Interim Results

14 September 2018

RM2 International S.A.

Interim Results

RM2 International S.A. ("RM2" or the "Company"), the sustainable smart pallet innovator, today announces its unaudited interim results for the six months to 30 June 2018. The interim results will be made available on the Company's website this morning.

Financial summary

Operational highlights

Kevin Mazula, RM2's CEO, commented: "Following the refinancing and simplification of the capital structure in the first half of 2018, the Company is focused on the deployment of RM2 ELIoT Smart pallets. We have delivered against our principal objectives, successfully completing initial trials of RM2 ELIoT pallets with significant industry leaders and entering into a Phase 1 contract with a Fortune 500 customer. We are pleased to see that the robust, eco-friendly RM2 ELIoT pallet, with its proprietary tracking technology, is making inroads with global industry leaders, significantly enhancing the efficiency of their supply chains". 

For further information:

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.

Notes to Editors

RM2 International S.A. specialises in pallet development, manufacture, supply and management to establish a leading presence in global pallet supply and improve the supply chain of manufacturing and distribution businesses through the effective and efficient use and management of composite pallets. It is quoted on the AIM market of the London Stock Exchange under the symbol RM2.L. For further information, please visit www.rm2.com

RM2 INTERNATIONAL S.A.

Société Anonyme

Unaudited Consolidated Interim financial information

For the six months ended 30 June 2018

Chairman's Statement

The Company seeks to disrupt the market for ubiquitous wooden pallets by replacing them in select supply chains with its unique track and traceable, ecologically friendly RM2 ELIoT smart pallets. With the secure placement of a chipset using RM2's proprietary tracking technology in each pallet, valuable information is sent to RM2, recording the location, the temperature, and any physical shocks. This information allows customers to improve their supply chains, reduce losses, ensure the safety of their products, all the while reducing the carbon footprint. While the Company initially focused its efforts on the upper end of the supply chain, the ELIoT technology now permits the Company to work up and down the supply chain without risk of asset loss.

The Company focused on its principal objectives on the second quarter of 2018, having simplified its capital structure and successfully navigated an extremely stressed cash situation in the first quarter of 2018, culminating with conditionally raising USD 36 million in new equity through the two tranche Placing discussed below. The Company remains debt-free. With the conversion of trials with large customers into long-term contracts taking longer than anticipated, the Company's expectation of turning EBITDA positive in 2019 is challenging.

The focus of the Company's activities in the first half of 2018 was the achievement of the principal objectives, being:

Financial Performance

Revenue generated by the Company decreased by USD 1.1m to USD 2.6m for the period ending June 30, 2018 principally due to the wind-down mode of its large 45 x 45 non-ELIoT pallet rental contract in the USA. The sale of pallets and fiberglass rovings from inventory each accounted for USD 0.3m of revenue in the period. The Group's financial result for the period ended June 30, 2018 is a loss of USD 17.3m, an improvement of USD 1.9m versus 1H 2017. Despite a better monitoring of the overall manufacturing costs for USD 0.5m, gross margins decreased by USD 0.5m as revenue decreased by USD 1.1m. The decline in the SGA expenses by USD 0.5m is explained by the removal of 2017 one-time costs (USD 1.8m), the cost saving measures undertaken by management at the end of Q1 2018 (USD 0.4m) and the negative non-cash impact of the share-based payment (USD 1.7m) following the removal of share price performance vesting conditions on restricted shares. Additionally, the sale of the Swiss building impacted positively with USD 1.4m, the remaining positive variance of USD 0.5m comes from lower net finance activities and taxes.

The Company traversed a period of extreme financial stress which culminated with the announcement on 29 March 2018 of the Company having simplified its capital structure and conditionally raised USD36 million before fees and expenses by a placing (to be effected in two tranches) of 2,535,211,265 new Ordinary Shares (the "Placing") to existing institutional investors, certain directors and members of senior management at a Placing Price of 1 pence per Placing Share (the "Placing Price"). The net proceeds from the Placing are intended to be used to fund (i) the retrofitting of existing inventory of RM2 BlockPal pallets with RM2 ELIoT chipsets, (ii) the production of new RM2 ELIoT pallets and (iii) SG&A. On 13 April 2018, following shareholder approval at an Extraordinary General Meeting of Shareholders, the Company converted its existing convertible preferred shares to ordinary shares and issued the first tranche of 1,279,049,295 new Ordinary Shares (gross proceeds of USD 18,162,500). The issuance of the second tranche of 1,256,161,970 new Ordinary Shares (gross proceeds of USD 17,837,500 (applying the GBP: USD exchange rate of 1.42 used in the shareholders' circular relating to the Placing)) is to take place ten business days following a drawdown notice issued by the Company. It is subject to the satisfaction of certain key performance indicators, including reducing operating costs of the business to a pre-determined level, launching the next generation IoT Cat-M ELIoT pallets and achieving commercial deployment of RM2 ELIoT pallets, and reviewing the governance of the Company. The Company believes that it has already satisfied or that it is well positioned to satisfy the draw-down conditions, although determination is to be made by the Company's largest shareholder, Woodford Investment Management Limited.

In addition to the funds raised through the Placing, the Company raised gross proceeds of approximately £1.4m pursuant to an Open Offer which was launched on May 21, 2018. The Company issued 142,862,073 new Ordinary Shares of USD0.01 in the Company at the Placing Price of 1 pence per share.

Unrestricted cash reserves at 30 June 2018 were USD 12.9m (USD 13.3m including Trustee's activities), as compared to USD 3.9m at 31 December 2017. Cash outflow over the semester consisted of USD 5.5m of manufacturing expenses and USD 7.3m of SG&A, which was offset by the receipt of USD 19.7m from the issuance of equity and USD 2.0m net proceeds from the sale of the office building in Switzerland. Restricted cash in the amount of USD 1.9m remains on the balance sheet of 7636156 Canada, Inc., and its availability is subject to the outcome of the ongoing voluntary liquidation proceedings in Canada. Due to the significant restructuring implemented by management, the monthly cash burn of the Company has been reduced to USD 0.8m on a going-forward basis from July 2018, excluding exceptional items.

Future Funding & Outlook

The Company believes that it will have satisfied the conditions to drawdown the second tranche of the equity funding of approximately USD 17.8m (before adjusting for any GBP/USD exchange rate impact) in the course of the second semester of 2018. Determination of whether those conditions are met is at the discretion of Woodford Investment Management, the Company's largest shareholder and participant in the equity fundraise.

Having successfully achieved its objectives relating to transitioning to high-quality, outsourced manufacturing, streamlining operating costs, monetizing non-core legacy assets and moving away from non-ELIoT enabled pallet deployments, the Company is focused on activating inventory and deploying RM2 ELIoT Smart pallets in attractive contracts. The execution of the Company's roadmap faces certain challenges with respect to inserting disruptive products and technology in long-standing practices of traditional pallet supply chains, the availability of lower-cost Cat-M chipsets in the face of burgeoning global demand, and the timing of the roll-out of the Cat-M network globally which is in the hands of network operators. With the conversion of trials with large customers into long-term contracts taking longer than anticipated, the Company's expectation of turning EBITDA positive in 2019, as first noted on 9 March 2018, is challenging. The Company will provide further updates on this in due course and in the meantime, continues to implement measures to reduce its cost base.

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2018

Other comprehensive income

Other comprehensive income to be reclassified in profit or loss in subsequent periods:

Consolidated Statement of Financial Position

For the six months ended 30 June 2018

Consolidated Statement of Cash Flows

Notes (unaudited) to the Interim Consolidated Financial Information

1. Corporate information

RM2 International S.A. (the "Company") is a limited company (Société Anonyme) incorporated and domiciled in Luxembourg with the registration number B132.740. The registered office is located at Rue de la Chapelle 5, L1235 Luxembourg. The Company is the ultimate parent entity of the RM2 Group (the "Group").

The Group is principally engaged in developing, leasing and selling shipping pallets and in providing related logistical services.

This unaudited interim consolidated financial information does not constitute statutory accounts.

2. Basis of preparation

While being compliant with AIM Rule 18 minimum requirements, the unaudited interim consolidated financial information does not include all the information and disclosures required in the annual financial information, and should be read in conjunction with the Group's historical financial information for the year ended 31 December 2017.

The accounting policies and basis of preparation adopted are consistent with those followed in the preparation of the Group's historical financial information for the year ended 31 December 2017. None of the newly applicable IFRS standards and amendments had an impact on the Group's interim consolidated financial information.

2.1 Early adopted standards

The Group did not early adopt any new or amended standards and does not plan to early adopt any of the standards issued but not yet effective.

3. Significant accounting judgments, estimates and assumptions

When preparing the unaudited interim consolidated financial information, Management undertakes a number of judgments, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the judgments, estimates and assumptions made by Management, and will seldom equal the estimated results.

The judgments, estimates and assumptions applied in the interim consolidated financial information, including the key sources of estimation uncertainty, were the same as those applied in the Group's historical financial information for the year ended 31 December 2017.

3.1 Going Concern

1H 2018 performance

The Group's financial result for the period ending 30 June 2018 is a loss of USD 17.3m (June 2017: loss of USD 19.2m), a decrease in the overall loss by USD 1.9m compared to the prior period. Despite a better monitoring of the overall manufacturing costs for USD 0.6m, gross margin decreased by USD 0.5m as revenue decreased by USD 1.1m. The decline in SGA expenses by USD 0.5m is explained by the removal of 2017 one-time costs (USD 1.8m), the cost saving measures undertaken by management at the end of Q1 2018 (USD 0.4m) and the negative non-cash impact of the share-based payment (USD 1.7m) following the removal of share price performance vesting conditions on restricted shares. Additionally, the sale of the Swiss building impacted positively with USD 1.4m, the remaining positive variance of USD 0.5m comes from lower net finance activities and taxes.

2018 equity funding

In 1H2108, in order to fund (i) the retrofitting of existing inventory of RM2 BlockPal pallets with RM2 ELIoT chipsets, (ii) the production of new RM2 ELIoT pallets and (iii) SG&A, the Company conditionally raised USD36 million before fees and expenses by a placing (to be effected in two tranches) of 2,535,211,265 new Ordinary Shares (the "Placing") to existing institutional investors, certain directors and members of senior management at a Placing Price of 1 pence per Placing Share (the "Placing Price"). On 13 April 2018, following shareholder approval at an Extraordinary General Meeting of Shareholders, the Company converted its existing convertible preferred shares to ordinary shares and issued the first tranche of 1,279,049,295 new Ordinary Shares (gross proceeds of USD 18,162,500).

 In addition to the funds raised through the Placing, the Company raised gross proceeds of approximately £1.4m pursuant to an Open Offer which was launched on May 21, 2018. The Company issued 142,862,073 new Ordinary Shares of USD0.01 in the Company at the Placing Price of 1 pence per share.

In accordance with the terms of the Placing, the issuance of the second tranche of 1,256,161,970 new Ordinary Shares (gross proceeds of USD 17,837,500 (applying the GBP: USD exchange rate of 1.42 used in the shareholders' circular relating to the Placing)) is to take place ten business days following a drawdown notice issued by the Company. It is subject to the satisfaction of certain key performance indicators, including reducing operating costs of the business to a pre-determined level, launching the next generation IoT Cat-M ELIoT pallets, achieving commercial deployment of RM2 ELIoT pallets, and reviewing the governance of the Company. The Company believes that it has already satisfied or that it is well positioned to satisfy the draw-down conditions, as described below, although determination is to be made by the Company's largest shareholder, Woodford Investment Management Limited.

Management undertook measures to reduce operating costs, including headcount reductions and site closures and relocations. The cost-reduction measures implemented by management are bearing fruit and are satisfy this drawdown condition. The Company continues to be mindful of opportunities to reduce costs and eliminate non-value added activities and of the necessity to retain a lean operating structure.

On 31 July 31 2018, AT&T informed the Company that the RM2 ELIoT units with new generation Cat-M chipsets successfully passed their internal certification process, thereby permitting their usage on the AT&T network, subject to PTCBR and FCC certification. The PTCBR and FCC certification is expected to be received before the end of Q3 2018. Cat-1 RM2 ELIoT pallets are in use in Phase 1 and pilot programs with blue-chips customers in North America.

The Company has reviewed governance of the Company and believes that the resulting measures it is in the process of implementing will satisfy the relevant drawdown condition for the second tranche of the Placing.

 Conclusion

The Directors have analysed the Group's situation and applied their best estimates to assumptions of the future development of the business for the 12-month beginning July 1, 2018. With the conversion of trials with large customers into long-term contracts taking longer than anticipated, the Company's expectation of turning EBITDA positive in 2019, as first noted on 9 March 2018, is challenging.

As described above, the Directors believe that the Company has already satisfied or that it is well positioned to satisfy the draw-down conditions necessary to call the second tranche of the equity funding, although determination is to be made by the Company's largest shareholder, Woodford Investment Management Limited. The issuance of the second tranche of the Placing, combined with existing resources and future revenue and continued attention to cost control, lead the Directors to believe that the Group has adequate resources to justify adopting the going concern basis in preparing its consolidated financial statements.

4. Business Review and Key Performance Indicators

The Company defines its key performance indicators to be the business revenues, the level of production and the monitoring of related ramp-up costs, the deployment of RM2 ELIoT pallets and the cash reserves of the business. Having simplified its capital structure and secured equity funding in April 2018, the Company now focuses on the execution of the underlying roadmap.

Revenues

Revenue generated by the Company in 1H2018 decreased by USD 1.1m compared to the prior period to reach USD 2.6m (1H2017: USD 3.7m). Despite an increase of USD 0.1m in the sale of pallets and a plateauing of the minor third-party asset tracking business located in Wales, the decrease in the revenue is due to the wind-down of the non-ELIoT enabled pallet contract with its largest customer in the United States with an impact to date of

USD 0.9m. After an initial sale of raw material for use in pallet production to Jabil last year (USD 0.7m for the first six months of 2017), in the period ending 30 June 2018 the Company sold USD 0.3m of fiberglass and has contracted with third party customers for the sale of a very large portion of its remaining excess inventory over the course of the second semester of 2018. In July and August 2018, a further USD 0.3m was shipped and billed to third parties.

Production and ramp-up costs

As described in the Chairman's statement, gross margins decreased by USD 0.5m as revenue dropped by USD 1.1m. Cost of goods therefore reduced by USD 0.6m. Following the voluntary liquidation of the Canadian manufacturing entity and the implementation of the new pricing mechanism agreed with Jabil, overall manufacturing expenses hitting the Profit and Loss statement in the cost of goods section decreased by USD 1.0m for the first semester, to USD 4.3m. In parallel, the Company commissioned an independent appraisal of the fair market value of idle assets in Canada. This appraisal resulted in a net impairment of USD 0.6m. Other items positively accounted for USD 0.2m.

Cost of goods amounts to USD 13.0m (USD 13.6m for the same period last year) and includes the following non-cash items totaling USD 5.1m: pallet depreciation (USD 2.6m), equipment depreciation (USD 2.2m), equipment impairment following the Canadian appraisal (USD 0.6m), and a positive variance of raw material and pallet impairment (USD 0.3m)

The cash impact of cost of goods sold is USD 7.9m, of which USD 4.0m are manufacturing ramp-up costs and USD 2.0m are logistical costs incurred pursuant to certain per-trip fee pallet contracts.

RM2 ELIoT deployment

On 13 April 2018, the Company announced a Phase 1 contract with a Fortune 500 customer which is expected to involve a significant deployment of RM2 ELIoT pallets. The initial implementation of RM2 ELIoT pallets under that contract was deferred but the deployment is now underway with promising results.

Subsequent to the reporting period, the Company successfully completed a 100-unit trial and then entered into a pilot agreement for an initial deployment of some 600 RM2 ELIoT pallets with one of the world's leaders in the logistics industry, serving both internal and external loops. Other trials with large multi-national corporations are progressing well. In particular, one large trial with a North American beverage customer has concluded with strong results and discussions on deployment terms are expected to continue over the coming months.  Promising trials are also underway with companies in the consumer goods and telecommunications industries.

With growing world-wide demand for IoT objects, the Company has noticed a tightening of availability of chipsets. It has issued purchase orders for some 63,000 Cat-1 tested and fully accredited chipsets to satisfy anticipated initial demand and pending final accreditation and availability of lower-cost Cat-M chipsets.

Cash reserves

Unrestricted cash reserves at 30 June 2018 stand at USD 12.9m (USD 13.3m including Trustee's activities), compared to USD 3.9m at 31 December 2017. Restricted cash decreased by USD 0.4m to USD 1.9m due to lease payments made to the landlord of the former manufacturing site in Canada following the voluntary liquidation process. The Company raised an aggregated amount of USD 19.7m of new equity capital between the first tranche of the Placing in April 2018 and the subsequent Open Offer to shareholders. The Company's cash flow, excluding Trustee's activities, is negative by USD 10.7m in the period ending 30 June 2018.

USD 5.5m was paid for the acquisition of pallets, comprised of the agreed pricing mechanism with Jabil (USD 5.0m) and associated one-time maintenance costs (USD 0.5m).

USD 2.0m was received for the sale of the Swiss building, leaving the true cash outflow of the business being USD 7.2m. Canada's contribution was USD 1.3m. The Company also acquired for USD 1.4m (including fees and taxes) from the estate of its Canadian affiliate in voluntary liquidation certain assets identified as necessary or useful for the Group's operations. Excluding Canada and these one-time-costs such as the asset purchase (USD 1.4m), the deposit to transition to a new smaller warehouse in Canada (USD 0.2m), the monthly cash burn of the Company has been reduced to USD 0.8m on a going-forward basis from July 2018, excluding exceptional items.

5. Significant events and transactions

Refer to the Chairman's statement and Note 20, Subsequent Events.

6. Revenues and segment reporting

The Group has only one operating segment for the disclosure of revenue. However the revenue analysis is broken down by revenue stream as disclosed here below.

Operating segment is reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segment, has been identified as the Board of Directors of the parent company that makes strategic decisions.

The Group has determined the operating segments based on the reports reviewed by the Board of Directors, which are used to make strategic decisions.

The Board of Directors is responsible for the Group's entire business and considers the business to have a single operating segment that represent the production, the sale and the rent of pallets including related logistical services. The asset allocation decisions are based on a single, integrated investment strategy, and the Group's performance is evaluated on an overall basis.

The internal reporting provided to the Board of Directors for the Group's assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of IFRS.

There were no changes in the reportable segments during the year.

The Group has a diversified customer portfolio. During the period there was one client which represented more than 10% of the Group's revenues.

Turnover

Geographical information

The breakdown of the revenue allocation by area is as follows:

Non-current assets for this purpose consist of property, plant and equipment, investment properties and intangible assets.

7. Cost of sales

8. Administrative expenses

(*): Director's expenses are considered as "one-time costs" for the first semester 2018 as per the agreement signed with management during the equity raise. Management is committed to refund the subscription to the Company via a mechanism of salary forbearance over an 18-month-period, which started in April 2018.

9. Other operating income and expenses

10. Property, plant and equipment- other

11. Property, plant and equipment - Pallet pool

12. Intangible assets

13. Inventories

15 Trade payables

16 Interest-bearing loans and borrowings

17 Share capital and reserves

2018

On 13 April 2018, the Company issued a total of 4,435,957,235 Ordinary Shares, consisting of 1,279,049,295 Ordinary Shares issued as part of the first tranche of the Placing, raising gross proceeds of USD18,162,500, and of the issuance of 3,156,907,940 new Ordinary Shares upon conversion of the outstanding 134,815,771 Convertible Preferred Shares (as further described in the Chairman's Statement). Following these issuances, no further Convertible Preferred Shares were outstanding and the Company's equity consisted of a single class of Ordinary Shares.

On 20 April 2018, a total of 15,900,000 shares were issued to Non-Executive Directors in lieu of cash compensation for the one-year period beginning July 1, 2017. The Remuneration Committee further decided on April 20, 2018 to remove restrictions related to the attainment of share price thresholds previously applied with respect to the free disposition of restricted shares. This removal of restriction applies to 22,157,680 Ordinary Shares.

On 15 June 2018, pursuant to an Open Offer to all shareholders, the Company raised gross proceeds of approximately £1.43m and issued 142,862,073 new Ordinary Shares.

As of 30 June 2018, the Company's issued share capital is comprised of 5,001,781,964 Ordinary Shares, of which 2,916,334 Ordinary Shares are held by the Company as non-voting treasury stock ("Treasury Shares"). The total number of voting rights in the Company is calculated as the number of outstanding Ordinary Shares, less the Treasury Shares, less the Ordinary Shares not able to be voted on due to restrictions applicable to certain holders as specified in the Company's Articles of Association, which results in a total voting rights figure of 3,434,380,332.

2017

On 17 February 2017, 757,500 restricted shares were issued to certain Directors in lieu of cash compensation for the first half of 2017 (and the second half of 2016 with respect to Frédéric de Mevius). These shares are restricted from trading until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.

On 20 February 2017, the General Meeting of Shareholders decided the conversion of existing Convertible Preferred Shares into Class A Convertible Preferred Shares; it also decided the creation of a Class B Convertible Preferred Shares.

On 6 July 2017, 6,000,000 restricted shares were issued to key employees which are not exercisable until after three years and when the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds the lower of GBP 50p or 2.5 times the offering price of the first ordinary share placement following the issuance date of the restricted shares. Following the resignation of the recipient of 2,500,000 restricted shares, these shares were forfeited and transferred to the Company to be held as non-voting treasury stock.

In June and July 2017, the Company issued a total of 92,487,729 Class B Convertible Preferred Shares of USD 0.01 in the capital of the Company. See also Note 14.3.

As at 31 December 2017, RM2's issued share capital is 407,062,656 Ordinary Shares of USD 0.01 each and an aggregate of respectively 42,328,042 and 92,487,729 Class A and B Convertible Preferred Shares of USD 0.01 in the capital of the Company, of which 2,916,334 Ordinary Shares are held by the Company as non-voting treasury stock.

The total number of voting rights in the Company as at 31 December 2017 was 538,962,093.

2016

On 1 July 2016, the Company issued 2,755,000 options, of which 2,000,000 were issued to an executive director and certain employees and vest on the third anniversary of the grant, with an exercise price equal to GBP 0.23 and are not exercisable until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.

500,000 were issued to certain employees and vest over three years in equal tranches on the anniversary of the grant date, with an exercise price equal to GBP 0.23 and are not exercisable until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00, and 255,000 options were issued to certain employees and vest over three years in equal tranches on the anniversary of the grant date and have an exercise price equal to GBP 0.23.

On 8 July 2016, 1,275,000 restricted shares were issued to certain Directors in lieu of cash compensation for the year. These shares are restricted from trading until the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00.

On 8 July 2016, 1,000,000 restricted shares were issued (with a vesting period of one year) to one key employees which are not exercisable until after three years or when the volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP 1.00. 

In each case, employees must retain a business relationship with the Company on the relevant anniversary date for the options or restricted shares to vest.

In July 2016, the Company issued 42,328,042 Convertible Preferred Shares of USD 0.01 in the capital of the Company. See also Note 14.3.

As at 31 December 2016, RM2's issued share capital is 400,305,156 Ordinary Shares of USD 0.01 each and 42,328,042 Convertible Preferred Shares of USD 0.01 in the capital of the Company, of which 397,334 Ordinary Shares are held by the Company as non-voting treasury stock.

The total number of voting rights in the Company as at 31 December 2016 was 442,235,864.

18 Earnings per share

Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

Management considers that there is no dilutive effect from the options as they would be negative.

19 Publication of announcement and the Interim Results

A copy of this announcement will be available at the Company's registered office 14 days from the date of this announcement and on its website.

This announcement is not being mailed to shareholders. The Interim Results will be posted to shareholders shortly and will be made available on the Company's website.

20 Subsequent events

Subsequent to the reporting period, the Company successfully completed a 100-unit trial and then entered into a pilot agreement for an initial deployment of some 600 RM2 ELIoT pallets with one of the world's leaders in the logistics industry, serving both internal and external loops. Other trials with large multi-national corporations are progressing well. In particular, one large trial with a North American beverage customer has concluded with strong results and discussions on deployment terms are expected to continue over the coming months. An ELIoT-enabled pallet is fitted with RM2 proprietary tracking technology which communicates its precise location, allowing misdirected or mishandled goods to be identified immediately, enabling customers to reduce loss, mishandling, spoilage and theft, thereby creating significant cost savings and supply chain efficiencies.

On 13 April 2018, the Company announced a Phase 1 contract with a Fortune 500 customer which is expected to involve a significant deployment of RM2 ELIoT pallets. The initial implementation of RM2 ELIoT pallets under that contract was deferred but the deployment is now underway with promising results.

Current deployment of RM2 ELIoT pallets utilizes Cat-1 technology. However, RM2 sees significant benefit in the transition to Cat-M technology as it comes on-stream due to its lower demand on battery resources and significantly lower-priced components. Global demand for Cat-M components is increasing rapidly and the ability of suppliers to meet all orders may be stretched. RM2 expects to transition to Cat-M as chipsets become available.

With the conversion of trials with large customers into long-term contracts taking longer than anticipated, the Company's expectation of turning EBITDA positive in 2019, as first noted on 9 March 2018, is challenging. The Company will provide further updates on this in due course and in the meantime, continues to implement measures to reduce its cost base.

New Board Appointments

The Company announced today the nomination of David Binks and Andrew Geisse to join the board of directors of the Company. Their appointment is being submitted to shareholders for confirmation at an EGM to be held on October 3, 2018.

Funding Update

The Company believes that it has already satisfied or that it is well positioned to satisfy the drawdown conditions under the Placing by the end of the year, although determination is to be made by the Company's largest shareholder, Woodford Investment Management Limited.