Results for the year ended 31 December 2021

RNS Number : 6192J
HeiQ PLC
28 April 2022
 

28 April 2022

 

HeiQ Plc

("HeiQ" or "the Company")

 

Results for the year ended 31 December 2021

Strengthening of core business and executing on growth strategy

 

HeiQ Plc (LSE: HEIQ), an established global brand in materials and textile innovation that operates in high-growth markets, is pleased to announce its preliminary results for the full year ended 31 December 2021. The Company's audited annual report and accounts will be published in May and a further announcement will be made in due course.

 

Financial highlights:

·   Revenue up 15% to US$57.9 million, ahead of expectations (2020: US$50.4 million)

·   Gross profit margin down 9.2% to 46.6% (2020: 55.8%) due to higher raw materials and logistics cost (price increased as of January 2022)

·   Adjusted EBITDA decreased by 54% to US$6.5 million (2020: US$14.1 million), in line with market expectations and reflecting planned increase in SG&A costs to strengthen innovation and support future growth

· Profit before tax of US$2.7 million (2020: US$7.1 million) and profit after tax of US$2.5 million (2020: US$5.0 million)

· A well-funded balance sheet with net cash of US$12.9 million

· Operating cash flow increased by 215% to US$3.5 million (2020: US$1.1 million)

· Diluted EPS down 53% to US$0.0201 (2020: US$0.0432)

 

Operational highlights:

· Completed 3 industrial biotech and bio-antimicrobials capability building acquisitions in six months for US$27.5 million, strengthening HeiQ's hygiene offering

· Launched 20 new products to market and filed 5 new patents

· Potential blockbuster technologies progressing very positively:

o Launched HeiQ AeoniQ, the world's first climate positive fibre with an implied valuation of US$200million and >US$10million investments from HUGO BOSS and The LYCRA Company

o Patent pending proof of concept for lithium metal batteries achieved for HeiQ GrapheneX

o Third party high impact publication on HeiQ Synbio as best solution to address nosocomial healthcare acquired infections and multi-resistances in hospitals.

· Expanded HeiQ Portugal to form a service centre for finance, marketing, and IT

· Progressed HeiQ's market leading ESG position by commercializing impactful technologies

· Significantly expanded HeiQ's capabilities and team by growing from 140 to more than 200 HeiQans (+20 sales and +30 Innovation)

 

Post period-end highlights:

· Made significant investment in the advancement of disruptive technology platforms and their commercialisation

· Secured investment to commercialize HeiQ AeoniQ, including building a US$5m pilot commercialization plant to be launched to market with high impact brand partners

· Investing in a US$2m pilot commercialization plant for HeiQ GrapheneX membrane technology and in the process of securing joint development partners

· First-quarter trading in line with expectations and ahead of same period previous year

 

Carlo Centonze, co-founder and CEO, HeiQ plc, said:  "Following a momentous 2020, we made continued progress in executing our strategic objectives in 2021, as part of our goal to become a leading materials innovation company. Through the transformative acquisitions of Chrisal, RAS, and Life during the period, our capabilities platform has been significantly strengthened and enhanced, paving the way for additional future success. We continued to make strong progress with our HeiQ GrapheneX and HeiQ Synbio blockbuster technologies, and together with the launch of HeiQ AeoniQ, our climate positive yarn, we are today in a position of tremendous opportunity for value creation.

 

"In 2022, with the support of our robust foundation from recent acquisitions and innovation, we will continue executing our growth strategy, ensuring we are always one step ahead. The consolidated growth across our core products in existing and new markets has enabled us to be cash generative and will see us continue to invest in the advancement of our disruptive technology platforms and their commercialization. As a result, we will be targeting double digit growth across our existing products in 2022.

 

"This continues to be an exciting time for HeiQ, with the megatrend tailwinds favouring our offerings. Combined with our existing progress and momentum, the outlook for the Group and our stakeholders is bright and I look forward to keeping shareholders up to date with our progress in the next year." 

 

Analyst Briefing

Carlo Centonze, CEO, and Xaver Hangartner, CFO will host a webinar for equity analysts at 09:30am BST today. Any equity analysts wishing to register should contact SEC Newgate at HeiQ@secnewgate.co.uk where further details will be provided.

 

 

 

Whilst substantially complete, the audit sign-off process has not yet been finalised. No material amendments to the preliminary disclosures contained within this announcement are expected within the audited financial statements to be published in May.

 

 

For further information, please contact:

 

HeiQ Plc

Carlo Centonze (CEO)

+41 56 250 68 50

Cenkos Securities plc (Joint Broker)

Stephen Keys / Callum Davidson

+44 (0) 207 397 8900

SEC Newgate (Media Enquiries)

Elisabeth Cowell / Axaule Shukanayeva / Molly Gretton

+44 (0) 20 3757 6882

HeiQ@s ecnewgate . co.uk

 

 

CHAIR'S STATEMENT

 

Strengthening our core business

2021 was a year of continuous progress and consolidation for the Group. HeiQ's growth platform has been significantly strengthened and enhanced with three major acquisitions of Chrisal, RAS and Life during the period.

 

The complementary product portfolios of these three newly acquired entities have expanded our capabilities, expertise and product offerings in hygiene specialities and provided us access to new applications and markets. Having an established culture of innovation in their DNA, these businesses have been integrated into HeiQ within a very short space of time.

 

Another highlight was the launch of our disruptive HeiQ AeoniQ technology, a high-performance climate positive cellulose yarn with potentially revolutionary environmental benefits and we had brand partners such as HUGO BOSS and The LYCRA Company investing into the scale-up to realise the enormous potential of this game-changing technology together.

 

While achieving these value adding milestones, we also had to overcome significant challenges presented by the COVID-19 pandemic. We have faced constraints in the form of much longer lead times through all global raw material supply chains, production shutdown due to lockdowns of our customers and up to 500% higher logistics costs, as well as longer delivery times of products to our customers. Nevertheless, with the determination and adaptability of our team, we have been able to maintain supply to our customers, although at higher cost. My special thanks go to our customers, suppliers and distribution partners for their ongoing support of HeiQ in a highly challenging environment.

 

Broadening our hygiene technology solutions offering

HeiQ has earned its place as an innovator among lifestyle brands and as a leader in multiple textile functionalities. In recent years, we have been growing our reputation as the leader in providing hygiene solutions, not only for textiles but also for coatings, plastics, hospital cleaning products, industrial water treatment and consumer goods. A much higher awareness of hygiene and ongoing consumer demand for hygiene solutions continue to drive our offering in this space. With studies suggesting that by 2050 there will be an estimated 10 million deaths per year due to antimicrobial resistance, HeiQ has the mission to introduce our effective and sustainable hygiene solutions to market. Our strategic entrance into the medical mask business in the previous years, which contributed to about 10% of our business, is now giving us access to customers for our new hygiene offerings and a much bigger and sustainable annual revenue potential.

 

People and sustainability

During 2021 we made substantial investments into our workforce and increased our personnel by about 50% to create a stronger global organization capable of growing our innovation product range, market share and geographical footprint.

 

Today we are a truly global and diverse organization with more than 200 HeiQans spanning 29 nationalities, working across 19 legal entities. Having adopted flexible working arrangements, our highly motivated, professional and agile teams are accustomed and skilled at working and interacting with our customers both online and offline, irrespective of time zones.

 

Sustainability is at the core of everything we do and it has been a driving force for HeiQ since day one. We made substantial progress in 2021 by collecting carbon emissions data at the Group level which will enable us to set carbon reduction targets. We deployed our expertise into market technologies with a launch of HeiQ AeoniQ with its tremendous downstream ESG potential. We conducted a survey of our employees and customers to learn about which ESG areas they want us to focus on.

 

Dividend

In order to continue to prioritize investment in our disruptive technology growth opportunities such as HeiQ AeoniQ, HeiQ GrapheneX and HeiQ Synbio, the Board has decided not to pay a dividend for the year 2021.

 

Board

In addition to completing these three acquisitions, during the period, the Board's focus was on delivering HeiQ's strategy to create clear management structures, workflows and scalability. The Board is committed to the principles which underpin good corporate governance and have revised and upgraded the corresponding policies and processes in place.

 

Outlook

HeiQ is well positioned for the future. We are an agile, nimble, responsive and dynamic business, with several very relevant technology propositions, ever growing ESG credentials, increasingly strong brand equity and established positions in high-growth markets. Having first movers' advantage, we have a strong sense of upcoming consumer trends and the ability to quickly respond to those trends and develop the technologies that will be in high demand in a few years' time. We enjoy the trust of our customers thanks to our track record of being a true innovator and differentiator.

 

We have a rich R&D pipeline with high commercial potential and we are opening doors to many exciting new markets. As we continue to integrate our acquisitions and leverage our capabilities, we will proactively seek to increase our penetration in these new markets.

I would like to convey my sincere thanks to our amazing HeiQ team for their highly motivated engagement during 2021.

 

Our goals for 2022 are ambitious and although times remain uncertain and may continue to be challenging, HeiQ has the strong foundation, growth strategy, drive and innovative culture to succeed in achieving its goals. I am confident that we will continue to grow as a key innovation player in multiple industries.

 

Esther Dale-Kolb

Chair

 

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Accelerating towards our ambitions

Following a momentous 2020, we made strong progress in accelerating HeiQ towards its strategic objectives throughout 2021. We completed three transformative acquisitions in six months and significantly expanded our capabilities and team growing from 140 to more than 200 HeiQans (+20 sales and +30 Innovation). We launched our disruptive HeiQ AeoniQ climate positive yarn, securing investment from our first commercialization partners, and made strong progress with our HeiQ GrapheneX and HeiQ Synbio blockbuster technologies. In many ways, 2021 reminded me a lot of the exhilaration I experienced during take off accelerations in my service as a Swiss army pilot.

 

We achieved topline growth despite having faced our strongest ever headwinds in the form of supply chain disruptions and lockdowns, demonstrating the strong continued demand for our IP. Having said that, our gross margin has been temporarily impacted by these factors. Now Europe is being rocked by the war in Ukraine, with as yet unknown consequences for the oil price, food availability, supply and logistics. We managed to overcome the challenges of 2021 thanks to an extremely agile and resilient team and an outstanding commitment by each and every HeiQan. I would like to thank them all and trust that with all hands on deck in 2022 we can ride any storm thrown at us again. As an ongoing measure, we have adjusted our prices wherever and as soon as possible to compensate the increased raw material and logistic costs, diversified our supplier base and invested in a global ERP to streamline our operations.

 

Our business is in a strong position to weather external pressures. In addition to our core products, we own seven technology platforms and have a healthy innovation pipeline. One of our platforms, our climate positive HeiQ AeoniQ fiber, received an implied valuation of US$ 200 million with investments from Hugo Boss and The LYCRA Company. A subsidiary holding the technology platform being valued more than our listed entity (as of March 2022) demonstrates the potential value of our IP.

 

With US$ 14.6 million cash, >US$ 9 million available credit lines and with only US$ 1.7 million of borrowings, our balance sheet gives us scope to act on the value creating opportunities in our pipeline. Our cash generative business (cashflow from operating activities) has financed our innovations since 2010, and with only US$ 55 million raised since inception in 2005 we have maintained a lean IP value creation approach.

 

Operational and financial performance

In 2021 the Group achieved record revenue of US$ 57.9 million. Our goal to generate revenues of US$ 300 million in the medium term has not changed.

 

Our business model is to grow organically, complemented by making selective capability building acquisitions, and commercializing or licensing our disruptive innovations.

 

Acquisitions of the complementary green hygiene IP platforms of Chrisal, RAS and Life have allowed us to become one of the top 3 hygiene specialities player with the most sustainable product range, giving us an entry into multiple new lucrative markets, beyond textiles. 2021 saw our brand equity grow exponentially once again. Our credentials as a green innovator are acknowledged by textile brands and increasingly by consumers too. This will allow us to maintain premium margins and deploy innovations with impact.

 

Our major contract wins with ICP in hygiene paper coatings and our acquisition of RAS with durable hard surface hygiene coatings have led to the creation of our new Coatings & Plastics business unit, which includes a low eEmissivity technology platform "ECOS" with the potential to grow into our fourth blockbuster technology for defence, building and automotive markets.

 

People and sustainability

HeiQ remains a nimble and agile company, with the potential to make a significant positive environmental impact through our work with large retail brands to create technology solutions that make their downstream products more sustainable.HeiQ AeoniQis a prime example of this.

 

Being sustainable is core to our ethos, as well as a source of competitive advantage. Sustainable alternatives capable of disrupting existing markets are a key opportunity for the Group, including:

· natural vs. oil based polymers

· bio-based vs. Quarternary ammonium salt based actives

· botanical technologies vs. metals

· probiotic bacteria vs. chemical biocides and disinfectants

 

 Sustainability progress summary

With the expansion of our team this year, we achieved a new level of diversity. With 29 nationalities now represented across HeiQ, our shared values and mission are more important than ever. Our inclusive culture and flat hierarchy are vital for fostering idea exchange, particularly important for an innovative business known for our speed to market. Despite a competitive job market, we have still managed to bring in some exciting talent.

 

Current trading and outlook

Having laid a strong foundation with our acquisitions and innovation, we have ambitious plans and will continue to stay one step ahead.

 

Organic growth across our products in existing and new markets allows us to be cash generative, enabling substantial investment in the advancement of our disruptive technology platforms and their commercialization or royalty licensing. As such, we are targeting double-digit growth of across our existing products in the next year.

 

We have a tremendous opportunity for value creation with HeiQ AeoniQ, HeiQ GrapheneX and HeiQ Synbio. We will continue to invest in the commercialization of AeoniQ, including building a US$ 5m pilot commercialization plant and launching it to market with a dozen brand partners. We will also invest in a US$ 2m pilot commercialization plant for our GrapheneX membrane technology and aim to secure a JDA with leading battery and rugged electronics players. With the recently published paradigm shifting study by the Charité hospital in Berlin on HeiQ Synbio we will push for strong claims approval and commercialization to healthcare globally.

 

The complementary skillsets and locations of our businesses will allow us to disrupt new markets and deploy our technologies globally. But we must remain lean and agile while growing, so another key goal is to strengthen our integration across all subsidiaries by harmonizing digital technologies and operating procedures. We will continue to prioritize attracting the talent we need to fuel our growth, transformation and innovation strategy, which we have been successful so far.

 

The megatrend tailwinds favor HeiQ's offerings. Combined with our existing progress and momentum, the outlook for the Group and our stakeholders is bright.

 

Carlo Centonze

CEO

 

 

 FINANCIAL REVIEW

Strengthening of foundation while driving growth in times of uncertainty

2021 was a transitional, yet successful year for HeiQ where we were able to grow revenues by 15% from USD 50 million in 2020 to USD 58 million in 2021. HeiQ achieved various milestones on its growth path despite being challenged by the different waves of the COVID-19 pandemic and its impact on global economies throughout the year. By acquiring three companies in adjacent fields, we were not only able to strengthen our range of solutions for hygiene, but also enter new markets like coatings, plastics and symbiotic cleaners.

 

However our investments were not limited to acquisitions. We also continued to invest significantly in our organization with over 60 more employees in 2021. Our innovation pipeline progressed significantly - spearheaded by HeiQ AeoniQ which was announced to market in Q4 2021. As we developed our innovation pipeline, we continue to evolve from a "specialty chemicals" business with strong IP into an innovator that monetises its IP through licensing, in addition to our own commercialisation. In the 2021 Statement of Comprehensive Income however, our own commercialization of IP dominates the picture. We expect to see an increasing portion of revenues derived from monetization of IP in 2022.

 

In order to have the required scalability of our organization in place on our journey towards the USD 300 million revenue target, we kicked-off a group-wide digitalization program to give the entire group unified, state-of-the art tools that are scalable as we grow.

 

HeiQ experienced strong topline growth (+15%) in FY21, whilst pressure on gross margins caused by headwinds from higher raw materials and logistics costs previously flagged in the interim results have continued into the second half of the year (Gross Margin 2021: 46.6% vs. 55.8% in 2020). The investments in people, innovation pipeline and organization have been driving the increase (+51%) in selling and general administrative expenses (SG&A).

 

 

 

Year ended

 

Year ended

 

 

 

31 December

 

31 December

 

 

 

2021

 

2020 (restated)

 

 

 

USD '000

 

USD '000

Growth

Revenue

 

57,874

 

 50,401

15%

Cost of sales

 

 (30,898)

 

 (22,268)

 

Gross profit

 

26,976

 

 28,133

-4%

Gross profit margin

 

46.6%

 

55.8%

 

Other operating income

 

 6,426

 

 4,744

 

Selling and general administrative expenses

 

 (24,465)

 

 (16,117)

 

Other operating expenses

 

 (5,820)

 

 (5,127)

 

Operating profit

 

3,117

 

 11,633

-73%

Operating profit margin

 

5.4%

 

23.1%

 

Deemed cost of listing

 

 - 

 

 (1,402)

 

Transaction costs

 

(206)

 

 (1,871)

 

Other income

 

 199

 

 - 

 

Other costs

 

 (361)

 

 (69)

 

Finance income

 

 534

 

 68

 

Finance costs

 

 (597)

 

 (1,184)

 

Share of (losses) / profits of associates

 

 - 

 

 (15)

 

Income before taxation

 

 2,686

 

7,160

 

Taxation

 

 (212)

 

 (2,112)

 

Income after taxation

 

 2,474

 

5,048

-51%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

6,483

 

14,104

-54%

EBITDA margin (adjusted)

 

11.2%

 

28.0%

 

 

 

 

 

 

 

 

Contribution from entities acquired in 2021

In 2021, HeiQ acquired controlling stakes in three companies: Chrisal NV (Belgium - 51% acquired), RAS AG (Germany - 100% acquired) as well as Life Material Technologies Limited (Hong Kong - 100% acquired). Revenue contribution in 2021 of the acquired entities amounts to USD 10.0 million and the contribution to profit before tax amounts to USD 1.3 million after deduction of transaction costs totalling USD 0.2 million.

 

The total consideration including contingent payments for all three companies is expected to amount to USD 27.5 million in total, with USD 11.5 million settled in cash and USD 16.0 million in HeiQ plc shares. As of December 31, 2021 USD 21.6 million had been settled (USD 10.1 million in cash, USD 11.5 million in shares), USD 0.6 million was settled in shares on February 25, 2022 and USD 5.3 million are still contingent and are to be settled in Q2 2022 (USD 1.4 million in cash and USD 3.9 million in shares). Total net assets of USD 10.2 million and goodwill of USD 18.6 million have been recorded, while non-controlling interests amount to USD 1.3 million.

 

Revenues

Revenues increased in 2021 by 15% and amounted to USD 57.9 million for the year (2020: USD 50.4 million), despite the challenges experienced through unstable markets, local lock-downs and supply chain issues.

 

Backed by the acquisitions of HeiQ Chrisal and HeiQ RAS, revenues in Europe have been growing significantly from USD 10.4 million in 2020 to USD 16.2 million in 2021 (+56%). Revenues in the Americas have also seen a strong growth by 9% and amounted to USD 21.7 million in 2021 (2020: USD 19.8 million). This growth was driven by organic growth accounting for approximately 70% of the growth whereas acquisition contributed about 30% to it. Asia, our third key region, saw slightly lower revenues of USD 19.6 million in 2021 (2020: USD 19.9 million). This was mainly driven by high, non-recurring revenues in 2020 which could not be compensated for entirely as well as lockdowns in Southeast Asia.

 

In 2021 we saw a healthy allocation of revenues between our three key regions with the Americas accounting for 37% of revenues (2020: 39%), Asia 34% (2020: 39%) and Europe accounting for 28% (2020: 21%) which makes us less exposed to regional political or economic developments.

 

Sales by form:

Functional Ingredients remain the key form of how we bring functionality to our customers and with revenues of USD 43.7 million accounted for 75% of total sales in 2021 (2020: USD 42.0 million or 83% of revenues). 2021 includes acquired revenues of USD 4.0 million and thus on a like for like basis shows a decrease of USD -2.3 million which was caused by declining demand of functional ingredients related to face mask applications and other pandemic related items compared to 2020.

 

Revenues from Functional Materials amount to USD 0.9 million in 2021 and achieved a growth of 11% compared to 2020 (USD 0.8 million). While in 2020, this category was dominated by filter materials sold for face masks, in 2021 the main materials sold are masterbatches as well as our insulation technology XReflex and show also replacement of non-recurring sales with recurring business.

 

Revenues from Functional Consumer Goods amount to USD 10.1 million in 2021 (2020: USD 7.4 million) and thus achieved significant growth (USD +2.6 million or +35%) driven by revenues related to the product range of HeiQ Chrisal (USD 3.8 million). Excluding acquired revenues, the category would show a decrease of USD -1.2 million (-16%) which reflects non-recurring opportunities that we were able materialize back in 2020. Accordingly, the composition of this category changed significantly as the Synbio products of HeiQ Chrisal (like household cleaners) have been added.

 

Consistent with our strategy to grow monetization of IP and knowledge through services and licencing, revenues grew by USD 3.1 million to reach USD 3.3 million in 2021 (2020: USD 0.2 million). While USD 1.7 million of service revenues have been onboarded through the acquisition of HeiQ RAS, significant contributions also relate to royalty related exclusivity fees recognized in 2021 (USD 0.6 million).

 

Sales by function:

Hygiene accounted for revenues of USD 29.3 million in 2021 (2020: USD 29.2 million) - an increase of 1%. This is equivalent to 51% of total revenues in 2021 and includes acquired sales of in total USD 8.3 million. The organic growth of USD - 8.2 million reflects the non-recurring opportunities that we were able to materialize in 2020 and that we were not fully able to compensate with the growth of the recurring business.

 

Resource Efficiency, with a share of 23% of total revenues, was our second largest functionality for which revenues amounted to USD 13.5 million in 2021 (2020: USD 10.0 million) representing a growth of 35%. Acquired revenues for resource efficiency amount to USD 1.7 million in 2021 whereas the organic growth amounts to USD 1.8 million and reflects that post-pandemic economic recovery we have seen in 2021 in the industries relevant to this category.

 

Comfort, with 22% share of total revenues, achieved significant growth of 76% in 2021 and respective revenues amount to USD 13.0 million in 2021 (2020: USD 7.4 million). This growth of USD 5.6 million was achieved organically and reflects the strong demand for our comfort technologies.

 

Revenues for protection of USD 2.1 million in 2021 (2020: USD 3.9 million) accounted for 4% of total revenues in 2021 and does not include any acquired revenues. Also this category was supported in 2020 by non-recurring opportunities.

 

Gross Profit

Gross profit for the year 2021 amounted to USD 27.0 million (2020: USD 28.1 million), representing a gross profit margin of 46.6% (2020: 55.8%). The decrease in margin was mainly caused by increased material costs. While material costs accounted for 35% of sales in 2020, this ratio increased to 42% in 2021 (45% excluding acquisitions). This higher portion of material costs was driven by two factors: 1) inflation of raw material prices across the board and on a global scale throughout the year and 2) change in the product mix sold as non-recurring sales in 2020 were replaced with recurring business at lower marginality. Besides material costs, also freight costs increased substantially in 2021 compared to 2020 in general.

 

Selling and general administration expenses (SG&A)

SG&A costs amounted to USD 24.5 million in 2021 - an increase of USD 8.4 million or 52% compared to 2020 (USD 16.1 million). The main portion of the increase in SG&A costs relates to the acquisitions made in 2021 - with the acquisitions we have onboarded SG&A costs totalling USD 5.3 million for the year 2021. The remaining organic increase of USD 3 million (+19%) is driven by the growth of the organization with personnel expenses increasing by USD 1.2 million (FTE: + 33). Marketing expenses increased significantly as well (USD +0.8 million) like other, general SG&A expense (USD +1 million) as organization has been strengthened across the board.

As a percentage of sales, overall SG&A costs increased from 32% in 2020 to 42% in 2021 (40% excluding the effect of acquisitions). The increase aligns with our strategic investments as it represents mainly investments in human capital required for future growth.

 

Other operating income and expenses

Other operating income and expense consist mainly of foreign exchange impacts on operating assets. In 2021, foreign exchange gains of USD 5.0 million offset foreign exchange losses of USD 4.7 million. Other operating income and expenses not related to foreign exchange gains and losses amounted to USD 0.2 million (net income).

 

Operating profit / adjusted EBITDA

As a result of a lower average gross margin and higher SG&A costs in 2021 relative to 2020, operating profit decreased by USD 8.5 million from USD 11.6 million in 2020 to USD 3.1 million in 2021. Adjusted EBITDA amounted to USD 6.5 million in 2021 - a decrease of USD 7.6 million compared to the previous year (2020: USD 14.1 million).

 

HeiQ adjusts EBITDA for share options and rights granted to Directors and employees.

 

Adjusted EBITDA

 

 

USD '000

2021

2020 (restated)

Operating profit

3'117

11'633

Depreciation

2'110

1'144

Amortization

758

110

Share options and rights granted to Directors and employees

498

1'217

Adjusted EBITDA

6'483

14'104

 

Cashflow

Net cash generated from operating activities in the year 2021 amounts to USD 3.5 million vs. USD 1.1 million in 2020 (+215%). Besides the acquisition of businesses, significant investments have also been made in internally developed intangible assets - our innovation pipeline (USD 3.0 million in 2021) while cash payments for financing activities have been reduced significantly and amounted to USD 1.3 million for 2021. Overall, cash generated from the operating business has been invested into growth (investments into intangible asset development and equipment) as well as for repayment of leases and borrowings.

 

Statement of financial position

HeiQ continues to operate with a strong balance sheet. Total assets grew from USD 69.6 million to USD 101.9 million (+ USD 32.3 million resp. 46.3%) while total liabilities amounted to USD 37.2 million as of December 31, 2021 - plus USD 17.2 million or 86% compared to 2020 (USD 20.0 million). The increases in the financial positions were driven mainly by the three acquisitions concluded in 2021 for a total consideration of USD 27.5 million.

 

The equity ratio remained strong at 63% of total assets as of December 31, 2021 (2020: 71%) and with USD 14.6 million of cash as of December 31, 2021 (2020: USD 25.7 million) HeiQ remains well positioned for further investments in view of its strategic growth targets.

 

Non-current assets increased significantly from USD 14.3 million (December 31, 2020) to USD 49.2 million as of December 31, 2021 as a result of the acquisitions and their related intangible assets.

 

At USD 52.7 million as of December 31, 2021, current assets remained stable (2020: USD 55.3 million). After high inventory levels at the end of 2020, inventory value at the end of 2021 remained stable despite 15% higher revenues in 2021 compared to 2020. Receivables increased by USD 4.6 million or 34% as of December 31, 2021, driven by higher revenues (+15%), with a particular growth in sales towards the end of the year. Cash as at December 31, 2021 was USD 14.6 million. This demonstrates a continuing healthy cash position for the business although reflects a higher than expected cash burn because of lower gross margins and increases in SG&A costs previously mentioned, as well as higher overdue accounts receivables.

 

The increase in total liabilities was mainly driven by the acquisitions, the growth of the business and liabilities related to leased assets. Other current liabilities of USD 6.0 million include not yet settled purchase price payments.

 

 

Xaver Hangartner,

Chief Financial Officer

   

 

 

Consolidated statement of comprehensive income

For the year ended December 31, 2021

 

 

 

Year ended

 

Year ended

 

 

 

December 31,

 

December 31,

 

 

 

2021

 

2020

(Restated*)

 

Note

 

US$'000

 

US$'000

Revenue

7

 

57,874

 

 50,401

Cost of sales

8

 

 (30,898)

 

 (22,268)

Gross profit

 

 

26,976

 

 28,133

Other operating income

7

 

 6,426

 

 4,744

Selling and general administrative expenses

8

 

 (24,465)

 

 (16,117)

Other operating expenses

8

 

 (5,820)

 

 (5,127)

Operating profit

 

 

 3,117

 

 11,633

Deemed cost of listing

5

 

 - 

 

 (1,402)

Transaction costs

5

 

(206)

 

 (1,871)

Other income

7

 

199

 

 - 

Other costs

8

 

 (361)

 

 (69)

Finance income

21

 

 534

 

 68

Finance costs

21

 

 (597)

 

 (1,184)

Share of (losses) / profits of associates

 

 

 - 

 

 (15)

Income before taxation

 

 

 2,686

 

7,160

Taxation

9

 

 (212)

 

 (2,112)

Income after taxation

 

 

 2,474

 

 5,048

Earnings per share (cents) - basic 

10

 

 

 

2.07

 

4.53

Earnings per share (cents) - diluted

10

 

 

 

2.01

 

4.32

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

Exchange differences on translation of foreign operations

 

 

 

(1,662)

 

 2,469

Items that may be reclassified to profit or loss in subsequent periods

 

 

 

(1,662)

 

 2,469

Actuarial gains / (losses) from defined benefit pension plans

 

 

 

899

 

 (731)

Items that will not be reclassified to profit or loss in subsequent periods

 

 

899

 

 

 (731)

Total comprehensive income for the year

 

 

1,763

 

 6,786

 

 

 

 

 

 

Income attributable to:

 

 

 

 

 

Equity holders of HeiQ

 

 

 2,676

 

5,125

Non-controlling interests

 

 

(202)

 

 (77)

 

 

 

2,474

 

5,048

 

Comprehensive income/(loss) attributable to:

 

 

 

 

 

Equity holders of the Company

 

 

1,913

 

6,863

Non-controlling interests

 

 

(202)

 

(77)

 

 

 

1,711

 

6,786

* The financial statements for 2020 have been restated for the correction of an error as described in Note 30.

 

Consolidated statements of financial position

As at December 31, 2021

 

 

 

As at

 

As at

 

 

 

December 31,

 

December 31,

 

 

 

2021

 

2020

(Restated)

 

Note

 

US$'000

 

US$'000

ASSETS

 

 

 

 

 

Intangible assets

11

 

32,212

 

 5,264

Property, plant and equipment

12

 

 6,865

 

 5,467

Right-of-use assets

13

 

 9,079

 

 2,564

Deferred tax assets

9

 

 701

 

 826

Other non-current assets

14

 

 333

 

 206

Non-current assets

 

 

49,190

 

 14,327

Inventories

15

 

 13,770

 

 13,540

Trade receivables

16

 

18,050

 

 13,437

Other receivables and prepayments

16

 

6,275

 

 2,609

Cash and cash equivalents

 

 

 14,560

 

 25,695

Current assets

 

 

52,655

 

 55,281

Total assets

 

 

 101,845

 

 69,608

 

 

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

 

Share capital

17

 

 51,523

 

 49,559

Capital reserve

17

 

 144,191

 

 134,537

Other reserve

18

 

 (1,144)

 

 (2,043)

Share-based payment reserve

18

 

 474

 

 50

Merger reserve

5

 

 (126,912)

 

 (126,912)

Currency translation reserve

18

 

 1,275

 

 2,937

Retained deficit

18

 

 (5,823)

 

 (8,499)

Equity attributable to HeiQ shareholders

 

 

63,584

 

49,629

Non-controlling interests

 

 

 1,053

 

 (20)

Total equity

 

 

 64,637

 

 49,609

Lease liabilities

13

 

 8,176

 

 2,304

Long-term borrowings

21

 

 670

 

1,400

Deferred tax liability

9

 

1,894

 

 857

Other non-current liabilities

20

 

 2,619

 

 3,425

Total non-current liabilities

 

 

 13,359

 

 7,986

Trade and other payables

22

 

9,359

 

 5,815

Accrued liabilities

22

 

 4,538

 

 3,214

Income tax liability

9

 

 51

 

 1,495

Deferred revenue

22

 

1,774

 

 - 

Short-term borrowings

21

 

 1,004

 

 173

Lease liabilities

13

 

 1,054

 

 349

Other current liabilities

22

 

 6,069

 

 967

Total current liabilities

 

 

 23,849

 

 12,013

Total liabilities

 

 

37,208

 

 19,999

Total liabilities and equity

 

 

 101,845

 

69,608

 

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

 

 Xaver Hangartner, Chief Financial Officer, April 27, 2022

 

Consolidated statement of changes in shareholders' equity

For the year ended December 31, 2021

 

 

 

Share

capital

Capital

reserve

Other

reserve

Share- based payment reserve

Merger

reserve

Currency translation

reserve

Retained deficit

Non- controlling interests

Total

equity

 

Note

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Balance at January 1, 2020 (as restated)

 

2,696

25,168

(1,312)

-

-

467

(13,624)

23

13,340

Income after taxation (restated)

 

-

-

-

-

-

-

5,125

(77)

5,048

Other comprehensive (loss)/income

 

-

-

(731)

 

-

 

-

2,469

-

-

1,738

Total comprehensive (loss)/income for the year

 

-

-

(731)

 

-

 

-

2,469

5,125

(77)

6,786

Reverse acquisition adjustment

 

 39,587

 89,866

-

-

 (126,912)

-

-

-

 2,542

Issuance of shares

17

7,276

20,763

-

 

-

 

-

-

-

-

28,039

Cost of share issues

 

-

(1,260)

-

 

-

 

-

-

-

-

(1,260)

Share-based payment charges

17

-

-

-

50

-

-

-

-

50

Capital contributions from non-controlling interests

 

-

-

-

 

-

 

-

-

-

34

34

Transactions with owners

 

7,276

19,503

-

50

-

-

-

34

26,863

Balance as at December 31, 2020 (as restated)

 

49,559

134,537

(2,043)

50

(126,912)

2,937

(8,499)

(20)

49,609

 

 

 

 

 

 

 

 

 

 

 

Income after taxation

 

 

 

 

 

 

 

2,676

 (202)

 2,474

Other comprehensive (loss)/income

 

 

 

 899

 - 

 - 

 (1,662)

 

 - 

 (763)

Total comprehensive (loss)/income for the year

 

 - 

 - 

 899

 - 

 - 

 (1,662)

 2,676

 (202)

 1,711

Issuance of shares

17

 1,964

 9,654

-

-

-

-

-

-

11,618

Share-based payment charges

17

 - 

 - 

-

424

 - 

-

 - 

-

424

Amounts arising on business combinations

5

-

-

-

-

-

-

-

1,275

1,275

Transactions with owners

 

 1,964

 9,654

 - 

 424

 - 

 - 

-

 1,275

 13,317

Balance as at December 31, 2021

 

 51,523

 144,191

 (1,144)

 474

 (126,912)

 1,275

 (5,823)

 1,053

 64,637

 

Consolidated statement of cash flows

For the year ended December 31, 2021

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

(Restated)

Cash flows from operating activities

 

US$'000

 

US$'000

Income before taxation

 

2,686

 

7,160

Cash flow from operations reconciliation:

 

 

 

 

Depreciation and amortization

 

2,868

 

1,254

Impairment expense

 

144

 

-

Gain on disposal of property, plant and equipment

 

(54)

 

-

Loss on disposal of property, plant and equipment

 

20

 

46

Loss on disposal of investments

 

-

 

22

Gain on earnout consideration

 

80

 

-

Finance costs

 

221

 

399

Finance income

 

(18)

 

(68)

Pension expense

 

156

 

176

Non-cash equity compensation

 

498

 

1,217

Share of loss / (profit) of associates

 

-

 

15

Deemed cost of listing

 

-

 

1,402

Foreign exchange differences

 

(360)

 

(164)

Working capital adjustments:

 

 

 

 

(Increase)/decrease in inventories

 

1,420

 

(8,295)

(Increase) in trade and other receivables

 

(5,372)

 

(4,788)

Increase in trade and other payables

 

3,654

 

2,777

Cash generated from operations

 

5,943

 

1,153

Taxes paid

 

(2,462)

 

(48)

Net cash generated from operating activities

 

3,481

 

1,105

Cash flows from investing activities

 

 

 

 

Consideration for acquisition of businesses (Note 25)

 

(10,994)

 

(1,424)

Cash assumed on acquisition of businesses (Note 25)

 

2,137

 

27,111

Purchase of property, plant and equipment

 

(994)

 

(932)

Proceeds from the disposal of property, plant and equipment

 

138

 

10

Development of intangible assets

 

(2,969)

 

(635)

Proceeds from the disposal of investments

 

-

 

7

Finance income

 

18

 

68

Net cash from / (used in) investing activities

 

(12,664)

 

24,205

Cash flows from financing activities

 

 

 

 

Finance costs

 

(221)

 

(399)

Repayment of leases

 

(790)

 

(354)

Proceeds from borrowings

 

472

 

2

Repayment of borrowings

 

(803)

 

(2,737)

Net cash used in financing activities

 

(1,342)

 

(3,488)

 

 

 

 

 

Net (decrease) / increase in cash and cash equivalents

 

(10,525)

 

21,822

Cash and cash equivalents - beginning of the year

 

25,695

 

3,603

Effects of exchange rate changes on the balance of cash held in foreign currencies

 

(610)

 

270

Cash and cash equivalents - end of the year

 

14,560

 

25,695

Note: Non-cash transactions: Certain shares were issued in 2020 for a non-cash consideration as described in Note 17.

Notes to the Consolidated Financial Statements for the year ended December 31, 2021

1.  General information

HeiQ Plc (the "Company'') and its subsidiaries (together, the "Group'') is an IP innovator and established global brand in materials and textile innovation, adding hygiene, comfort, protection and sustainability to the products we use every day. Active in multiple markets: textiles, carpets, antimicrobial plastics, conductive coatings, medical devices, probiotic household cleaners, personal care and hospital hygiene, HeiQ has created some of the most effective, durable and high-performance technologies in these markets today. The principal activity of the Company is that of a holding company for the Group, as well as performing all administrative, corporate finance, strategic and governance functions of the Group.

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

After the reverse takeover, the Company's enlarged share capital was re-admitted to the standard segment of the Official List and initiation of trading on the London Stock Exchange's Main Market commenced on December 7, 2020 under the ticker 'HEIQ'. The ISIN of the Ordinary Shares is GB00BN2CJ299 and the SEDOL Code is BN2CJ29.

2.  Basis of preparation and measurement

a.  Basis of preparation

The Consolidated Financial Statements have been prepared in accordance with UK adopted international accounting standards, including interpretations issued by the International Financial Reporting Interpretations Committee, applicable to companies reporting under IFRS and the Companies Act 2006 applicable to companies reporting under IFRS.

Unless otherwise stated, the Consolidated Financial Statements are presented in United States dollars (US$) which is the presentation currency of the Group, and all values are rounded to the nearest thousand dollars except where otherwise indicated.

The individual entities' functional currencies are listed below:

Subsidiary:

Functional currency

HeiQ plc, United Kingdom

GBP

HeiQ Materials AG, Switzerland

CHF

HeiQ ChemTex Inc., United States of America

USD

HeiQ Pty Ltd, Australia

AUD

HeiQ GrapheneX AG, Switzerland

CHF

HeiQ Company Limited, Taiwan

TWD

HX Company Limited, Taiwan

TWD

HeiQ Medica S.L., Spain

EUR

HeiQ Iberia Unipessoal Lda, Portugal

EUR

HeiQ Chrisal N.V., Belgium

EUR

HeiQ RAS AG, Germany

EUR

HeiQ Regulatory GmbH, Germany

EUR

HeiQ (China) Material Tech LTD, China

CNY

Life Material Technologies Limited, Hong Kong

USD

Life Natural Limited, Hong Kong

USD

Life Materials Latam Ltda, Brazil

BRL

LMT Holding Limited, Thailand

THB

Life Material Technologies Limited, Thailand

THB

HeiQ AeoniQ GmbH

EUR

 

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

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

The Consolidated Financial Statements have been prepared under the historical cost convention except for certain financial and equity instruments that have been measured at fair value.

The Consolidated Financial Statements have been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realization of assets and the settlement of liabilities in the normal course of business. The Directors have reviewed the Group's overall position and outlook and are of the opinion that the Group is sufficiently well funded to be able to operate as a going concern for at least the next twelve months from the date of approval of these financial statements.

 

 

The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements are disclosed in Note 3.

b.  Basis of consolidation

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

The basis of consolidation of the acquisition of HeiQ Materials AG by the Company in December 2020 is described in the basis of preparation above in Note 5(f).

Business combinations other than noted above are accounted for under the acquisition method.

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

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

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

c.  Transaction costs

Transaction costs of equity transactions relating to the issue and Re-admission of the Company's shares are accounted for as a deduction from equity where they relate to the issue of new shares and listing costs are charged to the Group Income Statement. 

d.  New standards, interpretations and amendments effective for the current period

Adopted

One new standard impacting the Group that has been adopted in the annual financial statements for the year ended December 31, 2021:

 

• COVID-19-Related Rent Concessions beyond June 30, 2021 (Amendments to IFRS 16).

 

The Group has considered the above new standard and has concluded that it is not relevant to the Group.

 

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

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

Effective for annual periods beginning on or after January 1, 2022:

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

• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);

• Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and

• References to Conceptual Framework (Amendments to IFRS 3).

 

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

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

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

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

 

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

 

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

3.  Significant accounting policies

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

a.  Foreign currency transactions and translation

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

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

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

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

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

b.  Property, plant and equipment

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

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

Machinery and equipment   5 - 15 years

Motor vehicles  4 - 5 years

Computers and software   3 - 5 years

Furniture and fixtures   5 - 10 years

Land and buildings   10 - 20 years

 

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

 

Research and development expenditure

Research expenditure is recognized as an expense when it is incurred.

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

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

· the product or process is technically and commercially feasible;

· its future economic benefits are probable;

· its ability to use or sell the developed asset; and

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

Capitalized development expenditure is measured at cost less accumulated amortization and impairment losses, if any. Certain internal salary costs are included where the above criteria are met. These internal costs are capitalized when they are incurred in respect of products developed for sale. Development expenditure initially recognized as an expense is not recognized as assets in subsequent periods.

Capitalized development expenditure in respect of such products is amortized on a straight-line method over a period of five to ten years when the products or services are ready for sale or use. In the event that it is no longer probable that the expected future economic benefits will be recovered, the development expenditure is written down to its recoverable amount.

c.  Intangible assets

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

Goodwill

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

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

Acquisition-related intangible assets

Net assets acquired as part of a business combination includes an assessment of the fair value of separately identifiable acquisition-related intangible assets, in addition to other assets, liabilities and contingent liabilities purchased. Acquisition-related intangible assets are amortized on a straight-line basis over their useful lives which are individually assessed.

The estimated useful lives are as follows:

Brand names    10 years

Customer relations    5 years

Technologies    10 years

Other intangible assets  5 - 10 years

 

Other intangible assets

Other intangible assets include those arising from internal development, acquired rights, licenses, patent costs, concessions, website designs and domains and trademarks.

 

Internally generated intangible assets  5-10 years

Other acquired assets  5-10 years 

d.  Impairment of financial assets

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

The Group has one type of financial asset subject to the expected credit loss model: trade receivables.

The expected loss rates are based on the Group's historical credit losses. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers.

e.  Impairment of non-financial assets

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

When applicable, the Group recognizes impairment losses of continuing operations in the "Statement of Comprehensive Income" in those expense categories consistent with the function of the impaired asset.

f.  Right-of-use assets

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

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

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

g.  Leases

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

Identifying leases

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

· there is an identified asset;

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

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

The Group considers whether the supplier has substantive substitution rights. If the supplier does have those rights, the contract is not identified as giving rise to a lease.

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

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

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

Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate.  In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term.  Other variable lease payments are expensed in the period to which they relate.

On initial recognition, the carrying value of the lease liability also includes:

· amounts expected to be payable under any residual value guarantee;

· the exercise price of any purchase option granted in favor of the Group if it is reasonably certain to assess that option; and

· any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

· lease payments made at or before commencement of the lease;

· initial direct costs incurred; and

· the amount of any provision recognized where the Group is contractually required to dismantle, remove or restore the leased asset.

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

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

h.  Taxation

Deferred taxation

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

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

Income taxation

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

i.  Revenue from contracts with customers and other income

Revenue from customer contracts is generally recognized at point in time, once the performance obligation has been fulfilled. This includes the sale of functional ingredients, materials or consumer goods. Services rendered are typically also recognized at point in time.

Revenue from licenses, including those which grant exclusivity rights which are a separable performance obligation from the delivery of goods are typically recognized over time according to the contractual definition of the exclusivity period.

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

For fixed-price contracts, the customer pays the fixed amount based on a payment schedule. If the services rendered by the Group exceed the payment, an amount recoverable on contract assets is recognized. Conversely, if the payments exceed the services rendered, a liability is recognized. If the contract is time-and-materials based and includes an hourly fee, revenue is recognized over time for the amount to which the Group has the right to invoice.

Take or pay arrangements

Certain customers have agreed, under a "take or pay" contract, to purchase a specified minimum quantity of a range of particular products over a specified period of time, typically in exchange for a specified exclusivity during the same period. However, the customer has to pay for the full quantity stated in the contract, irrespective of whether the customer takes delivery of the minimum quantity to which they are entitled. Upon payment of the full amount, the contract allows customers to defer its unexercised rights and to consume the remaining units to a later date, although there is no compulsion to do so. If the Group expects to benefit from such future exercise by the customer, it recognizes the expected amount as revenue in proportion to the pattern of rights exercised by the customer (by comparing the goods delivered to date with those expected to be delivered overall). In cases where the contract period is not identical with the financial reporting period, revenue and costs are recognized at the end of the respective contractual period. In cases where the obligation to grant exclusivity can be valued separately from the obligation to supply physical products, the exclusivity portion is accounted for as described above over time.

j.  Share-based payments

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

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

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

k.  Employee benefits

Short-term benefits

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

Long-term benefits

Defined benefit plans

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

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

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

· the date of the plan amendment or curtailment; and

· the date that the Group recognizes related restructuring costs.

 

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

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

· net interest expense or income.

Defined contribution plans

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

l.  Finance income and expenses

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

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

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

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

m. Cash and cash equivalents

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

n.  Trade and other receivables

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

o.  Inventories

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

p.  Provisions

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

 

Contingent liabilities

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

q.  Segmental reporting

The Directors consider that the Group has one reportable segment, that of materials innovation focused on scientific research, specialty materials manufacturing and consumer ingredient branding. Accordingly, all revenues, operating results, assets and liabilities are allocated to this activity.

The Group analyses and measures its sales performance into geographic regions, specifically Europe, North & South America and Asia as well as by form (ingredients, materials, consumer goods or services) and function (Hygiene, Comfort, Protection, Sustainability).

4.  Significant accounting judgments, estimates and assumptions

The Directors have made the following judgments which may have a significant effect on the amounts recognized in the Consolidated Financial Statements:

a.  Basis of consolidation

The Directors consider that the share-for-share exchange between Auctus Growth Plc and HeiQ Materials AG to be a reverse acquisition as HeiQ Materials AG is considered to be the acquirer. Further details of the basis of consolidation and how the Directors developed the most appropriate accounting policy are outlined in the basis of consolidation within accounting policy Note 2(b). The difference between the consideration shares transferred in the combination ("Consideration Shares'') and the fair value of the net assets acquired has been charged to the consolidated statement of income as a deemed cost of listing.

b.  Defined benefit plans (pension benefits)

The cost of the Group's defined benefit pension plan and other post-employment medical benefits and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

Further details about pension obligations are provided in Note 20 "Pensions and other post-employment benefit plans".

c.  Impairment of non-financial assets

Management has applied judgment in its testing for impairment of non-financial assets as described in Note 11.

5.  Business combinations

Business combinations in 2021

a.  Acquisition of Chrisal NV

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

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

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

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

Transaction costs relating to the acquisition of US$46,000 have been charged to the Statement of Comprehensive Income in the period relating to the acquisition of Chrisal NV.

Chrisal NV contributed US$3,825,000 of revenue for the period between the date of acquisition and the balance sheet date and US$565,000 of income before tax. If the acquisition of Chrisal NV had been completed on the first day of the financial year, Group revenues would have been US$849,000 higher and Group profit attributable to equity holders of the parent would have been US$206,000 lower.

b.  Acquisition of RAS AG

On April 29, 2021, the Company completed the acquisition of 100% of the share capital and voting rights of RAS AG, a company based in Regensburg, Germany. The acquisition was for a consideration of €5.1 million (approximately US$6.1 million), with €1.25 million (US$1.48 million) payable in cash and €3.85 million (US$4.66 million) through the issue of 1,701,821 new ordinary shares by the Company. It includes an additional earn-out consideration dependent on RAS AG's growth and 2021 calendar year EBIT. The earn-out consideration is capped at an additional €5 million payable in shares for achieving a €2 million EBIT in 2021 and will be satisfied through the issuance of new ordinary shares. On the basis of internal forecasts, the Company has estimated the additional earn-out consideration at €2.7 million (US$3.2 million) - a correction of the €2.55 million (US$3.0) disclosed at interim - resulting in an overall consideration of €7.8 million (US$9.37 million).

 

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

 

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

 

Transaction costs relating to the acquisition of US$50,000 have been charged to the Statement of Comprehensive Income in the period relating to the acquisition of RAS AG.

RAS AG contributed US$2,829,000 of revenue for the period between the date of acquisition and the balance sheet date and US$907,000 of profit before tax. If the acquisition of RAS AG had been completed on the first day of the financial year, Group revenues would have been US$937,000 higher and Group profit attributable to equity holders of the parent would have been US$570,000 higher.

 

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

c.  Acquisition of Life Material Technologies Limited

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

The acquisition was for an upfront consideration of US$6.45 million, with US$2.55 million payable in cash (the "Cash Consideration") and US$3.9 million to be satisfied through the issue of new ordinary shares by HeiQ (the "Share Consideration"). Additional earn-out consideration of US$2,038,000 is payable in cash (US$1,400,000) and through the issue of new ordinary shares (US$638,000) in 2022. A further US$614,000 working capital adjustment is payable in shares in 2022. An additional US$762,000 is payable annually as remuneration in shares over a five-year period. 

 

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

 

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

 

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

 

Transaction costs relating to the acquisition of US$110,000 have been charged to the Statement of Comprehensive Income in the period relating to the acquisition of LIFE.

LIFE contributed US$3,367,000 of revenue for the period between the date of acquisition and the balance sheet date and US$419,000 of profit before tax. If the acquisition of LIFE had been completed on the first day of the financial year, Group revenues would have been US$2,072,000 higher and Group profit attributable to equity holders of the parent would have been US$566,000 higher.

 

d.  Summary of acquisitions in 2021

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

 

 

 

 Chrisal NV

 RAS AG

 Life Material Technologies Limited

 Total

 

US$'000

US$'000

US$'000

US$'000

Consideration:

 

 

 

 

Cash paid to shareholders

 6,054

 1,482

 2,550

 10,086

Shares issued to shareholders

 2,983

4,656

 3,900

 11,539

 

 

 

 

 

Contingent consideration payable in cash

 - 

 - 

 1,400

 1,400

Contingent consideration payable in shares

 - 

 3,232

 638

 3,870

Working capital adjustment payable in shares

 - 

 - 

 614

 614

Total Consideration payable

 9,037

 9,370

 9,102

27,509

 

 

 

 

 

Fair value of net assets acquired:

 

 

 

 

Property, plant and equipment

 1,872

 179

 29

 2,080

Intangible Assets

 20

 159

 401

 580

Other non-current assets

 - 

 - 

 17

 17

Inventory

 1,277

 411

 570

 2,258

Cash

 1,773

 291

 73

 2,137

Trade and other receivables

874

 1,184

 1,480

 3,538

Trade and other payables

 (1,900)

 (611)

 (460)

 (2,971)

Deferred revenue

 (739)

 - 

 - 

 (739)

IAS 19 Pension liability

 - 

 - 

 (92)

 (92)

Borrowings

 (369)

 - 

 (210)

 (579)

Income tax liability

 (198)

 (420)

 (20)

 (638)

Right of use assets

 1,375

 139

 122

 1,636

Capital lease liability

 (1,375)

 (139)

 (122)

 (1,636)

Intangible assets identified on acquisition:

 

 

 

 

Customer Relationship

 667

 380

 610

 1,657

Brands

 521

 - 

 1,048

 1,569

Technology-based assets

 869

 1,071

 561

 2,501

Deferred tax liability on intangible assets

 (514)

 (508)

 (111)

 (1,133)

Total net assets

 4,153

 2,136

 3,896

 10,185

 

 

 

 

 

Non-controlling interests

 (1,279)

 - 

 4

 (1,275)

Goodwill

 6,163

 7,234

 5,202

 18,599

 

 

 

 

 

Total

 9,037

 9,370

 9,102

 27,509

 

 

 

e.  Deferred consideration in relation to acquisitions

The deferred consideration includes earnout payments and a working capital adjustment in relation to the 2021 acquisitions of RAS AG and Life Material Technologies Limited as presented in the table above in Note 5e. Since these liabilities are due in 2022, the fair value of the consideration approximates its nominal value.

 

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

 

The deferred consideration and related financing expense are summarized below:

 

 

Chem-Tex

RAS AG

Life Material Technologies Limited

Total

As at January 1, 2020

2,103

-

-

2,103

Amortization of fair value discount

 245

-

-

245

Consideration settled in cash

 (1,267)

-

-

 (1,267)

Foreign exchange revaluation

 35

-

-

 35

As at December 31, 2020

 1,116

-

-

 1,116

Amortization of fair value discount

 58

-

-

 58

Additions from acquisitions as per Note 5e

 -

 3,232

 2,652

 5,884

Gain on earnout calculation

-

 (80)

-

 (80)

Consideration settled in cash

 (908)

-

-

 (908)

Foreign exchange revaluation

 13

-

-

 13

As at December 31, 2021

 279

 3,152

 2,652

 6,083

 

 

 

 

 

Current liability

 191

 3,152

 2,652

 5,995

Non-current liability

 88

-

-

 88

Total 

 279

 3,152

 2,652

 6,083

 

The maturity profile of other non-current liabilities is shown in paragraph (g) "Liquidity risk" of Note 25 "Financial risk management" to the Consolidated Financial Statements.

Business combinations in 2020

f.  Reverse acquisition

On 7 December 2020, HeiQ Plc became the legal parent of HeiQ Materials AG by way of reverse acquisition. The cost of the acquisition is deemed to have been incurred by HeiQ Materials AG, the legal subsidiary, in the form of equity instruments issued to the owners of the legal parent. This acquisition has been accounted for as a reverse acquisition.

The accounting policy adopted by the Directors applies the principles of IFRS 3 in identifying the accounting acquirer and the presentation of the Consolidated Financial Statements of the legal parent (HeiQ plc) as a continuation of the accounting acquirer's Financial Statements (HeiQ Materials AG). This policy reflects the commercial substance of this transaction as the original shareholders of the subsidiary undertakings were the most significant shareholders post transaction, owning 84.8% of the enlarged issued share capital of the Company.

The fair value of the shares in HeiQ Materials AG has been determined from the admission price of the HeiQ Plc shares on Re-admission to trading on the London Stock Exchange's Main Market of £1.12 per share. The value of the consideration shares was £119,571,088 (equivalent to US$156,889,584).  The fair value of the notional number of equity instruments that the legal subsidiary would have had to have issued to the legal parent to give the owners of the legal parent the same percentage ownership in the combined entity was 15.2 per cent of the market value of the shares after issues, being £21,428,000 (US$28,124,000). The difference between the notional consideration paid by HeiQ Plc for HeiQ Materials AG and the HeiQ Plc net assets acquired of £20,360,000 (US$26,722,000) has been charged to the Consolidated Statement of Comprehensive Income as a deemed cost of listing amounting to £1,068,000 (equivalent to US$1,402,000) with a corresponding entry to the reverse acquisition reserve.

 

The transaction costs associated with the reverse acquisition and readmission totaled US$1,871,000 and have been charged to profit and loss.

 

Details of net assets acquired and the deemed cost of listing are as follows:

 

US$'000

Consideration effectively transferred

28,124

Net assets acquired:

 

Cash and cash equivalents 

27,105

Trade and other receivables

163

Trade and other payables

(546)

Net assets acquired

26,722

Deemed cost of listing

1,402

 

The amounts transferred to the reverse acquisition were as follows:

 

 

US$'000

HeiQ equity capital pre-combination

29,095

Deemed cost of acquisition

1,402

Consideration shares issued on acquisition

(156,894)

Retained losses of Company at combination

(515)

Merger reserve at December 31, 2020 and December 31, 2021

(126,912)

 

 

g.  Acquisition of MasFabE

On December 15, 2020, the Group completed the acquisition of a 50.01% interest in a leading Spanish mask manufacturer MasFabEs S.L. for a consideration of €132,751 (equivalent to US$156,570). The company was renamed HeiQ Medica S.L. and will manufacture medical devices with the Group's cutting-edge textile technologies.

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

 

 

US$'000

 

Fair value of consideration

 

 

157

Net assets acquired:

Property, plant and equipment

 

1,195

Inventories

 

1,152

Cash

 

6

Net working capital

 

(886)

Deferred tax asset

 

112

Borrowings

 

(1,512)

Total identifiable net assets acquired at fair value

 

67

Non-controlling interests

 

(33)

Goodwill recognized on acquisition

 

123

 

 

 

6.  Subsidiaries

Details of the Company's subsidiaries as at December 31, 2021 are as follows:

Company

Country of registration or incorporation

Registered office

Principal activity

Percentage of ordinary shares held

HeiQ Materials AG

Switzerland

Rütistrasse 12, 8952 Schlieren Zurich

Development, production and sale of chemicals

100%

HeiQ ChemTex Inc.

United States

2725 Armentrout Dr, Concord, NC 28025

Development, production and sale of chemicals

100%

HeiQ Pty Ltd

Australia

Level 20/181 William Street, Melbourne, VIC 3000

Research and development

100%

HeiQ GrapheneX AG

Switzerland

Rütistrasse 12, 8952 Schlieren Zurich

Inactive

100%

HeiQ Company Limited

Taiwan

No. 14 & 16, Ln. 50, Wufu 1st Rd. Luzhu District, Taoyuan City 33850

Distribution

100%

HX Company Limited

Taiwan

No. 14 & 16, Ln. 50, Wufu 1st Rd. Luzhu District, Taoyuan City 33850

Trading and production

66.70%

HeiQ Medica S.L.

Spain

Plaza de la Estación s/n, 29560 Pizarra

Manufacturer of medical devices

50.1%

HeiQ Iberia Unipessoal Lda

Portugal

Rua Engº Frederico Ulrich, nº 2650, 4470-605 Maia

Sales agency and internal services company

100%

Chrisal NV

Belgium

Priester Daensstraat 9, 3920 Lommel, Belgium

Biotechnology

51%

HeiQ RAS AG

Germany

Rudolf Vogt Straße 8-10, 93053 Regensburg

Materials innovation

100%

HeiQ Regulatory GmbH

Germany

Rudolf Vogt Straße 8-10, 93053 Regensburg

Materials innovation

100%

HeiQ (China) Material Tech LTD

China

Room 2501, Xuhui Commercial Mansion, No. 168 Yude Road, Shanghai

Distribution

100%

Life Material Technologies Limited

Hong Kong

Alexandra House, 6th Floor, 16-20 Chater Road, Central

Materials technology

100%

Life Natural Limited

Hong Kong

Alexandra House, 6th Floor, 16-20 Chater Road, Central

Inactive

100%

Life-Materials Latam Ltda,

Brazil

Rua Cerro Cora

1851Villa Romano, Sao Paulo SP Brasil CEP 05061350

Sales office

85%

LMT Holding Limited

Thailand

222 Lumpini Building 2, 247 Rajdamri Road
Lumpini, Phatumwan, Bangkok 10330

Holding

96.45%

Life Material Technologies Limited

Thailand

222 Lumpini Building 2, 247 Rajdamri Road
Lumpini, Phatumwan, Bangkok 10330

Trading

99.995%

HeiQ AeoniQ GmbH

Austria

Industriestrasse 35, 3130 Herzogenburg

Materials Innovation

100%

 

 

 

7.  Revenue and other operating income

The Group's activities are materials innovation which focuses on scientific research, manufacturing and consumer ingredient branding. The primary source of revenue is the production and sale of functional ingredients, materials and finished goods. Other sources of revenues include research and development services as well as laboratory work. Revenues were mainly generated in the regions of Europe, North & South America and Asia.

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

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Revenues by function

 

US$'000

 

US$'000

Comfort

 

12,979

 

7,356

Hygiene

 

29'314

 

29,151

Protection

 

2,076

 

3,879

Resource Efficiency

 

13,505

 

10,015

Total revenue

 

57,874

 

50,401

 

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Revenues by form

 

US$'000

 

US$'000

Revenue recognized at point in time

 

 

 

 

Functional ingredients

 

43,661

 

42,023

Functional materials

 

850

 

764

Functional consumer goods

 

10,069

 

7,444

Services, royalties and others

 

2,692

 

170

Revenue recognized over time

 

 

 

 

Licenses

 

602

 

-

Total revenue

 

57,874

 

50,401

 

 

 

 

 

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Revenue by region

 

US$'000

 

US$'000

North & South America

 

21,689

 

 19,813

Asia

 

19,636

 

 19,887

Europe

 

16,237

 

 10,429

Others

 

312

 

 272

Total revenue

 

57,874

 

50,401

 

 

 

 

 

During the year ended December 31, 2021, no customers individually totaled more than 10% of total revenues (2020: none).

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Other operating income

 

US$'000

 

US$'000

Foreign exchange gains

 

5,032

 

3,986

Other operating income

 

1,394

 

758

Total other operating income

 

6,426

 

4,744

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Other income

 

US$'000

 

US$'000

Gain on disposal of property plant and equipment

 

54

 

-

Gain on earnout consideration payable (Note 5f)

 

80

 

-

Other non-operating income

 

65

 

-

Total other income

 

199

 

-

 

 

 

 

 

Expenses by nature

 

 

 

Year ended

 

Year ended

 

 

December 31,

2021

 

December 31,

2020

Cost of goods sold

 

US$'000

 

US$'000

Material expenses

 

 24,581

 

 17,452

Personnel expenses

 

 2,164

 

 1,279

Depreciation of property, plant and equipment

 

 706

 

 382

Other costs of goods

 

 3,447

 

3,155

Total cost of goods sold

 

30,898

 

22,268

 

 

 

 

 

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Selling and general administration expense

 

US$'000

 

US$'000

Personnel expenses

 

 13,074

 

9,091

Depreciation of property, plant and equipment

 

 549

 

 394

Amortization

 

 758

 

 110

Depreciation of right-of-use assets

 

 855

 

 368

Other

 

9,229

 

 4,913

Total selling and general administration expense

 

24,465

 

16,117

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Personnel expenses

 

US$'000

 

US$'000

Wages & salaries

 

 12,708

 

 8,290

Social security & other payroll taxes

 

 1,387

 

 415

Pension costs

 

 645

 

 448

Share-based payments

 

 498

 

 1,217

Total personnel expenses

 

15,238

 

 10,370

 

 

 

 

 

The average monthly number of employees was as follows:

 

221

 

 

97

 

 

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Other operating expenses

 

US$'000

 

US$'000

Foreign exchange losses

 

4,671

 

5,124

Impairment expense

 

144

 

-

Other

 

1,005

 

3

Total other operating expenses

 

5,820

 

5,127

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Other costs

 

US$'000

 

US$'000

Loss on disposal of property, plant and equipment

 

20

 

46

Other non-recurring costs

 

341

 

23

Total other costs

 

361

 

69

 

 

 

 

 

 

 

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Auditor's remuneration

 

US$'000

 

US$'000

Audit of company

 

304

 

108

Total audit

 

304

 

108

 

 

 

 

 

Audit related assurance services

 

6

 

-

Other assurance services

 

-

 

115

Total assurance services

 

6

 

115

 

 

 

 

 

 

8.  Taxation

For the year ending December 31, 2021, the Group had a tax expense of US$212,000 (2020: US$2,112,000). The effective tax rate was (7.9%) (2020: 29.5%). The effective tax rate was primarily impacted by temporary differences. 

The components of the provision for taxation on income included in the "Statement of Profit or Loss and Other Comprehensive Income" are summarized below:

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Current income tax expense

 

US$'000

 

US$'000

Swiss corporate income taxes

 

(282)

 

304

United States state and federal taxes

 

(33)

 

1,112

Taiwan corporate income taxes

 

200

 

161

Belgium corporate income taxes

 

186

 

-

Germany corporate income taxes

 

301

 

-

Others

 

39

 

-

Total current income tax expense

 

411

 

1,577

 

 

 

 

 

Deferred income tax expense

 

 

 

 

Switzerland

 

(190)

 

588

China

 

(146)

 

-

United States

 

138

 

-

Spain

 

108

 

-

Others

 

(109)

 

(53)

Total deferred income tax expense

 

(199)

 

535

 

 

 

 

 

Total income tax expense

 

212

 

2,112

 

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Tax liability

 

US$'000

 

US$'000

Opening balance - (prepaid taxes)

 

1,495

 

(42)

Assumed on business combinations

 

638

 

-

Income tax expense for the year

 

411

 

1,577

Taxes paid

 

(2,462)

 

(48)

Foreign currency differences

 

(31)

 

8

Closing balance

 

51

 

1,495

 

 

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

 

Year ended

December 31, 2021

 

US$'000

 

 

 

 

 

 

 

Expected tax at statutory Swiss income tax rate of 20%

 

537

 

20.0%

Increase/(decrease) in tax resulting from:

 

 

 

 

Effect of different tax rates in foreign jurisdictions

 

25

 

0.9%

Tax credits

 

(58)

 

(2.1%)

Unrecognized tax losses

 

378

 

13.6%

Non-deductible expenditure

 

58

 

2.2%

Tax exempt income

 

(105)

 

(3.9%)

Temporary differences

 

(614)

 

(22.9%)

Other - net

 

(9)

 

0.1%

 

 

212

 

7.9%

 

 

 

 

 

      

 

 

 

Year ended

December 31, 2020

 

US$'000

 

 

 

 

 

 

 

Expected tax at statutory Swiss income tax rate of 20%

 

1,432

 

20.0%

Increase/(decrease) in tax resulting from:

 

 

 

 

Effect of different tax rates in foreign jurisdictions

 

175

 

2.5%

Tax credits

 

(60)

 

(0.8%)

Recognized tax losses

 

(329)

 

(4.6%)

Non-deductible expenditure

 

567

 

7.9%

Other - net

 

327

 

4.5%

 

 

2,112

 

29.5%

 

 

 

 

 

      

The Group had net deferred tax liabilities of US$1,193,000 at December 31, 2021 (2020: US$31,000). The deferred tax assets relate to taxable temporary differences.

The components of the net deferred income tax assets included in non-current assets are as follows:

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

 

 

US$'000

 

US$'000

Deferred tax assets

 

 

 

 

Pension fund obligations

 

429

 

655

Tax losses

 

178

 

171

Share-based payments

 

88

 

-

Others

 

6

 

-

Total deferred tax assets

 

701

 

826

Deferred tax liabilities

 

 

 

 

Capital allowances and depreciation

 

(1,894)

 

(857)

Deferred tax liabilities

 

(1,894)

 

(857)

Net deferred tax assets (liabilities)

 

(1,193)

 

(31)

 

 

 

 

 

As at December 31, 2021, the Group had approximately US$178,000 of tax losses available to be carried forward against future profits (2020: US$171,000).

 

In applying judgment in recognizing deferred tax assets, management has critically assessed all available information, including future business profit projections and the track record of meeting forecasts. Management expects the deferred tax asset to be substantially recovered in 2022.

 

Some tax losses were not recognized as deferred tax assets. During the period ended 31 December 2021, such tax losses amounted to US$378,000 (2020: US$42,000). They arose from aggregated losses of US$1,134,000 (2020: US$154,000).

 

9.  Earnings per share

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

 

 

US$'000

 

US$'000

Profit after tax attributable to owners of the Company

 

2,676

 

5,125

Basic earnings per share (cents)

 

2.07

 

4.53

Diluted earnings per share (cents)

 

2.01

 

4.32

Basic weighted average shares in issue

 

128,871,639

 

113,143,731

Diluted weighted average shares in issue

 

132,718,333

 

118,666,601

 

 

 

 

 

Basic earnings per share is calculated by dividing the profit/loss after tax attributable to the equity holders of the Company by the weighted average number of shares in issue during the year.

Diluted earnings per share is calculated by dividing the profit/loss attributable to the equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

In calculating the weighted average number of ordinary shares outstanding (the denominator of the earnings per share calculation) during the period in which the reverse acquisition occurs:

(a) the number of ordinary shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted average number of ordinary shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement; and

(b) the number of ordinary shares outstanding from the acquisition date to the end of that period shall be the actual number of ordinary shares of the legal acquirer (the accounting acquiree) outstanding during that period.

10.  Intangible assets

 

 

Goodwill

Internally developed assets

Brand names and customer elations

Acquired technologies

Other intangible assets

Total

Cost

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

As at January 1, 2020

3,393

1,128

295

-

417

5,233

Additions through business combinations

123

-

-

-

-

123

Additions arising from internal development

-

602

-

-

-

 

602

Other acquisitions

-

-

-

-

33

33

Currency translation differences

-

121

-

-

41

162

As at December 31, 2020

3,516

1,851

295

-

491

6,153

Reclasses*

-

(725)

-

-

725

 - 

Additions through business combinations

18,599

-

3,226

2,501

580

 

24,906

Additions arising from internal development

-

2,390

-

-

-

 

 2,390

Other acquisitions

-

-

-

-

579

579

Currency translation differences

-

(7)

-

-

(43)

 (50)

As at December 31, 2021

22,115

3,509

3,521

2,501

2,332

33,978

 

Amortization

 

 

 

 

 

 

As at January 1, 2020

-

384

78

-

249

711

Amortization for the year

-

11

29

-

70

110

Currency translation differences

-

37

-

-

31

68

As at December 31, 2020

 - 

 432

 107

 - 

 350

 889

Reclasses*

 - 

 (19)

 - 

 - 

 19

 - 

Amortization for the year

 - 

 50

 367

 177

 164

 758

Impairment expense for the year

 123

 21

 - 

 - 

 - 

 144

Currency translation differences

 - 

 (10)

 - 

 - 

 (15)

 (25)

As at December 31, 2021

 123

 474

 474

 177

 518

 1,766

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

As at December 31, 2021

 21,992

 3,035

 3,047

 2,324

 1,814

32,212

As at December 31, 2020

3,516

1,419

188

-

141

5,264

 

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

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

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

Goodwill

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units ("CGUs") that are expected to benefit from that business combination.  Management considers that the goodwill is attributable to the textile innovation CGU, because that is where the benefits are expected to arise from expansion opportunities and synergies of the business. The Directors consider that the Group has one reportable segment, that of textile innovation focused on scientific research, specialty materials manufacturing and consumer ingredient branding.

 

The Group tests goodwill annually for impairment or more frequently if there are indications that these assets might be impaired. The recoverable amounts of the CGU are determined from fair value less costs to sale. The value of the goodwill comes from the future potential of the assets rather than using the assets as they are (i.e. there is assumed expansionary capex which supports growth in revenues and the value of the business and therefore goodwill).

 

The key assumptions for the fair value less costs to sale approach are those regarding sales prices, margins and a discount rate.

 

The Group monitors its pre-tax Weighted Average Cost of Capital and those of its competitors using market data. In considering the discount rate applying to the CGU, the Directors have considered the relative size and risks its CGU.

 

The impairment review uses a discount rate adjusted for post-tax cash flows. The Group prepares cash flow forecasts derived from the most recent financial plan approved by the Board and extrapolates revenues, gross and net margins and cash flows for the following five years based on forecast growth rates of the CGU. Cash flows beyond this period are also considered in assessing the need for any impairment provisions.

 

A summary of the key assumptions used in such impairment testing is set out in Note 4 c above. With the exception of the goodwill recognized in respect of the acquisition of MasFabEs, no impairment was considered necessary as a result of these tests.

 

In the case of MasFabEs, the Company tested goodwill for impairment and determined that the recoverable amount recognized on acquisition was less than its carrying amount and accordingly an impairment provision of $123,000 was made in the year ended December 31, 2021.

Impairment of intangible assets

IFRS requires the Directors to undertake an annual test for impairment of indefinite lived assets and, for finite lived assets, to test for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Impairment testing is an area involving judgment in determining estimates, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters including management's expectations of:

· Gross margins;

· the level of capital expenditure to support long-term growth; and

· the selection of discount rates to reflect the risks involved.

The Directors prepare and approve cash flow projections which are used in the fair value calculations. Changing the assumptions selected by the Directors, in particular the discount rate, gross margins and growth rate assumptions used in the cash flow projections, could significantly affect their impairment evaluation and hence the Group's results.

The sensitivity of impairment tests to changes to underlying assumptions is summarized below. Impairment of goodwill would result from the following changes to assumptions:

 

Assumption

Chem-Tex

Chrisal NV

RAS AG

Life Materials

 

Existing

Sensitivity

Existing

Sensitivity

Existing

Sensitivity

Existing

Sensitivity

Gross margin

33%

27%

59.40%

58%

91.00%

71%

58.20%

28%

Capex (annual spend)

US$ 207,000

US$ 1,000,000

US$ 138,000

US$ 180,000

US$ 57,000

US$ 1,400,000

US$ 91,000

US$ 2,800,000

Discount factor

14%

22%

14%

15%

14%

23%

14%

38%

 

Growth is calculated in accordance with the commercial plan for the financial years 2022, 2023 and 2024, and 2 per cent annually in 2025 and 2026.

Internally developed assets and other intangibles with finite lives

The Group tests internally developed assets and other intangibles with finite lives for impairment only if there are indications that these assets might be impaired. The Company has concluded that no impairment is necessary. The Group has processes in place for continually reviewing development expenditure to ensure that projects under development are still viable.

 

Property, plant and equipment

 

 

Machinery and equipment

Motor vehicles

Computers and software

Furniture and fixtures

Land and buildings

Total

Cost

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

As at January 1, 2020

5,189

343

665

100

-

6,297

Acquisition on business combination

 1,224

 - 

 1

 12

-

 1,237

Additions

 629

 191

 77

 35

-

 932

Disposals

 (628)

 (46)

 (2)

 (18)

-

 (694)

Currency translation differences

 365

 4

 69

3

-

441

As at December 31, 2020

6,779

492

810

132

-

8,213

Acquisition on business combination

 191

 19

 24

 171

 1,675

 2,080

Additions

 596

 67

 104

 213

 14

 994

Disposals

 (30)

 (37)

 - 

 (15)

 (68)

 (150)

Currency translation differences

 (248)

 (5)

 (24)

 (27)

 (98)

 (402)

As at December 31, 2021

 7,288

 536

 914

 474

 1,523

 10,735

 

Depreciation

 

 

 

 

 

 

As at January 1, 2020

1,917

180

285

31

-

2,413

Acquisition on business combination

 42

 - 

-

 -

-

 42

Charge for the year

 538

 84

 142

 12

-

776

Eliminated on disposal

 (607)

 (24)

 -

 (7)

-

 (638)

Currency translation differences

 112

 2

37

2

-

153

As at December 31, 2020

 2,002

 242

 464

 38

-

 2,746

Charge for the year

 797

 118

 168

 55

 117

 1,255

Eliminated on disposal

 (13)

 (26)

 - 

 (7)

 - 

 (46)

Currency translation differences

 (63)

 (4)

 (13)

 

 (5)

 (85)

As at December 31, 2021

 2,723

 330

 619

 86

 112

 3,870

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

As at December 31, 2021

4,565

206

295

388

1,411

6,865

As at December 31, 2020

4,777

250

346

94

-

5,467

11.  Right-of-use assets

 

 

Land and buildings

Motor vehicles

Office equipment

Total

Cost

  US$'000

  US$'000

US$'000

US$'000

As at January 1, 2020

3,757

111

22

3,890

Additions

76

-

32

108

Disposals due to expiry of lease

(306)

(43)

(14)

(363)

Currency translation differences

174

8

1

183

As at December 31, 2020

3,701

76

41

3,818

Additions through business combinations

 1,186

 300

 150

 1,636

Additions

 5,147

 289

 393

 5,829

Disposals due to expiry of lease

 - 

 (33)

 (9)

 (42)

Currency translation differences

 (120)

 (21)

 2

 (139)

As at December 31, 2021

 9,914

 611

 577

11,102

 

Depreciation

 

 

 

 

As at January 1, 2020

1,077

80

19

1,176

Depreciation for the year

345

16

7

368

Disposals due to expiry of lease

(306)

(43)

(14)

(363)

Currency translation differences

66

7

-

73

As at December 31, 2020

1,182

60

12

1,254

Depreciation for the year

655

89

111

855

Disposals due to expiry of lease

 - 

 (32)

 (9)

 (41)

Currency translation differences

 (34)

 (8)

 (3)

 (45)

As at December 31, 2021

 1,803

 109

 111

 2,023

 

 

 

 

 

Net book value

 

 

 

 

As at December 31, 2021

 8,111

 502

 466

 9,079

As at December 31, 2020

2,519

16

29

2,564

 

Future minimum lease payments associated with these leases were as follows:

 

 

As at

December 31,

2021

As at

December 31,

2020

 

  US$'000

US$'000

Not later than one year

1,115

385

Later than one year and not later than five years

3,689

1,346

Later than five years

5,525

1,162

Total minimum lease payments

10,329

2,893

Less: Future finance charges

(1,099)

(240)

Present value of minimum lease payments

9,230

2,653

 

 

 

Current liability

1,054

349

Non-current liability

8,176

2,304

 

9,230

2,653

12.  Other non-current assets

 

 

As at

December 31,

 

As at

December 31,

 

  2021

2020

 

  US$'000

US$'000

Deposits

140

55

Amounts due from third parties

-

151

Other non-current assets

193

-

Other non-current assets

333

206

 

13.  Inventories

 

 

As at

 

As at

 

 

December 31,

 

December 31,

 

 

2021

 

2020

 

 

US$'000

 

US$'000

Functional ingredients

 

7,480

 

10,209

Functional materials

 

4,310

 

1,289

Functional consumer goods

 

1,822

 

2,042

Services

 

158

 

-

Total inventories

 

13,770

 

13,540

 

Trade receivables

The majority of trade receivables are current, and the Directors believe these receivables are collectible. The Directors consistently assess the collectability of these receivables. As at December 31, 2021, the Directors considered a portion of these receivables uncollectible and recorded a provision in the amount of US$1,473,000 (2020: US$551,000).

 

 

As at

 

As at

 

 

December 31,

 

December 31,

 

 

2021

 

2020

Trade receivables

 

US$'000

 

US$'000

Not past due

 

7,623

 

3,975

< 30 days

 

 2,930

 

1,304

31-60 days

 

 55

 

763

61-90 days

 

 1,115

 

115

91-120 days

 

 351

 

482

>120 days

 

 7,449

 

7,349

Total trade receivables

 

 19,523

 

13,988

Provision for expected credit loss

 

(1,473)

 

(551)

Total trade receivables (net)

 

18,050

 

13,437

 

The Group uses a simplified approach to recognize lifetime expected losses on trade and other receivables. Expected losses consider payment performance history, external information available regarding credit ratings as well as future expected credit losses.

 

The provision for expected loss rates is based on the Group's historical credit loss record. Most significantly, in the case of take-or-pay contracts, the rate of provision is 5% for amounts more than one year past due, 20% for amounts more than two years past due and 25% for amounts more than three years past due.

 

 

As at

 

As at

 

 

December 31,

 

December 31,

 

 

2021

 

2020

 

 

US$'000

 

US$'000

Other receivables - from tax authorities

 

1,734

 

1,372

Prepayments and other receivables

 

4,541

 

1,237

Total other receivables and prepayments

 

6,275

 

2,609

14.  Share capital and share options

 

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

 

 

Note

Number of shares

Share capital

Share premium

Totals

 

 

No.

US$'000

US$'000

US$'000

Balance as of January 1, 2020

 

2,668,999

350

1,305

1,655

Consolidation of shares

 

(1,779,346)

-

-

-

Placing of shares

 

11,789,142

4,641

12,684

17,325

Subscription for shares

 

6,068,000

2,389

6,529

8,918

Issue of shares to acquire HeiQ Materials AG

 

106,759,900

42,027

114,865

156,892

Shares issued in lieu of fees

 

385,209

152

414

566

Costs of share issues

 

-

-

(1,260)

(1,260)

Balance as at December 31, 2020

 

125,891,904

49,559

134,537

184,096

Issue of shares to acquire Chrisal NV

 

1,101,928

456

2,526

2,982

Issue of shares to acquire RAS AG

 

1,701,821

710

3,946

4,656

Issue of shares to acquire Life Materials

 

1,887,883

798

3,182

3,980

Balance as at December 31, 2021

 

130,583,536

51,523

144,191

195,714

 

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

As more fully described in Note 5 above, the Company issued new ordinary shares for the following acquisitions:

i.  On March 9, 2021, the Company acquired a 51% in interest in Chrisal N.V. payable partly in cash (€5,000,000, equivalent to approximately US$6,054,000) and partly by the issue of 1,101,928 new ordinary shares for €2,500,000 (US$2,982,000), equivalent to a total consideration of US$ 9,036,000.

ii.  On April 29, 2021, the Company acquired a 100% interest in RAS AG for a purchase consideration of €5.1 million (approximately US$6.1 million), with €1.25 million (US$1.48 million) payable in cash and €3.85 million (US$4.66 million) through the issue of 1,701,821 new ordinary shares by the Company.

iii.  The Company issued a further 1,887,883 new ordinary shares on July 9, 2021 to the sellers of LIFE, at a price of £1.496201 per share, equivalent to US$4,085,000.

Share Option Scheme

 

The Company has adopted the HeiQ plc Option Scheme.

 

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

 

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

 

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

 

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

 

A total of 6,260,000 awards were made under the Option Scheme pursuant to re-admission on 7 December 2020.

 

The key performance indicators attaching to these awards relate to targets for sales growth (65 per cent. of the award) and operating margin (35 per cent. of the award) over a period of three years.

 

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

 

The weighted average share price at grant date of options granted at grant date was £1.12 and the estimated fair value of each share option granted was £0.269. This estimated fair value was calculated by applying a Black-Scholes option pricing model. A 0.25% risk-free interest rate and an expected volatility of the Company's share price has been used in these calculations.

 

On October 19, 2021 a total of 2,447,658 share options were issued, with service periods covering January 2022 to December 2024 and an exercise price of £0.903 per share option.

 

No options were exercised, forfeited or lapsed during the year ended December 31, 2021. Accordingly, as at December 31, 2021 8,707,658 options remained in place (2020: 6,200,000)  out of which 5,204,978 options are expected to vest (2020: 6,200,000),  with a weighted average exercise price of £1.13 (2020: £1.23).

 

The expense and equity reserve arising from these share-based payment transactions recognized in the year ended December 31, 2021 was US$424,000 (year ended December 31, 2020: US$50,000).

 

An additional expense of US$74,000 relates to share-based payments payable in 2022 as deferred consideration in relation to the acquisition of Life Materials AG.

 

Other share-based transactions

During the year ended December 31, 2020, HeiQ Materials AG issued 18,000 shares to employees in respect of contractual obligations for a total consideration of US$1,167,000.

15.  Reserves

The share-based payment reserve arises from the requirement to fair value the issue of share options at grant date. Further details of share options are included at Note 17.

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

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

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

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

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

16.  Pensions and other post-employment benefit plans

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

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

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

Pension plan description

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

Regulatory framework

 

Pension plan legal structure

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

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

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

Special situation

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

Funding arrangements that affect future contributions

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

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

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

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

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

General risk

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

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

Net benefit obligations

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

 

 

As at

 

As at

 

December 31,

 

December 31,

 

2021

 

2020

 

 

US$'000

 

US$'000

Fair value of plan assets

 

10,858

 

 6,311

Defined benefit obligation

 

 (13,003)

 

 (9,587)

Funded status (net liability)

 

 (2,146)

 

 (3,276)

 

 

 

 

 

Duration (years)

 

16.5

 

 18.9

Expected benefits payable in following year

 

(393)

 

 (269)

 

 

 

 

 

 

 

Year ended

 

Year ended

 

December 31,

 

December 31,

 

2021

 

2020

Development of obligations and assets

 

US$'000

 

US$'000

Present value of funded obligations, beginning of year

 

(9,588)

 

 (6,374)

Employer service cost

 

 (521)

 

 (391)

Employee contributions

 

 (342)

 

 (237)

Past service cost

 

 28

 

 - 

Curtailments / Settlements

 

 65

 

-

Interest cost

 

 (14)

 

 (21)

Benefits paid

 

 (2,589)

 

 (1,044)

Actuarial (loss)/gain on benefit obligation

 

 (256)

 

 (809)

Currency (loss)/gain

 

 214

 

 (711)

Present value of funded obligations, end of year

 

(13,003)

 

 (9,587)

 

 

 

 

Defined benefit obligation participants

 

 (13,003)

 

 (8,942)

Defined benefit obligation pensioners

 

 - 

 

 (645)

Present value of funded obligations, end of year

 

 

(13,003)

 

 (9,587)

 

 

 

 

 

Fair value of plan assets, beginning of year

 

 6,311

 

 4,454

Expected return on plan assets

 

 10

 

 14

Employer's contributions

 

 342

 

 237

Employees' contributions

 

 342

 

 237

Benefits (paid)/refunded

 

 2,589

 

 1,044

Admin expense

 

 (20)

 

 (15)

Actuarial gain/(loss) on plan assets

 

 1,380

 

 (141)

Currency gain/(loss)

 

 (96)

 

 481

Fair value of plan assets, end of year

 

10,858

 

6,311

 

 

 

 

 

Movements in net liability recognized in statement of financial position:

 

 

 

Year ended

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

US$'000

 

2020

US$'000

Net liability, beginning of year

 

(3,276)

 

 (1,920)

Expense recognized in profit and loss

 

 (453)

 

 (413)

Employer's contributions (following year expected contributions)

 

 340

 

 237

Prepaid (accrued) pension cost:

 

 111

 

 176

operating income (expense)

 

 (107)

 

 (169)

finance expense

 

 (4)

 

 (7)

Total gains recognized within other comprehensive income

 

 1,124

 

 (950)

Currency loss

 

 120

 

 (230)

Net liability, end of year

 

 (2,146)

 

 (3,276)

 

 

 

 

 

Actual return on plan assets

 

 

 

 

 

 

16,69%

 

-2.37%

Expected employer's cash contributions for following year

 

361

 

 

295

 

 

 

 

 

 

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

 

Asset allocation

 

As at

 

As at

 

 

December 31,

 

December 31,

 

 

2021

 

2020

 

 

US$'000

 

US$'000

Cash

 

3.6%

 

0.5%

Bonds

 

31.7%

 

24.5%

Equities

 

34.8%

 

34.5%

Property (incl. mortgages)

 

27.0%

 

24.2%

Other

 

2.9%

 

16.3%

Total

 

100.0%

 

100.0%

 

 

 

 

 

 

 

 

 

 

 

Amounts recognized in other

comprehensive income

 

 

Year ended

 

 

Year ended

 

 

December 31,

 

December 31,

 

 

2021

 

2020

 

 

US$'000

 

US$'000

Actuarial (losses)/gains arising from plan experience

 

 

 (1,449)

 

 (553)

Actuarial gains / (losses) arising from demographic assumptions

 

 

744

 

-

Actuarial gains / (losses) arising from financial assumptions

 

 

 449

 

 (256)

Re-measurement of defined benefit obligations

 

 

(256)

 

(809)

Re-measurement of assets

 

 1,380

 

(141)

Deferred tax asset recognized

 

 (225)

 

286

Other

 

-

 

(96)

Total recognized in OCI

 

899

 

(760)

 

Principal actuarial assumptions (beginning of year):

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

 

 

As at

 

As at

 

 

December 31,

 

December 31,

 

 

2021

 

2020

 

 

US$'000

 

US$'000

 

 

 

 

 

Discount rate

 

0.35%

 

0.30%

Interest credit rate

 

1.00%

 

1.00%

Expected net return on plan assets

 

0.35%

 

0.30%

Average future salary increases

 

2.00%

 

1.50%

Future pension increases

 

0.00%

 

0.00%

Mortality tables used

 

BVG 2020 GT

 

BVG 2015 GT

Average retirement age

 

65/64

 

65/64

Expected life expectation at regular retirement age (male / female)

 

 

22.70 / 25.48

 

 

22.83 / 25.85

 

Sensitivities

A quantitative sensitivity analysis for significant assumptions is as follows:

Sensitivities

 

 

As at

 

As at

 

 

December 31,

December 31,

 

 

2021

2020

Impact on defined benefit obligation

 

US$'000

US$'000

Discount rate + 0.25%

 

 (524)

 (401)

Discount rate - 0.25%

 

 560

 432

Salary increase + 0.25%

 

 72

 61

Salary increase - 0.25%

 

 (70)

 (59)

Pension increase + 0.25%

 

 

278

 216

Pension decrease - 0.25% (not lower than 0%)

 

-

-

 

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

 

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

 

Other pension plans

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

 

17.  Other non-current liabilities

 

 

As at

December 31,

 

As at

December 31,

 

  2021

2020

 

  US$'000

US$'000

Defined benefit obligation IAS 19 Switzerland (Note 19)

2,146

3,276

Defined benefit obligation IAS 19 Thailand (Note 19)

135

-

Deferred consideration in relation to Chemtex acquisition (see Note 5f)

88

149

Other

250

-

Other non-current liabilities

2,619

3,425

18.  Borrowings and financing

As at December 31, 2021, the Group's borrowings consist primarily of:

a credit facility taken out in 2021 which incurs interest at 1% and is secured by buildings. It is repayable in 2022. As at December 31, 2021, €63,000 (US$71,000) is outstanding; and

A bank loan taken out in October 2020 which incurs interest at 2.25% and which is secured on property owned by a company which is controlled by a minority shareholder of HeiQ Medica. It is repayable in equal monthly instalments of €8,000 (US$9,500) over eight years up to September 2028. As at December 31, 2020, €685,000 (US$779,000) is outstanding - the short-term portion being €95,000 (US$108,000) and the long-term portion being €590,000 (US$671,000).

A loan of €459,000 (US$522,000) payable to a company controlled by a minority shareholder of HeiQ Medica. The loan is repayable by December 31, 2022 and does not incur any interest.

In 2020, the Group's borrowings consisted primarily of:

A bank loan taken out in October 2020 which incurs interest at 2.25% and which is secured on property owned by a company which is controlled by a minority shareholder of HeiQ Medica. It is repayable in equal monthly instalments of €8,000 (US$9,500) over eight years up to September 2028. As at December 31, 2020, €777,000 (US$951,000) is outstanding - the short-term portion being €93,000 (US$114,000) and the long-term portion being €684,437 (US$838,000).

A loan of €459,000 (US$562,000) payable to a company controlled by a minority shareholder of HeiQ Medica. The loan is repayable by December 31, 2022 and does not incur any interest.

A short-term bank loan of €45,000 (US$55,000) which was repaid in January 2021 and did not incur any interest.

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

 

 

As at

December 31,

 

As at

December 31,

 

  2021

2020

 

  US$'000

US$'000

Not later than one year

1,004

173

Later than one year but less than five years

457

1,043

After more than five years

213

357

Total borrowings

1,674

1,573

 

The following table represents the Group's finance costs for each year presented:

 

Year ended

Year ended

 

December 31,

December 31,

 

2021

2020

 

US$'000

US$'000

Amortization of deferred finance costs - acquisition costs

58

245

Lease finance expense

145

52

Interest on borrowings

108

108

Bank fees

55

46

Loss on foreign currency transactions

231

733

Total finance costs

597

1,184

 

 

 

 

The following table represents the Group's finance income for each year presented:

 

 

Year ended

Year ended

 

December 31,

December 31,

 

2021

2020

 

US$'000

US$'000

Interest income

4

-

Gains on foreign currency transactions

516

68

Other

14

-

Total finance income

534

68

 

 

 

 

 

 

19.  Current liabilities

 

 

 

As at

December 31,

 

As at

December 31,

 

  2021

2020

 

  US$'000

US$'000

Trade payables

4,090

3,590

Payables to tax authorities

1,167

485

Other payables

4,102

1,740

Total trade and other payables

9,359

5,815

 

 

 

As at

December 31,

 

As at

December 31,

 

  2021

2020

 

  US$'000

US$'000

Costs of goods sold

 2,481

 1,093

Personnel expenses

 1,525

 2,052

Other operating expenses

 532

 69

Total accrued liabilities

4,538

3,214

 

 

 

As at

December 31,

 

As at

December 31,

 

  2021

2020

 

  US$'000

US$'000

Prepayments from customers in relation to sales contracts

1,774

-

Total deferred revenue

1,774

-

 

 

 

As at

December 31,

As at

December 31,

 

  2021

2020

 

  US$'000

US$'000

Deferred consideration in relation to acquisitions (Note 5f)

5,995

967

Deferred consideration in relation to share-based payments (Note 17)

74

-

Other current liabilities

6,069

967

 

 

 

20.  Fair value and financial instruments

a)  Fair value

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

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

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

· observable prices in active markets for similar assets;

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

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

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

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

All financial instruments measured at fair value use Level 2 valuation techniques for the each of the years ended December 31, 2020 and December 31, 2021.

Level 2 fair value measurements are those including inputs other than quoted prices included within Level 1 that are observable for the asset or liability directly or indirectly.

There were no transfers between fair value levels during the year ended December 31, 2021 (2020: $nil).

b)  Financial instruments

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

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

The Group is not a financial institution. The Group does not apply hedge accounting and its customers are considered creditworthy and in general pay consistently within agreed payments terms. In 2021, few customers have shown delays in payment which are closely monitored.

A classification of the Group's financial instruments is included in the table below:

 

 

 

 

As at

As at

 

  December 31,

December 31,

 

  2021

2020

 

  US$'000

US$'000

Cash and cash equivalents held at amortized cost

 14,560

25,695

Trade receivables and accrued income held at amortized cost

 18,050

13,437

Financial assets at amortized cost

 6,607

2,815

Financial liabilities at amortized cost

 (23,255)

(14,820)

Borrowings and leases

 (10,904)

(4,225)

Total

5,058

22,902

21.  Financial risk management

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

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

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

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

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

a.  Market risk

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

b.  Interest rate risk

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

c.  Credit risk

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

d.  Foreign currency risk

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

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

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

  Functional currency 

 

AUD

EUR

GBP

US$

Others

Total

As at December 31, 2021

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial assets denominated in $

 3,489

 3,443

 399

 22,713

 649

 30,693

Financial liabilities denominated in $

 (24)

 (889)

 (25,268)

 (4,341)

Net foreign currency exposure

 3,465

 2,554

 (24,869)

 18,372

 

  Functional currency 

 

CNY

EUR

GBP

US$

Others

Total

As at December 31, 2020

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial assets denominated in $

 248

 2,145

 717

17,190

 5

20,305

Financial liabilities denominated in $

 (102)

 (268)

(129)

(951)

Net foreign currency exposure

 146

 1,877

17,061

19,354

 

Foreign currency sensitivity analysis:

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

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

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

 

AUD

EUR

GBP

US$

Others

As at December 31, 2021

US$'000

US$'000

US$'000

US$'000

US$'000

Effect on net assets:

 

 

 

 

 

Strengthened by 10%

 347

 255

 (2,487)

 1,837

 54

Weakened by 10%

 (347)

 (255)

 2,487

 (1,837)

 (54)

 

 

CNY

EUR

GBP

US$

Others

As at December 31, 2020

US$'000

US$'000

US$'000

US$'000

US$'000

Effect on net assets:

 

 

 

 

 

Strengthened by 10%

 15

 188

 24

 1,706

 3

Weakened by 10%

 (15)

 (188)

 (24)

 (1,706)

 (3)

 

e.  Cash and cash equivalents

 

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

f.  Trade receivables

Trade receivables are due from customers and collectability is dependent on the financial condition of each individual company as well as the general economic conditions of the industry. The Directors review the financial condition of customers prior to extending credit and generally does not require collateral in support of the Group's trade receivables. The majority of trade receivables are current or overdue for less than 30 days and the Directors believe these receivables are collectible. Amounts overdue longer than 120 days relate to a limited number of customers with long trading history. Collection of these receivables is expected in course of the year 2022. As at December 31, 2021, the Group had two customers that individually accounted for more than 10% of total receivables, totaling 36.4% of total trade receivables (2020: two customers that individually accounted for more than 10% of total receivables, totaling 38%).

g.  Liquidity risk

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

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

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

 

 

Less than

1 year

2 to 5

years

> 5

years

Total

Year ended December 31, 2021

US$'000

US$'000

US$'000

US$'000

Trade and other payables

 9,359

-

-

9,359

Borrowings

 1,004

 457

213

1,674

Leases (gross cash flows)

1,115

3,689

5,525

10,329

Other liabilities

 10,658

-

 88

10,746

Retirement obligations

-

-

2,281

2,281

As at December 31, 2021

22,136

 4,146

 8,107

34,389

 

 

 

Less than

1 year

2 to 5

years

> 5

years

Total

Year ended December 31, 2020

US$'000

US$'000

US$'000

US$'000

Trade and other payables

 5,815

-

-

5,815

Borrowings

 1,573

-

-

1,573

Leases (gross cash flows)

 385

 1,346

 1,162

2,893

Other liabilities

 4,283

 5,675

-

9,958

Retirement obligations

-

-

3,276

3,276

As at December 31, 2020

 12,056

 7,021

 4,438

 23,515

 

22.  Notes to the statements of cash flows

 

Net debt reconciliation:

 

Opening balances

New agreements

Assumed on acquisition of subsidiaries

Cash movements

Foreign exchange differences

Closing balances

Year ended December 31, 2021

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Cash and cash equivalents

 25,695

-

-

 (10,525)

 (610)

 14,560

Leases

 (2,652)

 (5,829)

 (1,636)

 790

 97

 (9,230)

Borrowings

 (1,573)

 (472)

 (579)

 803

 147

 (1,674)

Totals

 21,470

 (6,301)

 (2,215)

 (8,932)

 (366)

 3,656

 

 

Opening balances

New agreements

Assumed on acquisition of subsidiaries

Cash movements

Foreign exchange differences

Closing balances

Year ended December 31, 2020

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Cash and cash equivalents

 3,603

-

-

 21,822

 270

 25,695

Leases

 (2,784)

 (222)

-

 354

-

 (2,652)

Borrowings

 (2,478)

 (61)

(1,512)

 2,735

 (257)

 (1,573)

Totals

 (1,659)

 (283)

(1,512)

 24,911

 13

 21,470

 

Reconciliation of cash on business combinations:

 

Cash assumed on acquisition of Chrisal NV

 

1,773

Cash assumed on acquisition of RAS AG

 

291

Cash assumed on acquisition of Life Material Technologies Ltd

 

73

Cash assumed on acquisitions of businesses

 

2,137

 

 

 

Consideration payment for acquisition of Chrisal NV

 

(6,054)

Consideration payment for acquisition of RAS AG

 

(1,482)

Consideration payment for acquisition of Life MaterialsTechnologies Ltd

 

(2,550)

Consideration payment for acquisition of Chem-Tex assets

 

(908)

Consideration payment for acquisitions of businesses

 

(10,994)

 

23.  Contingencies and provisions

The Group is, from time to time, involved in claims and legal proceedings. As per 31 December 2021, there is a potential claim with regards to a customer contract in the amount of up to US$ 175,000. Further, in April 2022 the Group was contacted by the United States Environmental Protection Agency ("EPA") in connection with potential alleged violations of the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA") pertaining to alleged mislabelling. However, at this point in time, the Group is not able to assess the likelihood of a favourable or unfavourable outcome or to quantify any possible financial impact.

 

The Group cannot reasonably predict the likelihood or outcome of these activities. However, the Group does not believe that adverse decisions in any pending or threatened proceedings related to any matter, or any amount which may be required to be paid by reasons thereof, will have a material effect on the financial condition or future results of operations. 

 

As at December 31, 2021, no amounts have been accrued related to such matters (31 December, 2020: $nil).

24.  Related party transactions

A company controlled by a director of HeiQ Materials AG supplied materials and services totaling US$32,000 in the year ended December 31, 2020 (2020: US$145,000). HeiQ Materials AG in turn supplied US$88,000 (2020: nil).

In 2022 goods that were in stock as of December 31, 2021 have been sold to a company controlled by a minority shareholder at cost value. However, the minority shareholder is not considered a related party to the Group. The value of the transaction amounts to US$ 900,000.

Details of the remuneration of the directors are contained in the Remuneration Committee Report.

25.  Material subsequent events

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

26.  Ultimate controlling party

As at December 31, 2021, the Company did not have any single identifiable controlling party.

27.  Correction of prior period errors

During the compilation of the financial statements for the year ended 31 December 2021, the Company discovered an understatement of inventory balances in prior years in respect of direct overhead expenses which had not been included in the inventory valuation. The cumulative effect of these errors as at 31 December 2020 was $212,000.

The effect of the adjustments are shown in the following table:

 

Impact of adjustment on the Group's statement of financial position

 

As at  December 31, 2020

Prior year adjustment

As at  December 31, 2020

 

US$'000

US$'000

US$'000

(As previously stated)

(As re- stated)

Assets

 

 

 

Inventories

13,328

212

13,540

Total Assets

69,396

212

69,608

 

 

 

 

Capital and reserves

 

 

 

Retained deficit

8,711

(212)

8,499

Total Equity

49,397

(212)

49,609

 

The effect of the prior year adjustment as at 31 December 2019 was an understatement of inventories of US$78,000 and a corresponding overstatement of retained losses of the same amount.

The statement of comprehensive income for the year ended 31 December 2020 has been adjusted through a reduction in cost of sales of $134,000 and a corresponding increase in income before taxation. The adjustment had no impact on the taxation expense.

 

Impact of adjustment on the Group's statement of comprehensive income

 

 

Year ended December 31, 2020

 Prior year adjustment

Year ended December 31, 2020

 

 US$'000

 US$'000

 US$'000

 

 (As previously stated)

 (As re- stated)

 

Net result for the year

 

 

 

 

Cost of sales

  (22,402)

  134

  (22,268)

 

Income before taxation

  7,026

  134

  7,160

 

Income after taxation

  4,914

  134

  5,048

 

       

 

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