PIONEERS IN SOLID-STATE I l i k a p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 8 ANNUAL REPORT AND ACCOUNTS 2018 ILIKA IS A PIONEER IN SOLID-STATE BATTERY TECHNOLOGY AND MATERIALS INNOVATION The past year has seen strong progress from Ilika both operationally and financially. The Stereax® pilot line has produced samples of Ilika’s batteries for evaluation by 12 partners around the world. Feedback from those evaluations has been positive and underpins our ongoing commercialisation efforts. Following market demand we have extended our roadmap to include large format Stereax® cells for automotive power and I was delighted to see that Innovate UK has offered to support Ilika in two of the Faraday Challenge automotive collaborations with £4.1 million of funding working with key industry players such as Honda, McLaren and Ricardo. Financially, revenue climbed over the £2 million mark, with expectations of further growth in the year to come. Mike Inglis Chairman, Ilika 01 STRATEGIC REPORT 01 02 06 06 12 20 21 Highlights 2018 At a glance Chief Executive’s review Operating review Business strategy Financial review Principal risks and uncertainties CORPORATE GOVERNANCE 22 24 25 28 29 Board of Directors Directors’ report Directors’ remuneration report Statement of Directors’ responsibilities Corporate governance statement FINANCIAL STATEMENTS 31 34 35 36 37 38 50 51 52 53 55 Independent auditor’s report Consolidated statement of comprehensive income Consolidated balance sheet Consolidated cash flow statement Consolidated statement of changes in equity Notes to the consolidated financial statements Company balance sheet of Ilika plc Company cash flow statement Company statement of changes in equity Notes to the Company financial statements Corporate directory OPERATIONAL HIGHLIGHTS FINANCIAL HIGHLIGHTS • Implementation of Stereax® development programmes with three commercial partners: – Deployment in miniature medical implants with a leading bioelectronics company – Collaboration with Lightricity (ex-Sharp) to integrate Stereax® solid-state batteries with photovoltaic (‘PV’) technology – Deployment of Stereax® M250 cells with Titan Wind Energy in condition monitoring devices for wind turbines • Collaboration with eight global OEMs to develop new functional materials: – Protected anodes for lithium sulphur batteries with Johnson Matthey – Advanced battery materials and fuel cell catalysts that can power future zero-emissions and carbon-neutral vehicles with Toyota Research Institute – Photonic materials for high capacity Hard Disk Drives with Seagate – P-type semiconductors for flexible integrated circuits with PragmatIC and Arm – Superalloys with Rolls-Royce – Self-healing alloys with BAE Systems and GKN • Award of ISO 9001 certification to Ilika’s quality management system • Post year end: offer of £4.1 million grant funding from the Faraday Challenge to develop large format solid-state cells for automotive in collaboration with Honda, Ricardo, McLaren and A123 Batteries REVENUES £2.1M (2017: £1.1m) LOSS FOR THE YEAR £2.9M (2017: £3.5m) LOSS PER SHARE 3.7P (2017: 4.8p) CASH, CASH EQUIVALENTS AND BANK DEPOSITS OF £2.8M (2017: £5.4m) WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 02 ILIKA AT A GLANCE PRINCIPAL ACTIVITIES Ilika plc is the holding company for Ilika Technologies Limited, a pioneer in solid-state battery technology and materials innovation. Ilika has developed ground-breaking solid-state battery technology (Stereax®). The Stereax® roadmap commences with miniature batteries designed to meet the demands of powering wireless devices, referred to as ‘the Internet of Things (‘IoT’)’. Stereax® technology was developed on Ilika’s unique, patent protected high throughput materials development platform, which accelerates the discovery of new and patentable materials for identified end uses in the automotive, aeronautical and electronics sectors. STEREAX® BATTERY TECHNOLOGY MATERIALS INNOVATION Miniaturised batteries are a critical enabler to current and emergent technologies, including wearables, medical devices and the IoT. Ilika has been working with solid-state battery technology since 2008 and offers its Stereax® battery technology to companies who need energy efficient batteries. These are energy dense batteries with the smallest possible footprint, with distinct benefits over lithium-ion batteries. Ilika’s high throughput technology enables functional materials to be made, characterised and tested up to 100 times faster than traditional techniques. Its robust datasets fully define the performance of families of materials. This enhances intellectual property value, optimises product performance and reduces time to market, thereby minimising costs and maximising the return on your R&D investment. The Stereax® P180 is a unique solid-state battery that can operate and be stored in the extended temperature range -40°C to +150°C. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 03 APPLICATIONS INDUSTRIAL IOT • Small unobtrusive beacons • High temperature environments • Retro-fitting existing equipment AUTOMOTIVE • Autonomous – increased range of sensing • Minimal wiring to decrease weight • Constant monitoring AEROSPACE • Low temperature environment • Fit and forget – minimal maintenance • Stable power sources INFRASTRUCTURE • Easy to fit beacons • Wide temperature range • Minimise cost of ownership MEDICAL • Blood pressure monitoring • Neurostimulation • Cardiac rhythm management REVENUE BY GEOGRAPHICAL MARKET NORTH AMERICA 27.6% (2017: 18.9%) UK & EUROPE 70.5% (2017: 79.1%) ASIA 1.9% (2017: 2.0%) WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 04 SUSTAINING THE ECONOMIC VIABILITY OF WIND ENERGY CASE STUDY +40% China and the UK together contribute ca. 40 percent of the world’s 500 GW wind power capacity. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018NEW PARTNERSHIP WITH WIND TURBINE MANUFACTURER IN CHINAIn November 2017, we formed a partnership to deploy Stereax® solid-state battery powered devices for the condition monitoring of wind turbines with Titan Wind Energy, the largest manufacturer of wind turbine products in China.The deployment is part of a two-year collaborative project with Titan Wind Energy, with expert support from the University of Chester and Nanjing University of Aeronautics and Astronautics (‘NUAA’). The £1.0 million development project is supported by Innovate UK funding of £0.4 million. The Chinese partners will receive similar funding from Jiangsu Province.The primary objective of this project is to develop an integrated smart sensor powered by a combined vibration harvester and a Stereax® battery, to be incorporated into the composite structure of wind turbine blades. The smart composite will be able to perform autonomous structural condition monitoring of the blades, to detect the early signs of damage and enable predictability in maintenance scheduling and prevent the icing of the blades. This will ensure operational efficiency, whilst also self-sustaining the power supply of these functionalities without the need for battery replacement. 05 We are very excited about the opportunity of using Ilika’s Stereax® solid-state battery technology in the globally significant market of wind turbine blade condition monitoring. Mr. Ji Jun President of Titan Wind Energy WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 06 CHIEF EXECUTIVE’S REVIEW OPERATING REVIEW Ilika has been working with solid-state battery technology since 2008 and has developed a type of lithium-ion battery, which, instead of using liquid or polymer electrolyte, uses a ceramic ion conductor. SOLID-STATE BATTERIES Ilika’s solid-state batteries have a number of benefits over lithium-ion batteries, including the following: • Non-flammable • 6x faster to charge • 2x energy density on a weight basis • 10x lower leakage currents We have continued to drive forward our Stereax® technology roadmap in response to clear customer guidance on the commercial opportunities it addresses. Our three Stereax® deployment programmes provide us with proof points on the differentiated properties of our technology. Graeme Purdy CEO, Ilika ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 07 STEREAX® TECHNOLOGY ROADMAP Ilika elected to focus its initial cell development on miniature devices suitable for powering sensors, sometimes called IoT end-nodes. There are already up to 15 billion sensors on the planet and most of them are currently either hard-wired or powered by disposable coin cells. Hard-wired sensors are expensive to install because of the cost of cabling, but thereafter they have low maintenance costs. Sensors powered by disposable batteries are relatively cheap to install, but expensive to maintain because of the cost of the maintenance crews deployed to replace the batteries at regular intervals. Ilika’s miniature devices are designed to be combined with a small energy harvester (usually PV) to allow them to be recharged and therefore to operate for an extended period of time, usually up to ten years. This concept is designed to offer a low cost of installation compared to hard-wired devices combined with lower maintenance costs relative to using disposable coin cells. IoT devices offer a different set of battery challenges compared to other electronic devices. They have similar pressures, such as cost and availability, but they also have some specific requirements: • Small size in both footprint and thickness • Ability to be trickle charged • Charged only when an energy harvester can get energy • Longer life span to match those of sensors and MCUs • Support wider temperature ranges WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 08 CHIEF EXECUTIVE’S REVIEW OPERATING REVIEW In 2016 and 2017, Ilika launched its Stereax® M250 and P180 solid-state battery IP respectively. Both devices are designed to power IoT devices, with the P180 being specified to survive exposure to higher operating temperatures. BATTERY PRODUCTS UNDER DEVELOPMENT The Ilika Stereax® roadmap focuses on three main areas: • Miniaturisation. This looks at progressively smaller footprints, down to mm-scale, delivering smaller currents (µAh), making them ideal for small sensor driven devices. The principal commercial pull for these batteries is coming from the medical device industry, accounting for about 50 percent of the value of Ilika’s licensing pipeline. BATTERY PRODUCT LAUNCHES Relative to other miniature batteries, Ilika Stereax® batteries use patented materials and processes enabling superior energy density per battery footprint, up to 40 percent improvement on other solid-state solutions. Ilika’s batteries do not contain any free lithium which makes them more moisture resistant. The Stereax® M250 operates in a temperature range to over 100°C, 30°C higher than other solid-state products. The Stereax® P180 has the additional benefit of supporting a temperature up to +150°C. This higher temperature is required for many industrial IoT and automotive end applications enabling always on, self-charging energy efficient IoT solutions for more demanding environments. As the trend towards digitising industrial processes gathers momentum there is a growing requirement for components with enhanced tolerance to temperature, moisture and vibration. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 09 • Capacity. For the launch of both the M250 and the P180, Ilika designed and made some wireless sensor nodes measuring temperature, humidity and light intensity. The power requirements of sensors does vary, depending on the nature of the sensor. For example, a motion detector has a higher power requirement than a temperature sensor. In order to be able to power a wider range of devices, Ilika is increasing the energy footprint of its batteries. Increasing the amount of energy for a given active footprint can be achieved by utilising Ilika’s patented stacking feature, which allows multiple cells to be stacked on top of one another. The sector most interested in larger capacity devices is the industrial IoT and this sector accounts for about 25 percent of the value of the licensing pipeline. • Large format. Solid-state batteries are of great interest to the automotive industry. Indeed, Ilika first started working on solid-state materials through its collaboration with Toyota, which commenced in 2008. Many automotive companies now have solid-state cells on their electric vehicle roadmap and Ilika has experienced a rising number of inbound enquiries on the possibility of scaling its technology to address the opportunity to use solid-state as a motive power battery. This topic is discussed further below. E N E R G Y D E N S I T Y , P E R F O R M A N C E Goliath 1Ah LARGE FORMAT PERFORMANCE CAPACITY Stereax® P180 Extended temp performance (-40°c to +150°c) SSB integrated with solar panel High energy MINIATURISATION High-energy mm-scale mm-scale Stereax® M250 250 μAh, 1cm2 FUTURE WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 10 SOLID-STATE BATTERY ADVANTAGES FOR MEDICAL DEVICES CASE STUDY This partnership may provide the potential to treat diseases that have so far been difficult to manage. Collaborations like this are critical to the delivery of advances in the field of solid-state battery development. Graeme Purdy CEO, Ilika ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018ILIKA HAS A TWO-YEAR COLLABORATIVE PROJECT WITH A BIOELECTRONICS COMPANY TO DEVELOP A SOLID-STATE BATTERY FOR MINIATURE MEDICAL IMPLANTSIlika’s Stereax® batteries have a high power density, a long battery life and they can be produced in miniature form, making them particularly suitable for these micro-devices.This collaboration aims to deliver key components of bioelectronic devices, which have the potential to provide treatments for serious health conditions, through the body’s own nervous system.The £1.0 million development project is supported by funding of £0.7 million, which Ilika will receive from Innovate UK and the Medical Research Council. 11 WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 12 CHIEF EXECUTIVE’S REVIEW BUSINESS STRATEGY The Company’s mission is to have its Stereax® solid-state batteries integrated into market-leading products sold by leading commercialisation partners around the world. automated processes to simultaneously deposit large arrays of systematically varying materials, which can be rapidly evaluated to determine their functional properties. In addition to the Stereax® product development and commercialisation work, the Company executes a small portfolio of programmes with large multinational companies to develop materials for the automotive, aerospace and electronic sectors. BUSINESS STRATEGY The Company generally expects these end-products to fit into or create end-markets worth in excess of $1 billion per year, in which the Directors believe a number of the Company’s commercialisation partners are positioned to have a leading share. The Company’s revenue model involves three phases of activity: a) commercially-funded and grant- funded development projects; b) IP licensing; and c) receipt of royalties when products incorporating Ilika IP reach market. Ilika is currently in the first phase of activity, with its revenue being generated from a portfolio of development programmes. The Company has built a pipeline of licensing opportunities to support the start of its second phase of revenue generation. The Company has developed its Stereax® batteries using its high throughput materials innovation platform. This platform uses ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 13 b u k l Goliath Pouch cell Stereax® Thin film Stereax® S C A L E Solid electrolyte materials with Toyota OUR BUSINESS MODEL • Advanced solid-state technology developer • Business model to potentially yield high margins over time – Upfront licence fee from flexible licensing models – Ongoing royalties, based on a percentage of system volume shipped – Technology deployed across multiple applications • Long-term, global growth markets i i m n a t u r e High throughput screening commercial COMMERCIAL READINESS development R&D costs $ Development revenue $ Licence revenue $ Royalty revenue $ Customers: semi, MEMS, battery, multiple sector OEMs WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 20183-4 YEARSIlika R&D2-3YEARSPartner system development+20 YEARSMultiple applications development and sales 14 DELIVERING THE BENEFITS OF SOLID-STATE BATTERIES FOR ELECTRIC VEHICLES CASE STUDY ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018ILIKA HAS EXTENDED ITS STEREAX® ROADMAP TO INCLUDE LARGE FORMAT SOLID-STATE BATTERIES (CODENAMED GOLIATH) SUITABLE FOR AUTOMOTIVE TRACTION BATTERIESIt has received offers of grant funding to support its participation in two development projects selected by the Faraday Challenge competition worth up to £4.2 million in aggregate to Ilika. Participation in both projects is subject to contract and certain other conditions being met.Ilika is the lead partner in the PowerDrive Line project, in which it intends to collaborate with Honda, Ricardo, the Centre for Process Innovation (‘CPI’) and University College London. The proposed project grant funding for all partners is £4.4 million, of which Ilika will receive £2.3 million. This 30-month collaborative project will develop a lithium-based solid-state Stereax® battery for plug-in hybrid and electric vehicles, establish a pre-pilot line for solid-state battery cell technology and develop processes for a solid-state materials supply chain. The innovative solid-state technology will enable safer, more energy and power dense cells that will facilitate ultra-fast charging, enabling plug-in hybrid electric vehicle (‘PHEV’) or battery electric vehicle (‘BEV’) drivers to charge their cars in under 25 minutes. 15 Effective, efficient and sustainable transport is key to addressing so many of today’s challenges from industrial growth to social inclusion. Through advanced battery technology, we will unlock a new generation of electric vehicles, further improving vehicle performance and uptake, opening doors to innovative new transport ideas and significantly reducing environmental impacts. Today’s investment shows we are catalysing collaboration between research teams and commercial partners across the UK to make this a reality. Professor Sir Mark Walport UK Research and Innovation Chief Executive WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 16 CHIEF EXECUTIVE’S REVIEW BUSINESS STRATEGY STEREAX® DEVELOPMENT AND DEPLOYMENT PROJECTS Ilika has secured three development and deployment programmes with global OEMs: INTEGRATED ENERGY HARVESTER AND BATTERY In December 2016, the Company announced a two-year collaborative project with Sharp Laboratories of Europe (now known as Lightricity) to create an autonomous energy harvesting power source which will involve the integration of Ilika’s solid-state battery with Lightricity’s PV technology creating the world’s first fully integrated thin-film power source. This integration project is aligned with the development track for increasing the capacity of Stereax® batteries. MINIATURE MEDICAL IMPLANT In March 2017, the Company announced a two-year collaborative project with a well-financed bioelectronics company to develop a battery for miniature medical implants to provide treatments for serious health conditions, through the body’s own nervous system. The programme is supported by Innovate UK and the Medical Research Council. WIND TURBINE CONDITION MONITORING In November 2017, Ilika announced a partnership to deploy Stereax® powered devices for the condition monitoring of wind turbines with Titan Wind Energy, the largest manufacturer of wind turbines in China and the fourth largest globally. INNOVATE UK FARADAY CHALLENGE Innovate UK is expecting 50 percent of vehicle production by 2030 to be BEV or PHEV. In July 2017, the UK government announced a £246 million commitment over four years for automotive battery development, covering cell manufacture, modules, battery pack design and deployment in vehicles. In November 2017, this was followed with the announcement of an £80 million National Battery Manufacturing Development Facility in Warwick. Innovate UK is administering a series of competitions, designed to promote battery innovation. In a post year end development in June 2018, Ilika announced that it has been offered £4.1 million of grant funding to participate in collaborations with Honda, Ricardo, McLaren and A123 Batteries. The development of large format cells will require Ilika to build a lower cost printing platform, suitable for printing bulk materials. This will involve establishing a pre-pilot line at its facility in Southampton. It is anticipated that a second stage of scale-up to a pilot line could be achieved in collaboration with the National Battery Facility. Ilika currently expects to use its licensing model to commercialise the large format cells in the same way it is bringing its miniature batteries to market. PATENT POSITION Building Ilika’s intellectual property portfolio in solid-state batteries has continued to be a focus this year. Three additional filings relating to solid-state batteries were made, covering electrolyte and electrode compositions as well as processing methods for singulating cells. In addition, three filings were made covering new super-elastic and high-strength alloys from our self-healing alloy project. During the course of the year, three patents went to grant in the USA covering core-shell catalysts for fuel cells. These patents cover catalysts that are stable in the aggressive acidic environment of hydrogen fuel cells, while being active in the promotion of the chemical reactions necessary for converting hydrogen and oxygen into water. Ilika now maintains a portfolio of 22 patent families, comprising of 81 patents. MATERIALS PORTFOLIO ACTIVITIES While the Company’s strategy has been to focus the majority of its resources on developing and commercialising its solid-state battery technology, Ilika was also active in the development of other energy materials, aerospace alloys and materials for electronics applications using its high throughput platform. ENERGY MATERIALS In August 2016, Ilika announced that it is taking part in a three-year project to develop protected anodes for lithium sulphur batteries, led by Johnson Matthey Plc. This project is developing an innovative protected lithium anode approach to discover new electrolyte composition options and fabricate a free-standing, lithium-containing protected anode/ separator for integration into pouch cells. The novel protected anode will mitigate a commonly experienced problem in lithium sulphur cells, the so-called polysulphide shuttle effect, leading to enhanced performance cells that can be made with existing cell fabrication methods. The pouch cells being developed in this project are high capacity, low cost batteries for large scale renewable energy storage and therefore address a distinct market segment to the applications for which Ilika’s Stereax® batteries are designed. This project will complete in 2019. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 17 In January 2018, Ilika completed its role leading a three-year Innovate UK funded project with Rolls-Royce, Diamond Light Source and the University of Cambridge to develop new superalloy compositions for gas turbine engines with better thermo efficiency than current alloys. The alloys are designed to increase gas turbine performance, reducing CO2 emissions and noise levels at take-off. ELECTRONIC MATERIALS Ilika has continued its collaboration with Seagate, developing materials and processes for Hard Disk Drive (‘HDD’) applications. The project is focused on materials with superior nanophotonic properties to achieve improved hard drive performance and reliability. These materials must operate at temperatures of up to 300°C for thousands of hours, requiring extremely robust nanomaterials that have specific photonic properties allowing light energy to be conducted. In March 2018, Ilika announced an 18-month collaboration with PragmatIC and Arm to further progress development of ultra-thin and flexible semiconductors for mass market applications. The principal objective is to deliver P-type metal-oxide semiconductor circuit technology to enhance PragmatIC’s flexible integrated circuit designs. The first application is the smart packaging market which is predicted to grow at a CAGR of 8 percent to a projected value of $7.8 billion by 2021. QUALITY MANAGEMENT SYSTEM In January 2018, Ilika announced that its quality management system (‘QMS’) for the development of solid-state batteries and materials R&D programmes has been assessed and found to meet the requirements of ISO 9001:2015 by DAS certification. ISO 9001 is the world’s most widely recognised QMS and helps organisations to meet the expectations and needs of their customers. The certification promotes the development of continual improvement, customer satisfaction, traceability and international best practices. Ilika aims to provide clients with the highest quality services and the ISO certification means that clients can have increased confidence in the service provided. The certification is independently audited annually. KEY PERFORMANCE INDICATORS (‘KPIS’) The Board considers that the most important KPIs are technical and operational and relate to the sales pipeline and engagement of commercialisation partners resulting from the progress of the technical development programmes outlined above. The most important financial KPIs are the cash position and the operating loss of the Group, which remain under constant focus and which are considered in the financial review. In March 2017, Ilika announced a $1 million, one year commercially- funded programme with the Toyota Research Institute (‘TRI’) to develop game changing energy materials. The programme is part of a $35 million investment by TRI over four years in research that uses artificial intelligence to accelerate the design and discovery of advanced materials. In this initial collaboration with the Company, Ilika’s unique high- throughput platform was used to make and test candidate materials, which were identified using simulation, machine learning and artificial intelligence strategies. Ilika has now completed the initial screening activities associated with this phase of the project. Promising materials will be further scaled-up by Toyota and its suppliers for deployment in its future low- emission vehicles. AEROSPACE ALLOYS Ilika has continued in its lead role in a £2.15 million, three-year Innovate UK grant funded project with BAE Systems, GKN, Reliance Precision Engineering and the University of Sheffield. The project started in September 2015 to develop a new generation of self-healing alloys suitable for additive manufacturing (‘AM’) processes and to develop a metallic manufacturing process that takes advantage of the flexibility of AM and the precision of subtractive manufacturing. This will enable the manufacture of novel components with critical feature tolerances, meeting the challenges faced in the design of mechanisms for the aerospace industry with lower weight, structural integrity and functional performance. The programme has been productive in defining new alloy systems of interest and a series of patent filings have been made. WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 18 RAPIDLY DEVELOPING NOVEL THIN-FILM MATERIALS & DEVICES CASE STUDY The project focuses on investigating the operating parameters of PMOS, using Ilika’s high throughput thin-film techniques which are proven for rapid identification and screening of functional thin-film materials. The initial phase of the project is intended to demonstrate the innovative thin film transistor performance, which is to be followed by scale-up and transfer of the material to deposition processes in a production environment. This collaboration is a strong fit with our technology capability in rapidly developing novel thin-film materials and devices. A successful outcome would enable the collaboration partners to address large global markets in this disruptive sector. Graeme Purdy CEO, Ilika $7.8BN The first application for these flexible ICs is the smart packaging market which is predicted to grow to a projected value of $7.8 billion by 2021. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018TECHNICAL COLLABORATION WITH PRAGMATIC AND ARM HOLDINGSIn March 2018, we formed a collaboration with PragmatIC and Arm Holdings (‘Arm’) to further progress development in ultra-thin and flexible semiconductor technology for mass market applications.The 18-month project is supported by Innovate UK funding of £0.6 million of which £0.4 million will be payable to Ilika.The principal objective of this collaboration is to deliver novel P-type metal-oxide semiconductor (‘PMOS’) circuit technology that can significantly enhance the characteristics of PragmatIC’s CMOS designs. 19 WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 20 FINANCIAL REVIEW STATEMENT OF FINANCIAL POSITION AND CASH FLOWS At 30 April 2018, net assets amounted to £3.8 million (2017: £6.2 million), including net funds of £2.8 million (2017: £5.4 million). The principal elements of the £2.6 million decrease over the year ended 30 April 2018 in net funds were: • Cash used in operations of £2.6 million (2017: £3.2 million); • Purchase of plant, property and equipment of £0.3 million (2017: £0.3 million); and • R&D tax credits received of £0.4 million (2017: £0.4 million). ADMINISTRATIVE EXPENSES AND LOSSES FOR THE PERIOD Administrative costs for the year were slightly decreased at £3.8 million in 2018 relative to £3.9 million in 2017. This excludes the share- based payment charge. Combined cost of sales and administrative expenses were £4.9 million in the year which is up from the £4.4 million for 2017 and is associated with the increased level of commercial and grant supported programmes. 2,173,210 Options lapsed in the year, of which 1,386,650 lapsed due to performance criteria. No reduction has been made in the share-based payment charge in respect of these lapsed options. 1,266,117 options were granted in the period. The lower share-based payment charge together with the improved margin meant that loss on continuing activities before tax reduced from £3.9 million in 2017 to £3.3 million in 2018. The Financial Review should be read in conjunction with the consolidated financial statements of the Company and Ilika Technologies Limited (together the ‘Group’) and the notes thereto on pages 38 to 49. The consolidated financial statements are presented under International Financial Reporting Standards as adopted by the European Union. The financial statements of the Company continue to be prepared in accordance with International Financial Reporting Standards as adopted by the European Union and are set out on pages 50 to 54. STATEMENT OF COMPREHENSIVE INCOME REVENUES Revenue, all from continuing activities, for the year ended 30 April 2018 was £2.1 million (2017: £1.1 million). This includes £1.3 million of grant income recognised from nine projects that the Company has in progress with Innovate UK (2017: £0.7 million from six programmes). Details of the various programmes are provided in the Materials Portfolio activities on page 16. More of the Company’s activities are supported by grant or commercial funding than was the case in the prior year, where operational resources were more heavily devoted to the internally funded battery development programme. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 21 PRINCIPAL RISKS AND UNCERTAINTIES COMMERCIAL RISK The Group is subject to competition from competitors who may develop more advanced and less expensive alternative technology platforms, both for existing materials and for those materials currently under development. The Group is largely dependent on its partners to commercialise the end-products containing the Group’s materials. The Group seeks to reduce this risk by continually assessing competitive technologies and competitors. The Group seeks to commercialise materials through multiple channels to reduce over-reliance on individual partners and, in agreements with partners, it ensures that there are commercialisation milestones which must be met for the partner to retain the rights to commercialise the materials. FINANCIAL RISK The Group is reliant on a small number of significant customers and partners. Termination of these agreements could have a material adverse effect on the Group’s results or operations or financial condition. The Group expects to incur further operating losses as progress on development programmes continue. The Group seeks to reduce this risk by broadening the number of customers and partners and thereby reduce reliance on individual significant companies. The Group applies for R&D tax credits to help mitigate its investment in these activities. INTELLECTUAL PROPERTY RISK The Group faces the risk that intellectual property rights necessary to exploit R&D efforts may not be adequately secured or defended. The Group’s intellectual property may also become obsolete before the products and services can be fully commercialised. The Group seeks to reduce this risk by employing in-house staff with extensive global experience of patenting and licensing using commercially available patent searching and landscaping software. External patent agents and attorneys are used to advise on the drafting and filing of patent applications. DEPENDENCE ON SENIOR MANAGEMENT AND KEY STAFF Certain members of staff are considered vital to the successful development of the business. Failure to continue to attract and retain such highly skilled individuals could adversely affect operational results. The Group seeks to reduce this risk by offering appropriate incentives to staff through competitive salary packages and participation in long-term share option schemes. BREXIT RISK The Group has reviewed the potential impact of Brexit on the risks identified above and believes that whilst intellectual property risk will remain largely unaffected, there may be an impact in the future regarding the Group’s ability to attract and retain highly skilled individuals. The Group is alert to and continuously reviewing this potential risk and formulating its response at the appropriate time. By order of the Board Mike Inglis Chairman 10 July 2018 Graeme Purdy CEO WWW.ILIKA.COM STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 22 BOARD OF DIRECTORS MIKE INGLIS Chairman (independent) GRAEME PURDY Chief Executive Officer PROF. BRIAN HAYDEN Chief Scientific Officer STEPHEN BOYDELL Finance Director Graeme was appointed to head-up Ilika from the beginning of May 2004, just before completion of the Company’s seed round of funding. He led the Company through two successful rounds of venture funding before floating the Company on AIM in 2010. Prior to joining Ilika, Graeme was Chief Operating Officer of a high-technology company in the Netherlands and before that worked internationally in a variety of technical and commercial roles for Shell. Graeme holds a Master’s degree in Chemical Engineering from Cambridge and an MBA from INSEAD business school in France. Graeme is a Chartered Engineer and a Sainsbury Management Fellow. Brian is a founder of Ilika and holds the Executive role of Chief Scientific Officer. He is also professor of Physical Chemistry at the University of Southampton, a Fellow of the Royal Society of Chemistry, Fellow of the Institute of Physics and a member of the International Editorial Board of Surface Science. Brian is a pioneer of surface science with a strong track record in running successful industrial collaborations and has published in excess of 100 papers in the fields of surface science, surface electrochemistry and fundamental aspects of heterogeneous catalysis and electro-catalysis. He is also the author of over 12 active patents, including new catalysts and materials for low-temperature fuel cells and solid-state lithium-ion batteries. Having qualified with Deloittes in 1996, Stephen held a number of acquisition, treasury and Group reporting roles at both Hays plc, a diversified commercial, logistics and personnel group, and then AGI Media, a global creative packaging group. He then become Finance Director of Healthy Direct, a successful Guernsey-based group of companies, producing and supplying vitamins and supplements to the UK market. He was instrumental in the restructuring of that Group and its subsequent trade sale to a competitor. He joined Ilika in 2009 as Finance Director and Company Secretary. Stephen studied Economics at Nottingham University and is a Fellow of the Institute of Chartered Accountants. Mike Inglis was appointed a Non-Executive Director of Ilika in July 2015 and Chairman in September 2015. He is currently a Non-Executive Director of Advanced Micro Devices Inc and as of 1 September 2015 of BT plc. Mike is also a member of the BT Technology Committee. Formerly, Mike was a Director and member of the Executive of Arm Holdings for over a decade, serving as Chief Commercial Officer until the end of March 2013, having previously been EVP & GM Processor Division and EVP Sales and Marketing. Before joining Arm, he worked in management consultancy with AT Kearney and held a number of senior operational and marketing positions at Motorola. Mike has previously worked in semi-conductor sales, marketing, engineering and consultancy with Texas Instruments, Fairchild and BIS Macintosh and gained his initial industrial experience with GEC Telecommunications. He is a Chartered Engineer and a Chartered Marketer. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 23 CLARE SPOTTISWOODE CBE Non-Executive Director PROF. SIR WILLIAM WAKEHAM Non-Executive Director PROF. KEITH JACKSON Non-Executive Director Clare’s career started as an economist with the Treasury before establishing her own software company. She is perhaps best known for her role as Director General of Ofgas between 1993 and 1998, where she oversaw the transformation of the gas industry from a monopoly, which controlled the whole gas supply chain, into a deregulated, competitive industry. Clare was a commissioner on the Independent Commission on Banking Chaired by John Vickers, and currently chairs Gas Strategies Group Limited and Flowgroup plc. She is also a Non-Executive Director of G4S plc and EnQuest plc. Awarded a CBE for services to industry in 1999, she holds degrees from Cambridge and Yale Universities and has an honorary doctorate from Brunel. Prof. Sir William Wakeham retired as Vice-Chancellor of the University of Southampton in September 2009. He studied Physics at Exeter University at both undergraduate and doctoral level. He is a Fellow, Senior Vice- President and International Secretary of the Royal Academy of Engineering, a Fellow of the Institution of Chemical Engineers, the Institution of Engineering and Technology, the Institute of Physics and the Portuguese Academy of Engineering. He is a Visiting Professor at Imperial College London, Exeter and Lisbon, Chair of Exeter Science Park Limited and Trustee of Royal Anniversary Trust. He was knighted in 2009 for services to Chemical Engineering and Higher Education. Keith has had a wide-ranging and successful career in companies varying from start-ups to multinationals. He founded and grew an automotive control systems company whose engine control systems are used on millions of vehicles around the world. Following the sale of the Company to a major car company he joined Rolls- Royce plc, where he worked as Chief Technology Officer in the electrical power and control systems group. Keith is Chief Technology Officer at Meggitt PLC, a global aerospace and energy components and systems company, where he is responsible for the technology strategy and research and technology. He is also actively involved on talent development at Meggitt through its Fellowship and graduate programmes. Keith is a Fellow of the Society of Automotive Engineers, a Rolls-Royce Engineering Fellow and a visiting Professor at Sheffield University. He is a graduate from University College London. WWW.ILIKA.COM WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 24 DIRECTORS’ REPORT DIRECTORS The Directors who served on the Board of Ilika during the year and to the date of this report were as follows: Between 30 April 2018 and the date of this report, there has been no change in the interests of Directors in shares as disclosed in this report. EXECUTIVE Mr. S. Boydell (FD and Company Secretary) Prof. B. E. Hayden (CSO) Mr. G. Purdy (CEO) SUBSTANTIAL SHAREHOLDINGS On 2 July 2018 the Company had been notified of the following holdings of more than 3 percent or more of the issued Share capital of the Company. NON-EXECUTIVE Mr. M. Inglis (Chairman) Ms. C. Spottiswoode CBE Prof. Sir W. Wakeham (Senior Independent Director) Prof. K. Jackson R&D COSTS In accordance with the policy outlined in note 1, the Group incurred R&D expenditure of £2,009,023 in the year (2017: £2,110,843). Commentary on the major activities is given in the Strategic Report. FINANCIAL INSTRUMENTS The use of financial instruments and financial risk management policies is covered in the Strategic Report and also in note 13 of the financial statements. FUTURE DEVELOPMENTS Information on the future developments of the business are included in the Strategic Report on page 2. DIVIDENDS The Directors do not recommend the payment of a dividend. DIRECTORS’ INTERESTS IN ORDINARY SHARES The Directors, who held office at 30 April 2018, had the following interests in the Ordinary Shares of the Company: Shareholder Sapia Partners Henderson Global Hargreave Hale Parkwalk Advisors Charles Stanley Group plc Baillie Gifford & Co. Southampton Asset Management Number of Ordinary Shares Percent shareholding 11,374,800 11,300,000 8,326,220 5,300,000 4,763,216 4,643,978 2,349,900 14.5 14.4 10.6 6.8 6.1 5.9 3.0 POST BALANCE SHEET EVENTS There are no significant post balance sheet events from 30 April 2018 to the signing of this report. AUDITORS All the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company’s Auditors for the purposes of their audit and to establish that the Auditors are aware of that information. The Directors are not aware of any relevant audit information of which the Auditors are unaware. A resolution to re-appoint BDO LLP will be proposed at the next Annual General Meeting. By order of the Board Number of Shares 1 May 2017 30 April 2018 Steve Boydell Company Secretary G. Purdy C. Spottiswoode S. Boydell M. Inglis W. Wakeham K. Jackson B. Hayden1 609,427 45,454 9,090 115,000 20,000 20,000 – 609,427 45,454 9,090 115,000 20,000 20,000 – 1 B. Hayden had an interest in Preference Shares of the Company amounting to 426,300 at 1 May 2017 and at 30 April 2018. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 25 DIRECTORS’ REMUNERATION REPORT REMUNERATION COMMITTEE The Group’s remuneration policy is the responsibility of the Remuneration Committee (the ‘Committee’). The terms of reference of the Committee are outlined in the Corporate Governance Statement on page 29. The Committee members are Mike Inglis (Chairman), Clare Spottiswoode, Prof. Keith Jackson and Prof. Sir William Wakeham, all of whom are independent Non-Executive Directors. The Chief Executive Officer and certain executives may be invited to attend Committee meetings to assist with its deliberations, but no executive is present when their own remuneration is being discussed. REMUNERATION POLICY (I) EXECUTIVE REMUNERATION The Committee has a duty to establish a remuneration policy which will enable it to attract and retain individuals of the highest calibre to run the Group. Its policy is to ensure that the executive remuneration packages of Executive Directors and the fee of the Chairman are appropriate given performance, scale of responsibility, experience, and consideration of the remuneration packages for similar executive positions in companies it considers to be comparable. Packages are structured to motivate executives to achieve the highest level of performance in line with the best interests of shareholders. A significant proportion of the total remuneration package, in the form of bonus and share options, is performance driven and has been constructed following consultation with major shareholders. COMPONENTS OF REMUNERATION Component Base salary Purpose and link to strategy Operation Performance metrics To attract and retain talent. Reflecting individual’s role, experience and performance. Base salaries are reviewed annually in January. Take into account Group and individual performance, external benchmark information and internal relativities. Benefits and Pension To offer market competitive package. Short-Term Incentive Plan – annual performance-related bonus Rewards the achievement of short-term financial and strategic project milestones. Long-Term Incentive Plan – restricted share unit awards Incentivise, retain and reward the Executive Directors for successfully taking the Company through the next stage of its growth. Shareholding guidelines To increase shareholder alignment. Contribution to the Executive Director’s individual money purchase scheme (at between 8 percent and 10 percent of base salary) and critical illness cover. n/a Maximum bonus of base salary: 100 percent CEO, 60 percent CSO and 40 percent CFO. 50 percent of the bonus is payable in cash and 50 percent is deferred into shares (using nominal cost options) for one year, subject to continued employment. Ilika plc Long-Term Incentive Plan 2015 (the ‘LTIP’), was adopted by shareholders at the 2015 AGM Single awards of share options with an exercise price of the nominal value of the shares were made which will vest after three years. 100 percent of the net of tax share awards which vest must be retained until the following guidelines are met: CEO 300 percent of salary. Delivery of exceptional performance against a series of financial, commercial and technology objectives. Awards vest to the extent that challenging share price targets have been met. n/a WWW.ILIKA.COM WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 26 DIRECTORS’ REMUNERATION REPORT (II) CHAIRMAN AND NON-EXECUTIVE DIRECTOR REMUNERATION The Chairman, Mr. Inglis receives a fixed fee of £65,975 per annum. Clare Spottiswoode, Prof. Sir William Wakeham and Prof. Keith Jackson received a fixed fee of £32,988 per annum. The fixed fee covers preparation for and attendance at meetings of the full Board and committees thereof. The Chairman and the Executive Directors are responsible for setting the level of non- executive remuneration. The Non-Executive Directors are also reimbursed for all reasonable expenses incurred in attending meetings. All remuneration policies will be reviewed regularly to maintain adherence with best market practice as appropriate. DIRECTORS’ REMUNERATION The aggregate remuneration received by Directors who served during the year ended 30 April 2018 and 30 April 2017 was as follows: Year to 30 April 2018 G. Purdy S. Boydell B. Hayden1 M. Inglis K. Jackson W. Wakeham C. Spottiswoode Year to 30 April 2017 G. Purdy S. Boydell B. Hayden1 M. Inglis J. Boyer K. Jackson W. Wakeham C. Spottiswoode Basic salary £ Benefits- in-kind £ 193,000 125,405 64,960 65,975 32,988 32,988 32,988 548,304 191,000 123,429 64,320 65,325 32,662 32,662 32,662 622 405 – – – – – 1,027 615 399 – – – – – Bonus £ 25,502 6,630 8,144 – – – – 40,276 50,250 13,043 19,372 – – – – Total short-term benefits £ 219,124 132,440 73,104 65,975 32,988 32,988 32,988 589,607 241,865 136,871 83,692 65,325 32,662 32,662 32,662 Pension £ Total £ 30,300 17,592 – – – – – 47,892 30,100 17,434 – – – – – 249,424 150,032 73,104 65,975 32,988 32,988 32,988 637,499 271,965 154,305 83,692 65,325 32,662 32,662 32,662 542,060 1,014 82,665 625,739 47,534 673,273 1 B. Hayden is employed by the University of Southampton. The amounts disclosed in the table above relate to payments made directly to B. Hayden. The University of Southampton recharged employment costs of £68,544 to the Company in the year in respect of B. Hayden. (2017: £67,313). Benefits-in-kind include critical illness cover. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 27 SHARE OPTIONS The Share options of the Directors are set out below: Unapproved G. Purdy1 G. Purdy G. Purdy2 G. Purdy B. Hayden1 B. Hayden B. Hayden1 B. Hayden2 B. Hayden S. Boydell S. Boydell2 S. Boydell W. Wakeham C. Spottiswoode M. Inglis3 K. Jackson3 Approved G. Purdy1 G. Purdy1 S. Boydell S. Boydell1 2017 Number 2018 Number Exercise price Expiry date Performance conditions 136,200 1,050,000 872,727 – 59,300 525,000 177,900 527,272 – 117,600 274,909 – 65,100 50,100 120,000 40,000 26,500 245,300 90,000 154,600 – 1,050,000 872,727 145,810 – 525,000 – 527,272 56,211 117,600 274,909 37,846 65,100 50,100 120,000 40,000 – – 90,000 – 80p 51p 1p 1p 80p 51p 81.5p 1p 1p 51p 1p 1p 51p 51p 68.75p 68.75p 80p 81.5p 80p 81.5p July 2017 May 2020 September 2025 August 2027 July 2017 May 2020 – September 2025 August 2027 May 2020 September 2025 August 2027 May 2020 May 2020 September 2025 September 2025 May 2017 – December 2019 – n/a n/a See note 4 n/a n/a n/a See note 4 See note 4 n/a n/a See note 4 n/a n/a n/a See note 4 See note 4 n/a See note 4 n/a See note 4 1 Share options lapsed in the year. 2 Shareholders’ approval to adopt and establish the Ilika plc Long-Term Incentive Plan 2015 (the ‘LTIP’) was received at the AGM in September 2015. 3 Shareholders’ approval to grant unapproved share options to the Non-Executive Directors Mike Inglis and Professor Keith Jackson was received at the AGM in September 2015. 4 These awards will vest on the achievement of the following share price targets, assessed over a three year performance period: (a) Less than 50 percent growth in share price – no vesting. (b) 50 percent growth in share price – 25 percent of the shares subject to award will vest. (c) 100 percent growth in share price – 75 percent of the shares subject to award will vest. (d) 200 percent growth in share price – 100 percent of the shares subject to award will vest. Awards will vest between points (b) and (c) and between (c) and (d) on a straight-line basis. Share-based payment charge attributable to directors in the year was £409,502 (2017: £428,587). During the year, the Committee received independent advice on executive remuneration matters from FIT Remuneration Consultants LLP. FIT received £7,380 in fees for these services. Mike Inglis Chairman of the Remuneration Committee WWW.ILIKA.COM WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 28 STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS WEBSITE PUBLICATION The Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Group’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. GOING CONCERN The Directors have prepared and reviewed financial forecasts. After due consideration of these forecasts and current cash resources, the Directors consider that the Company and the Group have adequate financial resources to continue in operational existence for the foreseeable future (being a period of at least 12 months from the date of this report), and for this reason the financial statements have been prepared on a going concern basis. Following the signing of the financial statements the Directors anticipate raising additional funds from the issue of shares to assist in the financing of the Group’s operations. By order of the Board Graeme Purdy Chief Executive 10 July 2018 The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market (‘AIM’). In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 29 CORPORATE GOVERNANCE STATEMENT We note that the AIM rules are due to be updated, which is proposed to take effect from 30 June 2018, to require a statement as to how we comply with a recognised corporate governance code. The Directors intend that the Group will comply with the provisions of the Quoted Companies Alliance Corporate Governance Code, insofar as they are appropriate given its size, nature and stage of development. PERFORMANCE EVALUATION The Board has a process for evaluation of its own performance which is carried out annually. BOARD COMMITTEES As appropriate, the Board has delegated certain responsibilities to Board Committees as follows: BOARD OF DIRECTORS The Board of Directors (the ‘Board’) consists of a Non-Executive Chairman, three Executive Directors and three Non-Executive Directors. The responsibilities of the Non-Executive Chairman and the Chief Executive Officer are clearly divided. The Chairman is responsible for overseeing the formulation of the overall strategy of the Company, the running of the Board, ensuring that no individual or group dominates the Board’s decision making and ensuring that the Non-Executive Directors are properly briefed on matters. Prior to each Board meeting, Directors are sent an agenda and Board papers for each agenda item to be discussed. Additional information is provided when requested by the Board or individual Directors. The Chief Executive Officer has the responsibility for implementing the strategy of the Board and managing the day to day business activities of the Group through his chairmanship of the executive committee. The Non-Executive Directors bring relevant experience from different backgrounds and receive a fixed fee for their services and reimbursement of reasonable expenses incurred in attending meetings. The Board retains full and effective control of the Group. This includes responsibility for determining the Group’s strategy and for approving budgets and business plans to fulfil this strategy. The full Board ordinarily meets bi-monthly. The Company Secretary is responsible to the Board for ensuring that Board procedures are followed and that the applicable rules and regulations are complied with. All Directors have access to the advice and services of the Company Secretary, and independent professional advice, if required, at the Company’s expense. Removal of the Company Secretary would be a matter for the Board. I) AUDIT COMMITTEE The Audit Committee currently comprises Clare Spottiswoode CBE (Chairman), Professor Sir William Wakeham (Senior Independent Director), Professor Keith Jackson and Mike Inglis. The Committee monitors the integrity of the Group’s financial statements and the effectiveness of the audit process. The Committee reviews accounting policies and material accounting judgements. The Committee also reviews, and reports on, reports from the Group’s auditors relating to the Group’s accounting controls. It makes recommendations to the Board on the appointment of auditors and the audit fee. It has unrestricted access to the Group’s auditors. The Committee keeps under review the nature and extent of non-audit services provided by the external auditors in order to ensure that objectivity and independence are maintained. II) REMUNERATION COMMITTEE The Remuneration Committee comprised Mike Inglis (Chairman), Clare Spottiswoode CBE, Professor Keith Jackson and Professor Sir William Wakeham (Senior Independent Director). The Committee is responsible for making recommendations to the Board on remuneration policy for Executive Directors and the terms of their service contracts, with the aim of ensuring that their remuneration, including any share options and other awards, is based on their own performance and that of the Group generally. III) NOMINATION COMMITTEE The Nomination Committee comprised Mike Inglis (Chairman), Professor Sir William Wakeham (Senior Independent Director), Professor Keith Jackson and Clare Spottiswoode CBE. It is responsible for providing a formal, rigorous and transparent procedure for the appointment of new Directors to the Board and reviewing the performance of the Board each year. WWW.ILIKA.COM WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 30 CORPORATE GOVERNANCE STATEMENT ATTENDANCE AT BOARD MEETINGS AND COMMITTEES The Directors attended the following Board and committee meetings during the year: Attendance Mr. S. Boydell Prof. B. E. Hayden Mr. M. Inglis Mr. G. Purdy Ms. C. Spottiswoode Prof. Sir W. Wakeham Prof. K. Jackson Board Audit Nomination Remuneration 6/6 6/6 6/6 6/6 5/6 6/6 6/6 – – 2/2 – 2/2 2/2 2/2 – – 1/1 – 1/1 1/1 1/1 – – 2/2 – 2/2 2/2 2/2 RISK MANAGEMENT AND INTERNAL CONTROL The Board is responsible for the systems of internal control and for reviewing their effectiveness. The internal controls are designed to manage rather than eliminate risk and provide reasonable but not absolute assurance against material misstatement or loss. The Audit Committee reviews the effectiveness of these systems primarily by discussion with the external auditor and by considering the risks potentially affecting the Group. The Group does not consider it necessary to have an internal audit function due to the small size of the administration function. Instead there is a detailed Director review and authorisation of transactions. The annual audit by the Group auditor, which tests a sample of transactions, did not highlight any significant system improvements in order to reduce risk. The Group maintains appropriate insurance cover in respect of actions taken against the Executive Directors because of their roles, as well as against material loss or claims of the Group. The insured values and type of cover are comprehensively reviewed on a periodic basis. By order of the Board Mike Inglis Chairman 10 July 2018 ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 31 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ILIKA PLC OPINION We have audited the financial statements of Ilika plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 30 April 2018 which comprise the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated cash flow statement, the Consolidated statement of changes in equity, the Company balance sheet, the Company cash flow statement, the Company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 April 2018 and of the Group’s loss for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. CONCLUSIONS RELATING TO GOING CONCERN We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s or the Parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least 12 months from the date when the financial statements are authorised for issue. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How we addressed the matter Impacting the group financial statements We have determined that there are no key audit matters to communicate in our report that relate to the Group financial statements. Impacting the Parent financial statements only Investment in subsidiary As set out in note 21 the Company holds an investment of £24.2 million in its subsidiary, Ilika Technologies Limited. At each reporting date, management carries out an impairment review in accordance which includes assessing future cash flows and discounting to present value and comparing this to its carrying amount. The risk is in the estimation of future cash flows and applying an appropriate discount rate to arrive at the present value. We have tested the integrity of the client’s model and challenged the impairment review through assessing the appropriateness of the key assumptions such as the discount rate, the scale of market opportunities and risk weighting of estimated future cash flows to available market information when they are fully commercialised. We have re-performed the calculation of management’s discounted cash flow workings. WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 32 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ILIKA PLC OUR APPLICATION OF MATERIALITY Group materiality: £156,000 (2017: £183,000). Parent Company materiality: £148,000 (2017: £173,000). Our Group materiality, for both the current and prior year, has been based upon 5 percent of the loss before tax. We consider the loss before tax to be one of the principal considerations for stakeholders in assessing the performance of the Group. Materiality in respect of the audit of the Parent Company has been set using a benchmark of 1 percent of total assets for both the current and prior year. We consider total assets to be the most appropriate measure for the basis of materiality as the Company is a holding company. We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Performance materiality was set at £117,000. In setting the level of performance materiality we considered a number of factors including the expected total value of known and likely misstatements based on past experience and other factors. Materiality for the trading subsidiary of the Group was set at a lower level than that of the Group at £148,000 (2016: £173,000). We agreed with the Audit Committee that we would report to the Committee all individual audit differences identified during the course of our audit in excess of £3,120 (2017: £3,660). We also agreed to report differences below these thresholds that, in our view, warranted reporting on qualitative grounds. AN OVERVIEW OF THE SCOPE OF OUR AUDIT The scope of our Group audit was established by obtaining an understanding of the Group, including its control environment, and assessing the risks of material misstatement. Both components, Ilika plc and Ilika Technologies Limited, are considered significant components and are subject to a full-scope audits by BDO LLP. OTHER INFORMATION The Directors are responsible for the other information. The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ report have been prepared in accordance with applicable legal requirements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 USE OF OUR REPORT This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Malcolm Thixton (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor Southampton United Kingdom BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 33 RESPONSIBILITIES OF DIRECTORS As explained more fully in the Directors’ responsibilities statement set out on page 28, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 34 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Turnover Revenue UK grants Cost of sales Gross profit Total Administrative expenses Administrative expenses Share-based payment charge Operating loss Income from short-term deposits Loss before tax Taxation Loss for period/total comprehensive income attributable to owners of parent Loss per share from continuing operations Basic Diluted Year ended 30 April Notes 2018 £ 2017 £ 2 2,051,177 1,050,667 798,430 1,252,747 (1,090,898) 960,279 311,946 738,721 (574,272) 476,395 (3,793,686) (3,863,411) (547,347) (434,382) 4,410,758 4,228,068 (3,267,789) (3,934,363) 23,844 17,156 (3,250,633) 353,309 (3,910,519) 370,274 (2,897,324) (3,540,245) (3.67)p (3.67)p (4.84)p (4.84)p 3 5 6 ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 35 CONSOLIDATED BALANCE SHEET COMPANY NUMBER 7187804 Notes As at 30 April 2018 £ 2017 £ ASSETS Non-current assets Intangible assets Property, plant and equipment Total non-current assets Current assets Trade and other receivables Current tax receivable Other financial assets – bank deposits Cash and cash equivalents Total current assets Total assets Issued capital and reserves attributable to owners of parent Issued share capital Share premium Capital restructuring reserve Retained earnings Total equity LIABILITIES Current liabilities Trade and other payables Provisions Total liabilities Total equity and liabilities 7 8 9 5 10 14 11 12 2,453 578,103 580,556 2,581 451,560 454,141 1,024,359 330,000 – 2,811,155 1,116,367 330,000 2,900,000 2,510,884 4,165,514 6,857,251 4,746,070 7,311,392 789,911 789,911 23,179,756 23,179,756 6,486,077 (26,669,347) (24,206,405) 6,486,077 3,786,397 6,249,339 809,673 150,000 959,673 912,053 150,000 1,062,053 4,746,070 7,311,392 The notes on pages 38 to 49 form part of these financial statements. These financial statements were approved and authorised for issue by the Board of Directors on 10 July 2018. Mr. M Inglis Chairman WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 36 CONSOLIDATED CASH FLOW STATEMENT Cash flows from operating activities Loss before taxation Adjustments for: Amortisation Depreciation Equity settled share-based payments (Profit)/loss on disposal of plant, property and equipment Financial income Year ended 30 April 2018 £ 2017 £ (3,250,633) (3,910,519) 3,282 196,415 434,382 – (17,156) 13,014 192,331 547,347 (30,783) (23,844) Operating cash flow before changes in working capital, interest and taxes Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables (2,633,710) 92,008 (102,380) (3,212,454) (598,672) 163,925 Cash utilised by operations Tax received Net cash flow used in operating activities Cash flows from investing activities Interest received Sale of property, plant and equipment Purchase of intangible assets Purchase of property, plant and equipment (Increase)/decrease in other financial assets Net cash from/(used in) investing activities Cash flows from financing activities Proceeds from issuance of Ordinary Share capital Cost of share issue Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the start of the period Cash and cash equivalents at the end of the period (2,644,082) 353,309 (3,647,201) 415,274 (2,290,773) (3,231,927) 17,156 – (3,154) (322,958) 2,900,000 23,844 40,129 (253,913) (2,900,000) 2,591,044 (3,089,940) – – – 6,300,000 (464,661) 5,835,339 300,271 2,510,884 (486,528) 2,997,412 2,811,155 2,510,884 ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 37 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY As at 30 April 2016 Share-based payment Issue of shares Cost of share issue Loss and total comprehensive income As at 30 April 2017 Share-based payment Loss and total comprehensive income As at 30 April 2018 Share capital £ 663,911 – 126,000 – – Share premium account £ Capital restructuring reserve £ Total attributable to equity holders of parent £ Retained earnings £ 17,470,417 – 6,174,000 (464,661) – 6,486,077 (21,213,507) 547,347 – – 3,406,898 547,347 6,300,000 (464,661) (3,540,245) (3,540,245) – – – – 789,911 23,179,756 – – – – 6,486,077 (24,206,405) 434,382 (2,897,324) – – 6,249,339 434,382 (2,897,324) 789,911 23,179,756 6,486,077 (26,669,347) 3,786,397 SHARE CAPITAL The share capital represents the nominal value of the equity shares in issue. SHARE PREMIUM ACCOUNT When shares are issued, any premium paid above the nominal value is credited to the share premium reserve. CAPITAL RESTRUCTURING RESERVE The capital restructuring reserve arises on the accounting for the share for share exchange. It represents the difference between the value of the issued equity instruments of Ilika Technologies Limited immediately before the share for share exchange and the equity instruments of Ilika plc along with the shares issued to effect the share for share exchange. RETAINED EARNINGS The retained earnings reserve records the accumulated profits and losses of the Group since inception of the business. WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 ACCOUNTING POLICIES BASIS OF PREPARATION These financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) adopted by the European Union. The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. The policies have been consistently applied to all of the years presented. The individual financial statements of Ilika plc are shown on page 50 to 54. BASIS OF CONSOLIDATION The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company made up to the reporting date. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns over the investee, and the ability of the investee to use its power to affect the variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. GOING CONCERN The financial statements have been prepared on a going concern basis which assumes that the Company will have sufficient funds available to enable it to continue to trade for the foreseeable future. In making their assessment that this assumption is correct the Directors have undertaken an in-depth review of the business, its current prospects, and cash resources as set out below. The Directors have prepared and reviewed financial forecasts. The Group meets its day to day working capital requirements through existing cash resources which, at 30 April 2018, amounted to £2,811,155. After due consideration of these forecasts and current cash resources, the Directors consider that the Company and the Group have adequate financial resources to continue in operational existence for the foreseeable future (being a period of at least 12 months from the date of this report), and for this reason the financial statements have been prepared on a going concern basis. The Directors have also considered the likely sales, contracts and announcements that the Company anticipate being able to make over the coming months, the current share price, levels of trading in the Company’s shares and past history of raising funds with the Company’s Brokers. After taking account of all the above factors the Directors believe that as the market becomes more aware of the Company’ prospects and the scale of the opportunities that the Company’s technologies create the Company will continue to be able to raise any funds required to enable it to continue to trade and grow towards self-sufficiency. CHANGES IN ACCOUNTING POLICIES (A) NEW STANDARDS, AMENDMENTS TO STANDARDS OR INTERPRETATIONS ADOPTED EARLY During the period ended 30 April 2018, there were no new or revised standards, amendments to standards or interpretations that have been adopted and affected the amounts reported in the financial statements. (B) NEW STANDARDS, AMENDMENTS TO STANDARDS OR INTERPRETATIONS NOT YET APPLIED The following standards, interpretations and amendments, which have not been applied in these financial statements and have an effective date commencing after 1 May 2018, will or may have an effect on the Group’s future financial statements: International Accounting Standards (IAS/IFRS) IFRS 15 Revenue from Contracts with Customers Effective date for periods commencing 1 January 2018 The Directors will assess the impact of IFRS 15, with particular focus on the recognition of revenue over the life of contracts and projects. No other new standards or amendments are expected to have an effect on the Group. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 39 TURNOVER Turnover comprises the fair value for the sale of services, net of value added tax and is recognised as follows: SALES OF SERVICES Sales of R&D services are recognised in the accounting period in which the services are rendered, by reference to the actual service provided as a proportion of the total services to be provided. GOVERNMENT GRANTS Grants that compensate the Group for expenses incurred are recognised in the income statement on a systematic basis in the same periods in which the expenses are recognised. FINANCIAL INCOME Income from short-term deposits is recognised in the income statement as it accrues, using the effective interest method. PENSION AND OTHER POST-RETIREMENT BENEFITS Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. SHARE-BASED PAYMENT TRANSACTIONS The Group issues equity-settled share options to all employees. Equity-settled share options are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share options is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions. The fair value of non-market-based options granted by the Group is measured by use of the Black-Scholes pricing model taking into account the following inputs: the exercise price of the option; the life of the option; the market price on the date of grant of the option; the expected volatility of the share price; the dividends expected on the shares; and the risk free interest rate for the life of the option. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. R&D EXPENDITURE Research expenditure is recognised as an expense when it is incurred. Its ability to measure reliably the expenditure attributable to the asset under development; Development expenditure is recognised as an expense except that costs incurred on development projects are capitalised as intangible assets to the extent that such expenditure is expected to generate future economic benefits. Development expenditure is capitalised if, and only if, an entity within the Group can demonstrate all of the following: i. ii. The product or process is technically and commercially feasible; iii. iv. v. Its future economic benefits are probable; Its ability to use or sell the developed asset; The availability of adequate technical, financial and other resources to complete the asset under development; and vi. Its intention is to use or sell the developed asset. Prior to and during the year ended 30 April 2018, no development expenditure satisfied all of these conditions. TAXATION Companies within the Group may be entitled to claim special tax allowances in relation to qualifying R&D expenditure (e.g. R&D tax credits). The Group accounts for such allowances as tax credits, which means that they are recognised when it is probable that the benefit will flow to the Group and that benefit can be reliably measured. R&D tax credits reduce current tax expense and, to the extent the amounts due in respect of them are not settled by the balance sheet date, reduce current tax payable. A deferred tax asset is recognised for unclaimed tax credits that are carried forward as deferred tax assets. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 ACCOUNTING POLICIES CONTINUED A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. FOREIGN CURRENCY Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Depreciation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment less their estimated residual value. The estimated useful lives are as follows: Leasehold improvements Plant, machinery and equipment Fixtures and fittings lease term 3–5 years 3–5 years IMPAIRMENT The carrying amounts of the Group’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated at the present value of the future expected cash flows associated with the impaired asset. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in profit or loss. INTANGIBLE ASSETS COMPUTER SOFTWARE Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised to administrative expenses using the straight-line method over their estimated useful lives (1–3 years). INTELLECTUAL PROPERTY Acquired intellectual property is included at cost and is amortised to administrative expenses on a straight-line basis over its useful economic life of 15 years. FINANCIAL INSTRUMENTS Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group’s financial assets are all classified as loans and receivables and carried at amortised cost. The Group’s financial liabilities are all classified as ‘other’ liabilities which are carried at amortised cost. Cash and cash equivalents comprise cash balances and call deposits. Deposits of over three months’ maturity, judged at inception, are classified as Other Financial Assets. KEY SOURCES OF ESTIMATION AND UNCERTAINTY The preparation of the Group’s financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses at the date of the Group’s financial statements. The Group’s estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Directors do not believe there to be any estimates or judgements that have a significant impact on the Group’s Financial statements. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 41 SEGMENT REPORTING 2 The Group operates in one area of activity, namely the production, design and development of high throughput methods of material synthesis, characterisation and screening. The Group has materials development programmes addressing a wide range of applications including the solid-state battery, aerospace alloys and electronic materials. For management purposes, the Group is analysed by the geographical location of its customer base and business development Directors have been appointed to cover the Group’s three territories of focus: Asia, North America and Europe. Analysis by geographical market: By destination Asia Europe North America UK Year ended 30 April 2018 £ 2017 £ 38,241 134,302 565,887 1,312,747 21,280 – 197,818 831,569 2,051,177 1,050,667 A number of customers individually account for more than 10 percent of the total turnover of the Group. The revenues from these companies are indicated below: UK Grants Customer 1 Customers less than 10 percent 3 OPERATING LOSS This is arrived at after charging: R&D expenditure in the year Depreciation Amortisation of intangible assets Auditor’s remuneration: Fees payable to the Group’s auditor for the audit of the Group’s accounts Fees payable to the Group’s auditor for other services: The audit of the Group’s subsidiaries Operating lease rentals Share-based payment Year ended 30 April 2018 £ 1,252,747 565,887 232,543 2017 £ 738,721 197,819 114,127 2,051,177 1,050,667 Year ended 30 April 2018 £ 2017 £ 2,009,023 196,415 3,282 2,110,843 192,331 13,014 22,200 20,700 6,800 207,511 434,382 6,800 207,511 547,347 WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4 EMPLOYEES The average number of employees during the year, including Executive Directors, was: Administration Materials synthesis Staff costs for all employees, including Executive Directors, consist of: Wages and salaries Social security costs Share-based payment expense Pension costs The total remuneration of the Directors of the Group was as follows: Wages and salaries Pension costs Directors’ emoluments Social security costs Share-based payment expense Key management personnel Year ended 30 April 2018 £ 6 34 40 Year ended 30 April 2017 £ 6 32 38 2017 £ 2018 £ 2,055,959 225,480 434,382 150,120 1,954,655 215,648 532,347 139,286 2,865,941 2,841,936 Year ended 30 April 2018 £ 589,607 47,892 637,499 75,072 409,502 2017 £ 624,726 47,534 672,260 80,177 428,587 1,122,073 1,181,024 The Directors represent key management personnel and further details are given in the Directors’ Remuneration Report on pages 25 to 27. 5 TAXATION (A) TAX ON LOSS FROM ORDINARY ACTIVITIES There is no taxation charge due to the losses incurred by the Group during the year. The taxation credit represents R&D tax credit claims as follows: Current tax on loss for the year Adjustments to prior period Year ended 30 April 2018 £ 330,000 23,309 353,309 2017 £ 330,000 40,274 370,274 ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 43 (B) FACTORS AFFECTING CURRENT TAX CHARGE The tax assessed on the loss on ordinary activities for the period is different to the standard rate of corporation tax in the UK of 19 percent (2017: 20 percent). The differences are reconciled below: Loss on ordinary activities before tax Loss on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK of 19 percent (2017: 20 percent) Effects of: Expenses not deductible for corporation tax R&D relief Origination of unrecognised tax losses Under provision in previous years Total tax credit for the year Year ended 30 April 2018 £ 2017 £ (3,120,313) (3,910,519) (592,859) (778,975) 57,772 (330,000) 535,087 (23,309) 109,098 (289,726) 629,603 (40,274) (353,309) (370,274) UNRECOGNISED DEFERRED TAXATION There are tax losses available for carry forward against future trading profits of approximately £21,529,000 (2017: £19,065,000). A deferred tax asset in respect of these losses of approximately £3,660,000 (2017: £3,240,000) has not been recognised in the accounts, as the full utilisation of these losses in the foreseeable future is uncertain. LOSS PER SHARE 6 Earnings per Ordinary Share have been calculated using the weighted average number of shares in issue during the relevant financial periods. The weighted average number of equity shares in issue and the earnings, being loss after tax, are as follows: Weighted average number of equity shares Earnings, being loss after tax Loss per share Year ended 30 April 2018 Number 2017 Number 78,991,110 73,122,617 2018 £ 2017 £ (2,897,324) (3,540,245) 2018 Pence (3.67) 2017 Pence (4.84) The loss attributable to Ordinary Shareholders and weighted average number of Ordinary Shares for the purpose of calculating the diluted earnings per Ordinary Share are identical to those used for basic earnings per share. This is because the exercise of share options would have the effect of reducing the loss per Ordinary Share and is therefore not dilutive. At 30 April 2018, there were 6,727,499 options outstanding (2017: 7,741,892) as detailed in notes 14 and 18. WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 INTANGIBLE ASSETS Cost As at 30 April 2016 Disposals As at 30 April 2017 Additions As at 30 April 2018 Amortisation As at 30 April 2016 Provided for the year Disposals As at 30 April 2017 Provided for the year As at 30 April 2018 Net book value As at 30 April 2016 As at 30 April 2017 As at 30 April 2018 Software licences £ Intellectual property £ Total £ 46,293 (7,250) 39,043 3,154 42,197 30,698 13,014 (7,250) 36,462 3,282 39,744 15,595 2,581 2,453 75,000 75,000 – 75,000 75,000 – – 75,000 – 121,293 (7,250) 114,043 3,154 117,197 105,698 13,014 (7,250) 111,462 3,282 75,000 114,744 – – – 15,595 2,581 2,453 The amortisation charge of £3,282 (2017: £13,014) is included within administrative expenses. 8 PROPERTY, PLANT AND EQUIPMENT Cost As at 30 April 2016 Additions Disposals As at 30 April 2017 Additions Disposals As at 30 April 2018 Depreciation As at 30 April 2016 Provided for the year Disposals As at 30 April 2017 Provided for the year Disposals As at 30 April 2018 Net book value As at 30 April 2016 As at 30 April 2017 As at 30 April 2018 Leasehold improvements £ Plant, machinery and equipment £ Fixtures and fittings £ Total £ 567,500 – – 567,500 33,974 – 4,523,026 253,172 (234,408) 4,541,790 287,969 (11,939) 167,525 741 (546) 167,720 1,015 – 5,258,051 253,913 (234,954) 5,277,010 322,958 (11,939) 601,474 4,817,820 168,735 5,588,029 567,500 – – 567,500 8,144 – 4,131,647 187,591 (225,062) 4,094,176 185,482 (11,939) 159,580 4,740 (546) 163,774 2,789 – 4,858,727 192,331 (225,608) 4,825,450 196,415 (11,939) 575,644 4,267,719 166,563 5,009,926 – – 391,379 447,614 25,830 550,101 7,945 3,946 2,172 399,324 451,560 578,103 There are no commitments for capital expenditure contracted but not provided for (2017: £nil). ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 45 9 TRADE AND OTHER RECEIVABLES Trade receivables Prepayments Other receivables Accrued income The ageing of trade receivables is as follows: 0–29 days 30–59 days As at 30 April 2018 £ 5,163 337,887 242,097 439,212 2017 £ 133,655 299,032 312,769 370,911 1,024,359 1,116,367 As at 30 April 2018 £ 5,163 – 5,163 2017 £ 67,181 66,474 133,655 Included in other receivables is an amount of £150,000 (2017: £150,000) which represents cash held in a separate bank account used as security against a bond provided by the Company’s bankers (refer to note 12). The bond relates to the potential dilapidations costs due at the end of the Company’s property lease. 10 CASH AND CASH EQUIVALENTS Current bank accounts Short-term deposits with less than three months’ maturity 11 TRADE AND OTHER PAYABLES Trade payables Other payables Other taxes and social security costs Accruals The ageing of financial liabilities is as follows: 0–29 days 30–59 days 60–89 days 90+ days As at 30 April 2018 £ 2017 £ 435,108 2,376,047 238,371 2,272,513 2,811,155 2,510,884 As at 30 April 2018 £ 269,191 24,927 51,372 464,183 2017 £ 308,635 28,454 57,768 517,196 809,673 912,053 As at 30 April 2018 £ 482,162 133,788 17,404 124,947 2017 £ 562,725 163,854 3,010 124,696 758,301 854,285 WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12 PROVISIONS As at 1 May 2017 and at 30 April 2018 All provisions are due within one year. Leasehold dilapidations £ 150,000 Leasehold dilapidations relate to the estimated cost of returning a leasehold property to its original state at the end of the lease in accordance with the lease terms. 13 FINANCIAL INSTRUMENTS The risks associated with financial instruments are set out below. FOREIGN CURRENCY RISK The Group buys goods and services in currencies other than Sterling. The Group’s non-Sterling liabilities and cash flows can be affected by movements in exchange rates. The Group has denominated some of it sales transactions in non-Sterling currencies and has entered into a forward exchange contract to mitigate this risk. CREDIT RISK The Group’s credit risk is attributable to its trade receivables and banking deposits. The Group places its deposits with reputable financial institutions to minimise credit risk. The maximum exposure to credit risk for each period is the amount disclosed above as total loans and receivables. For the periods above there were no trade receivables which were past due or impaired. Risk is further mitigated through the use of credit limits, but also through the nature of the customers, who, for the most part, are large multinationals. LIQUIDITY RISK The Group’s policy is to maintain adequate cash resources to meet liabilities as they fall due. All Group payable balances fall due for payment within one year. Cash balances are placed on deposit for varying periods with reputable banking institutions to ensure there is limited risk of capital loss. The Group does not maintain an overdraft facility. INTEREST RATE RISK The main risk arising from the Group’s financial instruments is interest rate risk. The Group placed deposits surplus to short-term working capital requirements with a variety of reputable UK-based banks. These balances are placed at floating rates of interest and deposits have maturities of one to 12 months. The Group’s cash and short-term deposits are set out in note 11. Floating-rate financial assets comprise cash on deposit and cash at bank. Short-term deposits are placed with banks for periods of up to 12 months and are categorised as floating-rate financial assets. Contracts in place at 30 April 2018 had a weighted average period to maturity of 28 days (2017: 26 days) and a weighted average annualised rate of interest of 0.6 percent (2017: 0.6 percent). INTEREST RATE RISK SENSITIVITY ANALYSIS It is estimated that a change in base rate to zero would have increased the Group’s loss before taxation for the year to 30 April 2018 by approximately £17,000 (2017: £24,000). It is estimated that an increase in base rate by 1 percent would decrease the Group’s loss before taxation for the year to 30 April 2018 by approximately £30,000 (2017: £45,000) There is no difference between the book and fair value of financial assets and liabilities. CAPITAL MANAGEMENT The primary aim of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern, to support its businesses and maximise shareholder value. The Group monitors its capital structure and makes adjustments as and when it is deemed necessary and appropriate to do so using such methods as the issuing of new shares. At present all funding is raised by equity. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 47 14 SHARE CAPITAL Authorised 78,402,710 Ordinary Shares of £0.01 each 1,781,400 Convertible Preference Shares of £0.01 each Allotted, called up and fully paid 78,402,710 Ordinary Shares of £0.01 each 588,400 Convertible Preference Shares of £0.01 each As at 30 April 2018 £ 2017 £ 784,027 17,814 784,027 17,814 784,027 5,884 789,911 784,027 5,884 789,911 SHARE RIGHTS The Ordinary Share and preference shares rank pari passu in all respects other than: • The profits which the Group may determine to distribute in respect of any financial period shall be distributed only among the holders of the Ordinary Shares. The Preference Shares shall not entitle the holders of them to any share in such distributions • On a return of capital or assets on a liquidation, reduction of capital or otherwise the surplus assets of the Group remaining after payment of its obligations shall be applied: – First, in paying to the holders of the Preference Shares the amount paid thereon, being the amount equal to the par value of the preference shares excluding any premium; and – Secondly, the balance of such surplus assets shall belong to and be distributed amongst the holders of the Ordinary Shares. The Preference Shareholders have the right, at any time, to convert the preference shares held to the same number of Ordinary Shares. There are no further redemption rights. SHARE OPTIONS AND WARRANTS Employee related share options are disclosed in note 18. 15 OPERATING LEASES The total future minimum rent payable under non-cancellable operating leases is as follows: Property leases which expire: Within one year 2018 £ 2017 £ 97,143 97,143 16 PENSIONS The Group operates a defined contribution Group personal pension scheme. The pension cost charge for the period represents contributions payable by the Group to the scheme and amounted to £150,120 (2017: £139,286). 17 RELATED PARTY TRANSACTIONS The Directors consider that no one party controls the Group. Details of key management personnel and their compensation are given in note 4 and in the Directors’ Remuneration Report on pages 25 to 27. WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18 SHARE-BASED PAYMENTS EXPENSE AND SHARE OPTIONS SHARE-BASED PAYMENT EXPENSE The Group has incentivised and motivated staff through the grant of share options under the Enterprise Management Incentive (‘EMI’) scheme and through unapproved share options. At 30 April 2018, the following options, whose fair values have been fully charged to the consolidated statement of total comprehensive income, were outstanding: Approved share options: Date of grant 02/02/09 01/12/09 14/05/10 01/02/12 Unapproved share options: Date of grant 11/11/08 14/05/10 BLACK-SCHOLES VALUATION Outstanding: At start of the period Granted in the period Lapsed in the period At the end of the period Number of shares Period of option Exercise price per share 53,000 90,000 23,200 39,634 10 years 10 years 10 years 10 years £0.80 £0.80 £0.51 £0.53 Number of shares Period of option Exercise price per share 40,000 1,897,800 10 years 10 years £2.4283 £0.51 Weighted average exercise price Number 2018 £ 2017 £ 2018 2017 0.4930 0.1721 0.7652 0.2856 0.5021 0.4850 0.7384 5,710,692 1,266,117 (2,170,310) 4,956,912 906,500 (152,720) 0.4930 4,806,499 5,710,692 The exercise price of options outstanding at the end of the period ranged between £0.01 and £2.4283 and their weighted average contractual life was 8.0 years (2017: 8.1 years). These share options are exercisable and must be exercised within 10 years from the date of grant. STOCHASTIC VALUATION Outstanding: At start of the period Lapsed during the period At the end of the period Weighted average exercise price Number 2018 £ 0.51 0.51 0.51 2017 £ 0.51 – 0.51 2018 2017 1,923,900 (2,900) 1,923,900 – 1,921,000 1,923,900 The exercise price of options outstanding at the end of the period was £0.51 (2017: £0.51) and their weighted average contractual life was three years (2017: four years). ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 49 ILIKA PLC EXECUTIVE SHARE OPTION SCHEME 2010 At 30 April 2018 the following share options were outstanding in respect of the Ilika plc Executive Share Option Scheme 2010: Date of grant 14/05/10 01/02/12 22/03/16 16/03/17 08/02/18 Number of shares Period of option Exercise price per share 23,200 35,884 729,090 757,500 1,026,250 10 years 10 years 10 years 10 years 10 years £0.51 £0.53 £0.59 £0.485 £0.21 Members of staff in the Group have options in respect of Ordinary Shares in Ilika plc, which are conditional upon the achievement of a series of financial and commercial milestones. 1,676,610 options lapsed in the year. ILIKA PLC UNAPPROVED SHARE OPTIONS At 30 April 2018 the following share options were outstanding in respect of Ilika plc unapproved share options: Date of grant 11/11/08 14/05/10 26/02/15 30/09/15 30/09/15 Number of shares Period of option Exercise price per share 40,000 1,897,800 177,900 160,000 1,674,908 10 years 10 years 10 years 10 years 10 years £2.4283 £0.51 £0.815 £0.688 £0.01 496,600 options lapsed in the year and no options were exercised. There are 2,139,884 options which were capable of being exercised as at 30 April 2018. Share-based payment expense Black-Scholes calculation 2018 £ 2017 £ 434,382 547,347 WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 50 COMPANY BALANCE SHEET OF ILIKA PLC COMPANY NUMBER 7187804 ASSETS Non-current assets Investments in subsidiary undertaking Amount due from subsidiary undertaking Current assets Trade and other receivables Total assets Equity Issued share capital Share premium Retained earnings LIABILITIES Current liabilities Trade and other payables Total liabilities Total equity and liabilities Notes As at 30 April 2018 £ 2017 £ 21 24,229,684 23 121,339 33,834 24,108,345 24,263,518 24,229,684 22 10,119 13,646 24,273,637 24,243,330 789,911 789,911 23,158,967 23,158,967 146,304 181,889 24,130,767 24,095,182 24 142,870 142,870 148,148 148,148 24,273,637 24,243,330 No profit and loss account is presented for the Company as permitted by Section 408 of the Companies Act 2006. The Company’s loss for the year was £398,797 (2017: loss of £509,726). The notes on pages 53 to 54 form part of these financial statements. These financial statements were approved and authorised for issue by the Board of Directors on 10 July 2018. Mr. M Inglis Chairman ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 51 COMPANY CASH FLOW STATEMENT Cash flows from operating activities Loss before tax Adjustments for: Equity settled share-based payments Operating cash flow before changes in working capital, interest and taxes Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Increase in amounts due from subsidiary undertaking Cash utilised by operations Cash flows from financing activities Proceeds from issuance of Ordinary Share capital Costs of share issue Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the start of the period Cash and cash equivalents at the end of the period Year end 30 April 2018 £ 2017 £ (398,797) (509,726) 434,382 547,347 35,585 3,527 (5,278) 37,621 (11,127) 11,842 (33,834) (5,873,675) – (5,835,339) – – – – – – 6,300,000 (464,661) 5,835,339 – – – WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 52 COMPANY STATEMENT OF CHANGES IN EQUITY As at 30 April 2016 Issue of shares Costs of issue Share-based payment Profit and total comprehensive income As at 30 April 2017 Share-based payment Profit and total comprehensive income As at 30 April 2018 Share capital £ Share premium account £ 663,911 126,000 – – – 17,449,628 6,174,000 (464,661) – – 789,911 23,158,967 – – – – Total attributable to equity holders of parent £ Retained earnings £ 108,683 18,222,222 6,300,000 (464,661) 547,347 (509,726) – – 547,347 (509,726) 146,304 24,095,182 434,382 434,382 (398,477) (398,797) 789,911 23,158,967 181,889 24,130,767 SHARE CAPITAL The share capital represents the nominal value of the equity shares in issue. SHARE PREMIUM ACCOUNT When shares are issued, any premium paid above the nominal value is credited to the share premium reserve. RETAINED EARNINGS The retained earnings reserve records the accumulated profits and losses of the Company since inception of the business. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 53 NOTES TO THE COMPANY FINANCIAL STATEMENTS 19 ACCOUNTING POLICIES BASIS OF PREPARATION These financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) adopted by the European Union. TAXATION, SHARE-BASED PAYMENTS AND FINANCIAL INSTRUMENTS For the relevant accounting policies please see note 1. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS Investments in subsidiary undertakings where the Company has control are stated at cost less any provision for impairment. KEY SOURCES OF ESTIMATION AND UNCERTAINTY The Company holds a significant investment in its subsidiary, Ilika Technologies Limited, of £24.3 million (2017:£0.1 million). In assessing the carrying value of this asset for impairment, the Directors have exercised judgement in estimating its recoverable amount. The determination of the valuation for this asset is based on the discounted estimated future cash flows generated from out-licensing transactions. The valuation is derived from a financial model that evaluates a range of potential outcomes from what are considered the key variables, including the probability of licensing agreements being signed, the expected licensing terms that will be negotiated and the anticipated revenues generated as a result. Given the level of headroom indicated by the impairment review, the discount rate assumption is not considered to be sufficiently sensitive to change to impact the conclusion of the review. 20 DIRECTORS’ REMUNERATION The only employees of the Company are the Directors. In respect of Directors’ remuneration, the disclosures required by Schedule 5 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 are included in the detailed disclosures in the audited section of the Directors’ Remuneration Report on pages 25 to 27, which are ascribed as forming part of these financial statements. INVESTMENT IN SUBSIDIARY UNDERTAKING 21 Investments in Group undertakings are stated at cost. Ilika plc has a wholly-owned subsidiary, Ilika Technologies Limited. Ilika Technologies Limited (Incorporated in the UK) made a loss for the year of £2,498,527 (2017: £3,030,519) and had net assets as at 30 April 2018 of £3,885,314 (2017: net liabilities of £17,724,504). At 1 May Additions At 30 April 2018 £ 121,339 24,108,345 24,229,684 2017 £ 121,339 – 121,339 The registered address of Ilika Technologies Limited is Kenneth Dibben House, Enterprise Road, University of Southampton Science Park, Chilworth, Southampton, SO16 7NS. During the year, the Company converted intercompany debtors of £24,108,345 into Ordinary Shares in its subsidiary, Ilika Technologies Limited. 22 TRADE AND OTHER RECEIVABLES Prepayments 23 AMOUNT DUE FROM SUBSIDIARY UNDERTAKING Ilika Technologies Limited 2018 £ 2017 £ 10,119 13,646 2018 £ 2017 £ 33,834 24,108,345 WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 54 NOTES TO THE COMPANY FINANCIAL STATEMENTS 24 TRADE AND OTHER PAYABLES Trade payables Accruals 2018 £ 26,170 116,700 142,870 2017 £ 32,903 115,245 148,148 25 RELATED PARTY TRANSACTIONS During the year the Company recharged costs totalling £211,618 (2017: £163,744) to its subsidiary, Ilika Technologies Limited. Amounts owed to Ilika Technologies Limited are disclosed in note 23. Details of key management personnel and their compensation are given in note 4 and in the Directors’ Remuneration Report on pages 25 to 27. The Directors consider that no one party controls the Company. 26 FINANCIAL INSTRUMENTS CREDIT RISK The Company’s credit risk is attributable to its receivables of £33,834 from its subsidiary undertaking, Ilika Technologies Limited. As at 30 April 2018, Ilika Technologies Limited had net assets of £3,885,314. The Company makes no allowance for impairment of this balance. Impairment is considered by management based on prior experience, current market and third party intelligence while considering the current economic environment. ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 55 CORPORATE DIRECTORY COMPANY NUMBER 7187804 DIRECTORS EXECUTIVE NON-EXECUTIVE Graeme Purdy Prof. Brian Hayden Steve Boydell Mike Inglis (Chairman) Clare Spottiswoode CBE Prof. Sir William Wakeham Prof. Keith Jackson SECRETARY Steve Boydell REGISTERED OFFICE Kenneth Dibben House Enterprise Road University of Southampton Science Park Chilworth Southampton SO16 7NS WEBSITE www.ilika.com ADVISERS INDEPENDENT AUDITORS NOMINATED ADVISER AND BROKER REGISTRARS PUBLIC RELATIONS REMUNERATION CONSULTANTS BDO LLP Arcadia House Maritime Walk Ocean Village Southampton SO14 3TL Liberum Capital Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9LY Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS13 8AE Walbrook PR Limited 4 Lombard Street London EC3V 9HD FIT Remuneration Consultants LLP 5 Fitzhardinge Street London W1H 6ED WWW.ILIKA.COM ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 56 NOTES ILIKA PLC ANNUAL REPORT AND ACCOUNTS 2018 WWW.ILIKA.COM Ilika plc Kenneth Dibben House Enterprise Road University of Southampton Science Park Chilworth Southampton SO16 7NS United Kingdom E info@ilika.com T +44 (0)23 8011 1400 www.ilika.com I l i k a p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 8