Interim Results

30 October 2023

HeiQ Plc

("HeiQ" or "the Company")

Half year results for the period ended 30 June 2023

HeiQ Plc (LSE:HEIQ), a leading company in materials innovation and hygiene technologies, announces its interim results for the period ending 30 June 2023 ("H1 2023").

These results are published concurrently with the Company's final results for the full year ended 31 December 2022 ("FY 22").

Restoration of Trading:

As detailed in the FY 22 results, upon uploading the Annual Report 2022 to the National Storage Mechanism, expected to be completed today, the Company will make an immediate request to the FCA for the Company's Ordinary Shares to be restored to trading on the Main Market of the London Stock Exchange as soon as practicable thereafter. A further announcement will be made confirming the exact time and date of resumption of trading.

Financial Overview:

· Revenue reduced by 26% to US$20.5 million (H1 2022 restated*: US$27.6 million)

· Gross profit margin of 40.9% (H1 2022 restated*: 41.5% in H1 2022)

· Adjusted EBITDA of US-$3.6 million (H1 2022 restated*: US$0.7 million)

· Operating loss of US-$6.0 million (H1 2022 restated*: US-$1.6 million)

· Loss after taxation of US$-6.5 million (H1 2022 restated*: profit of US-$1.9 million)

· Cash balance as at 30 June 2023 of US$7.3 million

* Details on restatements of prior year financial information are disclosed in Note 2 of the Consolidated Financial Statements.

Operational Overview:

Trading conditions for the markets of our commercialized product range continued to be challenging during H1 2023 and, as highlighted in detail in our Full Year results for the 12 months to 31 December 2022, the Company took decisive steps to reduce its cost base and reorganize the business to maintain its innovation and differentiation capabilities during the period under review. With costs reduced and operations adapted in light of the challenging headwinds our entire industry is facing, the Company expects H2 2023 trading to stabilize.

Post Period:

The Company is closely monitoring the market and is ready to take further cost reduction action, should it need to. We continue to add value to our high potential key innovation initiatives through focused investment, to position ourselves for when the macro-economic difficulties abate.

While the Board considers the Company has adequate resources, it is in discussions with financial institutions to replace the currently uncommitted credit facilities by committed, long-term facilities.

Equity analyst and shareholder presentations:

Following the resumption of trading in its ordinary shares the Company will announce registration details for two live presentations. These presentations will cover today's results and will be held separately for both equity analysts and investors.

For further information, please contact:

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.

Chairwoman's Statement

Due to the delay in the publication of the audited annual accounts 2022, these interim financial statements 2023 are published at the same time as the annual accounts 2022.

While further details on trading and HeiQ's performance in H1 2023 can be found in the CEO Statement in the annual report 2022, I provide a short synopsis here for our investors.

Trading conditions for the markets of our commercialized product range continued to be challenging during H1 2023 and, as highlighted in detail in our Full Year results for the 12 months to December 31, 2022, we took focused steps to reduce our cost base and reorganize the business during the period under review.

We believe that the actions taken since the start of the year mean we will be better positioned to manage the challenging macro-economic environment, while continuing to build value in our core innovations to preserve our ability to deliver when the market demand turns.

Financial Review

\* The results have been restated in the comparative period as described in Note 2 to the consolidated financial statements.

Total revenues in H1 2023 decreased by 26% to US$20.5 million (H1 2022: US$ 27.6 million) driven by weak demand across the markets in which we operate.

Gross margin slightly decreased from 41.5% in H1 2022 to 40.9% in H1 2023, driven primarily by overcapacity in the markets which resulted in price pressure.

SG&A costs grew by 1.7% to US$14.3 million in H1 2023 compared to the previous year (H1 2022: US$14.0 million). The Company implemented various cost reduction measures during the period and expects to see the full benefit of the measures materialize in H2 2023. Cost saving measures have included a reduction of FTE's as well as re-location of functions/FTE's to locations with lower employer costs per FTE.

As of June 30, 2023, the Company reports a cash balance of US$7.3 million (December 31, 2022: US$8.5 million). To manage its cash balance, the Group has access to credit facilities totalling CHF9.0 million (approximately US$9.8 million as of September 30, 2023). The credit 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.

As of September 30, 2023, the Group has drawn CHF6.3 million of the facilities (CHF2.4 million as of December 31, 2022) (see Note 2 for details including maturity dates). The facilities are not committed, but the Board has not received any indication from financing partners that facilities are at risk of being terminated. Furthermore, 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 remains uncertain.

The Group's directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and operate within its credit facilities for the period 12 months from date of signature. 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 until appropriate longer-term funding is in place. Further disclosures on the going concern assessment are made in the notes to the financial statements.

Principal risks and uncertainties

The Group has an established, structured approach to identifying and assessing the impact of financial and operational risks on its business. The principal risks and uncertainties for the remainder of the financial year are not expected to change materially from those included on pages 38 to 42 of the Annual Report and Accounts 2022. The risks identified relate to the following areas: Delivery on growth strategy; Increase in competition; Geographical risks; IP protection and first mover advantage; Regulatory risks; Reputational risks and failure to build brand equity; Innovation pipeline; Supply chain disruptions; Personnel/Workforce; Interruption of IT system operations; Liquidity risk; currency risks; Product liability. Further information in relation to the Group's financial position and going concern is included in note 2.

Outlook

With our costs reduced and operations adapted in light of the challenging headwinds our entire industry is facing, we expect H2 2023 trading to stabilize. We are closely monitoring the market and are ready to take further cost reducing action, should we need to. We continue to add value to our high potential key innovation initiatives through focused investment, to position ourselves for when the macro-economic difficulties abate.

I would like to end my statement by thanking our investors, team, advisors and customers for their support during what has been a very challenging period for the company.

Esther Dale-Kolb

Chairwoman

October 26, 2023

Condensed consolidated statement of profit and loss and other comprehensive income

For the six months ended June 30, 2023

\* The consolidated statement of profit and loss and other comprehensive income has been restated in the comparative period as described in Note 2.

*\* The effect of share options is anti-dilutive and therefore not disclosed.

Condensed consolidated statement of financial position

As at June 30, 2023

\* The comparative period of the consolidated statement financial position has been added this year because it was restated as described in Note 2.

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 October 26, 2023 and signed on its behalf by:

Xaver Hangartner

Chief Financial Officer

Condensed consolidated statement of changes in equity

For the six months ended June 30, 2023

Condensed consolidated statement of cash flows

For the six months ended June 30, 2023

* The consolidated statement of cash flows has been restated for the comparative period as described in Note 2.

Notes to the Condensed Consolidated Financial Statements for the six months ended June 30, 2023

1. General information

HeiQ Plc (the Company) is a company limited by shares incorporated and registered in the United Kingdom. Its ultimate controlling party is HeiQ Plc. The address of the Company's registered office is 5th Floor, 15 Whitehall, London, SW1A 2DD.

These financial statements are presented in United States Dollars (US$) which is the presentation currency of the Group, and all values are rounded to the nearest thousand dollars except where otherwise indicated.

2. Basis of preparation and measurement

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, 2022. 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, 2022.

Statutory accounts for the year ended December 31, 2022 have been filed with the Registrar of Companies in October 2023 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 contained a matter (material uncertainty in regards to the going concern assumption) 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 October 26, 2023.

Going concern

The unaudited condensed consolidated interim financial statements have been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realization of the assets and the settlement of liabilities in the normal course of business.

To manage its cash balance, the Group has access to credit facilities totalling CHF9.0 million (approximately US$9.8 million as of September 30, 2023). The credit facilities are in place with two different banks but with 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. The facilities do not contain financial covenants, but they do require the delivery of certain financial and operational information within a defined timeframe after the balance sheet date. As the publication of audited accounts for the year 2022 was delayed, the Company was not able to submit these accounts within the contractually defined timeframe but has received extensions to do so from both banks until October 31, 2023.

As of September 30, 2023, the Group has drawn CHF6.3 million of the facilities (CHF2.4 million as December 31, 2022) as follows:

The Group's forecasts and projections for the next 12 months reflect the very challenging trading environment and show that the Group should be able to operate within the level of its current facility for at least 12 months from the date of signature of these financial statements if the facility drawdowns remain available. 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. Furthermore, 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 remains uncertain.

Nevertheless, the Board acknowledges the uncommitted status of the facilities which could be terminated without notice during the forecast period requiring the refinancing of debts as per above maturity date indicates that a material uncertainty exists that may cast significant doubt on the Group's and Parent Company's ability to continue as a going concern, and therefore the Group may not be able to realize its assets and discharge its liabilities in the normal course of business.

After considering the forecasts, sensitivities, and mitigating actions available to management and having regard to the risks and uncertainties to which the Group is exposed (including the material uncertainty referred to above), the Group's directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and operate within its credit facilities for the period 12 months from date of signature. Accordingly, the financial statements continue to be prepared on a going concern basis.

Basis of consolidation

The Condensed Consolidated Financial Statements comprise the financial statements of the Company and its subsidiaries. Business combinations are accounted for under the acquisition method.

Restatement of prior period errors

As explained in Note 2 of the 2022 statutory accounts, several errors were corrected which affected the years ended December 31 2022 and December 31 2021. These corrections led to the following restatements of the June 30, 2022 accounts:

Overstatement of lease assets and liabilities: Similarly to the correction as per December 31, 2021, mainly balance sheet accounts were affected by the restatement. Right-of-use assets and lease liabilities were derecognized, and some payables were reclassified to loans.

PPA Chrisal: Accounting for 51% of intangible assets acquired instead of 100%: The correction of the error led to an increase in intangible assets as disclosed in the restated 2021 accounts, however, with the higher base amount amortization for the six months ended June 30, 2022 is also higher for the period which is reflected in an overall smaller adjustment to the balance sheet.

Correcting revenue recognition of take-or-pay contracts: The correction of the revenue recognition in years prior to 2022, led to smaller balances of trade receivable and accrued liabilities being carried forward to the June 2022 accounts.

Goodwill impairment Chrisal CGU and RAS CGU: The intangible asset balance brought forward to June 2022 has been reduced by the goodwill impairment posted in the 2021 accounts.

Correcting revenue recognition of R&D services: Revenues amounting to $2 million for R&D services were incorrectly recognized in the 2022 interim statements. During the audit of 2022 financial statements, it was found that the Group's performance obligations relating to a research and development project had not been fulfilled and that revenue recognition in relation to milestones was not appropriate. A further US$3.3 million of deferred revenue has been reclassified to long-term as a consequence of this change in accounting policy.

The effect of the restatements on the six months ended June 30, 2022 is shown in the following tables:

Consolidated statement of financial position

June 30, 2022

Consolidated statement of comprehensive income

June 30, 2022

Earnings per share

June 30, 2022

New standards, interpretations and amendments not yet 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:

? Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);

? Classification of Liabilities as Current or Non-current (Amendments to IAS 1);

? Definition of Accounting Estimates (Amendments to IAS 8); and

? Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).

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 2022 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

Acquisition of Tarn Pure

On January 12, 2023, HeiQ Plc, completed the acquisition of the entire issued share capital of Tarn-Pure Holdings Ltd ("Tarn-Pure"). Tarn-Pure is a UK-based intellectual property company holding critical EU and UK regulatory registrations to sell elemental copper and elemental silver for use in disinfecting hygiene applications. To acquire Tarn-Pure, HeiQ paid the vendors £530,000 (approximately US$621,000) in cash with an additional £317,000 (approximately US$372,000) satisfied through the issuance of 455,435 new ordinary shares of 30p each in the Company (the "Consideration Shares"), issued at a price of 69.6p per share resulting in a total consideration of £847,000 (approximately US$993,000). The purchase price allocation has not been finalized yet and is subject to possible changes in valuation of the assets acquired. it will be completed in the 2023 annual report.

The following table provides an overview of the preliminary purchase price allocation. It summarizes the consideration paid, the fair value of assets acquired, liabilities assumed, and goodwill arising on acquisition at the acquisition date.

5. Revenue

The Group's focus on materials innovation which includes 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 revenue include research and development, take-or-pay and exclusivity services. 

The following table reconciles HeiQ Group's revenue for the periods presented:

Unsatisfied performance obligations

The transaction prices allocated to unsatisfied and partially unsatisfied obligations at June 30, 2023 are as set out below:

Management expects that 10 per cent of the transaction price allocated to the unsatisfied contracts as of June 2023 will be recognized as revenue during the 2023 reporting period (US$0.5 million). The remaining 90 per cent, US$4.8 million will be recognized in the 2024 (US$1.1 million), 2025 (US$3.1 million) and 2026 financial year (US$0.6 million).

Disclosure related to contracts with customers

Contract assets and contract liabilities are disclosed under Note 23 and Note 33, respectively. Impairment losses recognized on any receivables or contract assets arising from the Group's contracts with customers are disclosed under Note 21 and Note 23, respectively.

6. Operating Segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of the Company.

For management purposes, the Group is organised into business units and the following reportable segments:

In 2023 new overhead allocation rules were introduced and as a result more overhead costs were allocated to segments. 2022 segment revenue and profits are restated below using the new rules to allow for like for like comparison.

Segment revenues and profits

The following is an analysis of the Group's revenue and results by reportable segment:

Segment revenue reported above represents revenue generated from external customers. There were no intersegment sales in the six months ended June 30, 2023 (2022: nil).

Geographic information

Information about major customers

During the six months ended June 30, 2023, no customers individually totalled more than 10% of total revenues (2022: none).

7. Cost of sales

Other costs of goods sold include freight and custom costs, warehousing and allowances on inventory.

8. Other income

9. Selling and general administration expenses

Other selling and general administration expenses include costs for infrastructure, professional services and marketing as well as R&D and laboratory related costs, information technology & data expenses, sales representative & distribution expenses.

10. Personnel expenses

11. Other expenses

12. Finance income

13. Finance costs

14. Income tax

The components of the provision for taxation on income included in the "Statement of profit or loss and other comprehensive income" are summarized below:

15. Earnings per share

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

*Earnings have been restated in the comparative period as described in note 2.

The effect of share options is anti-dilutive and therefore not disclosed.

Basic earnings per share is calculated by dividing the profit/loss after tax attributable to the equity holders of the Company by the weighted average number of shares in issue during the year. The effect of share options is anti-dilutive and therefore not disclosed.

16. Intangible assets

17. Property, plant and equipment

18. Right-of-use assets