Audited Full Year Results

EnSilica PLC
10 October 2023
 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK Market Abuse Regulation

 

10 October 2023

EnSilica plc

("EnSilica", the "Company" or the "Group")

 

Audited Full Year Results for the Year Ended 31 May 2023

 

EnSilica (AIM: ENSI), a leading mixed signal chipmaker announces full year results for the year ended 31 May 2023 ("FY 2023").

 

Financial Highlights

 

·    Revenue increased to £20.5 million (FY 2022: £15.3 million)

·    Operating profit increased to £0.83 million (FY 2022: adjusted £0.70 million)

·    Gross margin 39.9% (FY 2022: 33%)

·    EBITDA £1.56 million (FY 2022: Adjusted £1.04 million)

·    Diluted eps 2.30p an increase of 1050% (FY 2022: 0.2p)

·    Cash and cash equivalents at 31 May 2023 of £3.1 million (FY 2022: £5.7 million)

·    Net cash at 31 May 2023 of (£1.07 million) (FY 2022: £0.6 million)

·    Net assets increased by 31% at 31 May 2023

·    Further investment in IP of £4.13 million (FY 2022: £2.24 million)

 

Operational Highlights

 

·    Strong pipeline of new business across FY 2023

·  Sales and marketing initiatives now generating increased market visibility and traction resulting in higher value opportunities

·    Key contract wins and contract extensions include:

Major industrial factory automation design win worth $30 million

Automotive ASIC designed into new models increasing revenue forecast for this product to $40 million

€5m contract award to develop Satellite Broadband Chip funded by UK Space Agency with a lead customer having committed €2.5 million toward taking the chip to production, including an order for the first 50,000 chips

Award of e-mobility sensor ASIC contract estimated to be worth in excess of $7 million

Outlook

 

·    The Company has started FY 2024 well, supported by both existing contracts and new business momentum

·    The business has built a strong pipeline with a sizeable order book that continues to underpin management's confidence in the business

·  Looking ahead, the Board believes the Company is well placed to continue to capitalise on the significant growth opportunity that exists within the semiconductor industry

 

Ian Lankshear, Chief Executive Officer of EnSilica plc, commented:

 

"I am delighted to be announcing such a strong set of full years results for EnSilica, which provides a clear indication of the strength and resilience of our business. Our recent new design wins are a clear indication that our model is being fully deployed, securing both revenue and profit growth in the medium term."

 

Analyst meeting

 

A briefing for analysts will be held on Tuesday, 10 October 2023 at 10.00 a.m. BST. To attend the meeting please contact Vigo Consulting by email at ensilica@vigoconsulting.com.

 

Investor presentation

 

An online presentation of the annual results will be held on Wednesday, 11 October 2023 at 12 noon BST. The presentation will be hosted on the Investor Meet Company platform. Questions can be submitted pre-event via the Investor Meeting Company dashboard up until 9.00 a.m. the day before the meeting or at any time during the live presentation.

 

Investors can sign up to Investor Meet Company for free and add to meet EnSilica via:

https://www.investormeetcompany.com/ensilica-plc/register-investor

 

Annual Report and AGM

 

The annual report and accounts together with notice of the Annual General Meeting will be posted to shareholders by the end of October and will be made available on the Company's website. 

 

The Annual General Meeting will be held on 28 November 2023 at 10.00 a.m. at the Company's office at Milton Park Innovation Centre, 99 Park Drive, Milton Park, Abingdon OX14 4RY.

 

For further information please contact:

 

EnSilica plc

Ian Lankshear, Chief Executive Officer

www.ensilica.com

Via Vigo Consulting

+44 (0)20 7390 0233

 

Allenby Capital Limited, Nominated Adviser & Broker

Jeremy Porter / Vivek Bhardwaj (Corporate Finance)

Joscelin Pinnington/Tony Quirke (Sales & Corporate Broking)

 

 

 +44 (0)20 3328 5656

info@allenbycapital.com

Vigo Consulting (Investor & Financial Public Relations)

Jeremy Garcia / Kate Kilgallen

+44 (0)20 7390 0233 ensilica@vigoconsulting.com

 

About EnSilica

 

EnSilica is a leading fabless design house focused on custom ASIC design and supply for OEMs and system houses, as well as IC design services for companies with their own design teams. The company has world-class expertise in supplying custom RF, mmWave, mixed signal and digital ICs to its international customers in the automotive, industrial, healthcare and communications markets. The company also offers a broad portfolio of core IP covering cryptography, radar, and communications systems. EnSilica has a track record in delivering high quality solutions to demanding industry standards. The company is headquartered near Oxford, UK and has design centres across the UK and in Bangalore, India and Porto Alegre, Brazil.

 

 

Executive Chair Review

 

As you will all be aware the last two years have been difficult times and economically challenging from a geopolitical risk point of view as well.

 

This background to our first full year as a public company has made the experience even more challenging than it would have been and so the team are proud that we have delivered a set of results that surpassed the expectations that were set at the time of the IPO.  It was pleasing to have this recognised by being chosen as 'IPO of the Year' by Small Cap Network.

 

As I reported last year we went through a tremendous period of organisational and operational change in the business pre IPO and in the year since we have built steadily on the corporate infrastructure whilst delivering these results. Notwithstanding this considerable progress, equity markets have been nervous and therefore we believe we have not seen the full advantage of our shares being publicly quoted. We have continued nonetheless to deliver on our long term plans and we have begun our second year with the business in good condition with good demand for our services across a range of markets on which we focus.

 

Ian and the team have expanded our sales effort, have enlarged our engineering resource and adopted new processes and procedures, whilst delivering significant contract wins and improved margins and I would like to thank the whole team across our global footprint for their combined efforts during the year. They have been tremendous.

 

This post IPO positive momentum has resulted in an outcome for the financial year ending 31 May 2023 in which EnSilica delivered revenues for FY 2023 of £20.5m (2022: £15.3m), a 34% increase on the prior year, and an unadjusted EBITDA of £1.56m (2022 adjusted: £1.04m), and a much improved earnings per share of 2.30p compared to 2022 which was 0.2p, overall delivering resilient year on year growth.

 

This performance represents the consolidation of our underlying business strategy first adopted in 2016, with the start in 2022 of direct chip supply to our first automotive customer.

 

That said, our strategy develops and gets refined as we focus on niche markets within the broader target markets and the year under review saw the Company's sharper focus in satellite communications on the design and supply of beamformer chips, a first contract which was announced recently.

 

The award of a significant industrial contract, announced in July 2022, provides further validation of our operating model and financial drive. This prestigious customer win, combined with our substantial order book is directly attributable to our highly experienced team who have worked tirelessly to ensure we remain best in the business.

 

As I set out last year, we are committed to pursuing excellent Board performance and we have worked this year with advisors to assess and develop how we can work better as a Board with the foundation of development programmes to promote outstanding achievement in Board performance attainment. This will be an ongoing programme each year and we report in our governance report progress to date.

 

As a responsible business, we remain focused on corporate environmental, social, and governance ('ESG') values to build a strong, profitable, and sustainable business. We have undertaken to establish critical ESG priorities, opportunities and risks, and will be reporting across these headings going forward.

 

Despite the challenges presented by the broader macro-economic climate, we continue to service a sizeable order book and a strong level of enquiries for ASICs from a variety of sources across automotive, industrial, healthcare and satellite communications, capitalising on our  longstanding reputation for innovation and excellence.

 

Our staff remain our most important asset and we continue to develop reward structures that benefit employee development and efficient and rewarding technical work environments. During the year the number of our staff increased to 168 (2022:117).

 

Finally, financial year 2024 has started well with a growing pipeline. Our supply revenues continue to grow as planned and the Board are confident  that the Company is well placed to continue its growth trajectory.

 

Mark Hodgkins

Executive Chair

 

 

Chief Executive Review

 

Introduction

 

We are delighted to report our first full twelve months as a quoted company, in which time we have continued to strengthen our business, delivering a record period of growth.

 

Pleasingly, we have maintained excellent new business generation across the period, which has in turn further bolstered our financial position. To that end, we are pleased to report that both revenue and EBITDA were in line with expectations at £20.5 million and £1.56 million respectively. 

 

This ongoing operational and financial progress further reinforces the strength of EnSilica's business model, which has enabled the Company to maintain excellent new business momentum alongside growing the Company's substantial sales pipeline.

 

Our increased profile owing to the Company's quoted status on the AIM market of the London Stock Exchange continues to support the growth of the business, helping us to accelerate our stated goal to be the premier application specific fabless chipmaker in Europe. Our enhanced visibility in the market, strengthened balance sheet, and financial transparency have broadened our engagement with top-tier customers, enabling increased new business activity. Proof of this was in July 2022 with the $30 million supply award from a market leading industrial OEM. Our investment in a European direct sales organisation and specialist sales representatives has also increased the quality and lifetime value of the opportunities being uncovered.

 

I would like to express my sincere thanks to all our highly talented and hardworking staff, who continue to be at the heart of everything we do, and to our loyal customers and investors, who have played a pivotal role in our success to date and whose continued support underpins our growth ambitions for the future.

 

EnSilica's Business Model

 

EnSilica operates a Fabless Semiconductor Model, providing an end-to-end solution for the development, manufacturing and supply of Integrated Circuits ("ICs") from initial scoping and design through to the delivery of products. This sits alongside our design consultancy, supporting customers with their own design teams to develop ICs.

 

EnSilica's specialist operation team manage the fabrication of ICs, working with the leading semiconductor wafer foundries, following which the processed wafers are sent for dicing, testing, and packaging by outsourced semiconductor assembly and test partners.

 

This model is well proven and used by fabless semiconductor companies such as Broadcom, Nvidia, and Nordic Semiconductor.

 

EnSilica's focus on ASIC design and supply embeds the Company further into the electronics value chain, which sees customers typically pay an upfront fee towards the costs of design, tooling, and test development of the ASIC, otherwise known as non-recurring engineering costs ("NRE"). Customers will subsequently purchase the EnSilica designed ASIC or, in some cases, pay royalties to EnSilica for the ASICs that a third party will manufacture on the customer's behalf.

 

EnSilica will often co-invest in the development of an ASIC alongside the customer, and, depending on the sector, the ASIC can take two to five years to reach full production. At the production stage, revenues can be high, last several years, and generate gross margins in the 35% to 60% range. The gross margin will depend on the market and the level of co-funding of the NRE required, as well as the amount of EnSilica's intellectual property present in the finished IC product. Therefore, part of EnSilica's expertise is in scrutinising the potential financial upside of investing in various IC development programmes, with the right projects in turn resulting in long-term component supply or royalty revenue for the Company.

 

In niche areas where the Company identifies market opportunities, the Company invests in its own IP as the basis of a customer-specific ASIC or what is known as an Applications Specific Standard Part ("ASSP"). These chips are sold to multiple customers hence generating even larger returns. Examples of this are the Company's Satellite Communications and Healthcare Vital signs sensor technologies.  

 

The Company's recent new business wins are a clear indication that this model is being fully deployed, securing both revenue and profit growth in the medium term.

 

Growth strategy

 

To that end, our growth strategy remains unchanged from that outlined during our IPO, and we will continue to pursue the following business objectives:

 

·   leverage EnSilica's strong positions and IPR within automotive, industrial, healthcare, and satellite connectivity applications for mixed signal ASICs;

·    scale the Company's successful Fabless ASIC Model to fully exploit revenue opportunities from design and supply engagements;

·    develop ASSPs to address key customer driven opportunities, with two significant standard platforms already at the device evaluation stage; and

·     expand EnSilica's offering through consolidation and vertical integration.

 

Market Drivers

 

The market for microchips continues to grow at pace with estimates now suggesting that 1.1 trillion microchips were produced in 2021, equating to c.140 per person globally.

 

EnSilica remains focused on four principal markets where we believe there is significant growth opportunities: satellite communications, industrial, automotive, and healthcare.

 

Satellite Communication Sector

The Satellite Communication Sector, specifically internet broadband using Lower Earth Orbit (LEO) satellites, is a growing area.  Elon Musk SpaceX's Starlink constellation of more than 4000 satellites has proven that high-speed resilient internet connection is possible and is considered a vital part of the communication infrastructure with a very wide range of use cases, including government, automotive, maritime, and aerospace connectivity, as well as connectivity for rural households. 

 

A satellite internet system typically contains approximately 600 RF (radio frequency) and 20 beamformer chips per user terminal. As this market grows we expect to see it drive demand for low cost and low power RF and mixed signal chip design. Today's subscriber levels are relatively low at approximately 2 million subscribers, but even this is driving demand for up to 1.2 billion RF chips and 40 million beamforming chips.

 

EnSilica has key IPR and know-how and has announced a number of contracts in this sector, there are a wide range of opportunities in the growing number of new LEO constellation. Many of these will be providing services by 2025.

 

Industrial Sector

Substantial further growth is expected within the Industrial Sector, with the global industrial semiconductor market worth an estimated $60 billion in 2021, rising to $130 billion in 2030. The industrial market also has room for manufacturing optimisation through realising the benefits of AI and machine learning. The sector is also undergoing changes due to new cyber security standards being driven by an EU Directive known as NIS2. Both these factors are increasing the number of requests for quotations (RFQs). EnSilica has one of the largest European industrial OEMs as a supply customer, and hence is well positioned to service the next generation of industrial chips.

 

Automotive Sector

The Automotive Sector continues to be driven by innovation and an accelerated shift to electric powered vehicles, infotainment systems, advanced driver assist systems, autonomous driving systems, connectivity, safety, and security systems. A standard hybrid electric car contains, on average, c3,500 semiconductor chips. This growing trend is further evidenced with the automotive semiconductor market expected to be worth an estimated $82 billion in 2025, increasing to $130 billion by 2030, which further validates EnSilica's keen focus on this high value end market.

 

Healthcare Wearables Sector

The Healthcare Wearables Sector remains of considerable interest to the Company as advancements in AI have made it possible to detect medical conditions through a range of monitoring devices from devices worn on the wrist, sensors on a small patch, or even within earbuds or as a ring. Semiconductors in the healthcare market is expected to be worth $7.47 billion in 2023, rising to $12.82 billion by 2028, growing at a CAGR of 11.41% during this period.

 

Central to this growing trend is the growth in consumer health and wellness wearable devices shipped worldwide, which is expected to be nearly 440 million devices by 2024. These figures include both smartwatches and medical-grade wearables, which are often prescribed by healthcare professionals but are also increasingly becoming available off the shelf.

 

The Company has developed key IPR including a vital sign sensors IC offering accurate sensor interfaces with very low power consumption. This IC is being evaluated by a number of customers and the Directors believe this will lead to either a standard part sold to many customers as an ASSP or various customised versions of the IC optimised for specific customers.

 

Semiconductor supply chain and Geo-political changes

 

Looking more broadly at the semiconductor market, the much-publicised global chip shortage has undoubtedly increased the awareness of the multitude of benefits of using custom silicon compared to standard parts, including simplified and secure supply chains. This has strengthened our turnkey ASIC pipeline to an all-time high.

 

Our next stage of accelerated growth will be driven by the global demand for semiconductors and our expertise in mixed signal chips, enabling a greener, safer, smarter, and more connected world.

 

It took recent chip shortages to cement the "critical" status of the semiconductor sector, establishing it as a truly essential industry. In addition, the COVID-19 pandemic highlighted the importance of access to a local thriving semiconductor ecosystem. With Asia accounting for 60% of global semiconductor sales, European and U.S authorities recognise the need to be less dependent on a handful of East Asian countries to guarantee supply. To that end, Europe and the U.S have passed multibillion "Chip Acts" to encourage local semiconductor design and production capabilities.

 

Our executive and non-executive team have been actively contributing to the UK government's plan to become more self-sufficient in relation to key elements of the semiconductor supply chain, and in August, the Company was proud to announce that Janet Collyer, a Senior Independent Director, had been appointed to the UK Government's Semiconductor Advisory Panel.

 

With the heightened Chinese/ US tension over Taiwan, there has been a drive to move the supply chains away from China and even towards longer term options outside of Taiwan. Investment has been announced in a number of wafer foundries including major ones in the USA, Germany, and Japan.

 

There has also been increased investment in packaging and test outsources assembly and test (OSAT) increasing their geographical diversity. Customers are demanding visibility of their full supply chain with second source and contingency planning. OEMs are seeing that ASICs are an ideal method of driving this resilient supply chain.

 

Customer Activity

 

The Company currently manages a sales pipeline that is at an all-time high. Business wins and sales opportunities have been across all our focus sectors.

 

Key contract awards since the start of FY 2023 include:

 

·    Major industrial factory automation design win worth $30 million

·    Automotive ASIC design into new models increasing revenue forecast for this product to $40 million over 6 years.

·  €5 million contract award to develop Satellite Broadband Chip funded by UK Space Agency, a lead customer also committed €2.5 million toward taking the chip to production,  including an order for the first 50,000 chips

·   Award of sensor ASIC for e-mobility (electric vehicles (EVs), electric two wheelers, e-bikes and e-scooters applications estimated to be worth in excess of $7 million.

·   $1.3 million ASIC contract extension and estimated royalty payment increase from $5 million to $15 million over a five-year period

 

In addition, the Company is also pursuing a number of significant supply ASICs opportunities with both new and existing customers which are all progressing well.  The life-time values per opportunity has increased significantly compared to the previous year, this is due to the wider reach of the sales team and the newly-listed status of the Company capturing a new set of customers.

 

Our People

 

Our team have done an excellent job delivering some of the most complex semiconductor engineering projects in the industry. This includes developing innovative advanced node RF designs that very few teams outside the semiconductor giants could deliver. 

 

The Company remains focused on attracting new talent, and in the UK we are actively working with the UK Electronics Skills Foundation ("UK ESF") to offer undergraduate scholarships. EnSilica employees have also been actively promoting Science, Technology, Engineering, and Mathematics subjects (STEMS) in schools, with a focus on encouraging more girls to pursue a career in engineering. In Brazil and India, our team is undertaking similar initiatives to attract the best talent into the Company and promote the excellent career opportunities that exist within the semiconductor sector.

 

Industry Recognition

 

In the prestigious UK TechWorks Award in November 2022, EnSilica was proud to take home three awards:

 

·    The Company of the Year Award.

·    The Young Engineer of the Year Award won by Omotade Iluromi.

·    The TechNES Design Award for innovative design involving strong industry and academic collaboration. This was awarded for the satellite RF IC work with Swansea University. 

 

Board

 

In April 2023, Matthew Wethey stepped down from his position as Chief Financial Officer and Executive Director of the Company. The Board is grateful to Matthew for his contribution during a period of significant operational change and wishes him every success in the future.

 

Following Matthew's departure, the Company announced the appointment of Chris Mann as Interim Chief Financial Officer (non-Board) from 11 April 2023 to support the business while the search for a permanent replacement is ongoing. 

 

Outlook

 

Having successfully delivered our FY 2023 results in line with market expectations, I am pleased to report that the Company has started FY 2024 well, supported by existing contracts and ongoing new business momentum.

 

The business has built a strong pipeline and order book, which continues to underpin the confidence we have in the business.

 

Looking ahead, the Board believes that the Company is well placed with strong IP and market know-how to continue to capitalise on the significant growth opportunity that exists within the semiconductor industry, and in particular, within the high-growth market segments the business has identified.

 

Ian Lankshear

Chief Executive Officer

 

 

Interim Chief Financial Officer's Review

 

Introduction

 

The Company's financial performance during the year under review has been achieved on the back of cautious financial planning.

 

At the time of the Company's IPO in May 2022, the economic outlook had recently become extremely uncertain due to the invasion of Ukraine.  That economic background demanded  an approach to budgeting that ensures that there is no reliance on providers of finance whether it be equity or debt in the event of growth.

 

This has allowed the Company, to demonstrate that with careful planning the "fabless" semi-conductor model, is one that can be executed from resources generated by the business itself.

 

Our cash generation was supported by a small equity raise in March of this year on the back of a strong run of contract wins at the turn of the year, as well as the receipt of £2.1 million as part of the HMRC research and development credit tax programme.

 

The Company remains in the investment phase of the fabless semi-

conductor cycle having invested a further £4.13 million in anticipation of further growth in our revenues and penetration of our chosen markets.  This investment will, in time, pay off with further supply revenues which have begun to flow in financial year 2024.

 

Financial Summary

 

A summary of the key financial results for the year and details relating to its financial position at the 31 May 2023 are set out in the table below.


31 May

2023

£000

31 May

2022

£000

31 May

2021

£000

Revenue

20,476

15,293

8,607

Gross Profit

8,170

5,047

2,057

Gross margin (%)

39.9

33.0

23.9

Operating profit/(loss) excluding impairment of intangible assets and IPO costs

825

705

 (169)

IPO costs

-

 (609)

-

Impairment of intangible assets

-

-

(2,019)

Profit/(loss) before tax

47

165

 (714)

Tax

1,745

683

658

Profit/(loss) for the year

1,792

  848

 (56)

EBITDA

1,555

1,036

59

 


31 May

2023

£000

31 May

2022

£000

31 May

2021

£000

Cash and Cash equivalents

3,095

5,742

1,404

Liabilities arising from financing activities

(4,167)

(5,159)

 (6,095)

Net Debt

(1,072)

853

 (4,691)

Intangible assets

12,433

8,576

6,506

 

 

31 May

2023

FTE

31 May

2022

FTE

 

31 May

2021

FTE

Administration

17

10

9

Marketing

6

5

4

Research, development and technical

146

102

83

Average number of employees

168

117

96

 

Notable from the table above

 

The Company has delivered a resilient set of results for the year ending 31 May 2023, building on the strong results of 2022. Revenue growth of 33.9% (2022: 77%) to £20.5 million, compared to £15.3 million for 2022. This was driven by strong growth across all business lines particularly satellite communications as well as emerging supply revenues in automotive. Our legacy consulting revenue stream also contributed to the growth in revenues. In 2022 revenue from two different customers amounted to £8.4 million 55% of total revenue. In 2023 our largest customer represented 28% of total revenues.

 

The Company continues to focus on developing the revenue derived from Supply/NRE revenue streams as compared to its legacy Consultancy revenues. In the year to 31 May 2023, Supply/NRE has reduced in percentage terms from 40.9% to 39.9% of total revenue in the year, although the overall amount has increased 30.8% year on year.

 

The Company maintains a level of consultancy work which provides a reliable income stream, though going forward management will focus on the higher returns of design and supply work and consultancy income will become less important to the business.

 

Supply revenue from prior NRE work, which typically involves 1-2 years' work prior to development is now beginning to flow through. The pipeline of NRE work, which supports future supply revenues remains strong. We now have three ASICs which have been released for production and we anticipate this increasing in line with the Company's plans. As noted above, we continue to invest in new contracts with new customers which will feed the supply revenues of the Company in future years.

 

The Company has delivered further improvement in its gross margin percentage by undertaking higher margin projects, increasing the utilisation of the increasing number of engineers and leveraging the IP library that has grown strongly in recent years. As a result the Company was able to increase its gross margins by 6.5% from 33% in FY 2022 to 39.9% in the current year.

 

We take a critical review of the carrying value of our intangible fixed assets. The Board has overseen a rigorous review of the value which is supported by supply revenue streams.

 

As mentioned above the difficulties in the economy and investment markets has emphasised the ever present focus on cash management and it is pleasing to report that  EBITDA for the year to May 2023 continues its improving trend and was £1.555 million unadjusted compared to 2022 £1.0 million adjusted.  In addition to the unadjusted EBITDA of £1.555 million we recognised £2.1 million due from HMRC as an R&D tax credit.

 

The net debt of £1.07 million compares to £0.6 million of net cash at the end of May 2022.

 

The improving EBITDA and the R&D tax credit have allowed the repayment of £0.8 million loan capital in line with agreed amortisation. This while maintaining our investment in IP which amounted to £4.13 million.

 

The Company increased the average number of employees during the year by 51 heads, of these 44 were research, development and technical heads.  The majority of these are based in the UK.

 

Financial items of note during the year other than those set out above

 

The Company had two bank loans totalling £4.167 million at the end of the current year and £4.966 million at the end of the previous year, these loans charged interest of £0.6 million (2022 £0.5 million).

 

The Company qualifies for support under the HMRC R&D Tax Credit scheme.  In the current year the amount recoverable from HMRC is £2.1 million (2022: £1.67 million).

 

Going Concern

 

It is the Company's normal business practice to prepare short term, annual and long term plans which are reviewed and approved by the Board. 

 

The assumptions around projected sales, staffing and purchases are based on management's expectations and are consistent with the Company's experience.

 

The plans take into consideration the possibility of the continuance of the Russia/Ukraine war, increasing interest rates, and the current economic environment, which is likely to create problems for global supply chains and negatively impact demand. The financial statements have been based on these considerations.

 

As at 31 May 2023 the Company's financing arrangements consisted of a loan of £2.7 million (2022: £3.1 million) from SME Alternate Financing and a Coronavirus Business Interruption Loan (CBIL) for £1.7 million (2022: £2.1 million) used to mitigate delays caused by Covid-19. The Company held a cash balance of £3.1 million (2022: £5.7 million) at that date.

 

The Directors are satisfied that the Company has adequate resources to continue in business for the foreseeable future (being a minimum period of 12 months from the date of signing the balance sheet), and accordingly continue to adopt the going concern basis in preparing the accounts.

 

Financial Risk Management Objectives and Policies

 

Details of the Company's financial risk management objectives and policies are disclosed in note 22 to the financial statements.

 

Key performance indicators and risks

 

We have a range of performance measures to monitor and manage the business, some of which are considered key performance indicators (KPIs).

 

Certain one-off items which are shown as exceptionals on the Income Statement, namely IPO costs and Impairments to Intangible Assets, have been adjusted for as disclosed in Note 4 in the Notes of the Financial Statements, in the KPIs below.

 

Consolidated Statement of Comprehensive Income

For the year ended 31 May 2023

 

 

 

Note

2023

£'000

2022

£'000

Revenue
Cost of sales

3

20,476

(12,306)

15,293

(10,246)

Gross profit

Other operating/(expense) income

5

8,170

8

5,047

(14)

Administrative expenses excluding non-recurring items

(7,352)

(4,328)

IPO costs

-

(699)

Total administration expenses

(7,352)

(5,027)

Operating profit                                                                                                                                                                                                   5

825

6

Interest income                                                                                                                                                                                              7

7

 

7

25

Interest expense                                                                                                                                                                                              

8

(785)

(565)

Profit/(loss) before taxation

47

(534)

Taxation                                                                                                                                                                                              

9

1,745

683

Profit for the year

1,792

149

Other comprehensive (expense)/income for the year
Currency translation differences

(50)

40

Total comprehensive income for the year

1,742

189

Profit for the year attributable to:



Owners of the company

1,792

149

Non-controlling interests

-

-


1,792

149

Total comprehensive (expense)/income for the year attributable to:



Owners of the company

(50)

40

Non-controlling interests

-

-


(50)

40

Basic earnings per share (pence)                                                                                                                                                                                               

10

2.36

0.20

Diluted earnings per share (pence)                                                                                                                                                                                              

10

2.30

0.20

Adjusted Basic earnings per share (pence)                                                                                                                                                                                              

10

2.47

 

1.13

Adjusted Diluted earnings per share (pence)                                                                                                                                                                                              

10

2.41

1.11






 

 

Consolidated Statement of Financial Position

As at 31 May 2023

 

 

Note

2023

£'000

2022

£'000

Assets




Non-current assets




Property, plant and equipment

11

2,566

382

Intangible assets

12

12,433

8,576

Total non-current assets


14,999

8,958

Current assets




Inventories

14

304

215

Trade and other receivables

15

7,025

3,257

Corporation tax recoverable


2,064

1,671

Cash and cash equivalents

16

3,095

5,742

Total current assets


12,488

10,885

Total assets


27,487

19,843

Current liabilities




Borrowings

17

(883)

(800)

Lease liabilities

18

(171)

(88)

Trade and other payables

19

(4,723)

(2,391)

Total current liabilities


(5,777)

(3,279)

Non current liabilities




Borrowings

17

(3,284)

(4,166)

Lease liabilities

18

(2,104)

(105)

Provisions

20

(199)

(140)

Deferred tax

21

(160)

 -

Total non current liabilities


(5,747)

(4,411)

Total liabilities


(11,524)

(7,690)

Net assets


15,963

12,153

Equity




Issued share capital

23

137

134

Share premium account


8,752

6,900

Currency differences reserve


(49)

1

Retained earnings


7,123

5,118

Equity attributable to owners of the Company


15,963

12,153

Non-controlling interests


-

-

Total equity


15,963

12,153

 

The financial statements were approved by the Board of Directors and authorised for issue on 9 October 2023 and signed on its behalf by:

Ian Lankshear                                                     Mark Hodgkins

Chief Executive Officer                                         Chair

 

Consolidated Statement of Changes in Equity

For the year ended 31 May 2023


Share
capital

£'000

Share

premium     account

£'000

Currency translation reserve

   £'000

        Retained
          earnings

  £'000

             Total equity

£'000

At 31 May 2021

2

-

(39)

2,875

2,838







Comprehensive income for the year to 31 May 2022

Profit for the year

-

-

-

149

149

Other comprehensive income

-

-

40

-

40

Total comprehensive income for the year

-

-

40

149

189

Share based payment

-

-

-

120

120

Deferred tax in respect of share options

-

-

-

1,713

1,713

Corporation tax in respect of share options

-

-

-

378

378

Issue of share capital

132

7,407

-

-

7,539

Costs of share issue

-

(507)

-

-

(507)

Bonus share issue

-

-

-

(117)

(117)

At 31 May 2022

134

6,900

1

5,118

12,153

 

Comprehensive income for the year to 31 May 2023

Profit for the year

-

-

-

1,792

1,792

Other comprehensive expense

-

-

(50)

-

(50)

Total comprehensive income for the year

-

-

(50)

1,792

1,742

Share based payment

-

-

-

213

213

Issue of share capital

3

2,015

-

-

2,018

Costs of share issue

-

(163)

-

-

(163)

At 31 May 2023

137

8,752

(49)

7,123

15,963

 

Non-controlling interests hold 0.002% of the issued share capital of the Indian subsidiary, EnSilica India Private Limited in accordance with local requirements and there is a non-controlling interest of £nil at 31 May 2023 (31 May 2022:£nil), further details are disclosed in note 27.

 

Consolidated Statement of Cash Flows

For the year ended 31 May 2023

 

 

 

                                                                                                                                                 Note

2023

£'000

2022

£'000

Cash flows from operating activities



Cash generated from operations                                                                                                       A

290

(1,915)

Tax received

1,512

3,306

Net cash generated from operating activities

1,802

1,391

Cash flows from investing activities



Purchase of property, plant and equipment

(395)

(276)

Additions to intangible assets

(4,133)

(2,241)

Interest received

7

25

Net cash used in investing activities

(4,521)

(2,492)

Cash flows from financing activities



Proceeds from issuance of ordinary shares

1,855

6,915

Interest paid

(785)

(565)

Lease liability payments

(166)

(103)

Repayment of bank loans

(832)

(768)

Commitment fees

-

(80)

Net cash generated from financing activities

72

5,399

Net (decrease)/increase in cash and cash equivalents

(2,647)

4,298

Cash and cash equivalents at beginning of year

5,742

1,404

Foreign exchange gains/(losses)

-

40

Cash and cash equivalents at end of year                                                                               B

3,095

5,742


Notes to the Consolidated Statement of Cash Flows

For the year ended 31 May 2023

 

A.  Cash generated from operations

 

 

2023

£'000

2022

£'000

Profit for the year

1,792

149

Adjustments for:



Depreciation

454

160

Amortisation of intangible assets

276

171

Share based payments

213

120

Net interest costs

778

540

Tax credit

(1,745)

(683)


1,768

456

Working capital movements



Increase in inventories

(89)

(185)

Increase in trade and other receivables

(3,770)

(304)

Increase/(decrease) in trade and other payables

2,322

(699)

Increase/(decrease) in provisions

59

(1,183)

Cash generated from/(used in) operations

290

(1,915)

B.  Analysis of net debt


At June 2021

£'000

Cash flow

£'000

Non-cash changes

£'000

At 31 May 2022

£'000

Loans

(5,799)

768

65

(4,966)

Lease liabilities

(296)

50

53

(193)

Liabilities arising from financing activities

(6,095)

818

118

(5,159)

Cash and cash equivalents

1,404

4,298

40

5,742

Net debt

(4,691)

5,116

158

583


At June 2022

£'000

 

Cash flow

£'000

Non-cash changes

£'000

At 31 May 2023

£'000

Loans

(4,966)

832

(33)

(4,167)

Lease liabilities

(193)

363

(2,445)

(2,275)

Liabilities arising from financing activities

(5,159)

1,195

(2,478)

(6,442)

Cash and cash equivalents

5,742

(2,647)

-

3,095

Net debt

583

(1,452)

(2,478)

(3,347)









 

Parent Company Statement of Financial Position

As at 31 May 2023

 


                                                                                                                                 2023

                                   Note                                                                                  £'000

2022

£'000

Assets





Non-current assets





Property, plant and equipment

11


2,459

228

Intangible assets

12


12,433

8,576

Investments

13


89

68

Total non-current assets


 

14,981

8,872

Current assets





Inventories

14


304

215

Trade and other receivables

15


6,985

2,909

Corporation tax recoverable



2,064

1,671

Cash and cash equivalents

16


2,903

5,655

Total current assets


 

12,257

10,450

Total assets


 

27,238

19,322

Current liabilities





Borrowings

17


(883)

(800)

Lease liabilities

18


(146)

(50)

Trade and other payables

19


(5,643)

(2,860)

Total current liabilities


 

(6,671)

(3,710)

Non-current liabilities





Borrowings

17


(3,284)

(4,166)

Lease liabilities

18


(2,104)

(78)

Deferred tax

19


(160)

-

Total non-current liabilities


 

(5,548)

(4,244)

Total liabilities


 

(12,220)

(7,954)

Net assets


 

15,018

11,368

Equity





Issued share capital

23


137

134

Share premium account



8,752

6,900

Retained earnings



6,129

4,334

Total equity


 

15,018

11,368

 

 

The profit/(loss) for the financial year dealt with in the financial statements of the Parent Company was profit £1,582,000 (2022: loss £126,000). The financial statements were approved by the Board of Directors and authorised for issue on 9 October 2023 and are signed on its behalf by:

Ian Lankshear                                                                                  Mark Hodgkins

Chief Executive Officer                                                                 Chair

Company registration number: 04220106

 

 

 

 

 

 

Parent Company Statement of Changes in Equity

For the year ended 31 May 2023


Share capital

£'000

Share premium account

£'000

Retained
earnings

£'000

Total equity

£'000

At 31 May 2021

2

-

2,366

2,368






Comprehensive income for the year to 31 May 2022

Loss for the year

-

-

(126)

(126)

Other comprehensive expense

-

-

-

-

Total comprehensive income for the year

-

-

(126)

(126)

Share based payment

-

-

120

120

Deferred tax in respect of share options

-

-

1,713

1,713

Corporation tax in respect of share options

-

-

378

378

Issue of share capital

132

7,407

-

7,539

Costs of share issue

-

(507)

-

(507)

Bonus share issue

-

-

(117)

(117)

At 31 May 2022

134

6,900

4,334

11,368

 

 

 

 

 

 

 

 

 

 

Comprehensive income for the year to 31 May 2023

Profit for the year

-

-

1,582

1,582

Other comprehensive expense

-

-

-

-

Total comprehensive income for the year

-

-

1,582

1,582

Share based payment

-

-

213

213

Issue of share capital

3

2,015

-

2,018

Costs of share issue

-

(163)

-

(163)

At 31 May 2023

137

8,752

6,129

 

15,018

 


 

Parent Company Statement of Cash Flows

For the year ended 31 May 2023

2023                                            2022

                                                                                                                                                                                  Note                                                                                             £'000                                           £'000

Cash flows from operating activities



Cash used in operations                                                                                                                                                      A

2

(1,748)

Tax received

1,671

3,378

Net cash generated from/(used in) operating activities

1,673

1,630

Cash flows from investing activities



Purchase of property, plant and equipment

(385)

(174)

Additions to intangible assets

(4,133)

(2,241)

Acquisition of subsidiary

(21)

(68)

Net cash used in investing activities

(4,539)

(2,483)

Cash flows from financing activities



Proceeds from issuance of ordinary shares

1,855

6,915

Interest paid

(782)

(556)

Lease liability payments

(127)

(75)

Repayment of bank loans

(832)

(768)

Commitment fees

-

(80)

Net cash generated from financing activities

114

5,436

Net (decrease)/increase in cash and cash equivalents

(2,752)

4,583

Cash and cash equivalents at beginning of year

5,655

1,072

Cash and cash equivalents at end of year                                                                                                                                                                                                                                                                                   B

2,903

5,655

 


Notes to the Parent Company Statement of Cash Flows

For the year ended 31 May 2023

A.  Cash generated from operations

 

The reconciliation of profit/(loss) for the year to cash generated from operations is set out below:

                                                                                                                                                                                                                                            2023                                         2022

                                                                                                                                                                                                                                              £'000                                       £'000

Profit/(loss) for the year

1,582

(126)

Adjustments for:



Depreciation

402

115

Amortisation of intangible assets

276

171

Share based payments

213

120

Net interest costs

782

556

Tax credit

(1,903)

(754)


1,352

82

Working capital movements



Increase in inventories

(89)

(185)

Increase in trade and other receivables

(4,077)

(176)

Increase/(decrease) in trade and other payables

2,816

(295)

Decrease in provisions

-

(1,174)

Cash used in operations

2

(1,748)

B.  Analysis of net debt

                                                                                                                          

      


At 1 June 2021

Cash flow

Non-cash changes

At 31 May 2022


£'000

£'000

£'000

£'000

Loans

(5,799)

768

65

(4,966)

Lease liabilities

(203)

50

25

(128)

Liabilities arising from financing activities

(6,002)

818

90

(5,094)

Cash and cash equivalents

1,072

4,583

-

5,655

Net debt

(4,930)

5,401

90

561

 

 


 

 

 

 


 

 

 

At 1 June 2022

           £'000

 

Cash flow

£'000

 Non- cash changes

£'0000

At 31 May 2023

£'000

Loans

(4,966)

832

(33)

(4,167)

Lease liabilities

(128)

324

(2,446)

(2,250)

Liabilities arising from financing activities

(5,094)

1,156

(2,479)

(6,417)

Cash and cash equivalents

5,655

(2,752)

-

2,903

Net debt

561

(1,596)

(2,479)

(3,514)








 

Notes to the Consolidated Financial Statements

For the year ended 31 May 2023

 

1. General information

EnSilica plc is a public limited company incorporated in the United Kingdom, listed on the Alternative Investment Market ('AIM') of the London Stock Exchange. The Company is domiciled in the United Kingdom and its registered office is 100 Park Drive, Milton Park, Abingdon, OX14 4RY. The consolidated financial statements comprise the Company and its subsidiaries (together referred to as the 'Group').

The Company is a leading fabless design house focused on custom ASIC design and supply for OEMs and system houses, as well as IC design services for companies with their own design teams. The Company has world-class expertise in supplying custom RF, mmWave, mixed signal and digital ICs to its international customers in the automotive, industrial, healthcare and communications markets. The Company also offers a broad portfolio of core IP covering cryptography, radar and communications systems. EnSilica has a track record in delivering high quality solutions to demanding industry standards. The Company is headquartered near Oxford, UK and has design centres across the UK, India, Brazil and a sales office in Germany.

In July 2022 the Company launched a subsidiary in Munich, Germany that has the purpose of acting as the sales office to further enhance and capitalise on the Group's opportunities.

 

Basis of preparation

The consolidated financial statements of the Company have been prepared in accordance with UK-adopted International Accounting Standards ("IFRS") as issued by the International Accounting Standards Board (IASB) and the Companies Act 2006.

The financial information has been prepared under the historical cost convention unless otherwise specified within these accounting policies. The financial information and the notes to the financial information are presented in thousands of pounds sterling ('£'000'), the functional and presentation currency of the Group, except where otherwise indicated.

The principal accounting policies adopted in preparation of the financial information are set out below. The policies have been consistently applied to all periods presented, unless otherwise stated.

Judgements made by the Directors in the application of the accounting policies that have a significant effect on the financial information and estimates with significant risk of material adjustment in the next year are discussed in note 2.

2. Accounting policies

Going concern

As part of its normal business practice, the Company regularly prepares both annual and longer-term plans which are based on the directors' expectations. The assumptions around project sales, staffing and purchases are based on management's expectations and are consistent with the Company's experience since June 2022. As at 31 May 2023 the Company's financing arrangements consisted of a loan of £2.7 million from SME Alternate Financing and a Coronavirus Business Interruption Loan (CBIL) for £1.7 million used to mitigate delays caused by Covid-19. The Company held a cash balance of £3.1 million at that date. The possible continuing and future impact of the Russia/Ukraine war on the Company has been considered in the preparation of the financial statements.

The Directors are satisfied that the Company has adequate resources to continue in business for the foreseeable future (being a minimum period of 12 months from the date of signing the balance sheet), and accordingly continue to adopt the going concern basis in preparing the accounts.

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 May 2023. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

·     Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)

·     Exposure, or rights, to variable returns from its involvement with the investee

·     The ability to use its power over the investee to affect its returns generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

-    The contractual arrangement(s) with the other vote holders of the investee

-    Rights arising from other contractual arrangements

-    The Group's voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

Revenue recognition

Revenue, in accordance with IFRS15 is recognised at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring control of goods or services to a customer. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duty.

The following principles are applied to each area of revenue as set out below:

·   Identify the contract with a customer

·   Identify the performance obligations in the contract

·   Determine the transaction price

·   Allocate the transaction price to the performance obligations in the contract

·   Recognise revenue when the Company satisfies performance obligations

Services

Design services are provided specifically for each customer and may be either consultancy services only in respect of IC design or design services as part of a design and supply model involving a contract for the initial non-recurring engineering costs of development (NRE). When the outcome of a contract can be measured reliably, the Company recognises both income and costs over a period of time by reference to the percentage of completion of the contract as this is considered the most appropriate measurement of performance of the obligations. If the outcome cannot be reliably measured, all costs are expensed, and revenue is only recognised to the extent that it is probable that costs are recoverable.

Sale of goods

Revenue from the sale of goods is recognised at a point in time when control over the goods has passed to the buyer, usually on dispatch of the goods when the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the entity as the Company fulfils its performance obligation.

Licensing and similar income

Income in respect of a licensing arrangement for the use of IP is recognised on a straight line basis over the period of the agreement or where typically linked to the delivery of design services, recognised by reference to the underlying arrangement and delivery of services.

Invoicing of revenue is undertaken in accordance with the terms of the agreement with the customer. If amounts recognised in respect of revenue for completed performance obligations have not been invoiced at the financial position date, accrued income is recognised. When an invoice is due for payment at the statement of financial position date but the associated performance obligations have not been fulfilled the amounts due are recognised as trade receivables and a deferred income contract liability is recognised for the value of the performance obligations that have not been provided.

Employee benefits

The EnSilica Group operates a defined contribution pension scheme. Contributions are recognised in the Statement of Comprehensive Income in the year in which they become payable in accordance with the rules of the scheme.

Short term employee benefits including holiday pay are recognised as an expense in the period in which the service is rendered.

Share based payment

The Company operates an equity-settled share-based compensation plan in which the Company receives services from employees as consideration for share options. The fair value is established at the point of grant using an appropriate pricing model and then the cost is recognised as an expense in administrative expenses in the statement of comprehensive income, together with a corresponding increase directly in equity over the period in which the services are fulfilled. This is the estimated period to vesting in respect of employees. The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest.

Taxation

 

The taxation expense or credit comprises current and deferred tax recognised in the profit for the financial period or in other comprehensive income or equity if it arises from amounts recognised in other comprehensive income or directly in equity. Current tax is provided at amounts expected to be paid (or recovered) in respect of the taxable profits for the period using tax rates and laws that have been enacted or substantively enacted by the reporting date.

Deferred income 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. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.

Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset and where the deferred tax balances relate to the same taxation authority.

Non-recurring items

The Company classifies certain one-off charges or credits that have a material impact on the Company's financial results as 'non-recurring items'. These are disclosed separately to provide further understanding of the financial performance of the Company.

Government grants

Grants are accounted under the accruals model, and grants of a revenue nature are recognised in the Statement of Comprehensive Income in the same period as the related expenditure. Government grants relate to the receipt of Coronavirus Job Retention Scheme income, to innovation grants and to the interest free period on Coronavirus Business Interruption loans.

Foreign exchange

Transactions denominated in foreign currencies are translated into sterling at the rates ruling on the date of the transaction. Monetary assets or liabilities denominated in foreign currencies at the Statement of Financial Position date are translated at the rate ruling on that date and all translation differences are charged or credited in the Statement of Comprehensive Income.

On consolidation, the results of overseas operations are translated into Sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in a separate equity reserve.

Intangible assets - research and development expenditure

Intangible assets are represented by capitalised development costs including proprietary intellectual property developed by the business for both its own use and for licensing to third parties.

An internally generated intangible asset arising from development (or the development phase) of an internal project is recognised if, and only if, all of the following have been demonstrated:

·      It is technically feasible to complete the development such that it will be available for use, sale or licence;

·      There is an intention to complete the development;

·      The method by which probable future economic benefits will be generated is known;

·      The Company is able to sell or use the product;

·      There are adequate technical, financial and other resources required to complete the development;

·      There are reliable measures that can identify the expenditure directly attributable to the project during its development.

The amount recognised is the expenditure incurred from the date when the project first meets the recognition criteria listed above. Where the above criteria are not met, development expenditure is charged to the consolidated income statement in the period in which it is incurred. The capitalisation of development costs is subject to a degree of judgement in respect of the viability of new technology and know-how, supported by the results of testing and customer trials and by forecasts for the overall value and timing of sales which may be impacted by other future factors which could impact the assumptions made.

Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and impairment losses. An impairment review is undertaken annually, and amortisation commences once management consider that the asset is available for use, i.e., when it is judged to be in the location and condition necessary for it to be capable of operating in the manner intended by management and the cost amortised over the estimated useful life of the know-how based on expected customer product cycles and lives. This is typically 5 to 10 years, and the charge is reported within administrative expenses in the consolidated statement of comprehensive income. During the year under review the policy to charge amortisation was changed to match the level of revenue. This method allocated the charge in a more representative manner, with larger charges made in years where most revenue was recognised, but still over the same time period. The prior year charge would not have been materially affected by this change, and hence no adjustment was made to reflect this.

As part of the impairment review, consideration is also made regarding the validity of impairment provisions made in previous periods, and to whether the provision is still warranted in the period under review.

Research expenditure is recognised as an expense in the period in which it is incurred.

Financial assets

Financial assets, including trade and other receivable balances are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Such assets are subsequently carried at amortised cost using the effective interest method. Cash and cash equivalents comprise cash held at bank which is available on demand.

The Company applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. The Company measures loss allowances at an amount equal to lifetime expected credit loss (ECL), which is estimated using past experience of the Company's historical credit losses experienced over the three year period prior to the period end. Historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Company's customers, such as inflation rates. The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery.

To measure expected credit losses on a collective basis, trade receivables and contract assets are grouped based on similar credit risk and ageing. The contract assets have similar risk characteristics to the trade receivables for similar types of contracts.

The Company recognises loss allowances for expected credit losses on financial assets measured at amortised cost to the extent that these are material. The Company has determined that there is no material impact of ECLs on the financial information.

Cash and cash equivalents

For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes 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.

Financial liabilities

Financial liabilities, including trade and other payables and bank borrowings are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest. Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Financial liabilities are derecognised when the liability is extinguished, that is when the contractual obligation is discharged, cancelled or expires.

Borrowings are initially stated at the fair value of the consideration received after deduction of wholly attributable issue costs. Borrowings are subsequently stated at amortised cost using the effective interest method.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Leases

The Company as lessee

The Company assesses whether a contract is or contains a lease, at inception of the contract. The Company recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Company recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate.

The incremental borrowing rate depends on the term, currency and start date of the lease and is determined based on a series of inputs including: the risk-free rate based on government bond rates; a country-specific risk adjustment; a credit risk adjustment based on bond yields; and an entity-specific adjustment when the risk profile of the entity that enters into the lease is different to that of the Company and the lease does not benefit from a guarantee from the Company.

Lease payments included in the measurement of the lease liability comprise:

·      Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable.

·      Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date. The amount expected to be payable by the lessee under residual value guarantees.

·      The exercise price of purchase options, if the lessee is reasonably certain to exercise the options.

·      Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. The lease liability is presented as a separate line in the consolidated statement of financial position.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

·      The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

·      The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).

·      A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

The Company did not make any such adjustments during the years presented.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Company incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the right-of-use asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in the line "Other expenses" in profit or loss.

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Company has not used this practical expedient. For contracts that contain a lease component and one or more additional lease or non-lease components, the Company allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

Property, plant and equipment

Property, plant and equipment assets are stated at cost less depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is provided on all property, plant and equipment assets at rates calculated to write off the cost of each asset on a straight line basis over its expected useful life, as follows:

Asset class                                                         Depreciation method rate

Leasehold improvements                                    Over the period of the lease

Computer Software                                            5 years straight line on cost

Office Equipment                                               4 years straight line on cost

Computer Equipment                                           3 years straight line on cost
Inventories

Inventories are valued at the lower of purchase cost and net realisable value, after due regard for any slow moving items. Net realisable value is based on selling price less anticipated costs to completion and selling costs. Cost is based on the cost of purchase on a weighted average basis. Work in progress and finished goods include labour and attributable overheads.

At each reporting date, inventories are assessed for impairment. If inventory is impaired, the carrying amount is reduced to its net realisable value. The impairment loss is recognised immediately in the Statement of Comprehensive Income.

Share capital and reserves

Financial instruments issued by the company are treated as equity only to the extent that they do not meet the definition of a financial liability. The parent company's ordinary shares are classified as equity instruments.

The cumulative currency differences reserve represents translation differences in respect of the net assets of overseas subsidiaries.

Retained earnings comprises opening retained earnings and total comprehensive income for the year, net of dividends paid.

New or revised accounting standards and interpretations

At the date of authorisation of these financial statements, the company has not early adopted the following amendments to Standards and Interpretations that have been issued but are not yet effective:

 

Standard or Interpretation

Effective for accounting periods commencing on or after

Annual improvements to IFRS standards 2018-2020: Amendments to IAS 1: Classification of Liabilities as Current or Non-Current

01 January 2023

Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies

01 January 2023

Amendments to IAS 8: Definition of Accounting Estimates

01 January 2023

Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction

01 January 2023

The application of these standards is not expected to have a material impact on the amounts reported in these financial statements.

Critical accounting estimates and judgements

The preparation of the financial information under IFRS requires the use of certain critical accounting assumptions and requires management to exercise its judgement and to make estimates in the process of applying the Company's accounting policies.

Management bases its estimates on historical experience and on various other assumptions that management believes to be reasonable in the circumstances. The key estimates and judgements used in the preparation of this financial information that could result in a material change in the carrying value of assets or liabilities within the next twelve months are as follows:

Intangible assets - capitalisation, impairment and amortisation of development expenditure

Judgement

The capitalisation of development costs is subject to a degree of judgement in respect of the timing when the commercial viability of new technology and know-how is reached, supported by the results of testing and customer trials, and by forecasts for the overall value and timing of sales which may be impacted by other future factors which could impact the assumptions made. In making their judgements, the Directors considered the carrying values that are shown in note 12.

Estimation

Amortisation commences once management consider that the asset is available for use, i.e. when it is judged to be in the location and condition necessary for it to be capable of operating in the manner intended by management and the cost is amortised over the estimated useful life of the know-how based on experience of and future expected customer product cycles and lives. The useful economic lives and residual values are re-assessed annually. They are amended when necessary to reflect current estimates, based on technological advancement, future investments and economic utilisation.

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm's length, for similar assets or observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the performance of the assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill and other intangibles with indefinite useful lives recognised by the Group. The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in Note 12.

Revenue

Estimation

In accordance with the policy on revenue recognition, management are required to judge the percentage of completion of the contract in order to recognise both income and costs. The overall recognition of revenue will depend upon the nature of the project and whether it is billed on a time and materials basis, or, on a project milestone basis where invoices can only be raised on completion of specific, pre-agreed objectives. The company maintains complete and accurate records of employees' time and expenditure on each project which is regularly assessed to determine the percentage completion, and thereby whether it is appropriate to recognise any profits.

The level of management judgement is based on a strong track record of successful completion of projects and accurate forecasting of the time required together with the hindsight period available to support the balance sheet date assumptions made.

Adjusting items

The Company has chosen to present an adjusted measure of profit and earnings per share, which excludes certain items which are separately disclosed due to their size, nature or incidence, and are not considered to be part of the normal operating costs of the Company. These costs include IPO preparation costs. The Company believes adjusting for these items provides additional useful information to users of the financial statements to enable a better understanding of the Company's underlying financial performance. The classification of items as adjusting requires significant management judgement.

Treatment of costs incurred in relation to the IPO

The decision of how to split the costs incurred on an equity raise via IPO requires judgement given that, whilst costs incurred on an equity raise should be recognised against equity in share premium, costs that relate to a stock market listing should be recognised as an expense in the consolidated statement of comprehensive income.

 

3. Analysis of revenue

The Board continues to define all the Company's trading as operating in the integrated circuit design market and considers all revenue to relate to the same, one operating segment. Revenue is defined as per the accounting policies.

Revenue in respect of the supply of products is recognised at a point in time. Design and related services including income for the use of IP are recognised over the period when services are provided.

     2023                                    2022

                                                                                                                                                                                                        £'000                                   £'000

Recognised at a point in time



Supply of products

2,856

1,769

Recognised over time



NRE

8,175

6,250

Consultancy design services

9,400

7,073

Licensing related income

45

201


17,620

13,524


20,476

15,293

By destination:



UK

1,831

2,808

Rest of Europe

11,817

4,721

Rest of the World

6,828

7,764

Total revenue

20,476

15,293

 

The nature of the design services and projects is such that there will be significant customers as a proportion of revenue in any one year but that these may be different customers from year to year. Revenue in respect of two customers amounted to £5.7 million and £5.4 million representing 28% and 27% of the revenue for the year ended 31 May 2023 (2022: two different customers amounted to £3.6 million at 36% and 19% respectively). The Group's non-current assets comprising investments, tangible and intangible fixed assets and the net assets by geographical location are:

Non-current assets

£'000

      31 May 2023

    Net assets           Non-current assets

               £'000                                    £'000

31 May 2022

Net assets

£'000

United Kingdom

14,892

14,967

8,804

11,301

India

34

1,199

67

817

Brazil

73

67

87

35

Germany

-

(270)

-

-


14,999

15,963

8,958

12,153

 

4.  Alternative performance measures

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

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

                                                                                                                                                                                                                                                                               2023         2022

                                                                                                                                                                                                                                                                              £'000         £'000

Operating profit before interest

825

6

Compensation for loss of office

85

-

IPO costs

-

699

Adjusted Operating profit before interest

910

705

Depreciation

454

160

Amortisation of intangible assets

276

171

Adjusted EBITDA

1,640

1,036

Profit for the year

1,792

149

Compensation for loss of office

85

-

IPO costs

-

699

Adjusted Profit for the year

1,877

848

Compensation for loss of office

Compensation for loss of office covers the non-recurring costs in relation to the termination of employment of a Director as described in the Remuneration Committee report.

 

IPO Costs

Attributable costs relating to the IPO performed during the prior year were recognised within the consolidated statement of comprehensive income as an exceptional cost. These costs were excluded from the adjusted results of the Company since the costs are one-off in nature and will not repeat in future years.

5. Operating profit

 

 

The operating profit is stated after charging:

                                             2023                                   2022

                                                                                                                                                                                         £'000                                  £'000

Depreciation of property, plant and equipment

164

106

Depreciation of right-of-use assets

290

54

Amortisation of intangible assets

276

171

Cost of inventory sold

1,863

1,717

Research and development costs

4,603

3,133

Share based payments

213

120

Foreign exchange (gains)/losses

50

(40)




Research and development expenditure credit

(8)

14

Total government grants received

(8)

14

Development expenditure was also capitalised in each year as shown in note 12.

Auditor's remuneration:



Audit of the Company and Company financial statements - current year

 

80

53

                                                                                        - previous year

11

-

Non-audit services

20

83

Total Fees payable to the Company's auditor

111

136

6. Information regarding directors and employees

Employees

The aggregate remuneration of employees comprised:

   2023                                   2022

                                                                                                                                           £'000                                  £'000

Wages and salaries

8,727

6,601

Social security costs

989

679

Other pension costs

1,042

777

Share based payments

213

10,95311

46

Total

10,971

8,103

Average number of employees

The monthly average number of employees in the year was:

      2023                                2022

Administration

16

10

Marketing

6

5

Research, development and technical

146

102

Total

168

117

 

6. Information regarding directors and employees - continued


 Directors' remuneration

 

    2023                                   2022

    £'000                                 £'000

Directors' remuneration - aggregate emoluments

825

378

Company pension contributions in respect of 3 (2022:2) directors

66

12

Share based payments

146

-


1,037

390

Remuneration of the highest paid director

231

140

Company pension contributions

20

5

Share based payments

-

-


251

145

 

Key management is defined as those persons having authority and responsibility for planning, directing, and controlling the activities of the Company, and was considered to be only the executive directors with compensation as disclosed above.

 

7. Interest income

                                                                                                                                                                                                           2023                                    2022

    £'000                                  £'000

Bank interest receivable

7

25


7

25

8. Interest expense

          2023                                     2022

          £'000                                   £'000

Interest on bank and other borrowings

565

461

Lease liability financing charges

201

15

Interest on conversion of convertible loan note

-

47

Other interest

19

42


785

565

9. Taxation on profit

                                                                                              2023                                     2022

£'000                                     £'000

Current taxation



UK corporation tax credit

2,064

1,293

Foreign tax charge

(159)

(71)


1,905

1,222

Deferred taxation



Origination and reversal of timing differences

160

(539)

Charge due to change in tax rate

-

-


160

(539)

Tax credit on profit

1,745

683

Factors affecting the tax credit for the year

The tax credit on the profit/(loss) for the year differs from applying the standard rate of corporation tax in the UK of 20% (2022: 19%). The differences are reconciled below:

                                        2023                                   2022

                                                                                                                                                                                         £'000                                  £'000

Profit/(loss) before taxation

47

(534)

Corporation tax at standard rate (2023:20%, 2022 19%)

9

(102)

Factors affecting charge for the year:



Disallowable expenses

164

135

Allowances and enhanced deductions

(966)

-

Research and development allowances

(1,940)

(1,205)

Reduced rate on surrender of R&D losses for tax credit

762

360

RDEC expenditure credit

(62)

-

Foreign tax charges

85

-

Deferred tax

160

-

Share options

43

-

Charge due to change in tax rate

-

129

Tax credit on profit/(loss)

(1,745)

(683)

10. Earnings per share

 

                     2023                                  2022

Profit used in calculating EPS (£'000)

1,792

 

149

Number of shares for basic EPS ('000s)

75,833

75,232

Basic earnings per share (pence)

2.36   

0.20    

Number of shares for diluted EPS ('000s)

77,874

76,106

Diluted earnings per share (pence)

2.30   

0.20    

Adjusted Earnings per share

                                                                                                                                             2023                                   2022

Adjusted Profit used in calculating EPS (£'000)

1,877

848

Number of shares for basic EPS ('000s)

75,833

75,232

Adjusted basic earnings per share (pence)

2.47   

1.13    

Number of shares for diluted EPS ('000s)

77,874

76,106

Adjusted diluted earnings per share (pence)

2.41   

1.11    

 

There are 424,440 of exercisable share options over ordinary shares respectively which are potentially dilutive to profit.

As part of the company's 2022 long term incentive plan, share options over 6,684,300 Ordinary shares and warrants over 450,000 Ordinary shares are potentially dilutive to profit.

 

11. Property, plant and equipment

 


Right-of-use property

Leasehold improvements

Office equipment

Right-of-use
equipment

Computer
equipment

Total

Group

 

£'000

£'000

£'000

£'000

£'000

£'000

Cost

At 1 June 2021

194

-

56

174

321

745

Additions

-

-

142

-

134

276

Exchange adjustments

19

-

-

-

-

19

At 31 May 2022

213

-

198

174

455

1,040

Depreciation
At 1 June 2021

(112)

-

(46)

(100)

(225)

(483)

Charge for the year

(29)

-

(23)

(25)

(83)

(160)

Exchange adjustments

(15)

-

-

-

-

(15)

At 31 May 2022

(156)

-

(69)

(125)

(308)

(658)

Net book value
At 31 May 2022

57

-

129

49

147

382












 

Cost







At 1 June 2022

213

 

-

198

174

455

1,040

Additions

1,825

240

45

423

110

2,643

Exchange adjustments

-

-

(3)

-

(2)

(5)

At 31 May 2023

2,038

240

240

597

563

3,678

Depreciation







As at June 2022

(156)

-

(69)

(125)

(308)

(658)

Charge for the year

(211)

(24)

(43)

(79)

(97)

(454)

Exchange adjustments

-

-

-

-

-

-

At 31 May 2023

(367)

(24)

(112)

(204)

(405)

(1,112)

Net book value







At 31 May 2023

1,671

216

128

393

158

2,566










 

 

Company

Right-of-use property

£'000

Leasehold   improvements

£'000

Office equipment

£'000

Right-of-use
equipment

£'000

Computer
equipment

£'000

Total

£'000

Cost

At 1 June 2021

-

-

52

126

347

525

Additions

-

-

96

-

78

174

At 31 May 2022

-

-

148

126

425

699

Depreciation


-





At 1 June 2021

-

-

(43)

(92)

(221)

(356)

Charge for the year

-

-

(19)

(26)

(70)

(115)

At 31 May 2022

-

-

(62)

(118)

(291)

(471)

Net book value
At 31 May 2022

-

-

86

8

134

228









 

Cost







At 1 June 2022

-

-

148

126

425

699

Additions

1,825

241

41

423

103

2,633

At 31 May 2023

1,825

241

189

549

528

3,332

Depreciation







At 1 June 2022

-

-

(62)

(118)

(291)

(471)

Charge for the year

(183)

(24)

(35)

(79)

(81)

(402)

At 31 May 2023

(183)

(24)

(97)

(197)

(372)

(873)

Net book value







At 31 May 2023

1,643

217

92

352

156

2,459

 

12. Intangible assets

 

 

 

Group and Company

Development

costs

£'000

Software

£'000

Intellectual property

£'000

Total

£'000

Cost

At 1 June 2020

7,471

-

-

7,471

Additions

1,672

123

-

1,795

At 31 May 2021

9,143

123

-

9,266

Amortisation and impairment
At 1 June 2020

(627)

-

-

(627)

Charge for the year

(110)

(4)

-

(114)

Impairment in the year

(2,019)


-

(2,019)

At 31 May 2021

(2,756)

(4)

-

(2,760)

Net book value





At 31 May 2021

6,387

119

-

6,506

Cost

At 1 June 2021

9,143

123

-

9,266

Additions

2,241

-

-

2,241

At 31 May 2022

11,384

123

-

11,507

Amortisation and impairment





At 1 June 2021

(2,756)

(4)

-

(2,760)

Charge for the year

(148)

(23)

-

(171)

Impairment in the year

-

-

-

-

At 31 May 2022

(2,904)

(27)

-

(2,931)

Net book value





At 31 May 2022

8,480

96

-

8,576

Cost

At 1 June 2022

11,384

123

-

11,507

Additions

4,094

-

39

4,133

At 31 May 2023

15,478

123

39

15,640

Amortisation and impairment

 

 

 

 

At 1 June 2022

(2,904)

(27)

-

(2,931)

Charge for the year

(248)

(24)

(4)

(276)

Impairment in the year

-

-

-

-

At 31 May 2023

(3,152)

(51)

(4)

3,207

Net book value

 

 

 

 

At 31 May 2023

12,326

72

35

12,433

 

Capitalised development expenditure relates to developed intellectual property in respect of circuit and chip design.

The recoverable amount of a cash generating unit (CGU) is assessed using a value in use model across each individual project that forms the intellectual property that has been capitalised. The value in use for each portion is dependent on the envisaged life cycle of the CGU using a discount factor of 11.50% (2022:10%), being the cost of capital for the CGU.

 

13.      Investments in subsidiaries

 

Company

31 May 2023

£'000

 

31 May 2022

'£000

Investments in subsidiaries at 1 June

68

-

 Investment in EnSilica Do Brasil Sociedade Unipessoal Limitada

-

68

Investment in EnSilica GMBH

21

-

EnSilica India Private Limited

-

-

Total

89

68

 

Name

Country of incorporation

Nature of business

Proportion of Ordinary shares directly held

EnSilica India Private Limited

Registered office: No.2064, 2nd floor, Siri Iris, 24th Main,
1
st Sector, HSR layout, Bangalore, 560 102

 

India

Semiconductor design consultants

99.99%

EnSilica ADAS Limited

Registered office: Building 3 115 Olympic Avenue, Milton
Park, Abingdon, Oxfordshire, United Kingdom, OX14 4SA

 

UK

Semiconductor design consultants (dormant)

100.00%

 

EnSilica Do Brasil Sociedade Unipessoal Limitada                       

Registered office: 6681 Av Ipiranga, Sala 1009 Preio 99,
Partenon, Porto Alegre, Rio Grande do Sul, Brasil

Brazil

Semiconductor design consultants

100.00%

EnSilica Germany GMBH

Registered Office: c/o Steuerberaterin Renate Schnürch, Nymphenburger Straße 1, 80335 Munich

 

Germany

Semiconductor design sales office

100.00%

 

On 18 July 2022 the company invested 25,000 Euros in consideration for a 100% interest in the share capital of EnSilica GMBH, with a registered office situated at EnSilica Germany GmbH, c/o Steuerberaterin Renate Schnürch, Nymphenburger Straße 1, 80335 Munich

 

14.  Inventories

31 May 2023

Group and Company                                                                                                                       £'000

31 May 2022

£'000

Raw materials and consumables

304

215

No impairment losses have been recorded in respect of inventory in the period.


15.  Trade and other receivables


31 May 2023

31 May 2022

 Group                                                                                                                                                                                       

£'000

Current



Trade receivables

3,893

1,541

Other receivables

807

458

Prepayments

483

248

Accrued income

1,842

1,010

Total

7,025

3,257

Analysis of expected credit losses is included in note 22.







 

Company

 

31 May 2023

£'000

 

 

31 May 2022

£'000

 

Current



Trade receivables

3,893

1,297

Other receivables

497

357

Receivable from subsidiary undertakings

271

245

Prepayments

483

245

Accrued income

1,842

1,010

Total

6,985

2,909

Analysis of expected credit losses is included in note 22.

 

 

16.       Cash and cash equivalents

 

 

Group                                                                                                                                                                              

31 May 2023

£'000

31 May 2022

£'000

Cash at bank and in hand

3,095

5,742

 

Company                                                                                                                                                                                                                                        

Cash at bank and in hand

2,903

5,655

17.  Borrowings

                                                                                                                                                                                                                                              

Group and Company

31 May 2023

£'000

31 May 2022

£'000

Current



Bank loans

883

800

Non-current



Bank loans

3,284

4,1674

4,166

Total

4,167

4,966





 

A bank loan of £1,657,000 (2022: £2,068,000) is secured by fixed and floating charges over the assets of the group and bears interest at rates of 8% over SONIA or 10% if higher. It is repayable in monthly instalments over the period to August 2026.

A loan of £2,662,000 (2022: £3,088,000) is unsecured and bears interest at a fixed rate of 13%. It is being repaid by quarterly instalments over the period to October 2027.

The loan liabilities are stated net of unamortised loan issue costs as at 31 May 2023 of £152,000 (2022: £189,000) which are being amortised over the period to the loan repayment dates.

18.  Lease liabilities

The Company has entered into lease contracts in respect of property in the jurisdictions from which it operates, and the use of equipment which are typically for terms of 3 to 5 years. In respect of options to extend the initial period these are factored into the liabilities where the Company plans to use these for a longer period. For property leases, it is customary for lease contracts to be reset periodically to market rental rates. Leases of equipment comprise only fixed payments over the lease terms.

Right of use assets, additions and amortisation are included in note 11. Interest expenses relating to lease liabilities are included in note 8.

The amounts relating to leases were as follows:

 

 

 

Group

31 May 2023

£'000

31 May 2022

£'000

Short term lease expense

257

100

Cash outflow for capitalised leases

169

109

Total cash outflow from leases

 

 

426

209

 

 

Company

 

 

 

Short term lease expense

233

90

 

Cash outflow for capitalised leases

130

72

 

Total cash outflow from leases

363

162

 






 

The maturity of lease liabilities were as follows:


Group

 

31 May 2023

£000 

31 May 2022

£'000

Within 1 year

171

88

1-2 years

193

105

2-5 years

1,911

-

Total

2,275

193

Company

 

 

Within 1 year

146

40

1-2 years

193

47

2-5 years

1,911

41

Total

2,250

128

19     Trade and other payables

                                                                                                                                                                       31 May 2023                                               31 May 2022

Group                                                                                                                                                                                     £'000                                      £'000

Current



Trade payables

2,388

919

Taxation and social security

281

227

Other payables

161

75

Accruals

1,293

1,156

Contract liabilities

600

14

Total

4,723

2,391

                                                                                                                                                                      31 May 2023                                                31 May 2022

Company                                                                                                                                                                                                     £'000                                            £'000

Current



Trade payables

3,324

1,620

Taxation and social security

236

200

Other payables

-

8

Accruals

1,483

1,018

Contract liabilities

600

14

Total

5,643

2,860

 

 

The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature.

In the year ended 31 May 2023 £14,000 of revenue was recognised in respect of contract liabilities at 31 May 2022 (year ended 31 May 2022: £859,000 in respect of liabilities at 31 May 2021).

 

20. Provisions

                                                                                                                               


31 May 2023

31 May 2022

At 31 May 2022

140

95

Foreign exchange revaluation

 

 

(6)


Gratuity redeemed

 

 

 

(3)

(7)

Provided in year

68

52

Overseas employee provisions

199

140

 

 

 



 

                                                              

The provision relates to the liability under the Government of India Gratuity Act in respect of payments to employees on cessation of service in respect of death or disability or otherwise after more than 5 years' service.

21. Deferred tax liabilities


Intangible assets

Accelerated capital

allowances

Tax losses

Other

Total


£'000

£'000

£'000

£'000

£'000

At 31 May 2021

1,596

64

(173)

(313)

1,174

Charge/(credit) for the year

524

15

-

-

539

Debited to equity in the year

                                                  

-                        -          

-                         -          

(1,713)

(1,713)

At 31 May 2022

2,120

79

(173)

(2,026)

-

Charge/(credit) for the year

952

-

-

(792)

160

At 31 May 2023

3,072

79

(173)

(2,818)

160

 

Deferred tax has been recognised at an average rate of 25% (2022: 25%).

 

22. Financial Instruments

Financial risk management

The determination of financial risk management policies and the treasury function is managed by the CFO. Policies are set to reduce risk as far as possible without unduly affecting the operating effectiveness of the Company.

The Company's activities expose it to a variety of financial risks, the most significant being credit risk, liquidity risk and interest rate risk together with a degree of foreign currency risk as discussed below.

Categories of financial instruments

The Group has the below categories of financial instruments:

Recognised at amortised cost

 

 

31 May 2023

£'000

Cash and bank balances

3,095

5,742

Trade receivables - net

3,893

1,541

Accrued income

1,842

1,010

Other receivables

807

457

Total financial assets

9,637

8,750

Trade payables

2,388

919

Other payables

1,454

1,231

Bank loans

4,167

4,966

Total financial liabilities

8,009

7,116

 

There were no assets or liabilities at 31 May 2023 or 2022 that were recognised and measured at fair value in the financial information

 

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss for the Company. Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents, trade accounts receivable and accrued income.

The Company places its cash and cash equivalents with major financial institutions, which management assesses to be of high-credit quality in order to limit the exposure of each cash deposit to a minimal level.

Trade receivables

Trade accounts receivable are derived primarily from design income and have 0-45 day payment terms, most commonly 30 days. The largest customer accounts for 31% of the balance at 31 May 2023 (2022: 25%) of the trade receivable balance as a result of the invoices relating to design projects with a significant element being in advance of the design services being carried out. Credit risk with respect to accounts receivable is otherwise dispersed across a number of customers. Collateral is not required for accounts receivable. The credit worthiness of customers with balances in trade receivables not yet due has been assessed as high.

The ageing of trade receivables according to their original due date is detailed below:


31 May 2023

£'000

31 May 2022

£'000

Not yet due

3,452

1,179

1-30 days past due date

454

229

Over 30 days past due date

(13)

133

Total

3,893

1,541

The expected credit loss on balances is considered immaterial.

 

 

 

 

 

Other receivables and accrued income are considered to bear similar risks to trade receivables. Hence any expected credit loss on other financial assets is considered to be immaterial.

 

Liquidity risk

The Company funds its business through bank and other loans and from cash generated from operations including the payment terms with customers to fund larger design projects. Details of the Company's borrowings are discussed in note 17. The Company monitors and manages cash within its banking facilities to mitigate any liquidity risk it may face. The following table shows the Company's contractual maturities of financial liabilities based on undiscounted cash flows including interest charges and the earliest date on which the Company is obliged to make repayment:

 

At 31 May 2022

Less than one year

£'000

1-2 years

£'000

2-5 years

£'000

More than 5 years

£'000

Total

£'000

Trade and other payables

2,151

-

-

-

2,151

Bank loans

1,383

1,390

3,722

396

6,891

Lease liabilities

98

71

54

-

223

Total

3,632

1,461

3,776

396

9,265


Less than one year

1-2 years

2-5 years

More than 5 years

Total

At 31 May 2023

£'000

£'000

£'000

£'000

£'000

Trade and other payables

2,388

-

-

-

2,388

Bank loans

1,390

1,390

3,327

-

6,107

Lease liabilities

389

398

1,197

1,408

3,392

Total

4,167

1,788

4,524

1,408

11,887

 

Interest rate risk

The bank loan of £1.657 million is subject to interest at rates of 8% over SONIA if this exceeds 10%. A 1% increase in interest rates would therefore have a £16,570 impact per annum on finance costs at current base rates.

The other bank loan bears interest at a fixed rate of 13%. A 1% increase in interest rates would therefore have had no impact on finance costs at current base rates.

Currency risk

The Company operates from the UK with sterling being its functional currency and has a degree of exposure to foreign currency risk, with this predominantly being income and expenses in US dollars together with Indian rupees in respect of both income and operational activity in the Indian subsidiary. The impact of a 10% fluctuation in all foreign exchange rates moving in the same direction against GBP has been assessed to be an overall impact of approximately £99,000 as mitigated by some matching of income and expenses together with the relatively short payment terms for accounts receivable (including the USD balance at 31 May 2023).

 

The net underlying foreign currency balances, comprising overseas assets

and liabilities, cash, receivables and payables in the UK, in the Company statement of financial position by underlying currency at the year-end were:

 

 

 

 

USD

£'000

 

 

 

 

Euro

£'000

 

 

 

 

INR

£'000

 

 

 

 

Total

£'000

At 31 May 2021

1,644

892

605

3,141

At 31 May 2022

1,453

352

388

2,193

At 31 May 2023

2,612

1,482

352

4,446

 

Capital management

The Company's capital comprises share capital and retained earnings. The Company's objectives when maintaining capital are:

To safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The capital structure of the Company consists of shareholders equity as set out in the consolidated statement of changes in equity. The longer term funding requirements for development have been financed from term bank debt. All working capital requirements are financed from existing cash resources.

The Company sets the amount of capital it requires in proportion to risk in conjunction with the retained earnings. The Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

 

23. Share capital

Allotted, called up and fully paid

At 31 May 2023

£'000

At 31 May 2022

£'000

1,700,000 A ordinary shares of £0.001 each

-

-

273,000 B ordinary shares of £0.001 each

-

-

78,115,158 (2022:75,231,809) ordinary shares of £0.001 each

78

75

59,190 (2022: 59,190)  Deferred shares of £1.00 each

59

59

 

137

134

 

On 14 March 2023, the Company announced a retail offer to existing shareholders to raise £2.0 million before expenses via a placing of 2,857,143 new Ordinary shares. The new Ordinary shares are credited as being fully paid, rank pari passu and carry rights to dividends, distribution of capital upon winding up and the right to receive notice of, attend, speak and vote at a general meeting.

Subsequently, on 15 March 2023, the Company announced a supplementary retail offer to raise up to £0.5 million before expenses via a placing at 70 pence per new Ordinary share. The results of the offer led to the issuance of 26,206 new Ordinary shares, raising £18,344.20 before expenses. The new Ordinary shares are credited as being fully paid, rank pari passu and carry rights to dividends, distribution of capital upon winding up and the right to receive notice of, attend, speak and vote at a general meeting.

 

24. Share based payment

 

In the previous year, options were granted in May 2022 to directors and employees under the new 2022 LTIP scheme over 6,461,500 ordinary shares at an exercise price of £0.50 per share. These are subject to performance conditions in respect of earnings per share for the year ending 31 May 2025. The share based payment charges for these options was calculated at a fair value of 18 pence each using a Black Scholes share pricing model with 50% volatility, 2% risk free rate and 3.5 year vesting period assumptions.

 

Options were also granted in May 2022 over 200,000 ordinary shares to non-executive directors at an exercise price of £0.50 subject only to a 4 year vesting period. A fair value of 19 pence per share has been calculated using a Black Scholes share pricing model with 50% volatility, 2% risk free rate and 4 year vesting period assumptions.

In the current year options were granted in December 2022 to employees under the new 2022 LTIP scheme over 395,800 ordinary shares at an exercise price of £0.895 subject to a 2.5 year vesting period. These are subject to performance conditions in respect of earnings per share for the year ending 31 May 2025 where the percentage of the amount of option that will vest depends on the following sliding scale:

Earnings per share

Options to vest

 


Less than 2p

0%

2p

25%

Greater than 2p but less than 5p

25 to 75% pro rate

Between 5-6.5p

75 to 100% pro rate

Greater than 6.5p

100%

The options have an expiry on the tenth anniversary of the date of the grant.

The share based payment charges for these options have been calculated at a fair value of 29 pence each using a Black Scholes share pricing model with 50% volatility, 4% risk free rate and vesting period assumptions of between 2.5 and 3 years.

A separate scheme operates in respect of the non-executive directors that are not subject to a performance period and will vest 33.33% on the second anniversary of the date of the grant and 66.67% on the fourth anniversary of the date of the grant, with a similar 10 year lifespan from date of grant.

At 31 May 2023 none of the share options had vested, and none remained exercisable at the year-end date.

A share based payment charge of £213,000 (2022: £46,000) has been recognised in the statement of comprehensive income.


Average Exercise

Price

D options

Number

2022 LTIP scheme

Number

Non-executive options

Number


 

 

 

 

Share options outstanding at 31 May 2021

£0.001

811,000

-






Exercised in May 2022

£0.001

(718,000)

-

-






Remaining options aligned to new ordinary share structure

£0.001

331,440

-

-






Share options granted during the year

£0.50

-

6,461,500

200,000






Share options outstanding at 31 May 2022

£0.47

424,440

200,000






Options lapsing in the year

£0.50

-

(373,000)







Share options granted during the year

£0.895

-

395,800

-





Share options outstanding at 31 May 2023

£0.49

424,440

200,000

 

 

The weighted average exercise price for all options is £0.49 at 31 May 2023 (£0.47 per share at 31 May 2022) and the average remaining vesting period was estimated at 2 years at 31 May 2023 (2022: 3 years).

There are also arrangements in place under which employees have an option to buy existing shares from certain shareholders at £0.50 per share. These will not impact the company nor dilute shareholdings and are considered outside the scope of share based payment accounting.

During the previous year, warrants were issued to the listing advisers over 450,000 ordinary shares at an exercise price of £0.50, exercisable in the 3 years following the date of admission to AIM. The share based payment of £74,000 in respect of the services was calculated at a fair value of 17 pence per share using a Black Scholes model with 50% volatility, 2% risk free rate and immediate vesting period assumption, and relates to expenses that have been charged to the share premium account with no impact on the income statement.

 

The weighted average exercise price for the warrants is £0.50 at 31 May 2023.

 

Exercise price

Ordinary shares

Exercisable at 01 June 2022 brought forward

450,000

Warrants issued over Ordinary shares in year

Nil

Exercisable at 31 May 2023

450,000

 

 

25.     Share premium



                   31 May 2023                               31 May 2022

Group and Company

                                £'000                                           £'000

At 1 June

6,900

-

Conversion of loan notes into ordinary shares

-

1,419

Issue of new shares

2,015

5,988

Expenses relating to share issue

(163)

(507)

Total

8,752

6,900

 

The net proceeds of the Fundraising are to be used primarily to develop further the Company's depth and strength of offering. As well as providing the Company with funds it will enhance both transparency and the international profile of the Company with customers, allow the Company to access equity capital to fund growth and support potential M&A opportunities, and enable the Company to attract, recruit and retain key employees.

Share issue costs relate to commissions charged and other directly attributable costs of the fundraise exercise.

26.    Post balance sheet events

There have been no events since the year end that warrant specific mention in the Company's financial statements at 31 May 2023.

27.    Related party transactions

During the year the company undertook transactions with the following related parties:


 

2023

2022

Name

Services

Transactions

during the year

 

£'000

Balance owing/(owed) at

31 May 2023

£'000

Transactions

during the year

 

£'000

Balance owing/(owed) at

31 May 2022

£'000

 EnSilica India Private Limited

 

Semiconductor design

services

1,282

Nil

1,428

Nil

 

EnSilica Do Brasil Sociedade Unipessoal Limitada

 

Semiconductor design

services

1,187

Nil

614

Nil

EnSilica GMBH

Semiconductor sales services

271

(271)

-

-

Non-Executive Directors services prior to Company appointment:






Hexameter Services Limited

Consultancy services -

D Tilston

Nil

Nil

14

Nil

Janet Collyer

Consultancy services

Nil

Nil

14

Nil

 

Details of Directors' remuneration for services during the year is separately disclosed as part of the remuneration committee report.

 

28.   Non-controlling interests

 

A non-controlling interest exists for the Company's subsidiary EnSilica India Private Limited, where 1 shareholder holds 1 share in the Company, representing 0.002% of the issued share capital.

The summarised results of the company are shown below:

                    2023                                      2022

                 £'000                                     £'000

Current assets

1,460

1,236

Non-current assets

34

67

Current liabilities

(95)

(319)

Non-current liabilities

(199)

(167)


1,200

817

Equity attributable to owners of the Company

1,200

817

Non-controlling interests


-

Revenue

1,536

2,251

Expenses

1,108

(1,940)

Profit for the year

428

311

Profit attributable to the owners of the Company

428

311

Profit attributable to the non-controlling interests

-

-

Profit for the year

428

311

 

29.    Reserves

Retained earnings

Retained earnings includes all current and prior year retained profits and losses attributable to the owners of the parent company.

Currency translation reserve

The currency translation reserve includes all translation differences that arise from the conversion of the financial statements of the Company's foreign subsidiary entities into pound sterling (£).

Share premium account

The share premium account includes the amount by which a share has been issued in excess of its nominal value. The account has also been used to offset costs in relation the raising of funds via a share issue (note 25).

Glossary of Terms

 

5G

The fifth generation technology standard for broadband cellular networks, which cellular phone companies began to deploy worldwide in 2019.

 

Analog

A type of signal in an electronic circuit that takes on a continuous range of values rather than only a few discrete values

ADAS

Advanced driver-assistance systems

AGM

Annual General Meeting of the Company's shareholders

AI

Artificial Intelligence

ASIC

An application-specific integrated circuit is an integrated chip, custom-designed for a specific application

ASSP

Applications Specific Standard Part

Beamforming

Beamforming or spatial filtering is the technique used in antenna for directional signal transmission or reception. This is achieved by combining elements in an array of elements in such a way that signals at particular angles experience constructive interference whilst others experience destructive interference. Beamforming is used in Radar, 5G antenna and satellites, it allows the focusing of one or more beams to improve the sensitivity of the system.

CAGR

Compound Annual Growth Rate, a method of assessing the average growth of a value over time.

CEO

Chief Executive Officer

CFO

Chief Financial Officer

Chip

Electronic integrated circuit

CMOS

complementary metal-oxide semiconductor

Digital

A type of signal used to transit information that has only discrete levels of some parameter ("usual voltage").

DSE

Display Screen Equipment

EBIT

Earnings before interest and taxes (also known as operating profit)

EBITDA

Earnings before depreciation, amortisation, interest and taxes

ESG

Environmental, Social and Governance

Fabless

A company that design and delivers semiconductors by outsourcing the fabrication ("manufacturing") process.

Foundry

A manufacturing plant where silicon wafers are produced.

Group

The Company and its subsidiaries

IC

Integrated Circuit.  An electronic device with numerous components on a single chip.

IFRS

International Financial Reporting Standards

IP

Intellectual Property

IPO

Initial Public Offering

Ka or Ka-band

A portion of the microwave part of the electromagnetic spectrum defined as frequencies in the range 26.5 to 40 gigahertz (GHz).

KPIs

Key performance indicators, a range of indicators to assess performance, to ensure performance is aligned to strategy and to ensure continued alignment with shareholder interests.

LTIP

Long Term Incentive Plan

Mixed Signal

A combination of analog and digital signals being generated, controlled or modified on the same chip.

mmWave

Millimetre wave; the band of radio frequencies in the electromagnetic spectrum from 30 to 300 gigahertz (GHz) often used for Satellite, 5G and Radar systems. These are also microwave frequency bands.

NRE

Non-Recurring engineering cost

OEM

Original equipment manufacturer; such as car manufacturers or complex products which include sub-systems from other suppliers.

OSAT

Outsourced semiconductor assembly and test

QCA

The Quoted Companies Alliance

R&D

Research and development

RF

Radio frequency

SIG

Special Interest Group

Semiconductor

A base material halfway between a conductor and an insulator, which can be physically altered by mixing in certain atoms.  Semiconductors form the basis for present-day electronics.

SoC

System-on-Chip.  An integrated circuit with all the necessary electronic circuits and parts for a given system.

Tape-Out

A major milestone in every ASIC project lifecycle representing the transition between the design phase and the manufacturing phase. It means the design phase is completed and you are ready to send out the design files to the Fab for mask generation and production.

Wafer

A slice of silicon from a 4, 5, 6 or 8 inch diameter silicon bar and used as the foundation on which to build semiconductor products

 

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Companies

EnSilica (ENSI)
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