REG - Trackwise Designs - Unaudited Preliminary Results and Trading Update
28/07/2022 07:16
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220728:nRSb0542Ua&default-theme=true
RNS Number : 0542U Trackwise Designs PLC 28 July 2022
28 July 2022
TRACKWISE DESIGNS PLC
("Trackwise" or the "Company")
FY21 Unaudited Preliminary Results
and
FY22 H1 Trading Update
Trackwise Designs (AIM: TWD), a leading provider of specialist products using
printed circuit technology, is pleased to announce its preliminary results for
the year ended 31 December 2021 and to provide an update on trading for the
six months ended 30 June 2022.
FY21 financial highlights
· Revenues increased 32% to £8.01m (2020: £6.07m)
· Revenues from Improved Harness Technology ("IHT") increased 150% to £1.48m
(2020: £0.60m)
· Adjusted EBITDA* of £0.81m (2020: £0.77m)
· Adjusted operating loss* of £0.58m (2020: £0.19m)
· Net debt** of £2.10m (31 December 2020: Net cash £11.35m)
· Total of £5.96m deposits placed on capital equipment
FY21 operational and strategic highlights
· Appointment of Steve Hudson as Chief Operating Officer (non-board position)
· Acquisition of third site, Stonehouse, increasing the Company's capacity to
meet anticipated demand for IHT
· Initiation of installation of state-of-the-art roll-to-roll production
facility
· Extension of product manufacture and supply agreement with UK electric vehicle
("EV") OEM
Note: The FY21 information set out herein has been extracted from the
Trackwise draft report and accounts for the year ended 31 December 2021 and
has not been audited. A further announcement will be released on completion of
the audit. The auditors' report, whilst not modified, is expected to include a
material uncertainty related to going concern. Trackwise expects to publish
its 2021 Annual Report and Accounts on 29 July 2022. No material amendments to
the disclosures contained within this announcement are expected within the
audited financial statements.
For FY22 H1, the Company expects to report:
· Revenues £3.8m (H1 2021: £4.1m)
· IHT revenues £0.54m (H1 2021: £0.58m)
· Adjusted EBITDA* £0.83m (H1 2021: £0.45m)
· Adjusted operating profit* £0.1m (H1 2021: £0.13m loss)
· Reported loss after tax £1.84m (H1 2021: £0.57m loss)
· Net debt** at 30 June 2022 £7.85m (cash of £2.36m) (30 June 2021 net cash:
£2.6m)
FY22 H1 Operational and strategic highlights
· Completion of equity raise of £7m to support growth
· Appointment of Paul Cook as Chief Financial Officer designate
· Continued progress made in preparing Stonehouse to become fully operational
later in FY22
· Installed and commissioned Double Belt Press
· Completion of £5.2m asset finance
· IHT total customers and opportunities across target markets of 97 as at 30
June 2022
· Development of plans for Phase 2 of Stonehouse facility, in response to
significant pipeline of demand for EV Cell Connection Systems (CCS) from UK
and EU OEMs and Tier 1s.
*Before exceptional costs and share based payments
**Cash less borrowings, excluding IFRS16 right of use lease liabilities
Philip Johnston, CEO of Trackwise, commented: "Trackwise closed the year with
a record order book. As we announced in June 2022, delays to our UK EV OEM
customer's own progression mean that some revenue originally forecast for our
FY22 year will not materialise, but despite this 2022 is still expected to see
a further increase on 2021, continuing the sales growth in the business, in
particular in IHT. It remains a difficult time to be in business, with
labour supply, inflation, supply chain dislocation and Brexit-related customs
issues all posing their own challenges to the business. However, these
challenges are being, can be, and will be met by pro-active management of the
issues across the three sites.
Beyond the contract with the UK EV OEM, we are actively pursuing the very
large market opportunity - which could total many £100m of business - in the
developing UK and European EV supply chain for battery CCS. Stonehouse Phase
2 is - in our opinion - a unique and well-positioned resource to deliver that
opportunity. We are confident of further material developments, regardless
of the macro-economic situation.
The APCB division remains an important underpinning of the business, but the
principal growth will continue to come from IHT. The investments that we
have made - the building for growth - are and will continue to deliver, across
the three principal IHT market verticals.
At the top end of our capability, Trackwise is one of, if not the, leading
supplier of long flex PCBs worldwide. I am very grateful for all
stakeholders for their part in helping the business to achieve its potential."
Enquiries:
Trackwise Designs plc +44(0)16 8429 9930
Philip Johnston, CEO www.trackwise.co.uk (http://www.trackwise.co.uk)
Mark Hodgkins, CFO
Paul Cook, CFO Designate
finnCap Ltd +44(0)20 7220 0500
NOMAD and Broker
Ed Frisby / Tim Harper - Corporate Finance
Andrew Burdis / Barney Hayward - ECM
Alma PR +44(0)20 3405 0212
Financial PR and IR
David Ison / Caroline Forde / Kieran Breheny / Pippa Crabtree
Notes to Editors
Trackwise is a UK-based manufacturer of specialist products using printed
circuit technology.
The full suite includes: Improved Harness Technology™ ("IHT") and Advanced
PCBs - Microwave and Radio Frequency ("RF"), Short Flex, Flex Rigid and Rigid
Multilayer products.
IHT uses a proprietary, patented process that Trackwise has developed to
manufacture multilayer flexible printed circuits of unlimited length. While
the technology has many applications, the directors expect that one of its
primary uses will be to replace traditional wire harness in a variety of
industries.
The Company manufactures on two sites, located in Tewkesbury and Stevenage
(following the acquisition of Stevenage Circuits Ltd in April 2020). It serves
customers in Europe and North America. The Company has acquired a third site
in Stonehouse Gloucestershire initially for its EV programme.
Trackwise Designs plc was admitted to trading on AIM in 2018 with the ticker
TWD. For additional information please visit www.trackwise.co.uk
(http://www.trackwise.co.uk)
The information contained within this announcement is deemed to constitute
inside information as stipulated under the retained EU law version of the
Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK
law by virtue of the European Union (Withdrawal) Act 2018. The information is
disclosed in accordance with the Company's obligations under Article 17 of the
UK MAR. Upon the publication of this announcement, this inside information is
now considered to be in the public domain.
FY21 Unaudited Preliminary Results
Chair's statement
The strong strategic milestones achieved in 2020 provided a sound base from
which to realise strategic and operational progress during 2021.
Key to delivering on those targets was the acquisition of a manufacturing
facility in Stonehouse, Gloucestershire in June to prepare for our
roll-to-roll volume production for the EV OEM contract awarded last year.
A major refurbishment programme for the facility was completed and a project
to install state-of-the-art, roll-to-roll flex capital equipment was
initiated. Positive progress was achieved against a difficult background of
Covid disruption to both our own activities and those of our equipment
suppliers. Pandemic delays were further exacerbated by global silicone chip
shortages negatively affecting the construction of the sophisticated equipment
on order. Despite these constraints we were well placed by the end of the
period to start production in the third quarter of 2022, with space prepared
to double capacity as future IHT products come on-line.
We are grateful for the support and additional funding we have received from
our shareholders in enabling us to execute this crucial step in our strategic
plan.
Meanwhile our Tewkesbury facility concentrated on development, manufacture and
supply of a record level of IHT products. This was facilitated in part by the
capacity released from the RF rationalisation programme carried out last year
following the acquisition of Stevenage Circuits Ltd ('SCL") and creation of
the Advanced PCB facility.
2022 Outlook
In tandem with our efforts to build for future growth, our people were heavily
engaged in supporting and improving production efficiency and performance in
both costs and quality at our facilities in Tewkesbury and at SCL. This was
achieved despite the Covid disruptions and against the increasing
macro-economic issues of material cost increases and supply interruptions.
During the period our Ashvale facility was heavily engaged in finalising the
design standard and pre-volume production supply of roll-to-roll EV product
for our UK OEM customer. Our people additionally focussed on development of
potential future IHT products for our target industries. Whilst progress in
the development of sophisticated new technology is frustratingly challenging,
the results we are achieving are establishing a solid foundation to support
solutions for future customer demands.
SCL experienced a degree of disruption as many of its products are destined
for customer applications which themselves suffered from the global silicone
chip shortages and consequent changes in demand.
Board, Senior Management and Employees
In September 2021 we announced that the Chief Financial Officer, Mark
Hodgkins, would be retiring from the Board at the AGM in June 2022. He is to
be replaced by Paul Cook who is working in tandem with Mark during the first
half of 2022 to ensure a smooth transition.
On behalf of the Board, I would like to thank Mark for his work with Trackwise
during the past six years, which included a successful listing on the AIM
market and the transition to operating as a public company. During this period
Mark's experience and capability has been central to supporting a young
business as it undergoes the financial demands associated with rapid growth.
We wish him well in the future.
During the year we also appointed a Chief Operating Officer, Steve Hudson. He
has been instrumental in leading the transformation of the newly acquired
Stonehouse facility, including capital equipment, and importantly recruiting
and training a strong management team and operational staff.
The continuing safety of our staff has remained our priority since the onset
of the pandemic. In line with UK Government guidelines, we have taken steps to
protect our teams from the impact of Covid 19 across our business. I would
like to thank all our staff for their continued dedication and achievements
throughout a difficult year.
Dividend
In line with the previously stated Policy, the Board does not recommend the
payment of a dividend and reaffirms our intention to pay a progressive
dividend only once the Group has demonstrated the establishment of the
interconnector technology as a stable revenue generator.
Our impact on Society
The benefits and relevance of our IHT product to the sustainability agenda are
clear and we are confident it will continue to play an important role in
helping our customers meet their own carbon reduction goals in the future.
Last year, for the first time, we reported on our ESG impact and the measures
we had introduced to demonstrate our commitment to acting responsibly and to
contributing a sustainable future. Further information can be found in our ESG
Engagement Report in our upcoming Annual Report.
Looking ahead
Last year I highlighted the uncertainty in both the global and UK economies.
This year we have the added uncertainty of the impact of the war in Ukraine
which will inevitably have impacts on various supply chains. The directors are
keeping these and the other impacts under constant review and adjusting our
plans and forecasts as necessary. We have reviewed our trading outlook and the
impacts of the delays in business from our principal EV customer and have
addressed our funding needs and our costs as set out in the CFO's report. It
remains the case, that the Company has good prospects for growth in our IHT
division and solid foundations within our Advanced PCB division, the Board
remains encouraged by the medium-term and long-term outlook and looks forward
to reporting on further progress in due course.
Ian Griffiths
Non-Executive Chair
Chief Executive's review
Overview
2021 has seen major progression towards what has been a long-term objective
for the business, to see the output of our first production contract being
delivered at scale into a live project: 'Quantity, Quality, Qualified'.
As a result of securing the long-term supply agreement with a UK EV OEM, we
acquired a 77,000 sq.ft. freehold premises at Stonehouse, Gloucestershire and
ably led by our new COO, Steve Hudson, have been growing the operational team
to deliver a world-class, roll-to-roll FPC manufacturing capability.
The decision to acquire a freehold facility larger than initially needed for
the UK EV OEM contract has, at least in part, been driven by the growing
understanding of the scale and timeline of the opportunity that is cell
connection circuits for electric vehicles.
The year has not been without its challenges (is there ever one?), most
notably customer delays, global supply chain issues as well as the ongoing
threat to staff welfare caused by Covid - and now significant price inflation.
These challenges contributed to our need to call for further equity towards
the year end.
Despite these challenges, we completed 2021 in line with market expectations,
and report here record IHT sales, a record order book, solid APCB operations
and good progress towards facility completion and start of production at
Stonehouse.
I would very much like to thank all of our stakeholders, our supportive
shareholders, both new and existing, our customers and suppliers - and above
all our staff. As manufacturers we have continued to be unable to work from
home and therefore have had to deal with the risk and uncertainty of coming to
work every day throughout the pandemic. This has not been easy, but the
challenge has continued to be met collectively with stoicism and
understanding: Thank You.
I would also like to take this opportunity to say thank you to our retiring
CFO, Mark Hodgkins. Mark has worked tirelessly in the business since 2016 and
has been a massive part of the transformation of the business and its
prospects, up to and including the IPO in 2018, the subsequent acquisition of
Stevenage Circuits, and fund raising in support of delivering the UK EV OEM
contract. It has not been a straightforward period, with Brexit, Covid and
global supply chain challenges - on top of the home-grown challenges of
delivering a globally innovative product to market. On behalf of all Trackwise
stakeholders - Thank You.
We were delighted to announce the appointment of Paul Cook as CFO-designate in
January 2022. Paul is an experienced finance professional with a track record
of success across senior positions at several technology-driven manufacturing
businesses selling into international markets, including Access IS, a
manufacturer of scanning devices, and Sonatest, a manufacturer of portable
non-destructive testing equipment. Most recently he was Chief Operating and
Compliance Officer at YFM Equity Partners, a leading private equity and
venture capital investor, where he worked for a period of more than eight
years.
In April 2021 we were also delighted to welcome Steve Hudson as COO, a new
position to the business. Steve has over 20 years' experience in the
automotive and aerospace industry. He started his career at MG Rover, before
moving onto operational and programme leadership roles at Bentley Motors and
Rolls Royce Aerospace. He was most recently at Williams Advanced Engineering,
where his responsibilities included growing battery manufacturing capability.
Strategic report
Trackwise's mission and strategy to deliver growth
Trackwise's Vision is 'To be the pre-eminent interconnect partner of the
world's leading innovators' and its Mission Statement is 'To develop and
deliver the new generation of interconnect; for our customers to realise their
ambitions, thereby achieving all stakeholder expectations.'
The Group's strategy to achieve this is to drive growth by increasing
capability and capacity to deliver IHT, by improving traction through targeted
worldwide sales and marketing and by delivering operational excellence - all
based upon the sustainable foundation of profitable supply of Advanced PCBs.
World-leading, length-agnostic, flex PCB manufacturing capability
While such statements are hard to verify, there are good reasons to state
that, as a result of the cumulated development work, learning and capital
investment, Trackwise is well underway to becoming one of the, if not the,
world's leading manufacturer of long flex PCBs.
We describe above our June 2021 delivery of a 72 metre long multilayer flex
and we know of no other company worldwide that could have manufactured such a
product. Such extreme length products are, by definition, unusual in nature,
however the development know-how that has led to such a delivery is key to the
ongoing development of our roll-to-roll, length-unlimited, length-agnostic,
IHT manufacturing capability that we believe is our USP.
The development know-how and manufacturing assets have cross-sectoral
applicability. Trackwise started its IHT journey in aerospace and the
length-agnostic roll-to-roll manufacturing capability that we initially
developed to deliver long aerospace circuits now allow us also to make smaller
EV battery parts at scale. The EV learning is now feeding back into the
manufacture of aerospace and medical products.
Almost all of our sales pipeline - for the EV, medical and aerospace sectors -
has come to Trackwise from around the world because of our ability to deliver
long flex; a globally unique manufacturing capability.
Double Belt Press (DBP)
With the (post year-end) delivery and commissioning of the Double Belt Press
(DBP), the length-unlimited multilayer flex PCB manufacturing process
envisaged in the original IHT patent* application in January 2012 has now been
realised as an in-house capability. This is a major milestone for the
business.
The DBP is a key strategic asset, providing a state-of-the-art capability to
manufacture our own metal-clad laminates, as well as allowing us to bond
together individual circuit layers to form the patented length-unlimited
multilayer circuits.
Bringing this unique capability 'up to speed' is a key strategic
priority. A number of customer developments have been held until such time as
we have this capability in-house, and, more generally, our rate of development
will now be able to speed up immeasurably.
*The process patent is now granted worldwide:
· UK Patent Number GB2498994 - granted March 2014
· US Patent Number US2015108084 - granted January 2016
· China Patent Number ZL201380011859.6 - granted April 2018
· EU Patent Number 2810543 - granted August 2019
· Canada Patent Number 2862772 - granted July 2020
· Brazil Patent Number BR1120140190330 - granted December 2021
Stonehouse Start of Production
The Stonehouse facility was acquired in order to deliver our UK EV OEM
contract and while they - and consequently we - have suffered some delays,
this remains a transformational opportunity for Trackwise. 2022 will see Start
of Production, leading to PSW (Part Submission Warrant) - formal confirmation
that the supply of components meets the customer requirements and
specifications - and then full rate production.
This demonstration of 'Quantity Quality Qualified' is a key milestone for the
business.
We very much look forward to welcoming investors to view the Stonehouse
facility at a Capital Markets Day to be arranged later in the year.
This state-of-the-art roll-to-roll flex PCB manufacturing facility is
discussed in further detail below.
Stonehouse Phase 2
The initial implementation at Stonehouse will by no means be its full
capacity; we have laid out the factory with specific plans for a 'Phase 2' -
to be implemented as and when justified by incremental demand.
We continue to be very hopeful for further production contracts for EV cell
connection systems, some of which are potentially considerably larger in scale
than the current UK EV OEM contract. The Stonehouse facility is an important
showcase for our capability for UK and European EV OEMs who are seeking a
local supply solution.
Trackwise is very well positioned - both with key technology and with first
mover advantage - to capitalise on this very sizeable opportunity.
We are convinced that Stonehouse is the right investment at the right time,
and that 'Phase 2' will be taken up by one or more cell connection system
customers.
Trackwise is in active bidding discussions for supply contracts with multiple
UK and EU OEMs and securing one or more of these production contracts is a key
objective.
· OEM A - Lifetime volume 30M pcs / SoP 2024 5 years - Tier 1
· OEM B - Lifetime volume 3M pcs / SoP 2024 4 years - Tier 2
· OEM C - Lifetime volume 2M pcs / SoP 2025 9 years - Tier 2
· OEM D - Lifetime volume 1M pcs / SoP 2026 5 years - Tier 2
· OEM E - Lifetime volume 1M pcs / SoP 2022 3 years - Tier 3
Start of Production (SoP) will be preceded by pre-production builds and
(earlier) supplier selection.
We refer in our Risk Review in our upcoming Annual Report that 'It is possible
that competitors may also be able to devote greater resources to the promotion
and sale of their products, designs and solutions than the Group can compete
with.' An example of this risk is CelLink Corporation, a Californian-based
'leading manufacturer of high-conductance, large-area flexible circuits for
automotive applications' who announced in February 2022 the closing of a $250M
Series D funding.
While on one hand this significant investment into a global competitor
represents a manifestation of the risk, it also indicates the scale of the
opportunity identified by CelLink and its investors.
Operational review
Stonehouse
In early 2021, the scale of the UK OEM EV contract, with its guaranteed
minimum volumes, as well as the need to maintain progress with, and capacity
for, the increasing range of other IHT developments and opportunities, meant
that we needed to secure additional manufacturing capacity.
For this reason, in the middle of 2021 we acquired a new manufacturing
facility, a 77,000 sq.ft. freehold property in Stonehouse Gloucestershire,
approximately 20 miles south of Tewkesbury, adjacent to M5 junction 13.
At Stonehouse we are implementing a scaled-up version of the roll-to-roll FPC
manufacturing capability developed and qualified in Tewkesbury in a set up
arranged for high volume, low mix - rather than the low volume, high mix in
Tewkesbury.
The Stonehouse facility will be a state-of-the-art roll-to-roll flex PCB
manufacturing facility - unique in the UK with the investment underpinned by
the guaranteed minimum demand of the UK EV OEM contract.
Stevenage Circuits Limited
2021 saw the first full year of operation of Stevenage Circuits Limited (SCL)
within the Trackwise group of companies.
SCL was hard-hit by supply chain challenges, notably the shortage of Dupont AP
copper clad laminates, a key element in the supply of circuits to its largest
customer, Ion Science Limited, a leading manufacturer of technologically
advanced gas detection equipment. Thanks go to our hard-working SCL sourcing
team, working closely with the customer to manage the supply challenge and
requalify some parts using different raw materials.
I would like to thank very much the senior management team and all staff at
SCL for their hard work and positive attitude in this year of significant
challenge.
Stevenage Circuits Limited marks its 50th anniversary in June 2022, a major
milestone for any business, and one that we will be marking appropriately.
Improved Harness Technology(TM) (IHT)
Ashvale - our site in Tewkesbury - remains an engineering-led facility,
focussed on IHT product development, new product introduction; leading
customers through to the point where, like the UK EV OEM, they are ready to
manufacture at scale.
The Group's IHT activities are based on three verticals (electric vehicles,
medical and aerospace), in terms of pursuing new business, though for
segmental reporting the group looks at its performance on a geographical basis
which is highlighted in note 3.
There has been significant and sustained growth in all three key IHT verticals
during 2021. 30 NDAs (Non-Disclosure Agreements) have been signed - 9
Aerospace, 7 Automotive, 9 Medical, 4 Industrial - demonstrating that there
continues to be keen interest for IHT across the board. Of these, 9 have
already converted into customers bringing the total number of IHT customers to
36 at the year end.
2021 saw the business deliver record IHT sales, more than 2.5x prior year
levels and included completion, of what we believe, is by far the largest
multilayer PCB ever made worldwide, 72m long parts for a nuclear fusion
customer.
While such extreme length products are, by definition, unusual in nature their
development and delivery are key to advancing maturity of the roll-to-roll,
length-unlimited, length-agnostic, IHT manufacturing capability that we
believe is our USP.
IHT sales were strong across all market verticals, with only Aerospace not
posting a record year. This is discussed further below.
Electric Vehicles (EV)
2021 saw a 2.8x increase in IHT EV sales over prior year, dominated by
increasing sales to the UK EV OEM.
Trackwise announced in September 2020 that it had secured a multi-year Product
Manufacture and Supply Agreement with a UK EV OEM. In a contract amendment
announced in June 2021 the start date for this transformational deal was
delayed by one quarter and extended by one year - with a corresponding
increase in value from £38m to £54m.
The OEM is building electric vans and buses - as well as other commercial
vehicles. All these vehicles are based around a common core High Voltage
Battery Module (HVBM) into which Trackwise is providing two key components, a
power flex - connecting all the cells for primary power collection and a
balancing flex, part of the essential battery management system.
These are roughly one-foot square parts - manufactured in rolls - using our
IHT-enabled manufacturing know-how.
We are also supplying vehicle level parts into our customer's electric bus
vehicle, with parts for further vehicles under discussion.
2022 sees the start of production under this contract. As discussed in this
report, this underpins the significant growth in revenue forecast for this
year.
Beyond this important contract with the UK EV OEM, there is a very large
opportunity in the developing UK and European EV supply chain. As indicated
above Trackwise is in active bidding discussions for supply contracts with
multiple UK and EU OEMs.
Medical
2021 saw a 2.1x increase in IHT Medical sales over prior year; still currently
at relatively low levels as customers progress their products through their
design verification phase and into production but 9 new NDAs and 5 new
customers in the year encourage us as to the wider opportunity.
Trackwise was pleased to announce in May that it had signed a multi-year
agreement with CathPrint AB, the Stockholm-based company with expertise in the
development and manufacturing of medical device products. The agreement is for
the supply of Trackwise's IHT component parts for use in CathPrint's products.
CathPrint has been a Trackwise customer for some time and the agreement paves
the way for a longer-term ramp-up in volume.
These are challenging products to manufacture - large format (up to several
metres in length), narrow (only a few mm in width), very fine circuit features
(down to 40um), novel substrates, demanding surface finish requirements - but
IHT capabilities are fully suited to these demanding products and multiple
samples for multiple different products have been delivered to US and EU OEMs.
This is an exciting sector with significant upside potential for the business.
In my opinion it is only a matter of time that one or more of these partners
moves to full production. We expect to see strong further growth in our sales
into this sector.
Supply into the medical device sector requires our Quality Management System
(QMS) - currently based upon the Aerospace standard AS9100D - to be accredited
to ISO13485 'a quality management system where an organisation needs to
demonstrate its ability to provide medical devices and related services that
consistently meet customer and applicable regulatory requirements.' We are
actively working towards ISO13485 accreditation.
Aerospace - including Space
As mentioned above, Aerospace was the only sector in which Trackwise did not
post record IHT sales in 2021. Even before the pandemic the UK aviation
industry has pledged to cut its net carbon emissions to zero by 2050. In any
mobile application weight = fuel = cost = carbon and the weight reduction
opportunity offered by IHT is a key enabler for OEMs to realise their
ambitions in these rapidly changing markets where carbon reduction is a
strategic necessity.
2021 saw good progress with the AISA InnovateUK grant funded development
program (a consortium
led by GKN Aerospace) tasked with taking IHT to 'TRL6' - a technology
readiness milestone that effectively enables the product to be sold into
mainstream programmes.
Trackwise is working with a very wide and growing portfolio of world-leading
aerospace innovators on next-generation products; of UAM - 'flying taxis',
business jets, high altitude pseudo-satellites, as well as spacecraft solar
array transfer harnesses.
For all of these OEMs and Tier 1 or Tier 2 suppliers, IHT benefits of reduced
weight and reduced space are key attributes for delivering their objectives
for emission-reducing aircraft.
2021 has seen the emergence of a key opportunity for Trackwise, aerospace
battery modules - where aerospace customers, who are using batteries to power
their electric aircraft, are coming to Trackwise, to understand how to use
FPCs as cell contacting system (CCS).
As these aerospace customers are at an early stage of their
development/learning, Trackwise is ideally positioned to guide them
specifically towards the know-how that we have captured from our EV work.
While current and near-term aerospace revenue will remain developmental in
nature, a clear path to production programmes is emerging. Several programmes
are indicating an entry into service in 2-3 years. Trackwise and IHT must be
ready for these customers - and for this reason the timely progression of IHT
to TRL6 is key.
Current trading and outlook
Managing the COVID-19 pandemic
While seeking to continue operations as normally as possible, the safety and
welfare of all staff has been our utmost priority. We have followed government
guidelines throughout.
While hopefully diminishing in importance, Covid is an additional risk the
company now has to factor and I would draw your attention to the Risk review
in our upcoming Annual Report, and in particular the heightened attention the
Board is giving to certain areas, cybersecurity, customer concentration, the
ongoing supply chain issues and risks associated with the establishment of our
new site at Stonehouse.
Supply chain
Well publicised supply chain problems have made the task of procuring the
advanced manufacturing equipment for the Stonehouse facility from global
suppliers (UK, France, Germany, Italy, Japan, China) a complex and challenging
exercise.
While it is hoped and expected that the worst impacts of the pandemic itself
and the global post-Covid start-up shock are behind us, it seems to be clear
that some components and commodities will remain in short supply for the
foreseeable future, driving both price and lead-time. For example, the
above-mentioned growth in EV cell demand will continue to underpin global
demand for metal foils. Our supply chain strategy is being planned to try to
mitigate this risk. We have continued to work closely with customers and
suppliers alike to mitigate the impact of these challenges, where possible
entering into long term supply agreements and sourcing and qualifying
alternative sources of supply.
Order book and outlook
Trackwise closed the year with a record order book, underpinned by the £2.4m
order received from the UK EV OEM prior to the year end. While delays to the
UK EV OEM's own progression mean that revenue originally forecast for the year
will not materialise, 2022 is still expected to see a further increase on
2021, continuing the sales growth in the business, in particular IHT. It
remains a difficult time to be in business, with labour supply, inflation,
supply chain dislocation and Brexit-related customs issues all posing their
own challenges to the business. However, these challenges are being, can be,
and will be met by pro-active management of the issues across the three sites.
Beyond the contract with the UK EV OEM, we are actively pursuing the very
large opportunity - which could total many £100m of business - in the
developing UK and European EV supply chain for battery CCS. Stonehouse Phase 2
is - in our opinion - a unique and well-positioned resource to deliver that
opportunity. We are confident of further material developments, regardless of
the macro-economic situation.
The APCB division remains an important underpinning of the business, but the
principal growth will continue to come from IHT. The investments that we have
made - the building for growth - are and will continue to deliver, across the
three principal IHT market verticals.
At the top end of our capability, Trackwise is one of, if not the, leading
supplier of long flex PCBs worldwide. I am very grateful for all stakeholders
for their part in helping the business to achieve its potential.
Philip Johnston
Chief Executive Officer
Chief Financial Officer's Review
Difficult Backdrop to Roll-to-Roll Investment Programme
The financial performance of the business in 2021 was affected by our plans to
commence the investment programme to support the establishment of the
roll-to-roll volume production facility at Stonehouse Gloucestershire, whilst
addressing the uncertainties caused by Covid to the various supply chains we
rely on to operate efficiently.
Covid impacted both our businesses in the year with delays to production due
to illness, delays to machine repairs because engineers were deterred from
attending site, a major supplier delay which added six months to the working
capital cycle and many delays to machine deliveries due to delays suffered by
our suppliers' suppliers. The progress we report reflects these challenges and
we are grateful to our shareholders for their support.
The new year has started with continued difficulties with supply chains and
the added uncertainty that the Ukraine War has created.
Financial Position and Performance
During the uncertain times created by the pandemic we have placed even more
focus on short-term planning as well as control over costs. Inflation has been
evident in the latter part of the year, and this has created additional
pressure on machine deliveries and operating margins.
At the end of the year, it was necessary to bolster our cash position due to a
sudden and dramatic change in our terms of trade imposed upon us by a key
supplier which changed the financing model of IHT roll-to-roll production
significantly by lengthening the working capital cycle from an assumed 3
months to an assumed 9 months. The change indicated that to be able to
continue production in the second half of 2022 we would need to buy material
six months in advance and pay a significant proportion of this with order.
Despite these challenges, we have seen growth in revenues during the year, in
particular IHT revenue, which had its best ever year. These were below our
original expectations due to the change in timing of the start of the contract
for our EV customer's build programme announced in June. We anticipate a
further increase in revenues in 2022, notwithstanding the continuance of
supply side difficulties.
Year-on-year sales growth, adjusted operating margin and EBITDA 2021 2020
In the year under review these KPIs, measured to last year, are as follows:
Year on Year Sales Growth 32% 108.8%
Adjusted Operating Margin (note 25) (7.2%) (3%)
Adjusted EBITDA (note 25) £807K £773K
During the year we began the process of establishing the new 77,000 sq.ft.
site at Stonehouse, acquired for £2.8M with the help of a mortgage from HSBC
plc of £1.9M. The installation of the production equipment was delayed in the
latter part of 2021 due to machine supplier's difficulties in sourcing
componentry which included silicon chips.
The programme continues and in the first half of 2022 a significant proportion
of the ordered equipment has been delivered and installed.
There remains some equipment that is yet to be completed and delivered and we
anticipate being in production by August 2022. In total we have had capital
expenditure related to the site bringing it up to standard of £15.4M. There
will be further capital expenditure in 2022 before production commences.
At the same time, we have increased our cost base as we have recruited further
experienced engineers, both for production and quality, to ensure that we have
all the systems in place to begin production once the physical assets have
been accepted.
At the end of the year we had net debt excluding IFRS16 lease liabilities of
£1.9M though the completion of the equity raise immediately post year end
returned us to a net cash position. Our plans will see net debt increase
during 2022 as we complete our investment programme. Trading cash inflows are
predicted to be strong during 2023 and 2024 and should return our position to
net cash by year end 2025.
The acceleration of plans towards production for our UK EV OEM necessitated
the increase in associated development costs which have been capitalised and
which has led to an increase in intangible assets of £3.8M. This level of
development expenditure, whilst large, does support a tax credit in cash of
£800K which assists in the funding of this investment. We anticipate that
development costs will begin to reduce over the next 12 months as we move to
production. Our accumulated development costs are amortised in accordance with
our accounting policies (Note 2).
Cash flow
The Impacts of Covid held back some production and led to supply delays both
of which impacted adversely on revenues and therefore EBITDA. Despite this, we
continued to fund our development programme though the significant change to
our terms of trade with a number of important suppliers made dramatic changes
to our cash flow in the latter part of the year.
During the latter part of 2021 the Company was adversely impacted by two major
events which caused a significant deviation from our planned working capital
management. In particular, the delayed start of the EV OEM production contract
dealt a significant blow to cash generation anticipated in Q4. The most
significant impact was the dramatic change to the working capital cycle caused
by the shortage of nickel foil where our terms of trade changed from 60 days
post invoice date to 300 days pre invoice date. At the same time both
Trackwise Designs and Stevenage Circuits experienced significant changes to
suppliers' performance caused by supply chain disruption post the Covid 19
pandemic. This necessitated an equity raise in Q4 2021. Since the year end, we
have raised a further £5.2M of asset finance secured against our asset base.
In response to the enforced changes to our working capital needs it was
necessary to raise additional equity funds for this unexpected requirement. In
December 2021 we went to shareholders and raised an additional £6.5M to meet
the known revised requirements at that time. We continue to use equity and
asset finance to meet our capital expenditure requirements and we are
confident that all our needs can be met from these sources of finance.
Working capital management continues to be a top priority for the Company
which will only be properly alleviated once the OEM EV production contract
begins.
Our bankers, HSBC plc, have been supportive and have provided us with working
capital and asset finance facilities which we believe will be sufficient to
see us through to the positive cashflows from trading that the production
contract with the EV OEM will deliver.
Going Concern Review
The last few years have been subject to several disruptions with increased
frequency and severity and many of these have overlapping consequences.
These various disruptions, whether the pandemic, supply chain complications,
the global economic climate, resultant delays to machine deliveries, or the
demand from our OEM EV customer have created significant pressures for the
Group and have contributed to an increased risk environment within which we
work. The Directors are keeping a constant review of the Group's trading
environment and the impact on the Group's cashflows and forecasts to determine
that the going concern assumption for the preparation of these accounts
continues to be the correct assumption.
The Directors have prepared a detailed Base Case cash flow forecast using the
following major assumptions:
· the Group delivers its EV customer's 2022 orders in full in Q4 2022 and Q1
2023. These volumes are significantly below the guaranteed minimum volumes set
out in the contract with the OEM EV customer;
· there are no further orders from the OEM EV customer for delivery in 2022;
· the volumes for delivery to the OEM EV customer in 2023 are based on the OEM
EV customer's indicative forecast, which is significantly below the guaranteed
minimum volumes set out in the contract;
· no further new volume production contracts are secured before August 2023;
· there is a delay of more than twelve months from the date of these accounts in
recovering any sums owed under the compensation arrangements in the contract
with the OEM EV customer;
· there is an improvement in the operating performance of Stevenage Circuits
Limited compared to the year ended 31 December 2021;
· there is an improvement in the trading terms with the nickel foil supplier,
switching from up-front deposits of 25% and 50%, to payment on 30 days
following the month of delivery;
· that our machinery suppliers have not further delays over and above those
already notified to us and consequently the capital expenditure programme for
the Stonehouse facility is completed in 2022;
· that the Group's bankers maintain the facilities that they have put in place
and approved by them in June 2022;
· further asset-based financing of £4.4M is completed no later than 31 December
2022; and
· a trade finance facility of £1.9M is completed no later than 30 September
2022.
At 31 December 2021 the Group had cash and cash equivalents of £2.9M and in
the six months ended 30 June 2022 the Company raised £5.5M from shareholders
and secured asset-backed funding totalling £6.5M.
The Group is in active discussions with a number of funders to provide
additional asset-based financing of £4.4M and is in advanced discussions with
its bankers for the provision of a trade facility of £1.9M. The nickel foil
supplier has agreed to the revised terms of trading and the Group is in
advanced discussions with them to formalise this as part of a supply
agreement.
There will be continuing impacts from all of the risks identified above and so
consequently there will be risks that trading performance will be below our
expectations. Therefore the Directors have also prepared a severe but
plausible downside scenario which assumes the following:
· that the trading terms with the nickel foil supplier require up-front deposits
of 25% and 50%;
· that the further asset-based financing of £4.4M is not completed; and
· the trade finance facility of £1.9M is not completed.
In these circumstances the Group would face a funding shortfall of £6.8M.
This could be mitigated by actions such as a sale-and-leaseback of the
facility at Stonehouse, further asset-backed funding, a sale of Stevenage
Circuits Limited or further equity raising.
On the basis of the Base Case assumptions noted above, most notably that the
Group can raise the further £6.3m of facilities and that the Group retains
the improved trading terms from its nickel foil supplier, the Base Case
forecast shows that the Group will be able to continue as a going concern for
the next twelve months.
Results and Dividend
Reported Loss after taxation of £1.67M (2020: Profit After Taxation £1.23M)
means the Group is reporting a Fully Diluted Earnings loss per Share of 5.84
pence (2020: Diluted Profit per Share of 5.70 pence). The Board has previously
set out its dividend policy which has not changed. It is the Board's intention
that when commercial conditions allow, a progressive dividend policy will be
adopted, consequently there will be no dividend paid for 2021.
Mark Hodgkins
Chief Financial Officer
Consolidated Statement of Comprehensive Income and Equity
For the year ended 31 December 2021
Notes 2021 2020
£'000 £'000
Revenue 3 8,011 6,068
Cost of sales (5,699) (4,350)
Gross profit 2,312 1,718
Other operating 4 57
income
Administrative expenses excluding (2,953) (1,903)
exceptional costs and share based payment
Exceptional 4 (941) (128)
costs
Share based payment charge (153) (228)
Total administrative expenses (4,047) (2,259)
Operating 4 (1,678) (541)
loss
Negative goodwill arising on 23 - 1,642
acquisition
Acquisition 23 - (226)
expenses
Exceptional integration costs - (278)
Finance 6 3 4
income
Finance 6 (301) (195)
costs
(Loss)/Profit before taxation (1,976) 406
Taxation 7 324 828
(Loss)/Profit and total comprehensive (expense)/income for the year (1,652) 1,234
(Loss)/Earnings per share (pence) attributable to the owners of the parent
during the year
Basic 8 (5.78) 5.96
Diluted 8 (5.78) 5.70
Consolidated Statement of Financial Position
For the year ended 31 December 2021
Notes 2021 2020
£'000 £'000
ASSETS
Non-current assets
Intangible 9 9,932 6,482
assets
Property, plant and 10 13,131 8,175
equipment
23,063 14,657
Current assets
Inventories 12 2,022 2,010
Trade and other 13 7,795 1,752
receivables
Current tax receivable 858 804
Cash and cash equivalents 2,897 13,930
13,572 18,496
Total assets 36,635 33,153
LIABILITIES
Current liabilities
Trade and other 14 (3,015) (1,956)
payables
Borrowings 15 (1,850) (1,055)
(4,865) (3,011)
Non-current liabilities
Deferred income - 14 (1,067) (910)
grants
Borrowings 15 (5,514) (4,078)
Deferred tax 17 (623) (206)
liabilities
Provisions (115) (79)
(7,319) (5,273)
Total liabilities (12,184) (8,284)
Net assets 24,451 24,869
EQUITY
Share 19 1,207 1,137
capital
Share premium account 22,000 20,989
Retained earnings 1,155 2,615
Revaluation reserve 89 128
Total equity 24,451 24,869
Parent Company Statement of Financial Position
For the year ended 31 December 2021
Notes 2021 2020
£'000 £'000
ASSETS
Non-current assets
Intangible 9 9,871 6,467
assets
Property, plant and 10 8,312 3,471
equipment
Investments 11 2,172 2,172
Trade and other 13 2,589 -
receivables
22,944 12,110
Current assets
Inventories 12 445 593
Trade and other 13 6,610 2,727
receivables
Current tax receivable 641 530
Cash and cash equivalents 2,848 13,382
10,544 17,232
Total assets 33,488 29,342
LIABILITIES
Current liabilities
Trade and other 14 (1,713) (631)
payables
Borrowings 15 (1,257) (677)
(2,970) (1,308)
Non-current liabilities
Deferred income - 14 (1,067) (910)
grants
Borrowings 15 (3,080) (1,673)
Deferred tax 17 (958) (206)
liabilities
Provisions 14 (36) -
(5,141) (2,789)
Total liabilities (8,111) (4,097)
Net assets 25,377 25,245
EQUITY
Share 19 1,207 1,137
capital
Share premium account 22,000 20,989
Retained earnings 2,081 2,991
Revaluation reserve 89 128
Total equity 25,377 25,245
The Company has elected to take the exemption under section 408 of the
Companies Act not to present the parent Company profit and loss account. The
loss for the parent Company for the year was £1,102,000 (2020: profit of
£1,610,000 including dividends receivable of £2,000,000 from the
subsidiary).
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Share Share premium account Retained Revaluation reserve Total equity
capital
earnings
£'000 £'000 £'000 £'000 £'000
At 1 January 2020 591 4,234 1,045 167 6,037
Profit and total comprehensive income for the year - - 1,234 - 1,234
Share based payment (note 21) - - 263 - 263
Revaluation realised in the year - - 39 (39) -
Prior year tax adjustment 34 34
Shares issued in the year net of £1,191,000 of issue expenses (note 19) 546 16,755 - - 17,301
At 31 December 2020 1,137 20,989 2,615 128 24,869
Loss and total comprehensive expense for the year - - (1,652) - (1,652)
Share based payment (note 21) - - 153 - 153
Revaluation realised in the year - - 39 (39) -
Shares issued in the year net of £149,000 70 1,011 - - 1,081
of issue expenses (note 19)
At 31 December 2021 1,207 22,000 1,155 89 24,451
Parent Company Statement of Changes in Equity
For the year ended 31 December 2021
Share Share premium account Retained Revaluation reserve Total equity
capital
earnings
£'000 £'000 £'000 £'000 £'000
At 1 January 2020 591 4,234 1,045 167 6,037
Profit and total comprehensive income for the year - - 1,610 - 1,610
Share based payment (note 21) - - 263 - 263
Revaluation realised in the year - - 39 (39) -
Prior year tax adjustment - - 34 - 34
Shares issued in the year net of £1,191,000 of issue expenses (note 19) 546 16,755 - - 17,301
At 31 December 2020 1,137 20,989 2,991 128 25,245
Loss and total comprehensive expense for the year - - (1,102) - (1,102)
Share based payment (note 21) - - 153 - 153
Revaluation realised in the year - - 39 (39) -
Shares issued in the year net of £149,000 70 1,011 - - 1,081
of issue expenses (note 19)
At 31 December 2021 1,207 22,000 2,081 89 25,377
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
Notes 2021 2020
£'000 £'000
Cash flow from operating activities
(Loss)/Profit for the year before taxation (1,976) 406
Adjustment for:
Negative goodwill credit - (1,642)
Employee share based payment charge 153 263
Depreciation of property, plant & 4 965 693
equipment
Amortisation of intangible 9 426 265
assets
Net finance 6 298 191
costs
Changes in working capital:
(Increase) in 11 (12) (584)
inventories
(Increase) in trade and other receivables (375) 374
Increase in trade and other payables 1,003 (362)
Cash generated/(used in) from operations 482 (396)
Income tax received 687 669
Cash from operating activities 1,169 273
Cash flow from investing activities
Purchase of property, plant and equipment (10,649) (911)
Purchase of intangible 9 (3,553) (2,246)
assets
Purchase of new subsidiary (net of cash 23 - (1,628)
acquired)
Grant received 214 109
Interest received 3 4
Cash used in investing activities (13,985) (4,672)
Cash flow from financing activities
Share capital issued 1,230 18,492
Expenses relating to share capital issue (149) (1,191)
Interest paid (301) (195)
Lease 15 (187) (87)
payments
Bank loan advanced 1,960 -
Loan repayments (23) -
Cash inflow from invoice discounting and other short-term 15 184 -
financing
Repayment of short-term financing (128) -
Advance of hire purchase finance against assets already purchased - 1,139
Repayment of capital element of hire purchase 15 (801) (396)
contracts
Cash from financing activities 1,785 17,762
(Decrease)/Increase in cash and cash equivalents (11,033) 13,363
Cash and cash equivalents at beginning of the year 13,930 567
Cash and cash equivalents at end of year (all cash balances) 2,897 13,930
The cash outflow in respect of purchase of property, plant and equipment
includes the payment of any related deposits included in prepayments until the
asset is acquired.
Notes to the Company Financial
Statements
For the year ended 31 December 2021
1 Corporate information
Trackwise Designs Plc ("the Company") is a Public Company limited by shares
incorporated in the United Kingdom. The registered address of the Company is 1
Ashvale, Alexandra Way, Ashchurch, Tewkesbury, Gloucestershire, GL20 8NB. The
Companies ordinary shares are publicly traded on AIM and the Group is not
under the control of any single shareholder.
The principal activity of the Group is the design and manufacture of a full
suite of advanced PCB's including the Parent Company's patented technology
Improved Harness TechnologyTM, Microwave and RF, short flex, flex rigid and
rigid multi-layer boards.
2 Accounting policies
2.1 Basis of preparation
The FY21 information set out herein has been extracted from the Trackwise
draft report and accounts for the year ended 31 December 2021 and has not been
audited. A further announcement will be released on completion of the audit.
The auditors' report, whilst not modified, is expected to include a material
uncertainty related to going concern. Trackwise expects to publish its 2021
Annual Report and Accounts on 29 July 2022. No material amendments to the
disclosures contained within this announcement are expected within the audited
financial statements.
Statement of compliance
These Financial Statements have been prepared in accordance with international
accounting standards ("IFRS") in conformity with the requirements of the
Companies Act 2006. No new policies have been adopted in the year. These
policies have been applied consistently to all periods presented, unless
otherwise stated.
The parent company financial statements have been prepared under applicable
United Kingdom Accounting Standards (FRS101) in order to apply International
Accounting Standards in conformity with the requirements of the Companies Act
2006. The following FRS 101 disclosure exemptions have been taken in respect
of the parent company only information:
· IAS 7 Statement of cash flows;
· IFRS 7 Financial instruments disclosures;
· IAS 24 Key management remuneration.
As permitted by Section 408(3) of CA2006 no profit and loss account has been
presented for the Company.
Basis of measurement
The Financial Statements have been prepared on the historical cost basis as
modified for the revaluation of plant on transition to IFRS
and for certain financial instruments at fair value.
Going concern
The Directors have considered the principal risks and uncertainties facing the
business, together with the Group's objectives, policies and processes for
managing its exposure to financial risk. In making this assessment the
Directors have prepared cash flows for the foreseeable future, being a period
of at least 12 months from the expected date of approval of the financial
statements. These forecasts show that the Company and Group should be able to
manage their working capital and existing resources to enable it to meet their
liabilities as they fall due. These forecasts have considered the risks that
the Company faces, notably:
· the Group delivers its EV customer's 2022 orders in full in Q4 2022
and Q1 2023. These volumes are significantly below the guaranteed minimum
volumes set out in the contract with the OEM EV customer;
· there are no further orders from the OEM EV customer for delivery
in 2022;
· the volumes for delivery to the OEM EV customer in 2023 are based
on the OEM EV customer's indicative forecast, which is significantly below the
guaranteed minimum volumes set out in the contract;
· no further new volume production contracts are secured before
August 2023;
· there is a delay of more than twelve months from the date of these
accounts in recovering any sums owed under the compensation arrangements in
the contract with the OEM EV customer;
· there is an improvement in the operating performance of Stevenage
Circuits Limited compared to the year ended 31 December 2021;
· there is an improvement in the trading terms with the nickel foil
supplier, switching from up-front deposits of 25% and 50%, to payment on 30
days following the month of delivery;
· that our machinery suppliers have not further delays over and above
those already notified to us and consequently the capital expenditure
programme for the Stonehouse facility is completed in 2022;
· that the Group's bankers maintain the facilities that they have put
in place and approved by them in June 2022;
· further asset-based financing of £4.4M is completed no later than
31 December 2022; and
· a trade finance facility of £1.9M is completed no later than 30
September 2022.
Based on the above factors, the Directors have prepared the Financial
Statements on a going concern basis.
Consolidation
The consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the statement of financial
position, the acquiree's identifiable assets (both tangible and intangible),
liabilities and contingent liabilities are initially recognised at their fair
values at the acquisition date.
The consolidated financial statements present the results of the Company and
its subsidiaries ("the Group") as if they formed a single entity. Intercompany
transactions and balances between Group companies are therefore eliminated in
full.
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when it is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group and cease to be
consolidated from the date on which control is transferred out of the Group.
Functional and presentational currency
These financial statements are presented in Pound Sterling ("Sterling"), the
functional and presentational currency, rounded to the
nearest thousand pounds.
Use of estimates and judgments
The preparation of the Financial Statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgments
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
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 and in any future periods affected. The estimates and
judgements that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year
are discussed below.
Estimate: In assessing whether a cost or revenue is exceptional, the Directors
exercise their judgement based upon the quantum and the nature of the cost or
revenue that is being considered. In making that assessment, the Directors
also identify those costs which are none underlying costs and which represent
non-trading expenditure. The Directors consider that costs incurred on a
one-off basis that are necessary to bring an operating facility to a state
that renders it capable of producing product, to be a non-trading expense and
does not represent an underlying cost of trading. (Note: 4).
The Directors exercise their judgement in assessing whether to or not
recognise any deferred tax asset. At 31 December 2021, that judgement was that
there is an unrecognised deferred tax asset in respect of losses carried
forward of approximately £465,000 (2020: £460,000).
Fair values
Estimate: Business combinations require the evaluation of fair values in
respect of the assets and liabilities acquired. The most significant valuation
applied related to plant acquired which was valued based on management's
experience of similar plant, the value of used plant and a reassessment of
useful lives to derive a depreciated replacement cost. (Note: 23)
Fixed Asset Lives
Estimate: Management have estimated the useful life of tangible and intangible
fixed assets at 31 December 2021 based upon the period that the assets are
able to and expected to generate revenue. These estimates are reviewed
annually for continued appropriateness and events which may cause the estimate
to be revised. (Note 9 and 10).
Deferred Tax Asset Recognition
Judgement: Whilst deferred tax assets are offset against deferred tax
liabilities were applicable for timing differences reversing in the same tax
jurisdiction, the recognition of any separate deferred tax is subject to
judgement over the reversal. They are only recognised when they are
sufficiently probable based on future forecasts.
Share Based Payments
Judgement: The Group uses the Black-Scholes option-pricing model where
applicable, with inputs, in particular volatility, requiring
significant judgement in application (Note 8).
Right of use assets
Judgement: The application of IFRS16 Involves a degree of judgement in respect
of the applicable discount rate and in respect of any lease options or
variable payments. The discount rate is reviewed in conjunction with the rates
on similar borrowings and lease extension periods by reference to business
plans and the most likely outcome (Note 2.17).
Intangible assets
Judgement: Management have used their judgement in respect of the
capitalisation of development costs amounting to £9,674,000 at 31 December
2021. The viability of the new technology and know-how supported by the
results of testing and customer trials and by forecasts for the overall value
and timing of sales supports the approach taken. (Note 9)
Estimate: Management estimate the appropriate amortisation period and method
of amortisation for each category of assets and set a finite useful life. This
is reviewed at least each financial year-end. If the expected useful life of
the asset is different from previous estimates, the amortisation period is
changed accordingly. The expenses and costs that are capitalised in accordance
with this policy, represent know how, learned and techniques that are
developed all of which are relevant to the manufacture of IHT irrespective of
use.
Investments
Estimate: Investments held by the Company are subject to reviews for
impairment. Any consequential impairment tests for investments are based on
risk adjusted future cash flows discounted using appropriate discount rates
which are based on forecasts and are inherently judgemental. (Note: 23)
2.2 Revenue
2.2.1 Revenue comprises income from the sale of printed circuit boards and
represents the amount receivable for the sale of goods, excluding VAT and
trade discounts. Revenue is recognised when all the following steps have been
satisfied:
I. The Group has received and accepted the purchase order from the
customer.
II. Sales prices are based on quotes for each customer's unique product
and include transport which is insignificant in the context of the sale price.
The sales price is determined after submission of a quote to each customer for
their unique product and which has been agreed with them and includes
transport which is also agreed with the customer.
III. All performance obligations are met which is at a point in time when
the goods have been despatched to the customer
2.2.2 Deferred revenue
Invoicing typically occurs once performance obligations are met. On occasion,
customers are invoiced in advance and these amounts are included in deferred
income as contract liabilities. Contract liabilities held at the balance sheet
date are expected to be released in the following period when the performance
obligations are satisfied.
2.3 Grants
Income based grants
Income based grants are recognised in other operating income based on the
specific terms related to them as follows:
- A grant is recognised in other operating income when the grant
proceeds are received (or receivable) provided that the terms of the grant do
not impose future performance-related conditions.
- If the terms of a grant do impose performance-related conditions, then the
grant is only recognised in income when the performance-related conditions are
met.
- Any grants that are received before the revenue recognition criteria
are met are recognised in the Statement of Financial Position as another
creditor within liabilities.
Capital grants
Grants received relating to tangible and intangible fixed assets are treated
as deferred income and released to the Statement of
Comprehensive Income over the expected useful lives of the assets concerned.
2.4 Share based payment
Where equity settled share options have been issued to employees, the fair
value of options at the date of grant is charged to the income statement over
the period that the options are expected to vest. The number of ordinary
shares expected to vest at each balance sheet date is adjusted to reflect
non-market vesting conditions such that the total charge recognised over the
vesting period reflects the number of options that ultimately vest.
Market vesting conditions are reflected within the fair value of the options
granted. If the terms and conditions attaching to options are amended before
the options vest any change in the fair value of the options is charged to the
income statement over the remaining period to the vesting date.
2.5 Income tax
Current income tax assets and/or liabilities comprise obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
periods, that are unpaid/due at the reporting date. Current tax is payable on
taxable profits, which may differ from profit or loss in the Financial
Statements. Calculation of current tax is based on the tax rates and tax laws
that have been enacted or substantively enacted at the reporting period.
Deferred taxes are calculated using the liability method on temporary
differences between the carrying amounts of assets and liabilities and their
tax bases.
A deferred tax asset is recognised for all deductible temporary differences to
the extent that it is probable that taxable profit will be available against
which the deductible temporary difference can be utilised, unless the deferred
tax asset arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and at the time of the
transaction, affects neither accounting profit nor taxable profit (tax loss).
Deferred tax assets and liabilities are measured 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 end of the reporting period. To the extent that
there is any residual asset or liability due to the lack of taxable profits
charge then the treatment of that asset or liability is to leave it as
unrecognised within the accounts.
2.6 Goodwill
Goodwill arising on acquisitions is the excess of the fair value of the cost
of acquisition, over the fair value of identifiable net assets acquired. Any
direct costs are expensed in the income statement. Goodwill on acquisition is
recorded as an intangible fixed asset and represents the residual amount
remaining after taking account of the fair values attributed to the
identifiable assets, liabilities and contingent liabilities that existed at
the date of acquisition, reflecting their condition at that date. Adjustments
are also made to align the accounting policies of acquired businesses with
those of the Group.
Goodwill is assigned an indefinite useful economic life. Impairment reviews
are performed annually, or more frequently if events or changes in
circumstances indicate that the carrying value may not be recoverable.
Where the goodwill calculation results in a negative amount (bargain purchase)
this amount is taken to the income statement in the period in which is it
derived.
2.7 Research and development cost
An internally generated intangible asset arising from development (or the
development phase) of an internal project is recognised if, and only if, all
of the following have been demonstrated:
- It is technically feasible to complete the
development such that it will be available for use, sale or licence;
- There is an intention to complete the development;
- There is an ability to use, sell or licence the
resultant asset;
- The method by which probable future economic
benefits will be generated is known;
- There are adequate technical, financial and other
resources required to complete the development;
- There are reliable measures that can identify the
expenditure directly attributable to the project during its development.
The amount recognised is the expenditure incurred from the date when the
project first meets the recognition criteria listed above. Expenses
capitalised consist of employee costs incurred on development, direct costs
including material or testing and an apportionment of appropriate overheads.
The costs capitalised in relation to IHT are treated as one category, as the
accumulation of further knowledge and know-how in the production of IHT is
sector-agnostic and applies to all applications. Automotive (EV) products may
come to production first, with medical and aerospace later but the body of
knowledge being built is a body of knowledge that has long term use in a
business with long term horizons.
Where the above criteria are not met, development expenditure is charged to
the Statement of Comprehensive Income in the period in which it is incurred.
Capitalised development costs are initially measured at cost. After initial
recognition, they are recognised at cost less any accumulated amortisation and
any accumulated impairment losses.
The depreciable amount of a development cost intangible asset with a finite
basis useful life is allocated on a straight-line basis over its useful life,
currently expected to be 20 years. Amortisation begins when the asset is
available for use, i.e. when it is in the location and condition necessary for
it to be capable of operating in the manner intended by management.
The amortisation period and the amortisation method for the assets with a
finite useful life is reviewed at least each financial year-end. If the
expected useful life of the asset is different from previous estimates, the
amortisation period is changed accordingly. The expenses and costs that are
capitalised in accordance with this policy represent know how learned and
techniques developed that are all relevant to the manufacture of IHT
irrespective of use.
2.8 Patent costs
Patent cost assets are initially measured at cost. After initial recognition,
they are recognised at cost less any accumulated amortisation and any
accumulated impairment losses. The costs are amortised in the Statement of
Comprehensive Income over the 15-year life of the patent.
2.9 Software
Software assets are capitalised at the purchase cost. Subsequent to initial
recognition it is stated at cost less accumulated amortisation and accumulated
impairment. Software is amortised in the Statement of Comprehensive Income on
a straight-line basis over its estimated useful life of five years. These
costs are recognised in Cost of Sales.
2.10 Property plant and equipment
Property, plant and equipment is recognised as an asset only if it is probable
that future economic benefits associated with the item will flow to the
Company and the cost of the item can be measured reliably.
An item of property, plant and equipment that qualifies for recognition as an
asset is measured at its cost. Cost of an item of property, plant and
equipment comprises the purchase price and any costs directly attributable to
bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management. On transition to
IFRS, plant and equipment was revalued, and this amount has been used as the
deemed cost with no further revaluations.
After recognition, all property, plant and equipment (including leasehold
improvements and plant and machinery) are carried at cost less any accumulated
depreciation and any accumulated impairment losses.
Depreciation is provided at rates calculated to write down the cost of assets,
less estimated residual value, over their expected useful lives on the
following basis:
Freehold property 2%
straight line
Leasehold improvements Straight line over the period
of the lease
Plant and machinery 8-33% straight
line
Freehold property is only depreciated once it is fit for production and assets
under construction are also not depreciated until they are fully installed and
available for productive use.
The residual value and the useful life of an asset is reviewed at least at
each financial year-end and if expectations differ from previous estimates,
the changes are accounted for as a change in an accounting estimate in
accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors.
Gains or losses arising on the disposal of property, plant and equipment are
determined as the difference between the disposal proceeds and the carrying
value of the asset and are recognised in profit or loss.
2.11 Accounting treatment of leases
Assets and liabilities arising from a lease are initially measured at the
present value of the lease payments and payments to be made under reasonably
certain extension options are also included in the measurement of the
liability.
The lease payments are discounted using the interest rate implicit in the
lease or the incremental borrowing rate that the individual lessee would have
to pay to borrow the funds necessary to obtain an asset of similar value to
the right-of-use asset in a similar economic environment with similar terms,
security and conditions. Lease payments are allocated between principal,
presented as a separate category within borrowings, and finance cost. The
finance cost is charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the
liability for each period. Right-of-use assets are measured at cost comprising
the amount of the initial measurement of lease liability, any lease payments
made at or before the commencement date less any lease incentives received and
any initial direct costs and are presented as a separate category within
tangible fixed assets.
Right-of-use assets are generally depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis. If the Group is
reasonably certain to exercise a purchase option, the right-of-use asset is
depreciated over the underlying asset's useful life. Payments associated with
short-term leases of equipment and vehicles and all leases of low-value assets
are recognised on a straight-line basis as an expense in profit or loss.
Short-term leases are leases with a lease term of 12 months or less.
Short term and low value leases
Payments associated with short-term leases of property, plant and equipment
and leases of low-value assets are recognised on a straight-line basis as an
expense. Short-term leases are leases with a lease term of 12 months or less.
Associated costs of all leases, such as maintenance, service charges and
insurance, are expensed as incurred.
2.12 Hire purchase obligations
The Group utilises hire purchase asset backed finance to fund tangible fixed
assets, drawing down finance against individual assets or bundles of assets,
which may directly finance the asset purchase or be drawn down
retrospectively. The economic ownership of assets subject to hire purchase
agreements are transferred to the Group if the Group bears substantially all
the risks and rewards of ownership of the asset.
The related asset is recognised and measured in accordance with the tangible
fixed asset policy with initial cost being the fair value of the asset. A
corresponding hire purchase liability is recognised in respect of the capital
repayments to be made. This liability is reduced by payments net of finance
charges. The interest element of lease payments represents a constant periodic
rate of interest on the outstanding capital balance and is charged to profit
or loss, as finance costs over the period of the lease.
2.13 Impairment of goodwill, other intangible assets and property, plant and
equipment
For impairment assessment purposes, assets are grouped at the lowest levels
for which there are largely independent cash flows. As a result, some assets
are tested individually for impairment and some are tested at cash-generating
unit level. Goodwill is allocated to those cash-generating units that are
expected to benefit from synergies of the related business combination and
represent the lowest level within the Group at which management monitors
goodwill.
Cash-generating units to which goodwill has been allocated are tested for
impairment at least annually. All other individual assets or cash-generating
units are tested for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An asset or
cash-generating unit is impaired when its carrying amount exceeds its
recoverable amount. The recoverable amount is measured as the higher of fair
value less cost of disposal and value in use. The value in use is calculated
as being net projected cash flows based on financial forecasts discounted back
to present value.
The impairment loss is allocated to reduce the carrying amount of the asset,
first against the carrying amount of any goodwill allocated to the
cash-generating unit, and then to the other assets of the unit pro-rata on the
basis of the carrying amount of each asset in the unit. With the exception of
goodwill, all assets are subsequently reassessed for indications that an
impairment loss previously recognised may no longer exist. An impairment loss
is reversed if the assets or cash-generating unit's recoverable amount exceeds
its carrying amount.
2.14 Investments in subsidiaries
Investments in subsidiaries are stated at cost less provision for any
impairment.
2.15 Inventories
Inventories are initially recognised at cost, and subsequently at the lower of
cost and net realisable value. Cost comprises all costs of purchase, costs of
conversion and an appropriate proportion of fixed and variable overheads
incurred in bringing the inventories to their present location and condition.
Net realisable value is calculated as the estimated selling price less costs
to complete and sell. Where necessary, provision is made to reduce cost to no
more than net realisable value having regard to the nature and condition of
inventory, as well as its anticipated utilisation and saleability.
2.16 Financial instruments
The Group classifies all its financial assets at amortised cost. Financial
assets do not include prepayments. Management determines the classification of
its financial assets at initial recognition.
These assets arise principally from the provision of goods and services to
customers (e.g., trade receivables), but also incorporate other types of
financial assets where the objective is to hold their assets in order to
collect contractual cash flows and the contractual cash flows are solely
payments of the principal and interest. They are initially recognised at fair
value plus transaction costs that are directly attributable to their
acquisition or issue and are subsequently carried at amortised cost using the
effective interest rate method, less provision for impairment.
The Group's financial assets held at amortised cost comprises trade and other
receivables and cash and cash equivalents in the Statement of Financial
Position.
Financial assets
Financial assets are recognised in the Statement of Financial Position when,
and only when, the Group becomes a party to the contractual
provisions of the instrument.
Financial assets are initially recognised at fair value, which is usually the
cost, plus directly attributable transaction costs.
Financial assets are measured at amortised cost using an effective interest
method and discounting is omitted where the effect is immaterial.
Impairment provisions are recognised based on the simplified approach within
IFRS 9 using the lifetime expected credit losses. During this process the
probability of the non-payment of the trade receivables is assessed. This
probability is then multiplied by the amount of the expected loss arising from
default to determine the lifetime expected credit loss for the trade
receivables. For trade receivables, which are reported net, such provisions
are recorded in a separate provision account with the loss being recognised
within administrative expenses in the Statement of Comprehensive Income. On
confirmation that the trade receivable will not be collectable, the gross
carrying value of the asset is written off against the associated provision.
Impairment provisions for receivables from other group companies are
recognised based on a forward-looking expected credit loss model taking
account of the expected manner of recovery including assessment of future
cashflows. The methodology used to determine the amount of the provision is
based on whether there has been a significant increase in credit risk since
initial recognition of the financial asset.
For those where the credit risk has not increased significantly since initial
recognition of the financial asset, twelve-month expected credit losses are
recognised. For those for which credit risk has increased significantly,
lifetime expected credit losses are recognised based on the probability of
projected outcomes.
A financial asset is derecognised when the contractual rights to the cash
flows from the financial asset expire, or when the financial asset and all
substantial risks and reward are transferred.
Financial liabilities
Financial liabilities include borrowings, trade and other payables and
derivatives in respect of forward foreign exchange contracts.
Financial liabilities are obligations to pay cash or other financial assets
and are recognised in the Statement of Financial Position when, and only when,
the Group becomes a party to the contractual provisions of the instrument.
Financial liabilities, other than derivatives, are initially recognised at
fair value adjusted for any directly attributable transaction costs.
After initial recognition, financial liabilities, other than derivatives, are
measured at amortised cost using the effective interest method, with
interest-related charges recognised as an expense in finance costs.
Discounting is omitted where the effect of discounting is immaterial.
Derivatives are measured at fair value through profit and loss for any
movements.
A financial liability is derecognised only when the contractual obligation is
extinguished, that is, when the obligation is discharged, cancelled, or
expires.
2.17 Exceptional Items
The Group exercises judgment in assessing whether certain items should be
classified as exceptional. This assessment covers the nature of the item,
cause of occurrence and scale of impact of that item on the reported
performance.
For an item to be considered as an allowable adjustment to IFRS measures, it
must initially meet at least one of the following criteria:
- It is a significant item, which may cross one or
more accounting period.
- It has been directly incurred as a result of either an acquisition,
divestiture, or arises from the termination of benefits without condition of
continuing employment related to a major business change or restructuring
programme.
- It is unusual in nature, e.g., outside the normal course of business or
considered to be non-underlying. Non-underlying items are defined as those
that by virtue of their nature, size or expected frequency, warrant separate
additional disclosure in the financial statements in order to fully understand
the underlying performance of the Group.
If an item meets at least one of the criteria, the Board, through the Audit
and Risk Committee, then exercises judgment as to whether the items should be
classified as an allowable adjustment to IFRS performance measures.
The separate items are disclosed separately to provide further understanding
of the financial performance of the group
2.18 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together
with other short term, highly liquid investments that are readily convertible
into known amounts of cash and are subject to an insignificant risk of changes
in value.
2.19 Foreign currencies
Transactions entered into by the Group in a currency other than the functional
currency of sterling are recorded at the rates ruling when the transactions
occur. The Group does not apply hedge accounting in respect of forward foreign
exchange contracts held to manage the cash flow exposures of forecast
transactions denominated in foreign currencies. The Group utilises forward
exchange contracts to mitigate the risk of adverse exchange rate movements on
foreign currency denominated revenue. These derivatives are measured at the
fair market value, at the reporting date, with the fair value gain or loss
movements arising being recognised within administrative expenses in the
Statement of Comprehensive Income. At 31 December 2021 and 2020 the Company
did not hold any foreign exchange derivatives.
2.20 Equity and reserves
Share capital represents the nominal value of shares that have been issued.
Share premium represents the excess consideration received over the nominal
value of share capital upon the sale of shares, less any incidental costs of
issue.
Retained earnings include all current and prior period retained profits.
The revaluation reserve represents the extent to which a revaluation of plant
on transition to IFRS exceeded the historical net book value. Transfers are
made to retained earnings in respect of the depreciated element of the
revaluation.
2.21 Standards, amendments and interpretations in issue but not yet effective
There are no new standards, interpretations and amendments that are in issue
but not yet effective which are expected to have a material effect on the
Group's future Financial Statements.
3 Segmental reporting
IFRS 8, Operating Segments, requires operating segments to be identified on
the basis of internal reports that are regularly reviewed by the Group's chief
operating decision maker. The chief operating decision maker is considered to
be the Board of Directors.
The Group's Advanced PCB ('APCB') and IHT activities for the sale of printed
circuit boards are separately reviewed and monitored at a revenue level.
Revenue of £6,531,000 (2020: £5,467,000) arose from APCB and £1,480,000
(2020: £601,000) from IHT in the year ended 31 December 2021. The revenue
segments are monitored by the chief operating decision maker and strategic
decisions are made on the basis of forecast adjusted segment revenue results.
All assets, liabilities and revenues are located in, or derived from, the
United Kingdom. The material assets and liabilities relate to overall activity
with the exception of the intangible development costs and deferred grants
which are solely in respect of IHT.
In 2021 the Group had one customer representing 12.7% of revenue (a UK based
customer) and one customer representing 9.5% of revenue (a UK based customer).
(2020: three customers with similar revenue levels together representing 29%
of revenue).
Turnover by geographical destination 2020
£'000
2021
£'000
UK 6,065 3,693
Europe 1,309 1,688
Rest of the world 637 687
8,011 6,068
Operating loss by geographical destination
2021 2020
£'000 £'000
UK (1,284) (329)
Europe (277) (150)
Rest of the world (135) (62)
(1,696) (541)
4 Operating loss
2021 2020
£'000 £'000
Operating loss is stated after charging/(crediting):
Government job retention scheme income - (16)
Amortisation of deferred grant income (57) (53)
Amortisation of intangible assets 426 265
Depreciation of property, plant and equipment (net of £323,000 666 446
of capitalised development costs, 2020: £220,000)
Depreciation of right of use assets 299 247
Cost of inventory sold - 1,907
Foreign exchange (losses)/gains 53 (27)
Non-recurring set up costs for new product - 128
Share based payment charges 195 229
Staff payroll costs (net of capitalised development costs) 4,227 2,515
Exceptional costs:
New facility set-up costs -
Property costs 86 -
Labour costs 676 -
Professional fees 61 -
Utilities 44 -
Overheads 74 -
Sub Total 941 -
Non recurring set up costs for new product - 128
The Auditors remuneration for audit services was £30K for the Company and
£30K for subsidiary undertakings (2020: £35K for the Company and £25K for
subsidiary undertakings) and £Nil for non-audit services (2020: £Nil).
The exceptional facility costs relate to the new freehold manufacturing site
and the preparation and set up costs to make this ready for production. The
costs relate to refurbishing and re-installing essential services and
infrastructure to the property, which are costs that would not be incurred on
a recurring basis. The costs are therefore shown as exceptional,
non-underlying expenditure.
5 Staff and key management personnel
Average monthly number of employees Group Company Group Company
2021 Number 2021 Number 2020 Number 2020 Number
Management and administration 39 21 28 15
Production 93 45 68 37
132 66 96 52
Payroll costs £'000 £'000 £'000 £'000
Gross salaries 4,746 2,795 3,303 2,095
Social security costs 464 299 332 222
Share based payment 195 195 272 272
Other pension contributions 171 112 120 85
5,576 3,401 4,027 2,674
The Directors' and key management remuneration was as follows:
Salary Benefits Pension Total
Year ended 31 December 2021 £'000 £'000 £'000 £'000
P Johnston 217 20 259
22
M Hodgkins 165 16 198
17
I Griffiths 45 0 45
0
S McErlain 35 0 35
0
C Cattaneo 35 0 35
0
497 36 572
39
Salary Benefits Pension Total
Year ended 31 December 2020 £'000 £'000 £'000 £'000
P Johnston 205 23 235
7
M Hodgkins 165 16 181
-
I Griffiths 45 - 45
-
L Jackson 19 - 19
-
S McErlain 18 - 18
-
C Cattaneo 18 - 18
-
470 39 516
7
6 Finance income and expense
2021 2020
£'000 £'000
Finance income
Interest receivable and similar income 3 4
Finance expense
Interest payable on loans and overdrafts 36 3
Interest payable on hire purchase obligations 119 63
Interest payable in respect of lease liabilities 146 129
301 195
7 Income tax
2021 2020
£'000 £'000
Current tax:
UK corporation tax 769 547
Adjustment for prior periods (29) 86
Total current tax credit 740 633
Deferred tax:
Origination and reversal of temporary differences (252) 297
Change in rate from 19 to 25% (2020: 19 to 17%) (168) (53)
Adjustment for prior periods 4 (49)
Total deferred tax expense (416) 195
Total tax credit 324 828
The tax rate used for the reconciliation is the corporate tax rate of 19%
(2020: 19%) payable by corporate entities in the UK on taxable profits under
UK tax law The Finance Act 2016 included legislation to reduce the main rate
of corporation tax from 19% to 17% from 1 April 2020. A change to the main
rate of corporation tax announced in the 2020 Budget was substantively enacted
on 17 March 2020. The rate from 1 April 2020 remained at 19% rather than the
previously enacted reduction to 17%. In May 2021 a change in the rate of
corporation tax to 25% from April 2023 was substantively enacted.
The tax rate used to calculate deferred tax is the enacted rate of 25% (2020:
19%), being the rate at which the timing differences are expected to unwind
based on currently enacted UK corporate tax legislation.
The credit for the year can be reconciled to the (loss)/profit for the year as
follows:
2021 2020
£'000 £'000
(Loss)/Profit before taxation (1,976) 406
Income tax calculated at 19% (2020: 19%) 375 (77)
Negative goodwill credit not taxed - 312
Disallowable expenses including share-based payment (43) (101)
Tax in respect of share options (289) 440
Enhanced research and development allowances 557 471
Enhanced capital allowances 39 -
Deferred tax now recognised in group 131 -
Deferred tax not recognised - (29)
Adjustment for prior periods (25) 37
Change in deferred tax rate (168) (53)
Differing deferred tax and R&D tax credit rates (253) (172)
Total tax credit 324 828
Deferred tax is recognised over the vesting period for share options in
respect of the corporate tax deduction available under the EMI scheme for the
difference between market value on exercise and the exercise price and the
exceptional £289,000 expense (2020: £440,0000 credit) arises in the year as
a result of movements in the year end quoted share price to £0.95 at 31
December 2021 (2020: £3.22).
8 Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Earnings 2020
£'000
2021
£'000
Earnings for the purpose of basic and diluted earnings per share being net (1,652) 1,234
profit attributable to the shareholders
Number of shares 2020
2021
Weighted average number of Ordinary Shares for the purposes of basic earnings 28,597,901 20,687,836
per share
Potentially dilutive effect of share options exercisable below average share - 971,330
price in the year
Weighted average number of Ordinary Shares for the purposes of diluted 28,597,901 21,659,166
earnings per share
Earnings per Share (pence) (5.78) 5.96
Basic (5.78) 5.70
Diluted
The earnings per share is calculated from the number of £0.04 ordinary shares
in issue.
Options over Ordinary Shares granted to employees are included in the
calculation of potentially dilutive shares in respect of a profit. At 31
December 2021 there were 1,529,182 of unexercised options in place.
9 Intangible assets
Goodwill Patent costs Computer Software Development Total
costs
Group £'000 £'000 £'000 £'000 £'000
Cost 104 76 77 4,368 4,625
As at 1 January 2020
Additions - 8 13 2,447 2,468
On acquisition - - 11 - 11
As at 31 December 2020 104 84 101 6,815 7,104
Additions - 6 86 3,784 3,876
As at 31 December 2021 104 90 187 10,599 10,980
Amortisation or Impairment
As at 1 January 2020 - 24 65 268 357
Charge - 5 5 255 265
As at 31 December 2020 - 29 70 523 622
Charge - 5 19 402 426
As at 31 December 2021 - 34 89 925 1,048
Carrying amount 104 55 31 6,292 6,482
As at 31 December 2020
As at 31 December 2021 104 56 98 9,674 9,932
The carrying amount of goodwill relates to the acquisition of the original RF
technology-based business, whilst all the capitalised development costs relate
to projects in respect of the Group's Improved Harness Technology(TM) ('IHT')
process for unlimited length printed circuit boards and know-how which has
since been developed by the Group with amortisation on the initial development
projects commencing in 2018.
To determine the value of the costs capitalised, management include the actual
cost of purchase for all materials which are acquired for product development
purposes, the daily time analyses of work performed by design or product
engineers which captures the time spent on development activities which is
evaluated using a labour rate appropriate for the engineer who has worked the
time and finally includes an element of direct relevant overhead cost which is
incorporated to reflect the additional cost of operating the developmental
department of the Group.
The costs that are capitalised are kept under review to determine the
recoverability of the value so capitalised by reference to revenues generated
for IHT together with ensuring there is a growing pipeline of projects with a
range of customers under development using the IHT knowledge-base reflected by
the value of the capitalised development costs.
Impairment tests for goodwill
The Group tests goodwill annually for impairment, or more frequently if events
or changes in circumstances indicate that the asset might be impaired. The
carrying values are assessed on a value in use basis for impairment purposes
by calculating the net present value (NPV) of future cash flows arising from
the original acquired business. The goodwill impairment review assessed
whether the carrying value of goodwill was supported by the NPV of future cash
flows based on management forecasts for 5 years, an assumed growth rate of 1%
(2020: 1%) for the next 5 years and a discount rate of 12% (2020: 12%). There
is significant headroom in the assessment from a range of reasonable
sensitivities.
Government Grants
The Group has received aggregate grants from UK and European government
research and development initiatives amounting to £965,005 (2020: £965,005)
which fund a proportion of development work and which have been deferred in
line with the capitalised development cost assets above that they relate to.
They are released to profit and loss in line with the amortisation of the
costs. There are no unfulfilled conditions or contingencies attached to the
grants.
Goodwill Patent costs Computer Software Development Total
costs
Company £'000 £'000 £'000 £'000 £'000
Cost 104 76 77 4,368 4,625
As at 1 January 2020
Additions - 8 9 2,447 2,464
As at 31 December 2020 104 84 86 6,815 7,089
Additions - 6 29 3,784 3,819
As at 31 December 2021 104 90 115 10,599 10,908
Amortisation or Impairment
As at 1 January 2020 - 24 65 268 357
Charge - 5 5 255 265
As at 31 December 2020 - 29 70 523 622
Charge - 5 8 402 415
As at 31 December 2021 - 34 78 925 1,037
Carrying amount
As at 31 December 2020 104 55 16 6,292 6,467
As at 31 December 2021 104 56 37 9,674 9,871
10 Property, plant and equipment Plant and Right of use assets - Buildings Assets Total
machinery
Under
Leasehold
Construction
Freehold
improvements
Group Property £'000 £'000 £'000 £'000 £'000
Cost - 463 2,627 814 - 3,904
As at 1 January 2020
Additions - 17 1,652 - - 1,669
On acquisition (note 23) - - 2,960 1,914 4,874
As at 31 December 2020 - 480 7,239 2,728 - 10,447
Additions 3,002 12 958 36 2,236 6,244
Disposals - (62) (47) - - (109)
As at 31 December 2021 3,002 430 8,150 2,764 2,236 16,582
Depreciation - 123 1,141 93 - 1,357
As at 1 January 2020
Charge - 38 630 247 - 915
As at 31 December 2020 - 161 1,771 340 - 2,272
Charge - 42 947 299 - 1,288
Disposals - (62) (47) - - (109)
As at 31 December 2021 - 141 2,671 639 - 3,451
Carrying amount
As at 31 December 2020 - 319 5,468 2,388 8,175
As at 31 December 2021 3,002 289 5,479 2,125 2,236 13,131
Included within the carrying amount of the above, are specific assets held
subject to hire purchase contracts of £3,082,000 (2020: £2,806,000) relating
to plant and machinery and £330,000 relating to assets under construction.
Depreciation of £391,000 (2020: £289,000) was charged on these assets in the
year. In addition, a lease contract with a liability of £313,000 (2020:
£393,000) has a general charge over other plant assets.
Assets under construction relate to the fit out and new equipment for the
freehold Stonehouse property and manufacturing facility purchased in the year.
Freehold property will be depreciated once the asset comes into use.
Freehold Leasehold improvements Plant and Right of use assets - Buildings Assets Total
machinery
Under
Construction
Company Property £'000 £'000 £'000 £'000 £'000
Cost - 463 2,627 814 - 3,904
As at 1 January 2020
Additions - 17 1,315 - - 1,332
As at 31 December 2020 - 480 3,942 814 - 5,236
Additions 3,002 12 61 36 2,236 5,347
Disposals - (62) (175) - - (237)
As at 31 December 2021 3,002 430 3,828 850 2,236 10,346
Depreciation - 123 1,141 93 - 1,357
As at 1 January 2020
Charge - 38 277 93 - 408
As at 31 December 2020 - 161 1,418 186 - 1,765
Charge - 42 352 93 - 487
Disposals - (62) (156) - - (218)
As at 31 December 2021 - 141 1,614 279 - 2,034
Carrying amount
As at 31 December 2020 - 319 2,524 628 - 3,471
As at 31 December 2021 3,002 289 2,214 571 2,236 8,312
Included within the carrying amount of the above, are assets held subject to
hire purchase contracts of £1,679,000 (2020: £2,122,000) relating to plant
and machinery and £330,000 relating to assets under construction.
Depreciation of £267,000 (2020: £204,000) was charged on these assets in the
year. Disposals include plant with a net book value of £19,000 transferred to
a subsidiary undertaking.
11 Investments
Company £'000
As at 1 January 2020 -
Additions in 2020 2,172
As at 31 December 2020 and 2021 2,172
The Company holds all of the shares in Stevenage Circuits Limited, a company
registered at 1 Ashvale, Alexandra Way, Ashchurch, Tewkesbury,
Gloucestershire, GL20 8NB. The company is a manufacturer of PCBs.
12 Inventories
Group Company Group Company
2021 2021 2020 2020
£'000 £'000 £'000 £'000
Raw materials 1,258 350 1,088 384
Work in progress 409 85 528 130
Finished goods 355 10 394 79
2,022 445 2,010 593
There is no material difference between the value of inventories stated and
their replacement cost. There are no material stock provisions at any period
end, neither have material amounts of stock been written off in any of the
periods presented.
13 Trade and other receivables
Group Company Group Company
2021 2021 2020 2020
£'000 £'000 £'000 £'000
Amounts receivable within one year
Trade receivables 1,531 450 1,381 370
Amounts owed by group undertakings - - - 2,077
Other receivables 236 236 - 17
Prepayments 6,028 5,924 371 263
7,795 6,610 1,752 2,727
Amounts receivable after more than one year
Amounts owed by Group undertakings - 2,589 - -
Group trade receivables are stated net of impairment for estimated
irrecoverable amounts of £54,000 (2020: £20,000). Company trade receivables
are stated net of £31,000 (2020: £14,000). There has been no material write
offs or other material movements in the impairment provision in the current or
prior period.
The Directors consider that the carrying amount of trade and other receivables
approximates to their fair value. Prepayments includes £5,956,000 (2020:
£nil) in respect of deposits for capital equipment.
The Directors consider the credit quality of trade and other receivables that
are neither past due nor impaired to be of good quality. Substantially all
unimpaired overdue amounts have been collected since the year end.
Amounts owed by group undertakings bear no Interest and have no fixed date of
repayment. They are not considered to be receivable within one year (2020:
disclosed as on demand). There has been no impairment charge made against
these balances.
14 Trade and other payables
Group Company Group Company
2021 2021 2020 2020
£'000 £'000 £'000 £'000
Amounts falling due within one year:
Trade payables 2,305 1,326 1,076 434
Taxes and social security costs 175 104 318 102
Other payables 33 20 0 0
Accruals and deferred income 502 263 318 95
Provisions - - 244 0
3,015 1,713 1,956 631
Amounts falling due after more than one year:
Deferred income - grants 1,067 1,067 910 910
The Directors consider that the carrying amount of trade and other payables
approximates to their fair values. Accruals and deferred income includes
contract liabilities totalling £nil (2020: £118,000) in relation to customer
payments received in advance. There are also non-current provisions of
£115,000 (2020: £79,000) in the Group and £36,000 (2020: £nil) in the
Company relating to £79,000 of contingent liabilities on acquisition of the
subsidiary and £36,000 of dilapidation provisions.
15 Borrowings (including lease liabilities)
Group Company Group Company
2021 2021 2020 2020
£'000 £'000 £'000 £'000
Amounts falling due within one year:
Lease liabilities 274 80 187 80
Hire purchase contract obligations 772 373 740 469
Bank loan 71 71 - -
Invoice financing 184 184 - -
Other short-term financing 549 549 128 128
1,850 1,257 1,055 677
Amounts falling due between one & five years:
Lease liabilities 1,308 410 1,258 411
Hire purchase contract obligations 1,557 723 1,713 1,101
Bank loan 1,866 1,866 - -
4,731 2,999 2,971 1,512
Amounts falling due in more than five years:
Lease liabilities 783 81 1,107 161
Total borrowings 7,364 4,337 5,133 2,350
The bank loan of £1,937,000 bears interest at 3.25% over base rates and is
repayable by quarterly instalments at £98,000 a year with the remaining
£1,470,000 repayable in August 2026. It is secured on the freehold property.
Hire purchase obligations are secured on the specific tangible fixed assets to
which they relate.
The Group in a prior year has utilised lease contracts in respect of the
factory and office property it uses in the UK, which have been entered into
for terms of 10 years. A break is not expected to be exercised and accordingly
the full term was accounted for on commencement in an earlier year. For
property leases, it is customary for lease contracts to be reset periodically
to market rental rates.
Right of use assets, additions and depreciation are included in note 10.
Interest expenses relating to lease liabilities are included in note 6. The
total cash outflows for leases including hire purchase arrangements in the
year were £1,253,000 (2020: £675,000).
Financing activities and movements in total £'000
borrowings
As at 1 January 1,592
2020
Cash movements:
Lease payments in respect of right of use (87)
assets
Hire purchase contract (397)
payments
Interest (195)
paid
Non-cash movements:
Interest 195
accrued
On acquisition of 2,374
subsidiary
New hire purchase and financing 1,651
contracts
As at 31 December 5,133
2020
Financing activities and movements in total £'000
borrowings
Cash movements:
Bank loan advanced 1,960
Bank loan repayments (23)
Net movement in invoice and other short-term financing 605
Lease payments in respect of right of use assets (187)
Hire purchase contract payments (801)
Interest paid (301)
Non-cash movements:
Interest accrued 301
New hire purchase and financing 677
contracts
As at 31 December 2021 7,364
Group Company Group Company
2021 2021 2020 2020
£'000 £'000 £'000 £'000
Payments due under hire purchase contracts are as follows:
In one year or less 834 433 1,314 792
Between one and five years 1,869 844 3,649 1,772
In more than five years - - 1,232 184
2,703 1,277 6,195 2,748
Future finance charges (374) (181) (1,062) (398)
Present value of liabilities 2,329 1,096 5,133 2,350
16 Financial instruments and capital management
Risk management
The Board has overall responsibility for the determination of the Group's risk
management objectives and policies. The overall objective of the Board is to
set policies that seek to reduce risk as far as possible without unduly
affecting the Group's innovation and flexibility. All funding requirements and
financial risks are managed based on policies and procedures adopted by the
Board of Directors. The Group is exposed to financial risks in respect of
market, credit, foreign exchange and liquidity risk.
Capital management
The Group is financed by a mixture of equity, term loans and invoice
discounting facilities as required for working capital purposes and with hire
purchase finance used for certain capital projects. The capital comprises all
components of equity which includes share capital, retained earnings and other
reserves as indicated in the Statement of Financial Position.
The Group's objectives when maintaining capital are to safeguard the entity's
ability to continue as a going concern, so that it can continue to provide
returns for Shareholders and benefits for other stakeholders, and to provide
an adequate return to Shareholders by pricing products and services
commensurately with the level of risk.
The capital structure of the Company and Group consists of Shareholders equity
with all working capital requirements financed from cash and capital
expenditure utilising cash and term hire purchase contracts.
The Company sets the amount of capital it requires in proportion to risk. It
manages its capital structure and makes adjustments to it in the light of
changes in economic conditions, terms of borrowing facilities and the risk
characteristics of the underlying assets and activity. In order to maintain or
adjust the capital structure, the Company may adjust the amount of dividends
paid to Shareholders, return capital to Shareholders, issue new shares, or
sell assets to reduce debt.
Market risks
These arise from the nature and location of the customer markets, foreign
exchange and interest rate risks.
The Group trades within the UK, European and US aeronautical and
communications markets, and accordingly there is a risk relating to the
underlying performance of these markets. The Directors monitor this and the
foreign exchange risk closely with the intention to foresee downturns in trade
or changes in the use of technology.
Foreign exchange risk
The Group trades in overseas markets and, whilst it has net foreign currency
balances has both receipts and a degree of payments in matching currencies. It
also enters into forward contracts with an option to sell sufficient foreign
currency receipts at a fixed rate which it uses to manage pricing and the
exposure to exchange rate risks. It is not considered to be a material
sensitivity to the range of fluctuations in exchange rates experienced within
the last year.
The Group had the following net cash, sales ledger and purchase ledger
balances denominated in foreign currencies:
2021 2020
£'000 £'000
Euro denominated 188 1,121
US dollar denominated 95 (12)
Credit risk
Credit risk is the risk of financial loss if a customer or counterparty to a
financial instrument fails to meet its contractual obligations. The Group is
mainly exposed to credit risk from credit sales and attempts to mitigate
credit risk by assessing the creditworthiness of customers and closely
monitoring payments history. Given the long experience of the Group with its
customers and in view of the systems and relations with customers that the
Group has, the Directors consider the credit quality of trade receivables to
be good and debts to be virtually fully recoverable. The credit quality of
trade receivables can be assessed via external credit ratings (if available)
or to historical information about default rates.
The Group considers a debtor to be in default when a decision has been made to
commence legal proceedings for recovery. There have been no material
impairments to trade or other receivables invoiced within the 3 years included
within these financial statements.
Impairment provisions are also recognised based on the simplified approach
within IFRS9 using the lifetime expected credit losses. To measure the
expected credit losses, trade receivables are grouped based on shared credit
risk and days past due. The expected loss rates are based on payment profiles
and historical credit loss experience. The historical loss rates are adjusted
to reflect current and forward-looking information on macroeconomic factors
affecting the ability of the customers to settle receivables.
Credit risk on cash and cash equivalents is considered to be minimal as the
counterparties are all substantial banks with high credit ratings. The maximum
exposure to credit risk is the total of financial assets as set out in the
table below.
Interest rate risk
The Group makes use of fixed rate finance lease or hire purchase agreements to
acquire property, plant and equipment; this ensures that the Group maintains
its existing working capital and ensures certainty of costs at the point of
acquisition of those assets.
The Group has also drawn down a mortgage loan in the year with a floating rate
and a 1% change in base rates would increase annual interest charges by
approximately £18,000.
The Directors therefore do not consider that the Group is exposed to a
material risk or sensitivity from fluctuations in interest rates. These
liabilities are set out in note 14.
Liquidity risk
The maturity of the Group's financial liabilities including borrowing
facilities detailed above is as set out below. Current liabilities were
payable on demand or to normal trade credit terms with the exception of hire
purchase contract obligations payable monthly and leases payable quarterly.
Liquidity risk of the business is managed by the preparation of and monitoring
of a rolling weekly cash forecast which is integrated with a regular review of
credit risk exposure (as detailed above) and the Board level review of
three-month rolling finance facility headroom.
At 31 December 2020 Up to 1 year 1-2 years 2-5 years In more than 5 years
£'000 £'000 £'000 £'000
Trade and other payables 1,956 - - -
Lease liabilities 334 415 1,244 1,232
Other short term financing 128 - - -
Hire purchase contracts (including interest) 962 738 1,252 -
3,380 1,153 2,496 1,232
At 31 December 2021 Up to 1 year 1-2 years 2-5 years In more than 5 years
£'000 £'000 £'000 £'000
Trade and other payables 2,768 - - -
Lease liabilities 415 415 1,244 816
Other short term financing 733 - - -
Bank loan 173 170 1,912 -
Hire purchase contracts (including interest) 834 757 1,112 -
4,923 1,342 4,268 816
Classification of financial instruments
All financial assets are held at amortised cost and all financial liabilities
have been classified as other financial liabilities measured at amortised cost
with the exception of any forward currency contracts that exist which are
measured at fair value as a derivative instrument.
Financial assets 2021 2020
£'000 £'000
Trade and other receivables 1,767 1,381
Cash and cash equivalents 2,897 13,930
4,664 15,311
2020
2021
Financial liabilities £'000 £'000
At amortised cost
Trade and other payables 2,768 1,956
Lease liabilities 2,365 2,552
Bank loan 1,937 -
Other short term financing 733 128
Hire purchase contracts 2,329 2,453
10,132 7,089
17 Deferred tax liabilities
Group
Liability/(asset) in respect of:
Accelerated capital allowances £'000 Intangible assets Share Based Payment Losses Total
£'000 £'000 £'000 £'000
As at 31 December 2020 785 672 (493) (758) 206
Debit/(credit) to profit or loss 323 670 414 (990) 417
As at 31 December 2021 1,108 1,342 (79) (1,748) 623
There is an unrecognised deferred tax asset in respect of losses carried
forward of approximately £465,000 (2020: £460,000).
Company
Liability/(asset) in respect of:
Accelerated capital allowances £'000 Intangible assets Share Based Payment Losses Total
£'000 £'000 £'000 £'000
As at 31 December 2020 467 672 (493) (440) 206
Debit/(credit) to profit or loss 49 670 414 (381) 752
As at 31 December 2021 516 1,342 (79) (821) 958
18 Defined contribution scheme
The Group contributes to personal pension plans for the benefit of certain
employees. The pension cost charge represents contributions payable by the
Group to the funds.
2021 2020
£'000 £'000
Contributions payable by the Group for the year 171 120
19 Share capital
2021 2020
Group and Company £'000 £'000
Allotted, called up and fully paid
30,179,014 (2020: 28,426,122) Ordinary Shares of £0.04 each 1,207 1,137
1,421,285 shares were issued on 20 December 2021 at 80 pence each in order to
fund capital expenditure and growth working capital. This was the first
tranche of a larger fundraising completed in January 2022. In addition,
331,607 employee held share options were exercised in the year at 28.25 pence
each.
7,341,250 ordinary £0.04 shares were issued on 30 March 2020 at 80 pence each
in order to provide funds for the acquisition of SCL, investment and working
capital. 6,312,500 £0.04 ordinary shares were issued on 9 December 2020 in
order to provide funds for further investment in plant and manufacturing
capacity required by manufacturing agreements and anticipated demand.
Ordinary shares have equal rights to votes in any circumstances and are
non-redeemable. Ordinary shares have rights to receive dividends and capital
distributions.
No dividends have been declared or are proposed in respect of the year (2020:
£nil).
Analysis of Movements of Shares in Issue 2020
2021
1 January 28,426,122 14,772,372
Shares issued on 30 March 2020 - 7,341,250
Shares issued on 9 December 2020 - 6,312,500
Shares issued on 20 December 2021 1,421,285 -
Options exercised in the year 331,607 -
31 December 30,179,014 28,426,122
20 Contingent liabilities
At 31 December 2021, the Company and Group had no contingent liabilities
(2020: none).
21 Financial commitments
The Company and Group had capital commitments of £7,662,000 at 31 December
2021 (2020: £3,511,000 in respect of the investment to be made in new plant).
The Company has given a debenture including a fixed charge over all freehold
and leasehold property which secures the mortgage of £1.9M as well as the
invoice discounting facility also with HSBC plc for £184K. The Company has
also given specific asset security against its fixed plant and equipment. The
company also has an import line facility which is covered by this security
where there is an outstanding balance of £nil.
22 Share Option Plan
Introduction
The Group established the EMI Share Option Plan on 15 June 2018 which allows
for the grant of enterprise management incentive share options which qualify
for favourable tax treatment under the provisions of Schedule 5 to Income Tax
(Earnings and Pensions) Act 2003 (ITEPA) (EMI Options) and awards of
non-qualifying options (together Awards). The awards are not transferable.
Only the person to whom an Award is granted or his or her personal
representatives may acquire Ordinary Shares pursuant to an Award.
The Board and Remuneration Committee has overall responsibility for the
operation and administration of the Share Option Plan and discretion to select
the persons to whom Awards are to be granted.
Size of EMI Options grants/plan limits
The Group will grant EMI Options for as long as the Group satisfies the
qualifying conditions set out in the EMI Code.
Under the EMI Code, an employee may hold EMI Options over Ordinary Shares with
a value (as at the date of grant) up to £250K. Where this threshold is
exceeded, the employee may not receive EMI Options for three years. He may,
however, receive non-qualifying Awards, subject to the limit as set out below.
Unless the Remuneration Committee otherwise determines, the aggregate number
of Ordinary Shares over which Awards may be granted under the Share Option
Plan on any date shall be limited so that the total number of Ordinary Shares
issued and issuable pursuant to Awards granted under the Share Option Plan and
any other share scheme operated by the Company in any rolling 10-year period
will be restricted to 10 per cent of the Company's issued Ordinary Share
capital from time to time calculated at the relevant time.
Rights attaching to shares
Ordinary Shares issued in connection with the exercise of Awards will rank
equally with Ordinary Shares of the same class then in issue. Application will
be made for admission to trading on AIM of new Ordinary Shares issued.
Malus and Clawback
The Remuneration Committee may apply clawback where at any time before or
within a year of vesting it determines that the final results of the Group
were misstated. The Remuneration Committee may also apply the clawback at any
time if it is discovered that the participant engaged in fraudulent or
dishonest conduct prior to vesting that justified, or would have justified,
summary dismissal from office or employment.
Awards
Included in the awards are options over 368,690 Ordinary Shares granted to
Mark Hodgkins, a director, both within the EMI scheme and further non
qualifying options.
Share option movements
2021 Weighted average exercise price (p) 2021 number 2020 weighted average exercise price (p) 2020 number
1 January 57.5 1,886,215 28.25 915,360
Shares forfeited during the year (25,426) 28.25 (13,415)
Options granted in the year - 87.5 984,000
Options exercised in the year 28.25 (331,607) - -
31 December 1,529,182 57.5 1,885,945
Options over 990,015 shares were granted to employees on 15 June 2018. 331,607
were exercised in 2021 and remained exercisable as at 31 December 2021. They
are exercisable at 28.25 pence per share after a period of 3 years. The
share-based payment charge of 72.25 pence per option share has been measured
using the Black Scholes model applying the three-year vesting period, a
volatility of 50% and annual risk-free rate of 1.5%.
Options over 984,000 shares were granted to employees on 24 June 2020 They are
exercisable at 87.5 pence per share after a period of 2 years and subject to
performance conditions being met. None were exercisable at 31 December 2021
(2020; nil). The share-based payment charge of 30 pence per option share has
been measured using the Black Scholes model applying an expected three-year
vesting period, a volatility of 50% and annual risk-free rate of 1.0%.
23 Prior year business combination
The parent company acquired all of the share capital of Stevenage Circuits
Limited ('SCL'), a UK-based designer and manufacturer of short flex and rigid
printed circuit boards, on 1 April 2020. The acquisition primarily adds
further manufacturing capacity to enable the demand-led ramp up of Trackwise
Design's Improved Harness Technology production, as well as customers and
technical, sales and operational expertise.
The assets were acquired at a discount to their fair value resulting in
negative goodwill of £1,642,000 which has been credited to the income
statement in accordance with IFRS 3 and represents an exceptional item in the
period. This relates to the ability of the combined group to fully utilise the
manufacturing capacity of SCL and enhance earnings from the specialist plant
and equipment. The consolidated negative goodwill credit is not expected to be
taxable.
The fair values of the assets and liabilities acquired are as follows: Fair value
£'000
Property, plant and equipment 2,960
Right of use property assets 1,914
Intangible assets 11
Inventories 871
Trade receivables and prepayments 1,088
Tax 467
Cash 544
Trade and other payables (1,588)
Lease liabilities (1,914)
Hire purchase liabilities (460)
Provisions (79)
3,814
Negative goodwill arising (1,642)
Consideration paid 2,172
Consideration was paid in cash and there is no deferred or contingent
consideration payable.
Gross trade receivables acquired were £897,000 all of which all was expected
to be recovered. Right of use property assets are included in property, plant
and equipment and lease liabilities within borrowings in the consolidated
statement of financial position. Acquisition related expenses of £226,000,
principally in respect of professional fees, have been charged as an
exceptional item in the income statement together with £278,000 incurred in
respect of the integration of SCL into the Group. This involved incremental
project time and cost to bring processes and operations in line with
Trackwise.
The negative goodwill, acquisition and integration expenses are considered
highly material and significant non-recurring related items. They are
therefore presented below operating loss in the consolidated income statement.
SCL contributed £3,920,000 of revenue and recorded a loss after tax of
£13,000 included in the consolidated income statement from 1 April 2020 to 31
December 2020 (excluding acquisition expenses and negative goodwill).
Had SCL been consolidated from 1 January 2020 it would have contributed
another £1,284,000 of revenue and a loss of £23,000 to the year.
24 Ultimate controlling party and related party transactions
There was no individual controlling party as at 31 December 2021.
The key management personnel are considered to be the Directors. Please refer
to Note 5 for details of key management personnel remuneration. M Hodgkins, a
Director of the Company, holds options over 368,690 Ordinary Shares in the
Company (note 22).
25 Adjusted Operating Profit and EBITDA
In monitoring the performance of the business, the Directors focus on
operating profit adjusted for material non-recurring or non-trading expenses
which are not a reflection of the underlying cost base or represent one-off
investment, together with share-based payments which are non-cash and, in a
developing business, often more volatile and less representative of the
potential value to employees of share options. The adjustments made are set
out below:
Adjusted operating (loss)/profit: 2021 2020
£'000 £'000
Operating loss (1,678) (541)
Add back share-based payments 153 228
New facility set up costs 941 -
Non recurring set up costs for new product - 128
Adjusted operating loss (584) (185)
The share-based payment is added back because the granting of options to
employees is not a regular occurrence there having been none granted in 2021.
As this is an irregular charge it is added back to better display the adjusted
operating loss/profit.
The measure of EBITDA is not recognised by IFRS however it remains an
important performance measure for management in adding back a non-cash expense
in the context of a business utilising long term plant and equipment and
manufacturing facilities with the major expenditure on initial purchase and at
set up. During the year the Company incurred significant non-recurring
non-underlying costs relating to the establishment of the facility at
Stonehouse which do not relate to the generation of revenues for customers.
These costs have been added back.
Adjusted EBITDA: 2021 2020
£'000 £'000
Operating loss (1,678) (541)
Depreciation (net of development cost capitalisation) 965 693
Amortisation 426 265
Share based payments 153 228
New facility set up costs 941 -
Non recurring set up costs for new product - 128
Adjusted EBITDA 807 773
26 Post balance sheet events
The Company completed its equity fundraising with 7,329,051 new ordinary
shares issued at 80 pence on 6 January 2022. In combination with the first
tranche issued on 20 December 2021, this raised approximately £7m of cash for
the Group to fund capital expenditure and growth working capital.
Since the year end, the Company's bankers have approved facilities of £6.5m
to enable the funding of working capital and asset equipment purchase secured
by fixed and floating charges on the assets of the group (note 15).
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR GUGDRBXDDGDIRecent news on Trackwise Designs
See all newsREG - AIM Trackwise Designs - Cancellation - Trackwise Designs plc
AnnouncementREG - FTSE Russell Trackwise Designs - Trackwise Designs
AnnouncementREG - Trackwise Designs - Appointment of Administrators
AnnouncementREG - Trackwise Designs - Notice of Intention to Appoint Administrators
AnnouncementREG - Trackwise Designs - UK EV OEM Contract termination
Announcement