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DJ Sativa Investments PLC Final Results

TIDMSATI

RNS Number : 0935Z

Sativa Investments PLC

15 May 2019

 
 Press Release   15(th) May 2019 
 

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

Sativa Investments Plc

Final Results for the Period Ended 31 December 2018

Sativa Investments Plc (NEX: SATI), (or "Sativa" or "the Company" or "the Group"), the UK's first quoted medicinal cannabis investment vehicle, is pleased to announce its Final Results from the date of incorporation to 31 December 2018.

Highlights

-- Sativa joined the NEX Exchange Growth Market on 29 March 2018 as the UK's first quoted medicinal cannabis investment vehicle.

-- The Company has capitalised on its first mover advantage and already has two fully operational, high gross margin businesses operating in the UK, George Botanicals and Phytovista Laboratories.

-- Sativa is actively engaged with regulatory authorities, to establish a sustainable framework to meet patients' and consumers' unmet needs. The Company's Home Office Research and Development growers' licence application is progressing well.

-- The two early Canadian investments, Rapid Dose Therapeutics Inc and Veritas Pharma Inc, show an overall combined increase in market value of 4.5% as of 31 December 2018.

-- Sativa Germany GmbH, a joint venture with Lexamed GmbH which is 60% owned by Sativa, provides the Group with a foothold in Germany.

-- Turnover of GBP260,000 with a gross margin of 42%, generating a total gross profit of GBP110,000 representing six months of post-acquisition trading from the George Botanicals and Phytovista subsidiaries.

   --      Total consolidated net assets of GBP4.97 million as at 31 December 2018. 

-- Cash at bank and cash equivalents of GBP3.74 million as at 31 December 2018 (30 April 2019: GBP2.63 million).

Post period end

-- Significant research and development initiative with Kings' College London relating to the impact of cannabinoids on inflammation and respiratory diseases.

   --      The Group is to open its first Goodbody & Blunt wellness centre in Bath in early summer. 

Geremy Thomas, founder and Chief Executive Officer of Sativa Investments, said:

"Sativa has delivered expeditiously on its investment promise to the market and is now recognised as a trading business, with two fully owned UK subsidiaries already performing well. This early stage traction within the marketplace proves the Group's ability to deliver revenue-generating operations that benefit from first-mover advantage.

"The medicinal cannabis and CBD industries are highly complex and the twelve months of global research that I undertook before Saiva joined the NEX Exchange is paying off. Focussing on the high-margin value-add components of the seed to consumer chain is key, as is proximity to the end user."

The Directors of the Company accept responsibility for the contents of this announcement.

-Ends-

For further information:

 
Geremy Thomas                           Joseph Colliver 
 Founder & Chief Executive Officer       Chief Financial Officer 
 Sativa Investments PLC                  Sativa Investments PLC 
 +44 (0) 20 7971 1255                    +44 (0) 20 7971 1255 
 enquiries@sativainvestments.co.uk       enquiries@sativainvestments.co.uk 
 
  NEX Exchange Corporate Adviser 
  Guy Miller 
  Peterhouse Capital Limited 
  +44 (0) 20 7469 0930 
  gm@peterhousecap.com 
                                        ---------------------------------- 
 
  Financial PR and IR 
  Julian Bosdet 
  Abchurch Communications 
  +44 (0) 7771 663 886 
  SativaInvestments@abchurch-group.com 
                                        ---------------------------------- 
 

Chairman's Statement

The Company joined the UK's NEX Exchange Growth Market in March 2018 as the UK's first medicinal cannabis investment vehicle and since then has capitalised on its first-mover advantage, developing a substantial UK bridgehead in what the Group believes will be a significant market in the future. The Group's headquarters is fast establishing itself as a recognised centre for research, development, manufacture and testing in the rapidly developing medicinal cannabis and cannabidiol (CBD) industries. A Home Office Research & Development licence for medicinal cannabis has been applied for.

Two UK operating subsidiaries are already well established and trading with healthy gross margins. Other important future revenue streams, including the retail business Goodbody & Blunt, are at various points of development from early stage to commercial launch.

The Group's "Seed to Consumer" strategy is focused on the smart-sourcing of the raw material, advanced extraction, manufacture, testing, distribution and research and development of medicinal cannabis and CBD products.

To reflect the current breadth and type of its trading operations, the decision has been taken to change the Company's name to Sativa Group Plc. Furthermore, re-classification as a trading entity is expected to have the benefit of widening the investment appeal of the Company.

In addition to the net GBP1.1 million raised in the March 2018 IPO and the initial GBP560,000 invested by CEO, Geremy Thomas, in October 2018, the Company raised GBP3.75 million via a share placing (all amounts before costs). The investors involved in this round included high net worth investors, several with experience of investing in cannabis-related businesses listed in Canada, and a further investment from institutional investor Miton Capital Partners Limited which built upon its June 2018 GBP500,000 investment, is an endorsement of the Company's strategy.

The Group has also established a subsidiary in Germany and invested in two Canadian companies which, as of 31 December 2018, had a combined book profit and whose activities in seed selection and dosing efficacy are complementary to Sativa's overall strategy.

In view of the regulated product markets in which it operates and plans to develop, Sativa has appointed a highly experienced Medical Advisory Board, Chaired by Sir Alasdair Breckenridge, a former Chairman of the Medicines and Healthcare Products Regulatory Agency (MHRA). He is joined by Dr Matthew Brown, an award-winning pain consultant at The Royal Marsden Hospital, Dr Peter Fedlshreiber, a barrister and physician specialising in medical law and Dr Stuart Ungar, who is the co-founder of the Doctors Laboratory and who researched biochemical neuropsychopharmacology at the Royal Free Hospital, London. In March 2019 Dr Nick Horniman was appointed Sativa's Director of Regulatory Affairs, with a brief to liaise with the Medical Advisory Board and all regulatory authorities with responsibility for approving current and planned products.

The Group's Sativa Foundation is a vehicle to award research grants to academic institutions, with the aim to add further research and development into the efficacy of the full spectrum of cannabinoids. In April 2019, the Group entered into a three-year research agreement with King's College London to research the impact of cannabinoids on inflammation and respiratory diseases and the first grant of GBP95,000 was made.

As reported post period-end, the Group has decided not to exercise its option over a site for a planned glasshouse, as the Group intends to concentrate on higher-margin activities of extraction, manufacturing, testing, and processing.

Outlook

The considerable time spent by Geremy Thomas, Sativa's Founder and Chief Executive Officer, in researching the medicinal cannabis and CBD sector in many parts of the world prior to the incorporation and listing of the Company, has provided a solid base of market knowledge and intelligence. Combined with the many contacts that he made, this has translated to a first-mover advantage via a quick roll-out of trading initiatives.

George Botanicals' CBD wellness products are producing growing revenues, and Phytovista Laboratories is both growing revenues and expanding its range of testing capability.

Goodbody & Blunt is set to open its first wellness centre in Bath in early summer, selling its own range of branded products developed under white label by George Botanicals, and other suppliers' CBD products, all of which will be tested by Phytovista.

The Directors believe that the quality of the leadership team and strength of the Medical Advisory Board, combined with the Group's consumer-focused strategy, will generate and realise substantial opportunities.

Jonathan Wearing

Chairman

14 May 2019

Chief Executive's Operational Review

Performance

The maiden final results reflect the Group's early stage of development. In the period from incorporation to 31 December 2018, the Group's consolidated revenues were GBP260,000, with a gross profit of GBP110,000, representing a gross margin of 42%. Group revenues represent effectively six months of post-acquisition sales from both George Botanicals and Phytovista Laboratories, which were acquired in June 2018 and July 2018 respectively. George Botanicals' revenues for the period total GBP222,000 and Phytovista's amounted to GBP40,000 (less GBP2,000 intercompany sales). Post period-end sales in both businesses have continued to grow with monthly revenue run-rates of GBP60,000-GBP81,000 and GBP15,000-GBP22,000 respectively as at April 2019. Adjusted loss before taxation for the period is GBP1.86 million, after taking into account non-cash charges of GBP752,000 and acquisition costs of GBP37,000.

As at 31 December 2018, Sativa had total consolidated net assets of GBP4.97 million, with GBP3.74 million of that being cash and cash equivalents at the bank. As at 30 April 2019, cash at bank was GBP2.63 million.

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DJ Sativa Investments PLC Final Results -2-

The Group's "Seed to Consumer" operating model aims to leverage strategic partnerships to source quality and cost-effective raw material, adding value via innovation, technology, Research and Development, and manufacture, to build and distribute trusted brands to the consumer.

-- Smart Sourcing: A recent research trip to North America to meet several LP (licenced producer) partners, combined with in-depth financial modelling and research, indicates a likely commoditisation of the cultivation of cannabis. The Group will therefore source raw plant material from a variety of strategic partners, who can provide quality, organic product, at cost-effective prices.

-- Innovation and Technology Centre: The Group is concentrating on the value-adding phases of the production cycle, via technically advanced extraction methods to isolate cannabinoids, and Good Manufacturing Practices (GMP) to produce Cannabis Based Medicinal Products (CBMPs) and CBD wellness products. The Group will augment its current manufacturing and laboratory facilities, located at its headquarters.

-- Sales and Marketing: Our team of field sales managers engage with retailers including pharmacies, vape and health & wellness stores, which distribute our range of CBD products, supported by successful print advertisements and media coverage. The management team has recently launched a marketing plan to focus on larger pharmacy groups and grocers via strategic distribution partners, direct marketing and consumer research. Online sales will be augmented with the hire of a new digital marketing manager and the launch of a multi-level marketing platform called Tessellate, that will leverage social media.

-- Markets: The Group's strategy is to deliver consumer brands and medical products via a mix of traditional channels such as the Goodbody & Blunt high street retail outlets and Veterinary practices; to more disruptive channels such as online sales, multi-level marketing, and medicinal cannabis 'centres of excellence' clinics. The first Goodbody & Blunt store will be in Bath, the first of three pilot stores, after which the Group intends to roll-out a national franchise network as this is considered to be the fastest, least capital-intensive route to a national footprint.

During the period, the Company made investments in Veritas Pharma Inc and Rapid Dose Therapeutics Inc which showed an overall increase in value at the period end. These Canadian companies are also a useful source of product and market intelligence from a country where cannabis-related market is significantly more developed than that of the United Kingdom. Sativa GmbH, the 60% owned German subsidiary, is applying for an import and wholesale licence to distribute the Group's CBD and Medicinal Cannabis products within the German market.

Alongside the operating businesses, the Group has established The Sativa Foundation, which awards research grants to academic and other institutions to further research into the efficacy of Medicinal Cannabis. The first grant was awarded to Kings College London in April 2019.

Board and Senior Management

In the second half of 2018 the Company augmented its senior team through the recruitment of Joseph Colliver FCA as Chief Financial Officer and a Board Director, alongside non-executive Directors Jonathan Wearing as Chairman and Angus Kerr, with Mark Blower transitioning to a non-executive Director role. The Board is supported by Anne Tew, Company Secretary and Group Financial Controller, who oversees corporate governance. Noel Lyons retired as a Director in August 2018 having guided the Company at Listing.

The Group is a firm proponent of a robust regulatory environment and the need for further research into the advocacy of specific cannabinoids in treating specific patient indications, and believes that a robust Medical Advisory Board is essential. This team has already cemented effective working relationships with the MHRA.

The Company's senior management includes Dr Nick Horniman, Director of Regulatory Affairs, who has over thirty years of experience in the veterinary industry. He co-ordinates the Group's overall regulatory strategy and ongoing relationships with regulators such as the Home Office, Food Standards Agency (FSA) and the Veterinary Medicines Directorate (VMD). He is also investigating the significant opportunities for medicinal cannabis and CBD products in the pet and equine markets.

Chris Jones, a retail management professional who was instrumental in building the Phones 4U chain, leads the team developing the Goodbody & Blunt wellness centres, which will offer customers a variety of high-quality CBD products.

The Group continues to invest in the quality of our team; at the period-end, we had 16 full-time members of staff (30 April 2019: 29 staff members).

Geremy Thomas

Chief Executive Officer

14 May 2019

Financial Review

Sativa Investments Plc is pleased to announce the Group's first set of results for the period from incorporation to 31 December 2018.

The Group raised a total of GBP5.91 million in cash (before costs) during the period, with Geremy Thomas initially investing GBP560,000 ahead of the listing on the NEX Exchange Growth Market on 29 March 2018, when the Company raised GBP1.1 million (before costs). The Company's first major institutional investor, Miton Capital Partners Limited, invested GBP500,000 via a share placement in June 2018, subsequently investing a further GBP600,000 in October 2018 as part of an overall placement raising GBP3.75 million. The remaining investment came from retail investors.

The Group reported cash at bank of GBP3.74 million at 31 December 2018, allowing the management team to enter 2019 with a strong cash position to invest in the existing operating businesses before they turn cash positive, and to invest in new revenue streams.

Revenues of GBP260,000 were reported in the period to 31 December 2018, representing strong month-on-month growth in the six months of trading following the acquisitions of George Botanicals and Phytovista. George Botanicals accounted for the majority of the revenue, reporting GBP220,000 in the period from the sales of CBD products, with Phytovista Laboratories reporting the remaining GBP40,000 (including GBP2,000 of intercompany revenues from George Botanicals).

George Botanicals was acquired on 22 June 2018 for a consideration of GBP206,000, and Phytovista Laboratories was acquired on 2 July 2018 for a consideration of GBP225,000. Given the early-stage operations within the acquired entities, the assessed fair values of assets at acquisition include no separable intangible assets and, as such, the excess of consideration over the fair value of assets and liabilities acquired has been recognised entirely as goodwill.

Total gross profit of GBP110,000 was reported in the period, representing a gross profit margin of 42%.

An adjusted EBITDA (Earnings before interest, tax, depreciation, share-based payments and acquisition costs) loss of GBP1.08 million was reported in the period. The majority of operating costs relate to wages and salaries, as the Group invests in the staff and expertise to run and lead the business to further growth.

Non-cash charges include a depreciation charge of GBP114,000, GBP85,000 of which related to a lease option for development land. The remaining GBP29,000 related predominantly to plant and machinery and leasehold improvements. The Group incurred GBP37,000 of costs relating to the acquisition of businesses. The share-based payment charge of GBP638,000 relates to the Group's equity-settled share option schemes including the Long Term Incentive Plan, all funded by Geremy Thomas surrendering share options previously issued by the Company. The share-based payment charge also incorporates an element of the 10,122,500 warrants held by our advisers, Peterhouse Capital, with the remainder of the warrant charge debited against the share premium account.

Statutory pre-tax loss was GBP1.86 million.

The adjusted basic loss per share was 0.33 pence, after allowance for the non-cash charges listed above.

Net assets total GBP4.97 million at 31 December 2018, incorporating a strong cash position of GBP3.74 million. Intangible assets of GBP572,000 result from goodwill arising on the acquisition of George Botanicals and Phytovista Laboratories. GBP373,000 was invested in property plant and equipment (including through business acquisitions, but excluding the GBP85,000 lease option), less GBP29,000 of depreciation (excluding the GBP85,000 lease option amortisation) resulting in a book value of GBP344,000, predominantly relating to laboratory equipment and CBD manufacturing capacity.

The Group's investments in Rapid Dose Therapeutics Inc. appreciated by 84% in the period to a market value of GBP213,000, after the listing on the Canadian Stock Exchange, whilst Veritas Pharma Inc decreased by 75% to a book value of GBP29,000, representing overall a combined net gain of GBP7,000. These two businesses offer technology and know-how complementary to Sativa's strategy. The Group also invested GBP13,500 in acquiring 60% of Sativa Germany's issued share capital.

The Group incurred a net cash outflow from operations of GBP1.53 million, reflecting a period of investment in the operating businesses as they grow their share of the market by developing new products and services, and in the group functions of the parent Company. Investments in property plant and equipment, listed investments, and acquisition of subsidiaries less cash acquired on the acquisition of businesses, resulted in further cash outflows of GBP473,000. Combined with the GBP5.91 million of proceeds from placing equity shares, GBP9,000 from non-controlling interests for issuance of shares, less GBP172,000 of share issue costs, results in a cash and cash equivalents balance of GBP3.74 million, which gives the Group ample runway to operate well beyond 2020, based on cash flow projections.

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DJ Sativa Investments PLC Final Results -3-

The Company has over 500 million shares in issue, with good liquidity which has supported trading volumes, amongst the highest on the NEX Exchange.

The Company is pleased to have appointed international audit and advisory firm RSM UK Audit LLP as the Group's Auditor who have reported on this Financial Statement and Annual Report.

Key Performance Indicators

The Board has identified the following KPIs as relevant measures to monitor and manage the Group.

 
 Performance Indicators      2018     Commentary 
 Gross profit margin         42%      Gross profit as a percentage of 
                                       revenue. 
                            -------  ------------------------------------------ 
 Adjusted EBITDA (GBPm)      (1.08)   EBITDA adjusted for non-cash charges 
                                       such as share-based payment charges 
                                       and exceptional items. Management 
                                       consider this to be a more appropriate 
                                       measure of underlying group performance. 
                            -------  ------------------------------------------ 
 Adjusted diluted loss       (0.33)   The calculation of adjusted loss 
  per share (pence)                    per share is detailed in note 
                                       9 to the financial statements. 
                                       Management believe this is a better 
                                       indicator of underlying performance 
                                       than basic earnings per share. 
                            -------  ------------------------------------------ 
 Net asset position (GBPm)   4.97     Total assets less total liabilities. 
                            -------  ------------------------------------------ 
 Cash used in operations     (1.53)   Net income / (loss), adjusted 
  (GBPm)                               for non-cash items and for changes 
                                       in working capital. 
                            -------  ------------------------------------------ 
 

Financial Risk Management

The main financial risks arising from the Group's activities are credit risk, and liquidity risk. These are monitored by the board of Directors and were not considered to be significant at the balance sheet date.

Liquidity risk: Sativa Investments actively manages its financial risk to meet its foreseeable needs in the short and medium term.

Credit risk: The Directors consider there to be minimal credit risk in respect of the Group's cash balances as they are all held with reputable financial institutions. The Directors manage credit risk in respect of trade debtors by reviewing outstanding balances and performing credit checks on new customers.

Principal Risks and Uncertainties

A risk management framework has been adopted by the Board and a risk register put in place for each business with a strategic register for the overall Group. All risks rated as 'high' are reviewed at each Board meeting while all other risks are managed by the Managing Director of the relevant company. Control systems were reviewed towards the end of the period and robust policies and procedures implemented.

A review will be taken on an annual basis for the effectiveness of the Group's risk management and internal control systems.

 
 Risk          Description and mitigation 
 Strategic     Regulation and classification of CBD products as a novel food 
                Following European re-classification, the UK FSA are reviewing 
                its approach to regulating CBD. The Group welcomes an improved 
                level of regulation for the emerging CBD industry, and the 
                response to this change could be beneficial for the Group 
                if implemented correctly and proportionately. The Board has 
                appointed a Director of Regulatory Affairs who is actively 
                engaging at government level to try to help shape the response 
                to this risk. 
              ----------------------------------------------------------------------- 
               Licences 
                The Group must obtain the relevant licences from the Home 
                Office and HMRA to fulfil its long-term strategy. The Director 
                of Regulatory Affairs is engaging with the relevant bodies 
                and is leading the application for our R&D licences to cultivate 
                medicinal cannabis and produce products for testing, to supplement 
                the Industrial Hemp licence already acquired in the name of 
                the CEO. 
------------  ----------------------------------------------------------------------- 
 Financial     Cashflow 
                In the period of investment, cash needs to be managed effectively 
                to ensure it is not absorbed at a faster rate than planned 
                to ensure the existing businesses become cash positive from 
                an operating perspective. Monthly updates on the cash position 
                and strong controls on authorising expenditure have been implemented. 
------------  ----------------------------------------------------------------------- 
 Operational   Interruption to supplies of CBD extract oil due to Brexit 
                or other barriers 
                Management are diversifying the supplier base, buying in larger 
                quantities and holding higher volumes of stock to reduce the 
                risk. The Group is implementing its strategy to operate our 
                own extraction and manufacturing process, sourcing raw plant 
                material from suppliers across the globe. 
------------  ----------------------------------------------------------------------- 
 Compliance    Not complying with legal requirements in the sector 
                There are currently strict rules regarding not making medical 
                claims for CBD products and adhering to limits regarding THC 
                content. Having our own laboratory as part of the group allows 
                us to test our products to ensure compliance with these regulations. 
                In 2019 we have employed a training manager to ensure staff 
                are properly briefed regarding what claims can and cannot 
                be made about our products and implemented group policies 
                regarding medicinal claims. 
------------  ----------------------------------------------------------------------- 
 

Approved by the Board and signed on its behalf by

Joseph Colliver

Chief Financial Officer

14 May 2019

Group Statement of Comprehensive Income for the Period Ended 31 December 2018

 
                                                        Note    2018 
                                                               GBP'000 
Revenue                                                  6         260 
Cost of sales                                                    (150) 
Gross profit                                                       110 
Operating costs                                          7     (1,187) 
                                                              -------- 
Loss from operating activities before depreciation, 
 share-based payment charges and exceptional 
 items                                                         (1,077) 
 
Depreciation                                                     (114) 
Costs of acquiring businesses                            11       (37) 
Share-based payment charges                                      (638) 
                                                              -------- 
Loss from operating activities                                 (1,866) 
 
Fair value gains on listed investments                               7 
                                                              -------- 
Loss before taxation                                           (1,859) 
 
Taxation                                                 8           - 
                                                              -------- 
Loss for the period                                            (1,859) 
 
Total comprehensive income for the period 
 attributable to the owners of the parent 
 company                                                       (1,859) 
                                                              ======== 
 
Loss per share                                                   Pence 
 
Basic                                                    9        0.52 
Diluted                                                  9        0.52 
 
 
 

Notes 1 - 11 form part of this final results announcement.

Group Statement of Financial Position as at 31 December 2018

 
 
                                                 2018 
     Notes                                     GBP'000 
 Assets and liabilities 
 Non-current assets 
 Intangible assets                                 572 
 Property, plant and equipment                     344 
 Investments                                       243 
                                              -------- 
                                                 1,159 
                                              -------- 
 
 Current assets 
 Inventories                                       112 
 Trade and other receivables                       234 
 Cash and cash equivalents                       3,743 
                                              -------- 
                                                 4,089 
                                              -------- 
 
 Current liabilities 
 Trade and other payables                        (281) 
                                                 (281) 
                                              -------- 
 
 Net assets                                      4,967 
                                              ======== 
 
 
 Equity 
 Issued share capital                    10     1,275 
 Share premium account                   10     4,867 

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 Share-based payments reserve                     675 
 Retained earnings                            (1,859) 
                                             -------- 
 Equity attributable to the owners 
  of the parent                                 4,958 
 Non-controlling interest                           9 
                                             -------- 
 
 Total equity                                   4,967 
                                             ======== 
 

Notes 1 - 11 form part of this final results announcement.

Group Statement of Changes in Equity for the period ended 31 December 2018

 
                       Share     Share    Share-based  Retained       Total      Non-controlling   Total 
                       capital   premium    payments    earnings   attributable      interest      equity 
                                 account    reserve                 to owners 
                                                                      of the 
                                                                      parent 
                      --------  --------  -----------  ---------  -------------  ---------------  -------- 
 
                       GBP'000  GBP'000     GBP'000     GBP'000      GBP'000         GBP'000       GBP'000 
 
 
Share placing            1,245     4,665            -          -          5,910                -     5,910 
Share placing issue 
 costs                       -     (209)           37          -          (172)                -     (172) 
Shares issued on 
 acquisition 
 of business                25       406            -          -            431                -       431 
Shares issued under 
 share 
 option scheme               5         5            -          -             10                -        10 
Share-based payments         -         -          638          -            638                -       638 
                      --------  --------  -----------  ---------  -------------  ---------------  -------- 
Total contributions 
 by 
 owners of the 
 parent recognised 
 directly in equity      1,275     4,867          675          -          6,817                -     6,817 
                      --------  --------  -----------  ---------  -------------  ---------------  -------- 
 
Non-controlling 
 interest 
 on investment in 
 German 
 subsidiary                  -         -            -          -              -                9         9 
                      --------  --------  -----------  ---------  -------------  ---------------  -------- 
Total changes in 
 ownership 
 interest in 
 subsidiaries 
 that do not result 
 in 
 a loss of control           -         -            -          -              -                9         9 
                      --------  --------                                         --------------- 
 
Total transactions 
 with 
 owners recognised 
 directly 
 in equity               1,275     4,867          675          -          6,817                9     6,826 
                      --------  --------  -----------  ---------  -------------  ---------------  -------- 
 
Loss for the period          -         -            -    (1,859)        (1,859)                -   (1,859) 
Total comprehensive 
 income 
 for the period              -         -            -    (1,859)        (1,859)                -   (1,859) 
 
Balance at 31 
 December 
 2018                    1,275     4,867          675    (1,859)          4,958                9     4,967 
                      ========  ========  ===========  =========  =============  ===============  ======== 
 
 

Notes 1 - 11 form part of this final results announcement.

Group Statement of Cash Flows for the period ended 31 December 2018

 
                                                         2018 
                                                        GBP'000 
Cash flows from operating activities             Note 
Loss for the period                                     (1,859) 
Depreciation of property, plant and equipment               114 
Share-based payment charges                                 638 
Fair value gain on listed investments                       (7) 
Increase in inventories                                    (57) 
Increase in trade and other receivables                   (162) 
Decrease in trade and other payables                      (198) 
Net cash used in operations                             (1,531) 
 
Cash flows from investing 
 activities 
Net cash inflow on acquisition of businesses      11         29 
Payments for listed investments                           (236) 
Payments for property, plant and equipment                (266) 
Net cash used in investing activities                     (473) 
                                                       -------- 
 
Cash flows from financing activities 
Proceeds from placing of equity shares            10      5,910 
Payments for share issue costs                    10      (172) 
Proceeds from non-controlling interests 
 for issuance of shares                                       9 
Net cash generated by financing activities                5,747 
                                                       -------- 
 
Net increase in cash and cash equivalents 
 during the period                                        3,743 
Cash and cash equivalents at the beginning                    - 
 of the period 
Cash and cash equivalents at the end 
 of the period                                            3,743 
                                                       -------- 
 

Notes 1 - 11 form part of this final results announcement.

Notes to the final results

   1          Basis of preparation 

In accordance with Section 435 of the Companies Act 2006, the Group confirms that the financial information for the period ended 31 December 2018 is derived from the Group's audited financial statements and that these are not statutory accounts and, as such, do not contain all information required to be disclosed in the financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"). The statutory accounts for the period ended 31 December 2018 have been audited and approved but have not yet been filed.

The Group's audited financial statements for the period ended 31 December 2018 received an unqualified audit opinion and the auditor's report contained no statement under section 498(2) or 498(3) of the Companies Act 2006.

The financial information contained within this preliminary statement was approved and authorised for issue by the

Board on 14 May 2019.

   2          Accounting policies 

These financial statements have been prepared in accordance with all International Financial Reporting Standards ("IFRS"), as adopted by the European Union, and IFRIC interpretations applicable as at 31 December 2018 and with those parts of the Companies Act 2006 applicable to those companies reporting under IFRS.

The financial statements have been prepared with early application of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from contracts with customers' in full.

The accounting policies are set out in the full financial statements for the period ended 31 December 2018 which are available on the Group's website.

   3          Accounting estimates 

The preparation of the final results announcements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. In preparing this preliminary statement, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the audited consolidated financial statements for the period ended 31 December 2018 which are available on the Group's website.

   4          Going concern 

The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Group financial review, together with the financial position of the Group, its cash flows and liquidity position. Financial projections have been prepared to December 2021 which show positive earnings and cash flow generation. Accordingly, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and they have adopted the going concern basis of accounting in preparing the annual Group financial statements.

   5          Risks and uncertainties 

The operation of a public company involves a series of risks and uncertainties across a range of strategic, commercial, operational and financial areas. The principal risks and uncertainties that could have a material impact on the Group's performance over the next twelve months (for example, causing actual results to differ materially from expected results or from those experienced previously) are the same in all material respects as those detailed on pages 8-9 of the 2018 Annual Report and Accounts which are available on the Group's website.

   6          Segment reporting 

Segment information is presented in the financial statements in respect of the Group's business segments, which are the primary basis of segment reporting. The business reporting format reflects the Group's management and internal reporting structure.

Sale of cannabidiol products ("Products") is the income that the Group receives from the sale of its products. Testing of cannabidiol products ("Testing") is the income that the Group receives from testing of products. Extraction and R&D reflects the results of the Group's extraction and R&D operations which develops future products.

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DJ Sativa Investments PLC Final Results -5-

Inter-segment pricing is determined on an arm's length basis. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

 
                                                                 Period 
                                                  Extraction      ended 
                              Products  Testing     and R&D    31 December 
                                2018      2018       2018         2018 
                               GBP'000   GBP'000    GBP'000      GBP'000 
Gross sales                        222        40           -           262 
Inter-segment sales                  -       (2)           -           (2) 
                              --------  --------  ----------  ------------ 
Segment revenue                    222        38           -           260 
 
Segment results                  (399)     (210)       (318)         (927) 
                              --------  --------  ---------- 
Share based payment charges                                          (638) 
Unallocated costs                                                    (301) 
                                                              ------------ 
Operating loss                                                     (1,866) 
Fair value gains on listed 
 investments                                                             7 
Loss for the period                                                (1,859) 
                                                              ------------ 
 

The unallocated costs are central costs and are non-operating in nature and do not have a direct impact on the operating segments.

 
                                           Extraction                           Consolidated 
                       Products  Testing     and R&D   Company   Eliminations   at 31 December 
                         2018      2018       2018       2018        2018           2018 
                        GBP'000   GBP'000    GBP'000    GBP'000     GBP'000        GBP'000 
Segment assets: 
Segment assets              624       539          66     4,497         (478)            5,248 
Inter-segment 
 balances                     5         5           -     1,560       (1,570)                - 
                       --------  --------  ----------  --------  ------------  --------------- 
Total assets                629       544          66     6,057       (2,048)            5,248 
                                                       --------  ------------ 
 
Segment liabilities: 
Segment liabilities        (57)      (37)        (26)     (172)            11            (281) 
Inter-segment 
 balances                 (737)     (476)       (357)         -         1,570                - 
                       --------  --------  ----------  --------  ------------  --------------- 
Total liabilities         (794)     (513)       (383)     (172)         1,581            (281) 
                       --------  --------  ----------  --------  ------------  --------------- 
 

The Group's operations were undertaken entirely within the United Kingdom.

The Company's assets are shown separately as they are non-operating in nature and do not have a direct impact on the operating segments.

No single customer accounted for more than 10% of total revenue in the period.

The Group does not expect to have any contracts where the period between the transfer of the promised goods and services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.

   7          Operating costs 
 
                                       2018 
                                    GBP'000 
 
Wages and salaries                    441 
Operating lease charges                 1 
Other operating costs                 745 
                                    1,187 
                                 -------- 
 
   8          Taxation 

The taxation credit recognised in the Group Statement of Comprehensive Income can be analysed as follows:

 
                                               2018 
                                              GBP'000 
Current income tax 
UK corporation tax on profit for                    - 
 the current period 
                                                    - 
Deferred income tax 
Deferred income tax credit for                      - 
 the current period 
 
Total taxation credit recognised                    - 
 in the current period 
                                          ----------- 
 

The taxation for the period is higher than the average rate of corporation tax in the UK of 19%. The differences are reconciled below:

 
                                                    2018 
                                                   GBP'000 
 
Loss before taxation                               (1,859) 
                                               ----------- 
 
Tax on loss at average standard rate 
 of 19%                                              (353) 
 
Expenses not deductible for tax purposes                48 
Deferred taxation not recognised                       305 
 
Taxation credit recognised for the                       - 
 current period 
                                               ----------- 
 

No deferred tax asset has been recognised in the Company or the Group in relation to unrelieved trading losses or temporary differences on share based payments and accelerated capital allowances as, in accordance with IAS 12, there is at present insufficient evidence that sufficient taxable profits will be available in the near future to recover the assets. This is due to the early stage of commercialisation of products and services and the position will be reviewed each year. The amount not recognised is GBP1.6m. The Group did not recognise deferred tax in respect of:

 
                                                                 2018 
                                                               GBP'000 
 
 
Accelerated capital allowances                                     (34) 
Share based payments                                              1,434 
Trading losses                                                      249 
At 31 December 2018                                               1,649 
                                                               -------- 
 
 

Factors that may affect future tax charges

Legislation to reduce the main rate of UK corporation tax from 19% to 17% from 1 April 2020 has been enacted. The deferred tax balances within these financial statements have been reassessed to reflect these rates within the period that any related timing difference is expected to reverse.

   9          Loss per share 

Basic loss per share is computed by dividing the loss for the period attributable to equity holders of the parent by the weighted-average number of ordinary shares outstanding during the period.

The following tables set out the computations for basic and diluted loss per share:

 
 Period ended 31 December 2018          Loss      Weighted     Per-share 
                                                   average       amount 
                                                    number 
                                       GBP'000    of shares      pence 
 Basic and Diluted EPS 
 Loss for the period attributable 
  to equity holders of the parent      (1,859)   358,012,732      (0.52) 
                                     ---------  ------------  ---------- 
 

Diluted earnings per share

Diluted earnings per share is computed by dividing the profit for the period attributable to equity holders of the parent by the weighted-average number of ordinary shares outstanding during the period as adjusted for the effect of all dilutive potential ordinary shares.

The weighted average number of shares and the loss for the year for the purposes of calculating diluted loss per share are the same as for the basic loss per share calculation. This is because the outstanding share options would have the effect of reducing the loss per share and would not, therefore, be dilutive under the terms of IAS 33.

In order to better demonstrate the performance of the Group, an adjusted loss per share calculation has been presented below which adds back or deducts items typically adjusted for by users of financial statements. The calculations of the adjusted basic and diluted loss per share amounts are based on the following information:

 
                                                    2018 
                                                   GBP'000 
Loss for the period attributable to equity 
 holders of the parent                            (1,859) 
Adjustments: 
Costs of acquiring businesses                       37 
Share-based payment charges                         638 
 
 
Adjusted earnings                                 (1,184) 
                                                ----------- 
 
Weighted average number of shares               358,012,732 
                                               ------------ 
 
 
Adjusted earnings per share:           2018 
                                       Pence 
 
Basic and diluted                     (0.33) 
                                      ------ 
 
   10        Equity share capital, share premium and other reserves 
 
                                                  2018 
                                               GBP'000 
Issued and fully paid share capital: 
509,900,000 ordinary shares of 0.25 pence 
 each                                            1,275 
                                              -------- 
 
 
Share premium account                            4,867 
                                              -------- 
 
 
                                               2018 
                                               Number 
 
Issued on incorporation at par               20,000,000 
Issued on share placing at 0.25 pence       204,000,000 
Issued on share placing at 0.5 pence        177,800,000 

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DJ Sativa Investments PLC Final Results -6-

Issued on share placing at 1 pence           21,100,000 
Issued on acquisition of a business at 
 4.125 pence                                  5,000,000 
Issued on share placing at 4 pence           12,500,000 
Issued on acquisition of a business at 
 4.5 pence                                    5,000,000 
Issued on exercise of share options           2,000,000 
Issued on share placing at 6 pence           62,500,000 
                                            ----------- 
Number of shares in issue at end of the 
 period                                     509,900,000 
                                            ----------- 
 

Ordinary shares issued during the period ended 31 December 2018 on the exercise of share options were as follows:

 
 Date shares     Number of shares   Issue price 
  issued          issued             (pence) 
 
 5 July 2018            1,500,000           0.5 
 18 July 2018             500,000           0.5 
 

The total share issue costs during the period ended 31 December 2018 of GBP209,000 have been deducted from the share premium account. This includes non-cash costs of GBP37,000 in respect of warrants issued to advisors on listing.

   11      Business combinations 

Acquisition of George Botanicals Ltd

On 22 June 2018, the Group acquired 100% of the issued ordinary share capital of George Botanicals Ltd, a company incorporated and domiciled in the United Kingdom, for total consideration of GBP206,000. The acquisition is expected to enhance the Group's existing business.

The fair values of the identifiable assets acquired and liabilities recognised at the date of acquisition are summarised in the table below.

 
                                                 GBP'000 
Non-current assets 
Property, plant and equipment                         44 
 
  Current assets 
Inventories                                           55 
Trade and other receivables                           23 
Cash and cash equivalents                             11 
Current liabilities 
Trade and other payables                           (228) 
 
Net identifiable liabilities acquired               (95) 
                                          -------------- 
 

The fair value of the consideration at the date of acquisition is as follows:

 
                                                   GBP'000 
 
Shares issued in Sativa Investments Plc 
 at fair value at completion                           206 
                                            -------------- 
 
 
Goodwill arising on the acquisition is                       GBP'000 
 as follows: 
 
Fair value of consideration at date of 
 acquisition                                                       206 
Add: fair value of net identifiable liabilities 
 acquired                                                           95 
 
Goodwill arising on acquisition                                    301 
                                                    ------------------ 
 

Goodwill arose on the acquisition of George Botanicals Ltd as the consideration paid for the combination effectively included amounts in relation to the benefit of revenue growth, expected synergies and the workforce. These benefits are not recognised separately from goodwill because they do not meet the criteria for recognition as identifiable intangible assets. None of this goodwill is expected to be deductible for tax purposes.

The costs of the acquisition of GBP18,000 have been expensed within a separate line in the Group Statement of Comprehensive Income for the period ended 31 December 2018. The Group Statement of Comprehensive Income for the period ended 31 December 2018 includes revenue of GBP222,000 and loss after taxation of GBP399,000 in respect of the business acquired.

If George Botanicals Ltd had been consolidated from the start of the financial period, the consolidated statement of comprehensive income would show pro-forma revenue of GBP291,000 and a loss of GBP1,954,000.

 
Net cash outflow on acquisition                      GBP'000 
 
Consideration paid in cash                                 - 
Add: cash acquired in subsidiary                          11 
 
Net cash inflow on acquisition of subsidiary              11 
                                               ------------- 
 

Acquisition of Phytovista Laboratories Ltd

On 2 July 2018, the Group acquired 100% of the issued ordinary share capital of Phytovista Laboratories Ltd, a company incorporated and domiciled in the United Kingdom, for total consideration of GBP225,000. The acquisition is expected to enhance the Group's existing business.

The fair values of the identifiable assets acquired and liabilities recognised at the date of acquisition are summarised in the table below.

 
                                                 GBP'000 
Non-current assets 
Property, plant and equipment                        148 
 
  Current assets 
Trade and other receivables                           39 
Cash and cash equivalents                             18 
Current liabilities 
Trade and other payables                           (251) 
 
Net identifiable liabilities acquired               (46) 
                                          -------------- 
 

The fair value of the consideration at the date of acquisition is as follows:

 
                                                   GBP'000 
 
Shares issued in Sativa Investments Plc 
 at fair value at completion                           225 
                                            -------------- 
 
 
Goodwill arising on the acquisition is                       GBP'000 
 as follows: 
 
Fair value of consideration at date of 
 acquisition                                                       225 
Add: fair value of net identifiable liabilities 
 acquired                                                           46 
 
Goodwill arising on acquisition                                    271 
                                                    ------------------ 
 

Goodwill arose on the acquisition of Phytovista Laboratories Ltd as the consideration paid for the combination effectively included amounts in relation to the benefit of revenue growth, expected synergies and the workforce. These benefits are not recognised separately from goodwill because they do not meet the criteria for recognition as identifiable intangible assets. None of this goodwill is expected to be deductible for tax purposes.

The costs of the acquisition of GBP19,000 have been expensed within a separate line in the Group Statement of Comprehensive Income for the period ended 31 December 2018. The Group Statement of Comprehensive Income for the period ended 31 December 2018 includes revenue of GBP38,000 and loss after taxation of GBP210,000 in respect of the business acquired.

If Phytovista Laboratories Ltd had been consolidated from the start of the financial period, the consolidated statement of comprehensive income would show pro-forma revenue of GBP260,000 and loss of GBP1,905,000.

 
Net cash outflow on acquisition                      GBP'000 
 
Consideration paid in cash                                 - 
Add: cash acquired in subsidiary                          18 
 
Net cash inflow on acquisition of subsidiary              18 
                                               ------------- 
 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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May 15, 2019 05:02 ET (09:02 GMT)