TIDMHEIQ
RNS Number : 6244R
HeiQ PLC
30 October 2023
30 October 2023
HeiQ Plc
("HeiQ" or "the Company")
Results for year ended 31 December 2022
Cutting through the headwinds & setting the course for what
comes next
HeiQ Plc (LSE:HEIQ), a leading company in materials innovation
and hygiene technologies, announces its final results for the full
year ended 31 December 2022 ("FY 2022"). These results are
published concurrently with the Company's Interim Results for the
period ending 30 June 2023.
Annual Report and Restoration of Trading:
The Company's Annual Report and Accounts for the year ended 31
December 2022 will shortly be available to view on HeiQ's website,
www.heiq.com/investors . A copy of the Annual Report will also be
submitted to the Financial Conduct Authority in the United Kingdom
via the National Storage Mechanism ("NSM"), available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism . Copies
will be posted to shareholders in the coming days.
Upon uploading the Annual Report to the NSM, expected to be
completed today, the Company will make an immediate request to the
FCA for the Company's Ordinary Shares to be restored to trading on
the Main Market of the London Stock Exchange as soon as practicable
thereafter. A further announcement will be made confirming the
exact time and date of resumption of trading.
Financial Overview:
-- Revenue reduced 14.8% to US$47.2 million (FY 2021 restated: US$55.4 million*)
-- Gross profit margin down 17.3% to 28.5% (FY 2021 restated: 45.8%*)
-- Adjusted EBITDA decreased to US-$12.2 million (FY 2021 restated: US$4.5 million*)
-- Operating loss of US-$29.2 million (FY 2021 restated: US$-1.4 million*)
-- Loss after taxation of US$-29.8 million (FY 2021 restated: US$-1.4 million*)
-- Cash at year-end of $8.5m with net debt (including lease liabilities) of US$3.7 million
* Details on restatements of prior year financial information
are disclosed in Note 2 of the Company's Financial Statements.
Operational Overview:
-- Despite a robust first-half performance, the second half of
FY 2022 was characterized by a sudden weakening of the markets in
which HeiQ operates leading to a decrease in sales and related
contribution margin, which impacted financial performance.
-- Unprecedented macroeconomic pressures converged, creating a
challenging trading environment not only for HeiQ but also for our
competitors and the textile industry at large.
Post Period:
In response to ongoing market challenges, HeiQ has taken rapid,
decisive action to enhance resilience and reduce its cost base. The
Company has reviewed and prioritized its activities to navigate
these turbulent market conditions. Actions taken include:
-- Strategic Reorganization: Business was restructured into
three commercial units, each with dedicated leadership and P&L
responsibility, being Textiles & Flooring, Antimicrobials and
Life Sciences.
-- Relocated various support functions to the lower-cost location Portugal.
-- Applied a strong focus on commercialization teams and
prioritised high-value opportunities in high-growth markets.
-- Focused on commercialized innovations and mature, sustainable
and future-proof products such as HeiQ Allergen Tech and HeiQ
Synbio, HeiQ Mint and HeiQ Smart Temp.
-- These initiatives have reduced overheads by 15%, becoming
mainly effective from H2 2023 onwards.
While the Board considers the Company has adequate resources, it
is in discussions with financial institutions to replace the
currently uncommitted credit facilities by committed, long-term
facilities.
Carlo Centonze, co-founder and CEO, HeiQ plc, said:
"I would like to first acknowledge the understandable
frustration felt by our valued shareholders in regard to the
delayed publication of FY 2022 accounts following our 10-month
audit and the corresponding 6 month suspension from trading. As the
largest shareholder, I share this burden and as Group CEO I have
addressed the commercial difficulties it generated for us.
"FY 2022 was a challenging year for our industry and our
business, as we faced sudden and dramatic market disruptions in H2
2022, caused by large inventory de-stocking by brands and retailers
following reduced consumer demand, high inflation, and rising
interest rates globally.
"Since the start of 2023, we have taken focused steps to reduce
our cost base and reorganize the business. We have not seen the
challenges abate, but actions taken since the start of the year
mean we will be in a better position going forward to manage the
challenging macro-economic environment, continue building value in
our core innovations and preserve our ability to deliver when the
market demand turns.
"These post-period initiatives, which are set out in detail in
our annual report and interim results reported concurrently with
these full-year results, are already having an impact and have
delivered an annualized 15% reduction in overheads, becoming
effective mainly from H2 2023 onwards. Looking forward we are
seeing increasingly positive trends within our markets and consumer
preferences quickly adapting to more sustainable solutions, opening
up opportunities for growth for HeiQ and its innovative portfolio
of sustainable products. With this in mind, we will continue to
prioritise innovations close to positive cash flow generation,
putting appropriate emphasis on operational excellence and our high
potential key innovation initiatives with superior sustainability
and profitability profiles."
Equity analyst and shareholder presentations:
Following the resumption of trading in its ordinary shares the
Company will announce registration details for two live
presentations. These presentations will cover today's results and
will be held separately for both equity analysts and investors.
For further information, please contact:
HeiQ Plc
Carlo Centonze (CEO) +41 56 250 68 50
Cavendish Securities Plc (Broker) +44 (0) 207 397
Stephen Keys / Callum Davidson 8900
------------------
SEC Newgate (Media Enquiries) +44 (0) 20 3757
Elisabeth Cowell / Tom Carnegie / Molly 6882
Gretton HeiQ@s ecnewgate
.co.uk
------------------
CHAIR'S STATEMENT
Setting the course for what comes next
FY 2022 was an extraordinarily challenging year for HeiQ. Whilst
trading performance in the first half remained robust given the
circumstances, the markets we operate in became significantly
weaker in the second half. An array of macroeconomic pressures
converged, creating a very challenging trading environment for
HeiQ, its competitors and the textile industry at large.
The sudden decrease in sales and related contribution margin
impacted on our performance. In addition, we had to defer
previously recognised revenue from partnership agreements and
therefore, our financial performance fell short of expectations in
FY 2022.
Further, the Board of HeiQ Plc had to announce that the Company
could not publish its audited FY 2022 Accounts by 30 April 2023,
which regrettably led to the shares being suspended. HeiQ appointed
Deloitte as its new auditor in November 2022, to reflect the
international expansion and increased complexity of the Group since
listing. Following several acquisitions, the Group has grown
significantly in terms of capabilities, technology platforms and
growth potential, but also in terms of organizational complexity.
We have seen a number of businesses with different systems,
processes and cultures joining the Group since 2017 and in
particular in 2021. In order to integrate these different
businesses, the Group started the harmonization of processes,
systems and ways of working across the organization in 2022. While
this is a challenging project for any organization, the changes in
market conditions made this process even more challenging given our
lean set-up across the Group, including in support functions. All
these factors contributed to a significantly extended year end
reporting timetable for 2022 with a related impact on the timing of
the external audit work. Further, while reviewing our processes,
the Board has also challenged key estimates and judgments in
relation to previous reporting periods. This has led to the
restatement of prior year financial statements as disclosed in the
notes to the financial statements within this Annual Report*.
We understand the frustration of our stakeholders - in
particular shareholders - about the delay in reporting audited FY
2022 Accounts and the related suspension of shares from trading on
the London Stock Exchange.
With market conditions remaining very challenging during 2023,
we have taken rapid, decisive action to build additional resilience
and to reduce our cost base, reviewing and prioritizing our
activities rigorously, including our innovation pipeline. These
activities have allowed us to navigate through 2023 during which
time cash management is key given the fragile market conditions and
uncommitted nature of the Group's current financing facilities as
further discussed in the Financial Review.
Outlook
While we expect the trading conditions for our commercialized
product range to continue to be challenging into 2024, we have
significantly reduced our cost base and will implement further
measures if needed. The Board is also re-assessing the overall
strategy and resource allocation of the Group as well as its debt
structure to address the uncertainty in relation to financing
arising from the uncommitted nature of credit facilities, as
disclosed in the notes to our financial statements. This is to
ensure a healthy balance between maintaining the long-term growth
potential of our key innovation projects, the constraints of the
current market conditions for our commercial business activities as
well as being prepared to capture opportunities to gain market
share once market conditions improve.
We are facing uncertain times, both politically and economically
on a global scale, which has impacted many key regions of HeiQ's
operation. At the same time, we are seeing increasingly positive
trends within our markets and consumer preferences quickly adapting
to more sustainable solutions, opening up opportunities for growth
for HeiQ and its innovative portfolio of sustainable products.
We thank our stakeholders for their continuing support. We as a
Board as well as the whole management team of HeiQ remain committed
and motivated to deliver long-term growth and value for our
shareholders and all other stakeholders by bringing sustainable
technologies to market. With an aggregate holding of approximately
24%, the Board and extended management team continues to be well
aligned with the interest of shareholders.
Esther Dale-Kolb
Chair
(R) Details on restatements of prior year financial information
are disclosed in Note 2 of the Company's Financial Statements.
CHIEF EXECUTIVE OFFICER'S REVIEW
Cutting through the headwinds: a year in review
I would like to first acknowledge the understandable frustration
felt by our valued shareholders in regards to the delayed
publication of FY 2022 accounts and the corresponding suspension
from trading at LSE. As the largest shareholder I share this burden
and as CEO I have addressed the commercial difficulties it
generated for us.
The macro picture and FY 2022 performance
FY 2022 was a challenging year for our industry and our
business, as we faced sudden and dramatic market disruptions in H2,
caused by large inventory de-stocking by brands and retailers
following reduced consumer demand, high inflation, and rising
interest rates globally. These factors were exacerbated by the war
in Ukraine and the resulting energy crisis in Europe has hamstrung
the entire European chemical industry. Our business was further
exposed to prolonged Covid-19 restrictions in China in H1, and the
downturn was protracted by a sectoral recession in our customer
segment following the lifting of restrictions and value chain
shifts by US brands and retailers out of China. Given that we were
investing in scaling up our four ventures with game-changing
innovation technologies, the sudden decrease in sales and the
related innovation financing by the profits from our commercial
businesses not only impacted top line performance, but also Group
profitability.
The dramatic disruption in market demand across our value chains
also impaired the ability of our recently acquired businesses to
achieve their business plans. The Directors therefore have
concluded that an impairment of goodwill recognized upon
acquisition of some of these businesses is appropriate.
Further, we had to partly defer revenues (and corresponding
profits) in respect of certain partnership agreements originally
recognized in H1 2022 and H2 2022 to future periods. Previously, we
had recognized revenue from these contracts at the point in time of
achieving certain technical development milestones. However, upon
further review, we concluded that it is appropriate to recognize
such revenues over time to coincide with specific exclusivity
rights being granted by HeiQ to the partners. Consequently, total
revenue of US$4.0 million has been deferred over a period of four
years with initial revenues being recognized in H2 2022.
Total revenue for the year amounts to US$47.2 million (2021(R) :
US$55.4 million) and the operating loss for the year was US$-29.2
million (2021(R) : US$-1.4 million) after goodwill impairments
(aggregated goodwill impairments in 2021 and 2022 amount to US$13
million). The cash balance as of December 31, 2022 was US$8.5
million.
2023 Trading Update
Since the start of 2023, we have taken focused steps to reduce
our cost base and reorganize the business. We have not seen the
challenges abate in 2023 but actions taken since the start of the
year mean we are to be in a better position going forward to manage
the challenging macro-economic environment, continue building value
in our core innovations and preserve our ability to deliver when
the market demand turns.
I am pleased to report that the initiatives set out below have
delivered an annualized 15% reduction in overheads, becoming
effective mainly from H2 2023 onwards. As set out in our separately
reported interim results, for H1 2023, we achieved sales of US$20.5
million (H1 2022(R) : US$27.6 million) with a slight decrease in
margins in a buyers-market driven by current overcapacity (H1
2023:40.9% vs. 41.5% for FY 2022). I want to point out that while
we have curtailed our investments in our four ventures, we have
maintained their value creating momentum and thus face the
corresponding costs. The benefits of the reduced cost base will
only be felt in H2 2023, so our operating loss for H1 2023 amounts
to US$-6.0 million (H1 2022(R) : US$-1.6 million). The cash balance
as of June 30, 2023 amounts to US$7.3 million. Our credit
facilities have historically and continue to be uncommitted in
nature, which casts a material uncertainty on the going concern
assessment until appropriate longer-term funding is in place, as
disclosed in the Notes to the financial statements. However, the
Board considers that the Group has adequate resources and
accordingly, the financial statements continue to be prepared on
the going concern basis. T he Board is in discussions with
financial institutions to replace the currently uncommitted credit
facilities by committed, long-term facilities, but the outcome of
these discussions cannot be guaranteed.
Reorganizing, right-sizing and re-focusing
At the beginning of the year we reorganized our activities into
three commercial business units and one "Other" segment
encompassing four innovation ventures with no commercial activities
yet, Innovation Services provided internally and externally to a
broad range of customers, as well as group functions. The three
distinct business units each have their dedicated team leader,
management team, and P&L responsibility:
-- Textiles & Flooring, under the leadership of Mr. Mike Abbott, headquartered out of the US
-- Life Sciences, led by Dr. Robin Temmerman, headquartered out of Belgium
-- Antimicrobials, led by Mr. Tom Ellefsen, headquartered out of Thailand
I will give you an update for each of these shortly, but before
I do so, it is worth touching on how we have built resilience into
the service offerings - Innovation, Differentiation and Regulatory
- which are delivered through each business unit as well as
internal services like Finance.
Besides streamlining and relocating various support functions
out of Switzerland to lower-cost locations, we have created clear
goals and responsibilities for all our business and service
organizations to optimize operations and to focus resource
allocation rigorously. In Innovation, we have focused our R&D
investment on innovation technologies which are closest to
cash-flow generation or are already being financed by brand
partners or through grants. In Differentiation we are leveraging
our brand customers to promote HeiQ to a broader (consumer)
audience thereby reducing our costs. We have expanded our internal
service organization particularly in Finance by implementing a
centralized accounting function and will continue to do so to
strengthen our financial reporting processes.
In addition, we are applying a strong focus on our
commercialization teams, aligning our efforts with our mission to
improve the lives of billions through our products. We are
prioritizing high value opportunities in high growth markets, where
we can leverage competitive advantages and deliver sustainable
value for our customers and shareholders. We are focusing on our
commercialized innovations and mature, sustainable and future-proof
products such as HeiQ Allergen Tech and HeiQ Synbio, HeiQ Mint and
HeiQ Smart Temp and are also actively challenging competitors'
positions with a better quality-price-terms ratio offering with our
HeiQ Pure range.
Textiles & Flooring
We have taken decisive steps to strengthen our position as the
market leader for branded, nominated textile innovation. In order
to maintain capabilities at a lower cost, we have accelerated the
reallocation of our innovation, testing, and product management
operations to Portugal, which is a lower-cost country with high
education in which to undertake these labor-intensive workstreams.
Our production has been moved largely to the US from Switzerland
due to lower energy costs and chemical raw material availability.
Our top-selling products are being further integrated backwards to
improve our margin. Additionally, we are investing in Central
America, a region which is increasingly capturing supply from US
brand's reducing their exposure to China. We are exploring global
local manufacturing partnerships to lower the impact on margins of
short notice orders and resulting rapid delivery logistical
costs.
Antimicrobials
In our Antimicrobials business, we have reduced the commercial
team by focusing on selected markets and expanded our support to
our established large channel partners Americhem and Avient. We are
further reducing our overheads and divesting from our regional
sales hub HeiQ Brazil in order to build up this particular market
with a commercialization partner instead. We are focused on
strengthening our regulatory assets for inorganic, botanical and
natural antimicrobials to enhance our position within specialty
antimicrobials and are looking for opportunities to consolidate the
industry segment.
Life Sciences
In Life Sciences we have achieved a key milestone with the
publication of the study comparing Ecolab disinfectants with our
HeiQ Synbio probiotic cleaners at the University Hospital Charité
Berlin. The study, which was sponsored by the Melinda & Bill
Gates foundation and the German state confirmed that HeiQ's
probiotic cleaners are equally effective to Ecolab's disinfectants
while significantly reducing resistance gene developments. The
study led to a recommendation for probiotic cleaners by the German
Robert Koch institute and the finalization of the new European
Detergent Regulation, now including probiotic cleaners. With this
key regulatory milestone achieved, we are doubling down on securing
significant contracts for HeiQ Synbio in the healthcare cleaning
market and selecting the best channel partner for global
commercialization. We are in negotiations with leading channel
partners for an exclusive OEM (Original Equipment Manufacturer)
agreement for our probiotic healthcare cleaners. Additionally, we
are revisiting our medical device business strategy as closing of
an OEM agreement is not materializing.
Venture Innovations
Innovation remains the lifeblood of our business and future
value creation. I talked earlier about our focused strategy for
innovation, prioritizing core technologies which are close to
positive cash flows or are being funded by customers or grants in
order to alleviate the impact of their expensed R&D costs on
our net commercial revenues and accelerate their technology and
market readiness.
One of our most valuable innovation platforms is HeiQ AeoniQ ,
the world's first climate-positive fiber. HeiQ AeoniQ has had
significant industry support by Hugo Boss, The Lycra Company and
MAS Holdings and has been taken to customers as a HUGO BOSS Polo
Shirt on consumer shelves as early as January 2023, just 15 months
after launching it. Hugo Boss has recently captured global
attention for HeiQ AeoniQ with their "THE CHANGE" launch in high
fashion. Additionally, Beste, an Italian manufacturer, introduced
the first fabric collection featuring HeiQ AeoniQ to a range of
major Italian fashion brands.
HUGO BOSS has committed itself to replacing all use of polyester
and nylon by 2030 and made the achievement of the same a
fundamental part of leadership's remuneration. HeiQ AeoniQ has one
objective, to replace polyester, a US$135 billion market with a
compounding annual growth rate of 3.5%. Most recently, in July
2023, we secured a further US$2.5 million funding from MAS
Holdings, a premium leader in garment making headquartered in
Singapore. We have further secured US$1.2 million in grants for our
R&D work and up to US$ 8 million government grant contributions
over the next two years for our first 3 kilotons (kto) plant
scale-up in Portugal. We will continue our efforts to secure
funding and offtake agreements with leading brands in order to
finance and build our first 30kto capacity production plant
scheduled to operate in 2026.
HeiQ GrapheneX is a proprietary technology platform that enables
us to directly synthesize porous graphene materials with high
performance and versatility. This platform is strategically
positioned to capture the growing demand for advanced materials in
the batteries and electric vents sectors. We have recently sold our
first samples to a Fortune 500 Brand and top three leader in
handheld mobile devices. Over the next two years we aim to deliver
our first pilot commercialization plant and are currently
negotiating product development funding with a key OEM player in
the handheld mobile devices industry.
HeiQ ECOS is a transparent conductive coating technology that
enables low emissivity. HeiQ ECOS can also be used in defense, to
alter the electromagnetic signature of assets making them stealth.
We have two existing defense customers paying for the application
development for signature management. With the knowledge gained
from these projects, we have developed a strong proof of concept
for transparent window insulation and yield-enhancing greenhouse
films. Less energy is needed to cool down or warm buildings or
greenhouses and if utilized in the automotive window space
significantly more reach can be conferred on electric vehicles. We
are currently validating the technology in field trials with market
leading adopters and have been able to secure additional grants to
develop further technology applications.
HeiQ BacCell is centered around our precision fermentation
technology, utilizing bacteria to manufacture post-biotics (HeiQ
Synbio platform). Our aim is to use agricultural and food waste
available in large amounts and transform them into bacterial
cellulose. The latter is utilized as a feedstock for our HeiQ
AeoniQ climate positive fiber and promises additional market
application opportunities in packaging, food, cosmetics and medical
currently being explored with leading channel partners. By using
waste-based feedstock we prevent the burning or fouling of organic
waste and thereby contribute to reduce greenhouse gas emissions,
with a potential for carbon credits being awarded.
Sustainability
Our technologies are intrinsically built to bring sustainability
downstream to our customers and to consumers. Our biggest
contribution to science-based reduction goals is the continuous
substitution of hydrocarbon based raw materials in our products
with bio-based raw materials. With HeiQ AeoniQ we are bringing to
the market a game changing technology, capable of decarbonizing the
textile industry with one of the few climate-positive technologies
able to reduce the science-based footprint of brands and retailers,
contributing significantly to reaching a net zero target. At HeiQ,
we are committed to driving impactful game-changing sustainable
innovation technologies to market.
Outlook
Looking ahead, our vision remains firm: striving to improve the
lives of billions by bringing sustainable technology solutions to
market that can make an impact. To achieve this and to weather
current challenging market conditions and financial uncertainties,
we have taken and will take further actions as and when needed to
control our costs and sharpen our strategy. This includes
prioritizing innovations close to positive cash flow generation, to
put appropriate emphasis on operational excellence as well as to
drive our high potential key innovation initiatives with superior
sustainability profiles.
We expect the above-mentioned measures beginning to flow through
to our bottom line in H2 2023 with corresponding stabilization of
our financial performance. However, we remain alert to take
additional corrective actions should markets deteriorate
further.
As always, I would like to end my statement by thanking our
investors, team, advisors and customers for their support during
what has been a very challenging period for the market and the
company. As a significant shareholder and a founder of HeiQ, my
commitment to grow HeiQ and materialize its huge potential remains
unchanged.
Carlo Centonze
CEO
FINANCIAL REVIEW
2022 was a difficult year where our financial performance was
impacted by highly challenging market conditions and fell short of
expectations. Sales suffered from reduced market demand -
particularly in the last quarter of the year - while we continued
to invest into our key innovation initiatives to maintain the
long-term growth potential of the Group. After achieving a revenue
growth of 10.0%(R) in the previous year, revenues reduced by 14.8%
in 2022 to US$47.2 million (2021(R) : US$55.4 million).
Following several acquisitions, the Group has grown
significantly in terms of capabilities, technology platforms and
growth potential but also in terms of organizational complexity.
The Group has seen a number of businesses with different systems,
processes and cultures joining the Group since 2017 and in
particular during 2021. In order to integrate the different
businesses, the Group commenced the harmonization of processes,
systems and operating practices across the organization in 2022.
Furthermore, the significant drop in market demand required us to
review the valuation of intangible assets and our approach to
inventory valuation as we envisaged a short-term fall in demand for
certain of our technologies. Accordingly, despite our continued
confidence in the mid- to long-term value potential of our market
offerings, we have revised forecasts used in certain valuation
models related to intangible assets as well as inventory. As a
result, the Board has concluded that it is appropriate to impair
various goodwill positions as well as inventory positions where we
believe quantities on hand exceed demand for the next twelve
months. While preparing annual accounts 2022, including reviewing
aspects of accounting which rely on significant judgement, the
Company has also identified prior period errors that require
correction and thus lead to a restatement of prior period financial
statements. These factors have contributed to a significant delay
in the financial reporting process and the finalization of the work
by our auditors.
The Group deemed it appropriate to defer the recognition of
revenues (and profits) from certain partnership agreements related
to HeiQ AeoniQ to future periods. It was concluded that it is more
appropriate to recognize the milestone-payments over time during
the agreed exclusivity period rather than at a point in time upon
achieving the agreed technical development milestones. Accordingly,
US$2.0 million recognized in H1 2022 has been deferred and will be
recognized over a 4-year period commencing in H2 2022 and an
additional US$2.0 million previously expected to be recognized in
H2 2022 has also been deferred.
Accounting aspects relying on significant judgment and
estimations that materially affected our 2022 financial
performance
Impairment of Goodwill
Considering the challenging trading conditions, we have
determined a cumulative impairment charge of US$13 million to be
appropriate as of December 31, 2022. As we have corrected the
underlying framework for modelling valuation assumptions, we have
also applied the same approach retrospectively to the FY 2021
accounts and have concluded that of the cumulative impairment
charge of US$13 million, US$2.4 million should be charged against
income in 2021 instead of 2022. Further details on the impairment
charge can be found in Note 18 and Note 2 (restatement of 2021) to
the financial statements.
Allowance on inventory
Due to the deterioration in market conditions, the Group has
limited the demand forecast period to assess whether a good is
sellable or not to twelve months. Previously, the Group applied a
longer period of up to three years. However, the Board concluded
that this practice is no longer appropriate given the deterioration
in market conditions. This has resulted in recording a significant
allowance on inventory of US$4.9 million in 2022. This non-cash
expense has a significant impact on the gross margin for 2022 and
relates mainly to the raw materials for a limited number of
finished products.
Accounting for take-or-pay contracts
Certain customers have agreed, under a "take or pay" contract,
to purchase a specified minimum quantity of particular products
over a specified period of time, usually in exchange for a
specified exclusivity during the same period. However, the customer
must pay for the full quantity stated in the contract, irrespective
of whether the customer takes delivery of the minimum quantity to
which they are committed. Upon payment of the full amount, the
contract allows customers to defer their unexercised rights and to
consume the remaining units within a twelve-month period, although
there is no compulsion to do so. Revenue recognition for the
shortfall items is deferred until the customer consumes the units,
or, in case of expiry of the rights, typically twelve months after
payment by the customer. This represents an amendment to the
accounting policy for such contracts as disclosed in Note 2 and has
led to prior year restatements as discussed further below.
Consequently, the Directors have also concluded that no revenue
should be recognized for a long-term customer contract that the
Group is enforcing by way of legal claim in court as the customer
has not shown a willingness to execute any business as stipulated
in the signed agreement. This has led to a de-recognition of
revenue and profits in 2021 (US$0.6 million) and H1 2022 (US$0.7
million).
Financial Performance
Year
ended Year ended
December December
31, 31,
2022 2021
US$'000 US$'000
(restated)
-------------------------- ---------- ------------
Revenue 47,202 55,419
Gross profit 13,457 25,397
-------------------------- ---------- ------------
Gross profit margin 28.5% 45.8%
-------------------------- ---------- ------------
Selling and general
administrative expenses (30,969) (24,680)
Impairment losses (12,381) (2,454)
Net other income/expenses 648 383
-------------------------- ---------- ------------
Operating loss (29,245) (1,354)
-------------------------- ---------- ------------
Operating margin (62.0%) (2.4%)
-------------------------- ---------- ------------
Loss after taxation (29,814) (1,373)
-------------------------- ---------- ------------
Adjusted EBITDA (12,174) 4,545
-------------------------- ---------- ------------
EBITDA margin (adjusted) (25.8%) 8.2%
-------------------------- ---------- ------------
Revenues
Market demand for most of our businesses, with the exception of
the Chinese market due to lockdowns imposed by the government, was
not significantly impacted by geo-political developments, inflation
and rising interest rates until late in the year on the back of
consumer demand and inventory build-up across the value chain.
After the COVID-19 pandemic and supply-chain disruptions in the
previous years, industry players have been building up much higher
inventory levels than in the past to mitigate possible supply
issues which has supported demand. As such, in the first half of
the year, HeiQ was able to deliver a revenue growth of 6.8% (H1
2022(R) vs. H1 2021) despite an extremely low level of business
activity in China (lockdowns). As inflation continued to increase
rapidly in H2 2022, market sentiment weakened based on increasing
global recession concerns. Late in the year, this led to a sudden
halt in business along the entire supply chain, particularly in the
textile industry which, in terms of revenue, is still the most
important industry segment for HeiQ. Brands started to cancel
orders as they faced uncertain consumer demand coupled with very
high levels of inventory. This caused a sudden and severe decrease
in manufacturing activity across the value chain. Consequently,
revenues for H2 2022 were down 33.7% compared to H2 2021(R) and
down 28.7% compared to H1 2022(R) . Given the high inventory levels
seen in Q3 2022, we expect demand for our functional ingredients to
remain subdued for 2023.
Gross margin
Gross margins were 28.5% for the full year (2021(R) : 45.8%). In
H1 2022(R) margin was stable compared to H2 2021(R) (41.5% vs.
42.7%). The increased inventory allowance due to the change in the
valuation approach had a negative impact on the gross margin in H2
2022 which stood at 10.3%. Excluding the US$4.9 million allowance
on inventory recorded in 2022, the gross profit for FY 2022 would
have been US$18.4 million and the corresponding gross margin would
have been 38.9% vs. 45.8% for the full year 2021(R) .
Sales and General Administration Expenses
As we have disruptive technologies with high value and market
potential in our innovation pipeline, we continued to invest during
2022 in our future and in value creation although we have both
prioritized and adjusted the scope of projects as revenues and
related cash generation have suffered. Our Sales and General
Administration expenses ("SG&A") have grown in 2022 to US$31.0
million, an increase of US$6.3 million or 25.5% (2021(R) : US$24.7
million).
SG&A in H1 2022(R) was US$ 14.0 million, stable compared to
H2 2021(R) (US$ 14.0 million) but significantly higher than in H1
2021 (US$10.7 million). Approximately US$1.9 million of this
increase in H1 2022 (vs H1 2021) relates to the full year inclusion
of acquired companies. Further, in the course of 2021 we invested
in our skilled workforce, including the build-up of the HeiQ
AeoniQ(TM) fiber team which increased the general cost base for H1
2022 by another US$1.4 million compared to H1 2021.
In H2 2022, SG&A amounted to US$17.0 million which
represents an increase of US$3.0 million against H1 2022(R) and
US$3.0 million against H2 2021(R) . Audit costs for FY 2022
increased by about US$1.0 million compared to FY 2021.
Impairment losses
Impairment losses have been recorded both on intangible assets
(US$11.7 million) - mainly related to goodwill impairments as
explained above - as well as on property, plant & equipment
(US$0.7 million) as hygiene mask production equipment has been
impaired due to a significant decline in demand.
Other Income / Expenses
Other income and other expenses predominantly relate to foreign
exchange gains on working capital (other income) and foreign
exchange losses (other expenses). Other expenses further include a
write-off of intangible assets.
Overall, and including goodwill impairments, HeiQ reports an
operating loss of US$-29.2 million for the year 2022 compared to an
operating loss of US$-1.4 million in 2021(R) .
Reporting as per new Business Unit structure
As explained in the Chair and CEO statement, the Group has
re-organized its management structure into distinct Business Units
and therefore has also amended its disclosures on reported
segments.
HeiQ reports four segments: the three Business Units as well as
"Other activities". Other activities include the Innovation Service
function, Business Development initiatives ("Ventures" as well as
costs not allocated to one of the three Business Units, including
goodwill impairments. In 2022 and 2021, SG&A expenses have been
allocated to Business Units only to a limited extent with focus on
commercial activities. For 2023 and going forward, the Group
intends to allocate costs more extensively to the three Business
Units.
Textiles & Life Other Total
Flooring Sciences Antimicrobials activities
US$'000 2022 2021* 2022 2021* 2022 2021* 2022 2021* 2022 2021*
------------------ ------ ------ ------- ------ ------- ------- -------- -------- -------- -------
Revenue 33,870 39,773 6,894 10,115 3,577 3,379 2,861 1,792 47,202 55,419
Operating profits
(loss) 979 14,196 (1,078) 1,438 53 1,106 (29,199) (18,096) (29,245) (1,354)
Finance result (590) (35)
Loss before
taxation (29,835) (1,389)
Taxation 21 16
------------------ ------ ------ ------- ------ ------- ------- -------- -------- -------- -------
Loss after
taxation (29,814) (1,373)
------------------ ------ ------ ------- ------ ------- ------- -------- -------- -------- -------
*as restated
Revenues within the Textiles & Flooring business unit
decreased by US$5.9 million (-15%) to $33.9 million in 2022. This
was driven by two previously mentioned main contributors: COVID-19
related lockdowns in one of our main markets, China, as well as the
unprecedented, industry wide decrease in demand along the entire
value chain towards the end of the year.
Revenues within the Life Sciences business unit decreased by
US$3.2 million (-32%) to $6.9 million in 2022 compared to 2021(R) .
This decrease reflects the significantly lower sales of hygiene
masks in 2022 which was partly offset by an increase in sales of
HeiQ Synbio products.
Revenues within the Antimicrobials business unit increased by
US$0.2 million (+5.9%) to US$3.6 million.
Revenues allocated to other activities encompass mainly
Innovation Services provided to 3(rd) party customers.
Adjusted EBITDA
Reported adjusted EBITDA loss was US$-12.2 million for 2022
compared to a positive EBITDA of US$4.5 million in 2021(R) .
EBITDA is a way of measuring cash generation. HeiQ therefore
adjusts EBITDA for share options and rights granted to Directors
and employees and significant non-cash items being impairments of
goodwill and intangible assets.
Adjusted EBITDA 2021
US$'000 2022 (restated)
------------------------- -------- ------------
Operating loss (29,245) (1,354)
Depreciation 2,220 1,971
Amortization 1,435 976
Impairment losses
and write-offs 13,278 2,454
Share options and
rights granted to
Directors and employees 138 498
------------------------- -------- ------------
Adjusted EBITDA (12,174) 4,545
------------------------- -------- ------------
Statement of Financial Position
Total assets were US$71.1 million as of December 31, 2022
(December 31, 2021(R) : US$94.1 million) with equity amounting to
US$40.3 million and liabilities of US$30.8 million as of December
31, 2022 (December 31, 2021(R) : US$59.5 million equity and US$34.6
million of liabilities). This corresponds to an equity ratio of 57%
( 2021(R) : 63%).
Non-current assets decreased from US$47.3 million (December 31,
2021(R) ) to US$38.7 million as of December 31, 2022, mainly driven
by the impairment of intangible assets.
Current assets decreased by 30.9% to US$32.4 million as of
December 31, 2022 (US$46.9m as of December 31, 2021(R) ). Trade
receivables reduced by US$8.2 million to US$6.5 million as of
December 31, 2022 (2021(R) : US$14.7 million). The cash balance
decreased by US$6.1 million year-on-year and was US$8.5 million as
of December 31, 2022 (2021: US$14.6 million).
The decrease in total liabilities was mainly driven by the
settlement of deferred consideration related to the acquisitions
made in 2021. Total liabilities decreased by US$3.8 million (11.0%)
from US$34.6 million as of December 31, 2021(R) to US$30.8 million
as of December 31, 2022. Net debts (including lease liabilities)
amount to US$3.7 million as of December 31, 2022 (December 31,
2021(R) : net cash position of US$3.7 million).
Cash Flow Statement
As a result of sales below expectation coupled with the
(budgeted) increase in our cost base, net cash generated from
operating activities in the year 2022 was negative and amounted to
US$-2.5 million (2021: US$3.4 million).
Cash used in investing activities amounts to US$8.8 million in
2022 (2021: US$12.7 million) and reflects the continued investment
in building long-term value. With US$3.9 million the development
and acquisition of intangible assets accounts for the largest share
of investment activities. This includes internal R&D activities
qualifying for capitalization but also the acquisition of
intellectual property rights to further complement the hygiene
range of our Antimicrobial business. We also invested US$3.4
million of cash in plant and equipment, predominantly related to
the HeiQ AeoniQ(TM) pilot plant located in Austria. Consideration
paid for acquisitions (US$1.6 million) relate to earn-out and
instalment payments for acquisitions executed in previous
periods.
Net cash from financing activities amounted to US$5.9 million
(2021: US$-1.3 million net cash used). The largest portion of
proceeds is related to the sale of a 2.5% equity stake in HeiQ
AeoniQ GmbH to Hugo Boss in H1 2022 (US$4.8 million). Proceeds from
borrowings (net) amount to US$2.6 million and relate mainly to
fixed advances with a duration of up to 3 months.
The Group reports a cash balance of US$8.5 million as of
December 31, 2022 (December 31, 2021: US$14.6 million).
Prior Period Adjustments
As describe further above, the Directors have concluded that
certain adjustments to prior period financial statements should be
recorded. The cumulative impact on the prior period financial
statements (FY 2021) is as follows.
In US$ As published Total restatements As restated
previously
Revenue for FY 2021 57.9 million (2.5 million) 55.4 million
Income (loss) after taxation 2.5 million (3.9 million) (1.4 million)
for FY 2021
-------------- ------------------- --------------
Total assets as at December
31, 2021 101.8 million (7.7 million) 94.1 million
Total equity as at December
31, 2021 64.6 million (5.1 million) 59.5 million
Total liabilities as at December
31, 2021 37.2 million (2.6 million) 34.6 million
-------------- ------------------- --------------
These corrections resulted in a significant restatement of the
income after taxation. Further details of these corrections as well
as additional corrections that did not result in material
restatement of the income after taxation are disclosed in Note 2 to
the financial statements.
Restatement in respect of a significant take-or-pay
contracts
As disclosed in Note 2 to the financial statements, the Group
has renegotiated a significant take-or-pay contract after the
balance sheet date. As a result of renegotiations, the Group has
effectively waived unpaid accounts receivable in exchange for a
right of first refusal on supply of a wide product range to a large
industry player with the expectation to grow this multiple million
US$ account significantly over the coming years. The company has
reviewed its historic accounting for this contract. The conclusion
of this review is that amounts recognized as revenue in 2021 and
accounts receivable as at December 31, 2020 and 2021 were
overstated as the criteria for revenue recognition under IFRS 15
had not been met. There are also associated impacts on costs of
sales, accrued liabilities and tax. The Group has determined that
revenues of US$1.8 million and profits of US$0.7 million recognised
in 2021 required reversal. Additional revenues and profits of
US$0.7 million have been derecognized in relation to another
take-or-pay contract in relation to which the Group has filed a
claim against the customer in court.
Restatement in regards of goodwill impairments
As highlighted further above and discussed in more detail in
Note 2 to the financial statements, the Directors concluded that a
portion of the goodwill impairments identified in preparation of
the 2022 Annual Accounts should have been identified during the
preparation of the 2021 financials, if all available information at
the point of publishing the annual report 2021 had been taken into
consideration. Consequently, a retrospective review of the 2021
goodwill impairment tests was performed. It was concluded that a
portion of the identified impairment amounting to US$2.3 million is
to be allocated to the 2021 financial statements.
Going Concern Assessment
To manage its cash balance, the Group has access to credit
facilities totalling CHF9.0 million (approximately US$9.8 million
as of September 30, 2023). The credit facilities are in place with
two different banks and both contracts have materially the same
conditions. The facilities are not limited in time, can be
terminated by either party at any time and allow overdrafts and
fixed cash advances with a duration of up to twelve months.
As of September 30, 2023, the Group has drawn CHF6.3 million of
the facilities (CHF2.4 million as December 31, 2022) as
follows:
Maturity dates of used credit Amount
facilities:
November 27, 2023 CHF 4.5 million
----------------
June 17, 2024 CHF 0.8 million
----------------
September 30, 2024 CHF 1.0 million
----------------
Total CHF 6.3 million
----------------
The facilities are not committed, but the Board has not received
any indication from financing partners that facilities are at risk
of being terminated. Furthermore, the Board is in discussions with
financial institutions to replace the currently uncommitted credit
facilities by committed, long-term facilities, but the outcome of
these discussions remain uncertain.
The Group's directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future and operate within its credit facilities
for a period of 12 months from date of approval of these financial
statements. Nevertheless, the Board acknowledges the uncommitted
status of the facilities which could be terminated without notice
during the forecast period requiring the refinancing of debts as
per above maturity dates, indicates that a material uncertainty
exists that may cast significant doubt on the Group's ability to
continue as a going concern . Further disclosure on the going
concern assessment are made in Note 3b to the financial
statements.
Xaver Hangartner
Chief Financial Officer
(R) Details on restatements of prior year financial information
are disclosed in Note 2 of the Company's Financial Statements.
Consolidated statement of profit and loss and other
comprehensive income
For the year ended December 31, 2022
Year ended Year ended
December
31, December 31,
2022 2021
Note US$'000 US$'000
(restated*)
---------------------------------------- ---- ---------- --------------------
Revenue 7 47,202 55,419
Cost of sales 9 (33,745) (30,022)
Gross profit 13,457 25,397
Other income 10 4,832 6,625
Selling and general administrative
expenses 11 (30,969) (24,680)
Impairment loss on intangible
assets 18 (11,651) (2,454)
Impairment loss on property,
plant & equipment 19 (730) -
Other expenses 13 (4,184) (6,242)
---------------------------------------- ---- ---------- --------------------
Operating loss (29,245) (1,354)
---------------------------------------- ---- ---------- --------------------
Finance income 14 683 534
Finance costs 15 (1,273) (569)
Loss before taxation (29,835) (1,389)
Income tax 16 21 16
---------------------------------------- ---- ---------- --------------------
Loss after taxation (29,814) (1,373)
---------------------------------------- ---- ---------- --------------------
Other comprehensive income:
Exchange differences on translation
of foreign operations (1,914) (2,550)
---------------------------------------- ---- ---------- --------------------
Items that may be reclassified
to profit or loss in subsequent
periods (1,914) (2,550)
Actuarial gains/(losses) from
defined benefit pension plans 1,380 1,124
Income tax relating to items
that will not be reclassified
subsequently to profit or loss (276) (225)
---------------------------------------- ---- ---------- --------------------
Items that will not be reclassified
to profit or loss in subsequent
periods 1,104 899
---------------------------------------- ---- ---------- --------------------
Other comprehensive loss for
the year (810) (1,651)
---------------------------------------- ---- ---------- --------------------
Total comprehensive loss for
the year (30,624) (3,024)
---------------------------------------- ---- ---------- --------------------
Loss attributable to:
Equity holders of HeiQ (29,251) (1,177)
Non-controlling interests (563) (196)
---------------------------------------- ---- ---------- --------------------
(29,814) (1,373)
---------------------------------------- ---- ---------- --------------------
Total Comprehensive loss attributable
to:
Equity holders of the Company (30,061) (2,828)
Non-controlling interests (563) (196)
---------------------------------------- ---- ---------- --------------------
(30,624) (3,024)
---------------------------------------- ---- ---------- --------------------
Loss per share:
Basic (cents)** 17 (21.92) (0.91)
---------------------------------------- ---- ---------- ---------- ---------
*The consolidated statement of profit and loss and other
comprehensive income has been restated in the comparative period as
described in Note 2.
**The effect of share options is anti-dilutive and therefore not
disclosed.
Consolidated statement of financial position
As at December 31, 2022
As at As at As at
December December December
31, 31, 31,
2022 2021 2020
Note US$'000 US$'000 US$'000
(restated*) (restated*)
----------------------------------- ----- ---------- ------------ ------------
ASSETS
Intangible assets 18 20,442 30,773 5,264
Property, plant and equipment 19 9,802 6,865 5,467
Right-of-use assets 20 7,819 7,974 2,564
Deferred tax assets 32 538 1,337 1,288
Other non-current assets 21 137 333 206
----------------------------------- ----- ---------- ------------ ------------
Non-current assets 38,738 47,282 14,789
----------------------------------- ----- ---------- ------------ ------------
Inventories 22 13,168 13,770 13,540
Trade receivables 23 6,487 14,656 10,080
Other receivables and prepayments 24 4,262 3,876 2,609
Cash and cash equivalents 8,488 14,560 25,695
----------------------------------- ----- ---------- ------------ ------------
Current assets 32,405 46,862 51,924
----------------------------------- ----- ---------- ------------ ------------
Total assets 71,143 94,144 66,713
----------------------------------- ----- ---------- ------------ ------------
EQUITY AND LIABILITIES
Issued share capital and
share premium 26 205,874 195,714 184,096
Other reserves 28 (128,017) (127,195) (125,968)
Retained deficit 28 (39,466) (11,525) (10,348)
----------------------------------- ----- ---------- ------------ ------------
Equity attributable to
HeiQ shareholders 38,391 56,994 47,780
Non-controlling interests 1,948 2,541 (20)
----------------------------------- ----- ---------- ------------ ------------
Total equity 40,339 59,535 47,760
----------------------------------- ----- ---------- ------------ ------------
Lease liabilities 30 6,558 7,209 2,304
Long-term borrowings 31 1,445 1,605 1,400
Deferred tax liability 32 1,253 2,333 857
Other non-current liabilities 33 4,714 2,619 3,425
----------------------------------- ----- ---------- ------------ ------------
Total non-current liabilities 13,970 13,766 7,986
----------------------------------- ----- ---------- ------------ ------------
Trade and other payables 34 5,322 8,271 5,815
Accrued liabilities 35 4,978 3,386 2,168
Income tax liability 16 314 51 1,495
Deferred revenue 36 1,285 1,004 -
Short-term borrowings 31 2,893 1,157 173
Lease liabilities 30 1,264 905 349
Other current liabilities 38 778 6,069 967
----------------------------------- ----- ---------- ------------ ------------
Total current liabilities 16,834 20,843 10,967
----------------------------------- ----- ---------- ------------ ------------
Total liabilities 30,804 34,609 18,953
----------------------------------- ----- ---------- ------------ ------------
Total equity and liabilities 71,143 94,144 66,713
----------------------------------- ----- ---------- ------------ ------------
*The consolidated statement of financial position has been
restated for the comparative periods as described in Note 2.
The Notes form an integral part of these Consolidated Financial
Statements. The Consolidated Financial Statements were approved and
authorized for issue by the Board of Directors on October 26, 2023
and signed on its behalf by:
Xaver Hangartner, Chief Financial Officer
Consolidated statement of changes in equity
For the year ended December 31, 2022
Issued Other reserves Retained Equity Non-controlling Total equity
share capital deficit attributable interests
and share to HeiQ
premium shareholders
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------------- ---- -------------- -------------- ----------- ------------- --------------- ------------
(restated*) (restated*) (restated*) (restated*)
--------------------- ---- -------------- -------------- ----------- ------------- --------------- ------------
Balance at January
1, 2021 (as
presented) 184,096 (125,968) (8,499) 49,629 (20) 49,609
Prior year adjustment
in respect of
revenue
recognition - - (1,849) (1,849 - (1,849)
Balance at January
1, 2021 (as
restated) 184,096 (125,968) (10,348) 47,780 (20) 47,760
Loss after taxation - - (1,177) (1,177) (196) (1,373)
Other comprehensive
(loss)/income - (1,651) - (1,651) - (1,651)
Total comprehensive
(loss)/income for
the year - (1,651) (1,177) (2,828) (196) (3,024)
--------------------- ---- -------------- -------------- ----------- ------------- --------------- ------------
Issuance of shares 26 11,618 - - 11,618 - 11,618
Share-based payment
charges 27 - 424 - 424 - 424
Amounts arising
on business
combinations 5 - - - - 2,757 2,757
Transactions with
owners 11,618 424 - 12,042 2,757 14,799
--------------------- ----
Balance at December
31, 2021 195,714 (127,195) (11,525) 56,994 2,541 59,535
--------------------- ---- -------------- -------------- ----------- ------------- --------------- ------------
Loss after taxation - - (29,251) (29,251) (563) (29,814)
Other comprehensive
(loss)/income - (810) - (810) - (810)
Total comprehensive
(loss)/income for
the year - (810) (29,251) (30,061) (563) (30,624)
--------------------- ---- -------------- -------------- ----------- ------------- --------------- ------------
Issuance of shares 26 10,160 - - 10,160 - 10,160
Share-based payment
income 27 - (12) - (12) - (12)
Dividends paid
to minority
shareholders 28 - - - - (243) (243)
Capital contributions
from minority
shareholders - - - - 764 764
Adjustments arising
from change in
non-controlling
interests 5a - - (2,445) (2,445) (616) (3,061)
Transfer of shares
to non-controlling
interest 5b - - 3,755 3,755 65 3,820
Transactions with
owners 10,160 (12) 1,310 11,458 (30) 11,428
Balance at December
31, 2022 205,874 (128,017) (39,466) 38,391 1,948 40,339
--------------------- ---- -------------- -------------- ----------- ------------- --------------- ------------
*'The consolidated statement of changes in equity has been
restated for the comparative periods as described in Note 2.
Consolidated statement of cash flows
For the year ended December 31, 2022
Year ended Year ended
December December
31, 31,
2022 2021
Note US$'000 US$'000
Cash flows from operating (Restated*)
activities
----------------------------------- ------ ----------- ------------
Loss before taxation (29,835) (1,389)
Cash flow from operations
reconciliation:
Depreciation and amortization 9,11 3,655 2,947
Impairment expense 13 12,380 2,454
Net loss on disposal of assets 43 (5) (34)
Write-off of intangible assets 13 897 -
Fair value gain on derivative
liability 38 (371) -
Gain on earnout consideration 5g - (80)
Finance costs 273 225
Finance income (2) (18)
Pension expense 247 156
Non-cash equity compensation 12 138 498
Gain from lease modification 20 (68) -
Other costs paid in shares 26 235 -
Currency translation (61) (793)
Working capital adjustments:
Decrease in inventories 43 602 2,028
Decrease/(Increase) in trade
and other receivables 43 7,783 (2,305)
(Decrease)/Increase in trade
and other payables 43 2,543 2,181
------------------------------------ ------ ----------- ------------
Cash generated (used in)/from
operations (1,589) 5,870
Taxes paid 16 (870) (2,462)
------------------------------------ ------ ----------- ------------
Net cash generated (used in)/from
operating activities (2,459) 3,408
------------------------------------ ------ ----------- ------------
Cash flows from investing
activities
Consideration for acquisition
of businesses 43 (1,587) (8,857)
Cash assumed in asset acquisition 26 65 -
Purchase of property, plant
and equipment 19 (3,418) (994)
Proceeds from the disposal
of property, plant and equipment 53 138
Development and acquisition
of intangible assets 18 (3,865) (2,969)
Interest received 2 18
------------------------------------ ------ ----------- ------------
Net cash used in investing
activities (8,750) (12,664)
------------------------------------ ------ ----------- ------------
Cash flows from financing
activities
Interest paid on borrowings (110) (108)
Repayment of leases 20,43 (992) (662)
Interest paid on leases (163) (117)
Proceeds from disposals of
minority interests 5b 4,792 -
Proceeds from borrowings 43 3,465 546
Repayment of borrowings 43 (904) (928)
Dividends paid to minority
shareholders 28 (243) -
Net cash from/(used in) financing
activities 5,845 ( 1,269)
------------------------------------ ------ ----------- ------------
Net decrease in cash and cash
equivalents (5,364) (10,525)
------------------------------------ ------ ----------- ------------
Cash and cash equivalents
- beginning of the year 14,560 25,695
Effects of exchange rate changes
on the balance of cash held
in foreign currencies (708) (610)
------------------------------------ ------ ----------- ------------
Cash and cash equivalents
- end of the year 8,488 14,560
------------------------------------ ------ ----------- ------------
* The consolidated statement of cash flows has been restated for
the comparative period as described in Note 2.
Notes to the Consolidated Financial Statements for the year
ended December 31, 2022
1. General information
HeiQ Plc (the Company) is a company limited by shares
incorporated and registered in the United Kingdom. Its ultimate
controlling party is HeiQ Plc. The address of the Company's
registered office is 5th Floor, 15 Whitehall, London, SW1A 2DD.
The principal activities of the Company and its subsidiaries
(the Group) and the nature of the Group's operations are set out in
Note 6.
These financial statements are presented in United States
Dollars (US$) which is the presentation currency of the Group, and
all values are rounded to the nearest thousand dollars except where
otherwise indicated. Foreign operations are included in accordance
with the policies set out in Note 3.
2. Changes in accounting policies, prior period error correction
and adoption of new and revised standards
Change in accounting policy
Following the acquisitions in 2021, the Group had different
accounting policies for inventory in the subsidiaries and therefore
aligned the methodology during the financial year 2022 closing
process to apply solely a first-in-first-out basis. The Group has
assessed the impact on the valuation: the majority of inventory is
valued on an individual basis and the impact is limited to
functional consumer goods. It was therefore concluded that there
was no material impact from the change in policy. See Note 3s for a
description of the accounting policy.
Prior period error: Overstatement of lease assets and
liabilities and reclassifications
During the compilation of the financial statements for the year
ended December 31, 2022, the Group corrected an overstatement of
right-of-use assets and lease liabilities assumed in the
acquisition of HeiQ Chrisal N.V. It was determined that property
capitalized as a right-of-use asset was owned by HeiQ Chrisal N.V.
rather than leased - and the corresponding liability was that of a
loan rather than a lease in nature. The loan amount payable was
reported by Chrisal as short-term payables, and the assets were
recognized as property, plant and equipment. In addition, at Group
level, the same contracts were also recognized as right-of-use
asset and lease liabilities.
Further, certain liabilities arising from customer contracts
were incorrectly classified as deferred revenue rather than accrued
liabilities and certain other payables are reclassed to short- and
long-term borrowings.
The following table summarizes the impact of the prior period
error on the financial statements of the Group.
Year ended
December
31, 2021
Consolidated statement of profit
or loss US$'000
Selling and general administrative
expenses 16
Finance costs (27)
Decrease in profit for the financial
year (11)
Consolidated statement of financial position
Right-of-use assets (1,105)
Trade and other payables 1,088
Accrued liabilities (770)
Deferred revenue 770
Short-term borrowings (153)
Long-term borrowings (935)
Lease liabilities (current) 149
Lease liabilities (non-current) 967
Decrease in net assets and equity (11)
Prior period error: PPA Chrisal: Accounting for 51% of
intangible assets acquired instead of 100%
During the purchase price allocation of the Chrisal acquisition,
the Group identified and accounted for brand and customer
relationship as well as technologies. The Group correctly valued
the intangible assets at 51% in the purchase price allocation.
However, the Group also consolidated the intangible assets at 51%
when it should have accounted for them at 100% with the difference
leading to an increase in non-controlling interests. The correction
of the error leads to an increase in intangible assets and a higher
amortization charge for the reporting period 2021.
The following table summarizes the impact of the prior period
error on the financial statements of the Group.
Year ended
December
31, 2021
Consolidated statement of profit
or loss US$'000
Selling and general administrative
expenses (218)
Income tax 55
Decrease in profit for the financial
year (163)
Consolidated statement of financial position
Intangible assets 1,759
Deferred tax liability (440)
Increase in net assets 1,319
Non-controlling interests (1,483)
Decrease in shareholders' equity (163)
Prior period error: Correcting revenue recognition of
take-or-pay contracts
A further restatement concerns two significant take-or-pay
contracts which have minimum guaranteed pricing irrespective of
amounts delivered to the customer. Following a renegotiation with
one customer post year-end, the company has reviewed its historic
accounting for this contract. The conclusion of this review is that
amounts recognized as revenue in 2021 and accounts receivable as at
December 31, 2020 and 2021 were overstated as the criteria for
revenue recognition under IFRS 15 had not been met. There are also
associated impacts on costs of sales, accrued liabilities and
tax.
As a further consequence, the accounting policy has been
amended. Revenue from take-or-pay contracts is recognized only upon
shipment of the products. See updated accounting policy and
additional background on take-or-pay contracts in note 3l. This has
led to a restatement for 2021 in relation to a second take-or-pay
contract.
The following table summarizes the impact of the prior period
error on the financial statements of the Group. The impact of the
prior period error on basic earnings per share is presented in Note
17.
Year ended
December
31, 2021
Consolidated statement of profit
or loss US$'000
Revenue (2,455)
Cost of sales 876
Selling and general administrative
expenses 19
Income tax 174
Decrease in profit for the financial
year (1,386)
Consolidated statement of financial
position
Trade receivables (37)
Other receivables and prepayments (2,399)
Deferred tax asset 174
Accrued liabilities 876
Decrease in net assets and equity (1,386)
Prior period error: Goodwill impairment and currency translation
Chrisal CGU and RAS CGU
In course of the preparation of the 2022 financial statements,
the Group identified a goodwill impairment in relation to three
CGUs (Chrisal, RAS, Life). It was found that a portion of the
goodwill impairment should have already been identified during the
preparation of the 2021 financials, if all available information at
the point of publishing the annual report 2021 had been taken into
consideration. Consequently, a retrospective review of the 2021
goodwill impairment tests was performed and the underlying
framework for modelling valuation assumptions was corrected. It was
concluded that a portion of the identified impairment amounting to
US$2.3 million is to be allocated to the 2021 financial statements
whereas US$1.3 million of the impairment charge relates to the
Chrisal CGU and US$1.0 million relates to the RAS CGU. No
correction to the 2021 impairment test was identified for Life
CGU.
IAS 21 - The Effects of Changes in Foreign Exchange Rates
requires that intangible assets including goodwill arising on the
acquisition shall be treated as assets of the foreign operation.
Chrisal CGU and RAS CGU both have a functional currency which is
different to the presentation currency of the Group. Consequently,
these intangible assets should be translated from the functional
currency of the CGU, Euro, to the presentation currency US$. The
company recalculated the US$ balances with the closing rate present
as at December 31, 2021. This led to a decrease of the intangible
asset balance as well as a charge to other comprehensive loss of
US$888,000.
See Note 18 for further details.
Year ended
December
31, 2021
Consolidated statement of profit
or loss US$'000
Impairment loss on intangible assets (2,310)
Decrease in profit for the financial
year (2,310)
Consolidated statement of financial position
Intangible assets (3,198)
Other reserves 888
Decrease in net assets and equity (2,310)
Prior period error: foreign currency risk note
The amounts in Note 42d foreign currency risk have been restated
as at December 31, 2021, as they contained intercompany balances,
related to long-term loans that form part of net investments in
foreign operations. Such balances are eliminated at Group level
while foreign currency differences that arise between the entities'
functional currencies only affect other comprehensive income. The
error has no impact on the consolidated financial statements.
Impact of error corrections on the Group's consolidated
statement of financial position
The effect of error corrections on the financial year ended
December 31, 2021 and the balance carried forward from December 31,
2020 is shown in the following tables:
Consolidated statement of financial position December 31,
2020
Restatement
US$'000 As presented revenue recognition As Restated
---------------------- ------------- --------------------- ------------
Assets
Deferred tax asset 826 462 1,288
Trade receivables 13,437 (3,357) 10,080
Total Assets 69,608 (2,895) 66,713
Capital and reserves
Retained deficit (8,499) (1,849) (10,348)
Total Equity 49,609 (1,849) 47,760
Liabilities
Accrued liabilities 3,214 (1,046) 2,168
Total Liabilities 19,999 (1,046) 18,953
Consolidated statement of financial position December 31,
2021
Restatement
Restatement revenue Restatement Restatement
US$'000 As presented Leasing recognition PPA Chrisal Goodwill As Restated
------------------------ ------------- ------------ ------------- ------------- ------------ ------------
Assets
Intangible assets 32,212 - - 1,759 (3,198) 30,773
Right-of-use assets 9,079 (1,105) - - - 7,974
Deferred tax assets 701 - 636 - - 1,337
Trade receivables 18,050 - (3,394) - - 14,656
Other receivables
and prepayments 6,275 - (2,399) - - 3,876
Total Assets 101,845 (1,105) (5,157) 1,759 (3,198) 94,144
Capital and reserves
Retained deficit (5,823) 6 (3,235) (164) (2,310) (11,526)
Other reserves (126,307) (888) (127,195)
Non-controlling
interests 1,053 5 - 1,483 - 2,541
Total Equity 64,637 11 (3,235) 1,319 (3,198) 59,535
Liabilities
Leases (non-current) 8,176 (967) - - - 7,209
Long-term borrowings 670 935 - - - 1,605
Deferred tax liability 1,894 - - 440 - 2,333
Trade and other
payables 9,359 (1,088) - - - 8,271
Accrued liabilities 4,538 770 (1,922) - - 3,386
Deferred revenue 1,774 (770) - - - 1,004
Short-term borrowings 1,004 153 - - - 1,157
Leases (current) 1,054 (149) - - - 905
Total Liabilities 37,208 (1,116) (1,922) 440 - 34,609
Impact of adjustment on the Group's statement of profit and loss
and other comprehensive income
December 31, 2021
US$'000 Restatement Restatement
Restatement revenue Restatement Goodwill
As presented Leasing recognition PPA Chrisal impairment As Restated
------------------------ ------------- ------------ ------------- ------------- ------------ ------------
Net result for
the year
Revenue 57,874 - (2,455) - - 55,419
Cost of sales (30,898) - 876 - - (30,022)
Selling and general
administration
expense (24,465) (16) 19 (218) - (24,680)
Impairment losses
on intangible assets (144) (2,310) (2,454)
Finance costs (597) 27 - - - (569)
Income tax (212) - 174 55 - (16)
Income (loss)
after taxation 2,474 11 (1,386) (163) (2,310) (1,373
Income (loss) after
taxation attributable
to HeiQ Stockholders 2,676 6 (1,386) (163) (2,310) (1,177)
Income after taxation
attributable to
non-controlling
interest (202) 5 - - - (196)
Income (loss) after
taxation 2,474 11 (1,386) (163) (2,310) (1,373)
Impact of adjustment on earnings per share
December 31, 2021
Restatement Restatement
Restatement revenue Restatement Goodwill
US$'000 As presented Leasing recognition PPA Chrisal impairment As Restated
------------------- ------------- ------------ ------------- ------------- ------------ ------------
Basic earnings
(loss) per share 2.07 0.01 (1.08) (0.13) (1.78) (0.91)
New standards, interpretations and amendments effective for the
current period
Adopted
The following new standards and amendments were effective for
the first time in these financial statements but did not have a
material effect on the Group:
- Annual Improvements to IFRS Standards 2018-2020 Cycle
- Onerous Contracts - Cost of Fulfilling a Contract (Amendments
to IAS 37)
- Property, Plant and Equipment - Proceeds before Intended Use
(Amendments to IAS 16)
- Conceptual Framework for Financial Reporting (Amendments to
IFRS 3)
New standards, interpretations and amendments not yet effective
for the current period
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the Group has decided
not to adopt early. The most significant of these are as
follows:
Effective for annual periods beginning on or after January 1,
2023:
-- Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2);
-- Classification of Liabilities as Current or Non-current
(Amendments to IAS 1);
-- Definition of Accounting Estimates (Amendments to IAS 8);
and
-- Deferred Tax Related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
Management anticipates that these new standards, interpretations
and amendments will be adopted in the financial statements as and
when they are applicable and adoption of these new standards,
interpretations and amendments, will be reviewed for their impact
on the financial statements prior to their initial application.
The Directors do not expect these new accounting standards and
amendments will have a material impact on the Group's financial
statements.
3. Significant accounting policies
a. Basis of preparation
The Consolidated Financial Statements have been prepared in
accordance with UK adopted international financial reporting
standards.
The Consolidated Financial Statements have been prepared under
the historical cost convention except for certain financial and
equity instruments that have been measured at fair value.
Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
The preparation of Financial Statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgment in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgment and complexity, or areas where
assumptions and estimates are significant to the Consolidated
Financial Statements are disclosed in Note 4.
b. Going Concern
The Consolidated Financial Statements have been prepared on a
going concern basis, which contemplates the continuity of normal
business activity and the realization of the assets and the
settlement of liabilities in the normal course of business.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities
are described in the CFO Review and in Note 31 to the financial
statements. In addition, Notes 41 and 42 to the financial
statements include the Group's objectives, policies and processes
for managing its capital; its financial risk management objectives;
details of its financial instruments; and its exposures to credit
risk and liquidity risk.
To manage its cash balance, the Group has access to credit
facilities totalling CHF9.0 million (approximately US$9.8 million
as of September 30, 2023). The credit facilities are in place with
two different banks but with materially the same conditions. The
facilities are not limited in time, can be terminated by either
party at any time and allow overdrafts and fixed cash advances with
a duration of up to twelve months. In case one or the other party
terminates the agreement, fixed cash advances become due upon their
defined maturity date. The facilities do not contain financial
covenants, but they do require the delivery of certain financial
and operational information within a defined timeframe after the
balance sheet date. As the publication of audited accounts for the
year 2022 was delayed, the Company was not able to submit these
accounts within the contractually defined timeframe but has
received extensions to do so from both banks until October 31,
2023.
As of September 30, 2023, the Group has drawn CHF6.3 million of
the facilities (CHF2.4 million as at December 31, 2022) as
follows:
Term / Maturity date Amount
November 27, 2023 CHF4.5 million
---------------
June 17, 2024 CHF0.8 million
---------------
September 30, 2024 CHF1.0 million
---------------
The Group's forecasts and projections for the next 12 months
reflect the very challenging trading environment and show that the
Group should be able to operate within the level of its current
facility for at least 12 months from the date of signature of these
financial statements if the facility drawdowns remain available.
While the facilities are not committed, the Board has not received
any indication from financing partners that the facilities are at
risk of being terminated. Furthermore, the Board is in discussions
with financial institutions to replace the currently uncommitted
credit facilities by committed, long-term facilities, but the
outcome of these discussions remains uncertain.
Nevertheless, the Board acknowledges the uncommitted status of
the facilities which could be terminated without notice during the
forecast period requiring the refinancing of debts as per above
maturity date indicates that a material uncertainty exists that may
cast significant doubt on the Group's and Parent Company's ability
to continue as a going concern, and therefore the Group may not be
able to realize its assets and discharge its liabilities in the
normal course of business.
After considering the forecasts, sensitivities, and mitigating
actions available to management and having regard to the risks and
uncertainties to which the Group is exposed (including the material
uncertainty referred to above), the Group's directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future and
operate within its credit facilities for the period 12 months from
date of signature. Accordingly, the financial statements continue
to be prepared at the going concern basis.
c. Basis of consolidation
The Consolidated Financial Statements comprise the financial
statements of the Company and its subsidiaries listed in Note 6
"Subsidiaries" to the Consolidated Financial Statements.
A subsidiary is defined as an entity over which the Company has
control. The Company controls an entity when the Group is exposed
to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its
power over the entity. Subsidiaries are fully consolidated from the
date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.
Intra-group transactions, balances and unrealized gains on
transactions between Group companies are eliminated; unrealized
losses are also eliminated unless cost cannot be recovered. Where
necessary, adjustments are made to the financial statements of
subsidiaries to ensure consistency of accounting policies with
those of the Group.
Non-controlling interests in subsidiaries are identified
separately from the Group's equity therein. Those interests of
non-controlling shareholders that are present ownership interests
entitling their holders to a proportionate share of net assets upon
liquidation may initially be measured at fair value or at the
non-controlling interests' proportionate share of the fair value of
the acquiree's identifiable net assets. The choice of measurement
is made on an acquisition-by-acquisition basis. Other
non-controlling interests are initially measured at fair value.
Subsequent to acquisition, the carrying amount of non-controlling
interests is the amount of those interests at initial recognition
plus the non-controlling interests' share of subsequent changes in
equity.
The total comprehensive income of non-wholly owned subsidiaries
is attributed to owners of the parent and to the non-controlling
interests in proportion to their relative ownership interests.
The preparation of the Consolidated Financial Statements in
compliance with UK adopted international accounting standards
requires the Directors to exercise judgment in applying the
Company's accounting policies. The areas involving a higher degree
of judgment or complexity, or areas where assumptions and estimates
are significant to the Consolidated Financial Statements are
disclosed in Note 4 "Significant judgments, estimates and
assumptions" to the Consolidated Financial Statements.
d. Business combinations
Acquisitions of businesses are accounted for using the
acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the
sum of the acquisition-date fair values of assets transferred by
the Group, liabilities incurred by the Group to the former owners
of the acquiree and the equity interest issued by the Group in
exchange for control of the acquiree. Acquisition-related costs are
recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and
the liabilities assumed are recognised at their fair value at the
acquisition date, except that:
-- Deferred tax assets or liabilities and assets or liabilities
related to employee benefit arrangements are recognised and
measured in accordance with IAS 12 Income Taxes and IAS 19 Employee
Benefits respectively;
-- Liabilities or equity instruments related to share-based
payment arrangements of the acquiree or share-based payment
arrangements of the Group entered into to replace share-based
payment arrangements of the acquiree are measured in accordance
with IFRS 2 at the acquisition date (see below);
-- Assets (or disposal groups) that are classified as held for
sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that
Standard.
Goodwill is measured as the excess of the sum of the
consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer's
previously held equity interest in the acquiree (if any) over the
net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed. If, after reassessment, the
net of the acquisition-date amounts of the identifiable assets
acquired and liabilities assumed exceeds the sum of the
consideration transferred, the amount of any non-controlling
interests in the acquiree and the fair value of the acquirer's
previously held interest in the acquiree (if any), the excess is
recognised immediately in profit or loss as a bargain purchase
gain.
When the consideration transferred by the Group in a business
combination includes a contingent consideration arrangement, the
contingent consideration is measured at its acquisition-date fair
value and included as part of the consideration transferred in a
business combination. Changes in fair value of the contingent
consideration that qualify as measurement period adjustments are
adjusted retrospectively, with corresponding adjustments against
goodwill. Measurement period adjustments are adjustments that arise
from additional information obtained during the 'measurement
period' (which cannot exceed one year from the acquisition date)
about facts and circumstances that existed at the acquisition
date.
The subsequent accounting for changes in the fair value of the
contingent consideration that do not qualify
as measurement period adjustments depends on how the contingent
consideration is classified. Contingent consideration that is
classified as equity is not remeasured at subsequent reporting
dates and its subsequent settlement is accounted for within equity.
Other contingent consideration is remeasured to fair value at
subsequent reporting dates with changes in fair value recognised in
profit or loss.
When a business combination is achieved in stages, the Group's
previously held interests (including joint
operations) in the acquired entity are remeasured to its
acquisition-date fair value and the resulting gain or loss, if any,
is recognised in profit or loss. Amounts arising from interests in
the acquiree prior to the acquisition date that have previously
been recognised in other comprehensive income are reclassified to
profit or loss, where such treatment would be appropriate if that
interest were disposed of.
If the initial accounting for a business combination is
incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts for the
items for which the accounting is incomplete.
Those provisional amounts are adjusted during the measurement
period (see above), or additional assets or liabilities are
recognised, to reflect new information obtained about facts and
circumstances that existed as of the acquisition date that, if
known, would have affected the amounts recognised as of that
date.
e. Foreign currency transactions and translation
The individual entities' functional currencies are listed
below:
Subsidiary: Functional currency
HeiQ Plc, United Kingdom GBP
--------------------
HeiQ Materials AG, Switzerland CHF
--------------------
HeiQ ChemTex Inc., United States
of America USD
--------------------
HeiQ Pty Ltd, Australia AUD
--------------------
HeiQ GrapheneX AG, Switzerland CHF
--------------------
HeiQ Company Limited, Taiwan TWD
--------------------
HX Company Limited, Taiwan TWD
--------------------
HeiQ Medica S.L., Spain EUR
--------------------
HeiQ Iberia Unipessoal Lda, Portugal EUR
--------------------
HeiQ Chrisal N.V., Belgium EUR
--------------------
HeiQ RAS AG, Germany EUR
--------------------
HeiQ Regulatory GmbH, Germany EUR
--------------------
HeiQ (China) Material Tech LTD, CNY
China
--------------------
Life Material Technologies Limited, USD
Hong Kong
--------------------
Life Natural Limited, Hong Kong USD
--------------------
Life Materials Latam Ltda, Brazil BRL
--------------------
LMT Holding Limited, Thailand THB
--------------------
Life Material Technologies Limited, THB
Thailand
--------------------
HeiQ AeoniQ GmbH, Austria EUR
--------------------
ChemTex Laboratories Inc., United USD
States of America
--------------------
On a single entity level, transactions in foreign currencies are
translated into the functional currency at the rate of exchange on
the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the exchange
rate ruling at the reporting date. The resulting gain or loss is
reflected in the "consolidated statement of profit and loss and
other comprehensive income" within operating income or operating
expense, if the balance sheet account is of operating nature - e.g.
trade and other receivables/payables and within either "Finance
income" or "Finance costs", if the balance sheet account is of
non-operating nature - e.g. cash and cash equivalents, loans
receivable, payable.
Single entities with functional currencies other than US$ are
translated into US$ as part of the consolidation where assets and
liabilities are translated at closing rate for the year-ended, and
profit and loss items are translated at an average rate for the
year. Equity transactions are translated at a historic rate. The
residual value flows into the currency translation reserve.
The results and financial position of all Group entities that
have a functional currency different from the presentation currency
are translated into US$, the presentation currency, as follows:
-- assets and liabilities are translated at the closing rate at
the date of the "Statement of Financial Position";
-- income and expenses are translated at average exchange rates
(unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates,
in which case income and expenses are translated at the dates of
the transactions); and
-- all resulting exchange differences are recognized in other comprehensive income.
On consolidation, the Group recognizes in "other comprehensive
income" the exchange differences arising from the translation of
the net investment in foreign entities, and of monetary items
receivable from foreign subsidiaries for which settlement is
neither planned nor likely to occur in the foreseeable future.
f. Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses, if any. The cost of
an item of property, plant and equipment initially recognized
includes its purchase price and any cost that is directly
attributable to bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended
by the Group.
Property, plant and equipment are generally depreciated on a
straight-line basis over their estimated useful lives:
Machinery and equipment 5 - 15 years
Motor vehicles 4 - 5 years
Computers and related software 3 - 5 years
Furniture and fixtures 5 - 10 years
Buildings 10 - 20 years
Freehold land is not depreciated.
The estimated useful lives, residual values and depreciation
method are reviewed at the end of each reporting period, with the
effect of any changes in estimate accounted for on a prospective
basis.
Property, plant and equipment held under leases are depreciated
over the shorter of the lease term and estimated useful life.
g. Intangible assets
All intangible assets, except goodwill, are stated at cost less
accumulated amortization and any accumulated impairment losses.
Goodwill
Goodwill represents the amount by which the fair value of the
cost of a business combination exceeds the fair value of the net
assets acquired. Goodwill is not amortized and is stated at cost
less any accumulated impairment losses.
The recoverable amount of goodwill is tested for impairment
annually or when events or changes in circumstance indicate that it
might be impaired. Impairment charges are deducted from the
carrying value and recognized immediately in the income statement.
For the purpose of impairment testing, goodwill is allocated to
each of the Group's cash generating units expected to benefit from
the synergies of the combination. If the recoverable amount of the
cash generating unit is less than the carrying amount of the unit,
the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other
assets of the unit pro-rata on the basis of the carrying amount of
each asset in the unit. An impairment loss recognized for goodwill
is not reversed in a subsequent period.
Intangible assets acquired in a business combination
Net assets acquired as part of a business combination includes
an assessment of the fair value of separately identifiable
acquisition-related intangible assets, in addition to other assets,
liabilities and contingent liabilities purchased.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortization and accumulated impairment losses, on the same basis
as intangible assets that are acquired separately.
Acquisition-related intangible assets are amortized on a
straight-line basis over their useful lives which are individually
assessed.
The estimated useful lives are as follows:
Brand names 10 years
Customer relations 5 years
Technologies 10 years
Other intangible assets 5 - 10 years
Internally developed assets
Internally generated assets represent expenditure incurred on
research and development projects. Recognition follows the
following principles:
Research expenditure is recognized as an expense when it is
incurred. Development expenditure is recognized as an expense
except that costs incurred on development projects are capitalized
as long-term assets to the extent that such expenditure is expected
to generate future economic benefits. Development expenditure is
capitalized if, and only if an entity can demonstrate all of the
following:
-- its ability to measure reliably the expenditure attributable
to the asset under development;
-- the product or process is technically and commercially feasible;
-- its future economic benefits are probable;
-- its ability to use or sell the developed asset;
-- Its intention to complete and use or sell the developed asset;
-- the availability of adequate technical, financial and other
resources to complete the asset under development.
Capitalized development expenditure is measured at cost less
accumulated amortization and impairment losses, if any. Certain
internal salary costs are included where the above criteria are
met. These internal costs are capitalized when they are incurred in
respect of products developed for sale or assets developed to be
used.
In the event that it is no longer probable that the expected
future economic benefits will be recovered, the development
expenditure is written down to its recoverable amount. Development
expenditure initially recognized as an expense is not recognized as
assets in subsequent periods.
Capitalized development expenditure in relation to projects that
are still in development phase are capitalized as asset under
construction until they are ready for sale or use. These assets are
tested annually for impairment.
Internally developed assets are amortized on a straight-line
method over a period of five to ten years when the asset is ready
for sale or use.
The estimated useful life is 5-10 years.
Other intangible assets
Other intangible assets include purchased rights, licenses,
patent costs, concessions, website designs and domains and
trademarks. They are measured initially at purchase cost and are
amortized on a straight-line basis over their estimated useful
lives. The estimated useful life is 5-10 years.
Derecognition intangible assets
An intangible asset is derecognized on disposal, or when no
future economic benefits are expected from use or disposal. Gains
or losses arising from derecognition of an intangible asset,
measured as the difference between the net disposal proceeds and
the carrying amount of the asset, are recognized in profit or loss
when the asset is derecognized.
h. Impairment of financial assets
The expected credit loss model defined in IFRS 9 "Financial
Instruments" requires the Group to account for expected credit
losses and changes in those expected credit losses at each
reporting date to reflect changes in credit risk since initial
recognition of the financial assets. The credit event does not have
to occur before credit losses are recognized. IFRS 9 "Financial
Instruments" allows for a simplified approach for measuring the
loss allowance at an amount equal to lifetime expected credit
losses for trade receivables and contract assets.
The Group has three types of financial assets subject to the
expected credit loss model: trade receivables, contract assets,
other receivables.
For trade receivables and contract assets, the company uses a
simplified provision matrix to calculate expected credit loss: The
expected loss rates are based on the Group's historical credit
losses. The historical loss rates are then adjusted for current and
forward-looking information on macroeconomic factors affecting the
Group's customers.
For other receivables, the company makes use of the low credit
risk exemption.
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument
has increased significantly since initial recognition, the Group
compares the risk of a default occurring on the financial
instrument at the reporting date with the risk of a default
occurring on the financial instrument at the date of initial
recognition. In making this assessment, the Group considers both
quantitative and qualitative information that is reasonable and
supportable, including historical experience and forward-looking
information that is available without undue cost or effort. Forward
looking information considered includes the future prospects of the
industries in which the Group's debtors operate, obtained from
economic expert reports, financial analysts, governmental bodies,
relevant think-tanks and other similar organizations, as well as
consideration of various external sources of actual and forecast
economic information that relate to the Group's core
operations.
-- In particular, the following information is taken into
account when assessing whether credit risk has increased
significantly since initial recognition:
-- Significant deterioration in external market indicators of
credit risk for a particular financial instrument, e.g. a
significant increase in the credit spread, the credit default swap
prices for the debtor, or the length of time or the extent to which
the fair value of a financial asset has been less than its
amortized cost
-- Existing or forecast adverse changes in business, financial
or economic conditions that are expected to cause a significant
decrease in the debtor's ability to meet its debt obligations
-- An actual or expected significant deterioration in the operating results of the debtor
-- Significant increases in credit risk on other financial instruments of the same debtor
-- An actual or expected significant adverse change in the
regulatory, economic, or technological environment of the debtor
that results in a significant decrease in the debtor's ability to
meet its debt obligations
Irrespective of the outcome of the above assessment, the Group
presumes that the credit risk on a financial asset has increased
significantly since initial recognition when contractual payments
are more than 180 days past due, unless the Group has reasonable
and supportable information that demonstrates otherwise.
Despite the foregoing, the Group assumes that the credit risk on
a financial instrument has not increased
significantly since initial recognition if the financial
instrument is determined to have low credit risk at the reporting
date. A financial instrument is determined to have low credit risk
if:
-- The financial instrument has a low risk of default
-- The debtor has a strong capacity to meet its contractual cash
flow obligations in the near term
-- Adverse changes in economic and business conditions in the
longer term may, but will not necessarily, reduce the ability of
the borrower to fulfil its contractual cash flow obligations
The Group regularly monitors the effectiveness of the criteria
used to identify whether there has been a significant increase in
credit risk and revises them as appropriate to ensure that the
criteria are capable of identifying significant increase in credit
risk before the amount becomes past due.
Definition of default
The Group considers the following as constituting an event of
default for internal credit risk management purposes as historical
experience indicates that financial assets that meet either of the
following criteria are generally not recoverable:
-- When there is a breach of financial covenants by the debtor
-- Information developed internally or obtained from external
sources indicates that the debtor is unlikely to pay its creditors,
including the Group, in full (without taking into account any
collateral held by the Group)
Irrespective of the above analysis, the Group considers that
default has occurred when a financial asset is more than 360 days
past due unless the Group has reasonable and supportable
information to demonstrate that a more lagging default criterion is
more appropriate.
Write-off policy
The Group writes off a financial asset when there is information
indicating that the debtor is in severe financial difficulty and
there is no realistic prospect of recovery, e.g. when the debtor
has been placed under liquidation or has entered into bankruptcy
proceedings, or in the case of trade receivables, when the amounts
are over two years past due unless the Group has reasonable support
to assume recoverability, whichever occurs sooner. Financial assets
written off may still be subject to enforcement activities under
the Group's recovery procedures, taking into account legal advice
where appropriate. Any recoveries made are recognized in profit or
loss.
i. Impairment of non-financial assets
At each reporting date, the Directors assess whether indications
exist that an asset may be impaired. If indications do exist, or
when annual impairment testing for an asset is required, the
Directors estimate the asset's recoverable amount. An asset's
recoverable amount is the higher of an asset's or cash-generating
unit's fair value less costs to sell and its value-in-use, and is
determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from
other assets or groups of assets. Where the carrying amount of an
asset or cash-generating unit exceeds its recoverable amount, the
Directors consider the asset impaired and write the subject asset
down to its recoverable amount. In assessing value-in-use, the
Directors discount the estimated future cash flows to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset. In determining fair value less costs to sell, the
Directors consider recent market transactions, if available. If no
such transactions can be identified, the Directors utilize an
appropriate valuation model.
When applicable, the Group recognizes impairment losses of
continuing operations in the "statement of profit and loss and
other comprehensive income" in those expense categories consistent
with the function of the impaired asset.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognized
for the asset (or cash-generating unit) in prior years. A reversal
of an impairment loss is recognized immediately in profit or loss
to the extent that it eliminates the impairment loss which has been
recognized for the asset in prior years. Any increase in excess of
this amount is treated as a revaluation increase.
j. Leases
The determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement at inception
date: whether fulfilment of the arrangement is dependent on the use
of a specific asset or assets or the arrangement conveys a right to
use the asset.
Identifying leases
Lessee position:
The Group accounts for a contract, or a portion of a contract,
as a lease when it conveys the right to use an asset for a period
of time in exchange for consideration. Leases are those contracts
that satisfy the following criteria:
-- there is an identified asset;
-- the Group obtains substantially all the economic benefits from use of the asset; and
-- the Group has the right to direct use of the asset.
In determining whether the Group obtains substantially all the
economic benefits that arise from use of the asset, the Group
considers only the economic benefits that arise from use of the
asset, not those incidental to legal ownership or other potential
benefits.
In determining whether the Group has the right to direct use of
the asset, the Directors consider whether the Group directs how and
for what purpose the asset is used throughout the period of use. If
there are no significant decisions to be made because they are
pre-determined due to the nature of the asset, the Directors
consider whether the Group was involved in the design of the asset
in a way that predetermines how and for what purpose the asset will
be used throughout the period of use. If the contract or portion of
a contract does not satisfy these criteria, the Group applies other
applicable IFRSs rather than IFRS 16 "Leases".
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in
the lease unless (as is typically the case) this is not readily
determinable, in which case the Group's incremental borrowing rate
on commencement of the lease is used, which the Directors have
assessed to be between 1.75% and 5%, depending on the nature of the
asset and location.
Subsequent to initial measurement lease liabilities increase as
a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use
assets are amortized on a straight-line basis over the remaining
term of the lease or over the remaining economic life of the asset
if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease
(because, for example, it re-assesses the probability of a lessee
extension or termination option being exercised), it adjusts the
carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted at the same
discount rate that applied on lease commencement. The carrying
value of lease liabilities is similarly revised when the variable
element of future lease payments dependent on a rate or index is
revised. In both cases an equivalent adjustment is made to the
carrying value of the right-of-use asset, with the revised carrying
amount being amortized over the remaining (revised) lease term.
Right-of-use assets
A right-of-use asset is recognized at the commencement date of a
lease. The right-of-use asset is measured at cost, which comprises
the initial amount of the lease liability, adjusted for, as
applicable, any lease payments made at or before the commencement
date net of any lease incentives received, any initial direct costs
incurred, and an estimate of costs expected to be incurred for
dismantling and removing the underlying asset, and restoring the
site or asset.
Right-of-use assets are depreciated on a straight-line basis
over the unexpired period of the lease or the estimated useful life
of the asset, whichever is the shorter. Right-of-use assets are
subject to impairment or adjusted for any re-measurement of lease
liabilities.
The Group has elected not to recognize a right-of-use asset and
corresponding lease liability for short-term leases with terms of
12 months or less and leases of low-value assets. Lease payments on
these assets are expensed to profit or loss as incurred.
k. Taxation
The income tax expense represents the sum of the tax currently
payable and deferred tax.
Current and deferred tax are recognized in profit or loss,
except when they relate to items that are recognized in other
comprehensive income or directly in equity, in which case the
current and deferred tax are also recognized in other comprehensive
income or directly in equity respectively. Where current tax or
deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the
business combination.
Income taxation
Current income tax assets and liabilities are measured at the
amount to be recovered from, or paid to, the taxation authorities.
The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted at the reporting date in
the jurisdictions where the Group operates and generates taxable
income.
Deferred taxation
Deferred tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the Consolidated
Financial Statements. Deferred tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the
reporting date and expected to apply when the related deferred tax
is realized or the deferred liability is settled.
Deferred tax assets are recognized to the extent that it is
probable that the future taxable profit will be available against
which the temporary differences can be utilized.
l. Revenue from contracts with customers
The Group's revenue represents the fair value of the
consideration received or receivable for the rendering of services,
licenses and similar fees as well as for the sale of functional
products in different forms (mainly ingredients, materials and
consumer goods), net of value added tax and other similar
sales-based taxes, rebates and discounts after eliminating
intercompany sales.
Revenue from contracts with customers is recognized once the
performance obligation has been fulfilled. If the Group fulfills
its performance obligations to the customer, revenues recognized
are capitalized as contract assets until the Group invoices the
customers.
In contrast, if customers pay in advance for the services, a
contract liability is recognized and is released at point of
revenue recognition.
The Group has the following major revenue streams:
Sale of goods
The Group sells functional ingredients, materials or consumer
goods. Revenue from the sale of goods to customers is generally
recognized at a point in time, once control over the goods is
passed to customers.
Research and development services
HeiQ provides research and development services to customers in
exchange for a fee. Revenue is generally recognized at the point in
time of completion of the project, for example, with delivery of
proof-of-concept to the customer.
Consulting services for research and development projects
HeiQ provides consulting services for customers regarding
research and development projects including grant acquisition
services, industry cluster services and management services. The
revenue for these services is recognized over time based on
completion of the project. Any amounts invoiced for stages not
completed, are recognized as deferred revenue.
Take or pay arrangements
Certain customers have agreed, under a "take or pay" contract,
to purchase a specified minimum quantity of particular products
over a specified period of time, usually in exchange for a
specified exclusivity during the same period. However, the customer
must pay for the full quantity stated in the contract, irrespective
of whether the customer takes delivery of the minimum quantity to
which they are committed. Upon payment of the full amount, the
contract allows customers to defer their unexercised rights and to
consume the remaining units within a twelve-month period, although
there is no compulsion to do so. The customers are billed for each
shipment of products and revenue is recognized at the point in time
control over the goods is passed to the customer. At the end of the
contractual period, the customer is billed for the amounts not
ordered. Revenue recognition for these shortfall items is deferred
until the customer consumes the units, or, in case of expiry of the
rights, typically twelve months after payment by the customer.
Exclusivity fees
HeiQ grants exclusivity to customers for certain products in
certain regions. The contracts restrict HeiQ from selling specific
products to competitors for a limited time. The customers pay a fee
for exclusivity which increases the price of the goods supplied by
HeiQ. In cases where the obligation to grant exclusivity can be
valued separately from other obligations in the contract, the
exclusivity portion is accounted for over time according to the
contractual definition of the exclusivity period.
m. Share-based payments
All of the Group's share-based awards are equity settled.
Equity-settled share-based payments to employees are measured at
the fair value of the equity instruments at the grant date.
Equity-settled share-based payments to non-employees are measured
at the fair value of services received, or if this cannot be
measured, at the fair value of the equity instruments granted at
the date that the Group obtains the goods or counterparty renders
the service. The fair value of such shares issued has been
estimated by reference to the cash consideration received for
shares issued or material third party transactions at or close to
the dates for such non-cash issues.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Directors' estimate of
equity instruments that will eventually vest, with a corresponding
increase in equity. Where the conditions are non-vesting, the
expense and equity reserve arising from share-based payment
transactions is recognized in full immediately on grant.
At the end of each reporting period, the Directors revise their
estimate of the number of equity instruments expected to vest. The
impact of the revision of the original estimates, if any, is
recognized in profit or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to
other reserves.
n. Employee benefits
Short-term benefits
Short-term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service is
provided. A liability is recognized for the amount expected to be
paid under short-term cash bonus or profit-sharing plans if the
Group has a present legal or constructive obligation to pay this
amount as a result of past service provided by the employee and the
obligation can be estimated reliably.
Long-term benefits
Defined benefit plans
The Group operates a defined benefit pension plan in
Switzerland, which requires contributions to be made to a
separately administered fund. The cost of providing benefits under
the defined benefit plan is determined using the projected unit
credit method with actuarial valuations being carried out at the
end of each annual reporting period.
Re-measurements, comprising of actuarial gains and losses, the
effect of the asset ceiling, excluding amounts included in net
interest on the net defined benefit liability and the return on
plan assets (excluding amounts included in net interest on the net
defined benefit liability), are recognized immediately in the
statement of financial position with a corresponding debit or
credit to other reserve through "Other Comprehensive Income" in the
period in which they occur. Re-measurements are not reclassified to
profit or loss in subsequent periods.
Past-service costs are recognized in profit or loss on the
earlier of:
-- the date of the plan amendment or curtailment; and
-- the date that the Group recognizes related restructuring
costs, or termination benefits, if earlier.
Net interest is calculated by applying the discount rate to the
net defined benefit liability or asset. The Group recognizes the
following changes in the net defined benefit obligation under "cost
of sales", "administration expenses" and "selling and distribution
expenses" in the consolidated statement of profit or loss (by
function):
-- service costs comprising current service costs, past-service
costs, gains and losses on curtailments and non-routine
settlements; and
-- net interest expense or income.
Defined contribution plans
The income statement expense for the defined contribution
pension plans operated represents the contributions payable for the
year.
o. Financial instruments
Financial assets and financial liabilities are recognised in the
Group's statement of financial position when the Group becomes a
party to the contractual provisions of the instrument.
Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the
fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised
immediately in profit or loss.
p. Finance income and expenses
Finance expenses comprise interest payable, lease expenses
recognized in profit or loss using the effective interest method,
unwinding of the discount on provisions, and net foreign exchange
losses that are recognized in the income statement.
Finance income comprises interest receivable on cash deposits
and net foreign exchange gains.
Interest income and interest payable is recognized in profit or
loss as it accrues, using the effective interest method.
Foreign currency gains and losses are reported on a net
basis.
q. Cash and cash equivalents
For the purpose of presentation in the consolidated statement of
cash flows, cash and cash equivalents include cash on hand,
deposits held at call with financial institutions, other short-term
highly liquid investments with original maturities of three months
or less that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value, and
bank overdrafts.
r. Trade and other receivables
Trade receivables are recognized initially at transaction price
and subsequently measured at amortized cost using the effective
interest method, less provision for impairment.
s. Inventories
Inventories are stated at the lower of cost and net realizable
value. Cost is based on the first-in-first-out principle and
includes expenditure incurred in acquiring the inventories and
other costs in bringing them to their existing location and
condition.
t. Provisions
A provision is recognized when the Group has a present
obligation, legal or constructive, as a result of a past event and
it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, and a reliable
estimate can be made. Provisions are reviewed at each reporting
date and adjusted to reflect the current best estimate. If it is no
longer probable that an outflow of economic resources will be
required to settle the obligation, the provision is reversed. Where
the effect of the time value of money is material, provisions are
discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. When discounting
is used, the increase in the provision due to the passage of time
is recognized as an interest expense.
u. Contingent liabilities
Contingent liabilities are possible obligations whose existence
depends on the outcome of uncertain future events or present
obligations where the outflow of resources is uncertain or cannot
be measured reliably. Contingent liabilities are not recognized in
the Consolidated Financial Statements but are disclosed unless they
are remote.
4. Critical accounting judgements and key sources of estimation uncertainty
In applying the Group's accounting policies, which are described
in Note 3, the directors are required to make judgements (other
than those involving estimations) that have a significant impact on
the amounts recognised and to make estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical accounting judgements
The following are the critical judgements, apart from those
involving estimations (which are presented separately below), that
the directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in financial statements.
Accounting for take-or-pay contracts
Following a change in accounting policy in connection with an
identified prior period error (see Note 2), revenue recognition for
shortfall items is deferred until the customer consumes the units,
or typically twelve months after payment by the customer in case of
expiry of the rights (Note 3l). Applying this judgement results in
recognition of revenues and pre-tax profit at a later point in
time. Revenue and pre-tax profits would have been US$622,000 higher
for the reporting year if such revenues were not deferred in
2022.
Allowance for inventory obsolescence
The slowdown of sales in 2022 led to an increase in unsold
finished goods and unused raw materials. The Group applied
judgement in calculating the allowance for obsolete inventory. For
slow-moving items, the Group compared quantities on hand with
budgeted sales quantities. The sales projections are inherently
uncertain due to the nature of the business and fluctuating market
conditions. The inventory allowance calculated as at December 31,
2022 is US$4,912,000 (2021: US$17,000) as presented in Note 22.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Goodwill impairment testing
Following the assessment of the recoverable amount of goodwill
allocated to the CGU "RAS" (allocated goodwill: US$7.2 million),
the directors consider the recoverable amount of goodwill allocated
to CGU "RAS" to be most sensitive to the achievement of forecasts
in 2023 comprising forecasts of revenue, staff costs and operating
expenses based on current and anticipated market conditions. Whilst
the Group can manage most of RAS CGU's costs, the revenue
projections are inherently uncertain due to the nature of the
business and fluctuating market conditions. The market for RAS CGU
has seen a slowdown in the second half of 2022 due to a decline in
customer demand. It is possible that underperformance to estimated
revenues as considered in the impairment test may occur in
2023.
The sensitivity analysis for a reasonably possible change in
assumptions in respect of the recoverable amount of the CGU "RAS"
goodwill is presented in Note 18.
5. Business combinations
Business combinations in 2022
a. Acquisition of non-controlling interest in Chrisal N.V.
On December 14, 2022, HeiQ increased its interest in HeiQ
Chrisal N.V. from 51% to 71% after some sellers exercised their put
options. HeiQ paid EUR2.9 million (approximately US$3.0 million)
for the additional 20% shareholding to the vendors through the
issue of 3,348,164 new ordinary shares in the Company. The 20%
share was valued at US$0.6 million. The transaction resulted in a
US$0.6 million reduction of non-controlling interests and a US$2.4
million charge to retained earnings.
b. Transfer of shares in HeiQ AeoniQ GmbH to non-controlling interests
On February 11, 2022, HeiQ Materials AG reached an agreement
with Hugo Boss AG to dispose of 2.5% of
its shareholding in HeiQ AeoniQ GmbH and issued a call option.
Under the call option, the Company granted Hugo Boss AG the
contractual right to acquire from the Company a further 5%
shareholding in HeiQ AeoniQ GmbH for a call option exercise price
of EUR10,000,000 (approximately US$10,657,000). The shares and call
option were issued for US$4,791,000, the call option was recognized
as a derivative liability, see Note 38.
Business combinations in 2021
c. Acquisition of Chrisal NV
On March 9, 2021, HeiQ Iberia Unipessoal Lda acquired 51% of the
share capital and voting rights of Chrisal NV, a company
incorporated in Belgium. Chrisal NV is a biotechnology company and
a leader in innovative ingredients and consumer products that
incorporate the benefits of probiotics and synbiotics. It has
technology platforms with the purpose of creating healthy and
sustainable microbial ecosystems. The application of its
proprietary technology includes cosmetics, personal care, textiles,
wound dressings, water purification, air treatment and cleaning
products. The company has its office, manufacturing site and
bottling facility in Lommel, Belgium.
The purchase consideration was payable partly in cash
(EUR5,000,000, equivalent to approximately US$6,054,000) and partly
by the issue of 1,101,928 new ordinary shares for EUR2,500,000
(US$2,982,000), equivalent to a total consideration of
US$9,036,000.
The acquisition is part of the Group's strategy of becoming a
global leader in materials innovation and allows access to the
broader market of microbial surface management and a bio-based
green complementary technology platform to its successful
antimicrobials.
Goodwill of US$6,163,000 was recognized and is attributable to
anticipated future profit from expansion opportunities and
synergies of the business. The goodwill arising from the
acquisition has been allocated to the Chrisal CGU (see definition
in Note 18). Fair value adjustments have been recognized for
property, plant and equipment and acquisition-related intangible
assets which are in alignment with accounting policies of the
Group.
Transaction costs relating to the acquisition of US$46,000 have
been charged to the Statement of profit and loss and other
comprehensive Income in the period relating to the acquisition of
Chrisal NV.
The sellers of Chrisal N.V. hold buyout options to sell their
remaining shareholding to HeiQ. The options are exercisable every
year from March 9 (anniversary of the closing date) until December
31 each year at a strike price defined in the respective
shareholders' agreement. As of December 31, 2022, four out of five
old shareholders have exercised their option (see above, Business
combinations in 2022) and sold in total an additional interest of
20% in Chrisal N.V. to the Group. The remaining non-controlling
shareholder has partially sold his interest and therefore the Group
concludes that the option has lapsed as of December 31, 2022.
d. Acquisition of RAS AG
On April 29, 2021, the Company completed the acquisition of 100%
of the share capital and voting rights of RAS AG, a company based
in Regensburg, Germany. The acquisition was for an initial
consideration of EUR5.1 million (approximately US$6.1 million),
with EUR1.25 million (US$1.48 million) payable in cash and EUR3.85
million (US$4.66 million) through the issue of 1,701,821 new
ordinary shares by the Company. An additional earn-out of EUR2.7
million (US$3.2 million) was satisfied through the issuance of
2,743,841 new ordinary shares in 2022 resulting in an overall
consideration of EUR7.8 million (US$9.37 million).
RAS AG is a materials innovation company that drives the
development of resource-efficient and sustainable products. RAS AG
develops and manufactures highly functionalized materials for this
purpose. This includes the manufacture of antimicrobial,
hygiene-enhancing additives and durable antimicrobial coating
systems which are sold worldwide under the trademark agpure(R), and
transparent electrically conductive and infrared reflective
coatings sold under the ECOS(R) trademark. The acquisition is in
line with HeiQ's strategic goal to gain market share in hygiene
solutions by providing antimicrobial surface hygiene technologies
to the healthcare and other sectors. This is building on the
acquisition of Chrisal N.V. Belgium concluded earlier in the year,
which gives HeiQ expanded access to the healthcare sector through
probiotic and synbiotic cleaners.
Goodwill of US$7,234,000 was recognized and is attributable to
anticipated future profit from expansion opportunities and
synergies of the business. The goodwill arising from the
acquisition has been allocated to the RAS CGU (see definition in
Note 18). Fair value adjustments have been recognized for
acquisition-related intangible assets which are in alignment with
the accounting policies of the Group.
Transaction costs relating to the acquisition of US$50,000 have
been charged to the Statement of profit and loss and other
comprehensive income in the period relating to the acquisition of
RAS AG.
HeiQ Regulatory GmbH, a joint-venture company previously
accounted for under the equity method, became a wholly owned
subsidiary on acquisition of RAS AG.
e. Acquisition of Life Material Technologies Limited
On June 15, 2021, the Company completed the acquisition of 100%
of the share capital and voting rights of Life Material
Technologies Limited, Hong Kong ("LIFE").
The acquisition was for an upfront consideration of US$6.45
million, with US$2.55 million payable in cash (the "Cash
Consideration") and US$3.9 million to be satisfied through the
issue of new ordinary shares by HeiQ (the "Share Consideration").
Additional earn-out consideration of US$2,038,000 was paid in cash
(US$1,400,000) and through the issue of new ordinary shares
(US$638,000) in 2022. A further US$614,000 working capital
adjustment was paid in shares in 2022 resulting in an overall
consideration of US$9.1 million. An additional US$762,000, which is
not part of the consideration, was issued in shares and is expensed
as remuneration over a five-year period.
The Share Consideration was settled on July 9, 2021 by the issue
of 1,887,883 new ordinary shares ("Consideration Shares") to the
sellers of LIFE, at a price of GBP1.496201 per share, which was the
intraday volume-weighted average price (the "VWAP") of HeiQ shares
on the London Stock Exchange in the last five trading days
preceding the closing of the Acquisition.
LIFE is a materials technology company that has developed a
strong portfolio of smart ingredients and formulations with
applications in numerous industries. This includes the development
and distribution of bio-based antimicrobial additives and
treatments used by manufacturers of plastics, coatings, textiles,
ceramics and paper, that inhibit or manage bacteria, fungi, algae,
and other micro-organisms that come in contact with treated
materials. LIFE has one of the broadest technology platforms in the
industry, using inorganic, organic and bio-based botanical active
substances.
Goodwill of US$5,202,000 was recognized and is attributable to
anticipated future profit from expansion opportunities and
synergies of the business. The goodwill arising from the
acquisition has been allocated to the Life CGU (see definition in
Note 18). Fair value adjustments have been recognized for
acquisition-related intangible assets which are in alignment with
the accounting policies of the Group.
Transaction costs relating to the acquisition of US$110,000 have
been charged to the Statement of profit and loss and other
comprehensive income in the period relating to the acquisition of
LIFE.
f. Summary of acquisitions in 2021
The following table summarizes the consideration paid, the fair
value of assets acquired, liabilities assumed, goodwill arising on
acquisition and non-controlling interests at the acquisition
date:
Life Material
Chrisal Technologies
NV RAS AG Limited Total
US$'000 US$'000 US$'000 US$'000
(restated) (restated)
-------------------------------------- ----------- -------- --------------- -----------
Consideration:
Cash paid to shareholders 6,054 1,482 2,550 10,086
Shares issued to shareholders 2,983 4,656 3,900 11,539
Contingent consideration payable
in cash - - 1,400 1,400
Contingent consideration payable
in shares - 3,232 638 3,870
Working capital adjustment payable
in shares - - 614 614
Total Consideration payable 9,037 9,370 9,102 27,509
-------------------------------------- ----------- -------- --------------- -----------
Fair value of net assets acquired:
Property, plant and equipment 1,872 179 29 2,080
Intangible Assets 20 159 401 580
Other non-current assets - - 17 17
Inventory 1,277 411 570 2,258
Cash 1,773 291 73 2,137
Trade and other receivables 874 1,184 1,480 3,538
Trade and other payables (1,426) (611) (460) (2,497)
IAS 19 Pension liability - - (92) (92)
Borrowings (1,582) - (210) (1,792)
Income tax liability (198) (420) (20) (638)
Right of use assets (restated) 161 139 122 422
Lease liability (restated) (161) (139) (122) (422)
Intangible assets identified
on acquisition:
Customer Relationship 1,308 380 610 2,298
Brands 1,022 - 1,048 2,070
Technology-based assets 1,704 1,071 561 3,336
Deferred tax liability on intangible
assets (1,008) (508) (111) (1,627)
Total net assets 5,636 2,136 3,896 11,668
-------------------------------------- ----------- -------- --------------- -----------
Non-controlling interests (2,762) - 4 (2,758)
Goodwill 6,163 7,234 5,202 18,599
Total 9,037 9,370 9,102 27,509
-------------------------------------- ----------- -------- --------------- -----------
g. Deferred consideration in relation to acquisitions
Deferred consideration includes earnout payments and a working
capital adjustment in relation to the 2021 acquisitions of RAS AG
and Life Material Technologies Limited, as presented in the table
above in Note 5f. Since these liabilities were due for settlement
in 2022, the fair value of the consideration approximated its
nominal value.
Additionally, a further amount of deferred consideration
pertains to the acquisition of assets from ChemTex Inc. in 2017 and
is payable other than in a short timeframe. The fair value of the
deferred consideration has been discounted using an imputed
interest rate of 6% (being the Group's estimated cost of debt) to
take into account the time value of money.
The deferred consideration and related financing expense are
summarized below:
ChemTex RAS AG Life Material Total
Technologies
Limited
US$'000 US$'000 US$'000 US$'000
As at January 1, 2021 1,116 - - 1,116
Amortization of fair value
discount 58 - - 58
Additions from acquisitions
as per Note 5f - 3,232 2,652 5,884
Gain on earnout calculation - (80) - (80)
Consideration settled in cash (908) - - (908)
Foreign exchange revaluation 13 - - 13
--------------------------------- -------- -------- -------------- --------
As at December 31, 2021 279 3,152 2,652 6,083
--------------------------------- -------- -------- -------------- --------
Foreign exchange revaluation - (276) - (276)
Consideration settled in cash (187) - (1,400) (1,587)
Consideration settled in shares - (2,875) (1,252) (4,127)
As at December 31, 2022 92 - - 92
--------------------------------- -------- -------- -------------- --------
Current liability 92 - - 92
Non-current liability - - - -
--------------------------------- -------- -------- -------------- --------
Total 92 - - 92
--------------------------------- -------- -------- -------------- --------
6. Subsidiaries
The consolidated financial statements include the financial
statements of HeiQ Plc and the subsidiaries listed in the table
below.
Company Country Registered office Principal Percentage
of registration activity of ordinary
or incorporation shares held
Development,
Rütistrasse production
HeiQ Materials 12, 8952 Schlieren and sale
AG Switzerland Zurich of chemicals 100%
------------------- --------------------------- ----------------------- -------------
Development,
2725 Armentrout production
HeiQ ChemTex Dr, Concord, and sale
Inc. United States NC 28025 of chemicals 100%
------------------- --------------------------- ----------------------- -------------
Level 20/181
William Street,
Melbourne, VIC Research
HeiQ Pty Ltd Australia 3000 and development 100%
------------------- --------------------------- ----------------------- -------------
Rütistrasse
HeiQ GrapheneX 12, 8952 Schlieren
AG Switzerland Zurich Inactive 100%
------------------- --------------------------- ----------------------- -------------
No. 14 & 16,
Ln. 50, Wufu
1st Rd. Luzhu
HeiQ Company District, Taoyuan
Limited Taiwan City 33850 Distribution 100%
------------------- --------------------------- ----------------------- -------------
No. 14 & 16,
Ln. 50, Wufu
1st Rd. Luzhu
HX Company District, Taoyuan Trading and
Limited Taiwan City 33850 production 66.7%
------------------- --------------------------- ----------------------- -------------
Manufacturer
HeiQ Medica Plaza de la Estación of medical
S.L. Spain s/n, 29560 Pizarra devices 50.1%
------------------- --------------------------- ----------------------- -------------
Sales agency
HeiQ Iberia Rua Eng Frederico and internal
Unipessoal Ulrich, n 2650, services
Lda Portugal 4470-605 Maia company 100%
------------------- --------------------------- ----------------------- -------------
Priester Daensstraat
9, 3920 Lommel,
Chrisal NV Belgium Belgium Biotechnology 71%
------------------- --------------------------- ----------------------- -------------
Rudolf Vogt Straße Materials
HeiQ RAS AG Germany 8-10, 93053 Regensburg innovation 100%
------------------- --------------------------- ----------------------- -------------
HeiQ Regulatory Rudolf Vogt Straße Materials
GmbH Germany 8-10, 93053 Regensburg innovation 100%
------------------- --------------------------- ----------------------- -------------
Room 2501, Xuhui
HeiQ (China) Commercial Mansion,
Material Tech No. 168 Yude
LTD China Road, Shanghai Distribution 100%
------------------- --------------------------- ----------------------- -------------
Alexandra House,
Life Material 6th Floor, 16-20
Technologies Chater Road, Materials
Limited Hong Kong Central technology 100%
------------------- --------------------------- ----------------------- -------------
Alexandra House,
6th Floor, 16-20
Life Natural Chater Road,
Limited Hong Kong Central Inactive 100%
------------------- --------------------------- ----------------------- -------------
Rua Cerro Cora
1851Villa Romano,
Life-Materials Sao Paulo SP
Latam Ltda Brazil Brasil CEP 05061350 Sales office 51%
------------------- --------------------------- ----------------------- -------------
222 Lumpini Building
2, 247 Rajdamri
Road
LMT Holding Lumpini, Phatumwan,
Limited Thailand Bangkok 10330 Holding 96.45%
------------------- --------------------------- ----------------------- -------------
222 Lumpini Building
2, 247 Rajdamri
Life Material Road
Technologies Lumpini, Phatumwan,
Limited Thailand Bangkok 10330 Trading 99.995%
------------------- --------------------------- ----------------------- -------------
HeiQ AeoniQ Industriestrasse Materials
GmbH Austria 35, 3130 Herzogenburg Innovation 97.5%
------------------- --------------------------- ----------------------- -------------
2725 Armentrout Chemical
ChemTex Laboratories Dr, Concord, production
Inc. United States NC 28025 site 100%
------------------- --------------------------- ----------------------- -------------
Room 17B9870,
Floor 17, 101
Nei, -4 to 33,
Building 13,
Beijing HeiQ Wangjing Dongyuan
Material Tech Siqu, Chaoyang
Co., Ltd. China District, Beijing Inactive/Distribution 100%
------------------- --------------------------- ----------------------- -------------
7. Revenue
The Group's activities are materials innovation which focuses on
scientific research, manufacturing and consumer ingredient
branding. The primary source of revenue is the production and sale
of functional ingredients, materials and consumer goods. Other
sources of revenue include services for research and development,
take-or-pay and exclusivity.
The following table reconciles HeiQ Group's revenue for the
periods presented:
Year ended Year ended
December 31, December 31,
2022 2021
Revenues by form US$'000 US$'000
(restated)
--------------------------------------------- ------ --- -----------
Revenue recognized at a point
in time
Functional ingredients 36,175 41,951
Functional materials 2,000 850
Functional consumer goods 6,827 10,069
Services 160 2,548
Revenue recognized over time
Services 2,040 -
------------------------------- ---------------- ---------------
Total revenue 47,202 55,419
Unsatisfied performance obligations
The transaction prices allocated to unsatisfied and partially
unsatisfied obligations at 31 December 2022 are as set out
below:
Year ended Year ended
December 31, December 31,
2022 2021
Unsatisfied performance obligations US$'000 US$'000
------------------------------------- ------------- -------------
Exclusivity services 2,100 2,400
Research and development services 3,750 4,000
Total unsatisfied performance
obligations 5,850 6,400
-------------------------------------- ------------- -------------
Management expects that 19 per cent of the transaction price
allocated to the unsatisfied contracts as of the year ended 2022
will be recognized as revenue during the next reporting period
(US$1.1 million). The remaining 81 per cent, US$4.8 million will be
recognized in the 2024 (US$1.1 million), 2025 (US$3.1 million) and
2026 financial year (US$0.6 million).
Disclosure related to contracts with customers
Contract assets and contract liabilities are disclosed under
Note 25 and Note 37, respectively. Impairment losses recognized on
any receivables or contract assets arising from the Group's
contracts with customers are disclosed under Note 23 and Note 25,
respectively.
8. Operating Segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors of the
Company.
For management purposes, the Group is organised into business
units and the following reportable segments:
Segment Activity
Textiles & Flooring Provide innovative ingredients to make textiles
& flooring more functional, durable and sustainable.
-------------------------------------------------------
Life Sciences Offer biotech solutions to replace harmful
substances in domestic, commercial and industrial
usage, for a more balanced microbiome and environment
-------------------------------------------------------
Antimicrobials Functionalize different hard surfaces in everyday
products and our surroundings
-------------------------------------------------------
Other activities All other activities of the Group including
Innovation Services, Business Development,
and other non-allocated functions.
-------------------------------------------------------
Segment revenues and profits
The following is an analysis of the Group's revenue and results
by reportable segment in 2022:
Textiles
& Flooring Life Sciences Antimicrobials Other activities Total
Year ended December
31, 2022 US$'000 US$'000 US$'000 US$'000 US$'000
--------------------- ----------- ------------- -------------- ---------------- --------
Revenue 33,870 6,894 3,577 2,861 47,202
Operating profits
(loss) 979 (1,078) 53 (29,199) (29,245)
Finance result (590)
Loss before taxation (29,835)
Taxation 21
--------------------- ----------- ------------- -------------- ---------------- --------
Loss after taxation (29,814)
--------------------- ----------- ------------- -------------- ---------------- --------
Depreciation and
amortization
-------------------- ---- ---- --- ------ ------
Property, plant and
equipment 308 260 16 698 1,282
Right-of use assets - - - 938 938
Intangible Assets - - - 1,435 1,435
Impairment loss
-------------------- --- --- ------ ------
Property, plant and
equipment - 730 - - 730
Intangible Assets - - - 12,380 12,380
Textiles
& Flooring Life Sciences Antimicrobials Other activities Total
Year ended December
31, 2021 US$'000 US$'000 US$'000 US$'000 US$'000
--------------------- ----------- ------------- -------------- ---------------- --------
Revenue 39,773 10,115 3,739 1,792 55,419
Operating profits
(loss) 14,196 1,438 1,106 (18,096) (1,354)
Finance result (35)
Loss before taxation (1,389)
Taxation 16
--------------------- ----------- ------------- -------------- ---------------- --------
Loss after taxation (1,373)
--------------------- ----------- ------------- -------------- ---------------- --------
Depreciation and
amortization
-------------------- ---- ---- ---- ------
Property, plant and
equipment 300 273 - 683 1,255
Right-of use assets - - - 716 716
Intangible Assets - - - 976 976
Impairment loss
------------------ ------ -----
Intangible Assets --- 2,454 2,454
Segment revenue reported above represents revenue generated from
external customers. There were no
intersegment sales in the year ended December 31, 2022 (2021:
nil).
The accounting policies of the reportable segments are the same
as the Group's accounting policies described in Note 3. Segment
profit represents the profit earned by each segment without
allocation of the central SG&A costs including expenses for
infrastructure, R&D and laboratories, directors' salaries,
finance income, nonoperating gains and losses in respect of
financial instruments and finance costs, and income tax expense.
This is the measure reported to the Group's decision-making body
for the purpose of resource allocation and assessment of segment
performance.
Geographic information
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Revenue by region (restated)
----------------------- ------------- -------------
North & South America 20,425 19,290
Asia 13,376 19,580
Europe 13,109 16,237
Others 293 312
------------------------ ------------- -------------
Total revenue 47,202 55,419
------------------------ ------------- -------------
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Non-current assets by region (restated)
------------------------------ ------------- -------------
Europe 22,290 31,008
Asia 8,102 8,593
North & South America 7,734 6,860
Others 612 821
------------------------------- ------------- -------------
Total non-current assets 38,738 47,282
------------------------------- ------------- -------------
Information about major customers
During the year ended December 31, 2022, no customers
individually totaled more than 10% of total revenues (2021:
none).
9. Cost of sales
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Cost of sales (restated)
--------------------------------------------- ------- -------------
Material expenses 20,942 23,704
Personnel expenses 2,830 2,164
Depreciation of property, plant
and equipment 652 706
Other costs of sales 9,321 3,448
------------------------------------- --------------- -------------
Total cost of sales 33,745 30,022
------------------------------------- --------------- -------------
Other costs of goods sold include freight and custom costs,
warehousing and allowances on inventory.
10. Other income
Year ended Year ended
December
31, December 31,
2022 2021
Other income US$'000 US$'000
------------------------------------------- ----------- -------------
Gain on disposal of property plant
and equipment 21 54
Gain on earnout consideration payable
(Note 5g) - 80
Foreign exchange gains 3,539 5,032
Fair value gain on derivative liabilities
(Note 38) 371 -
Other income 901 1,459
-------------------------------------------- ----------- -------------
Total other income 4,832 6,625
-------------------------------------------- ----------- -------------
11. Selling and general administration expenses
Year ended Year ended
December December
31, 31,
2022 2021
US$'000 US$'000
------------------------------------------
Selling and general administration
expenses (restated)
------------------------------------------ ----------- -----------
Personnel expenses 14,977 13,074
Depreciation of property, plant and
equipment 630 549
Amortization 1,435 976
Depreciation of right-of-use assets 938 716
Net credit losses on financial assets
and contract assets 85 307
Other 12,904 9,058
------------------------------------------ ----------- -----------
Total selling and general administration
expense 30,969 24,680
------------------------------------------ ----------- -----------
Other selling and general administration expenses include costs
for infrastructure, professional services and marketing as well as
R&D and laboratory related costs, information technology &
data expenses, sales representative & distribution
expenses.
Auditor's remuneration
The total remuneration of the Group's auditors, being Deloitte
LLP for the audit of the year ended December 31, 2022 and Crowe UK
LLP for the audit of the year ended December 31, 2021, for services
provided to the Group, and included in other selling and general
administration expenses, is analyzed below:
Year ended Year ended
December 31, December 31,
2022 2021
Auditor's remuneration US$'000 US$'000
---------------------------------- ------------- -------------
Audit of Group 1,180* 231
Audit of subsidiaries 122 84
----------------------------------- ------------- -------------
Total fees for audit services 1,302 315
----------------------------------- ------------- -------------
Audit related assurance services - 6
Other assurance services - -
Total auditor remuneration - 6
----------------------------------- ------------- -------------
*: Includes US$180,000 related to the 2021 audit (Crowe UK LLP)
which was agreed on after the issuance of the annual report.
12. Personnel expenses
Year ended Year ended
December 31, December 31,
2022 2021
Personnel expenses US$'000 US$'000
--------------------------------- ------------- -------------
Wages & salaries 15,274 12,708
Social security & other payroll
taxes 1,685 1,387
Pension costs 710 645
Share-based payments 138 498
Total personnel expenses 17,807 15,238
---------------------------------- ------------- -------------
Reported as cost of sales (Note
9) 2,830 2,164
Reported as selling and general
administration expense (Note 11) 14,977 13,074
Total personnel expenses 17,807 15,238
------------------------------------ ------- --------
The average monthly number of employees
was as follows: 218 221
13. Other expenses
Year ended Year ended
December December
31, 31,
2022 2021
Other expenses US$'000 US$'000
--------------------------------------- ----------- -----------
Foreign exchange losses 3,050 4,671
Loss on disposal of property, plant
and equipment 16 20
Transaction costs relating to mergers
and acquisitions 50 206
Write off intangible assets (Note 897 -
18)
Other 171 1,345
--------------------------------------- ----------- -----------
Total other expenses 4,184 6,242
--------------------------------------- ----------- -----------
14. Finance income
Year ended Year ended
December
31, December 31,
2022 2021
Finance income US$'000 US$'000
---------------------------------------- ---------- ------------
Interest income 5 4
Gains on foreign currency transactions 678 518
Other - 12
Total finance income 683 534
---------------------------------------- ---------- ------------
15. Finance costs
Year ended Year ended
December 31, December 31,
2022 2021
Finance costs US$'000 US$'000
---------------------------------------
(restated)
--------------------------------------- ------------- -------------
Amortization of deferred finance
costs - acquisition costs - 58
Lease finance expense 163 117
Interest on borrowings 110 108
Bank fees 98 55
Loss on foreign currency transactions 902 231
--------------------------------------- ------------- -------------
Total finance costs 1,273 569
--------------------------------------- ------------- -------------
16. Income tax
For the year ending December 31, 2022, the Group had a tax
credit of US$21,000 (2021: tax credit of US$16,000). The effective
tax rate was 0.1% (2021: 1.2%). The effective tax rate was
primarily impacted by non-deductible expenditure following the
goodwill impairment expense as well as unrecognized tax losses.
The components of the provision for taxation on income included
in the "Statement of profit or loss and other comprehensive income"
are summarized below:
Year ended Year ended
December 31, December 31,
2022 2021
Current income tax expense US$'000 US$'000
----------------------------------- ------------- -------------
Swiss corporate income taxes 58 (282)
United States state and federal
taxes 393 (33)
Taiwan corporate income taxes 118 200
Belgium corporate income taxes (123) 186
Germany corporate income taxes 51 301
Others 63 43
Total current income tax expense 560 415
------------------------------------ ------------- -------------
Deferred income tax expense
Switzerland 90 (190)
United States (606) 138
China 117 (146)
Spain - 108
Austria 20 (25)
Belgium (136) (285)
Others (66) (31)
Total deferred income tax expense
(income) (581) (431)
------------------------------------ ------------- -------------
Total income tax expense (income) (21) (16)
------------------------------------ ------------- -------------
In addition to the amount charged to profit or loss, the
following amounts relating to deferred tax have been recognized in
other comprehensive income:
Year ended Year ended
December
31, December 31,
2022 2021
--------------------------------------
Items that will not be reclassified
subsequently to profit or loss US$'000 US$'000
-------------------------------------- ----------- -------------
Remeasurement of net defined benefit
liability (276) (225)
Total income tax recognized in other
comprehensive income (276) (225)
-------------------------------------- ----------- -------------
Year ended Year ended
December 31, December 31,
2022 2021
Net tax (assets)/liabilities US$'000 US$'000
----------------------------------- ------------- -------------
Opening balance - (prepaid taxes) 51 1,495
Assumed on business combinations - 638
Assumed on asset acquisition (32)
Income tax expense for the year 560 415
Taxes paid (870) (2,462)
Foreign currency differences (52) (35)
------------------------------------ ------------- -------------
Net tax (asset)/liability (343) 51
------------------------------------ ------------- -------------
Year ended Year ended
December 31, December 31,
2022 2021
Net tax (assets) liabilities US$'000 US$'000
------------------------------ ------------- -------------
Prepaid income taxes (657) (444)
Income tax liabilities 314 495
------------------------------- ------------- -------------
Net tax (asset)/liability (343) 51
------------------------------- ------------- -------------
Since the Group operates internationally, it is subject to
income taxes in many different tax jurisdictions. The Group
calculates its average expected tax rate as a weighted average of
the tax rates in the tax jurisdictions in which the Group operates.
This rate changes from year to year due to changes in the mix of
the Group's taxable income and changes in local tax rates.
The Group's average expected tax rate was stable at 21.1% in
2022 (2021: 20.6%). During 2022, there were no significant changes
to local tax rates in the tax jurisdictions in which the Group
operates.
The differences between the statutory income tax rate and the
effective tax rates are summarized as follows:
Year ended
US$'000 December 31, 2022
--------------------------------------- ---------------------
Expected tax at average tax rate (6,304) 21.1%
Increase/(decrease) in tax resulting
from :
Tax credits (340) 1.1%
Unrecognized tax losses 3,796 (12.7%)
Non-deductible expenditure 2,586 (8.7%)
Temporary differences 165 (0.6%)
Other - net 76 (0.1%)
--------------------------------------- ---------- ---------
(21) 0.1%
-------------------------------------- ---------- ---------
Year ended
US$'000 December 31, 2021
--------------------------------------- ---------------------
Expected tax at average tax rate (285) 20.6%
Increase/(decrease) in tax resulting
from:
Tax credits (58) 4.1%
Unrecognized tax losses 378 (27.2%)
Non-deductible expenditure 296 (21.3%)
Tax exempt income (105) 7.6%
Temporary differences (259) 18.6%
Other - net 17 (1.2%)
--------------------------------------- --------- ----------
(16) 1.2%
-------------------------------------- --------- ----------
17. Earnings per share
The calculation of the basic earnings per share is based on the
following data:
Earnings
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
(restated*)
----------------------------------- ------------- -------------
Loss attributable to the ordinary
equity holders of the parent
entity (29,251) (1,177)
*Earnings have been restated in the comparative period as
described in note 2.
Number of shares
Year ended Year ended
December 31, December 31,
2022 2021
Weighted average number of ordinary
shares for the purposes of basic
earnings per share 133,426,953 128,871,639
Basic earnings per share is calculated by dividing the
profit/loss after tax attributable to the equity holders of the
Company by the weighted average number of shares in issue during
the year. The effect of share options is anti-dilutive and
therefore not disclosed.
18. Intangible assets
Internally Brand names Other
developed and customer Acquired intangible
Goodwill assets relations technologies assets Total
Cost US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
(restated) (restated) (restated) (restated)
As at January 1, 2021 3,516 1,851 295 - 491 6,153
Reclassification* - (725) - - 725 -
26,883
Additions through
business combinations 18,599 - 4,368 3,336 580 26,883
Additions arising
from internal development - 2,390 - - - 2,390
Other acquisitions - - - - 579 579
Currency translation
differences (733) (7) (160) (156) (43) (1,099)
---------------------------- ----------- ----------- -------------- -------------- ------------ -----------
As at December 31,
2021 21,382 3,509 4,503 3,180 2,332 34,906
Additions arising
from internal development - 2,165 - - - 2,165
Other acquisitions - - - - 1,700 1,700
Disposals / write-offs - (85) - - (812) (897)
Currency translation
differences (795) 5 (160) (165) 14 (1,101)
---------------------------- ----------- ----------- -------------- -------------- ------------ -----------
As at December 31,
2022 20,587 5,594 4,343 3,015 3,234 36,773
---------------------------- ----------- ----------- -------------- -------------- ------------ -----------
Amortization and accumulated impairment
losses
As at January 1, 2021 - 432 107 - 350 889
Reclassification* - (19) - - 19 -
Amortization for the
year - 50 516 246 164 976
Impairment loss 2,433 21 - - - 2,454
Currency translation
differences (128) (10) (21) (12) (15) (186)
---------------------------- ----------- ----------- -------------- -------------- ------------ -----------
As at December 31,
2021 2,305 474 602 234 518 4,133
Amortization for the
year - 198 695 334 208 1,435
Impairment loss 10,576 880 73 - 122 11,651
Currency translation
differences (750) 3 (72) (45) (24) (888)
---------------------------- ----------- ----------- -------------- -------------- ------------ -----------
As at December 31,
2022 12,131 1,555 1,298 523 824 16,331
---------------------------- ----------- ----------- -------------- -------------- ------------ -----------
Net book value
As at December 31,
2021 19,077 3,035 3,901 2,946 1,814 30,773
---------------------------- ----------- ----------- -------------- -------------- ------------ -----------
As at December 31,
2022 8,456 4,039 3,045 2,492 2,410 20,442
---------------------------- ----------- ----------- -------------- -------------- ------------ -----------
*Regulatory registrations have been reclassed from internally
developed assets to other intangible assets.
Internally generated assets represent expenditure incurred on
development projects and IT.
Other intangible assets include acquired rights, licenses,
patent costs, concessions, website designs and domains and
trademarks.
Goodwill
Goodwill acquired in a business combination was allocated, at
acquisition, to the following cash generating units (CGUs):
CGU Description of activities
ChemTex This CGU is based on the 2017 acquisition of ChemTex
Inc. The CGU's main activities are carpet polymer,
industrial polymer, textile finishes, R&D, laboratory
work, production and sales. The CGU contributes to
the Group's Textiles & Flooring segment.
-------------------------------------------------------------------
Chrisal The CGU is based on the 2021 acquisition of Chrisal,
a biotechnology company and a leader in innovative
ingredients and consumer products that incorporate
the benefits of probiotics and synbiotics. The CGU
contributes to the Group's Life Sciences segment.
-------------------------------------------------------------------
RAS The CGU is based on the 2021 acquisition of RAS AG.
RAS AG develops and manufactures antimicrobial, hygiene-enhancing
additives and durable antimicrobial coating systems
which are sold under the trademark agpure(R), and
transparent electrically conductive and infrared reflective
coatings sold under the ECOS(R) trademark. The CGU
contributes to the Group's Antimicrobials segment.
-------------------------------------------------------------------
Life The CGU is based on the 2021 acquisition of Life Group.
LIFE develops and distributes bio-based antimicrobial
additives and treatments used by manufacturers of
plastics, coatings, textiles, ceramics and paper,
that inhibit or manage bacteria, fungi, algae, and
other micro-organisms that come in contact with treated
materials. The CGU contributes to the Group's Antimicrobials
segment.
-------------------------------------------------------------------
MasFabEs The CGU is based on the 2020 acquisition of MasFabEs.
The MasFabEs CGU manufactures medical masks and devices.
The CGU contributes to the Group's Life Sciences segment.
-------------------------------------------------------------------
Goodwill before impairment losses has been allocated to CGUs as
follows:
As at As at
December 31, December 31,
2022 2021
Goodwill US$'000 US$'000
------------------------- ------------- -------------
ChemTex 3,393 3,393
Chrisal* 5,428 5,791
RAS* 6,441 6,873
Life 5,202 5,202
MasFabEs 123 123
Total goodwill acquired 20,587 21,382
-------------------------- ------------- -------------
*The balances of Chrisal and RAS are revalued from EUR to US$ at
each reporting date.
The Group tests goodwill annually for impairment or more
frequently if there are indications that these assets might be
impaired. The recoverable amount of each CGU is determined based on
a value in use calculation which uses cash flow projections based
on financial budgets approved by the directors. The projections are
based on a five-year period and a pre-tax discount rate of 12 per
cent per annum for CGUs ChemTex and RAS and 14 per cent per annum
for CGUs Chrisal and Life (2021: 14 per cent per annum). The
discount rate is based on pre-tax weighted average cost of capital
for an average company in the chemical industry adjusted for
relative size and risks of each CGU. The directors expect income
from all CGUs over the next five years. The perpetuity growth rate
used is based on consumer price index relevant for each CGU.
The assumptions used by management in forecasting revenues for
the relevant periods are as follows:
For 2023, forecast has been determined by adjusting the forecast
for the year as approved by the Board ("Budget") for any variance
of actual performance (to date May 2023) against it. For later
periods, revenue growth was estimated based on historic (2018-2022)
compound annual growth rate of the respective business. Operating
profits are forecast based on historical experience of operating
margins, adjusted for the impact of known or expected changes in
pricing and regional inflation expectations.
2022 goodwill impairment test
A summary of the key assumptions used in the value-in-use
calculation is set below:
Assumption ChemTex Chrisal RAS Life
Compound annual growth rate for
the next five years 1.2% 3.8% 13.9% (0.8%)
-------- -------- ------ -------
Discount factor 12.2% 13.8% 11.7% 14.1%
-------- -------- ------ -------
Perpetual growth rate 2.0% 1.7% 2.0% 2.5%
-------- -------- ------ -------
As of end of December 2022, the Group conducted its annual
goodwill impairment test review and identified that the aggregated
carrying amount of each Chrisal CGU, RAS CGU and Life CGU exceeded
its aggregated recoverable amount (based on the value in use
approach and post-tax discount rate ranges in the 2022 table above)
resulting in a total impairment loss recognized of US$10,576,000
(2021 restatement: US$2,310,000) which is accounted for as "other
expenses" in the financial statements.
Goodwill relating to Chrisal CGU saw an impairment loss of
US$2,402,000 in the reporting period 2022 (2021 restatement:
US$1,275,000). The impairment charge results from the fact that the
market development of the new technology is taking longer than
anticipated at the time of acquisition of the company and therefore
short-term growth assumptions have been adjusted down.
A partial goodwill impairment of US$2,972,000 for the 2022
reporting period (2021 restatement: US$1,035,000) relates to RAS
CGU. The impairment loss relates to the fact that the innovation
advisory business has been affected by the unexpected, temporary
closing of certain government programs. Additionally, investments
into innovations in general are under review as global economic
markets have destabilized since acquisition. Furthermore, market
launch and respective profit contribution is expected to be delayed
compared to expectations upon acquisition of RAS in 2021,
negatively impacting the years in consideration for the calculation
of the recoverable amount of the CGU.
Lastly, the full US$5,202,000 goodwill balance relating to Life
CGU was impaired in the reporting year 2022. The reason for the
impairment is the significant decrease in sales towards the end of
2022 which has caused the Board to significantly lower growth
expectations of the CGU for the years relevant for the calculation
of the recoverable amount.
As a result of the impairment losses described above, the
following book values remain for each CGU:
As at As at
December 31, December 31,
2022 2021
Goodwill book value US$'000 US$'000
--------------------------- ------------- -------------
ChemTex 3,393 3,393
Chrisal 2,189 4,593
RAS 2,874 5,889
Life - 5,202
MasFabEs - -
Total goodwill book value 8,456 19,077
---------------------------- ------------- -------------
*The balances of Chrisal and RAS are revalued from EUR to US$ at
each reporting date.
Sensitivity analysis
The Group has conducted an analysis of the sensitivity of the
impairment test to reasonably possible changes in the key
assumptions used to determine the recoverable amount for each CGU
to which goodwill is allocated. In the process, the recoverable
amount for RAS CGU was identified as key estimate.
An reasonably possible underperformance against the forecast
sales growth rate (13.9%) for RAS CGU by 8.9 percent points, i.e.
applying a compound annual growth rate of 5% for the next five
years, would lead to an additional impairment charge of US$2.1
million.
2021 goodwill impairment test
In the reporting year ended December 31, 2021, the goodwill
related to the MasFabEs CGU was tested for impairment. The MasFabEs
CGU manufactures medical masks and devices. Using a discount rate
of 14%, the Company calculated a value-in-use of US$544,000 which
was less than the carrying amount and accordingly an impairment
provision of US$123,000 was posted in the year ended December 31,
2021. The impairment was a consequence of declining customer
demand.
Furthermore, as explained in Note 2, the 2021 goodwill
impairment test result has been restated which resulted in an
impairment charge of US$1,275,000 and US$1,035,000 for Chrisal and
RAS CGU respectively.
Internally developed assets under construction
The Group tests internally developed assets under construction
on a yearly basis. The Directors consider whether estimated future
economic benefits outweigh the costs capitalized by reviewing
whether each project:
-- is still in development phase;
-- can be used or sold in the future; and
-- can be completed given the technical, financial and other resources available.
The Group has processes in place for continually reviewing
development expenditure to ensure that projects under development
are still viable. In the reporting year ended December 31, 2022, a
US$880,000 impairment was considered in relation to the GrapheneX
project assets as timing of future benefits is not predictable with
high enough certainty.
Internally developed assets and other intangibles with finite
lives
The Group tests internally developed assets and other
intangibles with finite lives for impairment only if there are
indications that these assets might be impaired. The Group has
processes in place for continually reviewing development
expenditure to ensure that projects under development are still
viable. For the reporting year ended December 31, 2022, the Company
concluded that an impairment of US$122,000 is necessary for
capitalized registration fees obtained in the acquisition of RAS
following decreased customer demand. Additionally, brand names and
customer relations related to the Life CGU saw an impairment of
US$73,000 as a result of the sales decline mentioned above in the
goodwill impairment test.
19. Property, plant and equipment
Machinery Motor Computers Furniture Land
and equipment vehicles and software and fixtures and buildings Total
Cost US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------------------- -------------- --------- ------------- ------------- -------------- -------
As at January 1, 2021 6,779 492 810 132 - 8,213
Acquisition on business
combination 191 19 24 171 1,675 2,080
Additions 596 67 104 213 14 994
Disposals (30) (37) - (15) (68) (150)
Currency translation
differences (248) (5) (24) (27) (98) (402)
----------------------------- -------------- --------- ------------- ------------- -------------- -------
As at December 31, 2021 7,288 536 914 474 1,523 10,735
Additions 2,272 26 197 50 2,736 5,280
Disposals (69) (12) - - - (81)
Reclassifications (407) 59 - 348 - -
Currency translation
differences (233) (1) (21) (23) (91) (369)
----------------------------- -------------- --------- ------------- ------------- -------------- -------
As at December 31, 2022 8,851 608 1,090 849 4,168 15,565
----------------------------- -------------- --------- ------------- ------------- -------------- -------
Depreciation and accumulated
impairment losses
As at January 1, 2021 2,002 242 464 38 - 2,746
Charge for the year 797 118 168 55 117 1,255
Eliminated on disposal (13) (26) - (7) - (46)
Currency translation
differences (63) (4) (13) - (5) (85)
----------------------------- -------------- --------- ------------- ------------- -------------- -------
As at December 31, 2021 2,723 330 619 86 112 3,870
----------------------------- -------------- --------- ------------- ------------- -------------- -------
Charge for the year 763 90 218 83 128 1,282
Eliminated on disposal (27) (5) - - - (32)
Impairment loss 730 - - - - 730
Reclassifications (222) - - 222 - -
Currency translation
differences (67) - (9) (3) (7) (86)
----------------------------- -------------- --------- ------------- ------------- -------------- -------
As at December 31, 2022 3,900 415 828 388 233 5,764
----------------------------- -------------- --------- ------------- ------------- -------------- -------
Net book value
As at December 31, 2021 4,565 206 295 388 1,411 6,865
----------------------------- -------------- --------- ------------- ------------- -------------- -------
As at December 31, 2022 4,951 193 262 461 3,935 9,802
----------------------------- -------------- --------- ------------- ------------- -------------- -------
Impairment losses recognized in the year
During the year ended December 31, 2022, as a result of the
significant decline in demand for of certain types of hygiene
masks, the Group carried out a review of the recoverable amount of
machinery. The Group recognized an impairment loss of US$730,000
for machinery that was intended to be used to manufacture hygiene
masks for which demand declined significantly. The asset was used
in the Life Sciences reportable segment.
20. Right-of-use assets
Land and Machinery
buildings Motor vehicles and equipment Total
US$'000 US$'000 US$'000 US$'000
Cost (restated) (restated) (restated)
As at January 1, 2021 3,701 76 41 3,818
Additions through business
combinations 122 300 - 422
Additions 5,147 289 264 5,700
Disposals due to expiry
of lease - (33) (9) (42)
Currency translation differences (57) (21) 45 (33)
---------------------------------- ----------- --------------- --------------- -----------
As at December 31, 2021 8,913 611 341 9,865
Additions 86 174 1,921 2,181
Disposals due to expiry
of lease - (36) - (36)
Disposals due to business
combination* (467) - - (467)
Modification to lease terms** (1,199) - - (1,199)
Currency translation differences (381) (67) (26) (474)
---------------------------------- ----------- --------------- --------------- -----------
As at December 31, 2022 6,952 682 2,236 9,870
---------------------------------- ----------- --------------- --------------- -----------
Depreciation
As at January 1, 2021 1,182 60 12 1,254
Depreciation for the year 564 89 63 716
Disposals due to expiry
of lease - (32) (9) (41)
Currency translation differences (30) (8) - (38)
---------------------------------- ----------- --------------- --------------- -----------
As at December 31, 2021 1,716 109 66 1,891
Depreciation for the year 730 140 68 938
Disposals due to expiry
of lease - (36) - (36)
Modification to lease terms** (693) - - (693)
Currency translation differences (34) (6) (9) (49)
---------------------------------- ----------- --------------- --------------- -----------
As at December 31, 2022 1,719 207 125 2,051
---------------------------------- ----------- --------------- --------------- -----------
Net book value
As at December 31, 2021 7,197 502 275 7,974
---------------------------------- ----------- --------------- --------------- -----------
As at December 31, 2022 5,233 475 2,111 7,819
---------------------------------- ----------- --------------- --------------- -----------
*With the acquisition of ChemTex Laboratories' property, plant
and equipment (Note 26), the Group no longer has a lease liability
with a third party.
**The Group agreed to shorten the agreed lease terms of two
existing leases from 2032 to 2027. These
modifications have resulted in a reduction in the total amounts
payable under the leases and a reduction to both of the
right-of-use assets and lease liabilities with effect from the date
of modification as follows:
Before revaluation After revaluation Revaluation
Revaluation US$'000 US$'000 US$'000
------------------- ------------------- ------------------ ------------
Right-of-use
assets 1,385 879 (506)
Lease liabilities (1,453) (879) 574
------------------- ------------------- ------------------ ------------
Impact on net
assets 68 - 68
------------------- ------------------- ------------------ ------------
The impact on net assets was recognized as non-operating
income.
Amounts recognized in profit and loss
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
--------------------------------------- -------------- --------------
Depreciation expense on right-of-use
assets 938 716
Interest expense on lease liabilities 163 118
Expense relating to short-term
leases 225 189
Expense relating to leases of
low value assets 40 22
Amounts recognized in cash flow statement
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
---------------------------- -------------- --------------
Total fixed lease payments 992 662
Interest paid on leases 163 117
---------------------------- -------------- --------------
21. Other non-current assets
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
------------------------- ------------------------ --------------
Deposits 80 140
Other prepayments 57 193
------------------------- ------------------------ --------------
Other non-current assets 137 333
------------------------- ------------------------ --------------
22. Inventories
As at As at
December 31, December 31
2022 2021
US$'000 US$'000
--------------------------- ------------- ------------
Functional ingredients 7,420 7,480
Functional materials 4,000 4,310
Functional consumer goods 1,748 1,822
Services - 158
Total inventories 13,168 13,770
---------------------------- ------------- ------------
The cost of inventories recognized as an expense during the year
in respect of continuing operations was US$33,597,000 (2021:
US$30,022,000).
The cost of inventories recognized as an expense includes
US$4,912,000 (2021: US$17,000) in respect of write-downs of
inventory to net realizable value. The write-downs are mainly
related to stock that is unlikely to be sold or consumed within 12
months due to a decline in forecasted customer demand.
There have been no reversals of such write-downs for the
reporting period (2021: nil).
23. Trade receivables
As at As at
December 31, December 31,
2022 2021
Trade receivables US$'000 US$'000
(restated)
Not past due 2,788 7,567
< 30 days 520 2,930
31-60 days 781 55
61-90 days 215 1,115
91-120 days 180 351
>120 days 2,407 2,962
Total trade receivables 6,891 14,980
---------------------------------- --------------- -------------------
Provision for expected credit
losses (404) (324)
---------------------------------- --------------- -------------------
Total trade receivables (net) 6,487 14,656
---------------------------------- --------------- -------------------
The average credit period on sales of goods varies by region
from 30 - 120 days. No interest is charged on outstanding trade
receivables. The Group always measures the loss allowance for trade
receivables at an amount equal to lifetime ECL. The expected credit
losses on trade receivables are estimated using a provision matrix
by reference to past default experience of the debtor and an
analysis of the debtor's current financial position, adjusted for
factors that are specific to the debtors, general economic
conditions of the industry in which the debtors operate and an
assessment of both the current as well as the forecast.
As at December 31, 2022, the Group has recognized an expected
credit loss of US$404,000 (2021: US$324,000). The following table
details the risk profile of receivables based on the Group's
provision matrix.
Lifetime Expected credit losses on trade receivables
Trade receivables - days past due
Not past
due 1-60 61-120 >120 days Total
Expected credit loss on trade
receivables 2022 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------- -------- ------- ------- --------- -------
Expected credit loss rate 0% 0% 0% 17% 6%
Estimated total gross carrying
amount at default 2,788 1,301 395 2,406 6,891
Lifetime ECL as at December
31, 2022 - - - 404 404
Trade receivables - days past due
Not past
due 1-60 61-120 >120 days Total
Expected credit loss on trade
receivables 2021 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------- -------- ------- ------- --------- -------
Expected credit loss rate 0% 0% 0% 11% 2%
Estimated total gross carrying
amount at default 7,567 2,985 1,466 2,962 14,980
Lifetime ECL as at December
31, 2021 - - - 324 324
The following table shows the movement in lifetime ECL that has
been recognized for trade receivables in
accordance with the simplified approach set out in IFRS 9.
Individually Collectively
assessed assessed Total
Expected credit losses US$'000 US$'000 US$'000
-------------------------- ------------ ------------ -------
Balance as at January
1, 2021 13 27 40
Net remeasurement of loss
allowance 288 19 307
Foreign exchange gains
and losses (23) - (23)
Balance as at December
31, 2021 278 46 324
--------------------------- ------------ ------------ -------
Net remeasurement of loss
allowance 172 (6) 166
Amounts written off (81) - (81)
Foreign exchange gains
and losses (4) (1) (5)
Balance as at December
31, 2022 365 39 404
The following tables explain how significant changes in the
gross carrying amount of the trade receivables contributed to
changes in the loss allowance:
Increase (decrease) in lifetime expected credit losses
for 2022 US$'000
----------------------------------------------------------- -------
Origination of new trade receivables net of those settled,
as well as increase in days past
due up to 120 days 172
Write-off of receivables older than 120 days (81)
Increase (decrease) in lifetime expected credit losses
for 2021 US$'000
----------------------------------------------------------- -------
Origination of new trade receivables net of those settled,
as well as increase in days past
due up to 120 days 288
24. Other receivables and prepayments
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
---------------------------------- ------------- -------------
Contract assets 115 250
Receivables from tax authorities 1,864 1,734
Prepayments 1,023 1,052
Other receivables 1,260 840
Total other receivables and
prepayments 4,262 3,876
----------------------------------- ------------- -------------
25. Contract assets
Amounts relating to contract assets are balances due from
customers under construction contracts that arise when the Group
receives payments from customers in line with a series of
performance-related milestones. The Group recognizes a contract
asset for any work performed. Any amount previously recognized as a
contract asset is reclassified to trade receivables at the point at
which it is invoiced to the customer.
As at As at As at
December 31, December 31, January 1,
2022 2021 2021
US$'000 US$'000 US$'000
------------------------- ------------------------ -------------- ------------
Research and development
services 65 80 -
Take-or-pay services - 170
Exclusivity services 50 - -
Total contract assets 115 250 -
------------------------- ------------------------ -------------- ------------
Current assets 115 250 -
Non-current assets - - -
Total contract assets 115 250 -
---------------------- --- ---
Revenues related to research and development services were
recognized at the point of delivering proof of concept and
completing testing services. Performance obligations related to
exclusivity services were deemed fulfilled by the Group upon
completion of the contractual term. Payment for the above services
is not due from the customer yet and therefore a contract asset is
recognized.
The directors of the Company always measure the loss allowance
on amounts due from customers at an amount equal to lifetime ECL,
taking into account the historical default experience, the nature
of the customer and where relevant, the sector in which they
operate. There has been no change in the estimation techniques or
significant assumptions made during the current reporting period in
assessing the loss allowance for the amounts due from customers
under construction contracts.
Lifetime Expected credit losses on contract assets
The following table details the risk profile of amounts due from
customers based on the Group's provision matrix. Based on the
historic default experience, no expected credit loss has been
recognized:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
------------------------------- ------------------------ --------------
Expected credit loss rate 0% 0%
Estimated total gross carrying
amount at default 115 250
Lifetime ECL - -
------------------------------- ------------------------ --------------
Net carrying amount 115 250
------------------------------- ------------------------ --------------
26. Issued share capital and share premium
Movements in the Company's share capital and share premium
account were as follows:
Note Number of Share Share Totals
shares capital premium
No. US$'000 US$'000 US$'000
------------------------------ ---- ----------- -------- -------- -------
Balance as of January 1, 2021 125,891,904 49,559 134,537 184,096
Issue of shares to acquire
Chrisal NV 5c 1,101,928 456 2,526 2,982
Issue of shares to acquire
RAS AG 5d 1,701,821 710 3,946 4,656
Issue of shares to acquire
Life Materials 5e 1,887,883 798 3,182 3,980
Balance as at December 31,
2021 130,583,536 51,523 144,191 195,714
------------------------------ ---- ----------- -------- -------- -------
Issue of shares to vendors
of Life Materials (a) 347,552 141 471 612
Issue of shares as deferred
consideration (b) 5g 3,461,615 1,359 2,921 4,280
Issue of shares to Advisory
Board and others (c) 164,721 60 175 235
Issue of shares ChemTex Labs
(d) 2,176,884 795 1,177 1,972
Issue of shares Chrisal (e) 5a 3,348,164 1,223 1,838 3,061
Balance as at December 31,
2022 140,082,472 55,101 150,773 205,874
------------------------------ ---- ----------- -------- -------- -------
The par value of all shares is GBP0.30. All shares in issue were
allotted, called up and fully paid.
The share premium account represents the amount received on the
issue of ordinary shares by the Company in excess of their nominal
value and is non-distributable.
The Company issued new ordinary shares for the following:
a) On February 25, 2022, HeiQ Plc issued 347,552 new ordinary
shares of GBP0.30 each in the Company. These shares were allotted
to the vendors of Life Material Technologies Limited to satisfy a
closing working capital adjustment in the amount of US$612,000 in
connection with the Company's acquisition of Life in June 2021.
b) On May 12, 2022, HeiQ Plc issued a total of 3,461,615 ordinary shares as part of the deferred consideration paid pursuant to the acquisitions of RAS AG, Regensburg, Germany ("RAS AG") and Life Material Technologies Limited ("LIFE").
-- In relation to the acquisition of RAS AG, the Company made a
payment of EUR2.6 million (approximately US$2.88 million), based on
RAS AG's performance for the year ended December 31, 2021. The
deferred consideration was settled entirely through the issue of
2,743,941 ordinary shares in the capital of the Company.
-- In relation to the acquisition of LIFE, the Company made a
payment of US$2.8 million, based on LIFE's financial performance
for the year ended December 31, 2021. The deferred consideration
was settled equally in cash (US$1.4 million) and through the issue
of 717,674 ordinary shares (US$1.4 million) in the capital of the
Company. The share issue satisfied earnout payments as part of the
purchase consideration of US$640,000 as well as share-based
payments made as remuneration of US$764,000 which were not part of
the purchase consideration.
c) On August 9, 2022, the Company issued 164,721 new ordinary
shares for a consideration of GBP173,000 (approximately US$235,000)
to satisfy certain share payments due to the Company's Innovation
Advisory Board, as well as for consultancy and other services
provided by third parties.
d) On December 2, 2022, HeiQ Plc completed the acquisition of
100% of the issued share capital and voting rights of ChemTex
Laboratories, Inc. ("ChemTex Labs") in North Carolina, USA for a
total consideration of US$2.5 million. The purchase consideration
was payable partly in cash (US$550,000) and partly by the issue of
2,176,884 new ordinary shares for (US$1.95 million). The
acquisition was accounted for as asset acquisition resulting in the
addition of land and buildings worth US$2.4 million. The Group also
assumed US$65,000 in cash, prepaid income tax of US$32,000 as well
as accrued liabilities worth US$9,000.
e) On December 15, 2022, HeiQ increased its interest In HeiQ
Chrisal from 51% to 71%. HeiQ paid EUR2.9 million (approximately
US$3 million) for the additional 20% shareholding to the vendors of
Chrisal through the issue of 3,348,164 new ordinary shares in the
Company.
27. Share-based payments
Equity-settled Share Option Scheme
The Company has adopted the HeiQ Plc Option Scheme.
Under the Option Scheme, awards may be made only to employees
and executive directors. The Board will administer the Option
Scheme with all decisions relating to awards made to executive
directors taken by the Remuneration Committee.
Awards under the equity-settled option plan will be market value
options, but participants resident in jurisdictions where local
securities laws or other regulations are considered problematic may
be awarded cash-based equivalents. Any awards made are not
pensionable.
All awards made will be subject to one or more performance
conditions at the discretion of the Board. Ordinary Shares received
on exercise of any options awarded under the Option Scheme may be
required to be held for a period of time before they can be
disposed of (other than disposals to satisfy any tax payable on
exercise).
The total number of Ordinary Shares which can be issued under
the Option Scheme (together with any other employees' share scheme
operated by the Company) may not exceed 10 per cent. of the
Company's ordinary share capital from time to time.
An option-holder has no voting or dividend rights in the Company
before the exercise of a Share option.
There are currently four option grants with the same vesting
requirements. The key performance indicators attaching to these
awards relate to targets for sales growth (65 per cent. of the
award) and operating margin (35 per cent. of the award) over a
period of three years.
Options are exercisable at a price equal to the average quoted
market price of the Company's shares on the date of grant. The
vesting period is three years. If the options remain unexercised
after a period of ten years from the date of grant the options
expire. Options are forfeited if the employee leaves the Group
before the options vest.
Details of the share options outstanding during the year are as
follows:
As at December 31, As at December 31,
2022 2021
Number Weighted Number Weighted
of options average exercise of options average exercise
price (GBP) price (GBP)
-------------------------- ------------ ------------------ ------------ ------------------
Outstanding at beginning
of year 8,707,658 1.06 6,260,000 1.12
Granted during the year 3,349,125 0.83 2,447,658 0.90
Forfeited during the
year (530,872) 1.05 - -
Exercised during the - - - -
year
Expired during the year - - - -
-------------------------- ------------ ------------------ ------------ ------------------
Outstanding at the end
of the year 11,525,911 0.99 8,707,658 1.06
-------------------------- ------------ ------------------ ------------ ------------------
Exercisable at the end - - - -
of the year
-------------------------- ------------ ------------------ ------------ ------------------
The options outstanding at December 31, 2022 had a weighted
average exercise price of GBP0.994 and a weighted average remaining
contractual life of 1.5 years. In 2022, options were granted on
June 15 and September 26. The aggregate of the estimated fair
values of the options granted on those dates is GBP1,117,000
(approximately US$1,304,000). In 2021, options were granted on
October 19. The aggregate of the estimated fair values of the
options granted on that date was GBP930,000 (approximately
US$1,275,000). The inputs into the Black-Scholes model are as
follows:
Year ended Year ended
December 31, December 31,
2022 2021
Weighted average share price
(GBP) 0.817 0.900
Weighted average exercise price
(GBP) 0.834 0.903
Expected volatility 69.3%/70.3%* 64%
Expected life 2.6 /2.3 years* 3 years
Risk-free rate 0.19%/0.44%* 0.71%
Expected dividend yields 0% 0%
*In the reporting year ended 2022, there were two grants with
different inputs used in the black scholes model.
Expected volatility was determined by calculating the historical
volatility of the Group's share price since going public in
December 2020. The expected life used in the model is equal to the
vesting period.
Due to lower market expectations, the number of options expected
to vest dropped to 2,279,236 (2021: 5,204,978). This resulted in an
income of US$12,000 arising from these share-based payment
transactions for the year ended December 31, 2022 (expense for the
year ended December 31, 2021: US$424,000).
Other share-based payments
Remuneration of US$764,000 described in Note 26 in relation to
the acquisition of Life Materials Technologies Limited is linked to
a service period of five years. An expense of US$150,000 was
recognized in the year ended December 31, 2022 (year ended December
31, 2021: US$74,000). The remainder of approximately US$544,000 is
expected to be expensed over the period from January 1, 2023, to
June 30, 2026.
28. Other reserves and retained deficit
Other reserves comprise the share-based payment reserve, the
merger reserve, the currency translation reserve and the other
reserve.
The retained deficit comprises all other net gains and losses
and transactions with owners not recognized elsewhere.
Movements in the other reserves were as follows:
Share- Currency
based payment Merger translation Other Total Other
reserve reserve reserve reserve reserves
Note US$'000 US$'000 US$'000 US$'000 US$'000
------------- -------------------- ----------------- ------------------ ----------------- --------------- -----------------
Balance at January
1, 2021 50 (126,912) 2,937 (2,043) (125,968)
Other comprehensive
(loss)/income - - (2,550) 899 (1,651)
Total comprehensive
(loss)/income for
the year - - (2,550) 899 (1,651)
-------------------------- ------- ----------------- ------------------ ----------------- --------------- -----------------
Share-based payment
charges 27 424 - - - 424
Transactions with
owners 424 - - - 424
-------------------------- -------
Balance at December
31, 2021 474 (126,912) 387 (1,144) (127,195)
-------------------------- ------- -----------------
Other comprehensive
(loss)/income - - (1,914) 1,104 (810)
Total comprehensive
(loss)/income for
the year - - (1,914) 1,104 (810)
-------------------------- ------- ----------------- ------------------ ----------------- --------------- -----------------
Share-based payment
charges 27 (12) - - - (12)
Transactions with
owners (12) - - - (12)
Balance at December
31, 2022 462 (126,912) (1,527) (40) (128,017)
-----------------
The share-based payment reserve arises from the requirement to
fair value the issue of share options at grant date. Further
details of share options are included at Note 27.
The merger reserve was created in accordance with IFRS3
'Business Combinations'. The merger reserve arises due to the
elimination of the Company's investment in HeiQ Materials AG. Since
the shareholders of HeiQ Materials AG became the majority
shareholders of the enlarged Group, the acquisition is accounted
for as though there is a continuation of the legal subsidiary's
financial statements. In reverse acquisition accounting, the
business combination's costs are deemed to have been incurred by
the legal subsidiary.
The currency translation reserve represents cumulative foreign
exchange differences arising from the translation of the financial
statements of foreign subsidiaries and is not distributable by way
of dividends.
The other reserve comprises the cumulative re-measurement of
defined benefit obligations and plan assets to fair value, and
which are recognized as a component of other comprehensive income.
Such actuarial gains and losses from defined benefit pension plans
are not reclassified to profit or loss in subsequent periods.
Dividend paid by subsidiary
In June 2022, HeiQ Chrisal N.V. declared and paid a dividend of
EUR470,000 (approximately US$496,000) of which 49% or US$243,000
was paid to minority shareholders.
Capital contributions from minority shareholders
The Group received a capital contribution from a minority
shareholder of US$764,000 which arose from a waived loan (see Note
31 for details).
29. Pensions and other post-employment benefit plans
The Group operates a defined benefit pension plan in
Switzerland, which requires contributions to be made to a
separately administered fund. The cost of providing benefits under
the defined benefit plan is determined using the projected unit
credit method.
Correspondingly the value of the defined benefit obligation at
valuation date is equal to the present value of the accrued
pro-rated service considering expected salary at eligibility date
and the future pension increase.
The pension scheme was administered by Swisscanto pension fund
("Swisscanto Sammelstiftung") until December 31, 2021, and by AXA
pension fund from January 1, 2022, following a change in pension
fund provider. The Directors have adopted the actuarial valuation
as of January 1, 2022.
Pension plan description
The pension plans grant disability and death benefits which are
defined as a percentage of the salary insured. Although the Swiss
plan operates like a defined contribution plan under local
regulations, it is accounted for as a defined benefit pension plan
under IAS19 'Employee Benefits' because of the need to accrue a
minimum level of interest on the mandatory part of the pension
accounts. Upon reaching retirement age, the savings capital will be
converted with a fixed conversion rate into an old-age pension. In
the event that an employee leaves employment prior to reaching a
pensionable age, the cumulative balance of the savings account is
withdrawn from the pension plan and invested into the pension plan
of the employee's new employer.
Regulatory framework
Pension plan legal structure
HeiQ Materials AG is affiliated to a collective foundation. The
collective foundation operates one defined benefit pension plan for
HeiQ Materials AG. Under Swiss law, all employees are required to
be a member of the pension plan. There are minimum benefits
requested by law (for old-age, disability, death and termination).
The pension plans cover more than legally requested. Each
affiliated company has a pension plan committee. The committee is
represented by 50% of employer representatives and the remaining
50% are employee representatives.
Responsibilities of the board of trustees (and/or the employer
on the board of trustees)
The highest corporate body of the collective foundation is the
board of trustees. The board of trustees is elected out of the
affiliated companies and is also represented by 50% of employee and
employer representatives (on the level of the collective
foundation). This board handles the general management of the
pension scheme, ensures compliance with the statutory requirements,
defines the strategic objectives and policies of the pension scheme
and identifies the resources for their implementation. This board
decides also on the asset allocation and is responsible to the
authorities for the correct administration of the collective
foundation.
Special situation
The pension scheme has no minimum funding requirement (when the
pension fund is in a surplus position), although the pension scheme
has a minimum contribution requirement as specified below. Under
local requirements, where a pension fund is operated in a surplus
position, limited restrictions apply in terms of the trustee's
ability to apply benefits to the members of the locally determined
"free reserves". In instances where the pension fund enters into an
underfunded status the active members, along with the employer, are
required to make additional contributions until such time the
pension fund is in a fully funded position.
Funding arrangements that affect future contributions
Swiss law provides for minimum pension obligations on
retirement. Swiss law also prescribes minimum annual funding
requirements. An employer may provide or contribute a higher amount
than as specified under Swiss law - such amounts are specified
under the terms and conditions of each of the Swiss employee's
individual terms and conditions of employment.
In addition, employers are able to make one off contributions or
prepayments to these funds. Although these contributions cannot be
withdrawn, they are available to the Company to offset its future
employer cash contributions to the plan. Although a surplus can
exist in the fund, Swiss law requires minimum annual funding
requirements to continue.
For the active members of the pension plan, annual contributions
are required by both the employer and employee. The employer
contributions must be at least equal to the employee contributions,
but may be higher, separately mentioned in the constitution of the
pension plan.
Minimum annual contribution obligations are determined with
reference to an employee's age and current salary, however as
indicated above these can be increased under the employee's terms
and conditions of employment.
In the event of the winding up of HeiQ Materials AG, or the
pension fund, HeiQ Materials AG has no right to any refund of any
surplus in the pension fund. Any surplus balance is allocated to
the members (active and pensioners).
General risk
The Group faces the risk that its equity ratio can be affected
by a poor performance of the assets of the pension fund or a change
of assumptions. Therefore, sensitivities of the main assumptions
have been calculated and disclosed (see below).
The following tables summarize the components of net benefit
expense recognized in the statement of profit and loss and the
funded status and amounts recognized in the statement of financial
position for the plan:
Net benefit obligations
The components of the net defined benefits obligations included
in non-current liabilities are as follows:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Fair value of plan assets 9,616 10,858
Defined benefit obligations (10,568) (13,003)
Funded status (net liability) (952) (2,146)
Duration (years) 13.8 16.5
Expected benefits payable in following
year (389) (393)
Year ended Year ended
December 31, December 31,
2022 2021
Development of obligations and
assets US$'000 US$'000
Present value of funded obligations,
beginning of year (13,003) (9,588)
Employer service cost (571) (521)
Employee contributions (352) (342)
Past service cost - 28
Curtailments/Settlements - 65
Interest cost (45) (14)
Benefits paid/(refunded) 522 (2,589)
Actuarial (loss)/gain on benefit
obligation 2,562 (256)
Currency (loss)/gain 319 214
Present value of funded obligations,
end of year (10,568) (13,003)
Defined benefit obligation participants (10,568) (13,003)
Defined benefit obligation pensioners - -
Present value of funded obligations,
end of year (10,568) (13,003)
Fair value of plan assets, beginning
of year 10,858 6,311
Expected return on plan assets 37 10
Employer's contributions 352 342
Employees' contributions 352 342
Benefits (paid)/refunded (522) 2,589
Admin expense (21) (20)
Actuarial (loss)/gain on plan
assets (1,182) 1,380
Currency gain/(loss) (258) (96)
Fair value of plan assets, end
of year 9,616 10,858
Movements in net liability recognized in statement of financial
position:
Year ended Year ended
December
31, December 31,
2022 2021
US$'000 US$'000
Net liability, beginning of year (2,146) (3,276)
Employer service cost (571) (521)
Interest cost (45) (14)
Expected return on plan assets 37 10
Admin expense (21) (20)
Past service cost recognized in year - 28
Curtailment, settlement, plan amendment
gain (loss) - 65
Employer's contributions (following
year expected contributions) 352 342
Prepaid (accrued) pension cost: 247 111
* operating income (expense) (240) (107)
* finance expense (7) (4)
Total gains recognized within other
comprehensive income 1,380 1,124
Currency loss 62 116
Net liability, end of year (952) (2,146)
Expected employer's cash contributions
for following year 360 361
The assets of the scheme are invested on a collective basis with
other employers. The allocation of the pooled assets between asset
categories is as follows.
Asset allocation
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Cash 2.8% 3.6%
Bonds 29.1% 31.7%
Equities 33.2% 34.8%
Property (incl. mortgages) 31.3% 27.0%
Other 3.6% 2.9%
Total 100.0% 100.0%
Amounts recognized in profit and loss
Year ended Year ended
December
31, December 31,
2022 2021
US$'000 US$'000
Employer service cost (571) (521)
Past service cost recognized in year - 28
Interest cost (45) (14)
Expected return on plan assets 37 10
Admin expense (21) (20)
Curtailment, settlement, plan amendment
gain (loss) - 64
Components of defined benefit costs
recognized in profit or loss (600) (453)
Amounts recognized in other comprehensive income
Year ended Year ended
December
31, December 31,
2022 2021
US$'000 US$'000
Actuarial gains/(losses) arising from
plan experience 2,392 (1,449)
Actuarial (losses)/gains arising from
demographic assumptions (23) 744
Actuarial gains arising from financial
assumptions 193 449
Re-measurement of defined benefit obligations 2,562 (256)
-----------
Re-measurement of assets (1,182) 1,380
Deferred tax asset recognized (276) (225)
Other - -
Total recognized in OCI 1,104 899
Principal actuarial assumptions (beginning of year):
The principal assumptions used in determining pension and
post-employment benefit obligations for the plan are shown
below:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Discount rate 2.25% 0.35%
Interest credit rate 2.25% 1.00%
Average future salary increases 2.50% 2.00%
Future pension increases 0.00% 0.00%
Mortality tables used BVG 2020 GT BVG 2020 GT
Average retirement age 65/65 65/64
The forecasted contributions of the Group for the 2023 financial
year amount to US$360,000.
Sensitivities
A quantitative sensitivity analysis for significant assumptions
is as follows:
As at As at
December 31, December 31,
2022 2021
Impact on defined benefit
obligation US$'000 US$'000
------------------------------
Discount rate + 0.25% (323) (524)
Discount rate - 0.25% 343 560
Salary increase + 0.25% 44 72
Salary increase - 0.25% (43) (70)
Pension increase + 0.25% 167 278
Pension decrease - 0.25% (not - -
lower than 0%)
A negative value corresponds to a reduction of the defined
benefit obligation, a positive value to an increase of the defined
benefit obligation.
The sensitivity analyses above have been determined based on a
method that extrapolates the impact on the defined benefit
obligation as a result of reasonable changes in key assumptions
occurring at the end of the reporting period. The sensitivity
analyses are based on a change in a significant assumption, keeping
all other assumptions constant. The sensitivity analyses may not be
representative of an actual change in the defined benefit
obligation as it is unlikely that changes in assumptions would
occur in isolation from one another.
Other pension plans
Life Materials Technologies Limited, Thailand, also has a
pension scheme which gives rise to defined benefit obligations
under IAS 19. This pension plan contributed a net defined benefit
obligation of US$92,000 to the net assets acquired in the business
combination in 2021. The pension expense in profit and loss was
US$1,000 (2021: US$43,000) which results in a US$134,000 net
defined liability as at December 31, 2021 (2021: US$135,000).
30. Lease liabilities
Future minimum lease payments associated with leases were as
follows:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
----------------------------------- -------------- --------------
Not later than one year 1,301 959
Later than one year and not later
than five years 3,813 3,253
Later than five years 3,387 4,905
Total minimum lease payments 8,501 9,117
Less: Future finance charges (679) (1,003)
-------------- --------------
Present value of minimum lease
payments 7,822 8.114
Current liability 1,264 905
Non-current liability 6,558 7,209
--------------
7,822 8,114
31. Borrowings
The Group's borrowings are held at amortized cost. They consist
of the following:
As at
December As at
31, December 31,
2022 2021
US$'000 US$'000
--------------
Unsecured bank loans 3,573 1,159
Secured bank loans 628 778
Loans from non-controlling interest 137 825
Total borrowings 4,338 2,762
The other principal features of the Group's borrowings are as
follows:
Unsecured bank loans
A credit facility was taken out in December 2022 which incurs
interest at a fixed rate of 2.2%. It was repaid on February 28,
2023 and the loan was replaced with a new credit facility worth CHF
4,500,000 (US$ 4,964,000). As at December 31, 2022, CHF 2,400,000
(US$2,574,000) was outstanding.
Several loans amounting to US$1.6 million were assumed through
the acquisition of Chrisal. They finance the acquisition of
property, plant and equipment as well as the prepayment of
provisional taxes. As at December 31, 2022, EUR938,000 (US$999,000)
is outstanding (2021: EUR1,019,000 (US$1,159,000)). A further
EUR277,000 was taken out in February 2023. The loans are repayable
over a period of up to ten 10 years. These loans all have fixed
interest rates between 0.78 and 3.95% and the weighted average
fixed interest rate on the outstanding balances is 2.21%.
Loans from non-controlling interests
A loan is payable to a minority shareholder of Life-Materials
Latam Ltda, Brazil. Interest is fixed at 0.5%. There is no specific
repayment date, but the loan is payable once the entity is able to
repay it. The balance as at December 31, 2022 is BRL 715,683
(US$137,000).
The balance as at December 31, 2021 included three loans
totaling EUR725,000 (US$825,000) payable to a company controlled by
a minority shareholder of HeiQ Medica. The loans did not incur any
interest and were waived in full by the borrower in December 2022
resulting in a capital contribution from minority shareholders of
US$764,000.
Secured bank loans
A bank loan taken out in October 2020 which incurs interest at a
fixed rate of 3.25% and which is secured on property owned by a
company which is controlled by a minority shareholder of HeiQ
Medica. It is repayable in equal monthly instalments of EUR8,000
(US$9,500) over eight years up to September 2028. As at December
31, 2022, EUR590,000 (US$629,000) is outstanding (2021:
US$779,000).
The following table provides a reconciliation of the Group's
future maturities of its total borrowings for each year
presented:
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Not later than one year 2,893 1,157
Later than one year but less than
five years 1,029 951
After more than five years 416 654
---------------------------------- ------------------------ --------------
Total borrowings 4,338 2,762
32. Deferred tax
The following are the major deferred tax liabilities and assets
recognized by the Group and movements thereon during the current
and prior reporting period.
Pension Tax losses Share-based Capital allowances, Total
fund obligations payments depreciation
and other
temporary
differences
US$'000 US$'000 US$'000 US$'000 US$'000
---------- ----------- -------------------
Balance at January 1,
2021 655 171 - (395) 431
Charge to profit or loss 22 17 82 310 431
Charge to other comprehensive
income (225) - - - (225)
Business Combinations - - - (1,627) (1,627)
Foreign currency differences (23) (10) 3 26 (4)
----------------- ---------- ----------- --------
Balance as at December
31, 2021 429 178 85 (1,686) (994)
----------------- ---------- ----------- --------
Charge to profit or loss 49 (150) 1 681 581
Charge to other comprehensive
income (276) - - - (276)
Foreign currency differences (12) (28) 5 9 (26)
----------------- ---------- ----------- --------
Balance as at December
31, 2022 190 - 91 (996) (715)
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis. The following is
the analysis of the deferred tax balances (after offset) for
financial reporting purposes:
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
Deferred tax
Deferred tax assets 538 1,337
Deferred tax liabilities (1,253) (2,333)
Net deferred tax assets (liabilities) (715) (994)
Deferred tax assets amounting to US$239,000 were derecognized
following remeasurements of defined benefit obligations (see also
Note 29). Deferred tax liabilities related to capital allowances
and depreciation decreased following the release of excess reserves
on inventory and receivables in Switzerland as well as amortization
of intangible assets acquired in the business combinations in
2021.
As at December 31, 2021, the Group had approximately US$178,000
of tax losses available to be carried forward against future
profits. Management no longer expects the deferred tax asset to be
substantially recovered in 2023. Therefore, the deferred tax assets
were derecognized as at December 31, 2022.
Some tax losses were not recognized as deferred tax assets.
During the year ended December 31, 2022, such tax losses amounted
to US$3,175,000 (2021: US$378,000). They arose from aggregated
losses of US$17,482,000 (2021: US$1,134,000).
33. Other non-current liabilities
As at
December As at
31, December 31,
2022 2021
US$'000 US$'000
--------------
Defined benefit obligation IAS 19 Switzerland
(Note 29) 952 2,146
Defined benefit obligation IAS 19 Thailand
(Note 29) 134 135
Deferred consideration in relation to
ChemTex acquisition (see Note 5g) - 88
Contract liabilities 3,614 -
Deferred grant income 14 -
Others - 250
Total other non-current liabilities 4,714 2,619
34. Trade and other payables
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Trade payables 3,321 4,090
Payables to tax authorities 375 1,167
Other payables 1,626 3,014
------------------------------- ------------- -------------
Total trade and other payables 5,322 8,271
Trade payables principally comprise amounts outstanding for
trade purchases and ongoing costs. Other payables relate to
employee-related expenses, utilities and other overhead costs.
Typically, no interest is charged on the trade payables. The Group
has financial risk management policies in place to ensure that all
payables are paid within the pre-agreed credit terms.
The directors consider that the carrying amount of trade
payables approximates to their fair value.
35. Accrued liabilities
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
-------------------------- ------------- -------------
Costs of goods sold 875 1,328
Personnel expenses 1,737 1,525
Other operating expenses 2,366 533
--------------------------
Total accrued liabilities 4,978 3,386
36. Deferred revenue
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
-------------------------------- -------------- --------------
Contract liabilities 1,176 1,000
Prepayments for unshipped goods 94 -
Deferred grant income 15 4
-------------------------------- -------------- --------------
Total deferred revenue 1,285 1,004
37. Contract liabilities
As at As at As at
December 31, December 31, January 1,
2022 2021 2021
US$'000 US$'000 US$'000
-------------- ------------
Exclusivity agreements 1,832 - -
Research and development
services 2,958 1,000 -
Total contract liabilities 4,790 1,000 -
Current liabilities (Note
36) 1,176 1,000 -
Non-current liabilities
(Note 33) 3,614 - -
Total contract liabilities 4,790 1,000 -
Revenue relating to both exclusivity and research and
development services is recognized over time although the customer
pays up-front in full for these services. A contract liability is
recognized for revenue relating to the services at the time of the
initial sales transaction and is released over the service
period.
In the reporting year ended December 31, 2021, the Group
received a US$ 1 million prepayment for research and development
services. The Group is expected to complete its obligations in the
reporting year ended December 31, 2024. In 2022, the Group entered
into an agreement to grant exclusivity to a customer worth US$2
million and research and development services worth a further US$2
million. The customer has prepaid, and revenue recognition is
spread over four reporting periods starting in July 2022 and ending
June 2026.
The following table shows how much of the revenue recognized in
the current reporting period relates to brought forward contract
liabilities.
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
-------------------------------------- -------------- --------------
Exclusivity agreements - -
Research and development services - -
-------------------------------------- -------------- --------------
Total revenue recognized from contract
liabilities - -
38. Other current liabilities
As at
December As at
31, December 31,
2022 2021
US$'000 US$'000
Deferred consideration in relation to
acquisitions (Note 5g) 92 5,995
Deferred consideration in relation to
share-based payments (Note 27) - 74
Call option derivative liability 686 -
Other current liabilities 778 6,069
Deferred consideration
As more fully described in Note 5, the Company settled a total
of US$5.5 million of deferred consideration relating to the
acquisition of RAS AG and Life Materials by way of cash and share
issuance. A further settlement of deferred consideration of
US$187,000 in cash payments related to the ChemTex acquisition in
2017.
Call option derivative liability
As described in Note 5b, HeiQ AeoniQ GmbH's minority shareholder
Hugo Boss AG has the contractual right to acquire a further 5%
shareholding in HeiQ AeoniQ GmbH for a call option exercise price
of EUR10,000,000 (approximately US$10,657,000) which expires on
December 31, 2023.
The Group has valued the option at initial recognition at
US$1,097,000 based on the Black-Scholes model. As at December 31,
2022, a liability of US$686,000 was recognized with a corresponding
US$371,000 debit entry to profit and loss and a US$40,000 charge to
currency translation reserve. The inputs into the Black-Scholes
model are as follows:
Weighted average share price
(EUR) 4,326.68
Weighted average exercise price
(EUR) 5,714.29
Expected volatility 44.7%
Expected life 1 year
Risk-free rate 1.0%
Expected dividend yield 0%
39. Contingent assets and liabilities
On October 10, 2022 the Group announced that it has filed a
complaint in the United States District Court for the Western
District Of North Carolina, Charlotte Division, against ICP
Industrial Inc, for breaching its Exclusive Agreement terms.
Because of the claimed contract breach, the Group has not
recognized any income or assets from the contract. Within the same
legal proceeding, ICP Industrial Inc, has filed a counter claim
against the Group. Although the Group is confident in its legal
position, the outcome of the legal proceedings as well as the
court-mandated mediation remains uncertain. Therefore, while a
future economic benefit is expected, it can not be reliably
quantified at this point in time and could bear the risk of
prejudice given the ongoing legal proceedings.
40. Provisions
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
--------------------------- ------------------------ --------------
Legal/Compliance provision 339 -
Total provisions 339 -
------------------------
Current liability 339 -
Non-current liability - -
-----
339 -
This provision is reported in Note 35 as Accrued liabilities -
Other operating expenses.
Legal/Compliance
provision Total
US$'000 US$'000
--------------------------------- ------------------------ -------
Balance at January 1, 2021 - -
Additional provision in the year - -
Utilization of provision - -
Exchange difference - -
--------------------------------- ------------------------ -------
Balance as at December 31, 2021 - -
--------------------------------- ------------------------ -------
Additional provision in the year 339 339
Utilization of provision - -
Exchange difference - -
--------------------------------- ------------------------ -------
Balance as at December 31, 2022 339 339
The Group was contacted by the United States Environmental
Protection Agency ("EPA") in connection with potential alleged
violations of the Federal Insecticide, Fungicide and Rodenticide
Act ("FIFRA") pertaining to alleged mislabelling. As at December
31, 2022, the Company has assessed the claim and made a provision
for US$339,000 (December 31, 2021: US$nil) which was paid in May
2023.
41. Fair value and financial instruments
a) Fair value
The fair value of an asset or liability is the price tat would
be received to sell that asset or paid to transfer that liability
in an orderly transaction occurring in the principal market (or
most advantageous market in the absence of a principal market) for
such asset or liability. In estimating fair value, the Directors
utilize valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. Such
valuation techniques are consistently applied. Inputs to valuation
techniques include the assumptions that market participants would
use in pricing an asset or liability. IFRS 13 "Fair Value
Measurement" establishes a fair value hierarchy for valuation
inputs that gives the highest priority to quoted prices in active
markets for identical assets or liabilities and the lowest priority
to unobservable inputs. The fair value hierarchy is defined as
follows:
Level 1: Inputs are unadjusted, quoted prices in active markets
for identical assets at the measurement date.
Level 2: Inputs (other than quoted prices included in Level 1)
can include the following:
-- observable prices in active markets for similar assets;
-- prices for identical assets in markets that are not active;
-- directly observable market inputs for substantially the full term of the asset; and
-- market inputs that are not directly observable but are
derived from or corroborated by observable market data.
Level 3: Unobservable inputs which reflect the Directors' best
estimates of what market participants would use in pricing the
asset at the measurement date.
We have not identified any financial instruments measured at
fair value for the years ended December 31, 2021 and December 31,
2022.
There were no transfers between fair value levels during the
year ended December 31, 2022 (2021: US$nil).
b) Financial instruments
For trade receivables, the Group applies the simplified approach
permitted by IFRS 9 "Financial Instruments", which requires
expected lifetime losses to be recognized from initial recognition
of the receivables.
Financial liabilities are initially measured at fair value and
subsequently measured at amortized cost.
The Group is not a financial institution. The Group does not
apply hedge accounting and its customers are considered
creditworthy and in general pay consistently within agreed payments
terms. In 2022, few customers have shown delays in payment which
are closely monitored.
A classification of the Group's financial instruments is
included in the table below. These financial instruments are held
at amortized cost which is estimated to be equal to fair value.
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
Financial instruments (restated)
Cash and cash equivalents 8,488 14,560
Trade receivables 6,487 14,656
Accrued income and other receivables 3,239 2,824
Trade and other payables (5,322) (8,271)
Accrued liabilities (4,978) (3,386)
Deferred consideration (92) (6,158)
Call option derivative liability (686) -
Borrowings held at amortised cost (4,338) (2,763)
Lease liabilities held at present value
of lease payments (7,823) (8,114)
Total financial instruments (5,025) 3,348
42. Financial risk management
For the purposes of capital management, capital includes issued
capital and all other equity reserves attributable to the equity
holders of the Company, as well as debt. The primary objective of
the Directors' capital management is to ensure that the Group
maintains a strong credit rating and healthy capital ratios in
order to support its business and maximize shareholder value.
To maintain or adjust the capital structure, the Directors may
adjust the dividend payment to shareholders, return capital to
shareholders or issue new shares. No changes were made in the
objectives, policies or processes during the year.
The Directors manage the Group's capital structure and adjust it
in light of changes in economic conditions and the requirements of
the financial covenants. The Group includes in its net debt,
interest-bearing loans, lease liabilities and borrowings, trade and
other payables, less cash and short-term deposits.
The Group's principal financial liabilities comprise of
borrowings and trade and other payables, which it uses primarily to
finance and financially guarantee its operations.
The Group's principal financial assets include cash and cash
equivalents and trade and other receivables derived from its
operations.
a. Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates and interest rates will affect the Group's
income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market
risk exposures within acceptable parameters, while optimizing the
returns.
b. Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. As the Group's borrowings are
either on fixed interest terms or interest-free, the Group is not
subject to significant interest rate risk.
c. Credit risk
Credit risk is the risk that a customer or counterparty to a
financial instrument will not meet its obligations under a contract
and arises primarily from the Group's cash in banks and trade
receivables.
The Company considers the credit risk in relation to its cash
holdings is low because the counterparties are banks with high
credit ratings.
Trade receivables are due from customers and collectability is
dependent on the financial condition of each individual company as
well as the general economic conditions of the industry. The
Directors review the financial condition of customers prior to
extending credit and generally do not require collateral in support
of the Group's trade receivables. The majority of trade receivables
are current or overdue for less than 30 days and the Directors
believe these receivables are collectible. Amounts overdue longer
than 120 days relate to a limited number of customers with a long
trading history. Collection of these receivables is expected in the
course of the year 2023. For doubtful accounts, the Group
calculates an expected credit loss provision which is disclosed in
Note 23.
As at December 31, 2022, the Group had one customer that
individually accounted for more than 10% of total receivables,
totaling 29% of total trade receivables (2021: two customers that
individually accounted for more than 10% of total receivables,
totaling 36.4%).
In order to minimize credit risk, the Group has adopted a policy
of only dealing with creditworthy counterparties and obtaining
sufficient collateral, where appropriate, as a means of mitigating
the risk of financial loss from defaults. The credit rating
information is supplied by independent rating agencies where
available and, if not available, the Group uses other publicly
available financial information and its own trading records to rate
its major customers. The Group's exposure and the credit ratings of
its counterparties are continuously monitored and the aggregate
value of transactions concluded is spread amongst approved
counterparties.
Credit approvals and other monitoring procedures are also in
place to ensure that follow-up action is taken to recover overdue
debts. Furthermore, the Group reviews the recoverable amount of
each trade debt and debt investment on an individual basis at the
end of the reporting period to ensure that adequate loss allowance
is made for irrecoverable amounts. In this regard, the directors of
the Company consider that the Group's credit risk is significantly
reduced. Trade receivables consist of a large number of customers,
spread across diverse industries and geographical areas. Ongoing
credit evaluation is performed on the financial condition of
accounts receivable and, where appropriate, credit guarantee
insurance cover is purchased.
d. Foreign currency risk
Foreign currency risk is the risk that the fair value or future
cash flows of an exposure will fluctuate due to changes in foreign
exchange rates. The Group's exposure to the risk of changes in
foreign exchange rates relates primarily to its financing
activities (when financial liabilities and cash are denominated
other than in a company's functional currency).
Most of the Group's transactions are carried out in US Dollars
($). Foreign currency risk is monitored closely on an ongoing basis
to ensure that the net exposure is at an acceptable level.
The Group maintains a natural hedge whenever possible, by
matching the cash inflows (revenue stream) and cash outflows used
for purposes such as capital and operational expenditure in the
respective currencies. The Group's net exposure to foreign exchange
risk was as follows:
Functional currency
AUD EUR GBP US$ Others Total
As at December 31, 2022 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------
Financial assets denominated
in $ 19 92 206 6,771 3 7,091
Financial liabilities - - - - - -
denominated in $
Net foreign currency
exposure 19 92 206 6,771 3 7,091
Functional currency
AUD EUR GBP US$ Others Total
As at December 31, 2021 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
(restated) (restated) (restated) (restated) (restated) (restated)
Financial assets denominated
in $ 115 375 284 11,804 622 13,200
Financial liabilities
denominated in $ (10) (1,717) (475) (2,226) (55) (4,483)
Net foreign currency
exposure 105 (1,342) (191) 9,578 567 8,717
Foreign currency sensitivity analysis:
The following tables demonstrate the sensitivity to a reasonably
possible change in foreign currency exchange rates, with all other
variables held constant.
The impact on the Group's profit before tax is due to changes in
the fair value of monetary assets and liabilities. The Group's
exposure to foreign currency changes for all other currencies is
not material.
A 10 per cent. movement in each of the Australian dollar (AUD),
euro (EUR), British pound (GBP) and US dollar ($) would
increase/(decrease) net assets by the amounts shown below. This
analysis assumes that all other variables, in particular interest
rates, remain constant.
AUD EUR GBP US$ Others
As at December 31,
2022 US$'000 US$'000 US$'000 US$'000 US$'000
Effect on net assets:
Strengthened by 10% 2 9 21 677 -
Weakened by 10% (2) (9) (21) (677) -
AUD EUR GBP US$ Others
As at December 31,
2021 US$'000 US$'000 US$'000 US$'000 US$'000
Effect on net assets:
Strengthened by 10% 11 (134) (19) 958 57
Weakened by 10% (11) 134 19 (958) (57)
e. Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they are due. The Directors
manage this risk by:
-- maintaining adequate cash reserves through the use of the
Group's cash from operations and bank borrowings as well as
overdraft facilities; and
-- continuously monitoring projected and actual cash flows to
ensure the Group maintains an appropriate amount of liquidity.
Overview of financing facilities
The following tables detail the Group's remaining contractual
maturity for financial liabilities with agreed repayment periods.
The tables have been drawn up based on the undiscounted cash flows
of financial
liabilities based on the earliest date on which the Group can be
required to pay. The table includes both interest and principal
cash flows.
Less than 2 to 5 > 5
1 year years years Total
Year ended December
31, 2022 US$'000 US$'000 US$'000 US$'000
Trade and other payables 5,322 - - 5,322
Borrowings held at amortized
cost 2,893 1,029 416 4,338
Leases (gross cash flows) 1,302 3,813 3,387 8,502
Other liabilities 5,290 - - 5,290
As at December 31, 2022 14,807 4,842 3,803 23,453
Less than 2 to 5 > 5
1 year years years Total
Year ended December
31, 2021 US$'000 US$'000 US$'000 US$'000
(restated) (restated) (restated) (restated)
Trade and other payables 8,271 - - 8,271
Borrowings 1,157 951 655 2,763
Leases (gross cash flows) 959 3,253 4,905 9,117
Other liabilities 3,435 - 88 3,524
As at December 31, 2021 13,822 4,204 5,648 23,674
Unsecured bank overdraft facility
As at As at
December 31, December 31,
2022 2021
Unsecured bank overdraft facility US$'000 US$'000
---------------------------------- ------------------------ --------------
Amount used 2,790 -
Amount unused 6,861 9,329
Total 9,651 9,329
------------------------
The bank overdraft facilities are reviewed at least
annually.
f. Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as going concerns while maximising
the return to shareholders through the optimisation of the debt and
equity balance. The Group's overall strategy remains unchanged from
2021.
The capital structure of the Group consists of equity and
liabilities of the Group. The Group intends to keep debt low to
minimise the interest rate impact.
The Group is not subject to any externally imposed capital
requirements.
The Directors review the capital structure on a semi-annual
basis based on the equity ratio and total borrowings. The equity
ratio at December 31, 2022 is 57 per cent (see below).
As at As at
December 31, December 31,
2022 2021
US$'000 US$'000
(restated)
Equity 40,339 59,535
Total equity and liabilities 71,143 94,144
Equity ratio 57% 63%
43. Notes to the statements of cash flows
Non-cash transactions
Certain shares were issued during the year for a non-cash
consideration as described in Note 5g.
Additions to buildings and land during the year amounting to
US$1,862,000 million were financed by share issue (2021: nil).
Gains and losses on disposal of assets
As at As at
Note December 31, December 31,
2022 2021
Gains and losses on disposal of
assets US$'000 US$'000
------------------------------------ ------------------------
Gain on disposal of property, plant
and equipment 10 (21) (54)
Loss on disposal of property, plant
and equipment 13 16 20
Net loss on disposal of assets (5) (34)
------------------------
Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's consolidated cash flow statement as cash flows from
financing activities.
Liabilities arising from financing Leases Borrowings Total
activities US$'000 US$'000 US$'000
Balance at January 1, 2021 (2,652) (1,573) (4,225)
Cash flows 662 382 1,044
Assumed on acquisitions of subsidiaries (422) (1,792) (2,214)
New lease agreements (5,700) - (5,700)
Exchange differences (2) 221 219
Balance at December 31, 2021 (8,114) (2,762) (10,876)
Cash flows 992 (2,561) (1,569)
New lease agreements (2,181) - (2,181)
Revaluation of lease agreements 574 - 574
Disposal due to acquisitions 490 - 490
Loans waived by creditors - 764 764
Exchange differences 416 221 637
Balance at December 31, 2022 (7,823) (4,338) (12,161)
Working capital reconciliation:
The Company defines working capital as trade receivables, other
receivables and prepayments less trade and other payables, accrued
liabilities, deferred revenue and non-current liabilities excluding
pension liabilities.
Assumed
Opening on acquisition Change in Closing
balances of assets balance balances
Year ended December 31, 2022 US$'000 US$'000 US$'000 US$'000
Inventories 13,770 - (602) 13,168
Trade receivables 14,656 - (8,169) 6,487
Other receivables and prepayments 3,876 - 386 4,262
Trade and other receivables
and prepayments 18,532 - (7,783) 10,749
Trade and other payables 8,271 - (2,949) 5,322
Accrued liabilities 3,386 9 1,583 4,978
Deferred revenue incl. non-current
contract liabilities 1,004 - 3,909 4,913
Trade and other payables,
accrued liabilities and deferred
revenue 12,661 9 2,543 15,213
Assumed
Opening on acquisition Change in Closing
balances of subsidiaries balance balances
US$'000 US$'000 US$'000 US$'000
Year ended December
31, 2021 restated restated restated restated
Inventories 13,540 2,258 (2,028) 13,770
Trade receivables 10,080 3,538 1,038 14,656
Other receivables and
prepayments 2,609 - 1,267 3,876
Trade and other receivables
and prepayments 12,689 3,538 2,305 18,532
Trade and other payables 5,815 2,497 (41) 8,271
Accrued liabilities 2,168 - 1,218 3,386
Deferred revenue - - 1004 1,004
Trade and other payables,
accrued liabilities
and deferred revenue 7,983 2,497 2,181 12,661
Consideration for acquisition of businesses
Year ended December 31, 2022 US$'000
Consideration payment for acquisition of
Life Materials Technologies Ltd 1,400
Consideration payment for acquisition of
ChemTex assets 187
Net consideration payment for acquisitions
of businesses and assets 1,587
Year ended December 31, 2021 US$'000
Consideration payment for acquisition of
Chrisal NV 6,054
Consideration payment for acquisition of
RAS AG 1,482
Consideration payment for acquisition of
Life Materials Technologies Ltd 2,550
Consideration payment for acquisition of
ChemTex assets 908
Cash assumed on acquisition of Chrisal NV (1,773)
Cash assumed on acquisition of RAS AG (291)
Cash assumed on acquisition of Life Material
Technologies Ltd (73)
Net consideration payment for acquisitions
of businesses 8,857
44. Related party transactions
HeiQ Materials AG supplied materials and services totaling
US$46,000 to ECSA, a company controlled by a director of HeiQ
Materials AG, in the year ended December 31, 2022 (2021:
US$32,000). HeiQ Materials AG in turn supplied US$88,000 in 2021
(2022: US$nil). The transactions were made on terms equivalent to
those in arm's length transactions.
There are no loans outstanding with related parties.
Remuneration of key management personnel
The remuneration of the directors, who are the key management
personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 Related Party Disclosures.
Year ended Year ended
December 31, December 31,
2022 2021
US$'000 US$'000
-------------------------------------- -------------
Short-term employee benefits 738 836
Post-employment benefits 35 32
Cash remuneration of key management
personnel 773 868
Share-based payment expense (income) (58) 170
Total remuneration of key management
personnel 715 1,038
--------------------------------------- -------------
The cash remuneration for the reporting year ended December 31,
2022 is equivalent to the total compensation of CHF 477,626 and GBP
220,000 (2021: CHF 568,878 and GBP 220,000) which are presented in
the annual report on Director's remuneration.
45. Material subsequent events
On January 12, 2023, HeiQ Plc, completed the acquisition of the
entire issued share capital of Tarn-Pure Holdings Ltd
("Tarn-Pure"). Tarn-Pure is a UK-based intellectual property
company holding critical EU and UK regulatory registrations to sell
elemental copper and elemental silver for use in disinfecting
hygiene applications. To acquire Tarn-Pure, HeiQ have paid the
vendors GBP530,000 (approximately US$621,000) in cash with an
additional GBP317,000 (approximately US$372,000) to be satisfied
through the issuance of 455,435 new ordinary shares of 30p each in
the Company (the "Consideration Shares"), issued at a price of
69.6p per share resulting in a total consideration of GBP847,000
(approximately US$993,000). The purchase price allocation for this
acquisition is incomplete. Impacts on this acquisition and the
results will be included in the 2023 consolidated financial
statements.
As communicated on July 06, 2023, HeiQ Plc sold a 1.5% minority
interest in HeiQ AeoniQ GmbH to MAS Holdings for US$1.5 million. It
was also agreed that a further 1% shareholding will be sold to MAS
Holdings for US$1 million subject to the achievement of a mutually
agreed milestone.
46. Ultimate controlling party
As at December 31, 2022, the Company did not have any single
identifiable controlling party.
Company Statement of Financial Position (registered company
number:09040064)
As at December 31, 2022
As at As at
December December
31, 31,
2022 2021
Note GBP'000 GBP'000
ASSETS
Non-current assets
Investments 4 42,758 101,484
Amounts due from subsidiaries 5 9,000 18,000
51,758 119,484
Current assets
Trade and other receivables 7 798 377
Cash and bank balances 6 306 1,203
1,104 1,580
TOTAL ASSETS 52,862 121,064
LIABILITIES
Current liabilities
Trade and other payables 8 (204) (354)
4
(204) (354)
NET ASSETS 52,658 120,710
EQUITY
Share capital 9 42,025 39,175
Share premium account 9 114,663 109,460
Share-based payment reserve 11 340 346
Accumulated losses (104,370) (28,271)
TOTAL EQUITY 52,658 120,710
The Company has taken advantage of Section 408 of the Companies
Act 2006 and has not included a Profit and Loss account in these
separate financial statements. The loss attributable to members of
the Company for the year ended December 31, 2022 is GBP76,099,000
(2021: loss of GBP26,801,000)
The notes form an integral part of these Financial Statements.
The Financial Statements were authorized for issue by the board of
Directors on October 26, 2023 and were signed on its behalf by.
Xaver Hangartner
Director
Company Statement of Changes in Equity
For the year ended December 31, 2022
Share Share-based
Share premium payment Accumulated
capital account reserve losses Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the year ended December
31, 2021:
Balance as at January 1,
2021 37,767 102,536 38 (1,470) 138,871
Loss for the year - - - (26,801) (26,801)
Issue of shares 1,408 6,924 - - 8,332
Share-based payment charges - - 308 - 308
Transactions with owners 1,408 6,924 308 - 8,640
Balance as at December
31, 2021 39,175 109,460 346 (28,271) 120,710
For the year ended December 31,
2022:
Loss for the year - - - (76,099) (76,099)
Issue of shares 2,850 5,203 - - 8,053
Share-based payment charges - - (6) - (6)
Transactions with owners 2,850 5,203 (6) - 8,047
Balance as at December
31, 2022 42,025 114,663 340 (104,370) 52,658
Company statement of cash flows
For the year ended December 31, 2022
Year ended Year ended
December 31, December 31,
2022 2021
Cash flows from operating activities GBP'000 GBP'000
Loss before taxation (76,099) (26,801)
Cash flow from operations reconciliation:
Net finance income (377) (375)
Impairment provision 67,180 26,821
Working capital adjustments:
(Increase) in trade and other receivables 8,580 (186)
Increase/(decrease) in trade and other
payables (95) (184)
Cash used in operations (811) (726)
Net cash used in operating activities (811) (726)
Cash flows from investing activities
Interest received 377 375
Consideration payment for acquisitions
of businesses (463) -
Net cash used in investing activities (86) 375
Cash flows from financing activities
Net cash from financing activities - -
Net increase/(decrease) in cash and
cash equivalents (897) (351)
Cash and cash equivalents - beginning
of the year 1,203 1,554
Cash and cash equivalents - end of
the year 306 1,203
Notes to the Company Financial Statements for the year ended
December 31, 2022
1. General information
The Company was incorporated on May 14, 2014 as Auctus Growth
Limited, in England and Wales under the Companies Act 2006 with
company number 09040064. The Company was re-registered as a public
company on July 24, 2014. On December 4, 2020, following a reverse
takeover of Swiss based HeiQ Materials AG, the Company's name was
changed to HeiQ Plc. The Company's registered office is 5th Floor,
15 Whitehall, London, SW1A 2DD.
The Company's enlarged share capital is admitted to the standard
segment of the Official List and trading on the London Stock
Exchange's Main Market under the ticker 'HEIQ'. The ISIN of the
Ordinary Shares is GB00BN2CJ299 and the SEDOL Code is BN2CJ29.
The principal activity of the Company is that of a holding
company for the Group, as well as performing all administrative,
corporate finance, strategic and governance functions of the
Group.
The Company's financial statements are prepared in Pounds
Sterling, which is the presentational currency for the financial
statements.
2. Summary of significant accounting policies
a. Basis of preparation
These Financial Statements have been prepared in accordance with
UK adopted international accounting standards applying the FRS101
Reduced Disclosure Framework.
These financial statements are prepared under the historical
cost convention. Historical cost is generally based on the fair
value of the consideration given in exchange of assets. The
principal accounting policies are set out below.
The Company also produces consolidated accounts which include
the results of the Company.
The financial statements have been prepared on a going concern
basis which contemplates the continuity of normal business
activities and the realization of assets and the settlement of
liabilities in the ordinary course of business. The Directors have
assessed both the Company's and the Group's ability to continue in
operational existence for the foreseeable future. The Company has
prepared forecasts and projections which reflect the expected
trading performance of the Company and the Group on the basis of
best estimates of management using current knowledge and
expectations of trading performance. As at December 31, 2022, the
Company had GBP306,000 (2021: GBP1,203,000) in cash, which is
considered sufficient for its present needs. As described in Note
3b to the consolidated financial statements, there is material
uncertainty at the Group level that casts significant doubt upon
the company's ability to continue as a going concern and that,
therefore, the company may be unable to realize its assets and
discharge its liabilities in the normal course of business.
Nevertheless, after making enquiries and considering the
uncertainties described above, the Directors consider there are
reasonable grounds to believe that the Company will be able to pay
its debts as and when they become due and payable, as well as to
fund the Company's future operating expenses. The going concern
basis preparation is therefore considered to be appropriate in
preparing these financial statements.
b. Investments
Fixed asset investments are carried at cost less, where
appropriate, any provision for impairment.
c. Loans to subsidiaries
Loans to subsidiaries are measured at the present value of the
future cash payments discounted at a market rate of interest for a
similar debt instrument unless such amounts are repayable on
demand. The present value of loans that are repayable on demand is
equal to the undiscounted cash amount payable, reflecting the
Company's right to demand immediate repayment.
d. Foreign currencies
The company's equity is raised in Pound Sterling (GBP) which is
the functional and presentational currency of the Company, and all
values are rounded to the nearest thousand pounds except where
otherwise indicated. Transactions in foreign currencies are
recorded using the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies are translated using the contracted rate or the rate of
exchange ruling at the balance sheet date and the gains or losses
on translation are included in the profit and loss account.
e. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, bank balances,
deposits with financial institutions and short-term, highly liquid
investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in
value.
f. Trade and other receivables
Trade and other receivables are recognized initially at fair
value and subsequently measured at amortized cost using the
effective interest method, less provision for impairment.
g. Income taxes
The charge for taxation is based on the profit/ loss for the
year and takes into account taxation deferred because of timing
differences between the treatment of certain items for taxation and
accounting purposes.
Deferred tax is provided on timing differences which arise from
the inclusion of income and expenses in tax assessments in periods
different from those in which they are recognized in the financial
statements. The following timing differences are not provided for:
differences between accumulated depreciation and tax allowances for
the cost of a fixed asset if and when all conditions for retaining
the tax allowances have been met; and differences relating to
investments in subsidiaries, to the extent that it is not probable
that they will reverse in the foreseeable future and the reporting
entity is able to control the reversal of the timing difference.
Deferred tax is not recognized on permanent differences arising
because certain types of income or expense are non-taxable or are
disallowable for tax or because certain tax charges or allowances
are greater or smaller than the corresponding income or
expense.
h. Share-based payment arrangements
Equity-settled share-based payments to employees are measured at
the fair value of the equity instruments at the grant date.
Equity-settled share-based payments to non-employees are measured
at the fair value of services received, or if this cannot be
measured, at the fair value of the equity instruments granted at
the date that the Company obtains the goods or counterparty renders
the service. Details regarding the determination of the fair value
of equity-settled share-based transactions are set out in Note 27
to the consolidated financial statements.
The fair vale determined at the grant date of the equity-settled
share-based payments is recognized on a straight-line basis over
the vesting period, based on the Company's estimate of equity
instruments that will eventually vest, with a corresponding
increase in equity. Where the conditions are non-vesting, the
expense and equity reserve arising from share-based payment
transactions is recognized in full immediately on grant.
Where the Company grants an equity-settled share-based payment
award to employees of a subsidiary, then the Company classifies the
transaction as equity-settled in its separate financial statements.
The Company recognises a capital contribution from the subsidiary
as a credit to the share-based payment reserve and a corresponding
increase in its investment in the subsidiary.
At the end of each reporting period, the Group revises its
estimate of the number of equity instruments expected to vest. The
impact of the revision of the original estimates, if any, is
recognized in profit or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to
other reserves.
i. Trade and other payables
Trade and other payables are initially recognized at fair value
and thereafter stated at amortized cost using the effective
interest method unless the effect of discounting would be
immaterial, in which case they are stated at cost.
j. Share capital
Proceeds from issuance of ordinary shares are classified as
equity. Incremental costs directly attributable to the issuance of
new ordinary shares or options are shown in equity as a deduction
from the proceeds.
k. Financial instruments
Financial instruments are recognized in the statements of
financial position when the Company has become a party to the
contractual provisions of the instruments.
Financial instruments are classified as liabilities or equity in
accordance with the substance of the contractual arrangement.
Interest, dividends, gains and losses relating to a financial
instrument classified as a liability are reported as an expense or
income. Distributions to holders of financial instruments
classified as equity are charged directly to equity.
Financial instruments are offset when the Company has a legally
enforceable right to offset and intends to settle either on a net
basis or to realize the asset and settle the liability
simultaneously.
A financial instrument is recognized initially at its fair value
plus, in the case of a financial instrument not at fair value
through profit or loss, transaction costs that are directly
attributable to the acquisition or issue of the financial
instrument.
Financial instruments recognized in the statements of financial
position are disclosed in the individual policy statement
associated with each item.
(i) Financial liabilities
Financial liabilities are recognized when, and only when, the
Company becomes a party to the contractual provisions of the
financial instrument.
All financial liabilities are recognized initially at fair value
plus directly attributable transaction costs and subsequently
measured at amortized cost using the effective interest method
other than those categorized as fair value through profit or
loss.
Fair value through profit or loss category comprises financial
liabilities that are either held for trading or are designated to
eliminate or significantly reduce a measurement or recognition
inconsistency that would otherwise arise. Derivatives are also
classified as held for trading unless they are designated as
hedges. There were no financial liabilities classified under this
category.
A financial liability is derecognized when the obligation under
the liability is discharged, cancelled or expires. When an existing
financial liability is replaced by another from the same party on
substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognized in the
profit or loss.
(ii) Equity instruments
Ordinary shares are classified as equity. Dividends on ordinary
shares are recognized as liabilities when approved for
appropriation.
(iii) Other financial instruments
Other financial instruments not meeting the definition of Basic
Financial Instruments are recognized initially at fair value.
Subsequent to initial recognition other financial instruments are
measured at fair value with changes recognized in profit or loss
except investments in equity instruments that are not publicly
traded and whose fair value cannot otherwise be measured reliably
shall be measured at cost less impairment.
3. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Company's accounting policies, which
are described in Note 2, management is required to make judgments,
estimates and assumptions about the carrying values of assets and
liabilities that are not readily apparent from other sources. The
estimates and underlying assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical accounting judgements
There were no critical accounting judgements impacting the
Company's standalone financial statements 2022 and 2021. Critical
accounting judgments affecting the Group are discussed in Note 4 to
the consolidated financial statements.
Key sources of estimate uncertainty
Impairment of amounts due from subsidiaries
As described in Note 2 to the financial statements, fixed asset
investments are stated at the lower of cost less provision for
impairment. The present value of loans to subsidiaries that are
repayable on demand is equal to the undiscounted cash amount
payable, reflecting the Company's right to demand immediate
repayment.
At each reporting date fixed asset investments and loans made to
subsidiaries are reviewed to determine whether there is any
indication that those assets have suffered an impairment loss. If
there is an indication of possible impairment, the recoverable
amount of any affected asset is estimated and compared with its
carrying amount. If the estimated recoverable amount is lower, the
carrying amount is reduced to its estimated recoverable amount, and
an impairment loss is recognized immediately in profit or loss.
The Directors have carried out an impairment test on the value
of the loans due from subsidiaries and have concluded that an
impairment provision of GBP9,000,000 (2021: nil) is necessary to
reflect the uncertainty around financing of the Group and Company
as mentioned in Note 3b to the consolidated financial statements
and Note 2a to the Company Financial Statements, respectively.
Impairment of fixed asset investments
The Directors have also carried out an impairment test on the
value of the Company's fixed asset investments and considered
whether there are any indicators of impairment from external and
internal sources of information, including the fact that the market
capitalization of the Company has fallen below the net carrying
value of such investments which would indicate that the carrying
value may have been impaired and have concluded that an impairment
provision of GBP94.0m (2021: GBP26.8m) is required to write down
these amounts to their estimated recoverable amount.
4. Investments
As at As at
Investments in subsidiary December 31, December 31,
undertakings
2022 2021
GBP'000 GBP'000
Balance brought forward 101,484 119,609
Additions 8,454 8,696
Impairment provision charge (67,180) (26,821)
Balance at end of year 42,758 101,484
Details of the Company's principal subsidiaries as at December
31, 2022 are set out in Note 6 to the consolidated financial
statements. The Company's investments in subsidiaries are carried
at cost less impairment.
The Directors have concluded that the significant devaluation of
the Group represents an indicator of impairment as at December 31,
2022. Therefore, the Directors performed an impairment test of the
Group and valued the Company's investment in its subsidiaries at
GBP51,758,000 (2021: GBP119,484,000 valued based on market
capitalization). The carrying value of its investments in
subsidiaries was GBP136,759,000 (2021: GBP128,305,000) before
impairment provision charges. The amounts due from subsidiaries as
at December 31, 2022 was GBP9,000,000 (2021: GBP18,000,000).
The Company has therefore made additional provision for an
impairment of GBP94,001,000 (2021: GBP26,821,000) against the
carrying value of the Company's investments in subsidiaries to
reduce such value to GBP42,758,000 (2021: GBP101,484,000).
Sensitivity
The calculation of the market capitalization of GBP77,045,000 is
based on the Company's share price of 55.0 pence as at 31 December
2022. Due to the volatility of the share price, a decrease of 75%
in the share price to 13.8 pence is reasonably possible. A decrease
in the share price of 75%, would result in a market capitalization
of GBP19.3 million and an additional impairment loss of
approximately GBP32.4 million.
5. Amounts due from subsidiaries
As at As at
December December
31, 31,
2022 2021
GBP'000 GBP'000
Balance brought forward at beginning of
year 18,000 18,000
Amounts advanced - -
Expected credit loss (9,000) -
Balance at end of year 9,000 18,000
The amounts due from subsidiaries are unsecured, yield 2.5%
interest and are repayable on demand. Given the uncertainty
described in the going concern review of the Group in Note 3b to
the consolidated financial statements, the recoverability of the
loan was reassessed. Due to the increased risk of default following
the Group's recent performance, it was concluded that an expected
credit loss of GBP9,000,000 is appropriate for the financial year
ended December 31, 2022.
Sensitivity
The expected credit loss of GBP9,000,000 reflects 50% of the
balance due. Had the Directors' assessment been that the whole
GBP18,000,000 are not collectible, there would have been an
additional expected credit loss of GBP9,000,000.
6. Cash and cash equivalents
As at As at
December 31, December
31,
2022 2021
GBP'000 GBP'000
Bank balances 306 1,203
306 1,203
7. Trade and other receivables
As at As at
December
December 31, 31,
2021 2020
GBP'000 GBP'000
Prepayments 14 108
Vat receivable 12 5
Other receivables from subsidiaries 772 264
798 377
8. Trade and other payables
As at As at
December 31, December
31,
2022 2021
GBP'000 GBP'000
Trade payables 1 16
Accruals 203 129
Taxes and social security - 8
Deferred consideration - 55
Other payables - 145
204 354
The directors consider that the carrying amounts of amounts
falling due within one year approximate to their fair values.
9. Share capital and share options
Share capital
Details of the Company's allotted, called-up and fully paid
share capital are set out in Note 26 to the Consolidated Financial
Statements.
Movements in the Company's share capital were as follows:
Number of Share Share Totals
shares capital premium
No. GBP'000 GBP'000 GBP'000
-------
Balance as of January 1, 2021 125,891,904 37,767 102,536 140,303
Issue of shares to acquire
Chrisal NV 1,101,928 331 1829 2,160
Issue of shares to acquire
RAS AG 1,701,821 511 2837 3,348
Issue of shares to acquire
Life Materials 1,887,883 566 2258 2,824
Balance as at December 31,
2021 130,583,536 39,175 109,460 148,635
--------
Issue of shares to vendors
of Life Materials (a) 347,552 104 347 451
Issue of shares as deferred
consideration 3,461,615 1,039 2,233 3,272
Issue of shares Advisory Board 164,721 50 146 196
Issue of shares ChemTex Labs 2,176,884 653 967 1,620
Issue of shares Chrisal 3,348,164 1004 1510 2,514
Balance as at December 31,
2022 140,082,472 42,025 114,663 156,688
--------
The par value of all shares is GBP0.30 (2021: GBP0.30). All
shares in issue were allotted, called up and fully paid. The
Ordinary shares of the Company carry one vote per share and an
equal right to any dividends declared.
Share options
Details of the Company's share option scheme and options issued
during the year are set out in Note 27 to the Consolidated
Financial Statements.
10. Reserves
The share premium account represents the amount received on the
issue of ordinary shares by the Company in excess of their nominal
value and is non-distributable.
The share-based payment reserve arises from the requirement to
value share options in existence at the year end at fair value (see
Note 28 to the Consolidated Financial Statements).
11. Share-based payments
Details of the Company's share options are contained in Note 27
to the Consolidated Financial Statements.
12. Segment information
Operating segments are identified on the basis of internal
reports about components of the Company that are regularly reviewed
by the Board. Until its acquisition of HeiQ Materials AG on 7
December 2020, the Company was an investing company and did not
trade. On the completion of the acquisition of HeiQ Materials AG
and its subsidiaries, the Company became the holding company of the
Group.
The Company has one segment, namely that of a parent company to
its subsidiaries. Accordingly, no segmental analysis has been
provided in these financial statements.
13. Employees
The average monthly number of employees including directors was
as follows:
Year ended Year ended
December 31, December
31,
2022 2021
No. No.
Directors 5 5
5 5
14. Related party transactions
The only key management personnel of the Company are the
Directors. Details of their remuneration are contained in Note 44
to the consolidated financial statements.
Details of amounts due between the Company and its subsidiaries
are shown in Notes 5 above.
15. Subsequent events
The Group's share price as at April 30, 2023 closed at 20.2
pence followed by share suspension which will be in place until the
consolidated financial statements have been published. Had this
been the valuation as at 31 December 2022, market capitalization
would have been GBP28,297,000.
Other disclosures in relation to events subsequent to December
31, 2022 are shown in Note 45 to the consolidated financial
statements.
16. Ultimate controlling party
As at December 31, 2022, no one entity owns greater than 50% of
the issued share capital. Therefore, the Company does not have an
ultimate controlling party.
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