Graphene has been dubbed a “miracle” material, being around 200-times stronger than steel, transparent and able to efficiently conduct heat and electricity, but finding the best way to use it is actually a tough job, with trial and error needed to find the best products to adapt it to.
Italy-based firm Directa Plus Plc (LON:DCTA) – which floated on London’s AIM last year – is one of the companies working hard to tap into the magic of graphene, and although it had a very impressive set of maiden full-year results last week, it also reminded investors of the ‘learning curve’ that cutting-edge technology companies have to go through.
The firm, which has developed as a producer and supplier of graphene-based products for use in consumer and industrial markets, saw its revenues increase strongly in 2016, but also warned that it expects a significant reduction in anticipated revenues for 2017.
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For the year ended 31 December 2016, Directa saw its revenue from graphene sales increase by 89% to €0.74mln, up from €0.39 in 2015.
However, looking ahead, the firm said in its results statement that “deepening engagement with existing and potential customers to provide more comprehensive solutions will mean timeframe to adoption will be up to 12 months longer than previously anticipated”.
“[This was] a very important learning period for the group,” said Directa chief executive officer Giulio Cesareo.
In an interview with Proactive Investors after the results, he explained: "Last year was a very important time for Directa Plus … an exceptional year for a lot of positive reasons, but it was also a very important learning period for the group.”
“We realised it was not enough to produce the right kind of material in time, with the right quality and the right properties but it was also key for us to be involved inside the relationship of other actors in the supply chain.”
WATCH: 'A significant year' for Directa Plus, says CEO Giulio Cesareo
Cesareo noted that, for example, in textiles they had to work with the company producing the printing paste with graphene in order to adapt the recipe to the material’s specialities, and similarly with the printing company itself it had to help redesign the rolling system for the new product.
The issues obliged the group to postpone expected revenues for 2017 until 2018.
Directa’s boss pointed out that this was all part of the typical learning curve of a high-tech company.
He said the group realised “it was not enough to look after our little garden, but we have been obliged to support our partners within the value chain”.
It was a “difficult time but most of the problems are solved”, Cesareo added.
And, the CEO said, even with the postponement, the group’s expected revenues for 2017 are expected still to show “an increased mark-up of 100%” on 2016.
“Sustainable, simple and a scalable way” to produce graphene
Cesareo founded the company 12 years ago, with three Americans, to design a system to produce graphene in a “sustainable, simple and a scalable way”, which it has now achieved, and adapt it to a wide-range of products.
The group is aiming now to focus on its Environmental and Textiles products, where it is very advanced, but it still plans to work with customers in Elastomers and Composites, such as bicycle tyre manufacturer Vittoria, and spectacle makers such as Italy’s Luxottica.
Bicycle components firm Vittoria was the first manufacturer to use Directa’s products, firstly in a carbon fibre wheel, and then in “intelligent” bicycle tyres.
These stay very hard when rolling, but soft when braking, and were used at the Rio Olympics, where cyclists won four medals using them.
Last year Vittoria sold 600,000 of the “intelligent tyres”, but in 2017 the market is not growing by as much as hoped, which Cesareo believes is a cycling industry issue, with retailers looking overstocked after a big push of products last year.
Directa’s CEO said Vittoria will remain an important customer, but the critical focus will be on Environmental, where the firm produces decontamination units for oil companies to filter hydrocarbons from water, and in Textiles.
The French ski team is currently using a downhill suit made by joint venture partner Colmar using Directa’s graphene product, tested in wind tunnels to improve performance. Colmar initially launched a four-piece collection, and now has 14.
Aside from Colmar, Directa has signed joint development agreements with two very large textile producers, and is negotiating a third one with one of the largest firms in the industry worldwide.
Cesareo said the target for textiles is to get partners producing a million prices of thermal clothing.
He also pointed out that Directa’s goal is not to remain an Italian production company, but to move abroad to where the market, especially in textiles, is already growing, noting that more than 60% of its 2016 revenues were sold abroad, and not in Italy.
The firm had 17 active customers at the year-end in 2016, up from 7 a year earlier, with the total number of patents granted to the company up to 14 from 12.
Shares punished, but CEO confident firm “will get back on track”
Directa shares lost almost a third of their value after the last announcement, dropping to 63.0p, well below the 75p per share level they floated at nearly a year ago.
READ: Cantor Fitzgerald cuts its rating and target for Directa Plus
In a note to clients, Cantor Fitzgerald analyst William Game said: “The pipeline is strong, but will require the delivery of positive news flow in 2017 to underpin our sales expectations and demonstrate on-going headway.”
Directa’s CEO said: “We will have to reinforce and recapture the attention and the proper trust of the investor that this is not driven by the wrong product or a big mistake in strategy but is driven by a learning curve that we were not able to anticipate before.”
The company said it is also really well capitalised, with no need to raise any more monies, having almost two years of cash at the worst-case scenario, and enough to finance the “proper investment at the right time.”
The CEO said he is “absolutely confident we will get back on track and are confident we will be able to make a couple of interesting announcements in the second part of the year”.
Cesareo said the group has been working hard on “a through-put project” which should come to fruition by the end of the year, improving efficiencies across the firm.
Given his honesty over the reasons behind the revenue postponement that spooked the markets, the Directa boss will hopefully prove good to his words.