TIDMTWD
RNS Number : 0542U
Trackwise Designs PLC
28 July 2022
28 July 2022
TRACKWISE DESIGNS PLC
("Trackwise" or the "Company")
FY21 Unaudited Preliminary Results
and
FY22 H1 Trading Update
Trackwise Designs (AIM: TWD), a leading provider of specialist
products using printed circuit technology, is pleased to announce
its preliminary results for the year ended 31 December 2021 and to
provide an update on trading for the six months ended 30 June
2022.
FY21 financial highlights
-- Revenues increased 32% to GBP8.01m (2020: GBP6.07m)
-- Revenues from Improved Harness Technology ("IHT") increased
150% to GBP1.48m (2020: GBP0.60m)
-- Adjusted EBITDA* of GBP0.81m (2020: GBP0.77m)
-- Adjusted operating loss* of GBP0.58m (2020: GBP0.19m)
-- Net debt** of GBP2.10m (31 December 2020: Net cash GBP11.35m)
-- Total of GBP5.96m deposits placed on capital equipment
FY21 operational and strategic highlights
-- Appointment of Steve Hudson as Chief Operating Officer
(non-board position)
-- Acquisition of third site, Stonehouse, increasing the
Company's capacity to meet anticipated demand for IHT
-- Initiation of installation of state-of-the-art roll-to-roll
production facility
-- Extension of product manufacture and supply agreement
with UK electric vehicle ( "EV") OEM
Note: The FY21 information set out herein has been extracted
from the Trackwise draft report and accounts for the year ended 31
December 2021 and has not been audited. A further announcement will
be released on completion of the audit. The auditors' report,
whilst not modified, is expected to include a material uncertainty
related to going concern. Trackwise expects to publish its 2021
Annual Report and Accounts on 29 July 2022. No material amendments
to the disclosures contained within this announcement are expected
within the audited financial statements.
For FY22 H1, the Company expects to report:
-- Revenues GBP3.8m (H1 2021: GBP4.1m)
-- IHT revenues GBP0.54m (H1 2021: GBP0.58m)
-- Adjusted EBITDA* GBP0.83m (H1 2021: GBP0.45m)
-- Adjusted operating profit* GBP0.1m (H1 2021: GBP0.13m
loss)
-- Reported loss after tax GBP1.84m (H1 2021: GBP0.57m loss)
-- Net debt** at 30 June 2022 GBP7.85m (cash of GBP2.36m)
(30 J une 2021 net cash: GBP2.6m)
FY22 H1 Operational and strategic highlights
-- C ompletion of e quity raise of GBP7m to support growth
-- Appointment of Paul Cook as Chief Financial Officer designate
-- Continued progress made in preparing Stonehouse to become
fully operational later in FY22
-- Installed and commissioned Double Belt Press
-- Completion of GBP5.2m asset finance
-- I HT total customers and opportunities across target markets
o f 9 7 as at 30 June 2022
-- Development of plans for Phase 2 of Stonehouse facility,
in response to significant pipeline of demand for EV Cell
Connection Systems (CCS) from UK and EU OEMs and Tier
1s.
*Before exceptional costs and share based payments
**Cash less borrowings, excluding IFRS16 right of use lease
liabilities
Philip Johnston, CEO of Trackwise, commented: "Trackwise closed
the year with a record order book. As we announced in June 2022,
delays to our UK EV OEM customer's own progression mean that some
revenue originally forecast for our FY22 year will not materialise,
but despite this 2022 is still expected to see a further increase
on 2021, continuing the sales growth in the business, in particular
in IHT. It remains a difficult time to be in business, with labour
supply, inflation, supply chain dislocation and Brexit-related
customs issues all posing their own challenges to the business.
However, these challenges are being, can be, and will be met by
pro-active management of the issues across the three sites.
Beyond the contract with the UK EV OEM, we are actively pursuing
the very large market opportunity - which could total many GBP100m
of business - in the developing UK and European EV supply chain for
battery CCS. Stonehouse Phase 2 is - in our opinion - a unique and
well-positioned resource to deliver that opportunity. We are
confident of further material developments, regardless of the
macro-economic situation.
The APCB division remains an important underpinning of the
business, but the principal growth will continue to come from IHT.
The investments that we have made - the building for growth - are
and will continue to deliver, across the three principal IHT market
verticals.
At the top end of our capability, Trackwise is one of, if not
the, leading supplier of long flex PCBs worldwide. I am very
grateful for all stakeholders for their part in helping the
business to achieve its potential."
Enquiries:
Trackwise Designs plc +44(0)16 8429 9930
Philip Johnston, CEO www.trackwise.co.uk
Mark Hodgkins, CFO
Paul Cook, CFO Designate
finnCap Ltd +44(0)20 7220 0500
NOMAD and Broker
Ed Frisby / Tim Harper - Corporate Finance
Andrew Burdis / Barney Hayward - ECM
Alma PR +44(0)20 3405 0212
Financial PR and IR
David Ison / Caroline Forde / Kieran
Breheny / Pippa Crabtree
Notes to Editors
Trackwise is a UK-based manufacturer of specialist products
using printed circuit technology.
The full suite includes: Improved Harness Technology(TM) ("IHT")
and Advanced PCBs - Microwave and Radio Frequency ("RF"), Short
Flex, Flex Rigid and Rigid Multilayer products.
IHT uses a proprietary, patented process that Trackwise has
developed to manufacture multilayer flexible printed circuits of
unlimited length. While the technology has many applications, the
directors expect that one of its primary uses will be to replace
traditional wire harness in a variety of industries.
The Company manufactures on two sites, located in Tewkesbury and
Stevenage (following the acquisition of Stevenage Circuits Ltd in
April 2020). It serves customers in Europe and North America. The
Company has acquired a third site in Stonehouse Gloucestershire
initially for its EV programme.
Trackwise Designs plc was admitted to trading on AIM in 2018
with the ticker TWD. For additional information please visit
www.trackwise.co.uk
The information contained within this announcement is deemed to
constitute inside information as stipulated under the retained EU
law version of the Market Abuse Regulation (EU) No. 596/2014 (the
"UK MAR") which is part of UK law by virtue of the European Union
(Withdrawal) Act 2018. The information is disclosed in accordance
with the Company's obligations under Article 17 of the UK MAR. Upon
the publication of this announcement, this inside information is
now considered to be in the public domain.
FY21 Unaudited Preliminary Results
Chair's statement
The strong strategic milestones achieved in 2020 provided a
sound base from which to realise strategic and operational progress
during 2021.
Key to delivering on those targets was the acquisition of a
manufacturing facility in Stonehouse, Gloucestershire in June to
prepare for our roll-to-roll volume production for the EV OEM
contract awarded last year.
A major refurbishment programme for the facility was completed
and a project to install state-of-the-art, roll-to-roll flex
capital equipment was initiated. Positive progress was achieved
against a difficult background of Covid disruption to both our own
activities and those of our equipment suppliers. Pandemic delays
were further exacerbated by global silicone chip shortages
negatively affecting the construction of the sophisticated
equipment on order. Despite these constraints we were well placed
by the end of the period to start production in the third quarter
of 2022, with space prepared to double capacity as future IHT
products come on-line.
We are grateful for the support and additional funding we have
received from our shareholders in enabling us to execute this
crucial step in our strategic plan.
Meanwhile our Tewkesbury facility concentrated on development,
manufacture and supply of a record level of IHT products. This was
facilitated in part by the capacity released from the RF
rationalisation programme carried out last year following the
acquisition of Stevenage Circuits Ltd ('SCL") and creation of the
Advanced PCB facility.
2022 Outlook
In tandem with our efforts to build for future growth, our
people were heavily engaged in supporting and improving production
efficiency and performance in both costs and quality at our
facilities in Tewkesbury and at SCL. This was achieved despite the
Covid disruptions and against the increasing macro-economic issues
of material cost increases and supply interruptions.
During the period our Ashvale facility was heavily engaged in
finalising the design standard and pre-volume production supply of
roll-to-roll EV product for our UK OEM customer. Our people
additionally focussed on development of potential future IHT
products for our target industries. Whilst progress in the
development of sophisticated new technology is frustratingly
challenging, the results we are achieving are establishing a solid
foundation to support solutions for future customer demands.
SCL experienced a degree of disruption as many of its products
are destined for customer applications which themselves suffered
from the global silicone chip shortages and consequent changes in
demand.
Board, Senior Management and Employees
In September 2021 we announced that the Chief Financial Officer,
Mark Hodgkins, would be retiring from the Board at the AGM in June
2022. He is to be replaced by Paul Cook who is working in tandem
with Mark during the first half of 2022 to ensure a smooth
transition.
On behalf of the Board, I would like to thank Mark for his work
with Trackwise during the past six years, which included a
successful listing on the AIM market and the transition to
operating as a public company. During this period Mark's experience
and capability has been central to supporting a young business as
it undergoes the financial demands associated with rapid growth. We
wish him well in the future.
During the year we also appointed a Chief Operating Officer,
Steve Hudson. He has been instrumental in leading the
transformation of the newly acquired Stonehouse facility, including
capital equipment, and importantly recruiting and training a strong
management team and operational staff.
The continuing safety of our staff has remained our priority
since the onset of the pandemic. In line with UK Government
guidelines, we have taken steps to protect our teams from the
impact of Covid 19 across our business. I would like to thank all
our staff for their continued dedication and achievements
throughout a difficult year.
Dividend
In line with the previously stated Policy, the Board does not
recommend the payment of a dividend and reaffirms our intention to
pay a progressive dividend only once the Group has demonstrated the
establishment of the interconnector technology as a stable revenue
generator.
Our impact on Society
The benefits and relevance of our IHT product to the
sustainability agenda are clear and we are confident it will
continue to play an important role in helping our customers meet
their own carbon reduction goals in the future.
Last year, for the first time, we reported on our ESG impact and
the measures we had introduced to demonstrate our commitment to
acting responsibly and to contributing a sustainable future.
Further information can be found in our ESG Engagement Report in
our upcoming Annual Report.
Looking ahead
Last year I highlighted the uncertainty in both the global and
UK economies. This year we have the added uncertainty of the impact
of the war in Ukraine which will inevitably have impacts on various
supply chains. The directors are keeping these and the other
impacts under constant review and adjusting our plans and forecasts
as necessary. We have reviewed our trading outlook and the impacts
of the delays in business from our principal EV customer and have
addressed our funding needs and our costs as set out in the CFO's
report. It remains the case, that the Company has good prospects
for growth in our IHT division and solid foundations within our
Advanced PCB division, the Board remains encouraged by the
medium-term and long-term outlook and looks forward to reporting on
further progress in due course.
Ian Griffiths
Non-Executive Chair
Chief Executive's review
Overview
2021 has seen major progression towards what has been a
long-term objective for the business, to see the output of our
first production contract being delivered at scale into a live
project: 'Quantity, Quality, Qualified'.
As a result of securing the long-term supply agreement with a UK
EV OEM, we acquired a 77,000 sq.ft. freehold premises at
Stonehouse, Gloucestershire and ably led by our new COO, Steve
Hudson, have been growing the operational team to deliver a
world-class, roll-to-roll FPC manufacturing capability.
The decision to acquire a freehold facility larger than
initially needed for the UK EV OEM contract has, at least in part,
been driven by the growing understanding of the scale and timeline
of the opportunity that is cell connection circuits for electric
vehicles.
The year has not been without its challenges (is there ever
one?), most notably customer delays, global supply chain issues as
well as the ongoing threat to staff welfare caused by Covid - and
now significant price inflation. These challenges contributed to
our need to call for further equity towards the year end.
Despite these challenges, we completed 2021 in line with market
expectations, and report here record IHT sales, a record order
book, solid APCB operations and good progress towards facility
completion and start of production at Stonehouse.
I would very much like to thank all of our stakeholders, our
supportive shareholders, both new and existing, our customers and
suppliers - and above all our staff. As manufacturers we have
continued to be unable to work from home and therefore have had to
deal with the risk and uncertainty of coming to work every day
throughout the pandemic. This has not been easy, but the challenge
has continued to be met collectively with stoicism and
understanding: Thank You.
I would also like to take this opportunity to say thank you to
our retiring CFO, Mark Hodgkins. Mark has worked tirelessly in the
business since 2016 and has been a massive part of the
transformation of the business and its prospects, up to and
including the IPO in 2018, the subsequent acquisition of Stevenage
Circuits, and fund raising in support of delivering the UK EV OEM
contract. It has not been a straightforward period, with Brexit,
Covid and global supply chain challenges - on top of the home-grown
challenges of delivering a globally innovative product to market.
On behalf of all Trackwise stakeholders - Thank You.
We were delighted to announce the appointment of Paul Cook as
CFO-designate in January 2022. Paul is an experienced finance
professional with a track record of success across senior positions
at several technology-driven manufacturing businesses selling into
international markets, including Access IS, a manufacturer of
scanning devices, and Sonatest, a manufacturer of portable
non-destructive testing equipment. Most recently he was Chief
Operating and Compliance Officer at YFM Equity Partners, a leading
private equity and venture capital investor, where he worked for a
period of more than eight years.
In April 2021 we were also delighted to welcome Steve Hudson as
COO, a new position to the business. Steve has over 20 years'
experience in the automotive and aerospace industry. He started his
career at MG Rover, before moving onto operational and programme
leadership roles at Bentley Motors and Rolls Royce Aerospace. He
was most recently at Williams Advanced Engineering, where his
responsibilities included growing battery manufacturing
capability.
Strategic report
Trackwise's mission and strategy to deliver growth
Trackwise's Vision is 'To be the pre-eminent interconnect
partner of the world's leading innovators' and its Mission
Statement is 'To develop and deliver the new generation of
interconnect; for our customers to realise their ambitions, thereby
achieving all stakeholder expectations.'
The Group's strategy to achieve this is to drive growth by
increasing capability and capacity to deliver IHT, by improving
traction through targeted worldwide sales and marketing and by
delivering operational excellence - all based upon the sustainable
foundation of profitable supply of Advanced PCBs.
World-leading, length-agnostic, flex PCB manufacturing
capability
While such statements are hard to verify, there are good reasons
to state that, as a result of the cumulated development work,
learning and capital investment, Trackwise is well underway to
becoming one of the, if not the, world's leading manufacturer of
long flex PCBs.
We describe above our June 2021 delivery of a 72 metre long
multilayer flex and we know of no other company worldwide that
could have manufactured such a product. Such extreme length
products are, by definition, unusual in nature, however the
development know-how that has led to such a delivery is key to the
ongoing development of our roll-to-roll, length-unlimited,
length-agnostic, IHT manufacturing capability that we believe is
our USP.
The development know-how and manufacturing assets have
cross-sectoral applicability. Trackwise started its IHT journey in
aerospace and the length-agnostic roll-to-roll manufacturing
capability that we initially developed to deliver long aerospace
circuits now allow us also to make smaller EV battery parts at
scale. The EV learning is now feeding back into the manufacture of
aerospace and medical products.
Almost all of our sales pipeline - for the EV, medical and
aerospace sectors - has come to Trackwise from around the world
because of our ability to deliver long flex; a globally unique
manufacturing capability.
Double Belt Press (DBP)
With the (post year-end) delivery and commissioning of the
Double Belt Press (DBP), the length-unlimited multilayer flex PCB
manufacturing process envisaged in the original IHT patent*
application in January 2012 has now been realised as an in-house
capability. This is a major milestone for the business.
The DBP is a key strategic asset, providing a state-of-the-art
capability to manufacture our own metal-clad laminates, as well as
allowing us to bond together individual circuit layers to form the
patented length-unlimited multilayer circuits.
Bringing this unique capability 'up to speed' is a key
strategic
priority. A number of customer developments have been held until
such time as we have this capability in-house, and, more generally,
our rate of development will now be able to speed up
immeasurably.
*The process patent is now granted worldwide:
-- UK Patent Number GB2498994 - granted March 2014
-- US Patent Number US2015108084 - granted January 2016
-- China Patent Number ZL201380011859.6 - granted April 2018
-- EU Patent Number 2810543 - granted August 2019
-- Canada Patent Number 2862772 - granted July 2020
-- Brazil Patent Number BR1120140190330 - granted December 2021
Stonehouse Start of Production
The Stonehouse facility was acquired in order to deliver our UK
EV OEM contract and while they - and consequently we - have
suffered some delays, this remains a transformational opportunity
for Trackwise. 2022 will see Start of Production, leading to PSW
(Part Submission Warrant) - formal confirmation that the supply of
components meets the customer requirements and specifications - and
then full rate production.
This demonstration of 'Quantity Quality Qualified' is a key
milestone for the business.
We very much look forward to welcoming investors to view the
Stonehouse facility at a Capital Markets Day to be arranged later
in the year.
This state-of-the-art roll-to-roll flex PCB manufacturing
facility is discussed in further detail below.
Stonehouse Phase 2
The initial implementation at Stonehouse will by no means be its
full capacity; we have laid out the factory with specific plans for
a 'Phase 2' - to be implemented as and when justified by
incremental demand.
We continue to be very hopeful for further production contracts
for EV cell connection systems, some of which are potentially
considerably larger in scale than the current UK EV OEM contract.
The Stonehouse facility is an important showcase for our capability
for UK and European EV OEMs who are seeking a local supply
solution.
Trackwise is very well positioned - both with key technology and
with first mover advantage - to capitalise on this very sizeable
opportunity.
We are convinced that Stonehouse is the right investment at the
right time, and that 'Phase 2' will be taken up by one or more cell
connection system customers.
Trackwise is in active bidding discussions for supply contracts
with multiple UK and EU OEMs and securing one or more of these
production contracts is a key objective.
-- OEM A - Lifetime volume 30M pcs / SoP 2024 5 years - Tier 1
-- OEM B - Lifetime volume 3M pcs / SoP 2024 4 years - Tier 2
-- OEM C - Lifetime volume 2M pcs / SoP 2025 9 years - Tier 2
-- OEM D - Lifetime volume 1M pcs / SoP 2026 5 years - Tier 2
-- OEM E - Lifetime volume 1M pcs / SoP 2022 3 years - Tier 3
Start of Production (SoP) will be preceded by pre-production
builds and (earlier) supplier selection.
We refer in our Risk Review in our upcoming Annual Report that
'It is possible that competitors may also be able to devote greater
resources to the promotion and sale of their products, designs and
solutions than the Group can compete with.' An example of this risk
is CelLink Corporation, a Californian-based 'leading manufacturer
of high-conductance, large-area flexible circuits for automotive
applications' who announced in February 2022 the closing of a $250M
Series D funding.
While on one hand this significant investment into a global
competitor represents a manifestation of the risk, it also
indicates the scale of the opportunity identified by CelLink and
its investors.
Operational review
Stonehouse
In early 2021, the scale of the UK OEM EV contract, with its
guaranteed minimum volumes, as well as the need to maintain
progress with, and capacity for, the increasing range of other IHT
developments and opportunities, meant that we needed to secure
additional manufacturing capacity.
For this reason, in the middle of 2021 we acquired a new
manufacturing facility, a 77,000 sq.ft. freehold property in
Stonehouse Gloucestershire, approximately 20 miles south of
Tewkesbury, adjacent to M5 junction 13.
At Stonehouse we are implementing a scaled-up version of the
roll-to-roll FPC manufacturing capability developed and qualified
in Tewkesbury in a set up arranged for high volume, low mix -
rather than the low volume, high mix in Tewkesbury.
The Stonehouse facility will be a state-of-the-art roll-to-roll
flex PCB manufacturing facility - unique in the UK with the
investment underpinned by the guaranteed minimum demand of the UK
EV OEM contract.
Stevenage Circuits Limited
2021 saw the first full year of operation of Stevenage Circuits
Limited (SCL) within the Trackwise group of companies.
SCL was hard-hit by supply chain challenges, notably the
shortage of Dupont AP copper clad laminates, a key element in the
supply of circuits to its largest customer, Ion Science Limited, a
leading manufacturer of technologically advanced gas detection
equipment. Thanks go to our hard-working SCL sourcing team, working
closely with the customer to manage the supply challenge and
requalify some parts using different raw materials.
I would like to thank very much the senior management team and
all staff at SCL for their hard work and positive attitude in this
year of significant challenge.
Stevenage Circuits Limited marks its 50th anniversary in June
2022, a major milestone for any business, and one that we will be
marking appropriately.
Improved Harness Technology(TM) (IHT)
Ashvale - our site in Tewkesbury - remains an engineering-led
facility, focussed on IHT product development, new product
introduction; leading customers through to the point where, like
the UK EV OEM, they are ready to manufacture at scale.
The Group's IHT activities are based on three verticals
(electric vehicles, medical and aerospace), in terms of pursuing
new business, though for segmental reporting the group looks at its
performance on a geographical basis which is highlighted in note
3.
There has been significant and sustained growth in all three key
IHT verticals during 2021. 30 NDAs (Non-Disclosure Agreements) have
been signed - 9 Aerospace, 7 Automotive, 9 Medical, 4 Industrial -
demonstrating that there continues to be keen interest for IHT
across the board. Of these, 9 have already converted into customers
bringing the total number of IHT customers to 36 at the year
end.
2021 saw the business deliver record IHT sales, more than 2.5x
prior year levels and included completion, of what we believe, is
by far the largest multilayer PCB ever made worldwide, 72m long
parts for a nuclear fusion customer.
While such extreme length products are, by definition, unusual
in nature their development and delivery are key to advancing
maturity of the roll-to-roll, length-unlimited, length-agnostic,
IHT manufacturing capability that we believe is our USP.
IHT sales were strong across all market verticals, with only
Aerospace not posting a record year. This is discussed further
below.
Electric Vehicles (EV)
2021 saw a 2.8x increase in IHT EV sales over prior year,
dominated by increasing sales to the UK EV OEM.
Trackwise announced in September 2020 that it had secured a
multi-year Product Manufacture and Supply Agreement with a UK EV
OEM. In a contract amendment announced in June 2021 the start date
for this transformational deal was delayed by one quarter and
extended by one year - with a corresponding increase in value from
GBP38m to GBP54m.
The OEM is building electric vans and buses - as well as other
commercial vehicles. All these vehicles are based around a common
core High Voltage Battery Module (HVBM) into which Trackwise is
providing two key components, a power flex - connecting all the
cells for primary power collection and a balancing flex, part of
the essential battery management system.
These are roughly one-foot square parts - manufactured in rolls
- using our IHT-enabled manufacturing know-how.
We are also supplying vehicle level parts into our customer's
electric bus vehicle, with parts for further vehicles under
discussion.
2022 sees the start of production under this contract. As
discussed in this report, this underpins the significant growth in
revenue forecast for this year.
Beyond this important contract with the UK EV OEM, there is a
very large opportunity in the developing UK and European EV supply
chain. As indicated above Trackwise is in active bidding
discussions for supply contracts with multiple UK and EU OEMs.
Medical
2021 saw a 2.1x increase in IHT Medical sales over prior year;
still currently at relatively low levels as customers progress
their products through their design verification phase and into
production but 9 new NDAs and 5 new customers in the year encourage
us as to the wider opportunity.
Trackwise was pleased to announce in May that it had signed a
multi-year agreement with CathPrint AB, the Stockholm-based company
with expertise in the development and manufacturing of medical
device products. The agreement is for the supply of Trackwise's IHT
component parts for use in CathPrint's products. CathPrint has been
a Trackwise customer for some time and the agreement paves the way
for a longer-term ramp-up in volume.
These are challenging products to manufacture - large format (up
to several metres in length), narrow (only a few mm in width), very
fine circuit features (down to 40um), novel substrates, demanding
surface finish requirements - but IHT capabilities are fully suited
to these demanding products and multiple samples for multiple
different products have been delivered to US and EU OEMs.
This is an exciting sector with significant upside potential for
the business. In my opinion it is only a matter of time that one or
more of these partners moves to full production. We expect to see
strong further growth in our sales into this sector.
Supply into the medical device sector requires our Quality
Management System (QMS) - currently based upon the Aerospace
standard AS9100D - to be accredited to ISO13485 'a quality
management system where an organisation needs to demonstrate its
ability to provide medical devices and related services that
consistently meet customer and applicable regulatory requirements.'
We are actively working towards ISO13485 accreditation.
Aerospace - including Space
As mentioned above, Aerospace was the only sector in which
Trackwise did not post record IHT sales in 2021. Even before the
pandemic the UK aviation industry has pledged to cut its net carbon
emissions to zero by 2050. In any mobile application weight = fuel
= cost = carbon and the weight reduction opportunity offered by IHT
is a key enabler for OEMs to realise their ambitions in these
rapidly changing markets where carbon reduction is a strategic
necessity.
2021 saw good progress with the AISA InnovateUK grant funded
development program (a consortium
led by GKN Aerospace) tasked with taking IHT to 'TRL6' - a
technology readiness milestone that effectively enables the product
to be sold into mainstream programmes.
Trackwise is working with a very wide and growing portfolio of
world-leading aerospace innovators on next-generation products; of
UAM - 'flying taxis', business jets, high altitude
pseudo-satellites, as well as spacecraft solar array transfer
harnesses.
For all of these OEMs and Tier 1 or Tier 2 suppliers, IHT
benefits of reduced weight and reduced space are key attributes for
delivering their objectives for emission-reducing aircraft.
2021 has seen the emergence of a key opportunity for Trackwise,
aerospace battery modules - where aerospace customers, who are
using batteries to power their electric aircraft, are coming to
Trackwise, to understand how to use FPCs as cell contacting system
(CCS).
As these aerospace customers are at an early stage of their
development/learning, Trackwise is ideally positioned to guide them
specifically towards the know-how that we have captured from our EV
work. While current and near-term aerospace revenue will remain
developmental in nature, a clear path to production programmes is
emerging. Several programmes are indicating an entry into service
in 2-3 years. Trackwise and IHT must be ready for these customers -
and for this reason the timely progression of IHT to TRL6 is
key.
Current trading and outlook
Managing the COVID-19 pandemic
While seeking to continue operations as normally as possible,
the safety and welfare of all staff has been our utmost priority.
We have followed government guidelines throughout.
While hopefully diminishing in importance, Covid is an
additional risk the company now has to factor and I would draw your
attention to the Risk review in our upcoming Annual Report, and in
particular the heightened attention the Board is giving to certain
areas, cybersecurity, customer concentration, the ongoing supply
chain issues and risks associated with the establishment of our new
site at Stonehouse.
Supply chain
Well publicised supply chain problems have made the task of
procuring the advanced manufacturing equipment for the Stonehouse
facility from global suppliers (UK, France, Germany, Italy, Japan,
China) a complex and challenging exercise.
While it is hoped and expected that the worst impacts of the
pandemic itself and the global post-Covid start-up shock are behind
us, it seems to be clear that some components and commodities will
remain in short supply for the foreseeable future, driving both
price and lead-time. For example, the above-mentioned growth in EV
cell demand will continue to underpin global demand for metal
foils. Our supply chain strategy is being planned to try to
mitigate this risk. We have continued to work closely with
customers and suppliers alike to mitigate the impact of these
challenges, where possible entering into long term supply
agreements and sourcing and qualifying alternative sources of
supply.
Order book and outlook
Trackwise closed the year with a record order book, underpinned
by the GBP2.4m order received from the UK EV OEM prior to the year
end. While delays to the UK EV OEM's own progression mean that
revenue originally forecast for the year will not materialise, 2022
is still expected to see a further increase on 2021, continuing the
sales growth in the business, in particular IHT. It remains a
difficult time to be in business, with labour supply, inflation,
supply chain dislocation and Brexit-related customs issues all
posing their own challenges to the business. However, these
challenges are being, can be, and will be met by pro-active
management of the issues across the three sites.
Beyond the contract with the UK EV OEM, we are actively pursuing
the very large opportunity - which could total many GBP100m of
business - in the developing UK and European EV supply chain for
battery CCS. Stonehouse Phase 2 is - in our opinion - a unique and
well-positioned resource to deliver that opportunity. We are
confident of further material developments, regardless of the
macro-economic situation.
The APCB division remains an important underpinning of the
business, but the principal growth will continue to come from IHT.
The investments that we have made - the building for growth - are
and will continue to deliver, across the three principal IHT market
verticals.
At the top end of our capability, Trackwise is one of, if not
the, leading supplier of long flex PCBs worldwide. I am very
grateful for all stakeholders for their part in helping the
business to achieve its potential.
Philip Johnston
Chief Executive Officer
Chief Financial Officer's Review
Difficult Backdrop to Roll-to-Roll Investment Programme
The financial performance of the business in 2021 was affected
by our plans to commence the investment programme to support the
establishment of the roll-to-roll volume production facility at
Stonehouse Gloucestershire, whilst addressing the uncertainties
caused by Covid to the various supply chains we rely on to operate
efficiently.
Covid impacted both our businesses in the year with delays to
production due to illness, delays to machine repairs because
engineers were deterred from attending site, a major supplier delay
which added six months to the working capital cycle and many delays
to machine deliveries due to delays suffered by our suppliers'
suppliers. The progress we report reflects these challenges and we
are grateful to our shareholders for their support.
The new year has started with continued difficulties with supply
chains and the added uncertainty that the Ukraine War has
created.
Financial Position and Performance
During the uncertain times created by the pandemic we have
placed even more focus on short-term planning as well as control
over costs. Inflation has been evident in the latter part of the
year, and this has created additional pressure on machine
deliveries and operating margins.
At the end of the year, it was necessary to bolster our cash
position due to a sudden and dramatic change in our terms of trade
imposed upon us by a key supplier which changed the financing model
of IHT roll-to-roll production significantly by lengthening the
working capital cycle from an assumed 3 months to an assumed 9
months. The change indicated that to be able to continue production
in the second half of 2022 we would need to buy material six months
in advance and pay a significant proportion of this with order.
Despite these challenges, we have seen growth in revenues during
the year, in particular IHT revenue, which had its best ever year.
These were below our original expectations due to the change in
timing of the start of the contract for our EV customer's build
programme announced in June. We anticipate a further increase in
revenues in 2022, notwithstanding the continuance of supply side
difficulties.
Year-on-year sales growth, adjusted operating
margin and EBITDA
In the year under review these KPIs, measured
to last year, are as follows: 2021 2020
----------------------------------------------- ------- -------
Year on Year Sales Growth 32% 108.8%
----------------------------------------------- ------- -------
Adjusted Operating Margin (note 25) (7.2%) (3%)
----------------------------------------------- ------- -------
Adjusted EBITDA (note 25) GBP807K GBP773K
----------------------------------------------- ------- -------
During the year we began the process of establishing the new
77,000 sq.ft. site at Stonehouse, acquired for GBP2.8M with the
help of a mortgage from HSBC plc of GBP1.9M. The installation of
the production equipment was delayed in the latter part of 2021 due
to machine supplier's difficulties in sourcing componentry which
included silicon chips.
The programme continues and in the first half of 2022 a
significant proportion of the ordered equipment has been delivered
and installed.
There remains some equipment that is yet to be completed and
delivered and we anticipate being in production by August 2022. In
total we have had capital expenditure related to the site bringing
it up to standard of GBP15.4M. There will be further capital
expenditure in 2022 before production commences.
At the same time, we have increased our cost base as we have
recruited further experienced engineers, both for production and
quality, to ensure that we have all the systems in place to begin
production once the physical assets have been accepted.
At the end of the year we had net debt excluding IFRS16 lease
liabilities of GBP1.9M though the completion of the equity raise
immediately post year end returned us to a net cash position. Our
plans will see net debt increase during 2022 as we complete our
investment programme. Trading cash inflows are predicted to be
strong during 2023 and 2024 and should return our position to net
cash by year end 2025.
The acceleration of plans towards production for our UK EV OEM
necessitated the increase in associated development costs which
have been capitalised and which has led to an increase in
intangible assets of GBP3.8M. This level of development
expenditure, whilst large, does support a tax credit in cash of
GBP800K which assists in the funding of this investment. We
anticipate that development costs will begin to reduce over the
next 12 months as we move to production. Our accumulated
development costs are amortised in accordance with our accounting
policies (Note 2).
Cash flow
The Impacts of Covid held back some production and led to supply
delays both of which impacted adversely on revenues and therefore
EBITDA. Despite this, we continued to fund our development
programme though the significant change to our terms of trade with
a number of important suppliers made dramatic changes to our cash
flow in the latter part of the year.
During the latter part of 2021 the Company was adversely
impacted by two major events which caused a significant deviation
from our planned working capital management. In particular, the
delayed start of the EV OEM production contract dealt a significant
blow to cash generation anticipated in Q4. The most significant
impact was the dramatic change to the working capital cycle caused
by the shortage of nickel foil where our terms of trade changed
from 60 days post invoice date to 300 days pre invoice date. At the
same time both Trackwise Designs and Stevenage Circuits experienced
significant changes to suppliers' performance caused by supply
chain disruption post the Covid 19 pandemic. This necessitated an
equity raise in Q4 2021. Since the year end, we have raised a
further GBP5.2M of asset finance secured against our asset
base.
In response to the enforced changes to our working capital needs
it was necessary to raise additional equity funds for this
unexpected requirement. In December 2021 we went to shareholders
and raised an additional GBP6.5M to meet the known revised
requirements at that time. We continue to use equity and asset
finance to meet our capital expenditure requirements and we are
confident that all our needs can be met from these sources of
finance.
Working capital management continues to be a top priority for
the Company which will only be properly alleviated once the OEM EV
production contract begins.
Our bankers, HSBC plc, have been supportive and have provided us
with working capital and asset finance facilities which we believe
will be sufficient to see us through to the positive cashflows from
trading that the production contract with the EV OEM will
deliver.
Going Concern Review
The last few years have been subject to several disruptions with
increased frequency and severity and many of these have overlapping
consequences.
These various disruptions, whether the pandemic, supply chain
complications, the global economic climate, resultant delays to
machine deliveries, or the demand from our OEM EV customer have
created significant pressures for the Group and have contributed to
an increased risk environment within which we work. The Directors
are keeping a constant review of the Group's trading environment
and the impact on the Group's cashflows and forecasts to determine
that the going concern assumption for the preparation of these
accounts continues to be the correct assumption.
The Directors have prepared a detailed Base Case cash flow
forecast using the following major assumptions:
-- the Group delivers its EV customer's 2022 orders in full
in Q4 2022 and Q1 2023. These volumes are significantly below
the guaranteed minimum volumes set out in the contract with
the OEM EV customer;
-- there are no further orders from the OEM EV customer for
delivery in 2022;
-- the volumes for delivery to the OEM EV customer in 2023 are
based on the OEM EV customer's indicative forecast, which
is significantly below the guaranteed minimum volumes set
out in the contract;
-- no further new volume production contracts are secured before
August 2023;
-- there is a delay of more than twelve months from the date
of these accounts in recovering any sums owed under the compensation
arrangements in the contract with the OEM EV customer;
-- there is an improvement in the operating performance of Stevenage
Circuits Limited compared to the year ended 31 December 2021;
-- there is an improvement in the trading terms with the nickel
foil supplier, switching from up-front deposits of 25% and
50%, to payment on 30 days following the month of delivery;
-- that our machinery suppliers have not further delays over
and above those already notified to us and consequently the
capital expenditure programme for the Stonehouse facility
is completed in 2022;
-- that the Group's bankers maintain the facilities that they
have put in place and approved by them in June 2022;
-- further asset-based financing of GBP4.4M is completed no
later than 31 December 2022; and
-- a trade finance facility of GBP1.9M is completed no later
than 30 September 2022.
At 31 December 2021 the Group had cash and cash equivalents of
GBP2.9M and in the six months ended 30 June 2022 the Company raised
GBP5.5M from shareholders and secured asset-backed funding
totalling GBP6.5M.
The Group is in active discussions with a number of funders to
provide additional asset-based financing of GBP4.4M and is in
advanced discussions with its bankers for the provision of a trade
facility of GBP1.9M. The nickel foil supplier has agreed to the
revised terms of trading and the Group is in advanced discussions
with them to formalise this as part of a supply agreement.
There will be continuing impacts from all of the risks
identified above and so consequently there will be risks that
trading performance will be below our expectations. Therefore the
Directors have also prepared a severe but plausible downside
scenario which assumes the following:
-- that the trading terms with the nickel foil supplier require
up-front deposits of 25% and 50%;
-- that the further asset-based financing of GBP4.4M is not
completed; and
-- the trade finance facility of GBP1.9M is not completed.
In these circumstances the Group would face a funding shortfall
of GBP6.8M. This could be mitigated by actions such as a
sale-and-leaseback of the facility at Stonehouse, further
asset-backed funding, a sale of Stevenage Circuits Limited or
further equity raising.
On the basis of the Base Case assumptions noted above, most
notably that the Group can raise the further GBP6.3m of facilities
and that the Group retains the improved trading terms from its
nickel foil supplier, the Base Case forecast shows that the Group
will be able to continue as a going concern for the next twelve
months.
Results and Dividend
Reported Loss after taxation of GBP1.67M (2020: Profit After
Taxation GBP1.23M) means the Group is reporting a Fully Diluted
Earnings loss per Share of 5.84 pence (2020: Diluted Profit per
Share of 5.70 pence). The Board has previously set out its dividend
policy which has not changed. It is the Board's intention that when
commercial conditions allow, a progressive dividend policy will be
adopted, consequently there will be no dividend paid for 2021.
Mark Hodgkins
Chief Financial Officer
Consolidated Statement of Comprehensive Income and Equity
For the year ended 31 December 2021
Notes 2021 2020
GBP'000 GBP'000
----------------------------------------------------------------------------------------- ----- -------- --------
Revenue 3 8,011 6,068
Cost of sales (5,699) (4,350)
----------------------------------------------------------------------------------------- ----- -------- --------
Gross profit 2,312 1,718
Other operating income 4 57
Administrative expenses excluding
exceptional costs and share based payment (2,953) (1,903)
Exceptional costs 4 (941) (128)
Share based payment charge (153) (228)
----------------------------------------------------------------------------------------- ----- -------- --------
Total administrative expenses (4,047) (2,259)
----------------------------------------------------------------------------------------- ----- -------- --------
Operating loss 4 (1,678) (541)
Negative goodwill arising on acquisition 23 - 1,642
Acquisition expenses 23 - (226)
Exceptional integration costs - (278)
Finance income 6 3 4
Finance costs 6 (301) (195)
----------------------------------------------------------------------------------------- ----- -------- --------
(Loss)/Profit before taxation (1,976) 406
Taxation 7 324 828
----------------------------------------------------------------------------------------- ----- -------- --------
(Loss)/Profit and total comprehensive (expense)/income for the year (1,652) 1,234
----------------------------------------------------------------------------------------- ----- -------- --------
(Loss)/Earnings per share (pence) attributable to the owners of the parent during the
year
Basic 8 (5.78) 5.96
----------------------------------------------------------------------------------------- ----- -------- --------
Diluted 8 (5.78) 5.70
----------------------------------------------------------------------------------------- ----- -------- --------
Consolidated Statement of Financial Position
For the year ended 31 December 2021
Notes 2021 2020
GBP'000 GBP'000
------------------------------ ----- -------- --------
ASSETS
Non-current assets
Intangible assets 9 9,932 6,482
Property, plant and equipment 10 13,131 8,175
------------------------------ ----- -------- --------
23,063 14,657
------------------------------ ----- -------- --------
Current assets
Inventories 12 2,022 2,010
Trade and other receivables 13 7,795 1,752
Current tax receivable 858 804
Cash and cash equivalents 2,897 13,930
------------------------------ ----- -------- --------
13,572 18,496
------------------------------ ----- -------- --------
Total assets 36,635 33,153
------------------------------ ----- -------- --------
LIABILITIES
Current liabilities
Trade and other payables 14 (3,015) (1,956)
Borrowings 15 (1,850) (1,055)
------------------------------ ----- -------- --------
(4,865) (3,011)
------------------------------ ----- -------- --------
Non-current liabilities
Deferred income - grants 14 (1,067) (910)
Borrowings 15 (5,514) (4,078)
Deferred tax liabilities 17 (623) (206)
Provisions (115) (79)
------------------------------ ----- -------- --------
(7,319) (5,273)
------------------------------ ----- -------- --------
Total liabilities (12,184) (8,284)
------------------------------ ----- -------- --------
Net assets 24,451 24,869
------------------------------ ----- -------- --------
EQUITY
Share capital 19 1,207 1,137
Share premium account 22,000 20,989
Retained earnings 1,155 2,615
Revaluation reserve 89 128
------------------------------ ----- -------- --------
Total equity 24,451 24,869
------------------------------ ----- -------- --------
Parent Company Statement of Financial Position
For the year ended 31 December 2021
Notes 2021 2020
GBP'000 GBP'000
------------------------------ ----- -------- --------
ASSETS
Non-current assets
Intangible assets 9 9,871 6,467
Property, plant and equipment 10 8,312 3,471
Investments 11 2,172 2,172
Trade and other receivables 13 2,589 -
------------------------------ ----- -------- --------
22,944 12,110
------------------------------ ----- -------- --------
Current assets
Inventories 12 445 593
Trade and other receivables 13 6,610 2,727
Current tax receivable 641 530
Cash and cash equivalents 2,848 13,382
------------------------------ ----- -------- --------
10,544 17,232
------------------------------ ----- -------- --------
Total assets 33,488 29,342
------------------------------ ----- -------- --------
LIABILITIES
Current liabilities
Trade and other payables 14 (1,713) (631)
Borrowings 15 (1,257) (677)
------------------------------ ----- -------- --------
(2,970) (1,308)
------------------------------ ----- -------- --------
Non-current liabilities
Deferred income - grants 14 (1,067) (910)
Borrowings 15 (3,080) (1,673)
Deferred tax liabilities 17 (958) (206)
Provisions 14 (36) -
------------------------------ ----- -------- --------
(5,141) (2,789)
------------------------------ ----- -------- --------
Total liabilities (8,111) (4,097)
------------------------------ ----- -------- --------
Net assets 25,377 25,245
------------------------------ ----- -------- --------
EQUITY
Share capital 19 1,207 1,137
Share premium account 22,000 20,989
Retained earnings 2,081 2,991
Revaluation reserve 89 128
------------------------------ ----- -------- --------
Total equity 25,377 25,245
------------------------------ ----- -------- --------
The Company has elected to take the exemption under section 408
of the Companies Act not to present the parent Company profit and
loss account. The loss for the parent Company for the year was
GBP1,102,000 (2020: profit of GBP1,610,000 including dividends
receivable of GBP2,000,000 from the subsidiary).
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Share Share premium Retained
capital account earnings Revaluation reserve Total equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ----------- ------------------------- --------- ---------------------- ----------------
At 1 January 2020 591 4,234 1,045 167 6,037
Profit and total
comprehensive income for
the year - - 1,234 - 1,234
Share based payment (note
21) - - 263 - 263
Revaluation realised in
the year - - 39 (39) -
Prior year tax adjustment 34 34
Shares issued in the year
net of GBP1,191,000 of
issue expenses (note 19) 546 16,755 - - 17,301
------------------------- ----------- ------------------------- --------- ---------------------- ----------------
At 31 December 2020 1,137 20,989 2,615 128 24,869
------------------------- ----------- ------------------------- --------- ---------------------- ----------------
Loss and total
comprehensive expense
for the year - - (1,652) - (1,652)
Share based payment (note
21) - - 153 - 153
Revaluation realised in
the year - - 39 (39) -
Shares issued in the year
net of GBP149,000
of issue expenses (note
19) 70 1,011 - - 1,081
========================= =========== ========================= ========= ====================== ================
At 31 December 2021 1,207 22,000 1,155 89 24,451
------------------------- ----------- ------------------------- --------- ---------------------- ----------------
Parent Company Statement of Changes in Equity
For the year ended 31 December 2021
Share Share premium Retained
capital account earnings Revaluation reserve Total equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ----------- ------------------------- --------- ---------------------- ----------------
At 1 January 2020 591 4,234 1,045 167 6,037
Profit and total
comprehensive income for
the year - - 1,610 - 1,610
Share based payment (note
21) - - 263 - 263
Revaluation realised in
the year - - 39 (39) -
Prior year tax adjustment - - 34 - 34
Shares issued in the year
net of GBP1,191,000 of
issue expenses (note 19) 546 16,755 - - 17,301
------------------------- ----------- ------------------------- --------- ---------------------- ----------------
At 31 December 2020 1,137 20,989 2,991 128 25,245
------------------------- ----------- ------------------------- --------- ---------------------- ----------------
Loss and total
comprehensive expense
for the year - - (1,102) - (1,102)
Share based payment (note
21) - - 153 - 153
Revaluation realised in
the year - - 39 (39) -
Shares issued in the year
net of GBP149,000
of issue expenses (note
19) 70 1,011 - - 1,081
------------------------- ----------- ------------------------- --------- ---------------------- ----------------
At 31 December 2021 1,207 22,000 2,081 89 25,377
------------------------- ----------- ------------------------- --------- ---------------------- ----------------
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
Notes 2021 2020
GBP'000 GBP'000
-------------------------------------------------------------------- ----- -------- --------
Cash flow from operating activities
(Loss)/Profit for the year before taxation (1,976) 406
Adjustment for:
Negative goodwill credit - (1,642)
Employee share based payment charge 153 263
Depreciation of property, plant & equipment 4 965 693
Amortisation of intangible assets 9 426 265
Net finance costs 6 298 191
Changes in working capital:
(Increase) in inventories 11 (12) (584)
(Increase) in trade and other receivables (375) 374
Increase in trade and other payables 1,003 (362)
-------------------------------------------------------------------- ----- -------- --------
Cash generated/(used in) from operations 482 (396)
Income tax received 687 669
-------------------------------------------------------------------- ----- -------- --------
Cash from operating activities 1,169 273
-------------------------------------------------------------------- ----- -------- --------
Cash flow from investing activities
Purchase of property, plant and equipment (10,649) (911)
Purchase of intangible assets 9 (3,553) (2,246)
Purchase of new subsidiary (net of cash acquired) 23 - (1,628)
Grant received 214 109
Interest received 3 4
-------------------------------------------------------------------- ----- -------- --------
Cash used in investing activities (13,985) (4,672)
-------------------------------------------------------------------- ----- -------- --------
Cash flow from financing activities
Share capital issued 1,230 18,492
Expenses relating to share capital issue (149) (1,191)
Interest paid (301) (195)
Lease payments 15 (187) (87)
Bank loan advanced 1,960 -
Loan repayments (23) -
Cash inflow from invoice discounting and other short-term financing 15 184 -
Repayment of short-term financing (128) -
Advance of hire purchase finance against assets already purchased - 1,139
Repayment of capital element of hire purchase contracts 15 (801) (396)
-------------------------------------------------------------------- ----- -------- --------
Cash from financing activities 1,785 17,762
-------------------------------------------------------------------- ----- -------- --------
(Decrease)/Increase in cash and cash equivalents (11,033) 13,363
Cash and cash equivalents at beginning of the year 13,930 567
-------------------------------------------------------------------- ----- -------- --------
Cash and cash equivalents at end of year (all cash balances) 2,897 13,930
-------------------------------------------------------------------- ----- -------- --------
The cash outflow in respect of purchase of property, plant and
equipment includes the payment of any related deposits included in
prepayments until the asset is acquired.
Notes to the Company Financial Statements
For the year ended 31 December 2021
1 Corporate information
Trackwise Designs Plc ("the Company") is a Public Company
limited by shares incorporated in the United Kingdom. The
registered address of the Company is 1 Ashvale, Alexandra Way,
Ashchurch, Tewkesbury, Gloucestershire, GL20 8NB. The Companies
ordinary shares are publicly traded on AIM and the Group is not
under the control of any single shareholder.
The principal activity of the Group is the design and
manufacture of a full suite of advanced PCB's including the Parent
Company's patented technology Improved Harness TechnologyTM,
Microwave and RF, short flex, flex rigid and rigid multi-layer
boards.
2 Accounting policies
2.1 Basis of preparation
The FY21 information set out herein has been extracted from the
Trackwise draft report and accounts for the year ended 31 December
2021 and has not been audited. A further announcement will be
released on completion of the audit. The auditors' report, whilst
not modified, is expected to include a material uncertainty related
to going concern. Trackwise expects to publish its 2021 Annual
Report and Accounts on 29 July 2022. No material amendments to the
disclosures contained within this announcement are expected within
the audited financial statements.
Statement of compliance
These Financial Statements have been prepared in accordance with
international accounting standards ("IFRS") in conformity with the
requirements of the Companies Act 2006. No new policies have been
adopted in the year. These policies have been applied consistently
to all periods presented, unless otherwise stated.
The parent company financial statements have been prepared under
applicable United Kingdom Accounting Standards (FRS101) in order to
apply International Accounting Standards in conformity with the
requirements of the Companies Act 2006. The following FRS 101
disclosure exemptions have been taken in respect of the parent
company only information:
-- IAS 7 Statement of cash flows;
-- IFRS 7 Financial instruments disclosures;
-- IAS 24 Key management remuneration.
As permitted by Section 408(3) of CA2006 no profit and loss
account has been presented for the Company.
Basis of measurement
The Financial Statements have been prepared on the historical
cost basis as modified for the revaluation of plant on transition
to IFRS
and for certain financial instruments at fair value.
Going concern
The Directors have considered the principal risks and
uncertainties facing the business, together with the Group's
objectives, policies and processes for managing its exposure to
financial risk. In making this assessment the Directors have
prepared cash flows for the foreseeable future, being a period of
at least 12 months from the expected date of approval of the
financial statements. These forecasts show that the Company and
Group should be able to manage their working capital and existing
resources to enable it to meet their liabilities as they fall due.
These forecasts have considered the risks that the Company faces,
notably:
-- the Group delivers its EV customer's 2022 orders in full in
Q4 2022 and Q1 2023. These volumes are significantly below the
guaranteed minimum volumes set out in the contract with the OEM EV
customer;
-- there are no further orders from the OEM EV customer for delivery in 2022;
-- the volumes for delivery to the OEM EV customer in 2023 are
based on the OEM EV customer's indicative forecast, which is
significantly below the guaranteed minimum volumes set out in the
contract;
-- no further new volume production contracts are secured before August 2023;
-- there is a delay of more than twelve months from the date of
these accounts in recovering any sums owed under the compensation
arrangements in the contract with the OEM EV customer;
-- there is an improvement in the operating performance of
Stevenage Circuits Limited compared to the year ended 31 December
2021;
-- there is an improvement in the trading terms with the nickel
foil supplier, switching from up-front deposits of 25% and 50%, to
payment on 30 days following the month of delivery;
-- that our machinery suppliers have not further delays over and
above those already notified to us and consequently the capital
expenditure programme for the Stonehouse facility is completed in
2022;
-- that the Group's bankers maintain the facilities that they
have put in place and approved by them in June 2022;
-- further asset-based financing of GBP4.4M is completed no later than 31 December 2022; and
-- a trade finance facility of GBP1.9M is completed no later than 30 September 2022.
Based on the above factors, the Directors have prepared the
Financial Statements on a going concern basis.
Consolidation
The consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable assets
(both tangible and intangible), liabilities and contingent
liabilities are initially recognised at their fair values at the
acquisition date.
The consolidated financial statements present the results of the
Company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between Group
companies are therefore eliminated in full.
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when it is exposed to, or has rights
to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the
entity. Subsidiaries are fully consolidated from the date on which
control is transferred to the Group and cease to be consolidated
from the date on which control is transferred out of the Group.
Functional and presentational currency
These financial statements are presented in Pound Sterling
("Sterling"), the functional and presentational currency, rounded
to the
nearest thousand pounds.
Use of estimates and judgments
The preparation of the Financial Statements in conformity with
IFRS requires management to make judgments, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgments about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised and in any future periods
affected. The estimates and judgements that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are discussed
below.
Estimate: In assessing whether a cost or revenue is exceptional,
the Directors exercise their judgement based upon the quantum and
the nature of the cost or revenue that is being considered. In
making that assessment, the Directors also identify those costs
which are none underlying costs and which represent non-trading
expenditure. The Directors consider that costs incurred on a
one-off basis that are necessary to bring an operating facility to
a state that renders it capable of producing product, to be a
non-trading expense and does not represent an underlying cost of
trading. (Note: 4).
The Directors exercise their judgement in assessing whether to
or not recognise any deferred tax asset. At 31 December 2021, that
judgement was that there is an unrecognised deferred tax asset in
respect of losses carried forward of approximately GBP465,000
(2020: GBP460,000).
Fair values
Estimate: Business combinations require the evaluation of fair
values in respect of the assets and liabilities acquired. The most
significant valuation applied related to plant acquired which was
valued based on management's experience of similar plant, the value
of used plant and a reassessment of useful lives to derive a
depreciated replacement cost. (Note: 23)
Fixed Asset Lives
Estimate: Management have estimated the useful life of tangible
and intangible fixed assets at 31 December 2021 based upon the
period that the assets are able to and expected to generate
revenue. These estimates are reviewed annually for continued
appropriateness and events which may cause the estimate to be
revised. (Note 9 and 10).
Deferred Tax Asset Recognition
Judgement: Whilst deferred tax assets are offset against
deferred tax liabilities were applicable for timing differences
reversing in the same tax jurisdiction, the recognition of any
separate deferred tax is subject to judgement over the reversal.
They are only recognised when they are sufficiently probable based
on future forecasts.
Share Based Payments
Judgement: The Group uses the Black-Scholes option-pricing model
where applicable, with inputs, in particular volatility,
requiring
significant judgement in application (Note 8).
Right of use assets
Judgement: The application of IFRS16 Involves a degree of
judgement in respect of the applicable discount rate and in respect
of any lease options or variable payments. The discount rate is
reviewed in conjunction with the rates on similar borrowings and
lease extension periods by reference to business plans and the most
likely outcome (Note 2.17).
Intangible assets
Judgement: Management have used their judgement in respect of
the capitalisation of development costs amounting to GBP9,674,000
at 31 December 2021. The viability of the new technology and
know-how supported by the results of testing and customer trials
and by forecasts for the overall value and timing of sales supports
the approach taken. (Note 9)
Estimate: Management estimate the appropriate amortisation
period and method of amortisation for each category of assets and
set a finite useful life. This is reviewed at least each financial
year-end. If the expected useful life of the asset is different
from previous estimates, the amortisation period is changed
accordingly. The expenses and costs that are capitalised in
accordance with this policy, represent know how, learned and
techniques that are developed all of which are relevant to the
manufacture of IHT irrespective of use.
Investments
Estimate: Investments held by the Company are subject to reviews
for impairment. Any consequential impairment tests for investments
are based on risk adjusted future cash flows discounted using
appropriate discount rates which are based on forecasts and are
inherently judgemental. (Note: 23)
2.2 Revenue
2.2.1 Revenue comprises income from the sale of printed circuit
boards and represents the amount receivable for the sale of goods,
excluding VAT and trade discounts. Revenue is recognised when all
the following steps have been satisfied:
I. The Group has received and accepted the purchase order from the customer.
II. Sales prices are based on quotes for each customer's unique
product and include transport which is insignificant in the context
of the sale price. The sales price is determined after submission
of a quote to each customer for their unique product and which has
been agreed with them and includes transport which is also agreed
with the customer.
III. All performance obligations are met which is at a point in
time when the goods have been despatched to the customer
2.2.2 Deferred revenue
Invoicing typically occurs once performance obligations are met.
On occasion, customers are invoiced in advance and these amounts
are included in deferred income as contract liabilities. Contract
liabilities held at the balance sheet date are expected to be
released in the following period when the performance obligations
are satisfied.
2.3 Grants
Income based grants
Income based grants are recognised in other operating income
based on the specific terms related to them as follows:
- A grant is recognised in other operating income when the grant
proceeds are received (or receivable) provided that the terms of
the grant do not impose future performance-related conditions.
- If the terms of a grant do impose performance-related
conditions, then the grant is only recognised in income when the
performance-related conditions are met.
- Any grants that are received before the revenue recognition
criteria are met are recognised in the Statement of Financial
Position as another creditor within liabilities.
Capital grants
Grants received relating to tangible and intangible fixed assets
are treated as deferred income and released to the Statement of
Comprehensive Income over the expected useful lives of the
assets concerned.
2.4 Share based payment
Where equity settled share options have been issued to
employees, the fair value of options at the date of grant is
charged to the income statement over the period that the options
are expected to vest. The number of ordinary shares expected to
vest at each balance sheet date is adjusted to reflect non-market
vesting conditions such that the total charge recognised over the
vesting period reflects the number of options that ultimately
vest.
Market vesting conditions are reflected within the fair value of
the options granted. If the terms and conditions attaching to
options are amended before the options vest any change in the fair
value of the options is charged to the income statement over the
remaining period to the vesting date.
2.5 Income tax
Current income tax assets and/or liabilities comprise
obligations to, or claims from, fiscal authorities relating to the
current or prior reporting periods, that are unpaid/due at the
reporting date. Current tax is payable on taxable profits, which
may differ from profit or loss in the Financial Statements.
Calculation of current tax is based on the tax rates and tax laws
that have been enacted or substantively enacted at the reporting
period.
Deferred taxes are calculated using the liability method on
temporary differences between the carrying amounts of assets and
liabilities and their tax bases.
A deferred tax asset is recognised for all deductible temporary
differences to the extent that it is probable that taxable profit
will be available against which the deductible temporary difference
can be utilised, unless the deferred tax asset arises from the
initial recognition of an asset or liability in a transaction that
is not a business combination and at the time of the transaction,
affects neither accounting profit nor taxable profit (tax
loss).
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the period when the asset is
realised or the liability is settled, based on tax rates and tax
laws that have been enacted or substantively enacted by the end of
the reporting period. To the extent that there is any residual
asset or liability due to the lack of taxable profits charge then
the treatment of that asset or liability is to leave it as
unrecognised within the accounts.
2.6 Goodwill
Goodwill arising on acquisitions is the excess of the fair value
of the cost of acquisition, over the fair value of identifiable net
assets acquired. Any direct costs are expensed in the income
statement. Goodwill on acquisition is recorded as an intangible
fixed asset and represents the residual amount remaining after
taking account of the fair values attributed to the identifiable
assets, liabilities and contingent liabilities that existed at the
date of acquisition, reflecting their condition at that date.
Adjustments are also made to align the accounting policies of
acquired businesses with those of the Group.
Goodwill is assigned an indefinite useful economic life.
Impairment reviews are performed annually, or more frequently if
events or changes in circumstances indicate that the carrying value
may not be recoverable.
Where the goodwill calculation results in a negative amount
(bargain purchase) this amount is taken to the income statement in
the period in which is it derived.
2.7 Research and development cost
An internally generated intangible asset arising from
development (or the development phase) of an internal project is
recognised if, and only if, all of the following have been
demonstrated:
- It is technically feasible to complete the development such
that it will be available for use, sale or licence;
- There is an intention to complete the development;
- There is an ability to use, sell or licence the resultant asset;
- The method by which probable future economic benefits will be generated is known;
- There are adequate technical, financial and other resources
required to complete the development;
- There are reliable measures that can identify the expenditure
directly attributable to the project during its development.
The amount recognised is the expenditure incurred from the date
when the project first meets the recognition criteria listed above.
Expenses capitalised consist of employee costs incurred on
development, direct costs including material or testing and an
apportionment of appropriate overheads.
The costs capitalised in relation to IHT are treated as one
category, as the accumulation of further knowledge and know-how in
the production of IHT is sector-agnostic and applies to all
applications. Automotive (EV) products may come to production
first, with medical and aerospace later but the body of knowledge
being built is a body of knowledge that has long term use in a
business with long term horizons.
Where the above criteria are not met, development expenditure is
charged to the Statement of Comprehensive Income in the period in
which it is incurred.
Capitalised development costs are initially measured at cost.
After initial recognition, they are recognised at cost less any
accumulated amortisation and any accumulated impairment losses.
The depreciable amount of a development cost intangible asset
with a finite basis useful life is allocated on a straight-line
basis over its useful life, currently expected to be 20 years.
Amortisation begins when the asset is available for use, i.e. when
it is in the location and condition necessary for it to be capable
of operating in the manner intended by management.
The amortisation period and the amortisation method for the
assets with a finite useful life is reviewed at least each
financial year-end. If the expected useful life of the asset is
different from previous estimates, the amortisation period is
changed accordingly. The expenses and costs that are capitalised in
accordance with this policy represent know how learned and
techniques developed that are all relevant to the manufacture of
IHT irrespective of use.
2.8 Patent costs
Patent cost assets are initially measured at cost. After initial
recognition, they are recognised at cost less any accumulated
amortisation and any accumulated impairment losses. The costs are
amortised in the Statement of Comprehensive Income over the 15-year
life of the patent.
2.9 Software
Software assets are capitalised at the purchase cost. Subsequent
to initial recognition it is stated at cost less accumulated
amortisation and accumulated impairment. Software is amortised in
the Statement of Comprehensive Income on a straight-line basis over
its estimated useful life of five years. These costs are recognised
in Cost of Sales.
2.10 Property plant and equipment
Property, plant and equipment is recognised as an asset only if
it is probable that future economic benefits associated with the
item will flow to the Company and the cost of the item can be
measured reliably.
An item of property, plant and equipment that qualifies for
recognition as an asset is measured at its cost. Cost of an item of
property, plant and equipment comprises the purchase price and any
costs directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating in the
manner intended by management. On transition to IFRS, plant and
equipment was revalued, and this amount has been used as the deemed
cost with no further revaluations.
After recognition, all property, plant and equipment (including
leasehold improvements and plant and machinery) are carried at cost
less any accumulated depreciation and any accumulated impairment
losses.
Depreciation is provided at rates calculated to write down the
cost of assets, less estimated residual value, over their expected
useful lives on the following basis:
Freehold property 2% straight line
Leasehold improvements Straight line over the period of the lease
Plant and machinery 8-33% straight line
Freehold property is only depreciated once it is fit for
production and assets under construction are also not depreciated
until they are fully installed and available for productive
use.
The residual value and the useful life of an asset is reviewed
at least at each financial year-end and if expectations differ from
previous estimates, the changes are accounted for as a change in an
accounting estimate in accordance with IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.
Gains or losses arising on the disposal of property, plant and
equipment are determined as the difference between the disposal
proceeds and the carrying value of the asset and are recognised in
profit or loss.
2.11 Accounting treatment of leases
Assets and liabilities arising from a lease are initially
measured at the present value of the lease payments and payments to
be made under reasonably certain extension options are also
included in the measurement of the liability.
The lease payments are discounted using the interest rate
implicit in the lease or the incremental borrowing rate that the
individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions. Lease payments are allocated between principal,
presented as a separate category within borrowings, and finance
cost. The finance cost is charged to profit or loss over the lease
period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. Right-of-use
assets are measured at cost comprising the amount of the initial
measurement of lease liability, any lease payments made at or
before the commencement date less any lease incentives received and
any initial direct costs and are presented as a separate category
within tangible fixed assets.
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis. If the Group is reasonably certain to exercise a purchase
option, the right-of-use asset is depreciated over the underlying
asset's useful life. Payments associated with short-term leases of
equipment and vehicles and all leases of low-value assets are
recognised on a straight-line basis as an expense in profit or
loss. Short-term leases are leases with a lease term of 12 months
or less.
Short term and low value leases
Payments associated with short-term leases of property, plant
and equipment and leases of low-value assets are recognised on a
straight-line basis as an expense. Short-term leases are leases
with a lease term of 12 months or less. Associated costs of all
leases, such as maintenance, service charges and insurance, are
expensed as incurred.
2.12 Hire purchase obligations
The Group utilises hire purchase asset backed finance to fund
tangible fixed assets, drawing down finance against individual
assets or bundles of assets, which may directly finance the asset
purchase or be drawn down retrospectively. The economic ownership
of assets subject to hire purchase agreements are transferred to
the Group if the Group bears substantially all the risks and
rewards of ownership of the asset.
The related asset is recognised and measured in accordance with
the tangible fixed asset policy with initial cost being the fair
value of the asset. A corresponding hire purchase liability is
recognised in respect of the capital repayments to be made. This
liability is reduced by payments net of finance charges. The
interest element of lease payments represents a constant periodic
rate of interest on the outstanding capital balance and is charged
to profit or loss, as finance costs over the period of the
lease.
2.13 Impairment of goodwill, other intangible assets and
property, plant and equipment
For impairment assessment purposes, assets are grouped at the
lowest levels for which there are largely independent cash flows.
As a result, some assets are tested individually for impairment and
some are tested at cash-generating unit level. Goodwill is
allocated to those cash-generating units that are expected to
benefit from synergies of the related business combination and
represent the lowest level within the Group at which management
monitors goodwill.
Cash-generating units to which goodwill has been allocated are
tested for impairment at least annually. All other individual
assets or cash-generating units are tested for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An asset or cash-generating unit is
impaired when its carrying amount exceeds its recoverable amount.
The recoverable amount is measured as the higher of fair value less
cost of disposal and value in use. The value in use is calculated
as being net projected cash flows based on financial forecasts
discounted back to present value.
The impairment loss is allocated to reduce the carrying amount
of the asset, first against the carrying amount of any goodwill
allocated to the cash-generating unit, and then to the other assets
of the unit pro-rata on the basis of the carrying amount of each
asset in the unit. With the exception of goodwill, all assets are
subsequently reassessed for indications that an impairment loss
previously recognised may no longer exist. An impairment loss is
reversed if the assets or cash-generating unit's recoverable amount
exceeds its carrying amount.
2.14 Investments in subsidiaries
Investments in subsidiaries are stated at cost less provision
for any impairment.
2.15 Inventories
Inventories are initially recognised at cost, and subsequently
at the lower of cost and net realisable value. Cost comprises all
costs of purchase, costs of conversion and an appropriate
proportion of fixed and variable overheads incurred in bringing the
inventories to their present location and condition. Net realisable
value is calculated as the estimated selling price less costs to
complete and sell. Where necessary, provision is made to reduce
cost to no more than net realisable value having regard to the
nature and condition of inventory, as well as its anticipated
utilisation and saleability.
2.16 Financial instruments
The Group classifies all its financial assets at amortised cost.
Financial assets do not include prepayments. Management determines
the classification of its financial assets at initial
recognition.
These assets arise principally from the provision of goods and
services to customers (e.g., trade receivables), but also
incorporate other types of financial assets where the objective is
to hold their assets in order to collect contractual cash flows and
the contractual cash flows are solely payments of the principal and
interest. They are initially recognised at fair value plus
transaction costs that are directly attributable to their
acquisition or issue and are subsequently carried at amortised cost
using the effective interest rate method, less provision for
impairment.
The Group's financial assets held at amortised cost comprises
trade and other receivables and cash and cash equivalents in the
Statement of Financial Position.
Financial assets
Financial assets are recognised in the Statement of Financial
Position when, and only when, the Group becomes a party to the
contractual
provisions of the instrument.
Financial assets are initially recognised at fair value, which
is usually the cost, plus directly attributable transaction
costs.
Financial assets are measured at amortised cost using an
effective interest method and discounting is omitted where the
effect is immaterial.
Impairment provisions are recognised based on the simplified
approach within IFRS 9 using the lifetime expected credit losses.
During this process the probability of the non-payment of the trade
receivables is assessed. This probability is then multiplied by the
amount of the expected loss arising from default to determine the
lifetime expected credit loss for the trade receivables. For trade
receivables, which are reported net, such provisions are recorded
in a separate provision account with the loss being recognised
within administrative expenses in the Statement of Comprehensive
Income. On confirmation that the trade receivable will not be
collectable, the gross carrying value of the asset is written off
against the associated provision.
Impairment provisions for receivables from other group companies
are recognised based on a forward-looking expected credit loss
model taking account of the expected manner of recovery including
assessment of future cashflows. The methodology used to determine
the amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of
the financial asset.
For those where the credit risk has not increased significantly
since initial recognition of the financial asset, twelve-month
expected credit losses are recognised. For those for which credit
risk has increased significantly, lifetime expected credit losses
are recognised based on the probability of projected outcomes.
A financial asset is derecognised when the contractual rights to
the cash flows from the financial asset expire, or when the
financial asset and all substantial risks and reward are
transferred.
Financial liabilities
Financial liabilities include borrowings, trade and other
payables and derivatives in respect of forward foreign exchange
contracts.
Financial liabilities are obligations to pay cash or other
financial assets and are recognised in the Statement of Financial
Position when, and only when, the Group becomes a party to the
contractual provisions of the instrument.
Financial liabilities, other than derivatives, are initially
recognised at fair value adjusted for any directly attributable
transaction costs.
After initial recognition, financial liabilities, other than
derivatives, are measured at amortised cost using the effective
interest method, with interest-related charges recognised as an
expense in finance costs. Discounting is omitted where the effect
of discounting is immaterial. Derivatives are measured at fair
value through profit and loss for any movements.
A financial liability is derecognised only when the contractual
obligation is extinguished, that is, when the obligation is
discharged, cancelled, or expires.
2.17 Exceptional Items
The Group exercises judgment in assessing whether certain items
should be classified as exceptional. This assessment covers the
nature of the item, cause of occurrence and scale of impact of that
item on the reported performance.
For an item to be considered as an allowable adjustment to IFRS
measures, it must initially meet at least one of the following
criteria:
- It is a significant item, which may cross one or more accounting period.
- It has been directly incurred as a result of either an
acquisition, divestiture, or arises from the termination of
benefits without condition of continuing employment related to a
major business change or restructuring programme.
- It is unusual in nature, e.g., outside the normal course of
business or considered to be non-underlying. Non-underlying items
are defined as those that by virtue of their nature, size or
expected frequency, warrant separate additional disclosure in the
financial statements in order to fully understand the underlying
performance of the Group.
If an item meets at least one of the criteria, the Board,
through the Audit and Risk Committee, then exercises judgment as to
whether the items should be classified as an allowable adjustment
to IFRS performance measures.
The separate items are disclosed separately to provide further
understanding of the financial performance of the group
2.18 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits, together with other short term, highly liquid investments
that are readily convertible into known amounts of cash and are
subject to an insignificant risk of changes in value.
2.19 Foreign currencies
Transactions entered into by the Group in a currency other than
the functional currency of sterling are recorded at the rates
ruling when the transactions occur. The Group does not apply hedge
accounting in respect of forward foreign exchange contracts held to
manage the cash flow exposures of forecast transactions denominated
in foreign currencies. The Group utilises forward exchange
contracts to mitigate the risk of adverse exchange rate movements
on foreign currency denominated revenue. These derivatives are
measured at the fair market value, at the reporting date, with the
fair value gain or loss movements arising being recognised within
administrative expenses in the Statement of Comprehensive Income.
At 31 December 2021 and 2020 the Company did not hold any foreign
exchange derivatives.
2.20 Equity and reserves
Share capital represents the nominal value of shares that have
been issued. Share premium represents the excess consideration
received over the nominal value of share capital upon the sale of
shares, less any incidental costs of issue.
Retained earnings include all current and prior period retained
profits.
The revaluation reserve represents the extent to which a
revaluation of plant on transition to IFRS exceeded the historical
net book value. Transfers are made to retained earnings in respect
of the depreciated element of the revaluation.
2.21 Standards, amendments and interpretations in issue but not
yet effective
There are no new standards, interpretations and amendments that
are in issue but not yet effective which are expected to have a
material effect on the Group's future Financial Statements.
3 Segmental reporting
IFRS 8, Operating Segments, requires operating segments to be
identified on the basis of internal reports that are regularly
reviewed by the Group's chief operating decision maker. The chief
operating decision maker is considered to be the Board of
Directors.
The Group's Advanced PCB ('APCB') and IHT activities for the
sale of printed circuit boards are separately reviewed and
monitored at a revenue level. Revenue of GBP6,531,000 (2020:
GBP5,467,000) arose from APCB and GBP1,480,000 (2020: GBP601,000)
from IHT in the year ended 31 December 2021. The revenue segments
are monitored by the chief operating decision maker and strategic
decisions are made on the basis of forecast adjusted segment
revenue results. All assets, liabilities and revenues are located
in, or derived from, the United Kingdom. The material assets and
liabilities relate to overall activity with the exception of the
intangible development costs and deferred grants which are solely
in respect of IHT.
In 2021 the Group had one customer representing 12.7% of revenue
(a UK based customer) and one customer representing 9.5% of revenue
(a UK based customer). (2020: three customers with similar revenue
levels together representing 29% of revenue).
Turnover by geographical destination 2021 2020
GBP'000 GBP'000
------------------------------------- -------- --------
UK 6,065 3,693
Europe 1,309 1,688
Rest of the world 637 687
------------------------------------- -------- --------
8,011 6,068
------------------------------------- -------- --------
Operating loss by geographical destination
2021 2020
GBP'000 GBP'000
------------------------------------- -------- --------
UK (1,284) (329)
Europe (277) (150)
Rest of the world (135) (62)
------------------------------------- -------- --------
(1,696) (541)
------------------------------------- -------- --------
4 Operating loss
2021 2020
GBP'000 GBP'000
--------------------------------------------------------------------- -------- --------
Operating loss is stated after charging/(crediting):
Government job retention scheme income - (16)
Amortisation of deferred grant income (57) (53)
Amortisation of intangible assets 426 265
Depreciation of property, plant and equipment (net of GBP323,000
of capitalised development costs, 2020: GBP220,000) 666 446
Depreciation of right of use assets 299 247
Cost of inventory sold - 1,907
Foreign exchange (losses)/gains 53 (27)
Non-recurring set up costs for new product - 128
Share based payment charges 195 229
Staff payroll costs (net of capitalised development costs) 4,227 2,515
Exceptional costs:
New facility set-up costs -
Property costs 86 -
Labour costs 676 -
Professional fees 61 -
Utilities 44 -
Overheads 74 -
Sub Total 941 -
Non recurring set up costs for new product - 128
The Auditors remuneration for audit services was GBP30K for the
Company and GBP30K for subsidiary undertakings (2020: GBP35K for
the Company and GBP25K for subsidiary undertakings) and GBPNil for
non-audit services (2020: GBPNil).
The exceptional facility costs relate to the new freehold
manufacturing site and the preparation and set up costs to make
this ready for production. The costs relate to refurbishing and
re-installing essential services and infrastructure to the
property, which are costs that would not be incurred on a recurring
basis. The costs are therefore shown as exceptional, non-underlying
expenditure.
5 Staff and key management personnel
Average monthly number of Group Company Group Company
employees 2021 Number 2021 Number 2020 Number 2020 Number
-------------------------------- ------------------- ------------------ --------------------- --------------------
Management and administration 39 21 28 15
Production 93 45 68 37
-------------------------------- ------------------- ------------------ --------------------- --------------------
132 66 96 52
-------------------------------- ------------------- ------------------ --------------------- --------------------
Payroll costs GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------------- ------------------ --------------------- --------------------
Gross salaries 4,746 2,795 3,303 2,095
Social security costs 464 299 332 222
Share based payment 195 195 272 272
Other pension contributions 171 112 120 85
-------------------------------- ------------------- ------------------ --------------------- --------------------
5,576 3,401 4,027 2,674
-------------------------------- ------------------- ------------------ --------------------- --------------------
The Directors' and key
management remuneration was as
follows:
Salary Benefits Pension Total
Year ended 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------------- ----------------------------------------- --------------------
P Johnston 217 20 22 259
M Hodgkins 165 16 17 198
I Griffiths 45 0 0 45
S McErlain 35 0 0 35
C Cattaneo 35 0 0 35
-------------------------------- ------------------- ----------------------------------------- --------------------
497 36 39 572
-------------------------------- ------------------- ----------------------------------------- --------------------
Salary Benefits Pension Total
Year ended 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------------- ----------------------------------------- --------------------
P Johnston 205 23 7 235
M Hodgkins 165 16 - 181
I Griffiths 45 - - 45
L Jackson 19 - - 19
S McErlain 18 - - 18
C Cattaneo 18 - - 18
-------------------------------- ------------------- ----------------------------------------- --------------------
470 39 7 516
-------------------------------- ------------------- ----------------------------------------- --------------------
6 Finance income and expense
2021 2020
GBP'000 GBP'000
-------------------------------- ------------------- ------------------ --------------------- --------------------
Finance income
Interest receivable and similar
income 3 4
-------------------------------- ------------------- ------------------ --------------------- --------------------
Finance expense
Interest payable on loans and
overdrafts 36 3
Interest payable on hire
purchase obligations 119 63
Interest payable in respect of
lease liabilities 146 129
-------------------------------- ------------------- ------------------ --------------------- --------------------
301 195
-------------------------------- ------------------- ------------------ --------------------- --------------------
7 Income tax
2021 2020
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Current tax:
UK corporation tax 769 547
Adjustment for prior periods (29) 86
-------------------------------------------------- -------- --------
Total current tax credit 740 633
Deferred tax:
Origination and reversal of temporary differences (252) 297
Change in rate from 19 to 25% (2020: 19 to 17%) (168) (53)
Adjustment for prior periods 4 (49)
-------------------------------------------------- -------- --------
Total deferred tax expense (416) 195
-------------------------------------------------- -------- --------
Total tax credit 324 828
-------------------------------------------------- -------- --------
The tax rate used for the reconciliation is the corporate tax
rate of 19% (2020: 19%) payable by corporate entities in the UK on
taxable profits under UK tax law The Finance Act 2016 included
legislation to reduce the main rate of corporation tax from 19% to
17% from 1 April 2020. A change to the main rate of corporation tax
announced in the 2020 Budget was substantively enacted on 17 March
2020. The rate from 1 April 2020 remained at 19% rather than the
previously enacted reduction to 17%. In May 2021 a change in the
rate of corporation tax to 25% from April 2023 was substantively
enacted.
The tax rate used to calculate deferred tax is the enacted rate
of 25% (2020: 19%), being the rate at which the timing differences
are expected to unwind based on currently enacted UK corporate tax
legislation.
The credit for the year can be reconciled to the (loss)/profit
for the year as follows:
2021 2020
GBP'000 GBP'000
---------------------------------------------------- -------- --------
(Loss)/Profit before taxation (1,976) 406
---------------------------------------------------- -------- --------
Income tax calculated at 19% (2020: 19%) 375 (77)
Negative goodwill credit not taxed - 312
Disallowable expenses including share-based payment (43) (101)
Tax in respect of share options (289) 440
Enhanced research and development allowances 557 471
Enhanced capital allowances 39 -
Deferred tax now recognised in group 131 -
Deferred tax not recognised - (29)
Adjustment for prior periods (25) 37
Change in deferred tax rate (168) (53)
Differing deferred tax and R&D tax credit rates (253) (172)
---------------------------------------------------- -------- --------
Total tax credit 324 828
---------------------------------------------------- -------- --------
Deferred tax is recognised over the vesting period for share
options in respect of the corporate tax deduction available under
the EMI scheme for the difference between market value on exercise
and the exercise price and the exceptional GBP289,000 expense
(2020: GBP440,0000 credit) arises in the year as a result of
movements in the year end quoted share price to GBP0.95 at 31
December 2021 (2020: GBP3.22).
8 Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
Earnings 2021 2020
GBP'000 GBP'000
---------------------------------------------------------------------------------------------- ---------- ----------
Earnings for the purpose of basic and diluted earnings per share being net profit attributable
to the shareholders (1,652) 1,234
---------------------------------------------------------------------------------------------- ---------- ----------
Number of shares 2021 2020
---------------------------------------------------------------------------------------------- ---------- ----------
Weighted average number of Ordinary Shares for the purposes of basic earnings per share 28,597,901 20,687,836
---------------------------------------------------------------------------------------------- ---------- ----------
Potentially dilutive effect of share options exercisable below average share price in the
year - 971,330
---------------------------------------------------------------------------------------------- ---------- ----------
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share 28,597,901 21,659,166
---------------------------------------------------------------------------------------------- ---------- ----------
Earnings per Share (pence)
Basic (5.78) 5.96
Diluted (5.78) 5.70
---------------------------------------------------------------------------------------------- ---------- ----------
The earnings per share is calculated from the number of GBP0.04 ordinary shares in issue.
Options over Ordinary Shares granted to employees are included
in the calculation of potentially dilutive shares in respect of a
profit. At 31 December 2021 there were 1,529,182 of unexercised
options in place.
9 Intangible assets
Computer Software Development
Goodwill Patent costs costs Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- ------------ -------------------- ----------- -------
Cost
As at 1 January 2020 104 76 77 4,368 4,625
Additions - 8 13 2,447 2,468
On acquisition - - 11 - 11
--------------------------- -------- ------------ -------------------- ----------- -------
As at 31 December 2020 104 84 101 6,815 7,104
Additions - 6 86 3,784 3,876
--------------------------- -------- ------------ -------------------- ----------- -------
As at 31 December 2021 104 90 187 10,599 10,980
=========================== ======== ============ ==================== =========== =======
Amortisation or Impairment
As at 1 January 2020 - 24 65 268 357
Charge - 5 5 255 265
--------------------------- -------- ------------ -------------------- ----------- -------
As at 31 December 2020 - 29 70 523 622
Charge - 5 19 402 426
--------------------------- -------- ------------ -------------------- ----------- -------
As at 31 December 2021 - 34 89 925 1,048
=========================== ======== ============ ==================== =========== =======
Carrying amount
As at 31 December 2020 104 55 31 6,292 6,482
--------------------------- -------- ------------ -------------------- ----------- -------
As at 31 December 2021 104 56 98 9,674 9,932
=========================== ======== ============ ==================== =========== =======
The carrying amount of goodwill relates to the acquisition of
the original RF technology-based business, whilst all the
capitalised development costs relate to projects in respect of the
Group's Improved Harness Technology(TM) ('IHT') process for
unlimited length printed circuit boards and know-how which has
since been developed by the Group with amortisation on the initial
development projects commencing in 2018.
To determine the value of the costs capitalised, management
include the actual cost of purchase for all materials which are
acquired for product development purposes, the daily time analyses
of work performed by design or product engineers which captures the
time spent on development activities which is evaluated using a
labour rate appropriate for the engineer who has worked the time
and finally includes an element of direct relevant overhead cost
which is incorporated to reflect the additional cost of operating
the developmental department of the Group.
The costs that are capitalised are kept under review to
determine the recoverability of the value so capitalised by
reference to revenues generated for IHT together with ensuring
there is a growing pipeline of projects with a range of customers
under development using the IHT knowledge-base reflected by the
value of the capitalised development costs.
Impairment tests for goodwill
The Group tests goodwill annually for impairment, or more
frequently if events or changes in circumstances indicate that the
asset might be impaired. The carrying values are assessed on a
value in use basis for impairment purposes by calculating the net
present value (NPV) of future cash flows arising from the original
acquired business. The goodwill impairment review assessed whether
the carrying value of goodwill was supported by the NPV of future
cash flows based on management forecasts for 5 years, an assumed
growth rate of 1% (2020: 1%) for the next 5 years and a discount
rate of 12% (2020: 12%). There is significant headroom in the
assessment from a range of reasonable sensitivities.
Government Grants
The Group has received aggregate grants from UK and European
government research and development initiatives amounting to
GBP965,005 (2020: GBP965,005) which fund a proportion of
development work and which have been deferred in line with the
capitalised development cost assets above that they relate to.
They are released to profit and loss in line with the
amortisation of the costs. There are no unfulfilled conditions or
contingencies attached to the grants.
Computer Software Development
Goodwill Patent costs costs Total
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- ------------ -------------------- ----------- -------
Cost
As at 1 January 2020 104 76 77 4,368 4,625
Additions - 8 9 2,447 2,464
--------------------------- -------- ------------ -------------------- ----------- -------
As at 31 December 2020 104 84 86 6,815 7,089
Additions - 6 29 3,784 3,819
--------------------------- -------- ------------ -------------------- ----------- -------
As at 31 December 2021 104 90 115 10,599 10,908
=========================== ======== ============ ==================== =========== =======
Amortisation or Impairment
As at 1 January 2020 - 24 65 268 357
Charge - 5 5 255 265
--------------------------- -------- ------------ -------------------- ----------- -------
As at 31 December 2020 - 29 70 523 622
Charge - 5 8 402 415
--------------------------- -------- ------------ -------------------- ----------- -------
As at 31 December 2021 - 34 78 925 1,037
=========================== ======== ============ ==================== =========== =======
Carrying amount
As at 31 December 2020 104 55 16 6,292 6,467
--------------------------- -------- ------------ -------------------- ----------- -------
As at 31 December 2021 104 56 37 9,674 9,871
=========================== ======== ============ ==================== =========== =======
10 Property, plant and equipment Assets
Leasehold Plant and Right of use assets - Under
Freehold improvements machinery Buildings Construction Total
Group Property GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----------- -------- ---------- -------------------------- ----------------- -------
Cost
As at 1 January 2020 - 463 2,627 814 - 3,904
Additions - 17 1,652 - - 1,669
On acquisition (note 23) - - 2,960 1,914 4,874
--------------------------- ----------- -------- ---------- -------------------------- ----------------- -------
As at 31 December 2020 - 480 7,239 2,728 - 10,447
Additions 3,002 12 958 36 2,236 6,244
Disposals - (62) (47) - - (109)
--------------------------- ----------- -------- ---------- -------------------------- ----------------- -------
As at 31 December 2021 3,002 430 8,150 2,764 2,236 16,582
=========================== =========== ======== ========== ========================== ================= =======
Depreciation
As at 1 January 2020 - 123 1,141 93 - 1,357
Charge - 38 630 247 - 915
--------------------------- ----------- -------- ---------- -------------------------- ----------------- -------
As at 31 December 2020 - 161 1,771 340 - 2,272
Charge - 42 947 299 - 1,288
Disposals - (62) (47) - - (109)
--------------------------- ----------- -------- ---------- -------------------------- ----------------- -------
As at 31 December 2021 - 141 2,671 639 - 3,451
=========================== =========== ======== ========== ========================== ================= =======
Carrying amount
As at 31 December 2020 - 319 5,468 2,388 8,175
--------------------------- ----------- -------- ---------- -------------------------- ----------------- -------
As at 31 December 2021 3,002 289 5,479 2,125 2,236 13,131
=========================== =========== ======== ========== ========================== ================= =======
Included within the carrying amount of the above, are specific
assets held subject to hire purchase contracts of GBP3,082,000
(2020: GBP2,806,000) relating to plant and machinery and GBP330,000
relating to assets under construction. Depreciation of GBP391,000
(2020: GBP289,000) was charged on these assets in the year. In
addition, a lease contract with a liability of GBP313,000 (2020:
GBP393,000) has a general charge over other plant assets.
Assets under construction relate to the fit out and new
equipment for the freehold Stonehouse property and manufacturing
facility purchased in the year.
Freehold property will be depreciated once the asset comes into
use.
Assets
Leasehold Plant and Right of use assets Under
Freehold improvements machinery - Buildings Construction Total
Company Property GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- --------------------- ---------- --------------------- ----------------- -------
Cost
As at 1 January 2020 - 463 2,627 814 - 3,904
Additions - 17 1,315 - - 1,332
---------------------- -------- --------------------- ---------- --------------------- ----------------- -------
As at 31 December 2020 - 480 3,942 814 - 5,236
Additions 3,002 12 61 36 2,236 5,347
Disposals - (62) (175) - - (237)
---------------------- -------- --------------------- ---------- --------------------- ----------------- -------
As at 31 December 2021 3,002 430 3,828 850 2,236 10,346
====================== ======== ===================== ========== ===================== ================= =======
Depreciation
As at 1 January 2020 - 123 1,141 93 - 1,357
Charge - 38 277 93 - 408
---------------------- -------- --------------------- ---------- --------------------- ----------------- -------
As at 31 December 2020 - 161 1,418 186 - 1,765
Charge - 42 352 93 - 487
Disposals - (62) (156) - - (218)
---------------------- -------- --------------------- ---------- --------------------- ----------------- -------
As at 31 December 2021 - 141 1,614 279 - 2,034
====================== ======== ===================== ========== ===================== ================= =======
Carrying amount
As at 31 December 2020 - 319 2,524 628 - 3,471
---------------------- -------- --------------------- ---------- --------------------- ----------------- -------
As at 31 December 2021 3,002 289 2,214 571 2,236 8,312
====================== ======== ===================== ========== ===================== ================= =======
Included within the carrying amount of the above, are assets
held subject to hire purchase contracts of GBP1,679,000 (2020:
GBP2,122,000) relating to plant and machinery and GBP330,000
relating to assets under construction. Depreciation of GBP267,000
(2020: GBP204,000) was charged on these assets in the year.
Disposals include plant with a net book value of GBP19,000
transferred to a subsidiary undertaking.
11 Investments
Company GBP'000
As at 1 January 2020 -
Additions in 2020 2,172
As at 31 December 2020 and 2021 2,172
The Company holds all of the shares in Stevenage Circuits
Limited, a company registered at 1 Ashvale, Alexandra Way,
Ashchurch, Tewkesbury, Gloucestershire, GL20 8NB. The company is a
manufacturer of PCBs.
12 Inventories
Group Company Group Company
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
----------------- -------- -------- -------- --------
Raw materials 1,258 350 1,088 384
Work in progress 409 85 528 130
Finished goods 355 10 394 79
----------------- -------- -------- -------- --------
2,022 445 2,010 593
----------------- -------- -------- -------- --------
There is no material difference between the value of inventories
stated and their replacement cost. There are no material stock
provisions at any period end, neither have material amounts of
stock been written off in any of the periods presented.
13 Trade and other receivables
Group Company Group Company
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- -------- -------- -------- --------
Amounts receivable within one year
Trade receivables 1,531 450 1,381 370
Amounts owed by group undertakings - - - 2,077
Other receivables 236 236 - 17
Prepayments 6,028 5,924 371 263
-------------------------------------------- -------- -------- -------- --------
7,795 6,610 1,752 2,727
-------------------------------------------- -------- -------- -------- --------
Amounts receivable after more than one year
Amounts owed by Group undertakings - 2,589 - -
-------------------------------------------- -------- -------- -------- --------
Group trade receivables are stated net of impairment for
estimated irrecoverable amounts of GBP54,000 (2020: GBP20,000).
Company trade receivables are stated net of GBP31,000 (2020:
GBP14,000). There has been no material write offs or other material
movements in the impairment provision in the current or prior
period.
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value. Prepayments
includes GBP5,956,000 (2020: GBPnil) in respect of deposits for
capital equipment.
The Directors consider the credit quality of trade and other
receivables that are neither past due nor impaired to be of good
quality. Substantially all unimpaired overdue amounts have been
collected since the year end.
Amounts owed by group undertakings bear no Interest and have no
fixed date of repayment. They are not considered to be receivable
within one year (2020: disclosed as on demand). There has been no
impairment charge made against these balances.
14 Trade and other payables
Group Company Group Company
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------- ------- ------- -------
Amounts falling due within one year:
Trade payables 2,305 1,326 1,076 434
Taxes and social security costs 175 104 318 102
Other payables 33 20 0 0
Accruals and deferred income 502 263 318 95
Provisions - - 244 0
---------------------------------------------- ------- ------- ------- -------
3,015 1,713 1,956 631
---------------------------------------------- ------- ------- ------- -------
Amounts falling due after more than one year:
Deferred income - grants 1,067 1,067 910 910
---------------------------------------------- ------- ------- ------- -------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair values. Accruals and
deferred income includes contract liabilities totalling GBPnil
(2020: GBP118,000) in relation to customer payments received in
advance. There are also non-current provisions of GBP115,000 (2020:
GBP79,000) in the Group and GBP36,000 (2020: GBPnil) in the Company
relating to GBP79,000 of contingent liabilities on acquisition of
the subsidiary and GBP36,000 of dilapidation provisions.
15 Borrowings (including lease liabilities)
Group Company Group Company
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------- ------- ------- -------
Amounts falling due within one year:
Lease liabilities 274 80 187 80
Hire purchase contract obligations 772 373 740 469
Bank loan 71 71 - -
Invoice financing 184 184 - -
Other short-term financing 549 549 128 128
---------------------------------------------- ------- ------- ------- -------
1,850 1,257 1,055 677
---------------------------------------------- ------- ------- ------- -------
Amounts falling due between one & five years:
Lease liabilities 1,308 410 1,258 411
Hire purchase contract obligations 1,557 723 1,713 1,101
Bank loan 1,866 1,866 - -
---------------------------------------------- ------- ------- ------- -------
4,731 2,999 2,971 1,512
---------------------------------------------- ------- ------- ------- -------
Amounts falling due in more than five years:
Lease liabilities 783 81 1,107 161
---------------------------------------------- ------- ------- ------- -------
Total borrowings 7,364 4,337 5,133 2,350
---------------------------------------------- ------- ------- ------- -------
The bank loan of GBP1,937,000 bears interest at 3.25% over base
rates and is repayable by quarterly instalments at GBP98,000 a year
with the remaining GBP1,470,000 repayable in August 2026. It is
secured on the freehold property.
Hire purchase obligations are secured on the specific tangible
fixed assets to which they relate.
The Group in a prior year has utilised lease contracts in
respect of the factory and office property it uses in the UK, which
have been entered into for terms of 10 years. A break is not
expected to be exercised and accordingly the full term was
accounted for on commencement in an earlier year. For property
leases, it is customary for lease contracts to be reset
periodically to market rental rates.
Right of use assets, additions and depreciation are included in
note 10. Interest expenses relating to lease liabilities are
included in note 6. The total cash outflows for leases including
hire purchase arrangements in the year were GBP1,253,000 (2020:
GBP675,000).
Financing activities and movements in total borrowings GBP'000
As at 1 January 2020 1,592
Cash movements:
Lease payments in respect of right of use assets (87)
Hire purchase contract payments (397)
Interest paid (195)
Non-cash movements:
Interest accrued 195
On acquisition of subsidiary 2,374
New hire purchase and financing contracts 1,651
As at 31 December 2020 5,133
Financing activities and movements in total borrowings GBP'000
Cash movements:
Bank loan advanced 1,960
Bank loan repayments (23)
Net movement in invoice and other short-term financing 605
Lease payments in respect of right of use assets (187)
Hire purchase contract payments (801)
Interest paid (301)
Non-cash movements:
Interest accrued 301
New hire purchase and financing contracts 677
As at 31 December 2021 7,364
Group Company Group Company
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------------- ------- ------- ------- -------
Payments due under hire purchase contracts are as follows:
In one year or less 834 433 1,314 792
Between one and five years 1,869 844 3,649 1,772
In more than five years - - 1,232 184
----------------------------------------------------------- ------- ------- ------- -------
2,703 1,277 6,195 2,748
Future finance charges (374) (181) (1,062) (398)
----------------------------------------------------------- ------- ------- ------- -------
Present value of liabilities 2,329 1,096 5,133 2,350
----------------------------------------------------------- ------- ------- ------- -------
16 Financial instruments and capital management
Risk management
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies. The overall
objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group's innovation
and flexibility. All funding requirements and financial risks are
managed based on policies and procedures adopted by the Board of
Directors. The Group is exposed to financial risks in respect of
market, credit, foreign exchange and liquidity risk.
Capital management
The Group is financed by a mixture of equity, term loans and
invoice discounting facilities as required for working capital
purposes and with hire purchase finance used for certain capital
projects. The capital comprises all components of equity which
includes share capital, retained earnings and other reserves as
indicated in the Statement of Financial Position.
The Group's objectives when maintaining capital are to safeguard
the entity's ability to continue as a going concern, so that it can
continue to provide returns for Shareholders and benefits for other
stakeholders, and to provide an adequate return to Shareholders by
pricing products and services commensurately with the level of
risk.
The capital structure of the Company and Group consists of
Shareholders equity with all working capital requirements financed
from cash and capital expenditure utilising cash and term hire
purchase contracts.
The Company sets the amount of capital it requires in proportion
to risk. It manages its capital structure and makes adjustments to
it in the light of changes in economic conditions, terms of
borrowing facilities and the risk characteristics of the underlying
assets and activity. In order to maintain or adjust the capital
structure, the Company may adjust the amount of dividends paid to
Shareholders, return capital to Shareholders, issue new shares, or
sell assets to reduce debt.
Market risks
These arise from the nature and location of the customer
markets, foreign exchange and interest rate risks.
The Group trades within the UK, European and US aeronautical and
communications markets, and accordingly there is a risk relating to
the underlying performance of these markets. The Directors monitor
this and the foreign exchange risk closely with the intention to
foresee downturns in trade or changes in the use of technology.
Foreign exchange risk
The Group trades in overseas markets and, whilst it has net
foreign currency balances has both receipts and a degree of
payments in matching currencies. It also enters into forward
contracts with an option to sell sufficient foreign currency
receipts at a fixed rate which it uses to manage pricing and the
exposure to exchange rate risks. It is not considered to be a
material sensitivity to the range of fluctuations in exchange rates
experienced within the last year.
The Group had the following net cash, sales ledger and purchase
ledger balances denominated in foreign currencies:
2021 2020
GBP'000 GBP'000
---------------------- ------- -------
Euro denominated 188 1,121
US dollar denominated 95 (12)
---------------------- ------- -------
Credit risk
Credit risk is the risk of financial loss if a customer or
counterparty to a financial instrument fails to meet its
contractual obligations. The Group is mainly exposed to credit risk
from credit sales and attempts to mitigate credit risk by assessing
the creditworthiness of customers and closely monitoring payments
history. Given the long experience of the Group with its customers
and in view of the systems and relations with customers that the
Group has, the Directors consider the credit quality of trade
receivables to be good and debts to be virtually fully recoverable.
The credit quality of trade receivables can be assessed via
external credit ratings (if available) or to historical information
about default rates.
The Group considers a debtor to be in default when a decision
has been made to commence legal proceedings for recovery. There
have been no material impairments to trade or other receivables
invoiced within the 3 years included within these financial
statements.
Impairment provisions are also recognised based on the
simplified approach within IFRS9 using the lifetime expected credit
losses. To measure the expected credit losses, trade receivables
are grouped based on shared credit risk and days past due. The
expected loss rates are based on payment profiles and historical
credit loss experience. The historical loss rates are adjusted to
reflect current and forward-looking information on macroeconomic
factors affecting the ability of the customers to settle
receivables.
Credit risk on cash and cash equivalents is considered to be
minimal as the counterparties are all substantial banks with high
credit ratings. The maximum exposure to credit risk is the total of
financial assets as set out in the table below.
Interest rate risk
The Group makes use of fixed rate finance lease or hire purchase
agreements to acquire property, plant and equipment; this ensures
that the Group maintains its existing working capital and ensures
certainty of costs at the point of acquisition of those assets.
The Group has also drawn down a mortgage loan in the year with a
floating rate and a 1% change in base rates would increase annual
interest charges by approximately GBP18,000.
The Directors therefore do not consider that the Group is
exposed to a material risk or sensitivity from fluctuations in
interest rates. These liabilities are set out in note 14.
Liquidity risk
The maturity of the Group's financial liabilities including
borrowing facilities detailed above is as set out below. Current
liabilities were payable on demand or to normal trade credit terms
with the exception of hire purchase contract obligations payable
monthly and leases payable quarterly.
Liquidity risk of the business is managed by the preparation of
and monitoring of a rolling weekly cash forecast which is
integrated with a regular review of credit risk exposure (as
detailed above) and the Board level review of three-month rolling
finance facility headroom.
Up to 1 year 1-2 years 2-5 years In more than 5 years
At 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ------------ --------- --------- --------------------
Trade and other payables 1,956 - - -
Lease liabilities 334 415 1,244 1,232
Other short term financing 128 - - -
Hire purchase contracts (including interest) 962 738 1,252 -
--------------------------------------------- ------------ --------- --------- --------------------
3,380 1,153 2,496 1,232
--------------------------------------------- ------------ --------- --------- --------------------
Up to 1 year 1-2 years 2-5 years In more than 5 years
At 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ------------ --------- --------- --------------------
Trade and other payables 2,768 - - -
Lease liabilities 415 415 1,244 816
Other short term financing 733 - - -
Bank loan 173 170 1,912 -
Hire purchase contracts (including interest) 834 757 1,112 -
--------------------------------------------- ------------ --------- --------- --------------------
4,923 1,342 4,268 816
--------------------------------------------- ------------ --------- --------- --------------------
Classification of financial instruments
All financial assets are held at amortised cost and all
financial liabilities have been classified as other financial
liabilities measured at amortised cost with the exception of any
forward currency contracts that exist which are measured at fair
value as a derivative instrument.
2021 2020
Financial assets GBP'000 GBP'000
---------------------------- -------- --------
Trade and other receivables 1,767 1,381
Cash and cash equivalents 2,897 13,930
---------------------------- -------- --------
4,664 15,311
---------------------------- -------- --------
2021 2020
Financial liabilities GBP'000 GBP'000
---------------------------- -------- --------
At amortised cost
Trade and other payables 2,768 1,956
Lease liabilities 2,365 2,552
Bank loan 1,937 -
Other short term financing 733 128
Hire purchase contracts 2,329 2,453
---------------------------- -------- --------
10,132 7,089
---------------------------- -------- --------
17 Deferred tax liabilities
Group
Liability/(asset) in respect of:
Accelerated capital Intangible assets Share Based Payment Losses Total
allowances GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------------------------- ----------------- ------------------- -------- --------
As at 31 December 2020 785 672 (493) (758) 206
Debit/(credit) to profit or
loss 323 670 414 (990) 417
----------------------------- ---------------------------
As at 31 December 2021 1,108 1,342 (79) (1,748) 623
There is an unrecognised deferred tax asset in respect of losses
carried forward of approximately GBP465,000 (2020: GBP460,000).
Company
Liability/(asset) in respect of:
Accelerated capital Intangible assets Share Based Payment Losses Total
allowances GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------------------- -------- --------
As at 31 December 2020 467 672 (493) (440) 206
Debit/(credit) to profit or
loss 49 670 414 (381) 752
As at 31 December 2021 516 1,342 (79) (821) 958
18 Defined contribution scheme
The Group contributes to personal pension plans for the benefit
of certain employees. The pension cost charge represents
contributions payable by the Group to the funds.
2021 2020
GBP'000 GBP'000
-------------------------------------------------------------- -------- --------
Contributions payable by the Group for the year 171 120
-------------------------------------------------------------- -------- --------
19 Share capital
2021 2020
Group and Company GBP'000 GBP'000
-------- --------
Allotted, called up and fully paid
30,179,014 (2020: 28,426,122) Ordinary Shares of GBP0.04 each 1,207 1,137
-------------------------------------------------------------- -------- --------
1,421,285 shares were issued on 20 December 2021 at 80 pence
each in order to fund capital expenditure and growth working
capital. This was the first tranche of a larger fundraising
completed in January 2022. In addition, 331,607 employee held share
options were exercised in the year at 28.25 pence each.
7,341,250 ordinary GBP0.04 shares were issued on 30 March 2020
at 80 pence each in order to provide funds for the acquisition of
SCL, investment and working capital. 6,312,500 GBP0.04 ordinary
shares were issued on 9 December 2020 in order to provide funds for
further investment in plant and manufacturing capacity required by
manufacturing agreements and anticipated demand.
Ordinary shares have equal rights to votes in any circumstances
and are non-redeemable. Ordinary shares have rights to receive
dividends and capital distributions.
No dividends have been declared or are proposed in respect of
the year (2020: GBPnil).
Analysis of Movements of Shares in Issue 2021 2020
1 January 28,426,122 14,772,372
Shares issued on 30 March 2020 - 7,341,250
Shares issued on 9 December 2020 - 6,312,500
Shares issued on 20 December 2021 1,421,285 -
Options exercised in the year 331,607 -
----------------------------------------- ---------- ----------
31 December 30,179,014 28,426,122
----------------------------------------- ---------- ----------
20 Contingent liabilities
At 31 December 2021, the Company and Group had no contingent
liabilities (2020: none).
21 Financial commitments
The Company and Group had capital commitments of GBP7,662,000 at
31 December 2021 (2020: GBP3,511,000 in respect of the investment
to be made in new plant).
The Company has given a debenture including a fixed charge over
all freehold and leasehold property which secures the mortgage of
GBP1.9M as well as the invoice discounting facility also with HSBC
plc for GBP184K. The Company has also given specific asset security
against its fixed plant and equipment. The company also has an
import line facility which is covered by this security where there
is an outstanding balance of GBPnil.
22 Share Option Plan
Introduction
The Group established the EMI Share Option Plan on 15 June 2018
which allows for the grant of enterprise management incentive share
options which qualify for favourable tax treatment under the
provisions of Schedule 5 to Income Tax (Earnings and Pensions) Act
2003 (ITEPA) (EMI Options) and awards of non-qualifying options
(together Awards). The awards are not transferable. Only the person
to whom an Award is granted or his or her personal representatives
may acquire Ordinary Shares pursuant to an Award.
The Board and Remuneration Committee has overall responsibility
for the operation and administration of the Share Option Plan and
discretion to select the persons to whom Awards are to be
granted.
Size of EMI Options grants/plan limits
The Group will grant EMI Options for as long as the Group
satisfies the qualifying conditions set out in the EMI Code.
Under the EMI Code, an employee may hold EMI Options over
Ordinary Shares with a value (as at the date of grant) up to
GBP250K. Where this threshold is exceeded, the employee may not
receive EMI Options for three years. He may, however, receive
non-qualifying Awards, subject to the limit as set out below.
Unless the Remuneration Committee otherwise determines, the
aggregate number of Ordinary Shares over which Awards may be
granted under the Share Option Plan on any date shall be limited so
that the total number of Ordinary Shares issued and issuable
pursuant to Awards granted under the Share Option Plan and any
other share scheme operated by the Company in any rolling 10-year
period will be restricted to 10 per cent of the Company's issued
Ordinary Share capital from time to time calculated at the relevant
time.
Rights attaching to shares
Ordinary Shares issued in connection with the exercise of Awards
will rank equally with Ordinary Shares of the same class then in
issue. Application will be made for admission to trading on AIM of
new Ordinary Shares issued.
Malus and Clawback
The Remuneration Committee may apply clawback where at any time
before or within a year of vesting it determines that the final
results of the Group were misstated. The Remuneration Committee may
also apply the clawback at any time if it is discovered that the
participant engaged in fraudulent or dishonest conduct prior to
vesting that justified, or would have justified, summary dismissal
from office or employment.
Awards
Included in the awards are options over 368,690 Ordinary Shares
granted to Mark Hodgkins, a director, both within the EMI scheme
and further non qualifying options.
Share option movements
2021 Weighted average 2021 number 2020 weighted average 2020 number
exercise price (p) exercise price (p)
1 January 57.5 1,886,215 28.25 915,360
Shares forfeited during the
year (25,426) 28.25 (13,415)
Options granted in the year - 87.5 984,000
Options exercised in the year 28.25 (331,607) - -
31 December 1,529,182 57.5 1,885,945
-----------
Options over 990,015 shares were granted to employees on 15 June
2018. 331,607 were exercised in 2021 and remained exercisable as at
31 December 2021. They are exercisable at 28.25 pence per share
after a period of 3 years. The share-based payment charge of 72.25
pence per option share has been measured using the Black Scholes
model applying the three-year vesting period, a volatility of 50%
and annual risk-free rate of 1.5%.
Options over 984,000 shares were granted to employees on 24 June
2020 They are exercisable at 87.5 pence per share after a period of
2 years and subject to performance conditions being met. None were
exercisable at 31 December 2021 (2020; nil). The share-based
payment charge of 30 pence per option share has been measured using
the Black Scholes model applying an expected three-year vesting
period, a volatility of 50% and annual risk-free rate of 1.0%.
23 Prior year business combination
The parent company acquired all of the share capital of
Stevenage Circuits Limited ('SCL'), a UK-based designer and
manufacturer of short flex and rigid printed circuit boards, on 1
April 2020. The acquisition primarily adds further manufacturing
capacity to enable the demand-led ramp up of Trackwise Design's
Improved Harness Technology production, as well as customers and
technical, sales and operational expertise.
The assets were acquired at a discount to their fair value
resulting in negative goodwill of GBP1,642,000 which has been
credited to the income statement in accordance with IFRS 3 and
represents an exceptional item in the period. This relates to the
ability of the combined group to fully utilise the manufacturing
capacity of SCL and enhance earnings from the specialist plant and
equipment. The consolidated negative goodwill credit is not
expected to be taxable.
The fair values of the assets and liabilities acquired are as follows: Fair value
GBP'000
Property, plant and equipment 2,960
Right of use property assets 1,914
Intangible assets 11
Inventories 871
Trade receivables and prepayments 1,088
Tax 467
Cash 544
Trade and other payables (1,588)
Lease liabilities (1,914)
Hire purchase liabilities (460)
Provisions (79)
3,814
Negative goodwill arising (1,642)
Consideration paid 2,172
Consideration was paid in cash and there is no deferred or contingent consideration payable.
Gross trade receivables acquired were GBP897,000 all of which
all was expected to be recovered. Right of use property assets are
included in property, plant and equipment and lease liabilities
within borrowings in the consolidated statement of financial
position. Acquisition related expenses of GBP226,000, principally
in respect of professional fees, have been charged as an
exceptional item in the income statement together with GBP278,000
incurred in respect of the integration of SCL into the Group. This
involved incremental project time and cost to bring processes and
operations in line with Trackwise.
The negative goodwill, acquisition and integration expenses are
considered highly material and significant non-recurring related
items. They are therefore presented below operating loss in the
consolidated income statement.
SCL contributed GBP3,920,000 of revenue and recorded a loss
after tax of GBP13,000 included in the consolidated income
statement from 1 April 2020 to 31 December 2020 (excluding
acquisition expenses and negative goodwill).
Had SCL been consolidated from 1 January 2020 it would have
contributed another GBP1,284,000 of revenue and a loss of GBP23,000
to the year.
24 Ultimate controlling party and related party transactions
There was no individual controlling party as at 31 December
2021.
The key management personnel are considered to be the Directors.
Please refer to Note 5 for details of key management personnel
remuneration. M Hodgkins, a Director of the Company, holds options
over 368,690 Ordinary Shares in the Company (note 22).
25 Adjusted Operating Profit and EBITDA
In monitoring the performance of the business, the Directors
focus on operating profit adjusted for material non-recurring or
non-trading expenses which are not a reflection of the underlying
cost base or represent one-off investment, together with
share-based payments which are non-cash and, in a developing
business, often more volatile and less representative of the
potential value to employees of share options. The adjustments made
are set out below:
2021 2020
Adjusted operating (loss)/profit: GBP'000 GBP'000
------------------------------------------- -------- --------
Operating loss (1,678) (541)
Add back share-based payments 153 228
New facility set up costs 941 -
Non recurring set up costs for new product - 128
------------------------------------------- -------- --------
Adjusted operating loss (584) (185)
------------------------------------------- -------- --------
The share-based payment is added back because the granting of
options to employees is not a regular occurrence there having been
none granted in 2021. As this is an irregular charge it is added
back to better display the adjusted operating loss/profit.
The measure of EBITDA is not recognised by IFRS however it
remains an important performance measure for management in adding
back a non-cash expense in the context of a business utilising long
term plant and equipment and manufacturing facilities with the
major expenditure on initial purchase and at set up. During the
year the Company incurred significant non-recurring non-underlying
costs relating to the establishment of the facility at Stonehouse
which do not relate to the generation of revenues for customers.
These costs have been added back.
2021 2020
Adjusted EBITDA: GBP'000 GBP'000
------------------------------------------------------ -------- --------
Operating loss (1,678) (541)
Depreciation (net of development cost capitalisation) 965 693
Amortisation 426 265
Share based payments 153 228
New facility set up costs 941 -
Non recurring set up costs for new product - 128
------------------------------------------------------ -------- --------
Adjusted EBITDA 807 773
------------------------------------------------------ -------- --------
26 Post balance sheet events
The Company completed its equity fundraising with 7,329,051 new
ordinary shares issued at 80 pence on 6 January 2022. In
combination with the first tranche issued on 20 December 2021, this
raised approximately GBP7m of cash for the Group to fund capital
expenditure and growth working capital.
Since the year end, the Company's bankers have approved
facilities of GBP6.5m to enable the funding of working capital and
asset equipment purchase secured by fixed and floating charges on
the assets of the group (note 15).
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END
FR GUGDRBXDDGDI
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July 28, 2022 02:00 ET (06:00 GMT)
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