Ilika plc (LON:IKA), a pioneer in solid-state battery technology, has announced its results for the year ended 30 April 2023.
During the Period, Ilika continued to develop and commercialise its thin-film Stereax® miniature solid-state batteries for powering implantable medical devices and industrial wireless sensors (IIoT) in hostile environments, as well as progressing the development of its large-format Goliath cells for electric vehicles (EV) and cordless appliances.
Operational highlights:
· Despatched first customer samples of Stereax M50s from UK production facility
· Entered into memorandum of understanding with Cirtec Medical LLC in which Ilika will develop and license Stereax technology to Cirtec for manufacturing and commercialisation
· Awarded £2.8m of funding from the Faraday Battery Challenge to lead an £8.2m programme to develop high-silicon anode Goliath batteries, supported by BMW and WAE
· Continued technical progress with the Goliath development programme, including increased cycle count, reduced operating temperature and increased energy density
· Awarded and completed a six-month Goliath economic feasibility study (BUS100), funded by the Automotive Transformation Fund (ATF), with UK-Battery Industrialisation Centre (UK-BIC) to create a 100 MWh SSB facility at UK-BIC
· Awarded and completed nine-month study of Goliath scale-up equipment trials, supported with grant funding from the ATF
· Appointed Jason Stewart as CFO in January 2023
· Increased patent portfolio to 67 granted patents, with eight new grants in the reporting period. Four additional international filings submitted
Financial highlights:
· Turnover £0.7m (2022: £0.5m) with other income of £0.1m (2022: £0m) giving a total income of £0.8m
· EBITDA loss adjusted for share-based payments for the year of £7.0m (2022: EBITDA loss of £6.4m)
· Loss per share 4.61p (2022: 4.65p loss)
· Cash, cash equivalents and bank deposits of £15.9m (2022: £23.4m)
Post-period end highlights:
· Despatched first revenue generating customer samples of Stereax M50s and M300s from UK production facility
Outlook
Following shipment of the initial samples of Stereax M50s and M300s to customers including Blink Energy, CubeWorks and Lura Health, the focus of the Stereax team is on completion of the Cirtec contract and execution of the associated tech transfer of Stereax technology. The terms of the intended partnership is currently being finalised. Once the contract is in place, Ilika plc will begin transfer of the equipment from its facility in the UK to enable the process to be established quickly on a like-for-like basis at Cirtec’s facility in Lowell, MA. The process will be set up using the procedures developed by Ilika in the UK with the expected shipment of batteries from Cirtec in calendar year (‘CY’) 2024. Ilika intends to work together with Cirtec and their customers to develop next generation Stereax batteries to address an expanded portfolio of market sectors.
The Goliath programme will continue to deliver improved cell performance with increasing capacity, cycle life and charge rates combined with elevated safety. Ilika expects to deliver data showing lithium-ion energy density equivalence by end-2023 and to share prototype cells with partners in H1 CY2024. In parallel with improved cell performance, Ilika will continue to invest in equipment to increase its capacity to produce cells. Over the coming 12 months Ilika plans to invest c.£1.9m in capital equipment, from the funds it raised in 2021 for this purpose.
Commenting on the results Ilika’s Chairman, Keith Jackson, said: “Regarding Stereax, we have built on the process qualification foundations laid in 2022 by delivering the first batches of Stereax batteries to customers in April 2023. This is a significant milestone for the team, which demonstrates our focus on product commercialisation. Our business strategy has been exemplified by entering into a memorandum of understanding with our US-based manufacturing partner, Cirtec Medical. This will allow Ilika to focus on its core expertise in technology development and licensing, while supporting the manufacturing and commercialisation activities at Cirtec. Having now revised expectations for the timelines required for Stereax commercialisation, we are in a strong position to deliver on our plans going forward. There is a tremendous amount of innovation taking place in the medical device sector, focussed on improving treatments for chronic diseases and Stereax is strongly positioned to add significant value to this effort.”
“We are delighted to have been awarded a significant grant to support our collaborations and the planned development work for our Goliath programme. Stakeholders can be reassured that our programme was selected against a backdrop of strong competition for funding, with our technical progress made over the preceding year and support from well-recognised industrial partners key to securing our selection. In parallel with the technology development, we continue to plan and invest in industry-ready equipment to demonstrate the robustness of our process for commercial scale-up. This is an exciting time for the Goliath programme as we push towards the next phase of partner evaluation in 2024, and our ultimate goal of large-scale deployment through licensing.”
Analyst Briefing
The management team will be hosting an in-person analyst briefing today, at 9.30am. Analysts who wish to attend should contact Lianne Applegarth at Walbrook PR on +44(0)20 7933 8780 or email [email protected] to register.
STRATEGIC REPORT
The Directors present their Strategic Report for the year ended 30th April 2023.
Principal Activities
Ilika has continued to pursue its strategy of developing and commercialising its cutting-edge solid-state batteries. The Company’s mission is to rapidly develop leading-edge IP, manufacture and license solid-state batteries for markets that cannot be addressed with conventional batteries due to their safety, charge rates, energy density and life limits. We will achieve this using ceramic-based lithium-ion technology that is inherently safe in manufacture and usage, higher thermal tolerance and easier to recycle which differentiates our products from existing batteries.
Business Strategy
The Group’s revenue model involves three phases:
a) commercially-funded and grant-funded development of small quantities of batteries for customer evaluation on Company-operated pilot lines;
b) scale-up to mid-scale manufacturing facilities to demonstrate product and process robustness, while also supporting initial commercialisation; and
c) commercial collaborations, including licensing the technology, for large volume production.
Ilika has scaled-up its Stereax technology to a mid-scale manufacturing facility. Initial deliveries of batteries were made in H1 CY 2023. Ilika has entered into a memorandum of understanding (‘MoU’) for Cirtec Medical LLC to manufacture Stereax under license. Ilika’s Goliath programme is currently in the first commercial phase, where product development is being supported by grant-funded programmes and commercial collaborations.
To support Ilika’s commitment to ESG, we have initiated an ESG Committee with board-level leadership. Taking a risk-managed approach, all aspects of our business are incorporating environmental sustainability, social responsibility and appropriate corporate governance. ESG performance is reported at all levels within the organisation and monitored at board level.
Introduction to Solid-State Batteries
Ilika has been working with solid-state battery technology since 2008 and has developed a type of lithium-ion battery, which, instead of using liquid or polymer electrolyte, uses a ceramic ion conductor. Ilika’s solid-state batteries have a number of benefits over traditional lithium-ion batteries, including the following:
· Non-flammable, which eliminates the need for containment packaging.
· Faster charging.
· Increased energy density, reducing their size to up to half the volume and weight for a given electrical charge.
· Longer storage without loss of charge.
Ilika has developed a roadmap and family of battery products, ranging from miniature solid-state devices designed for powering wireless sensor applications (Industrial IOT) and medical devices to large format cells for consumer appliances and automotive power.
Miniature Stereax batteries
Ilika’s miniature Stereax cells are differentiated from other solid-state technology through their selection of materials and an efficient, low temperature evaporation process that is capable of higher manufacturing rates than other existing solid-state routes. This results in the following benefits relative to previous solid-state battery designs:
· Lower cost of manufacture through avoiding use of expensive sputtering targets
· Long cycle life through use of a silicon anode
· Less encapsulation required
· High temperature resilience
The unique benefits of Stereax batteries have been optimised for medical implants and industrial applications. Miniature Stereax batteries can enable medical devices in a way that is currently not possible with conventional lithium-ion batteries. Their compact, high-energy density and high power characteristics make them useful for a range of medical implant applications covering blood pressure monitoring to neuro-stimulation.
Stereax Manufacturing Scale-up and Commercialisation
Following substantial completion of Stereax process qualification in CY 2022, Ilika demonstrated it was able to run the complete manufacturing process from beginning to end and an understanding was gained of process stability and reproducibility. Product qualification was initiated and initial revenue generating samples of M50s and M300s were issued to customers.
In January 2023, Ilika announced it had broadened its relationship with Cirtec Medical (‘Cirtec’), an industry-leading strategic outsourcing partner of complex medical devices including minimally invasive and active implantable devices, by signing a memorandum of understanding (‘MOU’) which outlines the transfer of Stereax mm-scale battery manufacturing to Cirtec’s facility in Lowell, Massachusetts, U.S.
The intent of the MOU is that Ilika will focus on advanced technology development and IP licensing in support of Cirtec’s manufacturing and commercialisation activities. This partnership will reinforce Cirtec’s ongoing activities in system level miniaturisation for the medical device industry. Benefits of this partnership, to Ilika, include:
· Further validation of Stereax’s capabilities
· Manufacturing partnership delivering economy of scale and ability to rapidly ramp production
· Expanded business development team bringing additional commercial momentum
Since signing the MOU, Ilika and Cirtec have been finalising the detailed terms of the contract. Once the contract is signed, Ilika will begin shipping its Stereax manufacturing equipment to Cirtec’s facility in Lowell, Massachusetts US, to enable rapid commencement of operations. Once the process is established at the Cirtec facility, full product qualification will be carried out, involving producing batches of products for highly accelerated life testing (HALT) and reliability testing. HALT is designed to understand the failure modes of the product in case opportunities can be identified to increase product robustness. Reliability testing involves creating statistically relevant data sets to underpin the product specification sheets.
As demand for Stereax ramps over the coming years, Cirtec intends to increase Stereax production capacity.
Large Format Goliath Batteries
At Ilika’s headquarters in Romsey, UK, Ilika is operating a pre-pilot line to develop low-cost processes suitable for manufacturing solid-state batteries several orders of magnitude larger than miniature Stereax batteries.
Over the course of the 2022/23 financial year, Ilika has made continued technical progress with the Goliath development programme, including achieving increased cycle count, reduced operating temperature and increased energy density.
In January 2023, Ilika was awarded £2.8m of grant funding from the Faraday Battery Challenge to lead a 24-month £8.2m programme (code-named HISTORY) to develop high-silicon anode Goliath batteries to enable automotive level performance. BMW Group (‘BMW’) and Williams Advanced Engineering (‘WAE’) joined the programme’s steering committee. In the project, llika is partnering with Nexeon, one of the UK’s leading manufacturers of silicon battery materials, and experts from four of the UK’s top academic Universities and the Centre for Process Innovation to deliver an automotive industry-defined SSB by programme end. Manufacturing consultants HSSMI will be working with the other partners to deliver an SSB Life Cycle Analysis (LCA).
Project HISTORY follows on from Ilika’s previous successful Faraday Battery Challenge programmes which supported the development of the Goliath SSB baseline cell and the construction of Ilika’s pre-pilot line. Since those initial developments, Ilika has been working with industry specialists on scale-up activities in line with its industrialisation programme and expects to deliver prototype automotive A-sample SSB’s from its scaled pilot facility.
Goliath Manufacturing Scale-up
The Company’s pilot line in Romsey is capable of producing 1kWh per week. Ilika has started implementing its plans to scale up its current site to an automated facility to support A-sample production. Ilika estimates it will require a capacity of 30 kWh per week by 2025 for this purpose. The first piece of automated equipment, a belt furnace, has been successfully commissioned. Ilika has been assessing other equipment vendors of production-intent equipment. In this regard, the Automotive Transformation Fund (ATF) awarded Ilika funding to cover a nine-month study of Goliath scale-up equipment trials, which Ilika has now completed.
In order to assess the possibility of further scale-up to 2 MWh/week with the UK-Battery Industrialisation Centre (UK-BIC), Ilika was awarded a six-month economic feasibility study (BUS100), also funded by the ATF.
War in Ukraine
The war in Ukraine has created inflationary pressures across the supply chain, but there is no specific consumable or product from the region upon which Ilika is particularly reliant. The impact on global energy pricing and specifically the UK energy market did have the potential to impact the Stereax FAB which the Board mitigated through early interaction with Cirtec and the outsourcing activity.
Patent Position
Building Ilika’s intellectual property portfolio in solid-state batteries has continued to be a focus this year. Ilika believes its patents ring-fence and protect critical IP to avoid competitors working around a single patent. Ilika now maintains a portfolio of 67 granted patents, as well as trade secrets in solid-state batteries.
Quality Management System
Ilika has maintained its certification for ISO 9001:2015, which is the world’s most widely recognised Quality Management Software and helps organisations to meet the expectations and needs of their customers. The certification promotes the development of continual improvement, customer satisfaction, traceability and international best practices.
Environmental Management System
The Company has also maintained its ISO 14001:2015 certification, which is part of a family of standards developed by the International Organisation for Standardisation. It specifies the requirements for an environmental management system that an organisation can use to enhance its environmental performance. The certification confirms that environmental impact is being continuously monitored and improved.
Environmental & Social Governance (ESG)
The Board takes a proactive approach to ESG matters looking to adopt the best practice and recommendations from the Quoted Companies Alliance (QCA) Corporate Governance Code. The Group is committed to achieving a real and sustainable positive impact on the broader community by adopting environmentally responsible policies so it can demonstrate a responsible and balanced approach to corporate governance.
Key performance indicators (‘KPIs’)
The Board monitors a small portfolio of KPIs, which define the progress being made by the Group. Technical KPIs benchmark battery development milestones and patent applications. Commercial KPIs link the technical development programmes to the sales pipeline and engagement of commercialisation partners. Operational KPIs ensure that overheads and cash resources are tightly controlled.
The most important financial KPIs are the cash position, turnover and profitability of the Group, which remain under constant focus and which are considered in the financial review.
Section 172 Statement
Section 172 of the Companies Act 2006 requires Directors to take into consideration the interests of stakeholders and other matters in their decision making. The Directors continue to have regard to the interests of the Group’s employees and other stakeholders, the impact of its activities on the community, the environment and the Group’s reputation for good business conduct, when making decisions. In this context, acting in good faith and fairly, the Directors consider what is most likely to promote the success of the Group for its members in the long term. The Board regularly reviews the Group’s principal stakeholders and how it engages with them. This is achieved through information provided by management and also by direct engagement with stakeholders themselves.
| Why engagement is important | Engagement process | Strategic decisions in the year |
| Investors | ||
| To communicate and secure support for our long-term strategic objectives effectively and to promote long-term holdings. | AGM, analyst presentations, institutional investor presentations. Use of Investor Meet Company and Directors’ Talk platforms to extend reach to retail investors.Trading on OTCQX best market to extend coverage to US retail investors. | Reduce cash burn to avoid a fundraise in 2023. |
| Employees | ||
| To deliver our long-term strategic objectives. To promote our culture, purpose and values and support their well-being whilst maintaining low turnover and high productivity rates | Transparent cascading Key Performance Indicators that link directly to the company objectives.Twice yearly performance evaluations with objective setting and reviews.Formal policies and procedures.Quarterly, all-company, update meetings. | The Board undertook a business review and restructuring activity aligned to the Cirtec MoU. An interim pay review for those staff below UK median wage reflecting the inflationary environment in the UK. |
| Community and environment | ||
| To ensure activities are socially and environmentally responsible and meet the highest standards. | Promotion of the employee-led “Green Champions”, a cross-company working group to ensure green initiatives are raised and followed through. | Maintained ISO accreditations (9001 and 14001). Continued use of electricity solely from renewable sources.Implemented an electric vehicle salary sacrifice scheme.Undertook carbon offset program to minimise carbon footprint. |
| Business relationships | Engagement process | Strategic decisions in the year |
| To enable balanced decisions which incorporate viewpoints of customers, suppliers and regulators and ensure Company’s integrity, brand and reputation are upheld. | Attendance at conferences and customer and supplier meetings. | MOU with Cirtec Medical for Stereax manufacturing. |
FINANCIAL REVIEW
The Financial Review should be read in conjunction with the consolidated financial statements of the Company and Ilika Technologies Limited (together the ‘Group’) and the notes below. The consolidated financial statements are presented under international accounting standards in conformity with the requirements of the Companies Act 2006. The financial statements of the Company continue to be prepared in accordance with International Financial Reporting Standards in conformity with the requirements of the Companies Act 2006 and are set out on below
Statement of Comprehensive Income
Turnover
Turnover, all from continuing activities, for the year ended 30th April 2023 was £0.7m (2022: £0.5m). This includes £0.7m of grant income recognised from four projects that the Company has in progress with Innovate UK (2022: £0.4m from seven programmes). Non-grant turnover in the year was £0.0m (2022: £0.0m).
Other Operating Income
The Company has benefitted from Research & Development Expenditure Credit (RDEC) of £0.1m (2022: £0m).
Administrative expenses and losses for the period
Administrative costs for the year increased from £8.0m in 2022 to £9.0m in 2023. While direct R&D expenditure has reduced to £4.1m (2022: £4.8m). The inflationary environment in the UK over the last 12 months has contributed to the increase in cost leading to the acceleration of Stereax licencing through the Cirtec MoU. Staff costs increased from £4.7m in 2022 to £5.2m in 2023 associated with the increase in the average number of staff employed from 64 to 72 which reflects the increase in operational activities of the Stereax FAB and scale up of Goliath development.
Development costs £1.0m of were capitalised in the year compared to £0.8m in 2022. The share-based payment charge increased slightly from £430k in 2022 to £442k in 2023, due to an increased number of employees qualifying for the Company’s share option scheme.
The underlying level of loss that is measured by Earnings Before Interest, Tax, Depreciation and Amortisation and Share-based payments (adjusted EBITDA) shows an increase in loss from £6.4m in 2022 to £7.0m in 2023.
Statement of financial position and cash flows
At 30th April 2023, current assets amounted to £19.1m (2022: £26m), including cash, cash equivalents and bank deposits of £15.9m (2022: £23.4m).
The principal elements of the £7.5m decrease in net funds were:
· Operating cash outflow of £7.0m (2022: £6.4m)
· Capital expenditure on intangible development costs, plant, property and equipment of £1.4m (2022: £4.8m) which mostly relates to the capitalisation of Stereax R&D expenditure
· Increased recovery of R&D tax claims of £1.4m (2022: £0.3m)
PRINCIPAL RISKS AND UNCERTAINTIES
Commercial risk
The Group is subject to competition from competitors who may develop more advanced and less expensive alternative technology platforms, both for existing products and for those products currently under development.
The Group seeks to reduce this risk by continually assessing competitive technologies and competitors. The Group seeks to commercialise its batteries through multiple channels to reduce overreliance on individual partners and, in agreements with partners, it ensures that there are commercialisation milestones which must be met for the partner to retain the rights to commercialise the intellectual property.
Financial risk
The Group is reliant on a small number of significant customers, partners and grant funding bodies. Termination of these agreements or grant polices could have a material adverse effect on the Group’s results or operations or financial condition. The Group expects to incur further operating losses as progress on development programmes continue.
The Group seeks to reduce this risk by broadening the number of customers and partners and thereby reduce reliance on individual significant companies and by leveraging its IP and resources over multiple projects. The Group applies for Research and Development tax credits to help mitigate its investment in these activities.
Intellectual property risk
The Group faces the risk that intellectual property rights necessary to exploit research and development efforts may not be adequately secured or defended. The Group’s intellectual property may also become obsolete before the products and services can be fully commercialised.
The Group reduces this risk by contracting specialist patent agents and attorneys with extensive global experience of patenting and licensing.
Dependence on senior management and key staff
Certain members of staff are considered vital to the successful development of the business. Failure to continue to attract and retain such highly skilled individuals could adversely affect operational results.
The Group seeks to reduce this risk by offering appropriate incentives to staff through competitive salary packages and participation in long-term share option schemes and a good working environment.
War in Ukraine risk
The ongoing war in Ukraine has created inflationary pressures across the supply chain, but there is no specific consumable or product from the region upon which Ilika is particularly reliant. Current inflation forecasts have been factored into the forward looking financial forecasts. The Board continue to review spend at all levels of the business to identify efficiencies or cost savings which can be deployed to mitigate the inflationary environment. The Cirtec MOU will also lead, at the conclusion of the contract and commencement of technology transfer, to a reduction of cost to the Company as the responsibility for manufacturing is transferred to Cirtec.
By order of the Board
