Final Results
17 October 2022
EnSilica plc
("EnSilica", the "Company" or the "Group")
Audited Full Year Results for the Year Ended 31 May 2022
Strong operational and financial performance with significant market growth potential
EnSilica (AIM: ENSI), a leading mixed signal chipmaker announces full year results for the year ended 31 May 2022 ("FY 22").
Financial highlights
· Revenue up 77% to £15.3 million (FY21: £8.6 million)
· Adjusted operating profit £0.70 million (FY21 £0.17 million loss).
· Gross margin 33% (FY21: 23.9%)
· Adjusted EBITDA up significantly to £1.05 million (FY21: £0.06 million)
· Cash and cash equivalents at 31 May 2022 of £5.7 million (31 May 2021: £1.4 million)
· Net cash at 31 May 2022 of £0.6 million (31 May 2021: Net debt £4.7 million)
· Net assets increased at 31 May 2022 by 328% (31 May 2021: decreased 39%)
· Further investment in IP of £2.24 million (FY21: £1.67 million)
Operational highlights
· Successfully floated on AIM, a market operated by the London Stock Exchange, in May 2022, raising £6m million despite macro-economic uncertainty and the onset of conflict in Ukraine.
· Increase in average headcount in the period to 117 (FY21: 96)
Post period-end highlights and outlook
· Successfully brought a mixed signal automotive ASIC to commercial production following the official launch of a new flagship vehicle by a premium automotive company.
· Appointed a new Vice President of Worldwide Sales and entered into non-exclusive Sales Representative Agreements with Quantum Leap Solutions Inc. (covering the North America region) and Cedar Technologies Limited (covering the UK, Nordic regions and Poland).
· Hired an ASIC implementation team comprising of six engineers and the purchase of related non-core IP assets from Blu Wireless Technologies Limited.
· Awarded a significant industrial ASIC supply project worth in excess of US$30 million over 7 years.
Outlook
· EnSilica have started the current financial year strongly, buoyed by our existing contracts which underpin FY23 momentum.
· The Board firmly believes that the Company is well placed to continue to capitalise on the sizeable growth opportunity within the semiconductor industry, supported by a significant order book and new business pipeline.
Ian Lankshear, CEO of EnSilica, commented:
"I am delighted to be announcing such a strong set of full year results for EnSilica, our first since floating on AIM. 2022 has been a truly transformational year for our business as we seek to further capitalise on what we believe is a sizable market opportunity for EnSilica.
"I'd like to personally thank our outstanding team, who collectively, sit firmly at the centre of our success as we continue to support our global blue-chip customer base.
"Having successfully delivered our FY22 results ahead of market expectations, I am pleased to report that the Company has started FY23 well, supported by existing contracts and ongoing new business momentum."
Investor Presentation
Management will be hosting a presentation for investors in relation to the Company's results on Monday, 17 October 2022 at 3 p.m. BST.
The presentation will be hosted on the Investor Meet Company ("IMC") digital platform. Investors can sign-up for free and request to meet EnSilica via:
https://www.investormeetcompany.com/ensilica-plc/register-investor
Investors who already follow EnSilica on this platform will automatically be invited.
Annual report and accounts
The annual report and accounts for the year ended 31 May 2022 will be posted to shareholders on 24 October 2022 and will be available immediately thereafter on the Company's website at www.ensilica.com/investors/.
Annual General Meeting
The Annual General Meeting of EnSilica plc will be held on 24 November 2022, notice of which will be sent to shareholders with the annual report and accounts on 24 October 2022.
For further information please contact:
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EnSilica plc Ian Lankshear, Chief Executive Officer Matthew Wethey, Chief Financial Officer
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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)
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Tel: +44 (0)20 3328 5656 info@allenbycapital.com
|
|
Vigo Consulting (Investor & Financial Public Relations) Jeremy Garcia ensilica @vigoconsulting.com |
+44 (0)20 7390 0233 |
Notes to editors
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 India and Brazil.
Executive Chair Statement
Our May 2022 IPO was a significant milestone for our business, and for our team here at EnSilica. The IPO was the culmination of a tremendous period of organisational and operational change for our business, which is ultimately centred on further capitalising on a sizeable growth opportunity within the semiconductor industry. We look forward to taking advantage of the many benefits that our public quotation brings.
Our listing not only provided the Company with an immediate growth capital, alongside creating the flexibility to fund potential M&A opportunities. It also enhanced both transparency and raised our international profile with existing and potential customers. We strongly believe that this will enable us to attract, recruit and retain key employees going forward.
Against this positive momentum, I am delighted to report that our maiden results for the financial year ending 31 May 2022 exceeded market expectations set out at the time of the Company's listing. EnSilica delivered revenues for FY 2022 of £15.3 million (2021: £8.6 million), a 77% increase on the prior year, and an adjusted EBITDA of approximately £1.0 million (2021: £0.06 million), delivering significant year on year growth.
This outstanding performance is the realisation of our underlying business strategy first adopted in 2016, with the start of direct chip supply to our first automotive customer. Since then, we have seen our financial performance improve, as our earlier customer product development mandates continue to build momentum.
Our recent 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. I would personally like to thank every member of the EnSilica team for their effort, dedication, and enthusiasm throughout.
The Board has been enlarged during 2022 and we are delighted to welcome our new Non-Executive Directors. We have been able to attract highly experienced individuals with strong skills and relevant experience to support our strategic ambitions. Alongside myself, Ian Lankshear, our CEO, was joined by our CFO, Matthew Wethey, as the Executive Directors. Concurrently, four independent Non-Executive Directors were appointed Janet Collyer as Senior Non-Executive Director and Chair of the Remuneration Committee, and David Tilston as Chair of the Audit Committee, Noel Hurley and Wasim Ahmed. We are committed to pursuing excellent Board performance and we will be reporting on the steps we take to maximise the effectiveness of the Board on a regular basis.
As a responsible business, we remain focused on corporate environmental, social, and governance ('ESG') values, in order 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 and the fears of a downturn for the semiconductor industry, we continue to service a sizeable order book and a strong level of enquiries for ASIC's from a variety of sources across automotive, industrial, healthcare and satellite communications, where we have a longstanding reputation for innovation and excellence.
In this time of disruption of the labour markets and steep labour cost rises, attracting new employees and retaining existing ones is a key focus of our executive team. This is evidenced with the hiring of our ASIC implementation team, comprising of six skilled engineers from Blu Wireless earlier this year. The new team will be located in EnSilica's new Bristol facility. We are delighted to be welcoming such a skilled and experienced team to EnSilica, which we believe will form a strong platform to further attract talent in the Bristol area.
Finally, we have started the current financial year strongly, buoyed by our existing contracts which underpin FY23 momentum. The Board firmly believes that the Company is well placed to continue to capitalise on the sizeable growth opportunity within the semiconductor industry, supported by a significant order book and new business pipeline.
Mark Hodgkins
Chair
14 October 2022
Chief Executive Review
Introduction
I am delighted to be sharing our first set of results as a newly quoted company and more importantly, highlighting what has been a truly transformational year for our business. Not only have we made significant operational progress, but we have also delivered a strong set of financial results, reflecting the underlying strength of EnSilica.
Over the last 12 months, we have been developing a substantial order book, which includes our first mass production of our automotive ASICs with a prestige car maker, coupled with the successful listing of the business on the London stock market, alongside celebrating our 21st anniversary.
Our progress has also been reflected in our financial performance across FY 2022, with revenues increasing 77% to £15.3 million (2021: £8.6 million), alongside delivering £1.0 million (2021: £0.06 million) of adjusted EBITDA, representing a significant year-on-year growth.
Our listed status is already benefiting the business, helping us to accelerate our mission to be the premier application specific fabless chipmaker in Europe. Our higher profile position, stronger balance sheet and financial transparency have allowed us to engage with top-tier customers, enabling us to increase our business momentum.
In addition, we have seen a marked improvement in new business opportunities during the period, with customers requesting specification phase quotations to cover funded studies into their ASICs across automotive, industrial, healthcare and satellite communication sectors, all key growth markets for EnSilica.
To that end, our growth strategy remains unchanged from that outlined during our listing, and we will continue to pursue the following business objectives:
§ To leverage EnSilica's strong positions 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 catalogue parts, with two significant standard platforms already at the device evaluation stage;
§ expand EnSilica's offering through consolidation and vertical integration.
I look forward to updating all our key stakeholders on our progress as we seek to further develop the business.
Finally, I would like to express my sincere thanks to all our highly talented and hardworking staff, without whom none of this would have been possible. We would also like to thank our customers and investors who have shown confidence in us and have contributed to making 2022 a transformational year for EnSilica.
EnSilica's Business Model
EnSilica operates under the Fabless Semiconductor Model and as a design consultancy providing services for Integrated Circuits ("ICs"). The fabless semiconductor model provides an end-to-end service for the development, production and supply of ICs from initial scoping and design through to the delivery of products.
Under this model, fabrication of ICs is outsourced to specialised semiconductor wafer foundries, following which the processed wafers are sent for dicing, testing and packaging by other third parties, keeping capital requirements for manufacturing low. EnSilica has a wide network of suppliers, high profile customers and a strong reputation in the market, providing EnSilica with security of supply.
The move from consultancy to focusing on ASIC design and supply embeds EnSilica further within the electronics value chain. ASIC customers 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 subsequently purchase the ASICs that EnSilica supplies or, in some cases, pay royalties to EnSilica for the ASICs that a third party will manufacture on the customer's behalf.
EnSilica often co-invests in the development of ASICs with the customer and depending on the sector, it takes two to five years to reach full production. At the production stage, revenues can be high, last several years and generate gross margins circa 35% to 60% range. The gross margin will depend on the market and the level of co-founding funding of the NRE required. Therefore, part of EnSilica's expertise is in assessing whether to proceed and invest in a particular IC project resulting in long-term component supply or royalty revenue for the Company.
Key Markets and Growth Drivers
We continue to develop a presence across four principal markets where we believe there is significant demand for our services and skills, namely: Satellite Communications, Automotive, Industrial and Healthcare.
Within the Automotive Sector, significant advancements are now being driven by electronics rather than mechanical changes. This increased usage of electronics has directly contributed to a heightened demand for semiconductors within the automotive industry.
The potential for semiconductors in the automotive industry is vast and includes electric vehicles, infotainment systems, advanced driver assist systems, autonomous driving systems, connectivity, safety and security systems. IC Insights estimates that the automotive sector will be the strongest growing 2021-2026 CAGR of any of the main semiconductor end-use segments at 13.4%, which underpins EnSilica's focus on this end market.
The Company is also focused on the Satellite Communication Sector, which will continue to play a vital role in interconnecting our new smart world, especially in remote areas where mobile or Wi-Fi networks are ineffective. In addition, Space semiconductors will deliver enhanced system performance and efficiency by providing various advantages of standard components. EnSilica's ability to deliver ASICs, which are ideally placed to meet the specific demands of various satellite communication systems, will be fundamental to our success in this market in the medium term.
Within the IndustrialSector, we expect both the evolution and widespread industrial demand for semiconductors to increase, driven in part by the more widespread adoption of pressure and flow sensors, gas sensors and chemical sensors through to precision timers, ultrasonic sensor drivers and movement sensors. IC Insights predicts that the industrial segment 2021-2026 CAGR will be 8%. The industrial market also has room for manufacturing optimisation and proactive fault detection through realising the benefits of AI and machine learning, which ASICs are now well placed to exploit.
Finally, the Health Wearables Sectorremains of considerable interest to the Company as advancements in AI have made it possible to detect medical conditions through monitoring devices which range from devices worn on the wrist, sensors on a small patch or even within earbuds. Deloitte Global reported that 275 million consumer health and wellness wearable devices were shipped worldwide in 2021. It is now predicted that 320 million consumer health and wellness wearable devices will ship worldwide in 2022. By 2024, this figure will likely reach nearly 440 million devices. These figures include both smartwatches and medical-grade wearables, often prescribed by health care professionals but are increasingly becoming available off the shelf.
Looking more broadly at our 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 industry, establishing it as a truly essential industry. In addition, the COVID-19 pandemic has 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 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.
The wafer and other material cost increases have been a key feature of recent chip shortage. However, the impact of these semiconductor shortages on EnSilica has been minimal, given our ability to directly pass through price increases to our customers. The Company's current bias is towards design rather than supply, with the latter only increasing during 2022 and beyond as the pipeline of projects comes to fruition.
Our in-house fabless operations team have worked hard to ensure all our customers have chips when required, the increased investment in new foundry capacity should help ease the supply chain challenges.
Customer Activity
The Company currently manages an existing sales pipeline and order book of c. £350 million, extending to 2027, comprising of major industrial OEMs, automotive suppliers, healthcare device providers and satellite communication services.
Key contracts and progress on projects in 2022 include:
§ An established Automotive ASIC supply customer providing visibility on expected order volumes through to 2025/2026 with supply deliveries having commenced in Q3 FY 2022; orders forecast for the next 12 months of 2.7 million chips:
§ Industrial ASIC about to complete extensive customer field trials that will consume 80,000 chips; main production order forecast by the end of FY 2023:
§ Contract with AST Space Mobile a global satellite and communication customer with NRE majority funded by the customer.
§ A significant project for a leading European industrial OEM worth in excess of US$30 million over seven years with supply revenue forecast to commence at the end of calendar year 2024. Contract was under a bidding process at the end of FY 2022 and contract was signed September 2022 and design work has commenced.
§ Navtech Radar continue to deploy their road safety Radar in the UK smart motorway systems incorporating EnSilica supplied hardware and IP.
§ Major design services development for advanced networking chip in 12nm FinFet Technology sent to foundry and the follow-on project commenced; and
§ Ka-band mmWave chip for satellite terminals developed with support from the European Space Agency is under evaluation by two terminal suppliers and further related customer opportunities are progressing.
In addition, the Company is also pursuing a number of supply ASICs opportunities across automotive and major healthcare device manufacturers which are all progressing well. Elsewhere, we have a self-funded healthcare 'vital signs' chip under testing in the laboratory and customer evaluation kit under preparation. Early marketing has commenced with interest now being generated from a number of multinational healthcare device manufacturers.
Our People
Our highly talented and hard-working team has been fundamental to our success and remains a key asset for the business. We continued adapting to our post Covid-19 working environment after another year of mostly remote working. The combination of travel restrictions and a general shift of our work routine has meant a reduction in day-to-day interaction and in some cases, deprived staff of ad-hoc creative dialogue. Pleasingly, our people adjusted and, more recently, we have seen a concerted effort by our teams to return to the office, alongside the return of international travel, which reconnects our UK teams with our subsidiaries in India and Brazil.
Over the years, EnSilica successfully hired entire teams from customers, or from our wider network, and quickly integrated them into our business. We started our Indian office from scratch in 2013 as being new to the Indian market it proved hard to recruit, however, more recently our higher profile has enabled us to attract new talent.
Our Abingdon based mixed signal and RF team joined us from a customer along with the transfer of some IP assets in 2016. The team quickly integrated and has grown considerably, such that our headquarters was moved from Wokingham to Abingdon.
In 2020 we acquired a team of mixed signal engineers in Sheffield who were working from a customer; this team is fully integrated and contributing well. In July 2021, we recruited a team of 12 engineers who have worked together for many years in a Brazilian government backed chip design house.
This has expanded to 20 staff in just over a year and is contributing well across a number of major projects. In July 2022, we acquired a small team in Bristol from another customer along with IP assets for advanced ASIC implementation.
Acquiring teams via asset transfer, full acquisition or recruitment of a group of engineers who have been working together with strong leadership is a key part of EnSilica's strategy to expand our engineering capacity and capabilities.
Outlook
Having successfully delivered our FY22 results ahead of market expectations, I am pleased to report that the Company has started FY23 well, supported by existing contracts and ongoing new business momentum.
The strong 2022 performance underpins FY23 momentum supported by existing contracts and ongoing new business.
The Board firmly believes that the Company is well placed to continue capitalising on the sizable growth opportunity within the semiconductor industry.
Ian Lankshear
Chief Executive Officer
14 October 2022
Chief Financial Officer Review
A summary of the key financial results for the year and details relating to its financing position at the year-end are set out in the table below and discussed in this section. Full details can be found in the Consolidated Financial Statements.
|
|
31 May 2022 |
31 May 2021 |
31 May 2020 |
|
|
£000 |
£000 |
£000 |
|
|
|
|
|
|
Revenue |
15,293 |
8,607 |
6,452 |
|
Gross Profit |
5,047 |
2,057 |
2,938 |
|
Gross margin (%) |
33.0 |
23.9 |
45.5 |
|
Adjusted operating profit/(loss) excluding impairment of intangible assets and IPO costs |
705 |
(169) |
276 |
|
IPO costs |
(699) |
- |
- |
|
Impairment of intangible assets |
- |
(2,019) |
(450) |
|
Adjusted profit/(loss) before tax |
165 |
(714) |
(389) |
|
Tax |
683 |
658 |
550 |
|
Adjusted profit/(loss) for the year |
848 |
(56) |
161 |
|
Adjusted EBITDA |
1,036 |
59 |
520 |
|
|
|
|
|
|
Cash and Cash equivalents |
5,742 |
1,404 |
2,181 |
|
Liabilities arising from financing activities |
(5,159) |
(6,095) |
(4,178) |
|
Net Debt |
583 |
(4,691) |
(1,997) |
|
Intangible assets |
8,576 |
6,506 |
6,844 |
|
|
31 May 2022 |
31 May 2021 |
31 May 2020 |
|
|
FTE |
FTE |
FTE |
|
|
|
|
|
|
Administration |
10 |
9 |
8 |
|
Marketing |
5 |
4 |
3 |
|
Research, development and technical |
102 |
83 |
74 |
|
Average number of employees |
117 |
96 |
85 |
Notable from the table above
The Group achieved a strong set of results for the year ending 31 May 2022, with revenue growth of 77%. to £15.3 million, compared to £8.6 million for the prior financial year. This was driven by two customers with combined revenues of £8.4 million, one being an NRE project with revenue of £5.5 million representing 36% and 19% of the revenue for the year ended 31 May 2022 and the other a major consultancy contract with revenue of £2.9 million being 19%. In 2021 revenue from three different customers amounted to £3.6 million at 19%, 12% and 10% of total revenue.
The Group continues to focus on improving the revenue split between NRE and Consultancy. Since 31 May 2021, NRE has grown from 29.7% to 40.9% of total revenue in the year ended 31 May 2022. The Company maintains a level of consultancy work as to provide reliable income but going forward management will focus on the higher returns of design and supply work. Supply revenue from prior NRE work is beginning to flow through and the pipeline of NRE work which supports future supply revenues is strong. The design and supply work typically involves 1 to 2 years of development before production. Some of the Group's early design contract work is now beginning to generate supply revenues. Three ASICs have been released for production and a further four EnSilica ASICs are at the design stage. Furthermore, EnSilica is working on costings with clients for several additional projects and the CEO report above sets out some of those projects. Given the significant potential project opportunities that have been presented, coupled with the strong relationships already established, the Directors are confident that the Group is in a good position to add to its existing pipeline in the near future and to grow the revenue base of the business
The Group was able to improve its gross margin percentage by undertaking higher margin projects and increasing the utilization of the increasing number of engineers. Margins had been suppressed in FY2021 due to COVID causing a postponement or cancellation of projects and the Group undertaking lower margin work to maintain its workforce during the pandemic. As a result the Group was able to increase its gross margins by 9.1% from 23.9% in FY2021 to 33% in the current year.
After the impact of administrative expenses which at £4.3 million were £1.8 million higher than in FY 2021, operating profit excluding IPO costs and impairment of intangible assets for the year to May 2022 was £0.87 million higher than the previous year (£0.2 million loss).
In both FY 2020 and FY 2021 there were impairments of intangible assets. These impairment reviews wrote down historic IP and capitalized cost where future income streams were not forecast. The Group still retains the IP and should future events mean that income was forecast to be received then the intangible asset could be reinstated. The impairment review for the current year supported the balance sheet value and no impairment was recognized.
Once the impact of depreciation and amortisation was included the Adjusted EBITDA for the year to May 2022 was £1.0 million higher than in the previous year (2021: £0.06 million).
The reduction in net debt of £5.3 million at the end of May 2022 was mainly due to the net £6.3 million from proceeds from issuing new ordinary shares, and £2.0 million of tax received in relation to R&D tax credits from FY21 and FY20 less £2.5 million used in investing activities.
Following the addition of £2.2 million development costs and an amortisation charge of £0.148 million intangible assets were £8.6 million at the end of May 2022.
The Group increased the average number of employees during the year by 21 heads, of these 19 were research, development and technical heads. The majority of these are based in Brazil.
Financial items of note during the year other than those set out above
These are the first set of financial statements that have been prepared under IFRS. The main areas where this has impacted our financial statements are due to IFRS 16 Leases, Deferred Tax, IFRS 15 Revenue from Contracts with Customers, reclassifications and cash flow statements.
§ Under IFRS 16 in relation to operating lease contracts we have recognised a right to use asset with a carrying value at 31 May 2021 of £0.275 million and a financial liability with a carrying value of £0.296 million at 31 May 2021. Lease rentals of £0.082 million, under FRS102, in 2021 have been replaced by a depreciation charge of £0.067 million and a financing charge of £0.011 million.
§ A deferred tax asset has been recognised in relation to EMI share options. This was offset by recognising a deferred tax asset caused by tax losses created by employees exercising options.
§ Under IFRS 15 amounts included in trade debtors that were not due at the balance sheet date and relate to deferred income are excluded from trade debtors and deferred income. An adjustment of £0. 677 million has been made at 31 May 2021.
§ There has been a reclassification of assets subject to hire purchase and finance leases with a net book value of £0.157 million at 31 May 2021 which have been reclassified to right-of-use assets in accordance with IFRS 16.
The Group had two bank loans totalling £5.0 million at the end of the current year and £5.8 million at the end of the previous year, these loans were the main reason for the interest charge of £0.6 million in both years.
Due to the nature of the work carried out by our engineers we are able to claim R&D tax credits. In the current year the amount recoverable from HMRC is of £1.67 million for FY22, this was £1.0 million for the year ended 31 May 2021.
The opening corporation tax recoverable debtor of £2.2 million in relation to FY21 and FY20 was received in the year. The Closing corporation tax recoverable debtor of £1.67 million is in relation to FY22.
Fundraising, IPO and capital reorganisation
By a loan note instrument dated 23 December, the Company created up to £1.5 million convertible, redeemable loan notes for the purpose of raising working capital prior to the IPO. A total of £1.375 million Convertible Loan Notes were issued to subscribers including to each of the executive Directors. The Convertible Loan Notes had a maturity date of 9 January 2023 and they entitled the holder to an interest rate of 10 per cent. per annum and to convert automatically into new Ordinary Shares at a discount of 12 per cent. to the Placing Price. The Convertible Loan Notes Issue was completed in February 2022.
A requirement of being listed on AIM is to have a single class of shares. As a result of the admission, a capital reorganisation was implemented. New B Ordinary , new C Ordinary Shares and new D Ordinary Shares were issued and allotted following the exercise of options over such shares by the relevant option holders. Together with the existing A Ordinary Shares and B Ordinary Shares these different classes of Ordinary Shares were converted into 60,000,004 Ordinary Shares. 3,231,805 new Ordinary Shares were issued to holders of the Convertible Loan Notes and through a placing and subscription 12,000,000 new Ordinary shares were issued at a price of 50p per share. This resulted in a total of 75,231,809 Ordinary shares with voting rights.
On 24 May 2022 EnSilica plc was listed on the AIM sector of the London Stock exchange. The issue of share capital because of the convertible loan notes and the IPO was £7.4 million. IPO expenses of £0.7 million have been charged to the Income Statement reflecting the listing and £0.5 million have been charged to the share premium account in relation to the fund raising.
Going Concern
As part of its normal business practice, the Group 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 Group's experience since June 2022. The possible continuing and future impact of the Russia/Ukraine war on the Group and the current economic environment, which is likely to create problems for global supply chains and negatively impact demand, has been considered in the preparation of the financial statements
As at 31 May 2022 the Group financing arrangements consisted of a loan of £3.1 million from SME Alternate Financing and a Coronavirus Business Interruption Loan (CBIL) for £2.1 million used to mitigate delays caused by Covid-19. The Group held a cash balance of £5.7 million at that date.
The Directors are satisfied that the Group 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.
Matthew Wethey
Chief Financial Officer
14 October 2022
Consolidated Statement of Comprehensive Income
For the year ended 31 May 2022
|
|
|
|
|
|
|
|
|
|
2022 |
2021 |
|
|
|
|
£'000 |
£'000 |
|
Revenue |
|
|
15,293 |
8,607 |
|
Cost of sales |
|
|
(10,246) |
(6,550) |
|
Gross profit |
|
|
5,047 |
2,057 |
|
Other (expense)/operating income |
|
|
(14) |
297 |
|
Administrative expenses excluding non-recurring items |
|
|
(4,328) |
(2,523) |
|
Impairment of intangible assets |
|
|
- |
(2,019) |
|
IPO costs |
|
|
(699) |
- |
|
Total administrative expenses |
|
|
(5,027) |
(4,542) |
|
Operating profit/(loss) |
|
|
6 |
(2,188) |
|
|
|
|
|
|
|
Interest income |
|
|
25 |
7 |
|
Interest expense |
|
|
(565) |
(552) |
|
Loss before taxation
|
|
|
(534) |
(2,733) |
|
Taxation |
|
|
683 |
658 |
|
|
|
|
|
|
|
Profit/(loss) for the year |
|
|
149 |
(2,075) |
|
|
|
|
|
|
|
Other comprehensive income/(expense) for the year |
|
|
|
|
|
Currency translation differences |
|
|
40 |
(39) |
|
|
|
|
|
|
|
Total comprehensive income/(expense) for the year |
|
|
189 |
(2,114) |
|
Profit/(loss) for the year attributable to: |
|
|
|
|
|
Owners of the company |
|
|
149 |
(2,075) |
|
Non-controlling interests |
|
|
- |
- |
|
|
|
|
149 |
(2,075) |
|
|
|
|
|
|
|
Total comprehensive income/(expense) for the year attributable to: |
|
|
|
|
|
Owners of the company |
|
|
40 |
(39) |
|
Non-controlling interests |
|
|
- |
- |
|
|
|
|
40 |
(39) |
|
|
|
|
|
|
|
Basic earnings per share (pence) |
|
|
0.20 |
(5.88) |
|
Diluted earnings per share (pence) |
|
|
0.20 |
(5.88) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Basic earnings per share (pence) |
|
|
1.13 |
(5.88) |
|
Adjusted Diluted earnings per share (pence) |
|
|
1.11 |
(5.88) |
Consolidated Statement of Financial Position
As at 31 May 2022
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
2021 |
1 June 2020 |
|
|
|
|
|
£'000 |
£'000 |
£'000 |
|
|
Assets |
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
382 |
262 |
275 |
|
|
Intangible assets |
|
|
8,576 |
6,506 |
6,844 |
|
|
Total non-current assets |
|
|
8,958 |
6,768 |
7,119 |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Inventories |
|
|
215 |
30 |
94 |
|
|
Trade and other receivables |
|
|
3,257 |
2,950 |
1,448 |
|
|
Corporation tax recoverable |
|
|
1,671 |
2,203 |
1,195 |
|
|
Cash and cash equivalents |
|
|
5,742 |
1,404 |
2,181 |
|
|
Total current assets |
|
|
10,885 |
6,587 |
4,918 |
|
|
Total assets |
|
|
19,843 |
13,355 |
12,037 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Borrowings |
|
|
(800) |
(753) |
(848) |
|
|
Lease liabilities |
|
|
(88) |
(103) |
(90) |
|
|
Trade and other payables |
|
|
(2,391) |
(3,099) |
(1,953) |
|
|
Total current liabilities |
|
|
(3,279) |
(3,955) |
(2,891) |
|
|
|
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
|
|
Borrowings |
|
|
(4,166) |
(5,046) |
(3,105) |
|
|
Lease liabilities |
|
|
(105) |
(193) |
(135) |
|
|
Provisions |
|
|
(140) |
(149) |
(70) |
|
|
Deferred tax |
|
|
- |
(1,174) |
(1,183) |
|
|
Total non current liabilities |
|
|
(4,411) |
(6,562) |
(4,493) |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
(7,690) |
(10,517) |
(7,384) |
|
|
|
|
|
|
|
|
|
|
Net assets |
|
|
12,153 |
2,838 |
4,653 |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
Issued share capital |
|
|
134 |
2 |
2 |
|
|
Share premium account |
|
|
6,900 |
- |
- |
|
|
Currency differences reserve |
|
|
1 |
(39) |
- |
|
|
Retained earnings |
|
|
5,118 |
2,875 |
4,651 |
|
|
Equity attributable to owners of the Company |
|
|
12,153 |
2,838
|
4,653
|
|
|
Non-controlling interests |
|
|
- |
- |
- |
|
|
Total equity |
|
|
12,153 |
2,838 |
4,653 |
|
Consolidated Statement of Changes in Equity
For the year ended 31 May 2022
|
|
|
Share capital |
Share premium account |
Currency translation reserve |
Retained earnings |
Total equity |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 31 May 2019 |
|
2 |
- |
8 |
4,463 |
4,473 |
|
|
|
|
|
|
|
|
|
Comprehensive income/(expense) for the year to 31 May 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
|
- |
- |
- |
161 |
161 |
|
Other comprehensive expense |
|
- |
- |
(8) |
- |
(8) |
|
Total comprehensive income for the year |
|
- |
- |
(8) |
161 |
153 |
|
Share based payment |
|
- |
- |
- |
27 |
27 |
|
At 31 May 2020 |
|
2 |
- |
- |
4,651 |
4,653 |
|
|
|
|
|
|
|
|
|
Comprehensive expense for the year to 31 May 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
- |
- |
- |
(2,075) |
(2,075) |
|
Other comprehensive expense |
|
- |
- |
(39) |
- |
(39) |
|
Total comprehensive expense for the year |
|
- |
- |
(39) |
(2,075) |
(2,114) |
|
Share based payment |
|
- |
- |
- |
32 |
32 |
|
Deferred tax in respect of share options |
|
- |
- |
- |
267 |
267 |
|
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 expense |
|
- |
- |
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
|
|
|||||
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 2022 (31 May 2021:£nil), further details are disclosed in note 28.
Consolidated Statement of Cash Flows
For the year ended 31 May 2022
|
|
|
|
|
|
|
|
|
|
2022 |
2021 |
|
|
|
|
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations |
|
|
(1,915) |
(342) |
|
Tax received/(paid) |
|
|
3,306 |
(92) |
|
Net cash generated from/(used in) operating activities |
|
|
1,391 |
(434) |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(276) |
(45)
|
|
Additions to intangible assets |
|
|
(2,241) |
(1,672) |
|
Interest received |
|
|
25 |
7 |
|
Net cash used in investing activities |
|
|
(2,492) |
(1,710)
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
Proceeds from issuance of ordinary shares |
|
|
6,915 |
-
|
|
Interest paid |
|
|
(565) |
(185) |
|
Lease liability payments |
|
|
(103) |
(94) |
|
Receipt of bank loans |
|
|
- |
2,450 |
|
Repayment of bank loans |
|
|
(768) |
(784) |
|
Commitment fees |
|
|
(80) |
- |
|
Net cash generated from financing activities |
|
|
5,399 |
1,387
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
|
4,298 |
(757) |
|
Cash and cash equivalents at beginning of year |
|
|
1,404 |
2,181
|
|
Foreign exchange gains/(losses) |
|
|
40 |
(20) |
|
Cash and cash equivalents at end of year |
|
|
5,742 |
1,404 |
Notes
1. General information
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with UK-adopted International Accounting Reporting Standards (IAS) 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
First-time adoption of IFRS
These financial statements, for the year ended 31 May 2022, are the first the Group has prepared in accordance with IAS. For periods up to and including the year ended 31 May 2021, the Group prepared its financial statements in accordance with UK Generally Accepted Accounting Practice (FRS 102).
Accordingly, the Group has prepared financial statements which comply with UK-adopted IAS applicable for the year ended 31 May 2022, together with the comparative data as at and for the year ended 31 May 2021, as described in the accounting policies. In preparing these financial statements, the Group's opening statement of financial position was prepared as at 1 June 2020, the Group's date of transition to IAS. Note 27 explains the principal adjustments made by the group in stating its IFRS statement of financial position as at 1 June 2020 and its previously published UK GAAP financial statements as at and for the year ended 31 May 2021.
Estimates
The estimates at 31 May 2022 are consistent with those made for the same dates in accordance with UK GAAP therefore no adjustments are necessary on conversion.
First-time adoption of IFRS reconciliations
On conversion to UK-adopted IFRS, an adjustment was required to capitalise various right of use assets, and to incorporate corresponding lease liabilities into the balance sheet. Rental charges previously expensed were removed and replaced by depreciation and finance interest charges.
There have been no adjustments to the Group's opening position on transition to UK-adopted IFRS from UK GAAP apart from the changes noted above as at 1 June 2020.
Note 27 to the financial statements includes the reconciliation of equity and the income statements from UK GAAP to UK-adopted IFRS for the comparative period to 31 May 2021.
Disclosure exemptions adopted
IFRS 1 First-Time Adoption of International Reporting Standards allows first-time adopters certain exemptions from retrospective application of certain IFRS.
The Group has applied the following exemptions:
· The Group has applied the transitional provision in IFRIC 4 Determining Whether an Arrangement Contains a Lease and has assessed all arrangements based upon the conditions in place as at the date of transition.
· The Group has applied the transitional provisions in IAS 23 Borrowing Costs and capitalised borrowing costs relating to all qualifying assets after the date of transition. Similarly, the Group has not restated for borrowing costs capitalized under UK GAAP on qualifying assets prior to the date of transition to UK-adopted IFRS.
Going concern
As part of its normal business practice, the Group 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 Group's experience since June 2022. As at 31 May 2022 the Group financing arrangements consisted of a loan of £3.1 million from SME Alternate Financing and a Coronavirus Business Interruption Loan (CBIL) for £2.1 million used to mitigate delays caused by Covid-19. The Group held a cash balance of £5.7 million at that date. The possible continuing and future impact of the Russia/Ukraine war on the Group and the current economic environment, which is likely to create problems for global supply chains and negatively impact demand, has been considered in the preparation of the financial statements.
The Directors are satisfied that the Group 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.
Consolidation
The financial information includes the results of EnSilica plc and its subsidiary undertakings. The results of the subsidiary undertakings are included from the date that effective control passed to the company. All subsidiaries were incorporated by the Company with no trading prior to their inclusion in the Group.
Revenue, profits and balances between group companies are eliminated on consolidation.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated in full on consolidation.
Revenue recognition
Revenue, in accordance with IFRS15 is recognised at an amount that reflects the consideration to which the group 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 group 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 Group recognises both income and costs 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 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 Group 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 Group operates an equity-settled share-based compensation plan in which the Group receives services from employees as consideration for share options. The fair value 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 Group'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 group classifies certain one-off charges or credits that have a material impact on the Group's financial results as 'non-recurring items'. These are disclosed separately to provide further understanding of the financial performance of the group.
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 group 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.
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 receivables, cash and cash equivalent 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 Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. The Group measures loss allowances at an amount equal to lifetime expected credit loss (ECL), which is estimated using past experience of the group'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 group'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 aging. The contract assets have similar risk characteristics to the trade receivables for similar types of contracts.
The Group recognises loss allowances for expected credit losses on financial assets measured at amortised cost to the extent that these are material. The Group has determined that there is no material impact of ECLs on the financial information.
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.
Leases
The Group as lessee
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group 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 Group 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 Group 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 Group and the lease does not benefit from a guarantee from the Group.
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 Group 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 Group did not make any such adjustments during the periods 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 Group 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 Group 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.
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the 'Property, Plant and Equipment' policy.
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 Group has not used this practical expedient. For contracts that contain a lease component and one or more additional lease or non-lease components, the Group 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 |
|
||
|
Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a Contract |
01 January 2022 |
|
||||
|
|
|
|||||
|
|
|
|||||
|
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 Group'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 tests, when reviews indicate that these are applicable, are based on risk adjusted future cash flows discounted using appropriate discount rates. These future cash flows are based on forecasts which include estimated factors and are inherently judgemental. Future events could cause the assumptions to change which could have an adverse effect on the future results of the Group
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 Group 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 Group. These costs include IPO preparation costs. The Group believes adjusting for these items provides additional useful information to users of the financial statements to enable a better understanding of the Group'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 Group'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.
|
|
|
2022 |
2021 |
|
|
|
£'000 |
£'000 |
|
Recognised at a point in time |
|
|
|
|
Supply of products |
|
1,769 |
677 |
|
Recognised over time |
|
|
|
|
NRE design services |
|
6,250 |
2,146 |
|
Consultancy design services |
|
7,073 |
4,856 |
|
Licensing related income |
|
201 |
928 |
|
|
|
13,524 |
7,930 |
|
|
|
15,293 |
8,607 |
|
By destination: |
|
|
|
|
UK |
|
2,808 |
3,175 |
|
Rest of Europe |
|
4,721 |
2,968 |
|
Rest of the World |
|
7,764 |
2,464 |
|
Total revenue |
|
15,293 |
8,607 |
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 £5.5m and £2.9m representing 36% and 19% of the revenue for the year ended 31 May 2022 (2021: three different customers amounted to £3.6m at 19%, 12% and 10%).
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 Group's view that excluding them from operating profit gives a better representation of the underlying performance of the business in the year.
The Group's primary results measure, which is considered by the directors of EnSilica plc to better represent the underlying and continuing performance of the Group, is Adjusted EBITDA as set out below. EBITDA is a commonly used measure in which earnings are stated before net finance income, amortisation and depreciation as a proxy for cash generated from trading.
|
|
|
|
2022 |
2021 |
|
|
|
|
£'000 |
£'000 |
|
|
|
|
|
|
|
Operating profit/(loss) before interest |
|
|
6 |
(2,188) |
|
Impairment of intangible fixed assets |
|
|
- |
2,019 |
|
IPO costs |
|
|
699 |
- |
|
Adjusted Operating profit/(loss) before interest |
|
|
705 |
(169) |
|
|
|
|
|
|
|
Depreciation |
|
|
160 |
114 |
|
Amortisation of intangible assets |
|
|
171 |
114 |
|
Adjusted EBITDA |
|
|
1,036 |
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) for the year |
|
|
149 |
(2,075) |
|
IPO costs |
|
|
699 |
- |
|
Adjusted Profit/(loss) for the year |
|
|
848 |
(2,075) |
|
|
|
|
|
|
Impairment of intangible fixed assets
In both FY 2020 and FY 2021 there were impairments of intangible assets which were recognised as exceptional costs. These impairment reviews wrote down historic IP and capitalised cost where future income streams were not forecast.
IPO Costs
Attributable costs relating to the IPO performed during the year have been recognised within the consolidated statement of comprehensive income as an exceptional cost. These costs are excluded from the adjusted results of the Group since the costs are one-off in nature and will not repeat in future years.
5. Operating profit/(loss)
|
The operating profit/(loss) is stated after charging/(crediting): |
|
2022 |
2021 |
|||
|
|
|
£'000 |
£'000 |
|||
|
Depreciation of property, plant and equipment |
|
106 |
43 |
|||
|
Depreciation of right-of-use assets |
|
54 |
71 |
|||
|
Amortisation of intangible assets |
|
171 |
114 |
|||
|
Impairment of intangible assets |
|
- |
2,019 |
|||
|
Cost of inventory sold |
|
1,717 |
1,663 |
|||
|
Research and development costs |
|
1,761 |
2,109 |
|||
|
Share based payments |
|
120 |
32 |
|||
|
Foreign exchange (gains)/losses |
|
(40) |
20 |
|||
|
|
|
|
|
|||
|
Research and development expenditure credit |
|
14 |
- |
|||
|
Government job retention scheme income |
|
- |
(80) |
|||
|
Government innovation grants |
|
- |
(30) |
|||
|
Government business interruption payment income |
|
- |
(187) |
|||
|
Total government grants received |
|
14 |
(297) |
|||
Development expenditure was also capitalised in each year as shown in note 12.
|
Auditor's remuneration : |
|
|
|
|
|
Audit of the Group and Company financial statements |
|
53 |
51 |
|
|
Non-audit services - reporting accountant services |
|
83 |
- |
|
|
Total Fees payable to the Group's auditor |
|
136 |
51 |
|
6. Taxation on profit/(loss)
|
|
|
2022 |
2021 2020 |
|
|
|
|
£'000 |
£'000 |
|
|
Current taxation |
|
|
|
|
|
UK corporation tax credit |
|
1,293 |
1,036 |
|
|
Foreign tax charge |
|
(71) |
(120) |
|
|
|
|
1,222 |
916 |
|
|
Deferred taxation |
|
|
|
|
|
Origination and reversal of timing differences |
|
(539) |
88
|
|
|
Charge due to change in tax rate |
|
- |
(346) |
|
|
|
|
(539) |
(258) |
|
|
Tax credit on profit/(loss) |
|
683 |
658 |
|
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 19% (2021: 19%). The differences are reconciled below:
|
|
|
2022 |
2021 |
|
|
|
£'000 |
£'000 |
|
Loss before taxation |
|
(534) |
(2,733) |
|
|
|
|
|
|
Corporation tax at standard rate |
|
(102) |
(519) |
|
Factors affecting charge for the year: |
|
|
|
|
Disallowable expenses |
|
135 |
16 |
|
Research and development allowances |
|
(1,205) |
(832) |
|
Reduced rate on surrender of R&D losses for tax credit |
|
360 |
322
|
|
Deduction relating to share options exercised |
|
- |
(35) |
|
Differing tax rates |
|
- |
44 |
|
Charge due to change in tax rate |
|
129 |
346 |
|
Tax credit on profit/(loss) |
|
(683) |
(658) |
The UK government announced on 23 September 2022 the intention to cancel the proposed increase in the corporation tax rate from 19% to 25% from April 2023. At the 31 May 2022 the increase in the main rate to 25% remained enacted and as such is the rate used for calculating deferred tax balances.
7. Earnings per share
|
|
|
2022 |
2021 |
|
Profit/(loss) used in calculating EPS (£'000) |
|
149 |
(2,075) |
|
Number of shares for basic EPS ('000s) |
|
75,232 |
35,286 |
|
Basic earnings per share (pence) |
|
0.20 |
(5.88) |
|
Number of shares for diluted EPS ('000s) |
|
76,106 |
35,286 |
|
Diluted earnings per share (pence) |
|
0.20 |
(5.88) |
Adjusted Earnings per share
|
|
|
2022 |
2021 |
|
Adjusted Profit/(loss) used in calculating EPS (£'000) |
|
848 |
(2,075) |
|
Number of shares for basic EPS ('000s) |
|
75,232 |
35,286 |
|
Adjusted basic earnings per share (pence) |
|
1.13 |
(5.88) |
|
Number of shares for diluted EPS ('000s) |
|
76,106 |
35,286 |
|
Adjusted diluted earnings per share (pence) |
|
1.11 |
(5.88) |
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 6,661,500 Ordinary shares and warrants over 450,000 Ordinary shares are potentially dilutive to profit.
The figures for 2021 have been restated to better reflect the conversion of ordinary shares that took place as part of the IPO process in 2022 and shows results as though the share conversion on IPO had taken place in 2021
8. Intangible assets
|
Group and Company |
|
|
|
|
|
|
|
£'000 |
£'000 |
£'000 |
|
Cost |
|
|
|
|
|
At 1 June 2019 |
|
4,163 |
- |
4,163 |
|
Additions |
|
3,308 |
- |
3,308 |
|
At 31 May 2020 |
|
7,471 |
- |
7,471 |
|
|
|
|
|
|
|
Amortisation and impairment |
|
|
|
|
|
At 1 June 2019 |
|
(77) |
- |
(77) |
|
Charge for the year |
|
(100) |
- |
(100) |
|
Impairment in the year |
|
(450) |
- |
(450) |
|
At 31 May 2020 |
|
(627) |
- |
(627) |
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
At 31 May 2020 |
|
6,844 |
|
6,844 |
|
|
|
|
|
|
|
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 |
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 10% (2021:10%), being the cost of capital for the CGU.
9. Borrowings
Group and Company
|
|
|
31 May 2022 |
31 May |
1 June |
|
Current |
|
£'000 |
£'000 |
£'000 |
|
Bank loans |
|
800 |
753 |
848 |
|
|
|
|
|
|
|
Non-current |
|
|
|
|
|
Bank loans |
|
4,166 |
5,046 |
3,105 |
|
|
|
|
|
|
|
Total |
|
4,966 |
5,799 |
3,953 |
A bank loan of £2,068,000 (2021: £2,425,000) 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 £3,088,000 (2021: £3,506,000) 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 2022 of £189,000 (2021: £132,000) which are being amortised over the period to the loan repayment dates.
10. Deferred tax liabilities
|
|
Intangible assets
|
Accelerated capital allowances |
Tax losses |
Other |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
At 31 May 2020 |
1,300 |
14 |
(131) |
- |
1,183 |
|
|
Charge/(credit) for the year |
296 |
50 |
(42) |
(46) |
258 |
|
|
Debited to equity in the year |
- |
- |
- |
(267) |
(267) |
|
|
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) |
- |
|
Deferred tax has been recognised at an average rate of 25% (2021: 25%, 2020: 19%).
11. Share premium
Group and Company
|
|
|
31 May 2022 |
31 May |
1 June |
|
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
At 1 June |
|
- |
- |
- |
|
Conversion of loan notes into ordinary shares |
|
1,419 |
- |
- |
|
Issue of new shares |
|
5,988 |
- |
- |
|
Expenses relating to share issue |
|
(507) |
- |
- |
|
Total |
|
6,900 |
- |
- |
The issue of share capital from the convertible loan notes and the IPO was £7.4 million and IPO expenses of £0.5 million have been deducted from equity and charged to the share premium account.
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.
In addition IPO costs of £0.699 million in relation to the listing have been charged to the Income statement.
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