Heiq Regulatory News (HEIQ)

September 13, 2022

HeiQ Plc

("HeiQ" or "the Company")

Interim Results for six months to June 30, 2022

Resilient trading and bringing life enhancing technology to market

HeiQ Plc (LSE:HEIQ), an established global brand in materials and textile innovation which operates in high-growth markets, is pleased to announce its interim results for six months to June 30, 2022.

Financial highlights:

· Revenue increase of 17% to US$ 30.3m (H1 2021: US$ 25.8m), showing resilience and continued demand

· Investment by HUGO BOSS (MDAX: BOSS) into HeiQ AeoniQ, the world's first climate positive fiber to replace polyester (US$ 135bn market). A total investment of US$ 10m, structured as technology milestones & 2.5% equity into HeiQ's Austrian tech subsidiary at an implied valuation of US$ 200m

· Sales from HeiQ's ESG-focused "Resource Efficiency" products increased by 83% compared to H1 2021 and has now become the second largest functionality in the Group's portfolio

· Gross margin uplift of 3% to 46.7% compared to previous half year (H2 2021: 43.7%), reflecting stabilization of underlying product margins as well as the favorable impact of the product mix

· Operating expenditure ("Opex") (respectively selling & general administration costs) grew to US$ 3.3m or +31% over H1 2021 to US$ 13.9m, in line with the Company's investment budget and growth strategy

· Adjusted EBITDA of US$3.5m (1HY 2021: US$4.8m) achieved in challenging market conditions during a phase of significant investment in technology

Operational highlights:

· Completed HeiQ AeoniQ pilot commercialization production plant in time and on budget; Gained the LYCRA Company as exclusive distributor

· Made significant progress with blockbuster tech HeiQ GrapheneX, demonstrated solid state battery prototype over 1300 cycles, filed a fourth patent & ordered the world's first pilot commercialization plant

· Publication of an independent study by Charité University Hospital Berlin and the Robert Koch-Institute, proving symbiotic cleaners - like the HeiQ Synbio cleaners - are far more effective than disinfectants alone, a publication that is now driving favourable change at regulators for probiotic cleaners in healthcare

· Gained Engie, a multibillion player in facility management, as customer for HeiQ Synbio & Sanpure with the objective to enter manifold channels at large scale swiftly

· Launched HeiQ Mint - a durable botanical odour control for textiles, capable to substitute textile antimicrobial technologies globally.

Post period-end highlights:

· Further strengthening of our cash position as significant amounts of receivables have been collected after balance sheet date

· Additional EUR 2.2m paid in into equity of HeiQ AeoniQ LLC by minority shareholder HUGO BOSS as contractual milestones have been met

· Strong H2 2022 performance expected and cautiously optimistic to meet analyst expectations for the full year

· Strong US Dollar continues to have a positive impact on the Company's cost structure

Carlo Centonze, co-founder and CEO, HeiQ plc, said:  

"Despite the continuing challenging global market conditions and a 3-month lockdown in our main market China in Q1 2022, we remain cautiously optimistic and have plans in place to address those challenges and continue making fast progress with commercialisation of our disruptive innovative technologies. 

HeiQ is very well-positioned to spearhead the decarbonization of textile, the second most polluting industry in the world. HeiQ AeoniQ, the world's first climate positive fiber, has made significant steps towards full market launch in 1HY 2022, and we remain confident that by the end of the year, first yarns can be delivered to customers for capsule collections of truly climate positive bio-degradable or circular apparel items. As such, HeiQ AeoniQ remains one of our key focus areas for the months and years ahead. Our ambition remains unchanged to build and operate one or more full-scale Gigafactories at the beginning of 2025.

We are excited to continue delivering growth and bringing life enhancing technology to market. The demand for our current and future technology offering remains sound and we are executing our long-term growth strategy and strengthening our innovation and differentiation capabilities as planned. We are actively following market environment changes and will remain agile to address them swiftly."

Analyst Briefing

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

This announcement contains inside information.

For further information, please contact:

About HeiQ

HeiQ is focused on improving the lives of billions of people world-wide by innovating the materials people use every day. HeiQ has strong IP which is at the forefront of global technology in the $10 billion antimicrobial fabrics market, $24 billion textile chemicals market, the $50 billion probiotics market and the $150 billion man-made fibers market. It has also moved into the medical device, healthcare and hygiene coatings markets, to help make hospitals and healthcare environments more hygienic. HeiQ aims to deliver growth for its shareholders through a combination of increased sales of its core products and by entering additional lucrative markets through disruptive innovations and M&A.

HeiQ has created some of the most effective, durable and high-performance technologies in the market today, which cool, warm, dry, repel, purify, and destroy viruses. Since 2005, HeiQ has developed over 200 technologies in partnership with 300 major brands and it has a significant R&D pipeline containing over 50 projects. The Company has won multiple awards and gained a strong reputation for the ESG & sustainable downstream effect of its innovations. HeiQ is the only company to have won the Swiss Technology award twice. It has also won the Swiss Environmental award with an innovation that saves energy and water consumption during the textile manufacturing process.

Led by an experienced leadership team, HeiQ researches new solutions for partners, delivers scaled up manufacturing from its sites across the world and helps partners market the product to end consumers - aiming for lab to consumer in months.

Chairwoman's Statement

I am pleased to report that HeiQ continued to demonstrate resilience during difficult market conditions and made solid progress in delivering on its growth strategy during the six-month period ending 30 June 2022 ("H1 2022").

HeiQ's revenues for H1 2022 grew by 17% year on year, and we were pleased to have increased our overall gross margin compared to the second half of the 2021 financial year (H2 2021). This was achieved even though global economies have experienced new significant turmoil in early 2022, just as things started to normalize after two years of pandemic. On top of the energy crisis, pressure on raw material prices continued, and inflation and energy price rises significantly impacted the markets we operate in. HeiQ's business from commercialized innovations demonstrated robustness. While the strengthening of the US Dollar against the Euro, Swiss Franc and Sterling negatively impacted our sales (denominated in EUR) the positive effect on our costs outweighed the topline impact.

As an IP innovator, the development of our innovation pipeline is a significant growth driver for our business. In this regard, H1 2022 was very successful as we delivered substantial progress on our four most promising innovation platforms, particularly HeiQ AeoniQ and HeiQ Synbio.

HeiQ AeoniQ

HeiQ AeoniQ aims to replace oil-based textiles, namely Polyester which accounts for over 60% of the textile market, with a climate positive, circular filament yarn made of cellulosic. Having already proved the concept of the HeiQ AeoniQ yarn in 2021, we achieved several key commercialization milestones during the period by installing a pilot production plant, securing investment from HUGO BOSS, and signing up The LYCRA Company as exclusive distributor.

In H2 2022, we will optimize the product and proprietary production process for the pilot plant whilst also gearing up towards delivery of the first large-scale production plant. This is likely to be located in Portugal and is expected to come on-stream in 2025. Unlike polyester or other textile yarns, HeiQ AeoniQ is designed to have a positive carbon balance and as such we are also progressing in getting the carbon credits certified.

HeiQ Synbio

HeiQ Synbio allows detergents to become much more effective than disinfectants used today. It significantly reduces surface pathogens and antimicrobial resistance which is particularly important for detergents used in hospitals. In H1 2022, we achieved significant milestones on the way to establish symbiotic detergents as a new standard in hospital cleaning. An independent study by the opinion leading Charité University Hospital Berlin, and the Robert Koch-Institute proved symbiotic cleaners far more effective than disinfectants alone. This positions the HeiQ Synbio platform well given that we are seeing that upcoming European Union regulations are expected to favor symbiotic cleaners. With this is mind, we have entered negotiations with major players in the cleaning supply chain with the objective to enter various channels at large scale swiftly.

Financial Review

Revenues

Total revenues in H1 2022 increased by 17% to US$ 30.3m compared to the prior year period (H1 2021: US$ 25.8m). Our "Hygiene" functionality continues to be our largest, comprising 43% of total revenues (US$ 12.9m in H1 2022), despite the 6% year on year decline in this area mainly due to further reduced sales in masks and lockdowns in China.

With US$10.2m in revenue in H1 2022, "Resource Efficiency" has grown an impressive +83% compared to H1 2021 and has now become the second largest functionality in the Group. Driven by revenues from HeiQ AeoniQ and Innovation Services as well as existing process chemicals, it now represents 34% of total revenues.

In line with our strategy to increase the share of revenue from services, license, and royalties, H1 2022 saw revenues of this nature increase from US$1.2m in H1 2021 to US$ 3.9m in H1 2022.

Gross margin

At 46.7%, gross margin for H1 2022 has improved since the previous half year (H2 2021: 43.7%). The uplift of 3% reflects stabilization of underlying product margins as well as the favorable impact of the product mix (including higher share of Services & Licensing/TechFee revenues). Compared to H1 2021, the gross margin is still down 3.5% points (H1 2021: 50.2%) but we remain optimistic that price increases delivered during the period can narrow the gap in the coming months.

Opex

Our operating expenditure ("Opex") (respectively selling & general administration costs) grew US$ 3.3m or 31% over H1 2021 to US$13.9m. Opex located in acquired entities account for an increase of US$ 1.9m. The remaining increase is driven by higher personnel expense, investments in building up the HeiQ AeoniQ team as well as in the organizational structure and systems in general.

Cash

Our cash position as of June 30 2022 is US$ 9.5m, down from US$ 14.5m as at December 31, 2021. About 60% of this decrease is related to investing and financing activities as well as exchange rate effects on cash balances. Investments totaled US$ 4.6m including US$1.6m installment payments for prior period acquisitions. At the same time, we raised US$ 2.3m (net) through financing activities (mainly the sale of a minority stake in HeiQ AeoniQ LLC).

Cash generated from operations (before tax payments) was US$ -1.5m. This decrease was primarily due to investments in working capital of US$ 4.2m. Compared to December 31, 2021, we increased our inventories by US$ 2.4m after strong sales towards the end of 2021 and build-up of inventories for key items. With US$ +1.4m, receivables also show a significant increase as of June 30 2022, compared to December 31 2021. This is mainly driven by two circumstances: At the end of H1 22, after achievement of contractual agreed milestones, we invoiced HUGO BOSS US$ 3m, which was collected in July 2022. Also, due to lockdowns, we faced delays of payments into H2 2022 from certain Chinese distributors.

Results

Outlook

Despite the continued challenging global market conditions, we remain cautiously optimistic that market expectations will be met for the full year 2022.

The demand for our current and future technology offering remains sound. We are executing our long-term growth strategy and strengthening our innovation and differentiation capabilities as planned. Our sales are traditionally stronger in the second half of the year. We expect several projects to start adding sales in the remaining months as well as securing additional revenues from milestone achievements related to HeiQ AeoniQ. Now that lockdowns in China have ceased, we expect sales in China to gain momentum in H2 2022.

Having already executed price increases during the period to combat inflationary pressures, we are confident that gross margins will continue to recover.

If we look to the mid-term, HeiQ is very well positioned to spearhead the decarbonization of the textile industry. The development of HeiQ AeoniQ is progressing as planned and we remain confident that by the end of the year, yarn can be delivered to customers for first capsule collections of truly carbon negative apparel items. As such, HeiQ AeoniQ remains one of our key focus areas for the months and years ahead. Our ambition remains unchanged to commission, a full-scale production site at the beginning of 2025.

We are excited to continue delivering growth and bringing life enhancing IP to market and thank our shareholders, customers, team and advisers for their support.

Esther Dale-Kolb

Chairwoman

September 13, 2022

Condensed consolidated statement of comprehensive income

For the six months ended June 30, 2022

Condensed consolidated statement of financial position

As at June 30, 2022

The Notes form an integral part of these Condensed Consolidated Financial Statements. The Financial Statements were approved and authorized for issue by the Board of Directors on September 12, 2022 and signed on its behalf by:

Xaver Hangartner

Chief Financial Officer

September 12, 2022

Condensed consolidated statement of changes in shareholders' equity

For the six months ended June 30, 2022

Condensed consolidated statement of cash flows

For the six months ended June 30, 2022

Note: Non-cash transactions: Certain shares were issued during the year for a non-cash consideration as described in Note 14.

Notes to the Consolidated Financial Statements for the six months ended June 30, 2022

1. General information

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

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

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

2. Basis of preparation and measurement

a. Basis of preparation

The unaudited condensed consolidated interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and International Accounting Standard 34 "Interim Financial Reporting" (IAS 34). Other than as noted below, the accounting policies applied by the Group in the preparation of these interim financial statements are the same as those set out in the Company's audited financial statements for the year ended December 31, 2021. These financial statements have been prepared under the historical cost convention except for certain financial and equity instruments that have been measured at fair value.

These condensed financial statements do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company's financial position and performance since the audited financial statements for the year ended December 31, 2021.

Statutory accounts for the year ended December 31, 2021 have been filed with the Registrar of Companies and the auditor's report was unqualified, did not contain any statement under Section 498(2) or 498(3) of the Companies Act 2006 and did not contain any matters to which the auditors drew attention without qualifying their report.

The condensed interim financial statements are unaudited and have not been reviewed by the auditors and were approved by the Board of Directors on September 9, 2022.

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

b. Going concern

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

c. Basis of consolidation

The Condensed Consolidated Financial Statements comprise the financial statements of the Company and its subsidiaries.

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

Business combinations other than reverse acquisitions are accounted for under the acquisition method.

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

The following new standards and amendments were effective for the first time in these financial statements but did not have a material effect on the Group:

- Annual Improvements to IFRS: 2018-2020 Cycle

- Conceptual Framework for Financial Reporting (Amendments to IFRS 3)

- IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendment - Onerous Contracts - Cost of Fulfilling a Contract)

- IAS 16 Property, Plant and Equipment (Amendment - Proceeds before Intended Use)

3. Significant accounting policies

The Company has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2021 financial statements.

New and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

Use of estimates and judgements

There have been no material revisions to the nature and amounts of estimates of amounts reported in prior periods.

4. Significant events and transactions

Disposal of non-controlling interest in HeiQ AeoniQ LLC

On February 11, 2022, HeiQ Materials AG reached an agreement with Hugo Boss AG to dispose of 2.5% of its shareholding in HeiQ AeoniQ LLC.

HeiQ AeoniQ LLC is the exclusive licensee of the AeoniQ technology under an intragroup license agreement (the "HeiQ AeoniQ License") between HeiQ and HeiQ AeoniQ LLC dated February 4, 2022.

The consideration for the transfer of such shares to Hugo Boss was €875 (approximately US$1,000). Additionally, Hugo Boss agreed to pay an amount of €2,229,125 into the capital reserves of HeiQ AeoniQ LLC.

The sale and transfer of the shares in HeiQ AeoniQ LLC was agreed on February 11, 2022 and the payment into the capital reserves of HeiQ Aeonic LLC was collected in March 2022.

Furthermore, after HeiQ fulfilled certain contractually agreed milestones, Hugo Boss paid an additional amount of €2,200,000 (approx. US$ 2,459,000) into the capital reserves of HeiQ AeoniQ LLC in July 2022.

The effect of the disposal on the Group's financial statements is summarized as follows:

The net liabilities of HeiQ AeoniQ LLC were valued at US$136,000 as at February 11, 2022. Therefore, the value of the 2.5% shareholding disposed was valued at US$3,000.

5. Segmental reporting

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

The Group also analyses and measures its performance into geographic regions, specifically Europe, North & South America and Asia.

6. Revenue and other operating income

The Group's activities are materials innovation which focuses on scientific research, manufacturing and consumer ingredient branding. The primary source of revenue is the production and sale of functional ingredients, materials, and finished goods. Other sources of revenues include research and development services as well as laboratory work.

The Group classifies the functionalities of the different type of products into the functionalities of Comfort, Hygiene, Protection and Resource efficiency.

Revenues were mainly generated in regions Europe, North & South America and Asia. The following table reconciles HeiQ Group's revenue for the periods presented: 

\* The comparative analysis of revenue for the six months ended June 30, 2021 has been restated to more fairly reflect the revenues from each product consistent with the analysis presented in the audited financial statements for the year ended December 31, 2021.

During the period ended June 30, 2022, no customer individually totaled more than 10% of total revenues (2021: one customer). 

7. Expenses by nature

8. Taxation

The components of the provision for taxation on income included in the "Condensed Consolidated Statement of Other Comprehensive Income" are summarized below:

The Group had net deferred tax liabilities of US$863,000 as at June 30, 2022 (Net deferred tax liabilities of US$ 1,193,000 at December 31, 2021).

The components of the net deferred income tax assets and liabilities are as follows:

As at June 30, 2022, the Group had approximately US$285,000 of tax losses available to be carried forward against future profits (December 31, 2021: US$178,000; June 30, 2021: US$327,000).

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

9. Earnings per share

The calculation of earnings per share is based on the following earnings and number of shares:

10. Intangible assets

11. Property, plant and equipment

12. Right-of-use assets

\* The Group agreed to shorten the agreed lease terms of two existing leases from 2032 to 2027. These modifications have resulted in a reduction in the total amounts payable under the leases and a reduction to both of the right-of-use assets and lease liabilities with effect from the date of modification as follows:

The impact on net assets was recognized as non-operating income.

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

13. Trade receivables

The majority of trade receivables are current, and the Directors believe these receivables are collectible. The Directors consistently assess the collectability of these receivables. As at June 30, 2022, the Directors considered a portion of these receivables uncollectable and recorded a provision in the amount of US$1.3 million (June 30, 2021: US$716,000; December 31, 2021: US$1.5 million).

14. Share capital and share options

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

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

During the six-month period ended June 30, 2022, the Company made the following issues of shares:

a) On February 25, 2022, HeiQ Plc issued 347,552 new ordinary shares of £0.30 each in the Company. These shares were allotted to the vendors of Life Material Technologies Limited to satisfy a closing working capital adjustment in the amount of US$ 612,000 in connection with the Company's acquisition of Life in June 2021.

b) On May 12, 2022, HeiQ Plc issued a total of 3,461,615 ordinary shares as part of the deferred consideration paid pursuant to the acquisitions of RAS AG, Regensburg, Germany ("RAS AG") and Life Material Technologies Limited ("LIFE").

- In relation to the acquisition of RAS AG, the Company made a payment of €2.6 million (approximately US$2.88 million), based on RAS AG's performance for the year ended December 31, 2021. The deferred consideration was settled entirely through the issue of 2,743,941 ordinary shares in the capital of the Company.

- In relation to the acquisition of LIFE, the Company made a payment of US$2.8 million, based on LIFE's financial performance for the year ended December 31, 2021. The deferred consideration was settled equally in cash (US$1.4 million) and through the issue of 717,674 ordinary shares (US$1.4 million) in the capital of the Company. The share issue satisfied earnout payments as part of the purchase consideration of US$640,000 as well as share-based payments made as remuneration of US$764,000 which were not part of the purchase consideration.

Share-based payment expense

Part of the US$764,000 remuneration mentioned above had previously been accrued for as deferred consideration in relation to the acquisition of Life Materials AG (year ended December 31, 2021: US$74,000). An additional expense of US$71,000 was recognized in the period ended June 30, 2022. The remainder of approximately US$619,000 is expected to be expensed over the period from July 1, 2023 to June 30, 2026.

Share Option Scheme

The Company has adopted the HeiQ plc Option Scheme.

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

A total of 6,260,000 awards were made under the Option Scheme pursuant to re-admission on December 7, 2020. On October 19, 2021, a total of 2,447,658 share options were issued, with service periods covering January 2022 to December 2024 and an exercise price of £0.903 per share option. On June 15, 2022, a total of 1,472,725 share options were issued, with service periods covering January 2022 to December 2024 and an exercise price of £1.002 per share option.

398,872 options were forfeited during the period ended June 30, 2022 (December 31, 2021: nil). No options were exercised or lapsed during the period ended June 30, 2022. Accordingly, as at June 30, 2022 9,781,511 options remained in place (December 31, 2021: 8,707,658).

The share-based payment expense arising from these share-based payment transactions recognized in the period ended June 30, 2022 was US$415,000 (year ended December 31, 2021: US$424,000).

15. Dividends paid by subsidiary

In June 2022, Chrisal NV declared and paid out a dividend in the amount of €470,000 (approximately US$496,000) of which 49% or US$243,000 was paid to minority shareholders.

16. Other non-current liabilities

17. Borrowings and finance costs

The principal changes in borrowings during the period ended June 30, 2022 were as follows:

- a bank loan taken out in May 2022 which incurs interest at 1.05%. It is repayable by April 2023. As at June 30, 2021, €208,515 (US$218,000) is outstanding; and

- a bank loan taken out in April 2022 which incurs interest at 2.45%. It is repayable by March 2023. As at June 30, 2022, €408,000 (US$427,000) is outstanding.

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

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