TIDMTWD
RNS Number : 6213C
Trackwise Designs PLC
22 June 2021
TRACKWISE DESIGNS PLC
("Trackwise", "the Company" or "the Group")
Final Results
Trackwise Designs (AIM: TWD), a leading provider of specialist
products using printed circuit technology, is pleased to announce
its audited results for the year ended 31 December 2020.
Financial highlights
-- Revenues of GBP6.07m (2019: GBP2.91m)
-- Adjusted EBITDA of GBP0.77m (2019: GBP0.57m)
-- Adjusted operating loss of GBP0.19m (2019: profit of GBP0.26m)
-- Net cash at 31 December 2020 (excluding IFRS16 lease liabilities)
of GBP11.35m (31 December 2019: net debt GBP0.30m)
Operational and strategic highlights
-- Resilient response to the pandemic with progress made
against all elements of the Group's strategy, despite
headwinds
-- Significant multi-year IHT manufacture and supply contract
win with a UK EV OEM
-- Acquisition and successful integration of Stevenage Circuits
Limited ("SCL")
-- Successful reorganisation of operations resulting in dedicated
Improved Harness Technology(TM) ("IHT") and Advanced PCB
manufacturing sites at Ashvale and Stevenage respectively
-- Two successful equity raises totalling GBP18.5m to support
growth
Post period highlights
-- Acquisition of third site to increase capacity for delivery
of IHT orders and progress in investment of new machinery
-- Appointment of Chief Operating Officer (non-board position)
-- Multi-year IHT agreement signed with medical device technology
company Cathprint AB
-- Extension and amendment to the UK EV OEM Agreement, as
announced separately by Trackwise today
Current trading & outlook
-- Healthy interest levels and growing pipeline but Covid-19
continues to impact pace of some customer investment,
raw material supplies and operational upgrades such as
the fit out of the new facility
-- Additional development improvements being made to UK EV
OEM products will result in rephasing of our production
-- Combined, these factors will result in some revenue from
FY21 being moved to FY22
-- Strong financial position - Net cash GBP2.866m (excluding
IFRS16 lease liabilities) as at 21 June 2021
-- The Board remains confident in making further strategic
progress and that the benefits of IHT will deliver strong
medium to long-term growth
-- Total IHT customers and opportunities increased to 84
today (31 December 2019: 72)
Philip Johnston, CEO of Trackwise, commented:
"The impact of the Covid pandemic has affected global economic
activity, leading to a slow-down in investment activity across our
markets. However, we are seeing a growing number of IHT enquiries
and have converted an increasing number of those enquiries into
customers which supports our growing confidence for the future.
What has become clear during the early part of 2021 is evidence
of increasing supply chain stress, with increased prices and
lengthening delivery timescales for a number of key raw materials.
Sales have not been lost but this is impacting our ability to
complete some orders on a timely basis in both our Advanced PCB and
IHT divisions.
We have continued to work with our UK EV OEM customer on
development improvements to the products we will be producing for
them. As a result, it is now anticipated that our volume
production, initially expected towards the end of 2021, will begin
in early 2022.
Combined, these factors above will have an impact on revenues in
2021, although some will be offset by new business from other
smaller customers as well as a continued focus on cost
controls.
We are making progress with preparing our new manufacturing
facility, with fit out underway and long lead capital items
ordered, and we are confident that this plant will be ready for
manufacture of the expected volumes. Capacity is being implemented
in the new manufacturing facility in excess of the UK EV OEM
forecast volumes and the layout accommodates planning for future
capacity expansion that can be implemented in the event of future
contract wins.
Trackwise's active discussions with a number of EV OEMs and Tier
1 suppliers supports our belief that flex PCBs will be adopted
widely as a solution for battery module and battery pack
interconnect across all cell formats and we are confident of strong
future activity in this sector, as well as in our other
markets.
We are pleased to announce today the extension and amendment to
the product manufacture and supply agreement with our UK EV OEM
customer, further details of which are included in a separate
announcement released by Trackwise today."
Enquiries
Trackwise Designs plc +44 (0)1684 299 930
Philip Johnston, CEO www.trackwise.co.uk
Mark Hodgkins, CFO
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 0205
Financial PR and IR
David Ison/Caroline Forde/Josh Royston/Kieran
Breheny
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 has three sites, located in Tewkesbury, Stevenage
(following the acquisition of Stevenage Circuits Ltd in April 2020)
and Stonehouse. It serves customers in Europe and North
America.
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 Market Abuse
Regulations (EU No. 596/2014) which is part of UK law by virtue of
the European Union (Withdrawal) Act 2018. Upon the publication of
this announcement, this inside information is now considered to be
in the public domain.
Chair's Statement
Delivering progress on our strategy
The period under review has been one characterised by
uncertainty and challenging economic conditions, but despite this
we are pleased to report on significant strategic progress across
both our Improved Harness Technology(TM) and Advanced PCB divisions
during the year with notable successes.
We have achieved an exceptional level of acceptance for IHT and
we are seeing an ever-increasing pipeline of opportunities across
our target markets. We continue to make significant steps to
accommodate the ramp up in IHT production at Ashvale, alongside
putting the steps in place to establish a dedicated high-volume
low-mix IHT production facility.
Following the acquisition of Stevenage Circuits Ltd, we have
consolidated our non-IHT manufacturing into what is now referred to
as the Advanced PCBs division, with our reach extended through
SCL's existing customer base.
These strategic achievements have solidified the foundations for
further growth, and underwrite the medium term performance to which
I referred last autumn. We are grateful for the support we have
received from our shareholders in enabling us to develop our
strategic initiatives.
2020 Performance
Trackwise has not been immune to the consequences of trading
headwinds, which impacted both our suppliers and our customers. The
effects of lockdowns in the UK, France and Italy in particular
hindered the installation of new equipment at our Ashvale site
which, in turn, have resulted in slower output of IHT.
I am pleased to report the operational issues we faced have now
largely been resolved, and these should not detract from the
significant progress the business made in the year. In a space of a
few months, supported by two equity raises, we completed the
acquisition of SCL, expanded and optimised our manufacturing
capacity and capability across our estate, and signed an agreement
with an electric vehicle OEM. The contract is not only
transformational for the Group's medium-term prospects, but is
reflective of the huge opportunity ahead as a wide range of
forward-thinking companies look for space-saving, weight-reducing
and environmentally-friendly parts for their products.
While our IHT facility in Tewkesbury and Advanced PCB facility
in Stevenage both suffered revenue losses as a result of
Covid-related disruption, through careful monitoring and swift,
decisive action we have successfully limited the impact to our
bottom line.
Board, Senior Management and Employees
In June 2020, we announced non-executive director and chair of
the audit committee Lesley Jackson would not be seeking re-election
at the 2020 AGM following completion of the full term of her
contract.
At the same time, we were pleased to appoint Charles Cattaneo
and Susan McErlain to the Board as non-executive directors. Charles
succeeded Lesley Jackson as chair of the audit committee and Susan
stepped into the role of chair of the remuneration committee.
I would like to reiterate my gratitude to Lesley for her
valuable contributions to Trackwise and wish her the best in her
future endeavours.
The safety of our staff has remained our priority since the
onset of the pandemic. In line with UK government guidelines, we
have taken significant steps to protect our teams from the impact
of Covid-19 across both our sites. I would like thank all of our
staff for their continued hard work and dedication in a difficult
year.
Dividend
The Board does not recommend the payment of a dividend and in
line with the previously stated policy reaffirms the 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
We are pleased, for the first time, to be reporting in detail on
our ESG impact and the measures we have introduced, demonstrating
our commitment to acting responsibly and contributing to a
sustainable future. Further information on the Group's impact on
society can be found in our ESG engagement report in our annual
report.
The benefits and relevance of our IHT product to the
sustainability agenda are clear and we are confident it will play
an important role in helping our customers meet their own carbon
reduction goals in the future.
Looking ahead
Uncertainty in both the global and UK economies has persisted
into 2021 and this is likely to continue in the near term despite
positive news around the Covid-19 vaccine rollout and, as a result,
we do not expect to see any immediate changes to trading conditions
in the short term.
However, with the strong prospects for growth in our IHT
division and solid foundations through our Advanced PCBs division,
the Board remains encouraged by the medium-term and long-term
outlook as set out at the time of our equity raise in the autumn of
2020 and looks forward to reporting on further progress in due
course.
Ian Griffiths
Chief Executive's Statement
A transformational 12 months
Despite the adverse operational impact of Covid-19, it has been
a transformational 12 months for Trackwise, and the recent major
agreement with an Electric Vehicle manufacturer demonstrates the
significant traction our Improved Harness Technology(TM) is gaining
in the market. It is our firm intent that this is just the
start.
We are delighted by the support shown by new and existing
investors, providing us with the means to deliver against our
growing pipeline of revenue opportunities across our primary target
markets of EV, Medical and Aerospace, thereby maximising our
long-term growth potential.
This was a very successful year at a strategic level - with two
fundraises, the acquisition and integration of Stevenage Circuits
and the signing of the transformational multi-year production deal
with the UK EV OEM. At an operational level, 2020 was a challenging
year due to Covid-19 impacts on our customers, our suppliers and
ourselves, but we successfully navigated the challenges and ended
the year on a sound footing, with an enlarged operation, growing
customer base and well-capitalised business.
I would very much like to thank all our stakeholders, our
supportive shareholders, both new and existing, our customers and
suppliers - and above all our staff. As manufacturers we have
largely been 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 been met collectively with stoicism and understanding: Thank
You.
Covid-19
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.
The internal changes that we had to make, in order to minimise
risks while continuing operations, have decreased our efficiency
and increased costs of working, but the more significant Covid
impacts have come from external sources - from our suppliers and
customers.
While the wider supply chain continued to operate more-or-less
normally through the pandemic, Trackwise took delivery of a key
piece of capital equipment from a French supplier, just as the
first lockdown was put into place. This resulted in the
installation and commissioning of the state-of-the-art roll to roll
direct imaging ("DI") machine, the first of its kind made by the
supplier, falling onto Trackwise - assisted only remotely by the
French supplier. Given the complexity of the equipment and the
challenging products that Trackwise is seeking to manufacture on
it, this turned out to be a time consuming and resource intensive
exercise. While the delays in commissioning this key equipment
resulted in increased costs of working and delays in product
development, I am pleased to advise that the equipment is now fully
commissioned and functioning as planned. It is a very performant
piece of equipment and we are discussing with the supplier the
specification for a further machine to be installed in our new
site, the details of which are outlined in the strategic focus
section of this review.
The impacts of Covid upon markets and customers is addressed
further below but, as a very general overview, managing existing
relationships has happened satisfactorily, whereas establishing or
progressing new relationships has been less easy, and subject to
delays.
Covid is an additional risk the company now has to factor and I
would draw your attention to the Risk review in our Annual Report
and in particular the heightened attention the Board is giving to
certain areas, cybersecurity, customer concentration, the impact of
Covid and the risks associated with the establishment of our new
site at Stonehouse.
Stevenage Circuits Ltd
In April 2020 we were pleased to advise of the completion of the
acquisition of Stevenage Circuits Ltd and again we thank our
existing and new shareholders who supported us in our March 2020
fundraise at a very difficult time in the financial markets.
SCL is an established manufacturer of a full suite of Advanced
PCBs (Microwave and RF, Short Flex, Flex Rigid and Rigid multilayer
products) and complements well the existing capabilities of
Trackwise.
We are delighted with the acquisition - we have gained an
experienced and motivated team with a good reputation, serving a
broad customer base. I would personally like to acknowledge our CFO
Mark Hodgkins' significant contribution to this transaction;
bringing the full benefit of his extensive M&A experience to
acquire a good business at a good price.
The prospect and process of acquisition is always a period of
uncertainty for the acquired company - especially the employees -
but they have responded brilliantly to being part of a growing
public group after two generations of family ownership. With Covid
and Brexit landing in the same year as the acquisition, it has been
a challenging year for all at Stevenage Circuits.
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 and change.
Since the acquisition - and despite Covid constraints - we have
successfully integrated the two businesses and completed the
transfer of non-IHT (RF) manufacturing from Ashvale to the
Stevenage site. The reorganisation fulfils our strategic plan
whereby Ashvale is dedicated to being an engineering led, product
development, new product introduction facility for Improved Harness
Technology(TM), the long-term growth driver in the business. We are
looking forward to driving forward the group - significantly
strengthened by the SCL acquisition.
Improved Harness Technology (IHT)
There has been significant and sustained growth in all three key
verticals during 2020. 23 non-disclosure agreements have been
signed (eight aerospace, five automotive, nine industrial, one
space), demonstrating there is keen interest for IHT across the
board. Of these, six have already converted into customers,
bringing the total number of IHT customers to 31 at the year
end.
In the first five months of 2021 there have been three new
medical companies sign non-disclosure agreements and one has
already been converted to a customer.
Electric Vehicles (EV)
Trackwise announced in September that it had secured a
multi-year Product Manufacture and Supply Agreement with a UK EV
OEM. This is a transformational deal.
The OEM is building electric vans and buses - as well as other
commercial vehicles. All of 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 of
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 the Bus, with parts for further vehicles under
discussion.
The OEM is to build its vehicles in modular microfactories
rather than a single centralised location - these are relatively
small 100Ksqft modular facilities built close to the
end-customer.
Trackwise has done very well to secure this landmark contract
with a world-leading UK OEM. With its roll out of microfactories
globally, the OEM's demand for these parts is going to be
significant.
There is a wider opportunity in the developing UK & European
EV supply - the output of any UK Gigafactory will need to be built
into UK battery modules, UK battery packs and UK EVs.
Trackwise is very well positioned - both with key technology and
with first mover advantage - to capitalise on this wider
opportunity. There is a strong drive to build a UK EV supply chain
and our UK EV OEM contract win has greatly raised Trackwise's
profile in the industry.
It is clear that the rapidly emerging EV sector is a key growth
opportunity for Trackwise and IHT.
Aerospace
Covid has had a very significant impact upon the global aviation
industry with a huge drop-off in air travel; the International
Airport Transport Association (IATA) predicts the UK aviation
industry faces a loss of revenue of up to GBP20 billion in 2020. We
will have to wait to see what shape of industry emerges from this
huge shock - for example the demise of larger aircraft, not just
the Boeing 747 and Airbus A380, but perhaps also twin-aisle
aircraft as a whole. However, what is certain is that the industry
is also facing substantial pressure to grow back greener and
address sustainability along the whole aviation value chain.
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.
We are working with a significant number of participants working
towards zero-emission aircraft and note the recent announcement by
Airbus of their ZERO-E concepts. Whilst zero-emission commercial
aircraft might seem a far-off prospect our development work with
GKN (where we announced a Collaboration Agreement in August 2019),
is also targeted at more-electric aviation - the evolution of
existing platforms to improve the efficiency of current
aircraft.
GKN's parent company, Melrose plc, remains committed to
industrialising the wing de-icing and air inlet scoop products on
which we are cooperating. After several years of earlier
development work Trackwise signed an Industrialisation Agreement
with GKN in 2019; this Industrialisation represents the final step
prior to entry into service.
This development (a consortium lead by GKN Aerospace) is
receiving UK plc support; in the second half of our 2020 financial
year Trackwise received confirmation of an InnovateUK grant, a
GBP770K contribution towards taking IHT to 'TRL6' - a technology
readiness milestone that effectively enables the product to be sold
into mainstream programmes. GKN Aerospace, through Fokker
Technologies, is a leading player in design, manufacturing and
support for the electrical wiring interconnection systems (EWIS)
for Aerospace and Defence programs. This development work is not
recognised as revenue in the accounts but represents 'income' of
GBP70K in 2020, with budgets of GBP150K for 2021 and GBP350K for
2022.
Aside from GKN, 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,
and high altitude pseudo-satellites.
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.
While current and near-term revenue will remain developmental in
nature, a clear path to production programmes is emerging. Several
programmes are indicating an entry into service in two to three
years. Trackwise and IHT must be ready for these customers - and
for this reason the timely progression of IHT to TRL6 is key.
Medical
IHT's use in medical catheters is a large scale opportunity.
Essentially Trackwise and IHT can provide long, narrow flex PCBs to
replace multiple micro-wires, very small gauge wires that are
currently used to connect remote (distal) electronics through the
patient and out to the surgeon. These micro-wires are difficult to
handle and assemble quickly and reliably into finished catheters.
The improvement therefore offered by IHT is largely ease of
manufacture.
While far from all catheters embody distal electronics, the
image in our Annual Report shows the very large size, and rapid
growth of the US catheter market.
The period under review saw delays, due to DI commissioning
delays, but good progress in developing IHT for medical catheter
applications, intravascular ultrasound and electrophysiology.
These are challenging products to manufacture - large format (up
to several metres on 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.
Our current focus is to support OEMs as they progress these
products through their design verification phase and into
production.
Marketing efforts continue to promote IHT capability to catheter
manufacturers worldwide; including Trackwise's white paper 'IHT
Technology Ready to Enable the Next Generation of MIS
Instruments'.
Industrial, Scientific & Space
While our focus remains on our three core verticals - IHT has
application across a very wide range of markets and applications.
Our CERN contract for the Large Hadron Collider HiLumi upgrade has
been successfully completed during the period but I highlight here
three interesting IHT customers that reflect the diversity of
opportunity. These are just a few highlights of many:
-- Nuclear fusion; IHT parts being supplied to a UK OEM without
question represent the largest multilayers ever made - a capability
directly enabled by the investments made since IPO. Our customer
recently presented their technology at the Applied
Superconductivity Conference and all of the questions were
regarding the part supplied by Trackwise. We are currently
supplying parts into their latest reactor build; a GBP250K
contract. Revenue will remain lumpy - but is expected to grow by
orders of magnitude as they move towards their goal 'To generate
clean and abundant fusion power by 2030.'
-- Oil pipeline leak detection; our first application for long PCBA - assembled PCBs.
-- Advanced motor windings; a quote from our customer states
'Constructed from flexible printed circuits, the motors can be up
to 50% more compact, 70% more dynamic, with 3 times fewer heat
losses and assembled 10 times faster than most of the existing
solutions using conventional windings made from copper wire.' This
has the potential to be a very large scale opportunity.
Advanced PCBs
While SCL has been under Trackwise ownership for only nine
months of the period, we have completed the transfer of RF
manufacturing from Ashvale to Stevenage and the Stevenage site now
manufactures all the group's non-IHT products, together labelled
'Advanced PCBs'.
SCL is an established manufacturer of a full suite of Microwave
and RF, Short Flex, Flex Rigid and Rigid multilayer products, for a
very wide range of customers - serving a very wide range of
industries.
Given this breadth of supply, a concise market assessment is not
straightforward - particularly when sales to intermediary companies
are considered; PCB 'buyers', who sit between customers and the
supply chain.
The 2020 top three customers, together represent 36% of the
advanced PCB division's full year revenues:
-- ION Science Ltd: ION Science has over 30 years of industry
experience designing, manufacturing, and supplying gas sensors, gas
detection instruments, and leak detectors for a wide range of
industries and applications. SCL business with ION Science grew in
2020 and is expected to grow further in 2021.
-- Qualcomm Technologies International Ltd: Sales to this global
telecommunications customer were broadly flat in 2020.
-- Fineline QPI BV: Fineline Group was established after a
merger between Fineline GmBH (est. 1991) and Aviv PCB &
Technologies (est. 2002) in 2007. Fineline is a worldwide provider
of Printed Circuit Boards (PCBs) with local presence in 40
locations and 250+ employees. SCL supplies their Netherlands
business with Advanced PCBs for Medical and Scientific customers.
SCL business with Fineline QPI grew in 2020.
There are some global shortages of (Dupont) PCB copper clad
laminates and our major customers (CEMs) are seeing component
lead-times increasing, which is causing some short-term delays to
business opportunities. We are working closely with our customers
to manage this situation.
Strategic focus for the year ahead
Ashvale was always intended as an engineering led, product
development, new product introduction facility and with the
acquisition of Stevenage Circuits and the transfer of RF production
to Stevenage, Trackwise has secured additional capacity. The focus
of the development team is to continue to bring the myriad of IHT
developments through to production.
The scale of the UK EV OEM contract, and the wider supply chain
opportunities, means that we have had to secure additional
manufacturing capacity. Executing plans for the new facility is the
key strategic task for 2021.
Planning for the new facility is well underway; we have secured
the services of an interim project management team to assist with
detailed planning and execution of the new site; quotes and
confirmed lead times for long lead capital items have been secured;
and we have recently hired a Chief Operating Officer. Steve
Hudson's priority will be to pick up planning, implementation of
the new site from the interim team - leading it through to
commissioning and transfer of production from Ashvale, before
moving 'up' to a group operations role, overseeing the three group
manufacturing sites.
If the UK EV OEM does deliver upon its global ambitions, its
global demand for HVBM flex PCBs will rapidly exceed the output of
the new facility. The strategic intent is that the new facility is
the blueprint for future production plants - located wherever in
the world they may be needed.
Carbon
As part of a growing acceptance that we all need to take our
part in reducing the carbon impact of our ongoing operations, we
report this year for the first time our Operational Footprint.
Measurement is an important precursor to reduction - 'what gets
measured, gets managed' - and future reports will identify progress
towards reducing the carbon impact of our operations.
Two out of our three primary target markets - EV and Aerospace -
are undergoing fundamental change (the UK aviation industry has
pledged to cut its net carbon emissions to zero by 2050) 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.
We continue to market Improved Harness Technology(TM) as a
carbon reduction technology.
Current trading and outlook
The impact of the Covid pandemic has affected global economic
activity, leading to a slow-down in investment activity across our
markets. However, we are seeing a growing number of IHT enquiries
and have converted an increasing number of those enquiries into
customers which supports our growing confidence for the future.
What has become clear during the early part of 2021 is evidence
of increasing supply chain stress, with increased prices and
lengthening delivery timescales for a number of key raw materials.
Sales have not been lost but this is impacting our ability to
complete some orders on a timely basis in both our Advanced PCB and
IHT divisions.
We have continued to work with our UK EV OEM customer on
development improvements to the products we will be producing for
them. As a result, it is now anticipated that our volume
production, initially expected towards the end of 2021, will begin
in early 2022.
Combined, these factors above will have an impact on revenues in
2021, although some will be offset by new business from other
smaller customers as well as a continued focus on cost
controls.
We are making progress with preparing our new manufacturing
facility, with fit out underway and long lead capital items
ordered, and we are confident that this plant will be ready for
manufacture of the expected volumes. Capacity is being implemented
in the new manufacturing facility in excess of the UK EV OEM
forecast volumes and the layout accommodates planning for future
capacity expansion that can be implemented in the event of future
contract wins.
Trackwise's active discussions with a number of EV OEMs and Tier
1 suppliers supports our belief that flex PCBs will be adopted
widely as a solution for battery module and battery pack
interconnect across all cell formats and we are confident of strong
future activity in this sector, as well as in our other
markets.
Philip Johnston
CFO's Statement
The strategic and operational progress reported, is also
reflected in our financial position. During the year we completed
two equity raises with support from our shareholders and
successfully acquired Stevenage Circuits Limited at a commercially
attractive price.
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 tight
control over costs. Management focus on a number of KPIs to assess
its performance and the progress of the business. The key
performance indicators the management use are: Year on year sales
growth, operating margin and EBITDA.
In the year under review these KPIs, measured to last year, are
as follows:
2020 2019
Year on Year Sales growth 108.8% (16.2%)
Adjusted Operating Margin
(note 25) (3%) (1.7%)
Adjusted EBITDA (note 25) GBP773K GBP573K
These performance figures show improving trends over the year
under review that have been positively impacted by the acquisition
of Stevenage Circuits Limited (SCL). We acquired SCL on terms that
gave rise to an excess of asset value over the purchase price,
leading to a profit on acquisition. This profit has been taken to
the profit and loss account and represents an exceptional profit of
GBP1.64M (note 23).
The most significant transformation financially, was in the
development of the balance sheet which reflects at 31 December 2020
shareholders' funds of GBP24.76M which is a 310% increase over the
previous year.
This improvement is the consequence of two equity raises during
the year which raised GBP18.5M, which has enabled us to make
significant capital investment of GBP2.21M in productive capacity
and capability during the year and plan for further significant
investment in 2021 of approximately GBP9.0M.
Our balance sheet is strong and its expansion has aided greatly
in supporting the growth of the business enabling the Group to cope
with the stresses of both Brexit and Covid-19 whilst at the same
time being able to execute as much as possible on our long term
growth plans.
At the end of the year we had net cash balances excluding IFRS16
lease liabilities of GBP11.35m (2019 net debt GBP0.30m).
As a consequence of the series production order received from
the UK based EV OEM in September the final quarter of the year gave
rise to a significant increase in development costs which have been
capitalised and which has led to an increase in intangible assets
of GBP2.21M. This level of development expenditure whilst large
does support a tax credit in cash of GBP390K which assists in the
funding of this investment which will be recovered in full from the
subsequent sales of product under the supply agreement with the EV
OEM. Our accumulated development costs are amortised in accordance
with our accounting policies (Note 2).
Cash flow
The trading environment in 2020 was impacted by the pandemic and
that reduced revenues which in turn impacted our trading cash
inflows. However, we continued with the development of IHT which
formed a large part of our activities given the opportunities the
Group has across a range of markets.
Since the acquisition of Stevenage Circuits the business has
been trading cash positively, though below levels anticipated
before the acquisition, due to the impacts of the pandemic. We have
made some improvements to employee facilities since acquisition
which were planned pre acquisition. We have made some capital
equipment improvements and we have made some repairs to the
building which again were all costed prior to acquisition and were
anticipated. These costs are now complete and we expect Stevenage
Circuits to be cash positive from hereon.
Trading performance
Revenues were subdued and it proved to be a very difficult
period within which to plan. The impact of the lockdowns on
economic activity were well trailed and both of the Group's trading
units felt the effect of reduced trading activity which manifested
itself in an adjusted operating loss for the year of GBP(185K),
compared to an adjusted profit in 2019 of GBP258K.
However, the acquisition of Stevenage Circuits was completed at
a significant discount to the value of the assets that were
acquired and this gave rise to a credit to reserves of GBP1.64M and
whilst there were other exceptional costs the Company has reported
a post-tax profit of GBP1.23M for the year as a whole. Our results
have been supported by a sizeable R&D tax claim which will also
be the case in 2021 though we expect this credit to begin to reduce
as we move more towards series production compared to development
activity.
Reported Profit after taxation of GBP1.23m (2019: Loss After
Taxation GBP48k) means the Group is reporting a Diluted Earnings
per Share of 5.70 pence (2019: Diluted Loss per Share of 0.32
pence).
Financial Planning for the future
We have operated in some very uncertain times during the year
under review and have had to place even more focus on short term
planning routines and the focus on tight control of all costs. As
we come out of the sharp recession of 2020, we are facing improving
demand, but we remain cautious about the lasting impacts of the
pandemic. We are seeing increasing supply chain stress and
lengthening delivery times which could have impacts on demand later
in the year. We have seen particular problems with the supply of
copper laminate which could cause supply problems later on. The
lockdowns will cause further supply difficulties during the year
and may impact output.
Coronavirus Solvency Review
The pandemic impact on the economy continues to cast a shadow
over liquidity and solvency throughout business generally. To
address this, management have carried out an assessment of the
economic impact of Coronavirus upon the near-term results and the
suitability of the assumption that the business remains a going
concern, this has been particularly important as a consequence of
the lockdown in early 2021.
In the immediate short term the Group have purchase orders to
support the trading plans to the end of July/Aug and we have
maintained our plans for this period. Post that period we have
maintained our revenue plans for SCL as the industry seems to be
recovering fast from the pandemic. Our IHT business is underpinned
by our OEM EV business though we have modelled the impact of some
of that business being moved into later months. The significant
risk to these assumptions is that material supplies become
unavailable, though there is no evidence of this at the time of the
review. Any shortage of supply would impact August through
October.
We therefore modelled the assumption that we were to suffer 3-6
months' worth of supply restrictions, May through November, to
reflect a slower supply chain and also that IHT revenues will be
delayed by three months.
As a consequence of applying these stresses, management remain
confident that the Group has sufficient working capital resources
to meet its commitments with a satisfactory level of headroom.
Results and Dividend
Reported Profit after taxation of GBP1.23m (2019: Loss After
Taxation GBP48k) means the Group is reporting a Diluted Earnings
per Share of 5.70 pence (2019: Diluted Loss per Share of 0.32
pence). The Board set out its dividend policy last year 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 2020.
Mark Hodgkins
Chief Financial Officer
Consolidated Statement of Comprehensive Income and Equity
For the year ended 31 December 2020
Notes 2020 2019
GBP'000 GBP'000
Revenue 3 6,068 2,906
Cost of sales (4,350) (1,805)
Gross profit 1,718 1,101
Administrative expenses excluding
exceptional costs and share
based payment (1,903) (900)
Exceptional costs (128) (28)
Share based payment charge 4 (228) (224)
-------- ------------
Total administrative expenses (2,259) (1,152)
-------- ------------
Operating loss 4 (541) (51)
Negative goodwill arising
on acquisition 23 1,642 -
Acquisition expenses 23 (226) -
Exceptional integration costs (278) -
Finance income 6 4 5
Finance costs 6 (195) (83)
Profit/(loss) before taxation 406 (129)
Taxation 7 828 81
Profit/(loss) and total comprehensive
income for the year 1,234 (48)
======== ============
Earnings per share (pence)
Basic 8 5.96 (0.32)
-------- ------------
Diluted 8 5.70 (0.32)
-------- ------------
.
Consolidated Statement of Financial Position
For the year ended 31 December 2020
Notes 2020 2019
GBP'000 GBP'000
ASSETS
Non-current assets
Intangible assets 9 6,482 4,268
Property, plant and equipment 10 8,175 2,547
-------- --------
14,657 6,815
-------- --------
Current assets
Inventories 12 2,010 555
Trade and other receivables 13 1,752 1,657
Current tax receivable 804 338
Cash and cash equivalents 13,930 567
-------- --------
18,496 3,117
-------- --------
Total assets 33,153 9,932
======== ========
LIABILITIES
Current liabilities
Trade and other payables 14 (1,956) (1,046)
Borrowings 15 (1,055) (339)
-------- --------
(3,011) (1,385)
-------- --------
Non-current liabilities
Deferred income - grants 14 (910) (856)
Borrowings 15 (4,078) (1,253)
Deferred tax liabilities 17 (206) (401)
Provisions (79) -
-------- --------
(5,273) (2,510)
-------- --------
Total liabilities (8,284) (3,895)
======== ========
Net assets 24,869 6,037
======== ========
EQUITY
Share capital 19 1,137 591
Share premium account 20,989 4,234
Retained earnings 2,615 1,045
Revaluation reserve 128 167
Total equity 24,869 6,037
======== ========
Parent Company Statement of Financial Position
For the year ended 31 December 2020
Notes 2020 2019
GBP'000 GBP'000
ASSETS
Non-current assets
Intangible assets 9 6,467 4,268
Property, plant and equipment 10 3,471 2,547
Investments 11 2,172 -
-------- --------
12,110 6,815
-------- --------
Current assets
Inventories 12 593 555
Trade and other receivables 13 2,727 1,657
Current tax receivable 530 338
Cash and cash equivalents 13,382 567
-------- --------
17,232 3,117
-------- --------
Total assets 29,342 9,932
======== ========
LIABILITIES
Current liabilities
Trade and other payables 14 (631) (1,046)
Borrowings 15 (677) (339)
-------- --------
(1,308) (1,385)
-------- --------
Non-current liabilities
Deferred income - grants 14 (910) (856)
Borrowings 15 (1,673) (1,253)
Deferred tax liabilities 17 (206) (401)
-------- --------
(2,789) (2,510)
-------- --------
Total liabilities (4,097) (3,895)
======== ========
Net assets 25,245 6,037
======== ========
EQUITY
Share capital 19 1,137 591
Share premium account 20,989 4,234
Retained earnings 2,991 1,045
Revaluation reserve 128 167
Total equity 25,245 6,037
======== ========
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 profit for the parent Company for the year was
GBP1.61M including dividends receivable of GBP2M from the
subsidiary (2019: loss of GBP48K).
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Share Share Retained Revaluation Total
capital premium earnings reserve equity
account
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2019 591 4,234 840 206 5,871
Loss and total
comprehensive income
for the year - - (48) - (48)
Share based payment - - 214 - 214
Revaluation realised
in year - - 39 (39) -
At 31 December
2019 591 4,234 1,045 167 6,037
--------- --------- -------------- ---------------- ------------
Profit and total
comprehensive income
for the year - - 1,234 - 1,234
Share based payment
- - 263 - 263
Revaluation realised
in the year - - 39 (39) -
Prior year tax
adjustment 34 34
Shares issued in
the year 546 16,755 - - 17,301
At 31 December
2020 1,137 20,989 2,615 128 24,869
----------------------- ------ --------- -------- ------ ---------
Parent Company Statement of Changes in Equity
For the year ended 31 December 2020
Share Share Retained Revaluation Total equity
capital premium earnings reserve
account
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2019 591 4,234 840 206 5,871
Loss and total comprehensive
income for the year - - (48) - (48)
Share based payment - - 214 - 214
Revaluation realised
in year - - 39 (39) -
At 31 December 2019 591 4,234 1,045 167 6,037
--------- --------- ---------- ------------ -------------
Profit and total
comprehensive
income for the
year - - 1,610 - 1,610
Share based payment
- - 263 - 263
Revaluation realised
in the year - - 39 (39) -
Prior year tax
adjustment 34 34
Shares issued
in the year 546 16,755 - - 17,301
At 31 December
2020 1,137 20,989 2,991 128 25,245
----------------------- ------ ------- -------- ------ --------
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
Notes 2020 2019
GBP'000 GBP'000
Cash flow from operating
activities
Profit/(loss) for the year
before taxation 406 (129)
Adjustment for:
Negative goodwill credit (1,642) -
Employee share based payment
charge 263 224
Depreciation of property,
plant & equipment 4 693 225
Amortisation of intangible
assets 9 265 183
Net finance costs 6 191 78
Changes in working capital:
(Increase) in inventories 11 (584) (175)
(Increase) in trade and other
receivables 374 (268)
Increase in trade and other
payables (362) 496
---------- ----------
Cash (used in)/generated
from operations (396) 634
Income tax received 669 21
---------- ----------
Net cash from operating activities 273 655
---------- ----------
Cash flow from investing
activities
Purchase of property, plant
and equipment (911) (951)
Purchase of intangible assets 9 (2,246) (1,736)
Purchase of new subsidiary
(net of cash acquired) 23 (1,628) -
Grant received 109 175
Interest received 4 5
---------- ----------
Net cash used in investing
activities (4,672) (2,507)
---------- ----------
Cash flow from financing
activities
Share capital issued 18,492 -
Expenses relating to share (1,191) -
capital issue
Interest paid (195) (83)
Lease payments 15 (87) (89)
Advance of hire purchase
finance against assets already 1,139 -
purchased
Repayment of capital element
of hire purchase contracts 15 (396) (195)
---------- ----------
Net cash from/(used in) financing
activities 17,762 (367)
---------- ----------
Increase/(decrease) in cash
and cash equivalents 13,363 (2,219)
Cash and cash equivalents
at beginning of the year 567 2,786
---------- ----------
Cash and cash equivalents
at end of year (all cash
balances) 13,930 567
---------- ----------
The cash outflow in respect of purchase of property, plant and
equipment include the payment of any related
deposits included in prepayments until the asset is
acquired.
Notes to the Financial Statements
For the year ended 31 December 2020
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 Group is 1 Ashvale, Alexandra Way,
Ashchurch, Tewkesbury, Gloucestershire, GL20 8NB.
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 Technology(TM),
Microwave and RF, short flex, flex rigid and rigid multi-layer
boards.
2. Accounting policies
2.1 Basis of preparation
Statement of compliance
The Financial Statements have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006.
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.
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 incorporated elevated stress tests to meet the
impacts of Covid 19 as set out in the CFO report on page 21. 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
Parent 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") 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 judgements, 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 judgements 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.
Goodwill and fair values
Business combinations require a degree of estimation in respect
of the fair value of identifiable assets acquired and the
liabilities assumed at the acquisition date. (Note 23)
Property, plant and equipment
Management have estimated the useful life of assets 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 10)
Share Based Payments
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
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 2.14).
Intangible assets
Management have used their judgement in respect of the
capitalisation of development costs. 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)
Amortisation commences once management consider that the asset
is available for use, i.e. when it is judged to be in the location
and condition necessary for it to be capable of operating in the
manner intended by management and the cost is amortised over the
estimated useful life of the know-how based on expected customer
product cycles and lives.
2.2 Revenue
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.
IV. 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 is 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
The Group operates an equity-settled share-based compensation
plan in which the Group receives services from employees as
consideration for share options. The fair value of the services is
recognised as an expense, determined by reference to the fair value
of the options granted.
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.
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; and,
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.
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.
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) is 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:
Leasehold improvements Straight line over the period of the
lease
Plant and machinery 10-33% straight line
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 company 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.
Hire purchase arrangements
The Group engages in Hire Purchase arrangements for which the
lease is supported by the underlying value of the asset being
leased. Hire Purchase arrangements are accounted for in accordance
with the Leasing policy set out above.
Operating 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 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 Company 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 asset's
or cash-generating unit's recoverable amount exceeds its carrying
amount.
2.13 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.
2.14 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 Company 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.
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 Company 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.
2.15 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.
2.16 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. Foreign currency monetary
assets and liabilities are translated at the rates ruling at the
reporting date. Exchange differences arising on the retranslation
of unsettled monetary assets and liabilities are recognised
immediately in the Statement of Comprehensive Income.
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.
2.17 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.
2.18 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 ("CODM") is considered to be the Board of
Directors.
The Group's RF and IHT activities for the sale of printed
circuit boards are separately reviewed and monitored. Revenue of
GBP5.46M (2019: GBP1.96M) arose from RF and GBP601K (2019: GBP938K)
from IHT in the year ended 31 December 2020. The operating segments
are monitored by the CODM, and strategic decisions are made on the
basis of adjusted segment operating results.
Due to the shared nature of operations during the period under
review it is not possible to provide a segmental analysis by RF and
IHT of assets and liabilities, with the exception of the intangible
development costs and deferred grants which are solely in respect
of IHT.
All assets, liabilities and revenues are located in, or derived
from, the United Kingdom.
Turnover by geographical destination 2020 2019
GBP'000 GBP'000
UK 3,693 1,046
Europe 1,688 1,332
Other 687 528
6,068 2,906
======== ========
No one customer represents more than 10% of group turnover for
the accounting period under review and the top 4 customers
accounted for 24.1% of Group turnover in 2020.
Operating loss by geographical 2020 2019
destination
GBP'000 GBP'000
UK (329) (18)
Europe (150) (23
Other (62) (10)
(541) (51)
======== ========
4 Operating loss
2020 2019
GBP'000 GBP'000
Operating loss is stated after
charging/(crediting):
Government job retention scheme (16) -
income
Amortisation of deferred grant
income (53) (42)
Amortisation of intangible assets 265 183
Depreciation of property, plant
and equipment (net of GBP222,000
of capitalised development costs,
2019: GBP100,000) 446 132
Depreciation of right of use
assets 247 93
Cost of inventory sold 1,907 937
Foreign exchange (gains)/loss (27) 57
Severance costs - 28
Share based payment charges 229 224
Staff payroll costs (net of capitalised
development costs) 2,515 1,431
Exceptional costs
Non recurring set up costs for 128 -
new customer
The Auditors remuneration for audit services was GBP35K for the
Company and GBP25K for subsidiary undertakings (2019: GBP30K for
the Company) and GBPNil for non-audit services (2019: GBPNil).
5 Staff and key management personnel
Group Company Group
Average monthly number of and Company
employees 2020 2020 2019
Number Number Number
Management and administration 28 15 14
Production 68 37 34
-------- -------- -------------
96 52 48
-------- -------- -------------
Payroll costs GBP'000 GBP'000 GBP'000
Gross salaries 3,303 2,095 1,775
Social security costs 332 222 174
Share based payment 272 272 224
Other pension contributions 120 85 63
-------- -------- -------------
4,027 2,674 2,236
-------- -------- -------------
The Directors' and key management remuneration were as
follows:
Year ended 31 December Salary Benefits Pension Total
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
------------------------ -------- --------- -------- --------
Year ended 31 December 2019 Salary Benefits Pension Total
GBP'000 GBP'000 GBP'000 GBP'000
P Johnston 185 22 7 214
M Hodgkins 146 16 - 162
I Griffiths 44 - - 44
L Jackson 34 - - 34
----------------------------- -------- --------- -------- --------
409 38 7 454
----------------------------- -------- --------- -------- --------
6 Finance income and expense
2020 2019
GBP'000 GBP'000
Finance income
Interest receivable and similar
income 4 5
-------- --------
Finance expense
Interest payable on loans and 3 -
overdrafts
Interest payable on leasing obligations 63 32
Interest payable in respect of
right of use assets 129 51
-------- --------
195 83
-------- --------
7. Income tax
2020 2019
GBP'000 GBP'000
Current tax:
UK corporation tax 547 134
Adjustment for prior periods 86 40
Total current tax credit 633 174
Deferred tax:
Origination and reversal of temporary
differences 297 (68)
Change in rate from 17 to 19% (53) -
Adjustment for prior periods (49) (25)
-------- --------
Total deferred tax expense 195 (93)
Total tax credit 828 81
-------- --------
The tax rate used for the reconciliation is the corporate tax
rate of 19% (2019: 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 remains at 19% rather than the
previously enacted reduction to 17%. In March 2021 it was announced
that the rate of corporation tax is expected to increase to 25%
from April 2023 which would affect future tax charges. The tax rate
used to calculate deferred tax is the enacted rate of 19% (2019:
17%), 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 profit/(loss)
for the year as follows:
2020 2019
GBP'000 GBP'000
Profit/(loss) before taxation 406 (129)
-------- --------
Income tax calculated at 19% (77) 25
(2019: 19%)
Negative goodwill credit not taxed 312 -
Disallowable expenses including
share-based payment (101) (20)
Deferred tax in respect of share 440 -
options
Enhanced research and development
allowances 471 94
Deferred tax not recognised (29) -
Adjustment for prior periods 37 15
Change in deferred tax rate (53) -
Differing deferred tax and R&D
tax credit rates (172) (33)
Total tax credit 828 81
-------- --------
In addition to the tax credit, a further development expenditure
tax related credit of GBPnil (2019: GBP29K) is included in
operating expenses. 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
GBP440K credit arises in the year as a result of the year end share
price of GBP3.22.
8 Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data :
Earnings 2020 2019
GBP'000 GBP'000
Earnings for the purpose of basic
and diluted earnings per share
being net profit attributable
to the shareholders 1,234 (48)
-------- --------
Number of shares 2020 2019
Weighted average number of Ordinary
Shares for the purposes of basic
earnings per share 20,687,836 14,772,372
------------- -------------
Weighted average number of Ordinary
Shares for the purposes of diluted
earnings per share 21,659,166 14,772,372
------------- -------------
Earnings per Share (pence)
Basic 5.96 (0.32)
Diluted 5.70 (0.32)
------------- -------------
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.
9 Intangible assets
Group Goodwill Patent Computer Development Total
costs Software costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 January 2019 104 62 89 2,552 2,807
Additions - 14 6 1,816 1,836
Reclassification - - (18) - (18)
--------- -------- ------------------- ------------ --------
As at 31 December
2019 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
--------- -------- ------------------- ------------ --------
Amortisation or Impairment
As at 1 January 2019 - 19 77 92 188
Charge - 5 2 176 183
Reclassification - - (14) - (14)
--------- -------- ------------------- ------------ --------
As at 31 December
2019 - 24 65 268 357
Charge - 5 5 255 265
--------- -------- ------------------- ------------ --------
As at 31 December
2020 - 29 70 523 622
--------- -------- ------------------- ------------ --------
Carrying amount
As at 31 December
2019 104 52 12 4,100 4,268
--------- -------- ------------------- ------------ --------
As at 31 December
2020 104 55 31 6,292 6,482
--------- -------- ------------------- ------------ --------
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 values of the costs capitalised management
include the actual cost of purchase for all materials which are
acquired for product development purposes, they collect daily time
analyses of work performed by design or product engineers which
captures the time spent on development activities which is then
evaluated using a labour rate appropriate for the engineer who has
worked the time and finally an element of direct relevant overhead
cost is incorporated to reflect the additional cost of operating
the developmental department of the Group.
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% (2019: 1%) for the next 5 years and a discount
rate of 12% (2019: 12%). There is significant headroom in the
assessment from a range of reasonable sensitivities.
Government grants
The Company has received aggregate grants from UK and European
government research and development initiatives amounting to
GBP965,005 (2019: GBP908,547) 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.
Company Goodwill Patent Computer Development Total
costs Software costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 January
2019 104 62 89 2,552 2,807
Additions - 14 6 1,816 1,836
Reclassification - - (18) - (18)
--------- -------- ---------- ------------ --------
As at 31 December
2019 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
--------- -------- ---------- ------------ --------
Amortisation or
Impairment
As at 1 January
2019 - 19 77 92 188
Charge - 5 2 176 183
Reclassification - - (14) - (14)
--------- -------- ---------- ------------ --------
As at 31 December
2019 - 24 65 268 357
Charge - 5 5 255 265
--------- -------- ---------- ------------ --------
As at 31 December
2020 - 29 70 523 622
--------- -------- ---------- ------------ --------
Carrying amount
As at 31 December
2019 104 52 12 4,100 4,268
--------- -------- ---------- ------------ --------
As at 31 December
2020 104 55 16 6,292 6,467
--------- -------- ---------- ------------ --------
10 Property, plant and equipment
Group Leasehold Plant Right Right Total
improvements and machinery of use of use
assets assets
- Plant - Buildings
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 January
2019 375 1,047 860 - 2,282
Additions 88 76 626 - 790
On transition
to IFRS 16 - - - 814 814
Reclassification - 18 - - 18
-------------- --------------- --------- ------------- --------
As at 31 December
2019 463 1,141 1,486 814 3,904
Additions 17 318 1,334 - 1,669
On acquisition - 2,257 703 1,914 4,874
Movement - (2,209) 2,209 - -
As at 31 December
2020 480 1,507 5,732 2,728 10,447
-------------- --------------- --------- ------------- --------
Depreciation
As at 1 January
2019 91 713 214 - 1,018
Charge 32 73 127 93 325
Reclassification - 14 - - 14
-------------
As at 31 December
2019 123 799 342 93 1,357
Charge 38 393 237 247 915
Reclassification - (289) 289 - -
As at 31 December
2020 161 903 868 340 2,272
-------------- --------------- --------- ------------- --------
Carrying amount
As at 31 December
2019 340 214 1,272 721 2,547
-------------
As at 31 December
2020 319 603 4,865 2,388 8,175
-------------- --------------- --------- ------------- --------
Included within the carrying amount of the above, are assets
held subject to hire purchase contracts of GBP2.8M (2019: GBP1.18M)
relating to plant and machinery.
Company Leasehold Plant Right Right Total
improvements and machinery of use of use
assets assets
- Plant - Buildings
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 January
2019 375 1,907 860 - 2,282
Additions 88 702 626 - 790
On transition
to IFRS 16 - - - 814 814
Reclassification - 18 0 - 18
-------------- --------------- --------- ------------- --------
As at 31 December
2019 463 2,627 1,486 814 3,904
Additions 17 1,315 1,182 - 1,332
As at 31 December
2020 480 3,942 2,668 814 5,236
-------------- --------------- --------- ------------- --------
Depreciation
As at 1 January
2019 91 927 214 - 1,018
Charge 32 200 127 93 325
Reclassification - 14 0 - 14
-------------
As at 31 December
2019 123 1,141 342 93 1,357
Charge 38 277 204 93 408
As at 31 December
2020 161 1,418 545 186 1,765
-------------- --------------- --------- ------------- --------
Carrying amount
As at 31 December
2019 340 1,486 1,144 721 2,547
-------------
As at 31 December
2020 319 2,524 2,123 628 3,471
-------------- --------------- --------- ------------- --------
Included within the carrying amount of the above, are assets
held subject to hire purchase contracts of GBP2.12M (2019:
GBP1.18M) relating to plant and machinery.
11 Investments
Company
2020
GBP'000
As at 1 January 2020 -
Stevenage Circuits Limited 2,172
--------
As at 31 December 2020 2,172
--------
The Company owns 100% of the share capital 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 and
Company
2020 2020 2019
GBP'000 GBP'000 GBP'000
Raw materials 1,088 384 364
Work in progress 528 130 142
Finished goods 394 79 49
------------- ------------ ---------------
2,010 593 555
------------- ------------ ---------------
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 and
Company
2020 2020 2019
GBP'000 GBP'000 GBP'000
Trade receivables 1,381 370 831
Amounts owed by group - 2,077 -
undertakings
Other receivables - 17 7
Prepayments 371 263 819
-------- -------- ----------
1,752 2,727 1,657
-------- -------- ----------
Trade receivables are stated net of impairment for estimated
irrecoverable amounts of GBP20K (2019: GBP1K). There have been no
material write offs or other material movements in the impairment
provision recognised 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 GBPnil (2019: GBP743K) 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 overdue amounts have been collected
since the year end.
14 Trade and other payables
Group Company Group and
Company
2020 2020 2019
GBP'000 GBP'000 GBP'000
Amounts falling due within
one year:
Trade payables 1,076 434 652
Taxes and social security
costs 318 102 52
Other payables 0 0 51
Accruals and deferred income 319 95 291
Provisions 244 0 -
-------- -------- ----------
1,956 631 1,046
-------- -------- ----------
Amounts falling due after
more than one year:
Deferred income - grants 910 910 856
-------- -------- ----------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair values. Accruals and
deferred income includes a contract liability totalling GBP118K
(2019:GBP139K) in relation to one customer payment received in
advance. During the current period revenue totalling GBP21K (2019 :
GBPNil) was recognised as certain performance obligations were
met.
15 Borrowings
Group Company Group and
Company
2020 2020 2019
GBP'000 GBP'000 GBP'000
Amounts falling due within
one year:
Lease liabilities 187 80 73
Hire purchase contract
obligations 740 469 266
Other short term financing 128 128 -
-------- -------- ----------
1,055 677 339
-------- -------- ----------
Amounts falling due between
one and five years:
Lease liabilities 1,258 411 364
Hire purchase contract
obligations 1,713 1,101 601
-------- -------- ----------
2,971 1,512 965
-------- -------- ----------
Amounts falling due in
more than five years:
Lease liabilities 1,107 161 288
-------- -------- ----------
Total borrowings 5,133 2,350 1,592
-------- -------- ----------
Hire purchase obligations are secured on the specific tangible
fixed assets to which they relate.
Financing activities and movements in total borrowings GBP'000
As at 1 January 2019 518
Cash movements:
Lease payments in respect of right of use assets (89)
Hire purchase contract payments (195)
Interest paid (83)
Non-cash movements:
Interest accrued 83
Lease liability on transition to IFRS 16 814
New hire purchase contracts 544
----------
As at 31 December 2019 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
----------
Group Company Group and
Company
2020 2020 2019
GBP'000 GBP'000 GBP'000
Payments due under lease
liabilities are as follows:
In one year or less 1,314 792 434
Between one and five years 3,649 1,772 873
---------- --------- ------------
In more than five years 1,232 184 306
---------- --------- ------------
6,195 2,748 1,613
----------
Over five years 335
Future finance charges (1,062) (398) (356)
Present value of liabilities 5,133 2,350 1,592
---------- --------- ------------
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's 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 Group 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 Group 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 forward contracts in place 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:
2020 2019
GBP'000 GBP'000
Euro denominated 1,121 178
US dollar denominated (12) 222
-------- --------
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
Directors therefore do not consider that the Group is exposed to a
material risk or sensitivity from fluctuations in interest rates as
all lease liabilities have fixed interest rates. These liabilities
are set out in note 14.
Liquidity risk
The maturity of the Group's financial liabilities including
borrowing facilities detailed above is as set out below. Current
liabilities were payable on demand or to normal trade credit terms
with the exception of hire purchase contract obligations payable
monthly and leases payable quarterly.
Liquidity risk of the business is managed by the preparation of
and monitoring of a rolling weekly cash forecast which is
integrated with a regular review of credit risk exposure (as
detailed above) and the Board level review of three-month rolling
finance facility headroom.
At 31 December 2019 Up to 1-2 years 2-5 years In more
1 year than 5
years
GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables 855 - - -
Lease liabilities 118 120 366
Hire purchase contracts (including
interest) 316 288 405 306
------- --------- --------- -------
1,289 408 771 306
------- --------- --------- -------
At 31 December 2020 Up to 1-2 years 2-5 years In more
1 year than 5
years
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
------- --------- --------- -------
Classification of financial instruments
All financial assets are held at amortised cost and all
financial liabilities have been classified as other financial
liabilities measured at amortised cost with the exception of any
forward currency contracts that exist which are measured at fair
value as a derivative instrument.
Financial assets
2020 2019
GBP'000 GBP'000
Trade and other receivables 1,381 838
Cash and cash equivalents 13,930 567
-------- ---------
15,311 1,405
-------- ---------
Financial liabilities
2020 2019
GBP'000 GBP'000
At amortised cost
Trade and other payables 1,956 855
Lease liabilities 2,552 725
Other short term financing 128 -
Hire purchase contracts 2,453 867
------- -------
7,089 2,447
------- -------
17 Deferred tax liabilities
Group
Liability/(asset) Accelerated Intangible Share Losses Total
in respect of: capital assets Based
allowances Payment
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 31 December
2019 242 407 (48) (200) 401
------------ ----------- --------- -------- --------
On acquisition 345 - - (345) -
Debit/(credit)
to profit or loss 198 265 (445) (213) (195)
As at 31 December
2020 785 672 (493) (758) 206
------------ ----------- --------- -------- --------
There is an unrecognised deferred tax asset in respect of losses
carried forward of approximately GBP460K (2019: GBPnil).
Company
Liability/(asset) Accelerated Intangible Share Losses Total
in respect of: capital assets Based
allowances Payment
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 31 December
2019 242 407 (48) (200) 401
------------ ----------- --------- -------- --------
Debit/(credit)
to profit or loss 225 265 (445) (240) (195)
As at 31 December
2020 467 672 (493) (440) 206
------------ ----------- --------- -------- --------
18 Defined contribution scheme
The Group contributes to personal pension plans for the benefit
of employees. The pension cost charge represents contributions
payable by the Group to the funds.
2020 2019
GBP'000 GBP'000
Contributions payable by
the Group for the year 120 63
-------- --------
19 Share capital
Group and Company 2020 2019
GBP'000 GBP'000
Allotted, called up and fully
paid
28,426,122 (2019: 14,772,372)
Ordinary Shares of GBP0.04
each 1,137 591
------------- --------
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 at GBP2.00 per share 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 (2019: GBPnil).
Analysis of Movements of Shares 2020 2019
in Issue
1 January 14,772,372 14,772,372
Shares issued on 30 March 2020 7,341,250 -
Shares issued on 9 December 6,312,500 -
2020
------------- -------------
31 December 28,426,122 14,772,372
============= =============
20 Contingent liabilities
At 31 December 2020, the Company and Group had no contingent
liabilities (2019: none).
21 Financial commitments
The Company and Group had capital commitments of GBP3.51M at 31
December 2020 (2019: GBP706K) in respect of the investment to be
made in new plant.
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 Group'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 Company 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
2020 2020 2019 2019
Weighted Number Weighted Number
average average
exercise exercise
price price
(p) (p)
Outstanding at beginning
of the year 28 915,360 28 990,015
Forfeited during the year 28 (13,415) 28 (74,655)
Issued during the year 87.5 984,000 - -
Outstanding at the end of
the year 57.5 1,885,909 28 915,360
--------- --------- --------- --------
Of the outstanding options at the reporting date none were
exercisable (2019: none).
Options over 990,015 Ordinary Shares were granted to employees
on 15 June 2018. 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 Ordinary
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. 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 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 GBP1.64M 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 3,013
Right of use property assets 1,914
Intangible assets 11
Inventories 871
Trade receivables and prepayments 1,121
Tax 492
Cash 544
Trade and other payables (1,699)
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 GBP897K 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 GBP226K have been charged as an
exceptional item in the income statement together with GBP278K
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 and acquisition expenses are both
considered highly material and significant non-recurring items.
They are therefore presented below operating loss in the
consolidated income statement.
24 Ultimate controlling party and related party transactions
There was no individual controlling party as at 31 December
2020.
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 and the adjustments so made are set out
below:
Adjusted operating (loss)/ 2020 2019
profit :
GBP'000 GBP'000
Operating loss (541) (51)
Add back share-based payments 228 224
Severance costs - 28
Non recurring set up costs 128 -
for new customer
Exchange loss arising from
contracted rate for Brexit
downside protection - 57
(185)
Adjusted operating (loss)/profit (191) 258
Finance income and expense (27)
======== ========
Adjusted (loss)/profit before
taxation (376) 231
======== ========
The measure of EBITDA is not recognised by IFRS however it
remains an important performance
measure for management.
Adjusted EBITDA: 2020 2019
GBP'000 GBP'000
Operating loss (541) (51)
Depreciation (net of
development cost capitalisation) 693 132
Amortisation 265 183
Share based payments 228 224
Severance costs - 28
Non recurring set up 128 -
costs for new customer
Exchange loss arising
from contracted rate
for Brexit downside -
protection - 57
Adjusted EBITDA 773 573
======== ========
Annual Report and Notice of AGM
Copies of the Annual Report and Accounts for the year ended 31
December 2020, Notice of Annual General Meeting and Form of Proxy
will today be published on the Company's website at
www.trackwise.co.uk and sent to those shareholders that have
requested hard copies. The Annual General Meeting ("AGM") will be
held at 1 Ashvale, Alexandra Way, Tewkesbury, Gloucestershire, GL20
8NB on Wednesday 14 July 2021 at 11:00am. In light of the UK
Government's social distancing measures and guidance on public
gatherings, shareholders will not be able to attend in person, and
further details are included in the Notice of AGM.
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