REG - Sondrel (Holdings) - Final Results and Posting of Annual Report
18/07/2024 07:00
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RNS Number : 8418W Sondrel (Holdings) plc 18 July 2024
This announcement contains inside information as stipulated under the UK
version of the Market Abuse Regulation No 596/2014 which is part of English
Law by virtue of the European (Withdrawal) Act 2018, as amended. On
publication of this announcement via a Regulatory Information Service, this
information is considered to be in the public domain.
18 July 2024
Sondrel (Holdings) plc
("Sondrel", the "Company" and together with its subsidiaries the "Group")
Final Results for the Year Ended 31 December 2023
Publication of Annual Report
Sondrel (AIM: SND), a leading provider of ultra-complex chips for leading
global technology brands, announces its audited full year-results for the year
ended 31 December 2023 ("FY23") and that it has published its annual report
which is available to view on the Company's website -
https://ir.sondrel.com/investors/results-reports-presentations
(https://ir.sondrel.com/investors/results-reports-presentations) .
Financial Review
· Revenue of £9.4 million (FY22: £17.3 million)
· Operating loss of £17.3 million (FY22: £5.2 million)
· Adjusted EBITDA of £4.5 million (FY22: £1.1 million loss)
· Net debt at year-end of £0.9 million (FY22: net cash of £3.7
million)
Operational Review
· Steady project progress during the first half of FY23. However,
delays on the largest ASIC project and the lack of new contract wins in the
second half resulted in a significant fall in revenue and tightening of cash
position
· £2.7 million of revenue from largest ASIC project deferred from
FY23 into FY24
· Two smaller ASIC projects achieved 'tape out' status during FY23,
one of which led to Sondrel's first production order in late 2023
· Joe Lopez, Group CFO, stood down in September 2023 and was
replaced by Nick Stone as Interim CFO in a non-board capacity
Post Period End
· On 6 March 2024, the Company entered into an £874,600 secured
15% convertible loan note agreement with Rox Equity Partners Limited ("ROX")
to enable the Group to meet immediate working capital requirements
· The Company has since received a further £2 million from ROX on
28 March 2024 via a further convertible loan note under the same terms as the
above and also a £5.6 million equity subscription completed on 14 June 2024.
· The Company agreed with ROX to enter into a transformation plan
(the "Transformation Plan") that has resulted in the following management and
Board changes:
o Graham Curren has transitioned from his role as Chief Executive Officer to
Non-Executive Director;
o Nigel Vaughan has retired from his position as Non-Executive Chairman;
o David Mitchard was appointed as interim Chief Executive Officer on 28
March 2024, and subsequently Non-Executive Chairman on 18 June 2024. David
will stand down as interim Chief Executive Officer from today, following the
appointment of John Chubb as Chief Executive Officer, and will remain the
Company's Non-Executive Chairman; and
o Miles Woodhouse has been appointed as Non-Executive Director.
· Under the Transformation Plan, the Company has also resolved to
propose to cancel the admission of the Company's ordinary shares to trading on
AIM (the "Cancellation"). A circular will be sent to shareholders in due
course together with a notice convening a general meeting of the Company
during August 2024 to consider, inter alia, the Cancellation.
For further information:
Sondrel (Holdings) plc Via Buchanan
John Chubb, CEO Tel: +44 (0) 20 7466 5000
Nick Stone, Interim CFO
Cavendish Capital Markets Limited Tel: +44 (0) 20 7220 0500
Ben Jeynes / Katy Birkin / George Lawson - Corporate Finance
Michael Johnson / Charlie Combe - Sales and ECM
Burson Buchanan Tel: +44 (0) 20 7466 5000
Chris Lane sondrel@buchanan.uk.com (mailto:sondrel@buchanan.uk.com)
Stephanie Whitmore
Jack Devoy
Abby Gilchrist
Chairman and Interim Chief Executive's Statement
2023 was the first full year of trading as an AIM quoted company for Sondrel
(Holdings) PLC ('Sondrel' the 'Company' or, together with its subsidiaries,
the 'Group') following the Group's IPO in October 2022 and, as communicated by
the Company throughout the period this proved to be a difficult and
challenging year. These challenges extended into the first half of 2024.
Delays in both existing and expected new contracts meant that the second half
of the year was extremely difficult with little revenue generated and trading
losses recorded. The Group's cash position also diminished and became very
weak in the second half of the year as a consequence, such that employee
salaries were delayed for some employees in December 2023 and a fundraising
process was commenced.
The fundraising exercise recently concluded in June 2024, with Rox Equity
Partners ('Rox') investing a total of £8.5 million. It now owns 49% of
Sondrel's voting rights. The investment started with the issuance of two
convertible loan notes of £0.9 million and £2 million, both during March
2024, and the signing of an exclusivity agreement between Sondrel and Rox. The
exclusivity agreement allowed for Rox to invest up to a further £7.1 million
alongside existing shareholders in the planned fundraise on an exclusive
basis. The Rox loan notes have since been converted into equity and a further
£5.6 million was subscribed for by way of a direct subscription.
One of the conditions of the fundraise was the approval by the UK secretary of
state under the National Security and Investment Act 2021. The approval,
received on 7 June 2024, took longer than initially anticipated and the
publication of these accounts was consequently delayed beyond 30 June 2024,
resulting in the suspension of trading in Sondrel's ordinary shares on AIM.
Publication of these accounts is expected to result in the restoration of
trading in Sondrel's ordinary shares.
The exclusivity agreement also committed Sondrel to a transformation plan to
re-establish its baseline costs, introducing revised robust management
processes and refocusing the business to resolve matters that are central to
the cash flow issues faced by the Group to date. The plan has also involved
the commitment to several board changes that are detailed below and an
agreement to seek a proposal to cancel the admission of ordinary shares
currently trading on AIM, which Sondrel remains committed to.
Board changes
The following board and executive management changes have been made since the
publication of the last annual report:
· In September 2023, Joe Lopez stood down as the Group's CFO from
the board by mutual agreement and was replaced by Nick Stone as the Interim
CFO, in a non-board capacity.
· In January 2024 Gordon Orr stood down as a non-executive director
as part of steps taken to reduce his commitments.
· As part of the commitments made by the Company in the exclusivity
agreement signed with Rox, in March 2024 Graham Curren the Founder and Chief
Executive moved to become Chief Executive of Sondrel Ventures, in a role that
will concentrate on the strategy and future growth of the Group. Graham
remains a non-executive director on the Group's board in addition to
performing this role.
· Following the completion of the fundraise in June 2024, Nigel
Vaughan stepped down from the board as Chairman and, having been appointed as
Interim Chief Executive Officer in a non-board capacity in March 2024, I
joined the board and took the role of Chairman whilst continuing in the role
as Interim Chief Executive Officer. Miles Woodhouse also joined the board as
Rox's appointed non-executive director
· It was announced in May 2024 that John Chubb will join the Board
on 18 July 2024 as Chief Executive Officer, at which point I will continue
solely as the non-executive Chairman.
· Finally, it is also announced today that Siobhan Martin will join
Sondrel as Chief Financial Officer on 30 September 2024 and that Interim Chief
Financial Officer, Nick Stone, will leave the Company upon the publication of
these accounts.
I'd like to thank Nigel and Graham for their years of service as Chairman and
Chief Executive Officer of the Group respectively, both before and after the
IPO, and I look forward to continuing to working with Graham and the other
members of the board as we embark on the next phase of Sondrel's
development. I would also like to thank Nick Stone for his significant
contribution through what has been an uncertain period for the Company - in
doing so working to secure the funding that was so critical for the Company's
continued operation.
Transformation Plan
The transformation plan is ongoing and has involved the recruitment of a very
experienced team of turnaround professionals who are putting a plan together
to ensure that Sondrel's management, cost structure and business processes are
suitable for the growth ambitions that the Group continues to have. There is a
particular focus on the pricing and management of projects, improved
forecasting of the levels of engineering resource required to support the
Business Plan and the management and continued development of the Group's
intellectual property.
Delisting
The Board and Rox reached the conclusion in early discussions that the costs
and complexities of being quoted on AIM do not benefit any stakeholders at
this stage of the Group's transition. It was therefore confirmed in the
circular issued on 14 May 2024, that a proposal would be put to shareholders
to cancel the trading of its shares on AIM. The proposal will incorporate a
trading facility that Sondrel will make available to shareholders who wish to
buy or sell shares on a matched bargain basis. More information on this will
be provided in due course.
The proposal to move forward with the cancellation will be put to shareholders
at a general meeting in August 2024 and, if approved, the cancellation will
become effective thereafter. The agenda for this meeting will also include
resolutions to approve these accounts and the re-appointment of the auditors.
Trading Review
Key Performance Indicators
2023 2022
Revenue £9.4m £17.3m
Operating loss £17.3m £5.2m
Loss after tax £21.5m £3.2m
Adjusted EBITDA £(4.5)m £(1.1)m
(Net debt)/net cash £(0.9)m £3.7m
Employees at year end 159 185
The business experienced a very difficult and challenging year from a trading
point of view that also came at the same time as a slow-down in the
semi-conductor market in Europe in particular. Additionally, the strategic
decision taken to focus on project-based ASIC work meant that some of the
smaller scale time and materials-based services work was lost. Winning of new
contracts in 2023 was particularly weak, with a total of new business won of
only £4.0m (2022: £25.6m).
Steady project progress was made during the first half of the year before the
lack of new business won during the year and delays on the largest ASIC
project being undertaken meant that second half revenues fell significantly.
This project had originally been forecast to be completed in September 2023
but only reached its successful conclusion in April 2024. This led to revenue
of some £2.7m being deferred from 2023 into 2024. In parallel to this, the
second phase of the project that had been expected to commence in July 2023
was also delayed and has not yet commenced.
As a result, a significant loss was made during the year of £17.3m at the
operating level. The loss was compounded by an exceptionally high accelerated
amortisation charge of £4.9m relating to an intangible software asset, akin
to an impairment charge. This reflects the reduced utility that the Group
expected to get from the asset over its remaining lifetime given the reduced
level of design activity experienced by the Group.
On the positive note, two smaller ASIC projects achieved 'tape out' status
during the year, one of which led to Sondrel's first production order in late
2023. The first production revenues are anticipated in the second half of 2024
as a result. In addition, a significant new ASIC project was won in early 2024
for a next generation video processing chip with a total estimated value of
US$23 million across the design, qualification and projected production life
of the product.
The ASIC Market
The market for ASIC design remains one with significant opportunity for
Sondrel particularly in the growing AI market, and is extremely dynamic and
evolving:
Market Size and Growth Trends
The ASIC chip market was valued at an estimated USD 20.29 billion in 2024
and is projected to reach USD 32.84 billion by 2031, growing at a CAGR
of 7.10% during this period
(https://www.coherentmarketinsights.com/industry-reports/asic-chip-market)
(Source: ASIC Chip Market Size & Share Analysis - Industry Research Report
- Growth Trends (coherentmarketinsights.com)
(https://www.coherentmarketinsights.com/industry-reports/asic-chip-market) .
Factors driving growth include the adoption of advanced technologies such as
AI, machine learning, and 5G, and these all increase demand for ASICs across
industries.
Demand for Digitalization
The growing need for digitalization in various sectors fuels demand for
specialized and efficient computing capabilities. ASIC chips can be
customized for specific applications, delivering optimized performance.
Industry Segments
ASIC chips find applications in automotive systems, aerospace subsystems,
telecommunications products, medical instrumentation, data processing systems,
and consumer electronics
(https://www.coherentmarketinsights.com/industry-reports/asic-chip-market) .
Extensive research and development activities in automation and transportation
sectors contribute to revenue generation. In summary, the ASIC market is
poised for growth, driven by technological advancements and increasing demand
for specialized computing solutions
(https://www.coherentmarketinsights.com/industry-reports/asic-chip-market)
.
Future Strategy
The future strategy for Sondrel will, in part, be determined by the current
transformation plan but will continue to be at least partially based on
growing the volume of ASIC project work, leading to follow-on prototyping and
testing work and ultimately production revenues. However, the balance between
growth of capability and investment in new revenue streams and the traditional
design services work that will keep the engineering work force busy will be
more keenly managed in order to ensure a break-even position from both an
operating profit and cash flow perspective.
Summary and Outlook
The completion of the recent fundraise and the support of Rox will ensure that
the business is stabilised and put on a growth footing in the future based on
a more solid foundation. In the short term, the current trading losses are
targeted by the transformation plan to be eliminated by the last quarter of
the year and thereby avoiding the need for any further fundraising to support
trading activities. To achieve this target, new business wins and further cost
saving measures will be required, some of them related to the de-listing
process.
Rox has committed to providing a further £1.5m funding to Sondrel in the
future which will provide more liquidity should it be necessary. However, it
is recognised that this may not be sufficient should the expected new business
wins fall short of current forecasts over the next 12 months. This creates a
material uncertainty over the cash flows of the business until such time as
the revenues increase.
Despite this, the Board believes that the future prospects for the business
will be more positive once the transformation plan has been delivered and
Sondrel is able to compete more effectively for the many opportunities that
are available in the market.
David Mitchard
Non-Executive Chairman and Interim Chief Executive Officer
17 July 2024
Chief Financial Officer's Review
Revenue
£'000 2023 2022
Consultancy 2,136 4,439
ASIC projects 7,290 12,839
Total 9,426 17,278
Consultancy revenues decreased to £2.1m (2022: £4.4m) as the Group focused
on developing the ASIC projects business for the future. Despite the
decision to focus on ASIC projects revenue it also declined from £12.8m to
£7.3m due to project delays and lack of new business sales. The major
revenue contributor in the year was the large automotive ASIC project that
started in October 2022 and which taped out in April 2024. This was delayed
having originally been expected to be completed by the end of 2023, and this
meant that approximately £2.7m of revenue was deferred into 2024. There were
no new ASIC projects won during 2023.
Margins
The majority of the Group's direct cost base relates to engineering headcount
and software. During the first half of 2023, revenues and margins were broadly
on plan, but the delays in the delivery of the large automotive ASIC project
reduced revenues and depressed margins in the second half. Contract wins in
the first half of 2024 have improved gross margins and are expected to return
to normal trading levels during by the end of the year.
Administrative Expenses
Administrative expenses decreased by 17% to £6.5m (2022: £7.8m), driven
predominantly by the inclusion of IPO related costs of £1.4m in the prior
year. Underlying administrative expenses (excluding depreciation, amortisation
and exceptional items) increased by 1% to £6.1m (2022: £6.0m).
Foreign Exchange
The Group had 71% (2022: 70%) of revenues invoiced in currencies other than
GBP. The Group's cost base has been predominantly in GBP and USD, which has
historically provided a natural hedge to currency exchange risk as revenues
have also been predominantly denominated in USD and GBP. However, during
2022 a new Euro contract led to significant revenues being denominated in
Euros. Exchange rate losses of £0.1m (2022: loss of £0.5m) reflected the
reduction in volatility of the key currency pairs (GBP-USD and GBP-EUR) year
on year.
Adjusted EBITDA and Statutory Loss Before Tax
Adjusted EBITDA (earnings before interest, tax, exceptional items,
depreciation and amortisation) is considered by the Board to better represent
the ongoing operating performance of the Group as it removes the impact of
significant one-off items and smooths the impact of the cash outlay on the
Groups design software. Adjusted EBITDA worsened in the year to a loss of
£4.7m (FY22: loss £1.1m). See note 7 to the financial statements for
further information.
Statutory loss before tax of £18.0 million (2022: Loss £6.4 million)
includes significant cash and non-cash expenditure items, and these are
reconciled to adjusted EBITDA as follows:
£'000 2023 2022
Statutory loss before tax (17,979) (6,412)
IPO costs 1 (#_ftn1) - 1,393
Adjusted loss before tax (17,979) (5,019)
Interest 656 1,175
Depreciation 457 394
Amortisation of intangible assets 12,150 2,384
Adjusted EBITDA (4,715) (1,066)
Research and development
Total expenditure on research and development in the year was £9.7m (2022:
£8.1m) of which £0.6m (2022: £0.6m) was on internal research and
development to increase the engineering differentiation and capability to
efficiently deliver new technologies. Research & development costs of
£0.5m (2022: £0.2m) were capitalised during the year relating to the
commencement of an automotive development programme. Costs incurred relating
to the development of internal process improvements are not able to be
reliably measured and have therefore been expensed through the P&L.
Due to the nature of the work the Group is entitled to claim R&D tax
credits. The amount recoverable this year is £1.2m (2022: £1.0m)
Depreciation and Amortisation
Depreciation and amortisation of £12.6m (2022: £2.8m) principally comprises
the amortisation of the intangible software assets. The significant increase
in amortisation of the intangible software was due to an accelerated charge to
recognise the limited utility of the remaining asset following a reduction in
design activity. The terms of the software asset have been renegotiated since
year end, allowing the business to recover the lost utility by extending the
period over which the asset can be used.
Interest
Finance costs in the year were £0.7m (2022: £1.2m). The interest charged
under IFRS 16 in respect on the liability arising on the purchase of the
software asset was £0.5m (2022: £0.9m).
Taxation
No provision for tax has been made in the period (2022: £Nil) due to the
available tax losses carried forward of £6.9m.
No asset has been recognised in relation to the recovery of these tax losses.
The forecast revenues and profits in the business have reduced materially in
the last year and as a result it is not now expected that they will all be
utilised in the foreseeable future. As a result, the asset of £3.2m held on
the prior year balance sheet has now been written off to the income statement
in the current period.
Earnings per share
Loss per share was 24.6 pence (2022: loss per share 5.6 pence).
Dividend
The retained earnings position of the Group is insufficient for the Board to
consider a dividend for the year. In any event, the Group is primarily seeking
to achieve capital growth for shareholders rather than an income. It is the
board's intention during the current phase of the Group's development to
retain any distributable profits that arise from the business to the extent
they are generated.
Balance sheet
The Group's balance sheet position showed a net deficit at 31 December 2023 of
£13.4m (2022: net assets of £8.5m).
Fixed assets
Intangible assets
The intangible asset of £2.9m (FY22: £14.5m) arises from the recognition of
long term right-of-use software assets and the capitalisation of £0.5m of
research and development. The amortisation associated with the software asset
was £12.0m (FY22: £2.4m).
Management has accelerated the amortisation to reflect the reduced utility of
the software asset following the reduced level of design anticipated over the
remaining life of the asset. Since the end of 2023, the terms of the
right-of-use software asset have been renegotiated allowing the business to
recover the lost utility over an extended period of use.
Tangible assets
Tangible assets of £0.5m (FY22: £0.9m) comprise mainly of right-of-use
assets relating to office leases and other office equipment.
Cash flow and net debt
At 31 December 2023 the cash balance was £0.0m (2022: £4.4m).
The Group repaid its shareholder loan of £0.7m during the year but drew down
a short-term loan by way of advance against expected R&D tax credit
receipts of £0.9m, leaving a net debt position of £1.0m (2022: Net cash
£3.7m).
Risks and uncertainties
The Board continually assesses and monitors the key risks of the business. The
key risks that could affect the Group's performance, and the factors that
mitigate these risks, are set out on pages 10 to 12 of the 2023 annual report
and accounts.
Nick Stone
Interim Chief Financial Officer
17 July 2024
Sondrel (Holdings) plc
Consolidated Statement of Profit and Loss and Other Comprehensive Income
For the year ended 31 December 2023
2023 2022
as restated
Note £ £
Revenue 6 9,425,753 17,277,631
Cost of sales (21,759,584) (15,664,557)
Gross (loss)/profit (12,333,831) 1,613,074
Administrative expenses (6,525,540) (7,814,885)
Other operating income 10 1,536,129 965,655
Operating loss 10 (17,323,242) (5,236,156)
Finance costs 11 (655,797) (1,175,510)
Finance income 12 305 30
Loss before tax (17,978,734) (6,411,636)
Tax (charge)/credit 13 (3,541,379) 3,219,735
Loss for the year attributable to the owners of the parent (21,520,113) (3,191,901)
Other comprehensive income/(expense)
Items that may be reclassified to profit and loss in subsequent periods (net of tax):
Exchange differences on translation of foreign operations 22,268 (39,079)
Other comprehensive income/(expense) for the year 22,268 (39,079)
(net of tax)
Total comprehensive expense for the year attributable to the owners of the (21,497,845) (3,230,980)
parent
Losses per share attributable to the owners of the parent
Basic 14 (0.25) (0.06)
Diluted 14 (0.25) (0.06)
All activity in both the current and the prior year relates to continuing
operations.
The notes form part of the consolidated financial statements.
Sondrel (Holdings) plc
Consolidated Statement of Financial Position
As at 31 December 2023
2023 2022
as restated
Note £ £
Non-current assets
Property, plant and equipment 15 339,965 293,914
Right-of-use assets 16 502,567 637,100
Intangible assets 17 2,938,841 14,547,870
Deferred tax assets 21 - 3,199,744
Total non-current assets 3,781,373 18,678,628
Current assets
Inventories 18 - 1,044,069
Trade and other receivables 19 2,181,558 10,197,124
Cash and cash equivalents 20 2,146 4,449,812
Income tax receivable 735,488 149,853
Total current assets 2,919,192 15,840,858
Total assets 6,700,565 34,519,486
Current liabilities
Trade and other payables 22 5,701,773 10,162,935
Short-term borrowings 23 859,800 -
Short-term lease liabilities 24 8,086,429 4,805,956
Total current liabilities 14,648,002 14,968,891
Non-current liabilities
Borrowings 23 - 700,000
Lease liabilities 24 5,378,108 10,292,172
Deferred tax liabilities 21 28,414 74,933
Total non-current liabilities 5,406,522 11,067,105
Total liabilities 20,054,524 26,035,996
Net (liabilities)/assets (13,353,959) 8,483,490
Equity
Issued share capital 27 87,462 87,462
Share premium 28 18,286,562 18,286,562
Foreign currency translation reserve 28 (33,329) (55,597)
Share-based payment reserve 28 470,656 812,676
Retained deficit 28 (32,165,310) (10,647,613)
Total equity (13,353,959) 8,483,490
The consolidated financial statements were approved and authorised for issue
by the Board on 17 July 2024 and were signed on its behalf by:
David Mitchard
Non-Executive Chairman and Interim Chief Executive Officer
The notes form part of the consolidated financial statements.
Sondrel (Holdings) plc
Consolidated Statement of Changes in Equity
For the year ended 31 December 2023
Note Share capital Share premium Foreign currency translation reserve Share-based payment reserve Retained deficit Total
£ £ £ £ £ £
Balance at 1 January 2022 8,345 122,431 (16,518) 1,236,397 (7,927,194) (6,576,539)
Loss for the year - - - - (3,191,901) (3,191,901)
Other comprehensive expense - - (39,079) - - (39,079)
Total comprehensive expense for the year - - (39,079) - (3,191,901) (3,230,980)
Share issues 27 36,364 18,164,131 - - - 18,200,495
Exercise of share options 26 1,029 - - (513,206) 513,206 1,029
Bonus issues 27 41,724 - - - (41,724) -
Share-based payment charge 26 - - - 89,485 - 89,485
Total transactions with owners 79,117 18,164,131 - (423,721) 471,482 18,291,009
At 31 December 2022 87,462 18,286,562 (55,597) 812,676 (10,647,613) 8,483,490
Loss for the year - - - - (21,520,113) (21,520,113)
Other comprehensive income - - 22,268 - - 22,268
Total comprehensive income/(expense) for the year - - 22,268 - (21,520,113) (21,497,845)
Share-based payment (credit)/charge 26 - - - (342,020) 2,416 (339,604)
Total transactions with owners - - - (342,020) 2,416 (339,604)
At 31 December 2023 87,462 18,286,562 (33,329) 470,656 (32,165,310) (13,353,959)
The notes form part of these consolidated financial statements.
Sondrel (Holdings) plc
Consolidated Statement of Cash Flows
For the year ended 31 December 2023
2023 2022
as restated
Note £ £
Cash used in operations 29 (2,738,412) (4,952,766)
Tax received 1,346,899 202,222
Net cash outflow from operating activities (1,391,513) (4,750,544)
Cash flows from investing activities
Purchase of property, plant and equipment (148,338) (204,194)
Purchase of intangible assets (512,948) (239,373)
Interest received 305 30
Net cash outflow from investing activities (660,981) (443,537)
Cash flows from financing activities
Proceeds from issue of share capital - 18,200,495
Proceeds from exercise of share options - 1,029
Proceeds from borrowings 2,027,610 -
Repayment of borrowings (1,912,810) (1,791,667)
Payment of principal portion of lease liabilities 24 (1,918,114) (4,336,531)
Interest paid on lease liabilities 24 (574,652) (954,611)
Other interest paid (36,200) (231,103)
Net cash (outflow)/inflow from financing activities (2,414,166) 10,887,612
Net (decrease)/increase in cash and cash equivalents (4,466,660) 5,693,531
Cash and cash equivalents at the beginning of the financial year 20 4,449,812 (1,243,719)
Foreign exchange differences on cash balances 18,994 -
Cash and cash equivalents at the end of the financial year 20 2,146 4,449,812
The notes form part of the consolidated financial statements.
Sondrel (Holdings) plc
Notes to the Consolidated Financial Statements
For the year ended 31 December 2023
1 General information
The financial information of the Group set out above does not constitute
statutory accounts for the purposes of Section 435 of the Companies Act
2006. Whilst the financial information included in this announcement has
been prepared in accordance with UK adopted international accounting
standards, in conformity with the requirements of the Companies Act 2006, that
are relevant to companies that report under these standards, this announcement
does not itself contain sufficient information to comply with those standards.
This financial information has been prepared in accordance with the
accounting policies set out in the 2023 Annual Report.
Sondrel (Holdings) plc (the "Company") is a public limited company, limited by
shares, which is listed on AIM, part of the London Stock Exchange. The Company
is incorporated, domiciled and registered in England and Wales, with
registration number 07275279. The address of its registered office is Sondrel
House, Theale Lakes Business Park, Moulden Way, Sulhamstead, Reading, RG7 4GB.
The Group's principal activity is the execution of system-on-chip IC designs,
and associated engineering services, with particular focus on AI, video,
automotive and Internet of Things related applications.
2 Material accounting policies
2.1 Basis of preparation
The consolidated financial statements of the Group have been prepared in
accordance with UK-adopted International Accounting Standards.
The consolidated financial statements have been prepared on a historical cost
basis and are presented in pounds sterling which is also the Group's
functional currency. All amounts are rounded to the nearest pound sterling
unless stated otherwise.
2.2 Basis of consolidation
The consolidated financial statements present the results of the Company and
its subsidiaries ("the Group") as if they formed a single entity. Where the
Company has control over an investee, it is classified as a subsidiary.
When necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies in line with the Group's
accounting policies. All intra-group assets and liabilities, equity, income,
expenses and cash flows relating to transactions between members of the Group
are eliminated in full on consolidation.
2.3 Going concern
At 31 December 2023, the Group had cash reserves of £2,146 (2022:
£4,449,812) and net current liabilities of £11,728,810 (2022: net current
assets of £871,967). As a consequence of delays in meeting project
milestones in a key ASIC project, the cash position of the Group at the
year-end was insufficient to meet supplier payments and the monthly payroll as
they fell due. Since the year-end, the Group has completed a fund-raising
process which raised £8.5m, and successfully renegotiated with a key supplier
to improve the repayment terms of a material liability. These two measures
have restored the Group's cash position and outlook.
The Directors have prepared detailed future forecasts for the Group and Parent
taking into account post year-end trading conditions which carefully considers
the Group and Parent's ability to meet future forecasted cash requirements.
The Directors have reviewed cash flow forecasts for the Group and Parent
covering a period of at least 12 months from the date of approval of the
financial statements, and together with the projected revenue and available
cash reserves, which indicate that sufficient funding is available to support
ongoing trading activity and investment plans for the Group and Parent.
However, management have also considered scenarios with reduced revenue
forecasts in which the Group would need additional support in order to
continue trading. The Directors have considered the relative likelihood of
the different scenarios occurring and believe that the Group is most likely to
be able to continue trading within its existing funding constraints and has
therefore prepared the financial statements on a going concern basis, but
recognise that there is a material uncertainty that may cast significant doubt
on the Group's and Parent company's ability to continue as a going concern
without the certainty of an increased revenue stream.
The accounts do not contain adjustments that would be required were the entity
not considered to be a going concern.
The Group's Directors continue to monitor and evaluate performance by:
• performing ongoing reviews and close management of the cost base in
response to market activity; and
• maintaining strong relationships and open communication with all
stakeholders to ensure their ongoing support.
As part of normal business practice, the Group prepares monthly detailed
financial forecasts which incorporate year-to-date performance and scenario
planning.
2.4 Summary of material accounting policies
The following are the material accounting policies applied by the Group in
preparing its consolidated financial statements:
(a) Revenue from contracts with customers
The Group is in the business of providing ASIC and system-on-chip and
associated engineering services.
Revenue from contracts with customers is recognised in accordance with the
five-step model as outlined in IFRS 15.
Project revenue
The Group provides services to customers in project arrangements, covering the
Design phase, New Product Integration ("NPI") phase and Production phase.
There are situations where contracts with customers for these phases are
entered into simultaneously. Where this is the case, and the contracts are
negotiated as a package with a single commercial objective, they are accounted
for as a single contract.
In order to identify the performance obligations in the contract, the
Directors assess the services provided in the contracts and whether they are
capable of being distinct and distinct in the context of the contract. The
Group has identified that the Design service, NPI service and Production
service are separate performance obligations. The Production services
represent a service offering provided by the Group which has not generated
revenue for the Group in the year ended 31 December 2023.
Where the contracts with customers contain more than one performance
obligation, any discount provided to the customer in the contract is allocated
on a proportionate basis over all performance obligations within the contract.
When project contracts contain only one performance obligation, and are not
combined with other performance obligations, the consideration for the
contract is fixed and contains no variable components.
The Group does not enter into any arrangements with customers which include a
significant financing component.
The service provided to customers does not create an asset with an alternative
use to the Group and the Group has an enforceable right to payment for
performance completed at contracted rates which include cost plus a reasonable
profit margin. Therefore, the Group recognises revenue from these performance
obligations over time.
In order to determine a measure of progress of satisfaction of the Design and
NPI performance obligations, the Group uses the input method based on time
incurred, as this best reflects the progress of satisfaction of the
performance obligations and the delivery of the output to the customer.
Contract variations are treated as modifications, as there is only one
performance obligation to the design phase of a contract, any variations to
scope cannot be distinct and are recognised on a cumulative catch-up basis.
Consultancy revenue
The Group provides consultants to provide services to customers. Each of these
consultancy arrangements are separate performance obligations. The customer
simultaneously receives and consumes the benefits provided by the Group's
performance and so the Group recognises revenue for this performance
obligation over time.
The majority of contracts with customers are for fixed price consideration
with no variable components. Certain contracts contain fixed rebates payable
to the customer for which no distinct service is provided by the Group. These
rebates constitute a form of variable consideration and are recognised as a
reduction to the revenue.
Contract balances
Contract assets / receivables
A contract asset is initially recognised for revenue earned from services in
advance of an invoice being issued where the Group does not have an
enforceable right for payment for work performed. Where the Group does have an
enforceable right for payment for work performed, unbilled revenue is
recognised as other contract receivables. Upon the issuance of an invoice, the
amount recognised is reclassified to trade receivables.
Contract cost - costs to obtain a contract
Costs to obtain a contract relate to sales commission paid which would not be
payable if the contract has not been obtained. This cost is recognised as an
asset and amortised over the duration of the contract. Where the amortisation
period of the asset would be one year or less, the cost is recognised as an
expense when incurred.
Contract cost - costs to fulfil a contract
Costs to fulfil a contract mainly relate to direct labour costs and software
tools which are expensed as incurred. The Group does not incur costs to fulfil
their obligations under a contract once it is obtained, but before
transferring goods or services to the customer and therefore no contract cost
asset is recognised.
Contract liabilities
A contract liability is recognised if a payment is received or a payment is
due (whichever is earlier) from a customer before the Group transfers the
related services. Contract liabilities are recognised as revenue when the
Group performs under the contract.
(a) Leases
The Group assesses at contract inception whether a contract is, or contains, a
lease. That is, if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration.
Group as a lessee
The Group applies a single recognition and measurement approach for all
leases, except for short-term leases and leases of low-value assets. The Group
recognises lease liabilities representing obligations to make lease payments
and right-of-use assets representing the right to use the underlying assets.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease
(i.e. the date the underlying asset is available for use). Right-of-use assets
are measured at cost, less any accumulated depreciation and impairment losses,
and adjusted for any remeasurement of lease liabilities. Where impairment
indicators exist, the right-of-use asset will be assessed for impairment.
Right-of-use assets that relate to tangible assets have been presented
separately on the Consolidated Statement of Financial Position as they are a
material balance within the property, plant and equipment total.
Depreciation of right-of-use assets is included within administrative expenses
and is calculated on a straight-line basis over the shorter of the lease term
and the estimated useful lives of the assets as follows:
Property - 2 - 5 years straight line
Motor vehicles - 3 years straight line
IT equipment - 3 years straight line
Included within intangible assets on the Consolidated Statement of Financial
position is a right-of-asset relating to a single lease over software
licences. Management have chosen not to present this within right-of-use
assets as they consider the presentation within intangible assets to more
accurately reflect the nature of the underlying asset. See note 2.4 (k) for
more details.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable and variable lease payments
that depend on an index or a rate.
In calculating the present value of lease payments, the Group uses its
incremental borrowing rate at the lease commencement date because the interest
rate implicit in the lease is not readily determinable. Interest on the lease
liability is recognised using the effective interest rate method and is
recorded within finance costs.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease
liabilities for short-term leases or leases of low-value assets, being those
leases with a term of 12 months or less, or a value of £1,000 for less
respectively. The Group recognises the lease payments associated with these
leases as an expense on a straight-line basis over the lease term.
(b) Employee benefits
Short-term employee benefits including holiday pay and annual bonuses are
accrued as services are rendered.
Contributions to defined contribution pension schemes are charged to profit
and loss as they become payable in accordance with the rules of the scheme.
Differences between contributions payable in the year and those actually paid
are shown as either accruals or other receivables in the Consolidated
Statement of Financial Position.
(c) Share-based payments
Employees (including senior executives) of the Group receive remuneration in
the form of share-based payments, whereby employees render services as
consideration for equity instruments (equity-settled transactions).
The cost of equity-settled transactions is determined by the fair value at the
date when the grant is made using an appropriate valuation model, further
details of which are given in note 26.
That cost is recognised as an expense, together with a corresponding increase
in equity, over the period in which the service and, where applicable, the
performance conditions are fulfilled (the vesting period). The cumulative
expense recognised for equity-settled transactions at each reporting date
until the vesting date reflects the extent to which the vesting period has
expired and the Group's best estimate of the number of equity instruments that
will ultimately vest.
Where an award is cancelled by the entity or forfeited by the counterparty,
any remaining element of the fair value of the award is expensed immediately
through profit and loss.
(d) Interest
Interest income and expense is recognised using the effective interest rate
basis.
(e) Taxation
The tax expense for the period comprises current and deferred tax. Tax is
recognised in profit and loss, except if it arises from transactions or events
that are recognised in other comprehensive income or directly in equity. In
this case, the tax is recognised in other comprehensive income or directly in
equity respectively.
Current tax
Current tax is based on the taxable profit for the year and is calculated
using the tax rates in force or substantively enacted at the reporting date.
Taxable profit differs from accounting profit either because some income and
expenses are never taxable or deductible, or deductible in other years.
Deferred tax
Deferred tax is recognised in respect of all temporary differences between the
carrying value of assets and liabilities in the Consolidated Statement of
Financial Position and the corresponding tax base, with the exception of
temporary differences arising from goodwill or from the initial recognition
(other than in a business combination) of assets and liabilities in a
transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply to the
period when the asset is realised or the liability is settled, based on tax
rates (and tax laws) that have been enacted or substantively enacted by the
reporting date.
The measurement of deferred tax assets and liabilities reflect the tax
consequences that would follow the manner in which the Group expects, at the
end of the reporting period, to recover or settle the carrying amount of its
asset and liabilities.
Deferred tax assets are recognised only to the extent that the Group considers
that it is probable (i.e. more likely than not) that there will be sufficient
taxable profits available for the asset to be utilised within the same tax
jurisdiction. Deferred tax assets and liabilities are offset only when there
is a legally enforceable right to offset current tax assets against current
tax liabilities, they relate to the same tax authority and the Group's
intention is to settle the amounts on a net basis.
Tax credits
The Group makes claims for research and development tax relief in the UK under
both the Research and Development Expenditure Credit (RDEC) scheme and the
small or medium-sized enterprise (SME) research and development tax relief
scheme. Claims under the RDEC scheme are recognised in other operating
income. Enhanced expenditure relief under the SME scheme is recognised
within the taxation charge / credit.
Research and development tax credits are recognised in the period in which the
costs are incurred, and the claim submitted on the basis of an established
record of successful research and development tax credit claims for the work
undertaken by the employees of the Group.
(f) Foreign currencies
The presentational currency of the Group is pound sterling, which is also the
Group's functional currency.
Transactions and balances
All translation differences are taken to profit and loss, except to the extent
that they relate to gains or losses on non-monetary items recognised in other
comprehensive income, when the related translation gain or loss is also
recognised in other comprehensive income.
Consolidation
On consolidation, the assets and liabilities of foreign operations are
translated into sterling at the rate of exchange prevailing at the reporting
date, with the exception of share capital and fixed assets which are
translated at historic rates at the date of the original transaction. Their
statements of profit and loss are translated at exchange rates prevailing at
the dates of the transactions. The exchange differences arising on translation
for consolidation are recognised in other comprehensive income and the foreign
currency translation reserve.
(g) Property, plant and equipment
Property, plant and equipment is stated at cost, less accumulated depreciation
and any accumulated impairment losses. Cost includes the original purchase
price of the asset and the costs attributable to bringing the asset to its
working condition for its intended use.
Depreciation is included within administrative expenses and is calculated on a
straight-line basis over the estimated useful lives of the assets, as follows:
Office equipment - 3 - 10 years straight line
Additions to property, plant and equipment are depreciated from the date the
asset becomes available for intended use.
The residual values, useful lives and methods of depreciation of property,
plant and equipment are reviewed at each financial year end and adjusted
prospectively, if appropriate.
(h) Intangible assets
Intangible assets are initially recognised at cost and subsequently carried at
cost less any accumulated amortisation and accumulated impairment losses.
Intangible assets with finite lives are amortised over the useful economic
life and assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The amortisation period and the amortisation
method for an intangible asset with a finite useful life are reviewed at least
at the end of each reporting period. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits embodied in
the asset are considered to modify the amortisation period or method, as
appropriate, and are treated as changes in accounting estimates.
Research and development
Research expenditure relates primarily to new internal process improvements
that will bring tangible benefits to future product development. Expenditure
on the research phase of projects is recognised as an expense as incurred.
Costs that are directly attributable to a project's development phase are
recognised as intangible assets, provided they meet the following recognition
requirements:
· the development costs can be measured reliably;
· the project is technically and commercially feasible;
· the Group intends to and has sufficient resources to complete
the project;
· the Group has the ability to use or sell the developed
software; and
· the developed software will generate probable future economic
benefits
Development costs not meeting these criteria for capitalisation are expensed
as incurred.
The key judgement areas are the ability to measure the future economic
benefits reliably and determining the period over which these benefits are
delivered. The Group measures each research and development project on its own
merits.
The main costs attributed to development costs are that of payroll, third
party contractors and third-party software.
Under IAS 38, at the point where activities no longer relate to development
but to maintenance, capitalisation is discontinued.
Amortisation is included within cost of sales and is recognised as follows:
Software licences - on a usage basis over the length of licence agreement. Licence agreements have
lives of between 1 and 3 years.
Development costs - not amortised until brought into use. The useful life is considered to be 3
years.
In any situation where there is a change in the pattern in which economic
benefits are derived by the Group from an intangible asset, management will
review whether an accelerated amortisation is required.
(i) Impairment of non-financial assets
Non-financial assets are assessed at each reporting date to determine whether
there is any indication that the assets are impaired. Where there is any
indication that an asset may be impaired, the carrying value of the asset is
tested for impairment. An impairment loss is recognised for the amount by
which the asset's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset's fair value less costs to sell
and value in use. For the purposes of assessing impairment, the assets of the
whole business are grouped together since there are no smaller groups of
assets with separately identifiable cash flows. Non-financial assets that have
been previously impaired are reviewed at each reporting date to assess whether
there is any indication that the impairment losses recognised in prior periods
may no longer exist or may have decreased.
(j) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits.
(k) Financial instruments
Financial assets
Financial assets comprise trade and other receivables and cash and cash
equivalents.
Impairment
For trade receivables, contract receivables and contract assets, the Group
applies a simplified approach in calculating expected credit losses (ECLs).
Therefore, the Group recognises a loss allowance based on lifetime ECLs at
each reporting date. The Group has established a provision matrix that is
based on its historical credit loss experience, adjusted for forward-looking
factors specific to the debtors and the economic environment. The Group
considers a financial asset in default when contractual payments are 60 days
past due.
Financial liabilities
Financial liabilities comprise trade and other payables and loans and
borrowings and are recognised initially at fair value net of directly
attributable transaction costs (if any), and subsequently at amortised cost.
Modification of financial liabilities
Where there is a modification to a financial liability, the discounted present
value of the cash flows under the new terms, using the original effective
interest rate, is compared to the discounted present value of the remaining
cash flows of the original liability. If the difference is greater than 10%,
this is considered to be a substantial modification, resulting in a
derecognition of the original liability and the recognition of a new
liability.
Equity
Equity instruments issued are recorded at fair value on initial recognition
net of transaction costs.
(l) Borrowings
Interest bearing borrowings are initially recorded at the value of the amount
received, net of attributable transaction costs. Interest bearing borrowings
are subsequently stated at amortised cost with any difference between cost and
redemption value being recognised in the Consolidated Statement of Profit and
Loss and Other Comprehensive Income over the period of the borrowing using the
effective interest method.
(m) Accounting standards issued
The Group has applied the following standards and amendments for the first
time for its annual reporting period commencing 1 January 2023:
· Amendments to IAS 1 - Presentation of Financial Statements and
IFRS Practice Statement 2 - Making Materiality Judgements: Disclosure of
material accounting policies
· Amendment to IAS 8 - Accounting Policies, Changes in Accounting
Estimates and Errors: Definition of accounting estimates
· Amendment to IAS 12 - Income Taxes: Deferred tax assets and
liabilities arising from a single transaction
· Amendment to IAS 12 - Income Taxes: International tax reform
and temporary exception for deferred tax assets and liabilities related to the
OECD pillar two income taxes
These amendments listed above did not have any impact on the amounts
recognised in prior periods and are not expected to significantly affect the
current or future periods.
(n) Standards in issue but not yet effective
At the date of authorisation of these financial statements there were
amendments to standards which were in issue, but which were not yet effective,
and which have not been applied.
Effective for periods beginning on or after 1 January 2024:
· Amendment to IAS 1 - Presentation of Financial Statements:
Non-current liabilities with covenants
· Amendments to IAS 7 - Statement of Cash Flows and IFRS 7 -
Financial Instruments: Supplier finance
Effective for periods on or after 1 January 2025:
· Amendments to IAS 21 - The Effects of Changes in Foreign
Exchange Rates: Lack of exchangeability
Effective for periods on or after 1 January 2027:
· IFRS 18 - Presentation and Disclosure in Financial Statements
· IFRS 19 - Subsidiaries without Public Accountability
These amendments listed above are not expected to have a material impact on
the Group in the current or future reporting periods and on foreseeable future
transactions, except for IFRS 18 which will impact presentation of the
financial statements.
3 Key sources of estimation uncertainty and significant accounting judgements
In the application of the Group's accounting policies, which are described in
note 2, the Directors are required to make judgements, 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.
3.1 Significant accounting judgements
Operating segments
The Directors have assessed that there is only one reportable segment. This is
based on the fact that all strategic decisions are managed centrally and not
by location, the Group provides similar products and services to all its
customers and all results are reported on a group basis.
Impairment review
IAS 36 requires an impairment review to be carried out at each reporting date.
Management consider the lower than expected performance in 2023 is an
indicator that some assets may be impaired.
In making this impairment review, management must assess whether the carrying
value of an asset or group of assets is higher than the recoverable amount
(i.e. the higher of the value in use and fair value less cost to sell), and in
making this assessment significant judgements are required to determine
whether the recoverable amount of an asset can be determined in isolation or
in a group, and in estimating the value in use and fair value fair value less
cost to sell of an asset or group of assets.
While Sondrel identifies revenue streams as separate components, none of its
assets contribute separately to a particular or single revenue stream and
therefore the assets contribute collectively to each revenue stream. As the
assets cannot be allocated to separate independent revenue streams within the
business, the business itself is judged to be one CGU as this is the smallest
group generating cash flows the assets can be attributed to.
Management have judged that the market capitalisation of the Group is the best
proxy for fair value less cost to sell of the CGU, and as this exceeds the
carrying value of the CGU, no impairment is required at CGU level.
Intangible assets - capitalisation of development costs
The capitalisation of development costs is subject to a review as to whether
it meets the criteria for capitalisation. In making this judgement, the Group
evaluates, amongst other factors, whether there are any future economic
benefits beyond the current period, such as the ability to use the assets on
future projects and therefore enhance future revenues, or the ability to use
such assets internally, for example to reduce delivery costs and enhance
profits. The Group also evaluates management's ability to measure reliably the
expenditure attributable to the project. Judgement is therefore required in
determining the practice for capitalising development costs.
Deferred tax assets on losses
Deferred tax assets on losses are recognised for the Group to the extent that
it is regarded as more likely than not that they will be recovered.
Recoverability is based on the forecast of future profitability commencing in
2024. Such forecasts are subject to an element of judgement regarding future
revenues and expenditure. Although the Directors expect to return to a profit
in the short term, they are not satisfied that the deferred tax asset can be
fully recovered in the short to medium term and have therefore decided to
derecognise the deferred tax asset arising from brought forward losses,
resulting in a charge of £2.9 million.
Revenue
In accordance with the policy on revenue recognition, management are required
to judge the level of completion of the contract in order to recognise both
income and cost. The overall recognition of revenue will depend on the nature
of the project and whether it is billed on a time and materials basis or,
otherwise, on completion of pre-agreed project objectives.
The Group maintains complete and accurate records of employees' time and
expenditure for each project. This information is regularly assessed to
determine the level of project completion, and thereby whether it is
appropriate to recognise any profits.
3.2 Key sources of estimation uncertainty
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.
Amortisation rate for licences
During 2023 the Group acquired licences with a value of £18,374 (2022:
£7,346,912). These licences are amortised based on expected usage of the
licences over the period of the contract. The amortisation rate is continually
reassessed in accordance with changes to expected future project activity.
In the normal course of business, the Group had amortised the asset at a rate
consistent with the rate of consumption of the asset. At the year-end,
management's estimate of future activity over the remaining lifetime of the
asset was such that management no longer expected to be able to fully utilise
the remainder of the asset. Management have estimated the future economic
benefits from software licenses given expected future ASIC project activity as
anticipated at year end, and recognised an accelerated amortisation charge
that results in a net book value that is equivalent to the expected future
economic benefits from software licenses. The resulting accelerated
amortisation charge of £4,938,521 is similar in nature to an impairment
charge.
The carrying amount of licences as at 31 December 2023 was £2,303,559 (2022:
£14,308,497).
4 Prior year restatement
Revenue and costs from agency relationships with suppliers
During the year, it came to the attention of the Directors that the Group has,
from time-to-time, acted in an agency capacity for a certain supplier. In the
prior year accounts, the costs of this supplier's services were included in
cost of sales and the gross revenue arising from these services were
recognised in revenue. The revenue should have been disclosed on a net basis
which has resulted in the following adjustment:
Consolidated Statement of Profit and Loss and Other Comprehensive Income
(extract):
As previously reported Adjustment As restated
Year ended 31 December 2022 £ £ £
Revenue 17,510,825 (233,194) 17,277,631
Cost of Sales (15,897,751) 233,194 (15,664,557)
___________ ___________ ___________
This adjustment has no impact on the Consolidated Statement of Financial
Position, the Consolidated Statement of Cash Flows nor the Consolidated
Statement of Changes in Equity.
Re-presentation of a lease liability
In the prior year, the lease liability related to the software licence
intangible right-of-use asset was presented within other payables. To present
this lease liability consistently with other financial liabilities measured at
amortised cost, the Directors have chosen to present this within lease
liabilities for the current and comparative periods. The adjustment affects
both the Consolidated Statement of Financial Position presentation and the
Consolidated Statement of Cash Flows presentation as shown in the tables
below. There is no impact to the Consolidated Statement Profit and Loss and
Other Comprehensive Income.
Consolidated Statement Financial Position (extract):
As previously reported Adjustment As restated
As at 31 December 2022 £ £ £
Current liabilities
Trade and other payables 14,677,767 (4,514,832) 10,162,935
Short-term lease liabilities 291,124 4,514,832 4,805,956
_________ _________ _________
Non-current liabilities
Other payables 9,984,228 (9,984,228) -
Lease liabilities 307,944 9,984,228 10,292,172
_________ _________ _________
Consolidated Statement of Cash Flows (extract):
As previously reported Adjustment As restated
Year ended 31 December 2022 £ £ £
Cash flows from investing activities
Purchase of intangible assets (4,306,066) 4,066,693 (293,373)
____ _ ___ ____ _ ___ ____ _ ___
Net cash outflow from investing activities (4,510,230) 4,066,693 (443,537)
_________ _________ _________
Cash flows from financing activities
Payment of principal portion of lease liabilities (269,838) (4,066,693) (4,336,531)
Interest paid (1,160,881) 929,778 (231,103)
Interest paid on lease liabilities (24,833) (929,778) (954,611)
____ _ ___ ____ _ ___ ____ _ ___
Net cash inflow from financing activities 14,954,305 (4,066,693) 10,887,612
_________ _________ _________
5 Segment information
The Group considers there to be only one business segment which is monitored
and reported to the Chief Operating Decision Maker ('CODM'), being the Board
of Directors. This judgement is based on the fact that the Group provides
similar products and services to all its customers, and the key performance
indicators monitored by the CODM are total revenue and profit/(loss) for the
year.
Revenue from transactions with major customers comprises the following, each
percentage reflects a different customer:
2023 2023 2022 2022
Major customer percentage revenue Revenue Major customer percentage revenue Revenue
as restated as restated
% £ % £
43 4,080,763 41 7,150,114
19 1,801,002 16 2,732,508
14 1,274,537 13 2,272,916
___________ ___________ ___________ ___________
Revenue is split geographically as follows (for more information on revenue
see note 6):
2023 2022
as restated
£ £
UK 2,511,520 5,042,111
USA 2,434,412 3,742,760
China 399,058 825,267
Germany 4,080,763 7,150,116
Rest of World - 517,377
______ _ ___ ______ _ ___
Total revenue 9,425,753 17,277,631
___________ ___________
Non-current assets excluding deferred tax are split as follows:
2023 2022
£ £
UK 3,699,097 15,422,036
Morocco 53,087 38,538
Rest of World 29,189 18,310
______ _ ___ ______ _ ___
Total non-current assets 3,781,373 15,478,884
___________ ___________
Further detail on the movement in non-current assets is provided in Notes 15,
16 and 17
6 Revenue from contracts with customers
In the following table, revenue is disaggregated by major products/service
lines and primary geographical market. All revenue is recognised over time.
2023 2022
as restated
£ £
Major service lines
ASIC projects 7,289,616 12,605,506
Consultancy 2,136,137 4,672,125
______ _ ___ ______ _ ___
Total 9,425,753 17,277,631
___________ ___________
The Group has recognised the following assets and liabilities related to
contracts with customers:
2023 2022
£ £
Trade receivables 1,618,522 3,138,895
Contract receivables 312,588 5,972,166
Contract liabilities (435,386) (5,753,646)
___________ ___________
Customers are typically invoiced on the basis of milestones set out in the
contracts. These milestones do not correspond with the timing of satisfaction
of performance obligations. The differences in the timing between the agreed
invoicing schedule and the satisfaction of performance obligations result in
the recognition of a contract receivable for services performed but not yet
invoiced. A contract liability is recognised for consideration received but
services not yet performed. Invoices are raised at agreed dates throughout the
duration of the Projects and monthly in arrears for Consultancy arrangements.
Payment is typically due within 30 days of issue of the invoice.
The movement on these balances during 2023 was the result of the reduced level
of activity at year end relative to the prior year end. Existing contracts
were fulfilled, and new contracts were entered into during these periods.
The following table shows how much of the revenue recognised in the current
reporting period relates to carried-forward contract liabilities:
2023 2022
£ £
Revenue recognised in the year that was included in the contract liability 5,567,618 114,613
balance at the beginning of the year
___________ ___________
There was no revenue recognised in the year arising from performance
obligations satisfied in previous periods (2022: £nil).
The following table shows unsatisfied performance obligations resulting from
project works continuing into 2024. The largest three balances from individual
projects amount to £2.0m, £0.5m, £0.1m (2022: £6.9m, £1.9m and £1.4m):
2023 2022
£ £
Transaction price relating to performance obligations that are unsatisfied (or 5,150,674 11,623,495
partially unsatisfied) at the year end
___________ ___________
The entire amount of 5,150,674 held at 31 December 2023 is expected to be
recognised in 2024.
The Group is applying the practical expedient to not disclose the transaction
price relating to the Consultancy performance obligation because the
performance obligation is part of a contract that has an original expected
duration of one year or less.
7 Alternative performance measures
The Group's primary results measure, which is considered by the Directors of
Sondrel (Holdings) plc to better represent the ongoing operating performance
of the Group, is adjusted EBITDA which is set out below. EBITDA is a commonly
used measure in which earnings are stated before net finance income,
amortisation and depreciation as a proxy for cash generated from trading.
These items are included in normal operating costs, however as they are
considered significant cash and non-cash expenditure items, they are
separately disclosed because of their nature. It is the Group's view that
excluding them from the operating loss gives a better representation of the
ongoing trading performance of the business in the year.
In the prior year, the Directors also used an adjusted loss figure to
understand how much of the prior year loss was generated by the one-off
exceptional IPO costs, which are not considered trading expenditure. There
were no IPO costs in the current year.
2023 2022
£ £
Statutory loss before tax (17,978,734) (6,411,636)
IPO costs - 1,393,265
Depreciation 456,895 394,022
Amortisation 12,150,250 2,384,795
Finance costs 655,797 1,175,510
______ _ ___ ______ _ ___
Adjusted EBITDA (4,715,792) (1,064,044)
___________ ___________
Statutory loss before tax (17,978,734) (6,411,636)
IPO costs - 1,393,265
______ _ ___ ______ _ ___
Adjusted loss (17,978,734) (5,018,371)
___________ ___________
8 Employees
2023 2022
The average number of employees, including Directors, during Number Number
the year was:
Sales, administration and management 47 43
Engineering 119 138
______ _ ___ ______ _ ___
Total number of employees 166 181
___________ ___________
Staff costs, including Directors, consist of: £ £
Wages and salaries 7,646,669 8,705,322
Social security costs 830,013 934,739
Defined contribution pension costs 251,060 393,765
Share-based payments (339,604) 89,485
______ _ ___ ______ _ ___
Total staff costs 8,388,138 10,123,311
___________ ___________
The Group makes contributions to defined contribution personal pension schemes
for employees and Directors. The assets of the schemes are separate from those
of the Group. Pension contributions totalling £71,249 (2022: £55,842) were
payable to the schemes at the year-end and are included in trade and other
payables.
See note 26 for explanation of share-based payment charge.
9 Directors' remuneration
The remuneration of the Directors and other key management personnel was as
follows:
2023 2022
£ £
Group
Directors
Salaries 633,917 598,057
Social security costs 85,866 90,353
Pension contributions 14,426 14,284
Settlements 112,873 -
Share-based payments (265,493) 69,259
______ _ ___ ______ _ ___
Total 581,589 771,953
___________ ___________
Other key management personnel
Salaries 790,317 600,594
Social security costs 105,919 75,605
Pension contributions 25,405 29,858
Share-based payments (6,972) 65,967
______ _ ___ ______ _ ___
Total 914,669 772,024
___________ ___________
Other key management personnel are members of the Senior Leadership Team, not
including senior engineering management.
See note 26 for explanation of share-based payment charge.
Included in the above is the remuneration of the highest paid Director as
follows:
2023 2022
£ £
Salary 280,000 440,000
Social security costs 37,385 61,266
______ _ ___ ______ _ ___
Total 317,385 501,266
___________ ___________
During the year pension contributions of £14,426 (2022: £14,284) were made
in respect of 1 Director (2022: 1).
10 Operating loss
2023 2022
£ £
This has been arrived at after charging/(crediting):
Research and development expenditure comprising:
- Salaries included in cost of sales 241,980 3,829,011
- Salaries included in administrative expenses 37,254 1,002,240
- Contractor costs - 269,559
- Other costs included in cost of sales 164,340 2,865,355
- Other costs included in administrative expenses 13,733 104,055
Depreciation of property, plant and equipment 119,272 83,845
Depreciation of right-of-use assets 337,623 310,177
Regular amortisation of intangible assets 7,211,729 2,384,795
Accelerated amortisation charge (see Note 3.2 for more detail) 4,938,521 -
Foreign exchange (gain)/loss 117,668 534,514
Expected credit losses of trade receivables and contract assets (71,569) 91,306
(Profit)/loss on disposal of property plant and equipment (1,848) 397
(Profit)/Loss on disposal of right-of-use assets (4,704) 6,600
Expense relating to short-term leases and leases of low-value assets 158,472 95,379
IPO and related other costs - 1,427,028
Inventory recognised as an expense 1,044,069 -
Recruitment costs 259,686 132,556
Redundancy costs 667,312 20,702
Other operating income:
- Tax credit in relation to research and development expenditure (1,536,129) (965,655)
Fees payable to the Company's auditor for the audit of the parent and 25,250 20,000
consolidated financial statements
Fees payable to the Company's auditor for other services:
- Audit of the Company's subsidiaries pursuant to legislation 123,313 97,625
- Audit-related assurance services - 10,000
- Fees payable for prior year tax compliance services - 17,250
___________ ___________
Total research and development expenditure for the year was £457,307 (2022:
£8,070,220).
11 Finance costs
2023 2022
£ £
Interest payable on bank loan 3,858 193,902
Loan interest payable 77,287 37,201
Interest expense on lease liabilities 574,652 944,407
______ _ ___ ______ _ ___
Total 655,797 1,175,510
___________ ___________
12 Finance income
2023 2022
£ £
Interest receivable 305 30
______ _ ___ ______ _ ___
Total 305 30
___________ ___________
13 Taxation
2023 2022
£ £
Current tax
UK current tax on loss for the year (112,708) (149,853)
Adjustments in respect of previous years 375,118 -
Foreign tax on income for the year 125,744 54,929
______ _ ___ ______ _ ___
Total current tax charge/(credit) 388,154 (94,924)
Deferred tax (note 23)
Origination and reversal of timing differences 3,218,036 (3,124,811)
Adjustments in respect of previous years (64,811) -
______ _ ___ ______ _ ___
Total deferred tax charge/(credit) 3,153,225 (3,124,811)
______ _ ___ ______ _ ___
Total tax charge/(credit) 3,541,379 (3,219,735)
___________ ___________
The standard rate of corporation tax in the UK for the year was 23.52% (2022:
19%). The differences between the total tax shown above and the amount
calculated by applying the standard rate of UK corporation tax to the loss
before tax are as follows:
2023 2022
£ £
Loss before tax (17,978,734) (6,411,636)
______ _ ___ ______ _ ___
Loss at the standard rate of corporation tax in the UK of 23.52% (4,228,697) (1,218,211)
(2022: 19%)
Effect of:
Expenses not deductible for tax purposes 24,510 307,182
Non-taxable income (79,877) (5,383)
Adjustments in respect of prior periods 310,307 -
Share option exercise relief - (113,250)
Additional deduction for R&D expenditure (115,511) (110,986)
Surrender of tax losses for R&D tax credit refund (112,708) 258,368
Previously unrecognised deferred taxes on losses - (1,730,511)
Derecognition of previously recognised deferred taxes on losses 2,947,216 -
Previously unrecognised deferred taxes on share-based payments (317,340)
Derecognition of previously recognised deferred taxes on share-based payments 317,340
Deferred tax movement not recognised 4,501,827 -
Difference in overseas tax rates 3,062 10,894
Change in tax rates on deferred tax (2,754) (320,479)
Other (23,336) 19,981
______ _ ___ ______ _ ___
Total tax charge/(credit) for the year 3,541,379 (3,219,735)
___________ ___________
Factors that may affect future tax charge
In the Spring Budget 2021, the UK Government announced that from 1 April 2023
the corporation tax rate would increase to 25% (rather than remaining at 19%,
as previously enacted). This new law was substantively enacted on 24 May 2021.
For the financial year ended 31 December 2023, the current weighted averaged
tax rate was 23.52%. Deferred taxes at the balance sheet date have been
measured using these enacted tax rates and reflected in these financial
statements.
14 Loss per share
Basic loss per share is calculated by dividing the loss attributable to
ordinary shareholders of the Group by the weighted average number of ordinary
shares outstanding during the period.
2023 2022
Loss for the year (£) (21,520,113) (3,191,901)
Weighted average number of shares 87,461,772 57,444,856
______ _ ___ ______ _ ___
Basic loss per share (£) (0.25) (0.06)1
___________ ___________
Diluted loss per share is determined by adjusting the loss attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding, taking into account the effects of all potential dilutive
ordinary shares, including options.
2023 2022
Loss for the year (£) (21,520,113) (3,191,901)
Weighted average number of shares 87,461,772 57,444,856
______ _ ___ ______ _ ___
Weighted average number of diluted shares 87,461,772 57,444,856
______ _ ___ ______ _ ___
Diluted loss per share (£) (0.25) (0.06)0
___________ ___________
In both 2022 and 2023, the Group made a loss and so the share options are
anti-dilutive. As such they are not taken into account in determining the
weighted average number of shares for calculating the diluted loss per share.
As a result, the diluted loss per share is equal to the basic loss per share.
15 Property, plant and equipment
Office equipment
£
Cost
At 1 January 2022 831,028
Additions 204,194
Disposals (1,134)
Foreign exchange differences (56,516)
____ _ ___
At 31 December 2022 977,572
Additions 155,098
Disposals (21,530)
Foreign exchange differences 24,850
____ _ ___
At 31 December 2023 1,135,990
____ _ ___
Depreciation
At 1 January 2022 655,847
Depreciation charge for the year 83,845
Disposals (737)
Foreign exchange differences (55,297)
____ _ ___
At 31 December 2022 683,658
Depreciation charge for the year 119,272
Disposals (19,682)
Foreign exchange differences 12,777
____ _ ___
At 31 December 2023 796,025
____ _ ___
Net book value
At 31 December 2023 339,965
_________
At 31 December 2022 293,914
_________
Depreciation charges for the year have been charged through administrative
expenses in the Consolidated Statement of Profit and Loss and Other
Comprehensive Income.
16 Right-of-use assets
Property Motor vehicles IT equipment Total
£ £ £ £
Cost
At 1 January 2022 1,392,380 31,093 212,656 1,636,129
Additions 393,983 - 1,255 395,238
Disposals (797,991) - - (797,991)
Foreign exchange differences 33,253 - - 33,253
________ ________ ________ ________
At 31 December 2022 1,021,625 31,093 213,911 1,266,629
Additions 252,787 - - 252,787
Disposals (388,049) - (50,274) (438,323)
Foreign exchange differences (54,956) - - (54,956)
________ ________ ________ ________
At 31 December 2023 831,407 31,093 163,637 1,026,137
________ ________ ________ ________
Depreciation
At 1 January 2022 1,016,739 15,291 78,934 1,110,964
Depreciation charge for the year 245,495 10,374 54,308 310,177
Disposals (791,391) - - (791,391)
Foreign exchange differences (221) - - (221)
________ ________ ________ ________
At 31 December 2022 470,622 25,665 133,242 629,529
Depreciation charge for the year 284,722 5,428 47,473 337,623
Disposals (388,049) - (51,197) (439,246)
Foreign exchange differences (4,336) - - (4,336)
________ ________ ________ ________
At 31 December 2023 362,959 31,093 129,518 523,570
________ ________ ________ ________
Net book value
At 31 December 2023 468,448 - 34,119 502,567
________ ________ ________ ________
At 31 December 2022 551,003 5,428 80,669 637,100
________ ________ ________ ________
Depreciation charges for the year have been charged through administrative
expenses in the Consolidated Statement of Profit and Loss and Other
Comprehensive Income.
17 Intangible assets
Software licences Development costs Total
£ £ £
Cost
At 1 January 2022 12,511,589 - 12,511,589
Additions 7,346,912 239,373 7,586,285
Disposals (1,186,586) - (1,186,586)
____ _ ___ ____ _ ___ ____ _ ___
At 31 December 2022 18,671,915 239,373 18,911,288
Additions 18,374 522,847 541,221
____ _ ___ ____ _ ___ ____ _ ___
At 31 December 2023 18,690,289 762,220 19,452,509
____ _ ___ ____ _ ___ ____ _ ___
Amortisation
At 1 January 2022 3,165,209 - 3,165,209
Amortisation charge for the year 2,384,795 - 2,384,795
Disposals (1,186,586) - (1,186,586)
____ _ ___ ____ _ ___ ____ _ ___
At 31 December 2022 4,363,418 - 4,363,418
Amortisation charge for the year 7,084,791 126,938 7,211,729
Accelerated amortisation charge for the year (see Note 3.2 for more detail) 4,938,521 4,938,521
____ _ ___ ____ _ ___ ____ _ ___
At 31 December 2023 16,386,730 126,938 16,513,668
____ _ ___ ____ _ ___ ____ _ ___
Net book value
At 31 December 2023 2,303,559 635,282 2,938,841
_________ _________ _________
At 31 December 2022 14,308,497 239,373 14,547,870
_________ _________ _________
Amortisation charges for software licences represent cost relating directly to
the Group's revenue and, therefore, they have been charged through cost of
sales in the Consolidated Statement of Profit and Loss and Other Comprehensive
Income.
At the year-end, after performing an impairment review, management concluded
that no impairment was required in accordance with IFRS however, management
considered that there had been a change in the expected pattern of consumption
of the future economic benefits from software licenses and recognised an
accelerated amortisation charge of £4,938,521 (2022: £nil) in addition to
the regular amortisation charged in the year. The accelerated amortisation
charge which reflected the reduced utility that the Group expected to get from
the asset over its remaining lifetime given the reduced level of design
activity experienced by the Group is similar in nature to an impairment charge
(see Note 3.2 for more detail).
18 Inventories
2023 2022
£ £
Work in progress - 1,044,069
____ _ ___ ____ _ ___
Total - 1,044,069
_________ _________
Work in progress represents goods purchased but not yet invoiceable. The
balance of £1,044,069 for the year ended 31 December 2022 relates to a single
customer contract which was completed during the current year.
19 Trade and other receivables
2023 2022
Current trade and other receivables £ £
Trade receivables 1,638,259 3,138,895
Contract receivables 312,588 5,972,166
____ _ ___ ____ _ ___
1,950,847 9,111,061
Allowance for expected credit losses (19,737) (91,306)
____ _ ___ ____ _ ___
1,931,110 9,019,755
Other receivables 9,816 827,928
Prepayments and accrued income 240,632 349,441
____ _ ___ ____ _ ___
Total 2,181,558 10,197,124
_________ _________
The Group measures the loss allowance for accounts receivable at an amount
equal to lifetime expected credit losses. The expected credit losses on
accounts receivable are estimated using a provision matrix prepared by
reference to the past account aging records of the debtor and an analysis of
the debtor's current financial position, adjusted for factors that are
specific to the debtor and an assessment of the gross domestic product growth
rate, unemployment rate and industrial indicators at the reporting date.
The Group estimates expected credit losses based on the number of days that
receivables are past due. As the Group's historical credit losses experience
does not show significantly different loss patterns for different customer
segments, the provision for losses based on past due status of receivables is
not further distinguished between the Group's different customer base; poor
credit rating customers that have accounts receivable balances past due over
90 days are provided with full amount of loss allowance.
See note 25 for the provision matrix on expected credit losses.
20 Cash and cash equivalents
Cash and cash equivalents for the purpose of the statement of cash flows,
comprises:
2023 2022
£ £
Cash at bank and in hand 2,146 4,449,812
____ _ ___ ____ _ ___
Total 2,146 4,449,812
_________ _________
Cash at bank earns interest at floating rates based on daily bank deposit
rates.
21 Deferred taxation
Property, plant and equipment Share-based payments Short-term timing differences Losses
Total
£ £ £ £ £
Net asset at 1 January 2022 - - - -
(Charge)/credit to Consolidated Statement of Profit and Loss and Other (41,792) 317,340 (33,141) 2,882,404 3,124,811
Comprehensive Income
____ ___ ____ _ _ ____ _ _ ____ ___ ___ _ ___
Net (liability)/asset at 31 December 2022 (41,792) 317,340 (33,141) 2,882,404 3,124,811
Credit/(charge) to Consolidated Statement of Profit and Loss and Other 15,976 (317,340) 30,543 (2,882,404) (3,153,225)
Comprehensive Income
________ ________ ________ ________ ________
Net liability at 31 December 2023 (25,816) - (2,598) - (28,414)
________ ________ ________ ________ ________
The deferred tax balances at 31 December 2023 have been calculated on the
basis that the associated assets or liabilities will unwind at 25% (2022:
25%).
Deferred tax assets not recognised
The Group has not recognised a deferred tax asset in respect of losses in the
current year. The losses amount to £29,806,109 and there is no certainty that
all or any of this amount will be capable of being relieved in future periods.
The equivalent deferred tax asset at 25% is £7,451,527.
22 Trade and other payables
2023 2022
as restated
Current trade and other payables £ £
Trade payables 2,491,093 586,072
Social security and other taxes 822,606 432,596
Accruals 1,952,688 3,390,621
Contract liabilities 435,386 5,753,646
____ _ ___ ____ _ ___
Total 5,701,773 10,162,935
_________ _________
Trade payables are non-interest bearing and are normally settled on 60-day
terms.
Re-presentation of other payables
Both the prior year current other payables balance of £4,514,832 and
non-current other payables balance of £9,984,228 have been re-presented in
these financial statements as lease liabilities. See notes 4 and 24 for more
details.
23 Borrowings
2023 2022
Short-term borrowings included under current liabilities £ £
Bank loans 859,800 -
________ ________
Total 859,800 -
________ ________
Non-current borrowings
Shareholder loan - 700,000
________ ________
Total - 700,000
________ ________
Bank loans relate to a short-term loan secured against the value of the
R&D tax credit receivable from HMRC. The interest is payable at a rate of
16% and the loan is due to be repaid during 2024.
The shareholder loan was unsecured, attracted interest at a rate of 4% and was
scheduled to be fully repaid in 2025, however it was repaid in full during
2023.
24 Lease liabilities
2023 2022
as restated
£ £
Maturity analysis - contractual undiscounted cash flows
In one year or less 8,814,289 5,661,408
Between one and five years 5,481,977 10,985,590
________ ________
Total undiscounted lease liabilities at 31 December 14,296,266 16,646,998
________ ________
Short-term lease liabilities included within current liabilities 8,086,429 4,805,956
Non-current lease liabilities 5,378,108 10,292,172
________ ________
Lease liabilities included in the Consolidated Statement of Financial Position 13,464,537 15,098,128
________ ________
Amounts recognised in the Consolidated Statement of Profit and Loss and Other
Comprehensive Income
Interest expense on lease liabilities 574,652 944,407
Depreciation expense on right-of-use assets 337,623 310,177
Amortisation expense on right-of-use assets within intangible assets 12,023,312 2,384,795
Expense relating to short-term leases and leases of low-value assets 158,472 95,379
________ ________
Net amount recognised in the Consolidated Statement of Profit and Loss and Other Comprehensive Income 13,094,059 3,734,758
________ ________
Amounts recognised in the Consolidated Statement of Cash Flows
Payment of principal portion of lease liabilities 1,918,114 4,336,531
Interest paid on lease liabilities 574,652 954,611
________ ________
Total cash outflow recognised under cash flows from financing activities 2,492,766 5,291,142
________ ________
25 Financial instruments
The Group's financial liabilities comprise trade and other payables,
lease liabilities and borrowings. The main purpose of these financial
liabilities is to finance the Group's operations. The Group's financial assets
include trade and other receivables, and cash and cash equivalents that derive
directly from its operations. The carrying value of all financial assets and
liabilities held at amortised cost are considered by the Directors to be a
reasonable approximation of their fair value.
Financial assets measured at amortised cost
2023 2022
£ £
Current financial assets
Cash and cash equivalents 2,146 4,449,812
Trade receivables 1,638,259 3,138,895
Other receivables 9,816 -
Contract receivables 312,588 5,972,166
____ _ ___ ____ _ ___
Total 1,962,809 13,560,873
_________ _________
Financial liabilities measured at amortised cost
2023 2022
as restated
£ £
Current financial liabilities
Trade payables 2,491,093 586,072
Accruals 1,952,688 3,390,621
Contract liabilities 435,386 5,753,646
Short-term borrowings 859,800 -
Short-term lease liabilities 8,086,429 4,805,956
____ _ ___ ____ _ ___
Total 13,825,396 14,536,295
_________ _________
Non-current financial liabilities
Borrowings - 700,000
Lease liabilities 5,378,108 10,292,172
____ _ ___ ____ _ ___
Total 5,378,108 10,992,172
_________ _________
Financial instruments risk management objectives and policies
The main risks arising from the Group's operations are market risk, credit
risk and liquidity risk, however other risks are also considered below. The
Group's senior management oversees the management of these risks. The Board of
Directors reviews and agrees policies for managing each of these risks, which
are summarised below.
Market risk
Market risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market prices. The
Group's exposure to market risk comprised of only currency risk.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of
an exposure will fluctuate because of changes in foreign exchange rates. The
Group's exposure to the risk of changes in foreign exchange rates relates
primarily to the Group's operating activities (when revenue or expense is
denominated in a foreign currency).
The financial assets and liabilities that are exposed to currency risk are
trade receivables, trade payables and other payables.
The Group's exposure to foreign currency risk at the end of the reporting
period, expressed in GBP, was as follows:
2023 2022
USD EUR USD EUR
£ £ £ £
Trade and other receivables 50,523 792,818 310,056 1,437,161
Cash and cash equivalents - - 307,994 1,749
Trade and other payables (2,059,512) (761,698) (40,303) (86,191)
________ ________ ________ ________
Total (2,008,989) 31,120 577,747 1,352,719
________ ________ ________ ________
The following tables demonstrate the sensitivity of profit and equity to a
reasonably possible change in USD and EUR exchange rates, with all other
variables held constant. The Group's exposure to foreign currency changes for
all other currencies is not material.
Change in USD rate Effect on profit before tax and equity Change in EUR rate Effect on profit before tax and equity
£ £
As at 31 December 2023 2% 40,180 2% 622
________ ________ ________ ________
As at 31 December 2022 2% 11,555 2% 26,790
________ ________ ________ ________
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations
under a financial instrument or customer contract, leading to a financial
loss. The carrying amount of the Group's financial assets represents its
maximum exposure to credit risk.
Customer credit risk is managed centrally subject to the Group's established
policy, procedures and control relating to customer credit risk management.
Outstanding customer receivables and contract receivables are regularly
monitored.
An impairment analysis is performed at each reporting date using a provision
matrix to measure expected credit losses. The provision rates are based on
days past due for groupings of the various customers. In making this
assessment, the Group considers historical experience of write-offs, which are
insignificant, and forward-looking information available at the time of the
assessment. Forward-looking information considered includes the future
prospects of the industries in which the Group's debtors operate, obtained
from Management's knowledge, as well as consideration of various external
sources of actual and forecast economic information that relate to the Group's
core operations.
Generally, trade receivables are written-off if past due for more than one
year and are not subject to enforcement activity. The maximum exposure to
credit risk at the reporting date is their carrying value.
The Group has assessed the credit risk of its financial assets and has
determined that an ECL of £19,737 is required at the year-end (2022:
£91,306).
The Group's provision matrix is as follows:
Current < 30 days 31-60 days > 60 days Total
31 December 2023
Expected credit loss % range 1.0% 1.0% 1.0% 1.0%
Gross carrying amount - trade receivables (£) 976,646 11,739 327,097 322,777 1,638,259
Gross carrying amount - contract receivables (£) 312,588 - - - 312,588
1,289,234 11,739 327,097 322,777 1,950,847
Loss allowance 12,902 118 3,365 3,352 19,737
Current < 30 days 31-60 days > 60 days Total
31 December 2022
Expected credit loss % range 1.0% 1.0% 1.1% 1.0%
Gross carrying amount - trade receivables (£) 2,438,200 592,624 - 108,071 3,138,895
Gross carrying amount - contract receivables (£) 5,972,166 - - - 5,972,166
8,410,366 592,624 - 108,071 9,111,061
Loss allowance 84,180 6,004 - 1,122 91,306
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Group's approach to managing its
liquidity is to ensure, as far as possible, that it has sufficient liquidity
available to meet its liabilities when due, both under normal and adverse
economic conditions, without incurring unacceptable losses or risking damage
to its reputation. The Group monitors and manages cash within its banking
facilities and includes a cashflow forecast in its budgets and its sensitivity
analysis.
The following table details the contractual maturity of the Group's financial
liabilities based on the dates the liabilities are due to be settled:
Within 1 year 1 to 2 years 2 to 5 years Total contractual cash flows Carrying amount
£ £ £ £ £
Trade payables 2,491,093 - - 2,491,093 2,491,093
Accruals 1,952,688 - - 1,952,688 1,952,688
Contract liabilities 435,386 - - 435,386 435,386
Borrowings 859,800 - - 859,800 859,800
Lease liabilities 8,814,289 5,481,977 - 14,296,266 13,464,537
___ _ ___ ___ _ ___ __ _ ___ ____ ___ ___ _ ___
At 31 December 2023 14,553,256 5,481,977 - 20,035,233 19,203,504
________ ________ _______ ________ ________
Within 1 year 1 to 2 years 2 to 5 years Total contractual cash flows Carrying amount
As restated: £ £ £ £ £
Trade payables 586,072 - - 586,072 586,072
Accruals 3,390,621 - - 3,390,621 3,390,621
Contract liabilities 5,753,646 - - 5,753,646 5,753,646
Borrowings 700,000 - - 700,000 700,000
Lease liabilities 5,661,408 5,652,151 5,333,439 16,646,998 15,098,128
___ _ ___ ___ _ ___ ___ _ ___ ___ _ ___ ___ _ ___
At 31 December 2022 16,091,747 5,652,151 5,333,439 27,077,337 25,528,467
________ ________ _______ ________ ________
Capital risk management
The Group's main objective when managing capital is to protect returns to
shareholders. In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return capital to
shareholders or issue new shares. The Group meets its objectives for managing
capital by re-investing profits to enhance future growth.
The Group considers its capital to include capital and net debt.
26 Share-based payments
The Group has an HMRC approved share options scheme for certain employees.
Each option entitles the holder to purchase one share at a set exercise price
and is an equity-settled transaction. Options are forfeited if the employee
leaves the Group before the options vest. The options would only vest on
change of ownership of the Group.
The Group uses the Black Scholes model in arriving at the fair value at grant
date for the options granted in the period due to no market conditions being
attached to the shares.
The following principal assumptions have been used in the valuations at grant
date for each option:
Range
Share price 2 (#_ftn2) at grant date £0.30 - £0.64
Volatility 4.0% - 47.8%
Option life 0.11 - 10 years
Dividend yield 0%
Risk-free rate 0.71% - 4.46%
Exercise price(3) at grant date £0.001 - £0.59
Fair value per option at grant date £0.13 - £0.39
The expected volatility was determined by calculating the historical
volatility of the Group's share price over the previous period corresponding
with the expected vesting period, with the share price determined by applying
a revenue multiple. The total expense in respect of the options amounted to a
credit of £339,604 (2022: charge of £89,485). The credit in 2023 arises
following the reversal of accumulated charges related to options which lapsed
in 2023.
A reconciliation of share option movements over the year to 31 December 2023
is shown below:
Group and Company 2023 2022
Weighted average exercise price Number of options Weighted average exercise price Number of options
(pence) (pence)
Outstanding at the beginning of the year 0.18 3,440,000 1.16 741,575
Granted during the year 0.58 637,597 0.23 4,579,450
Forfeited during the year 0.25 (1,340,000) 1.50 (851,575)
Exercised during the year - - 0.001 (1,029,450)
___ _ ___ ___ _ ___ ___ _ ___ ___ _ ___
Outstanding at the end of the year 0.33 2,737,597 0.18 3,440,000
___ _ ___ ___ _ ___ ___ _ ___ ___ _ ___
Exercisable at the end of the year 0.25 2,100,000 0.18 3,440,000
___ _ ___ ___ _ ___ ___ _ ___ ___ _ ___
The weighted average remaining contractual life for the share options
outstanding at the end of the year was 6 years (2022: 7 years).
The range of exercise prices for options outstanding at the end of the year
was £0.25 - £0.59 (2022: £0.25).
Phantom share scheme
Certain employees have been awarded phantom shares. When a release event
occurs, an award will be settled in cash to the extent that the current share
price exceeds the exercise price of the award.
175,000 phantom share awards were granted in the year (2022: nil) at an
exercise price of £0.585. They are accounted for as cash settled share-based
payments. At the year end the Group recognised a liability of £2,416 (2022:
£nil).
27 Share capital
Allotted, called up and fully paid
2023 2022 2023 2022
Number Number £ £
Ordinary shares of £0.001 each 87,461,772 87,461,772 87,462 87,462
___ _ ___ ___ _ ___ ___ _ ___ ___ _ ___
Total 87,461,772 87,461,722 87,462 87,462
________ ________ ________ ________
Prior to 8 September 2022, there were two distinct classes of shares; Ordinary
and Ordinary A.
Ordinary A shares were prescribed one vote per share. Ordinary shares did not
hold the right to attend or vote at general meetings. The Ordinary shares had
second right on wind up to the assets of the Company.
On 8 September 2022, the Company issued and allotted 40,889,430 A Ordinary
shares at a price of £0.001 per share, for no consideration. The Company also
issued and allotted 834,475 Ordinary shares at a price of £0.001 per share,
for no consideration. This bonus share issue, carried out on a 5 for 1 basis
via capitalisation from retained earnings of the Company, was done in order to
increase the share capital to meet the minimum requirements of £50,000 for
registration to plc status. Immediately following that issue and allotment,
the issued share capital of the Company was comprised of 50,068,686 shares.
Pursuant to the IPO placing on 21 October 2022, all A Ordinary shares were
reclassed as Ordinary shares.
On the same day, 36,363,636 Ordinary shares were issued and allotted at a
price of £0.001 per share, for total consideration of £0.55 per share, to
certain new investors. Additionally, 1,029,450 share options over Ordinary
shares were exercised by a Company employee at an exercise price of £0.001
per share.
Immediately following this issue and allotment, the Company's issued share
capital increased to 87,461,772 Ordinary shares. All shares are equally
eligible to receive dividends, the repayment of capital on winding up of the
Company and represent one vote at the shareholders' meeting of the Company.
See note 33 for detail on post year-end share
issues.
28 Reserves
Share premium
This reserve represents the excess paid for share capital over and above the
nominal value of the share capital.
Foreign currency translation reserve
This reserve contains movements in relation to translation of foreign
operations.
Share-based payment reserve
This reserve contains movements in relation to share-based payments.
Retained deficit
This reserve relates to movements in the cumulative profits and losses less
amounts distributed to shareholders. The Directors have proposed that there
will be no final dividend in respect of the year ended 31 December 2023 (2022:
£nil).
29 Notes to the Cash Flow Statement
Reconciliation of cash used in operations
2023 2022
£ £
Cash flows from operating activities
Loss after taxation (21,520,113) (3,191,901)
Adjustments for:
Depreciation of property, plant and equipment 119,272 83,845
Depreciation of right-of-use assets 337,623 310,177
Amortisation of intangible assets 12,150,250 2,384,795
Profit on disposal of property, plant and equipment 1,848 397
Profit on disposal of right-of-use assets 4,704 6,600
Unrealised foreign currency gains 49,556 (71,333)
Finance costs 655,797 1,175,510
Finance income (305) (30)
Tax charge/(credit) 3,541,379 (3,219,735)
Share-based payment (credit)/charge (339,604) 89,485
Working capital adjustments:
Decrease/(increase) in trade and other receivables 5,694,878 (7,340,209)
(Decrease)/increase in trade and other payables (4,477,766) 5,863,702
Decrease/(increase) in inventories 1,044,069 (1,044,069)
___ _ ___ ___ _ ___
Cash used in operations (2,738,412) (4,952,766)
________ ________
Reconciliation of net debt
1 January 2023 (as restated) Cash flows Non-cash changes 31 December 2023
£ £ £ £
Cash and cash equivalents 4,449,812 (4,466,660) 18,994 2,146
Bank loans (700,000) (82,458) (77,342) (859,800)
Lease liabilities (15,098,128) 2,492,766 (859,175) (13,464,537)
___ _ ___ ___ _ ___ ___ _ ___ ___ _ ___
Total (11,348,316) (2,056,352) (917,523) (14,322,191)
________ ________ ________ ________
All bank loans are presented gross of capitalised loan
costs.
30 Related party transactions
Group
Transactions with key management personnel
Key management personnel information is disclosed in Note 9.
Other transactions
Nigel Vaughan, a Director of the Company prior to the IPO, provided services
via a consultancy agreement though Vaughan Management Solutions Limited (a
company wholly owned by Nigel Vaughan). The value of the services provided
during the year was £nil (2022: £19,644). The amount outstanding as at 31
December 2023 was £nil (2022: £9,999). On the successful IPO, Nigel Vaughan
was appointed a non-executive Director and is now paid directly through the
Company run payroll.
At 31 December 2023, the Group had a loan of £nil (2022: £700,000) owed to a
shareholder of the Group. The loan was unsecured, incurred interest at a rate
of 4% per annum, and was repaid in January 2023. During the year, £1,500 of
interest (2022: £27,923) was paid and recognised within interest payable. The
shareholder divested its shareholding in full in December 2023. The Group also
sells to and purchases services from the same party. No sales were made in
2023 (2022: £nil). The purchases relate to the EDA software used in the
Group's project work. The total value of these services and amounts
outstanding at the end of the year are summarised in the following table:
2023 2022
£ £
Purchases 247,574 403,962
Amounts payable at the end of the year 143,628 7,038
________ ________
31 Commitments and contingencies
There were no commitments or contingencies at the reporting date.
32 Ultimate controlling party
In the opinion of the Directors, Rox Equity Partners Limited is the ultimate
controlling party.
33 Events after the reporting period
Adjusting post balance sheet event - Fund raise
On 13 June 2024, the Group completed a fund-raising process, raising a total
of £8.5m from ROX Equity Partners ("ROX"). The first £2.9m was initially
received in the form of convertible debt, which was converted to equity at the
same time as the fund raise completed with the issue of a further £5.6m
equity. The success of this fund-raising process was key to management's
decision to prepare accounts on the going concern basis.
Non-adjusting post balance sheet event - Renegotiation of key supply contract
On 27 March 2024, management concluded negotiations with a supplier in respect
of existing and future supply arrangements under an addendum to an existing
supply contract. The licenses available to the Group under this contract are
recognised as an intangible asset, and the contractual payments due are
included in financial liabilities. At the year-end, management recognised an
accelerated amortisation charge of £4.9m which reflected the reduced utility
that the Group expected to get from the asset over its remaining lifetime
given the reduced level of design activity experienced by the Group.
Under the addendum, contractual payments have been rescheduled, requiring a
remeasurement of the financial liability, and the lifetime of the asset has
been extended. On re-measurement the value of the liability has been reduced
by £3.3m. Management now expect to recover the full benefit of the "lost"
utility over the extended lifetime of the asset.
There are no other events subsequent to the reporting date which would have a
material impact on the financial statements.
34 Parent company guarantees
The Company is providing Sondrel Ventures Ltd (as disclosed in note 6 of the
Company financial statements and which is included within these Group
consolidated financial statements) with guarantee of its debts in the form
prescribed by Section 479C of the Companies Act 2006 ("the Act") such that it
can claim exemption from requiring an audit in accordance with section 479A of
the Act. This guarantee covers all of the outstanding actual and contingent
liabilities of that company as at 31 December 2023.
1 (#_ftnref1) Costs relating to the IPO in the prior year which are not
considered to be trading expenditure
2 (#_ftnref2) Share price at grant and exercise price have been adjusted to
reflect share split prior to IPO
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