30 October 2023

 

HeiQ Plc

("HeiQ" or "the Company")

Results for year ended 31 December 2022

Cutting through the headwinds & setting the course for what comes next

HeiQ Plc (LSE:HEIQ), a leading company in materials innovation and hygiene technologies, announces its final results for the full year ended 31 December 2022 ("FY 2022"). These results are published concurrently with the Company's Interim Results for the period ending 30 June 2023.

Annual Report and Restoration of Trading:

 

The Company's Annual Report and Accounts for the year ended 31 December 2022 will shortly be available to view on HeiQ's website, www.heiq.com/investors. A copy of the Annual Report will also be submitted to the Financial Conduct Authority in the United Kingdom via the National Storage Mechanism ("NSM"), available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. Copies will be posted to shareholders in the coming days.

Upon uploading the Annual Report to the NSM, expected to be completed today, the Company will make an immediate request to the FCA for the Company's Ordinary Shares to be restored to trading on the Main Market of the London Stock Exchange as soon as practicable thereafter. A further announcement will be made confirming the exact time and date of resumption of trading.

 

Financial Overview:

 

·    Revenue reduced 14.8% to US$47.2 million (FY 2021 restated: US$55.4 million*)

·    Gross profit margin down 17.3% to 28.5% (FY 2021 restated: 45.8%*)

·    Adjusted EBITDA decreased to US-$12.2 million (FY 2021 restated: US$4.5 million*)

·    Operating loss of US-$29.2 million (FY 2021 restated: US$-1.4 million*)

·    Loss after taxation of US$-29.8 million (FY 2021 restated: US$-1.4 million*)

·    Cash at year-end of $8.5m with net debt (including lease liabilities) of US$3.7 million

 

* Details on restatements of prior year financial information are disclosed in Note 2 of the Company's Financial Statements.

 

Operational Overview:

 

·    Despite a robust first-half performance, the second half of FY 2022 was characterized by a sudden weakening of the markets in which HeiQ operates leading to a decrease in sales and related contribution margin, which impacted financial performance.

·    Unprecedented macroeconomic pressures converged, creating a challenging trading environment not only for HeiQ but also for our competitors and the textile industry at large.

 

Post Period:

 

In response to ongoing market challenges, HeiQ has taken rapid, decisive action to enhance resilience and reduce its cost base. The Company has reviewed and prioritized its activities to navigate these turbulent market conditions. Actions taken include:

 

·      Strategic Reorganization: Business was restructured into three commercial units, each with dedicated leadership and P&L responsibility, being Textiles & Flooring, Antimicrobials and Life Sciences.

·      Relocated various support functions to the lower-cost location Portugal.

·      Applied a strong focus on commercialization teams and prioritised high-value opportunities in high-growth markets.

·      Focused on commercialized innovations and mature, sustainable and future-proof products such as HeiQ Allergen Tech and HeiQ Synbio, HeiQ Mint and HeiQ Smart Temp.

·      These initiatives have reduced overheads by 15%, becoming mainly effective from H2 2023 onwards.

 

While the Board considers the Company has adequate resources, it is in discussions with financial institutions to replace the currently uncommitted credit facilities by committed, long-term facilities.

 

Carlo Centonze, co-founder and CEO, HeiQ plc, said: 

 

"I would like to first acknowledge the understandable frustration felt by our valued shareholders in regard to the delayed publication of FY 2022 accounts following our 10-month audit and the corresponding 6 month suspension from trading. As the largest shareholder, I share this burden and as Group CEO I have addressed the commercial difficulties it generated for us.

 

"FY 2022 was a challenging year for our industry and our business, as we faced sudden and dramatic market disruptions in H2 2022, caused by large inventory de-stocking by brands and retailers following reduced consumer demand, high inflation, and rising interest rates globally.

 

"Since the start of 2023, we have taken focused steps to reduce our cost base and reorganize the business. We have not seen the challenges abate, but actions taken since the start of the year mean we will be in a better position going forward to manage the challenging macro-economic environment, continue building value in our core innovations and preserve our ability to deliver when the market demand turns.

 

"These post-period initiatives, which are set out in detail in our annual report and interim results reported concurrently with these full-year results, are already having an impact and have delivered an annualized 15% reduction in overheads, becoming effective mainly from H2 2023 onwards. Looking forward we are seeing increasingly positive trends within our markets and consumer preferences quickly adapting to more sustainable solutions, opening up opportunities for growth for HeiQ and its innovative portfolio of sustainable products. With this in mind, we will continue to prioritise innovations close to positive cash flow generation, putting appropriate emphasis on operational excellence and our high potential key innovation initiatives with superior sustainability and profitability profiles."

 

 

Equity analyst and shareholder presentations:

 

Following the resumption of trading in its ordinary shares the Company will announce registration details for two live presentations. These presentations will cover today's results and will be held separately for both equity analysts and investors.

For further information, please contact:

 

HeiQ Plc Carlo Centonze (CEO)	+41 56 250 68 50
Cavendish Securities Plc (Broker) Stephen Keys / Callum Davidson	+44 (0) 207 397 8900
SEC Newgate (Media Enquiries) Elisabeth Cowell / Tom Carnegie / Molly Gretton	+44 (0) 20 3757 6882 HeiQ@secnewgate.co.uk

 

 

CHAIR'S STATEMENT

 

Setting the course for what comes next

 

FY 2022 was an extraordinarily challenging year for HeiQ. Whilst trading performance in the first half remained robust given the circumstances, the markets we operate in became significantly weaker in the second half. An array of macroeconomic pressures converged, creating a very challenging trading environment for HeiQ, its competitors and the textile industry at large.

 

The sudden decrease in sales and related contribution margin impacted on our performance. In addition, we had to defer previously recognised revenue from partnership agreements and therefore, our financial performance fell short of expectations in FY 2022.

 

Further, the Board of HeiQ Plc had to announce that the Company could not publish its audited FY 2022 Accounts by 30 April 2023, which regrettably led to the shares being suspended. HeiQ appointed Deloitte as its new auditor in November 2022, to reflect the international expansion and increased complexity of the Group since listing. Following several acquisitions, the Group has grown significantly in terms of capabilities, technology platforms and growth potential, but also in terms of organizational complexity. We have seen a number of businesses with different systems, processes and cultures joining the Group since 2017 and in particular in 2021. In order to integrate these different businesses, the Group started the harmonization of processes, systems and ways of working across the organization in 2022. While this is a challenging project for any organization, the changes in market conditions made this process even more challenging given our lean set-up across the Group, including in support functions. All these factors contributed to a significantly extended year end reporting timetable for 2022 with a related impact on the timing of the external audit work. Further, while reviewing our processes, the Board has also challenged key estimates and judgments in relation to previous reporting periods. This has led to the restatement of prior year financial statements as disclosed in the notes to the financial statements within this Annual Report*.

 

We understand the frustration of our stakeholders - in particular shareholders - about the delay in reporting audited FY 2022 Accounts and the related suspension of shares from trading on the London Stock Exchange.

 

With market conditions remaining very challenging during 2023, we have taken rapid, decisive action to build additional resilience and to reduce our cost base, reviewing and prioritizing our activities rigorously, including our innovation pipeline. These activities have allowed us to navigate through 2023 during which time cash management is key given the fragile market conditions and uncommitted nature of the Group's current financing facilities as further discussed in the Financial Review.

Outlook

While we expect the trading conditions for our commercialized product range to continue to be challenging into 2024, we have significantly reduced our cost base and will implement further measures if needed. The Board is also re-assessing the overall strategy and resource allocation of the Group as well as its debt structure to address the uncertainty in relation to financing arising from the uncommitted nature of credit facilities, as disclosed in the notes to our financial statements. This is to ensure a healthy balance between maintaining the long-term growth potential of our key innovation projects, the constraints of the current market conditions for our commercial business activities as well as being prepared to capture opportunities to gain market share once market conditions improve.

We are facing uncertain times, both politically and economically on a global scale, which has impacted many key regions of HeiQ's operation. At the same time, we are seeing increasingly positive trends within our markets and consumer preferences quickly adapting to more sustainable solutions, opening up opportunities for growth for HeiQ and its innovative portfolio of sustainable products.

We thank our stakeholders for their continuing support. We as a Board as well as the whole management team of HeiQ remain committed and motivated to deliver long-term growth and value for our shareholders and all other stakeholders by bringing sustainable technologies to market. With an aggregate holding of approximately 24%, the Board and extended management team continues to be well aligned with the interest of shareholders.

 

 

Esther Dale-Kolb

Chair

 

 

^R Details on restatements of prior year financial information are disclosed in Note 2 of the Company's Financial Statements.

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Cutting through the headwinds: a year in review

I would like to first acknowledge the understandable frustration felt by our valued shareholders in regards to the delayed publication of FY 2022 accounts and the corresponding suspension from trading at LSE. As the largest shareholder I share this burden and as CEO I have addressed the commercial difficulties it generated for us.

The macro picture and FY 2022 performance

FY 2022 was a challenging year for our industry and our business, as we faced sudden and dramatic market disruptions in H2, caused by large inventory de-stocking by brands and retailers following reduced consumer demand, high inflation, and rising interest rates globally. These factors were exacerbated by the war in Ukraine and the resulting energy crisis in Europe has hamstrung the entire European chemical industry. Our business was further exposed to prolonged Covid-19 restrictions in China in H1, and the downturn was protracted by a sectoral recession in our customer segment following the lifting of restrictions and value chain shifts by US brands and retailers out of China. Given that we were investing in scaling up our four ventures with game-changing innovation technologies, the sudden decrease in sales and the related innovation financing by the profits from our commercial businesses not only impacted top line performance, but also Group profitability.

The dramatic disruption in market demand across our value chains also impaired the ability of our recently acquired businesses to achieve their business plans. The Directors therefore have concluded that an impairment of goodwill recognized upon acquisition of some of these businesses is appropriate.

Further, we had to partly defer revenues (and corresponding profits) in respect of certain partnership agreements originally recognized in H1 2022 and H2 2022 to future periods. Previously, we had recognized revenue from these contracts at the point in time of achieving certain technical development milestones. However, upon further review, we concluded that it is appropriate to recognize such revenues over time to coincide with specific exclusivity rights being granted by HeiQ to the partners. Consequently, total revenue of US$4.0 million has been deferred over a period of four years with initial revenues being recognized in H2 2022.

Total revenue for the year amounts to US$47.2 million (2021^R: US$55.4 million) and the operating loss for the year was US$-29.2 million (2021^R: US$-1.4 million) after goodwill impairments (aggregated goodwill impairments in 2021 and 2022 amount to US$13 million). The cash balance as of December 31, 2022 was US$8.5 million.

2023 Trading Update

Since the start of 2023, we have taken focused steps to reduce our cost base and reorganize the business. We have not seen the challenges abate in 2023 but actions taken since the start of the year mean we are to be in a better position going forward to manage the challenging macro-economic environment, continue building value in our core innovations and preserve our ability to deliver when the market demand turns. 

I am pleased to report that the initiatives set out below have delivered an annualized 15% reduction in overheads, becoming effective mainly from H2 2023 onwards. As set out in our separately reported interim results, for H1 2023, we achieved sales of US$20.5 million (H1 2022^R: US$27.6 million) with a slight decrease in margins in a buyers-market driven by current overcapacity (H1 2023:40.9% vs. 41.5% for FY 2022). I want to point out that while we have curtailed our investments in our four ventures, we have maintained their value creating momentum and thus face the corresponding costs. The benefits of the reduced cost base will only be felt in H2 2023, so our operating loss for H1 2023 amounts to US$-6.0 million (H1 2022^R: US$-1.6 million). The cash balance as of June 30, 2023 amounts to US$7.3 million. Our credit facilities have historically and continue to be uncommitted in nature, which casts a material uncertainty on the going concern assessment until appropriate longer-term funding is in place, as disclosed in the Notes to the financial statements. However, the Board considers that the Group has adequate resources and accordingly, the financial statements continue to be prepared on the going concern basis. The Board is in discussions with financial institutions to replace the currently uncommitted credit facilities by committed, long-term facilities, but the outcome of these discussions cannot be guaranteed.

Reorganizing, right-sizing and re-focusing

At the beginning of the year we reorganized our activities into three commercial business units and one "Other" segment encompassing four innovation ventures with no commercial activities yet, Innovation Services provided internally and externally to a broad range of customers, as well as group functions. The three distinct business units each have their dedicated team leader, management team, and P&L responsibility:

·    Textiles & Flooring, under the leadership of Mr. Mike Abbott, headquartered out of the US

·    Life Sciences, led by Dr. Robin Temmerman, headquartered out of Belgium

·    Antimicrobials, led by Mr. Tom Ellefsen, headquartered out of Thailand

I will give you an update for each of these shortly, but before I do so, it is worth touching on how we have built resilience into the service offerings - Innovation, Differentiation and Regulatory - which are delivered through each business unit as well as internal services like Finance.

Besides streamlining and relocating various support functions out of Switzerland to lower-cost locations, we have created clear goals and responsibilities for all our business and service organizations to optimize operations and to focus resource allocation rigorously. In Innovation, we have focused our R&D investment on innovation technologies which are closest to cash-flow generation or are already being financed by brand partners or through grants. In Differentiation we are leveraging our brand customers to promote HeiQ to a broader (consumer) audience thereby reducing our costs. We have expanded our internal service organization particularly in Finance by implementing a centralized accounting function and will continue to do so to strengthen our financial reporting processes.

In addition, we are applying a strong focus on our commercialization teams, aligning our efforts with our mission to improve the lives of billions through our products. We are prioritizing high value opportunities in high growth markets, where we can leverage competitive advantages and deliver sustainable value for our customers and shareholders. We are focusing on our commercialized innovations and mature, sustainable and future-proof products such as HeiQ Allergen Tech and HeiQ Synbio, HeiQ Mint and HeiQ Smart Temp and are also actively challenging competitors' positions with a better quality-price-terms ratio offering with our HeiQ Pure range.

Textiles & Flooring

We have taken decisive steps to strengthen our position as the market leader for branded, nominated textile innovation. In order to maintain capabilities at a lower cost, we have accelerated the reallocation of our innovation, testing, and product management operations to Portugal, which is a lower-cost country with high education in which to undertake these labor-intensive workstreams. Our production has been moved largely to the US from Switzerland due to lower energy costs and chemical raw material availability. Our top-selling products are being further integrated backwards to improve our margin. Additionally, we are investing in Central America, a region which is increasingly capturing supply from US brand's reducing their exposure to China. We are exploring global local manufacturing partnerships to lower the impact on margins of short notice orders and resulting rapid delivery logistical costs.

Antimicrobials

In our Antimicrobials business, we have reduced the commercial team by focusing on selected markets and expanded our support to our established large channel partners Americhem and Avient. We are further reducing our overheads and divesting from our regional sales hub HeiQ Brazil in order to build up this particular market with a commercialization partner instead. We are focused on strengthening our regulatory assets for inorganic, botanical and natural antimicrobials to enhance our position within specialty antimicrobials and are looking for opportunities to consolidate the industry segment.

Life Sciences

In Life Sciences we have achieved a key milestone with the publication of the study comparing Ecolab disinfectants with our HeiQ Synbio probiotic cleaners at the University Hospital Charité Berlin. The study, which was sponsored by the Melinda & Bill Gates foundation and the German state confirmed that HeiQ's probiotic cleaners are equally effective to Ecolab's disinfectants while significantly reducing resistance gene developments. The study led to a recommendation for probiotic cleaners by the German Robert Koch institute and the finalization of the new European Detergent Regulation, now including probiotic cleaners. With this key regulatory milestone achieved, we are doubling down on securing significant contracts for HeiQ Synbio in the healthcare cleaning market and selecting the best channel partner for global commercialization. We are in negotiations with leading channel partners for an exclusive OEM (Original Equipment Manufacturer) agreement for our probiotic healthcare cleaners. Additionally, we are revisiting our medical device business strategy as closing of an OEM agreement is not materializing.

Venture Innovations

Innovation remains the lifeblood of our business and future value creation. I talked earlier about our focused strategy for innovation, prioritizing core technologies which are close to positive cash flows or are being funded by customers or grants in order to alleviate the impact of their expensed R&D costs on our net commercial revenues and accelerate their technology and market readiness.

One of our most valuable innovation platforms is HeiQ AeoniQ , the world's first climate-positive fiber. HeiQ AeoniQ has had significant industry support by Hugo Boss, The Lycra Company and MAS Holdings and has been taken to customers as a HUGO BOSS Polo Shirt on consumer shelves as early as January 2023, just 15 months after launching it. Hugo Boss has recently captured global attention for HeiQ AeoniQ with their "THE CHANGE" launch in high fashion. Additionally, Beste, an Italian manufacturer, introduced the first fabric collection featuring HeiQ AeoniQ to a range of major Italian fashion brands.

HUGO BOSS has committed itself to replacing all use of polyester and nylon by 2030 and made the achievement of the same a fundamental part of leadership's remuneration. HeiQ AeoniQ has one objective, to replace polyester, a US$135 billion market with a compounding annual growth rate of 3.5%. Most recently, in July 2023, we secured a further US$2.5 million funding from MAS Holdings, a premium leader in garment making headquartered in Singapore. We have further secured US$1.2 million in grants for our R&D work and up to US$ 8 million government grant contributions over the next two years for our first 3 kilotons (kto) plant scale-up in Portugal. We will continue our efforts to secure funding and offtake agreements with leading brands in order to finance and build our first 30kto capacity production plant scheduled to operate in 2026.

HeiQ GrapheneX is a proprietary technology platform that enables us to directly synthesize porous graphene materials with high performance and versatility. This platform is strategically positioned to capture the growing demand for advanced materials in the batteries and electric vents sectors. We have recently sold our first samples to a Fortune 500 Brand and top three leader in handheld mobile devices. Over the next two years we aim to deliver our first pilot commercialization plant and are currently negotiating product development funding with a key OEM player in the handheld mobile devices industry.

HeiQ ECOS is a transparent conductive coating technology that enables low emissivity. HeiQ ECOS can also be used in defense, to alter the electromagnetic signature of assets making them stealth. We have two existing defense customers paying for the application development for signature management. With the knowledge gained from these projects, we have developed a strong proof of concept for transparent window insulation and yield-enhancing greenhouse films. Less energy is needed to cool down or warm buildings or greenhouses and if utilized in the automotive window space significantly more reach can be conferred on electric vehicles. We are currently validating the technology in field trials with market leading adopters and have been able to secure additional grants to develop further technology applications.

HeiQ BacCell is centered around our precision fermentation technology, utilizing bacteria to manufacture post-biotics (HeiQ Synbio platform). Our aim is to use agricultural and food waste available in large amounts and transform them into bacterial cellulose. The latter is utilized as a feedstock for our HeiQ AeoniQ climate positive fiber and promises additional market application opportunities in packaging, food, cosmetics and medical currently being explored with leading channel partners. By using waste-based feedstock we prevent the burning or fouling of organic waste and thereby contribute to reduce greenhouse gas emissions, with a potential for carbon credits being awarded.

Sustainability

Our technologies are intrinsically built to bring sustainability downstream to our customers and to consumers. Our biggest contribution to science-based reduction goals is the continuous substitution of hydrocarbon based raw materials in our products with bio-based raw materials. With HeiQ AeoniQ we are bringing to the market a game changing technology, capable of decarbonizing the textile industry with one of the few climate-positive technologies able to reduce the science-based footprint of brands and retailers, contributing significantly to reaching a net zero target. At HeiQ, we are committed to driving impactful game-changing sustainable innovation technologies to market.

Outlook

Looking ahead, our vision remains firm: striving to improve the lives of billions by bringing sustainable technology solutions to market that can make an impact. To achieve this and to weather current challenging market conditions and financial uncertainties, we have taken and will take further actions as and when needed to control our costs and sharpen our strategy. This includes prioritizing innovations close to positive cash flow generation, to put appropriate emphasis on operational excellence as well as to drive our high potential key innovation initiatives with superior sustainability profiles.

We expect the above-mentioned measures beginning to flow through to our bottom line in H2 2023 with corresponding stabilization of our financial performance. However, we remain alert to take additional corrective actions should markets deteriorate further.

As always, I would like to end my statement by thanking our investors, team, advisors and customers for their support during what has been a very challenging period for the market and the company. As a significant shareholder and a founder of HeiQ, my commitment to grow HeiQ and materialize its huge potential remains unchanged.

 

Carlo Centonze

CEO

 

 

FINANCIAL REVIEW

 

2022 was a difficult year where our financial performance was impacted by highly challenging market conditions and fell short of expectations. Sales suffered from reduced market demand - particularly in the last quarter of the year - while we continued to invest into our key innovation initiatives to maintain the long-term growth potential of the Group. After achieving a revenue growth of 10.0%^R in the previous year, revenues reduced by 14.8% in 2022 to US$47.2 million (2021^R: US$55.4 million).

 

Following several acquisitions, the Group has grown significantly in terms of capabilities, technology platforms and growth potential but also in terms of organizational complexity. The Group has seen a number of businesses with different systems, processes and cultures joining the Group since 2017 and in particular during 2021. In order to integrate the different businesses, the Group commenced the harmonization of processes, systems and operating practices across the organization in 2022. Furthermore, the significant drop in market demand required us to review the valuation of intangible assets and our approach to inventory valuation as we envisaged a short-term fall in demand for certain of our technologies. Accordingly, despite our continued confidence in the mid- to long-term value potential of our market offerings, we have revised forecasts used in certain valuation models related to intangible assets as well as inventory. As a result, the Board has concluded that it is appropriate to impair various goodwill positions as well as inventory positions where we believe quantities on hand exceed demand for the next twelve months. While preparing annual accounts 2022, including reviewing aspects of accounting which rely on significant judgement, the Company has also identified prior period errors that require correction and thus lead to a restatement of prior period financial statements. These factors have contributed to a significant delay in the financial reporting process and the finalization of the work by our auditors.

 

The Group deemed it appropriate to defer the recognition of revenues (and profits) from certain partnership agreements related to HeiQ AeoniQ to future periods. It was concluded that it is more appropriate to recognize the milestone-payments over time during the agreed exclusivity period rather than at a point in time upon achieving the agreed technical development milestones. Accordingly, US$2.0 million recognized in H1 2022 has been deferred and will be recognized over a 4-year period commencing in H2 2022 and an additional US$2.0 million previously expected to be recognized in H2 2022 has also been deferred.

 

Accounting aspects relying on significant judgment and estimations that materially affected our 2022 financial performance

 

Impairment of Goodwill

Considering the challenging trading conditions, we have determined a cumulative impairment charge of US$13 million to be appropriate as of December 31, 2022. As we have corrected the underlying framework for modelling valuation assumptions, we have also applied the same approach retrospectively to the FY 2021 accounts and have concluded that of the cumulative impairment charge of US$13 million, US$2.4 million should be charged against income in 2021 instead of 2022. Further details on the impairment charge can be found in Note 18 and Note 2 (restatement of 2021) to the financial statements.

 

Allowance on inventory

Due to the deterioration in market conditions, the Group has limited the demand forecast period to assess whether a good is sellable or not to twelve months. Previously, the Group applied a longer period of up to three years. However, the Board concluded that this practice is no longer appropriate given the deterioration in market conditions. This has resulted in recording a significant allowance on inventory of US$4.9 million in 2022. This non-cash expense has a significant impact on the gross margin for 2022 and relates mainly to the raw materials for a limited number of finished products.

 

Accounting for take-or-pay contracts

Certain customers have agreed, under a "take or pay" contract, to purchase a specified minimum quantity of particular products over a specified period of time, usually in exchange for a specified exclusivity during the same period. However, the customer must pay for the full quantity stated in the contract, irrespective of whether the customer takes delivery of the minimum quantity to which they are committed. Upon payment of the full amount, the contract allows customers to defer their unexercised rights and to consume the remaining units within a twelve-month period, although there is no compulsion to do so. Revenue recognition for the shortfall items is deferred until the customer consumes the units, or, in case of expiry of the rights, typically twelve months after payment by the customer. This represents an amendment to the accounting policy for such contracts as disclosed in Note 2 and has led to prior year restatements as discussed further below.

Consequently, the Directors have also concluded that no revenue should be recognized for a long-term customer contract that the Group is enforcing by way of legal claim in court as the customer has not shown a willingness to execute any business as stipulated in the signed agreement. This has led to a de-recognition of revenue and profits in 2021 (US$0.6 million) and H1 2022 (US$0.7 million).

 

Financial Performance

	Year ended December 31, 2022 US$'000	Year ended December 31, 2021 US$'000 (restated)
Revenue	47,202	55,419
Gross profit	13,457	25,397
Gross profit margin	28.5%	45.8%
Selling and general administrative expenses	(30,969)	(24,680)
Impairment losses	(12,381)	(2,454)
Net other income/expenses	648	383
Operating loss	(29,245)	(1,354)
Operating margin	(62.0%)	(2.4%)
Loss after taxation	(29,814)	(1,373)
Adjusted EBITDA	(12,174)	4,545
EBITDA margin (adjusted)	(25.8%)	8.2%

Revenues

Market demand for most of our businesses, with the exception of the Chinese market due to lockdowns imposed by the government, was not significantly impacted by geo-political developments, inflation and rising interest rates until late in the year on the back of consumer demand and inventory build-up across the value chain. After the COVID-19 pandemic and supply-chain disruptions in the previous years, industry players have been building up much higher inventory levels than in the past to mitigate possible supply issues which has supported demand. As such, in the first half of the year, HeiQ was able to deliver a revenue growth of 6.8% (H1 2022^R vs. H1 2021) despite an extremely low level of business activity in China (lockdowns). As inflation continued to increase rapidly in H2 2022, market sentiment weakened based on increasing global recession concerns. Late in the year, this led to a sudden halt in business along the entire supply chain, particularly in the textile industry which, in terms of revenue, is still the most important industry segment for HeiQ. Brands started to cancel orders as they faced uncertain consumer demand coupled with very high levels of inventory. This caused a sudden and severe decrease in manufacturing activity across the value chain. Consequently, revenues for H2 2022 were down 33.7% compared to H2 2021^R and down 28.7% compared to H1 2022^R. Given the high inventory levels seen in Q3 2022, we expect demand for our functional ingredients to remain subdued for 2023.

 

Gross margin

Gross margins were 28.5% for the full year (2021^R: 45.8%). In H1 2022^R margin was stable compared to H2 2021^R (41.5% vs. 42.7%). The increased inventory allowance due to the change in the valuation approach had a negative impact on the gross margin in H2 2022 which stood at 10.3%. Excluding the US$4.9 million allowance on inventory recorded in 2022, the gross profit for FY 2022 would have been US$18.4 million and the corresponding gross margin would have been 38.9% vs. 45.8% for the full year 2021^R.

 

 

Sales and General Administration Expenses

As we have disruptive technologies with high value and market potential in our innovation pipeline, we continued to invest during 2022 in our future and in value creation although we have both prioritized and adjusted the scope of projects as revenues and related cash generation have suffered. Our Sales and General Administration expenses ("SG&A") have grown in 2022 to US$31.0 million, an increase of US$6.3 million or 25.5% (2021^R: US$24.7 million).

SG&A in H1 2022^R was US$ 14.0 million, stable compared to H2 2021^R (US$ 14.0 million) but significantly higher than in H1 2021 (US$10.7 million). Approximately US$1.9 million of this increase in H1 2022 (vs H1 2021) relates to the full year inclusion of acquired companies. Further, in the course of 2021 we invested in our skilled workforce, including the build-up of the HeiQ AeoniQ? fiber team which increased the general cost base for H1 2022 by another US$1.4 million compared to H1 2021.

 

In H2 2022, SG&A amounted to US$17.0 million which represents an increase of US$3.0 million against H1 2022^R and US$3.0 million against H2 2021^R. Audit costs for FY 2022 increased by about US$1.0 million compared to FY 2021.

 

Impairment losses

Impairment losses have been recorded both on intangible assets (US$11.7 million) - mainly related to goodwill impairments as explained above - as well as on property, plant & equipment (US$0.7 million) as hygiene mask production equipment has been impaired due to a significant decline in demand.

 

Other Income / Expenses

Other income and other expenses predominantly relate to foreign exchange gains on working capital (other income) and foreign exchange losses (other expenses). Other expenses further include a write-off of intangible assets.

 

Overall, and including goodwill impairments, HeiQ reports an operating loss of US$-29.2 million for the year 2022 compared to an operating loss of US$-1.4 million in 2021^R.

 

Reporting as per new Business Unit structure

As explained in the Chair and CEO statement, the Group has re-organized its management structure into distinct Business Units and therefore has also amended its disclosures on reported segments.

 

HeiQ reports four segments: the three Business Units as well as "Other activities". Other activities include the Innovation Service function, Business Development initiatives ("Ventures" as well as costs not allocated to one of the three Business Units, including goodwill impairments. In 2022 and 2021, SG&A expenses have been allocated to Business Units only to a limited extent with focus on commercial activities. For 2023 and going forward, the Group intends to allocate costs more extensively to the three Business Units.

 

	Textiles & Flooring		Life Sciences		Antimicrobials		Other activities		Total
US$'000	2022	2021*	2022	2021*	2022	2021*	2022	2021*	2022	2021*
Revenue	33,870	39,773	6,894	10,115	3,577	3,379	2,861	1,792	47,202	55,419
Operating profits (loss)	979	14,196	(1,078)	1,438	53	1,106	(29,199)	(18,096)	(29,245)	(1,354)
Finance result									(590)	(35)
Loss before taxation									(29,835)	(1,389)
Taxation									21	16
Loss after taxation									(29,814)	(1,373)

*as restated

 

Revenues within the Textiles & Flooring business unit decreased by US$5.9 million (-15%) to $33.9 million in 2022. This was driven by two previously mentioned main contributors: COVID-19 related lockdowns in one of our main markets, China, as well as the unprecedented, industry wide decrease in demand along the entire value chain towards the end of the year.

 

Revenues within the Life Sciences business unit decreased by US$3.2 million (-32%) to $6.9 million in 2022 compared to 2021^R. This decrease reflects the significantly lower sales of hygiene masks in 2022 which was partly offset by an increase in sales of HeiQ Synbio products.

 

Revenues within the Antimicrobials business unit increased by US$0.2 million (+5.9%) to US$3.6 million.

Revenues allocated to other activities encompass mainly Innovation Services provided to 3^rd party customers.

 

Adjusted EBITDA

Reported adjusted EBITDA loss was US$-12.2 million for 2022 compared to a positive EBITDA of US$4.5 million in 2021^R.

 

EBITDA is a way of measuring cash generation. HeiQ therefore adjusts EBITDA for share options and rights granted to Directors and employees and significant non-cash items being impairments of goodwill and intangible assets.

Adjusted EBITDA US$'000	2022	2021 (restated)
Operating loss	(29,245)	(1,354)
Depreciation	2,220	1,971
Amortization	1,435	976
Impairment losses and write-offs	13,278	2,454
Share options and rights granted to Directors and employees	138	498
Adjusted EBITDA	(12,174)	4,545

 

 

Statement of Financial Position

Total assets were US$71.1 million as of December 31, 2022 (December 31, 2021^R: US$94.1 million) with equity amounting to US$40.3 million and liabilities of US$30.8 million as of December 31, 2022 (December 31, 2021^R: US$59.5 million equity and US$34.6 million of liabilities). This corresponds to an equity ratio of 57% (2021^R: 63%).

 

Non-current assets decreased from US$47.3 million (December 31, 2021^R) to US$38.7 million as of December 31, 2022, mainly driven by the impairment of intangible assets.

 

Current assets decreased by 30.9% to US$32.4 million as of December 31, 2022 (US$46.9m as of December 31, 2021^R). Trade receivables reduced by US$8.2 million to US$6.5 million as of December 31, 2022 (2021^R: US$14.7 million). The cash balance decreased by US$6.1 million year-on-year and was US$8.5 million as of December 31, 2022 (2021: US$14.6 million).

 

The decrease in total liabilities was mainly driven by the settlement of deferred consideration related to the acquisitions made in 2021. Total liabilities decreased by US$3.8 million (11.0%) from US$34.6 million as of December 31, 2021^R to US$30.8 million as of December 31, 2022. Net debts (including lease liabilities) amount to US$3.7 million as of December 31, 2022 (December 31, 2021^R: net cash position of US$3.7 million).

 

 

Cash Flow Statement

As a result of sales below expectation coupled with the (budgeted) increase in our cost base, net cash generated from operating activities in the year 2022 was negative and amounted to US$-2.5 million (2021: US$3.4 million).

 

Cash used in investing activities amounts to US$8.8 million in 2022 (2021: US$12.7 million) and reflects the continued investment in building long-term value. With US$3.9 million the development and acquisition of intangible assets accounts for the largest share of investment activities. This includes internal R&D activities qualifying for capitalization but also the acquisition of intellectual property rights to further complement the hygiene range of our Antimicrobial business. We also invested US$3.4 million of cash in plant and equipment, predominantly related to the HeiQ AeoniQ^TM pilot plant located in Austria. Consideration paid for acquisitions (US$1.6 million) relate to earn-out and instalment payments for acquisitions executed in previous periods.

 

Net cash from financing activities amounted to US$5.9 million (2021: US$-1.3 million net cash used). The largest portion of proceeds is related to the sale of a 2.5% equity stake in HeiQ AeoniQ GmbH to Hugo Boss in H1 2022 (US$4.8 million). Proceeds from borrowings (net) amount to US$2.6 million and relate mainly to fixed advances with a duration of up to 3 months.

 

The Group reports a cash balance of US$8.5 million as of December 31, 2022 (December 31, 2021: US$14.6 million).

 

 

Prior Period Adjustments

As describe further above, the Directors have concluded that certain adjustments to prior period financial statements should be recorded. The cumulative impact on the prior period financial statements (FY 2021) is as follows.

 

In US$	As published previously	Total restatements	As restated
Revenue for FY 2021	57.9 million	(2.5 million)	55.4 million
Income (loss) after taxation for FY 2021	2.5 million	(3.9 million)	(1.4 million)
Total assets as at December 31, 2021	101.8 million	(7.7 million)	94.1 million
Total equity as at December 31, 2021	64.6 million	(5.1 million)	59.5 million
Total liabilities as at December 31, 2021	37.2 million	(2.6 million)	34.6 million

These corrections resulted in a significant restatement of the income after taxation. Further details of these corrections as well as additional corrections that did not result in material restatement of the income after taxation are disclosed in Note 2 to the financial statements.

 

Restatement in respect of a significant take-or-pay contracts

As disclosed in Note 2 to the financial statements, the Group has renegotiated a significant take-or-pay contract after the balance sheet date. As a result of renegotiations, the Group has effectively waived unpaid accounts receivable in exchange for a right of first refusal on supply of a wide product range to a large industry player with the expectation to grow this multiple million US$ account significantly over the coming years. The company has reviewed its historic accounting for this contract. The conclusion of this review is that amounts recognized as revenue in 2021 and accounts receivable as at December 31, 2020 and 2021 were overstated as the criteria for revenue recognition under IFRS 15 had not been met. There are also associated impacts on costs of sales, accrued liabilities and tax. The Group has determined that revenues of US$1.8 million and profits of US$0.7 million recognised in 2021 required reversal. Additional revenues and profits of US$0.7 million have been derecognized in relation to another take-or-pay contract in relation to which the Group has filed a claim against the customer in court.

 

Restatement in regards of goodwill impairments

As highlighted further above and discussed in more detail in Note 2 to the financial statements, the Directors concluded that a portion of the goodwill impairments identified in preparation of the 2022 Annual Accounts should have been identified during the preparation of the 2021 financials, if all available information at the point of publishing the annual report 2021 had been taken into consideration. Consequently, a retrospective review of the 2021 goodwill impairment tests was performed. It was concluded that a portion of the identified impairment amounting to US$2.3 million is to be allocated to the 2021 financial statements.

 

Going Concern Assessment

To manage its cash balance, the Group has access to credit facilities totalling CHF9.0 million (approximately US$9.8 million as of September 30, 2023). The credit facilities are in place with two different banks and both contracts have materially the same conditions. The facilities are not limited in time, can be terminated by either party at any time and allow overdrafts and fixed cash advances with a duration of up to twelve months.

 

As of September 30, 2023, the Group has drawn CHF6.3 million of the facilities (CHF2.4 million as December 31, 2022) as follows:

Maturity dates of used credit facilities:	Amount
November 27, 2023	CHF 4.5 million
June 17, 2024	CHF 0.8 million
September 30, 2024	CHF 1.0 million
Total	CHF 6.3 million

 

 

 

 

 

 

 

The facilities are not committed, but the Board has not received any indication from financing partners that facilities are at risk of being terminated. Furthermore, the Board is in discussions with financial institutions to replace the currently uncommitted credit facilities by committed, long-term facilities, but the outcome of these discussions remain uncertain.

 

The Group's directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and operate within its credit facilities for a period of 12 months from date of approval of these financial statements. Nevertheless, the Board acknowledges the uncommitted status of the facilities which could be terminated without notice during the forecast period requiring the refinancing of debts as per above maturity dates, indicates that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Further disclosure on the going concern assessment are made in Note 3b to the financial statements.

 

 

Xaver Hangartner

Chief Financial Officer

 

 

^R Details on restatements of prior year financial information are disclosed in Note 2 of the Company's Financial Statements.

 

 Consolidated statement of profit and loss and other comprehensive income

For the year ended December 31, 2022

			Year ended		Year ended
			December 31,		December 31,
			2022		2021
	Note		US$'000		US$'000
					(restated*)
Revenue	7		47,202		55,419
Cost of sales	9		(33,745)		(30,022)
Gross profit			13,457		25,397
Other income	10		4,832		6,625
Selling and general administrative expenses	11		(30,969)		(24,680)
Impairment loss on intangible assets	18		(11,651)		(2,454)
Impairment loss on property, plant & equipment	19		(730)		-
Other expenses	13		(4,184)		(6,242)
Operating loss			(29,245)		(1,354)
Finance income	14		683		534
Finance costs	15		(1,273)		(569)
Loss before taxation			(29,835)		(1,389)
Income tax	16		21		16
Loss after taxation			(29,814)		(1,373)
Other comprehensive income:
Exchange differences on translation of foreign operations			(1,914)		(2,550)
Items that may be reclassified to profit or loss in subsequent periods			(1,914)		(2,550)
Actuarial gains/(losses) from defined benefit pension plans			1,380		1,124
Income tax relating to items that will not be reclassified subsequently to profit or loss			(276)		(225)
Items that will not be reclassified to profit or loss in subsequent periods			1,104		899
Other comprehensive loss for the year			(810)		(1,651)
Total comprehensive loss for the year			(30,624)		(3,024)
Loss attributable to:
Equity holders of HeiQ			(29,251)		(1,177)
Non-controlling interests			(563)		(196)
			(29,814)		(1,373)
Total Comprehensive loss attributable to:
Equity holders of the Company			(30,061)		(2,828)
Non-controlling interests			(563)		(196)
			(30,624)		(3,024)
Loss per share:
Basic (cents)**	17		(21.92)			(0.91)

\* The consolidated statement of profit and loss and other comprehensive income has been restated in the comparative period as described in Note 2.

*\* The effect of share options is anti-dilutive and therefore not disclosed.

Consolidated statement of financial position

As at December 31, 2022

		As at December 31, 2022	As at December 31, 2021	As at December 31, 2020
	Note	US$'000	US$'000	US$'000
			(restated*)	(restated*)
ASSETS
Intangible assets	18	20,442	30,773	5,264
Property, plant and equipment	19	9,802	6,865	5,467
Right-of-use assets	20	7,819	7,974	2,564
Deferred tax assets	32	538	1,337	1,288
Other non-current assets	21	137	333	206
Non-current assets		38,738	47,282	14,789
Inventories	22	13,168	13,770	13,540
Trade receivables	23	6,487	14,656	10,080
Other receivables and prepayments	24	4,262	3,876	2,609
Cash and cash equivalents		8,488	14,560	25,695
Current assets		32,405	46,862	51,924
Total assets		71,143	94,144	66,713
EQUITY AND LIABILITIES
Issued share capital and share premium	26	205,874	195,714	184,096
Other reserves	28	(128,017)	(127,195)	(125,968)
Retained deficit	28	(39,466)	(11,525)	(10,348)
Equity attributable to HeiQ shareholders		38,391	56,994	47,780
Non-controlling interests		1,948	2,541	(20)
Total equity		40,339	59,535	47,760
Lease liabilities	30	6,558	7,209	2,304
Long-term borrowings	31	1,445	1,605	1,400
Deferred tax liability	32	1,253	2,333	857
Other non-current liabilities	33	4,714	2,619	3,425
Total non-current liabilities		13,970	13,766	7,986
Trade and other payables	34	5,322	8,271	5,815
Accrued liabilities	35	4,978	3,386	2,168
Income tax liability	16	314	51	1,495
Deferred revenue	36	1,285	1,004	-
Short-term borrowings	31	2,893	1,157	173
Lease liabilities	30	1,264	905	349
Other current liabilities	38	778	6,069	967
Total current liabilities		16,834	20,843	10,967
Total liabilities		30,804	34,609	18,953
Total equity and liabilities		71,143	94,144	66,713

 

\* The consolidated statement of financial position has been restated for the comparative periods as described in Note 2.

 

The Notes form an integral part of these Consolidated Financial Statements. The Consolidated Financial Statements were approved and authorized for issue by the Board of Directors on October 26, 2023 and signed on its behalf by:

Xaver Hangartner, Chief Financial Officer

 

Consolidated statement of changes in equity

For the year ended December 31, 2022

 

		Issued share capital and share premium	Other reserves	Retained deficit	Equity attributable to HeiQ shareholders	Non-controlling interests	Total equity
	Note	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
				(restated*)	(restated*)	(restated*)	(restated*)
Balance at January 1, 2021 (as presented)		184,096	(125,968)	(8,499)	49,629	(20)	49,609
Prior year adjustment in respect of revenue recognition		-	-	(1,849)	(1,849	-	(1,849)
Balance at January 1, 2021 (as restated)		184,096	(125,968)	(10,348)	47,780	(20)	47,760
Loss after taxation		-	-	(1,177)	(1,177)	(196)	(1,373)
Other comprehensive (loss)/income		-	(1,651)	-	(1,651)	-	(1,651)
Total comprehensive (loss)/income for the year		-	(1,651)	(1,177)	(2,828)	(196)	(3,024)
Issuance of shares	26	11,618	-	-	11,618	-	11,618
Share-based payment charges	27	-	424	-	424	-	424
Amounts arising on business combinations	5	-	-	-	-	2,757	2,757
Transactions with owners		11,618	424	-	12,042	2,757	14,799
Balance at December 31, 2021		195,714	(127,195)	(11,525)	56,994	2,541	59,535
Loss after taxation		-	-	(29,251)	(29,251)	(563)	(29,814)
Other comprehensive (loss)/income		-	(810)	-	(810)	-	(810)
Total comprehensive (loss)/income for the year		-	(810)	(29,251)	(30,061)	(563)	(30,624)
Issuance of shares	26	10,160	-	-	10,160	-	10,160
Share-based payment income	27	-	(12)	-	(12)	-	(12)
Dividends paid to minority shareholders	28	-	-	-	-	(243)	(243)
Capital contributions from minority shareholders		-	-	-	-	764	764
Adjustments arising from change in non-controlling interests	5a	-	-	(2,445)	(2,445)	(616)	(3,061)
Transfer of shares to non-controlling interest	5b	-	-	3,755	3,755	65	3,820
Transactions with owners		10,160	(12)	1,310	11,458	(30)	11,428
Balance at December 31, 2022		205,874	(128,017)	(39,466)	38,391	1,948	40,339

*'The consolidated statement of changes in equity has been restated for the comparative periods as described in Note 2.

Consolidated statement of cash flows

For the year ended December 31, 2022

			Year ended		Year ended
			December 31,		December 31,
			2022		2021
		Note	US$'000		US$'000
Cash flows from operating activities					(Restated*)
Loss before taxation			(29,835)		(1,389)
Cash flow from operations reconciliation:
Depreciation and amortization		9,11	3,655		2,947
Impairment expense		13	12,380		2,454
Net loss on disposal of assets		43	(5)		(34)
Write-off of intangible assets		13	897		-
Fair value gain on derivative liability		38	(371)		-
Gain on earnout consideration		5g	-		(80)
Finance costs			273		225
Finance income			(2)		(18)
Pension expense			247		156
Non-cash equity compensation		12	138		498
Gain from lease modification		20	(68)		-
Other costs paid in shares		26	235		-
Currency translation			(61)		(793)
Working capital adjustments:
Decrease in inventories		43	602		2,028
Decrease/(Increase) in trade and other receivables		43	7,783		(2,305)
(Decrease)/Increase in trade and other payables		43	2,543		2,181
Cash generated (used in)/from operations			(1,589)		5,870
Taxes paid		16	(870)		(2,462)
Net cash generated (used in)/from operating activities			(2,459)		3,408
Cash flows from investing activities
Consideration for acquisition of businesses		43	(1,587)		(8,857)
Cash assumed in asset acquisition		26	65		-
Purchase of property, plant and equipment		19	(3,418)		(994)
Proceeds from the disposal of property, plant and equipment			53		138
Development and acquisition of intangible assets		18	(3,865)		(2,969)
Interest received			2		18
Net cash used in investing activities			(8,750)		(12,664)
Cash flows from financing activities
Interest paid on borrowings			(110)		(108)
Repayment of leases		20,43	(992)		(662)
Interest paid on leases			(163)		(117)
Proceeds from disposals of minority interests		5b	4,792		-
Proceeds from borrowings		43	3,465		546
Repayment of borrowings		43	(904)		(928)
Dividends paid to minority shareholders		28	(243)		-
Net cash from/(used in) financing activities			5,845		(1,269)
Net decrease in cash and cash equivalents			(5,364)		(10,525)
Cash and cash equivalents - beginning of the year			14,560		25,695
Effects of exchange rate changes on the balance of cash held in foreign currencies			(708)		(610)
Cash and cash equivalents - end of the year			8,488		14,560

 

* The consolidated statement of cash flows has been restated for the comparative period as described in Note 2.

Notes to the Consolidated Financial Statements for the year ended December 31, 2022

1.             General information

 

HeiQ Plc (the Company) is a company limited by shares incorporated and registered in the United Kingdom. Its ultimate controlling party is HeiQ Plc. The address of the Company's registered office is 5th Floor, 15 Whitehall, London, SW1A 2DD.

The principal activities of the Company and its subsidiaries (the Group) and the nature of the Group's operations are set out in Note 6.

These financial statements are presented in United States Dollars (US$) which is the presentation currency of the Group, and all values are rounded to the nearest thousand dollars except where otherwise indicated. Foreign operations are included in accordance with the policies set out in Note 3.

2.            Changes in accounting policies, prior period error correction and adoption of new and revised standards

Change in accounting policy

Following the acquisitions in 2021, the Group had different accounting policies for inventory in the subsidiaries and therefore aligned the methodology during the financial year 2022 closing process to apply solely a first-in-first-out basis. The Group has assessed the impact on the valuation: the majority of inventory is valued on an individual basis and the impact is limited to functional consumer goods. It was therefore concluded that there was no material impact from the change in policy. See Note 3s for a description of the accounting policy.

 

Prior period error: Overstatement of lease assets and liabilities and reclassifications

During the compilation of the financial statements for the year ended December 31, 2022, the Group corrected an overstatement of right-of-use assets and lease liabilities assumed in the acquisition of HeiQ Chrisal N.V. It was determined that property capitalized as a right-of-use asset was owned by HeiQ Chrisal N.V. rather than leased - and the corresponding liability was that of a loan rather than a lease in nature. The loan amount payable was reported by Chrisal as short-term payables, and the assets were recognized as property, plant and equipment. In addition, at Group level, the same contracts were also recognized as right-of-use asset and lease liabilities.

 

Further, certain liabilities arising from customer contracts were incorrectly classified as deferred revenue rather than accrued liabilities and certain other payables are reclassed to short- and long-term borrowings.

 

The following table summarizes the impact of the prior period error on the financial statements of the Group.

 

	Year ended December 31, 2021
Consolidated statement of profit or loss	US$'000
Selling and general administrative expenses		16
Finance costs		(27)
Decrease in profit for the financial year		(11)
Consolidated statement of financial position
Right-of-use assets		(1,105)
Trade and other payables		1,088
Accrued liabilities		(770)
Deferred revenue		770
Short-term borrowings		(153)
Long-term borrowings		(935)
Lease liabilities (current)		149
Lease liabilities (non-current)		967
Decrease in net assets and equity		(11)

 

Prior period error: PPA Chrisal: Accounting for 51% of intangible assets acquired instead of 100%

During the purchase price allocation of the Chrisal acquisition, the Group identified and accounted for brand and customer relationship as well as technologies. The Group correctly valued the intangible assets at 51% in the purchase price allocation. However, the Group also consolidated the intangible assets at 51% when it should have accounted for them at 100% with the difference leading to an increase in non-controlling interests. The correction of the error leads to an increase in intangible assets and a higher amortization charge for the reporting period 2021.

 

The following table summarizes the impact of the prior period error on the financial statements of the Group.

 

	Year ended December 31, 2021
Consolidated statement of profit or loss	US$'000
Selling and general administrative expenses		(218)
Income tax		55
Decrease in profit for the financial year		(163)
Consolidated statement of financial position
Intangible assets		1,759
Deferred tax liability		(440)
Increase in net assets		1,319
Non-controlling interests		(1,483)
Decrease in shareholders' equity		(163)

 

Prior period error: Correcting revenue recognition of take-or-pay contracts

A further restatement concerns two significant take-or-pay contracts which have minimum guaranteed pricing irrespective of amounts delivered to the customer. Following a renegotiation with one customer post year-end, the company has reviewed its historic accounting for this contract. The conclusion of this review is that amounts recognized as revenue in 2021 and accounts receivable as at December 31, 2020 and 2021 were overstated as the criteria for revenue recognition under IFRS 15 had not been met. There are also associated impacts on costs of sales, accrued liabilities and tax.

As a further consequence, the accounting policy has been amended. Revenue from take-or-pay contracts is recognized only upon shipment of the products. See updated accounting policy and additional background on take-or-pay contracts in note 3l. This has led to a restatement for 2021 in relation to a second take-or-pay contract.

The following table summarizes the impact of the prior period error on the financial statements of the Group. The impact of the prior period error on basic earnings per share is presented in Note 17.

 

	Year ended December 31, 2021
Consolidated statement of profit or loss	US$'000
Revenue	(2,455)
Cost of sales	876
Selling and general administrative expenses	19
Income tax	174
Decrease in profit for the financial year	(1,386)
Consolidated statement of financial position
Trade receivables	(37)
Other receivables and prepayments	(2,399)
Deferred tax asset	174
Accrued liabilities	876
Decrease in net assets and equity	(1,386)

 

 

Prior period error: Goodwill impairment and currency translation Chrisal CGU and RAS CGU

In course of the preparation of the 2022 financial statements, the Group identified a goodwill impairment in relation to three CGUs (Chrisal, RAS, Life). It was found that a portion of the goodwill impairment should have already been identified during the preparation of the 2021 financials, if all available information at the point of publishing the annual report 2021 had been taken into consideration. Consequently, a retrospective review of the 2021 goodwill impairment tests was performed and the underlying framework for modelling valuation assumptions was corrected. It was concluded that a portion of the identified impairment amounting to US$2.3 million is to be allocated to the 2021 financial statements whereas US$1.3 million of the impairment charge relates to the Chrisal CGU and US$1.0 million relates to the RAS CGU. No correction to the 2021 impairment test was identified for Life CGU.

IAS 21 - The Effects of Changes in Foreign Exchange Rates requires that intangible assets including goodwill arising on the acquisition shall be treated as assets of the foreign operation. Chrisal CGU and RAS CGU both have a functional currency which is different to the presentation currency of the Group. Consequently, these intangible assets should be translated from the functional currency of the CGU, Euro, to the presentation currency US$. The company recalculated the US$ balances with the closing rate present as at December 31, 2021. This led to a decrease of the intangible asset balance as well as a charge to other comprehensive loss of US$888,000.

See Note 18 for further details.

 

	Year ended December 31, 2021
Consolidated statement of profit or loss	US$'000
Impairment loss on intangible assets		(2,310)
Decrease in profit for the financial year		(2,310)
Consolidated statement of financial position
Intangible assets		(3,198)
Other reserves		888
Decrease in net assets and equity		(2,310)

 

 

Prior period error: foreign currency risk note

The amounts in Note 42d foreign currency risk have been restated as at December 31, 2021, as they contained intercompany balances, related to long-term loans that form part of net investments in foreign operations. Such balances are eliminated at Group level while foreign currency differences that arise between the entities' functional currencies only affect other comprehensive income. The error has no impact on the consolidated financial statements.

 

Impact of error corrections on the Group's consolidated statement of financial position

The effect of error corrections on the financial year ended December 31, 2021 and the balance carried forward from December 31, 2020 is shown in the following tables:

 

 Consolidated statement of financial position                                                                                                  December 31, 2020

US$'000		As presented	Restatement revenue recognition	As Restated
Assets
Deferred tax asset		826	462	1,288
Trade receivables		13,437	(3,357)	10,080
Total Assets		69,608	(2,895)	66,713
Capital and reserves
Retained deficit		(8,499)	(1,849)	(10,348)
Total Equity		49,609	(1,849)	47,760
Liabilities
Accrued liabilities		3,214	(1,046)	2,168
Total Liabilities		19,999	(1,046)	18,953

 

 

Consolidated statement of financial position                                                                                                   December 31, 2021

US$'000	As presented	Restatement Leasing	Restatement revenue recognition	Restatement PPA Chrisal	Restatement Goodwill	As Restated
Assets
Intangible assets	32,212	-	-	1,759	(3,198)	30,773
Right-of-use assets	9,079	(1,105)	-	-	-	7,974
Deferred tax assets	701	-	636	-	-	1,337
Trade receivables	18,050	-	(3,394)	-	-	14,656
Other receivables and prepayments	6,275	-	(2,399)	-	-	3,876
Total Assets	101,845	(1,105)	(5,157)	1,759	(3,198)	94,144
Capital and reserves
Retained deficit	(5,823)	6	(3,235)	(164)	(2,310)	(11,526)
Other reserves	(126,307)				(888)	(127,195)
Non-controlling interests	1,053	5	-	1,483	-	2,541
Total Equity	64,637	11	(3,235)	1,319	(3,198)	59,535
Liabilities
Leases (non-current)	8,176	(967)	-	-	-	7,209
Long-term borrowings	670	935	-	-	-	1,605
Deferred tax liability	1,894	-	-	440	-	2,333
Trade and other payables	9,359	(1,088)	-	-	-	8,271
Accrued liabilities	4,538	770	(1,922)	-	-	3,386
Deferred revenue	1,774	(770)	-	-	-	1,004
Short-term borrowings	1,004	153	-	-	-	1,157
Leases (current)	1,054	(149)	-	-	-	905
Total Liabilities	37,208	(1,116)	(1,922)	440	-	34,609

 

 

Impact of adjustment on the Group's statement of profit and loss and other comprehensive income

December 31, 2021

 

US$'000	As presented	Restatement Leasing	Restatement revenue recognition	Restatement PPA Chrisal	Restatement Goodwill impairment	As Restated
Net result for the year
Revenue	57,874	-	(2,455)	-	-	55,419
Cost of sales	(30,898)	-	876	-	-	(30,022)
Selling and general administration expense	(24,465)	(16)	19	(218)	-	(24,680)
Impairment losses on intangible assets	(144)				(2,310)	(2,454)
Finance costs	(597)	27	-	-	-	(569)
Income tax	(212)	-	174	55	-	(16)
Income (loss) after taxation	2,474	11	(1,386)	(163)	(2,310)	(1,373
Income (loss) after taxation attributable to HeiQ Stockholders	2,676	6	(1,386)	(163)	(2,310)	(1,177)
Income after taxation attributable to non-controlling interest	(202)	5	-	-	-	(196)
Income (loss) after taxation	2,474	11	(1,386)	(163)	(2,310)	(1,373)

 

Impact of adjustment on earnings per share

December 31, 2021

US$'000	As presented	Restatement Leasing	Restatement revenue recognition	Restatement PPA Chrisal	Restatement Goodwill impairment	As Restated
Basic earnings (loss) per share	2.07	0.01	(1.08)	(0.13)	(1.78)	(0.91)

 

 

 

New standards, interpretations and amendments effective for the current period

Adopted

The following new standards and amendments were effective for the first time in these financial statements but did not have a material effect on the Group:

- Annual Improvements to IFRS Standards 2018-2020 Cycle

- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

- Property, Plant and Equipment - Proceeds before Intended Use (Amendments to IAS 16)

- Conceptual Framework for Financial Reporting (Amendments to IFRS 3)

 

New standards, interpretations and amendments not yet effective for the current period

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early. The most significant of these are as follows:

Effective for annual periods beginning on or after January 1, 2023:

? Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);

? Classification of Liabilities as Current or Non-current (Amendments to IAS 1);

? Definition of Accounting Estimates (Amendments to IAS 8); and

? Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).

 

Management anticipates that these new standards, interpretations and amendments will be adopted in the financial statements as and when they are applicable and adoption of these new standards, interpretations and amendments, will be reviewed for their impact on the financial statements prior to their initial application.

The Directors do not expect these new accounting standards and amendments will have a material impact on the Group's financial statements.

3.             Significant accounting policies

a.    Basis of preparation

The Consolidated Financial Statements have been prepared in accordance with UK adopted international financial reporting standards.

The Consolidated Financial Statements have been prepared under the historical cost convention except for certain financial and equity instruments that have been measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements are disclosed in Note 4.

b.    Going Concern

The Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realization of the assets and the settlement of liabilities in the normal course of business.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the CFO Review and in Note 31 to the financial statements. In addition, Notes 41 and 42 to the financial statements include the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.

To manage its cash balance, the Group has access to credit facilities totalling CHF9.0 million (approximately US$9.8 million as of September 30, 2023). The credit facilities are in place with two different banks but with materially the same conditions. The facilities are not limited in time, can be terminated by either party at any time and allow overdrafts and fixed cash advances with a duration of up to twelve months. In case one or the other party terminates the agreement, fixed cash advances become due upon their defined maturity date. The facilities do not contain financial covenants, but they do require the delivery of certain financial and operational information within a defined timeframe after the balance sheet date. As the publication of audited accounts for the year 2022 was delayed, the Company was not able to submit these accounts within the contractually defined timeframe but has received extensions to do so from both banks until October 31, 2023.

As of September 30, 2023, the Group has drawn CHF6.3 million of the facilities (CHF2.4 million as at December 31, 2022) as follows:

Term / Maturity date	Amount
November 27, 2023	CHF4.5 million
June 17, 2024	CHF0.8 million
September 30, 2024	CHF1.0 million

 

The Group's forecasts and projections for the next 12 months reflect the very challenging trading environment and show that the Group should be able to operate within the level of its current facility for at least 12 months from the date of signature of these financial statements if the facility drawdowns remain available. While the facilities are not committed, the Board has not received any indication from financing partners that the facilities are at risk of being terminated. Furthermore, the Board is in discussions with financial institutions to replace the currently uncommitted credit facilities by committed, long-term facilities, but the outcome of these discussions remains uncertain.

Nevertheless, the Board acknowledges the uncommitted status of the facilities which could be terminated without notice during the forecast period requiring the refinancing of debts as per above maturity date indicates that a material uncertainty exists that may cast significant doubt on the Group's and Parent Company's ability to continue as a going concern, and therefore the Group may not be able to realize its assets and discharge its liabilities in the normal course of business.

After considering the forecasts, sensitivities, and mitigating actions available to management and having regard to the risks and uncertainties to which the Group is exposed (including the material uncertainty referred to above), the Group's directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and operate within its credit facilities for the period 12 months from date of signature. Accordingly, the financial statements continue to be prepared at the going concern basis.

 

c.     Basis of consolidation

The Consolidated Financial Statements comprise the financial statements of the Company and its subsidiaries listed in Note 6 "Subsidiaries" to the Consolidated Financial Statements.

A subsidiary is defined as an entity over which the Company has control. The Company controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intra-group transactions, balances and unrealized gains on transactions between Group companies are eliminated; unrealized losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group.

Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. Those interests of non-controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair value or at the non-controlling interests' proportionate share of the fair value of the acquiree's identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity.

The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests.

The preparation of the Consolidated Financial Statements in compliance with UK adopted international accounting standards requires the Directors to exercise judgment in applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements are disclosed in Note 4 "Significant judgments, estimates and assumptions" to the Consolidated Financial Statements.

d.    Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:

?      Deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;

?      Liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 at the acquisition date (see below);

?      Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

 

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

When the consideration transferred by the Group in a business combination includes a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify

as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Other contingent consideration is remeasured to fair value at subsequent reporting dates with changes in fair value recognised in profit or loss.

When a business combination is achieved in stages, the Group's previously held interests (including joint

operations) in the acquired entity are remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete.

Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

 

e.    Foreign currency transactions and translation

The individual entities' functional currencies are listed below:

Subsidiary:	Functional currency
HeiQ Plc, United Kingdom	GBP
HeiQ Materials AG, Switzerland	CHF
HeiQ ChemTex Inc., United States of America	USD
HeiQ Pty Ltd, Australia	AUD
HeiQ GrapheneX AG, Switzerland	CHF
HeiQ Company Limited, Taiwan	TWD
HX Company Limited, Taiwan	TWD
HeiQ Medica S.L., Spain	EUR
HeiQ Iberia Unipessoal Lda, Portugal	EUR
HeiQ Chrisal N.V., Belgium	EUR
HeiQ RAS AG, Germany	EUR
HeiQ Regulatory GmbH, Germany	EUR
HeiQ (China) Material Tech LTD, China	CNY
Life Material Technologies Limited, Hong Kong	USD
Life Natural Limited, Hong Kong	USD
Life Materials Latam Ltda, Brazil	BRL
LMT Holding Limited, Thailand	THB
Life Material Technologies Limited, Thailand	THB
HeiQ AeoniQ GmbH, Austria	EUR
ChemTex Laboratories Inc., United States of America	USD

 

On a single entity level, transactions in foreign currencies are translated into the functional currency at the rate of exchange on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate ruling at the reporting date. The resulting gain or loss is reflected in the "consolidated statement of profit and loss and other comprehensive income" within operating income or operating expense, if the balance sheet account is of operating nature - e.g. trade and other receivables/payables and within either "Finance income" or "Finance costs", if the balance sheet account is of non-operating nature - e.g. cash and cash equivalents, loans receivable, payable.

Single entities with functional currencies other than US$ are translated into US$ as part of the consolidation where assets and liabilities are translated at closing rate for the year-ended, and profit and loss items are translated at an average rate for the year. Equity transactions are translated at a historic rate. The residual value flows into the currency translation reserve.

The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into US$, the presentation currency, as follows:

·      assets and liabilities are translated at the closing rate at the date of the "Statement of Financial Position";

·      income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

·      all resulting exchange differences are recognized in other comprehensive income.

On consolidation, the Group recognizes in "other comprehensive income" the exchange differences arising from the translation of the net investment in foreign entities, and of monetary items receivable from foreign subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future.

f.     Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. The cost of an item of property, plant and equipment initially recognized includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the Group.

Property, plant and equipment are generally depreciated on a straight-line basis over their estimated useful lives:

Machinery and equipment                5 - 15 years

Motor vehicles                                     4 - 5 years

Computers and related software     3 - 5 years

Furniture and fixtures                         5 - 10 years

Buildings                                              10 - 20 years

 

Freehold land is not depreciated.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Property, plant and equipment held under leases are depreciated over the shorter of the lease term and estimated useful life.

g.    Intangible assets

All intangible assets, except goodwill, are stated at cost less accumulated amortization and any accumulated impairment losses.

Goodwill

Goodwill represents the amount by which the fair value of the cost of a business combination exceeds the fair value of the net assets acquired. Goodwill is not amortized and is stated at cost less any accumulated impairment losses.

The recoverable amount of goodwill is tested for impairment annually or when events or changes in circumstance indicate that it might be impaired. Impairment charges are deducted from the carrying value and recognized immediately in the income statement. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash generating units expected to benefit from the synergies of the combination. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period. 

Intangible assets acquired in a business combination

Net assets acquired as part of a business combination includes an assessment of the fair value of separately identifiable acquisition-related intangible assets, in addition to other assets, liabilities and contingent liabilities purchased.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Acquisition-related intangible assets are amortized on a straight-line basis over their useful lives which are individually assessed.

The estimated useful lives are as follows:

Brand names                                                        10 years

Customer relations                                             5 years

Technologies                                                        10 years

Other intangible assets                                      5 - 10 years

 

Internally developed assets

Internally generated assets represent expenditure incurred on research and development projects. Recognition follows the following principles:

 

Research expenditure is recognized as an expense when it is incurred. Development expenditure is recognized as an expense except that costs incurred on development projects are capitalized as long-term assets to the extent that such expenditure is expected to generate future economic benefits. Development expenditure is capitalized if, and only if an entity can demonstrate all of the following:

·      its ability to measure reliably the expenditure attributable to the asset under development;

·      the product or process is technically and commercially feasible;

·      its future economic benefits are probable;

·      its ability to use or sell the developed asset;

·      Its intention to complete and use or sell the developed asset;

·      the availability of adequate technical, financial and other resources to complete the asset under development.

Capitalized development expenditure is measured at cost less accumulated amortization and impairment losses, if any. Certain internal salary costs are included where the above criteria are met. These internal costs are capitalized when they are incurred in respect of products developed for sale or assets developed to be used.

In the event that it is no longer probable that the expected future economic benefits will be recovered, the development expenditure is written down to its recoverable amount. Development expenditure initially recognized as an expense is not recognized as assets in subsequent periods.

Capitalized development expenditure in relation to projects that are still in development phase are capitalized as asset under construction until they are ready for sale or use. These assets are tested annually for impairment.

Internally developed assets are amortized on a straight-line method over a period of five to ten years when the asset is ready for sale or use.

 

The estimated useful life is 5-10 years.

 

 

Other intangible assets

Other intangible assets include purchased rights, licenses, patent costs, concessions, website designs and domains and trademarks. They are measured initially at purchase cost and are amortized on a straight-line basis over their estimated useful lives. The estimated useful life is 5-10 years.

 

Derecognition intangible assets

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

               

h.    Impairment of financial assets

The expected credit loss model defined in IFRS 9 "Financial Instruments" requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. The credit event does not have to occur before credit losses are recognized. IFRS 9 "Financial Instruments" allows for a simplified approach for measuring the loss allowance at an amount equal to lifetime expected credit losses for trade receivables and contract assets.

The Group has three types of financial assets subject to the expected credit loss model: trade receivables, contract assets, other receivables.

For trade receivables and contract assets, the company uses a simplified provision matrix to calculate expected credit loss: The expected loss rates are based on the Group's historical credit losses. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers.

For other receivables, the company makes use of the low credit risk exemption.

Significant increase in credit risk

In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument at the reporting date with the risk of a default occurring on the financial instrument at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. Forward looking information considered includes the future prospects of the industries in which the Group's debtors operate, obtained from economic expert reports, financial analysts, governmental bodies, relevant think-tanks and other similar organizations, as well as consideration of various external sources of actual and forecast economic information that relate to the Group's core operations.

?      In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

?      Significant deterioration in external market indicators of credit risk for a particular financial instrument, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor, or the length of time or the extent to which the fair value of a financial asset has been less than its amortized cost

?      Existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor's ability to meet its debt obligations

?      An actual or expected significant deterioration in the operating results of the debtor

?      Significant increases in credit risk on other financial instruments of the same debtor

?      An actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor's ability to meet its debt obligations

 

Irrespective of the outcome of the above assessment, the Group presumes that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 180 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise.

Despite the foregoing, the Group assumes that the credit risk on a financial instrument has not increased

significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date. A financial instrument is determined to have low credit risk if:

?      The financial instrument has a low risk of default

?      The debtor has a strong capacity to meet its contractual cash flow obligations in the near term

?      Adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations

The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

 

Definition of default

The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that financial assets that meet either of the following criteria are generally not recoverable:

?      When there is a breach of financial covenants by the debtor

?      Information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collateral held by the Group)

Irrespective of the above analysis, the Group considers that default has occurred when a financial asset is more than 360 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

 

Write-off policy

The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due unless the Group has reasonable support to assume recoverability, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Group's recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognized in profit or loss.

i.      Impairment of non-financial assets

At each reporting date, the Directors assess whether indications exist that an asset may be impaired. If indications do exist, or when annual impairment testing for an asset is required, the Directors estimate the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value-in-use, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the Directors consider the asset impaired and write the subject asset down to its recoverable amount. In assessing value-in-use, the Directors discount the estimated future cash flows to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, the Directors consider recent market transactions, if available. If no such transactions can be identified, the Directors utilize an appropriate valuation model.

When applicable, the Group recognizes impairment losses of continuing operations in the "statement of profit and loss and other comprehensive income" in those expense categories consistent with the function of the impaired asset.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss to the extent that it eliminates the impairment loss which has been recognized for the asset in prior years. Any increase in excess of this amount is treated as a revaluation increase.

j.      Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Identifying leases

Lessee position:

The Group accounts for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a period of time in exchange for consideration. Leases are those contracts that satisfy the following criteria:

·      there is an identified asset;

·      the Group obtains substantially all the economic benefits from use of the asset; and

·      the Group has the right to direct use of the asset. 

In determining whether the Group obtains substantially all the economic benefits that arise from use of the asset, the Group considers only the economic benefits that arise from use of the asset, not those incidental to legal ownership or other potential benefits.

In determining whether the Group has the right to direct use of the asset, the Directors consider whether the Group directs how and for what purpose the asset is used throughout the period of use. If there are no significant decisions to be made because they are pre-determined due to the nature of the asset, the Directors consider whether the Group was involved in the design of the asset in a way that predetermines how and for what purpose the asset will be used throughout the period of use. If the contract or portion of a contract does not satisfy these criteria, the Group applies other applicable IFRSs rather than IFRS 16 "Leases".

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used, which the Directors have assessed to be between 1.75% and 5%, depending on the nature of the asset and location.

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortized on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.

 

When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortized over the remaining (revised) lease term.

Right-of-use assets

A right-of-use asset is recognized at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. 

Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Right-of-use assets are subject to impairment or adjusted for any re-measurement of lease liabilities.  

The Group has elected not to recognize a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred.

 

k.    Taxation

The income tax expense represents the sum of the tax currently payable and deferred tax.

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Income taxation

Current income tax assets and liabilities are measured at the amount to be recovered from, or paid to, the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the jurisdictions where the Group operates and generates taxable income.

Deferred taxation

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and expected to apply when the related deferred tax is realized or the deferred liability is settled.

Deferred tax assets are recognized to the extent that it is probable that the future taxable profit will be available against which the temporary differences can be utilized.

l.      Revenue from contracts with customers

The Group's revenue represents the fair value of the consideration received or receivable for the rendering of services, licenses and similar fees as well as for the sale of functional products in different forms (mainly ingredients, materials and consumer goods), net of value added tax and other similar sales-based taxes, rebates and discounts after eliminating intercompany sales.

Revenue from contracts with customers is recognized once the performance obligation has been fulfilled. If the Group fulfills its performance obligations to the customer, revenues recognized are capitalized as contract assets until the Group invoices the customers.

In contrast, if customers pay in advance for the services, a contract liability is recognized and is released at point of revenue recognition.

 

The Group has the following major revenue streams:

Sale of goods

The Group sells functional ingredients, materials or consumer goods. Revenue from the sale of goods to customers is generally recognized at a point in time, once control over the goods is passed to customers.

 

Research and development services

HeiQ provides research and development services to customers in exchange for a fee. Revenue is generally recognized at the point in time of completion of the project, for example, with delivery of proof-of-concept to the customer.

 

Consulting services for research and development projects

HeiQ provides consulting services for customers regarding research and development projects including grant acquisition services, industry cluster services and management services. The revenue for these services is recognized over time based on completion of the project. Any amounts invoiced for stages not completed, are recognized as deferred revenue.

 

Take or pay arrangements

Certain customers have agreed, under a "take or pay" contract, to purchase a specified minimum quantity of particular products over a specified period of time, usually in exchange for a specified exclusivity during the same period. However, the customer must pay for the full quantity stated in the contract, irrespective of whether the customer takes delivery of the minimum quantity to which they are committed. Upon payment of the full amount, the contract allows customers to defer their unexercised rights and to consume the remaining units within a twelve-month period, although there is no compulsion to do so. The customers are billed for each shipment of products and revenue is recognized at the point in time control over the goods is passed to the customer. At the end of the contractual period, the customer is billed for the amounts not ordered. Revenue recognition for these shortfall items is deferred until the customer consumes the units, or, in case of expiry of the rights, typically twelve months after payment by the customer.

Exclusivity fees

HeiQ grants exclusivity to customers for certain products in certain regions. The contracts restrict HeiQ from selling specific products to competitors for a limited time. The customers pay a fee for exclusivity which increases the price of the goods supplied by HeiQ. In cases where the obligation to grant exclusivity can be valued separately from other obligations in the contract, the exclusivity portion is accounted for over time according to the contractual definition of the exclusivity period.

 

m.   Share-based payments

All of the Group's share-based awards are equity settled. Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. Equity-settled share-based payments to non-employees are measured at the fair value of services received, or if this cannot be measured, at the fair value of the equity instruments granted at the date that the Group obtains the goods or counterparty renders the service. The fair value of such shares issued has been estimated by reference to the cash consideration received for shares issued or material third party transactions at or close to the dates for such non-cash issues.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Directors' estimate of equity instruments that will eventually vest, with a corresponding increase in equity. Where the conditions are non-vesting, the expense and equity reserve arising from share-based payment transactions is recognized in full immediately on grant.

At the end of each reporting period, the Directors revise their estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to other reserves.

n.    Employee benefits

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.  A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Long-term benefits

Defined benefit plans

The Group operates a defined benefit pension plan in Switzerland, which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method with actuarial valuations being carried out at the end of each annual reporting period.

Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized immediately in the statement of financial position with a corresponding debit or credit to other reserve through "Other Comprehensive Income" in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

Past-service costs are recognized in profit or loss on the earlier of:

·      the date of the plan amendment or curtailment; and

·      the date that the Group recognizes related restructuring costs, or termination benefits, if earlier.

 

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognizes the following changes in the net defined benefit obligation under "cost of sales", "administration expenses" and "selling and distribution expenses" in the consolidated statement of profit or loss (by function):

·      service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and

·      net interest expense or income.

Defined contribution plans

The income statement expense for the defined contribution pension plans operated represents the contributions payable for the year.

o.    Financial instruments

Financial assets and financial liabilities are recognised in the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

p.    Finance income and expenses

Finance expenses comprise interest payable, lease expenses recognized in profit or loss using the effective interest method, unwinding of the discount on provisions, and net foreign exchange losses that are recognized in the income statement. 

Finance income comprises interest receivable on cash deposits and net foreign exchange gains.

Interest income and interest payable is recognized in profit or loss as it accrues, using the effective interest method.

Foreign currency gains and losses are reported on a net basis.

q.    Cash and cash equivalents

For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts.

r.     Trade and other receivables

Trade receivables are recognized initially at transaction price and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

s.     Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is based on the first-in-first-out principle and includes expenditure incurred in acquiring the inventories and other costs in bringing them to their existing location and condition.

t.     Provisions

A provision is recognized when the Group has a present obligation, legal or constructive, as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. Where the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

u.    Contingent liabilities

Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or present obligations where the outflow of resources is uncertain or cannot be measured reliably. Contingent liabilities are not recognized in the Consolidated Financial Statements but are disclosed unless they are remote.

4.            Critical accounting judgements and key sources of estimation uncertainty

In applying the Group's accounting policies, which are described in Note 3, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical accounting judgements

The following are the critical judgements, apart from those involving estimations (which are presented separately below), that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in financial statements.

 

Accounting for take-or-pay contracts

Following a change in accounting policy in connection with an identified prior period error (see Note 2), revenue recognition for shortfall items is deferred until the customer consumes the units, or typically twelve months after payment by the customer in case of expiry of the rights (Note 3l). Applying this judgement results in recognition of revenues and pre-tax profit at a later point in time. Revenue and pre-tax profits would have been US$622,000 higher for the reporting year if such revenues were not deferred in 2022.

 

Allowance for inventory obsolescence

The slowdown of sales in 2022 led to an increase in unsold finished goods and unused raw materials. The Group applied judgement in calculating the allowance for obsolete inventory. For slow-moving items, the Group compared quantities on hand with budgeted sales quantities. The sales projections are inherently uncertain due to the nature of the business and fluctuating market conditions. The inventory allowance calculated as at December 31, 2022 is US$4,912,000 (2021: US$17,000) as presented in Note 22.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

 

Goodwill impairment testing

Following the assessment of the recoverable amount of goodwill allocated to the CGU "RAS" (allocated goodwill: US$7.2 million), the directors consider the recoverable amount of goodwill allocated to CGU "RAS" to be most sensitive to the achievement of forecasts in 2023 comprising forecasts of revenue, staff costs and operating expenses based on current and anticipated market conditions. Whilst the Group can manage most of RAS CGU's costs, the revenue projections are inherently uncertain due to the nature of the business and fluctuating market conditions. The market for RAS CGU has seen a slowdown in the second half of 2022 due to a decline in customer demand. It is possible that underperformance to estimated revenues as considered in the impairment test may occur in 2023.

The sensitivity analysis for a reasonably possible change in assumptions in respect of the recoverable amount of the CGU "RAS" goodwill is presented in Note 18.

5.             Business combinations

Business combinations in 2022

a.    Acquisition of non-controlling interest in Chrisal N.V.

On December 14, 2022, HeiQ increased its interest in HeiQ Chrisal N.V. from 51% to 71% after some sellers exercised their put options. HeiQ paid ?2.9 million (approximately US$3.0 million) for the additional 20% shareholding to the vendors through the issue of 3,348,164 new ordinary shares in the Company. The 20% share was valued at US$0.6 million. The transaction resulted in a US$0.6 million reduction of non-controlling interests and a US$2.4 million charge to retained earnings.

 

b.    Transfer of shares in HeiQ AeoniQ GmbH to non-controlling interests

On February 11, 2022, HeiQ Materials AG reached an agreement with Hugo Boss AG to dispose of 2.5% of

its shareholding in HeiQ AeoniQ GmbH and issued a call option. Under the call option, the Company granted Hugo Boss AG the contractual right to acquire from the Company a further 5% shareholding in HeiQ AeoniQ GmbH for a call option exercise price of ?10,000,000 (approximately US$10,657,000). The shares and call option were issued for US$4,791,000, the call option was recognized as a derivative liability, see Note 38.

Business combinations in 2021

c.     Acquisition of Chrisal NV

On March 9, 2021, HeiQ Iberia Unipessoal Lda acquired 51% of the share capital and voting rights of Chrisal NV, a company incorporated in Belgium. Chrisal NV is a biotechnology company and a leader in innovative ingredients and consumer products that incorporate the benefits of probiotics and synbiotics. It has technology platforms with the purpose of creating healthy and sustainable microbial ecosystems. The application of its proprietary technology includes cosmetics, personal care, textiles, wound dressings, water purification, air treatment and cleaning products. The company has its office, manufacturing site and bottling facility in Lommel, Belgium.

The purchase consideration was payable partly in cash (?5,000,000, equivalent to approximately US$6,054,000) and partly by the issue of 1,101,928 new ordinary shares for ?2,500,000 (US$2,982,000), equivalent to a total consideration of US$9,036,000.

The acquisition is part of the Group's strategy of becoming a global leader in materials innovation and allows access to the broader market of microbial surface management and a bio-based green complementary technology platform to its successful antimicrobials.

Goodwill of US$6,163,000 was recognized and is attributable to anticipated future profit from expansion opportunities and synergies of the business. The goodwill arising from the acquisition has been allocated to the Chrisal CGU (see definition in Note 18). Fair value adjustments have been recognized for property, plant and equipment and acquisition-related intangible assets which are in alignment with accounting policies of the Group.

Transaction costs relating to the acquisition of US$46,000 have been charged to the Statement of profit and loss and other comprehensive Income in the period relating to the acquisition of Chrisal NV.

The sellers of Chrisal N.V. hold buyout options to sell their remaining shareholding to HeiQ. The options are exercisable every year from March 9 (anniversary of the closing date) until December 31 each year at a strike price defined in the respective shareholders' agreement. As of December 31, 2022, four out of five old shareholders have exercised their option (see above, Business combinations in 2022) and sold in total an additional interest of 20% in Chrisal N.V. to the Group. The remaining non-controlling shareholder has partially sold his interest and therefore the Group concludes that the option has lapsed as of December 31, 2022.

d.    Acquisition of RAS AG

On April 29, 2021, the Company completed the acquisition of 100% of the share capital and voting rights of RAS AG, a company based in Regensburg, Germany. The acquisition was for an initial consideration of ?5.1 million (approximately US$6.1 million), with ?1.25 million (US$1.48 million) payable in cash and ?3.85 million (US$4.66 million) through the issue of 1,701,821 new ordinary shares by the Company. An additional earn-out of ?2.7 million (US$3.2 million) was satisfied through the issuance of 2,743,841 new ordinary shares in 2022 resulting in an overall consideration of ?7.8 million (US$9.37 million).

RAS AG is a materials innovation company that drives the development of resource-efficient and sustainable products. RAS AG develops and manufactures highly functionalized materials for this purpose. This includes the manufacture of antimicrobial, hygiene-enhancing additives and durable antimicrobial coating systems which are sold worldwide under the trademark agpure®, and transparent electrically conductive and infrared reflective coatings sold under the ECOS® trademark. The acquisition is in line with HeiQ's strategic goal to gain market share in hygiene solutions by providing antimicrobial surface hygiene technologies to the healthcare and other sectors. This is building on the acquisition of Chrisal N.V. Belgium concluded earlier in the year, which gives HeiQ expanded access to the healthcare sector through probiotic and synbiotic cleaners.

Goodwill of US$7,234,000 was recognized and is attributable to anticipated future profit from expansion opportunities and synergies of the business. The goodwill arising from the acquisition has been allocated to the RAS CGU (see definition in Note 18). Fair value adjustments have been recognized for acquisition-related intangible assets which are in alignment with the accounting policies of the Group.

Transaction costs relating to the acquisition of US$50,000 have been charged to the Statement of profit and loss and other comprehensive income in the period relating to the acquisition of RAS AG.

HeiQ Regulatory GmbH, a joint-venture company previously accounted for under the equity method, became a wholly owned subsidiary on acquisition of RAS AG.

 

e.    Acquisition of Life Material Technologies Limited

On June 15, 2021, the Company completed the acquisition of 100% of the share capital and voting rights of Life Material Technologies Limited, Hong Kong ("LIFE").

The acquisition was for an upfront consideration of US$6.45 million, with US$2.55 million payable in cash (the "Cash Consideration") and US$3.9 million to be satisfied through the issue of new ordinary shares by HeiQ (the "Share Consideration"). Additional earn-out consideration of US$2,038,000 was paid in cash (US$1,400,000) and through the issue of new ordinary shares (US$638,000) in 2022. A further US$614,000 working capital adjustment was paid in shares in 2022 resulting in an overall consideration of US$9.1 million. An additional US$762,000, which is not part of the consideration, was issued in shares and is expensed as remuneration over a five-year period. 

The Share Consideration was settled on July 9, 2021 by the issue of 1,887,883 new ordinary shares ("Consideration Shares") to the sellers of LIFE, at a price of £1.496201 per share, which was the intraday volume-weighted average price (the "VWAP") of HeiQ shares on the London Stock Exchange in the last five trading days preceding the closing of the Acquisition.

LIFE is a materials technology company that has developed a strong portfolio of smart ingredients and formulations with applications in numerous industries. This includes the development and distribution of bio-based antimicrobial additives and treatments used by manufacturers of plastics, coatings, textiles, ceramics and paper, that inhibit or manage bacteria, fungi, algae, and other micro-organisms that come in contact with treated materials. LIFE has one of the broadest technology platforms in the industry, using inorganic, organic and bio-based botanical active substances.

Goodwill of US$5,202,000 was recognized and is attributable to anticipated future profit from expansion opportunities and synergies of the business. The goodwill arising from the acquisition has been allocated to the Life CGU (see definition in Note 18). Fair value adjustments have been recognized for acquisition-related intangible assets which are in alignment with the accounting policies of the Group.

Transaction costs relating to the acquisition of US$110,000 have been charged to the Statement of profit and loss and other comprehensive income in the period relating to the acquisition of LIFE.

f.     Summary of acquisitions in 2021

 

The following table summarizes the consideration paid, the fair value of assets acquired, liabilities assumed, goodwill arising on acquisition and non-controlling interests at the acquisition date:

 

	Chrisal NV	RAS AG	Life Material Technologies Limited	Total
	US$'000	US$'000	US$'000	US$'000
	(restated)			(restated)
Consideration:
Cash paid to shareholders	6,054	1,482	2,550	10,086
Shares issued to shareholders	2,983	4,656	3,900	11,539
Contingent consideration payable in cash	-	-	1,400	1,400
Contingent consideration payable in shares	-	3,232	638	3,870
Working capital adjustment payable in shares	-	-	614	614
Total Consideration payable	9,037	9,370	9,102	27,509
Fair value of net assets acquired:
Property, plant and equipment	1,872	179	29	2,080
Intangible Assets	20	159	401	580
Other non-current assets	-	-	17	17
Inventory	1,277	411	570	2,258
Cash	1,773	291	73	2,137
Trade and other receivables	874	1,184	1,480	3,538
Trade and other payables	(1,426)	(611)	(460)	(2,497)
IAS 19 Pension liability	-	-	(92)	(92)
Borrowings	(1,582)	-	(210)	(1,792)
Income tax liability	(198)	(420)	(20)	(638)
Right of use assets (restated)	161	139	122	422
Lease liability (restated)	(161)	(139)	(122)	(422)
Intangible assets identified on acquisition:
Customer Relationship	1,308	380	610	2,298
Brands	1,022	-	1,048	2,070
Technology-based assets	1,704	1,071	561	3,336
Deferred tax liability on intangible assets	(1,008)	(508)	(111)	(1,627)
Total net assets	5,636	2,136	3,896	11,668
Non-controlling interests	(2,762)	-	4	(2,758)
Goodwill	6,163	7,234	5,202	18,599
Total	9,037	9,370	9,102	27,509

 

 

 

g.    Deferred consideration in relation to acquisitions

Deferred consideration includes earnout payments and a working capital adjustment in relation to the 2021 acquisitions of RAS AG and Life Material Technologies Limited, as presented in the table above in Note 5f. Since these liabilities were due for settlement in 2022, the fair value of the consideration approximated its nominal value.

Additionally, a further amount of deferred consideration pertains to the acquisition of assets from ChemTex Inc. in 2017 and is payable other than in a short timeframe. The fair value of the deferred consideration has been discounted using an imputed interest rate of 6% (being the Group's estimated cost of debt) to take into account the time value of money.

The deferred consideration and related financing expense are summarized below:

 

	ChemTex	RAS AG	Life Material Technologies Limited	Total
	US$'000	US$'000	US$'000	US$'000
As at January 1, 2021	1,116	-	-	1,116
Amortization of fair value discount	58	-	-	58
Additions from acquisitions as per Note 5f	-	3,232	2,652	5,884
Gain on earnout calculation	-	(80)	-	(80)
Consideration settled in cash	(908)	-	-	(908)
Foreign exchange revaluation	13	-	-	13
As at December 31, 2021	279	3,152	2,652	6,083
Foreign exchange revaluation	-	(276)	-	(276)
Consideration settled in cash	(187)	-	(1,400)	(1,587)
Consideration settled in shares	-	(2,875)	(1,252)	(4,127)
As at December 31, 2022	92	-	-	92
Current liability	92	-	-	92
Non-current liability	-	-	-	-
Total	92	-	-	92

 

 

6.            Subsidiaries

 

The consolidated financial statements include the financial statements of HeiQ Plc and the subsidiaries listed in the table below.

Company	Country of registration or incorporation	Registered office	Principal activity	Percentage of ordinary shares held
HeiQ Materials AG	Switzerland	Rütistrasse 12, 8952 Schlieren Zurich	Development, production and sale of chemicals	100%
HeiQ ChemTex Inc.	United States	2725 Armentrout Dr, Concord, NC 28025	Development, production and sale of chemicals	100%
HeiQ Pty Ltd	Australia	Level 20/181 William Street, Melbourne, VIC 3000	Research and development	100%
HeiQ GrapheneX AG	Switzerland	Rütistrasse 12, 8952 Schlieren Zurich	Inactive	100%
HeiQ Company Limited	Taiwan	No. 14 & 16, Ln. 50, Wufu 1st Rd. Luzhu District, Taoyuan City 33850	Distribution	100%
HX Company Limited	Taiwan	No. 14 & 16, Ln. 50, Wufu 1st Rd. Luzhu District, Taoyuan City 33850	Trading and production	66.7%
HeiQ Medica S.L.	Spain	Plaza de la Estación s/n, 29560 Pizarra	Manufacturer of medical devices	50.1%
HeiQ Iberia Unipessoal Lda	Portugal	Rua Engº Frederico Ulrich, nº 2650, 4470-605 Maia	Sales agency and internal services company	100%
Chrisal NV	Belgium	Priester Daensstraat 9, 3920 Lommel, Belgium	Biotechnology	71%
HeiQ RAS AG	Germany	Rudolf Vogt Straße 8-10, 93053 Regensburg	Materials innovation	100%
HeiQ Regulatory GmbH	Germany	Rudolf Vogt Straße 8-10, 93053 Regensburg	Materials innovation	100%
HeiQ (China) Material Tech LTD	China	Room 2501, Xuhui Commercial Mansion, No. 168 Yude Road, Shanghai	Distribution	100%
Life Material Technologies Limited	Hong Kong	Alexandra House, 6th Floor, 16-20 Chater Road, Central	Materials technology	100%
Life Natural Limited	Hong Kong	Alexandra House, 6th Floor, 16-20 Chater Road, Central	Inactive	100%
Life-Materials Latam Ltda	Brazil	Rua Cerro Cora 1851Villa Romano, Sao Paulo SP Brasil CEP 05061350	Sales office	51%
LMT Holding Limited	Thailand	222 Lumpini Building 2, 247 Rajdamri Road Lumpini, Phatumwan, Bangkok 10330	Holding	96.45%
Life Material Technologies Limited	Thailand	222 Lumpini Building 2, 247 Rajdamri Road Lumpini, Phatumwan, Bangkok 10330	Trading	99.995%
HeiQ AeoniQ GmbH	Austria	Industriestrasse 35, 3130 Herzogenburg	Materials Innovation	97.5%
ChemTex Laboratories Inc.	United States	2725 Armentrout Dr, Concord, NC 28025	Chemical production site	100%
Beijing HeiQ Material Tech Co., Ltd.	China	Room 17B9870, Floor 17, 101 Nei, -4 to 33, Building 13, Wangjing Dongyuan Siqu, Chaoyang District, Beijing	Inactive/Distribution	100%

 

 

7.             Revenue

 

The Group's activities are materials innovation which focuses on scientific research, manufacturing and consumer ingredient branding. The primary source of revenue is the production and sale of functional ingredients, materials and consumer goods. Other sources of revenue include services for research and development, take-or-pay and exclusivity. 

The following table reconciles HeiQ Group's revenue for the periods presented:   

 

 

		Year ended			Year ended
		December 31,			December 31,
		2022			2021
Revenues by form		US$'000			US$'000
						(restated)
Revenue recognized at a point in time
Functional ingredients		36,175			41,951
Functional materials		2,000			850
Functional consumer goods		6,827			10,069
Services		160			2,548
Revenue recognized over time
Services		2,040			-
Total revenue		47,202			55,419

Unsatisfied performance obligations

 

 

The transaction prices allocated to unsatisfied and partially unsatisfied obligations at 31 December 2022 are as set out below:

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Unsatisfied performance obligations		US$'000		US$'000
Exclusivity services		2,100		2,400
Research and development services		3,750		4,000
Total unsatisfied performance obligations		5,850		6,400

 

Management expects that 19 per cent of the transaction price allocated to the unsatisfied contracts as of the year ended 2022 will be recognized as revenue during the next reporting period (US$1.1 million). The remaining 81 per cent, US$4.8 million will be recognized in the 2024 (US$1.1 million), 2025 (US$3.1 million) and 2026 financial year (US$0.6 million).

 

Disclosure related to contracts with customers

Contract assets and contract liabilities are disclosed under Note 25 and Note 37, respectively. Impairment losses recognized on any receivables or contract assets arising from the Group's contracts with customers are disclosed under Note 23 and Note 25, respectively.

8.            Operating Segments

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of the Company.

For management purposes, the Group is organised into business units and the following reportable segments:

Segment	Activity
Textiles & Flooring	Provide innovative ingredients to make textiles & flooring more functional, durable and sustainable.
Life Sciences	Offer biotech solutions to replace harmful substances in domestic, commercial and industrial usage, for a more balanced microbiome and environment
Antimicrobials	Functionalize different hard surfaces in everyday products and our surroundings
Other activities	All other activities of the Group including Innovation Services, Business Development, and other non-allocated functions.

 

Segment revenues and profits

The following is an analysis of the Group's revenue and results by reportable segment in 2022:

	Textiles & Flooring	Life Sciences	Antimicrobials	Other activities	Total
Year ended December 31, 2022	US$'000	US$'000	US$'000	US$'000	US$'000
Revenue	33,870	6,894	3,577	2,861	47,202
Operating profits (loss)	979	(1,078)	53	(29,199)	(29,245)
Finance result					(590)
Loss before taxation					(29,835)
Taxation					21
Loss after taxation					(29,814)

 

Depreciation and amortization
Property, plant and equipment	308	260	16	698	1,282
Right-of use assets	-	-	-	938	938
Intangible Assets	-	-	-	1,435	1,435

 

Impairment loss
Property, plant and equipment	-	730	-	-	730
Intangible Assets	-	-	-	12,380	12,380

 

	Textiles & Flooring	Life Sciences	Antimicrobials	Other activities	Total
Year ended December 31, 2021	US$'000	US$'000	US$'000	US$'000	US$'000
Revenue	39,773	10,115	3,739	1,792	55,419
Operating profits (loss)	14,196	1,438	1,106	(18,096)	(1,354)
Finance result					(35)
Loss before taxation					(1,389)
Taxation					16
Loss after taxation					(1,373)

 

Depreciation and amortization
Property, plant and equipment	300	273	-	683	1,255
Right-of use assets	-	-	-	716	716
Intangible Assets	-	-	-	976	976

 

Impairment loss
Intangible Assets	-	-	-	2,454	2,454

 

 

Segment revenue reported above represents revenue generated from external customers. There were no

intersegment sales in the year ended December 31, 2022 (2021: nil).

 

The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 3. Segment profit represents the profit earned by each segment without allocation of the central SG&A costs including expenses for infrastructure, R&D and laboratories, directors' salaries, finance income, nonoperating gains and losses in respect of financial instruments and finance costs, and income tax expense. This is the measure reported to the Group's decision-making body for the purpose of resource allocation and assessment of segment performance.

 

Geographic information

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
		US$'000		US$'000
Revenue by region				(restated)
North & South America		20,425		19,290
Asia		13,376		19,580
Europe		13,109		16,237
Others		293		312
Total revenue		47,202		55,419

 

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
		US$'000		US$'000
Non-current assets by region				(restated)
Europe		22,290		31,008
Asia		8,102		8,593
North & South America		7,734		6,860
Others		612		821
Total non-current assets		38,738		47,282

 

Information about major customers

During the year ended December 31, 2022, no customers individually totaled more than 10% of total revenues (2021: none).

 

9.            Cost of sales

 

		Year ended			Year ended
		December 31,			December 31,
		2022			2021
		US$'000			US$'000
Cost of sales					(restated)
Material expenses		20,942			23,704
Personnel expenses		2,830			2,164
Depreciation of property, plant and equipment		652			706
Other costs of sales		9,321			3,448
Total cost of sales		33,745			30,022

 

Other costs of goods sold include freight and custom costs, warehousing and allowances on inventory.

 

 

 

10.          Other income

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Other income		US$'000		US$'000
Gain on disposal of property plant and equipment		21		54
Gain on earnout consideration payable (Note 5g)		-		80
Foreign exchange gains		3,539		5,032
Fair value gain on derivative liabilities (Note 38)		371		-
Other income		901		1,459
Total other income		4,832		6,625

 

11.           Selling and general administration expenses

	Year ended		Year ended
	December 31,		December 31,
	2022		2021
Selling and general administration expenses	US$'000		US$'000
			(restated)
Personnel expenses	14,977		13,074
Depreciation of property, plant and equipment	630		549
Amortization	1,435		976
Depreciation of right-of-use assets	938		716
Net credit losses on financial assets and contract assets	85		307
Other	12,904		9,058
Total selling and general administration expense	30,969		24,680

 

Other selling and general administration expenses include costs for infrastructure, professional services and marketing as well as R&D and laboratory related costs, information technology & data expenses, sales representative & distribution expenses.

 

Auditor's remuneration

 

The total remuneration of the Group's auditors, being Deloitte LLP for the audit of the year ended December 31, 2022 and Crowe UK LLP for the audit of the year ended December 31, 2021, for services provided to the Group, and included in other selling and general administration expenses, is analyzed below:

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Auditor's remuneration		US$'000		US$'000
Audit of Group		1,180*		231
Audit of subsidiaries		122		84
Total fees for audit services		1,302		315
Audit related assurance services		-		6
Other assurance services		-		-
Total auditor remuneration		-		6

 

*: Includes US$180,000 related to the 2021 audit (Crowe UK LLP) which was agreed on after the issuance of the annual report.

 

 

 

12.          Personnel expenses

 

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Personnel expenses		US$'000		US$'000
Wages & salaries		15,274		12,708
Social security & other payroll taxes		1,685		1,387
Pension costs		710		645
Share-based payments		138		498
Total personnel expenses		17,807		15,238

 

Reported as cost of sales (Note 9)		2,830		2,164
Reported as selling and general administration expense (Note 11)		14,977		13,074
Total personnel expenses		17,807		15,238

 

 

The average monthly number of employees was as follows:

218

221

 

 

 

13.           Other expenses

 

	Year ended		Year ended
	December 31,		December 31,
	2022		2021
Other expenses	US$'000		US$'000
Foreign exchange losses	3,050		4,671
Loss on disposal of property, plant and equipment	16		20
Transaction costs relating to mergers and acquisitions	50		206
Write off intangible assets (Note 18)	897		-
Other	171		1,345
Total other expenses	4,184		6,242

 

 

 

14.          Finance income

 

	Year ended	Year ended
	December 31,	December 31,
	2022	2021
Finance income	US$'000	US$'000
Interest income	5	4
Gains on foreign currency transactions	678	518
Other	-	12
Total finance income	683	534

15.           Finance costs

 

	Year ended		Year ended
	December 31,		December 31,
	2022		2021
Finance costs	US$'000		US$'000
			(restated)
Amortization of deferred finance costs - acquisition costs	-		58
Lease finance expense	163		117
Interest on borrowings	110		108
Bank fees	98		55
Loss on foreign currency transactions	902		231
Total finance costs	1,273		569

 

 

16.          Income tax

 

For the year ending December 31, 2022, the Group had a tax credit of US$21,000 (2021: tax credit of US$16,000). The effective tax rate was 0.1% (2021: 1.2%). The effective tax rate was primarily impacted by non-deductible expenditure following the goodwill impairment expense as well as unrecognized tax losses.  

The components of the provision for taxation on income included in the "Statement of profit or loss and other comprehensive income" are summarized below:

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Current income tax expense		US$'000		US$'000
Swiss corporate income taxes		58		(282)
United States state and federal taxes		393		(33)
Taiwan corporate income taxes		118		200
Belgium corporate income taxes		(123)		186
Germany corporate income taxes		51		301
Others		63		43
Total current income tax expense		560		415
Deferred income tax expense
Switzerland		90		(190)
United States		(606)		138
China		117		(146)
Spain		-		108
Austria		20		(25)
Belgium		(136)		(285)
Others		(66)		(31)
Total deferred income tax expense (income)		(581)		(431)
Total income tax expense (income)		(21)		(16)

 

In addition to the amount charged to profit or loss, the following amounts relating to deferred tax have been recognized in other comprehensive income:

 

	Year ended		Year ended
	December 31,		December 31,
Items that will not be reclassified subsequently to profit or loss	2022		2021
	US$'000		US$'000
Remeasurement of net defined benefit liability	(276)		(225)
Total income tax recognized in other comprehensive income	(276)		(225)

 

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Net tax (assets)/liabilities		US$'000		US$'000
Opening balance - (prepaid taxes)		51		1,495
Assumed on business combinations		-		638
Assumed on asset acquisition		(32)
Income tax expense for the year		560		415
Taxes paid		(870)		(2,462)
Foreign currency differences		(52)		(35)
Net tax (asset)/liability		(343)		51

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Net tax (assets) liabilities		US$'000		US$'000
Prepaid income taxes		(657)		(444)
Income tax liabilities		314		495
Net tax (asset)/liability		(343)		51

 

Since the Group operates internationally, it is subject to income taxes in many different tax jurisdictions. The Group calculates its average expected tax rate as a weighted average of the tax rates in the tax jurisdictions in which the Group operates. This rate changes from year to year due to changes in the mix of the Group's taxable income and changes in local tax rates.

 

The Group's average expected tax rate was stable at 21.1% in 2022 (2021: 20.6%). During 2022, there were no significant changes to local tax rates in the tax jurisdictions in which the Group operates.

 

The differences between the statutory income tax rate and the effective tax rates are summarized as follows:

 

 

US$'000		Year ended December 31, 2022
Expected tax at average tax rate		(6,304)		21.1%
Increase/(decrease) in tax resulting from:
Tax credits		(340)		1.1%
Unrecognized tax losses		3,796		(12.7%)
Non-deductible expenditure		2,586		(8.7%)
Temporary differences		165		(0.6%)
Other - net		76		(0.1%)
		(21)		0.1%

 

 

US$'000		Year ended December 31, 2021
Expected tax at average tax rate		(285)		20.6%
Increase/(decrease) in tax resulting from:
Tax credits		(58)		4.1%
Unrecognized tax losses		378		(27.2%)
Non-deductible expenditure		296		(21.3%)
Tax exempt income		(105)		7.6%
Temporary differences		(259)		18.6%
Other - net		17		(1.2%)
		(16)		1.2%

 

 

17.           Earnings per share

 

The calculation of the basic earnings per share is based on the following data:

 

Earnings

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
		US$'000		US$'000
				(restated*)
Loss attributable to the ordinary equity holders of the parent entity		(29,251)		(1,177)

*Earnings have been restated in the comparative period as described in note 2.

 

Number of shares

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Weighted average number of ordinary shares for the purposes of basic earnings per share		133,426,953		128,871,639

 

Basic earnings per share is calculated by dividing the profit/loss after tax attributable to the equity holders of the Company by the weighted average number of shares in issue during the year. The effect of share options is anti-dilutive and therefore not disclosed.

 

18.          Intangible assets

 

	Goodwill	Internally developed assets	Brand names and customer relations	Acquired technologies	Other intangible assets	Total
Cost	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	(restated)		(restated)	(restated)		(restated)
As at January 1, 2021	3,516	1,851	295	-	491	6,153
Reclassification*	-	(725)	-	-	725	-
Additions through business combinations	18,599	-	4,368	3,336	580	26,883 26,883
Additions arising from internal development	-	2,390	-	-	-	2,390
Other acquisitions	-	-	-	-	579	579
Currency translation differences	(733)	(7)	(160)	(156)	(43)	(1,099)
As at December 31, 2021	21,382	3,509	4,503	3,180	2,332	34,906
Additions arising from internal development	-	2,165	-	-	-	2,165
Other acquisitions	-	-	-	-	1,700	1,700
Disposals / write-offs	-	(85)	-	-	(812)	(897)
Currency translation differences	(795)	5	(160)	(165)	14	(1,101)
As at December 31, 2022	20,587	5,594	4,343	3,015	3,234	36,773
Amortization and accumulated impairment losses
As at January 1, 2021	-	432	107	-	350	889
Reclassification*	-	(19)	-	-	19	-
Amortization for the year	-	50	516	246	164	976
Impairment loss	2,433	21	-	-	-	2,454
Currency translation differences	(128)	(10)	(21)	(12)	(15)	(186)
As at December 31, 2021	2,305	474	602	234	518	4,133
Amortization for the year	-	198	695	334	208	1,435
Impairment loss	10,576	880	73	-	122	11,651
Currency translation differences	(750)	3	(72)	(45)	(24)	(888)
As at December 31, 2022	12,131	1,555	1,298	523	824	16,331
Net book value
As at December 31, 2021	19,077	3,035	3,901	2,946	1,814	30,773
As at December 31, 2022	8,456	4,039	3,045	2,492	2,410	20,442

 

*Regulatory registrations have been reclassed from internally developed assets to other intangible assets.

Internally generated assets represent expenditure incurred on development projects and IT.  

Other intangible assets include acquired rights, licenses, patent costs, concessions, website designs and domains and trademarks.

Goodwill

Goodwill acquired in a business combination was allocated, at acquisition, to the following cash generating units (CGUs):

CGU	Description of activities
ChemTex	This CGU is based on the 2017 acquisition of ChemTex Inc. The CGU's main activities are carpet polymer, industrial polymer, textile finishes, R&D, laboratory work, production and sales. The CGU contributes to the Group's Textiles & Flooring segment.
Chrisal	The CGU is based on the 2021 acquisition of Chrisal, a biotechnology company and a leader in innovative ingredients and consumer products that incorporate the benefits of probiotics and synbiotics. The CGU contributes to the Group's Life Sciences segment.
RAS	The CGU is based on the 2021 acquisition of RAS AG. RAS AG develops and manufactures antimicrobial, hygiene-enhancing additives and durable antimicrobial coating systems which are sold under the trademark agpure®, and transparent electrically conductive and infrared reflective coatings sold under the ECOS® trademark. The CGU contributes to the Group's Antimicrobials segment.
Life	The CGU is based on the 2021 acquisition of Life Group. LIFE develops and distributes bio-based antimicrobial additives and treatments used by manufacturers of plastics, coatings, textiles, ceramics and paper, that inhibit or manage bacteria, fungi, algae, and other micro-organisms that come in contact with treated materials. The CGU contributes to the Group's Antimicrobials segment.
MasFabEs	The CGU is based on the 2020 acquisition of MasFabEs. The MasFabEs CGU manufactures medical masks and devices. The CGU contributes to the Group's Life Sciences segment.

 

Goodwill before impairment losses has been allocated to CGUs as follows:

		As at		As at
		December 31,		December 31,
		2022		2021
Goodwill		US$'000		US$'000
ChemTex		3,393		3,393
Chrisal*		5,428		5,791
RAS*		6,441		6,873
Life		5,202		5,202
MasFabEs		123		123
Total goodwill acquired		20,587		21,382

\* The balances of Chrisal and RAS are revalued from ? to US$ at each reporting date.

 

The Group tests goodwill annually for impairment or more frequently if there are indications that these assets might be impaired. The recoverable amount of each CGU is determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by the directors. The projections are based on a five-year period and a pre-tax discount rate of 12 per cent per annum for CGUs ChemTex and RAS and 14 per cent per annum for CGUs Chrisal and Life (2021: 14 per cent per annum). The discount rate is based on pre-tax weighted average cost of capital for an average company in the chemical industry adjusted for relative size and risks of each CGU. The directors expect income from all CGUs over the next five years. The perpetuity growth rate used is based on consumer price index relevant for each CGU.

 

The assumptions used by management in forecasting revenues for the relevant periods are as follows:

For 2023, forecast has been determined by adjusting the forecast for the year as approved by the Board ("Budget") for any variance of actual performance (to date May 2023) against it. For later periods, revenue growth was estimated based on historic (2018-2022) compound annual growth rate of the respective business.  Operating profits are forecast based on historical experience of operating margins, adjusted for the impact of known or expected changes in pricing and regional inflation expectations.

 

2022 goodwill impairment test

A summary of the key assumptions used in the value-in-use calculation is set below:

 

Assumption	ChemTex	Chrisal	RAS	Life
Compound annual growth rate for the next five years	1.2%	3.8%	13.9%	(0.8%)
Discount factor	12.2%	13.8%	11.7%	14.1%
Perpetual growth rate	2.0%	1.7%	2.0%	2.5%

 

As of end of December 2022, the Group conducted its annual goodwill impairment test review and identified that the aggregated carrying amount of each Chrisal CGU, RAS CGU and Life CGU exceeded its aggregated recoverable amount (based on the value in use approach and post-tax discount rate ranges in the 2022 table above) resulting in a total impairment loss recognized of US$10,576,000 (2021 restatement: US$2,310,000) which is accounted for as "other expenses" in the financial statements.

Goodwill relating to Chrisal CGU saw an impairment loss of US$2,402,000 in the reporting period 2022 (2021 restatement: US$1,275,000). The impairment charge results from the fact that the market development of the new technology is taking longer than anticipated at the time of acquisition of the company and therefore short-term growth assumptions have been adjusted down.

A partial goodwill impairment of US$2,972,000 for the 2022 reporting period (2021 restatement: US$1,035,000) relates to RAS CGU. The impairment loss relates to the fact that the innovation advisory business has been affected by the unexpected, temporary closing of certain government programs. Additionally, investments into innovations in general are under review as global economic markets have destabilized since acquisition. Furthermore, market launch and respective profit contribution is expected to be delayed compared to expectations upon acquisition of RAS in 2021, negatively impacting the years in consideration for the calculation of the recoverable amount of the CGU.

Lastly, the full US$5,202,000 goodwill balance relating to Life CGU was impaired in the reporting year 2022. The reason for the impairment is the significant decrease in sales towards the end of 2022 which has caused the Board to significantly lower growth expectations of the CGU for the years relevant for the calculation of the recoverable amount.

 

As a result of the impairment losses described above, the following book values remain for each CGU:

 

		As at		As at
		December 31,		December 31,
		2022		2021
Goodwill book value		US$'000		US$'000
ChemTex		3,393		3,393
Chrisal		2,189		4,593
RAS		2,874		5,889
Life		-		5,202
MasFabEs		-		-
Total goodwill book value		8,456		19,077

\* The balances of Chrisal and RAS are revalued from ? to US$ at each reporting date.

 

Sensitivity analysis

 

The Group has conducted an analysis of the sensitivity of the impairment test to reasonably possible changes in the key assumptions used to determine the recoverable amount for each CGU to which goodwill is allocated. In the process, the recoverable amount for RAS CGU was identified as key estimate.

An reasonably possible underperformance against the forecast sales growth rate (13.9%) for RAS CGU by 8.9 percent points, i.e. applying a compound annual growth rate of 5% for the next five years, would lead to an additional impairment charge of US$2.1 million.

 

2021 goodwill impairment test

In the reporting year ended December 31, 2021, the goodwill related to the MasFabEs CGU was tested for impairment. The MasFabEs CGU manufactures medical masks and devices. Using a discount rate of 14%, the Company calculated a value-in-use of US$544,000 which was less than the carrying amount and accordingly an impairment provision of US$123,000 was posted in the year ended December 31, 2021. The impairment was a consequence of declining customer demand.

Furthermore, as explained in Note 2, the 2021 goodwill impairment test result has been restated which resulted in an impairment charge of US$1,275,000 and US$1,035,000 for Chrisal and RAS CGU respectively.

Internally developed assets under construction

The Group tests internally developed assets under construction on a yearly basis. The Directors consider whether estimated future economic benefits outweigh the costs capitalized by reviewing whether each project:

·      is still in development phase;

·      can be used or sold in the future; and

·      can be completed given the technical, financial and other resources available.

 

The Group has processes in place for continually reviewing development expenditure to ensure that projects under development are still viable. In the reporting year ended December 31, 2022, a US$880,000 impairment was considered in relation to the GrapheneX project assets as timing of future benefits is not predictable with high enough certainty.

Internally developed assets and other intangibles with finite lives

The Group tests internally developed assets and other intangibles with finite lives for impairment only if there are indications that these assets might be impaired. The Group has processes in place for continually reviewing development expenditure to ensure that projects under development are still viable. For the reporting year ended December 31, 2022, the Company concluded that an impairment of US$122,000 is necessary for capitalized registration fees obtained in the acquisition of RAS following decreased customer demand. Additionally, brand names and customer relations related to the Life CGU saw an impairment of US$73,000 as a result of the sales decline mentioned above in the goodwill impairment test.

19.          Property, plant and equipment

	Machinery and equipment	Motor vehicles	Computers and software	Furniture and fixtures	Land and buildings	Total
Cost	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
As at January 1, 2021	6,779	492	810	132	-	8,213
Acquisition on business combination	191	19	24	171	1,675	2,080
Additions	596	67	104	213	14	994
Disposals	(30)	(37)	-	(15)	(68)	(150)
Currency translation differences	(248)	(5)	(24)	(27)	(98)	(402)
As at December 31, 2021	7,288	536	914	474	1,523	10,735
Additions	2,272	26	197	50	2,736	5,280
Disposals	(69)	(12)	-	-	-	(81)
Reclassifications	(407)	59	-	348	-	-
Currency translation differences	(233)	(1)	(21)	(23)	(91)	(369)
As at December 31, 2022	8,851	608	1,090	849	4,168	15,565
Depreciation and accumulated impairment losses
As at January 1, 2021	2,002	242	464	38	-	2,746
Charge for the year	797	118	168	55	117	1,255
Eliminated on disposal	(13)	(26)	-	(7)	-	(46)
Currency translation differences	(63)	(4)	(13)	-	(5)	(85)
As at December 31, 2021	2,723	330	619	86	112	3,870
Charge for the year	763	90	218	83	128	1,282
Eliminated on disposal	(27)	(5)	-	-	-	(32)
Impairment loss	730	-	-	-	-	730
Reclassifications	(222)	-	-	222	-	-
Currency translation differences	(67)	-	(9)	(3)	(7)	(86)
As at December 31, 2022	3,900	415	828	388	233	5,764
Net book value
As at December 31, 2021	4,565	206	295	388	1,411	6,865
As at December 31, 2022	4,951	193	262	461	3,935	9,802

 

 

 Impairment losses recognized in the year

During the year ended December 31, 2022, as a result of the significant decline in demand for of certain types of hygiene masks, the Group carried out a review of the recoverable amount of machinery. The Group recognized an impairment loss of US$730,000 for machinery that was intended to be used to manufacture hygiene masks for which demand declined significantly. The asset was used in the Life Sciences reportable segment.

20.          Right-of-use assets

	Land and buildings	Motor vehicles	Machinery and equipment	Total
	US$'000	US$'000	US$'000	US$'000
Cost	(restated)		(restated)	(restated)
As at January 1, 2021	3,701	76	41	3,818
Additions through business combinations	122	300	-	422
Additions	5,147	289	264	5,700
Disposals due to expiry of lease	-	(33)	(9)	(42)
Currency translation differences	(57)	(21)	45	(33)
As at December 31, 2021	8,913	611	341	9,865
Additions	86	174	1,921	2,181
Disposals due to expiry of lease	-	(36)	-	(36)
Disposals due to business combination*	(467)	-	-	(467)
Modification to lease terms**	(1,199)	-	-	(1,199)
Currency translation differences	(381)	(67)	(26)	(474)
As at December 31, 2022	6,952	682	2,236	9,870
Depreciation
As at January 1, 2021	1,182	60	12	1,254
Depreciation for the year	564	89	63	716
Disposals due to expiry of lease	-	(32)	(9)	(41)
Currency translation differences	(30)	(8)	-	(38)
As at December 31, 2021	1,716	109	66	1,891
Depreciation for the year	730	140	68	938
Disposals due to expiry of lease	-	(36)	-	(36)
Modification to lease terms**	(693)	-	-	(693)
Currency translation differences	(34)	(6)	(9)	(49)
As at December 31, 2022	1,719	207	125	2,051
Net book value
As at December 31, 2021	7,197	502	275	7,974
As at December 31, 2022	5,233	475	2,111	7,819

 

*With the acquisition of ChemTex Laboratories' property, plant and equipment (Note 26), the Group no longer has a lease liability with a third party.

*\* The Group agreed to shorten the agreed lease terms of two existing leases from 2032 to 2027. These

modifications have resulted in a reduction in the total amounts payable under the leases and a reduction to both of the right-of-use assets and lease liabilities with effect from the date of modification as follows:

 

	Before revaluation	After revaluation	Revaluation
Revaluation	US$'000	US$'000	US$'000
Right-of-use assets	1,385	879	(506)
Lease liabilities	(1,453)	(879)	574
Impact on net assets	68	-	68

 

The impact on net assets was recognized as non-operating income.

 

Amounts recognized in profit and loss

	As at December 31, 2022	As at December 31, 2021
	US$'000	US$'000
		(restated)
Depreciation expense on right-of-use assets	938	716
Interest expense on lease liabilities	163	118
Expense relating to short-term leases	225	189
Expense relating to leases of low value assets	40	22

 

Amounts recognized in cash flow statement

	As at December 31, 2022	As at December 31, 2021
	US$'000	US$'000
		(restated)
Total fixed lease payments	992	662
Interest paid on leases	163	117

 

21.          Other non-current assets

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
Deposits	80	140
Other prepayments	57	193
Other non-current assets	137	333

 

22.          Inventories

		As at		As at
		December 31,		December 31
		2022		2021
		US$'000		US$'000
Functional ingredients		7,420		7,480
Functional materials		4,000		4,310
Functional consumer goods		1,748		1,822
Services		-		158
Total inventories		13,168		13,770

 

The cost of inventories recognized as an expense during the year in respect of continuing operations was US$33,597,000 (2021: US$30,022,000).

The cost of inventories recognized as an expense includes US$4,912,000 (2021: US$17,000) in respect of write-downs of inventory to net realizable value. The write-downs are mainly related to stock that is unlikely to be sold or consumed within 12 months due to a decline in forecasted customer demand.

There have been no reversals of such write-downs for the reporting period (2021: nil).

 

 

23.          Trade receivables

 

			As at				As at
			December 31,				December 31,
			2022				2021
Trade receivables			US$'000				US$'000
								(restated)
Not past due			2,788				7,567
< 30 days			520				2,930
31-60 days			781				55
61-90 days			215				1,115
91-120 days			180				351
>120 days			2,407				2,962
Total trade receivables			6,891				14,980
Provision for expected credit losses			(404)				(324)
Total trade receivables (net)			6,487				14,656

 

The average credit period on sales of goods varies by region from 30 - 120 days. No interest is charged on outstanding trade receivables. The Group always measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor's current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast.

As at December 31, 2022, the Group has recognized an expected credit loss of US$404,000 (2021: US$324,000). The following table details the risk profile of receivables based on the Group's provision matrix.

 

Lifetime Expected credit losses on trade receivables

	Trade receivables - days past due
	Not past due	1-60	61-120	>120 days	Total
Expected credit loss on trade receivables 2022	US$'000	US$'000	US$'000	US$'000	US$'000
Expected credit loss rate	0%	0%	0%	17%	6%
Estimated total gross carrying amount at default	2,788	1,301	395	2,406	6,891
Lifetime ECL as at December 31, 2022	-	-	-	404	404

 

	Trade receivables - days past due
	Not past due	1-60	61-120	>120 days	Total
Expected credit loss on trade receivables 2021	US$'000	US$'000	US$'000	US$'000	US$'000
Expected credit loss rate	0%	0%	0%	11%	2%
Estimated total gross carrying amount at default	7,567	2,985	1,466	2,962	14,980
Lifetime ECL as at December 31, 2021	-	-	-	324	324

 

 

The following table shows the movement in lifetime ECL that has been recognized for trade receivables in

accordance with the simplified approach set out in IFRS 9.

		Individually assessed	Collectively assessed	Total
Expected credit losses		US$'000	US$'000	US$'000
Balance as at January 1, 2021		13	27	40
Net remeasurement of loss allowance		288	19	307
Foreign exchange gains and losses		(23)	-	(23)
Balance as at December 31, 2021		278	46	324
Net remeasurement of loss allowance		172	(6)	166
Amounts written off		(81)	-	(81)
Foreign exchange gains and losses		(4)	(1)	(5)
Balance as at December 31, 2022		365	39	404

The following tables explain how significant changes in the gross carrying amount of the trade receivables contributed to changes in the loss allowance:

 

Increase (decrease) in lifetime expected credit losses for 2022	US$'000
Origination of new trade receivables net of those settled, as well as increase in days past due up to 120 days	172
Write-off of receivables older than 120 days	(81)
Increase (decrease) in lifetime expected credit losses for 2021	US$'000
Origination of new trade receivables net of those settled, as well as increase in days past due up to 120 days	288

 

 

24.          Other receivables and prepayments

		As at		As at
		December 31,		December 31,
		2022		2021
		US$'000		US$'000
Contract assets		115		250
Receivables from tax authorities		1,864		1,734
Prepayments		1,023		1,052
Other receivables		1,260		840
Total other receivables and prepayments		4,262		3,876

 

25.          Contract assets

 

Amounts relating to contract assets are balances due from customers under construction contracts that arise when the Group receives payments from customers in line with a series of performance-related milestones. The Group recognizes a contract asset for any work performed. Any amount previously recognized as a contract asset is reclassified to trade receivables at the point at which it is invoiced to the customer.

	As at December 31,	As at December 31,	As at January 1,
	2022	2021	2021
	US$'000	US$'000	US$'000
Research and development services	65	80	-
Take-or-pay services	-	170
Exclusivity services	50	-	-
Total contract assets	115	250	-

 

Current assets	115	250	-
Non-current assets	-	-	-
Total contract assets	115	250	-

 

Revenues related to research and development services were recognized at the point of delivering proof of concept and completing testing services. Performance obligations related to exclusivity services were deemed fulfilled by the Group upon completion of the contractual term. Payment for the above services is not due from the customer yet and therefore a contract asset is recognized.

 

The directors of the Company always measure the loss allowance on amounts due from customers at an amount equal to lifetime ECL, taking into account the historical default experience, the nature of the customer and where relevant, the sector in which they operate. There has been no change in the estimation techniques or significant assumptions made during the current reporting period in assessing the loss allowance for the amounts due from customers under construction contracts.

Lifetime Expected credit losses on contract assets

The following table details the risk profile of amounts due from customers based on the Group's provision matrix. Based on the historic default experience, no expected credit loss has been recognized:

 

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
Expected credit loss rate	0%	0%
Estimated total gross carrying amount at default	115	250
Lifetime ECL	-	-
Net carrying amount	115	250

 

 

26.          Issued share capital and share premium

 

Movements in the Company's share capital and share premium account were as follows:

 

	Note	Number of shares	Share capital	Share premium	Totals
		No.	US$'000	US$'000	US$'000
Balance as of January 1, 2021		125,891,904	49,559	134,537	184,096
Issue of shares to acquire Chrisal NV	5c	1,101,928	456	2,526	2,982
Issue of shares to acquire RAS AG	5d	1,701,821	710	3,946	4,656
Issue of shares to acquire Life Materials	5e	1,887,883	798	3,182	3,980
Balance as at December 31, 2021		130,583,536	51,523	144,191	195,714
Issue of shares to vendors of Life Materials (a)		347,552	141	471	612
Issue of shares as deferred consideration (b)	5g	3,461,615	1,359	2,921	4,280
Issue of shares to Advisory Board and others (c)		164,721	60	175	235
Issue of shares ChemTex Labs (d)		2,176,884	795	1,177	1,972
Issue of shares Chrisal (e)	5a	3,348,164	1,223	1,838	3,061
Balance as at December 31, 2022		140,082,472	55,101	150,773	205,874

 

The par value of all shares is £0.30. All shares in issue were allotted, called up and fully paid.

The share premium account represents the amount received on the issue of ordinary shares by the Company in excess of their nominal value and is non-distributable.

The Company issued new ordinary shares for the following:

a)     On February 25, 2022, HeiQ Plc issued 347,552 new ordinary shares of £0.30 each in the Company. These shares were allotted to the vendors of Life Material Technologies Limited to satisfy a closing working capital adjustment in the amount of US$612,000 in connection with the Company's acquisition of Life in June 2021.

b)    On May 12, 2022, HeiQ Plc issued a total of 3,461,615 ordinary shares as part of the deferred consideration paid pursuant to the acquisitions of RAS AG, Regensburg, Germany ("RAS AG") and Life Material Technologies Limited ("LIFE").

·      In relation to the acquisition of RAS AG, the Company made a payment of ?2.6 million (approximately US$2.88 million), based on RAS AG's performance for the year ended December 31, 2021. The deferred consideration was settled entirely through the issue of 2,743,941 ordinary shares in the capital of the Company.

·      In relation to the acquisition of LIFE, the Company made a payment of US$2.8 million, based on LIFE's financial performance for the year ended December 31, 2021. The deferred consideration was settled equally in cash (US$1.4 million) and through the issue of 717,674 ordinary shares (US$1.4 million) in the capital of the Company. The share issue satisfied earnout payments as part of the purchase consideration of US$640,000 as well as share-based payments made as remuneration of US$764,000 which were not part of the purchase consideration.

c)     On August 9, 2022, the Company issued 164,721 new ordinary shares for a consideration of £173,000 (approximately US$235,000) to satisfy certain share payments due to the Company's Innovation Advisory Board, as well as for consultancy and other services provided by third parties.

d)    On December 2, 2022, HeiQ Plc completed the acquisition of 100% of the issued share capital and voting rights of ChemTex Laboratories, Inc. ("ChemTex Labs") in North Carolina, USA for a total consideration of US$2.5 million. The purchase consideration was payable partly in cash (US$550,000) and partly by the issue of 2,176,884 new ordinary shares for (US$1.95 million). The acquisition was accounted for as asset acquisition resulting in the addition of land and buildings worth US$2.4 million. The Group also assumed US$65,000 in cash, prepaid income tax of US$32,000 as well as accrued liabilities worth US$9,000.

e)    On December 15, 2022, HeiQ increased its interest In HeiQ Chrisal from 51% to 71%. HeiQ paid ?2.9 million (approximately US$3 million) for the additional 20% shareholding to the vendors of Chrisal through the issue of 3,348,164 new ordinary shares in the Company.

 

27.          Share-based payments

 

Equity-settled Share Option Scheme

The Company has adopted the HeiQ Plc Option Scheme.

Under the Option Scheme, awards may be made only to employees and executive directors. The Board will administer the Option Scheme with all decisions relating to awards made to executive directors taken by the Remuneration Committee.

Awards under the equity-settled option plan will be market value options, but participants resident in jurisdictions where local securities laws or other regulations are considered problematic may be awarded cash-based equivalents. Any awards made are not pensionable.

All awards made will be subject to one or more performance conditions at the discretion of the Board. Ordinary Shares received on exercise of any options awarded under the Option Scheme may be required to be held for a period of time before they can be disposed of (other than disposals to satisfy any tax payable on exercise).

The total number of Ordinary Shares which can be issued under the Option Scheme (together with any other employees' share scheme operated by the Company) may not exceed 10 per cent. of the Company's ordinary share capital from time to time.

An option-holder has no voting or dividend rights in the Company before the exercise of a Share option.

There are currently four option grants with the same vesting requirements. The key performance indicators attaching to these awards relate to targets for sales growth (65 per cent. of the award) and operating margin (35 per cent. of the award) over a period of three years.

Options are exercisable at a price equal to the average quoted market price of the Company's shares on the date of grant. The vesting period is three years. If the options remain unexercised after a period of ten years from the date of grant the options expire. Options are forfeited if the employee leaves the Group before the options vest.

Details of the share options outstanding during the year are as follows:

 

	As at December 31, 2022			As at December 31, 2021
	Number of options	Weighted average exercise price (£)		Number of options	Weighted average exercise price (£)
Outstanding at beginning of year	8,707,658	1.06		6,260,000	1.12
Granted during the year	3,349,125	0.83		2,447,658	0.90
Forfeited during the year	(530,872)	1.05		-	-
Exercised during the year	-	-		-	-
Expired during the year	-	-		-	-
Outstanding at the end of the year	11,525,911	0.99		8,707,658	1.06
Exercisable at the end of the year	-	-		-	-

 

The options outstanding at December 31, 2022 had a weighted average exercise price of £0.994 and a weighted average remaining contractual life of 1.5 years. In 2022, options were granted on June 15 and September 26. The aggregate of the estimated fair values of the options granted on those dates is £1,117,000 (approximately US$1,304,000). In 2021, options were granted on October 19. The aggregate of the estimated fair values of the options granted on that date was £930,000 (approximately US$1,275,000). The inputs into the Black-Scholes model are as follows:

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Weighted average share price (£)		0.817		0.900
Weighted average exercise price (£)		0.834		0.903
Expected volatility		69.3%/70.3%*		64%
Expected life		2.6 /2.3 years*		3 years
Risk-free rate		0.19%/0.44%*		0.71%
Expected dividend yields		0%		0%

 

*In the reporting year ended 2022, there were two grants with different inputs used in the black scholes model.

 

Expected volatility was determined by calculating the historical volatility of the Group's share price since going public in December 2020. The expected life used in the model is equal to the vesting period.

 

Due to lower market expectations, the number of options expected to vest dropped to 2,279,236 (2021: 5,204,978). This resulted in an income of US$12,000 arising from these share-based payment transactions for the year ended December 31, 2022 (expense for the year ended December 31, 2021: US$424,000).

 

Other share-based payments

Remuneration of US$764,000 described in Note 26 in relation to the acquisition of Life Materials Technologies Limited is linked to a service period of five years. An expense of US$150,000 was recognized in the year ended December 31, 2022 (year ended December 31, 2021: US$74,000). The remainder of approximately US$544,000 is expected to be expensed over the period from January 1, 2023, to June 30, 2026.

 

28.          Other reserves and retained deficit

 

Other reserves comprise the share-based payment reserve, the merger reserve, the currency translation reserve and the other reserve.

 

The retained deficit comprises all other net gains and losses and transactions with owners not recognized elsewhere.

 

Movements in the other reserves were as follows:

 

			Share- based payment reserve	Merger reserve	Currency translation reserve	Other reserve	Total Other reserves
	Note		US$'000	US$'000	US$'000	US$'000	US$'000
Balance at January 1, 2021			50	(126,912)	2,937	(2,043)	(125,968)
Other comprehensive (loss)/income			-	-	(2,550)	899	(1,651)
Total comprehensive (loss)/income for the year			-	-	(2,550)	899	(1,651)
Share-based payment charges		27	424	-	-	-	424
Transactions with owners			424	-	-	-	424
Balance at December 31, 2021			474	(126,912)	387	(1,144)	(127,195)
Other comprehensive (loss)/income			-	-	(1,914)	1,104	(810)
Total comprehensive (loss)/income for the year			-	-	(1,914)	1,104	(810)
Share-based payment charges		27	(12)	-	-	-	(12)
Transactions with owners			(12)	-	-	-	(12)
Balance at December 31, 2022			462	(126,912)	(1,527)	(40)	(128,017)

 

The share-based payment reserve arises from the requirement to fair value the issue of share options at grant date. Further details of share options are included at Note 27.

The merger reserve was created in accordance with IFRS3 'Business Combinations'. The merger reserve arises due to the elimination of the Company's investment in HeiQ Materials AG. Since the shareholders of HeiQ Materials AG became the majority shareholders of the enlarged Group, the acquisition is accounted for as though there is a continuation of the legal subsidiary's financial statements. In reverse acquisition accounting, the business combination's costs are deemed to have been incurred by the legal subsidiary.

 

The currency translation reserve represents cumulative foreign exchange differences arising from the translation of the financial statements of foreign subsidiaries and is not distributable by way of dividends.

 

The other reserve comprises the cumulative re-measurement of defined benefit obligations and plan assets to fair value, and which are recognized as a component of other comprehensive income. Such actuarial gains and losses from defined benefit pension plans are not reclassified to profit or loss in subsequent periods.

Dividend paid by subsidiary

In June 2022, HeiQ Chrisal N.V. declared and paid a dividend of ?470,000 (approximately US$496,000) of which 49% or US$243,000 was paid to minority shareholders.

 

Capital contributions from minority shareholders

 

The Group received a capital contribution from a minority shareholder of US$764,000 which arose from a waived loan (see Note 31 for details).

 

29.          Pensions and other post-employment benefit plans

 

The Group operates a defined benefit pension plan in Switzerland, which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.

Correspondingly the value of the defined benefit obligation at valuation date is equal to the present value of the accrued pro-rated service considering expected salary at eligibility date and the future pension increase.

The pension scheme was administered by Swisscanto pension fund ("Swisscanto Sammelstiftung") until December 31, 2021, and by AXA pension fund from January 1, 2022, following a change in pension fund provider. The Directors have adopted the actuarial valuation as of January 1, 2022.

Pension plan description

The pension plans grant disability and death benefits which are defined as a percentage of the salary insured. Although the Swiss plan operates like a defined contribution plan under local regulations, it is accounted for as a defined benefit pension plan under IAS19 'Employee Benefits' because of the need to accrue a minimum level of interest on the mandatory part of the pension accounts. Upon reaching retirement age, the savings capital will be converted with a fixed conversion rate into an old-age pension. In the event that an employee leaves employment prior to reaching a pensionable age, the cumulative balance of the savings account is withdrawn from the pension plan and invested into the pension plan of the employee's new employer.

Regulatory framework

Pension plan legal structure

HeiQ Materials AG is affiliated to a collective foundation. The collective foundation operates one defined benefit pension plan for HeiQ Materials AG. Under Swiss law, all employees are required to be a member of the pension plan. There are minimum benefits requested by law (for old-age, disability, death and termination). The pension plans cover more than legally requested. Each affiliated company has a pension plan committee. The committee is represented by 50% of employer representatives and the remaining 50% are employee representatives.

Responsibilities of the board of trustees (and/or the employer on the board of trustees)

The highest corporate body of the collective foundation is the board of trustees. The board of trustees is elected out of the affiliated companies and is also represented by 50% of employee and employer representatives (on the level of the collective foundation). This board handles the general management of the pension scheme, ensures compliance with the statutory requirements, defines the strategic objectives and policies of the pension scheme and identifies the resources for their implementation. This board decides also on the asset allocation and is responsible to the authorities for the correct administration of the collective foundation.

Special situation

The pension scheme has no minimum funding requirement (when the pension fund is in a surplus position), although the pension scheme has a minimum contribution requirement as specified below. Under local requirements, where a pension fund is operated in a surplus position, limited restrictions apply in terms of the trustee's ability to apply benefits to the members of the locally determined "free reserves". In instances where the pension fund enters into an underfunded status the active members, along with the employer, are required to make additional contributions until such time the pension fund is in a fully funded position.

Funding arrangements that affect future contributions

Swiss law provides for minimum pension obligations on retirement. Swiss law also prescribes minimum annual funding requirements. An employer may provide or contribute a higher amount than as specified under Swiss law - such amounts are specified under the terms and conditions of each of the Swiss employee's individual terms and conditions of employment.

In addition, employers are able to make one off contributions or prepayments to these funds. Although these contributions cannot be withdrawn, they are available to the Company to offset its future employer cash contributions to the plan. Although a surplus can exist in the fund, Swiss law requires minimum annual funding requirements to continue.

 

For the active members of the pension plan, annual contributions are required by both the employer and employee. The employer contributions must be at least equal to the employee contributions, but may be higher, separately mentioned in the constitution of the pension plan.

Minimum annual contribution obligations are determined with reference to an employee's age and current salary, however as indicated above these can be increased under the employee's terms and conditions of employment.

In the event of the winding up of HeiQ Materials AG, or the pension fund, HeiQ Materials AG has no right to any refund of any surplus in the pension fund. Any surplus balance is allocated to the members (active and pensioners).

General risk

The Group faces the risk that its equity ratio can be affected by a poor performance of the assets of the pension fund or a change of assumptions. Therefore, sensitivities of the main assumptions have been calculated and disclosed (see below).

The following tables summarize the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the statement of financial position for the plan:

Net benefit obligations

The components of the net defined benefits obligations included in non-current liabilities are as follows:

		As at		As at
		December 31,		December 31,
		2022		2021
		US$'000		US$'000
Fair value of plan assets		9,616		10,858
Defined benefit obligations		(10,568)		(13,003)
Funded status (net liability)		(952)		(2,146)
Duration (years)		13.8		16.5
Expected benefits payable in following year		(389)		(393)
		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Development of obligations and assets		US$'000		US$'000
Present value of funded obligations, beginning of year		(13,003)		(9,588)
Employer service cost		(571)		(521)
Employee contributions		(352)		(342)
Past service cost		-		28
Curtailments/Settlements		-		65
Interest cost		(45)		(14)
Benefits paid/(refunded)		522		(2,589)
Actuarial (loss)/gain on benefit obligation		2,562		(256)
Currency (loss)/gain		319		214
Present value of funded obligations, end of year		(10,568)		(13,003)
Defined benefit obligation participants		(10,568)		(13,003)
Defined benefit obligation pensioners		-		-
Present value of funded obligations, end of year		(10,568)		(13,003)
Fair value of plan assets, beginning of year		10,858		6,311
Expected return on plan assets		37		10
Employer's contributions		352		342
Employees' contributions		352		342
Benefits (paid)/refunded		(522)		2,589
Admin expense		(21)		(20)
Actuarial (loss)/gain on plan assets		(1,182)		1,380
Currency gain/(loss)		(258)		(96)
Fair value of plan assets, end of year		9,616		10,858

Movements in net liability recognized in statement of financial position:

	Year ended		Year ended
	December 31,		December 31,
	2022 US$'000		2021 US$'000
Net liability, beginning of year	(2,146)		(3,276)
Employer service cost	(571)		(521)
Interest cost	(45)		(14)
Expected return on plan assets	37		10
Admin expense	(21)		(20)
Past service cost recognized in year	-		28
Curtailment, settlement, plan amendment gain (loss)	-		65
Employer's contributions (following year expected contributions)	352		342
Prepaid (accrued) pension cost:	247		111
-               operating income (expense)	(240)		(107)
-               finance expense	(7)		(4)
Total gains recognized within other comprehensive income	1,380		1,124
Currency loss	62		116
Net liability, end of year	(952)		(2,146)
Expected employer's cash contributions for following year	360		361

The assets of the scheme are invested on a collective basis with other employers.  The allocation of the pooled assets between asset categories is as follows.

 

Asset allocation

 

		As at December 31,		As at December 31,
		2022		2021
		US$'000		US$'000
Cash		2.8%		3.6%
Bonds		29.1%		31.7%
Equities		33.2%		34.8%
Property (incl. mortgages)		31.3%		27.0%
Other		3.6%		2.9%
Total		100.0%		100.0%

Amounts recognized in profit and loss

	Year ended		Year ended
	December 31,		December 31,
	2022 US$'000		2021 US$'000
Employer service cost	(571)		(521)
Past service cost recognized in year	-		28
Interest cost	(45)		(14)
Expected return on plan assets	37		10
Admin expense	(21)		(20)
Curtailment, settlement, plan amendment gain (loss)	-		64
Components of defined benefit costs recognized in profit or loss	(600)		(453)

 

 

Amounts recognized in other comprehensive income

 

	Year ended		Year ended
	December 31,		December 31,
	2022		2021
	US$'000		US$'000
Actuarial gains/(losses) arising from plan experience	2,392		(1,449)
Actuarial (losses)/gains arising from demographic assumptions	(23)		744
Actuarial gains arising from financial assumptions	193		449
Re-measurement of defined benefit obligations	2,562		(256)
Re-measurement of assets	(1,182)		1,380
Deferred tax asset recognized	(276)		(225)
Other	-		-
Total recognized in OCI	1,104		899

 

Principal actuarial assumptions (beginning of year):

The principal assumptions used in determining pension and post-employment benefit obligations for the plan are shown below:

		As at		As at
		December 31,		December 31,
		2022		2021
		US$'000		US$'000
Discount rate		2.25%		0.35%
Interest credit rate		2.25%		1.00%
Average future salary increases		2.50%		2.00%
Future pension increases		0.00%		0.00%
Mortality tables used		BVG 2020 GT		BVG 2020 GT
Average retirement age		65/65		65/64

 

The forecasted contributions of the Group for the 2023 financial year amount to US$360,000.

 

Sensitivities

A quantitative sensitivity analysis for significant assumptions is as follows:

		As at	As at
		December 31,	December 31,
		2022	2021
Impact on defined benefit obligation		US$'000	US$'000
Discount rate + 0.25%		(323)	(524)
Discount rate - 0.25%		343	560
Salary increase + 0.25%		44	72
Salary increase - 0.25%		(43)	(70)
Pension increase + 0.25%		167	278
Pension decrease - 0.25% (not lower than 0%)		-	-

 

A negative value corresponds to a reduction of the defined benefit obligation, a positive value to an increase of the defined benefit obligation.

The sensitivity analyses above have been determined based on a method that extrapolates the impact on the defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analyses are based on a change in a significant assumption, keeping all other assumptions constant. The sensitivity analyses may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation from one another.

 

Other pension plans

Life Materials Technologies Limited, Thailand, also has a pension scheme which gives rise to defined benefit obligations under IAS 19. This pension plan contributed a net defined benefit obligation of US$92,000 to the net assets acquired in the business combination in 2021. The pension expense in profit and loss was US$1,000 (2021: US$43,000) which results in a US$134,000 net defined liability as at December 31, 2021 (2021: US$135,000).

 

30.          Lease liabilities

 

Future minimum lease payments associated with leases were as follows:

 

	As at December 31, 2022	As at December 31, 2021
	US$'000	US$'000
		(restated)
Not later than one year	1,301	959
Later than one year and not later than five years	3,813	3,253
Later than five years	3,387	4,905
Total minimum lease payments	8,501	9,117
Less: Future finance charges	(679)	(1,003)
Present value of minimum lease payments	7,822	8.114
Current liability	1,264	905
Non-current liability	6,558	7,209
	7,822	8,114

 

 

31.           Borrowings

 

The Group's borrowings are held at amortized cost. They consist of the following:

 

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
Unsecured bank loans	3,573	1,159
Secured bank loans	628	778
Loans from non-controlling interest	137	825
Total borrowings	4,338	2,762

 

 

 

 

The other principal features of the Group's borrowings are as follows:

Unsecured bank loans

A credit facility was taken out in December 2022 which incurs interest at a fixed rate of 2.2%. It was repaid on February 28, 2023 and the loan was replaced with a new credit facility worth CHF 4,500,000 (US$ 4,964,000). As at December 31, 2022, CHF 2,400,000 (US$2,574,000) was outstanding.

Several loans amounting to US$1.6 million were assumed through the acquisition of Chrisal. They finance the acquisition of property, plant and equipment as well as the prepayment of provisional taxes. As at December 31, 2022, ?938,000 (US$999,000) is outstanding (2021: ?1,019,000 (US$1,159,000)). A further ?277,000 was taken out in February 2023. The loans are repayable over a period of up to ten 10 years. These loans all have fixed interest rates between 0.78 and 3.95% and the weighted average fixed interest rate on the outstanding balances is 2.21%.

Loans from non-controlling interests

A loan is payable to a minority shareholder of Life-Materials Latam Ltda, Brazil. Interest is fixed at 0.5%. There is no specific repayment date, but the loan is payable once the entity is able to repay it. The balance as at December 31, 2022 is BRL 715,683 (US$137,000).

The balance as at December 31, 2021 included three loans totaling ?725,000 (US$825,000) payable to a company controlled by a minority shareholder of HeiQ Medica. The loans did not incur any interest and were waived in full by the borrower in December 2022 resulting in a capital contribution from minority shareholders of US$764,000.

Secured bank loans

A bank loan taken out in October 2020 which incurs interest at a fixed rate of 3.25% and which is secured on property owned by a company which is controlled by a minority shareholder of HeiQ Medica. It is repayable in equal monthly instalments of ?8,000 (US$9,500) over eight years up to September 2028. As at December 31, 2022, ?590,000 (US$629,000) is outstanding (2021: US$779,000).

The following table provides a reconciliation of the Group's future maturities of its total borrowings for each year presented:

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
		(restated)
Not later than one year	2,893	1,157
Later than one year but less than five years	1,029	951
After more than five years	416	654
Total borrowings	4,338	2,762

 

32.          Deferred tax

 

The following are the major deferred tax liabilities and assets recognized by the Group and movements thereon during the current and prior reporting period.

 

	Pension fund obligations	Tax losses	Share-based payments	Capital allowances, depreciation and other temporary differences	Total
	US$'000	US$'000	US$'000	US$'000	US$'000
Balance at January 1, 2021	655	171	-	(395)	431
Charge to profit or loss	22	17	82	310	431
Charge to other comprehensive income	(225)	-	-	-	(225)
Business Combinations	-	-	-	(1,627)	(1,627)
Foreign currency differences	(23)	(10)	3	26	(4)
Balance as at December 31, 2021	429	178	85	(1,686)	(994)
Charge to profit or loss	49	(150)	1	681	581
Charge to other comprehensive income	(276)	-	-	-	(276)
Foreign currency differences	(12)	(28)	5	9	(26)
Balance as at December 31, 2022	190	-	91	(996)	(715)

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
		US$'000		US$'000
Deferred tax
Deferred tax assets		538		1,337
Deferred tax liabilities		(1,253)		(2,333)
Net deferred tax assets (liabilities)		(715)		(994)

 

Deferred tax assets amounting to US$239,000 were derecognized following remeasurements of defined benefit obligations (see also Note 29). Deferred tax liabilities related to capital allowances and depreciation decreased following the release of excess reserves on inventory and receivables in Switzerland as well as amortization of intangible assets acquired in the business combinations in 2021.

As at December 31, 2021, the Group had approximately US$178,000 of tax losses available to be carried forward against future profits. Management no longer expects the deferred tax asset to be substantially recovered in 2023. Therefore, the deferred tax assets were derecognized as at December 31, 2022.

Some tax losses were not recognized as deferred tax assets. During the year ended December 31, 2022, such tax losses amounted to US$3,175,000 (2021: US$378,000). They arose from aggregated losses of US$17,482,000 (2021: US$1,134,000).

 

33.           Other non-current liabilities

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
Defined benefit obligation IAS 19 Switzerland (Note 29)	952	2,146
Defined benefit obligation IAS 19 Thailand (Note 29)	134	135
Deferred consideration in relation to ChemTex acquisition (see Note 5g)	-	88
Contract liabilities	3,614	-
Deferred grant income	14	-
Others	-	250
Total other non-current liabilities	4,714	2,619

 

34.          Trade and other payables

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
		(restated)
Trade payables	3,321	4,090
Payables to tax authorities	375	1,167
Other payables	1,626	3,014
Total trade and other payables	5,322	8,271

 

Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. Other payables relate to employee-related expenses, utilities and other overhead costs.  Typically, no interest is charged on the trade payables. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms.

The directors consider that the carrying amount of trade payables approximates to their fair value.

 

35.           Accrued liabilities

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
		(restated)
Costs of goods sold	875	1,328
Personnel expenses	1,737	1,525
Other operating expenses	2,366	533
Total accrued liabilities	4,978	3,386

 

36.          Deferred revenue

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
		(restated)
Contract liabilities	1,176	1,000
Prepayments for unshipped goods	94	-
Deferred grant income	15	4
Total deferred revenue	1,285	1,004

 

 

37.           Contract liabilities

	As at December 31,	As at December 31,	As at January 1,
	2022	2021	2021
	US$'000	US$'000	US$'000
Exclusivity agreements	1,832	-	-
Research and development services	2,958	1,000	-
Total contract liabilities	4,790	1,000	-

 

Current liabilities (Note 36)	1,176	1,000	-
Non-current liabilities (Note 33)	3,614	-	-
Total contract liabilities	4,790	1,000	-

 

Revenue relating to both exclusivity and research and development services is recognized over time although the customer pays up-front in full for these services. A contract liability is recognized for revenue relating to the services at the time of the initial sales transaction and is released over the service period.

 

In the reporting year ended December 31, 2021, the Group received a US$ 1 million prepayment for research and development services. The Group is expected to complete its obligations in the reporting year ended December 31, 2024. In 2022, the Group entered into an agreement to grant exclusivity to a customer worth US$2 million and research and development services worth a further US$2 million. The customer has prepaid, and revenue recognition is spread over four reporting periods starting in July 2022 and ending June 2026.

 

The following table shows how much of the revenue recognized in the current reporting period relates to brought forward contract liabilities.

 

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
Exclusivity agreements	-	-
Research and development services	-	-
Total revenue recognized from contract liabilities	-	-

 

 

38.          Other current liabilities

 

 

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
Deferred consideration in relation to acquisitions (Note 5g)	92	5,995
Deferred consideration in relation to share-based payments (Note 27)	-	74
Call option derivative liability	686	-
Other current liabilities	778	6,069

 

Deferred consideration

As more fully described in Note 5, the Company settled a total of US$5.5 million of deferred consideration relating to the acquisition of RAS AG and Life Materials by way of cash and share issuance. A further settlement of deferred consideration of US$187,000 in cash payments related to the ChemTex acquisition in 2017.

Call option derivative liability

As described in Note 5b, HeiQ AeoniQ GmbH's minority shareholder Hugo Boss AG has the contractual right to acquire a further 5% shareholding in HeiQ AeoniQ GmbH for a call option exercise price of ?10,000,000 (approximately US$10,657,000) which expires on December 31, 2023.

 

The Group has valued the option at initial recognition at US$1,097,000 based on the Black-Scholes model. As at December 31, 2022, a liability of US$686,000 was recognized with a corresponding US$371,000 debit entry to profit and loss and a US$40,000 charge to currency translation reserve. The inputs into the Black-Scholes model are as follows:

Weighted average share price (?)		4,326.68
Weighted average exercise price (?)		5,714.29
Expected volatility		44.7%
Expected life		1 year
Risk-free rate		1.0%
Expected dividend yield		0%

 

39.          Contingent assets and liabilities

On October 10, 2022 the Group announced that it has filed a complaint in the United States District Court for the Western District Of North Carolina, Charlotte Division, against ICP Industrial Inc, for breaching its Exclusive Agreement terms. Because of the claimed contract breach, the Group has not recognized any income or assets from the contract. Within the same legal proceeding, ICP Industrial Inc, has filed a counter claim against the Group. Although the Group is confident in its legal position, the outcome of the legal proceedings as well as the court-mandated mediation remains uncertain. Therefore, while a future economic benefit is expected, it can not be reliably quantified at this point in time and could bear the risk of prejudice given the ongoing legal proceedings.

 

40.          Provisions

 

 

	As at December 31,	As at December 31,
	2022	2021
	US$'000	US$'000
Legal/Compliance provision	339	-
Total provisions	339	-

 

 

Current liability	339	-
Non-current liability	-	-
	339	-

 

This provision is reported in Note 35 as Accrued liabilities - Other operating expenses.

 

	Legal/Compliance provision	Total
	US$'000	US$'000
Balance at January 1, 2021	-	-
Additional provision in the year	-	-
Utilization of provision	-	-
Exchange difference	-	-
Balance as at December 31, 2021	-	-
Additional provision in the year	339	339
Utilization of provision	-	-
Exchange difference	-	-
Balance as at December 31, 2022	339	339

 

The Group was contacted by the United States Environmental Protection Agency ("EPA") in connection with potential alleged violations of the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA") pertaining to alleged mislabelling. As at December 31, 2022, the Company has assessed the claim and made a provision for US$339,000 (December 31, 2021: US$nil) which was paid in May 2023.

 

41.          Fair value and financial instruments

a)    Fair value

The fair value of an asset or liability is the price tat would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability.  In estimating fair value, the Directors utilize valuation techniques that are consistent with the market approach, the income approach and/or the cost approach.  Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. IFRS 13 "Fair Value Measurement" establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair value hierarchy is defined as follows:

Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets at the measurement date.

Level 2: Inputs (other than quoted prices included in Level 1) can include the following:

·      observable prices in active markets for similar assets;

·      prices for identical assets in markets that are not active;

·      directly observable market inputs for substantially the full term of the asset; and

·      market inputs that are not directly observable but are derived from or corroborated by observable market data.

Level 3: Unobservable inputs which reflect the Directors' best estimates of what market participants would use in pricing the asset at the measurement date.

We have not identified any financial instruments measured at fair value for the years ended December 31, 2021 and December 31, 2022.

There were no transfers between fair value levels during the year ended December 31, 2022 (2021: US$nil).

b)    Financial instruments

For trade receivables, the Group applies the simplified approach permitted by IFRS 9 "Financial Instruments", which requires expected lifetime losses to be recognized from initial recognition of the receivables.

Financial liabilities are initially measured at fair value and subsequently measured at amortized cost.

The Group is not a financial institution. The Group does not apply hedge accounting and its customers are considered creditworthy and in general pay consistently within agreed payments terms. In 2022, few customers have shown delays in payment which are closely monitored.

A classification of the Group's financial instruments is included in the table below. These financial instruments are held at amortized cost which is estimated to be equal to fair value.

	As at	As at
	December 31,	December 31,
	2022	2021
	US$'000	US$'000
Financial instruments		(restated)
Cash and cash equivalents	8,488	14,560
Trade receivables	6,487	14,656
Accrued income and other receivables	3,239	2,824
Trade and other payables	(5,322)	(8,271)
Accrued liabilities	(4,978)	(3,386)
Deferred consideration	(92)	(6,158)
Call option derivative liability	(686)	-
Borrowings held at amortised cost	(4,338)	(2,763)
Lease liabilities held at present value of lease payments	(7,823)	(8,114)
Total financial instruments	(5,025)	3,348

42.          Financial risk management

 

For the purposes of capital management, capital includes issued capital and all other equity reserves attributable to the equity holders of the Company, as well as debt. The primary objective of the Directors' capital management is to ensure that the Group maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value.

To maintain or adjust the capital structure, the Directors may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the year.

The Directors manage the Group's capital structure and adjust it in light of changes in economic conditions and the requirements of the financial covenants. The Group includes in its net debt, interest-bearing loans, lease liabilities and borrowings, trade and other payables, less cash and short-term deposits.

The Group's principal financial liabilities comprise of borrowings and trade and other payables, which it uses primarily to finance and financially guarantee its operations.

The Group's principal financial assets include cash and cash equivalents and trade and other receivables derived from its operations.

a.    Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the returns.

b.    Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As the Group's borrowings are either on fixed interest terms or interest-free, the Group is not subject to significant interest rate risk.

c.     Credit risk

Credit risk is the risk that a customer or counterparty to a financial instrument will not meet its obligations under a contract and arises primarily from the Group's cash in banks and trade receivables.

 

The Company considers the credit risk in relation to its cash holdings is low because the counterparties are banks with high credit ratings.

Trade receivables are due from customers and collectability is dependent on the financial condition of each individual company as well as the general economic conditions of the industry. The Directors review the financial condition of customers prior to extending credit and generally do not require collateral in support of the Group's trade receivables. The majority of trade receivables are current or overdue for less than 30 days and the Directors believe these receivables are collectible. Amounts overdue longer than 120 days relate to a limited number of customers with a long trading history. Collection of these receivables is expected in the course of the year 2023. For doubtful accounts, the Group calculates an expected credit loss provision which is disclosed in Note 23.

As at December 31, 2022, the Group had one customer that individually accounted for more than 10% of total receivables, totaling 29% of total trade receivables (2021: two customers that individually accounted for more than 10% of total receivables, totaling 36.4%).

 

In order to minimize credit risk, the Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The credit rating information is supplied by independent rating agencies where available and, if not available, the Group uses other publicly available financial information and its own trading records to rate its major customers. The Group's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.

 

Credit approvals and other monitoring procedures are also in place to ensure that follow-up action is taken to recover overdue debts. Furthermore, the Group reviews the recoverable amount of each trade debt and debt investment on an individual basis at the end of the reporting period to ensure that adequate loss allowance is made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group's credit risk is significantly reduced. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit guarantee insurance cover is purchased.

 

d.    Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate due to changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to its financing activities (when financial liabilities and cash are denominated other than in a company's functional currency).

Most of the Group's transactions are carried out in US Dollars ($). Foreign currency risk is monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level.

The Group maintains a natural hedge whenever possible, by matching the cash inflows (revenue stream) and cash outflows used for purposes such as capital and operational expenditure in the respective currencies.  The Group's net exposure to foreign exchange risk was as follows:

 

 

                                                                                                     Functional currency  

	AUD	EUR	GBP	US$	Others	Total
As at December 31, 2022	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Financial assets denominated in $	19	92	206	6,771	3	7,091
Financial liabilities denominated in $	-	-	-	-	-	-
Net foreign currency exposure	19	92	206	6,771	3	7,091

 

                                                                                                     Functional currency  

	AUD	EUR	GBP	US$	Others	Total
As at December 31, 2021	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
	(restated)	(restated)	(restated)	(restated)	(restated)	(restated)
Financial assets denominated in $	115	375	284	11,804	622	13,200
Financial liabilities denominated in $	(10)	(1,717)	(475)	(2,226)	(55)	(4,483)
Net foreign currency exposure	105	(1,342)	(191)	9,578	567	8,717

 

Foreign currency sensitivity analysis:

The following tables demonstrate the sensitivity to a reasonably possible change in foreign currency exchange rates, with all other variables held constant.

The impact on the Group's profit before tax is due to changes in the fair value of monetary assets and liabilities. The Group's exposure to foreign currency changes for all other currencies is not material. 

A 10 per cent. movement in each of the Australian dollar (AUD), euro (EUR), British pound (GBP) and US dollar ($) would increase/(decrease) net assets by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

 

	AUD	EUR	GBP	US$	Others
As at December 31, 2022	US$'000	US$'000	US$'000	US$'000	US$'000
Effect on net assets:
Strengthened by 10%	2	9	21	677	-
Weakened by 10%	(2)	(9)	(21)	(677)	-

 

	AUD	EUR	GBP	US$	Others
As at December 31, 2021	US$'000	US$'000	US$'000	US$'000	US$'000
Effect on net assets:
Strengthened by 10%	11	(134)	(19)	958	57
Weakened by 10%	(11)	134	19	(958)	(57)

 

e.    Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they are due. The Directors manage this risk by:

·      maintaining adequate cash reserves through the use of the Group's cash from operations and bank borrowings as well as overdraft facilities; and

·      continuously monitoring projected and actual cash flows to ensure the Group maintains an appropriate amount of liquidity.

 

Overview of financing facilities

The following tables detail the Group's remaining contractual maturity for financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial

liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

 

	Less than 1 year	2 to 5 years	> 5 years	Total
Year ended December 31, 2022	US$'000	US$'000	US$'000	US$'000
Trade and other payables	5,322	-	-	5,322
Borrowings held at amortized cost	2,893	1,029	416	4,338
Leases (gross cash flows)	1,302	3,813	3,387	8,502
Other liabilities	5,290	-	-	5,290
As at December 31, 2022	14,807	4,842	3,803	23,453
	Less than 1 year	2 to 5 years	> 5 years	Total
Year ended December 31, 2021	US$'000	US$'000	US$'000	US$'000
	(restated)	(restated)	(restated)	(restated)
Trade and other payables	8,271	-	-	8,271
Borrowings	1,157	951	655	2,763
Leases (gross cash flows)	959	3,253	4,905	9,117
Other liabilities	3,435	-	88	3,524
As at December 31, 2021	13,822	4,204	5,648	23,674

 

 

Unsecured bank overdraft facility

	As at December 31,	As at December 31,
	2022	2021
Unsecured bank overdraft facility	US$'000	US$'000
Amount used	2,790	-
Amount unused	6,861	9,329
Total	9,651	9,329

 

The bank overdraft facilities are reviewed at least annually.

 

f.     Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from 2021.

The capital structure of the Group consists of equity and liabilities of the Group. The Group intends to keep debt low to minimise the interest rate impact.

The Group is not subject to any externally imposed capital requirements.

The Directors review the capital structure on a semi-annual basis based on the equity ratio and total borrowings. The equity ratio at December 31, 2022 is 57 per cent (see below).

 

	As at	As at
	December 31,	December 31,
	2022	2021
	US$'000	US$'000
		(restated)
Equity	40,339	59,535
Total equity and liabilities	71,143	94,144
Equity ratio	57%	63%

 

 

43.          Notes to the statements of cash flows

 

Non-cash transactions

Certain shares were issued during the year for a non-cash consideration as described in Note 5g.

 

Additions to buildings and land during the year amounting to US$1,862,000 million were financed by share issue (2021: nil).

Gains and losses on disposal of assets

	Note	As at December 31,	As at December 31,
		2022	2021
Gains and losses on disposal of assets		US$'000	US$'000
Gain on disposal of property, plant and equipment	10	(21)	(54)
Loss on disposal of property, plant and equipment	13	16	20
Net loss on disposal of assets		(5)	(34)

 

Changes in liabilities arising from financing activities

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated cash flow statement as cash flows from financing activities.

 

Liabilities arising from financing activities	Leases  US$'000	Borrowings US$'000	Total US$'000
Balance at January 1, 2021	(2,652)	(1,573)	(4,225)
Cash flows	662	382	1,044
Assumed on acquisitions of subsidiaries	(422)	(1,792)	(2,214)
New lease agreements	(5,700)	-	(5,700)
Exchange differences	(2)	221	219
Balance at December 31, 2021	(8,114)	(2,762)	(10,876)
Cash flows	992	(2,561)	(1,569)
New lease agreements	(2,181)	-	(2,181)
Revaluation of lease agreements	574	-	574
Disposal due to acquisitions	490	-	490
Loans waived by creditors	-	764	764
Exchange differences	416	221	637
Balance at December 31, 2022	(7,823)	(4,338)	(12,161)

 

Working capital reconciliation:

The Company defines working capital as trade receivables, other receivables and prepayments less trade and other payables, accrued liabilities, deferred revenue and non-current liabilities excluding pension liabilities.

Year ended December 31, 2022		Opening balances	Assumed on acquisition of assets	Change in balance	Closing balances
		US$'000	US$'000	US$'000	US$'000
Inventories		13,770	-	(602)	13,168
Trade receivables		14,656	-	(8,169)	6,487
Other receivables and prepayments		3,876	-	386	4,262
Trade and other receivables and prepayments		18,532	-	(7,783)	10,749
Trade and other payables		8,271	-	(2,949)	5,322
Accrued liabilities		3,386	9	1,583	4,978
Deferred revenue incl. non-current contract liabilities		1,004	-	3,909	4,913
Trade and other payables, accrued liabilities and deferred revenue		12,661	9	2,543	15,213

 

 

 

		Opening balances	Assumed on acquisition of subsidiaries	Change in balance	Closing balances
		US$'000	US$'000	US$'000	US$'000
Year ended December 31, 2021		restated	restated	restated	restated
Inventories		13,540	2,258	(2,028)	13,770
Trade receivables		10,080	3,538	1,038	14,656
Other receivables and prepayments		2,609	-	1,267	3,876
Trade and other receivables and prepayments		12,689	3,538	2,305	18,532
Trade and other payables		5,815	2,497	(41)	8,271
Accrued liabilities		2,168	-	1,218	3,386
Deferred revenue		-	-	1004	1,004
Trade and other payables, accrued liabilities and deferred revenue		7,983	2,497	2,181	12,661

 

Consideration for acquisition of businesses

Year ended December 31, 2022                                                                                                                                       US$'000

Consideration payment for acquisition of Life Materials Technologies Ltd		1,400
Consideration payment for acquisition of ChemTex assets		187
Net consideration payment for acquisitions of businesses and assets		1,587

 

 

Year ended December 31, 2021                                                                                                                                        US$'000

Consideration payment for acquisition of Chrisal NV		6,054
Consideration payment for acquisition of RAS AG		1,482
Consideration payment for acquisition of Life Materials Technologies Ltd		2,550
Consideration payment for acquisition of ChemTex assets		908
Cash assumed on acquisition of Chrisal NV		(1,773)
Cash assumed on acquisition of RAS AG		(291)
Cash assumed on acquisition of Life Material Technologies Ltd		(73)
Net consideration payment for acquisitions of businesses		8,857

 

44.          Related party transactions

 

HeiQ Materials AG supplied materials and services totaling US$46,000 to ECSA, a company controlled by a director of HeiQ Materials AG, in the year ended December 31, 2022 (2021: US$32,000). HeiQ Materials AG in turn supplied US$88,000 in 2021 (2022: US$nil). The transactions were made on terms equivalent to those in arm's length transactions.

There are no loans outstanding with related parties.

Remuneration of key management personnel

The remuneration of the directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.

 

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
		US$'000		US$'000
Short-term employee benefits		738		836
Post-employment benefits		35		32
Cash remuneration of key management personnel		773		868
Share-based payment expense (income)		(58)		170
Total remuneration of key management personnel		715		1,038

 

The cash remuneration for the reporting year ended December 31, 2022 is equivalent to the total compensation of CHF 477,626 and GBP 220,000 (2021: CHF 568,878 and GBP 220,000) which are presented in the annual report on Director's remuneration.

45.          Material subsequent events

On January 12, 2023, HeiQ Plc, completed the acquisition of the entire issued share capital of Tarn-Pure Holdings Ltd ("Tarn-Pure"). Tarn-Pure is a UK-based intellectual property company holding critical EU and UK regulatory registrations to sell elemental copper and elemental silver for use in disinfecting hygiene applications. To acquire Tarn-Pure, HeiQ have paid the vendors £530,000 (approximately US$621,000) in cash with an additional £317,000 (approximately US$372,000) to be satisfied through the issuance of 455,435 new ordinary shares of 30p each in the Company (the "Consideration Shares"), issued at a price of 69.6p per share resulting in a total consideration of £847,000 (approximately US$993,000). The purchase price allocation for this acquisition is incomplete. Impacts on this acquisition and the results will be included in the 2023 consolidated financial statements.

As communicated on July 06, 2023, HeiQ Plc sold a 1.5% minority interest in HeiQ AeoniQ GmbH to MAS Holdings for US$1.5 million. It was also agreed that a further 1% shareholding will be sold to MAS Holdings for US$1 million subject to the achievement of a mutually agreed milestone.

46.          Ultimate controlling party

As at December 31, 2022, the Company did not have any single identifiable controlling party.

 

Company Statement of Financial Position (registered company number:09040064)

As at December 31, 2022

					As at		As at
					December 31,		December 31,
					2022		2021
	Note				£'000		£'000
ASSETS
Non-current assets
Investments	4				42,758		101,484
Amounts due from subsidiaries	5				9,000		18,000
					51,758		119,484
Current assets
Trade and other receivables	7				798		377
Cash and bank balances	6				306		1,203
					1,104		1,580
TOTAL ASSETS					52,862		121,064
LIABILITIES
Current liabilities
Trade and other payables	8				(204)		(354)
				4
					(204)		(354)
NET ASSETS					52,658		120,710

 

EQUITY
Share capital	9				42,025			39,175
Share premium account	9				114,663			109,460
Share-based payment reserve	11				340			346
Accumulated losses					(104,370)			(28,271)
TOTAL EQUITY					52,658			120,710

The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included a Profit and Loss account in these separate financial statements. The loss attributable to members of the Company for the year ended December 31, 2022 is £76,099,000 (2021: loss of £26,801,000)

The notes form an integral part of these Financial Statements. The Financial Statements were authorized for issue by the board of Directors on October 26, 2023 and were signed on its behalf by.

Xaver Hangartner

Director

Company Statement of Changes in Equity

For the year ended December 31, 2022

 

	Share capital	Share premium account	Share-based payment reserve	Accumulated losses	Total
	£'000	£'000	£'000	£'000	£'000
For the year ended December 31, 2021:
Balance as at January 1, 2021	37,767	102,536	38	(1,470)	138,871
Loss for the year	-	-	-	(26,801)	(26,801)
Issue of shares	1,408	6,924	-	-	8,332
Share-based payment charges	-	-	308	-	308
Transactions with owners	1,408	6,924	308	-	8,640
Balance as at December 31, 2021	39,175	109,460	346	(28,271)	120,710
For the year ended December 31, 2022:
Loss for the year	-	-	-	(76,099)	(76,099)
Issue of shares	2,850	5,203	-	-	8,053
Share-based payment charges	-	-	(6)	-	(6)
Transactions with owners	2,850	5,203	(6)	-	8,047
Balance as at December 31, 2022	42,025	114,663	340	(104,370)	52,658

 

 

Company statement of cash flows

For the year ended December 31, 2022

		Year ended		Year ended
		December 31,		December 31,
		2022		2021
Cash flows from operating activities		£'000		£'000
Loss before taxation		(76,099)		(26,801)
Cash flow from operations reconciliation:
Net finance income		(377)		(375)
Impairment provision		67,180		26,821
Working capital adjustments:
(Increase) in trade and other receivables		8,580		(186)
Increase/(decrease) in trade and other payables		(95)		(184)
Cash used in operations		(811)		(726)
Net cash used in operating activities		(811)		(726)
Cash flows from investing activities
Interest received		377		375
Consideration payment for acquisitions of businesses		(463)		-
Net cash used in investing activities		(86)		375
Cash flows from financing activities
Net cash from financing activities		-		-
Net increase/(decrease) in cash and cash equivalents		(897)		(351)
Cash and cash equivalents - beginning of the year		1,203		1,554
Cash and cash equivalents - end of the year		306		1,203

 

Notes to the Company Financial Statements for the year ended December 31, 2022

1.             General information

The Company was incorporated on May 14, 2014 as Auctus Growth Limited, in England and Wales under the Companies Act 2006 with company number 09040064. The Company was re-registered as a public company on July 24, 2014. On December 4, 2020, following a reverse takeover of Swiss based HeiQ Materials AG, the Company's name was changed to HeiQ Plc. The Company's registered office is 5th Floor, 15 Whitehall, London, SW1A 2DD.

The Company's enlarged share capital is admitted to the standard segment of the Official List and trading on the London Stock Exchange's Main Market under the ticker 'HEIQ'. The ISIN of the Ordinary Shares is GB00BN2CJ299 and the SEDOL Code is BN2CJ29.

The principal activity of the Company is that of a holding company for the Group, as well as performing all administrative, corporate finance, strategic and governance functions of the Group.

The Company's financial statements are prepared in Pounds Sterling, which is the presentational currency for the financial statements.

2.            Summary of significant accounting policies

a.    Basis of preparation

These Financial Statements have been prepared in accordance with UK adopted international accounting standards applying the FRS101 Reduced Disclosure Framework.

These financial statements are prepared under the historical cost convention. Historical cost is generally based on the fair value of the consideration given in exchange of assets. The principal accounting policies are set out below.

The Company also produces consolidated accounts which include the results of the Company.

The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realization of assets and the settlement of liabilities in the ordinary course of business. The Directors have assessed both the Company's and the Group's ability to continue in operational existence for the foreseeable future. The Company has prepared forecasts and projections which reflect the expected trading performance of the Company and the Group on the basis of best estimates of management using current knowledge and expectations of trading performance. As at December 31, 2022, the Company had £306,000 (2021: £1,203,000) in cash, which is considered sufficient for its present needs. As described in Note 3b to the consolidated financial statements, there is material uncertainty at the Group level that casts significant doubt upon the company's ability to continue as a going concern and that, therefore, the company may be unable to realize its assets and discharge its liabilities in the normal course of business.

Nevertheless, after making enquiries and considering the uncertainties described above, the Directors consider there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, as well as to fund the Company's future operating expenses. The going concern basis preparation is therefore considered to be appropriate in preparing these financial statements.

b.    Investments

Fixed asset investments are carried at cost less, where appropriate, any provision for impairment.

c.     Loans to subsidiaries

Loans to subsidiaries are measured at the present value of the future cash payments discounted at a market rate of interest for a similar debt instrument unless such amounts are repayable on demand. The present value of loans that are repayable on demand is equal to the undiscounted cash amount payable, reflecting the Company's right to demand immediate repayment.

d.    Foreign currencies

The company's equity is raised in Pound Sterling (£) which is the functional and presentational currency of the Company, and all values are rounded to the nearest thousand pounds except where otherwise indicated. Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the contracted rate or the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account.

e.    Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, bank balances, deposits with financial institutions and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

f.     Trade and other receivables

Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

g.    Income taxes

The charge for taxation is based on the profit/ loss for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.

Deferred tax is provided on timing differences which arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognized in the financial statements. The following timing differences are not provided for: differences between accumulated depreciation and tax allowances for the cost of a fixed asset if and when all conditions for retaining the tax allowances have been met; and differences relating to investments in subsidiaries, to the extent that it is not probable that they will reverse in the foreseeable future and the reporting entity is able to control the reversal of the timing difference.  Deferred tax is not recognized on permanent differences arising because certain types of income or expense are non-taxable or are disallowable for tax or because certain tax charges or allowances are greater or smaller than the corresponding income or expense.

h.    Share-based payment arrangements  

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. Equity-settled share-based payments to non-employees are measured at the fair value of services received, or if this cannot be measured, at the fair value of the equity instruments granted at the date that the Company obtains the goods or counterparty renders the service. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in Note 27 to the consolidated financial statements.

The fair vale determined at the grant date of the equity-settled share-based payments is recognized on a straight-line basis over the vesting period, based on the Company's estimate of equity instruments that will eventually vest, with a corresponding increase in equity. Where the conditions are non-vesting, the expense and equity reserve arising from share-based payment transactions is recognized in full immediately on grant.

Where the Company grants an equity-settled share-based payment award to employees of a subsidiary, then the Company classifies the transaction as equity-settled in its separate financial statements. The Company recognises a capital contribution from the subsidiary as a credit to the share-based payment reserve and a corresponding increase in its investment in the subsidiary.

At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to other reserves.

i.      Trade and other payables

Trade and other payables are initially recognized at fair value and thereafter stated at amortized cost using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

j.      Share capital

Proceeds from issuance of ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares or options are shown in equity as a deduction from the proceeds.

k.    Financial instruments

Financial instruments are recognized in the statements of financial position when the Company has become a party to the contractual provisions of the instruments.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument classified as a liability are reported as an expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity.

Financial instruments are offset when the Company has a legally enforceable right to offset and intends to settle either on a net basis or to realize the asset and settle the liability simultaneously.

A financial instrument is recognized initially at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument.

Financial instruments recognized in the statements of financial position are disclosed in the individual policy statement associated with each item.

(i)            Financial liabilities

Financial liabilities are recognized when, and only when, the Company becomes a party to the contractual provisions of the financial instrument.

All financial liabilities are recognized initially at fair value plus directly attributable transaction costs and subsequently measured at amortized cost using the effective interest method other than those categorized as fair value through profit or loss.

Fair value through profit or loss category comprises financial liabilities that are either held for trading or are designated to eliminate or significantly reduce a measurement or recognition inconsistency that would otherwise arise. Derivatives are also classified as held for trading unless they are designated as hedges. There were no financial liabilities classified under this category.

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same party on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the profit or loss.

(ii)           Equity instruments

Ordinary shares are classified as equity. Dividends on ordinary shares are recognized as liabilities when approved for appropriation.

 (iii)   Other financial instruments

Other financial instruments not meeting the definition of Basic Financial Instruments are recognized initially at fair value. Subsequent to initial recognition other financial instruments are measured at fair value with changes recognized in profit or loss except investments in equity instruments that are not publicly traded and whose fair value cannot otherwise be measured reliably shall be measured at cost less impairment.

 

3.             Critical accounting judgments and key sources of estimation uncertainty

 

In the application of the Company's accounting policies, which are described in Note 2, management is required to make judgments, estimates and assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Critical accounting judgements

There were no critical accounting judgements impacting the Company's standalone financial statements 2022 and 2021. Critical accounting judgments affecting the Group are discussed in Note 4 to the consolidated financial statements.

Key sources of estimate uncertainty

Impairment of amounts due from subsidiaries

As described in Note 2 to the financial statements, fixed asset investments are stated at the lower of cost less provision for impairment. The present value of loans to subsidiaries that are repayable on demand is equal to the undiscounted cash amount payable, reflecting the Company's right to demand immediate repayment.

At each reporting date fixed asset investments and loans made to subsidiaries are reviewed to determine whether there is any indication that those assets have suffered an impairment loss.  If there is an indication of possible impairment, the recoverable amount of any affected asset is estimated and compared with its carrying amount.  If the estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognized immediately in profit or loss.

The Directors have carried out an impairment test on the value of the loans due from subsidiaries and have concluded that an impairment provision of £9,000,000 (2021: nil) is necessary to reflect the uncertainty around financing of the Group and Company as mentioned in Note 3b to the consolidated financial statements and Note 2a to the Company Financial Statements, respectively.

Impairment of fixed asset investments

The Directors have also carried out an impairment test on the value of the Company's fixed asset investments and considered whether there are any indicators of impairment from external and internal sources of information, including the fact that the market capitalization of the Company has fallen below the net carrying value of such investments which would indicate that the carrying value may have been impaired and have concluded that an impairment provision of £94.0m (2021: £26.8m) is required to write down these amounts to their estimated recoverable amount.

 

 

4.            Investments

	As at	As at
Investments in subsidiary undertakings	December 31, 2022	December 31, 2021
	£'000	£'000
Balance brought forward	101,484	119,609
Additions	8,454	8,696
Impairment provision charge	(67,180)	(26,821)
Balance at end of year	42,758	101,484

 

Details of the Company's principal subsidiaries as at December 31, 2022 are set out in Note 6 to the consolidated financial statements. The Company's investments in subsidiaries are carried at cost less impairment.

The Directors have concluded that the significant devaluation of the Group represents an indicator of impairment as at December 31, 2022.  Therefore, the Directors performed an impairment test of the Group and valued the Company's investment in its subsidiaries at £51,758,000 (2021: £119,484,000 valued based on market capitalization). The carrying value of its investments in subsidiaries was £136,759,000 (2021: £128,305,000) before impairment provision charges. The amounts due from subsidiaries as at December 31, 2022 was £9,000,000 (2021: £18,000,000).

The Company has therefore made additional provision for an impairment of £94,001,000 (2021: £26,821,000) against the carrying value of the Company's investments in subsidiaries to reduce such value to £42,758,000 (2021: £101,484,000).

Sensitivity

The calculation of the market capitalization of £77,045,000 is based on the Company's share price of 55.0 pence as at 31 December 2022. Due to the volatility of the share price, a decrease of 75% in the share price to 13.8 pence is reasonably possible. A decrease in the share price of 75%, would result in a market capitalization of £19.3 million and an additional impairment loss of approximately £32.4 million.

 

5.             Amounts due from subsidiaries

	As at	As at
	December 31, 2022	December 31, 2021
	£'000	£'000
Balance brought forward at beginning of year	18,000	18,000
Amounts advanced	-	-
Expected credit loss	(9,000)	-
Balance at end of year	9,000	18,000

 

The amounts due from subsidiaries are unsecured, yield 2.5% interest and are repayable on demand. Given the uncertainty described in the going concern review of the Group in Note 3b to the consolidated financial statements, the recoverability of the loan was reassessed. Due to the increased risk of default following the Group's recent performance, it was concluded that an expected credit loss of £9,000,000 is appropriate for the financial year ended December 31, 2022.

Sensitivity

The expected credit loss of £9,000,000 reflects 50% of the balance due. Had the Directors' assessment been that the whole £18,000,000 are not collectible, there would have been an additional expected credit loss of £9,000,000.

 

6.            Cash and cash equivalents

	As at		As at
	December 31, 2022		December 31, 2021
	£'000		£'000
Bank balances	306		1,203
		306	1,203

 

7.             Trade and other receivables

	As at		As at
	December 31, 2021		December 31, 2020
	£'000		£'000
Prepayments	14		108
Vat receivable	12		5
Other receivables from subsidiaries	772		264
		798	377

 

8.            Trade and other payables

	As at		As at
	December 31, 2022		December 31, 2021
	£'000		£'000
Trade payables	1		16
Accruals	203		129
Taxes and social security	-		8
Deferred consideration	-		55
Other payables	-		145
		204	354

The directors consider that the carrying amounts of amounts falling due within one year approximate to their fair values.

9.            Share capital and share options

 

Share capital

Details of the Company's allotted, called-up and fully paid share capital are set out in Note 26 to the Consolidated Financial Statements.

Movements in the Company's share capital were as follows:

 

		Number of shares	Share capital	Share premium	Totals
		No.	£'000	£'000	£'000
Balance as of January 1, 2021		125,891,904	37,767	102,536	140,303
Issue of shares to acquire Chrisal NV		1,101,928	331	1829	2,160
Issue of shares to acquire RAS AG		1,701,821	511	2837	3,348
Issue of shares to acquire Life Materials		1,887,883	566	2258	2,824
Balance as at December 31, 2021		130,583,536	39,175	109,460	148,635
Issue of shares to vendors of Life Materials (a)		347,552	104	347	451
Issue of shares as deferred consideration		3,461,615	1,039	2,233	3,272
Issue of shares Advisory Board		164,721	50	146	196
Issue of shares ChemTex Labs		2,176,884	653	967	1,620
Issue of shares Chrisal		3,348,164	1004	1510	2,514
Balance as at December 31, 2022		140,082,472	42,025	114,663	156,688

 

 

The par value of all shares is £0.30 (2021: £0.30). All shares in issue were allotted, called up and fully paid. The Ordinary shares of the Company carry one vote per share and an equal right to any dividends declared.

Share options

Details of the Company's share option scheme and options issued during the year are set out in Note 27 to the Consolidated Financial Statements.

10.          Reserves

The share premium account represents the amount received on the issue of ordinary shares by the Company in excess of their nominal value and is non-distributable.

The share-based payment reserve arises from the requirement to value share options in existence at the year end at fair value (see Note 28 to the Consolidated Financial Statements).

11.           Share-based payments

Details of the Company's share options are contained in Note 27 to the Consolidated Financial Statements.

12.          Segment information

Operating segments are identified on the basis of internal reports about components of the Company that are regularly reviewed by the Board. Until its acquisition of HeiQ Materials AG on 7 December 2020, the Company was an investing company and did not trade. On the completion of the acquisition of HeiQ Materials AG and its subsidiaries, the Company became the holding company of the Group.

The Company has one segment, namely that of a parent company to its subsidiaries. Accordingly, no segmental analysis has been provided in these financial statements.

13.           Employees

          The average monthly number of employees including directors was as follows:

 

	Year ended		Year ended
	December 31, 2022		December 31, 2021
	No.		No.
Directors	5		5
		5	5

 

14.          Related party transactions

The only key management personnel of the Company are the Directors. Details of their remuneration are contained in Note 44 to the consolidated financial statements.

Details of amounts due between the Company and its subsidiaries are shown in Notes 5 above.

15.           Subsequent events

The Group's share price as at April 30, 2023 closed at 20.2 pence followed by share suspension which will be in place until the consolidated financial statements have been published. Had this been the valuation as at 31 December 2022, market capitalization would have been £28,297,000.

 

Other disclosures in relation to events subsequent to December 31, 2022 are shown in Note 45 to the consolidated financial statements.

16.          Ultimate controlling party

As at December 31, 2022, no one entity owns greater than 50% of the issued share capital. Therefore, the Company does not have an ultimate controlling party.