RM2 INTERNATIONAL S.A.

Transcription

1 Société Anonyme Consolidated financial statements and Consolidated management report and Report of the Réviseur d Entreprises Agréé Registered Office : 5, rue de la Chapelle L-1325 LUXEMBOURG R.C.S. Luxembourg : B

2 Table of contents Page(s) Company information 1 Consolidated management report 2-10 Corporate governance report 11 Report of the Réviseur d Entreprises Agréé Consolidated statement of comprehensive income 15 Consolidated statement of financial position 16 Consolidated statement of changes in equity 17 Consolidated statement of cash flows 18 Notes to the consolidated financial statements 19 63

3 RM2 International S.A. Company Information Directors & Advisers Directors R. Ian Molson Chairman Kevin Mazula Chief Executive Officer Jean-Francois Blouvac Chief Financial Officer Jan Dekker Non-Executive Director Charles Duro Non-Executive Director Lord Rose Non-Executive Director Paul Walsh Non-Executive Director Biographies of the Directors are available on the Company s website Registered Office 5 rue de la Chapelle L-1325 Luxembourg Grand Duchy of Luxembourg Company number RCS Luxembourg B Nominated adviser and broker Strand Hanson Limited 26 Mount Row London W1K 3SQ Independent Auditor Grant Thornton Audit & Assurance 89A, Pafebruch L-8308 Capellen Luxembourg Registrar Computershare Investor Services (Jersey) Limited Queensway House Hilgrove Street Jersey JE1 1ES 1

4 Consolidated management report The Directors present their report on the affairs of RM2 International S.A. (the Company) and its subsidiaries, referred to as the Group, together with the audited Consolidated Financial Statements and Independent Auditors report for the year ended 31 December Principal Activities RM2, the sustainable smart pallet innovator, specializes in pallet development, supply and management and is seeking to establish a leading presence in global pallet supply and improve the supply chain of manufacturing and distribution businesses through the effective and efficient use, electronic tracking and management of smart composite pallets. Business Review and Key Performance Indicators Under new leadership, the Company focussed on the following objectives: 1. Focus sales efforts principally on new deployment opportunities of RM2 ELIoT Smart Pallets 2. Successfully complete the initial trials of RM2 ELIoT Smart Pallets with those potential customers 3. Complete the transition to a high quality, low-cost outsourced manufacturing model 4. Reduce exposure to previous low margin non-eliot enabled pallets deployments 5. Unwind operations at the Canadian manufacturing site, streamline operating expenses, eliminate non value-added activities and monetize non-core, legacy assets 6. Invest in RM2 ELIoT Smart Pallet add-on technologies The business report considers the key performance indicators to be the business revenues, the level of production and the monitoring of related ramp-up costs, the outcomes of RM2 ELIoT testing and the cash reserves of the business. The Company displays below a simplified Profit and Loss with a breakdown of recurring and one-time impact with their related cash implication through three stages (cash, differed cash, and non-cash). The cash items impact FY2017 cash flows under the usual payment terms and opening/ending balances. The differed cash items impact the cash flows of subsequent years such as 2018 and 2019.The non-cash items such as depreciation, amortization and impairment, don t impact FY2017 cash flows. in $m TOTAL = Recurring + One-Time detail of One-Time Outsourcing Canada Others Revenue "cash" "differed cash" "non-cash" Cost of Goods "cash" "differed cash" "non-cash" SG&A "cash" "differed cash" "non-cash" Other expenses "cash" "differed cash" "non-cash" Operating LOSS "cash" "differed cash" "non-cash"

5 Consolidated management report Revenues The Company is now focussed on deploying RM2 ELIoT Smart Pallets which provide a clear value for its customers. Several trials were initiated and completed in late 2017 and are continuing through Revenue generated by the Company including exceptional (i.e. beyond the normal course of business) items in 2017 was 6.6m, decreasing by 2.3m compared to the same period in the prior year. The decrease is attributable to a lower extraordinary item (i.e. beyond the normal course of business - sale of raw material) for 1.0m, a lower pallet velocity under rental for 0.8m, the impact of terminated contracts for tracking of third party assets in the Equipment Tracking business for 0.4m and slightly lower outright sales of pallets for 0.1m. The revenue generated from the pallet rental business, 4.9m, grew in EMEA and Canada by 33% and 56%, respectively, but did not offset the erosion of the business in the United States due to decreasing velocity and declining number of plants served in pallet loops by the Company s largest customer of non-eliot enabled pallets in the US, the contract which is in a wind-down mode. Excluding the one-time sale of raw material, recurring revenue for the Company reached 5.7m for The active pool of non-eliot enabled rental pallets amounted to 275k pallets as of 31 December 2017, an increase of 10k over year-end Production and ramp-up costs The Company completed the transition to an outsourced model in Throughout this process, the Company worked closely with its partner in Mexico to ramp up with lower cost, higher quality production in Mexico tailored to market demand. Focusing on process improvements and RM2 ELIoT Smart Pallet deployment led to a reduced production of non-eliot enabled pallets, with 78k pallets being produced in Mexico during the course of This created a situation of excess capacity with its supplier. The Company agreed to reimburse its partner an aggregate of 8.9m for the under-recovery of transition costs, of which 8.1m has been paid or accrued in m has been paid in 2017, with the remaining amount to be paid through periodic invoices and as surcharges to the unit cost. The full amount is to be satisfied no later than June The Company also incurred 0.7m of expenses in relation to the Chinese set-up, taking the total outsourcing cost recorded in 2017 as part of the Cost of Goods Sold to 8.8m. The Canadian operations, which are in wind down mode over the year, triggered a cost of 5.7m while 5.0m of recurring expenses were incurred of which logistical expenses in relation with the pool of pallets deployed amounted to 4.0m and labour costs for the third party s assets tracking business in Wales amounted to 0.7m. The rest of Cost of Goods Sold ( 15.4m) mainly concerns non-cash items. Business amortization and depreciation of tangible assets (equipment and pallets) amount for 9.2m and 5.0m of impairment were recorded by the company after fit-for-purpose review of manufacturing assets ( 2.2m) and assessment of the fair market value of current assets ( 2.8m) based on realizable value for inventory of pallets not eligible for retrofitting and raw material inventory. RM2 ELIoT deployment Prior to deploying RM2 ELIoT pallets in large quantities, the Company tested the pallet in the field with several different customers and verified the processes to ensure that it could manufacture in volume. 1. A 200-unit product performance trial was successfully completed, demonstrating that the product can perform in many different environments (e.g., sub-freezing and desert conditions) 2. The product was certified by the appropriate agencies 3. A 2,000-unit process trial was successfully completed, demonstrating that the product can be manufactured in a controlled manner in volume 4. A larger scale trial of 500 units was conducted with one individual customer, demonstrating the advantages of higher volume analytics. The current testing results are satisfactory; the Company s systems immediately flag pallets circulating outside of authorized loops, enabling a customer to better monitor its supply chain and reduce losses, and permitting the Company to generate updated balances and accurate invoices immediately. The Company has entered into a Phase 1 agreement for an initial deployment of RM2 ELIoT pallets through 30 June 2018 with a Fortune 500 company in North America following a year-long trial with this blue-chip customer's supplier network. In addition, the Company has also completed a major trial with a North American company and discussions on a large-scale implementation are expected to commence. The Company has also expanded ongoing trials with other major US-based customers. 3

6 Consolidated management report Cash reserves Unrestricted cash reserves at 31 December 2017 stand at 3.9m, compared to 9.8m at 31 December The Company issued 20.0m of Convertible Preferred Shares in the course of the 2017 financial year. The Company s cash flow in 2017 is negative by 25.9m. 5.2m was paid in 2017 for the pure acquisition of pallets, excluding the ramp up costs. 1.9m was received for the sale of raw materials, including 2016 open balances. Manufacturing activities generated a net cash outflow of 3.3m in This amount of net purchase of pallets ( 3.3m) added to the cash items from the Profit and Loss chart above mentioned ( 22.8m) bridges to the 2017 cash flows, after taking into account the payment terms and opening/ending balances. The Company has undertaken a large downsizing over the second semester of 2017, including the renegotiation or termination of employment and consulting contracts and the renegotiation of various fees associated with its listing on the AIM market of the London Stock Exchange. These actions were completed by end of The Company continues to review opportunities to further reduce its cost base and achieve operational efficiencies. Legal matters The Company is involved in various claims, lawsuits and proceedings arising in the ordinary course of business, including matters relating to employees, VAT, transfer pricing, contracts and intellectual property. While there are uncertainties inherent in the ultimate outcome of such matters and it is impossible to determine at present the ultimate costs that may be incurred, management believes the resolution of such uncertainties and the incurrence of such costs will not have a material adverse effect on the Company s financial position, results of operations or cash flows. Own shares The Company acquired 19,000 and 2,500,000 of non-vested ESOP restricted ordinary shares with a nominal value of 0.01 for an amount of 190 and 25,000, on 27 February 2017 and 21 August 2017, respectively, following the resignation of employees. These shares are held by the Company as non-voting treasury shares. As of 31 December 2017, the Group owns 2,916,334 own ordinary shares, nominal value 0.01, and representing 0.72 % of issued ordinary shares. Going Concern FY2017 performance The Group s financial result for the year ending 31 December 2017 is a loss of 43.9m (December 2016: loss of 52.8m). Despite a reduction of the overall loss by 8.9m compared to last year, the Company s performance was affected by a number of non-recurring items in the amount of 20.7m. The differed cash portion and the non-cash portion of these non-recurring items amounting to 9.3m, are composed of impairment of not-fit-for-purpose equipment ( 2.2m), current assets with a realizable value below book value ( 2.8m) and the agreed contributions to cover transition and ramp-up costs in Mexico ( 4.9m). The Company also released a VAT accrual in FY2017 as the refund was received in 2018 before the financial statements disclosure date ( 0.6m). The cash portion of these non-recurring items amount to 11.4 and relates to outsourcing ramp up costs ( 5.7m) and Canadian operations in wind down mode ( 5.7m). Selling general and administrative expenses for the year ended on 31 December 2017 amounts to 15.0m, of which 1.9m related to one-time costs (VAT, custom duties) and 1.5m relates to non-cash items (share based payment, amortization and impairment). The loss for the year, excluding these non-recurring items, is 22.2m, with a cash cost of recurring business below 12.0m a year equity funding On 29 March 2018, the Company announced that it had, conditionally and in two tranches, raised 36m before fees and expenses by a placing of new Ordinary Shares to existing institutional investors, certain directors and members of senior management. The issuance of the first tranche, which raised gross proceeds 4

7 Consolidated management report of 18,162,500 took place on 13 April The issuance of the second tranche will occur ten business days following a drawdown notice issued by the Company and is subject to the satisfaction of certain key performance indicators, including reducing operating costs of the business to a pre-determined level, launching the next generation IoT Cat M RM2 ELIoT pallets and achieving commercial deployment of RM2 ELIoT pallets and reviewing the governance of the Company, as determined to the satisfaction of the Company s largest shareholder, Woodford Investment Management Limited, acting on behalf of certain discretionary managed funds for which it acts as discretionary investment fund manager. Management has undertaken an action plan intended to ensure satisfaction of the key performance indicators to allow for the issuance of the second tranche of shares. Road map The Company intends to use the net proceeds of the Placing to fund: (i) the retrofitting of existing inventory of RM2 BLOCKPals with RM2 ELIoT track and trace devices, (ii) the production of new RM2 ELIoT Pallets and (iii) its sales and general administrative costs. Management established a detailed road map for the production and deployment of pallets and cost reductions. Many variable items have been secured through agreements with the Mexican industrial partner, signed customer deployment and on-going monetization of historical assets, including the sale of Company s non-core building in Switzerland, the inventory of fibreglass and the pallets which are not designated to be retrofitted. The Company announced on 13 April 2018 that it has entered into a Phase 1 agreement for an initial deployment of RM2 ELIoT pallets through 30 June 2018 with a Fortune 500 company in North America following a year-long trial with this blue-chip customer's supplier network. Some items, such as deployments with other customers, are not yet fully secured. The Company is in an advanced phase of negotiation following the completion of a major trial with a North American company and discussions on a large-scale implementation are expected to commence. The Company has also expanded ongoing trials with other major US-based customers and is confident of its ability to convert a number of these trials to contracts. A platform to further growth The Company has reactivated discussions with debt providers in the light of the recent equity raise and the beginning of customer conversion to RM2 ELIoT pallets. These preliminary discussions confirm management s belief that the unique offering the Company brings to the market with a superior material and individual electronical tracking, enable a debt-funded expansion. To the extent the existing and potential customers in the commercial pipeline convert to contracts representing demand for pallets exceeding installed production capacity, management would accelerate seeking debt funding in order to activate the additional production capacity beyond that currently installed in Mexico. The Directors have analysed the Group s situation and applied their best estimates to assumptions of the future development of the business for the 12 month period after year end. The Directors acknowledge that the road map to the cash break-even position remains challenging but are confident that the two tranches of 2018 equity funding will provide the Group with sufficient funding to meet its operating and pallet deployments financial needs during this period. The Directors are confident that they will be able to meet the contractual conditions necessary to be able to call the second tranche of equity funding. For these reasons, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future and accordingly, continue to adopt the going concern basis in preparing the consolidated financial statements. Dividends The Directors will not be proposing a resolution for shareholders to approve the payment of a dividend with respect to 2017 (2016: nil). Capital Structure Details of the authorised and issued share capital, together with details of the movements in the Company s issued share capital during the period are shown in Note 14. Details of the share option scheme are set out in Note 22. Supplier Payment Policy The Group s policy is to settle terms of payment with suppliers when agreeing to the terms of each transaction. 5

8 Consolidated management report Subsequent Events Subsequent events are described in Note 28 to the Consolidated Financial Statements. 6

9 Consolidated management report Directors The Directors who served the Company during the year and up to the date of this report were as follows: Executive Directors John Walsh Stepped down June 30, 2017 Jasper Judd Appointed June 30, 2017 Stepped down August 2, 2017 Kevin Mazula Appointed August 3, 2017 Jean-Francois Blouvac Non-Executive Directors R. Ian Molson Jan Dekker Charles Duro Frederic de Mevius Stepped down March 29, 2018 Lord Rose Amaury de Seze Stepped down June 30, 2017 John Walsh Stepped down March 29, 2018 Paul Walsh The Director s emoluments (translated into at average rate) were in 2017 and 2016, as follows: Salary & Salary & Benefits Total Fees Fees Benefits Total Executive Directors Jean-Francois Blouvac 355,460 25, , ,296 23, ,542 Kevin Mazula* 187,500 7, , Jasper Judd 64,507-64, John Walsh 385,969 51, , , , , ,436 84,852 1,078, , , ,534 Non-Executive Directors R. Ian Molson Jan Dekker Charles Duro Frederic de Mevius Lord Rose Amaury de Seze Paul Walsh John Walsh ,436 84,852 1,078, , , , *from August 3, 2017 In 2017, with respect to the first half of 2017 (and the second half of 2016 with respect to Frédéric de Mevius), the Non-Executive Directors fees were settled by the issuance of 757,500 ordinary shares in the Company on 17 February 2017 at a price of GBP per share. In 2016, the Non-Executive Directors fees were settled by the issuance of 1,275,500 ordinary shares in the Company on 8 July 2016 at a price of GBP

10 Consolidated management report per share. In each case, the Ordinary Shares are restricted from trading until volume weighted average quoted price of the Ordinary Shares for a consecutive 30-day period equals or exceeds GBP Directors interests The Directors who held office at 31 December 2017 had the following interests in the ordinary shares (including Convertible Preferred Shares) of the Company: Number of shares at 31 December 2017 % held at 31 December 2017 Number of shares at 30 April 2018 R. Ian Molson* 23,600, ,860,083 John Walsh** 26,439, Jean-Francois Blouvac 2,500, ,129,108 Jan Dekker 2,790, ,440,000 Charles Duro 627, ,038,064 Lord Rose 1,440, ,695,634 Kevin Mazula ,629,108 Paul Walsh 2,029, ,080,500 Frederic de Mevius** 190, ,616, ,572,497 *includes associated family trusts, of which, 12,207,775 are Convertible Preferred Shares at 31 December **Shareholdings are excluded from the April 30, 2018 table as these directors stepped down prior to April 30, Of the holdings above 17,227,683 (2016: 16,900,180) consist of Restricted Shares set out below. A Director holding Restricted Shares shall not sell, transfer, mortgage, charge, encumber or otherwise dispose of any of his Restricted Shares as long as certain performance conditions are not fully satisfied (the Performance Conditions ). The Performance Conditions are linked to the volume weighted average quoted price of the Ordinary Shares (the Average Price ) for a consecutive 30-day period (the Relevant Period ). For restricted shares granted prior to February 2014, if the Average Price is 50% higher than the Placing Price (GBP 0.88) for the Relevant Period, the Performance Condition in respect of one third of the Director s Restricted Shares shall be fulfilled. If the Average Price is 75% higher than the Placing Price for the Relevant Period, the Performance Condition in respect of a further one third of the Director s Restricted Shares shall be fulfilled. If the Average Price is 100% higher than the Placing Price for the Relevant Period, the Performance Condition in respect of the final third of the Director s Restricted Shares shall be fulfilled. For Restricted Shares granted thereafter, if the Average Price is above 100p for a consecutive thirty-day period, the Performance Condition in respect of such Restricted Shares is fulfilled. If any Performance Conditions are not fully satisfied by ten years after the date of the grant, the Director shall transfer any of his remaining Restricted Shares to the Company at a purchase price equal to the nominal value of the Restricted Shares, being 0.01 per share. Total number of shares at 31 December 2017 Total number of unvested options at 31 December 2017 Number of restricted shares (only) at 31 December 2017 Number of restricted shares (only) at 30 April 2018* R. Ian Molson** 23,600,276 2,250,000 4,992,500 - John Walsh 26,439,717-6,552,680 - Jean-Francois Blouvac 2,500,000 1,000,000 2,500,000 - Jan Dekker 2,790, , ,000 - Charles Duro 627, , ,500 - Lord Rose 1,440, ,000 1,440,000 - Paul Walsh 2,029, ,000 1,440,000 - Frederic de Mevius 190, ,616,584 5,750,000 17,527,680-8

11 Consolidated management report *By action of the Remuneration Committee on April 20, 2018, restrictions relating to the attainment of share price thresholds were removed with immediate effect. **Of which, 12,207,775 are Convertible Preferred Shares at 31 December The terms of the unvested options are 10-year options vesting over 3 years in equal annual instalments; struck at the money but not exercisable until the stock closes above 100% for a thirty-day average closing price. Corporate Responsibility The Board recognises its employment, environmental and health and safety responsibilities. It devotes appropriate resources towards monitoring and improving compliance with existing standards. Employees The Group is committed to achieving equal opportunities and to complying with relevant anti-discrimination legislation. It is established Group policy to offer employees and job applicants the opportunity to benefit from fair employment, without regard to their sex, sexual orientation, marital status, race, religion or belief, age or disability. Employees are encouraged to train and develop their careers. The Group has continued its policy of informing all employees of matters of concern to them as employees, both in their immediate work situation and in the wider context of the Group s well-being. Communication with employees is effected through the Board, the Group s management briefings structure, formal and informal meetings and through the Group s information systems. Total headcount of the company as of 31 December 2017 is 72. Research & Development The Group has performed R&D activity during the year, mainly on the development of the RM2 ELIoT technology. The related expenses have been recorded as costs to the profit and loss account. Risks and uncertainties These elements are described in Note 25 to the consolidated financial statements. Directors Responsibilities The Directors are responsible for preparing the Annual Report and the Consolidated Financial Statements and for being satisfied that the Consolidated Financial Statements give a true and fair view. The Directors are also responsible for preparing the Consolidated Financial Statements in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union. Company law requires the Directors to prepare Consolidated Financial Statements for each financial period which give a true and fair view of the state of affairs of RM2 International S.A. (the Company) and the Group and of the profit or loss of the Company and the Group for that period. In preparing those Financial Statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. The Directors confirm that they have complied with the above requirements in preparing the Financial Statements. The Directors are responsible for keeping adequate accounting records that are sufficient to 9

12 Consolidated management report show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Statement of disclosure to the Independent Auditor All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Group's Independent Auditor for the purposes of his audit and to establish that the Independent Auditor is aware of that information. The Directors are not aware of any relevant audit information of which the Independent Auditor is unaware. Independent Auditor The auditor, Grant Thornton Audit & Assurance, will be proposed for re-appointment at the forthcoming Annual General Meeting. 10

13 Corporate governance report The Board is committed to proper standards of Corporate Governance, managing the Group in an efficient, effective, entrepreneurial and ethical manner for the benefit of shareholders over the longer term. In the context of the Group s strategy for growth, the Board will continue to actively review its Corporate Governance at regular intervals. The Board is responsible for the Group s system of internal control and reviewing its effectiveness. Such a system is designed to manage rather than eliminate risk of failure to achieve business objectives and can only provide reasonable and not absolute insurance against material misstatement or loss. The system of internal financial control comprises of controls established to provide reasonable assurance of: The safeguarding of assets against unauthorised use or disposal and; The reliability of financial information used within the business and for publication and the maintenance of proper accounting records. In addition, the key procedures on the internal financial control of the Group are as follows: The Board reviews and approves budgets and monitors performance against those budgets regularly with any variance being fully investigated and; The Group has clearly defined reporting and authorisation procedures relating to the key financial areas. The Annual General Meeting is the principal forum for dialogue with shareholders. 11

14 To the Shareholders of RM2 INTERNATIONAL S.A. 5, rue de la Chapelle LU-1325 LUXEMBOURG Grant Thornton Luxembourg Grant Thornton Audit & Assurance Société anonyme 89A, Pafebruch L-8308 Capellen Luxembourg T F REPORT OF THE REVISEUR D'ENTREPRISES AGREE Qualified Opinion We have audited the consolidated Financial Statements of RM2 INTERNATIONAL S.A. and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion section of our report, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Basis for Qualified Opinion Property, plant and equipment other include idle tangible assets located in Canada and in China, requiring impairment testing, showing a net book value amounting to 13,642,477 for which we could not obtain sufficient appropriate audit evidence to justify the net valuation because we have not been able to the recoverable amount of these assets. As a result, we were unable to determine whether any adjustments were necessary on these positions. In addition, last year audit opinion was modified with regards to valuation net of the property plant and equipment. consolidated financial statements is also modified because of the figures in the preceding period. We conducted our audit in accordance with the Law of July 23, 2016 on the audit profession (Law of July 23, 2016) and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the of the consolidated Financial Statements» section of our report. We are also independent of the Group Professional Accountants (IESBA Code) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the consolidated Financial Statements, and have fulfilled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Grant Thornton Audit & Assurance VAT reg: LU Registered in Luxembourg. Group number: B Grant Thornton Luxembourg is the Luxembourg member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered independently by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one acts or omissions. 12

15 Other information The Board of Directors is responsible for the other information. The other information comprises the information included in the consolidated management report and corporate governance report but does not include the consolidated thereon. Our opinion on the consolidated Financial Statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. 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 this fact. We have nothing to report in this regard. Responsibilities of the Board of Directors and Those Charged with Governance for the consolidated Financial Statements The Board of Directors is responsible for the preparation and fair presentation of these consolidated Financial Statements in accordance with IFRSs as adopted by the European Union, and for such internal control as the Board of Directors determines is necessary to enable the preparation of the consolidated Financial Statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated Financial Statements, the Board of Directors is responsible for assessing the Group concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the process. Statements Our objectives are to obtain reasonable assurance about whether the consolidated Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report of assurance, but is not a guarantee that an audit conducted in accordance with the Law dated July 23, 2016 and with ISAs as adopted for Luxembourg by the CSSF 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 consolidated Financial Statements. As part of an audit in accordance with the Law dated July 23, 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors. 13

16 Conclude on the appropriateness of the Board of Directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group as a going concern. If we conclude that a material uncertainty exists, we are required to draw consolidated Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report of Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated Financial Statements, including the disclosures, and whether the consolidated Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities and business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards. Luxembourg, May 18, 2018 Thierry REMACLE Grant Thornton Audit & Assurance 14

17 Consolidated Statement of Comprehensive Income Notes Restated Continuing operations Revenues 16 6,557,044 8,882,129 Cost of sales 17 (34,849,544) (43,118,539) Gross profit (28,292,500) (34,236,410) Administrative expenses 18 (15,001,932) (18,005,942) Other operating expenses 19.2 (81,909) (101,960) Other operating income , ,636 Operating loss (42,875,408) (52,057,676) Finance costs 19.4 (2,708,809) (3,063,894) Finance income ,945,887 2,234,567 Loss before tax (43,638,330) (52,887,003) Income taxes 20 (218,694) 73,365 Loss for the year Other comprehensive income Other comprehensive income to be reclassified in profit or loss in subsequent periods: (43,857,024) (52,813,638) Exchange difference on translation of foreign operations 1,675,226 1,182,368 Other comprehensive income for the year, net of tax 1,675,226 1,182,368 Total comprehensive income for the year (42,181,798) (51,631,270) Loss for the year attributable to: Equity holders of the parent (43,857,024) (52,813,638) (43,857,024) (52,813,638) Total comprehensive income for the year attributable to: Equity holders of the parent (42,181,798) (51,631,270) (42,181,798) (51,631,270) Loss per share 23 Basic loss per share attributable to ordinary equity holders of the parent (0.11) (0.13) Diluted loss per share attributable to ordinary equity and convertible preferred shares holders of the parent (0.11) (0.13) 15

18 Consolidated statement of financial position as at 31 December 2017 Notes Assets Non-current assets Intangible assets 8 1,276,504 1,573,262 Property, plant & equipment - Other 5 28,717,071 35,789,520 Property, plant & equipment - Pallet pool 6 7,026,363 10,700,444 Investment property 7-1,280,807 37,019,938 49,344,033 Current assets Inventories 10 16,614,995 16,449,080 Trade and other receivables 11 3,550,848 5,214,960 Other current financial assets 9 10,039 22,866 Fixed assets held for sale 12 2,657,744 - Prepayments 1,024,503 1,045,572 Restricted Cash 13 2,035,642 1,884,713 Cash and cash equivalents 13 3,866,217 9,794,905 29,759,988 34,412,096 Total assets 66,779,926 83,756,129 Equity and liabilities Equity 14 Ordinary shares ,070,627 4,003,052 Convertible preferred shares ,348, ,280 Share premium ,681, ,893,809 Retained earnings (272,845,748) (229,107,776) Share based payment reserve ,850,588 20,073,279 Treasury stock 14.7 (29,163) (3,424) Foreign currency translation reserve 14.5 (8,012) (1,683,238) Equity attributable to equity holders of the parent 55,067,766 76,598,982 Total equity 55,067,766 76,598,982 Non-current liabilities Interest bearing loans and borrowings 9.1-1,688,007 Deferred tax liabilities ,751 (12,425) 43,751 1,675,582 Current liabilities Interest bearing loans and borrowings 9.1 1,745, ,002 Trade and other payables 15 9,278,493 4,266,021 Deferred income 563, ,060 Current tax liabilities 80, ,482 11,668,409 5,481,565 Total liabilities 11,712,160 7,157,147 Total equity and liabilities 66,779,926 83,756,129 16

19 Consolidated Statement of Changes in Equity Consolidated statement of changes in equity Notes Ordinary shares Convertible preferred shares Share premium Retained earnings Foreign currency translation reserve Treasury Stock Share based payment reserve Total equity As at 1 January ,980, ,317,090 (176,294,138) 2,865,606 (3,424) 19,044, ,178,319 Loss for the year (52,813,638) (52,813,638) Other comprehensive income ,182, ,182,368 Total comprehensive income (52,813,638) 1,182, (51,631,270) Shares issued in the year 14 22, ,750 Convertible preferred shares issued in the year - 423,280 19,576, ,599,999 Cost of share issue Repurchase of shares into treasury Share based payments ,029,185 1,029,185 Transaction with owners 22, ,280 19,576, ,029,185 21,051,933 As at 31 December ,003, , ,893,809 (229,107,776) (1,683,238) (3,424) 20,073,279 76,598,982 Loss for the year (43,857,024) (43,857,024) Other comprehensive income ,675, ,675,226 Total comprehensive income (43,857,024) 1,675, (42,181,798) Ordinary shares issued in the year 14 67, ,575 Convertible preferred shares issued in the 14 year 20,000, ,877 19,075, Cost of share issue - - (287,615) 119, (168,563) Repurchase of shares into treasury (25,739) - (25,739) Share based payments , ,309 Transaction with owners 67, ,877 18,787, ,052 - (25,739) 777,309 20,650,581 As at 31 December ,070,627 1,348, ,681,317 (272,845,748) (8,012) (29,163) 20,850,588 55,067,766 17

20 Notes Cash flows from operating activities Loss before tax (43,638,330) (52,887,003) Adjustment to reconcile profit before tax to net cash flows Amortisation and depreciation of non-current assets 5/6/7/8 9,875,684 8,723,262 Impairment on of current and non-current assets 2,450,597 8,661,080 Share based payment charges 777,309 1,029,185 Finance income (27,190) (84,759) Finance expenses 45,865 35,096 Unrealised foreign exchange gains 531, ,306 Net (gain)/ loss on disposal of PPE and intangible assets (30,824) 35,376 Variation in working capital (Increase)/decrease in inventory (165,915) 3,397,547 Decrease/ (increase) in trade and other receivables 1,685,350 3,415,584 Increase/(decrease) in trade and other payables 4,946,888 (9,590,080) (Increase)/decrease in restricted cash (150,929) (68,673) Income/other tax paid (596,028) (101,431) Net cash flows from operating activities (24,295,663) (36,875,510) Cash flows from investing activities (Increase)/decrease in intangible assets (802) (25,633) (Increase)/decrease PPE in course of commissioning (347,767) (2,557,381) Decrease/ (increase) in other PPE (224,760) (2,786,014) Proceeds from the sale of PPE 70,498 85,012 (Increase)/decrease in pallet pool (1,166,989) (2,434,564) Loans granted to third parties 12,828 39,206 Finance income received 27,190 84,759 Net cash flows from investing activities (1,629,802) (7,594,615) Cash flows from financing activities Issuance of capital 14 19,899,011 20,022,750 Purchase of treasury shares (25,740) - Repayment Proceeds from other and related party borrowings (15,383) (34,710) Interest paid (45,865) (35,096) Repayment of other and related party borrowings (32,099) (158,635) Net cash flows from financing activities 19,779,924 19,794,309 Net change in cash and cash equivalents (6,145,541) (24,675,816) (Decrease)/increase in cash and cash equivalents (6,145,541) (24,675,816) Cash and cash equivalents at 1 January 9,794,906 34,515,597 Exchange adjustment of cash and cash equivalents 216,852 (44,875) Cash and cash equivalents at 31 December 13 3,866,217 9,794,906 The board of directors have authorised for issue these consolidated financial statements on 18 May

21 1 Corporate information 1.1 General information RM2 International S.A. (the Company ) is a limited company (Société Anonyme) incorporated and domiciled in Luxembourg with the registration number B The registered office is located at 5, Rue de la Chapelle, L-1325 Luxembourg. The Company is the ultimate parent entity of the RM2 Group (the Group ). RM2, the sustainable smart pallet innovator, specialises in pallet development, manufacture, supply and management and is seeking to establish a leading presence in global pallet supply and improve the supply chain of manufacturing and distribution businesses through the effective and efficient use, tracking and management of composite pallets. 1.2 Changing strategy In 2016 the Company announced plans to wind down its manufacturing operations away from its own facility in Woodbridge, Canada and entered into two strategic contract manufacturing agreements with Zhenshi in China on 1 April 2016 and with Jabil in Mexico on 22 September Jabil produces and sells finished pallets exclusively to RM2, and Zhenshi is under contract to do so once demand warrants, and in each case the Group retains the full ownership of the manufacturing equipment. These moves were designed to give the Group significant cost savings, greater capacity, increased flexibility and clarity over forecast production. The Company recently exchanged letters with its Chinese subcontractor, Zhenshi, regarding a termination of the agreement and indemnities to cover costs incurred to date through the time of removal of the equipment from Zhenshi s site. Discussions are on-going. In light of these exchanges and its business plan, the Company is currently re-examining its footprint in China. The outcome of these exchanges is unknown at present, but alternatives under consideration could include revising the current agreement with Zhenshi, the amical or litigious termination of the contract and/or establishing an agreement with a different contract manufacturer. Regardless of the outcome of the subcontracting relationship, RM2 expects to continue to source fibreglass raw material for pallet production from Zhenshi s affiliate, Jushi. The Company focuses now on the deployment of RM2 ELIoT pallets and has undertaken the retrofitting of its inventory of non-eliot enabled pallets located in Canada and Mexico. More information is provided in Notes 3.2, 5, 23 and Basis of preparation The consolidated financial statements comprise the consolidated financial information of the Group as at 31 December 2017 and are prepared under the historic cost convention as disclosed in the accounting policies below. The accounting policies which follow set out the policies applied in preparing the consolidated financial statements. Where necessary, comparative figures have been amended to conform with change in presentation in the current year. 2.1 Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRIC interpretations as issued by the International Accounting Standards Board ( IASB ) and IFRS Interpretations Committee ( IFRIC ) and as adopted by the European Union ( EU ). 2.2 Basis of consolidation The consolidated financial statements comprise the financial information of the Group and its subsidiaries. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial information of the subsidiaries is prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. 19

22 Subsidiaries and business combinations Subsidiaries are all entities, including structured entities, over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group uses the acquisition method of accounting to account for the acquisition of subsidiaries. The consideration transferred on acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the consideration transferred over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. If the consideration transferred acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss. Acquisition costs are written off to profit or loss. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The subsidiaries of the Group are listed in Note Summary of significant accounting policies The principal accounting policies are summarised below: 3.1 Foreign currencies The Group s consolidated financial statements are presented in United States Dollars ( ), which is also the parent company s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions and balances Transactions in foreign currencies are initially recorded by the Group s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively). Group companies On consolidation, the assets and liabilities of foreign operations are translated into at the rate of exchange prevailing at the reporting date and their income statements are translated at average exchange rate prevailing during the financial year. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss. 20