Heiq Regulatory News (HEIQ)

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the EU Market Abuse Regulation (2014/596) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended and supplemented from time to time.

29 September 2023

HeiQ Plc

("HeiQ" or the "Company" or the "Group")

Accounts update

Further to its AGM Statement announced on 29 June 2023, the Company provides the following update on the progress of its audited accounts for the year ended 31 December 2022 ("2022 Accounts") alongside an update on current trading for the six months ended 30 June 2023.

Accounts update

The Company is concluding its annual report and audit in conjunction with its auditor, Deloitte LLP and expects to publish its Full Year 2022 Accounts shortly, together with its interim results, following which the Company expects trading in its shares to recommence.

Following the completion of several acquisitions, the Group has grown significantly in terms of capabilities and technology platforms but also in terms of organizational complexity. The Company has seen a number of businesses with different systems, processes and cultures join the Group since 2017 and, in particular, during 2021. To integrate the different businesses, the Group commenced the harmonization of processes, systems, and operating practices across the organization in 2022. While this is a challenging project for any organization, the significant changes in market conditions in the year have made this process more onerous. All of these factors contributed to a significantly extended year end reporting timetable for 2022, with a related impact on the timing of the external audit work.

Previous announcements detailed the challenging market conditions that HeiQ has been enduring, which have impacted top line performance and Group profitability. Whilst management considers the Company to be performing better than many of its peers, the significant disruption in market demand across HeiQ's value chains has impacted the Company's financial performance for FY2022. HeiQ expects to report FY2022 revenue in line with the most recently published guidance but gross profit and loss from operations for FY 2022 are expected to be materially below previous market guidance as the significant drop in market demand has required HeiQ to review aspects of the accounting processes which rely on significant judgement. Key factors impacting profitability are set out below:

· Goodwill from acquisitions: The challenging market dynamics impaired the ability of its recently acquired businesses to achieve their initial business plans. Reviewing key judgements inherent in the Company's impairment review, including operating margins and long-term growth rates, has caused significant goodwill impairments in the period.

· Inventory valuation: Judgements surrounding allowances required for inventory have also been reassessed to reflect management's updated views on recoverability and caused the recording of significant allowances on inventory.

Furthermore, in the process of reviewing significant judgements with the auditors also for the prior year, the Company has had to record prior year restatements. Specifically, restatements have been recorded around impairment of goodwill from acquisitions as well as in relation to the accounting treatment of a significant take-or-pay contract. This contract has been renegotiated in 2023 and accounts receivable have been waived in exchange for a right of first refusal on the supply of a wide product range to a large industry player. While the Group is confident that the amendment to this contract will be beneficial going forward, the historical accounting treatment of this contract has been reviewed and it was determined that a restatement of prior year reported revenue and profits is appropriate, as recognition criteria had not been met.

The cash balance as of 31 December 2022 was US$8.5 million, in line with market guidance. To manage its cash balance, the Group has access to credit facilities totalling CHF9 million (approximately US$9.8 million). The facilities are in place with two different banks and both contracts have materially the same conditions. The facilities are not limited in time, can be terminated by either party at any time and allow overdrafts and fixed cash advances with a duration of up to twelve months. In case one or the other party terminates the agreement, fixed cash advances become due upon their defined maturity date. While the facilities are not committed, the Board has not received any indication from financing partners that the facilities are at risk of being terminated. Nevertheless, the Board acknowledges the uncommitted status of the facilities which could be terminated requiring the refinancing of debts, and which casts material uncertainty on the going concern assessment. The Board therefore expects the auditor to make reference to this material uncertainty in their audit opinion. The Board is in discussions with financial institutions to replace the currently uncommitted credit facilities by committed, long-term facilities, but the outcome of these discussions remain uncertain.

As at June 30, 2023, the Company had cash balances amounting to US$7.3 million with a total of CHF6.3 million drawn under the facilities.

Current trading and outlook

Since the start of FY 2023, HeiQ has focused on reducing its cost base and reorganizing the business, and the Company is pleased to report that it is already seeing the benefits of this. Whilst the Board has not yet seen the challenges abate in H1 2023, the action taken since the start of the year means the Company is expected to be in a better position in H2 2023 to manage the ongoing challenging macro-economic environment, continue building value in core innovations and preserve the Company's ability to deliver when the market demand turns.

For H1 2023, the Company expects to report sales of US$21 million (H1 2022: US$30 million) and a decrease in margins in a buyers-market, driven by current overcapacity. For H2 2023, the Company expects a stabilization of the financial performance and operating cashflows based on implemented cost measures becoming effective.

The Board believes that the medium and long-term opportunities for the Company's technology offering remain strong and the leadership team is focused on gaining market share for the commercialized core businesses, while also prioritizing innovation projects which have near-term market potential or significant long-term value creation potential. Each of HeiQ's key technology development projects has a significant market opportunity, and the Company's business infrastructure has been established to ensure effective rollout globally once market conditions change.

Further detail will be included in the Company's audited results for FY 2022 as well as its interim results. Financial reporting on H1 2023 performance will be published together with the Annual Accounts 2022.

PDMR Notifications

The Company also announces that, on 26 September 2022, options over 224,000 new ordinary shares in HeiQ ("Options") were made to each of Carlo Centonze and Xaver Hangartner pursuant to the Company's 2022 Option Plan. The Options have a strike price of 70.2p per share, being the trailing 5-day mid-market share price at the time of grant, a vesting period of three years and are subject to performance criteria as set out below.

•Vesting of 65% of the Options are conditional upon sales growth targets. Performance is measured over the years 2022-2024 and the performance target is 7.5% for each individual year or 24.2% compound sales growth over the three years 2022-2024.

•Vesting of 35% of the remaining Options are conditional upon annual operating margin targets. Performance is measured each year 2022-2024 and the performance target is 25%.

Further information is set out below pursuant to the requirements of the UK Market Abuse Regulation.

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About HeiQ

HeiQ is a Swiss-based international company that innovates pioneering and differentiating materials in partnership with established global brands. We bridge the academic and commercial worlds to conceive performance-enhancing materials and technologies, working with aligned brands to research, manufacture and bring products to market, aiming for lab to consumer in months. Our goal is to improve the lives of billions by innovating the materials that go into everyday products, making them more hygienic, comfortable, protective, and sustainable.

Our strong IP portfolio positions us as an innovation leader for niche, premium and high-margin products in the textile chemicals, man-made fibers, paints and coatings, antimicrobial plastics, probiotics and household cleaner markets. We have also expanded into healthcare facilities, probiotic cleaning, and hygiene coatings markets to help make hospitals and healthcare environments more hygienic.

We have developed over 200 technologies in partnership with 300 major brands. With a substantial research and development pipeline, including key technology development projects HeiQ AeoniQ, HeiQ ECOS, HeiQ GrapheneX, and HeiQ Synbio, HeiQ aims to deliver shareholder value through sales growth and entry into new lucrative markets through disruptive innovation and M&A.

We have built a strong reputation for ESG & sustainable innovation, having won multiple awards including the Swiss Technology Award twice and the Swiss Environmental Award. Under experienced leadership, we are committed to driving our profit in close connection with people and the planet. For more information, please visit www.heiq.com.