Ilika plc (LON:IKA) have today published financial statements for year ended 30th April 2022.
Operational highlights:
Ilika has 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. Progress includes:
· Secured lease of a 1,600m2 property for Stereax manufacturing scale-up and installed a 340 m2 clean room facility.
· Completed installation of Stereax manufacturing line on time and on budget, despite significant global supply chain disruption and officially opened it in December 2021.
· Substantially completed Stereax manufacturing process qualification.
· Continued to engage with portfolio of Stereax customers from IIoT and medical device sector.
· Completed Goliath development collaborations with Faraday Battery Challenge partners including Honda, JLR and McLaren.
· Continued technical progress with the Goliath development programme, including increased cycle count, reduced operating temperature and increased energy density.
· Completed Goliath scale up manufacturing design collaboration with Comau (part of the Stellantis Group), funded by the Advanced Propulsion Centre.
· Appointed senior additions to management team with Brendan McCarthy (ex-BMW) as Goliath Operations Director and Robin Bell as VP Product Development.
· Increased patent portfolio to 25 granted patents, with 2 new grants, 1 in the US and 1 in the UK. 5 additional international filings submitted.
Financial highlights:
· In July 2021, raised c.£25m through a combination of an equity placing, a retail offer and an open offer
· Turnover £0.5m (2021: £2.3m)
· EBITDA Loss adjusted for share-based payments for the year £6.4m (2021: £2.3m)
· Loss per share 4.65p (2021: 2.53p)
· Cash, cash equivalents and bank deposits of £23.4m (2021: £9.8m)
· In September 2021, commenced trading on the OTCQX Best Market in US
Outlook
Following the installation and commissioning of the Stereax manufacturing facility, Ilika is focussed on qualifying the initial Stereax product for commercial sales. This is expected to take until the end of calendar year 2022. Initial orders for Stereax are expected to be fulfilled in early calendar year 2023. Ilika will continue to actively manage the deployment of capital through this pre-commercialisation phase of Stereax. Further growth of the Stereax business is expected to involve commercial partnerships to transfer the technology to larger scale facilities under license. Regarding Goliath, Ilika will build on the technical progress made to date, with a view to reaching manufacturing readiness maturity by the end of 2023. In parallel with maturing the product, Ilika will be deploying £5m of the capital it raised in 2021 to increase the level of automation of its Goliath pilot line. Following Goliath reaching manufacturing readiness in 2023, Ilika anticipates implementing a scale-up to mega-factory scale in order to support the initial stages of commercial roll-out of a small portfolio of electric hyper and super car models. Additional financing would be required to realise this mega-factory implementation, with potential sources of financing including additional government grant funding, equity financing and investment from strategic partners. The Board’s confidence continues to build in the commercial opportunity for Ilika’s technology across the large markets it addresses and this will provide a strong platform for future growth.
Commenting on the results Ilika’s Chairman, Keith Jackson, said: “We have continued to progress to plan with our Goliath battery with a focus on getting the right mix of attributes in a battery for our target applications. We have increased focus on a robust material supply chain and the environmental impact of manufacture and recycling as critical success factors in the design of a successful battery to reflect current economic, supply and environmental concerns, which look set to continue indefinitely. As always, the team has taken on these challenges and increased its strength through training, consultants, partners and recruitment. Whilst this is not easy and there are always risks and challenges, we are making good progress and look forward to sustaining that in the coming year.
“Our Stereax batteries have a primary target application of safe, long lasting embedded medical environments and IoT sensing in hostile environments as a secondary market. There has been a lot of learning in the transition to the new equipment to make the batteries faster and repeatably on the new equipment, which generates additional protective IP. The medical market is a good commercial and societal opportunity but will always have slower take up due to the obvious effectiveness, safety and approval requirements. Given the market dynamics and requirements we had to announce a delay in revenue expectations. However, the medical market can provide revenues at a unit price premium and, once secured, sustained for a long period as the same requirements that make the market difficult to enter make it difficult to change. Similarly to Goliath, the Stereax team continues to remain focussed and understand the demands and activities required by the business.”
STRATEGIC REPORT
The Directors present their Strategic Report for the year ended 30th April 2022.
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 sell 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, 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 cells 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, potentially involving licensing the technology, for large volume production.
Ilika has scaled-up its Stereax technology to a mid-scale manufacturing facility. Initial revenue has been generated from sales of evaluation samples from its Stereax pilot line and revenue growth is expected from commencement of commercial sales in 2023. Ilika’s Goliath programme is currently in the first commercial phase, where product development is being supported by grant-funded programmes and commercial collaborations.
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.
· 6 x faster charging.
· 2x increased energy density, making them half the volume and weight for a given electrical charge.
· 10x 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 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
During Ilika’s 2020/21 financial year, a lease was secured on a 1,600m2 facility within five miles of Ilika’s headquarters. After competitive tenders for the construction of a 340m2 cleanroom within the facility were received, a principal contractor was mobilised. Despite significant disruption to the global supply chain, the manufacturing line was installed on time and on budget and was officially opened in December 2021. This was followed by process qualification activities, which are now substantially complete. Process qualification involves running the complete manufacturing process from beginning to end and assessing the process stability and reproducibility. The proprietary parts of the Ilika process were higher risk to implement, as they involved some customisation of standard equipment. Specifically, transferring the operational parameters for depositing the optimum quality of cathode material required a more extensive set of process tests than was anticipated. As a result, timelines to stabilise the proprietary parts of the process have been longer than expected and the commencement of the next phase of scale-up, product qualification, started later in 2022 than was originally planned.
Product qualification involves 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. The initial phase of this activity is expected to continue until the end of 2022 before initial samples will be issued to customers. Ilika is actively managing the deployment of capital through this pre-commercialisation phase. The testing and reliability programme will continue into 2023 as product characterisation is extended into long term robustness testing.
As demand for Stereax ramps over the coming years, a further step-up in production capacity with a larger manufacturing partner is expected to be required, when commercial collaboration through a licensing model may be more appropriate.
Large Format Goliath Batteries
In July 2021 Ilika secured an equity investment of ca. £25m made up of a placing, a retail offer and an open offer. Of this placing, £5m was earmarked for investment in automating Ilika’s pre-pilot line, in Romsey, UK to support its portfolio of industrial collaborations. In this facility, Ilika is developing low-cost printing processes suitable for manufacturing solid state batteries several orders of magnitude larger than miniature Stereax batteries.
At the beginning of the 2021/22 financial year, Ilika completed a portfolio of three collaborative projects supported by the UK Government’s Faraday Battery Challenge. The projects were supported by £5.2m in grant funding enabling work on rapid charging with Honda and Ricardo, battery packs for high performance vehicles with McLaren and cost-effective routes for the mass production of Goliath cells with JaguarLandRover.
In order to build on the foundations laid by the Faraday projects, £10m of the £25m placing was ring-fenced to fund the development costs of maturing Goliath cells to manufacturing readiness by the end of 2023. Over the course of the 2021/22 financial year, the following technical progress has been made:
· Achieved 500 cycles without cell failure
· Demonstrated room temperature cycling
· Increased cathode utilisation in cell designs and increased capacity
· Reproduced baseline cell performance in reproducible batches
· Commenced cell mechanical robustness testing
Goliath Manufacturing Scale-up
The Company’s pilot line in Romsey is capable of producing 1kWh per week. Ilika has plans to scale up its current site to an automated facility producing 10-40kWh per week, which it will start to implement in the 2022/23 financial year.
By the end of 2023, the Goliath minimum viable product is expected to be manufacturing ready. Initially, manufacturing will be carried out on the Company’s pilot line, but the Company plans to build a mega-scale facility to support the initial volume of production required by Ilika’s automotive partners. In September 2020, Ilika announced the signing of a framework agreement with the UK Battery Industrialisation Centre (UKBIC) for the production of Goliath solid state pouch cells. This stage of scale-up will involve Ilika reaching 5 MWh per week to satisfy increasing customer demand. Following that announcement, in April 2021, Ilika confirmed that it had secured funding from the Advanced Propulsion Centre, for a 12-month collaboration with Comau, part of the Stellantis Group, to scale up Ilika’s existing Goliath pre pilot line and deliver a mega-scale design for a manufacturing line at a facility such as the UK-BIC. This design study was successfully completed. Discussions with the UK Government and its agencies are on-going regarding further grant funding to support the planned scale-up activities. The Company will also explore other financing options to fund this scale up, which may include investment from strategic partners and/or equity financing
COVID-19 Impact and Response
In order to prioritise the safety of our staff, their families and our customers for much of the reporting period, Ilika staff avoided non-essential travel and maximised homeworking. Any employees falling into at-risk categories and those showing COVID-19 symptoms followed self-isolation procedures in line with UK Government directives.
Throughout the 2021/22 financial year, the Company’s facilities remained open. Through the implementation of risk assessments, enhanced cleaning and hygiene procedures and social distancing we have maintained a safe working environment.
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.
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 25 granted patents, as well as trade secrets in solid-state batteries.
Quality Management System
In November 2021, the annual independent audit of its Quality Management System (QMS) was successful. ISO 9001 is the world’s most widely recognised QMS 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
In June 2022, the company received confirmation of its ISO 14001:2015 certification following an annual audit of its environmental management system. ISO 14001:2015 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.
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.
During the year, the key decision taken by the Board was to invest in the in-house scale up to volume manufacturing of Stereax batteries to meet the initial commercial demand for applications in industrial condition monitoring and miniature medical devices.
Section 172 Statement
| 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 Director’s Talk platforms to extend reach to retail investors.Trading on OTCQX best market to extend coverage to US retail investors. | Decision to raise funds to support the scale up of the Goliath development programme. |
| 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 Measures 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. | Employee Assistance Programme provided offering various legal, financial and life coaching advice. Maintaining key operations throughout the year by promoting working from home and fully risk-assessed social-distancing policies in the labs and offices. |
| 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 and extended ISO accreditations (9001 and 14001) to new facilities. Continued use of electricity solely from renewable sources.Commenced an electric vehicle salary sacrifice scheme and 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. | Appointment of a supply chain director. |
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 thereto on pages 33 to 50 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 pages 51 to 55.
Statement of Comprehensive Income
Turnover
Turnover, all from continuing activities, for the year ended 30th April 2022 was £0.5m (2021: £2.3m). This includes £0.4m of grant income recognised from four projects that the company has in progress with Innovate UK (2021: £2.0m from seven programmes).
Non-grant turnover in the year was £0.1m (2021: £0.3m). This year the Group has solely focussed on battery development and so turnover is associated with the supply of battery samples for evaluation by customers.
Administrative expenses and losses for the period
Administrative costs for the year increased from £4.4m in 2021 to £8m in 2022. Approximately £2.5m of this increase was in research and development spending, a significant proportion of which is staff costs associated with the increase in the average number of staff employed from 51 to 64.
The facilities costs associated with the set up and running of the new production facility also contributed to this increase and £0.8m of development costs were capitalised in the year compared to £0.9m in 2021. The share-based payment charge increased slightly from £420k in 2021 to £430k in 2022, 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 £2.3m in 2021 to £6.4m in 2022.
Statement of financial position and cash flows
At 30th April 2022, current assets amounted to £26.0m (2021: £12.3m), including cash, cash equivalents and bank deposits of £23.4m (2021: £9.8m).
The principal elements of the £13.6m increase in net funds were:
· Fundraise of £23.9m (net) in the year
· Operating cash outflow of £6.4m (2021: £2.3m);
· Capital expenditure on intangible development costs, plant, property and equipment of £4.8m (2021: £2.7m) which mostly relates to the establishment of the new Stereax manufacturing facility.
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 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.
COVID-19 risk
The Group is not immune to the risks associated with COVID-19. The Group continues to manage these circumstances with risk assessments and method statements to ensure we provide a safe working environment in line with the guidance set out specific to our industry, together with the latest UK Government’s guidance.
By order of the Board
Keith Jackson Graeme Purdy
Chairman CEO
12th July 2022
