Directa Plus (LSE:DCTA) — Investor Presentation

0:00 Good afternoon, and welcome to the DIRECTA PLUS PLC 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 received in the meeting itself, but the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll.

0:28 I'd now like to hand you over to Giulio Cesario, CEO. Good afternoon to you, sir. Good afternoon to everybody. My name is Giulio Cesario. I'm the founder and CEO of DIRECTA PLUS. With me, there is Giorgio Bonfant, Tiara's Chief Financial Officer. What we're going to do today is presenting and covering with you 2022 results. But my objective is also to explain where we were at the end of 2022 and where we will be at the end of 2023 with some plan, ideas and facts.

1:10 If we move to the next slide, no doubt that DIRECTA now day is one of the leaders in the graphene revolution. We designed the company on four main pillars, starting with the first two, a unique and sustainable process. And I will cover in a very basic way the process with in the next few slides. We have a unique and sustainable product. We started quite early targeting the market. In fact, we moved to the market with the first product in September 2015. And now we are working very seriously in building partnership with key players.

2:02 The results of all this activity is significant for us because we were able to reach the double digit revenue at the end of twenty twenty two. And very important for me, and we are very proud, we were able also to get a compound annual growth rate for the past five years of 63%. The growth is now our objective and, of course, the increase in profitability. With regards to the production, you can see in the center part of this slide a a very simple picture of the way we are producing pristine graphene nanoplatelets.

2:55 We start from natural graphite. We super expand natural graphite at the very high temperature, which is in the range of 10,000 degrees centigrade, double the surface temperature of the sun. So we obtain a kind of accordion type material, which is still three d but made by zillion of two d pristine graphene nanoplatelets. And after this, we expose this material to very high pressure moving from three d to two d, so from space land to flat land. To summarize with a few words our production, I would like to use the first word that we are protected, very well protected.

3:47 We have 17 granted patents and two pending covering and protecting the production. We are unique because we are the only one to my knowledge able to produce pristine graphene nanoplatelet without any chemistry. But at the same time, we are able to

4:11 adjust, fine tune the morphology. So if this is a pristine graphene nanoplatelets, we are not only able to define how many layers, but also the x y dimension. And this ability allow us to adjust the product for different verticals. Third word is Calibor. We have a 30 ton potential production unit located in Lomazzo midway from Milan and Como. We already defined and completed the engineering to scale up to 100 tons. And due to the proper use of the last capital increase, if and when we will decide to scale up, we will be in a position to do so at a very at a very low cost.

5:06 Last word is it's an exportable process. We are seriously considering, and I I will cover briefly with my closing remarks, opportunity to export this project, of course, with key partners and the proper kind of connection in Southeast Asia and in USA. Next slide. Here we have the verticals, and let me tell you that we moved September 2015 to the market with the first product. But nowadays, we have 70 products on the market.

5:54 And, of course, you know, the most important verticals are environmental and textile. And in environmental, we are very focused on oil spill response, but also on water treatment. If we look at in a possible evolution in moving inside vertical, drastically increasing our turnover. Let me stress to your attention that we have the two commercial advanced vertical that I already mentioned, environmental and textile. We have three ready to go verticals, asphalt, composite, and rubbers. That means that in this area, we have already granted IP. We made some sales not yet significant, but there is there are opportunities for sure to increase the sales and to penetrate this area that are quite important in terms of potential.

6:55 And last, we have four new verticals and products. The first one is paints, second plastic, cement, and and batteries. In this case, we have IP for paints. We have IP for batteries. We are working on plastic and cement with some ideas that are quite different from what is already on the market presented by other graphene companies. And we will allocate our money, the effort with a very simple logic trying to move as fast as possible where the most interesting possibility to grow our turnover and to increase our profitability

7:47 are. So we we are monitoring this area with really a lot of attention. Now Giorgio will cover with you some of the operational highlights we had in 2022. Yes. Thank you. With with this slide, we wanted to to show you a few highlights on what happened in 2022 in our two main verticals. So starting from environmental remediation, which is our main vertical, we keep working on a large number of services from water cleaning to to soil and waste treatment. But we wanted to to put your attention here on the fact that we are expanding the business abroad. We have a solid and successful business case in Romania, but we are getting positive messages also in other markets. So during the year, we installed two production units in Romania in CECA in order to increase our production capacity and also to benefit from lower unit production costs.

8:54 And at the same time, we signed an important agreement with Rita Energy. It's a distributor based in The UK in order to distribute our products in all the northern parts of of Europe. And then we got an authorization from the US Federal Environment Protection Agency. They permit us. They allow us to use graphics software on on The US market, which, of course, is is a large market with high potential for us. And the same in textiles, we we are increasing our volumes. We have treated 74,000 meters

9:32 of textile, and we signed an important contract with Miguel Caballejo. It's a company based in Colombia. So we are op they are opening us in the new market in South America. We have extended our contract with Alfredo Graci, one one of our major customers in the textile. So we are expanding the contract in Italy and France. And we keep investing and working in new kind of applications also in the textiles like the air filters. So I I move to to the next part of the presentation just to give you some highlights on the financial performance of 2022.

10:16 What we can see here from this page is the fact that 2022 was another important year of growth. The group increased revenue by 26%, reaching 10,860,000. This performance was driven by both our main verticals, meaning that in textiles, we increased revenues by 33% and in environmental remediation by 24%. As you can see, environmental remediation is still our main vertical covering 75% of revenues and textiles 22%. It's important to know the fact that those results were achieved despite the challenges on the market from inflationary cost pressures and the supply chain disruptions with, in a certain way, impacted also the customer scheduling.

11:11 Just to give you a couple of examples, in the textiles, we were we did not obtain on time some raw materials or textile that we needed we needed to treat it. So we had to postpone all this to 2023. In environmental remediation, the the the the adverse economic conditions pushed some clients to postpone some decisions. So we announced that back in December 22. We had to postpone some some orders that were not lost but postponed to 2023. And, of course, this is building up the order book for for this year. If I move to if I move to the next page, as I was mentioning, as happened to most of of the companies on the market, we were hit by the inflationary cost pressures that led to unexpected cost increases and implied a reduction in general in general profitability.

12:18 We had our energy cost increased. We had transportation cost increase that are a significant item in in environmental remediation, for example,

12:29 but also outsourced and subcontracted services. They had their prices increased significantly. So what we are presenting here, the table you see on the left, is is an is an adjust we presented an adjusted EBITDA loss, in our opinion, to better reflect the performance of the group compared to 2021.

12:53 So we adjusted 2021 results by 500,000 of one off income. We have disclosed that also in the past. That was the release of an undue obligation. So a noncash revenue that that positively affected the results in 2021. And and we adjusted also the 2022 by three main cost items. The first one is the inventory, the write off of our inventory. As as most of you know, we have some coal masks in our inventory that, of course, now they are experiencing a low market demand. So we decided to write them off.

13:40 We had some legal costs linked to the protection of our IP portfolio and also to a disembosment linked to a lawsuit that we closed and which dates back to 2017. And finally, we we provision for an honest contract. Just to give you a a couple of comments on this, we are performing a contract in Guatemala. The project was affected by significant extra costs mainly linked to transportation. At the moment, we are renegotiating with the client the reimbursement of those extra costs. But for accounting purpose purposes, we full provision the expected loss, not considering any cost reimbursement.

14:32 So by the client. So this is important because any any reimbursement that we will agree with the client, of course, will imply the release of of of the provision and an important upside on our bottom line in 2023. A couple of of comments on on on 2023 forecast. We have a strong order book for for this year, 9,300,000, and and a promising contracts pipeline, meaning that we we we remain confident on being able to meet the market consensus by year end. We have promptly reacted to mitigate the cost increases. We have started in in the second half of of last year. First of all, we renegotiated and increased our prices. So renegotiated with the major customers our contracts.

15:32 And we are we are keeping the cost under control, and especially, we are reducing significantly our direct production cost. And we will explain you how with the dedicated page in

15:46 a few in a few minutes. The company still the group is still well funded, 5,730,000 of cash in December 2020. So we keep investing in line with our strategic plan.

16:08 Okay. Thank you. Thank you, George. And now let's start to analyze the strategy. And let me tell you that during 2022, we completed a transition that was embedded in the business, adopting a new strategic plan. So we move from an early stage company focused mainly on production and IP to a growing innovation company focused on commercialization and partnership. Nowadays, we have, and I will cover in details in the next few slides, nowadays, we have a new

16:46 sales and marketing team with the objective to increase sales, to increase the number of key partnership and also to work on licensing, which is an asset that is in our pocket, totally expressed or transformed into shareholder values. We have a very significant cost reduction plan in production. I'm very proud of because it's something I move in DIRECTA from my twenty year experience in Union Carbide. And now it's part of the culture of the production people and is moving on by itself with a kind of continuous improvement phase, and we will see also in the next slide

17:31 what we are doing and with which kind of results. And last but not least, we are really dedicated to work on few selected verticals where the real money is. So for sure, the goal is to grow, grow in terms of relationship, but grow in terms of turnover to increase the margins, mainly because now we have a product that is ready to cover a significant demand, especially for, let's call, green graphene. And also, which is my also my personal task, I'm totally committed to this.

18:22 The goal is to be breakeven by the end of next year. If we move to the next slide, you know, it's a kind of summary of the key strategic decision. So the four cornerstone of DIRECTA PLUS process, product, time to market, and partnership, but we are keeping as a common denominator sustainability and safety, not just internally, but also externally because we are working with partners that are sharing with us the same kind of attention and culture to safety of people and to the sustainability.

19:07 Now we move to an analysis of the market. These numbers that you see on the right side of the slide are in tons. So this picture show the amount of black powder that the market is ready to digest in the future, let me stress your attention to the point that in many areas, we were able since the beginning to move on the right direction of the value equation. So we are not just selling that powder. For example, in environmental, we are offering a full service. You know?

19:52 Our is a part of of what we are doing and is opening the door, but the real success is by offering the full service as well as in the text ile. We are not selling just graphene for textile. We are printing. We are buying the proper fabric, and we are selling the fabric printed or treated with our precinct graphene on the platelets. Georgia, please. Yes. As you was was saying, this is a chart taken from future markets, and and this clearly shows that the graphene demand is expected to to significantly increase over the next ten years. And and that the PLUS is active in the in the in the most significant applications.

20:38 So we believe that the group is well positioned to benefit from from from the market growth in in the near future. I move to the next page. I was I was referring to to this topic a few minutes ago. This is crucial for us because we keep investing in a continuous improvement of our production line. And you see on the on the left what are the main steps, major improvements in our production line over the last couple of of years. And on the right, you see what were the impacts on our direct production costs. And you can see, especially from step two to step three, meaning in September 2022, a significant drop in our direct costs.

21:31 This was mainly due to the fact that we using also the proceeds from the latest capital raise, we invested in a specific equipment, a jet mill, in the pre exfoliation phase that allowed us to more than offset the the cost pressures experienced over the year. The only product which in which we experienced an increase in direct production cost is GRAPHY SOBER, as you see, increased by 14% over the last two years and a half. This happened because Graphics Server is not benefiting from the ins the the setup of the new equipment because it comes before in terms of production line. So we have in our pipeline additional improvements that based on our assumption and estimates, we will be able to to offset also thanks to do to those new improvements.

22:25 Yes. The idea is to target by the end of twenty twenty three a significant reduction in the area of graphisorb for two main reason. The first one is because we want to reduce the cost in order to align the selling price to the polypropylene price. Because glafisorb is so effective, if we are able to align to polypropylene, we will be able to push into the market this product. And when the product is adopted by the operation people in the on the platform or on the oil vessel, they don't want to change it. The goal is to reduce in a significant way by replacing nitrogen with argon with nitrogen and by leveraging on the fact that we used proceeds of last capital increase in a smart way.

23:25 So the plasma equipment was that that we bought was over dimension for couple of years ago needs, and this is quite quite significant. So it's practically at zero cost. The idea is to reduce by between 1724%, which is a big number. If we look at the other working process activities, one is the increase of water based working concentration. We have a pre drying module. We will utilize hot fumes to heat material, reducing the cost of energy. And we have a modifying part on air that is in the exfoliation by changing material.

24:15 We are able to utilize low cost material, reducing maintenance in one of the area of very high cost for our production. So the total goal by the end of the year is to reduce the entire production cost between 35%. And taking into account what we did in the past, I'm pretty sure that we will be able to achieve these results. Next slide is another significant strategic move. As I mentioned, this new way to look at the company allowed us to reposition part of our workforce.

25:05 We started the company with a very motivated group of young scientists totally focused on IP and and testing material in r and d. Now we're relocating part of the already group. And by part, I mean, the the smart people, the people able to interact with with with the external part of the company in a proper way in order to support the sales team. So we had in the past four, five people on the border of the company. Nowadays, involving r and d and involving also some some executive in high level negotiation.

25:51 I'm one one of these. You know, I I will cover briefly with you during the the the closing remarks. Next next week, I will leave to go to Malaysia and meet with the Malaysian government for a significant opportunity. So everybody is working now to try to move in a significant order. So these are 14 versus the four, five we had in the past, but we have to add also the nine external Salesforce. We have one adviser in paints, and this adviser is a pigment solution, the company we are working with to develop flame retardant and anticorrosion paint embedded with our material, and they are allocating free salespeople just to sell our product. We have one adviser and one agent in textile. Just to give you an idea, we are starting with a very effective agent in Turkey. And Turkey is an area where textile volume is unbelievable. It's very, very, very significant.

27:09 I moved close to myself and Giorgio, an agent or in with significant expert in in licensing because the objective is really to start to generate cash cash in starting, you know, some significant licensing contract. We have one adviser in plastic, one adviser in elastomers, and, of course, we are looking at different opportunity to involve out of pigment solutions, some other partners with their sales force in promoting our material. So to to summarize, we moved from the beginning of 2022 with four, five people on the board to now where we have 23 people directly, indirectly working to capture sales. And I have to tell you that I am able to see day after day the results of this significant increase in activity.

28:14 If we move to the next slide, we have a growing number of active relation in terms of partnership. Nowadays, we have more or less 20 major active partnership relationship. And some of the names are on the bottom side of this slide. And one thing that I'm really proud of is that you see nine different brands. Just three are Italians. The other six are four foreign brands. One, OMV Petrom, is an Austrian company. MC Armor is from Colombia. REDA Energy is UK.

29:02 GSP in is Romania. Pigment Solutions is Austria, and Norda is Canada. So this is a real signal that we start really to work out of the borders of of Italy capturing the opportunity where where where where are for for the company. Giorgio will give you picture in terms of sustainability and safety. Yes. We have always based our fundamentals on those topics. So just to give a few comments on sustainability. As Giulio mentioned at the beginning of the presentation, our production process is based entirely on physical transformation.

29:50 There is no use of chemicals. And this year, we made an LSA assessment also because it was asked required by some of our clients, and we demonstrated that DIRECTA PLUS is carbon negative. And finally, we qualified for the green economy mark by the long term exchange because 75% of our revenues have a positive impact on on the environment. And at the same time, also safety. Safety is crucial for us towards our employees. We had no injuries since the the opening of of in June 2014. And also towards our clients, we have 43 certificates demonstrating the absence of negative impacts of G plus on the biological system.

30:45 Okay. Thank you. Thank you, Giorgio. Now let me try to move to the closing remarks. As I mentioned at the beginning, we are in transit from 2022 to 2023. Without any doubt, what got direct to the end of twenty twenty two won't get direct to the end of twenty twenty three. What's new, as I mentioned, we have a new strong strategic plan. We have a new and a large sales team. We have a very effective production cost reduction plan. We have also partial new board that is now designed exactly for the new phase.

31:33 Very, very, very simple note and comment. We had a board meeting two days ago, and I'm really impressed by the ability of General Wesley Clark to open us the door with significant names in U. S. And this is a kind of network that could generate important opportunities for DIRECTA. Last but not least, we have a greenfield in licensing, which is something quite important for us. So the objective, without any doubt, to increase turnover, working on order book and strong opportunities.

32:20 I covered already the sales team, the commercial alliance. We are trying to capture contracts in environmental remediation service with the right focus and and the the attention on how maximize the potential of Capisorb. Licensing is something that is very close to up. I'm not in a position to disclose too much, finally, I'm very close to finalize the first licensing contract. And in my opinion, this will be a real fact, a strong signal to investors that we are opening this safe deposit of value that is correlated to our IP.

33:11 The goal to increase margin is very important because this will be driven by continuous improvement by a general expenses optimization. We are looking at expenses with SmartEyes. We will reduce in some area, and we will increase in other. And this is due to our knowledge of what the company needs to move in in certain direction. So this is our plan. I mentioned to you before one opportunity, Malaysia. Next week, I will fly to Kuala Lumpur.

33:58 Just let me tell you that we had two visits of Malaysian Industrial Development Authority during the last months. I had the visit of the Malaysian ambassador in Italy and very proud director of the visit of the minister of trade and industry. Malaysian government is very interested, again, in this so called green technology for nanocarbon. They are targeting different verticals, and they want, of course, to move this technology in their country. They are offering interest interesting opportunities.

34:45 I will fly there to meet with the local authorities, but also I ask the minister to give me the chance to talk with the top guys of the key state companies. So we have already three, four meetings scheduled, and one probably is going to to be with the CEO of Petronas, and you can image Petronas and and and our desire to present to such a a a a significant company the potential of Graphic Server. So not just the ideas and plan, not just the action taken, but real ongoing opportunities and facts.

35:31 And that is what make me and the board pretty sure that the company is in a position to continuously grow in the future and to to to move as quick as possible to profitability. That that's all from from our side. So we are we are ready for the q and a. Giulio, Giorgio, 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, which is situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions 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've received a number of questions throughout today's presentation.

36:18 And, Julia, 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 both at the end. Okay. Thank you. So let me try with the first question. You mentioned the need for continued investment into the next generation manufacturing equipment to reduce production cost, how much investment is required here and where will it be spent. I already covered a couple of time with Giorgio that what we did in terms of use of the proceeds of the previous capital increase was quite smart. So we have already announced a part of the potential to increase the production.

37:06 And this potential is also correlated to the fact that by the volume effect, we will be able also to drastically reduce costs. So we think that to move from where we are now, 30 tons to 100 ton, if possible in twelve months, you know, let's let's say eight eight eight eight, fifteen months. But with minimal investment, Giorgio, in in in the order of $1.01 or 2 millions. Not not not a a a significant number, and this for sure will happen as soon as the real demand will arrive. The next one then, Giorgio, I leave you room to look at the other and answer a question from your perspective is quite interesting. Why the DIRECTA PLUS, an Italian company, list on The UK market?

38:06 Well, simple because of my personal previous life in terms of working, I I spent more than twenty years with with Union Carpet. So the idea to stay in the so called Anglo Saxon arena and targeting a future global company in this area was very clear in my mind. On the top of this, no doubt that London Stock Exchange availability of cash is pretty different than than the Italian AM. But what is and and and and was at that time. But there is another reason that nowadays probably is could sound strange. At that time, we had four listed companies, and we arrived as the third or fourth one.

39:02 And that presenting graphene to investors require the kind of so called intelligent investors already skilled by other presentation and was was really easy for us to talk with institutional investors that already exposed to the graphene story. So that that's that's the name is Georgia. Okay. So I will I will read the next two questions because I believe we can answer them together. The first one is you referenced finalizing additional partnerships in the near term term. Can you expand any further on these, and can you talk to what criteria you look for when identifying such partners?

39:47 That's the first one. And then the second one is what financial effects do the large number of partnership have on profitability? I take it that they expand your revenue potential. Just an initial comment from from from my side, and I would let Julio add any comments. But when we look at new partnership, we, of course, we need to rely on them, first of all, on their expertise because we are expert on graphene, but not real expert in all the different verticals. So we need the support, first of all, from their expertise, know how, and also on their resources because we more most of most of the times, we rely on them also in doing a joint development on the final applications.

40:40 So resources and expertise, first of all, and that's what we are looking with for with the with the with our partners. And then, of course, as as in the second question, it was implied. We are also leveraging on their Salesforce because more more often, they are much bigger companies that we are. So we rely on the sales fully in order to more easily access the market and increase our our revenues and and margins. Yes. I think that Giorgio covered the most most critical topics of the the logic we utilize to choose partnership. Let me add that how big they are and how significant is the market they are targeting is key for us.

41:33 And another way to repeat what Giorgio already stressed, we need companies that are open to share with us what they are doing in their technology because I'm I'm I'm sold to the idea of the exponential company. You can create a kind of exponential partnership when you are very, very open and you do not keep your small secrets and that that are going to generate significant difficulties in developing a new a new a new product. We are expert of graphene. So no doubt that we know what our graphene is able to bring in terms of value.

42:20 We need to have customers that they want to utilize at maximum level our graphene, but also that our position in markets that require this material. Let me make you a a once again a real life a real life example. In I I spoke before about pigment solution and flame retardant and anticorrosion. Two huge market. Flame retardant is is in the range of $7,000,000,000, anticorrosion more than 10 billions. The demand for additive that are going to be substituted for environmental reason in the flame retardant is a demand of 50,000,000 tons. And this is will accelerate in an incredible way the penetration of graphene because we are talking of chlorinated compounds.

43:15 This material has to disappear and and the big players, are looking for a new material. Our one is perfect. Anticorrosion, the same. There is a demand at least in in in in Europe in in terms of pigments to be substituted again for environmental reason. I'm talking about the zinc based pigments. The number is in the range of 23,000 tons. So again, this move to a more environmental product will force the partners and and the company interested in in these kind of coatings to to look at the new pigments and to adopt material that is graphene based as as as our one.

44:10 Final question is how do you assess the risks of your graphene production technique being stolen by competitors? That's that's that's that's quite interesting. Even if there is IP, you know, the risk to to see the the the technology stolen is significant. What I did, again, is was part of my previous, like, experience. I mentioned we have nowadays, one granted patents with for a small company, it's a big number. Still more patents than employees, at least in in the in the Italian company. Between one patent and the other one, I mentioned production, and I mentioned that we have 17 granted patents. Between one and the other, there are great secrets.

45:03 If you take all our IP, you read the IP, and you try to replicate everything, you will never succeed in in generating a a top quality material. This is what I learned from large corporation. This is the logic and the strategy they apply when they design a kind of global holistic IP strategy. So in in in a very simple way for a very small company, but what we did was really to replicate this kind of logic. Giulio, Giorgio, thank you very much for that. I think you've actually addressed all the questions from investors. And, of course, the company will review all the questions for today and will publish those responses on the Investor Meet company platform.

45:50 But just before redirecting investors to provide you with their feedback, which is now particularly important to the company. Giulio, could I just ask you for a few closing comments? Yes. I'm I'm I'm really pleased to do so. My my closing comment is is really simple. We are at an inflection point for the graphene industry. We will see soon several companies appearing. We will see soon significant merger and acquisition. We will see attention of big players to this technology. You know, when a unique technology core at the right price meets with the market readiness core, it's time for massive success.

46:36 And I think that graphene industry will be in this position in a very short time. And I think that the company that we're able to present themselves in the market kept very down the cost and protect the consistency of product and able to scale up the production will be in a position to succeed. And in my in my opinion, I'm I'm in a significant conflict of interest here. DIRECTA is is one of this company that will will move forward. Giulio, George, George, thank you very much 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?

47:28 This will only take a few moments to complete, but I'm sure it'll 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.