenarios, low, medium, high. On the right is the medium estimate split by different verticals and application. And we are active in most significant applications, so we are well positioned to benefit from the market growth and play a key role in the near future.

18:03 In this slide, we see all our key partners. There are several new names, Xenia, Kantara, Liberty. But let me make a a quick comment on an old partner, it is moving slowly but performing really well. Just to give you an idea, in Oxfordshire County, there is now the evidence of increase of the life of the road, of the reduction of emission during construction, and the reduction of maintenance cost. So they are starting to use GPave in maintenance scheme as different other company are using GPave in maintenance scheme in Italy in a four motorway, CALLA and Treviso Airport, and so on. We have also four USA University testing GPAVE.

18:56 One will start the trial section next month, and we have ongoing activity

19:02 to promote the product in Brazil, Mexico, Chile and South Africa. So as presented already several times to the investor, GPay is moving, is moving slowly, but is getting the proper attention momentum and the special very important thing is getting certification from local and and national authorities. Here we have a focus on sustainability and safety, which has always been fundamental in our strategy. Starting from sustainability, we look at it in two ways. The first one is the our unique production process. We have said that it's water based without any chemistry and only physics.

19:49 The second way is from a business business perspective. In couple of years ago, we qualified for the green economy mark because more than 70% of our revenues have a positive impact on the environment. So a couple of examples, the two contracts with Liberty and OMV allow us to transform and recycle industrial waste into raw materials. And then the properties that our g plus gives to the finance applications, like on the textiles, the reduction in water usage, energy consumption, and carbon emissions. Examples are Grafitto, but also our g pave with Itaquimica with the asphalts.

20:34 And then safety. Safety is crucial towards our employees. No injuries since the opening of of back in June 2014. And clients, we have 43 certificates reporting the absence of negative impacts of G plus on biological systems. As closing comment, I would like really to stress again your attention to the fact that we have a clear path toward profitability. We expect to close the year with a two digit growth in terms of turnover and with a reduction of EBITDA from 3.6% of 2022 to 2.5 of 2023, so a significant number. Looking at our action to maintain growth, that is our area of deliverables.

21:29 I mentioned delivery of the contract, but there are open two additional interesting tenders in Romania. One of these with ONB on bioremediation could be finalized before the end of the year. Key strategic alliance, I mentioned Spectrum. Spectrum was introduced to us by our board member, General Wesley Clark, and they are very, very well connected with the defense system in U. S. And there are still ongoing other important conversation in the Southeast Asia. So the strategic industrial project is really to look at the proper way at reinforcing with the sector possible expansion, the environmental remediation services.

22:25 Giorgio will give you an idea of the improving margins plan. Yes. Because in our path towards profitability, of course, we are looking at increasing orders, but also at improving margins. So as we said, we we have a new strategic aptitude looking at contracts with higher returns. We keep working on our throughput project in order to keep reducing our direct production cost and an effective cost management and optimization in order to prioritize the returns in the short term. With regard to the expanding opportunity, which is the area of blue sky, we are working in new vertical application, but in a very, very selective way.

23:11 Differently, completely from the past, we want to stay connected to the important opportunity, but we want also to be ready not to sell product with additional engineering on or special study for the development, but just to sell significant and important quantities of pristine graphene nanoplatelets. New market, I already mentioned Southeast Asia, but there are always open very interesting conversation in The US. So that's that's it for a quick presentation of DIRECTA PLUS interim results. Thanks for your attention.

23:59 Julia, Georgia, thank you very much for presentation. What I'll do is I'll just bring your cameras back up now. Ladies and gentlemen, please do continue to submit your questions 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, take a few moments to review those 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 dashboard. As you can see, we received questions throughout today's presentation. And, Georgia, if I could just ask you to read out those questions and give responses where it's appropriate to do so, I'll pick up from you at the end. Okay. So I will go through the questions one by one starting from the first one is I understand that there have been conversations about opportunities in important new markets like The USA and Malaysia.

24:47 Do you expect any significant contract in the short term? Yes. There are ongoing advanced conversation. We want to be pragmatic and realistic. We are targeting small orders to be received as soon as possible in order to show the quality and consolidate the presence in the area. We are not targeting any big project at this stage. We want to enter in the proper way these very large and significant markets. Second question is, in my opinion, the share price doesn't reflect the numerous significant contracts and revenue growth.

25:33 What is your opinion about the cause for this? I fully I fully agree. You know, this is also to be very candid also my my frustration, but no doubt that there is a negative trend on financial markets, the world inflation, the high interest rate. There is, as consequence of this, a low risk attitude in retail investment. And last but not least, there is a significant stock value contraction of couple of listed graphene companies that unfortunately in Direct Link is touching also Direct PLUS. Third question, there was a significant G PAVE contract that DIRECTA managed to close in Italy in October 2021 and various trials in the in The UK.

26:28 What are the chances of additional significant contracts in the short, medium term? As as I mentioned before, covering ITERKIMICA, we are moving with them gradually. The important step forward was to pass from tire section to maintenance scheme. We expect ITERKIMICA increasing the offer in UK and Italy first, but there are significant expectation after the trial section to get good amount of volumes out of The USA market also.

27:15 Okay. I see a final question that says graphene applications cover a very wide market opportunity. What steps do you take with clients and partners to validate that they have a real scalable commercial opportunity? Well, you want to to start with your with your comment, George, and then I'll pass my point of view. Sure. As as we said, our clients are also partners because, of course, we are expert in our in graphene in producing graphene, but we are not expert in all the final applications. So we leverage on the knowledge that our clients have in their specific verticals, And we also leverage on knowledge, but all in their technologies. We do joint r and d. And, also, we leverage on their commercial network. So that's the way in order to they support us in defining better in advance what can be the real value of of the opportunity.

28:16 Yes. And, John, I think that you you covered really, really well the point. Let me add that just that our target in terms of customer and partners in this kind of application are nowadays the large supply chain. And the large supply chain are able to penetrate the market because they have the knowledge, they have the people, they have the money to do so. And of course, they are looking for high technology like the one we have that has to be green, but has also to be designed in order to offer a large quantity of material, sustainable material with consistent quality and with the proper price.

29:10 So if we put all these things together and we look at the expected growth in the graphene market, you can realize that our possibility to talk with very, very large players is much bigger than it was in the past. Giulio, Giorgio, thank you very much for that. I think you've actually addressed all those questions from investors. And, of course, the company will review any further questions submitted today and publish those responses on the investor meet company platform. But just before redirecting investors to provide you with their feedback, which is particularly important to you both, Julio, could I just ask you for a few closing comments? Yes. Let me stress again that I have personally, but the entire board has a significant confidence in future prospects.

30:03 DIRECTA has a strong momentum that will continue in the second half of twenty twenty three and that will be carried through the fiscal year of 2024. Perfect. Julia, Georgia, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, but some should 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 morning to you.