Applied Graphene Materials plc Tomorrow’s material. … · Applied Graphene Materials plc Annual Report and Financial Statements 2017 Tomorrow’s material. Today. Applied Graphene

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Tomorrow’s material. Today.Applied Graphene Materials plcAnnual Report and Financial Statements 2017

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Our mission is to become a world leader in the supply of graphene formatted for specific customer applications

We aim to create value for shareholders through improving the performance of our customers’ materials and products

At Applied Graphene Materials we work in partnership with our customers using our knowledge and expertise to provide bespoke graphene dispersions and formats to deliver enhancements and benefits for a wide range of applications where we can deliver maximum value.

6 Read more on our strategy on page 6

3 Read more on our business model on page 3

Strategic report

1 Highlights2 At a glance3 Our business model4 Our markets6 Our strategy8 Chairman’s statement11 Business review16 Financial review18 Principal risks and uncertainties

Governance

20 Board of Directors22 Senior management team23 Corporate governance26 Corporate social responsibility statement27 Remuneration report33 Directors’ report35 Statement of Directors’ responsibilities

Financial statements

36 Independent auditors’ report40 Consolidated income statement and

statement of comprehensive income41 Consolidated statement

of financial position42 Consolidated statement of changes

in shareholders’ equity43 Consolidated cash flow statement44 Group and Company accounting policies48 Notes to the consolidated financial statements58 Company statement of financial position59 Company statement of changes

in shareholders’ equity60 Company cash flow statement61 Notes to the Company financial statements64 Corporate information

Operational highlights – Further production orders achieved for both existing

and new applications

– Significant increase in the number of active engagements to over 100

– An increasing number of customers moving closer to production

– Undertaking a live trial programme with a major paint supplier for the inclusion of graphene into paints for vehicles

– In excess of 230kg of graphene dispersions supplied to customers in the year, almost double the amount of the previous year

– Further expansion of our production capacity on a modular basis with the new production line constructed

– Launch of the Structural Ink™ programme in conjunction with the filing of a patent application in relation to the technology

– Grant of European patent for manufacturing processes in September 2017

– Investment to strengthen the team and widen the Company’s geographical reach

Financial overview – Total income

£0.3 million (2016: £0.3 million)

– EBITDA* Loss of £4.1 million (2016: loss of £4.2 million)

– PBTA** Loss of £4.3 million (2016: loss of £4.3 million)

– Loss before tax Loss of £4.3 million (2016: loss of £4.5 million)

– Cash at bank £4.7 million (2016: £7.7 million)

– Diluted EPS Loss of 13.8 pence per share (2016: loss of 22.0 pence)

– Adjusted diluted EPS Loss of 13.8 pence per share (2016: loss of 20.8 pence)

– Announcement of circa £9.8 million (before expenses) fundraising via a placing and open offer

* EBITDA comprises loss before interest, tax, exceptional costs, depreciation and amortisation.

** PBTA comprises loss before tax, exceptional costs and amortisation.

Visit us online atappliedgraphenematerials.com

Strategic report

Annual Report and Financial Statements 2017 Applied Graphene Materials plc 1

HIGHLIGHTS

Graphene has the potential to be the most disruptive material of the 21st Century. Applied Graphene Materials has increasing momentum towards commercial success with graphene.

Why graphene?

Why invest in Applied Graphene Materials?

Mechanical100x stronger than steel Stiffer than diamond

Electrical60% greater conductivity than copper

Thermal5x conductivity of aluminium

LubricatingVery low surface shear

ImpermeableVacuum tight to helium gas

TransparentCirca. 98% optical transmission

The commercial value of graphene lies in the ability to transfer its intrinsic properties into other materials, thus creating higher value materials and products which possess specifically enhanced characteristics. As a disruptive technology, graphene has the potential to replace or enhance the performance of existing materials in a wide range of applications and sectors.

Globally

a leading innovator

4 Read more on our applications on page 4

2004 Discovery

2010 Nobel prize

awarded

€1.0bn in EU funding

5,000 patents

filed in US, Korea and

China

2013 Head tennis

racquet launched

2017 Graphene

prosthetics launched

Increased graphene awareness

Increased investment

Developing market

Applied Graphene Materials

+220 dispersed samples

supplied in 2016/17

Production orders

received

Creation of databases

Structural Ink™

launched

A-GNP35 introduced

Commercial plant built

Development of in-house production capability

Development of technical

expertise

Increasing customer

engagement

Applied Graphene Materials plc Annual Report and Financial Statements 20172

AT A GLANCE

commercialising graphene

5 Read more on our markets on page 5

Technical – Patent protection

– Range of graphene

– Formatting knowledge

– Structural Ink™

Commercial – Extensive databases

– Focus on core markets

– Key partner collaborations

– First production orders

production – Bottom-up process

– Successful scale-up

– Modular capacity expansion

– Consistency of product

VALUE CREATION for all

Stakeholders

Strategic report


OUR BUSINESS MODEL

Our business development is directed towards identifying those markets where we believe graphene can deliver real enhancements today in a non-disruptive fashion to customers’ existing production processes. As such, we remain focused on the consistent production of a variety of high quality graphene dispersions. To achieve this it is critical that we not only have the capability to produce the raw material in-house, but can then take that product and disperse it consistently in a variety of other mediums to meet customers’ requirements.

Our unique IP and know-how gives us a market-leading position through enhanced graphene manufacturing, dispersion capability and testing accreditation.

compositesThe potential benefits offered by graphene to this rapidly expanding market are largely directed towards enhancements in fracture toughness, greater stiffness and improvements to fatigue characteristics. Early adopters in this market are sports goods manufacturers, but as the market develops ever more applications are becoming apparent. These applications are in a variety of sectors ranging from aero and defence to medical sectors.

functionalmaterials

our core markets



COATINGS


The primary focus within this sector is the barrier, corrosion resistance and conductive properties that graphene can offer. Potential applications range from protective paints for industrial facilities and transportation infrastructure to high quality floorings.

The nature of this segment means that, by definition, customers are looking to exploit a number of different characteristics graphene may offer. Specific opportunities are very often driven by the customer and their desire to exploit the potential benefits graphene has to offer through working alongside AGM. Opportunities in this sector include thermal pastes, oils, ceramics and batteries.


OUR MARKETS

Market requirements

– Excellent barrier properties giving high corrosion resistance

– UV absorption

– Electrical conductivity (anti-static +)

– Resistance to scratch and abrasion

– Mechanical enhancement

– Thermal conductivity

– Foul release

– Improved fracture toughness

– Enhanced matrix stiffness


– Electrical conductivity (anti-static +)

– Enhanced fatigue performance

– Improved FST and heat release

– Increased moisture barrier properties

– Low shrinkage and CTE control

– Low wear

– Low friction

– Low speed and extreme pressure performance


– Impermeable to oxygen or water

– High surface affinity

– Nano-filler for wear crevices

– Synergies with other additives

Market breakdown – number of engagements

the right opportunities

composites functional materials

COATINGS

8+5+16+32+8+31+D8+3+12+15+22+5+35+DDecorative/Architectural

Marine

Auto

Aero/Defence

General

Flooring

Industrial/Oil & Gas

43+36+7+7+7+D£8.1billion

Anti-corrosion coatings opportunity (2013)

€7billion

Materials opportunity 4.2

million tonnes

Oil additives market

– Inks

– Oils

– Ceramics

– Batteries

– Textiles

– Sports

– Biomedical

– Auto

– Aero/Defence

– General

– Industrial/Oil & Gas

Strategic report


We help our customers use graphene to improve performance and enhance existing products targeting commercial applications in three core markets.

Our mission is to become a world leader in the supply of graphene formatted for specific customer applications, helping our customers improve the performance of their materials and products.

MAINTAINING STRATEGIC FOCUS

OUR STRATEGY

UPDATE AND ACHIEVEMENTSSTRATEGY AND OBJECTIVES

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Establish customer relationships

Generate revenues from the supply of graphene

The business continues to be focused on generating revenue from production related orders.

– Volume of dispersions increased year on year by 92%.

– An increasing number of customers moving towards production orders, most notably Airbus.

The Group has established and aims to develop further close working relationships with a wide range of potential customers in its core markets to accelerate the adoption of its graphene products.

– Production orders secured for existing and new applications.

– Pipeline grew notably in the year with over 220 samples supplied.

– Investment in business development team providing greater technical and geographical support.

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The Group has focused on the supply of graphene dispersions that can be incorporated into customers’ existing manufacturing processes.

– Further development of intellectual property, databases, know-how and knowledge base through extensive work on formatting graphene.

– Structural Ink™ patent application filed in the year.

– In excess of 230kg of graphene dispersions supplied to customers in the year.

Maximise our margins through dispersions

To further develop in-house capability to produce high quality graphene to meet growing customer demand as required.

– Line 1 production facility for the AGNP 35 grade graphene constructed.

– Further work on the method and conditions of graphene manufacture completed in the year.

– European patent awarded.

Increase manufacturing capacity and produce high quality graphene


RISKS AND UNCERTAINTIESOUTLOOK

S Strategic

C Commercial

T Technical

P People

F Financial

O Operational H SHE

– Further conversion of collaborations into production orders targeted with actual timing dependent on the period to qualification, approval and adoption.

– Remain well placed to continue to provide support to meet customer requirements and respond rapidly as those requirements expand and grow.

– Securing further production orders remains the greatest ongoing priority for the Group.

– Formatting graphene nanoplatelets to suit the requirements of each customer’s application will help our customers gain the greatest property enhancements and performance benefits.

– Continuing to add to the toolbox of formatting technologies that are utilised for including graphene in host materials.

– Launch a range of standard dispersions.

– Modular capacity expansion is proven. Additional capacity will be constructed and commissioned as required to meet demand.

18 Read about our risks on page 18

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Strategic report


Increasing engagement

Positive preliminary findings on graphene reinforced polyurethane coatings, undertaken by PRA (formerly known as the Paint Research Association) indicating scratch resistance

Initial findings of friction and wear reduction from BfB Oil Research, Belgium

20162015

May 2015

March 2016

We have focused on developing ever closer working relationships with our commercial partners as they look to incorporate graphene into their products.

IntroductionIt gives me great pleasure to present the Group’s full year results for the year ended 31 July 2017. During the past twelve months we have focused on developing ever closer working relationships with our commercial partners as they look to incorporate graphene into their products. This approach has yielded benefits as our partners look to understand how best to exploit the potential benefits graphene has to offer. Following on from our first production order we have secured repeat orders for various applications and whilst the magnitude of these orders is not yet large, they represent important milestones as the business continues to develop and customers adopt the use of graphene. Targeting further and larger production orders remains the greatest ongoing priority for the Group.

The business has continued to gain further momentum in the year ended 31 July 2017 and since then, the highlights of which have included:

– further production orders achieved for both existing and new applications;

– significant increase in the number of active engagements to over 100;

– an increasing number of customers moving closer to production;

– undertaking a live trial programme with a major paint supplier for the inclusion of graphene into paints for vehicles;

– in excess of 230kg of graphene dispersions supplied to customers in the year, almost double the amount of the previous year;

– further expansion of our production capacity on a modular basis with the new production line constructed;

8

CHAIRMAN’S STATEMENT

Commercial momentum

PRA testing demonstrated six fold improvement in barrier and anti-corrosion properties

Composites materials database generated at CTE

Century Composites – launch of carp fishing rods

SHD prepregs range MTC9800

Launched Structural Ink™, targeted at the advanced composites industry

Real life field trials commence on coatings for commercial vehicles

Full database on the performance of Puraglobe products containing AGM graphene by German accredited test house, Optimol

2017

August 2016

October 2016 March 2017

May 2017

September 2017

– launch of the Structural Ink™ programme in conjunction with the filing of a patent application in relation to the technology;

– grant of European patent for manufacturing processes in September 2017;

– investment to strengthen the team and widening the Company’s geographical reach; and

– announcement of circa £9.8 million (before expenses) fundraising via a placing and open offer.

Financial performanceThe Group recorded a PBTA loss of £4.3 million for the year (2016: £4.3 million). Net cash was £4.7 million at 31 July 2017 (2016: £7.7 million). Whilst the loss recorded by the business in the year remains at a similar magnitude to the previous year, it reflects the ongoing investment made in supporting our customer base as they work towards incorporating graphene into their products.

Following the year end, the Company undertook a placing and open offer in order to raise additional funds to support the ongoing development of the business. I am pleased to be able to report that a total of 25,000,000 Placing shares were placed at a price of 36 pence per Placing share, raising proceeds of £9 million (before expenses). In addition, a further 2,138,617 new Ordinary shares at a price of 36 pence per share were issued via an open offer, raising proceeds of £769,902 (before expenses). These funds will be utilised to develop the business primarily in relation to:

– supporting joint development activities with customers relating to the formatting, testing and application of graphene into products;

– development of the Structural Ink™ programme;

– providing ongoing working capital for the business; and

– scale-up of production capacity as required.

Group BoardFollowing the resignation of Oliver Lightowlers in 2016 the Board undertook an extensive search for his replacement. I am pleased to be able to report that in April 2017 Gareth Jones joined the Board of Applied Graphene Materials as Chief Financial Officer. Gareth brings with him extensive financial, manufacturing and international experience and despite being with the business for only a short period he has already made a positive contribution. I look forward to working with him and the other members of the team over the coming years as the business continues to develop.

Our peopleI would like to extend a warm welcome to all employees who have joined us in the past year, and also thanks to both new and existing employees for their ongoing commitment and contribution. In particular, during the past twelve months we have made two key operational appointments in the UK:

– William Weaver joined us as Technical Director from Nuplex Industries, where he led the advanced coating collaborations with a large range of multinationals.

– Helen Hatcher joined the business development team as Global Coatings Director. Prior to this Helen was the Head of Sales, Marketing and Operations for Sudarshan Europe, where she helped establish their European operations.

Both William and Helen have a detailed knowledge of the paints and coatings industry, a market that will be key to us as we look to expand the business opportunities in the next phase of development.

£9million

raised from placing

Strategic report


Our people continuedAs the business continues to grow, we will continue, where appropriate, to make selective appointments to key areas to ensure the business is adequately resourced to support the ongoing growth and development of the business. As a technology-led business, identifying, recruiting and retaining people of the right calibre is a vital element in ensuring the future success of the business.

The Board continues to be pleased with the very high levels of participation in the Group’s 2017 Save As You Earn (SAYE) share option scheme, which is offered to all UK employees. In addition, the business continues to offer a bonus scheme to all employees recognising that for an early-stage, ambitious and dynamic company to continue to succeed a highly skilled, motivated team across all disciplines is a key element in this success.

StrategyThe Board believes that the commercial value of graphene lies in the transfer of its intrinsic properties into other materials, thus creating products and materials which possess specifically enhanced characteristics. Through establishing relationships with a wide range of potential customers in different application areas and through utilising the Group’s expertise in the dispersion and preparation of graphene, the Group is seeking to position itself as a value-added partner rather than simply being a commodity producer of graphene.

Our mission is to become a world leader in the supply of graphene formatted for specific customer applications and we aim to create value for shareholders through improving the performance of our customers’ materials and products.

OutlookThe momentum achieved within the previous twelve months both in terms of the number of collaborations and overall progress as customers evolve from sampling towards production provides the Board with confidence in our strategic approach. During the next year the aim is to continue to build on these foundations with ever greater momentum as an increasing number of customers move onto a full production basis. The recent fundraising exercise will provide resources that enable us to continue to work even more closely with customers, to help us achieve this goal. The clear objective is for the Company to become profitable, although forecasting the precise timing is difficult as it is dependent largely on the rate of adoption by customers. We will continue to build ever closer relationships with our customers wherever possible and continue to supply formatted graphene as we believe this approach provides the greatest opportunity to streamline the move towards full production with the minimum amount of disruption to the customers’ existing processes.

The combination of the potential graphene has to offer, the team we have in place and our strategic approach gives us confidence for the future.

Bryan DobsonChairman24 November 2017

230KG

of graphene dispersions

supplied


CHAIRMAN’S STATEMENT continued

Exciting new applications

Strategic report

11

OverviewDuring the course of the last twelve months Applied Graphene Materials (AGM) has continued to invest in its technical capabilities and commercial offering leaving it ideally positioned to support the growth in expected graphene product demand. Throughout this period we have stayed resolutely committed to our strategy of being a graphene producer and a formatted material supplier. We are confident that ultimately shareholder value will be delivered by being a high value-added speciality chemical business. We have therefore focused on providing ever more compelling data and evidence that demonstrate the potential benefits that our graphene can deliver. We have continued to market this information on a global basis, specifically targeting exhibitions, conferences and media literature in our core market sectors, as we look to demonstrate and develop opportunities. This approach is beginning to provide tangible returns as we are being recognised by our customer base as the go-to graphene company as evidenced by both the volume of customer engagements and enquiries within the last year.

In August 2017 we invited institutional investors to an open day at Wilton and demonstrated our manufacturing and technology capability. The event was concluded with a presentation by one of our customers, SHD Composites Limited (SHD), explaining its successes to date in using our graphene, why it believes graphene will be adopted further, and specifically why it chose to work with AGM in preference to other potential graphene providers.

Throughout the year we have maintained our approach of working closely with potential customers to provide technical support to help incorporate graphene into their host materials in order to deliver desired property enhancements. This has served us well as we look to develop commercial opportunities. Nowhere is this more evident than in the support that has been provided to SHD, which resulted in the launch of a graphene-enhanced product for the composite market in spring 2017.

We are confident that ultimately shareholder value will be delivered by being a high value-added speciality chemical business.

BUSINESS REVIEW


Commercial progress We are currently actively engaged with more than 100 customers within our core target market sectors. These are at a range of maturities but all are live and we believe offer the potential to lead to product applications in the foreseeable future. Two of these have already resulted in final products that are routinely sold by our customers. A third, with Airbus Space and Defence, is in the final stages of commercial negotiation and is expected to be in use on satellites in 2018. The remainder form an ever maturing pipeline, some of which are expected to bring more production demand during the current financial year and beyond. It has been absolutely pivotal for us to get beyond first production orders. This, along with our detailed technical support, has given us the gravitas to be recognised as a credible supplier to our international client base.

We first announced in 2016 that Century Composites had launched a range of carp fishing rods that incorporated graphene into the composite structures. Since then it has continued to purchase material for not only the original range of rods, but has also extended its use on other rods in its range and utilised graphene on other tubular products that are not fishing rod related.

In March 2017, SHD launched a range of graphene containing prepreg materials (carbon fibre intermediate products) at the JEC show in Paris. It has subsequently sold this product range for applications as varied as automotive components and artificial limbs as well as a variety of sports goods, and interest continues to grow. Encouraged by its success with the initial prepreg systems SHD has now progressed to developing other materials containing our graphene that are targeted at other specific composite applications. We have received a number of orders from SHD and, although these are currently relatively modest, we do expect them to grow in size as customer demand for its graphene-enhanced product expands.

Following a direct approach we have successfully developed a lightweight adhesive for Airbus Space and Defence and this is in the final stages of approval for use in satellites. Without stating exactly the merits of the product, due to customer confidentiality, it is multifunctional in nature. As with all aerospace qualifications, the approval process is appropriately complex, and to date we are delighted that Airbus has found us to have the requisite rigour and robustness in our processes. We anticipate that this specific product will subsequently be made available for sale to other customers for both aerospace and other non-aerospace applications.

The majority of the commercial engagements in our pipeline are centred around our core market sectors of coatings and composites. In addition, we continue to work alongside a number of partners in niche areas where both our partners and AGM see specific opportunities where graphene could deliver property enhancements. In the coatings sector these are largely focused on the benefits graphene brings to barrier protection for corrosion prevention and/or where graphene provides electrostatic dissipation. Customers in this sector vary from multinational corporations to small independent niche players. The recruitment of industry specialists during the year has provided us with some real momentum in this area and we are now experiencing increasing engagement at many levels. In the composites sector our commercial engagements are focused on applications where graphene is primarily adding mechanical property benefits. Based on their positive first-hand experience of working with AGM’s graphene, and data generated by AGM, customers are committing their own resources to investigate the incorporation of graphene into their own products. The unique combination of properties at a nano-particulate level that graphene offers is leading us increasingly to look to exploit these characteristics in combination and we are encouraged that we can unlock potential around other bulk characteristics. The ability to demonstrate multiple benefits is something that customers often find highly attractive and so our technical personnel are exploring areas where we are seeing particular interest, specifically related to higher electrical conductivity, flame retardancy and thermal conductivity. Data generated around these characteristics will potentially lead us to new commercial engagements in additional market sectors.

In May 2017, we launched our Structural Ink™ technology, which is focused on the composites sector and enables graphene to be deposited on a structure in a targeted manner. The method for delivering this combines existing 2D industrial inkjet printing with AGM graphene ink formulations. This is attractive to composite designers and manufacturers because they can target specific areas where graphene’s mechanical toughness enhancement properties will bring the most benefit to the end product. This could be in areas where there are known weak points such as joints, edges and ply drop-offs. Specifiers can adopt the approach directly into their structures without being dependent upon a material supply chain and can tailor for their own specific purposes. For AGM this similarly means that we have a direct route to market to the end-user specifiers rather than being dependent on intermediate material companies to adopt and pull through

BUSINESS REVIEW continued

£8.1billion

Anti-corrosion coatings

market size

WHAT IS IT?

WHY NOW?

HOW?

– Highly targeted delivery of graphene onto composites

– Combination of two technologies: printing and dispersing graphene

– Accurately applied by printing = greater precision/performance enhancement where you need it

– Patent application filed

– Technical know-how proven within National Aerospace Technology Programme

– Key partnerships established

– Plan to locate a dedicated facility at Advanced Materials Research Centre in Sheffield

– Partnerships with key stakeholders

– Customer engagements established

STRUCTURAL INK™We have developed a highly innovative new technology, Structural Ink™, and as part of this we have signed a JDA with the University of Sheffield Advanced Manufacturing Research Centre with Boeing to focus on developing and commercialising this technology.

Strategic report


the technology. To this end, we have already engaged with the Advanced Manufacturing Research Centre (AMRC) in Sheffield to establish a demonstration facility for interested parties. The intention is for AGM to sell a turn-key deposition package to its customers, with ongoing revenues from its formulated inks.

In September 2017, following an initial stage of controlled environment testing of graphene based coatings which produced some extremely positive results in barrier protection, HMG Paints and AGM commenced real world product trials. Ongoing tests are focusing on the application of graphene based coatings in both the commercial vehicle and construction equipment markets, in partnership with a leading UK bespoke commercial vehicle body builder. The primer layer and top-coat were successfully applied using standard spray-painting equipment in the routine manner and vehicles are currently on the road for testing purposes.

In addition, the development programme for the potential application of graphene to paint and lubricant products continues to progress with James Briggs Ltd. Initial findings on performance improvement were encouraging, though timings have been longer than originally forecast. Additional tests are underway that, by their nature, require a number of weeks to complete. This includes testing the barrier properties of a primer paint product through salt spray testing over several hundred hours, and inter-coat adhesion testing with various popular branded refinish paints. In parallel, James Briggs Ltd has experienced strong sales pipeline growth in the first half of 2017 with a number of opportunities having short term deadlines which, of necessity, has meant that technical resource has had to be focused on those immediate profit-generating projects. We expect a clearer picture on the route forward during the final quarter of 2017.

+100

active engagements

OPPORTUNITY PIPELINE MATURITY

13SHORT APPROVAL

MEDIUMQUALIFICATION

TIME

LONG APPROVAL PROCESS

TECHNOLOGY SCOUTING OR TIMEFRAME UNCLEAR

CURRENTLY

FINAL COMMERCIAL ENGAGEMENT

3 10 5 2

FINAL PRODUCT TRIALS FORMULATION AND SPECIFICATION

REPEAT TESTING FOR CONSISTENCY AND REVIEW OF RESULTS

INITIAL TESTING AND INTERPRETATION OF RESULTS

AGREEMENT ON SCOPE OF SAMPLING AND ENGAGEMENT

296 9 2 1

52 2 1

711

INCREASING MATURITY


BUSINESS REVIEW continued

Commercial progress continuedAs the vast majority of our customer engagements are covered by strict confidentiality it is not possible to share all of the application details and stages of progress, and indeed much of this information is commercially sensitive in nature. We look to track the overall status of our commercial developments via an opportunity pipeline maturity chart (see below). This segregates the individual customer engagements into three categories of short, medium and long term approval (i.e. about one year, one to three years and over three years) and specifies the stage we are at with each account. As we move into the forthcoming financial year I expect a greater proportion of opportunities to move towards the final stages of this pipeline as they reach maturity. Levels of interest in our product continue and, as such, attracting new opportunities and customer engagement remains high. Our current focus remains on converting our significant existing pipeline into commercial orders.

Underpinning technology and manufacturing capacityWhilst it would be more simple for everyone to understand graphene as a single product that has a defined set of properties that can translate from small scale to large scale, that is not the reality. When producing graphene nanoplatelets one thing is clear – not all graphene is equal in properties. The method and conditions of manufacture have a significant influence on the resultant properties exhibited. It is therefore essential to be able to tailor the product to optimise the augmentation of properties for specific applications and to produce graphene of consistent quality. The Group owns the

intellectual property for its proprietary production processes which are subject to existing patents and patent applications, the latest being granted in September 2017 for Europe. Using these processes, AGM has the ability to design nanoplatelets to suit specific customer applications through its two manufacturing processes. We have robust control systems in place to ensure quality and consistency and we have the proven ability to be able to scale up the processes without affecting product output.

We have engineered a solution to be able to cost-effectively scale up our graphene nanoplatelet production in a modular manner. This gives us much greater flexibility to match capacity to demand in a timely fashion. This capacity includes the capability to disperse the graphene powder into the customer’s host material at the concentration levels required.

Understanding the mechanisms of property translation from nanoplatelets to bulk properties is essential to be able to optimally influence the enhancements that can be achieved in end products. Transferring the benefits of graphene is challenging and having the know-how and expertise to format and incorporate graphene into the host material is absolutely critical. AGM continues to develop this knowledge base to benefit all of our commercial partners.

Jon MabbittChief Executive Officer 24 November 2017

CEO Q&A

See our CEO’s interview with Proactive Investors

youtube.com/watch?v=Vhn0lzv3_u4

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Strategic report


What have the key highlights from the last twelve months been?It has to be getting our first production order, rapidly followed by the repeat orders from SHD. I know from my previous experience in the composites industry that getting over the hump of someone actually buying your material and putting it into their own product that they launch is pivotal to making progress in a nascent market.

Does graphene merit the hype?Graphene is an exceptional material when you compare its performance at a microscopic level. The challenge for the industry is to translate that microscopic performance into a bulk performance, such that it can be used widely in everyday applications. There are potentially some real benefits for customers and consumers, particularly when two or more of its fundamental properties can be utilised concurrently.

What differentiates AGM from other graphene companies?I think we have a grounded commercial approach to a challenging technology. Our in-house expertise in both production and dispersion of graphene into intermediate products that are already part of our customers’ production lines makes us stand out from our peers. We are not trying to force-fit solutions; we are identifying where and how graphene might provide a solution to a market or customer demand. We have not been distracted by short term potential gains and are remaining committed to our stated goals. Progress can be dictated by the pace at which our customers are willing to proceed, but in the long run we believe this to be the most attractive route to commercialisation.

What do you see as the main challenges and opportunities in the forthcoming year?The business priority is to convert more of the opportunities that are already in our pipeline. I am particularly excited with the work we are doing with Airbus and the traction SHD is gaining following the launch earlier this year of its graphene-enhanced product. Converting these into more production orders will remain a key focus in the coming period. However, we also want to nurture the larger and more attractive longer term potential which will really deliver the high returns this technology merits. Balancing limited resources when customer interest could overstretch us is a big challenge, but one that all of the senior team have dealt with previously.

Overall, we believe that the business is well positioned today to capitalise on the global graphene opportunity and the increasingly exciting commercial pipeline we have been developing. As we build momentum towards financial sustainability we remain confident of becoming a leading graphene manufacturer.

Managing growth

16

FINANCIAL REVIEW

RevenueRevenue for the year was £97,000 (2016: £75,000) arising from the supply of production orders and evaluation quantities of graphene to commercial partners.

Other incomeOther income, which comprises grant income and RDEC revenue, was £168,000 (2016: £177,000). Grants received generally relate to funding for the development of new graphene applications, the creation of new jobs or the purchase of assets.

Loss on ordinary activities before interest, tax, exceptional costs, depreciation and amortisation (EBITDA)EBITDA for the Group reduced from a loss of £4,155,000 in 2016 to a loss of £4,059,000 for the year ended 31 July 2017. The loss incurred reflects the ongoing costs of working with commercial partners and the significant efforts undertaken to support those customers.

Exceptional costsExceptional costs recognised in the year were £nil (2016: £250,000). Prior year costs principally relate to fees paid in relation to the issue of new shares in the current year and payments made as compensation for loss of office.

Net finance incomeNet finance income for the year was £33,000 (2016: £55,000). The reduction in net finance income arises from there being a lower cash balance and receiving lower interest rates on cash deposits during the year.

Loss on ordinary activities before tax, exceptional costs and amortisation (PBTA)PBTA for the year increased from a loss of £4,269,000 in 2016 to a loss of £4,277,000 for the year ended 31 July 2017. The losses within the year continue to reflect ongoing costs of working with commercial partners and the significant efforts undertaken to support those customers.

Loss on ordinary activities before taxA loss on ordinary activities before tax of £4,277,000 (2016: loss of £4,519,000) was recognised.

As the business looks to capitalise on its many commercial engagements, exploiting the opportunities in a controlled manner will be a key element in our overall success.

£4.7million

cash at bank

Strategic report


TaxThe Group has not recognised any tax assets in respect of trading losses arising in the current financial year or accumulated losses in previous financial years. The tax credit recognised in the current and previous financial years arises from the receipt of R&D tax credits.

Earnings per shareDiluted earnings per share were a loss of 13.8 pence per share (2016: loss of 22.0 pence per share). Adjusted diluted earnings per share (before exceptional costs) were a loss of 13.8 pence per share (2016: loss of 20.8 pence per share).

DividendNo dividend has been proposed for the year ended 31 July 2017 (2016: £nil).

Cash flowNet cash used in operations was £3,962,000 (2016: £4,184,000). During the year, net working capital utilised increased by £95,000 (2016: increase of £14,000). The reduction in net cash used in operations principally reflects the reduction in operating losses during the year.

Capital expenditure of £684,000 (2016: £990,000) has been incurred in the year mainly relating to the development of the production process and related production assets. Net proceeds arising from the issue of shares totalled £407,000 (2016: £8,031,000).

Balance sheetNet assets have reduced to £6,068,000 (2016: £8,512,000), principally reflecting the trading loss for the year, offset by R&D tax credits.

Cash at bank at 31 July 2017 was £4,708,000 (2016: £7,702,000). The proceeds from the issue of shares have been placed on deposit with a small number of financial institutions for time periods ranging between instant access and up to one year in maturity.

Accounting policiesThe Group’s consolidated financial information has been prepared in accordance with International Financial Reporting Standards as adopted in the EU. The Group’s significant accounting policies, which have been applied consistently throughout the year, are set out on pages 44 to 47.

Going concernAfter making enquiries and producing cash flow forecasts, the Directors have reasonable expectations, as at the date of approving the financial statements, that the Company and the Group will have adequate resources to fund the activities of the Company and the Group for at least twelve months from the date of the financial statements. Therefore, the financial statements have been prepared on a going concern basis.

Principal risks and uncertaintiesThe principal risks and uncertainties facing the Group are set out on pages 18 to 19.

Cautionary statementThe Strategic report, comprising the Business and Financial reviews, has been prepared for the shareholders of the Company, as a body, and no other persons. Its purpose is to assist shareholders of the Company to assess the strategies adopted by the Group and the potential for those strategies to succeed, and for no other purpose. The Strategic report, containing the Business and Financial reviews, contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements in the Strategic report, comprising the Business and Financial reviews, will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation.

Gareth JonesChief Financial Officer24 November 2017

Financial

Peop

le

SHE

Technical

Stra

tegi

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Comm

ercial

Operational

Managing our risks

Risk and description Potential impact Change

3 STRATEGIC AND PLANNING

Acceptance of the Group’s productsEarly stage of operations and acceptance of graphene.

The Group is at an early stage of development and the success of the Group will depend on the acceptance and attribution of value to graphene produced by the business. Timescales to the successful development of applications for graphene are significantly determined by the product development cycle of customers. There can be no guarantee that either acceptance of graphene or attribution of value will be forthcoming.

No change

3

1

27

4

5

6

The Directors believe the following risks to be the most significant for potential investors. However, the risks listed do not necessarily comprise all of those associated with an investment in the Group and are not set out in any particular order or priority. Additional risks and uncertainties not currently known to the Directors, or which the Directors currently deem not to be significant, may also have an adverse effect on the Group and the information set out below does not purport to be an exhaustive summary of the risks affecting the Group. In particular, the Group’s performance may be affected by changes in market or economic conditions and in legal, regulatory and tax requirements.

Broadly, risks are categorised into seven types: strategic and planning; financial and IT; operational and quality; technical; safety, health and environment (SHE) and regulatory; commercial and reputation; and people. Significant risks facing the Group are listed below.

Risks decreased

1 Early stage of operations – During the past twelve months the Group has demonstrated its existing technology and scaled up its production processes.

2 Commercialisation, competition and pricing – Technological advances may impede the commercial progress of graphene and may also result in worldwide production capacity exceeding demand. During the past twelve months the business has developed additional capabilities in its dispersing and formatting technology, as well as securing production orders for its product.

Risks that in prior years were in the higher category but have decreased in the year

Current risks

Risk management forms an integral part of the business planning and review cycle.


PRINCIPAL RISKS AND UNCERTAINTIES

Risk and description Potential impact Change

4 TECHNICAL

Intellectual propertyThe Group’s business is based on a combination of patent applications and know-how.

The Group’s success will depend in part on its ability to maintain adequate protection of its intellectual property and know-how. There is no certainty that patent applications will be granted, that such applications and know-how will be a source of competitive advantage to the Group, or that others have not developed similar or better applications or know-how. Significant costs may be incurred in asserting intellectual property rights and there is no certainty that intellectual property could not become known in a manner (for example, cyber attack) which provides the Group with no recourse.

No change

5 SHE AND REGULATORY

Safety, health and environmentThe Group’s operations are subject to numerous safety, health and environmental and regulatory requirements, both in the UK and overseas, which are likely to become more complicated, stringent and onerous as the Group grows or as time passes.

Failure to comply in any way with SHE or regulatory requirements could result in the Group being unable to manufacture or supply graphene, incurring significant costs and liabilities, or being subject to claims and lawsuits which could adversely affect its operations and financial condition. Graphene is also a relatively new material with a limited number of studies having been undertaken into its effects on biological systems. If evidence emerges that graphene has a deleterious effect then this may adversely impact the Group’s business and financial position.

No change

6 PEOPLE

Key personnelThe Group has in place an experienced and motivated senior management team and is beginning to build strength in depth.

If the Group is unable to retain and attract suitably skilled and qualified people, then the Group’s performance and prospects may be adversely impacted. The loss of one or more key personnel could have an adverse impact on the Group’s operations, reputation, relationships and future prospects.

Risk increased

7 FINANCIAL AND IT

Adequacy of financial resourcesThe available funding required to support the business through to profitability and cash generation may be insufficient.

Currently, it is expected that additional capital may be required in future to fund the business. The Group may be unable to access additional debt or equity capital, or to raise funds on acceptable terms. In the event that the resources available to the Group are inadequate then this could have a materially adverse impact on the implementation of the Group’s strategy, its business, financial condition and operations.

No change

Financial, operational and management information systemsThe efficient operation and management of the Group depends on the proper operation and performance of financial, operational and management information systems.

Any failure in such systems via a cyber attack may result in a loss of control and adversely impact the Group’s ability to operate effectively.

Risk increased

Strategic report


Dr Bryan Dobson (64)Non-Executive ChairmanApril 2012

R A N

Previous experienceBryan has over 33 years’ experience in the chemical industry with ICI plc and Croda International plc. Bryan started his career with ICI in 1978 and had a number of roles, both in the UK and overseas, including being European Regional Director of ICI Uniqema in the Netherlands in 2006. Following the acquisition of Uniqema by Croda International in September 2006, Bryan remained within the group and was President of Global Operations from 2008 until his retirement in 2011. He has held a broad range of senior business, technical and operational roles in the UK, the US, Belgium and the Netherlands. Bryan holds a Bachelor of Arts from the University of Cambridge and a PhD from the University of Newcastle upon Tyne.

External appointmentsBryan is currently Non-Executive Chairman of Itaconix plc.

Key for Committees

R Remuneration Committee

A Audit Committee

N Nomination Committee

Committee Chairman

the right team

Gareth Jones (49)Chief Financial OfficerApril 2017

Previous experience Prior to joining AGM Gareth was the Finance Director for the Emco Wheaton division of private equity owned Gardner Denver Inc., the global provider of industrial equipment, technologies and services. After qualifying as a Chartered Accountant with PricewaterhouseCoopers in 1993 he joined Syltone plc, where he spent ten years in a number of roles. Following the acquisition of Syltone plc in 2004 by Gardner Denver Inc. he took on the role of European Finance Director for the Group and Divisional Finance Director of the Blower division, the largest division within the business. In 2007 he joined Vireol Bio-Industries plc as Finance Director. During his time with Vireol Bio-Industries he was responsible for securing equity investment and bank financing for the private equity backed start-up business. He holds a BEng from the University of Nottingham.

External appointments None.

Jon Mabbitt (55)Chief Executive OfficerJuly 2013

Previous experienceJon has 25 years’ experience in senior positions in manufacturing and engineering. From 2008 to 2012, Jon was Managing Director of Umeco Composite Structural Materials, one of two divisions within Umeco plc, a £250 million revenue business listed on the London Stock Exchange’s Main Market. Prior to that, between 2006 and 2008, Jon was the Managing Director of Advanced Composite Group Limited, a subsidiary of Umeco, which was acquired in 2004. In this role he was responsible for 350 people and led the company through a period of significant organic growth and targeted acquisitions in the UK and the US. Jon also held the positions of Group Operating Director, General Manager, Sales Manager and Technical Sales Engineer with Advanced Composite Materials, having joined in 1984. Jon left Umeco following its acquisition by Cytec Industries, Inc. in July 2012. Jon’s technical expertise is broad with an in-depth knowledge of advanced composite materials. He holds a BEng from the University of Sheffield.

External appointments None.

BOARD OF DIRECTORS


Professor Karl Coleman (44)Chief Scientific OfficerFounded July 2010

Previous experience Karl achieved a PhD in Chemistry at the University of Leicester in 1996 and is a Chartered Chemist, Chartered Scientist and Fellow of the Royal Society of Chemistry. His work since 2000 has focused on nanoscience and nanotechnology, particularly the chemistry of carbon nanotubes. He has been funded by the Engineering and Physical Sciences Research Council and the Royal Society and he has authored or co-authored over 75 publications in peer reviewed journals which have accumulated over 2,500 citations. His work has been recognised with numerous awards, including the international Royal Society of Chemistry Entrepreneur of the Year Award 2011 for his development of intellectual property around the production of graphene, and the Times Higher Education Research and Innovation Award 2012. Karl established the Company in 2010 and, whilst he is employed by Durham University, he is seconded to Applied Graphene Materials for part of his time.

External appointments Karl is head of Inorganic Chemistry at Durham University, having previously been in the chemistry departments at the University of Oxford and the Université de Strasbourg. He is the secretary of the Chemical Nanosciences and Nanotechnology subject group of the Royal Society of Chemistry.

Sean Christie (59) Non-Executive DirectorApril 2014

R A N

Previous experience Sean is a Fellow of the Chartered Institute of Management Accountants. Until his retirement, Sean was Group Finance Director of Croda International plc, which is a global manufacturer of speciality chemicals. Prior to joining Croda in 2006, Sean was Group Finance Director of Northern Foods plc. He also served as a Non-Executive Director of KCOM Group plc until 2007 and of Cherry Valley Farms Limited until its sale in 2010.

External appointments Sean is currently a Non-Executive Director of Accsys plc, Produce Investments plc and Turner & Townsend Limited.

Mike Townend (54) Non-Executive DirectorNovember 2014

R A N

Previous experience Mike has 18 years’ experience in all aspects of equity capital markets and the investment process and was also a key member of the senior relationship management programme at Lehman Brothers. Prior to this, he was an Executive Director at Donaldson, Lufkin and Jenrette with responsibility for building the bank’s business with hedge funds and alternative investors. Mike has sourced, co-led or led numerous private and public transactions.

External appointments Mike is Chief Investment Officer of IP Group, which he joined in 2007 from Lehman Brothers, where he was Managing Director of European equities and Head of Equity Sales to hedge funds. Mike is also responsible for the fund management and corporate finance activities of IP Group, through its regulated vehicle Top Technology Ventures. Mike represents IP Group on the boards of Modern Water plc and Itaconix plc and is also a Non-Executive Director of Green Urban Transport Limited.

Governance


1 2 3 4 5


running the business

Jon Mabbitt (55)1 Chief Executive Officer

July 2013

See Board of Directors on page 20

Gareth Jones (49)2 Chief Financial Officer

April 2017

See Board of Directors on page 20

Dr Neil Hindle (47)3 Engineering Director

August 2014

Neil has over 20 years’ experience in the chemical industry with ICI plc, Croda International and CPI (Centre for Process Innovation). Neil started with ICI in 1995 following completion of his D.Phil and Bachelor of Arts at the University of Oxford. He is a Chartered Chemist and Member of the Royal Society of Chemistry. He has held a number of roles both in the UK and overseas; his primary focus has been the scale-up of the production process from laboratory to commercial production, as well as process improvements of existing production assets. Following the acquisition of ICI Uniqema by Croda in September 2006, Neil became Project Technical Manager for development of a commercial scale marine bio-fermentation unit. Neil spent two years with CPI as Senior Project Manager before joining AGM in August 2014.

Nigel Blatherwick (53)4 Business Development Director

January 2014

Nigel has over 30 years’ commercial experience within speciality chemicals and composites manufacturing and has held previous positions at Cytec Industrial Materials (Global Strategy Marketing Director), UMECO (Strategic Marketing Director) and Advanced Composites Group (Group Commercial Director). Nigel holds a Bachelor of Science and Technology degree and an MBA from the University of Sheffield.

SENIOR MANAGEMENT TEAM

William Weaver (61)5 Technical Director

February 2017

William has over 30 years’ experience in the chemical industry and has served as a senior R&D executive with international experience across a number of sectors, including coatings, adhesives and composites. Prior to joining AGM he was Vice President of Technology & Strategy for Nuplex Industries with responsibility for innovation, technology strategy and intellectual property. In this role he led developments for both coating and composite applications, frequently collaborating with major developers such as Akzo Nobel, Sherwin Williams, Nipsea and AOC. Previous appointments include roles with Akzo Nobel Resins, Resinous Chemicals Ltd and Ciba Geigy. Besides degrees in Chemistry and Polymer Science William is also a Member of the Institute of Directors and serves on the committee of the Management Group of the Royal Society of Chemistry.

Governance


The Directors have taken account of the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies and have applied these principles.

Remuneration CommitteeSean Christie (Chairman)

Bryan DobsonMike Townend

The Board

Audit CommitteeSean Christie (Chairman)

Bryan DobsonMike Townend

Nomination Committee

Bryan Dobson (Chairman)

Sean ChristieMike Townend

CORPORATE GOVERNANCE

IntroductionThe Board of Applied Graphene Materials recognises the importance of achieving high standards of corporate governance, integrity and business ethics for all of its activities. The Directors have taken account of the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies and have applied these principles as they consider them to be appropriate, taking account of the Group’s size, scope, stage of development and resources.

Board of DirectorsDetails of the Directors are set out on pages 20 to 21. The Board comprises a Non-Executive Chairman (Bryan Dobson), two Non-Executive Directors (Sean Christie and Mike Townend) and three Executive Directors. The Board considers both Bryan Dobson and Sean Christie to be independent in that they are free from any business or other relationships that might materially interfere with their exercise of independent judgment. Mike Townend, who is also a Director and representative of IP Group plc, is not considered by the Board to be independent. Details of the Non-Executive Chairman’s other commitments can be found on page 20.

The Board of Directors considers that its size and composition are currently appropriate and that the balance of skills and experience is correct for the current requirements of the business to enable the members of the Board of Directors to discharge their respective duties and responsibilities effectively. However, the Nomination Committee, in conjunction

with the Board, will continue to consider succession planning and align this with the Group’s strategy.

There is a clear division of responsibilities between the Chairman and the Chief Executive. The Chairman is primarily responsible for leading the Board, ensuring its effectiveness, setting its agenda and making certain that each Director is in receipt of adequate information prior to making decisions. The Chairman also facilitates effective communication with shareholders and makes himself available to meet with shareholders. The Chief Executive Officer is responsible for the Group’s day to day activities and leads the execution of the Group’s strategy. All Directors have access to the advice and services of the Company Secretary and both the appointment and removal of the Company Secretary are matters for the Board as a whole. Directors are entitled to take independent legal or financial advice (paid for by the Company) in relation to the performance of their duties. Training is also made available to the Directors as appropriate, in relation to the performance of their duties.

All new Directors receive a personalised induction programme tailored to their experience and background, which is designed to develop their knowledge and understanding of the Group’s culture and operations. Non-Executive Directors have regular opportunities to meet with Senior Managers within the business to enhance their knowledge and familiarity with the Group. Directors are also briefed by the Group’s external advisors, where appropriate, on changes to legislation, regulation or market practice.


Board responsibilitiesThe Board has a schedule of matters reserved for its approval which includes Group strategy, acquisition and disposal of any subsidiary undertaking or intellectual property, annual budgets and progress to achievement of those budgets, reviews of any significant risks facing the Group, consideration of major capital projects and significant financing matters. Matters requiring Board and Committee approval are generally the subject of a proposal by one or more of the Executive Directors, together with supporting documentation, as part of the Board or Committee papers circulated prior to the relevant meeting.

The Group has established an operational board which meets regularly and is responsible for the day to day management of the business. Jon Mabbitt chairs the operational board, whose other members comprise Gareth Jones together with the heads of the commercial, operations and technical functions.

Board CommitteesThe Board has delegated certain authorities to three Committees, whose duties are as set out in this report. Appointments to each Committee are made by the Board. The Company Secretary is secretary to each Board Committee. The Board is kept fully updated on the work undertaken by the Committees and terms of reference have been adopted by each Committee that set out clearly the Committee’s authority and duties. Copies of the terms of reference for each Committee can be found on the Company’s website (www.appliedgraphenematerials.com). The Chairman of each Committee will be present at the Annual General Meeting to answer questions from shareholders.

Audit CommitteeThe Audit Committee comprises Sean Christie, Mike Townend and Bryan Dobson, and is chaired by Sean Christie, who has relevant and recent financial experience. The Audit Committee operates within its agreed terms of reference. It reviews the effectiveness of financial reporting and internal financial controls and monitors the integrity of the financial statements of the Group and any significant financial reporting judgments contained therein.

The Audit Committee recommends to the Board the appointment and re-appointment of the external auditors. The Audit Committee considers the scope and results of the external audit and its cost effectiveness. It also reviews the fees, independence and objectivity of the external auditors by analysing fees for audit and non-audit work, by discussing with the auditors their annual assessment regarding their independence, policies and procedures, and by receiving from the auditors confirmation that they have complied with the APB Ethical Standards. The Group’s external auditors have unrestricted access to the Audit Committee and attended the Audit Committee meeting held during the year. In addition the Chairman of the Audit Committee had contact with the external auditors outside those meetings. The Executive Directors attend Audit Committee meetings by invitation only.

The breakdown of fees between audit and non-audit services is provided on page 48 of the Group’s financial statements. The non-audit service fees exceeded audit fees during the year since the auditors provided tax services (which are not expected to recur) connected to the issue of shares. The Audit Committee is satisfied that it was appropriate for the auditors to carry out this work and that the auditors’ independence and objectivity were not impaired.

Remuneration CommitteeThe Remuneration report is set out on pages 27 to 32.

Nomination CommitteeThe Nomination Committee comprises Bryan Dobson, Mike Townend and Sean Christie, and is chaired by Bryan Dobson. The Nomination Committee is responsible for ensuring that the Board comprises an appropriate balance of skills, knowledge and experience. The Nomination Committee makes recommendations to the Board on its size, structure and composition and also gives consideration to succession planning for Executive and Non-Executive Directors. The Nomination Committee engages the services of external recruitment consultants as appropriate.

Meeting attendanceDirectors are encouraged to attend all Board meetings and meetings of Committees of which they are members.

Directors’ attendance at Board and Committee meetings is shown in the following table:

Board Audit Nomination Remunerationmeetings Committee Committee Committee

Number of meetings held 12 2 1 2

Executive DirectorsJon Mabbitt 12 — — —Gareth Jones1 4 — — —Karl Coleman 12 — — —Non-Executive DirectorsBryan Dobson 12 2 1 2Sean Christie 12 2 1 2Mike Townend 10 1 1 2

1 Gareth Jones was appointed to the Board on 4 April 2017.

CORPORATE GOVERNANCE continued

Governance


Investor relationsThe Board places significant importance on maintaining good communications with shareholders. The Executive Directors are available to meet with institutional shareholders and analysts after the announcement of both the interim and annual results and have undertaken such meetings whenever requested by shareholders and analysts at other points during the course of the year. Each of the Non-Executive Directors is available to be contacted by, and to meet with, shareholders if required. Written investor feedback is provided to the whole Board by the Group’s nominated advisor and broker. The Interim and Annual Reports are sent to all shareholders, who are encouraged to attend and participate at the Company’s Annual General Meeting to enable it to be a forum of substantive communication. The Group’s investor relations website is regularly updated and contains information on current activities, including interim and annual results presentations. The Group also includes, on its website, audiocasts of its results presentations, for the benefit of all shareholders. During the year, the Group has hosted site visits for existing and prospective investors.

Internal controlThe Board acknowledges its overall responsibility for the Group’s system of internal financial and operational controls and the ongoing review of their effectiveness. These controls are designed to safeguard the Group’s assets and the investments of shareholders. However, any system of internal control can only manage rather than eliminate risks and consequently such controls do not provide absolute assurance against misstatement or loss.

The main features of the Group’s internal control systems include:

Allocation of responsibilitiesTerms of reference for Board Committees are reviewed by the Board to ensure that the delegated authority and duties are still appropriate. The Group has a clear organisational structure that includes defined delegations of authority and authorisation limits.

Risk identificationThe Board is responsible for identifying the main business risks faced by the Group and for determining the appropriate actions necessary to manage those risks. These risks are categorised into seven types being: strategic and planning; financial and IT; operational and quality; people; technical; commercial and reputation; and SHE and regulatory.

Financial reporting and controlMonthly management information is reported to the Board which includes comparison against budget and prior year. Functional reports are prepared for the Group Board and actions arising from the review of those reports and information are attributed as appropriate.

Investment appraisalCapital expenditure is regulated by authorisation limits.

The Board has reviewed the effectiveness of the Group’s framework of internal controls, including financial, operational and compliance controls and risk management systems, during the year ended 31 July 2017. The Board has also, where appropriate, ensured that appropriate actions have been taken to remedy weaknesses or failings identified from the review of the effectiveness of internal controls.

Whistle blowing policyThe Board has adopted a whistle blowing policy. The aim of the policy is to encourage all employees regardless of seniority to bring matters which cause them concern to the attention of the Non-Executive Directors.

By order of the Board

Bryan DobsonChairman24 November 2017

17+66+17+D 50+50+D 0–2 years (1)

3–5 years (4)

6–8 years (1)

Executive Directors (3)

Non-Executive Directors (3)

Board tenure Board composition


EmployeesApplied Graphene Materials is an equal opportunities employer. We actively look to promote equal opportunities for all employees and we do not discriminate on grounds of colour, sex, ethnic origin, gender, age, religious belief, disability, sexual orientation or marital status. The Group expects its employees to act with a high degree of dignity, respect, integrity and commitment in all their business activities. Applications for employment by disabled persons are always fully considered bearing in mind the aptitudes of the applicant concerned. In the event of an employee becoming disabled, every effort is made to ensure that his/her employment with the Group continues and that, where necessary, appropriate re-training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible in the circumstances of each particular case, be the same as that of other employees. Both employment and policy in the Group are based on non-discrimination and equal opportunities.

We encourage our employees to develop new and existing skills by offering training and opportunities for development. Our aim is to create, develop and lead highly motivated teams which possess the competencies required to meet our business needs and in turn those of our customers.

In all aspects of our business we seek to operate in compliance with laws, rules and regulations and for our employees to work in a manner that is professional, ethical, fair and open. Our employees are encouraged to report any activities in breach of these principles through the Group’s whistle blowing policy, which includes direct access to the Non-Executive Directors of the Board.

The Group places considerable value on the involvement of its employees and has continued to keep them informed of matters affecting them as employees and of the various issues affecting the performance of the Group. The Group has in place policies and practices of informing and consulting its employees through work based meetings and also via email.

The Group believes in rewarding exceptional performance and outstanding contributions. We want our employees to feel part of Applied Graphene Materials and encourage participation in the Group’s SAYE share option scheme. Through SAYE, employees can benefit from their personal contribution to the growth and prosperity of the business.

Health and safetyThrough a positive and proactive approach to health and safety management we seek to maintain a safe, healthy and sustainable working environment for all our employees and all those who come into contact with our business. Our approach to health and safety is one of identification, management and control of risks with continual improvement and the development and maintenance of a positive safety culture throughout the Group. We endorse the concept that safety is the priority at all times and convey this to our employees.

Policies relating to health and safety are in place and have been approved by the Board. Jon Mabbitt, as Chief Executive Officer, is the person nominated to have specific responsibility for health and safety issues. The Group’s health and safety officer has direct access to the Chief Executive Officer.

Charitable giving and involvement in our communitiesThe Group supports and encourages its employees to work in local community projects where it operates. During the year, employees of the Group chose Zoe’s Place as their nominated charity and have undertaken a range of activities to support, and raise money for, this charity. The Group has made direct charitable donations totalling £nil during the year (2016: £nil).

Political donationsThe Group does not donate money, services or facilities to political parties. However, Applied Graphene Materials may campaign for, or against, proposed changes in legislation or regulations that might affect its business or the environment within which it operates. Directors or employees, with Board approval, may participate in government advisory committees, regulatory advisory committees or non-government organisations that are relevant to the business. No political donations were made during the year (2016: £nil).

CORPORATE SOCIAL RESPONSIBILITY STATEMENT

Governance


This report sets out the Group’s policy on the remuneration of Directors and information on the remuneration paid to Directors for the year ended 31 July 2017 and for future years. This report is divided into two parts. The first part contains commentary on the Group’s remuneration policy, which is not subject to audit. The second part contains certain information audited in accordance with statutory requirements.

Remuneration CommitteeThe Remuneration Committee comprises Sean Christie, Mike Townend and Bryan Dobson, and is chaired by Sean Christie. The Remuneration Committee met on two occasions in the year. The Chief Executive Officer and the Chief Financial Officer may be invited to attend part of some meetings of the Remuneration Committee as required. No Director or other employee plays a part in any discussion regarding their own remuneration. The Remuneration Committee’s terms of reference can be found on the Company’s website (www.appliedgraphenematerials.com).

Responsibilities The Remuneration Committee reviews and determines the remuneration package of the Executive Directors. The Remuneration Committee’s responsibilities include determining the base annual salaries, and setting and approving targets for any short term annual cash bonus or long term equity incentive schemes operated by the Group (subject to shareholder approval where appropriate). The Remuneration Committee also determines the service agreements and other employment conditions for the Executive Directors.

Remuneration policyThe remuneration policy set by the Remuneration Committee is designed to attract, retain and motivate people of high calibre and experience, which will enable the Group to fulfil its objective of increasing shareholder value. Accordingly, the Remuneration Committee seeks to provide competitive remuneration to all its employees, appropriate to business and geographic environments. The Remuneration Committee recognises the need to reward at a level that is fair but attractive whilst ensuring that a significant proportion of the remuneration of Executive Directors is linked to performance through the operation of the annual cash bonus scheme and equity incentive schemes.

The main elements of the remuneration package for Executive Directors are base salary, annual cash bonus and participation in equity incentive schemes. Both the annual cash bonus and equity incentive schemes are subject to performance conditions. In addition, Executive Directors receive other benefits in kind, including contributions to a defined contribution pension scheme, life assurance, private medical insurance and permanent health insurance. Only base annual salaries are pensionable.

Base annual salaryWhen determining base annual salary for Executive Directors the Remuneration Committee takes into account the performance, experience and responsibilities of the individuals concerned, the scope and complexity of that

function or business, the strategic importance of the role to the Group and the salaries of those holding similar positions and responsibilities in comparable companies.

Base salaries are reviewed annually on 1 August. On 1 August 2017 a general increase of 2% (2016: 1%) in base salary was awarded to eligible employees across the Group including the Executive Directors. At the time of the review the Remuneration Committee had reference to the base salaries of employees in the wider Group. The following table sets out the base annual salaries of the Executive Directors.

Base salary Base salary from from 1 August 1 August 2017 2016

Jon Mabbitt £159,197 £156,075Gareth Jones £127,500 £125,000Karl Coleman £26,533 £26,013

Annual bonusThe Executive Directors participate in a non-contractual annual cash bonus scheme, which is the short term incentive element of the overall remuneration package of the Executive Directors. All annual cash bonuses are subject to the discretion of the Remuneration Committee and are linked to targets set by the Remuneration Committee. Subject to the achievement of targets, Executive Directors are eligible to receive a maximum potential annual cash bonus of 50% of their base annual salary.

Payment of a bonus is conditional on the Executive Directors being in employment at the time of the payment and not having received, or given, notice of termination of employment. However, the Remuneration Committee may exercise its discretion in exceptional circumstances if it feels that it is appropriate to do so.

2017 bonusThe bonus for the year ended 31 July 2017 was based on revenue targets linked to orders and demonstrating the ability to scale up production volumes. In line with the previous year, the targets set were challenging and, after taking account of actual performance compared to target, the level of bonus payment was determined to be nil% of the maximum potential annual cash bonus by the Remuneration Committee (2016: between 10% and 25%).

2018 bonusPerformance targets for the annual cash bonus are set at the start of the financial year by the Remuneration Committee. Targets set in respect of the year ending 31 July 2018 will be challenging and relate to a variety of key business indicators.

Equity incentive schemesThe Group operates two equity incentive schemes, firstly an Enterprise Management Incentive (EMI) scheme and secondly a non-approved executive option scheme. The non-approved executive option scheme is typically used for employees who are not eligible to participate in the EMI scheme or who have received awards up to the £250,000 EMI limit for employees.

REMUNERATION REPORT


Remuneration policy continuedEquity incentive schemes continuedDuring the year, an award was made under the EMI and non-approved executive option schemes. It is expected that option awards will be made annually in November of each year following announcement of annual results, with the next award to be made in November 2017. Details of the awards previously made are set out below.

EMI and non-approved executive options – January 2017The vesting of both EMI and non-approved executive options is subject to the relative performance of the Company’s share price, compared to the FTSE AIM All Share Index, for the period from the date of grant to November 2019.

In the event that the Company’s share price performs better than the FTSE AIM All Share Index, for the performance period, then 25% of the options will vest. Further vesting will be dependent upon the extent to which the Company’s share price outperforms the FTSE AIM All Share Index, with full vesting arising for performance exceeding the benchmark by 25%. Percentage vesting is weighted towards the upper parts of the vesting scale. In each case, performance will be measured using the one month average share price and FTSE AIM All Share Index value in the period prior to the end of the performance period. The starting share price and the FTSE AIM All Share Index value in respect of the options granted were £1.275 and 868.95 respectively.

Subject to vesting the options would be exercisable in the period between November 2019 and January 2027. Nil consideration is payable in respect of either the grant or exercise of these options.

Awards made under EMI and non-approved executive option schemes contain clawback provisions for a period of two years from the date of vesting. Generally, clawback may be invoked in the event of the misstatement of financial results impacting on the number of options vesting or an error being identified in the measurement of actual performance versus target, again impacting on the number of options vesting.

EMI and non-approved executive options – January 2016The vesting of both EMI and non-approved executive options is subject to the relative performance of the Company’s share price, compared to the FTSE AIM All Share Index, for the period from the date of grant to November 2018.

In the event that the Company’s share price performs better than the FTSE AIM All Share Index, for the performance period, then 25% of the options will vest. Further vesting will be dependent upon the extent to which the Company’s share price outperforms the FTSE AIM All Share Index, with full vesting arising for performance exceeding the benchmark by 25%. Percentage vesting is weighted towards the upper parts of the vesting scale. In each case, performance will be measured using the one month average share price and FTSE AIM All Share Index value in the period prior to the end of the performance period. The starting share price and the FTSE AIM All Share Index value in respect of the options granted were £1.83 and 728.9 respectively.

Subject to vesting the options would be exercisable in the period between November 2018 and January 2026. Nil consideration is payable in respect of either the grant or exercise of these options.

Awards made under EMI and non-approved executive option schemes contain clawback provisions for a period of two years from the date of vesting. Generally, clawback may be invoked in the event of the misstatement of financial results impacting on the number of options vesting or an error being identified in the measurement of actual performance versus target, again impacting on the number of options vesting.

EMI and non-approved executive options – July 2014The vesting of both EMI and non-approved executive options is subject to the relative performance of the Company’s share price, compared to the FTSE AIM All Share Index, for the period from the date of grant to November 2016.

In the event that the Company’s share price performs better than the FTSE AIM All Share Index, for the performance period, then 25% of the options will vest. Further vesting will be dependent upon the extent to which the Company’s share price outperforms the FTSE AIM All Share Index, with full vesting arising for performance exceeding the benchmark by 25%. Percentage vesting is weighted towards the upper parts of the vesting scale. In each case, performance will be measured using the one month average share price and FTSE AIM All Share Index value in the period prior to the start and end of the performance period. The starting one month average share price and the FTSE AIM All Share Index value in respect of the options granted were £4.30 and 778.6 respectively.

At November 2016 the ending one month average share price and the FTSE AIM All Share Index in respect of these options were £1.58 and 810.8 respectively. Accordingly, under the terms of the deed, these options lapsed.

EMI and non-approved executive options – prior to AIM admissionIn the period prior to the Group’s admission to AIM, EMI options and non-approved executive options were granted to certain Directors.

Non-approved executive options awarded to Bryan Dobson, which were not subject to performance conditions other than remaining in post, vested during the year ended July 2014 and are now capable of being exercised. EMI options awarded to Jon Mabbitt and Oliver Lightowlers are not subject to performance conditions, other than remaining in post, and vest in three equal tranches in October 2014, October 2015 and October 2016.

REMUNERATION REPORT continued

Governance


Remuneration policy continuedPension arrangementsGareth Jones participates in the Group’s stakeholder pension plan, which is open to all eligible UK employees. Jon Mabbitt receives a payment of £1,288 paid monthly in lieu of a pension contribution. This payment does not form part of his base salary and therefore is not taken into account when calculating any bonus payment. Karl Coleman is not eligible to participate in the Group’s stakeholder pension plan.

Directors’ service contractsUnder the terms of the service agreements in place with Executive Directors, six months’ written notice must be given by either party to terminate those service agreements. Under the terms of the letters of appointment in place with Non-Executive Directors, three months’ written notice must be given by either party to terminate that appointment. Summary details of the service agreements and letters of appointment are shown below:

Effective date ofservice agreement/

letter of appointment Notice period

Executive DirectorsJon Mabbitt 14 November 2013 Six monthsGareth Jones 3 April 2017 Six monthsKarl Coleman 14 November 2013 Six monthsNon-Executive DirectorsBryan Dobson 14 November 2013 Three monthsSean Christie 24 April 2014 Three monthsMike Townend 24 November 2014 Three months

Compensation for early termination for Executive Directors is generally limited to six months’ base salary and benefits. Any entitlements under incentive plans would ordinarily lapse in accordance with the terms of the relevant plan, unless the Remuneration Committee exercises its discretion as provided under the incentive scheme rules.

The Company believes that exposure of its Executive Directors to other company boards can be beneficial and can help to broaden their experience and knowledge. The Directors are therefore permitted to join other company boards as Non-Executive Directors, subject to prior approval of the Board.

Non-Executive DirectorsRemuneration of the Non-Executive Directors is determined by the Board and is designed both to recognise the responsibilities of Non-Executive Directors and to attract individuals with skills and experience to contribute to the business. Non-Executive Directors receive an annual fee paid monthly.

Generally, Non-Executive Directors are not entitled to share based incentives, pensions or annual bonuses. However, the Board did agree to grant share options to Sean Christie on appointment in lieu of part of his cash fee. Expenses incurred by the Non-Executive Directors in the performance of their duties are reimbursed by the Company.

Performance graphThe graph below shows the performance of Applied Graphene Materials’ share price relative to the FTSE AIM All Share Index for the period between November 2013, when the Group’s shares first became publicly traded, and July 2017. This index has been selected for comparison because the Company is a constituent of it.

600p

Nov2013

Nov2015

May2014

Nov2014

May2015

May2016

May 2017

Nov 2016

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Applied Graphene MaterialsFTSE AIM All Share Index


Audited information Directors’ emoluments The aggregate emoluments of the Directors of the Company who served during the year ended 31 July 2017, paid by the Group, were:

Year ended 31 July 2017

Salary Annual Pension Compensationand fees Benefits bonus contributions for loss of office Total

£’000 £’000 £’000 £’000 £’000 £’000

Executive DirectorsJon Mabbitt1 156 14 — 16 — 186Oliver Lightowlers2 35 1 — 4 — 40Gareth Jones3 42 — — 1 — 43Karl Coleman 26 1 — — — 27Non-Executive DirectorsBryan Dobson 43 — — — — 43Sean Christie 30 — — — — 30Mike Townend4 15 — — — — 15

347 16 — 21 — 384

1 Employer pension contributions paid to Jon Mabbitt are paid as salary to reflect his existing personal pension arrangements.

2 Oliver Lightowlers resigned on 31 October 2016.

3 Gareth Jones was appointed to the Board on 4 April 2017.

4 Fees payable to Mike Townend were paid to Top Technology Ventures Limited, which is a wholly owned subsidiary of IP Group plc, which Mike represents.

The aggregate emoluments of the Directors of the Company who served during the year ended 31 July 2016, paid by the Group, were:

Year ended 31 July 2016

Salary Annual Pension Compensationand fees Benefits bonus contributions for loss of office Total

£’000 £’000 £’000 £’000 £’000 £’000

Executive DirectorsJon Mabbitt1 155 14 19 15 — 203Oliver Lightowlers2 144 1 — 14 — 159Karl Coleman 26 1 1 — — 28Non-Executive DirectorsBryan Dobson 40 — — — — 40Sean Christie 25 — — — — 25Mike Townend3 15 — — — — 15

405 16 20 29 — 470

1 Employer pension contributions paid to Jon Mabbitt are paid as salary to reflect his existing personal pension arrangements.

2 Oliver Lightowlers ceased to be entitled to receive an annual bonus as a result of his notice of resignation from office.

3 Fees payable to Mike Townend were paid to Top Technology Ventures Limited, which is a wholly owned subsidiary of IP Group plc, which Mike represents.


Governance


Audited information continuedShare optionsThe number of options over Applied Graphene Materials’ shares held by Directors at 31 July 2017 is set out below.

NumberOptions of options Number Number

at start of cancelled or of options of options Optionsyear or lapsed in exercised in granted at end Option

appointment the year the year in the year of year price Exercisable

Jon MabbittEMI1 323,424 — — — 323,424 £0.33 Oct 14 to Oct 23EMI1 20,214 — — — 20,214 £0.58 Oct 14 to Oct 23SAYE 9,574 — — — 9,574 £1.88 Aug 18 to Jan 19EMI 11,551 (11,551) — — — £nil Nov 16 to Jul 24Non-approved executive 23,333 (23,333) — — — £nil Nov 16 to Jul 24Non-approved executive1 84,443 — — — 84,443 £nil Nov 18 to Jan 26Non-approved executive1 — — — 122,421 122,421 £nil Nov 19 to Jan 27

472,539 (34,884) — 122,421 560,076

Oliver LightowlersEMI 249,306 — (249,306) — — £0.58 Oct 14 to Oct 23SAYE 9,574 (9,574) — — — £1.88 Aug 18 to Jan 19EMI 24,340 (24,340) — — — £nil Nov 16 to Jul 24Non-approved executive 8,218 (8,218) — — — £nil Nov 16 to Jul 24Non-approved executive 78,813 (78,813) — — — £nil Nov 18 to Jan 26

370,251 (120,945) (249,306) — —

Karl Coleman Non-approved executive 4,360 (4,360) — — — £nil Nov 16 to Jul 24Non-approved executive1 10,555 — — — 10,555 £nil Nov 18 to Jan 26Non-approved executive1 — — — 17,388 17,388 £nil Nov 19 to Jan 27

14,915 (4,360) — 17,388 27,943

Bryan Dobson Non-approved executive 491,874 — — — 491,874 £0.20 May 14 to Jul 22

491,874 — — — 491,874

Sean Christie Non-approved executive1 15,000 — — — 15,000 £1.55 Apr 15 to Apr 24

15,000 — — — 15,000

1 Options remain subject to satisfaction of conditions.

The market price of the shares on 31 July 2017 was £1.485 and the shares traded in the range of £1.19 to £2.25 during the year.


Directors’ interestsThe interests of the Directors in the shares of the Company as recorded in the register of Directors’ interests at 31 July 2017 were as follows:

Number of Number ofOrdinary Ordinary

shares shares2017 2016

Executive DirectorsJon Mabbitt 121,735 121,735Gareth Jones 14,500 —Karl Coleman 1,724,126 1,724,126Non-Executive DirectorsBryan Dobson 123,205 123,205Sean Christie 7,619 7,619Mike Townend 7,619 7,619

Sean ChristieChairman of the Remuneration Committee24 November 2017


Governance


The Directors present their Annual Report and the audited financial statements of Applied Graphene Materials plc (the Company) and of the Group (the Company and its subsidiary undertakings) for the year ended 31 July 2017.

Principal activitiesThe principal activity of the Group is the manufacture, dispersion and development of applications for graphene. The Group’s operations are primarily within the United Kingdom. The subsidiary undertakings principally affecting the results or net assets of the Group are listed in note 5 to the Company’s financial statements.

Review of business and future developmentsThe Chairman’s statement (pages 8 to 10), the Business review (pages 11 to 15) and the Financial review (pages 16 to 17) report on the performance of the Group during the year ended 31 July 2017 and its prospects for the future.

Key performance indicators (KPIs)Due to the early stage of the development of the business, it is difficult to measure progress made purely in financial terms. However, in due course the Directors expect that EBITDA, PBTA, adjusted diluted EPS and cash conversion will be the principal measures of financial performance in relation to the Group. Performance for these KPIs, which is explained in the Chairman’s statement, the Business review and the Financial review, was as follows:

2017 2016

EBITDA (£’000) (4,059) (4,155)PBTA (£’000) (4,277) (4,269)Adjusted diluted EPS (pence) (13.8) (20.8)EBITDA cash conversion (%) — —

Directors and their interestsThe Directors who served during the year (unless indicated) were as follows:

– Bryan Dobson

– Jon Mabbitt

– Karl Coleman

– Oliver Lightowlers (notice of resignation given on 12 August 2016)

– Gareth Jones (appointed on 4 April 2017)

– Sean Christie

– Mike Townend

Biographical details of the Directors can be found on pages 20 to 21.

In accordance with the provisions of the Articles of Association of the Company, having been appointed during the year Gareth Jones will retire by rotation with Mike Townend and, being eligible, will offer themselves for re-election at the 2017 Annual General Meeting. The Directors’ service agreements and letters of appointment will be available for inspection prior to and at the end of the Annual General Meeting.

Details of Directors’ interests in the shares of the Company are shown in the Remuneration report.

Share capitalAt 31 July 2017, the Group had 22,290,763 Ordinary shares of 2 pence each in issue (2016: 21,872,551). These shares are admitted to trading on AIM. The rights and obligations attaching to the Company’s Ordinary shares are set out in its Articles of Association, which are available on its website. Each share in issue has equal rights and there are no restrictions on the voting rights attaching to the Company’s Ordinary shares or on the transfer of securities in the Company. Full details of the issued share capital of the Company, including movements in the year, are set out in the notes to the financial statements. Details of share option schemes in place within the Group are set out in the notes to the financial statements.

Substantial share interestsAt 31 July 2017, the Directors are aware of the following interests amounting to 3% or more of the Company’s issued share capital:

PercentageNumber of of issued

Ordinary shares share capital Name of shareholder million %

IP2IPO Limited 4.6 20.6Insight Investments 2.5 11.4North East Technology LP 2.1 9.3Ruffer Investments 1.8 8.0Karl Coleman 1.7 7.7Baillie Gifford 1.4 6.3Durham University 1.2 5.5Herald Investment Management 0.8 3.8Sand Aire 0.8 3.4

DIRECTORS’ REPORT


Financial instrumentsFull details of the Group’s risk management policies and its exposure to financial risk are set out in note 14 to the financial statements.

Post balance sheet eventsPost balance sheet events are disclosed in note 22 to the financial statements.

Directors’ indemnities and directors’ and officers’ liability insuranceThe Company’s Articles of Association permit the Company to indemnify Directors of the Company in accordance with the Companies Act 2006. Directors’ and officers’ liability insurance is also in place.

Employees Further details regarding employees can be found in the Corporate social responsibility report.

Health and safetyFurther details regarding health and safety can be found in the Corporate social responsibility report.

Corporate governanceThe Corporate governance report is set out on pages 23 to 25.

Audit information The Directors confirm that, so far as they are aware, there is no relevant audit information of which the auditors are unaware and that each Director has taken all reasonable steps to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. A statement by the Directors of their responsibilities for preparing the financial statements is included in the Statement of Directors’ responsibilities.

Information presented in other sectionsCertain information required to be included in a directors’ report by Schedule 7 can be found in the other sections of the Annual Report. All of the information presented in those sections is incorporated by reference into this Directors’ report and is deemed to form part of this Annual Report.

Independent auditorsOur auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office. In accordance with the recommendation of the Audit Committee and Section 489 of the Companies Act 2006, a resolution to re-appoint PricewaterhouseCoopers LLP as the Company’s auditors will be proposed at the forthcoming Annual General Meeting.

Annual General MeetingThe 2017 Annual General Meeting is to be held at The Farndale Room, The Wilton Centre, Redcar, Cleveland TS10 4RF on 3 January 2018. The Notice of Meeting and an explanation of the business to be conducted at the Annual General Meeting are set out in a separate document circulated to shareholders with this report. Any shareholder intending to attend the Annual General Meeting is advised to arrive early, and well before 11am, in order to allow time to pass through The Wilton Centre’s security and admission procedures.

By order of the Board

Gareth JonesCompany Secretary24 November 2017

DIRECTORS’ REPORT continued

Governance


Statement of Directors’ responsibilitiesThe Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to:

– select suitable accounting policies and then apply them consistently;

– state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and IFRSs as adopted by the European Union have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;

– make judgments and accounting estimates that are reasonable and prudent; and

– prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company’s performance, business model and strategy.

Each of the Directors, whose names and functions are listed on pages 20 to 21, confirm that, to the best of their knowledge:

– the Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company;

– the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and

– the Directors’ report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

In the case of each Director in office at the date the Directors’ report is approved:

– so far as the Director is aware, there is no relevant audit information of which the Group and Company’s auditors are unaware; and

– they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and Company’s auditors are aware of that information.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

Report on the audit of the financial statementsOpinionIn our opinion, Applied Graphene Materials plc’s Group financial statements and Company financial statements (the financial statements):

– give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 July 2017 and of the Group’s loss and the Group’s and the Company’s cash flows for the year then ended;

– have been properly prepared in accordance with IFRSs as adopted by the European Union and, as regards the Company’s financial statements, as applied in accordance with the provisions of the Companies Act 2006; and

– have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report and Financial Statements (the Annual Report), which comprise: the Consolidated and Company statements of financial position as at 31 July 2017; the Consolidated income statement and statement of comprehensive income; the Consolidated and Company cash flow statements; the Consolidated and Company statements of changes in shareholders’ equity for the year then ended; the Notes to the Consolidated and Company financial statements; and the Group and Company accounting policies.

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

IndependenceWe remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Our audit approachOverview – Overall Group materiality: £214,000 (2016: £210,000), based on 5% of loss before tax.

– Overall Company materiality: £54,000 (2016: £74,000), based on 1% of total assets.

The Group consists of one trading entity, one dormant company and the holding company, being Applied Graphene Materials plc, all of which are based in the United Kingdom. We performed full scope audits over the two active entities.

The key audit matters identified during the audit are:

– Assessment of Going Concern (Group).

– Carrying value of Intercompany Loans (Parent).

The scope of our auditAs part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgments, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.

Key audit mattersKey audit matters are those matters that, in the auditors’ professional judgment, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.


INDEPENDENT AUDITORS’ REPORTto the members of Applied Graphene Materials plc

Key audit matters continuedKey audit matter How our audit addressed the key audit matter

Assessment of Going ConcernIn continuing to apply the going concern basis for the Annual Report and accounts for the period ended 31 July 2017, the Directors should be satisfied that they have a reasonable expectation that the Group will continue in operational existence for the foreseeable future, being at least twelve months from the date of issue of the accounts. In reaching this conclusion, the future prospects of the Group must be considered.

At 31 July 2017 the Group’s cash balance is £4.7 million and is forecast to fall to £1.0 million by 2018, after taking account of planned capital expenditure. A fundraising will significantly increase the cash available and will be essential for the Group to be viable beyond early 2019.

Taking into account the cash position noted above, if the Group did not meet its forecast revenue and a fundraising was delayed or deferred, there would be insufficient cash to continue to meet debts as they fell due beyond early 2019.

We have performed a review of management budgets and cash flow forecasts. There are several key assumptions and discretionary expenditure in the forecast, which can be removed or deferred, should additional fundraising be delayed.

We have reviewed the working capital projections of the Group, specifically focusing on the potential operating cash flow requirements, the planned capital expenditure and the impact on the Group’s liquidity and working capital of the prospective share issue.

Management considered a number of sensitivities to their forecasts with the aim of identifying the impact on liquidity. These sensitivities include a reduction in forecast revenue, an increase in production costs affecting margin and a deferral of the fundraising. We reviewed these sensitivities and were satisfied that the Group remained able to meet its obligations as they fell due for at least twelve months from the date of approval of the financial statements.

Carrying value of Intercompany LoansAt 31 July 2017, the Directors should be satisfied that the carrying value of the intercompany loans, held between the Company and the subsidiary, is appropriate. In reaching this conclusion, it must be considered whether any triggers have been identified that could result in an impairment being recognised.

We have reviewed the current market capitalisation of the Group and consider this to be in excess of the loan value. We considered the assumptions and future outlook available to market participants used in determining the market capitalisation and noted these as consistent with those provided to us by management. We have further considered any triggers for impairment such as technology milestones being missed or a marked slowdown in new business successes. No such triggers were noted and we are comfortable with the carrying value of the intercompany loans.

How we tailored the audit scopeWe tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

The Group consists of one trading entity, one dormant company and the holding company, being Applied Graphene Materials plc, all of which are based in the United Kingdom. We performed full scope audits over all of the entities.

Annual Report and Financial Statements 2017 Applied Graphene Materials plc


37

MaterialityThe scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgment, we determined materiality for the financial statements as a whole as follows:

Group financial statements Company financial statements

Overall materiality £214,000 (2016: £210,000). £54,000 (2016: £74,000).

How we determined it

5% of loss before tax. 1% of total assets.

Rationale for benchmark applied

Based on the benchmarks used in the Annual Report, loss before tax is the primary measure used by the shareholders in assessing the performance of the Group, and is a generally accepted auditing benchmark.

We believe that total assets is the primary measure used by the shareholders in assessing the performance of the entity, and is a generally accepted auditing benchmark.

For each of the two components in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £50,000 and £200,000. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £11,000 (Group audit) (2016: £11,000) and £2,700 (Company audit) (2016: £3,700) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

Conclusions relating to going concernWe have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:

– the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

– the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s and Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and Company’s ability to continue as a going concern.

Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our Auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described opposite.


INDEPENDENT AUDITORS’ REPORT continuedto the members of Applied Graphene Materials plc

Strategic report and Directors’ reportIn our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report for the year ended 31 July 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors’ report.

Responsibilities for the financial statements and the auditResponsibilities of the Directors for the financial statementsAs explained more fully in the Statement of Directors’ responsibilities set out on page 35, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditors’ report.

Use of this reportThis report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other required reportingCompanies Act 2006 exception reportingUnder the Companies Act 2006 we are required to report to you if, in our opinion:

– we have not received all the information and explanations we require for our audit; or

– adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or

– certain disclosures of Directors’ remuneration specified by law are not made; or

– the Company financial statements are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Ian Plunkett FCA (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsLeeds24 November 2017



39

2017 2016Note £’000 £’000

Revenue 97 75

Other income 4 168 177

265 252

Cost of sales (385) (397)

Gross loss (120) (145)

Operating expenses (4,190) (4,429)

EBITDA (4,059) (4,155)

Exceptional costs 2 — (250)

Depreciation of property, plant and equipment 10 (251) (169)

Operating loss 2 (4,310) (4,574)

Finance income 6 33 55

PBTA (4,277) (4,269)

Exceptional costs — (250)

Loss before tax (4,277) (4,519)

Tax on loss 7 1,234 175

Loss for the year attributable to equity shareholders (3,043) (4,344)

Other comprehensive income — —

Total comprehensive expense (3,043) (4,344)

Earnings per share (pence per share)

Basic 8 (13.8) (22.0)

Diluted 8 (13.8) (22.0)

EBITDA comprises loss before interest, tax, exceptional costs, depreciation and amortisation.

PBTA comprises loss before tax, exceptional costs and amortisation.


CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 July 2017

2017 2016Note £’000 £’000

Assets

Non-current assets

Intangible assets 9 138 97

Property, plant and equipment 10 1,936 1,503

2,074 1,600

Current assets

Inventories 11 45 38

Trade and other receivables 12 151 209

Cash deposits — 1,500

Cash 4,708 6,202

4,904 7,949

Liabilities

Current liabilities

Trade and other payables 13 (910) (1,037)

(910) (1,037)

Net current assets 3,994 6,912

Net assets 6,068 8,512

Shareholders’ equity

Called up share capital 15 446 437

Share premium account 16 18,641 18,243

Merger reserve 17 1,231 1,231

Accumulated losses (14,250) (11,399)

Equity shareholders’ funds 6,068 8,512

The Group’s loss for the financial year was £3,043,000 (2016: £4,344,000).

The financial statements on pages 40 to 57 were approved by the Board of Directors on 24 November 2017 and were signed on its behalf by:

Jon Mabbitt Gareth JonesChief Executive Officer Chief Financial Officer

Applied Graphene Materials plcRegistered number 08708426



41

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONas at 31 July 2017

Called up Shareshare premium Merger Accumulated Total

capital account reserve losses equity£’000 £’000 £’000 £’000 £’000

As at 1 August 2015 340 10,309 1,231 (7,290) 4,590

Loss for the year and total comprehensive expense — — — (4,344) (4,344)

IFRS 2 share based payments — — — 235 235

Issue of shares (net) 97 7,934 — — 8,031

As at 31 July 2016 437 18,243 1,231 (11,399) 8,512

Loss for the year and total comprehensive expense — — — (3,043) (3,043)

IFRS 2 share based payments — — — 192 192

Issue of shares (net) 9 398 — — 407

As at 31 July 2017 446 18,641 1,231 (14,250) 6,068


CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYfor the year ended 31 July 2017

2017 2016Note £’000 £’000

Operating activities

Net cash used in operations 20 (3,962) (4,184)

Finance income 52 44

R&D tax credit received 7 1,234 189

Net cash used in operating activities (2,676) (3,951)

Investing activities

Purchase of intangible assets (41) (97)

Purchase of property, plant and equipment (684) (990)

Net cash used in investing activities (725) (1,087)

Financing activities

Net proceeds from issue of Ordinary shares 407 8,031

Net cash generated from financing activities 407 8,031

Net (decrease)/increase in net cash and cash deposits (2,994) 2,993

Net cash and cash deposits at 31 July 2016 7,702 4,709


Net cash and cash deposits include:

Cash deposits (maturity greater than three months) — 1,500

Cash (maturity less than three months) 4,708 6,202




43

CONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 July 2017

General informationThe principal activity of Applied Graphene Materials plc is the manufacture, dispersion and development of applications for graphene. The Group operates principally in the United Kingdom.

The Company is incorporated and domiciled in the United Kingdom and its registered number is 08708426. The address of the registered office is The Wilton Centre, Redcar, Cleveland, TS10 4RF. The Company was incorporated on 27 September 2013.

At the date of authorisation of these financial statements, the following IFRSs, IASs and IFRS IC interpretations were in issue but not yet effective. Their adoption is not expected to have a material effect on the financial statements at this time, but will be considered by the Board going forward:

– IFRS 9 Financial Instruments (effective date 1 January 2018);

– Statement of cash flows on disclosure initiative (Amendments to IAS 7) (effective date 1 January 2017, not yet endorsed by the EU);

– Recognition of deferred tax assets for unrealised losses (Amendments to IAS 12) (effective date 1 January 2017, not yet endorsed by the EU);

– Clarification on how to account for certain types of share based payment transactions (Amendments to IFRS 2) (effective date 1 January 2018, not yet endorsed by the EU);

– IFRS 15 Revenue from Contracts with Customers (effective date 1 January 2018); and

– IFRS 16 Leases (effective date 1 January 2019).

Basis of accountingThe consolidated financial statements of the Group have been presented under the historical cost accounting convention, as modified by financial assets and liabilities at fair value through the income statement and share based payments at fair value, and in accordance with IFRS as adopted by the European Union, IFRS IC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared on a going concern basis since the Directors believe that the Group has adequate resources to remain in operation for the foreseeable future.

Critical accounting estimates and judgmentsThe preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies.

Estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

The significant accounting policies set out below have, unless otherwise stated, been applied consistently to all years presented in these financial statements.

Deferred tax assetThe Group has not recognised a deferred tax asset in relation to the Group’s accumulated trading losses. The asset will only be recognised once it is probable that future taxable profits will be available against which the asset can be utilised.

Foreign currenciesFunctional and presentational currencyThe financial statements of each Group company are measured using the currency of the primary economic environment in which that company operates (the functional currency). The consolidated financial statements record the results and financial position of each Group company in Pounds Sterling, which is the functional currency of the Company and the presentational currency for the consolidated financial statements.

Transactions and balancesTransactions in foreign currencies are recorded at the exchange rates prevailing on the dates of the transactions. Assets and liabilities denominated in foreign currencies are translated into Pounds Sterling at the relevant exchange rates prevailing at the balance sheet date. Exchange gains and losses are taken to the income statement.

Revenue Revenue is recognised at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of business and is shown net of value-added tax. The Group primarily earns revenues from the sale of graphene based products and dispersions. Product sales revenues are recognised following dispatch.


GROUP AND COMPANY ACCOUNTING POLICIES

Government grantsGovernment grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as other income on a systematic basis over the time periods that the costs, which it is intended to compensate, are expensed (including any periods of grant monitoring). Where the grant relates to an asset, it is recognised as deferred income and released in equal amounts over the expected useful life of the related asset (after also taking account of any periods of grant monitoring).

Internally generated intangible assets – research and development expenditureExpenditure on research activities is recognised as an expense in the year in which it is incurred. Development costs are only capitalised when the related products meet the recognition criteria of an internally generated intangible asset, the key criteria being as follows:

– technical feasibility of the completed intangible asset;

– the probability of future economic benefits;

– the reliable measurement of costs; and

– the ability and intention of the Group to use or sell the intangible asset.

Expenses for research and development include associated wages and salaries, material costs, depreciation on non-current assets and directly attributable overheads.

Intangible assetsIntangible assets are stated at cost less accumulated amortisation and any impairment losses. Intangible assets, which comprise licences and intellectual property, are amortised to the income statement using the straight line method over the shorter of their estimated useful life and period of contractual rights.

Property, plant and equipmentProperty, plant and equipment is stated at cost less accumulated depreciation and any impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, on the following basis:

Plant and machinery five to ten years straight line

Fixtures and fittings five years straight line

Computer equipment three years straight line

Construction in progress not depreciated

The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying value of the asset and is recognised in the income statement.

Impairment of property, plant and equipmentAt each reporting date, the Group reviews the carrying values of its property, plant and equipment assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable value of the asset is estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.

Recoverable value is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable value of an asset (or cash generating unit) is estimated to be less than its carrying value, the carrying value of the asset (or cash generating unit) is reduced to its recoverable value. Any impairment loss identified is immediately recognised in the income statement.



45

Financial instrumentsFinancial assets and financial liabilities are recognised when the Group becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expired.

InventoriesInventories are recognised at the lower of cost and net realisable value. Cost is determined using the first in, first out method. Appropriate provisions for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the assets are impaired.

Trade receivablesTrade receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the assets are impaired.

CashCash comprises cash on hand, demand deposits and other short term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Cash has a maturity period of three months or less.

Cash depositsCash deposits have a maturity period of greater than three months.

Equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Trade and other payablesTrade and other payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest rate method. This method allocates interest expense over the relevant period by applying the “effective interest rate” to the carrying amount of the liability.

Current and deferred taxThe tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items of income or expense that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted as at the balance sheet date.

Credit is taken in the accounting year for research and development tax credits, which have been claimed from HM Revenue and Customs, in respect of qualifying research and development costs incurred. Research and development tax credits have been recognised on a cash receipts basis.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying value of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Such assets and liabilities are not recognised if the timing difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the profit before tax as reported in the income statement.

Deferred tax liabilities are recognised on business combinations for temporary differences arising on investments in subsidiaries and associates and interests in joint ventures, except where the Group is able to control the reversal of the timing difference and it is probable that the timing difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated with reference to rates that are substantively enacted at the balance sheet date and expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the related deferred tax is also dealt with as an addition or reduction in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.


GROUP AND COMPANY ACCOUNTING POLICIES continued

Operating leasesRentals payable under operating leases are charged to the income statement on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

Share based paymentsThe Group issues share options to certain employees which are measured at fair value, calculated using Black Scholes models, and are recognised as an expense in the income statement with a corresponding increase in retained earnings. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. The options are equity settled.

The fair value of these payments is measured at the dates of grant and is recognised over the period during which employees become unconditionally entitled to the awards. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to retained earnings.

Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Exceptional costsItems that are both material and non-recurring and whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial statements are referred to as exceptional costs. Such items are disclosed separately within the financial statements.

Employee benefitsThe Group operates a defined contribution pension scheme. Contributions to the defined contribution pension scheme are charged to the income statement in the financial year to which the contributions relate. The contributions paid by the Group and the employees are invested within the individual pension funds in the month following the month of deduction.



47

1 Segmental informationThe Group currently has one operating segment. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources and in assessing performance. The Group’s Chief Executive Officer has been identified as the CODM. Revenue and profits arising from that operating segment are the same as presented on the face of the consolidated income statement and statement of comprehensive income.

2 Operating loss2017 2016

£’000 £’000

Operating loss is stated after charging:Operating leases – land and buildings 177 151Wages, salaries, social security, pension costs and IFRS 2 share based payments 2,645 2,911Depreciation of property, plant and equipment 251 169

The operating loss is stated after charging exceptional costs of £nil (2016: £250,000). Exceptional costs in 2016 principally relate to costs connected to the admission of new shares and also payments made as compensation for loss of office.

Services provided by the Group’s auditorsDuring the year the Group obtained the following services from its auditors at costs as detailed below:

2017 2016£’000 £’000

Audit servicesFees payable to the Company’s auditors for the audit of the Company and consolidated financial statements 13 11Fees payable to the Company’s auditors for the audit of the Company’s subsidiaries pursuant to legislation 6 5Non-audit servicesFees payable to the Company’s auditors and its associates for other services:– tax services 20 18– other services 3 6

42 40

3 Directors and employeesThe aggregate payroll costs of employees, including Directors, were:

2017 2016£’000 £’000

Wages and salaries 2,110 2,319Social security costs 236 244Other pension costs 107 113IFRS 2 share based payments 192 235

2,645 2,911

The average number of persons employed by the Group during the year was:

2017 2016Number Number

Engineering, technical and production 29 30Other 9 8Directors 4 4

Average monthly number of employees 42 42

The remuneration of the Directors (which forms part of these financial statements) is set out in the Remuneration report on page 30.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4 Other income2017 2016

£’000 £’000

Other income 168 177

Other income comprises grants recognised relating to the development of new graphene applications, the creation of employment and expenditure on fixed assets. It also includes a credit for the research and development expenditure credit grant (RDEC).

5 Obligations under leasesMinimum lease payments under non-cancellable operating leases are as follows:

2017 2016£’000 £’000

Operating leases which expire:

– not later than one year 189 —

189 —

6 Finance income2017 2016

£’000 £’000

Interest receivable on bank deposits 33 55

Finance income 33 55

7 Tax on loss2017 2016

£’000 £’000

Current taxR&D tax credits received (1,234) (189)R&D tax services fees — 14

Total current tax (1,234) (175)

Deferred taxUK deferred tax — —Adjustments in respect of prior years — —

Total deferred tax — —

(1,234) (175)

The tax assessed for the year is lower (2016: higher) than the UK corporation tax rate of 19.67% (2016: 20.00%). The tax on the Group’s loss before tax differs from the theoretical amount that would arise using the weighted average tax rate as follows:

2017 2016£’000 £’000

Loss before tax (4,277) (4,519)

Tax at the UK corporation tax rate (841) (904)Expenses not deductible for tax purposes (21) 70Movements on unrecognised deferred tax balances 813 913R&D tax credits received in respect of prior years (1,234) (189)Other timing differences 49 (57)R&D tax services fees — 14Unrecognised deferred tax asset utilised — (20)Re-measurement of deferred tax arising from change in UK tax rate — (2)

Tax credit for year (1,234) (175)



49

7 Tax on loss continuedOther timing differences relate to permanent and timing differences which are not allowable for taxation purposes.

Deferred tax assets totalling approximately £1,970,000 (2016: £1,796,000) have not been recognised. There has been an adjustment in the year to the unrecognised deferred tax asset due to the submission of an R&D tax claim in relation to financial years 2015 and 2016.

A change to the UK corporation tax rate was announced in the Chancellor’s Budget on 16 March 2016. The change announced is to reduce the main rate to 17% from 1 April 2020. Changes to reduce the UK corporation tax rate to 19% from 1 April 2017 and to 18% from 1 April 2020 had already been substantively enacted on 26 October 2015.

8 Earnings per shareBasic earnings per share is calculated by dividing the earnings attributable to Ordinary shareholders by the weighted average number of shares in issue during each year. The weighted average number of shares in issue during the year used in the calculation of basic earnings per share was as follows:

2017 2016’m ’m

Weighted average number of shares for basic earnings per share 22.1 19.7

Diluted earnings per share is the basic earnings per share adjusted for the effect of the conversion into fully paid shares of the weighted average number of share options outstanding during the year. The weighted average number of shares in issue during the year used in the calculation of diluted earnings per share was as follows:

2017 2016’m ’m

Weighted average number of shares for diluted earnings per share 23.0 20.9

Adjusted earnings per share has been calculated so as to exclude the effect of exceptional costs including related tax charges and credits. Adjusted earnings used in the calculation of basic and diluted earnings per share reconciles to basic earnings as follows:

2017 2016£’000 £’000

Basic earnings (3,043) (4,344)Exceptional costs — 250

Adjusted earnings (3,043) (4,094)

Earnings per share (pence per share)Basic (13.8) (22.0)Diluted (13.8) (22.0)

Adjusted earnings per share (pence per share)Basic (13.8) (20.8)Diluted (13.8) (20.8)

The Group was loss making for the years ended 31 July 2017 and 31 July 2016. Therefore, the dilutive effect of share options has not been taken account of in the calculation of diluted earnings per share or adjusted diluted earnings per share, since this would decrease the loss per share for each of the years reported.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

9 Intangible assetsIntellectual

Licences property Total£’000 £’000 £’000

CostAt 1 August 2016 97 — 97Additions 21 20 41

At 31 July 2017 118 20 138

Accumulated amortisationAt 1 August 2016 — — —Charge for the year — — —

At 31 July 2017 — — —

Net book value

At 31 July 2017 118 20 138

At 31 July 2016 97 — 97

No amortisation has been charged in the year since the related asset has not yet been commissioned.

10 Property, plant and equipmentFixtures and Plant and Computer Construction in

fittings machinery equipment progress Total£’000 £’000 £’000 £’000 £’000

CostAt 1 August 2015 33 568 38 160 799Additions 9 204 5 813 1,031Transfers — 193 — (193) —

At 31 July 2016 42 965 43 780 1,830Additions 8 50 1 625 684Transfers — 828 — (828) —Disposals (3) — (1) — (4)

At 31 July 2017 47 1,843 43 577 2,510

Accumulated depreciationAt 1 August 2015 (7) (133) (18) — (158)Charge for the year (8) (148) (13) — (169)

At 31 July 2016 (15) (281) (31) — (327)Charge for the year (8) (234) (9) — (251)Disposals 3 — 1 — 4

At 31 July 2017 (20) (515) (39) — (574)

Net book value

At 31 July 2017 27 1,328 4 577 1,936

At 31 July 2016 27 684 12 780 1,503

11 Inventories2017 2016

£’000 £’000

Finished goods 16 18Spares 29 20

45 38

The Directors believe that the carrying value of inventories represents their net realisable value.

The amount of inventories recognised as an expense during the year was £55,000 (2016: £65,000).



51

12 Trade and other receivables2017 2016

£’000 £’000

Trade receivables 6 11Other debtors 33 29Prepayments and accrued income 112 169

151 209

Contractual payment terms with the Group’s customers are typically 30 days. There are no provisions for impairment losses in respect of trade and other receivables.

The Directors believe that the carrying value of trade and other receivables represents their fair value. In determining the recoverability of trade receivables the Group considers any change in the credit quality of the receivable from the date credit was granted up to the reporting date. For details on the Group’s credit risk management policies, refer to note 14. The carrying amounts of the Group’s receivables are all denominated in Pounds Sterling.

All classes within trade and other receivables do not contain assets which are considered to be impaired. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.

13 Trade and other payables 2017 2016

£’000 £’000

Trade payables 260 420Other tax and social security 74 75Accruals and deferred income 563 525Other creditors 13 17

910 1,037

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. They are non-interest bearing and are normally settled on 30 to 45 day terms (2016: 30 to 45 days).

The Directors consider that the carrying value of trade and other payables approximates to their fair value. All trade and other payables are denominated in Pounds Sterling.

The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe and no interest has been charged by any suppliers as a result of late payment of invoices during the year.

14 Financial instrumentsThe Group is exposed to the risks that arise from its use of financial instruments. This note describes the objectives, policies and processes of the Group for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

Capital risk managementThe Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders. The Group is funded principally by equity. The capital structure of the Group consists of equity, comprising issued share capital. The Group has no externally imposed capital requirements.

In order to maintain or adjust the capital structure, the Group may return capital to shareholders or issue new shares.

Principal financial instrumentsThe principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

– trade and other receivables;

– trade and other payables;

– cash; and

– cash deposits.



14 Financial instruments continuedFinancial assetsAt the reporting date, the Group held the following financial assets which represent the maximum risk exposure:

2017 2016£’000 £’000

Cash 4,708 6,202Cash deposits — 1,500Trade receivables 6 11Other receivables 33 29

4,747 7,742

Financial liabilitiesAt the reporting date, the Group held the following financial liabilities, all of which were classified as other financial liabilities:

2017 2016£’000 £’000

Trade payables 260 420Other payables 576 542

836 962

Market riskThe Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. During the year, both these risks were considered to have been minimal.

Credit riskCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises principally from the Group’s cash balances and trade and other receivables. The concentration of the Group’s credit risk is considered by counterparty, geography and currency.

The Group gives careful consideration to which organisation it uses for its banking services in order to minimise credit risk. The Group has significant concentrations of cash, which it has placed on deposit with four institutions, each of which has a minimum credit rating of A (long term, as assessed by Standard & Poor’s). At the year end, the cash and cash deposits at each reporting date were denominated in the following currencies:

2017 2016£’000 £’000

Pounds Sterling 4,664 7,674US Dollar 5 8Euro 39 18Swiss Franc — 2

4,708 7,702

The nature of the Group’s business and the current stage of its development are such that individual customers can comprise a significant proportion of its trade and other receivables at any point in time. The Group mitigates the associated risk by close monitoring of the debtor ledger.

At 31 July 2017, the Group’s trade receivables balance was £6,000 (2016: £11,000). The carrying amount of financial assets recorded during the year represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained. In the Directors’ opinion, there has been no impairment of financial assets at any point during the year.

An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. The Board of Directors considers the above measures to be sufficient to control the credit risk exposure.

No collateral is held by the Group as security in relation to its financial assets.



53

14 Financial instruments continuedLiquidity risk managementLiquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. Ultimate responsibility for liquidity risk management rests with the Directors. The Directors manage liquidity risk by regularly reviewing the Group’s cash requirements by reference to short term cash flow forecasts and medium term working capital projections.

At 31 July 2017, the Group had £4,708,000 (2016: £7,702,000) of cash and cash deposit reserves.

Foreign currency risk managementThe Group’s exposure to foreign currency risk is limited since the vast majority of its invoicing and the majority of its payments are in Pounds Sterling. There are minimal balances held in foreign currencies at each reporting date and the Group has made no payments in foreign currencies other than US Dollar, Euro and Swiss Franc. Accordingly, no sensitivity analysis has been presented as this is immaterial.

Interest rate risk managementThe Group’s exposure to interest rate risk is limited since the Group has no debt, and there is little movement on deposit interest rates. Accordingly, no sensitivity analysis has been presented since this is immaterial.

Maturity of financial assets and liabilitiesAll of the Group’s non-derivative financial liabilities and its financial assets at each reporting date are either payable or receivable within one year.

15 Called up share capitalNumber of Total

Ordinary shares £’000

Allotted, called up and fully paidAt 1 August 2015 – Ordinary shares of 2 pence each 17,014,216 340Issued on 8 January 2016 4,858,335 97

At 31 July 2016 – Ordinary shares of 2 pence each 21,872,551 437Issued on 18 August 2016 166,204 3Issued on 4 November 2016 83,102 2Issued on 26 May 2017 168,906 4

At 31 July 2017 – Ordinary shares of 2 pence each 22,290,763 446

On 8 January 2016, 4,858,335 Ordinary shares of 2 pence each were issued at a price of £1.75 per share to institutional and other investors.

On 18 August 2016, 166,204 Ordinary shares of 2 pence each were issued at a price of £0.583 per share to Oliver Lightowlers following the exercise of EMI share options granted on 21 October 2013.

On 4 November 2016, 83,102 Ordinary shares of 2 pence each were issued at a price of £0.583 per share to Oliver Lightowlers following the exercise of EMI share options granted on 21 October 2013.

On 26 May 2017, 168,906 Ordinary shares of 2 pence each were issued at a price of £1.55 per share following the exercise of warrants.

16 Share premium account£’000

At 1 August 2016 18,243Issue of shares (net) 398

At 31 July 2017 18,641

Costs incurred associated with the issue of shares totalled £nil (2016: £471,000).



17 Merger reserve£’000

At 1 August 2016 1,231Movement in the year —

At 31 July 2017 1,231

18 Share based payments The Group operates a number of employee share option schemes, which run over a number of different time periods to reflect when awards have been made to Directors and employees. These schemes include:

– SAYE;

– non-approved executive options; and

– EMI.

The Group’s SAYE scheme is open to UK employees of the Group and is not subject to any performance conditions. SAYE takes the form of a monthly savings contract over a three year term, at the end of which participants have the opportunity to acquire shares in the Company at the option price determined at the date of grant.

During the year, the Group has recorded an IFRS 2 charge of £192,000 (2016: £235,000). Approximately 83% of the current year charge is derived from three share option awards made. In relation to these three awards made, the fair value of options and significant assumptions used in the calculation of the Group’s IFRS 2 charge were as follows:

Grant date 11 January 2016 31 January 2017 30 March 2017

Scheme EMI/non-approved Non-approved EMI/non-approved Share price at date of grant (£) £1.83 £1.675 £1.56Exercise price (£) £nil £nil £nilNumber of participants 11 10 10Shares under option 370,180 139,799 292,550Vesting period (years) 3 3 3Expected volatility (%) 30% 30% 30%Option life (years) 10 10 10Expected life (years) 3 3 3Risk free rate (%) 0.76% 0.34% 0.16%Expected dividend yield (%) Nil Nil NilFair value per option (£) £1.83 £1.67 £1.56Valuation model Black Scholes Black Scholes Black Scholes

The expected volatility is based on the average historical volatility of a portfolio of shares to reflect the fact that Applied Graphene Materials plc did not have a three year track record at any of the option grant dates. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero coupon UK government bonds over a term consistent with the assumed option life. Certain awards will only vest in full if specific performance criteria set out in the Remuneration report are met. For non-market based performance criteria, the Directors have made their best estimate of the number of options that will ultimately vest.



55

18 Share based payments continuedA reconciliation of option movements over the year to 31 July 2017 is shown below:

2017 2016

Weighted Weightedaverage averageexercise exercise

price priceNumber £ Number £

At 1 August 2016 2,074,656 0.55 1,620,811 0.66Granted 477,367 0.15 530,630 0.45Forfeited and lapsed (263,365) — (20,567) 1.97Cancelled (60,252) 1.70 (56,218) 2.12Exercised (418,212) 0.97 — —

Outstanding at 31 July 2017 1,810,194 0.38 2,074,656 0.55

Exercisable at 31 July 2017 934,962 0.40 1,262,826 0.57

The weighted average fair value of options granted in the year was £0.15 (2016: £0.45). 418,212 options were exercised in the year. The weighted average option exercise price for options exercised in 2017 was £0.97.

Options are exercisable at prices ranging between £nil and £3.40. The contractual life of options is generally ten years, which includes a vesting period with performance conditions (other than for the Group’s SAYE scheme, where no performance conditions exist).

19 Related party transactionsTransactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Transactions with shareholdersThe following transactions with shareholders and companies controlled by former Directors of the Group were recorded, excluding VAT, during the year:

2017 2016£’000 £’000

Durham University (shareholder)Staff secondment, consultancy and other fees 57 59Top Technology Limited (controlled by shareholder)Corporate finance fees — 26Non-Executive Director fees and expenses 16 20

The following balances were outstanding at the end of the year in respect of the transactions set out above:

2017 2016£’000 £’000

Durham University 64 40Top Technology Limited 9 5



19 Related party transactions continuedRemuneration of key management personnelThe remuneration of the Directors and the key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures:

2017 2016£’000 £’000

Short term employee benefits (excluding bonuses) 643 732Payments to third parties 15 15IFRS 2 share based payments 146 182Compensation for loss of office — —

804 929

Remuneration of key management includes remuneration paid by subsidiary undertakings in the current and prior financial years.

20 Cash flow statementNet cash generated from operations

2017 2016£’000 £’000

Continuing operationsLoss for the year attributable to equity shareholders (3,043) (4,344)R&D tax credit received (1,234) (175)Finance income (33) (55)Depreciation of property, plant and equipment 251 169Exceptional costs — 250

EBITDA (4,059) (4,155)Depreciation of property, plant and equipment (251) (169)Exceptional costs — (250)

Operating loss (4,310) (4,574)Depreciation of property, plant and equipment 251 169IFRS 2 share based payments 192 235Increase in inventories (7) (14)Decrease/(increase) in receivables 39 (42)(Decrease)/increase in payables (127) 42

Net cash used in operations (3,962) (4,184)

21 Availability of Annual ReportIt is anticipated that the Annual Report will be sent to all shareholders on 8 December 2017. Copies may be obtained from the Company Secretary at the registered office of the Company.

22 Post balance sheet eventsOn 10 October 2017, the Company announced that a total of 25,000,000 Placing shares have been conditionally placed at a price of 36 pence per Placing share, raising proceeds of £9 million (before expenses). The Company also confirms that qualifying shareholders were given the opportunity to subscribe for new Ordinary shares, at the issue price, through an open offer, on the basis of 1 Open Offer share for every 8 existing Ordinary shares held on the record date. At a general meeting held on 30 October 2017, the resolutions relating to the issue of shares was approved and subsequently the Placing shares were admitted to trading on AIM. In total 27,138,617 shares were issued, raising £9.8 million (before expenses).



57

2017 2016Note £’000 £’000

Assets

Non-current assets

Investments 5 196 196

Trade and other receivables 6 14,922 10,887

15,118 11,083

Current assets

Trade and other receivables 6 730 791

Cash deposits — 1,500

Cash 4,508 5,624

5,238 7,915

Liabilities

Current liabilities

Trade and other payables 7 (259) (324)

(259) (324)

Net assets 20,097 18,674

Shareholders’ equity

Called up share capital 446 437

Share premium account 18,641 18,243

Retained earnings 1,010 (6)

Equity shareholders’ funds 20,097 18,674

The Company’s profit for the financial year was £824,000 (2016: £194,000).

The financial statements on pages 58 to 63 were approved by the Board of Directors on 24 November 2017 and were signed on its behalf by:

Jon Mabbitt Gareth JonesChief Executive Officer Chief Financial Officer

Applied Graphene Materials plcRegistered number 08708426


COMPANY STATEMENT OF FINANCIAL POSITIONas at 31 July 2017

Called up Shareshare premium Retained Total

capital account earnings equity£’000 £’000 £’000 £’000

As at 31 July 2015 340 10,309 (435) 10,214

Profit for the year and total comprehensive income — — 194 194

IFRS 2 share based payments — — 235 235

Issue of shares (net) 97 7,934 — 8,031

As at 31 July 2016 437 18,243 (6) 18,674

Profit for the year and total comprehensive income — — 824 824

IFRS 2 share based payments — — 192 192

Issue of shares (net) 9 398 — 407

As at 31 July 2017 446 18,641 1,010 20,097



59

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYfor the year ended 31 July 2017

2017 2016Note £’000 £’000

Operating activities

Net cash used in operations 8 (55) (176)

Net finance income 52 44

Net cash used in operating activities (3) (132)

Investing activities

Purchase of property, plant and equipment — —

Net cash used in investing activities — —

Financing activities

Movement in intercompany loan (3,020) (4,970)

Net proceeds from issue of Ordinary shares 407 8,031

Net cash (used in)/generated from financing activities (2,613) 3,061

Net (decrease)/increase in net cash and cash deposits (2,616) 2,929



Net cash and cash deposits include:

Cash deposits (maturity greater than three months) — 1,500

Cash (maturity less than three months) 4,508 5,624



COMPANY CASH FLOW STATEMENTfor the year ended 31 July 2017

1 Basis of accountingIn accordance with the exemption permitted by Section 408(3)g of the Companies Act 2006, the Company has not presented its own income statement. The profit for the year attributable to Ordinary shareholders and dealt with in the financial statements of the Company was £824,000 (2016: profit of £194,000).

2 Services provided by the Company’s auditorsDuring the year the Company obtained the following services from its auditors at costs as detailed below:

2017 2016£’000 £’000

Audit servicesFees payable to the Company’s auditors for the audit of the Company 1 1

1 1

3 Directors All Directors of the Group are employed by the Company. The remuneration of the Directors (which forms part of these financial statements) is set out in the Remuneration report on page 30.

4 Property, plant and equipmentComputer

equipment Total£’000 £’000

CostAt 1 August 2015 1 1Additions — —Disposals — —

At 31 July 2016 1 1Additions — —Disposals — —

At 31 July 2017 1 1

Accumulated depreciationAt 1 August 2015 (1) (1)Charge for the year — —Disposals — —

At 31 July 2016 (1) (1)Charge for the year — —Disposals — —

At 31 July 2017 (1) (1)

Net book value

At 31 July 2017 — —

At 31 July 2016 — —



61

NOTES TO THE COMPANY FINANCIAL STATEMENTS

5 InvestmentsInvestment in

subsidiaries £’000

CostAt 1 August 2015 196IFRS 2 share based payments relating to subsidiary undertakings 97IFRS 2 share based payments recharged to subsidiary undertakings (97)

At 31 July 2016 196IFRS 2 share based payments relating to subsidiary undertakings 121IFRS 2 share based payments recharged to subsidiary undertakings (121)

At 31 July 2017 196

ProvisionsAt 1 August 2015 —

At 31 July 2016 —

At 31 July 2017 —

Net book value

At 31 July 2017 196

At 31 July 2016 196

At 31 July 2017 the Company held more than 20% of the allotted share capital of the following subsidiary undertakings:

Proportion Country of Class of held by Parent

incorporation share capital Company Nature of business

Applied Graphene Materials UK Limited,Office 2, Innovation Centre, Wilton Site, Redcar, Cleveland, TS10 4RF

England Ordinary 100% Research, development and manufacture of graphene

Applied Graphene Ventures Limited, The Wilton Centre, Wilton, Redcar, Cleveland, TS10 4RF

England Ordinary 100% Dormant

6 Trade and other receivables2017 2016

£’000 £’000

Amounts owed by subsidiary undertakings 15,573 11,586Other debtors 7 7Prepayments and accrued income 72 85

15,652 11,678

Non-current 14,922 10,887Current 730 791

15,652 11,678

The amounts owed by subsidiary undertakings include a loan to Applied Graphene Materials UK Limited for £14,922,000, which accrues interest at a rate of 8% per annum, and is payable on the date of repayment or prepayment of the loan in full. The loan is repayable, in full, on demand by the Parent Company. The Parent Company has confirmed that it does not intend to seek repayment of the loan balance for at least twelve months from the date of these financial statements, other than in a change of control event.

£651,000 of the balance relates to trade debt to Applied Graphene Materials UK Limited, which does not accrue interest and is repayable, in full, on demand by the Parent Company.


NOTES TO THE COMPANY FINANCIAL STATEMENTS continued

7 Trade and other payables2017 2016

£’000 £’000

Trade creditors 88 67Other tax and social security 19 18Accruals and deferred income 150 239Other creditors 2 —

259 324

8 Cash flow statementNet cash generated from operations

2017 2016£’000 £’000

Continuing operationsProfit for the year attributable to equity shareholders 824 194Net finance income (1,048) (664)Exceptional costs — 138

EBITDA (224) (332)Exceptional costs — (138)

Operating loss (224) (470)IFRS 2 share based payments 192 235Decrease in receivables 42 56(Decrease)/increase in payables (65) 3

Net cash used in operations (55) (176)



63

DirectorsDr Bryan DobsonNon-Executive Chairman

Jon MabbittChief Executive Officer

Gareth Jones Chief Financial Officer and Company Secretary

Professor Karl ColemanChief Scientific Officer

Mike TownendNon-Executive Director

Sean ChristieNon-Executive Director

Company number08708426

Registered officeThe Wilton CentreWiltonRedcarCleveland TS10 4RF

Tel: 01642 438214www.appliedgraphenematerials.com

Independent auditorsPricewaterhouseCoopers LLPCentral Square29 Wellington StreetLeeds LS1 4DL

SolicitorsSquire Patton Boggs6 Wellington PlaceLeeds LS1 4AP

BankersHSBC Bank plc1 Saddler StreetDurham DH1 3NR

Nominated advisor and brokerN+1 SingerOne Bartholomew LaneLondon EC2N 2AX

RegistrarLink Asset ServicesThe Registry34 Beckenham RoadBeckenhamKent BR3 4TU


CORPORATE INFORMATION

Applied Graphene Materials’ commitment to environmental issues is reflected in this Annual Report, which is printed on Novatech, an FSC® certified material. Dry waste associated with this production is diverted from landfill and the Annual Report is produced in accordance with ISO 140001 and ISO 9001 compliance.

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Applied Graphene Materials plc The Wilton Centre Wilton Redcar Cleveland TS10 4RF

Tel: 01642 438214 Email: [email protected]

www.appliedgraphenematerials.com

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