1.         Corporate information

These unaudited interim condensed consolidated financial statements of Sondrel (Holdings) Plc ("the Company") and its subsidiaries (collectively, the "Group") for the six months ended 30 June 2023 were authorised for issue in accordance with a resolution of the directors on 20^th September 2023

Sondrel (Holdings) Plc (the "Company") is a public limited company, limited by shares, which is listed on the Alternative Investment Market (AIM) of the London Stock Exchange. The Company is incorporated, domiciled and registered in England and Wales, with registration number 07275279. The address of its registered office is Sondrel House, Theale Lakes Business Park, Moulden Way, Sulhamstead, Reading, RG7 4GB.

These unaudited financial statements incorporate the financial information of the Company and its subsidiaries (together referred to as the "Group").

The Group's principal activity is the execution of system-on-chip IC designs, and associated engineering services, with particular focus on AI, video, automotive and IoT related applications. The Company's principal activity is to act as an investment holding company that provides management services to its subsidiaries.

2.         Summary of Significant Accounting Policies

 

2.1.      Basis of preparation

The unaudited interim financial statements in this report has been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") as adopted by the UK. This is consistent with the financial statements for the year ended 31st December 2022. Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ("the Act"). The statutory accounts for the year ended 31 December 2022 have been filed with the Registrar of Companies. The report of the auditors on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act. The group has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing the interim financial information.

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual consolidated financial statements as at 31 December 2022. These unaudited interim financial statements do however present selected explanatory notes to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since 31 December 2022.

Since the 31 December 2022 results were published, management has made a presentational change to re-allocate R&D costs from cost of sales to overheads. The directors believe this permits the reader a better understanding of the true direct costs of generating revenues. Research and Development activity is not directly aligned to sales being made in the period, and therefore the Directors believe including these within cost of sales does not present a fair reflection of the true margin made during the period. This allocation of costs has been applied throughout the current period, and will be adopted by the Group going forward. The figures relating to the six month period to June 2022 also reflect the revised presentation.

2.2.      Going Concern

Notwithstanding the loss from continuing operations for the six month period to June 2023, the directors have prepared the unaudited interim financial information under the going concern basis.

As part of normal business practice, the Group prepares monthly detailed financial forecasts which incorporate year-to-date performance and scenario planning. The Directors have considered the cashflow requirements of the Group and concluded will have sufficient funds to meet its financial liabilities as and when they fall due, for a period of at least 12 months from the date of this report. 

2.3.      Summary of significant accounting policies

(a)        Revenue from contracts with customers

The Group is in the business of providing system-on-chip and associated engineering services. Revenue from contracts with customers is recognised when, in accordance with IFRS 15, control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.

Project revenue

The Group provides services to customers in project arrangements, covering the Design phase, New Product Integration ("NPI") phase and Production phase.

There are situations where contracts with customers for these phases are entered into simultaneously. Where this is the case, and the contracts are negotiated as a package with a single commercial objective, they are accounted for as a single contract.

In order to identify the performance obligations in the contract, the Directors assess the services provided in the contracts and whether they are capable of being distinct and distinct in the context of the contract. The Group has identified that the Design service, NPI service and Production service are separate performance obligations.

Where the contracts with customers contain more than one performance obligation, any discount provided to the customer in the contract is allocated on a proportionate basis over all performance obligations within the contract.

When project contracts contain only one performance obligation, and are not combined with other performance obligations, the contracts with customers are for fixed price consideration with no variable components.

The Group does not enter into any arrangements with customers which include a significant financing component.

The service provided to customers does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed at contracted rates which include cost plus a reasonable profit margin. Therefore, the Group recognises revenue from these performance obligations over time.

In order to determine a measure of progress of satisfaction of the Design and NPI performance obligations, the Group uses the input method based on time incurred, as this best reflects the progress of satisfaction of the performance obligations and the delivery of the output to the customer.

Contract variations are treated as modifications, as there is only one performance obligation to the design phase of a contract, any variations to scope cannot be distinct and are recognised on a cumulative catch-up basis.

Consultancy revenue

The Group provides consultants to provide services to customers. Each of these consultancy arrangements are separate performance obligations. The customer simultaneously receives and consumes the benefits provided by the Group's performance and so the Group recognises revenue for this performance obligation over time.

The majority of contracts with customers are for fixed price consideration with no variable components. Certain contracts contain fixed rebates payable to the customer for which no distinct service is provided to the Group. These rebates constitute a form of variable consideration and are recognised as a reduction to the revenue. 

The Group had one arrangement with a customer which involved the withholding of a retention until completion of the project. The arrangement provided the customer with protection for the Group failing to adequately complete obligations under the contract. Therefore, this is not accounted for as a significant financing component. As this is a contractual payment term, revenue is recognised in full as the Group performs, with a contract asset recognised for the retention element. In order to determine a measure of progress of satisfaction of the performance obligation, the Group uses the input method based on time incurred, as this best reflects the progress of satisfaction of the performance obligation.

 

Warranties

The Group provides warranties to customers that ensure that the products comply with agreed-upon-specifications.  The warranty arrangements are not recognised as separate performance obligations because they cannot be purchased separately and do not provide the customer with a service in addition to the assurance that the product complies with agreed-upon specifications. A provision is recognised for warranty claims when they meet the recognition criteria.

Contract balances

Contract assets / receivables

A contract asset is initially recognised for revenue earned from services in advance of an invoice being issued where the Group does not have an enforceable right for payment for work performed. Where the Group does have an enforceable right for payment for work performed, unbilled revenue is recognised as other contract receivables. Upon the issuance of an invoice, the amount recognised is reclassified to trade receivables.

Contract cost - costs to obtain a contract

Costs to obtain a contract relate to sales commission paid which would not be payable if the contract has not been obtained.  This cost is recognised as an asset and amortised over the duration of the contract. Where the amortisation period of the asset would be one year or less, the cost is recognised as an expense when incurred.

Contract cost - costs to fulfil a contract

Costs to fulfil a contract mainly relate to direct labour costs and software tools which are expensed as incurred. The Group does not incur costs to fulfil their obligations under a contract once it is obtained, but before transferring goods or services to the customer and therefore no contract cost asset is recognised.

Contract liabilities

A contract liability is recognised if a payment is received or a payment is due (whichever is earlier) from a customer before the Group transfers the related services. Contract liabilities are recognised as revenue when the Group performs under the contract.

(b)           Lease employee benefits

Short-term employee benefits including holiday pay and annual bonuses are accrued as services are rendered.

Contributions to defined contribution pension schemes are charged to profit or loss as they become payable in accordance with the rules of the scheme. Differences between contributions payable in the year and those actually paid are shown as either accruals or other receivables in the statement of financial position.

(c)            Share-based payments

Employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions).

The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised as an expense, together with a corresponding increase in equity, over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest.

Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss.

(d)           Interest

Interest income and expense is recognised using the effective interest rate basis.

 

(e)           Taxation

The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except if it arises from transactions or events that are recognised in other comprehensive income or directly in equity. In this case, the tax is recognised in other comprehensive income or directly in equity respectively.

Current tax

Current tax is based on the taxable profit for the year and is calculated using the tax rates in force or substantively enacted at the reporting date. Taxable profit differs from accounting profit either because some income and expenses are never taxable or deductible, or deductible in other years.

Deferred tax

Deferred tax is recognised in respect of all temporary differences between the carrying value of assets and liabilities in the consolidated statement of financial position and the corresponding tax base, with the exception of temporary differences arising from goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date.

The measurement of deferred tax assets and liabilities reflect the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its asset and liabilities.

Deferred tax assets are recognised only to the extent that the Group considers that it is probable (i.e. more likely than not) that there will be sufficient taxable profits available for the asset to be utilised within the same tax jurisdiction. Deferred tax assets and liabilities are offset only when there is a legally enforceable right to offset current tax assets against current tax liabilities, they relate to the same tax authority and the Group's intention is to settle the amounts on a net basis.

Tax credits

The Group makes claims for research and development tax relief in the UK under both the Research and Development Expenditure Credit (RDEC) scheme and the small or medium-sized enterprise (SME) research and development tax relief scheme. Claims under the RDEC scheme are recognised in other operating income.  Enhanced expenditure relief under the SME scheme is recognised within the taxation charge / credit.

Research and development tax credits are recognised in the period in which the costs are incurred, and the claim submitted on the basis of an established record of successful research and development tax credit claims for the work undertaken by the employees of the Group.

(f)            Earnings per share and dividends

Basic EPS

Basic earnings per share is calculated on the Group's profit or loss after taxation attributable to the parent entity and on the basis of weighted average of issued and fully paid ordinary shares at the end of the year.

Diluted EPS

Diluted EPS is calculated by dividing the profit or loss after taxation attributable to the parent entity by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares (after adjusting for outstanding share awards arising from the share-based payment scheme) into ordinary shares.

 

(g)           Property, plant and equipment

Property, plant and equipment is stated at cost, less accumulated depreciation and any accumulated impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.

Depreciation is included within administrative expenses and is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:

Office equipment

-

3 - 10 years straight line

Additions to property, plant and equipment are depreciated from the date the asset becomes available for intended use.

An item of property, plant and equipment is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss when the asset is derecognised.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

(h)           Intangible assets

Intangible assets are initially recognised at cost and subsequently carried at cost less any accumulated amortisation and accumulated impairment losses.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.

An intangible asset is derecognised upon disposal (i.e. at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss.

(i)            Research and development

Research expenditure relates primarily to new internal process improvements that will bring tangible benefits to future product development. Expenditure on the research phase of projects is recognised as an expense as incurred. 

Costs that are directly attributable to a project's development phase are recognised as intangible assets, provided they meet the following recognition requirements:

·      the development costs can be measured reliably

·      the project is technically and commercially feasible

·      the Group intends to and has sufficient resources to complete the project

·      the Group has the ability to use or sell the developed software

·      the developed software will generate probable future economic benefits

Development costs not meeting these criteria for capitalisation are expensed as incurred.

The key judgement areas are the ability to measure the future economic benefits reliably and determining the period over which these benefits are delivered. The Group measures each research and development project on its own merits.

The main costs attributed to development costs are that of payroll, third party contractors and third party software.

Under IAS 38, at the point where activities no longer relate to development but to maintenance, capitalisation is discontinued.

Amortisation is included within cost of sales and is recognised as follows:

	Software licences	-	on a usage basis over the length of licence agreement. Licence agreements have lives of between 1 and 3 years.
	Development costs	-	not amortised until brought into use. The useful life is considered to be 10 years.

 

(j)            Impairment of non-financial assets

Assets that are subject to depreciation or amortisation are assessed at each reporting date to determine whether there is any indication that the assets are impaired. Where there is any indication that an asset may be impaired, the carrying value of the asset is tested for impairment. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Non-financial assets that have been previously impaired are reviewed at each reporting date to assess whether there is any indication that the impairment losses recognised in prior periods may no longer exist or may have decreased.

(k)           Government grants

Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.

(l)            Inventories

Inventories relate to work in progress and are valued at the lower of cost and net realisable value. Costs incurred relate to direct materials.

(m)          Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits.

Bank overdrafts are included in cash and cash equivalents for the purposes of presentation in the statement of cash flows because they are an integral part of the Group's cash management. Bank overdrafts are included in trade and other payables in the statement of financial position.

(n)           Financial instruments

Financial assets

Financial assets comprise trade and other receivables and cash and cash equivalents.

Trade and other receivables are initially measured at transaction price, and subsequently at their amortised cost subject to any impairment in accordance with IFRS 9.

Impairment

For trade receivables, contract receivables and contract assets, the Group applies a simplified approach in calculating expected credit losses (ECLs). Therefore, the Group recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The Group considers a financial asset in default when contractual payments are 60 days past due.

Financial liabilities

Financial liabilities comprise trade and other payables and loans and borrowings and are recognised initially at fair value net of directly attributable transaction costs (if any), and subsequently at amortised cost.

Modification of financial liabilities

Where there is a modification to a financial liability, the discounted present value of the cash flows under the new terms, using the original effective interest rate, is compared to the discounted present value of the remaining cash flows of the original liability. If the difference is greater than 10%, this is considered to be a substantial modification, resulting in a derecognition of the original liability and the recognition of a new liability.

(o)           Equity

Equity instruments issued are recorded at fair value on initial recognition net of transaction costs.

(p)           Borrowings

Interest bearing bank loans and overdrafts are initially recorded at the value of the amount received, net of attributable transaction costs. Interest bearing borrowings are subsequently stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated statement of profit and loss and other comprehensive income over the period of the borrowing using the effective interest method.

2.4. Standards in issue but not yet effective

At the date of authorisation of these financial statements there were amendments to standards which were in issue, but which were not yet effective, and which have not been applied. The principal ones were:

Amendment to IFRS 16 - Leases on sale and leaseback transaction (effective for annual periods beginning on or after 1 January 2024)

Amendments to IAS 1, Presentation of financial statements on classification of liabilities (effective date deferred until accounting periods starting not earlier than 1 January 2024)

The Directors do not expect the adoption of these amendments to standards to have a material impact on the financial statements.

3.        Significant events and transactions

There were no significant events and transactions during the period.

 

4.         Segment information

The Group considers there to be only one business segment which is monitored and reported to the Chief Operating Decision Maker ('CODM'), being the Board of Directors. This judgement is based on the fact that the Group provides similar products and services to all its customers, and the key performance indicators monitored by the CODM are total revenue and profit/(loss) for the period.

5.         Revenue from contracts with customers

In the following table, revenue is disaggregated by major products/service lines and primary geographical market. All revenue is recognised over time.

	Six months ended 30 June 2023		Six months ended 30 June 2022
	£		£
Service line
Projects	8,135,504		5,433, 970
Consultancy	1,199,148		2,517, 678
Total	9,334,652		7,951,648
Primary geographical markets
UK	1,569,289		3,142,119
Rest of the world	7,765,363		4,809,529
Total revenue	9,334,652		7,951,648

The operations are not cyclical and there is no significant seasonality to the operations.

6.         Exceptional Items

	Six months ended 30 June 2023		Six months ended 30 June 2022
	£		£
Cost of listing	-		52,446
Cost of restructure	478,804		-
Total	478,804		52,446

 

Exceptional expenses in the six month period ended 30 June 2023 relate to the restructuring of the engineering activity in China. This forms part of the company strategy to focus on the US market. Exceptional expenses in the six month period ended 30 June 2022 relate to the costs of the group undergoing the Initial Public Offering in October 2022.

7.         Other Operating Income

	Six months ended 30 June 2023		Six months ended 30 June 2022
	£		£
R&D tax credit	1,350,375		261,182
Total	1,350,375		261,182

8.         Taxation

The Group calculated the income tax expense for the period using the tax rate that would be applicable to the expected total annual earnings. The major components of income tax expense in the unaudited interim condensed consolidated statement of profit or loss are:

	Six months ended 30 June 2023		Six months ended 30 June 2022
	£		£
Income taxes
Current tax (credit) / expense	(84,684)		35,888
Deferred tax (credit)	(23,309)		-
Total tax (credit) / charge	(107,993)		35,888

 

Tax for the six month period is charged at 25% (six months ended 30 June 2022: 19%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre‑tax income of the six month period.

 

9.         Alternative performance measures

These items are included in normal operating costs of the business but are significant cash and non-cash expenses that are separately disclosed because of their size, nature or incidence. It is the Group's view that excluding them from the operating profit gives a better representation of the underlying performance of the business in the period.

The Group's primary results measure, which is considered  by the directors of Sondrel (Holdings) plc to better represent the underlying and continuing performance of the Group, is adjusted EBITDA as set out below. EBITDA is a commonly used measure in which earnings are stated before net finance income, amortisation and depreciation as a proxy for cash generated from trading.

A further alternative performance measure for the Group is adjusted loss for the period before tax. This is used to measure earnings before tax adjusted for amortization and exceptional items.

	Six months ended 30 June 2023		Six months ended 30 June 2022
	£		£
Loss for the period before tax	(1,950,664)		(1,518,003)
Exceptional costs (note 6)	478,804		52,446
Depreciation	208,493		166,912
Amortisation (note 11)	1,273,975		1,272,994
Finance costs	427,932		318,381
Adjusted EBITDA	438,540		292,730
Loss for the period before tax	(1,950,664)		(1,518,003)
Exceptional items (note 6)	478,804		52,446
Amortisation (note 11)	1,273,975		1,272,994
Adjusted loss for the period before tax	(197,885)		(192,563)

10.       Earnings per share (EPS)

Basic EPS is calculated by dividing the profit attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period.

	Six months ended 30 June 2023		Six months ended 30 June 2022
	£		£
Loss for the period	(1,842,671)		(1,553,891)
Weighted average number of shares	87,461,772		50,068,686
Basic earnings loss per share (£)	(0.02)		(0.03)
Loss for the period	(1,842,671)		(1,553,891)
Weighted average number of shares	87,461,772		50,068,686
Dilutive effect of share options	-		-
Weighted average number of diluted shares	87,461,772		50,068,686
Diluted loss per share (£)	(0.02)		(0.03)

During the six month periods ending 30 June 2022 and 30 June 2023, the Group made a loss and so the share options are anti-dilutive. As such they are not taken into account in determining the weighted average number of shares for calculating the diluted Earnings Per Share. As a result, the diluted Earnings Per Share is equal to the Basic Earnings Per Share.

11.       Intangibles

	Software licenses		Development costs		Total
	£		£		£
Cost
At 1 January 2022	12,511,590		-		12,511,590
Disposals	(917,118)		-		(917,118)
At 30 June 2022	11,594,472		-		11,594,472
Additions	8,098,891		239,373		8,338,264
Disposals	(1,021,447)		-		(1,021,447)
At 31 December 2022	18,671,916		239,373		18,911,289
Additions	18,373		154,613		172,986
At 30 June 2023	18,690,289		393,986		19,084,275
Amortisation
At 1 January 2022	3,165,209		-		3,165,209
Amortisation charge for the period	1,272,994		-		1,272,994
Disposals	(917,118)		-		(917,118)
At 30 June 2022	3,521,085		-		3,521,085
Amortisation charge for the period	1,683,085		-		1,683,085
Disposals	(840,752)		-		(840,752)
At 31 December 2022	4,363,418		-		4,363,418
Amortisation charge for the period	1,273,975		-		1,273,975
At 30 June 2023	5,637,393		-		5,637,393
Net book value
At 30 June 2023	13,052,896		393,986		13,446,882
At 31 December 2022	14,308,497		239,373		14,547,870
At 30 June 2022	8,073,387		-		8,073,387

 

The additions in the period relate to capitalised development costs and externally generated software licenses.

12.       Trade and other receivables

	(Unaudited) 30 June 2023		(Audited) 31 December 2022
Current trade and other receivables:	£		£
Trade receivables	3,478,571		3,138,895
Contract receivables	7,385,833		5,972,166
	10,864,404		9,111,061
Allowance for expected credit losses	(91,306)		(91,306)
	10,773,098		9,019,755
Other receivables	2,061,691		827,928
Prepayment and accrued income	691,999		349,441
Total	13,526,788		10,197,124

Management have assessed the expected credit loss up to 30 June 2023 and the change from the year end balance (31 December 2022) was deemed immaterial. 

13.       Trade and other payables

	(Unaudited) 30 June 2023		(Audited) 31 December 2022
Current trade and other payables:	£		£
Trade payables	3,437,468		586,072
Social security and other taxes	289,280		432,596
Other payables	4,657,223		4,514,832
Accruals	4,242,460		3,390,621
Contract liabilities	4,003,128		5,753,646
Total	16,629,559		14,677,767
Non-current trade and other payables:
Other payables	7,589,110		9,984,228
Total	7,589,110		9,984,228

 

Trade payables are non-interest bearing and are normally settled on 60 day payment terms.

 

Other payables represent the amounts owed in relation to the acquisition of software licences and are repayable in staged instalments over 3 years. An effective interest rate of 4.68% to 7.56% has been charged on this payables balance. The rate is determined by each part of the contract. 

14.       Share capital

	(Unaudited) 30 June 2023	(Audited) 31 December 2022		(Unaudited) 30 June 2023	(Audited) 31 December 2022
	Number	Number		£	£
Ordinary shares of £0.001 each	87,461,772	87,461,772		87,462	87,462
Total	87,461,772	87,461,772		87,462	87,462

 

15.       Subsequent events

There are no events subsequent to the reporting date which would have a material impact on the financial statements.