Final Results, 22 Jun 2021 07:01

22 June 2021, 07:01

Source - LSE Regulatory

RNS Number : 6213C

Trackwise Designs PLC

22 June 2021

TRACKWISE DESIGNS PLC

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

Final Results

Trackwise Designs (AIM: TWD), a leading provider of specialist products using printed circuit technology, is pleased to announce its audited results for the year ended 31 December 2020.

Financial highlights

·	Revenues of £6.07m (2019: £2.91m)
·	Adjusted EBITDA of £0.77m (2019: £0.57m)
·	Adjusted operating loss of £0.19m (2019: profit of £0.26m)
·	Net cash at 31 December 2020 (excluding IFRS16 lease liabilities) of £11.35m (31 December 2019: net debt £0.30m)

Operational and strategic highlights

·	Resilient response to the pandemic with progress made against all elements of the Group's strategy, despite headwinds
·	Significant multi-year IHT manufacture and supply contract win with a UK EV OEM
·	Acquisition and successful integration of Stevenage Circuits Limited ("SCL")
·	Successful reorganisation of operations resulting in dedicated Improved Harness Technology™ ("IHT") and Advanced PCB manufacturing sites at Ashvale and Stevenage respectively
·	Two successful equity raises totalling £18.5m to support growth

Post period highlights

·	Acquisition of third site to increase capacity for delivery of IHT orders and progress in investment of new machinery
·	Appointment of Chief Operating Officer (non-board position)
·	Multi-year IHT agreement signed with medical device technology company Cathprint AB
·	Extension and amendment to the UK EV OEM Agreement, as announced separately by Trackwise today

Current trading & outlook

·	Healthy interest levels and growing pipeline but Covid-19 continues to impact pace of some customer investment, raw material supplies and operational upgrades such as the fit out of the new facility
·	Additional development improvements being made to UK EV OEM products will result in rephasing of our production
·	Combined, these factors will result in some revenue from FY21 being moved to FY22
·	Strong financial position - Net cash £2.866m (excluding IFRS16 lease liabilities) as at 21 June 2021
·	The Board remains confident in making further strategic progress and that the benefits of IHT will deliver strong medium to long-term growth
·	Total IHT customers and opportunities increased to 84 today (31 December 2019: 72)

Philip Johnston, CEO of Trackwise, commented:

"The impact of the Covid pandemic has affected global economic activity, leading to a slow-down in investment activity across our markets. However, we are seeing a growing number of IHT enquiries and have converted an increasing number of those enquiries into customers which supports our growing confidence for the future.

What has become clear during the early part of 2021 is evidence of increasing supply chain stress, with increased prices and lengthening delivery timescales for a number of key raw materials. Sales have not been lost but this is impacting our ability to complete some orders on a timely basis in both our Advanced PCB and IHT divisions.

We have continued to work with our UK EV OEM customer on development improvements to the products we will be producing for them. As a result, it is now anticipated that our volume production, initially expected towards the end of 2021, will begin in early 2022.

Combined, these factors above will have an impact on revenues in 2021, although some will be offset by new business from other smaller customers as well as a continued focus on cost controls.

We are making progress with preparing our new manufacturing facility, with fit out underway and long lead capital items ordered, and we are confident that this plant will be ready for manufacture of the expected volumes. Capacity is being implemented in the new manufacturing facility in excess of the UK EV OEM forecast volumes and the layout accommodates planning for future capacity expansion that can be implemented in the event of future contract wins.

Trackwise's active discussions with a number of EV OEMs and Tier 1 suppliers supports our belief that flex PCBs will be adopted widely as a solution for battery module and battery pack interconnect across all cell formats and we are confident of strong future activity in this sector, as well as in our other markets.

We are pleased to announce today the extension and amendment to the product manufacture and supply agreement with our UK EV OEM customer, further details of which are included in a separate announcement released by Trackwise today."

Enquiries

Trackwise Designs plc	+44 (0)1684 299 930
Philip Johnston, CEO	www.trackwise.co.uk
Mark Hodgkins, CFO

finnCap Ltd	+44 (0)20 7220 0500
NOMAD and Broker
Ed Frisby/Tim Harper - Corporate Finance Andrew Burdis/Barney Hayward - ECM

Alma PR	+44 (0)20 3405 0205
Financial PR and IR
David Ison/Caroline Forde/Josh Royston/Kieran Breheny

Notes to editors

Trackwise is a UK-based manufacturer of specialist products using printed circuit technology.

The full suite includes: Improved Harness Technology™ ("IHT") and Advanced PCBs - Microwave and Radio Frequency ("RF"), Short Flex, Flex Rigid and Rigid Multilayer products.

IHT uses a proprietary, patented process that Trackwise has developed to manufacture multilayer flexible printed circuits of unlimited length. While the technology has many applications, the directors expect that one of its primary uses will be to replace traditional wire harness in a variety of industries.

The Company has three sites, located in Tewkesbury, Stevenage (following the acquisition of Stevenage Circuits Ltd in April 2020) and Stonehouse. It serves customers in Europe and North America.

Trackwise Designs plc was admitted to trading on AIM in 2018 with the ticker TWD. For additional information please visit www.trackwise.co.uk

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU No. 596/2014) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Chair's Statement

Delivering progress on our strategy

The period under review has been one characterised by uncertainty and challenging economic conditions, but despite this we are pleased to report on significant strategic progress across both our Improved Harness Technology™ and Advanced PCB divisions during the year with notable successes.

We have achieved an exceptional level of acceptance for IHT and we are seeing an ever-increasing pipeline of opportunities across our target markets. We continue to make significant steps to accommodate the ramp up in IHT production at Ashvale, alongside putting the steps in place to establish a dedicated high-volume low-mix IHT production facility.

Following the acquisition of Stevenage Circuits Ltd, we have consolidated our non-IHT manufacturing into what is now referred to as the Advanced PCBs division, with our reach extended through SCL's existing customer base.

These strategic achievements have solidified the foundations for further growth, and underwrite the medium term performance to which I referred last autumn. We are grateful for the support we have received from our shareholders in enabling us to develop our strategic initiatives.

2020 Performance

Trackwise has not been immune to the consequences of trading headwinds, which impacted both our suppliers and our customers. The effects of lockdowns in the UK, France and Italy in particular hindered the installation of new equipment at our Ashvale site which, in turn, have resulted in slower output of IHT.

I am pleased to report the operational issues we faced have now largely been resolved, and these should not detract from the significant progress the business made in the year. In a space of a few months, supported by two equity raises, we completed the acquisition of SCL, expanded and optimised our manufacturing capacity and capability across our estate, and signed an agreement with an electric vehicle OEM. The contract is not only transformational for the Group's medium-term prospects, but is reflective of the huge opportunity ahead as a wide range of forward-thinking companies look for space-saving, weight-reducing and environmentally-friendly parts for their products.

While our IHT facility in Tewkesbury and Advanced PCB facility in Stevenage both suffered revenue losses as a result of Covid-related disruption, through careful monitoring and swift, decisive action we have successfully limited the impact to our bottom line.

Board, Senior Management and Employees

In June 2020, we announced non-executive director and chair of the audit committee Lesley Jackson would not be seeking re-election at the 2020 AGM following completion of the full term of her contract.

At the same time, we were pleased to appoint Charles Cattaneo and Susan McErlain to the Board as non-executive directors. Charles succeeded Lesley Jackson as chair of the audit committee and Susan stepped into the role of chair of the remuneration committee.

I would like to reiterate my gratitude to Lesley for her valuable contributions to Trackwise and wish her the best in her future endeavours.

The safety of our staff has remained our priority since the onset of the pandemic. In line with UK government guidelines, we have taken significant steps to protect our teams from the impact of Covid-19 across both our sites. I would like thank all of our staff for their continued hard work and dedication in a difficult year.

Dividend

The Board does not recommend the payment of a dividend and in line with the previously stated policy reaffirms the intention to pay a progressive dividend only once the Group has demonstrated the establishment of the interconnector technology as a stable revenue generator.

Our impact on society

We are pleased, for the first time, to be reporting in detail on our ESG impact and the measures we have introduced, demonstrating our commitment to acting responsibly and contributing to a sustainable future. Further information on the Group's impact on society can be found in our ESG engagement report in our annual report.

The benefits and relevance of our IHT product to the sustainability agenda are clear and we are confident it will play an important role in helping our customers meet their own carbon reduction goals in the future.

Looking ahead

Uncertainty in both the global and UK economies has persisted into 2021 and this is likely to continue in the near term despite positive news around the Covid-19 vaccine rollout and, as a result, we do not expect to see any immediate changes to trading conditions in the short term.

However, with the strong prospects for growth in our IHT division and solid foundations through our Advanced PCBs division, the Board remains encouraged by the medium-term and long-term outlook as set out at the time of our equity raise in the autumn of 2020 and looks forward to reporting on further progress in due course.

Ian Griffiths

Chief Executive's Statement

A transformational 12 months

Despite the adverse operational impact of Covid-19, it has been a transformational 12 months for Trackwise, and the recent major agreement with an Electric Vehicle manufacturer demonstrates the significant traction our Improved Harness Technology™ is gaining in the market. It is our firm intent that this is just the start.

We are delighted by the support shown by new and existing investors, providing us with the means to deliver against our growing pipeline of revenue opportunities across our primary target markets of EV, Medical and Aerospace, thereby maximising our long-term growth potential.

This was a very successful year at a strategic level - with two fundraises, the acquisition and integration of Stevenage Circuits and the signing of the transformational multi-year production deal with the UK EV OEM. At an operational level, 2020 was a challenging year due to Covid-19 impacts on our customers, our suppliers and ourselves, but we successfully navigated the challenges and ended the year on a sound footing, with an enlarged operation, growing customer base and well-capitalised business.

I would very much like to thank all our stakeholders, our supportive shareholders, both new and existing, our customers and suppliers - and above all our staff. As manufacturers we have largely been unable to work from home and therefore have had to deal with the risk and uncertainty of coming to work every day throughout the pandemic. This has not been easy, but the challenge has been met collectively with stoicism and understanding: Thank You.

Covid-19

While seeking to continue operations as normally as possible, the safety and welfare of all staff has been our utmost priority. We have followed government guidelines throughout.

The internal changes that we had to make, in order to minimise risks while continuing operations, have decreased our efficiency and increased costs of working, but the more significant Covid impacts have come from external sources - from our suppliers and customers.

While the wider supply chain continued to operate more-or-less normally through the pandemic, Trackwise took delivery of a key piece of capital equipment from a French supplier, just as the first lockdown was put into place. This resulted in the installation and commissioning of the state-of-the-art roll to roll direct imaging ("DI") machine, the first of its kind made by the supplier, falling onto Trackwise - assisted only remotely by the French supplier. Given the complexity of the equipment and the challenging products that Trackwise is seeking to manufacture on it, this turned out to be a time consuming and resource intensive exercise. While the delays in commissioning this key equipment resulted in increased costs of working and delays in product development, I am pleased to advise that the equipment is now fully commissioned and functioning as planned. It is a very performant piece of equipment and we are discussing with the supplier the specification for a further machine to be installed in our new site, the details of which are outlined in the strategic focus section of this review.

The impacts of Covid upon markets and customers is addressed further below but, as a very general overview, managing existing relationships has happened satisfactorily, whereas establishing or progressing new relationships has been less easy, and subject to delays.

Covid is an additional risk the company now has to factor and I would draw your attention to the Risk review in our Annual Report and in particular the heightened attention the Board is giving to certain areas, cybersecurity, customer concentration, the impact of Covid and the risks associated with the establishment of our new site at Stonehouse.

Stevenage Circuits Ltd

In April 2020 we were pleased to advise of the completion of the acquisition of Stevenage Circuits Ltd and again we thank our existing and new shareholders who supported us in our March 2020 fundraise at a very difficult time in the financial markets.

SCL is an established manufacturer of a full suite of Advanced PCBs (Microwave and RF, Short Flex, Flex Rigid and Rigid multilayer products) and complements well the existing capabilities of Trackwise.

We are delighted with the acquisition - we have gained an experienced and motivated team with a good reputation, serving a broad customer base. I would personally like to acknowledge our CFO Mark Hodgkins' significant contribution to this transaction; bringing the full benefit of his extensive M&A experience to acquire a good business at a good price.

The prospect and process of acquisition is always a period of uncertainty for the acquired company - especially the employees - but they have responded brilliantly to being part of a growing public group after two generations of family ownership. With Covid and Brexit landing in the same year as the acquisition, it has been a challenging year for all at Stevenage Circuits.

I would like to thank very much the senior management team and all staff at SCL for their hard work and positive attitude in this year of significant challenge and change.

Since the acquisition - and despite Covid constraints - we have successfully integrated the two businesses and completed the transfer of non-IHT (RF) manufacturing from Ashvale to the Stevenage site. The reorganisation fulfils our strategic plan whereby Ashvale is dedicated to being an engineering led, product development, new product introduction facility for Improved Harness Technology™, the long-term growth driver in the business. We are looking forward to driving forward the group - significantly strengthened by the SCL acquisition.

Improved Harness Technology (IHT)

There has been significant and sustained growth in all three key verticals during 2020. 23 non-disclosure agreements have been signed (eight aerospace, five automotive, nine industrial, one space), demonstrating there is keen interest for IHT across the board. Of these, six have already converted into customers, bringing the total number of IHT customers to 31 at the year end.

In the first five months of 2021 there have been three new medical companies sign non-disclosure agreements and one has already been converted to a customer.

Electric Vehicles (EV)

Trackwise announced in September that it had secured a multi-year Product Manufacture and Supply Agreement with a UK EV OEM. This is a transformational deal.

The OEM is building electric vans and buses - as well as other commercial vehicles. All of these vehicles are based around a common core High Voltage Battery Module (HVBM) into which Trackwise is providing two key components, a power flex - connecting all of the cells for primary power collection and a balancing flex, part of the essential battery management system. These are roughly one-foot square parts - manufactured in rolls - using our IHT-enabled manufacturing know-how. We are also supplying vehicle level parts into the Bus, with parts for further vehicles under discussion.

The OEM is to build its vehicles in modular microfactories rather than a single centralised location - these are relatively small 100Ksqft modular facilities built close to the end-customer.

Trackwise has done very well to secure this landmark contract with a world-leading UK OEM. With its roll out of microfactories globally, the OEM's demand for these parts is going to be significant.

There is a wider opportunity in the developing UK & European EV supply - the output of any UK Gigafactory will need to be built into UK battery modules, UK battery packs and UK EVs.

Trackwise is very well positioned - both with key technology and with first mover advantage - to capitalise on this wider opportunity. There is a strong drive to build a UK EV supply chain and our UK EV OEM contract win has greatly raised Trackwise's profile in the industry.

It is clear that the rapidly emerging EV sector is a key growth opportunity for Trackwise and IHT.

Aerospace

Covid has had a very significant impact upon the global aviation industry with a huge drop-off in air travel; the International Airport Transport Association (IATA) predicts the UK aviation industry faces a loss of revenue of up to £20 billion in 2020. We will have to wait to see what shape of industry emerges from this huge shock - for example the demise of larger aircraft, not just the Boeing 747 and Airbus A380, but perhaps also twin-aisle aircraft as a whole. However, what is certain is that the industry is also facing substantial pressure to grow back greener and address sustainability along the whole aviation value chain.

Even before the pandemic the UK aviation industry has pledged to cut its net carbon emissions to zero by 2050. In any mobile application weight = fuel = cost = carbon and the weight reduction opportunity offered by IHT is a key enabler for OEMs to realise their ambitions in these rapidly changing markets where carbon reduction is a strategic necessity.

We are working with a significant number of participants working towards zero-emission aircraft and note the recent announcement by Airbus of their ZERO-E concepts. Whilst zero-emission commercial aircraft might seem a far-off prospect our development work with GKN (where we announced a Collaboration Agreement in August 2019), is also targeted at more-electric aviation - the evolution of existing platforms to improve the efficiency of current aircraft.

GKN's parent company, Melrose plc, remains committed to industrialising the wing de-icing and air inlet scoop products on which we are cooperating. After several years of earlier development work Trackwise signed an Industrialisation Agreement with GKN in 2019; this Industrialisation represents the final step prior to entry into service.

This development (a consortium lead by GKN Aerospace) is receiving UK plc support; in the second half of our 2020 financial year Trackwise received confirmation of an InnovateUK grant, a £770K contribution towards taking IHT to 'TRL6' - a technology readiness milestone that effectively enables the product to be sold into mainstream programmes. GKN Aerospace, through Fokker Technologies, is a leading player in design, manufacturing and support for the electrical wiring interconnection systems (EWIS) for Aerospace and Defence programs. This development work is not recognised as revenue in the accounts but represents 'income' of £70K in 2020, with budgets of £150K for 2021 and £350K for 2022.

Aside from GKN, Trackwise is working with a very wide and growing portfolio of world-leading aerospace innovators on next-generation products; of UAM - 'flying taxis', business jets, and high altitude pseudo-satellites.

For all of these OEMs and Tier 1 or Tier 2 suppliers, IHT benefits of reduced weight and reduced space are key attributes for delivering their objectives for emission-reducing aircraft.

While current and near-term revenue will remain developmental in nature, a clear path to production programmes is emerging. Several programmes are indicating an entry into service in two to three years. Trackwise and IHT must be ready for these customers - and for this reason the timely progression of IHT to TRL6 is key.

Medical

IHT's use in medical catheters is a large scale opportunity. Essentially Trackwise and IHT can provide long, narrow flex PCBs to replace multiple micro-wires, very small gauge wires that are currently used to connect remote (distal) electronics through the patient and out to the surgeon. These micro-wires are difficult to handle and assemble quickly and reliably into finished catheters. The improvement therefore offered by IHT is largely ease of manufacture.

While far from all catheters embody distal electronics, the image in our Annual Report shows the very large size, and rapid growth of the US catheter market.

The period under review saw delays, due to DI commissioning delays, but good progress in developing IHT for medical catheter applications, intravascular ultrasound and electrophysiology.

These are challenging products to manufacture - large format (up to several metres on length), narrow (only a few mm in width), very fine circuit features (down to 40um), novel substrates, demanding surface finish requirements - but IHT capabilities are fully suited to these demanding products and multiple samples for multiple different products have been delivered to US and EU OEMs.

Our current focus is to support OEMs as they progress these products through their design verification phase and into production.

Marketing efforts continue to promote IHT capability to catheter manufacturers worldwide; including Trackwise's white paper 'IHT Technology Ready to Enable the Next Generation of MIS Instruments'.

Industrial, Scientific & Space

While our focus remains on our three core verticals - IHT has application across a very wide range of markets and applications. Our CERN contract for the Large Hadron Collider HiLumi upgrade has been successfully completed during the period but I highlight here three interesting IHT customers that reflect the diversity of opportunity. These are just a few highlights of many:

· Nuclear fusion; IHT parts being supplied to a UK OEM without question represent the largest multilayers ever made - a capability directly enabled by the investments made since IPO. Our customer recently presented their technology at the Applied Superconductivity Conference and all of the questions were regarding the part supplied by Trackwise. We are currently supplying parts into their latest reactor build; a £250K contract. Revenue will remain lumpy - but is expected to grow by orders of magnitude as they move towards their goal 'To generate clean and abundant fusion power by 2030.'

· Oil pipeline leak detection; our first application for long PCBA - assembled PCBs.

· Advanced motor windings; a quote from our customer states 'Constructed from flexible printed circuits, the motors can be up to 50% more compact, 70% more dynamic, with 3 times fewer heat losses and assembled 10 times faster than most of the existing solutions using conventional windings made from copper wire.' This has the potential to be a very large scale opportunity.

Advanced PCBs

While SCL has been under Trackwise ownership for only nine months of the period, we have completed the transfer of RF manufacturing from Ashvale to Stevenage and the Stevenage site now manufactures all the group's non-IHT products, together labelled 'Advanced PCBs'.

SCL is an established manufacturer of a full suite of Microwave and RF, Short Flex, Flex Rigid and Rigid multilayer products, for a very wide range of customers - serving a very wide range of industries.

Given this breadth of supply, a concise market assessment is not straightforward - particularly when sales to intermediary companies are considered; PCB 'buyers', who sit between customers and the supply chain.

The 2020 top three customers, together represent 36% of the advanced PCB division's full year revenues:

· ION Science Ltd: ION Science has over 30 years of industry experience designing, manufacturing, and supplying gas sensors, gas detection instruments, and leak detectors for a wide range of industries and applications. SCL business with ION Science grew in 2020 and is expected to grow further in 2021.

· Qualcomm Technologies International Ltd: Sales to this global telecommunications customer were broadly flat in 2020.

· Fineline QPI BV: Fineline Group was established after a merger between Fineline GmBH (est. 1991) and Aviv PCB & Technologies (est. 2002) in 2007. Fineline is a worldwide provider of Printed Circuit Boards (PCBs) with local presence in 40 locations and 250+ employees. SCL supplies their Netherlands business with Advanced PCBs for Medical and Scientific customers. SCL business with Fineline QPI grew in 2020.

There are some global shortages of (Dupont) PCB copper clad laminates and our major customers (CEMs) are seeing component lead-times increasing, which is causing some short-term delays to business opportunities. We are working closely with our customers to manage this situation.

Strategic focus for the year ahead

Ashvale was always intended as an engineering led, product development, new product introduction facility and with the acquisition of Stevenage Circuits and the transfer of RF production to Stevenage, Trackwise has secured additional capacity. The focus of the development team is to continue to bring the myriad of IHT developments through to production.

The scale of the UK EV OEM contract, and the wider supply chain opportunities, means that we have had to secure additional manufacturing capacity. Executing plans for the new facility is the key strategic task for 2021.

Planning for the new facility is well underway; we have secured the services of an interim project management team to assist with detailed planning and execution of the new site; quotes and confirmed lead times for long lead capital items have been secured; and we have recently hired a Chief Operating Officer. Steve Hudson's priority will be to pick up planning, implementation of the new site from the interim team - leading it through to commissioning and transfer of production from Ashvale, before moving 'up' to a group operations role, overseeing the three group manufacturing sites.

If the UK EV OEM does deliver upon its global ambitions, its global demand for HVBM flex PCBs will rapidly exceed the output of the new facility. The strategic intent is that the new facility is the blueprint for future production plants - located wherever in the world they may be needed.

Carbon

As part of a growing acceptance that we all need to take our part in reducing the carbon impact of our ongoing operations, we report this year for the first time our Operational Footprint. Measurement is an important precursor to reduction - 'what gets measured, gets managed' - and future reports will identify progress towards reducing the carbon impact of our operations.

Two out of our three primary target markets - EV and Aerospace - are undergoing fundamental change (the UK aviation industry has pledged to cut its net carbon emissions to zero by 2050) and the weight reduction opportunity offered by IHT is a key enabler for OEMs to realise their ambitions in these rapidly changing markets where carbon reduction is a strategic necessity.

We continue to market Improved Harness Technology™ as a carbon reduction technology.

Current trading and outlook

The impact of the Covid pandemic has affected global economic activity, leading to a slow-down in investment activity across our markets. However, we are seeing a growing number of IHT enquiries and have converted an increasing number of those enquiries into customers which supports our growing confidence for the future.

Combined, these factors above will have an impact on revenues in 2021, although some will be offset by new business from other smaller customers as well as a continued focus on cost controls.

Philip Johnston

CFO's Statement

The strategic and operational progress reported, is also reflected in our financial position. During the year we completed two equity raises with support from our shareholders and successfully acquired Stevenage Circuits Limited at a commercially attractive price.

Financial Position and Performance

During the uncertain times created by the pandemic we have placed even more focus on short-term planning as well as tight control over costs. Management focus on a number of KPIs to assess its performance and the progress of the business. The key performance indicators the management use are: Year on year sales growth, operating margin and EBITDA.

In the year under review these KPIs, measured to last year, are as follows:

	2020	2019
Year on Year Sales growth	108.8%	(16.2%)
Adjusted Operating Margin (note 25)	(3%)	(1.7%)
Adjusted EBITDA (note 25)	£773K	£573K

These performance figures show improving trends over the year under review that have been positively impacted by the acquisition of Stevenage Circuits Limited (SCL). We acquired SCL on terms that gave rise to an excess of asset value over the purchase price, leading to a profit on acquisition. This profit has been taken to the profit and loss account and represents an exceptional profit of £1.64M (note 23).

The most significant transformation financially, was in the development of the balance sheet which reflects at 31 December 2020 shareholders' funds of £24.76M which is a 310% increase over the previous year.

This improvement is the consequence of two equity raises during the year which raised £18.5M, which has enabled us to make significant capital investment of £2.21M in productive capacity and capability during the year and plan for further significant investment in 2021 of approximately £9.0M.

Our balance sheet is strong and its expansion has aided greatly in supporting the growth of the business enabling the Group to cope with the stresses of both Brexit and Covid-19 whilst at the same time being able to execute as much as possible on our long term growth plans.

At the end of the year we had net cash balances excluding IFRS16 lease liabilities of £11.35m (2019 net debt £0.30m).

As a consequence of the series production order received from the UK based EV OEM in September the final quarter of the year gave rise to a significant increase in development costs which have been capitalised and which has led to an increase in intangible assets of £2.21M. This level of development expenditure whilst large does support a tax credit in cash of £390K which assists in the funding of this investment which will be recovered in full from the subsequent sales of product under the supply agreement with the EV OEM. Our accumulated development costs are amortised in accordance with our accounting policies (Note 2).

Cash flow

The trading environment in 2020 was impacted by the pandemic and that reduced revenues which in turn impacted our trading cash inflows. However, we continued with the development of IHT which formed a large part of our activities given the opportunities the Group has across a range of markets.

Since the acquisition of Stevenage Circuits the business has been trading cash positively, though below levels anticipated before the acquisition, due to the impacts of the pandemic. We have made some improvements to employee facilities since acquisition which were planned pre acquisition. We have made some capital equipment improvements and we have made some repairs to the building which again were all costed prior to acquisition and were anticipated. These costs are now complete and we expect Stevenage Circuits to be cash positive from hereon.

Trading performance

Revenues were subdued and it proved to be a very difficult period within which to plan. The impact of the lockdowns on economic activity were well trailed and both of the Group's trading units felt the effect of reduced trading activity which manifested itself in an adjusted operating loss for the year of £(185K), compared to an adjusted profit in 2019 of £258K.

However, the acquisition of Stevenage Circuits was completed at a significant discount to the value of the assets that were acquired and this gave rise to a credit to reserves of £1.64M and whilst there were other exceptional costs the Company has reported a post-tax profit of £1.23M for the year as a whole. Our results have been supported by a sizeable R&D tax claim which will also be the case in 2021 though we expect this credit to begin to reduce as we move more towards series production compared to development activity.

Reported Profit after taxation of £1.23m (2019: Loss After Taxation £48k) means the Group is reporting a Diluted Earnings per Share of 5.70 pence (2019: Diluted Loss per Share of 0.32 pence).

Financial Planning for the future

We have operated in some very uncertain times during the year under review and have had to place even more focus on short term planning routines and the focus on tight control of all costs. As we come out of the sharp recession of 2020, we are facing improving demand, but we remain cautious about the lasting impacts of the pandemic. We are seeing increasing supply chain stress and lengthening delivery times which could have impacts on demand later in the year. We have seen particular problems with the supply of copper laminate which could cause supply problems later on. The lockdowns will cause further supply difficulties during the year and may impact output.

Coronavirus Solvency Review

The pandemic impact on the economy continues to cast a shadow over liquidity and solvency throughout business generally. To address this, management have carried out an assessment of the economic impact of Coronavirus upon the near-term results and the suitability of the assumption that the business remains a going concern, this has been particularly important as a consequence of the lockdown in early 2021.

In the immediate short term the Group have purchase orders to support the trading plans to the end of July/Aug and we have maintained our plans for this period. Post that period we have maintained our revenue plans for SCL as the industry seems to be recovering fast from the pandemic. Our IHT business is underpinned by our OEM EV business though we have modelled the impact of some of that business being moved into later months. The significant risk to these assumptions is that material supplies become unavailable, though there is no evidence of this at the time of the review. Any shortage of supply would impact August through October.

We therefore modelled the assumption that we were to suffer 3-6 months' worth of supply restrictions, May through November, to reflect a slower supply chain and also that IHT revenues will be delayed by three months.

As a consequence of applying these stresses, management remain confident that the Group has sufficient working capital resources to meet its commitments with a satisfactory level of headroom.

Results and Dividend

Reported Profit after taxation of £1.23m (2019: Loss After Taxation £48k) means the Group is reporting a Diluted Earnings per Share of 5.70 pence (2019: Diluted Loss per Share of 0.32 pence). The Board set out its dividend policy last year which has not changed. It is the Board's intention that when commercial conditions allow, a progressive dividend policy will be adopted, consequently there will be no dividend paid for 2020.

Mark Hodgkins

Chief Financial Officer

Consolidated Statement of Comprehensive Income and Equity

For the year ended 31 December 2020

	Notes	2020	2019
		£'000	£'000

Revenue	3	6,068	2,906

Cost of sales		(4,350)	(1,805)

Gross profit		1,718	1,101

Administrative expenses excluding exceptional costs and share based payment Exceptional costs Share based payment charge	4	(1,903) (128) (228)	(900) (28) (224)
Total administrative expenses		(2,259)	(1,152)
Operating loss	4	(541)	(51)

Negative goodwill arising on acquisition	23	1,642	-
Acquisition expenses	23	(226)	-
Exceptional integration costs		(278)	-
Finance income	6	4	5
Finance costs	6	(195)	(83)

Profit/(loss) before taxation		406	(129)

Taxation	7	828	81

Profit/(loss) and total comprehensive income for the year		1,234	(48)

Earnings per share (pence)
Basic	8	5.96	(0.32)
Diluted	8	5.70	(0.32)
. Consolidated Statement of Financial Position For the year ended 31 December 2020

	Notes	2020	2019
		£'000	£'000
ASSETS
Non-current assets
Intangible assets	9	6,482	4,268
Property, plant and equipment	10	8,175	2,547
		14,657	6,815

Current assets
Inventories	12	2,010	555
Trade and other receivables	13	1,752	1,657
Current tax receivable		804	338
Cash and cash equivalents		13,930	567
		18,496	3,117

Total assets		33,153	9,932

LIABILITIES
Current liabilities
Trade and other payables	14	(1,956)	(1,046)
Borrowings	15	(1,055)	(339)
		(3,011)	(1,385)

Non-current liabilities
Deferred income - grants	14	(910)	(856)
Borrowings	15	(4,078)	(1,253)
Deferred tax liabilities	17	(206)	(401)
Provisions		(79)	-
		(5,273)	(2,510)

Total liabilities		(8,284)	(3,895)

Net assets		24,869	6,037

EQUITY

Share capital	19	1,137	591
Share premium account Retained earnings		20,989 2,615	4,234 1,045
Revaluation reserve		128	167
Total equity		24,869	6,037

Parent Company Statement of Financial Position

For the year ended 31 December 2020

	Notes	2020	2019
		£'000	£'000
ASSETS
Non-current assets
Intangible assets	9	6,467	4,268
Property, plant and equipment	10	3,471	2,547
Investments	11	2,172	-
		12,110	6,815

Current assets
Inventories	12	593	555
Trade and other receivables	13	2,727	1,657
Current tax receivable		530	338
Cash and cash equivalents		13,382	567
		17,232	3,117

Total assets		29,342	9,932

LIABILITIES
Current liabilities
Trade and other payables	14	(631)	(1,046)
Borrowings	15	(677)	(339)
		(1,308)	(1,385)

Non-current liabilities
Deferred income - grants	14	(910)	(856)
Borrowings	15	(1,673)	(1,253)
Deferred tax liabilities	17	(206)	(401)
		(2,789)	(2,510)

Total liabilities		(4,097)	(3,895)

Net assets		25,245	6,037

EQUITY

Share capital	19	1,137	591
Share premium account Retained earnings		20,989 2,991	4,234 1,045
Revaluation reserve		128	167
Total equity		25,245	6,037

The Company has elected to take the exemption under section 408 of the Companies Act not to present the parent Company profit and loss account. The profit for the parent Company for the year was £1.61M including dividends receivable of £2M from the subsidiary (2019: loss of £48K).

Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

	Share capital	Share premium account		Retained earnings		Revaluation reserve		Total equity
	£'000	£'000		£'000		£'000		£'000


At 1 January 2019	591	4,234	840		206		5,871
Loss and total comprehensive income for the year	-	-	(48)		-		(48)
Share based payment	-	-	214		-		214
Revaluation realised in year	-	-	39		(39)		-
At 31 December 2019	591	4,234	1,045		167		6,037

Profit and total comprehensive income for the year	-	-	1,234	-	1,234
Share based payment Revaluation realised in the year	- -	- -	263 39	- (39)	263 -
Prior year tax adjustment			34		34
Shares issued in the year	546	16,755	-	-	17,301

At 31 December 2020	1,137	20,989	2,615	128	24,869

Parent Company Statement of Changes in Equity

For the year ended 31 December 2020

	Share capital	Share premium account		Retained earnings	Revaluation reserve		Total equity
	£'000	£'000		£'000	£'000		£'000


At 1 January 2019	591		4,234	840		206	5,871
Loss and total comprehensive income for the year	-		-	(48)		-	(48)
Share based payment	-		-	214		-	214
Revaluation realised in year	-		-	39		(39)	-
At 31 December 2019	591		4,234	1,045		167	6,037

Profit and total comprehensive income for the year	-	-	1,610	-	1,610
Share based payment Revaluation realised in the year	- -	- -	263 39	- (39)	263 -
Prior year tax adjustment			34		34
Shares issued in the year	546	16,755	-	-	17,301

At 31 December 2020	1,137	20,989	2,991	128	25,245

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

	Notes	2020	2019
		£'000	£'000
Cash flow from operating activities
Profit/(loss) for the year before taxation		406	(129)
Adjustment for:
Negative goodwill credit		(1,642)	-
Employee share based payment charge		263	224
Depreciation of property, plant & equipment	4	693	225
Amortisation of intangible assets	9	265	183
Net finance costs	6	191	78
Changes in working capital:
(Increase) in inventories	11	(584)	(175)
(Increase) in trade and other receivables		374	(268)
Increase in trade and other payables		(362)	496
Cash (used in)/generated from operations		(396)	634
Income tax received		669	21
Net cash from operating activities		273	655

Cash flow from investing activities
Purchase of property, plant and equipment		(911)	(951)
Purchase of intangible assets	9	(2,246)	(1,736)
Purchase of new subsidiary (net of cash acquired)	23	(1,628)	-
Grant received Interest received		109 4	175 5
Net cash used in investing activities		(4,672)	(2,507)
Cash flow from financing activities
Share capital issued		18,492	-
Expenses relating to share capital issue		(1,191)	-
Interest paid		(195)	(83)
Lease payments	15	(87)	(89)
Advance of hire purchase finance against assets already purchased		1,139	-
Repayment of capital element of hire purchase contracts	15	(396)	(195)
Net cash from/(used in) financing activities		17,762	(367)

Increase/(decrease) in cash and cash equivalents		13,363	(2,219)

Cash and cash equivalents at beginning of the year		567	2,786

Cash and cash equivalents at end of year (all cash balances)		13,930	567

The cash outflow in respect of purchase of property, plant and equipment include the payment of any related

deposits included in prepayments until the asset is acquired.

Notes to the Financial Statements

For the year ended 31 December 2020

1. Corporate information

Trackwise Designs Plc ("the Company") is a Public Company limited by shares incorporated in the United Kingdom. The registered address of the Group is 1 Ashvale, Alexandra Way, Ashchurch, Tewkesbury, Gloucestershire, GL20 8NB.

The principal activity of the Group is the design and manufacture of a full suite of advanced PCB's including the Parent Company's patented technology Improved Harness Technology™, Microwave and RF, short flex, flex rigid and rigid multi-layer boards.

2. Accounting policies

2.1 Basis of preparation

Statement of compliance

The Financial Statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

The parent company financial statements have been prepared under applicable United Kingdom Accounting Standards (FRS101) in order to apply International Accounting Standards in conformity with the requirements of the Companies Act 2006. The following FRS 101 disclosure exemptions have been taken in respect of the parent company only information:

· IAS 7 Statement of cash flows;

· IFRS 7 Financial instruments disclosures;

· IAS 24 Key management remuneration.

Basis of measurement

The Financial Statements have been prepared on the historical cost basis as modified for the revaluation of plant on transition to IFRS and for certain financial instruments at fair value.

Going concern

The Directors have considered the principal risks and uncertainties facing the business, together with the Group's objectives, policies and processes for managing its exposure to financial risk. In making this assessment the Directors have prepared cash flows for the foreseeable future, being a period of at least 12 months from the expected date of approval of the financial statements. These forecasts show that the Company and Group should be able to manage their working capital and existing resources to enable it to meet their liabilities as they fall due. These forecasts have incorporated elevated stress tests to meet the impacts of Covid 19 as set out in the CFO report on page 21. Based on the above factors, the Directors have prepared the Financial Statements on a going concern basis.

Consolidation

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets (both tangible and intangible), liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date.

The consolidated financial statements present the results of the Parent Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

Subsidiaries are all entities over which the Group has control. The Group controls an entity when it 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 and cease to be consolidated from the date on which control is transferred out of the Group.

Functional and presentational currency

These financial statements are presented in Pound Sterling ("Sterling") rounded to the nearest thousand pounds.

Use of estimates and judgments

The preparation of the Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Goodwill and fair values

Business combinations require a degree of estimation in respect of the fair value of identifiable assets acquired and the liabilities assumed at the acquisition date. (Note 23)

Property, plant and equipment

Management have estimated the useful life of assets based upon the period that the assets are able to and expected to generate revenue. These estimates are reviewed annually for continued appropriateness and events which may cause the estimate to be revised. (Note 10)

Share Based Payments

The Group uses the Black-Scholes option-pricing model where applicable, with inputs, in particular volatility, requiring significant judgement in application (Note 8).

Right of use assets

The application of IFRS16 Involves a degree of judgement in respect of the applicable discount rate and in respect of any lease options or variable payments. The discount rate is reviewed in conjunction with the rates on similar borrowings and lease extension periods by reference to business plans and the most likely outcome. (Note 2.14).

Intangible assets

Management have used their judgement in respect of the capitalisation of development costs. The viability of the new technology and know-how supported by the results of testing and customer trials and by forecasts for the overall value and timing of sales supports the approach taken. (Note 9)

Amortisation commences once management consider that the asset is available for use, i.e. when it is judged to be in the location and condition necessary for it to be capable of operating in the manner intended by management and the cost is amortised over the estimated useful life of the know-how based on expected customer product cycles and lives.

2.2 Revenue

Revenue comprises income from the sale of printed circuit boards and represents the amount receivable for the sale of goods, excluding VAT and trade discounts. Revenue is recognised when all the following steps have been satisfied:

I. The Group has received and accepted the purchase order from the customer.

II. Sales prices are based on quotes for each customer's unique product and include transport which is insignificant in the context of the sale price. The sales price is determined after submission of a quote to each customer for their unique product and which has been agreed with them and includes transport which is also agreed with the customer.

III. All performance obligations are met which is at a point in time when the goods have been despatched to the customer.

IV. Invoicing typically occurs once performance obligations are met. On occasion, customers are invoiced in advance and these amounts are included in deferred income as contract liabilities. Contract liabilities held at the balance sheet date are expected to be released in the following period when the performance obligations is satisfied.

2.3 Grants

Income based grants

Income based grants are recognised in other operating income based on the specific terms related to them as follows:

ー A grant is recognised in other operating income when the grant proceeds are received (or receivable) provided that the terms of the grant do not impose future performance-related conditions.

ー If the terms of a grant do impose performance-related conditions, then the grant is only recognised in income when the performance-related conditions are met.

ー Any grants that are received before the revenue recognition criteria are met are recognised in the Statement of Financial Position as another creditor within liabilities.

Capital grants

Grants received relating to tangible and intangible fixed assets are treated as deferred income and released to the Statement of Comprehensive Income over the expected useful lives of the assets concerned.

2.4 Share based payment

The Group operates an equity-settled share-based compensation plan in which the Group receives services from employees as consideration for share options. The fair value of the services is recognised as an expense, determined by reference to the fair value of the options granted.

2.5 Income tax

Current income tax assets and/or liabilities comprise obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid/due at the reporting date. Current tax is payable on taxable profits, which may differ from profit or loss in the Financial Statements. Calculation of current tax is based on the tax rates and tax laws that have been enacted or substantively enacted at the reporting period.

Deferred taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases.

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

2.6 Goodwill

Goodwill arising on acquisitions is the excess of the fair value of the cost of acquisition, over the fair value of identifiable net assets acquired. Any direct costs are expensed in the income statement. Goodwill on acquisition is recorded as an intangible fixed asset and represents the residual amount remaining after taking account of the fair values attributed to the identifiable assets, liabilities and contingent liabilities that existed at the date of acquisition, reflecting their condition at that date. Adjustments are also made to align the accounting policies of acquired businesses with those of the Group.

Goodwill is assigned an indefinite useful economic life. Impairment reviews are performed annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.

Where the goodwill calculation results in a negative amount (bargain purchase) this amount is taken to the income statement in the period in which is it derived.

2.7 Research and development cost

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

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

ー There is an intention to complete the development;

ー There is an ability to use, sell or licence the resultant asset;

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

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

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

The amount recognised is the expenditure incurred from the date when the project first meets the recognition criteria listed above. Expenses capitalised consist of employee costs incurred on development, direct costs including material or testing and an apportionment of appropriate overheads.

Where the above criteria are not met, development expenditure is charged to the Statement of Comprehensive Income in the period in which it is incurred.

Capitalised development costs are initially measured at cost. After initial recognition, they are recognised at cost less any accumulated amortisation and any accumulated impairment losses.

The depreciable amount of a development cost intangible asset with a finite basis useful life is allocated on a straight-line basis over its useful life, currently expected to be 20 years. Amortisation begins when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

The amortisation period and the amortisation method for the assets with a finite useful life is reviewed at least each financial year-end. If the expected useful life of the asset is different from previous estimates, the amortisation period is changed accordingly.

2.8 Patent costs

Patent cost assets are initially measured at cost. After initial recognition, they are recognised at cost less any accumulated amortisation and any accumulated impairment losses. The costs are amortised in the Statement of Comprehensive Income over the 15-year life of the patent.

2.9 Software

Software assets are capitalised at the purchase cost. Subsequent to initial recognition it is stated at cost less accumulated amortisation and accumulated impairment. Software is amortised in the Statement of Comprehensive Income on a straight line basis over its estimated useful life of five years. These costs are recognised in Cost of Sales.

2.10 Property plant and equipment

Property, plant and equipment is recognised as an asset only if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.

An item of property, plant and equipment that qualifies for recognition as an asset is measured at its cost. Cost of an item of property, plant and equipment comprises the purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. On transition to IFRS, plant and equipment was revalued, and this amount has been used as the deemed cost with no further revaluations.

After recognition, all property, plant and equipment (including leasehold improvements and plant and machinery) is carried at cost less any accumulated depreciation and any accumulated impairment losses.

Depreciation is provided at rates calculated to write down the cost of assets, less estimated residual value, over their expected useful lives on the following basis:

Leasehold improvements Straight line over the period of the lease

Plant and machinery 10-33% straight line

The residual value and the useful life of an asset is reviewed at least at each financial year-end and if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying value of the asset and are recognised in profit or loss.

2.11 Accounting Treatment of Leases

Assets and liabilities arising from a lease are initially measured at the present value of the lease payments and payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease or the incremental
borrowing rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

Lease payments are allocated between principal, presented as a separate category within borrowings, and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost comprising the amount of the initial measurement of lease liability, any lease payments made at or before the commencement date less any lease incentives received and any initial direct costs and are presented as a separate category within tangible fixed assets.

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease
term on a straight-line basis. If the company is reasonably certain to exercise a purchase option, the
right-of-use asset is depreciated over the underlying asset's useful life. Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.

Hire purchase arrangements

The Group engages in Hire Purchase arrangements for which the lease is supported by the underlying value of the asset being leased. Hire Purchase arrangements are accounted for in accordance with the Leasing policy set out above.

Operating leases

Payments associated with short-term leases of property, plant and equipment and leases of low-value assets are recognised on a straight-line basis as an expense. Short-term leases are leases with a lease term of 12 months or less. Associated costs of all leases, such as maintenance, service charges and insurance, are expensed as incurred.

2.12 Impairment of goodwill, other intangible assets and property, plant and equipment

For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash flows. As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Company at which management monitors goodwill.

Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An asset or cash-generating unit is impaired when its carrying amount exceeds its recoverable amount. The recoverable amount is measured as the higher of fair value less cost of disposal and value in use. The value in use is calculated as being net projected cash flows based on financial forecasts discounted back to present value.

The impairment loss is allocated to reduce the carrying amount of the asset, first against the carrying amount of any goodwill allocated to the cash-generating 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. With the exception of goodwill, all assets are subsequently reassessed.

for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset's or cash-generating unit's recoverable amount exceeds its carrying amount.

2.13 Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and an appropriate proportion of fixed and variable overheads incurred in bringing the inventories to their present location and condition. Net realisable value is calculated as the estimated selling price less costs to complete and sell. Where necessary, provision is made to reduce cost to no more than net realisable value having regard to the nature and condition of inventory, as well as its anticipated utilisation and saleability.

2.14 Financial instruments

The Group classifies all its financial assets at amortised cost. Financial assets do not include prepayments. Management determines the classification of its financial assets at initial recognition.

These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold their assets in order to collect contractual cash flows and the contractual cash flows are solely payments of the principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

The Group's financial assets held at amortised cost comprises trade and other receivables and cash and cash equivalents in the Statement of Financial Position.

Financial assets

Financial assets are recognised in the Statement of Financial Position when, and only when, the Company becomes a party to the contractual provisions of the instrument.

Financial assets are initially recognised at fair value, which is usually the cost, plus directly attributable transaction costs.

Financial assets are measured at amortised cost using an effective interest method and discounting is omitted where the effect is immaterial.

Impairment provisions are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within administrative expenses in the Statement of Comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and reward are transferred.

Financial liabilities

Financial liabilities include borrowings, trade and other payables and derivatives in respect of forward foreign exchange contracts.

Financial liabilities are obligations to pay cash or other financial assets and are recognised in the Statement of Financial Position when, and only when, the Company becomes a party to the contractual provisions of the instrument.

Financial liabilities, other than derivatives, are initially recognised at fair value adjusted for any directly attributable transaction costs.

After initial recognition, financial liabilities, other than derivatives, are measured at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance costs. Discounting is omitted where the effect of discounting is immaterial. Derivatives are measured at fair value through profit and loss for any movements.

A financial liability is derecognised only when the contractual obligation is extinguished, that is, when the obligation is discharged, cancelled or expires.

2.15 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short term, highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value.

2.16 Foreign currencies

Transactions entered into by the Group in a currency other than the functional currency of sterling are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the Statement of Comprehensive Income.

The Group does not apply hedge accounting in respect of forward foreign exchange contracts held to manage the cash flow exposures of forecast transactions denominated in foreign currencies. The Group utilises forward exchange contracts to mitigate the risk of adverse exchange rate movements on foreign currency denominated revenue. These derivatives are measured at the fair market value, at the reporting date, with the fair value gain or loss movements arising being recognised within administrative expenses in the Statement of Comprehensive Income.

2.17 Equity and reserves

Share capital represents the nominal value of shares that have been issued. Share premium represents the excess consideration received over the nominal value of share capital upon the sale of shares, less any incidental costs of issue.

Retained earnings include all current and prior period retained profits.

The revaluation reserve represents the extent to which a revaluation of plant on transition to IFRS exceeded the historical net book value. Transfers are made to retained earnings in respect of the depreciated element of the revaluation.

2.18 Standards, amendments and interpretations in issue but not yet effective

There are no new standards, interpretations and amendments that are in issue but not yet effective which are expected to have a material effect on the Group's future Financial Statements.

3 Segmental reporting

IFRS 8, Operating Segments, requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the Group's chief operating decision maker. The chief operating decision maker ("CODM") is considered to be the Board of Directors.

The Group's RF and IHT activities for the sale of printed circuit boards are separately reviewed and monitored. Revenue of £5.46M (2019: £1.96M) arose from RF and £601K (2019: £938K) from IHT in the year ended 31 December 2020. The operating segments are monitored by the CODM, and strategic decisions are made on the basis of adjusted segment operating results.

Due to the shared nature of operations during the period under review it is not possible to provide a segmental analysis by RF and IHT of assets and liabilities, with the exception of the intangible development costs and deferred grants which are solely in respect of IHT.

All assets, liabilities and revenues are located in, or derived from, the United Kingdom.

Turnover by geographical destination	2020	2019
	£'000	£'000
UK	3,693	1,046
Europe	1,688	1,332
Other	687	528
	6,068	2,906

No one customer represents more than 10% of group turnover for the accounting period under review and the top 4 customers accounted for 24.1% of Group turnover in 2020.

Operating loss by geographical destination	2020	2019
	£'000	£'000
UK	(329)	(18)
Europe	(150)	(23
Other	(62)	(10)
	(541)	(51)

4 Operating loss

	2020	2019
	£'000	£'000
Operating loss is stated after charging/(crediting):

Government job retention scheme income	(16)	-
Amortisation of deferred grant income	(53)	(42)
Amortisation of intangible assets	265	183
Depreciation of property, plant and equipment (net of £222,000 of capitalised development costs, 2019: £100,000)	446	132
Depreciation of right of use assets	247	93
Cost of inventory sold	1,907	937
Foreign exchange (gains)/loss	(27)	57
Severance costs	-	28
Share based payment charges	229	224
Staff payroll costs (net of capitalised development costs)	2,515	1,431
Exceptional costs
Non recurring set up costs for new customer	128	-

The Auditors remuneration for audit services was £35K for the Company and £25K for subsidiary undertakings (2019: £30K for the Company) and £Nil for non-audit services (2019: £Nil).

5 Staff and key management personnel

Average monthly number of employees	Group 2020	Company 2020	Group and Company 2019
	Number	Number	Number

Management and administration	28	15	14
Production	68	37	34
	96	52	48

Payroll costs	£'000	£'000	£'000
Gross salaries	3,303	2,095	1,775
Social security costs	332	222	174
Share based payment	272	272	224
Other pension contributions	120	85	63
	4,027	2,674	2,236

The Directors' and key management remuneration were as follows:

Year ended 31 December 2020	Salary	Benefits	Pension	Total
	£'000	£'000	£'000	£'000
P Johnston	205	23	7	235
M Hodgkins	165	16	-	181
I Griffiths	45	-	-	45
L Jackson S McErlain C Cattaneo	19 18 18	- - -	- - -	19 18 18
	470	39	7	516

Year ended 31 December 2019	Salary	Benefits	Pension	Total
	£'000	£'000	£'000	£'000
P Johnston	185	22	7	214
M Hodgkins	146	16	-	162
I Griffiths	44	-	-	44
L Jackson	34	-	-	34
	409	38	7	454

6 Finance income and expense

	2020	2019
	£'000	£'000
Finance income
Interest receivable and similar income	4	5

Finance expense
Interest payable on loans and overdrafts	3	-
Interest payable on leasing obligations	63	32
Interest payable in respect of right of use assets	129	51
	195	83

7. Income tax


	2020	2019
	£'000	£'000
Current tax:
UK corporation tax	547	134
Adjustment for prior periods	86	40
Total current tax credit	633	174

Deferred tax:
Origination and reversal of temporary differences	297	(68)
Change in rate from 17 to 19%	(53)	-
Adjustment for prior periods	(49)	(25)
Total deferred tax expense	195	(93)

Total tax credit	828	81

The tax rate used for the reconciliation is the corporate tax rate of 19% (2019: 19%) payable by corporate entities in the UK on taxable profits under UK tax law The Finance Act 2016 included legislation to reduce the main rate of corporation tax from 19% to 17% from 1 April 2020. A change to the main rate of corporation tax announced in the 2020 Budget was substantively enacted on 17 March 2020. The rate from 1 April 2020 remains at 19% rather than the previously enacted reduction to 17%. In March 2021 it was announced that the rate of corporation tax is expected to increase to 25% from April 2023 which would affect future tax charges. The tax rate used to calculate deferred tax is the enacted rate of 19% (2019: 17%), being the rate at which the timing differences are expected to unwind based on currently enacted UK corporate tax legislation.

The credit for the year can be reconciled to the profit/(loss) for the year as follows:


	2020	2019
	£'000	£'000

Profit/(loss) before taxation	406	(129)

Income tax calculated at 19% (2019: 19%)	(77)	25
Negative goodwill credit not taxed	312	-
Disallowable expenses including share-based payment	(101)	(20)
Deferred tax in respect of share options	440	-
Enhanced research and development allowances	471	94
Deferred tax not recognised	(29)	-
Adjustment for prior periods	37	15
Change in deferred tax rate	(53)	-
Differing deferred tax and R&D tax credit rates	(172)	(33)

Total tax credit	828	81

In addition to the tax credit, a further development expenditure tax related credit of £nil (2019: £29K) is included in operating expenses. Deferred tax is recognised over the vesting period for share options in respect of the corporate tax deduction available under the EMI scheme for the difference between market value on exercise and the exercise price and the exceptional £440K credit arises in the year as a result of the year end share price of £3.22.

8 Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:


Earnings	2020	2019
	£'000	£'000

Earnings for the purpose of basic and diluted earnings per share being net profit attributable to the shareholders	1,234	(48)


Number of shares	2020	2019


Weighted average number of Ordinary Shares for the purposes of basic earnings per share	20,687,836	14,772,372
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share	21,659,166	14,772,372

Earnings per Share (pence) Basic Diluted	5.96 5.70	(0.32) (0.32)

The earnings per share is calculated from the number of £0.04 Ordinary Shares in issue.

Options over Ordinary Shares granted to employees are included in the calculation of potentially dilutive shares in respect of a profit.

9 Intangible assets


Group	Goodwill	Patent costs	Computer Software	Development costs	Total
	£'000	£'000	£'000	£'000	£'000
Cost
As at 1 January 2019	104	62	89	2,552	2,807
Additions	-	14	6	1,816	1,836
Reclassification	-	-	(18)	-	(18)
As at 31 December 2019	104	76	77	4,368	4,625
Additions	-	8	13	2,447	2,468
On acquisition	-	-	11	-	11
As at 31 December 2020	104	84	101	6,815	7,104
Amortisation or Impairment
As at 1 January 2019	-	19	77	92	188
Charge	-	5	2	176	183
Reclassification	-	-	(14)	-	(14)
As at 31 December 2019	-	24	65	268	357
Charge	-	5	5	255	265
As at 31 December 2020	-	29	70	523	622

Carrying amount
As at 31 December 2019	104	52	12	4,100	4,268
As at 31 December 2020	104	55	31	6,292	6,482

The carrying amount of goodwill relates to the acquisition of the original RF technology based business, whilst all the capitalised development costs relate to projects in respect of the Group's Improved Harness Technology^TM ('IHT') process for unlimited length printed circuit boards and know-how which has since been developed by the Group with amortisation on the initial development projects commencing in 2018.

To determine the values of the costs capitalised management include the actual cost of purchase for all materials which are acquired for product development purposes, they collect daily time analyses of work performed by design or product engineers which captures the time spent on development activities which is then evaluated using a labour rate appropriate for the engineer who has worked the time and finally an element of direct relevant overhead cost is incorporated to reflect the additional cost of operating the developmental department of the Group.

Impairment tests for goodwill

The Group tests goodwill annually for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The carrying values are assessed on a value in use basis for impairment purposes by calculating the net present value (NPV) of future cash flows arising from the original acquired business. The goodwill impairment review assessed whether the carrying value of goodwill was supported by the NPV of future cash flows based on management forecasts for 5 years, an assumed growth rate of 1% (2019: 1%) for the next 5 years and a discount rate of 12% (2019: 12%). There is significant headroom in the assessment from a range of reasonable sensitivities.

Government grants

The Company has received aggregate grants from UK and European government research and development initiatives amounting to £965,005 (2019: £908,547) which fund a proportion of development work and which have been deferred in line with the capitalised development cost assets above that they relate to. They are released to profit and loss in line with the amortisation of the costs. There are no unfulfilled conditions or contingencies attached to the grants.

Company	Goodwill	Patent costs	Computer Software	Development costs	Total
	£'000	£'000	£'000	£'000	£'000
Cost
As at 1 January 2019	104	62	89	2,552	2,807
Additions	-	14	6	1,816	1,836
Reclassification	-	-	(18)	-	(18)
As at 31 December 2019	104	76	77	4,368	4,625
Additions	-	8	9	2,447	2,464
As at 31 December 2020	104	84	86	6,815	7,089
Amortisation or Impairment
As at 1 January 2019	-	19	77	92	188
Charge	-	5	2	176	183
Reclassification	-	-	(14)	-	(14)
As at 31 December 2019	-	24	65	268	357
Charge	-	5	5	255	265
As at 31 December 2020	-	29	70	523	622

Carrying amount
As at 31 December 2019	104	52	12	4,100	4,268
As at 31 December 2020	104	55	16	6,292	6,467

10 Property, plant and equipment

Group	Leasehold improvements	Plant and machinery	Right of use assets - Plant	Right of use assets - Buildings	Total
	£'000	£'000	£'000	£'000	£'000
Cost
As at 1 January 2019	375	1,047	860	-	2,282
Additions	88	76	626	-	790
On transition to IFRS 16	-	-	-	814	814
Reclassification	-	18	-	-	18
As at 31 December 2019	463	1,141	1,486	814	3,904
Additions	17	318	1,334	-	1,669
On acquisition	-	2,257	703	1,914	4,874
Movement	-	(2,209)	2,209	-	-
As at 31 December 2020	480	1,507	5,732	2,728	10,447
Depreciation
As at 1 January 2019	91	713	214	-	1,018
Charge	32	73	127	93	325
Reclassification	-	14	-	-	14
As at 31 December 2019	123	799	342	93	1,357
Charge	38	393	237	247	915
Reclassification	-	(289)	289	-	-
As at 31 December 2020	161	903	868	340	2,272

Carrying amount
As at 31 December 2019	340	214	1,272	721	2,547
As at 31 December 2020	319	603	4,865	2,388	8,175

Included within the carrying amount of the above, are assets held subject to hire purchase contracts of £2.8M (2019: £1.18M) relating to plant and machinery.

Company	Leasehold improvements	Plant and machinery	Right of use assets - Plant	Right of use assets - Buildings	Total
	£'000	£'000	£'000	£'000	£'000
Cost
As at 1 January 2019	375	1,907	860	-	2,282
Additions	88	702	626	-	790
On transition to IFRS 16	-	-	-	814	814
Reclassification	-	18	0	-	18
As at 31 December 2019	463	2,627	1,486	814	3,904
Additions	17	1,315	1,182	-	1,332
As at 31 December 2020	480	3,942	2,668	814	5,236

Depreciation
As at 1 January 2019	91	927	214	-	1,018
Charge	32	200	127	93	325
Reclassification	-	14	0	-	14
As at 31 December 2019	123	1,141	342	93	1,357
Charge	38	277	204	93	408
As at 31 December 2020	161	1,418	545	186	1,765

Carrying amount
As at 31 December 2019	340	1,486	1,144	721	2,547
As at 31 December 2020	319	2,524	2,123	628	3,471

Included within the carrying amount of the above, are assets held subject to hire purchase contracts of £2.12M (2019: £1.18M) relating to plant and machinery.

11 Investments

		Company
		2020
		£'000
As at 1 January 2020		-
Stevenage Circuits Limited		2,172
As at 31 December 2020		2,172

The Company owns 100% of the share capital in Stevenage Circuits Limited, a company registered at 1 Ashvale,

Alexandra Way, Ashchurch, Tewkesbury, Gloucestershire, GL20 8NB. The company is a manufacturer of PCBs.

12 Inventories

	Group	Company	Group and Company
	2020	2020	2019
	£'000	£'000	£'000

Raw materials	1,088	384	364
Work in progress	528	130	142
Finished goods	394	79	49
	2,010	593	555
There is no material difference between the value of inventories stated and their replacement cost. There are no material stock provisions at any period end, neither have material amounts of stock been written off in any of the periods presented.

13 Trade and other receivables

	Group	Company	Group and Company
	2020	2020	2019
	£'000	£'000	£'000

Trade receivables	1,381	370	831
Amounts owed by group undertakings	-	2,077	-
Other receivables	-	17	7
Prepayments	371	263	819
	1,752	2,727	1,657

Trade receivables are stated net of impairment for estimated irrecoverable amounts of £20K (2019: £1K). There have been no material write offs or other material movements in the impairment provision recognised in the current or prior period.

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. Prepayments includes £nil (2019: £743K) in respect of deposits for capital equipment

The Directors consider the credit quality of trade and other receivables that are neither past due nor impaired to be of good quality. Substantially all overdue amounts have been collected since the year end.

14 Trade and other payables

	Group	Company	Group and Company
	2020	2020	2019
	£'000	£'000	£'000
Amounts falling due within one year:
Trade payables	1,076	434	652
Taxes and social security costs	318	102	52
Other payables	0	0	51
Accruals and deferred income	319	95	291
Provisions	244	0	-
	1,956	631	1,046
Amounts falling due after more than one year:
Deferred income - grants	910	910	856

The Directors consider that the carrying amount of trade and other payables approximates to their fair values. Accruals and deferred income includes a contract liability totalling £118K (2019:£139K) in relation to one customer payment received in advance. During the current period revenue totalling £21K (2019 : £Nil) was recognised as certain performance obligations were met.

15 Borrowings

	Group	Company	Group and Company
	2020	2020	2019
	£'000	£'000	£'000
Amounts falling due within one year:
Lease liabilities	187	80	73
Hire purchase contract obligations	740	469	266
Other short term financing	128	128	-
	1,055	677	339

Amounts falling due between one and five years: Lease liabilities	1,258	411	364
Hire purchase contract obligations	1,713	1,101	601
	2,971	1,512	965
Amounts falling due in more than five years:
Lease liabilities	1,107	161	288

Total borrowings	5,133	2,350	1,592

Hire purchase obligations are secured on the specific tangible fixed assets to which they relate.


	Financing activities and movements in total borrowings			£'000

	As at 1 January 2019			518
	Cash movements:
	Lease payments in respect of right of use assets			(89)
	Hire purchase contract payments			(195)
	Interest paid			(83)
	Non-cash movements:
	Interest accrued			83
	Lease liability on transition to IFRS 16			814
	New hire purchase contracts			544
	As at 31 December 2019			1,592

	Cash movements:
	Lease payments in respect of right of use assets			(87)
	Hire purchase contract payments			(397)
	Interest paid			(195)
	Non-cash movements:
	Interest accrued			195
	On acquisition of subsidiary			2,374
	New hire purchase and financing contracts			1,651
	As at 31 December 2020			5,133

		Group	Company	Group and Company
		2020	2020	2019
		£'000	£'000	£'000
Payments due under lease liabilities are as follows:
In one year or less		1,314	792	434
Between one and five years		3,649	1,772	873
In more than five years		1,232	184	306
		6,195	2,748	1,613
Over five years				335
Future finance charges		(1,062)	(398)	(356)

Present value of liabilities		5,133	2,350	1,592

16 Financial instruments and capital management

Risk management

The Board has overall responsibility for the determination of the Group's risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's innovation and flexibility. All funding requirements and financial risks are managed based on policies and procedures adopted by the Board of Directors. The Group is exposed to financial risks in respect of market, credit, foreign exchange and liquidity risk.

Capital management

The Group's capital comprises all components of equity which includes share capital, retained earnings and other reserves as indicated in the Statement of Financial Position.

The Group's objectives when maintaining capital are to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for Shareholders and benefits for other stakeholders, and to provide an adequate return to Shareholders by pricing products and services commensurately with the level of risk.

The capital structure of the Company and Group consists of Shareholders equity with all working capital requirements financed from cash and capital expenditure utilising cash and term hire purchase contracts.

The Group sets the amount of capital it requires in proportion to risk. It manages its capital structure and makes adjustments to it in the light of changes in economic conditions, terms of borrowing facilities and the risk characteristics of the underlying assets and activity. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to Shareholders, return capital to Shareholders, issue new shares, or sell assets to reduce debt.

Market risks

These arise from the nature and location of the customer markets, foreign exchange and interest rate risks.

The Group trades within the UK, European and US aeronautical and communications markets, and accordingly there is a risk relating to the underlying performance of these markets. The Directors monitor this and the foreign exchange risk closely with the intention to foresee downturns in trade or changes in the use of technology.

Foreign exchange risk

The Group trades in overseas markets and, whilst it has net foreign currency balances, has forward contracts in place with an option to sell sufficient foreign currency receipts at a fixed rate which it uses to manage pricing and the exposure to exchange rate risks. It is not considered to be a material sensitivity to the range of fluctuations in exchange rates experienced within the last year

The Group had the following net cash, sales ledger and purchase ledger balances denominated in foreign currencies:

	2020	2019
	£'000	£'000
Euro denominated	1,121	178
US dollar denominated	(12)	222

Credit risk

Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales and attempts to mitigate credit risk by assessing the creditworthiness of customers and closely monitoring payments history. Given the long experience of the Group with its customers and in view of the systems and relations with customers that the Group has, the Directors consider the credit quality of trade receivables to be good and debts to be virtually fully recoverable. The credit quality of trade receivables can be assessed via external credit ratings (if available) or to historical information about default rates.

The Group considers a debtor to be in default when a decision has been made to commence legal proceedings for recovery. There have been no material impairments to trade or other receivables invoiced within the 3 years included within these financial statements.

Impairment provisions are also recognised based on the simplified approach within IFRS9 using the lifetime expected credit losses. To measure the expected credit losses, trade receivables are grouped based on shared credit risk and days past due. The expected loss rates are based on payment profiles and historical credit loss experience. The historical loss rates are adjusted to reflect current and forward looking information on macroeconomic factors affecting the ability of the customers to settle receivables.

Credit risk on cash and cash equivalents is considered to be minimal as the counterparties are all substantial banks with high credit ratings.

The maximum exposure to credit risk is the total of financial assets as set out in the table below.

Interest rate risk

The Group makes use of fixed rate finance lease or hire purchase agreements to acquire property, plant and equipment; this ensures that the Group maintains its existing working capital and ensures certainty of costs at the point of acquisition of those assets. The Directors therefore do not consider that the Group is exposed to a material risk or sensitivity from fluctuations in interest rates as all lease liabilities have fixed interest rates. These liabilities are set out in note 14.

Liquidity risk

The maturity of the Group's financial liabilities including borrowing facilities detailed above is as set out below. Current liabilities were payable on demand or to normal trade credit terms with the exception of hire purchase contract obligations payable monthly and leases payable quarterly.

Liquidity risk of the business is managed by the preparation of and monitoring of a rolling weekly cash forecast which is integrated with a regular review of credit risk exposure (as detailed above) and the Board level review of three-month rolling finance facility headroom.

At 31 December 2019	Up to 1 year	1-2 years	2-5 years	In more than 5 years
	£'000	£'000	£'000	£'000

Trade and other payables Lease liabilities	855 118	- 120	- 366	-
Hire purchase contracts (including interest)	316	288	405	306
	1,289	408	771	306

At 31 December 2020	Up to 1 year	1-2 years	2-5 years	In more than 5 years
	£'000	£'000	£'000	£'000

Trade and other payables	1,956	-	-	-
Lease liabilities	334	415	1,244	1,232
Other short term financing	128	-	-	-
Hire purchase contracts (including interest)	962	738	1,252	-
	3,380	1,153	2,496	1,232

Classification of financial instruments

All financial assets are held at amortised cost and all financial liabilities have been classified as other financial liabilities measured at amortised cost with the exception of any forward currency contracts that exist which are measured at fair value as a derivative instrument.

Financial assets
	2020	2019
	£'000		£'000
Trade and other receivables	1,381		838
Cash and cash equivalents	13,930		567
	15,311		1,405

Financial liabilities
	2020	2019
	£'000	£'000
At amortised cost
Trade and other payables	1,956	855
Lease liabilities	2,552	725
Other short term financing	128	-
Hire purchase contracts	2,453	867
	7,089	2,447

17 Deferred tax liabilities

Group
Liability/(asset) in respect of:	Accelerated capital allowances	Intangible assets	Share Based Payment	Losses	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 December 2019	242	407	(48)	(200)	401

On acquisition Debit/(credit) to profit or loss	345 198	- 265	- (445)	(345) (213)	- (195)

As at 31 December 2020	785	672	(493)	(758)	206

There is an unrecognised deferred tax asset in respect of losses carried forward of approximately £460K (2019: £nil).

Company
Liability/(asset) in respect of:	Accelerated capital allowances	Intangible assets	Share Based Payment	Losses	Total
	£'000	£'000	£'000	£'000	£'000
As at 31 December 2019	242	407	(48)	(200)	401

Debit/(credit) to profit or loss	225	265	(445)	(240)	(195)

As at 31 December 2020	467	672	(493)	(440)	206

18 Defined contribution scheme

The Group contributes to personal pension plans for the benefit of employees. The pension cost charge represents contributions payable by the Group to the funds.


	2020	2019
	£'000	£'000

Contributions payable by the Group for the year	120	63

19 Share capital


Group and Company	2020	2019
	£'000	£'000
Allotted, called up and fully paid
28,426,122 (2019: 14,772,372) Ordinary Shares of £0.04 each	1,137	591

7,341,250 Ordinary £0.04 shares were issued on 30 March 2020 at 80 pence each in order to provide funds for the acquisition of SCL investment and working capital. 6,312,500 £0.04 Ordinary Shares were issued on 9 December 2020 at £2.00 per share in order to provide funds for further investment in plant and manufacturing capacity required by manufacturing agreements and anticipated demand.

Ordinary shares have equal rights to votes in any circumstances and are non-redeemable.

Ordinary shares have rights to receive dividends and capital distributions.

No dividends have been declared or are proposed in respect of the year (2019: £nil).

Analysis of Movements of Shares in Issue	2020	2019
1 January	14,772,372	14,772,372
Shares issued on 30 March 2020	7,341,250	-
Shares issued on 9 December 2020	6,312,500	-

31 December	28,426,122	14,772,372

20 Contingent liabilities

At 31 December 2020, the Company and Group had no contingent liabilities (2019: none).

21 Financial commitments

The Company and Group had capital commitments of £3.51M at 31 December 2020 (2019: £706K) in respect of the investment to be made in new plant.

22 Share Option Plan

Introduction

The Group established the EMI Share Option Plan on 15 June 2018 which allows for the grant of enterprise management incentive share options which qualify for favourable tax treatment under the provisions of Schedule 5 to Income Tax (Earnings and Pensions) Act 2003 (ITEPA) (EMI Options) and awards of non-qualifying options (together Awards).

The awards are not transferable. Only the person to whom an Award is granted or his or her personal representatives may acquire Ordinary Shares pursuant to an Award.

The Board and Remuneration Committee has overall responsibility for the operation and administration of the Share Option Plan and discretion to select the persons to whom Awards are to be granted.

Size of EMI Options grants/plan limits

The Group will grant EMI Options for as long as the Group satisfies the qualifying conditions set out in the EMI Code.

Under the EMI Code, an employee may hold EMI Options over Ordinary Shares with a value (as at the date of grant) up to £250K. Where this threshold is exceeded, the employee may not receive EMI Options for three years. He may, however, receive non-qualifying Awards, subject to the limit as set out below.

Unless the Remuneration Committee otherwise determines, the aggregate number of Ordinary Shares over which Awards may be granted under the Share Option Plan on any date shall be limited so that the total number of Ordinary Shares issued and issuable pursuant to Awards granted under the Share Option Plan and any other share scheme operated by the Company in any rolling 10-year period will be restricted to 10 per cent of the Group's issued Ordinary Share capital from time to time calculated at the relevant time.

Rights attaching to shares

Ordinary Shares issued in connection with the exercise of Awards will rank equally with Ordinary Shares of the same class then in issue. Application will be made for admission to trading on AIM of new Ordinary Shares issued.

Malus and Clawback

The Remuneration Committee may apply clawback where at any time before or within a year of vesting it determines that the final results of the Company were misstated. The Remuneration Committee may also apply the clawback at any time if it is discovered that the participant engaged in fraudulent or dishonest conduct prior to vesting that justified, or would have justified, summary dismissal from office or employment.

Awards

Included in the awards are options over 368,690 Ordinary Shares granted to Mark Hodgkins, a Director, both within the EMI scheme and further non qualifying options.

Share option movements

	2020	2020	2019	2019
	Weighted average exercise price (p)	Number	Weighted average exercise price (p)	Number

Outstanding at beginning of the year	28	915,360	28	990,015
Forfeited during the year	28	(13,415)	28	(74,655)
Issued during the year	87.5	984,000	-	-
Outstanding at the end of the year	57.5	1,885,909	28	915,360

Of the outstanding options at the reporting date none were exercisable (2019: none).

Options over 990,015 Ordinary Shares were granted to employees on 15 June 2018. They are exercisable at 28.25 pence per share after a period of 3 years. The share-based payment charge of 72.25 pence per option share has been measured using the Black Scholes model applying the three-year vesting period, a volatility of 50% and annual risk-free rate of 1.5%. Options over 984,000 Ordinary Shares were granted to employees on 24 June 2020. They are exercisable at 87.5 pence per share after a period of 2 years and subject to performance conditions being met. The share-based payment charge of 30 pence per option share has been measured using the Black Scholes model applying an expected three-year vesting period, a volatility of 50% and annual risk-free rate of 1.0%.

23 Business combination

The parent company acquired all of the share capital of Stevenage Circuits Limited ('SCL'), a UK-based designer and manufacturer of short flex and rigid printed circuit boards, on 1 April 2020. The acquisition primarily adds further manufacturing capacity to enable the demand-led ramp up of Trackwise Design's Improved Harness Technology production, as well as customers and technical, sales and operational expertise.

The assets were acquired at a discount to their fair value resulting in negative goodwill of £1.64M which has been credited to the income statement in accordance with IFRS 3 and represents an exceptional item in the period. This relates to the ability of the combined group to fully utilise the manufacturing capacity of SCL and enhance earnings from the specialist plant and equipment. The consolidated negative goodwill credit is not expected to be taxable.

The fair values of the assets and liabilities acquired are as follows:

		Fair value
		£'000
Property, plant and equipment		3,013
Right of use property assets		1,914
Intangible assets		11
Inventories		871
Trade receivables and prepayments		1,121
Tax		492
Cash		544
Trade and other payables		(1,699)
Lease liabilities		(1,914)
Hire purchase liabilities		(460)
Provisions		(79)

		3,814

Negative goodwill arising		(1,642)

Consideration paid		2,172

Consideration was paid in cash and there is no deferred or contingent consideration payable.

Gross trade receivables acquired were £897K all of which all was expected to be recovered. Right of use property assets are included in property, plant and equipment and lease liabilities within borrowings in the consolidated statement of financial position.

Acquisition related expenses of £226K have been charged as an exceptional item in the income statement together with £278K incurred in respect of the integration of SCL into the Group. This involved incremental project time and cost to bring processes and operations in line with Trackwise.

The negative goodwill and acquisition expenses are both considered highly material and significant non-recurring items. They are therefore presented below operating loss in the consolidated income statement.

24 Ultimate controlling party and related party transactions

There was no individual controlling party as at 31 December 2020.

The key management personnel are considered to be the Directors. Please refer to Note 5 for details of key management personnel remuneration. M Hodgkins, a Director of the Company, holds options over 368,690 Ordinary Shares in the Company (note 22).

25 Adjusted Operating Profit and EBITDA

In monitoring the performance of the business, the Directors focus on operating profit adjusted for material non-recurring or non-trading expenses and the adjustments so made are set out below:

Adjusted operating (loss)/ profit:	2020	2019
	£'000	£'000
Operating loss	(541)	(51)
Add back share-based payments	228	224
Severance costs	-	28
Non recurring set up costs for new customer	128	-
Exchange loss arising from contracted rate for Brexit downside protection	-	57

Adjusted operating (loss)/profit Finance income and expense	(185) (191)	258 (27)
Adjusted (loss)/profit before taxation	(376)	231

The measure of EBITDA is not recognised by IFRS however it remains an important performance

measure for management.

Adjusted EBITDA:	2020	2019
	£'000	£'000
Operating loss	(541)	(51)
Depreciation (net of development cost capitalisation)	693	132
Amortisation	265	183
Share based payments	228	224
Severance costs	-	28
Non recurring set up costs for new customer	128	-
Exchange loss arising from contracted rate for Brexit downside protection	-	- 57

Adjusted EBITDA	773	573

Annual Report and Notice of AGM

Copies of the Annual Report and Accounts for the year ended 31 December 2020, Notice of Annual General Meeting and Form of Proxy will today be published on the Company's website at www.trackwise.co.uk and sent to those shareholders that have requested hard copies. The Annual General Meeting ("AGM") will be held at 1 Ashvale, Alexandra Way, Tewkesbury, Gloucestershire, GL20 8NB on Wednesday 14 July 2021 at 11:00am. In light of the UK Government's social distancing measures and guidance on public gatherings, shareholders will not be able to attend in person, and further details are included in the Notice of AGM.

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END

FR FBMMTMTITTIB

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