REG - HeiQ PLC - Results for year ended 31 December 2022
30/10/2023 07:15
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RNS Number : 6244R HeiQ PLC 30 October 2023
30 October 2023
HeiQ Plc
("HeiQ" or "the Company")
Results for year ended 31 December 2022
Cutting through the headwinds & setting the course for what comes next
HeiQ Plc (LSE:HEIQ), a leading company in materials innovation and hygiene
technologies, announces its final results for the full year ended 31 December
2022 ("FY 2022"). These results are published concurrently with the Company's
Interim Results for the period ending 30 June 2023.
Annual Report and Restoration of Trading:
The Company's Annual Report and Accounts for the year ended 31 December 2022
will shortly be available to view on HeiQ's website, www.heiq.com/investors
(http://www.heiq.com/investors) . A copy of the Annual Report will also be
submitted to the Financial Conduct Authority in the United Kingdom via the
National Storage Mechanism ("NSM"), available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . Copies will be
posted to shareholders in the coming days.
Upon uploading the Annual Report to the NSM, expected to be completed today,
the Company will make an immediate request to the FCA for the Company's
Ordinary Shares to be restored to trading on the Main Market of the London
Stock Exchange as soon as practicable thereafter. A further announcement will
be made confirming the exact time and date of resumption of trading.
Financial Overview:
· Revenue reduced 14.8% to US$47.2 million (FY 2021 restated: US$55.4
million*)
· Gross profit margin down 17.3% to 28.5% (FY 2021 restated: 45.8%*)
· Adjusted EBITDA decreased to US-$12.2 million (FY 2021 restated:
US$4.5 million*)
· Operating loss of US-$29.2 million (FY 2021 restated: US$-1.4
million*)
· Loss after taxation of US$-29.8 million (FY 2021 restated: US$-1.4
million*)
· Cash at year-end of $8.5m with net debt (including lease liabilities)
of US$3.7 million
* Details on restatements of prior year financial information are disclosed in
Note 2 of the Company's Financial Statements.
Operational Overview:
· Despite a robust first-half performance, the second half of FY 2022
was characterized by a sudden weakening of the markets in which HeiQ operates
leading to a decrease in sales and related contribution margin, which impacted
financial performance.
· Unprecedented macroeconomic pressures converged, creating a
challenging trading environment not only for HeiQ but also for our competitors
and the textile industry at large.
Post Period:
In response to ongoing market challenges, HeiQ has taken rapid, decisive
action to enhance resilience and reduce its cost base. The Company has
reviewed and prioritized its activities to navigate these turbulent market
conditions. Actions taken include:
· Strategic Reorganization: Business was restructured into three
commercial units, each with dedicated leadership and P&L responsibility,
being Textiles & Flooring, Antimicrobials and Life Sciences.
· Relocated various support functions to the lower-cost location
Portugal.
· Applied a strong focus on commercialization teams and prioritised
high-value opportunities in high-growth markets.
· Focused on commercialized innovations and mature, sustainable and
future-proof products such as HeiQ Allergen Tech and HeiQ Synbio, HeiQ Mint
and HeiQ Smart Temp.
· These initiatives have reduced overheads by 15%, becoming mainly
effective from H2 2023 onwards.
While the Board considers the Company has adequate resources, it is in
discussions with financial institutions to replace the currently uncommitted
credit facilities by committed, long-term facilities.
Carlo Centonze, co-founder and CEO, HeiQ plc, said:
"I would like to first acknowledge the understandable frustration felt by our
valued shareholders in regard to the delayed publication of FY 2022 accounts
following our 10-month audit and the corresponding 6 month suspension from
trading. As the largest shareholder, I share this burden and as Group CEO I
have addressed the commercial difficulties it generated for us.
"FY 2022 was a challenging year for our industry and our business, as we faced
sudden and dramatic market disruptions in H2 2022, caused by large inventory
de-stocking by brands and retailers following reduced consumer demand, high
inflation, and rising interest rates globally.
"Since the start of 2023, we have taken focused steps to reduce our cost base
and reorganize the business. We have not seen the challenges abate, but
actions taken since the start of the year mean we will be in a better position
going forward to manage the challenging macro-economic environment, continue
building value in our core innovations and preserve our ability to deliver
when the market demand turns.
"These post-period initiatives, which are set out in detail in our annual
report and interim results reported concurrently with these full-year results,
are already having an impact and have delivered an annualized 15% reduction in
overheads, becoming effective mainly from H2 2023 onwards. Looking forward we
are seeing increasingly positive trends within our markets and consumer
preferences quickly adapting to more sustainable solutions, opening up
opportunities for growth for HeiQ and its innovative portfolio of sustainable
products. With this in mind, we will continue to prioritise innovations close
to positive cash flow generation, putting appropriate emphasis on operational
excellence and our high potential key innovation initiatives with superior
sustainability and profitability profiles."
Equity analyst and shareholder presentations:
Following the resumption of trading in its ordinary shares the Company will
announce registration details for two live presentations. These presentations
will cover today's results and will be held separately for both equity
analysts and investors.
For further information, please contact:
HeiQ Plc +41 56 250 68 50
Carlo Centonze (CEO)
Cavendish Securities Plc (Broker) +44 (0) 207 397 8900
Stephen Keys / Callum Davidson
SEC Newgate (Media Enquiries) +44 (0) 20 3757 6882
Elisabeth Cowell / Tom Carnegie / Molly Gretton HeiQ@s (mailto:HeiQ@secnewgate.co.uk) ecnewgate (mailto:HeiQ@secnewgate.co.uk)
.co.uk (mailto:HeiQ@secnewgate.co.uk)
CHAIR'S STATEMENT
Setting the course for what comes next
FY 2022 was an extraordinarily challenging year for HeiQ. Whilst trading
performance in the first half remained robust given the circumstances, the
markets we operate in became significantly weaker in the second half. An array
of macroeconomic pressures converged, creating a very challenging trading
environment for HeiQ, its competitors and the textile industry at large.
The sudden decrease in sales and related contribution margin impacted on our
performance. In addition, we had to defer previously recognised revenue from
partnership agreements and therefore, our financial performance fell short of
expectations in FY 2022.
Further, the Board of HeiQ Plc had to announce that the Company could not
publish its audited FY 2022 Accounts by 30 April 2023, which regrettably led
to the shares being suspended. HeiQ appointed Deloitte as its new auditor in
November 2022, to reflect the international expansion and increased complexity
of the Group since listing. Following several acquisitions, the Group has
grown significantly in terms of capabilities, technology platforms and growth
potential, but also in terms of organizational complexity. We have seen a
number of businesses with different systems, processes and cultures joining
the Group since 2017 and in particular in 2021. In order to integrate these
different businesses, the Group started the harmonization of processes,
systems and ways of working across the organization in 2022. While this is a
challenging project for any organization, the changes in market conditions
made this process even more challenging given our lean set-up across the
Group, including in support functions. All these factors contributed to a
significantly extended year end reporting timetable for 2022 with a related
impact on the timing of the external audit work. Further, while reviewing our
processes, the Board has also challenged key estimates and judgments in
relation to previous reporting periods. This has led to the restatement of
prior year financial statements as disclosed in the notes to the financial
statements within this Annual Report*.
We understand the frustration of our stakeholders - in particular shareholders
- about the delay in reporting audited FY 2022 Accounts and the related
suspension of shares from trading on the London Stock Exchange.
With market conditions remaining very challenging during 2023, we have taken
rapid, decisive action to build additional resilience and to reduce our cost
base, reviewing and prioritizing our activities rigorously, including our
innovation pipeline. These activities have allowed us to navigate through 2023
during which time cash management is key given the fragile market conditions
and uncommitted nature of the Group's current financing facilities as further
discussed in the Financial Review.
Outlook
While we expect the trading conditions for our commercialized product range to
continue to be challenging into 2024, we have significantly reduced our cost
base and will implement further measures if needed. The Board is also
re-assessing the overall strategy and resource allocation of the Group as well
as its debt structure to address the uncertainty in relation to financing
arising from the uncommitted nature of credit facilities, as disclosed in the
notes to our financial statements. This is to ensure a healthy balance between
maintaining the long-term growth potential of our key innovation projects, the
constraints of the current market conditions for our commercial business
activities as well as being prepared to capture opportunities to gain market
share once market conditions improve.
We are facing uncertain times, both politically and economically on a global
scale, which has impacted many key regions of HeiQ's operation. At the same
time, we are seeing increasingly positive trends within our markets and
consumer preferences quickly adapting to more sustainable solutions, opening
up opportunities for growth for HeiQ and its innovative portfolio of
sustainable products.
We thank our stakeholders for their continuing support. We as a Board as well
as the whole management team of HeiQ remain committed and motivated to deliver
long-term growth and value for our shareholders and all other stakeholders by
bringing sustainable technologies to market. With an aggregate holding of
approximately 24%, the Board and extended management team continues to be well
aligned with the interest of shareholders.
Esther Dale-Kolb
Chair
(R) Details on restatements of prior year financial information are disclosed
in Note 2 of the Company's Financial Statements.
CHIEF EXECUTIVE OFFICER'S REVIEW
Cutting through the headwinds: a year in review
I would like to first acknowledge the understandable frustration felt by our
valued shareholders in regards to the delayed publication of FY 2022 accounts
and the corresponding suspension from trading at LSE. As the largest
shareholder I share this burden and as CEO I have addressed the commercial
difficulties it generated for us.
The macro picture and FY 2022 performance
FY 2022 was a challenging year for our industry and our business, as we faced
sudden and dramatic market disruptions in H2, caused by large inventory
de-stocking by brands and retailers following reduced consumer demand, high
inflation, and rising interest rates globally. These factors were exacerbated
by the war in Ukraine and the resulting energy crisis in Europe has hamstrung
the entire European chemical industry. Our business was further exposed to
prolonged Covid-19 restrictions in China in H1, and the downturn was
protracted by a sectoral recession in our customer segment following the
lifting of restrictions and value chain shifts by US brands and retailers out
of China. Given that we were investing in scaling up our four ventures with
game-changing innovation technologies, the sudden decrease in sales and the
related innovation financing by the profits from our commercial businesses not
only impacted top line performance, but also Group profitability.
The dramatic disruption in market demand across our value chains also impaired
the ability of our recently acquired businesses to achieve their business
plans. The Directors therefore have concluded that an impairment of goodwill
recognized upon acquisition of some of these businesses is appropriate.
Further, we had to partly defer revenues (and corresponding profits) in
respect of certain partnership agreements originally recognized in H1 2022 and
H2 2022 to future periods. Previously, we had recognized revenue from these
contracts at the point in time of achieving certain technical development
milestones. However, upon further review, we concluded that it is appropriate
to recognize such revenues over time to coincide with specific exclusivity
rights being granted by HeiQ to the partners. Consequently, total revenue of
US$4.0 million has been deferred over a period of four years with initial
revenues being recognized in H2 2022.
Total revenue for the year amounts to US$47.2 million (2021(R): US$55.4
million) and the operating loss for the year was US$-29.2 million (2021(R):
US$-1.4 million) after goodwill impairments (aggregated goodwill impairments
in 2021 and 2022 amount to US$13 million). The cash balance as of December 31,
2022 was US$8.5 million.
2023 Trading Update
Since the start of 2023, we have taken focused steps to reduce our cost base
and reorganize the business. We have not seen the challenges abate in 2023 but
actions taken since the start of the year mean we are to be in a better
position going forward to manage the challenging macro-economic environment,
continue building value in our core innovations and preserve our ability to
deliver when the market demand turns.
I am pleased to report that the initiatives set out below have delivered an
annualized 15% reduction in overheads, becoming effective mainly from H2 2023
onwards. As set out in our separately reported interim results, for H1 2023,
we achieved sales of US$20.5 million (H1 2022(R): US$27.6 million) with a
slight decrease in margins in a buyers-market driven by current overcapacity
(H1 2023:40.9% vs. 41.5% for FY 2022). I want to point out that while we have
curtailed our investments in our four ventures, we have maintained their value
creating momentum and thus face the corresponding costs. The benefits of the
reduced cost base will only be felt in H2 2023, so our operating loss for H1
2023 amounts to US$-6.0 million (H1 2022(R): US$-1.6 million). The cash
balance as of June 30, 2023 amounts to US$7.3 million. Our credit facilities
have historically and continue to be uncommitted in nature, which casts a
material uncertainty on the going concern assessment until appropriate
longer-term funding is in place, as disclosed in the Notes to the financial
statements. However, the Board considers that the Group has adequate resources
and accordingly, the financial statements continue to be prepared on the going
concern basis. The Board is in discussions with financial institutions to
replace the currently uncommitted credit facilities by committed, long-term
facilities, but the outcome of these discussions cannot be guaranteed.
Reorganizing, right-sizing and re-focusing
At the beginning of the year we reorganized our activities into three
commercial business units and one "Other" segment encompassing four innovation
ventures with no commercial activities yet, Innovation Services provided
internally and externally to a broad range of customers, as well as group
functions. The three distinct business units each have their dedicated team
leader, management team, and P&L responsibility:
· Textiles & Flooring, under the leadership of Mr. Mike Abbott,
headquartered out of the US
· Life Sciences, led by Dr. Robin Temmerman, headquartered out of
Belgium
· Antimicrobials, led by Mr. Tom Ellefsen, headquartered out of
Thailand
I will give you an update for each of these shortly, but before I do so, it is
worth touching on how we have built resilience into the service offerings -
Innovation, Differentiation and Regulatory - which are delivered through each
business unit as well as internal services like Finance.
Besides streamlining and relocating various support functions out of
Switzerland to lower-cost locations, we have created clear goals and
responsibilities for all our business and service organizations to optimize
operations and to focus resource allocation rigorously. In Innovation, we have
focused our R&D investment on innovation technologies which are closest to
cash-flow generation or are already being financed by brand partners or
through grants. In Differentiation we are leveraging our brand customers to
promote HeiQ to a broader (consumer) audience thereby reducing our costs. We
have expanded our internal service organization particularly in Finance by
implementing a centralized accounting function and will continue to do so to
strengthen our financial reporting processes.
In addition, we are applying a strong focus on our commercialization teams,
aligning our efforts with our mission to improve the lives of billions through
our products. We are prioritizing high value opportunities in high growth
markets, where we can leverage competitive advantages and deliver sustainable
value for our customers and shareholders. We are focusing on our
commercialized innovations and mature, sustainable and future-proof products
such as HeiQ Allergen Tech and HeiQ Synbio, HeiQ Mint and HeiQ Smart Temp and
are also actively challenging competitors' positions with a better
quality-price-terms ratio offering with our HeiQ Pure range.
Textiles & Flooring
We have taken decisive steps to strengthen our position as the market leader
for branded, nominated textile innovation. In order to maintain capabilities
at a lower cost, we have accelerated the reallocation of our innovation,
testing, and product management operations to Portugal, which is a lower-cost
country with high education in which to undertake these labor-intensive
workstreams. Our production has been moved largely to the US from Switzerland
due to lower energy costs and chemical raw material availability. Our
top-selling products are being further integrated backwards to improve our
margin. Additionally, we are investing in Central America, a region which is
increasingly capturing supply from US brand's reducing their exposure to
China. We are exploring global local manufacturing partnerships to lower the
impact on margins of short notice orders and resulting rapid delivery
logistical costs.
Antimicrobials
In our Antimicrobials business, we have reduced the commercial team by
focusing on selected markets and expanded our support to our established large
channel partners Americhem and Avient. We are further reducing our overheads
and divesting from our regional sales hub HeiQ Brazil in order to build up
this particular market with a commercialization partner instead. We are
focused on strengthening our regulatory assets for inorganic, botanical and
natural antimicrobials to enhance our position within specialty antimicrobials
and are looking for opportunities to consolidate the industry segment.
Life Sciences
In Life Sciences we have achieved a key milestone with the publication of the
study comparing Ecolab disinfectants with our HeiQ Synbio probiotic cleaners
at the University Hospital Charité Berlin. The study, which was sponsored by
the Melinda & Bill Gates foundation and the German state confirmed that
HeiQ's probiotic cleaners are equally effective to Ecolab's disinfectants
while significantly reducing resistance gene developments. The study led to a
recommendation for probiotic cleaners by the German Robert Koch institute and
the finalization of the new European Detergent Regulation, now including
probiotic cleaners. With this key regulatory milestone achieved, we are
doubling down on securing significant contracts for HeiQ Synbio in the
healthcare cleaning market and selecting the best channel partner for global
commercialization. We are in negotiations with leading channel partners for an
exclusive OEM (Original Equipment Manufacturer) agreement for our probiotic
healthcare cleaners. Additionally, we are revisiting our medical device
business strategy as closing of an OEM agreement is not materializing.
Venture Innovations
Innovation remains the lifeblood of our business and future value creation. I
talked earlier about our focused strategy for innovation, prioritizing core
technologies which are close to positive cash flows or are being funded by
customers or grants in order to alleviate the impact of their expensed R&D
costs on our net commercial revenues and accelerate their technology and
market readiness.
One of our most valuable innovation platforms is HeiQ AeoniQ , the world's
first climate-positive fiber. HeiQ AeoniQ has had significant industry support
by Hugo Boss, The Lycra Company and MAS Holdings and has been taken to
customers as a HUGO BOSS Polo Shirt on consumer shelves as early as January
2023, just 15 months after launching it. Hugo Boss has recently captured
global attention for HeiQ AeoniQ with their "THE CHANGE" launch in high
fashion. Additionally, Beste, an Italian manufacturer, introduced the first
fabric collection featuring HeiQ AeoniQ to a range of major Italian fashion
brands.
HUGO BOSS has committed itself to replacing all use of polyester and nylon by
2030 and made the achievement of the same a fundamental part of leadership's
remuneration. HeiQ AeoniQ has one objective, to replace polyester, a US$135
billion market with a compounding annual growth rate of 3.5%. Most recently,
in July 2023, we secured a further US$2.5 million funding from MAS Holdings, a
premium leader in garment making headquartered in Singapore. We have further
secured US$1.2 million in grants for our R&D work and up to US$ 8 million
government grant contributions over the next two years for our first 3
kilotons (kto) plant scale-up in Portugal. We will continue our efforts to
secure funding and offtake agreements with leading brands in order to finance
and build our first 30kto capacity production plant scheduled to operate in
2026.
HeiQ GrapheneX is a proprietary technology platform that enables us to
directly synthesize porous graphene materials with high performance and
versatility. This platform is strategically positioned to capture the growing
demand for advanced materials in the batteries and electric vents sectors. We
have recently sold our first samples to a Fortune 500 Brand and top three
leader in handheld mobile devices. Over the next two years we aim to deliver
our first pilot commercialization plant and are currently negotiating product
development funding with a key OEM player in the handheld mobile devices
industry.
HeiQ ECOS is a transparent conductive coating technology that enables low
emissivity. HeiQ ECOS can also be used in defense, to alter the
electromagnetic signature of assets making them stealth. We have two existing
defense customers paying for the application development for signature
management. With the knowledge gained from these projects, we have developed a
strong proof of concept for transparent window insulation and yield-enhancing
greenhouse films. Less energy is needed to cool down or warm buildings or
greenhouses and if utilized in the automotive window space significantly more
reach can be conferred on electric vehicles. We are currently validating the
technology in field trials with market leading adopters and have been able to
secure additional grants to develop further technology applications.
HeiQ BacCell is centered around our precision fermentation technology,
utilizing bacteria to manufacture post-biotics (HeiQ Synbio platform). Our aim
is to use agricultural and food waste available in large amounts and transform
them into bacterial cellulose. The latter is utilized as a feedstock for our
HeiQ AeoniQ climate positive fiber and promises additional market application
opportunities in packaging, food, cosmetics and medical currently being
explored with leading channel partners. By using waste-based feedstock we
prevent the burning or fouling of organic waste and thereby contribute to
reduce greenhouse gas emissions, with a potential for carbon credits being
awarded.
Sustainability
Our technologies are intrinsically built to bring sustainability downstream to
our customers and to consumers. Our biggest contribution to science-based
reduction goals is the continuous substitution of hydrocarbon based raw
materials in our products with bio-based raw materials. With HeiQ AeoniQ we
are bringing to the market a game changing technology, capable of
decarbonizing the textile industry with one of the few climate-positive
technologies able to reduce the science-based footprint of brands and
retailers, contributing significantly to reaching a net zero target. At HeiQ,
we are committed to driving impactful game-changing sustainable innovation
technologies to market.
Outlook
Looking ahead, our vision remains firm: striving to improve the lives of
billions by bringing sustainable technology solutions to market that can make
an impact. To achieve this and to weather current challenging market
conditions and financial uncertainties, we have taken and will take further
actions as and when needed to control our costs and sharpen our strategy. This
includes prioritizing innovations close to positive cash flow generation, to
put appropriate emphasis on operational excellence as well as to drive our
high potential key innovation initiatives with superior sustainability
profiles.
We expect the above-mentioned measures beginning to flow through to our bottom
line in H2 2023 with corresponding stabilization of our financial performance.
However, we remain alert to take additional corrective actions should markets
deteriorate further.
As always, I would like to end my statement by thanking our investors, team,
advisors and customers for their support during what has been a very
challenging period for the market and the company. As a significant
shareholder and a founder of HeiQ, my commitment to grow HeiQ and materialize
its huge potential remains unchanged.
Carlo Centonze
CEO
FINANCIAL REVIEW
2022 was a difficult year where our financial performance was impacted by
highly challenging market conditions and fell short of expectations. Sales
suffered from reduced market demand - particularly in the last quarter of the
year - while we continued to invest into our key innovation initiatives to
maintain the long-term growth potential of the Group. After achieving a
revenue growth of 10.0%(R) in the previous year, revenues reduced by 14.8% in
2022 to US$47.2 million (2021(R): US$55.4 million).
Following several acquisitions, the Group has grown significantly in terms of
capabilities, technology platforms and growth potential but also in terms of
organizational complexity. The Group has seen a number of businesses with
different systems, processes and cultures joining the Group since 2017 and in
particular during 2021. In order to integrate the different businesses, the
Group commenced the harmonization of processes, systems and operating
practices across the organization in 2022. Furthermore, the significant drop
in market demand required us to review the valuation of intangible assets and
our approach to inventory valuation as we envisaged a short-term fall in
demand for certain of our technologies. Accordingly, despite our continued
confidence in the mid- to long-term value potential of our market offerings,
we have revised forecasts used in certain valuation models related to
intangible assets as well as inventory. As a result, the Board has concluded
that it is appropriate to impair various goodwill positions as well as
inventory positions where we believe quantities on hand exceed demand for the
next twelve months. While preparing annual accounts 2022, including reviewing
aspects of accounting which rely on significant judgement, the Company has
also identified prior period errors that require correction and thus lead to a
restatement of prior period financial statements. These factors have
contributed to a significant delay in the financial reporting process and the
finalization of the work by our auditors.
The Group deemed it appropriate to defer the recognition of revenues (and
profits) from certain partnership agreements related to HeiQ AeoniQ to future
periods. It was concluded that it is more appropriate to recognize the
milestone-payments over time during the agreed exclusivity period rather than
at a point in time upon achieving the agreed technical development milestones.
Accordingly, US$2.0 million recognized in H1 2022 has been deferred and will
be recognized over a 4-year period commencing in H2 2022 and an additional
US$2.0 million previously expected to be recognized in H2 2022 has also been
deferred.
Accounting aspects relying on significant judgment and estimations that
materially affected our 2022 financial performance
Impairment of Goodwill
Considering the challenging trading conditions, we have determined a
cumulative impairment charge of US$13 million to be appropriate as of December
31, 2022. As we have corrected the underlying framework for modelling
valuation assumptions, we have also applied the same approach retrospectively
to the FY 2021 accounts and have concluded that of the cumulative impairment
charge of US$13 million, US$2.4 million should be charged against income in
2021 instead of 2022. Further details on the impairment charge can be found in
Note 18 and Note 2 (restatement of 2021) to the financial statements.
Allowance on inventory
Due to the deterioration in market conditions, the Group has limited the
demand forecast period to assess whether a good is sellable or not to twelve
months. Previously, the Group applied a longer period of up to three years.
However, the Board concluded that this practice is no longer appropriate given
the deterioration in market conditions. This has resulted in recording a
significant allowance on inventory of US$4.9 million in 2022. This non-cash
expense has a significant impact on the gross margin for 2022 and relates
mainly to the raw materials for a limited number of finished products.
Accounting for take-or-pay contracts
Certain customers have agreed, under a "take or pay" contract, to purchase a
specified minimum quantity of particular products over a specified period of
time, usually in exchange for a specified exclusivity during the same period.
However, the customer must pay for the full quantity stated in the contract,
irrespective of whether the customer takes delivery of the minimum quantity to
which they are committed. Upon payment of the full amount, the contract allows
customers to defer their unexercised rights and to consume the remaining units
within a twelve-month period, although there is no compulsion to do so.
Revenue recognition for the shortfall items is deferred until the customer
consumes the units, or, in case of expiry of the rights, typically twelve
months after payment by the customer. This represents an amendment to the
accounting policy for such contracts as disclosed in Note 2 and has led to
prior year restatements as discussed further below.
Consequently, the Directors have also concluded that no revenue should be
recognized for a long-term customer contract that the Group is enforcing by
way of legal claim in court as the customer has not shown a willingness to
execute any business as stipulated in the signed agreement. This has led to a
de-recognition of revenue and profits in 2021 (US$0.6 million) and H1 2022
(US$0.7 million).
Financial Performance
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Revenue 47,202 55,419
Gross profit 13,457 25,397
Gross profit margin 28.5% 45.8%
Selling and general administrative expenses (30,969) (24,680)
Impairment losses (12,381) (2,454)
Net other income/expenses 648 383
Operating loss (29,245) (1,354)
Operating margin (62.0%) (2.4%)
Loss after taxation (29,814) (1,373)
Adjusted EBITDA (12,174) 4,545
EBITDA margin (adjusted) (25.8%) 8.2%
Revenues
Market demand for most of our businesses, with the exception of the Chinese
market due to lockdowns imposed by the government, was not significantly
impacted by geo-political developments, inflation and rising interest rates
until late in the year on the back of consumer demand and inventory build-up
across the value chain. After the COVID-19 pandemic and supply-chain
disruptions in the previous years, industry players have been building up much
higher inventory levels than in the past to mitigate possible supply issues
which has supported demand. As such, in the first half of the year, HeiQ was
able to deliver a revenue growth of 6.8% (H1 2022(R) vs. H1 2021) despite an
extremely low level of business activity in China (lockdowns). As inflation
continued to increase rapidly in H2 2022, market sentiment weakened based on
increasing global recession concerns. Late in the year, this led to a sudden
halt in business along the entire supply chain, particularly in the textile
industry which, in terms of revenue, is still the most important industry
segment for HeiQ. Brands started to cancel orders as they faced uncertain
consumer demand coupled with very high levels of inventory. This caused a
sudden and severe decrease in manufacturing activity across the value chain.
Consequently, revenues for H2 2022 were down 33.7% compared to H2 2021(R) and
down 28.7% compared to H1 2022(R). Given the high inventory levels seen in Q3
2022, we expect demand for our functional ingredients to remain subdued for
2023.
Gross margin
Gross margins were 28.5% for the full year (2021(R): 45.8%). In H1 2022(R)
margin was stable compared to H2 2021(R) (41.5% vs. 42.7%). The increased
inventory allowance due to the change in the valuation approach had a negative
impact on the gross margin in H2 2022 which stood at 10.3%. Excluding the
US$4.9 million allowance on inventory recorded in 2022, the gross profit for
FY 2022 would have been US$18.4 million and the corresponding gross margin
would have been 38.9% vs. 45.8% for the full year 2021(R).
Sales and General Administration Expenses
As we have disruptive technologies with high value and market potential in our
innovation pipeline, we continued to invest during 2022 in our future and in
value creation although we have both prioritized and adjusted the scope of
projects as revenues and related cash generation have suffered. Our Sales and
General Administration expenses ("SG&A") have grown in 2022 to US$31.0
million, an increase of US$6.3 million or 25.5% (2021(R): US$24.7 million).
SG&A in H1 2022(R) was US$ 14.0 million, stable compared to H2 2021(R)
(US$ 14.0 million) but significantly higher than in H1 2021 (US$10.7 million).
Approximately US$1.9 million of this increase in H1 2022 (vs H1 2021) relates
to the full year inclusion of acquired companies. Further, in the course of
2021 we invested in our skilled workforce, including the build-up of the HeiQ
AeoniQ™ fiber team which increased the general cost base for H1 2022 by
another US$1.4 million compared to H1 2021.
In H2 2022, SG&A amounted to US$17.0 million which represents an increase
of US$3.0 million against H1 2022(R) and US$3.0 million against H2 2021(R).
Audit costs for FY 2022 increased by about US$1.0 million compared to FY 2021.
Impairment losses
Impairment losses have been recorded both on intangible assets (US$11.7
million) - mainly related to goodwill impairments as explained above - as well
as on property, plant & equipment (US$0.7 million) as hygiene mask
production equipment has been impaired due to a significant decline in demand.
Other Income / Expenses
Other income and other expenses predominantly relate to foreign exchange gains
on working capital (other income) and foreign exchange losses (other
expenses). Other expenses further include a write-off of intangible assets.
Overall, and including goodwill impairments, HeiQ reports an operating loss of
US$-29.2 million for the year 2022 compared to an operating loss of US$-1.4
million in 2021(R).
Reporting as per new Business Unit structure
As explained in the Chair and CEO statement, the Group has re-organized its
management structure into distinct Business Units and therefore has also
amended its disclosures on reported segments.
HeiQ reports four segments: the three Business Units as well as "Other
activities". Other activities include the Innovation Service function,
Business Development initiatives ("Ventures" as well as costs not allocated to
one of the three Business Units, including goodwill impairments. In 2022 and
2021, SG&A expenses have been allocated to Business Units only to a
limited extent with focus on commercial activities. For 2023 and going
forward, the Group intends to allocate costs more extensively to the three
Business Units.
Textiles & Flooring Life Antimicrobials Other Total
Sciences
activities
US$'000 2022 2021* 2022 2021* 2022 2021* 2022 2021* 2022 2021*
Revenue 33,870 39,773 6,894 10,115 3,577 3,379 2,861 1,792 47,202 55,419
Operating profits (loss) 979 14,196 (1,078) 1,438 53 1,106 (29,199) (18,096) (29,245) (1,354)
Finance result (590) (35)
Loss before taxation (29,835) (1,389)
Taxation 21 16
Loss after taxation (29,814) (1,373)
*as restated
Revenues within the Textiles & Flooring business unit decreased by US$5.9
million (-15%) to $33.9 million in 2022. This was driven by two previously
mentioned main contributors: COVID-19 related lockdowns in one of our main
markets, China, as well as the unprecedented, industry wide decrease in demand
along the entire value chain towards the end of the year.
Revenues within the Life Sciences business unit decreased by US$3.2 million
(-32%) to $6.9 million in 2022 compared to 2021(R). This decrease reflects the
significantly lower sales of hygiene masks in 2022 which was partly offset by
an increase in sales of HeiQ Synbio products.
Revenues within the Antimicrobials business unit increased by US$0.2 million
(+5.9%) to US$3.6 million.
Revenues allocated to other activities encompass mainly Innovation Services
provided to 3(rd) party customers.
Adjusted EBITDA
Reported adjusted EBITDA loss was US$-12.2 million for 2022 compared to a
positive EBITDA of US$4.5 million in 2021(R).
EBITDA is a way of measuring cash generation. HeiQ therefore adjusts EBITDA
for share options and rights granted to Directors and employees and
significant non-cash items being impairments of goodwill and intangible
assets.
Adjusted EBITDA 2022 2021
US$'000
(restated)
Operating loss (29,245) (1,354)
Depreciation 2,220 1,971
Amortization 1,435 976
Impairment losses and write-offs 13,278 2,454
Share options and rights granted to Directors and employees 138 498
Adjusted EBITDA (12,174) 4,545
Statement of Financial Position
Total assets were US$71.1 million as of December 31, 2022 (December 31,
2021(R): US$94.1 million) with equity amounting to US$40.3 million and
liabilities of US$30.8 million as of December 31, 2022 (December 31, 2021(R):
US$59.5 million equity and US$34.6 million of liabilities). This corresponds
to an equity ratio of 57% (2021(R): 63%).
Non-current assets decreased from US$47.3 million (December 31, 2021(R)) to
US$38.7 million as of December 31, 2022, mainly driven by the impairment of
intangible assets.
Current assets decreased by 30.9% to US$32.4 million as of December 31, 2022
(US$46.9m as of December 31, 2021(R)). Trade receivables reduced by US$8.2
million to US$6.5 million as of December 31, 2022 (2021(R): US$14.7 million).
The cash balance decreased by US$6.1 million year-on-year and was US$8.5
million as of December 31, 2022 (2021: US$14.6 million).
The decrease in total liabilities was mainly driven by the settlement of
deferred consideration related to the acquisitions made in 2021. Total
liabilities decreased by US$3.8 million (11.0%) from US$34.6 million as of
December 31, 2021(R) to US$30.8 million as of December 31, 2022. Net debts
(including lease liabilities) amount to US$3.7 million as of December 31, 2022
(December 31, 2021(R): net cash position of US$3.7 million).
Cash Flow Statement
As a result of sales below expectation coupled with the (budgeted) increase in
our cost base, net cash generated from operating activities in the year 2022
was negative and amounted to US$-2.5 million (2021: US$3.4 million).
Cash used in investing activities amounts to US$8.8 million in 2022 (2021:
US$12.7 million) and reflects the continued investment in building long-term
value. With US$3.9 million the development and acquisition of intangible
assets accounts for the largest share of investment activities. This includes
internal R&D activities qualifying for capitalization but also the
acquisition of intellectual property rights to further complement the hygiene
range of our Antimicrobial business. We also invested US$3.4 million of cash
in plant and equipment, predominantly related to the HeiQ AeoniQ(TM) pilot
plant located in Austria. Consideration paid for acquisitions (US$1.6 million)
relate to earn-out and instalment payments for acquisitions executed in
previous periods.
Net cash from financing activities amounted to US$5.9 million (2021: US$-1.3
million net cash used). The largest portion of proceeds is related to the sale
of a 2.5% equity stake in HeiQ AeoniQ GmbH to Hugo Boss in H1 2022 (US$4.8
million). Proceeds from borrowings (net) amount to US$2.6 million and relate
mainly to fixed advances with a duration of up to 3 months.
The Group reports a cash balance of US$8.5 million as of December 31, 2022
(December 31, 2021: US$14.6 million).
Prior Period Adjustments
As describe further above, the Directors have concluded that certain
adjustments to prior period financial statements should be recorded. The
cumulative impact on the prior period financial statements (FY 2021) is as
follows.
In US$ As published previously Total restatements As restated
Revenue for FY 2021 57.9 million (2.5 million) 55.4 million
Income (loss) after taxation for FY 2021 2.5 million (3.9 million) (1.4 million)
Total assets as at December 31, 2021 101.8 million (7.7 million) 94.1 million
Total equity as at December 31, 2021 64.6 million (5.1 million) 59.5 million
Total liabilities as at December 31, 2021 37.2 million (2.6 million) 34.6 million
These corrections resulted in a significant restatement of the income after
taxation. Further details of these corrections as well as additional
corrections that did not result in material restatement of the income after
taxation are disclosed in Note 2 to the financial statements.
Restatement in respect of a significant take-or-pay contracts
As disclosed in Note 2 to the financial statements, the Group has renegotiated
a significant take-or-pay contract after the balance sheet date. As a result
of renegotiations, the Group has effectively waived unpaid accounts receivable
in exchange for a right of first refusal on supply of a wide product range to
a large industry player with the expectation to grow this multiple million US$
account significantly over the coming years. The company has reviewed its
historic accounting for this contract. The conclusion of this review is that
amounts recognized as revenue in 2021 and accounts receivable as at December
31, 2020 and 2021 were overstated as the criteria for revenue recognition
under IFRS 15 had not been met. There are also associated impacts on costs of
sales, accrued liabilities and tax. The Group has determined that revenues of
US$1.8 million and profits of US$0.7 million recognised in 2021 required
reversal. Additional revenues and profits of US$0.7 million have been
derecognized in relation to another take-or-pay contract in relation to which
the Group has filed a claim against the customer in court.
Restatement in regards of goodwill impairments
As highlighted further above and discussed in more detail in Note 2 to the
financial statements, the Directors concluded that a portion of the goodwill
impairments identified in preparation of the 2022 Annual Accounts should have
been identified during the preparation of the 2021 financials, if all
available information at the point of publishing the annual report 2021 had
been taken into consideration. Consequently, a retrospective review of the
2021 goodwill impairment tests was performed. It was concluded that a portion
of the identified impairment amounting to US$2.3 million is to be allocated to
the 2021 financial statements.
Going Concern Assessment
To manage its cash balance, the Group has access to credit facilities
totalling CHF9.0 million (approximately US$9.8 million as of September 30,
2023). The credit facilities are in place with two different banks and both
contracts have materially the same conditions. The facilities are not limited
in time, can be terminated by either party at any time and allow overdrafts
and fixed cash advances with a duration of up to twelve months.
As of September 30, 2023, the Group has drawn CHF6.3 million of the facilities
(CHF2.4 million as December 31, 2022) as follows:
Maturity dates of used credit facilities: Amount
November 27, 2023 CHF 4.5 million
June 17, 2024 CHF 0.8 million
September 30, 2024 CHF 1.0 million
Total CHF 6.3 million
The facilities are not committed, but the Board has not received any
indication from financing partners that facilities are at risk of being
terminated. Furthermore, the Board is in discussions with financial
institutions to replace the currently uncommitted credit facilities by
committed, long-term facilities, but the outcome of these discussions remain
uncertain.
The Group's directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable
future and operate within its credit facilities for a period of 12 months from
date of approval of these financial statements. Nevertheless, the Board
acknowledges the uncommitted status of the facilities which could be
terminated without notice during the forecast period requiring the refinancing
of debts as per above maturity dates, indicates that a material uncertainty
exists that may cast significant doubt on the Group's ability to continue as a
going concern. Further disclosure on the going concern assessment are made in
Note 3b to the financial statements.
Xaver Hangartner
Chief Financial Officer
(R) Details on restatements of prior year financial information are disclosed
in Note 2 of the Company's Financial Statements.
Consolidated statement of profit and loss and other comprehensive income
For the year ended December 31, 2022
Year ended Year ended
December 31, December 31,
2022 2021
Note US$'000 US$'000
(restated*)
Revenue 7 47,202 55,419
Cost of sales 9 (33,745) (30,022)
Gross profit 13,457 25,397
Other income 10 4,832 6,625
Selling and general administrative expenses 11 (30,969) (24,680)
Impairment loss on intangible assets 18 (11,651) (2,454)
Impairment loss on property, plant & equipment 19 (730) -
Other expenses 13 (4,184) (6,242)
Operating loss (29,245) (1,354)
Finance income 14 683 534
Finance costs 15 (1,273) (569)
Loss before taxation (29,835) (1,389)
Income tax 16 21 16
Loss after taxation (29,814) (1,373)
Other comprehensive income:
Exchange differences on translation of foreign operations (1,914) (2,550)
Items that may be reclassified to profit or loss in subsequent periods
(1,914) (2,550)
Actuarial gains/(losses) from defined benefit pension plans
1,380 1,124
Income tax relating to items that will not be reclassified subsequently to
profit or loss
(276) (225)
Items that will not be reclassified to profit or loss in subsequent periods 1,104 899
Other comprehensive loss for the year (810) (1,651)
Total comprehensive loss for the year (30,624) (3,024)
Loss attributable to:
Equity holders of HeiQ (29,251) (1,177)
Non-controlling interests (563) (196)
(29,814) (1,373)
Total Comprehensive loss attributable to:
Equity holders of the Company (30,061) (2,828)
Non-controlling interests (563) (196)
(30,624) (3,024)
Loss per share:
Basic (cents)** 17 (21.92) (0.91)
*The consolidated statement of profit and loss and other comprehensive income
has been restated in the comparative period as described in Note 2.
**The effect of share options is anti-dilutive and therefore not disclosed.
Consolidated statement of financial position
As at December 31, 2022
As at As at As at
December 31, December 31, December 31,
2022 2021 2020
Note US$'000 US$'000 US$'000
(restated*) (restated*)
ASSETS
Intangible assets 18 20,442 30,773 5,264
Property, plant and equipment 19 9,802 6,865 5,467
Right-of-use assets 20 7,819 7,974 2,564
Deferred tax assets 32 538 1,337 1,288
Other non-current assets 21 137 333 206
Non-current assets 38,738 47,282 14,789
Inventories 22 13,168 13,770 13,540
Trade receivables 23 6,487 14,656 10,080
Other receivables and prepayments 24 4,262 3,876 2,609
Cash and cash equivalents 8,488 14,560 25,695
Current assets 32,405 46,862 51,924
Total assets 71,143 94,144 66,713
EQUITY AND LIABILITIES
Issued share capital and share premium 26 205,874 195,714 184,096
Other reserves 28 (128,017) (127,195) (125,968)
Retained deficit 28 (39,466) (11,525) (10,348)
Equity attributable to HeiQ shareholders 38,391 56,994 47,780
Non-controlling interests 1,948 2,541 (20)
Total equity 40,339 59,535 47,760
Lease liabilities 30 6,558 7,209 2,304
Long-term borrowings 31 1,445 1,605 1,400
Deferred tax liability 32 1,253 2,333 857
Other non-current liabilities 33 4,714 2,619 3,425
Total non-current liabilities 13,970 13,766 7,986
Trade and other payables 34 5,322 8,271 5,815
Accrued liabilities 35 4,978 3,386 2,168
Income tax liability 16 314 51 1,495
Deferred revenue 36 1,285 1,004 -
Short-term borrowings 31 2,893 1,157 173
Lease liabilities 30 1,264 905 349
Other current liabilities 38 778 6,069 967
Total current liabilities 16,834 20,843 10,967
Total liabilities 30,804 34,609 18,953
Total equity and liabilities 71,143 94,144 66,713
*The consolidated statement of financial position has been restated for the
comparative periods as described in Note 2.
The Notes form an integral part of these Consolidated Financial Statements.
The Consolidated Financial Statements were approved and authorized for issue
by the Board of Directors on October 26, 2023 and signed on its behalf by:
Xaver Hangartner, Chief Financial Officer
Consolidated statement of changes in equity
For the year ended December 31, 2022
Issued share capital and share premium Other reserves Retained deficit Equity attributable to HeiQ shareholders Non-controlling interests Total equity
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
(restated*) (restated*) (restated*) (restated*)
Balance at January 1, 2021 (as presented) 184,096 (125,968) (8,499) 49,629 (20) 49,609
Prior year adjustment in respect of revenue recognition - - (1,849) (1,849 - (1,849)
Balance at January 1, 2021 (as restated) 184,096 (125,968) (10,348) 47,780 (20) 47,760
Loss after taxation - - (1,177) (1,177) (196) (1,373)
Other comprehensive (loss)/income - (1,651) - (1,651) - (1,651)
Total comprehensive (loss)/income for the year - (1,651) (1,177) (2,828) (196) (3,024)
Issuance of shares 26 11,618 - - 11,618 - 11,618
Share-based payment charges 27 - 424 - 424 - 424
Amounts arising on business combinations 5 - - - - 2,757 2,757
Transactions with owners 11,618 424 - 12,042 2,757 14,799
Balance at December 31, 2021 195,714 (127,195) (11,525) 56,994 2,541 59,535
Loss after taxation - - (29,251) (29,251) (563) (29,814)
Other comprehensive (loss)/income - (810) - (810) - (810)
Total comprehensive (loss)/income for the year - (810) (29,251) (30,061) (563) (30,624)
Issuance of shares 26 10,160 - - 10,160 - 10,160
Share-based payment income 27 - (12) - (12) - (12)
Dividends paid to minority shareholders 28 - - - - (243) (243)
Capital contributions from minority shareholders - - - - 764 764
Adjustments arising from change in non-controlling interests 5a - - (2,445) (2,445) (616) (3,061)
Transfer of shares to non-controlling interest 5b - - 3,755 3,755 65 3,820
Transactions with owners 10,160 (12) 1,310 11,458 (30) 11,428
Balance at December 31, 2022 205,874 (128,017) (39,466) 38,391 1,948 40,339
*'The consolidated statement of changes in equity has been restated for the
comparative periods as described in Note 2.
Consolidated statement of cash flows
For the year ended December 31, 2022
Year ended Year ended
December 31, December 31,
2022 2021
Note US$'000 US$'000
Cash flows from operating activities (Restated*)
Loss before taxation (29,835) (1,389)
Cash flow from operations reconciliation:
Depreciation and amortization 9,11 3,655 2,947
Impairment expense 13 12,380 2,454
Net loss on disposal of assets 43 (5) (34)
Write-off of intangible assets 13 897 -
Fair value gain on derivative liability 38 (371) -
Gain on earnout consideration 5g - (80)
Finance costs 273 225
Finance income (2) (18)
Pension expense 247 156
Non-cash equity compensation 12 138 498
Gain from lease modification 20 (68) -
Other costs paid in shares 26 235 -
Currency translation (61) (793)
Working capital adjustments:
Decrease in inventories 43 602 2,028
Decrease/(Increase) in trade and other receivables 43 7,783 (2,305)
(Decrease)/Increase in trade and other payables 43 2,543 2,181
Cash generated (used in)/from operations (1,589) 5,870
Taxes paid 16 (870) (2,462)
Net cash generated (used in)/from operating activities (2,459) 3,408
Cash flows from investing activities
Consideration for acquisition of businesses 43 (1,587) (8,857)
Cash assumed in asset acquisition 26 65 -
Purchase of property, plant and equipment 19 (3,418) (994)
Proceeds from the disposal of property, plant and equipment 53 138
Development and acquisition of intangible assets 18 (3,865) (2,969)
Interest received 2 18
Net cash used in investing activities (8,750) (12,664)
Cash flows from financing activities
Interest paid on borrowings (110) (108)
Repayment of leases 20,43 (992) (662)
Interest paid on leases (163) (117)
Proceeds from disposals of minority interests 5b 4,792 -
Proceeds from borrowings 43 3,465 546
Repayment of borrowings 43 (904) (928)
Dividends paid to minority shareholders 28 (243) -
Net cash from/(used in) financing activities 5,845 (1,269)
Net decrease in cash and cash equivalents (5,364) (10,525)
Cash and cash equivalents - beginning of the year 14,560 25,695
Effects of exchange rate changes on the balance of cash held in foreign (708) (610)
currencies
Cash and cash equivalents - end of the year 8,488 14,560
* The consolidated statement of cash flows has been restated for the
comparative period as described in Note 2.
Notes to the Consolidated Financial Statements for the year ended December 31, 2022
1. General information
HeiQ Plc (the Company) is a company limited by shares incorporated and
registered in the United Kingdom. Its ultimate controlling party is HeiQ Plc.
The address of the Company's registered office is 5th Floor, 15 Whitehall,
London, SW1A 2DD.
The principal activities of the Company and its subsidiaries (the Group) and
the nature of the Group's operations are set out in Note 6.
These financial statements are presented in United States Dollars (US$) which
is the presentation currency of the Group, and all values are rounded to the
nearest thousand dollars except where otherwise indicated. Foreign operations
are included in accordance with the policies set out in Note 3.
2. Changes in accounting policies, prior period error correction and adoption of new and revised standards
Change in accounting policy
Following the acquisitions in 2021, the Group had different accounting
policies for inventory in the subsidiaries and therefore aligned the
methodology during the financial year 2022 closing process to apply solely a
first-in-first-out basis. The Group has assessed the impact on the valuation:
the majority of inventory is valued on an individual basis and the impact is
limited to functional consumer goods. It was therefore concluded that there
was no material impact from the change in policy. See Note 3s for a
description of the accounting policy.
Prior period error: Overstatement of lease assets and liabilities and reclassifications
During the compilation of the financial statements for the year ended December
31, 2022, the Group corrected an overstatement of right-of-use assets and
lease liabilities assumed in the acquisition of HeiQ Chrisal N.V. It was
determined that property capitalized as a right-of-use asset was owned by HeiQ
Chrisal N.V. rather than leased - and the corresponding liability was that of
a loan rather than a lease in nature. The loan amount payable was reported by
Chrisal as short-term payables, and the assets were recognized as property,
plant and equipment. In addition, at Group level, the same contracts were also
recognized as right-of-use asset and lease liabilities.
Further, certain liabilities arising from customer contracts were incorrectly
classified as deferred revenue rather than accrued liabilities and certain
other payables are reclassed to short- and long-term borrowings.
The following table summarizes the impact of the prior period error on the
financial statements of the Group.
Year ended
December
31, 2021
Consolidated statement of profit or loss US$'000
Selling and general administrative expenses 16
Finance costs (27)
Decrease in profit for the financial year (11)
Consolidated statement of financial position
Right-of-use assets (1,105)
Trade and other payables 1,088
Accrued liabilities (770)
Deferred revenue 770
Short-term borrowings (153)
Long-term borrowings (935)
Lease liabilities (current) 149
Lease liabilities (non-current) 967
Decrease in net assets and equity (11)
Prior period error: PPA Chrisal: Accounting for 51% of intangible assets acquired instead of 100%
During the purchase price allocation of the Chrisal acquisition, the Group
identified and accounted for brand and customer relationship as well as
technologies. The Group correctly valued the intangible assets at 51% in the
purchase price allocation. However, the Group also consolidated the intangible
assets at 51% when it should have accounted for them at 100% with the
difference leading to an increase in non-controlling interests. The correction
of the error leads to an increase in intangible assets and a higher
amortization charge for the reporting period 2021.
The following table summarizes the impact of the prior period error on the
financial statements of the Group.
Year ended
December
31, 2021
Consolidated statement of profit or loss US$'000
Selling and general administrative expenses (218)
Income tax 55
Decrease in profit for the financial year (163)
Consolidated statement of financial position
Intangible assets 1,759
Deferred tax liability (440)
Increase in net assets 1,319
Non-controlling interests (1,483)
Decrease in shareholders' equity (163)
Prior period error: Correcting revenue recognition of take-or-pay contracts
A further restatement concerns two significant take-or-pay contracts which
have minimum guaranteed pricing irrespective of amounts delivered to the
customer. Following a renegotiation with one customer post year-end, the
company has reviewed its historic accounting for this contract. The conclusion
of this review is that amounts recognized as revenue in 2021 and accounts
receivable as at December 31, 2020 and 2021 were overstated as the criteria
for revenue recognition under IFRS 15 had not been met. There are also
associated impacts on costs of sales, accrued liabilities and tax.
As a further consequence, the accounting policy has been amended. Revenue from
take-or-pay contracts is recognized only upon shipment of the products. See
updated accounting policy and additional background on take-or-pay contracts
in note 3l. This has led to a restatement for 2021 in relation to a second
take-or-pay contract.
The following table summarizes the impact of the prior period error on the
financial statements of the Group. The impact of the prior period error on
basic earnings per share is presented in Note 17.
Year ended
December
31, 2021
Consolidated statement of profit or loss US$'000
Revenue (2,455)
Cost of sales 876
Selling and general administrative expenses 19
Income tax 174
Decrease in profit for the financial year (1,386)
Consolidated statement of financial position
Trade receivables (37)
Other receivables and prepayments (2,399)
Deferred tax asset 174
Accrued liabilities 876
Decrease in net assets and equity (1,386)
Prior period error: Goodwill impairment and currency translation Chrisal CGU and RAS CGU
In course of the preparation of the 2022 financial statements, the Group
identified a goodwill impairment in relation to three CGUs (Chrisal, RAS,
Life). It was found that a portion of the goodwill impairment should have
already been identified during the preparation of the 2021 financials, if all
available information at the point of publishing the annual report 2021 had
been taken into consideration. Consequently, a retrospective review of the
2021 goodwill impairment tests was performed and the underlying framework for
modelling valuation assumptions was corrected. It was concluded that a portion
of the identified impairment amounting to US$2.3 million is to be allocated to
the 2021 financial statements whereas US$1.3 million of the impairment charge
relates to the Chrisal CGU and US$1.0 million relates to the RAS CGU. No
correction to the 2021 impairment test was identified for Life CGU.
IAS 21 - The Effects of Changes in Foreign Exchange Rates requires that
intangible assets including goodwill arising on the acquisition shall be
treated as assets of the foreign operation. Chrisal CGU and RAS CGU both have
a functional currency which is different to the presentation currency of the
Group. Consequently, these intangible assets should be translated from the
functional currency of the CGU, Euro, to the presentation currency US$. The
company recalculated the US$ balances with the closing rate present as at
December 31, 2021. This led to a decrease of the intangible asset balance as
well as a charge to other comprehensive loss of US$888,000.
See Note 18 for further details.
Year ended
December
31, 2021
Consolidated statement of profit or loss US$'000
Impairment loss on intangible assets
(2,310)
Decrease in profit for the financial year (2,310)
Consolidated statement of financial position
Intangible assets (3,198)
Other reserves 888
Decrease in net assets and equity (2,310)
Prior period error: foreign currency risk note
The amounts in Note 42d foreign currency risk have been restated as at
December 31, 2021, as they contained intercompany balances, related to
long-term loans that form part of net investments in foreign operations. Such
balances are eliminated at Group level while foreign currency differences that
arise between the entities' functional currencies only affect other
comprehensive income. The error has no impact on the consolidated financial
statements.
Impact of error corrections on the Group's consolidated statement of financial position
The effect of error corrections on the financial year ended December 31, 2021
and the balance carried forward from December 31, 2020 is shown in the
following tables:
Consolidated statement of financial
position
December 31, 2020
US$'000 As presented Restatement As Restated
revenue recognition
Assets
Deferred tax asset 826 462 1,288
Trade receivables 13,437 (3,357) 10,080
Total Assets 69,608 (2,895) 66,713
Capital and reserves
Retained deficit (8,499) (1,849) (10,348)
Total Equity 49,609 (1,849) 47,760
Liabilities
Accrued liabilities 3,214 (1,046) 2,168
Total Liabilities 19,999 (1,046) 18,953
Consolidated statement of financial
position
December 31, 2021
US$'000 As presented Restatement Leasing Restatement revenue recognition Restatement PPA Chrisal Restatement Goodwill As Restated
Assets
Intangible assets 32,212 - - 1,759 (3,198) 30,773
Right-of-use assets 9,079 (1,105) - - - 7,974
Deferred tax assets 701 - 636 - - 1,337
Trade receivables 18,050 - (3,394) - - 14,656
Other receivables and prepayments 6,275 - (2,399) - - 3,876
Total Assets 101,845 (1,105) (5,157) 1,759 (3,198) 94,144
Capital and reserves
Retained deficit (5,823) 6 (3,235) (164) (2,310) (11,526)
Other reserves (126,307) (888) (127,195)
Non-controlling interests 1,053 5 - 1,483 - 2,541
Total Equity 64,637 11 (3,235) 1,319 (3,198) 59,535
Liabilities
Leases (non-current) 8,176 (967) - - - 7,209
Long-term borrowings 670 935 - - - 1,605
Deferred tax liability 1,894 - - 440 - 2,333
Trade and other payables 9,359 (1,088) - - - 8,271
Accrued liabilities 4,538 770 (1,922) - - 3,386
Deferred revenue 1,774 (770) - - - 1,004
Short-term borrowings 1,004 153 - - - 1,157
Leases (current) 1,054 (149) - - - 905
Total Liabilities 37,208 (1,116) (1,922) 440 - 34,609
Impact of adjustment on the Group's statement of profit and loss and other
comprehensive income
December 31, 2021
US$'000 As presented Restatement Leasing Restatement revenue recognition Restatement PPA Chrisal Restatement Goodwill impairment As Restated
Net result for the year
Revenue 57,874 - (2,455) - - 55,419
Cost of sales (30,898) - 876 - - (30,022)
Selling and general administration expense (24,465) (16) 19 (218) - (24,680)
Impairment losses on intangible assets (144) (2,310) (2,454)
Finance costs (597) 27 - - - (569)
Income tax (212) - 174 55 - (16)
Income (loss) after taxation 2,474 11 (1,386) (163) (2,310) (1,373
Income (loss) after taxation attributable to HeiQ Stockholders 2,676 6 (1,386) (163) (2,310) (1,177)
Income after taxation attributable to non-controlling interest (202) 5 - - - (196)
Income (loss) after taxation 2,474 11 (1,386) (163) (2,310) (1,373)
Impact of adjustment on earnings per share
December 31, 2021
US$'000 As presented Restatement Leasing Restatement revenue recognition Restatement PPA Chrisal Restatement Goodwill impairment As Restated
Basic earnings (loss) per share 2.07 0.01 (1.08) (0.13) (1.78) (0.91)
New standards, interpretations and amendments effective for the current period
Adopted
The following new standards and amendments were effective for the first time
in these financial statements but did not have a material effect on the Group:
- Annual Improvements to IFRS Standards 2018-2020 Cycle
- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
- Property, Plant and Equipment - Proceeds before Intended Use (Amendments to
IAS 16)
- Conceptual Framework for Financial Reporting (Amendments to IFRS 3)
New standards, interpretations and amendments not yet effective for the current period
There are a number of standards, amendments to standards, and interpretations
which have been issued by the IASB that are effective in future accounting
periods that the Group has decided not to adopt early. The most significant of
these are as follows:
Effective for annual periods beginning on or after January 1, 2023:
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2);
• Classification of Liabilities as Current or Non-current (Amendments to IAS
1);
• Definition of Accounting Estimates (Amendments to IAS 8); and
• Deferred Tax Related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12).
Management anticipates that these new standards, interpretations and
amendments will be adopted in the financial statements as and when they are
applicable and adoption of these new standards, interpretations and
amendments, will be reviewed for their impact on the financial statements
prior to their initial application.
The Directors do not expect these new accounting standards and amendments will
have a material impact on the Group's financial statements.
3. Significant accounting policies
a. Basis of preparation
The Consolidated Financial Statements have been prepared in accordance with UK
adopted international financial reporting standards.
The Consolidated Financial Statements have been prepared under the historical
cost convention except for certain financial and equity instruments that have
been measured at fair value. Historical cost is generally based on the fair
value of the consideration given in exchange for goods and services.
The preparation of Financial Statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgment in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgment and complexity, or
areas where assumptions and estimates are significant to the Consolidated
Financial Statements are disclosed in Note 4.
b. Going Concern
The Consolidated Financial Statements have been prepared on a going concern
basis, which contemplates the continuity of normal business activity and the
realization of the assets and the settlement of liabilities in the normal
course of business.
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Strategic
Report. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the CFO Review and in Note
31 to the financial statements. In addition, Notes 41 and 42 to the financial
statements include the Group's objectives, policies and processes for managing
its capital; its financial risk management objectives; details of its
financial instruments; and its exposures to credit risk and liquidity risk.
To manage its cash balance, the Group has access to credit facilities
totalling CHF9.0 million (approximately US$9.8 million as of September 30,
2023). The credit facilities are in place with two different banks but with
materially the same conditions. The facilities are not limited in time, can be
terminated by either party at any time and allow overdrafts and fixed cash
advances with a duration of up to twelve months. In case one or the other
party terminates the agreement, fixed cash advances become due upon their
defined maturity date. The facilities do not contain financial covenants, but
they do require the delivery of certain financial and operational information
within a defined timeframe after the balance sheet date. As the publication of
audited accounts for the year 2022 was delayed, the Company was not able to
submit these accounts within the contractually defined timeframe but has
received extensions to do so from both banks until October 31, 2023.
As of September 30, 2023, the Group has drawn CHF6.3 million of the facilities
(CHF2.4 million as at December 31, 2022) as follows:
Term / Maturity date Amount
November 27, 2023 CHF4.5 million
June 17, 2024 CHF0.8 million
September 30, 2024 CHF1.0 million
The Group's forecasts and projections for the next 12 months reflect the very
challenging trading environment and show that the Group should be able to
operate within the level of its current facility for at least 12 months from
the date of signature of these financial statements if the facility drawdowns
remain available. While the facilities are not committed, the Board has not
received any indication from financing partners that the facilities are at
risk of being terminated. Furthermore, the Board is in discussions with
financial institutions to replace the currently uncommitted credit facilities
by committed, long-term facilities, but the outcome of these discussions
remains uncertain.
Nevertheless, the Board acknowledges the uncommitted status of the facilities
which could be terminated without notice during the forecast period requiring
the refinancing of debts as per above maturity date indicates that a material
uncertainty exists that may cast significant doubt on the Group's and Parent
Company's ability to continue as a going concern, and therefore the Group may
not be able to realize its assets and discharge its liabilities in the normal
course of business.
After considering the forecasts, sensitivities, and mitigating actions
available to management and having regard to the risks and uncertainties to
which the Group is exposed (including the material uncertainty referred to
above), the Group's directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable
future and operate within its credit facilities for the period 12 months from
date of signature. Accordingly, the financial statements continue to be
prepared at the going concern basis.
c. Basis of consolidation
The Consolidated Financial Statements comprise the financial statements of the
Company and its subsidiaries listed in Note 6 "Subsidiaries" to the
Consolidated Financial Statements.
A subsidiary is defined as an entity over which the Company has control. The
Company 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.
Intra-group transactions, balances and unrealized gains on transactions
between Group companies are eliminated; unrealized losses are also eliminated
unless cost cannot be recovered. Where necessary, adjustments are made to the
financial statements of subsidiaries to ensure consistency of accounting
policies with those of the Group.
Non-controlling interests in subsidiaries are identified separately from the
Group's equity therein. Those interests of non-controlling shareholders that
are present ownership interests entitling their holders to a proportionate
share of net assets upon liquidation may initially be measured at fair value
or at the non-controlling interests' proportionate share of the fair value of
the acquiree's identifiable net assets. The choice of measurement is made on
an acquisition-by-acquisition basis. Other non-controlling interests are
initially measured at fair value. Subsequent to acquisition, the carrying
amount of non-controlling interests is the amount of those interests at
initial recognition plus the non-controlling interests' share of subsequent
changes in equity.
The total comprehensive income of non-wholly owned subsidiaries is attributed
to owners of the parent and to the non-controlling interests in proportion to
their relative ownership interests.
The preparation of the Consolidated Financial Statements in compliance with UK
adopted international accounting standards requires the Directors to exercise
judgment in applying the Company's accounting policies. The areas involving a
higher degree of judgment or complexity, or areas where assumptions and
estimates are significant to the Consolidated Financial Statements are
disclosed in Note 4 "Significant judgments, estimates and assumptions" to the
Consolidated Financial Statements.
d. Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The
consideration transferred in a business combination is measured at fair value,
which is calculated as the sum of the acquisition-date fair values of assets
transferred by the Group, liabilities incurred by the Group to the former
owners of the acquiree and the equity interest issued by the Group in exchange
for control of the acquiree. Acquisition-related costs are recognised in
profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities
assumed are recognised at their fair value at the acquisition date, except
that:
• Deferred tax assets or liabilities and assets or liabilities
related to employee benefit arrangements are recognised and measured in
accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
• Liabilities or equity instruments related to share-based payment
arrangements of the acquiree or share-based payment arrangements of the Group
entered into to replace share-based payment arrangements of the acquiree are
measured in accordance with IFRS 2 at the acquisition date (see below);
• Assets (or disposal groups) that are classified as held for sale
in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree, and
the fair value of the acquirer's previously held equity interest in the
acquiree (if any) over the net of the acquisition-date amounts of the
identifiable assets acquired and the liabilities assumed. If, after
reassessment, the net of the acquisition-date amounts of the identifiable
assets acquired and liabilities assumed exceeds the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree and
the fair value of the acquirer's previously held interest in the acquiree (if
any), the excess is recognised immediately in profit or loss as a bargain
purchase gain.
When the consideration transferred by the Group in a business combination
includes a contingent consideration arrangement, the contingent consideration
is measured at its acquisition-date fair value and included as part of the
consideration transferred in a business combination. Changes in fair value of
the contingent consideration that qualify as measurement period adjustments
are adjusted retrospectively, with corresponding adjustments against goodwill.
Measurement period adjustments are adjustments that arise from additional
information obtained during the 'measurement period' (which cannot exceed one
year from the acquisition date) about facts and circumstances that existed at
the acquisition date.
The subsequent accounting for changes in the fair value of the contingent
consideration that do not qualify
as measurement period adjustments depends on how the contingent consideration
is classified. Contingent consideration that is classified as equity is not
remeasured at subsequent reporting dates and its subsequent settlement is
accounted for within equity. Other contingent consideration is remeasured to
fair value at subsequent reporting dates with changes in fair value recognised
in profit or loss.
When a business combination is achieved in stages, the Group's previously held
interests (including joint
operations) in the acquired entity are remeasured to its acquisition-date fair
value and the resulting gain or loss, if any, is recognised in profit or loss.
Amounts arising from interests in the acquiree prior to the acquisition date
that have previously been recognised in other comprehensive income are
reclassified to profit or loss, where such treatment would be appropriate if
that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end
of the reporting period in which the combination occurs, the Group reports
provisional amounts for the items for which the accounting is incomplete.
Those provisional amounts are adjusted during the measurement period (see
above), or additional assets or liabilities are recognised, to reflect new
information obtained about facts and circumstances that existed as of the
acquisition date that, if known, would have affected the amounts recognised as
of that date.
e. Foreign currency transactions and translation
The individual entities' functional currencies are listed below:
Subsidiary: Functional currency
HeiQ Plc, United Kingdom GBP
HeiQ Materials AG, Switzerland CHF
HeiQ ChemTex Inc., United States of America USD
HeiQ Pty Ltd, Australia AUD
HeiQ GrapheneX AG, Switzerland CHF
HeiQ Company Limited, Taiwan TWD
HX Company Limited, Taiwan TWD
HeiQ Medica S.L., Spain EUR
HeiQ Iberia Unipessoal Lda, Portugal EUR
HeiQ Chrisal N.V., Belgium EUR
HeiQ RAS AG, Germany EUR
HeiQ Regulatory GmbH, Germany EUR
HeiQ (China) Material Tech LTD, China CNY
Life Material Technologies Limited, Hong Kong USD
Life Natural Limited, Hong Kong USD
Life Materials Latam Ltda, Brazil BRL
LMT Holding Limited, Thailand THB
Life Material Technologies Limited, Thailand THB
HeiQ AeoniQ GmbH, Austria EUR
ChemTex Laboratories Inc., United States of America USD
On a single entity level, transactions in foreign currencies are translated
into the functional currency at the rate of exchange on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated at the exchange rate ruling at the reporting date. The
resulting gain or loss is reflected in the "consolidated statement of profit
and loss and other comprehensive income" within operating income or operating
expense, if the balance sheet account is of operating nature - e.g. trade and
other receivables/payables and within either "Finance income" or "Finance
costs", if the balance sheet account is of non-operating nature - e.g. cash
and cash equivalents, loans receivable, payable.
Single entities with functional currencies other than US$ are translated into
US$ as part of the consolidation where assets and liabilities are translated
at closing rate for the year-ended, and profit and loss items are translated
at an average rate for the year. Equity transactions are translated at a
historic rate. The residual value flows into the currency translation reserve.
The results and financial position of all Group entities that have a
functional currency different from the presentation currency are translated
into US$, the presentation currency, as follows:
· assets and liabilities are translated at the closing rate at the
date of the "Statement of Financial Position";
· income and expenses are translated at average exchange rates
(unless this average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case income
and expenses are translated at the dates of the transactions); and
· all resulting exchange differences are recognized in other
comprehensive income.
On consolidation, the Group recognizes in "other comprehensive income" the
exchange differences arising from the translation of the net investment in
foreign entities, and of monetary items receivable from foreign subsidiaries
for which settlement is neither planned nor likely to occur in the foreseeable
future.
f. Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses, if any. The cost of an item of property, plant and
equipment initially recognized includes its purchase price and any cost that
is directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended by the
Group.
Property, plant and equipment are generally depreciated on a straight-line
basis over their estimated useful lives:
Machinery and equipment 5 - 15 years
Motor
vehicles
4 - 5 years
Computers and related software 3 - 5 years
Furniture and fixtures 5 - 10
years
Buildings
10 - 20 years
Freehold land is not depreciated.
The estimated useful lives, residual values and depreciation method are
reviewed at the end of each reporting period, with the effect of any changes
in estimate accounted for on a prospective basis.
Property, plant and equipment held under leases are depreciated over the
shorter of the lease term and estimated useful life.
g. Intangible assets
All intangible assets, except goodwill, are stated at cost less accumulated
amortization and any accumulated impairment losses.
Goodwill
Goodwill represents the amount by which the fair value of the cost of a
business combination exceeds the fair value of the net assets acquired.
Goodwill is not amortized and is stated at cost less any accumulated
impairment losses.
The recoverable amount of goodwill is tested for impairment annually or when
events or changes in circumstance indicate that it might be impaired.
Impairment charges are deducted from the carrying value and recognized
immediately in the income statement. For the purpose of impairment testing,
goodwill is allocated to each of the Group's cash generating units expected to
benefit from the synergies of the combination. If the recoverable amount of
the cash generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the unit. An
impairment loss recognized for goodwill is not reversed in a subsequent
period.
Intangible assets acquired in a business combination
Net assets acquired as part of a business combination includes an assessment
of the fair value of separately identifiable acquisition-related intangible
assets, in addition to other assets, liabilities and contingent liabilities
purchased.
Subsequent to initial recognition, intangible assets acquired in a business
combination are reported at cost less accumulated amortization and accumulated
impairment losses, on the same basis as intangible assets that are acquired
separately.
Acquisition-related intangible assets are amortized on a straight-line basis
over their useful lives which are individually assessed.
The estimated useful lives are as follows:
Brand
names
10 years
Customer
relations
5 years
Technologies
10 years
Other intangible
assets
5 - 10 years
Internally developed assets
Internally generated assets represent expenditure incurred on research and
development projects. Recognition follows the following principles:
Research expenditure is recognized as an expense when it is incurred.
Development expenditure is recognized as an expense except that costs incurred
on development projects are capitalized as long-term assets to the extent that
such expenditure is expected to generate future economic benefits. Development
expenditure is capitalized if, and only if an entity can demonstrate all of
the following:
· its ability to measure reliably the expenditure attributable to
the asset under development;
· the product or process is technically and commercially feasible;
· its future economic benefits are probable;
· its ability to use or sell the developed asset;
· Its intention to complete and use or sell the developed asset;
· the availability of adequate technical, financial and other
resources to complete the asset under development.
Capitalized development expenditure is measured at cost less accumulated
amortization and impairment losses, if any. Certain internal salary costs are
included where the above criteria are met. These internal costs are
capitalized when they are incurred in respect of products developed for sale
or assets developed to be used.
In the event that it is no longer probable that the expected future economic
benefits will be recovered, the development expenditure is written down to its
recoverable amount. Development expenditure initially recognized as an expense
is not recognized as assets in subsequent periods.
Capitalized development expenditure in relation to projects that are still in
development phase are capitalized as asset under construction until they are
ready for sale or use. These assets are tested annually for impairment.
Internally developed assets are amortized on a straight-line method over a
period of five to ten years when the asset is ready for sale or use.
The estimated useful life is 5-10 years.
Other intangible assets
Other intangible assets include purchased rights, licenses, patent costs,
concessions, website designs and domains and trademarks. They are measured
initially at purchase cost and are amortized on a straight-line basis over
their estimated useful lives. The estimated useful life is 5-10 years.
Derecognition intangible assets
An intangible asset is derecognized on disposal, or when no future economic
benefits are expected from use or disposal. Gains or losses arising from
derecognition of an intangible asset, measured as the difference between the
net disposal proceeds and the carrying amount of the asset, are recognized in
profit or loss when the asset is derecognized.
h. Impairment of financial assets
The expected credit loss model defined in IFRS 9 "Financial Instruments"
requires the Group to account for expected credit losses and changes in those
expected credit losses at each reporting date to reflect changes in credit
risk since initial recognition of the financial assets. The credit event does
not have to occur before credit losses are recognized. IFRS 9 "Financial
Instruments" allows for a simplified approach for measuring the loss allowance
at an amount equal to lifetime expected credit losses for trade receivables
and contract assets.
The Group has three types of financial assets subject to the expected credit
loss model: trade receivables, contract assets, other receivables.
For trade receivables and contract assets, the company uses a simplified
provision matrix to calculate expected credit loss: The expected loss rates
are based on the Group's historical credit losses. The historical loss rates
are then adjusted for current and forward-looking information on macroeconomic
factors affecting the Group's customers.
For other receivables, the company makes use of the low credit risk exemption.
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased
significantly since initial recognition, the Group compares the risk of a
default occurring on the financial instrument at the reporting date with the
risk of a default occurring on the financial instrument at the date of initial
recognition. In making this assessment, the Group considers both quantitative
and qualitative information that is reasonable and supportable, including
historical experience and forward-looking information that is available
without undue cost or effort. Forward looking information considered includes
the future prospects of the industries in which the Group's debtors operate,
obtained from economic expert reports, financial analysts, governmental
bodies, relevant think-tanks and other similar organizations, as well as
consideration of various external sources of actual and forecast economic
information that relate to the Group's core operations.
• In particular, the following information is taken into account
when assessing whether credit risk has increased significantly since initial
recognition:
• Significant deterioration in external market indicators of
credit risk for a particular financial instrument, e.g. a significant increase
in the credit spread, the credit default swap prices for the debtor, or the
length of time or the extent to which the fair value of a financial asset has
been less than its amortized cost
• Existing or forecast adverse changes in business, financial or
economic conditions that are expected to cause a significant decrease in the
debtor's ability to meet its debt obligations
• An actual or expected significant deterioration in the operating
results of the debtor
• Significant increases in credit risk on other financial
instruments of the same debtor
• An actual or expected significant adverse change in the
regulatory, economic, or technological environment of the debtor that results
in a significant decrease in the debtor's ability to meet its debt obligations
Irrespective of the outcome of the above assessment, the Group presumes that
the credit risk on a financial asset has increased significantly since initial
recognition when contractual payments are more than 180 days past due, unless
the Group has reasonable and supportable information that demonstrates
otherwise.
Despite the foregoing, the Group assumes that the credit risk on a financial
instrument has not increased
significantly since initial recognition if the financial instrument is
determined to have low credit risk at the reporting date. A financial
instrument is determined to have low credit risk if:
• The financial instrument has a low risk of default
• The debtor has a strong capacity to meet its contractual cash
flow obligations in the near term
• Adverse changes in economic and business conditions in the
longer term may, but will not necessarily, reduce the ability of the borrower
to fulfil its contractual cash flow obligations
The Group regularly monitors the effectiveness of the criteria used to
identify whether there has been a significant increase in credit risk and
revises them as appropriate to ensure that the criteria are capable of
identifying significant increase in credit risk before the amount becomes past
due.
Definition of default
The Group considers the following as constituting an event of default for
internal credit risk management purposes as historical experience indicates
that financial assets that meet either of the following criteria are generally
not recoverable:
• When there is a breach of financial covenants by the debtor
• Information developed internally or obtained from external
sources indicates that the debtor is unlikely to pay its creditors, including
the Group, in full (without taking into account any collateral held by the
Group)
Irrespective of the above analysis, the Group considers that default has
occurred when a financial asset is more than 360 days past due unless the
Group has reasonable and supportable information to demonstrate that a more
lagging default criterion is more appropriate.
Write-off policy
The Group writes off a financial asset when there is information indicating
that the debtor is in severe financial difficulty and there is no realistic
prospect of recovery, e.g. when the debtor has been placed under liquidation
or has entered into bankruptcy proceedings, or in the case of trade
receivables, when the amounts are over two years past due unless the Group has
reasonable support to assume recoverability, whichever occurs sooner.
Financial assets written off may still be subject to enforcement activities
under the Group's recovery procedures, taking into account legal advice where
appropriate. Any recoveries made are recognized in profit or loss.
i. Impairment of non-financial assets
At each reporting date, the Directors assess whether indications exist that an
asset may be impaired. If indications do exist, or when annual impairment
testing for an asset is required, the Directors estimate the asset's
recoverable amount. An asset's recoverable amount is the higher of an asset's
or cash-generating unit's fair value less costs to sell and its value-in-use,
and is determined for an individual asset, unless the asset does not generate
cash inflows that are largely independent of those from other assets or groups
of assets. Where the carrying amount of an asset or cash-generating unit
exceeds its recoverable amount, the Directors consider the asset impaired and
write the subject asset down to its recoverable amount. In assessing
value-in-use, the Directors discount the estimated future cash flows to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. In
determining fair value less costs to sell, the Directors consider recent
market transactions, if available. If no such transactions can be identified,
the Directors utilize an appropriate valuation model.
When applicable, the Group recognizes impairment losses of continuing
operations in the "statement of profit and loss and other comprehensive
income" in those expense categories consistent with the function of the
impaired asset.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss
been recognized for the asset (or cash-generating unit) in prior years. A
reversal of an impairment loss is recognized immediately in profit or loss to
the extent that it eliminates the impairment loss which has been recognized
for the asset in prior years. Any increase in excess of this amount is treated
as a revaluation increase.
j. Leases
The determination of whether an arrangement is, or contains, a lease is based
on the substance of the arrangement at inception date: whether fulfilment of
the arrangement is dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset.
Identifying leases
Lessee position:
The Group accounts for a contract, or a portion of a contract, as a lease when
it conveys the right to use an asset for a period of time in exchange for
consideration. Leases are those contracts that satisfy the following criteria:
· there is an identified asset;
· the Group obtains substantially all the economic benefits from
use of the asset; and
· the Group has the right to direct use of the asset.
In determining whether the Group obtains substantially all the economic
benefits that arise from use of the asset, the Group considers only the
economic benefits that arise from use of the asset, not those incidental to
legal ownership or other potential benefits.
In determining whether the Group has the right to direct use of the asset, the
Directors consider whether the Group directs how and for what purpose the
asset is used throughout the period of use. If there are no significant
decisions to be made because they are pre-determined due to the nature of the
asset, the Directors consider whether the Group was involved in the design of
the asset in a way that predetermines how and for what purpose the asset will
be used throughout the period of use. If the contract or portion of a contract
does not satisfy these criteria, the Group applies other applicable IFRSs
rather than IFRS 16 "Leases".
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless (as is
typically the case) this is not readily determinable, in which case the
Group's incremental borrowing rate on commencement of the lease is used, which
the Directors have assessed to be between 1.75% and 5%, depending on the
nature of the asset and location.
Subsequent to initial measurement lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right-of-use assets are amortized on a straight-line
basis over the remaining term of the lease or over the remaining economic life
of the asset if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease (because, for
example, it re-assesses the probability of a lessee extension or termination
option being exercised), it adjusts the carrying amount of the lease liability
to reflect the payments to make over the revised term, which are discounted at
the same discount rate that applied on lease commencement. The carrying value
of lease liabilities is similarly revised when the variable element of future
lease payments dependent on a rate or index is revised. In both cases an
equivalent adjustment is made to the carrying value of the right-of-use asset,
with the revised carrying amount being amortized over the remaining (revised)
lease term.
Right-of-use assets
A right-of-use asset is recognized at the commencement date of a lease. The
right-of-use asset is measured at cost, which comprises the initial amount of
the lease liability, adjusted for, as applicable, any lease payments made at
or before the commencement date net of any lease incentives received, any
initial direct costs incurred, and an estimate of costs expected to be
incurred for dismantling and removing the underlying asset, and restoring the
site or asset.
Right-of-use assets are depreciated on a straight-line basis over the
unexpired period of the lease or the estimated useful life of the asset,
whichever is the shorter. Right-of-use assets are subject to impairment or
adjusted for any re-measurement of lease liabilities.
The Group has elected not to recognize a right-of-use asset and corresponding
lease liability for short-term leases with terms of 12 months or less and
leases of low-value assets. Lease payments on these assets are expensed to
profit or loss as incurred.
k. Taxation
The income tax expense represents the sum of the tax currently payable and
deferred tax.
Current and deferred tax are recognized in profit or loss, except when they
relate to items that are recognized in other comprehensive income or directly
in equity, in which case the current and deferred tax are also recognized in
other comprehensive income or directly in equity respectively. Where current
tax or deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the business
combination.
Income taxation
Current income tax assets and liabilities are measured at the amount to be
recovered from, or paid to, the taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantively
enacted at the reporting date in the jurisdictions where the Group operates
and generates taxable income.
Deferred taxation
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the Consolidated Financial Statements. Deferred tax is
determined using tax rates (and laws) that have been enacted or substantially
enacted by the reporting date and expected to apply when the related deferred
tax is realized or the deferred liability is settled.
Deferred tax assets are recognized to the extent that it is probable that the
future taxable profit will be available against which the temporary
differences can be utilized.
l. Revenue from contracts with customers
The Group's revenue represents the fair value of the consideration received or
receivable for the rendering of services, licenses and similar fees as well as
for the sale of functional products in different forms (mainly ingredients,
materials and consumer goods), net of value added tax and other similar
sales-based taxes, rebates and discounts after eliminating intercompany sales.
Revenue from contracts with customers is recognized once the performance
obligation has been fulfilled. If the Group fulfills its performance
obligations to the customer, revenues recognized are capitalized as contract
assets until the Group invoices the customers.
In contrast, if customers pay in advance for the services, a contract
liability is recognized and is released at point of revenue recognition.
The Group has the following major revenue streams:
Sale of goods
The Group sells functional ingredients, materials or consumer goods. Revenue from the sale of goods to customers is generally recognized at a point in time, once control over the goods is passed to customers.
Research and development services
HeiQ provides research and development services to customers in exchange for a
fee. Revenue is generally recognized at the point in time of completion of the
project, for example, with delivery of proof-of-concept to the customer.
Consulting services for research and development projects
HeiQ provides consulting services for customers regarding research and
development projects including grant acquisition services, industry cluster
services and management services. The revenue for these services is recognized
over time based on completion of the project. Any amounts invoiced for stages
not completed, are recognized as deferred revenue.
Take or pay arrangements
Certain customers have agreed, under a "take or pay" contract, to purchase a
specified minimum quantity of particular products over a specified period of
time, usually in exchange for a specified exclusivity during the same period.
However, the customer must pay for the full quantity stated in the contract,
irrespective of whether the customer takes delivery of the minimum quantity to
which they are committed. Upon payment of the full amount, the contract allows
customers to defer their unexercised rights and to consume the remaining units
within a twelve-month period, although there is no compulsion to do so. The
customers are billed for each shipment of products and revenue is recognized
at the point in time control over the goods is passed to the customer. At the
end of the contractual period, the customer is billed for the amounts not
ordered. Revenue recognition for these shortfall items is deferred until the
customer consumes the units, or, in case of expiry of the rights, typically
twelve months after payment by the customer.
Exclusivity fees
HeiQ grants exclusivity to customers for certain products in certain regions.
The contracts restrict HeiQ from selling specific products to competitors for
a limited time. The customers pay a fee for exclusivity which increases the
price of the goods supplied by HeiQ. In cases where the obligation to grant
exclusivity can be valued separately from other obligations in the contract,
the exclusivity portion is accounted for over time according to the
contractual definition of the exclusivity period.
m. Share-based payments
All of the Group's share-based awards are equity settled. Equity-settled
share-based payments to employees are measured at the fair value of the equity
instruments at the grant date. Equity-settled share-based payments to
non-employees are measured at the fair value of services received, or if this
cannot be measured, at the fair value of the equity instruments granted at the
date that the Group obtains the goods or counterparty renders the service. The
fair value of such shares issued has been estimated by reference to the cash
consideration received for shares issued or material third party transactions
at or close to the dates for such non-cash issues.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based
on the Directors' estimate of equity instruments that will eventually vest,
with a corresponding increase in equity. Where the conditions are non-vesting,
the expense and equity reserve arising from share-based payment transactions
is recognized in full immediately on grant.
At the end of each reporting period, the Directors revise their estimate of
the number of equity instruments expected to vest. The impact of the revision
of the original estimates, if any, is recognized in profit or loss such that
the cumulative expense reflects the revised estimate, with a corresponding
adjustment to other reserves.
n. Employee benefits
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis
and are expensed as the related service is provided. A liability is
recognized for the amount expected to be paid under short-term cash bonus or
profit-sharing plans if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Long-term benefits
Defined benefit plans
The Group operates a defined benefit pension plan in Switzerland, which
requires contributions to be made to a separately administered fund. The cost
of providing benefits under the defined benefit plan is determined using the
projected unit credit method with actuarial valuations being carried out at
the end of each annual reporting period.
Re-measurements, comprising of actuarial gains and losses, the effect of the
asset ceiling, excluding amounts included in net interest on the net defined
benefit liability and the return on plan assets (excluding amounts included in
net interest on the net defined benefit liability), are recognized immediately
in the statement of financial position with a corresponding debit or credit to
other reserve through "Other Comprehensive Income" in the period in which they
occur. Re-measurements are not reclassified to profit or loss in subsequent
periods.
Past-service costs are recognized in profit or loss on the earlier of:
· the date of the plan amendment or curtailment; and
· the date that the Group recognizes related restructuring costs,
or termination benefits, if earlier.
Net interest is calculated by applying the discount rate to the net defined
benefit liability or asset. The Group recognizes the following changes in the
net defined benefit obligation under "cost of sales", "administration
expenses" and "selling and distribution expenses" in the consolidated
statement of profit or loss (by function):
· service costs comprising current service costs, past-service
costs, gains and losses on curtailments and non-routine settlements; and
· net interest expense or income.
Defined contribution plans
The income statement expense for the defined contribution pension plans
operated represents the contributions payable for the year.
o. Financial instruments
Financial assets and financial liabilities are recognised in the Group's
statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Transaction costs that are directly attributable to the acquisition or issue
of financial assets and financial liabilities (other than financial assets and
financial liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial liabilities,
as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial liabilities
at fair value through profit or loss are recognised immediately in profit or
loss.
p. Finance income and expenses
Finance expenses comprise interest payable, lease expenses recognized in
profit or loss using the effective interest method, unwinding of the discount
on provisions, and net foreign exchange losses that are recognized in the
income statement.
Finance income comprises interest receivable on cash deposits and net foreign
exchange gains.
Interest income and interest payable is recognized in profit or loss as it
accrues, using the effective interest method.
Foreign currency gains and losses are reported on a net basis.
q. Cash and cash equivalents
For the purpose of presentation in the consolidated statement of cash flows,
cash and cash equivalents include cash on hand, deposits held at call with
financial institutions, other short-term highly liquid investments with
original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of
changes in value, and bank overdrafts.
r. Trade and other receivables
Trade receivables are recognized initially at transaction price and
subsequently measured at amortized cost using the effective interest method,
less provision for impairment.
s. Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is
based on the first-in-first-out principle and includes expenditure incurred in
acquiring the inventories and other costs in bringing them to their existing
location and condition.
t. Provisions
A provision is recognized when the Group has a present obligation, legal or
constructive, as a result of a past event and it is probable that an outflow
of resources embodying economic benefits will be required to settle the
obligation, and a reliable estimate can be made. Provisions are reviewed at
each reporting date and adjusted to reflect the current best estimate. If it
is no longer probable that an outflow of economic resources will be required
to settle the obligation, the provision is reversed. Where the effect of the
time value of money is material, provisions are discounted using a current
pre-tax rate that reflects, where appropriate, the risks specific to the
liability. When discounting is used, the increase in the provision due to the
passage of time is recognized as an interest expense.
u. Contingent liabilities
Contingent liabilities are possible obligations whose existence depends on the
outcome of uncertain future events or present obligations where the outflow of
resources is uncertain or cannot be measured reliably. Contingent liabilities
are not recognized in the Consolidated Financial Statements but are disclosed
unless they are remote.
4. Critical accounting judgements and key sources of estimation uncertainty
In applying the Group's accounting policies, which are described in Note 3,
the directors are required to make judgements (other than those involving
estimations) that have a significant impact on the amounts recognised and to
make estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates
and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Critical accounting judgements
The following are the critical judgements, apart from those involving
estimations (which are presented separately below), that the directors have
made in the process of applying the Group's accounting policies and that have
the most significant effect on the amounts recognised in financial statements.
Accounting for take-or-pay contracts
Following a change in accounting policy in connection with an identified prior
period error (see Note 2), revenue recognition for shortfall items is deferred
until the customer consumes the units, or typically twelve months after
payment by the customer in case of expiry of the rights (Note 3l). Applying
this judgement results in recognition of revenues and pre-tax profit at a
later point in time. Revenue and pre-tax profits would have been US$622,000
higher for the reporting year if such revenues were not deferred in 2022.
Allowance for inventory obsolescence
The slowdown of sales in 2022 led to an increase in unsold finished goods and
unused raw materials. The Group applied judgement in calculating the allowance
for obsolete inventory. For slow-moving items, the Group compared quantities
on hand with budgeted sales quantities. The sales projections are inherently
uncertain due to the nature of the business and fluctuating market conditions.
The inventory allowance calculated as at December 31, 2022 is US$4,912,000
(2021: US$17,000) as presented in Note 22.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the reporting period that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed below.
Goodwill impairment testing
Following the assessment of the recoverable amount of goodwill allocated to
the CGU "RAS" (allocated goodwill: US$7.2 million), the directors consider the
recoverable amount of goodwill allocated to CGU "RAS" to be most sensitive to
the achievement of forecasts in 2023 comprising forecasts of revenue, staff
costs and operating expenses based on current and anticipated market
conditions. Whilst the Group can manage most of RAS CGU's costs, the revenue
projections are inherently uncertain due to the nature of the business and
fluctuating market conditions. The market for RAS CGU has seen a slowdown in
the second half of 2022 due to a decline in customer demand. It is possible
that underperformance to estimated revenues as considered in the impairment
test may occur in 2023.
The sensitivity analysis for a reasonably possible change in assumptions in
respect of the recoverable amount of the CGU "RAS" goodwill is presented in
Note 18.
5. Business combinations
Business combinations in 2022
a. Acquisition of non-controlling interest in Chrisal N.V.
On December 14, 2022, HeiQ increased its interest in HeiQ Chrisal N.V. from
51% to 71% after some sellers exercised their put options. HeiQ paid €2.9
million (approximately US$3.0 million) for the additional 20% shareholding to
the vendors through the issue of 3,348,164 new ordinary shares in the Company.
The 20% share was valued at US$0.6 million. The transaction resulted in a
US$0.6 million reduction of non-controlling interests and a US$2.4 million
charge to retained earnings.
b. Transfer of shares in HeiQ AeoniQ GmbH to non-controlling interests
On February 11, 2022, HeiQ Materials AG reached an agreement with Hugo Boss AG
to dispose of 2.5% of
its shareholding in HeiQ AeoniQ GmbH and issued a call option. Under the call
option, the Company granted Hugo Boss AG the contractual right to acquire from
the Company a further 5% shareholding in HeiQ AeoniQ GmbH for a call option
exercise price of €10,000,000 (approximately US$10,657,000). The shares and
call option were issued for US$4,791,000, the call option was recognized as a
derivative liability, see Note 38.
Business combinations in 2021
c. Acquisition of Chrisal NV
On March 9, 2021, HeiQ Iberia Unipessoal Lda acquired 51% of the share capital
and voting rights of Chrisal NV, a company incorporated in Belgium. Chrisal NV
is a biotechnology company and a leader in innovative ingredients and consumer
products that incorporate the benefits of probiotics and synbiotics. It has
technology platforms with the purpose of creating healthy and sustainable
microbial ecosystems. The application of its proprietary technology includes
cosmetics, personal care, textiles, wound dressings, water purification, air
treatment and cleaning products. The company has its office, manufacturing
site and bottling facility in Lommel, Belgium.
The purchase consideration was payable partly in cash (€5,000,000,
equivalent to approximately US$6,054,000) and partly by the issue of 1,101,928
new ordinary shares for €2,500,000 (US$2,982,000), equivalent to a total
consideration of US$9,036,000.
The acquisition is part of the Group's strategy of becoming a global leader in
materials innovation and allows access to the broader market of microbial
surface management and a bio-based green complementary technology platform to
its successful antimicrobials.
Goodwill of US$6,163,000 was recognized and is attributable to anticipated
future profit from expansion opportunities and synergies of the business. The
goodwill arising from the acquisition has been allocated to the Chrisal CGU
(see definition in Note 18). Fair value adjustments have been recognized for
property, plant and equipment and acquisition-related intangible assets which
are in alignment with accounting policies of the Group.
Transaction costs relating to the acquisition of US$46,000 have been charged
to the Statement of profit and loss and other comprehensive Income in the
period relating to the acquisition of Chrisal NV.
The sellers of Chrisal N.V. hold buyout options to sell their remaining
shareholding to HeiQ. The options are exercisable every year from March 9
(anniversary of the closing date) until December 31 each year at a strike
price defined in the respective shareholders' agreement. As of December 31,
2022, four out of five old shareholders have exercised their option (see
above, Business combinations in 2022) and sold in total an additional interest
of 20% in Chrisal N.V. to the Group. The remaining non-controlling shareholder
has partially sold his interest and therefore the Group concludes that the
option has lapsed as of December 31, 2022.
d. Acquisition of RAS AG
On April 29, 2021, the Company completed the acquisition of 100% of the share
capital and voting rights of RAS AG, a company based in Regensburg, Germany.
The acquisition was for an initial consideration of €5.1 million
(approximately US$6.1 million), with €1.25 million (US$1.48 million) payable
in cash and €3.85 million (US$4.66 million) through the issue of 1,701,821
new ordinary shares by the Company. An additional earn-out of €2.7 million
(US$3.2 million) was satisfied through the issuance of 2,743,841 new ordinary
shares in 2022 resulting in an overall consideration of €7.8 million
(US$9.37 million).
RAS AG is a materials innovation company that drives the development of
resource-efficient and sustainable products. RAS AG develops and manufactures
highly functionalized materials for this purpose. This includes the
manufacture of antimicrobial, hygiene-enhancing additives and durable
antimicrobial coating systems which are sold worldwide under the trademark
agpure®, and transparent electrically conductive and infrared reflective
coatings sold under the ECOS® trademark. The acquisition is in line with
HeiQ's strategic goal to gain market share in hygiene solutions by providing
antimicrobial surface hygiene technologies to the healthcare and other
sectors. This is building on the acquisition of Chrisal N.V. Belgium concluded
earlier in the year, which gives HeiQ expanded access to the healthcare sector
through probiotic and synbiotic cleaners.
Goodwill of US$7,234,000 was recognized and is attributable to anticipated
future profit from expansion opportunities and synergies of the business. The
goodwill arising from the acquisition has been allocated to the RAS CGU (see
definition in Note 18). Fair value adjustments have been recognized for
acquisition-related intangible assets which are in alignment with the
accounting policies of the Group.
Transaction costs relating to the acquisition of US$50,000 have been charged
to the Statement of profit and loss and other comprehensive income in the
period relating to the acquisition of RAS AG.
HeiQ Regulatory GmbH, a joint-venture company previously accounted for under
the equity method, became a wholly owned subsidiary on acquisition of RAS AG.
e. Acquisition of Life Material Technologies Limited
On June 15, 2021, the Company completed the acquisition of 100% of the share
capital and voting rights of Life Material Technologies Limited, Hong Kong
("LIFE").
The acquisition was for an upfront consideration of US$6.45 million, with
US$2.55 million payable in cash (the "Cash Consideration") and US$3.9 million
to be satisfied through the issue of new ordinary shares by HeiQ (the "Share
Consideration"). Additional earn-out consideration of US$2,038,000 was paid in
cash (US$1,400,000) and through the issue of new ordinary shares (US$638,000)
in 2022. A further US$614,000 working capital adjustment was paid in shares in
2022 resulting in an overall consideration of US$9.1 million. An additional
US$762,000, which is not part of the consideration, was issued in shares and
is expensed as remuneration over a five-year period.
The Share Consideration was settled on July 9, 2021 by the issue of 1,887,883
new ordinary shares ("Consideration Shares") to the sellers of LIFE, at a
price of £1.496201 per share, which was the intraday volume-weighted average
price (the "VWAP") of HeiQ shares on the London Stock Exchange in the last
five trading days preceding the closing of the Acquisition.
LIFE is a materials technology company that has developed a strong portfolio
of smart ingredients and formulations with applications in numerous
industries. This includes the development and distribution of bio-based
antimicrobial additives and treatments used by manufacturers of plastics,
coatings, textiles, ceramics and paper, that inhibit or manage bacteria,
fungi, algae, and other micro-organisms that come in contact with treated
materials. LIFE has one of the broadest technology platforms in the industry,
using inorganic, organic and bio-based botanical active substances.
Goodwill of US$5,202,000 was recognized and is attributable to anticipated
future profit from expansion opportunities and synergies of the business. The
goodwill arising from the acquisition has been allocated to the Life CGU (see
definition in Note 18). Fair value adjustments have been recognized for
acquisition-related intangible assets which are in alignment with the
accounting policies of the Group.
Transaction costs relating to the acquisition of US$110,000 have been charged
to the Statement of profit and loss and other comprehensive income in the
period relating to the acquisition of LIFE.
f. Summary of acquisitions in 2021
The following table summarizes the consideration paid, the fair value of
assets acquired, liabilities assumed, goodwill arising on acquisition and
non-controlling interests at the acquisition date:
Chrisal NV RAS AG Life Material Technologies Limited Total
US$'000 US$'000 US$'000 US$'000
(restated) (restated)
Consideration:
Cash paid to shareholders 6,054 1,482 2,550 10,086
Shares issued to shareholders 2,983 4,656 3,900 11,539
Contingent consideration payable in cash - - 1,400 1,400
Contingent consideration payable in shares - 3,232 638 3,870
Working capital adjustment payable in shares - - 614 614
Total Consideration payable 9,037 9,370 9,102 27,509
Fair value of net assets acquired:
Property, plant and equipment 1,872 179 29 2,080
Intangible Assets 20 159 401 580
Other non-current assets - - 17 17
Inventory 1,277 411 570 2,258
Cash 1,773 291 73 2,137
Trade and other receivables 874 1,184 1,480 3,538
Trade and other payables (1,426) (611) (460) (2,497)
IAS 19 Pension liability - - (92) (92)
Borrowings (1,582) - (210) (1,792)
Income tax liability (198) (420) (20) (638)
Right of use assets (restated) 161 139 122 422
Lease liability (restated) (161) (139) (122) (422)
Intangible assets identified on acquisition:
Customer Relationship 1,308 380 610 2,298
Brands 1,022 - 1,048 2,070
Technology-based assets 1,704 1,071 561 3,336
Deferred tax liability on intangible assets (1,008) (508) (111) (1,627)
Total net assets 5,636 2,136 3,896 11,668
Non-controlling interests (2,762) - 4 (2,758)
Goodwill 6,163 7,234 5,202 18,599
Total 9,037 9,370 9,102 27,509
g. Deferred consideration in relation to acquisitions
Deferred consideration includes earnout payments and a working capital
adjustment in relation to the 2021 acquisitions of RAS AG and Life Material
Technologies Limited, as presented in the table above in Note 5f. Since these
liabilities were due for settlement in 2022, the fair value of the
consideration approximated its nominal value.
Additionally, a further amount of deferred consideration pertains to the
acquisition of assets from ChemTex Inc. in 2017 and is payable other than in a
short timeframe. The fair value of the deferred consideration has been
discounted using an imputed interest rate of 6% (being the Group's estimated
cost of debt) to take into account the time value of money.
The deferred consideration and related financing expense are summarized below:
ChemTex RAS AG Life Material Technologies Limited Total
US$'000 US$'000 US$'000 US$'000
As at January 1, 2021 1,116 - - 1,116
Amortization of fair value discount 58 - - 58
Additions from acquisitions as per Note 5f - 3,232 2,652 5,884
Gain on earnout calculation - (80) - (80)
Consideration settled in cash (908) - - (908)
Foreign exchange revaluation 13 - - 13
As at December 31, 2021 279 3,152 2,652 6,083
Foreign exchange revaluation - (276) - (276)
Consideration settled in cash (187) - (1,400) (1,587)
Consideration settled in shares - (2,875) (1,252) (4,127)
As at December 31, 2022 92 - - 92
Current liability 92 - - 92
Non-current liability - - - -
Total 92 - - 92
6. Subsidiaries
The consolidated financial statements include the financial statements of HeiQ
Plc and the subsidiaries listed in the table below.
Company Country of registration or incorporation Registered office Principal activity Percentage of ordinary shares held
HeiQ Materials AG Switzerland Rütistrasse 12, 8952 Schlieren Zurich Development, production and sale of chemicals 100%
HeiQ ChemTex Inc. United States 2725 Armentrout Dr, Concord, NC 28025 Development, production and sale of chemicals 100%
HeiQ Pty Ltd Australia Level 20/181 William Street, Melbourne, VIC 3000 Research and development 100%
HeiQ GrapheneX AG Switzerland Rütistrasse 12, 8952 Schlieren Zurich Inactive 100%
HeiQ Company Limited Taiwan No. 14 & 16, Ln. 50, Wufu 1st Rd. Luzhu District, Taoyuan City 33850 Distribution 100%
HX Company Limited Taiwan No. 14 & 16, Ln. 50, Wufu 1st Rd. Luzhu District, Taoyuan City 33850 Trading and production 66.7%
HeiQ Medica S.L. Spain Plaza de la Estación s/n, 29560 Pizarra Manufacturer of medical devices 50.1%
HeiQ Iberia Unipessoal Lda Portugal Rua Engº Frederico Ulrich, nº 2650, 4470-605 Maia Sales agency and internal services company 100%
Chrisal NV Belgium Priester Daensstraat 9, 3920 Lommel, Belgium Biotechnology 71%
HeiQ RAS AG Germany Rudolf Vogt Straße 8-10, 93053 Regensburg Materials innovation 100%
HeiQ Regulatory GmbH Germany Rudolf Vogt Straße 8-10, 93053 Regensburg Materials innovation 100%
HeiQ (China) Material Tech LTD China Room 2501, Xuhui Commercial Mansion, No. 168 Yude Road, Shanghai Distribution 100%
Life Material Technologies Limited Hong Kong Alexandra House, 6th Floor, 16-20 Chater Road, Central Materials technology 100%
Life Natural Limited Hong Kong Alexandra House, 6th Floor, 16-20 Chater Road, Central Inactive 100%
Life-Materials Latam Ltda Brazil Rua Cerro Cora Sales office 51%
1851Villa Romano, Sao Paulo SP Brasil CEP 05061350
LMT Holding Limited Thailand 222 Lumpini Building 2, 247 Rajdamri Road Holding 96.45%
Lumpini, Phatumwan, Bangkok 10330
Life Material Technologies Limited Thailand 222 Lumpini Building 2, 247 Rajdamri Road Trading 99.995%
Lumpini, Phatumwan, Bangkok 10330
HeiQ AeoniQ GmbH Austria Industriestrasse 35, 3130 Herzogenburg Materials Innovation 97.5%
ChemTex Laboratories Inc. United States 2725 Armentrout Dr, Concord, NC 28025 Chemical production site 100%
Beijing HeiQ Material Tech Co., Ltd. China Room 17B9870, Floor 17, 101 Nei, -4 to 33, Building 13, Wangjing Dongyuan Inactive/Distribution 100%
Siqu, Chaoyang District, Beijing
7. Revenue
The Group's activities are materials innovation which focuses on scientific
research, manufacturing and consumer ingredient branding. The primary source
of revenue is the production and sale of functional ingredients, materials and
consumer goods. Other sources of revenue include services for research and
development, take-or-pay and exclusivity.
The following table reconciles HeiQ Group's revenue for the periods presented:
Year ended Year ended
December 31, December 31,
2022 2021
Revenues by form US$'000 US$'000
(restated)
Revenue recognized at a point in time
Functional ingredients 36,175 41,951
Functional materials 2,000 850
Functional consumer goods 6,827 10,069
Services 160 2,548
Revenue recognized over time
Services 2,040 -
Total revenue 47,202 55,419
Unsatisfied performance obligations
The transaction prices allocated to unsatisfied and partially unsatisfied
obligations at 31 December 2022 are as set out below:
Year ended Year ended
December 31, December 31,
2022 2021
Unsatisfied performance obligations US$'000 US$'000
Exclusivity services 2,100 2,400
Research and development services 3,750 4,000
Total unsatisfied performance obligations 5,850 6,400
Management expects that 19 per cent of the transaction price allocated to the
unsatisfied contracts as of the year ended 2022 will be recognized as revenue
during the next reporting period (US$1.1 million). The remaining 81 per cent,
US$4.8 million will be recognized in the 2024 (US$1.1 million), 2025 (US$3.1
million) and 2026 financial year (US$0.6 million).
Disclosure related to contracts with customers
Contract assets and contract liabilities are disclosed under Note 25 and Note
37, respectively. Impairment losses recognized on any receivables or contract
assets arising from the Group's contracts with customers are disclosed under
Note 23 and Note 25, respectively.
8. Operating Segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board of
Directors of the Company.
For management purposes, the Group is organised into business units and the
following reportable segments:
Segment Activity
Textiles & Flooring Provide innovative ingredients to make textiles & flooring more
functional, durable and sustainable.
Life Sciences Offer biotech solutions to replace harmful substances in domestic, commercial
and industrial usage, for a more balanced microbiome and environment
Antimicrobials Functionalize different hard surfaces in everyday products and our
surroundings
Other activities All other activities of the Group including Innovation Services, Business
Development, and other non-allocated functions.
Segment revenues and profits
The following is an analysis of the Group's revenue and results by reportable
segment in 2022:
Textiles & Flooring Life Sciences Antimicrobials Other activities Total
Year ended December 31, 2022 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue 33,870 6,894 3,577 2,861 47,202
Operating profits (loss) 979 (1,078) 53 (29,199) (29,245)
Finance result (590)
Loss before taxation (29,835)
Taxation 21
Loss after taxation (29,814)
Depreciation and amortization
Property, plant and equipment 308 260 16 698 1,282
Right-of use assets - - - 938 938
Intangible Assets - - - 1,435 1,435
Impairment loss
Property, plant and equipment - 730 - - 730
Intangible Assets - - - 12,380 12,380
Textiles & Flooring Life Sciences Antimicrobials Other activities Total
Year ended December 31, 2021 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue 39,773 10,115 3,739 1,792 55,419
Operating profits (loss) 14,196 1,438 1,106 (18,096) (1,354)
Finance result (35)
Loss before taxation (1,389)
Taxation 16
Loss after taxation (1,373)
Depreciation and amortization
Property, plant and equipment 300 273 - 683 1,255
Right-of use assets - - - 716 716
Intangible Assets - - - 976 976
Impairment loss
Intangible Assets - - - 2,454 2,454
Segment revenue reported above represents revenue generated from external
customers. There were no
intersegment sales in the year ended December 31, 2022 (2021: nil).
The accounting policies of the reportable segments are the same as the Group's
accounting policies described in Note 3. Segment profit represents the profit
earned by each segment without allocation of the central SG&A costs
including expenses for infrastructure, R&D and laboratories, directors'
salaries, finance income, nonoperating gains and losses in respect of
financial instruments and finance costs, and income tax expense. This is the
measure reported to the Group's decision-making body for the purpose of
resource allocation and assessment of segment performance.
Geographic information
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Revenue by region (restated)
North & South America 20,425 19,290
Asia 13,376 19,580
Europe 13,109 16,237
Others 293 312
Total revenue 47,202 55,419
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Non-current assets by region (restated)
Europe 22,290 31,008
Asia 8,102 8,593
North & South America 7,734 6,860
Others 612 821
Total non-current assets 38,738 47,282
Information about major customers
During the year ended December 31, 2022, no customers individually totaled
more than 10% of total revenues (2021: none).
9. Cost of sales
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Cost of sales (restated)
Material expenses 20,942 23,704
Personnel expenses 2,830 2,164
Depreciation of property, plant and equipment 652 706
Other costs of sales 9,321 3,448
Total cost of sales 33,745 30,022
Other costs of goods sold include freight and custom costs, warehousing and
allowances on inventory.
10. Other income
Year ended Year ended
December 31, December 31,
2022 2021
Other income US$'000 US$'000
Gain on disposal of property plant and equipment 21 54
Gain on earnout consideration payable (Note 5g) - 80
Foreign exchange gains 3,539 5,032
Fair value gain on derivative liabilities (Note 38) 371 -
Other income 901 1,459
Total other income 4,832 6,625
11. Selling and general administration expenses
Year ended Year ended
December 31, December 31,
2022 2021
Selling and general administration expenses US$'000 US$'000
(restated)
Personnel expenses 14,977 13,074
Depreciation of property, plant and equipment 630 549
Amortization 1,435 976
Depreciation of right-of-use assets 938 716
Net credit losses on financial assets and contract assets 85 307
Other 12,904 9,058
Total selling and general administration expense 30,969 24,680
Other selling and general administration expenses include costs for
infrastructure, professional services and marketing as well as R&D and
laboratory related costs, information technology & data expenses, sales
representative & distribution expenses.
Auditor's remuneration
The total remuneration of the Group's auditors, being Deloitte LLP for the
audit of the year ended December 31, 2022 and Crowe UK LLP for the audit of
the year ended December 31, 2021, for services provided to the Group, and
included in other selling and general administration expenses, is analyzed
below:
Year ended Year ended
December 31, December 31,
2022 2021
Auditor's remuneration US$'000 US$'000
Audit of Group 1,180* 231
Audit of subsidiaries 122 84
Total fees for audit services 1,302 315
Audit related assurance services - 6
Other assurance services - -
Total auditor remuneration - 6
*: Includes US$180,000 related to the 2021 audit (Crowe UK LLP) which was
agreed on after the issuance of the annual report.
12. Personnel expenses
Year ended Year ended
December 31, December 31,
2022 2021
Personnel expenses US$'000 US$'000
Wages & salaries 15,274 12,708
Social security & other payroll taxes 1,685 1,387
Pension costs 710 645
Share-based payments 138 498
Total personnel expenses 17,807 15,238
Reported as cost of sales (Note 9) 2,830 2,164
Reported as selling and general administration expense (Note 11) 14,977 13,074
Total personnel expenses 17,807 15,238
The average monthly number of employees was as follows: 218 221
13. Other expenses
Year ended Year ended
December 31, December 31,
2022 2021
Other expenses US$'000 US$'000
Foreign exchange losses 3,050 4,671
Loss on disposal of property, plant and equipment 16 20
Transaction costs relating to mergers and acquisitions 50 206
Write off intangible assets (Note 18) 897 -
Other 171 1,345
Total other expenses 4,184 6,242
14. Finance income
Year ended Year ended
December 31, December 31,
2022 2021
Finance income US$'000 US$'000
Interest income 5 4
Gains on foreign currency transactions 678 518
Other - 12
Total finance income 683 534
15. Finance costs
Year ended Year ended
December 31, December 31,
2022 2021
Finance costs US$'000 US$'000
(restated)
Amortization of deferred finance costs - acquisition costs - 58
Lease finance expense 163 117
Interest on borrowings 110 108
Bank fees 98 55
Loss on foreign currency transactions 902 231
Total finance costs 1,273 569
16. Income tax
For the year ending December 31, 2022, the Group had a tax credit of US$21,000
(2021: tax credit of US$16,000). The effective tax rate was 0.1% (2021: 1.2%).
The effective tax rate was primarily impacted by non-deductible expenditure
following the goodwill impairment expense as well as unrecognized tax
losses.
The components of the provision for taxation on income included in the
"Statement of profit or loss and other comprehensive income" are summarized
below:
Year ended Year ended
December 31, December 31,
2022 2021
Current income tax expense US$'000 US$'000
Swiss corporate income taxes 58 (282)
United States state and federal taxes 393 (33)
Taiwan corporate income taxes 118 200
Belgium corporate income taxes (123) 186
Germany corporate income taxes 51 301
Others 63 43
Total current income tax expense 560 415
Deferred income tax expense
Switzerland 90 (190)
United States (606) 138
China 117 (146)
Spain - 108
Austria 20 (25)
Belgium (136) (285)
Others (66) (31)
Total deferred income tax expense (income) (581) (431)
Total income tax expense (income) (21) (16)
In addition to the amount charged to profit or loss, the following amounts
relating to deferred tax have been recognized in other comprehensive income:
Year ended Year ended
December 31, December 31,
Items that will not be reclassified subsequently to profit or loss 2022 2021
US$'000 US$'000
Remeasurement of net defined benefit liability (276) (225)
Total income tax recognized in other comprehensive income
(276) (225)
Year ended Year ended
December 31, December 31,
2022 2021
Net tax (assets)/liabilities US$'000 US$'000
Opening balance - (prepaid taxes) 51 1,495
Assumed on business combinations - 638
Assumed on asset acquisition (32)
Income tax expense for the year 560 415
Taxes paid (870) (2,462)
Foreign currency differences (52) (35)
Net tax (asset)/liability (343) 51
Year ended Year ended
December 31, December 31,
2022 2021
Net tax (assets) liabilities US$'000 US$'000
Prepaid income taxes (657) (444)
Income tax liabilities 314 495
Net tax (asset)/liability (343) 51
Since the Group operates internationally, it is subject to income taxes in
many different tax jurisdictions. The Group calculates its average expected
tax rate as a weighted average of the tax rates in the tax jurisdictions in
which the Group operates. This rate changes from year to year due to changes
in the mix of the Group's taxable income and changes in local tax rates.
The Group's average expected tax rate was stable at 21.1% in 2022 (2021:
20.6%). During 2022, there were no significant changes to local tax rates in
the tax jurisdictions in which the Group operates.
The differences between the statutory income tax rate and the effective tax
rates are summarized as follows:
US$'000 Year ended
December 31, 2022
Expected tax at average tax rate (6,304) 21.1%
Increase/(decrease) in tax resulting from:
Tax credits (340) 1.1%
Unrecognized tax losses 3,796 (12.7%)
Non-deductible expenditure 2,586 (8.7%)
Temporary differences 165 (0.6%)
Other - net 76 (0.1%)
(21) 0.1%
US$'000 Year ended
December 31, 2021
Expected tax at average tax rate (285) 20.6%
Increase/(decrease) in tax resulting from:
Tax credits (58) 4.1%
Unrecognized tax losses 378 (27.2%)
Non-deductible expenditure 296 (21.3%)
Tax exempt income (105) 7.6%
Temporary differences (259) 18.6%
Other - net 17 (1.2%)
(16) 1.2%
17. Earnings per share
The calculation of the basic earnings per share is based on the following
data:
Earnings
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
(restated*)
Loss attributable to the ordinary equity holders of the parent entity (29,251) (1,177)
*Earnings have been restated in the comparative period as described in note 2.
Number of shares
Year ended Year ended
December 31, December 31,
2022 2021
Weighted average number of ordinary shares for the purposes of basic earnings
per share
133,426,953 128,871,639
Basic earnings per share is calculated by dividing the profit/loss after tax
attributable to the equity holders of the Company by the weighted average
number of shares in issue during the year. The effect of share options is
anti-dilutive and therefore not disclosed.
18. Intangible assets
Goodwill Internally developed assets Brand names and customer relations Acquired technologies Other intangible assets Total
Cost US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
(restated) (restated) (restated) (restated)
As at January 1, 2021 3,516 1,851 295 - 491 6,153
Reclassification* - (725) - - 725 -
Additions through business combinations 18,599 - 4,368 3,336 580 26,883
26,883
Additions arising from internal development - 2,390 - - -
2,390
Other acquisitions - - - - 579 579
Currency translation differences (733) (7) (160) (156) (43) (1,099)
As at December 31, 2021 21,382 3,509 4,503 3,180 2,332 34,906
Additions arising from internal development - 2,165 - - -
2,165
Other acquisitions - - - - 1,700 1,700
Disposals / write-offs - (85) - - (812) (897)
Currency translation differences (795) 5 (160) (165) 14 (1,101)
As at December 31, 2022 20,587 5,594 4,343 3,015 3,234 36,773
Amortization and accumulated impairment losses
As at January 1, 2021 - 432 107 - 350 889
Reclassification* - (19) - - 19 -
Amortization for the year - 50 516 246 164 976
Impairment loss 2,433 21 - - - 2,454
Currency translation differences (128) (10) (21) (12) (15) (186)
As at December 31, 2021 2,305 474 602 234 518 4,133
Amortization for the year - 198 695 334 208 1,435
Impairment loss 10,576 880 73 - 122 11,651
Currency translation differences (750) 3 (72) (45) (24) (888)
As at December 31, 2022 12,131 1,555 1,298 523 824 16,331
Net book value
As at December 31, 2021 19,077 3,035 3,901 2,946 1,814 30,773
As at December 31, 2022 8,456 4,039 3,045 2,492 2,410 20,442
*Regulatory registrations have been reclassed from internally developed assets
to other intangible assets.
Internally generated assets represent expenditure incurred on development
projects and IT.
Other intangible assets include acquired rights, licenses, patent costs,
concessions, website designs and domains and trademarks.
Goodwill
Goodwill acquired in a business combination was allocated, at acquisition, to
the following cash generating units (CGUs):
CGU Description of activities
ChemTex This CGU is based on the 2017 acquisition of ChemTex Inc. The CGU's main
activities are carpet polymer, industrial polymer, textile finishes, R&D,
laboratory work, production and sales. The CGU contributes to the Group's
Textiles & Flooring segment.
Chrisal The CGU is based on the 2021 acquisition of Chrisal, a biotechnology company
and a leader in innovative ingredients and consumer products that incorporate
the benefits of probiotics and synbiotics. The CGU contributes to the Group's
Life Sciences segment.
RAS The CGU is based on the 2021 acquisition of RAS AG. RAS AG develops and
manufactures antimicrobial, hygiene-enhancing additives and durable
antimicrobial coating systems which are sold under the trademark agpure®, and
transparent electrically conductive and infrared reflective coatings sold
under the ECOS® trademark. The CGU contributes to the Group's Antimicrobials
segment.
Life The CGU is based on the 2021 acquisition of Life Group. LIFE develops and
distributes bio-based antimicrobial additives and treatments used by
manufacturers of plastics, coatings, textiles, ceramics and paper, that
inhibit or manage bacteria, fungi, algae, and other micro-organisms that come
in contact with treated materials. The CGU contributes to the Group's
Antimicrobials segment.
MasFabEs The CGU is based on the 2020 acquisition of MasFabEs. The MasFabEs CGU
manufactures medical masks and devices. The CGU contributes to the Group's
Life Sciences segment.
Goodwill before impairment losses has been allocated to CGUs as follows:
As at As at
December 31, December 31,
2022 2021
Goodwill US$'000 US$'000
ChemTex 3,393 3,393
Chrisal* 5,428 5,791
RAS* 6,441 6,873
Life 5,202 5,202
MasFabEs 123 123
Total goodwill acquired 20,587 21,382
*The balances of Chrisal and RAS are revalued from € to US$ at each
reporting date.
The Group tests goodwill annually for impairment or more frequently if there
are indications that these assets might be impaired. The recoverable amount of
each CGU is determined based on a value in use calculation which uses cash
flow projections based on financial budgets approved by the directors. The
projections are based on a five-year period and a pre-tax discount rate of 12
per cent per annum for CGUs ChemTex and RAS and 14 per cent per annum for CGUs
Chrisal and Life (2021: 14 per cent per annum). The discount rate is based on
pre-tax weighted average cost of capital for an average company in the
chemical industry adjusted for relative size and risks of each CGU. The
directors expect income from all CGUs over the next five years. The perpetuity
growth rate used is based on consumer price index relevant for each CGU.
The assumptions used by management in forecasting revenues for the relevant
periods are as follows:
For 2023, forecast has been determined by adjusting the forecast for the year
as approved by the Board ("Budget") for any variance of actual performance (to
date May 2023) against it. For later periods, revenue growth was estimated
based on historic (2018-2022) compound annual growth rate of the respective
business. Operating profits are forecast based on historical experience of
operating margins, adjusted for the impact of known or expected changes in
pricing and regional inflation expectations.
2022 goodwill impairment test
A summary of the key assumptions used in the value-in-use calculation is set
below:
Assumption ChemTex Chrisal RAS Life
Compound annual growth rate for the next five years 1.2% 3.8% 13.9% (0.8%)
Discount factor 12.2% 13.8% 11.7% 14.1%
Perpetual growth rate 2.0% 1.7% 2.0% 2.5%
As of end of December 2022, the Group conducted its annual goodwill impairment
test review and identified that the aggregated carrying amount of each Chrisal
CGU, RAS CGU and Life CGU exceeded its aggregated recoverable amount (based on
the value in use approach and post-tax discount rate ranges in the 2022 table
above) resulting in a total impairment loss recognized of US$10,576,000 (2021
restatement: US$2,310,000) which is accounted for as "other expenses" in the
financial statements.
Goodwill relating to Chrisal CGU saw an impairment loss of US$2,402,000 in the
reporting period 2022 (2021 restatement: US$1,275,000). The impairment charge
results from the fact that the market development of the new technology is
taking longer than anticipated at the time of acquisition of the company and
therefore short-term growth assumptions have been adjusted down.
A partial goodwill impairment of US$2,972,000 for the 2022 reporting period
(2021 restatement: US$1,035,000) relates to RAS CGU. The impairment loss
relates to the fact that the innovation advisory business has been affected by
the unexpected, temporary closing of certain government programs.
Additionally, investments into innovations in general are under review as
global economic markets have destabilized since acquisition. Furthermore,
market launch and respective profit contribution is expected to be delayed
compared to expectations upon acquisition of RAS in 2021, negatively impacting
the years in consideration for the calculation of the recoverable amount of
the CGU.
Lastly, the full US$5,202,000 goodwill balance relating to Life CGU was
impaired in the reporting year 2022. The reason for the impairment is the
significant decrease in sales towards the end of 2022 which has caused the
Board to significantly lower growth expectations of the CGU for the years
relevant for the calculation of the recoverable amount.
As a result of the impairment losses described above, the following book
values remain for each CGU:
As at As at
December 31, December 31,
2022 2021
Goodwill book value US$'000 US$'000
ChemTex 3,393 3,393
Chrisal 2,189 4,593
RAS 2,874 5,889
Life - 5,202
MasFabEs - -
Total goodwill book value 8,456 19,077
*The balances of Chrisal and RAS are revalued from € to US$ at each
reporting date.
Sensitivity analysis
The Group has conducted an analysis of the sensitivity of the impairment test
to reasonably possible changes in the key assumptions used to determine the
recoverable amount for each CGU to which goodwill is allocated. In the
process, the recoverable amount for RAS CGU was identified as key estimate.
An reasonably possible underperformance against the forecast sales growth rate
(13.9%) for RAS CGU by 8.9 percent points, i.e. applying a compound annual
growth rate of 5% for the next five years, would lead to an additional
impairment charge of US$2.1 million.
2021 goodwill impairment test
In the reporting year ended December 31, 2021, the goodwill related to the
MasFabEs CGU was tested for impairment. The MasFabEs CGU manufactures medical
masks and devices. Using a discount rate of 14%, the Company calculated a
value-in-use of US$544,000 which was less than the carrying amount and
accordingly an impairment provision of US$123,000 was posted in the year ended
December 31, 2021. The impairment was a consequence of declining customer
demand.
Furthermore, as explained in Note 2, the 2021 goodwill impairment test result
has been restated which resulted in an impairment charge of US$1,275,000 and
US$1,035,000 for Chrisal and RAS CGU respectively.
Internally developed assets under construction
The Group tests internally developed assets under construction on a yearly
basis. The Directors consider whether estimated future economic benefits
outweigh the costs capitalized by reviewing whether each project:
· is still in development phase;
· can be used or sold in the future; and
· can be completed given the technical, financial and other
resources available.
The Group has processes in place for continually reviewing development
expenditure to ensure that projects under development are still viable. In the
reporting year ended December 31, 2022, a US$880,000 impairment was considered
in relation to the GrapheneX project assets as timing of future benefits is
not predictable with high enough certainty.
Internally developed assets and other intangibles with finite lives
The Group tests internally developed assets and other intangibles with finite
lives for impairment only if there are indications that these assets might be
impaired. The Group has processes in place for continually reviewing
development expenditure to ensure that projects under development are still
viable. For the reporting year ended December 31, 2022, the Company concluded
that an impairment of US$122,000 is necessary for capitalized registration
fees obtained in the acquisition of RAS following decreased customer demand.
Additionally, brand names and customer relations related to the Life CGU saw
an impairment of US$73,000 as a result of the sales decline mentioned above in
the goodwill impairment test.
19. Property, plant and equipment
Machinery and equipment Motor vehicles Computers and software Furniture and fixtures Land and buildings Total
Cost US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at January 1, 2021 6,779 492 810 132 - 8,213
Acquisition on business combination 191 19 24 171 1,675 2,080
Additions 596 67 104 213 14 994
Disposals (30) (37) - (15) (68) (150)
Currency translation differences (248) (5) (24) (27) (98) (402)
As at December 31, 2021 7,288 536 914 474 1,523 10,735
Additions 2,272 26 197 50 2,736 5,280
Disposals (69) (12) - - - (81)
Reclassifications (407) 59 - 348 - -
Currency translation differences (233) (1) (21) (23) (91) (369)
As at December 31, 2022 8,851 608 1,090 849 4,168 15,565
Depreciation and accumulated impairment losses
As at January 1, 2021 2,002 242 464 38 - 2,746
Charge for the year 797 118 168 55 117 1,255
Eliminated on disposal (13) (26) - (7) - (46)
Currency translation differences (63) (4) (13) - (5) (85)
As at December 31, 2021 2,723 330 619 86 112 3,870
Charge for the year 763 90 218 83 128 1,282
Eliminated on disposal (27) (5) - - - (32)
Impairment loss 730 - - - - 730
Reclassifications (222) - - 222 - -
Currency translation differences (67) - (9) (3) (7) (86)
As at December 31, 2022 3,900 415 828 388 233 5,764
Net book value
As at December 31, 2021 4,565 206 295 388 1,411 6,865
As at December 31, 2022 4,951 193 262 461 3,935 9,802
Impairment losses recognized in the year
During the year ended December 31, 2022, as a result of the significant
decline in demand for of certain types of hygiene masks, the Group carried out
a review of the recoverable amount of machinery. The Group recognized an
impairment loss of US$730,000 for machinery that was intended to be used to
manufacture hygiene masks for which demand declined significantly. The asset
was used in the Life Sciences reportable segment.
20. Right-of-use assets
Land and buildings Motor vehicles Machinery and equipment Total
US$'000 US$'000 US$'000 US$'000
Cost (restated) (restated) (restated)
As at January 1, 2021 3,701 76 41 3,818
Additions through business combinations 122 300 - 422
Additions 5,147 289 264 5,700
Disposals due to expiry of lease - (33) (9) (42)
Currency translation differences (57) (21) 45 (33)
As at December 31, 2021 8,913 611 341 9,865
Additions 86 174 1,921 2,181
Disposals due to expiry of lease - (36) - (36)
Disposals due to business combination* (467) - - (467)
Modification to lease terms** (1,199) - - (1,199)
Currency translation differences (381) (67) (26) (474)
As at December 31, 2022 6,952 682 2,236 9,870
Depreciation
As at January 1, 2021 1,182 60 12 1,254
Depreciation for the year 564 89 63 716
Disposals due to expiry of lease - (32) (9) (41)
Currency translation differences (30) (8) - (38)
As at December 31, 2021 1,716 109 66 1,891
Depreciation for the year 730 140 68 938
Disposals due to expiry of lease - (36) - (36)
Modification to lease terms** (693) - - (693)
Currency translation differences (34) (6) (9) (49)
As at December 31, 2022 1,719 207 125 2,051
Net book value
As at December 31, 2021 7,197 502 275 7,974
As at December 31, 2022 5,233 475 2,111 7,819
*With the acquisition of ChemTex Laboratories' property, plant and equipment
(Note 26), the Group no longer has a lease liability with a third party.
**The Group agreed to shorten the agreed lease terms of two existing leases
from 2032 to 2027. These
modifications have resulted in a reduction in the total amounts payable under
the leases and a reduction to both of the right-of-use assets and lease
liabilities with effect from the date of modification as follows:
Before revaluation After revaluation Revaluation
Revaluation US$'000 US$'000 US$'000
Right-of-use assets 1,385 879 (506)
Lease liabilities (1,453) (879) 574
Impact on net assets 68 - 68
The impact on net assets was recognized as non-operating income.
Amounts recognized in profit and loss
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Depreciation expense on right-of-use assets 938 716
Interest expense on lease liabilities 163 118
Expense relating to short-term leases 225 189
Expense relating to leases of low value assets 40 22
Amounts recognized in cash flow statement
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Total fixed lease payments 992 662
Interest paid on leases 163 117
21. Other non-current assets
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Deposits 80 140
Other prepayments 57 193
Other non-current assets 137 333
22. Inventories
As at As at
December 31, December 31
2022 2021
US$'000 US$'000
Functional ingredients 7,420 7,480
Functional materials 4,000 4,310
Functional consumer goods 1,748 1,822
Services - 158
Total inventories 13,168 13,770
The cost of inventories recognized as an expense during the year in respect of
continuing operations was US$33,597,000 (2021: US$30,022,000).
The cost of inventories recognized as an expense includes US$4,912,000 (2021:
US$17,000) in respect of write-downs of inventory to net realizable value. The
write-downs are mainly related to stock that is unlikely to be sold or
consumed within 12 months due to a decline in forecasted customer demand.
There have been no reversals of such write-downs for the reporting period
(2021: nil).
23. Trade receivables
As at As at
December 31, December 31,
2022 2021
Trade receivables US$'000 US$'000
(restated)
Not past due 2,788 7,567
< 30 days 520 2,930
31-60 days 781 55
61-90 days 215 1,115
91-120 days 180 351
>120 days 2,407 2,962
Total trade receivables 6,891 14,980
Provision for expected credit losses (404) (324)
Total trade receivables (net) 6,487 14,656
The average credit period on sales of goods varies by region from 30 - 120
days. No interest is charged on outstanding trade receivables. The Group
always measures the loss allowance for trade receivables at an amount equal to
lifetime ECL. The expected credit losses on trade receivables are estimated
using a provision matrix by reference to past default experience of the debtor
and an analysis of the debtor's current financial position, adjusted for
factors that are specific to the debtors, general economic conditions of the
industry in which the debtors operate and an assessment of both the current as
well as the forecast.
As at December 31, 2022, the Group has recognized an expected credit loss of
US$404,000 (2021: US$324,000). The following table details the risk profile of
receivables based on the Group's provision matrix.
Lifetime Expected credit losses on trade receivables
Trade receivables - days past due
Not past due 1-60 61-120 >120 days Total
Expected credit loss on trade receivables 2022 US$'000 US$'000 US$'000 US$'000 US$'000
Expected credit loss rate 0% 0% 0% 17% 6%
Estimated total gross carrying amount at default 2,788 1,301 395 2,406 6,891
Lifetime ECL as at December 31, 2022 - - - 404 404
Trade receivables - days past due
Not past due 1-60 61-120 >120 days Total
Expected credit loss on trade receivables 2021 US$'000 US$'000 US$'000 US$'000 US$'000
Expected credit loss rate 0% 0% 0% 11% 2%
Estimated total gross carrying amount at default 7,567 2,985 1,466 2,962 14,980
Lifetime ECL as at December 31, 2021 - - - 324 324
The following table shows the movement in lifetime ECL that has been
recognized for trade receivables in
accordance with the simplified approach set out in IFRS 9.
Individually assessed Collectively assessed Total
Expected credit losses US$'000 US$'000 US$'000
Balance as at January 1, 2021 13 27 40
Net remeasurement of loss allowance 288 19 307
Foreign exchange gains and losses (23) - (23)
Balance as at December 31, 2021 278 46 324
Net remeasurement of loss allowance 172 (6) 166
Amounts written off (81) - (81)
Foreign exchange gains and losses (4) (1) (5)
Balance as at December 31, 2022 365 39 404
The following tables explain how significant changes in the gross carrying
amount of the trade receivables contributed to changes in the loss allowance:
Increase (decrease) in lifetime expected credit losses for 2022 US$'000
Origination of new trade receivables net of those settled, as well as increase 172
in days past
due up to 120 days
Write-off of receivables older than 120 days (81)
Increase (decrease) in lifetime expected credit losses for 2021 US$'000
Origination of new trade receivables net of those settled, as well as increase 288
in days past
due up to 120 days
24. Other receivables and prepayments
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Contract assets 115 250
Receivables from tax authorities 1,864 1,734
Prepayments 1,023 1,052
Other receivables 1,260 840
Total other receivables and prepayments 4,262 3,876
25. Contract assets
Amounts relating to contract assets are balances due from customers under
construction contracts that arise when the Group receives payments from
customers in line with a series of performance-related milestones. The Group
recognizes a contract asset for any work performed. Any amount previously
recognized as a contract asset is reclassified to trade receivables at the
point at which it is invoiced to the customer.
As at As at As at
December 31, December 31, January 1,
2022 2021 2021
US$'000 US$'000 US$'000
Research and development services 65 80 -
Take-or-pay services - 170
Exclusivity services 50 - -
Total contract assets 115 250 -
Current assets 115 250 -
Non-current assets - - -
Total contract assets 115 250 -
Revenues related to research and development services were recognized at the
point of delivering proof of concept and completing testing services.
Performance obligations related to exclusivity services were deemed fulfilled
by the Group upon completion of the contractual term. Payment for the above
services is not due from the customer yet and therefore a contract asset is
recognized.
The directors of the Company always measure the loss allowance on amounts due
from customers at an amount equal to lifetime ECL, taking into account the
historical default experience, the nature of the customer and where relevant,
the sector in which they operate. There has been no change in the estimation
techniques or significant assumptions made during the current reporting period
in assessing the loss allowance for the amounts due from customers under
construction contracts.
Lifetime Expected credit losses on contract assets
The following table details the risk profile of amounts due from customers
based on the Group's provision matrix. Based on the historic default
experience, no expected credit loss has been recognized:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Expected credit loss rate 0% 0%
Estimated total gross carrying amount at default 115 250
Lifetime ECL - -
Net carrying amount 115 250
26. Issued share capital and share premium
Movements in the Company's share capital and share premium account were as
follows:
Note Number of shares Share capital Share premium Totals
No. US$'000 US$'000 US$'000
Balance as of January 1, 2021 125,891,904 49,559 134,537 184,096
Issue of shares to acquire Chrisal NV 5c 1,101,928 456 2,526 2,982
Issue of shares to acquire RAS AG 5d 1,701,821 710 3,946 4,656
Issue of shares to acquire Life Materials 5e 1,887,883 798 3,182 3,980
Balance as at December 31, 2021 130,583,536 51,523 144,191 195,714
Issue of shares to vendors of Life Materials (a) 347,552 141 471 612
Issue of shares as deferred consideration (b) 5g 3,461,615 1,359 2,921 4,280
Issue of shares to Advisory Board and others (c) 164,721 60 175 235
Issue of shares ChemTex Labs (d) 2,176,884 795 1,177 1,972
Issue of shares Chrisal (e) 5a 3,348,164 1,223 1,838 3,061
Balance as at December 31, 2022 140,082,472 55,101 150,773 205,874
The par value of all shares is £0.30. All shares in issue were allotted,
called up and fully paid.
The share premium account represents the amount received on the issue of
ordinary shares by the Company in excess of their nominal value and is
non-distributable.
The Company issued new ordinary shares for the following:
a) On February 25, 2022, HeiQ Plc issued 347,552 new ordinary shares
of £0.30 each in the Company. These shares were allotted to the vendors of
Life Material Technologies Limited to satisfy a closing working capital
adjustment in the amount of US$612,000 in connection with the Company's
acquisition of Life in June 2021.
b) On May 12, 2022, HeiQ Plc issued a total of 3,461,615 ordinary shares
as part of the deferred consideration paid pursuant to the acquisitions of RAS
AG, Regensburg, Germany ("RAS AG") and Life Material Technologies Limited
("LIFE").
· In relation to the acquisition of RAS AG, the Company made a
payment of €2.6 million (approximately US$2.88 million), based on RAS AG's
performance for the year ended December 31, 2021. The deferred consideration
was settled entirely through the issue of 2,743,941 ordinary shares in the
capital of the Company.
· In relation to the acquisition of LIFE, the Company made a
payment of US$2.8 million, based on LIFE's financial performance for the year
ended December 31, 2021. The deferred consideration was settled equally in
cash (US$1.4 million) and through the issue of 717,674 ordinary shares (US$1.4
million) in the capital of the Company. The share issue satisfied earnout
payments as part of the purchase consideration of US$640,000 as well as
share-based payments made as remuneration of US$764,000 which were not part of
the purchase consideration.
c) On August 9, 2022, the Company issued 164,721 new ordinary shares
for a consideration of £173,000 (approximately US$235,000) to satisfy certain
share payments due to the Company's Innovation Advisory Board, as well as for
consultancy and other services provided by third parties.
d) On December 2, 2022, HeiQ Plc completed the acquisition of 100% of
the issued share capital and voting rights of ChemTex Laboratories, Inc.
("ChemTex Labs") in North Carolina, USA for a total consideration of US$2.5
million. The purchase consideration was payable partly in cash (US$550,000)
and partly by the issue of 2,176,884 new ordinary shares for (US$1.95
million). The acquisition was accounted for as asset acquisition resulting in
the addition of land and buildings worth US$2.4 million. The Group also
assumed US$65,000 in cash, prepaid income tax of US$32,000 as well as accrued
liabilities worth US$9,000.
e) On December 15, 2022, HeiQ increased its interest In HeiQ Chrisal
from 51% to 71%. HeiQ paid €2.9 million (approximately US$3 million) for the
additional 20% shareholding to the vendors of Chrisal through the issue of
3,348,164 new ordinary shares in the Company.
27. Share-based payments
Equity-settled Share Option Scheme
The Company has adopted the HeiQ Plc Option Scheme.
Under the Option Scheme, awards may be made only to employees and executive
directors. The Board will administer the Option Scheme with all decisions
relating to awards made to executive directors taken by the Remuneration
Committee.
Awards under the equity-settled option plan will be market value options, but
participants resident in jurisdictions where local securities laws or other
regulations are considered problematic may be awarded cash-based equivalents.
Any awards made are not pensionable.
All awards made will be subject to one or more performance conditions at the
discretion of the Board. Ordinary Shares received on exercise of any options
awarded under the Option Scheme may be required to be held for a period of
time before they can be disposed of (other than disposals to satisfy any tax
payable on exercise).
The total number of Ordinary Shares which can be issued under the Option
Scheme (together with any other employees' share scheme operated by the
Company) may not exceed 10 per cent. of the Company's ordinary share capital
from time to time.
An option-holder has no voting or dividend rights in the Company before the
exercise of a Share option.
There are currently four option grants with the same vesting requirements. The
key performance indicators attaching to these awards relate to targets for
sales growth (65 per cent. of the award) and operating margin (35 per cent. of
the award) over a period of three years.
Options are exercisable at a price equal to the average quoted market price of
the Company's shares on the date of grant. The vesting period is three years.
If the options remain unexercised after a period of ten years from the date of
grant the options expire. Options are forfeited if the employee leaves the
Group before the options vest.
Details of the share options outstanding during the year are as follows:
As at December 31, 2022 As at December 31, 2021
Number of options Weighted average exercise price (£) Number of options Weighted average exercise price (£)
Outstanding at beginning of year 8,707,658 1.06 6,260,000 1.12
Granted during the year 3,349,125 0.83 2,447,658 0.90
Forfeited during the year (530,872) 1.05 - -
Exercised during the year - - - -
Expired during the year - - - -
Outstanding at the end of the year 11,525,911 0.99 8,707,658 1.06
Exercisable at the end of the year - - - -
The options outstanding at December 31, 2022 had a weighted average exercise
price of £0.994 and a weighted average remaining contractual life of 1.5
years. In 2022, options were granted on June 15 and September 26. The
aggregate of the estimated fair values of the options granted on those dates
is £1,117,000 (approximately US$1,304,000). In 2021, options were granted on
October 19. The aggregate of the estimated fair values of the options granted
on that date was £930,000 (approximately US$1,275,000). The inputs into the
Black-Scholes model are as follows:
Year ended Year ended
December 31, December 31,
2022 2021
Weighted average share price (£) 0.817 0.900
Weighted average exercise price (£) 0.834 0.903
Expected volatility 69.3%/70.3%* 64%
Expected life 2.6 /2.3 years* 3 years
Risk-free rate 0.19%/0.44%* 0.71%
Expected dividend yields 0% 0%
*In the reporting year ended 2022, there were two grants with different inputs
used in the black scholes model.
Expected volatility was determined by calculating the historical volatility of
the Group's share price since going public in December 2020. The expected life
used in the model is equal to the vesting period.
Due to lower market expectations, the number of options expected to vest
dropped to 2,279,236 (2021: 5,204,978). This resulted in an income of
US$12,000 arising from these share-based payment transactions for the year
ended December 31, 2022 (expense for the year ended December 31, 2021:
US$424,000).
Other share-based payments
Remuneration of US$764,000 described in Note 26 in relation to the acquisition
of Life Materials Technologies Limited is linked to a service period of five
years. An expense of US$150,000 was recognized in the year ended December 31,
2022 (year ended December 31, 2021: US$74,000). The remainder of approximately
US$544,000 is expected to be expensed over the period from January 1, 2023, to
June 30, 2026.
28. Other reserves and retained deficit
Other reserves comprise the share-based payment reserve, the merger reserve,
the currency translation reserve and the other reserve.
The retained deficit comprises all other net gains and losses and transactions
with owners not recognized elsewhere.
Movements in the other reserves were as follows:
Share- based payment reserve Merger reserve Currency translation reserve Other reserve Total Other reserves
Note US$'000 US$'000 US$'000 US$'000 US$'000
Balance at January 1, 2021 50 (126,912) 2,937 (2,043) (125,968)
Other comprehensive (loss)/income - - (2,550) 899 (1,651)
Total comprehensive (loss)/income for the year - - (2,550) 899 (1,651)
Share-based payment charges 27 424 - - - 424
Transactions with owners 424 - - - 424
Balance at December 31, 2021 474 (126,912) 387 (1,144) (127,195)
Other comprehensive (loss)/income - - (1,914) 1,104 (810)
Total comprehensive (loss)/income for the year - - (1,914) 1,104 (810)
Share-based payment charges 27 (12) - - - (12)
Transactions with owners (12) - - - (12)
Balance at December 31, 2022 462 (126,912) (1,527) (40) (128,017)
The share-based payment reserve arises from the requirement to fair value the
issue of share options at grant date. Further details of share options are
included at Note 27.
The merger reserve was created in accordance with IFRS3 'Business
Combinations'. The merger reserve arises due to the elimination of the
Company's investment in HeiQ Materials AG. Since the shareholders of HeiQ
Materials AG became the majority shareholders of the enlarged Group, the
acquisition is accounted for as though there is a continuation of the legal
subsidiary's financial statements. In reverse acquisition accounting, the
business combination's costs are deemed to have been incurred by the legal
subsidiary.
The currency translation reserve represents cumulative foreign exchange
differences arising from the translation of the financial statements of
foreign subsidiaries and is not distributable by way of dividends.
The other reserve comprises the cumulative re-measurement of defined benefit
obligations and plan assets to fair value, and which are recognized as a
component of other comprehensive income. Such actuarial gains and losses from
defined benefit pension plans are not reclassified to profit or loss in
subsequent periods.
Dividend paid by subsidiary
In June 2022, HeiQ Chrisal N.V. declared and paid a dividend of €470,000
(approximately US$496,000) of which 49% or US$243,000 was paid to minority
shareholders.
Capital contributions from minority shareholders
The Group received a capital contribution from a minority shareholder of
US$764,000 which arose from a waived loan (see Note 31 for details).
29. Pensions and other post-employment benefit plans
The Group operates a defined benefit pension plan in Switzerland, which
requires contributions to be made to a separately administered fund. The cost
of providing benefits under the defined benefit plan is determined using the
projected unit credit method.
Correspondingly the value of the defined benefit obligation at valuation date
is equal to the present value of the accrued pro-rated service considering
expected salary at eligibility date and the future pension increase.
The pension scheme was administered by Swisscanto pension fund ("Swisscanto
Sammelstiftung") until December 31, 2021, and by AXA pension fund from January
1, 2022, following a change in pension fund provider. The Directors have
adopted the actuarial valuation as of January 1, 2022.
Pension plan description
The pension plans grant disability and death benefits which are defined as a
percentage of the salary insured. Although the Swiss plan operates like a
defined contribution plan under local regulations, it is accounted for as a
defined benefit pension plan under IAS19 'Employee Benefits' because of the
need to accrue a minimum level of interest on the mandatory part of the
pension accounts. Upon reaching retirement age, the savings capital will be
converted with a fixed conversion rate into an old-age pension. In the event
that an employee leaves employment prior to reaching a pensionable age, the
cumulative balance of the savings account is withdrawn from the pension plan
and invested into the pension plan of the employee's new employer.
Regulatory framework
Pension plan legal structure
HeiQ Materials AG is affiliated to a collective foundation. The collective
foundation operates one defined benefit pension plan for HeiQ Materials AG.
Under Swiss law, all employees are required to be a member of the pension
plan. There are minimum benefits requested by law (for old-age, disability,
death and termination). The pension plans cover more than legally requested.
Each affiliated company has a pension plan committee. The committee is
represented by 50% of employer representatives and the remaining 50% are
employee representatives.
Responsibilities of the board of trustees (and/or the employer on the board of trustees)
The highest corporate body of the collective foundation is the board of
trustees. The board of trustees is elected out of the affiliated companies and
is also represented by 50% of employee and employer representatives (on the
level of the collective foundation). This board handles the general management
of the pension scheme, ensures compliance with the statutory requirements,
defines the strategic objectives and policies of the pension scheme and
identifies the resources for their implementation. This board decides also on
the asset allocation and is responsible to the authorities for the correct
administration of the collective foundation.
Special situation
The pension scheme has no minimum funding requirement (when the pension fund
is in a surplus position), although the pension scheme has a minimum
contribution requirement as specified below. Under local requirements, where a
pension fund is operated in a surplus position, limited restrictions apply in
terms of the trustee's ability to apply benefits to the members of the locally
determined "free reserves". In instances where the pension fund enters into an
underfunded status the active members, along with the employer, are required
to make additional contributions until such time the pension fund is in a
fully funded position.
Funding arrangements that affect future contributions
Swiss law provides for minimum pension obligations on retirement. Swiss law
also prescribes minimum annual funding requirements. An employer may provide
or contribute a higher amount than as specified under Swiss law - such amounts
are specified under the terms and conditions of each of the Swiss employee's
individual terms and conditions of employment.
In addition, employers are able to make one off contributions or prepayments
to these funds. Although these contributions cannot be withdrawn, they are
available to the Company to offset its future employer cash contributions to
the plan. Although a surplus can exist in the fund, Swiss law requires minimum
annual funding requirements to continue.
For the active members of the pension plan, annual contributions are required
by both the employer and employee. The employer contributions must be at least
equal to the employee contributions, but may be higher, separately mentioned
in the constitution of the pension plan.
Minimum annual contribution obligations are determined with reference to an
employee's age and current salary, however as indicated above these can be
increased under the employee's terms and conditions of employment.
In the event of the winding up of HeiQ Materials AG, or the pension fund, HeiQ
Materials AG has no right to any refund of any surplus in the pension fund.
Any surplus balance is allocated to the members (active and pensioners).
General risk
The Group faces the risk that its equity ratio can be affected by a poor
performance of the assets of the pension fund or a change of assumptions.
Therefore, sensitivities of the main assumptions have been calculated and
disclosed (see below).
The following tables summarize the components of net benefit expense
recognized in the statement of profit and loss and the funded status and
amounts recognized in the statement of financial position for the plan:
Net benefit obligations
The components of the net defined benefits obligations included in non-current
liabilities are as follows:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Fair value of plan assets 9,616 10,858
Defined benefit obligations (10,568) (13,003)
Funded status (net liability) (952) (2,146)
Duration (years) 13.8 16.5
Expected benefits payable in following year (389) (393)
Year ended Year ended
December 31, December 31,
2022 2021
Development of obligations and assets US$'000 US$'000
Present value of funded obligations, beginning of year (13,003) (9,588)
Employer service cost (571) (521)
Employee contributions (352) (342)
Past service cost - 28
Curtailments/Settlements - 65
Interest cost (45) (14)
Benefits paid/(refunded) 522 (2,589)
Actuarial (loss)/gain on benefit obligation 2,562 (256)
Currency (loss)/gain 319 214
Present value of funded obligations, end of year (10,568) (13,003)
Defined benefit obligation participants (10,568) (13,003)
Defined benefit obligation pensioners - -
Present value of funded obligations, end of year (10,568) (13,003)
Fair value of plan assets, beginning of year 10,858 6,311
Expected return on plan assets 37 10
Employer's contributions 352 342
Employees' contributions 352 342
Benefits (paid)/refunded (522) 2,589
Admin expense (21) (20)
Actuarial (loss)/gain on plan assets (1,182) 1,380
Currency gain/(loss) (258) (96)
Fair value of plan assets, end of year 9,616 10,858
Movements in net liability recognized in statement of financial position:
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Net liability, beginning of year (2,146) (3,276)
Employer service cost (571) (521)
Interest cost (45) (14)
Expected return on plan assets 37 10
Admin expense (21) (20)
Past service cost recognized in year - 28
Curtailment, settlement, plan amendment gain (loss) - 65
Employer's contributions (following year expected contributions) 352 342
Prepaid (accrued) pension cost: 247 111
- operating income (expense) (240) (107)
- finance expense (7) (4)
Total gains recognized within other comprehensive income 1,380 1,124
Currency loss 62 116
Net liability, end of year (952) (2,146)
Expected employer's cash contributions for following year 360 361
The assets of the scheme are invested on a collective basis with other
employers. The allocation of the pooled assets between asset categories is
as follows.
Asset allocation
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Cash 2.8% 3.6%
Bonds 29.1% 31.7%
Equities 33.2% 34.8%
Property (incl. mortgages) 31.3% 27.0%
Other 3.6% 2.9%
Total 100.0% 100.0%
Amounts recognized in profit and loss
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Employer service cost (571) (521)
Past service cost recognized in year - 28
Interest cost (45) (14)
Expected return on plan assets 37 10
Admin expense (21) (20)
Curtailment, settlement, plan amendment gain (loss) - 64
Components of defined benefit costs recognized in profit or loss (600) (453)
Amounts recognized in other comprehensive income
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Actuarial gains/(losses) arising from plan experience 2,392 (1,449)
Actuarial (losses)/gains arising from demographic assumptions (23) 744
Actuarial gains arising from financial assumptions 193 449
Re-measurement of defined benefit obligations 2,562 (256)
Re-measurement of assets (1,182) 1,380
Deferred tax asset recognized (276) (225)
Other - -
Total recognized in OCI 1,104 899
Principal actuarial assumptions (beginning of year):
The principal assumptions used in determining pension and post-employment
benefit obligations for the plan are shown below:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Discount rate 2.25% 0.35%
Interest credit rate 2.25% 1.00%
Average future salary increases 2.50% 2.00%
Future pension increases 0.00% 0.00%
Mortality tables used BVG 2020 GT BVG 2020 GT
Average retirement age 65/65 65/64
The forecasted contributions of the Group for the 2023 financial year amount
to US$360,000.
Sensitivities
A quantitative sensitivity analysis for significant assumptions is as follows:
As at As at
December 31, December 31,
2022 2021
Impact on defined benefit obligation US$'000 US$'000
Discount rate + 0.25% (323) (524)
Discount rate - 0.25% 343 560
Salary increase + 0.25% 44 72
Salary increase - 0.25% (43) (70)
Pension increase + 0.25% 167 278
Pension decrease - 0.25% (not lower than 0%) - -
A negative value corresponds to a reduction of the defined benefit obligation,
a positive value to an increase of the defined benefit obligation.
The sensitivity analyses above have been determined based on a method that
extrapolates the impact on the defined benefit obligation as a result of
reasonable changes in key assumptions occurring at the end of the reporting
period. The sensitivity analyses are based on a change in a significant
assumption, keeping all other assumptions constant. The sensitivity analyses
may not be representative of an actual change in the defined benefit
obligation as it is unlikely that changes in assumptions would occur in
isolation from one another.
Other pension plans
Life Materials Technologies Limited, Thailand, also has a pension scheme which
gives rise to defined benefit obligations under IAS 19. This pension plan
contributed a net defined benefit obligation of US$92,000 to the net assets
acquired in the business combination in 2021. The pension expense in profit
and loss was US$1,000 (2021: US$43,000) which results in a US$134,000 net
defined liability as at December 31, 2021 (2021: US$135,000).
30. Lease liabilities
Future minimum lease payments associated with leases were as follows:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Not later than one year 1,301 959
Later than one year and not later than five years 3,813 3,253
Later than five years 3,387 4,905
Total minimum lease payments 8,501 9,117
Less: Future finance charges (679) (1,003)
Present value of minimum lease payments 7,822 8.114
Current liability 1,264 905
Non-current liability 6,558 7,209
7,822 8,114
31. Borrowings
The Group's borrowings are held at amortized cost. They consist of the
following:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Unsecured bank loans 3,573 1,159
Secured bank loans 628 778
Loans from non-controlling interest 137 825
Total borrowings 4,338 2,762
The other principal features of the Group's borrowings are as follows:
Unsecured bank loans
A credit facility was taken out in December 2022 which incurs interest at a
fixed rate of 2.2%. It was repaid on February 28, 2023 and the loan was
replaced with a new credit facility worth CHF 4,500,000 (US$ 4,964,000). As at
December 31, 2022, CHF 2,400,000 (US$2,574,000) was outstanding.
Several loans amounting to US$1.6 million were assumed through the acquisition
of Chrisal. They finance the acquisition of property, plant and equipment as
well as the prepayment of provisional taxes. As at December 31, 2022,
€938,000 (US$999,000) is outstanding (2021: €1,019,000 (US$1,159,000)). A
further €277,000 was taken out in February 2023. The loans are repayable
over a period of up to ten 10 years. These loans all have fixed interest rates
between 0.78 and 3.95% and the weighted average fixed interest rate on the
outstanding balances is 2.21%.
Loans from non-controlling interests
A loan is payable to a minority shareholder of Life-Materials Latam Ltda,
Brazil. Interest is fixed at 0.5%. There is no specific repayment date, but
the loan is payable once the entity is able to repay it. The balance as at
December 31, 2022 is BRL 715,683 (US$137,000).
The balance as at December 31, 2021 included three loans totaling €725,000
(US$825,000) payable to a company controlled by a minority shareholder of HeiQ
Medica. The loans did not incur any interest and were waived in full by the
borrower in December 2022 resulting in a capital contribution from minority
shareholders of US$764,000.
Secured bank loans
A bank loan taken out in October 2020 which incurs interest at a fixed rate of
3.25% and which is secured on property owned by a company which is controlled
by a minority shareholder of HeiQ Medica. It is repayable in equal monthly
instalments of €8,000 (US$9,500) over eight years up to September 2028. As
at December 31, 2022, €590,000 (US$629,000) is outstanding (2021:
US$779,000).
The following table provides a reconciliation of the Group's future maturities
of its total borrowings for each year presented:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Not later than one year 2,893 1,157
Later than one year but less than five years 1,029 951
After more than five years 416 654
Total borrowings 4,338 2,762
32. Deferred tax
The following are the major deferred tax liabilities and assets recognized by
the Group and movements thereon during the current and prior reporting period.
Pension fund obligations Tax losses Share-based payments Capital allowances, depreciation and other temporary differences Total
US$'000 US$'000 US$'000 US$'000 US$'000
Balance at January 1, 2021 655 171 - (395) 431
Charge to profit or loss 22 17 82 310 431
Charge to other comprehensive income (225) - - - (225)
Business Combinations - - - (1,627) (1,627)
Foreign currency differences (23) (10) 3 26 (4)
Balance as at December 31, 2021 429 178 85 (1,686) (994)
Charge to profit or loss 49 (150) 1 681 581
Charge to other comprehensive income (276) - - - (276)
Foreign currency differences (12) (28) 5 9 (26)
Balance as at December 31, 2022 190 - 91 (996) (715)
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis. The following is the analysis of the deferred tax balances (after
offset) for financial reporting purposes:
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Deferred tax
Deferred tax assets 538 1,337
Deferred tax liabilities (1,253) (2,333)
Net deferred tax assets (liabilities) (715) (994)
Deferred tax assets amounting to US$239,000 were derecognized following
remeasurements of defined benefit obligations (see also Note 29). Deferred tax
liabilities related to capital allowances and depreciation decreased following
the release of excess reserves on inventory and receivables in Switzerland as
well as amortization of intangible assets acquired in the business
combinations in 2021.
As at December 31, 2021, the Group had approximately US$178,000 of tax losses
available to be carried forward against future profits. Management no longer
expects the deferred tax asset to be substantially recovered in 2023.
Therefore, the deferred tax assets were derecognized as at December 31, 2022.
Some tax losses were not recognized as deferred tax assets. During the year
ended December 31, 2022, such tax losses amounted to US$3,175,000 (2021:
US$378,000). They arose from aggregated losses of US$17,482,000 (2021:
US$1,134,000).
33. Other non-current liabilities
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Defined benefit obligation IAS 19 Switzerland (Note 29) 952 2,146
Defined benefit obligation IAS 19 Thailand (Note 29) 134 135
Deferred consideration in relation to ChemTex acquisition (see Note 5g) - 88
Contract liabilities 3,614 -
Deferred grant income 14 -
Others - 250
Total other non-current liabilities 4,714 2,619
34. Trade and other payables
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Trade payables 3,321 4,090
Payables to tax authorities 375 1,167
Other payables 1,626 3,014
Total trade and other payables 5,322 8,271
Trade payables principally comprise amounts outstanding for trade purchases
and ongoing costs. Other payables relate to employee-related expenses,
utilities and other overhead costs. Typically, no interest is charged on the
trade payables. The Group has financial risk management policies in place to
ensure that all payables are paid within the pre-agreed credit terms.
The directors consider that the carrying amount of trade payables approximates
to their fair value.
35. Accrued liabilities
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Costs of goods sold 875 1,328
Personnel expenses 1,737 1,525
Other operating expenses 2,366 533
Total accrued liabilities 4,978 3,386
36. Deferred revenue
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Contract liabilities 1,176 1,000
Prepayments for unshipped goods 94 -
Deferred grant income 15 4
Total deferred revenue 1,285 1,004
37. Contract liabilities
As at As at As at
December 31, December 31, January 1,
2022 2021 2021
US$'000 US$'000 US$'000
Exclusivity agreements 1,832 - -
Research and development services 2,958 1,000 -
Total contract liabilities 4,790 1,000 -
Current liabilities (Note 36) 1,176 1,000 -
Non-current liabilities (Note 33) 3,614 - -
Total contract liabilities 4,790 1,000 -
Revenue relating to both exclusivity and research and development services is
recognized over time although the customer pays up-front in full for these
services. A contract liability is recognized for revenue relating to the
services at the time of the initial sales transaction and is released over the
service period.
In the reporting year ended December 31, 2021, the Group received a US$ 1
million prepayment for research and development services. The Group is
expected to complete its obligations in the reporting year ended December 31,
2024. In 2022, the Group entered into an agreement to grant exclusivity to a
customer worth US$2 million and research and development services worth a
further US$2 million. The customer has prepaid, and revenue recognition is
spread over four reporting periods starting in July 2022 and ending June 2026.
The following table shows how much of the revenue recognized in the current
reporting period relates to brought forward contract liabilities.
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Exclusivity agreements - -
Research and development services - -
Total revenue recognized from contract liabilities - -
38. Other current liabilities
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Deferred consideration in relation to acquisitions (Note 5g) 92 5,995
Deferred consideration in relation to share-based payments (Note 27) - 74
Call option derivative liability 686 -
Other current liabilities 778 6,069
Deferred consideration
As more fully described in Note 5, the Company settled a total of US$5.5
million of deferred consideration relating to the acquisition of RAS AG and
Life Materials by way of cash and share issuance. A further settlement of
deferred consideration of US$187,000 in cash payments related to the ChemTex
acquisition in 2017.
Call option derivative liability
As described in Note 5b, HeiQ AeoniQ GmbH's minority shareholder Hugo Boss AG
has the contractual right to acquire a further 5% shareholding in HeiQ AeoniQ
GmbH for a call option exercise price of €10,000,000 (approximately
US$10,657,000) which expires on December 31, 2023.
The Group has valued the option at initial recognition at US$1,097,000 based
on the Black-Scholes model. As at December 31, 2022, a liability of US$686,000
was recognized with a corresponding US$371,000 debit entry to profit and loss
and a US$40,000 charge to currency translation reserve. The inputs into the
Black-Scholes model are as follows:
Weighted average share price (€) 4,326.68
Weighted average exercise price (€) 5,714.29
Expected volatility 44.7%
Expected life 1 year
Risk-free rate 1.0%
Expected dividend yield 0%
39. Contingent assets and liabilities
On October 10, 2022 the Group announced that it has filed a complaint in the
United States District Court for the Western District Of North Carolina,
Charlotte Division, against ICP Industrial Inc, for breaching its Exclusive
Agreement terms. Because of the claimed contract breach, the Group has not
recognized any income or assets from the contract. Within the same legal
proceeding, ICP Industrial Inc, has filed a counter claim against the Group.
Although the Group is confident in its legal position, the outcome of the
legal proceedings as well as the court-mandated mediation remains uncertain.
Therefore, while a future economic benefit is expected, it can not be reliably
quantified at this point in time and could bear the risk of prejudice given
the ongoing legal proceedings.
40. Provisions
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Legal/Compliance provision 339 -
Total provisions 339 -
Current liability 339 -
Non-current liability - -
339 -
This provision is reported in Note 35 as Accrued liabilities - Other operating
expenses.
Legal/Compliance provision Total
US$'000 US$'000
Balance at January 1, 2021 - -
Additional provision in the year - -
Utilization of provision - -
Exchange difference - -
Balance as at December 31, 2021 - -
Additional provision in the year 339 339
Utilization of provision - -
Exchange difference - -
Balance as at December 31, 2022 339 339
The Group was contacted by the United States Environmental Protection Agency
("EPA") in connection with potential alleged violations of the Federal
Insecticide, Fungicide and Rodenticide Act ("FIFRA") pertaining to alleged
mislabelling. As at December 31, 2022, the Company has assessed the claim and
made a provision for US$339,000 (December 31, 2021: US$nil) which was paid in
May 2023.
41. Fair value and financial instruments
a) Fair value
The fair value of an asset or liability is the price tat would be received to
sell that asset or paid to transfer that liability in an orderly transaction
occurring in the principal market (or most advantageous market in the absence
of a principal market) for such asset or liability. In estimating fair
value, the Directors utilize valuation techniques that are consistent with the
market approach, the income approach and/or the cost approach. Such
valuation techniques are consistently applied. Inputs to valuation techniques
include the assumptions that market participants would use in pricing an asset
or liability. IFRS 13 "Fair Value Measurement" establishes a fair value
hierarchy for valuation inputs that gives the highest priority to quoted
prices in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs. The fair value hierarchy is defined as
follows:
Level 1: Inputs are unadjusted, quoted prices in active markets for identical
assets at the measurement date.
Level 2: Inputs (other than quoted prices included in Level 1) can include the
following:
· observable prices in active markets for similar assets;
· prices for identical assets in markets that are not active;
· directly observable market inputs for substantially the full term
of the asset; and
· market inputs that are not directly observable but are derived
from or corroborated by observable market data.
Level 3: Unobservable inputs which reflect the Directors' best estimates of
what market participants would use in pricing the asset at the measurement
date.
We have not identified any financial instruments measured at fair value for
the years ended December 31, 2021 and December 31, 2022.
There were no transfers between fair value levels during the year ended
December 31, 2022 (2021: US$nil).
b) Financial instruments
For trade receivables, the Group applies the simplified approach permitted by
IFRS 9 "Financial Instruments", which requires expected lifetime losses to be
recognized from initial recognition of the receivables.
Financial liabilities are initially measured at fair value and subsequently
measured at amortized cost.
The Group is not a financial institution. The Group does not apply hedge
accounting and its customers are considered creditworthy and in general pay
consistently within agreed payments terms. In 2022, few customers have shown
delays in payment which are closely monitored.
A classification of the Group's financial instruments is included in the table
below. These financial instruments are held at amortized cost which is
estimated to be equal to fair value.
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Financial instruments (restated)
Cash and cash equivalents 8,488 14,560
Trade receivables 6,487 14,656
Accrued income and other receivables 3,239 2,824
Trade and other payables (5,322) (8,271)
Accrued liabilities (4,978) (3,386)
Deferred consideration (92) (6,158)
Call option derivative liability (686) -
Borrowings held at amortised cost (4,338) (2,763)
Lease liabilities held at present value of lease payments (7,823) (8,114)
Total financial instruments (5,025) 3,348
42. Financial risk management
For the purposes of capital management, capital includes issued capital and
all other equity reserves attributable to the equity holders of the Company,
as well as debt. The primary objective of the Directors' capital management is
to ensure that the Group maintains a strong credit rating and healthy capital
ratios in order to support its business and maximize shareholder value.
To maintain or adjust the capital structure, the Directors may adjust the
dividend payment to shareholders, return capital to shareholders or issue new
shares. No changes were made in the objectives, policies or processes during
the year.
The Directors manage the Group's capital structure and adjust it in light of
changes in economic conditions and the requirements of the financial
covenants. The Group includes in its net debt, interest-bearing loans, lease
liabilities and borrowings, trade and other payables, less cash and short-term
deposits.
The Group's principal financial liabilities comprise of borrowings and trade
and other payables, which it uses primarily to finance and financially
guarantee its operations.
The Group's principal financial assets include cash and cash equivalents and
trade and other receivables derived from its operations.
a. Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates and interest rates will affect the Group's income or the value
of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable
parameters, while optimizing the returns.
b. Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates. As the Group's borrowings are either on fixed interest terms or
interest-free, the Group is not subject to significant interest rate risk.
c. Credit risk
Credit risk is the risk that a customer or counterparty to a financial
instrument will not meet its obligations under a contract and arises primarily
from the Group's cash in banks and trade receivables.
The Company considers the credit risk in relation to its cash holdings is low
because the counterparties are banks with high credit ratings.
Trade receivables are due from customers and collectability is dependent on
the financial condition of each individual company as well as the general
economic conditions of the industry. The Directors review the financial
condition of customers prior to extending credit and generally do not require
collateral in support of the Group's trade receivables. The majority of trade
receivables are current or overdue for less than 30 days and the Directors
believe these receivables are collectible. Amounts overdue longer than 120
days relate to a limited number of customers with a long trading history.
Collection of these receivables is expected in the course of the year 2023.
For doubtful accounts, the Group calculates an expected credit loss provision
which is disclosed in Note 23.
As at December 31, 2022, the Group had one customer that individually
accounted for more than 10% of total receivables, totaling 29% of total trade
receivables (2021: two customers that individually accounted for more than 10%
of total receivables, totaling 36.4%).
In order to minimize credit risk, the Group has adopted a policy of only
dealing with creditworthy counterparties and obtaining sufficient collateral,
where appropriate, as a means of mitigating the risk of financial loss from
defaults. The credit rating information is supplied by independent rating
agencies where available and, if not available, the Group uses other publicly
available financial information and its own trading records to rate its major
customers. The Group's exposure and the credit ratings of its counterparties
are continuously monitored and the aggregate value of transactions concluded
is spread amongst approved counterparties.
Credit approvals and other monitoring procedures are also in place to ensure
that follow-up action is taken to recover overdue debts. Furthermore, the
Group reviews the recoverable amount of each trade debt and debt investment on
an individual basis at the end of the reporting period to ensure that adequate
loss allowance is made for irrecoverable amounts. In this regard, the
directors of the Company consider that the Group's credit risk is
significantly reduced. Trade receivables consist of a large number of
customers, spread across diverse industries and geographical areas. Ongoing
credit evaluation is performed on the financial condition of accounts
receivable and, where appropriate, credit guarantee insurance cover is
purchased.
d. Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of
an exposure will fluctuate due to changes in foreign exchange rates. The
Group's exposure to the risk of changes in foreign exchange rates relates
primarily to its financing activities (when financial liabilities and cash are
denominated other than in a company's functional currency).
Most of the Group's transactions are carried out in US Dollars ($). Foreign
currency risk is monitored closely on an ongoing basis to ensure that the net
exposure is at an acceptable level.
The Group maintains a natural hedge whenever possible, by matching the cash
inflows (revenue stream) and cash outflows used for purposes such as capital
and operational expenditure in the respective currencies. The Group's net
exposure to foreign exchange risk was as follows:
Functional currency
AUD EUR GBP US$ Others Total
As at December 31, 2022 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial assets denominated in $ 19 92 206 6,771 3 7,091
Financial liabilities denominated in $ - - - - - -
Net foreign currency exposure 19 92 206 6,771 3 7,091
Functional currency
AUD EUR GBP US$ Others Total
As at December 31, 2021 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
(restated) (restated) (restated) (restated) (restated) (restated)
Financial assets denominated in $ 115 375 284 11,804 622 13,200
Financial liabilities denominated in $ (10) (1,717) (475) (2,226) (55) (4,483)
Net foreign currency exposure 105 (1,342) (191) 9,578 567 8,717
Foreign currency sensitivity analysis:
The following tables demonstrate the sensitivity to a reasonably possible
change in foreign currency exchange rates, with all other variables held
constant.
The impact on the Group's profit before tax is due to changes in the fair
value of monetary assets and liabilities. The Group's exposure to foreign
currency changes for all other currencies is not material.
A 10 per cent. movement in each of the Australian dollar (AUD), euro (EUR),
British pound (GBP) and US dollar ($) would increase/(decrease) net assets by
the amounts shown below. This analysis assumes that all other variables, in
particular interest rates, remain constant.
AUD EUR GBP US$ Others
As at December 31, 2022 US$'000 US$'000 US$'000 US$'000 US$'000
Effect on net assets:
Strengthened by 10% 2 9 21 677 -
Weakened by 10% (2) (9) (21) (677) -
AUD EUR GBP US$ Others
As at December 31, 2021 US$'000 US$'000 US$'000 US$'000 US$'000
Effect on net assets:
Strengthened by 10% 11 (134) (19) 958 57
Weakened by 10% (11) 134 19 (958) (57)
e. Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they are due. The Directors manage this risk by:
· maintaining adequate cash reserves through the use of the Group's
cash from operations and bank borrowings as well as overdraft facilities; and
· continuously monitoring projected and actual cash flows to ensure
the Group maintains an appropriate amount of liquidity.
Overview of financing facilities
The following tables detail the Group's remaining contractual maturity for
financial liabilities with agreed repayment periods. The tables have been
drawn up based on the undiscounted cash flows of financial
liabilities based on the earliest date on which the Group can be required to
pay. The table includes both interest and principal cash flows.
Less than 2 to 5 > 5 Total
1 year years years
Year ended December 31, 2022 US$'000 US$'000 US$'000 US$'000
Trade and other payables 5,322 - - 5,322
Borrowings held at amortized cost 2,893 1,029 416 4,338
Leases (gross cash flows) 1,302 3,813 3,387 8,502
Other liabilities 5,290 - - 5,290
As at December 31, 2022 14,807 4,842 3,803 23,453
2 to 5 > 5 Total
years years
Less than
1 year
Year ended December 31, 2021 US$'000 US$'000 US$'000 US$'000
(restated) (restated) (restated) (restated)
Trade and other payables 8,271 - - 8,271
Borrowings 1,157 951 655 2,763
Leases (gross cash flows) 959 3,253 4,905 9,117
Other liabilities 3,435 - 88 3,524
As at December 31, 2021 13,822 4,204 5,648 23,674
Unsecured bank overdraft facility
As at As at
December 31, December 31,
2022 2021
Unsecured bank overdraft facility US$'000 US$'000
Amount used 2,790 -
Amount unused 6,861 9,329
Total 9,651 9,329
The bank overdraft facilities are reviewed at least annually.
f. Capital risk management
The Group manages its capital to ensure that entities in the Group will be
able to continue as going concerns while maximising the return to shareholders
through the optimisation of the debt and equity balance. The Group's overall
strategy remains unchanged from 2021.
The capital structure of the Group consists of equity and liabilities of the
Group. The Group intends to keep debt low to minimise the interest rate
impact.
The Group is not subject to any externally imposed capital requirements.
The Directors review the capital structure on a semi-annual basis based on the
equity ratio and total borrowings. The equity ratio at December 31, 2022 is 57
per cent (see below).
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Equity 40,339 59,535
Total equity and liabilities 71,143 94,144
Equity ratio 57% 63%
43. Notes to the statements of cash flows
Non-cash transactions
Certain shares were issued during the year for a non-cash consideration as
described in Note 5g.
Additions to buildings and land during the year amounting to US$1,862,000
million were financed by share issue (2021: nil).
Gains and losses on disposal of assets
Note
As at As at
December 31, December 31,
2022 2021
Gains and losses on disposal of assets US$'000 US$'000
Gain on disposal of property, plant and equipment 10 (21) (54)
Loss on disposal of property, plant and equipment 13 16 20
Net loss on disposal of assets (5) (34)
Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from
financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or
future cash flows will be, classified in the Group's consolidated cash flow
statement as cash flows from financing activities.
Leases Borrowings Total
Liabilities arising from financing activities US$'000 US$'000 US$'000
Balance at January 1, 2021 (2,652) (1,573) (4,225)
Cash flows 662 382 1,044
Assumed on acquisitions of subsidiaries (422) (1,792) (2,214)
New lease agreements (5,700) - (5,700)
Exchange differences (2) 221 219
Balance at December 31, 2021 (8,114) (2,762) (10,876)
Cash flows 992 (2,561) (1,569)
New lease agreements (2,181) - (2,181)
Revaluation of lease agreements 574 - 574
Disposal due to acquisitions 490 - 490
Loans waived by creditors - 764 764
Exchange differences 416 221 637
Balance at December 31, 2022 (7,823) (4,338) (12,161)
Working capital reconciliation:
The Company defines working capital as trade receivables, other receivables
and prepayments less trade and other payables, accrued liabilities, deferred
revenue and non-current liabilities excluding pension liabilities.
Year ended December 31, 2022 Opening balances Assumed on acquisition of assets Change in balance Closing balances
US$'000 US$'000 US$'000 US$'000
Inventories 13,770 - (602) 13,168
Trade receivables 14,656 - (8,169) 6,487
Other receivables and prepayments 3,876 - 386 4,262
Trade and other receivables and prepayments 18,532 - (7,783) 10,749
Trade and other payables 8,271 - (2,949) 5,322
Accrued liabilities 3,386 9 1,583 4,978
Deferred revenue incl. non-current contract liabilities 1,004 - 3,909 4,913
Trade and other payables, accrued liabilities and deferred revenue 12,661 9 2,543 15,213
Opening balances Assumed on acquisition of subsidiaries Change in balance Closing balances
US$'000 US$'000 US$'000 US$'000
Year ended December 31, 2021 restated restated restated restated
Inventories 13,540 2,258 (2,028) 13,770
Trade receivables 10,080 3,538 1,038 14,656
Other receivables and prepayments 2,609 - 1,267 3,876
Trade and other receivables and prepayments 12,689 3,538 2,305 18,532
Trade and other payables 5,815 2,497 (41) 8,271
Accrued liabilities 2,168 - 1,218 3,386
Deferred revenue - - 1004 1,004
Trade and other payables, accrued liabilities and deferred revenue 7,983 2,497 2,181 12,661
Consideration for acquisition of businesses
Year ended December 31,
2022
US$'000
Consideration payment for acquisition of Life Materials Technologies Ltd 1,400
Consideration payment for acquisition of ChemTex assets 187
Net consideration payment for acquisitions of businesses and assets 1,587
Year ended December 31,
2021
US$'000
Consideration payment for acquisition of Chrisal NV 6,054
Consideration payment for acquisition of RAS AG 1,482
Consideration payment for acquisition of Life Materials Technologies Ltd 2,550
Consideration payment for acquisition of ChemTex assets 908
Cash assumed on acquisition of Chrisal NV (1,773)
Cash assumed on acquisition of RAS AG (291)
Cash assumed on acquisition of Life Material Technologies Ltd (73)
Net consideration payment for acquisitions of businesses 8,857
44. Related party transactions
HeiQ Materials AG supplied materials and services totaling US$46,000 to ECSA,
a company controlled by a director of HeiQ Materials AG, in the year ended
December 31, 2022 (2021: US$32,000). HeiQ Materials AG in turn supplied
US$88,000 in 2021 (2022: US$nil). The transactions were made on terms
equivalent to those in arm's length transactions.
There are no loans outstanding with related parties.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the
Group, is set out below in aggregate for each of the categories specified in
IAS 24 Related Party Disclosures.
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Short-term employee benefits 738 836
Post-employment benefits 35 32
Cash remuneration of key management personnel 773 868
Share-based payment expense (income) (58) 170
Total remuneration of key management personnel 715 1,038
The cash remuneration for the reporting year ended December 31, 2022 is
equivalent to the total compensation of CHF 477,626 and GBP 220,000 (2021: CHF
568,878 and GBP 220,000) which are presented in the annual report on
Director's remuneration.
45. Material subsequent events
On January 12, 2023, HeiQ Plc, completed the acquisition of the entire issued
share capital of Tarn-Pure Holdings Ltd ("Tarn-Pure"). Tarn-Pure is a UK-based
intellectual property company holding critical EU and UK regulatory
registrations to sell elemental copper and elemental silver for use in
disinfecting hygiene applications. To acquire Tarn-Pure, HeiQ have paid the
vendors £530,000 (approximately US$621,000) in cash with an additional
£317,000 (approximately US$372,000) to be satisfied through the issuance of
455,435 new ordinary shares of 30p each in the Company (the "Consideration
Shares"), issued at a price of 69.6p per share resulting in a total
consideration of £847,000 (approximately US$993,000). The purchase price
allocation for this acquisition is incomplete. Impacts on this acquisition and
the results will be included in the 2023 consolidated financial statements.
As communicated on July 06, 2023, HeiQ Plc sold a 1.5% minority interest in
HeiQ AeoniQ GmbH to MAS Holdings for US$1.5 million. It was also agreed that a
further 1% shareholding will be sold to MAS Holdings for US$1 million subject
to the achievement of a mutually agreed milestone.
46. Ultimate controlling party
As at December 31, 2022, the Company did not have any single identifiable
controlling party.
Company Statement of Financial Position (registered company number:09040064)
As at December 31, 2022
As at As at
December 31, December 31,
2022 2021
Note £'000 £'000
ASSETS
Non-current assets
Investments 4 42,758 101,484
Amounts due from subsidiaries 5 9,000 18,000
51,758 119,484
Current assets
Trade and other receivables 7 798 377
Cash and bank balances 6 306 1,203
1,104 1,580
TOTAL ASSETS 52,862 121,064
LIABILITIES
Current liabilities
Trade and other payables 8 (204) (354)
4
(204) (354)
NET ASSETS 52,658 120,710
EQUITY
Share capital 9 42,025 39,175
Share premium account 9 114,663 109,460
Share-based payment reserve 11 340 346
Accumulated losses (104,370) (28,271)
TOTAL EQUITY 52,658 120,710
The Company has taken advantage of Section 408 of the Companies Act 2006 and
has not included a Profit and Loss account in these separate financial
statements. The loss attributable to members of the Company for the year ended
December 31, 2022 is £76,099,000 (2021: loss of £26,801,000)
The notes form an integral part of these Financial Statements. The Financial
Statements were authorized for issue by the board of Directors on October 26,
2023 and were signed on its behalf by.
Xaver Hangartner
Director
Company Statement of Changes in Equity
For the year ended December 31, 2022
Share capital Share premium account Share-based payment reserve Accumulated Total
losses
£'000 £'000 £'000 £'000 £'000
For the year ended December 31, 2021:
Balance as at January 1, 2021 37,767 102,536 (1,470) 138,871
38
Loss for the year - - - (26,801) (26,801)
Issue of shares 1,408 6,924 - - 8,332
Share-based payment charges - - 308 - 308
Transactions with owners 1,408 6,924 308 - 8,640
39,175 109,460 346 (28,271) 120,710
Balance as at December 31, 2021
For the year ended December 31, 2022:
Loss for the year - - - (76,099) (76,099)
Issue of shares 2,850 5,203 - - 8,053
Share-based payment charges - - (6) - (6)
Transactions with owners 2,850 5,203 (6) - 8,047
Balance as at December 31, 2022 42,025 114,663 340 (104,370) 52,658
Company statement of cash flows
For the year ended December 31, 2022
Year ended Year ended
December 31, December 31,
2022 2021
Cash flows from operating activities £'000 £'000
Loss before taxation (76,099) (26,801)
Cash flow from operations reconciliation:
Net finance income (377) (375)
Impairment provision 67,180 26,821
Working capital adjustments:
(Increase) in trade and other receivables 8,580 (186)
Increase/(decrease) in trade and other payables (95) (184)
Cash used in operations (811) (726)
Net cash used in operating activities (811) (726)
Cash flows from investing activities
Interest received 377 375
Consideration payment for acquisitions of businesses (463) -
Net cash used in investing activities (86) 375
Cash flows from financing activities
Net cash from financing activities - -
Net increase/(decrease) in cash and cash equivalents (897) (351)
1,203 1,554
Cash and cash equivalents - beginning of the year
Cash and cash equivalents - end of the year 306 1,203
Notes to the Company Financial Statements for the year ended December 31, 2022
1. General information
The Company was incorporated on May 14, 2014 as Auctus Growth Limited, in
England and Wales under the Companies Act 2006 with company number 09040064.
The Company was re-registered as a public company on July 24, 2014. On
December 4, 2020, following a reverse takeover of Swiss based HeiQ Materials
AG, the Company's name was changed to HeiQ Plc. The Company's registered
office is 5th Floor, 15 Whitehall, London, SW1A 2DD.
The Company's enlarged share capital is admitted to the standard segment of
the Official List and trading on the London Stock Exchange's Main Market under
the ticker 'HEIQ'. The ISIN of the Ordinary Shares is GB00BN2CJ299 and the
SEDOL Code is BN2CJ29.
The principal activity of the Company is that of a holding company for the
Group, as well as performing all administrative, corporate finance, strategic
and governance functions of the Group.
The Company's financial statements are prepared in Pounds Sterling, which is
the presentational currency for the financial statements.
2. Summary of significant accounting policies
a. Basis of preparation
These Financial Statements have been prepared in accordance with UK adopted
international accounting standards applying the FRS101 Reduced Disclosure
Framework.
These financial statements are prepared under the historical cost convention.
Historical cost is generally based on the fair value of the consideration
given in exchange of assets. The principal accounting policies are set out
below.
The Company also produces consolidated accounts which include the results of
the Company.
The financial statements have been prepared on a going concern basis which
contemplates the continuity of normal business activities and the realization
of assets and the settlement of liabilities in the ordinary course of
business. The Directors have assessed both the Company's and the Group's
ability to continue in operational existence for the foreseeable future. The
Company has prepared forecasts and projections which reflect the expected
trading performance of the Company and the Group on the basis of best
estimates of management using current knowledge and expectations of trading
performance. As at December 31, 2022, the Company had £306,000 (2021:
£1,203,000) in cash, which is considered sufficient for its present needs. As
described in Note 3b to the consolidated financial statements, there is
material uncertainty at the Group level that casts significant doubt upon the
company's ability to continue as a going concern and that, therefore, the
company may be unable to realize its assets and discharge its liabilities in
the normal course of business.
Nevertheless, after making enquiries and considering the uncertainties
described above, the Directors consider there are reasonable grounds to
believe that the Company will be able to pay its debts as and when they become
due and payable, as well as to fund the Company's future operating expenses.
The going concern basis preparation is therefore considered to be appropriate
in preparing these financial statements.
b. Investments
Fixed asset investments are carried at cost less, where appropriate, any
provision for impairment.
c. Loans to subsidiaries
Loans to subsidiaries are measured at the present value of the future cash
payments discounted at a market rate of interest for a similar debt instrument
unless such amounts are repayable on demand. The present value of loans that
are repayable on demand is equal to the undiscounted cash amount payable,
reflecting the Company's right to demand immediate repayment.
d. Foreign currencies
The company's equity is raised in Pound Sterling (£) which is the functional
and presentational currency of the Company, and all values are rounded to the
nearest thousand pounds except where otherwise indicated. Transactions in
foreign currencies are recorded using the rate of exchange ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are translated using the contracted rate or the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the profit and loss account.
e. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, bank balances, deposits with
financial institutions and short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
f. Trade and other receivables
Trade and other receivables are recognized initially at fair value and
subsequently measured at amortized cost using the effective interest method,
less provision for impairment.
g. Income taxes
The charge for taxation is based on the profit/ loss for the year and takes
into account taxation deferred because of timing differences between the
treatment of certain items for taxation and accounting purposes.
Deferred tax is provided on timing differences which arise from the inclusion
of income and expenses in tax assessments in periods different from those in
which they are recognized in the financial statements. The following timing
differences are not provided for: differences between accumulated depreciation
and tax allowances for the cost of a fixed asset if and when all conditions
for retaining the tax allowances have been met; and differences relating to
investments in subsidiaries, to the extent that it is not probable that they
will reverse in the foreseeable future and the reporting entity is able to
control the reversal of the timing difference. Deferred tax is not
recognized on permanent differences arising because certain types of income or
expense are non-taxable or are disallowable for tax or because certain tax
charges or allowances are greater or smaller than the corresponding income or
expense.
h. Share-based payment arrangements
Equity-settled share-based payments to employees are measured at the fair
value of the equity instruments at the grant date. Equity-settled share-based
payments to non-employees are measured at the fair value of services received,
or if this cannot be measured, at the fair value of the equity instruments
granted at the date that the Company obtains the goods or counterparty renders
the service. Details regarding the determination of the fair value of
equity-settled share-based transactions are set out in Note 27 to the
consolidated financial statements.
The fair vale determined at the grant date of the equity-settled share-based
payments is recognized on a straight-line basis over the vesting period, based
on the Company's estimate of equity instruments that will eventually vest,
with a corresponding increase in equity. Where the conditions are non-vesting,
the expense and equity reserve arising from share-based payment transactions
is recognized in full immediately on grant.
Where the Company grants an equity-settled share-based payment award to
employees of a subsidiary, then the Company classifies the transaction as
equity-settled in its separate financial statements. The Company recognises a
capital contribution from the subsidiary as a credit to the share-based
payment reserve and a corresponding increase in its investment in the
subsidiary.
At the end of each reporting period, the Group revises its estimate of the
number of equity instruments expected to vest. The impact of the revision of
the original estimates, if any, is recognized in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding
adjustment to other reserves.
i. Trade and other payables
Trade and other payables are initially recognized at fair value and thereafter
stated at amortized cost using the effective interest method unless the effect
of discounting would be immaterial, in which case they are stated at cost.
j. Share capital
Proceeds from issuance of ordinary shares are classified as equity.
Incremental costs directly attributable to the issuance of new ordinary shares
or options are shown in equity as a deduction from the proceeds.
k. Financial instruments
Financial instruments are recognized in the statements of financial position
when the Company has become a party to the contractual provisions of the
instruments.
Financial instruments are classified as liabilities or equity in accordance
with the substance of the contractual arrangement. Interest, dividends, gains
and losses relating to a financial instrument classified as a liability are
reported as an expense or income. Distributions to holders of financial
instruments classified as equity are charged directly to equity.
Financial instruments are offset when the Company has a legally enforceable
right to offset and intends to settle either on a net basis or to realize the
asset and settle the liability simultaneously.
A financial instrument is recognized initially at its fair value plus, in the
case of a financial instrument not at fair value through profit or loss,
transaction costs that are directly attributable to the acquisition or issue
of the financial instrument.
Financial instruments recognized in the statements of financial position are
disclosed in the individual policy statement associated with each item.
(i) Financial liabilities
Financial liabilities are recognized when, and only when, the Company becomes
a party to the contractual provisions of the financial instrument.
All financial liabilities are recognized initially at fair value plus directly
attributable transaction costs and subsequently measured at amortized cost
using the effective interest method other than those categorized as fair value
through profit or loss.
Fair value through profit or loss category comprises financial liabilities
that are either held for trading or are designated to eliminate or
significantly reduce a measurement or recognition inconsistency that would
otherwise arise. Derivatives are also classified as held for trading unless
they are designated as hedges. There were no financial liabilities classified
under this category.
A financial liability is derecognized when the obligation under the liability
is discharged, cancelled or expires. When an existing financial liability is
replaced by another from the same party on substantially different terms, or
the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the difference in the
respective carrying amounts is recognized in the profit or loss.
(ii) Equity instruments
Ordinary shares are classified as equity. Dividends on ordinary shares are
recognized as liabilities when approved for appropriation.
(iii) Other financial instruments
Other financial instruments not meeting the definition of Basic Financial
Instruments are recognized initially at fair value. Subsequent to initial
recognition other financial instruments are measured at fair value with
changes recognized in profit or loss except investments in equity instruments
that are not publicly traded and whose fair value cannot otherwise be measured
reliably shall be measured at cost less impairment.
3. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Company's accounting policies, which are described
in Note 2, management is required to make judgments, estimates and assumptions
about the carrying values of assets and liabilities that are not readily
apparent from other sources. The estimates and underlying assumptions are
based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and
future periods.
Critical accounting judgements
There were no critical accounting judgements impacting the Company's
standalone financial statements 2022 and 2021. Critical accounting judgments
affecting the Group are discussed in Note 4 to the consolidated financial
statements.
Key sources of estimate uncertainty
Impairment of amounts due from subsidiaries
As described in Note 2 to the financial statements, fixed asset investments
are stated at the lower of cost less provision for impairment. The present
value of loans to subsidiaries that are repayable on demand is equal to the
undiscounted cash amount payable, reflecting the Company's right to demand
immediate repayment.
At each reporting date fixed asset investments and loans made to subsidiaries
are reviewed to determine whether there is any indication that those assets
have suffered an impairment loss. If there is an indication of possible
impairment, the recoverable amount of any affected asset is estimated and
compared with its carrying amount. If the estimated recoverable amount is
lower, the carrying amount is reduced to its estimated recoverable amount, and
an impairment loss is recognized immediately in profit or loss.
The Directors have carried out an impairment test on the value of the loans
due from subsidiaries and have concluded that an impairment provision of
£9,000,000 (2021: nil) is necessary to reflect the uncertainty around
financing of the Group and Company as mentioned in Note 3b to the consolidated
financial statements and Note 2a to the Company Financial Statements,
respectively.
Impairment of fixed asset investments
The Directors have also carried out an impairment test on the value of the
Company's fixed asset investments and considered whether there are any
indicators of impairment from external and internal sources of information,
including the fact that the market capitalization of the Company has fallen
below the net carrying value of such investments which would indicate that the
carrying value may have been impaired and have concluded that an impairment
provision of £94.0m (2021: £26.8m) is required to write down these amounts
to their estimated recoverable amount.
4. Investments
As at As at
Investments in subsidiary undertakings December 31, December 31,
2022 2021
£'000 £'000
Balance brought forward 101,484 119,609
Additions 8,454 8,696
Impairment provision charge (67,180) (26,821)
Balance at end of year 42,758 101,484
Details of the Company's principal subsidiaries as at December 31, 2022 are
set out in Note 6 to the consolidated financial statements. The Company's
investments in subsidiaries are carried at cost less impairment.
The Directors have concluded that the significant devaluation of the Group
represents an indicator of impairment as at December 31, 2022. Therefore,
the Directors performed an impairment test of the Group and valued the
Company's investment in its subsidiaries at £51,758,000 (2021: £119,484,000
valued based on market capitalization). The carrying value of its investments
in subsidiaries was £136,759,000 (2021: £128,305,000) before impairment
provision charges. The amounts due from subsidiaries as at December 31, 2022
was £9,000,000 (2021: £18,000,000).
The Company has therefore made additional provision for an impairment of
£94,001,000 (2021: £26,821,000) against the carrying value of the Company's
investments in subsidiaries to reduce such value to £42,758,000 (2021:
£101,484,000).
Sensitivity
The calculation of the market capitalization of £77,045,000 is based on the
Company's share price of 55.0 pence as at 31 December 2022. Due to the
volatility of the share price, a decrease of 75% in the share price to 13.8
pence is reasonably possible. A decrease in the share price of 75%, would
result in a market capitalization of £19.3 million and an additional
impairment loss of approximately £32.4 million.
5. Amounts due from subsidiaries
As at As at
December 31, December 31,
2022 2021
£'000 £'000
Balance brought forward at beginning of year 18,000 18,000
Amounts advanced - -
Expected credit loss (9,000) -
Balance at end of year 9,000 18,000
The amounts due from subsidiaries are unsecured, yield 2.5% interest and are
repayable on demand. Given the uncertainty described in the going concern
review of the Group in Note 3b to the consolidated financial statements, the
recoverability of the loan was reassessed. Due to the increased risk of
default following the Group's recent performance, it was concluded that an
expected credit loss of £9,000,000 is appropriate for the financial year
ended December 31, 2022.
Sensitivity
The expected credit loss of £9,000,000 reflects 50% of the balance due. Had
the Directors' assessment been that the whole £18,000,000 are not
collectible, there would have been an additional expected credit loss of
£9,000,000.
6. Cash and cash equivalents
As at As at
December 31, December 31,
2022 2021
£'000 £'000
Bank balances 306 1,203
306 1,203
7. Trade and other receivables
As at As at
December 31, December 31,
2021 2020
£'000 £'000
Prepayments 14 108
Vat receivable 12 5
Other receivables from subsidiaries 772 264
798 377
8. Trade and other payables
As at As at
December 31, December 31,
2022 2021
£'000 £'000
Trade payables 1 16
Accruals 203 129
Taxes and social security - 8
Deferred consideration - 55
Other payables - 145
204 354
The directors consider that the carrying amounts of amounts falling due within
one year approximate to their fair values.
9. Share capital and share options
Share capital
Details of the Company's allotted, called-up and fully paid share capital are
set out in Note 26 to the Consolidated Financial Statements.
Movements in the Company's share capital were as follows:
Number of shares Share capital Share premium Totals
No. £'000 £'000 £'000
Balance as of January 1, 2021 125,891,904 37,767 102,536 140,303
Issue of shares to acquire Chrisal NV 1,101,928 331 1829 2,160
Issue of shares to acquire RAS AG 1,701,821 511 2837 3,348
Issue of shares to acquire Life Materials 1,887,883 566 2258 2,824
Balance as at December 31, 2021 130,583,536 39,175 109,460 148,635
Issue of shares to vendors of Life Materials (a) 347,552 104 347 451
Issue of shares as deferred consideration 3,461,615 1,039 2,233 3,272
Issue of shares Advisory Board 164,721 50 146 196
Issue of shares ChemTex Labs 2,176,884 653 967 1,620
Issue of shares Chrisal 3,348,164 1004 1510 2,514
Balance as at December 31, 2022 140,082,472 42,025 114,663 156,688
The par value of all shares is £0.30 (2021: £0.30). All shares in issue were
allotted, called up and fully paid. The Ordinary shares of the Company carry
one vote per share and an equal right to any dividends declared.
Share options
Details of the Company's share option scheme and options issued during the
year are set out in Note 27 to the Consolidated Financial Statements.
10. Reserves
The share premium account represents the amount received on the issue of
ordinary shares by the Company in excess of their nominal value and is
non-distributable.
The share-based payment reserve arises from the requirement to value share
options in existence at the year end at fair value (see Note 28 to the
Consolidated Financial Statements).
11. Share-based payments
Details of the Company's share options are contained in Note 27 to the
Consolidated Financial Statements.
12. Segment information
Operating segments are identified on the basis of internal reports about
components of the Company that are regularly reviewed by the Board. Until its
acquisition of HeiQ Materials AG on 7 December 2020, the Company was an
investing company and did not trade. On the completion of the acquisition of
HeiQ Materials AG and its subsidiaries, the Company became the holding company
of the Group.
The Company has one segment, namely that of a parent company to its
subsidiaries. Accordingly, no segmental analysis has been provided in these
financial statements.
13. Employees
The average monthly number of employees including directors
was as follows:
Year ended Year ended
December 31, December 31,
2022 2021
No. No.
Directors 5 5
5 5
14. Related party transactions
The only key management personnel of the Company are the Directors. Details of
their remuneration are contained in Note 44 to the consolidated financial
statements.
Details of amounts due between the Company and its subsidiaries are shown in
Notes 5 above.
15. Subsequent events
The Group's share price as at April 30, 2023 closed at 20.2 pence followed by
share suspension which will be in place until the consolidated financial
statements have been published. Had this been the valuation as at 31 December
2022, market capitalization would have been £28,297,000.
Other disclosures in relation to events subsequent to December 31, 2022 are
shown in Note 45 to the consolidated financial statements.
16. Ultimate controlling party
As at December 31, 2022, no one entity owns greater than 50% of the issued
share capital. Therefore, the Company does not have an ultimate controlling
party.
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