Itaconix plc
Annual Report & Accounts 2019
Polymers for Better Living™
Year in Review
Chief Executive Officer’s Statement
Strategic Report
Governance
Board of Directors
Corporate Governance Report
Directors’ Remuneration Report
Audit Committee Report
Directors’ Report
Statement of Directors’ Responsibilities
Financial Statements
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Other Comprehensive Income
Consolidated and Company Balance Sheets
Consolidated and Company Statements of Change in Equity
Consolidated and Company Statements of Cash Flows
Notes to Financial Statements
Appendix to the annual report
Notice of Annual General Meeting
Corporate Information
Itaconix plc is a leading innovator in bio-based functional
ingredients for
improving the safety and performance of
homecare, personal care, and industrial products. Its proprietary
polymer technology generates a growing range of new
ingredients with unique functionality that meet consumer
demands for value and sustainability.
CHIEF EXECUTIVE OFFICER’S STATEMENT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Polymers for Better Living™
Our sustainable polymers can make the world a better and safer place to live as essential ingredients in the next
generation of consumer products. The composition of our polymers, the way we produce them, how they are
used as ingredients in consumer product formulas, and how these formulas are packaged and delivered to
consumers can reduce the depletion of natural resources, increase the use of safer chemicals, and reduce the
release of chemicals into the environment.
Consumers are increasingly aware of the role that their purchases may have on the environment, natural
resource use, and climate. New buying behaviours, regulations, and product certifications emerging from this
growing awareness are driving consumer product companies to respond and formulate new products or
reformulate existing products. Our sustainable polymers allow product and brand managers to meet new
customer needs in a growing range of home and personal care products.
Our bio-based polymers reduce the depletion of natural resources by replacing petroleum-based chemicals as
ingredients in consumer products, by using energy-efficient production, and by enabling more concentrated
consumer products that require less chemicals and less packaging.
Most importantly, the renewable carbon in the composition of our polymers is captured by plants from carbon
dioxide in the air. The plants use the carbon dioxide to produce sugars that are fed to microorganisms to yield
the itaconic acid we use to make our polymers. When one of our products replaces the function of a petroleum-
based ingredient in a formulation, the circular process of capturing and reusing carbon dioxide in the air displaces
fossil-based carbon.
With Polymers for Better Living™, Itaconix meets the demands of new formulations with the transformative
potential of sustainable ingredients from renewable sources.
Commercial Progress
From detergents to shampoos, our polymers are validated as disruptive ingredients in a new generation of
everyday products that have the performance, cost, and sustainability to meet emerging consumer demands.
The expanding foundation of formulations is building a strong base of recurring use and orders to accelerate
Itaconix’s commercial momentum and revenue growth.
Our product revenues grew by 46.2% to $1.3m in 2019 from $0.9m in 2018 from steady progress on a strong
customer base to build from into 2020. Financial details on the operating losses and going concern related to
our commercial progress are detailed on page 7 and page 24, respectively.
Our growth in 2019 was led by advances in the use of our polymers in non-phosphate detergents in North
America and Europe, particularly in automatic dishwashing applications. In North America, increased use in
detergent brands found our polymers in more products at major, discount, and ecommerce retailers. In May
2019, we announced our first order for use of Itaconix® CHT™ 122 in European detergents.
We entered 2020 with further progress in our revenue potential in non-phosphate detergents. In January 2020,
we launched our new Itaconix® TSI™ 322 detergent polymer that offers further value in detergents and received
a patent on novel automatic dish detergents to protect our intellectual property until at least 2037. In February
2020, we announced a new agreement with New Wave Global Services, a leading Canadian supplier of innovative
detergents to North American retailers, to supply up to 1 million lbs of our detergent polymers through 2021 to
meet growing volumes for its detergents from existing and new customers.
In Personal Care, we expanded our global sales effort by transitioning from the direct sale of our RevCare NE100S
product to supplying the polymer for Nouryon to market globally as Amaze™ SP within its world leading hair
styling polymer product line. With the first order delivered to Nouryon in June 2019, the polymer is gaining
greater awareness and adoption as a bio-based ingredient with excellent curl retention, volumising, and frizz
control performance.
In odour control, we expanded our supply agreement with Croda and the market potential for our odour control
technology with the introduction of ZINADOR™ 35L. While demand for the current ZINADOR™ 22L continues to
grow, the new polymer offers performance and cost advantages that create broader opportunities in home care
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CHIEF EXECUTIVE OFFICER’S STATEMENT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
and hygiene applications.
In May, June, and July 2020, we announced continued commercial progress in demand for our polymers,
reflecting additional recognition and use of our polymers in a new generation of consumer products.
We completed our transition to a sustainable specialty ingredient company in May 2019 with the sale of our
minority interest in Alkalon A/S, a Danish nicotine gum company, for $0.3m in cash. (See Note 13)
Profitability
We made major steps towards profitability with Net Losses decreasing to $1.4m in 2019 from $9.9m in 2018
based on the positive effects of increased product volumes and the restructuring of operations in 2018.
The higher product volumes increased gross profit margins to 34.9% in 2019 from 15.9% in 2018 to generate
Gross Profits of $0.45m in 2019 compared to $0.14m in 2018.
Decreases in operating expenses from the restructuring of operations reduced Losses before Interest, Tax and
Non-Cash Items to $2.8m from $6.8m in 2018.
Funding
As we progress in developing our commercial base and achieving our strategic growth plans, we rely on access
to additional funding to meet our working capital requirements, as set out in Note 3 to the financial statements.
Cash at the end of 2019 was $0.8m, down from $2.7m at the end of 2018.
In July 2020, we completed a new placement of ordinary shares with gross proceeds of $2.2m, as detailed in
Note 28 of the financial statements.
Covid-19
The Group has maintained operations as an essential business throughout the Covid-19 pandemic. Efforts to
conserve available cash were taken in March 2020 until the new funding in July 2020. While some customer
formulation activities have slowed, the surge in demand for household detergents has significantly increased
order volumes for the Group’s detergent polymers. Effective customer engagement has continued without travel
through adaptation and innovation in customer communication and engagement.
In May 2020, the Group’s US subsidiary received a $0.2m loan through the US Paychecks Protection Program to
support its operations and employees during the Covid-19 pandemic, as further detailed in Note 28 of the
financial statements.
People
Effective September 2019, Laura Denner was promoted from Group Director, Finance and Operations to Chief
Financial Officer. I appreciate the efforts of our former Interim Chief Financial Officer Michael Norris in managing
and facilitating this transition.
I wish to thank our former Non-Executive Director, Mike Townend, for his guidance and valuable contributions
from the Group’s earliest days through becoming a leading innovator in sustainable specialty ingredients.
Further details of the development of the Executive Team and Board of Directors in 2019 are detailed on page
12.
As of February 2019, the Group completed the closing of its former headquarters and operations in Deeside,
Wales and had no employees at the facility. As of September 2020, the Group completed the surrender of its
lease for the facility.
Share Trading
Itaconix shares commenced cross-trading publicly on the US OTCQB Market under the symbol ITXXF on 18
December 2019. Cross-trading on the OTCQB Market simplifies the trading process for US investors, enabling
them to trade in the Group’s shares on the AIM Market, in US dollars and during US trading hours.
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CHIEF EXECUTIVE OFFICER’S STATEMENT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Shareholders at the 2019 AGM authorized the Board to undertake a 50:1 share consolidation subject to certain
share trading conditions. The Board did not pursue this consolidation and is not seeking to renew the
authorisation at the 2020 AGM.
Shareholder Engagement
The Notice of Annual General Meeting (“AGM”) that accompanies the Annual Report sets out the business for
our forthcoming AGM on 23 October 2020. I encourage all shareholders to cast votes by proxy either via mail or
electronically by 21 October 2020. Due to Covid-19, we cannot have shareholders attend the meeting in person,
but we will have an open-access corporate presentation immediately following the AGM.
John R. Shaw
Chief Executive Officer
29 September 2020
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STRATEGIC REPORT
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FINANCIAL STATEMENTS
Principal Activities
Itaconix plc is a leading innovator in bio-based functional ingredients for improving the safety and performance
of homecare, personal care, and industrial products. Its proprietary polymer technology generates a growing
range of new ingredients with unique functionalities that meet consumer demands for value and sustainability.
The principal activities of the Group are the production and sale of proprietary specialty polymers that meet
significant customer needs, with a strategy of direct selling efforts to establish initial use of new polymers, and
then partner development to scale global demand.
Most of the Group’s efforts are focused on homecare and personal care applications where consumer interest
and desires for safer and more sustainable products are particularly high.
Proprietary Ingredients with Unique Functionality
The Group has completed many years of exploratory research and holds an extensive patent portfolio related
to the production and use of polymers made from itaconic acid. The commercial potential for these ingredients
stems from the unique functionalities available through the chemical structure of itaconic acid and its derived
polymers, and from the bio-based production of itaconic acid through fermentation using renewable sugar
sources.
Building on the Group’s process of identifying a market need and then developing a product to meet that need,
initial products from its itaconate chemistry platform have commercial momentum in non-phosphate
detergents, odour control, and hair styling. As these products generate more revenues, Itaconix expects to
identify more opportunities for additional new products within its itaconate chemistry platform.
Progress in 2019
The Group advanced its research and commercial activities in its core product areas through its own efforts
and commercial collaborations with Nouryon and Croda, as detailed in the Chief Executive Officer’s Statement.
Most notable was the increase in non-phosphate detergent sales, which drove significant growth in top line
revenues. The Group is well positioned for growth in the coming years.
The focus on revenue growth and costs control in 2019 has progressed the Group towards its goals of reducing
cash use and reaching profitability sooner. The Group’s efforts during the year to eliminate the remaining costs
from the UK facility and the nicotine gum business (Alkalon) will continue to streamline the business in the
near term.
Board and Executive Changes
There were continued developments to the Executive Team and Board of Directors in 2019.
Mike Townend stepped down as a Non-Executive Director in May 2019.
Michael Norris stepped down as Interim Chief Financial Officer in August 2019.
Laura Denner was appointed as Chief Financial Officer and Company Secretary in September 2019.
Financial Review
Results and Dividends
The Group results are stated in the Consolidated Income Statement on page 31 and are reviewed below. The
Directors do not recommend the payment of a dividend (2018: nil).
Financial Performance
Revenue
Total revenues for the 12-month period ended 31 December 2019 were $1.3m, representing a 46.2% increase
over 2018 revenues of $0.9m. Revenues grew primarily from increased demand for the Group’s detergent and
personal care products.
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STRATEGIC REPORT
Gross Profit and Loss after Tax
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Gross profit margins have improved as expected due to increased plant utilization and a reduced overhead cost
structure. As the Group continued to focus efforts on fulfilment and commercialisation of the current itaconate
polymer technologies, gross profit increased from $140k in 2018 to $450k in 2019, an increase of 221.4%. Gross
profit margin more than doubled from 15.9% in 2018 to 34.9% in 2019.
The Operating Loss before Exceptional Items decreased from $5.7m 2018 to $2.9m for 2019, based heavily on
administrative expenses declining from $5.9m in 2018 to $3.4m in 2019. This 42.9% decrease derived mainly
from the full-year realization of the reorganization of the Group in 2018, consolidating all research and
administrative activities into the New Hampshire, USA operations.
Costs and Available Cash
The Group’s increasing revenues and overall cost reductions resulted in Net Cash Outflow from Operations of
$1.8m, which represents a significant decrease from 2018 when Net Cash Outflow from Operations was $7.0m.
As at 31 December 2019, the Group held cash of $0.8m. These reduction in cash flows were partially offset by
proceeds of $0.3m from the sale of the Group’s minority interest in Alkalon. Subsequent to the year end, the
Group completed a fund raise of $2.2m and received $0.2m from the US Government Paycheck Protection
Program.
Financial Position
At 31 December 2019, the Group had equity of ($1.0m) as compared to $0.3m in 2018, this was due to significant
unwinding of the deferred consideration (Note 19) net of stronger operating results.
As required under IFRS 16, the Group recognized a right-of-use asset and a lease liability of $1.4m on
implementation of the new accounting standard on 1 January 2019. Included in the calculation was a lease
extension, executed in 2019 that extends the lease of the Group’s primary operating facility and headquarters
by 5 years. In respect of the Group’s former headquarters in the UK, the group has applied practical expedient
to retain the IAS 17 valuation of this onerous lease of $0.3m, this being set off against the right-of-use asset at
1 January 2019. See Note 21.
Inventory increased from $0.4m to $0.5m in 2019 to support increased growth in customer demand.
Revaluation of Deferred Consideration
As a result of revaluing deferred consideration with respect to the acquisition of Itaconix Corporation in 2016,
as per Note 19, there is an exceptional non-cash income of $1.5m in 2019, which offset the exceptional non-
cash expense of $3.3m (excluding foreign exchange) from 2018 that resulted from the renegotiated terms of the
deferred consideration as part of the 2018 fundraise.
Financial Reporting
In the financial year commencing 1 January 2019, the Group changed the reporting currency from the UK Sterling
to the US Dollar and applied a new accounting standard for leases (IFRS 16).
Change in Group’s reporting currency
In this period, the Directors decided to change the reporting currency due to the growing exposure to the US
dollar in our operating activities, including the majority of customer transactions, raw material purchases,
payroll, and operating expenses.
IFRS 16 “Leases”
The Group adopted IFRS 16: Leases and has replaced IAS 17: Leases. The Group has elected to apply the modified
retrospective method. Following the adoption of IFRS 16, right-of-use assets of $1.1m and lease liabilities of
$1.4m were recognized at the date of transition. Lease costs have been replaced by depreciation of the right-of-
use asset and interest arising on the lease liability in this reporting period. See Note 21.
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STRATEGIC REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Key Performance Indicators (KPI’s)
The Group considers its three key performance indicators to be:
• Revenue
•
•
Profits before interest, taxes, and non-cash expenses
Cash
The Directors believe that revenue and profits are KPI’s in measuring Group performance. The Group seeks to
commercialise its existing and new technologies, and generate revenues from a growing number of commercial
agreements with users of the products. Revenue performance is detailed in the Chief Executive Officer’s
Statement on pages 3 to 5.
The Directors believe that a further important performance measure is the Group’s rate of cash expenditure and
its effect on cash resources. Net cash outflow for the period to 31 December 2019 was $1.9m (2018: $2.2m).
Further details of cash flows in 2019 (and 2018) are set out in the Group’s Consolidated Cash Flow Statement on
page 37.
Going Concern
The financial statements have been prepared on a going concern basis. The Directors have reviewed the
Company’s and the Group’s going concern position taking account its current business activities, budgeted
performance and the factors likely to affect its future development, set out in the Annual Report, and including
the Group’s objectives, policies and processes for managing its working capital, its financial risk management
objectives and its exposure to credit and liquidity risks.
The Directors have also taken into consideration the impact of the Covid-19 pandemic on the Group’s revenues
and supply chain. While there has not been a negative impact through the report date on the Group revenues
or supply chain due to the pandemic, the Directors have applied sensitivities to the timing, quantum, and
growth of new customer projects in revenue models and have assessed alternate supply chains that have been
developed by the Group to mitigate any issues to our customers.
As further detailed in the Directors’ Report on page 24 and note 3 to the Financial Statements, the Directors
have reviewed the Group’s cash flow forecasts covering a period of at least 12 months from the date of
approval of the financial statements, which foresee that the Group will be able to meet its liabilities as they
fall due. However, the success of the business is dependent on customer adoption of our products in order to
increase revenue and profit growth. Inability to deliver this could result in the requirement to raise additional
funds. Subsequent to year end, the Group successfully raised funds of $2,246k.
Shareholdings and Earnings per Share
Itaconix had 269,130,071 shares in issue as at 31 December 2019. The undiluted weighted average number of
shares for the period to 31 December 2019 was 269,130,071. The undiluted weighted average number of shares
was used to calculate the loss per share presented in Note 11.
Principal Risks and Uncertainties
Commercialisation Activities
Significant progress was made in 2019 toward achieving profitability by increasing revenues and reducing costs.
Ultimately, it is uncertain whether the success of Itaconix products will be in sufficient quantities for the Group
to generate an overall profit.
Management of risk: The Group has sought to manage this commercialisation risk by partnering with market
leaders for the worldwide promotion of our leading products, continued development of end-user formulas to
provide customers with packaged solutions, and continuous review of the market needs for Itaconix products.
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STRATEGIC REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Dependence on Key Personnel
The Group depends on its ability to attract and retain a limited number of highly qualified managerial and
scientific personnel, the competition for whom is intense. While the Group has conventional employment
arrangements with key personnel aimed at securing their services for minimum terms, their retention cannot
be guaranteed.
Management of risk: The Group has a share incentive agreement as disclosed in Note 24, and service contracts
in place for John R. Shaw as Chief Executive Officer and Dr. Yvon Durant as Chief Technology Officer. In addition,
the Group use an Equity Incentive Plan for share option grants to other key personnel at its New Hampshire, US
operations.
Customer Retention
The ability to retain key customers is critical to maintaining revenue streams. The loss of key customers could
impact business results adversely.
Management of risk: Acceptance of our products in our customers’ end-product formulations is closely
monitored and managed. Our customer service includes regular engagement on the performance of both our
products and the end-products to ensure our ingredients are delivering the desired value to our customers and
end-users.
Regulatory and Legislation
Regulatory bans on the use of phosphates as ingredients in detergents have transformed the consumer
detergent markets in Europe and North America over the last ten years. Phosphates are known to enter
waterways through detergent effluent and act as a nutrient for algae growth that subsequently cuts oxygen
levels in water and harms aquatic life. We believe that phosphates are likely to be phased out in other
jurisdictions around the world over time. Itaconix polymers can act as effective replacements for phosphates in
detergent formulations and are used in numerous detergent products in North America and Europe for this
purpose.
Management of risk: The Group closely monitors regulatory developments in the use of ingredients in consumer
and industrial products to assure compliance and find new revenue potential for Itaconix polymers. Further, the
Group regularly assesses the relative performance and cost efficacy of Itaconix polymers to current and
emerging phosphate replacements to identify revenue risks and opportunities.
Competition and Technology
The production and use of Itaconix polymers are subject to technological change over time. There can be no
assurance that developments by others will not render the Group’s product offerings and research activities
obsolete or otherwise uncompetitive.
Management of risk: The Group employs experienced and highly-trained polymer chemists to develop and
protect the Group’s intellectual property. These efforts include continuous work on the performance and cost
advantages of Itaconix polymers. In addition, the staff monitors technologies and patents through publications,
scientific conferences, and collaborations with other organisations to identify new risks and opportunities.
Covid-19 Risk
The Group faces potential disruption to the demand for its products, operations of its production facility, and
supply of raw materials due to the Covid-19 pandemic.
Management of risk: The Group has not experienced any significant disruptions to date. The US operations are
designated as an “essential business” for continued operations under any government orders. Management
closely monitors Covid-19 regulatory developments, expected demand from customers, and the reliability of
its raw materials supply chain.
Liquidity Risk
Itaconix seeks to manage financial risk by ensuring adequate liquidity is available to meet foreseeable needs and
to invest cash assets safely and profitably. In July 2020, subsequent to year end, the Group completed a $2.2m
fundraise to support working capital and revenue growth. In addition, short-term flexibility is achieved by
holding significant cash balances in Itaconix’s functional currencies, notably UK Sterling and US Dollars.
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STRATEGIC REPORT
Credit Risk
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The principal credit risk for Itaconix arises from its trade receivables. To manage credit risk, new customers are
subject to credit review and all customer accounts are regularly reviewed for debt aging and collection history.
As at 31 December 2019, there were no significant credit risk balances.
Foreign Exchange Risk
Itaconix has operations in the UK and US, and trades with customers internationally. Revenue and costs are
exposed to variations in exchange rates and therefore reported losses. In 2019, the Group elected to convert
the reporting currency from UK Sterling to US Dollars. The US Dollar transactions represent a significant portion
of the functional currency transactions and therefore reduces the Group's overall exposure to translation
exchange risk.
Government Risk
The Group has potential exposure to government activities related to Covid-19, Brexit, and US-China trade
relations. Risks related to Covid-19 are detailed above.
The Group has potential risks under Brexit to lack of alignment in chemical regulations that may emerge over
time between the UK and the European Community.
US trade tariffs with China have caused increases to certain raw material costs and may continue to create
volatility. These increases have not caused any major issues with profitability to date. Itaconix has assessed
alternative supply sourcing from India and other countries which are not affected by increased tariffs. However,
if an alternate supply is not available the Group is prepared to pass cost increases through to customers if
needed.
Statement of Compliance with Section 172 of the Companies Act 2006
The Directors are required to include a separate statement in the annual report that explains how they have
considered broader stakeholder needs when performing their duty under Section 172(1) of the Companies Act
2006. This duty requires that a director of a company must act in the way he or she considers, in good faith,
would be most likely to promote the success of the company for the benefit of its members as a whole, and in
doing so have regard (amongst other matters) to:
•
•
•
•
•
•
the likely consequences of any decision in the long term;
the interests of the company's employees;
the need to foster the company's business relationships with suppliers, customers, and others;
the impact of the company's operations on the community and the environment;
the desirability of the company to maintain a reputation for high standards of business conduct; and
the need to act fairly between members of the company.
In connection with its statement, the Board describes in general terms how key stakeholders, as well as issues
relevant to key decisions are identified, and also the processes for engaging with key stakeholders including
employees and suppliers, and understanding those issues. It is the board’s view that these requirements are
predominantly addressed in the corporate governance disclosures we have made in the directors’ report, which
are themselves discussed more extensively on the company’s website.
A more detailed description is limited to matters that are of strategic importance in order to remain meaningful
and informative for shareholders. The Board believes that four decisions taken during the year fall into this
category, and engaged with internal and external stakeholders on these decisions:
•
•
Change in reporting currency – The decision to change the Group’s reporting currency mitigates the
effects of translating the reporting currency from the functional currency. As approximately 90% of
the Group’s activities are transacted in the US Dollar, this presentation will be beneficial to
shareholders, suppliers, and customers as it eliminates the need for consideration of hedging or
translation differences.
Sale of Alkalon – The Group sold its minority holding in the nicotine gum business during the year.
The decision to sell the Group’s investment in Alkalon concludes a 2016 divestment in the Group’s
gum technology. This decision allows the Group to focus on its itaconate polymers and reduce
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STRATEGIC REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
•
•
potential exposure to contingent liabilities that existed as part of the agreement in the sale of this
technology. This will benefit shareholders as all resources are now committed to the Group’s primary
business of itaconate products.
Listing on OTCQB Market – As discussed in the Chief Executive's Statement, the cross-listing of the
Company’s stock on the OTCQB Market provides additional access to the US equity market that has
developed as the US investor base continues to grow. Shareholders in the US were historically limited
in their ability to trade shares on the AIM market without a UK broker. Cross trading on the US OTCQB
market allows the US shareholders direct access to real time trading.
2020 Fundraise – The Directors, along with the Group’s NOMAD and broker, assessed the market for
its appetite to support the Group’s fundraising efforts. Strategy and work were completed to launch a
fundraise in early 2020 - this was determined to be the optimal time to execute a fundraise as the
2019 revenue numbers reflected the growth in polymer sales that shareholders were expecting.
These efforts in March 2020 were unsuccessful due to the impact of Covid-19 on the London Stock
Market. The fundraise was completed in July 2020.
This report was approved by the Board of Directors on 29 September 2020 and signed on behalf of the Board of
Directors by:
James Barber
Chairman
John R. Shaw
Chief Executive Officer
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BOARD OF DIRECTORS
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Dr. James (“Jim”) Joseph Barber (aged 66) – Independent Non-
Executive Chairman
Jim joined the Board on 12 September 2016 and became Chairman on
21 December 2018. Since 2007 he has run his own business
consultancy practice Barber Advisors LLC. Prior to this, Jim served as
President and CEO of Metabolix, Inc. from January 2000 to May 2007,
leading the transformation of Metabolix from a research boutique to
a world renowned, highly regarded leader in “clean tech” and
industrial biotechnology, with a market cap of over $500m. Prior to
joining Metabolix, he had senior commercial
the
Organometallics and Catalysts business of Albemarle Corporation,
Ethyl Corporation, and a number of other chemicals businesses. Jim is
a non-executive director of Graham Corporation. He has a BS degree
in Chemistry from Rensselaer Polytechnic Institute and a PhD in
Organic Chemistry from the Massachusetts Institute of Technology.
roles at
John Roger Shaw (aged 61) – Chief Executive Officer
John joined the Board on 12 July 2018, when he assumed the role of
Chief Executive Officer. As a founder, John has driven the direction and
growth of Itaconix Corporation since 2008. He has over 25 years of
experience in senior management roles in
the pharmaceutical,
biomedical, and specialty chemical sectors and brings significant
marketing, strategy, and business management expertise along with
a broad technical understanding to Itaconix’s management team.
John began his career holding a number of increasingly senior roles at
SmithKline Beecham, Westaim, and Mitek Systems, Inc. He has a BA in
Economics from Pomona College and an MBA from Harvard Business
School.
Dr Bryan Crawford Dobson (aged 67) – Independent Non-
Executive Director
Bryan joined the Board on 13 September 2012. He has more than 30
years’ experience in the chemicals industry: 28 years with ICI and 5 years
with the Croda Group, where he was most recently President Global
Operations for Croda International. He was a member of the
executive management teams in Croda and in a number of large
specialty chemicals businesses in ICI, and has extensive management
experience running regional and global business units in the UK, US,
Belgium, and The Netherlands. He also has expertise in developing new
business in the specialty chemicals sectors; extensive functional
experience in R&D and operations, and significant M&A experience.
He is also currently Non-Executive Chairman of Applied Graphene
Materials Plc.
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BOARD OF DIRECTORS
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
John Ingalls Snow III (aged 60) – Independent Non-Executive
Director
John joined the Board and became Audit Committee Chair on 2
October 2018. He has 30 years’ experience in the private equity
market. He is currently a Managing Director at Quabbin Capital, Inc., a
Boston based alternative investment firm. John is a non-executive
director of Upper Crust Holdings, LLC, Winchester Savings Bank,
Advanced Duplication Services, YMCA Camp Belknap, Endowment for
Health, and Mary Snow Designs, Incorporated. He has a BA in
Economics from Amherst College and an MS in Accounting from New
York University. John is a Chartered Financial Analyst and a non-
practicing Certified Public Accountant.
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CORPORATE GOVERNANCE REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The Board is committed to ensuring that the Group has the people, strategy, and structure to deliver value to
customers and shareholders in the near and long term. We recognise that effective corporate governance is
essential to meeting this commitment and fundamental to the success of the Group.
Solid corporate governance starts with the calibre and talents of the Directors. Biographies of the Directors are
presented on page 12 and 13 in this Annual Report and reveal a range of relevant experience that brings a high
level of independent judgement to Itaconix’s business.
Under AIM Rule 26, AIM-quoted companies are required to adopt and give details of the corporate governance
code which they have adopted and to show how they are following it. Of the recognised codes generally
adhered to by AIM companies, the Quoted Companies Alliance’s (QCA) Corporate Governance Code for small
and mid-size quoted companies (the “QCA Code”) was drafted with smaller businesses using a pragmatic and
principles-based approach. The Board deemed the QCA Code as the most suitable for the Group and adopted
it with effect from 29 September 2018.
As Chair, I am responsible for leading the overall effectiveness of the Board, for ensuring that the Board
maintains effective corporate governance processes, and for promoting open communication and debate
within the Board and across the Group to foster a positive governance culture. I am pleased with the continued
application of the QCA Code and the Company’s approach to complying with the QCA Code which is set out
below.
Compliance with the Quoted Companies Alliance Corporate Governance Code
The QCA Code identifies ten principles that focus on the pursuit of medium- to long-term value for shareholders
without stifling entrepreneurial spirit. Itaconix’s adoption of the QCA principles is summarised below. Further
details are available on our website.
1. Establish a strategy and business model which promote long-term value for shareholders
Over the last ten years, Itaconix developed a polymer technology platform for producing specialty
ingredients from renewable resources. The Group uses its novel chemistries to create new ingredients with
unique functionality that create value and meet customer needs in homecare, personal care, and industrial
products. We utilise direct sales efforts to acquire initial customers and confirm the value for a new
product, then scale globally with appropriate marketing partners. The long-term revenue and profit
potential of each new product relative to its near-term development cost can generate many years of
attractive returns and shareholder value. Our near-term strategy is to balance aggressive sustained
product innovation from our polymer technology platform with a focus on profitability to reach positive
cash flow and long-term financial stability. Additional information on our strategy and business model is
presented in the Strategic Report on pages 6 to 11.
2. Seek to understand and meet shareholder needs and expectations
The Board is committed to communicating and having constructive dialogues with current and potential
shareholders on a regular basis. Due to Covid-19, shareholders are encouraged to participate in the Proxy
vote via mail or other electronic means. Shareholders are also encouraged to attend the Company’s virtual
presentation following the Annual General Meeting. Information on significant Group milestones and
developments is readily available in news releases, interim reports, and annual reports issued directly,
broadcast widely, and posted to the Group’s website. Our CEO is the primary contact for current and
potential investors, and works closely with our Nominated Advisor and others to interact with the broader
investment community on a regular basis.
3. Take into account wider stakeholder and social responsibilities and their implications for long-term
success
The Board is committed to the Group developing and maintaining open communications and dialogues
with employees, customers, suppliers, regulators, investors, and partners. In addition to the investor
activities described above, key practical elements of this commitment include a flat organization with
ready employee access to management and the Board, regular direct contact with customers, quality
assessments and reviews with vendors, and leadership roles in industry and scientific associations.
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CORPORATE GOVERNANCE REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
4. Embed effective risk management, considering both opportunities and threats, throughout the
organization
The Board constantly monitors major business risks faced by the Group and ensures appropriate courses
of action to manage those risks. In 2018 the Board and management adopted a framework for the effective
identification, assessment, and management of risks to the achievement of corporate objectives. The risk
management process is embedded in monthly reporting and quarterly meetings. The risks that the Board
considers to be most significant to the Group’s business are set out on pages 8 to 10.
5. Maintain the Board as a well-functioning, balanced team led by the Chairman
The QCA Code requires that Boards have an appropriate balance between Executive and Non-Executive
Directors and that each Board should have at least two Independent Directors. The Board is made up of
one Executive Director and three Independent Non-Executive Directors. The three Independent Non-
Executive Directors are experienced and independent persons who have each succeeded in their own
businesses and are not dependent upon income from the Group. They have a strong and detailed
understanding of the business, and are prepared and able to intervene and challenge the Executive
Director and management.
6. Ensure that between them the Directors have the necessary up-to-date experience, skills and
capabilities
All members of the Board bring relevant experience to the Board’s responsibilities and duties. The Board
believes its blend of experience, skills, and personal capabilities are well-suited for governing the success
of the Group. Details of the background and experience of the Directors are set out in their biographies.
These demonstrate that the Board collectively has extensive specialty chemical industry knowledge and
relevant experience on the challenges of technology-based growth businesses and publicly-traded
companies.
7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement
The Board reviewed its structure in 2018 and made desired changes to improve performance as previously
disclosed in the 2018 Annual Report. The Board continues to review its needs and assess opportunities for
continuous improvement as the Group’s commercial activities develop.
8. Promote a corporate culture that is based on ethical values and behaviours
Itaconix’s core values are embedded in its quality system, which commits the Group to consistently deliver
customer value, satisfaction and service through continual improvement and employee development. Key
pillars of the culture are curiosity to use new approaches and technology to meet a need, accuracy of
scientific analyses, the safety of our products and our processes, data-driven product claims that compel
customers to reformulate, reliable order fulfilment with quality product, compliance with all laws and
regulations, and respect for the livelihoods of all stakeholders. These values and pillars are introduced and
reinforced through daily routines and periodic activities that instil ethical and rewarding behaviour into
each employee’s work practices and experience.
9. Maintain governance structures and processes that are fit for purpose and support good decision -
making by the Board
Formal Board meetings are held at least quarterly to review strategy, management, and performance of
the Group, with additional meetings between those dates convened as necessary. We have three Board
committees, the Audit Committee, the Remuneration Committee, and the Nominations Committee. The
terms of reference of these committees of the Board are available on our website.
10. Communicate how Itaconix is governed and is performing by maintaining a dialog with shareholders and
other relevant stakeholders
The Company’s approach to investor and shareholder engagement is described under Principle 2 above.
Annual reports, Annual General Meeting notices, regulatory announcements, trading updates and other
governance related materials since the year 2016 are available on our website.
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CORPORATE GOVERNANCE REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The Board of Directors
The Board of Directors is responsible for the proper management of the Group by formulating, reviewing and
approving the Group's strategy, budgets, and corporate actions. In order to achieve its objectives, the Board
has adopted the ten principles of the QCA Code. Through successfully implementing these principles, the Board
aims to deliver long-term growth for shareholders and maintain a flexible, efficient and effective management
framework within an entrepreneurial environment.
It is important that the Board itself contains the right mix of skills and experience in order to deliver the strategy
of the Group. As such, the Board is comprised of:
• An Independent Non-Executive Chair, whose primary responsibility is the delivery of the Group's
corporate governance model. The Chair has a clear separation from the day-to-day business of the
Group which allows him to make independent decisions;
• One Executive Director; and
•
Two Independent Non-Executive Directors.
The Board has not appointed a Senior Independent Director after taking into account the Group's size and
development stage.
Each Director serves on the Board subject to re-election on a three-year rotation at the Annual General
Meeting. The Board generally meets at least four times a year.
Corporate Governance
In compliance with UK best practice, the Board has established the following committees to help the Board
discharge its responsibilities with formally delegated duties and responsibilities.
1.
Audit Committee
The purpose of the Audit Committee is to monitor the integrity of the financial statements of the Group and
to assist the Board in its oversight of risk and risk management processes.
Some of the Audit Committee's duties include:
• Reviewing the Group's accounting policies and adoption of new accounting standards;
• Reviewing reports from the external auditor;
•
Considering whether the Group has followed appropriate accounting standards and made appropriate
estimates and judgments, taking into account the views of the external auditor;
• Reporting its views to the Board of Directors if it is not satisfied with any aspect of the proposed financial
reporting by the Group;
• Reviewing the adequacy and effectiveness of the Group’s internal financial controls and internal control
and risk management systems;
• Reviewing the adequacy and effectiveness of the Group's anti-money laundering systems and controls
for the prevention of bribery and receive reports on non-compliance; and
• Overseeing the appointment of and the relationship with the external auditor.
The Audit Committee currently has three members, all of whom are Independent Non-Executive Directors and
at least one member who has recent and relevant financial experience. As at 29 September 2020, the Audit
Committee is comprised of John Snow as Chair, James Barber, and Bryan Dobson.
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CORPORATE GOVERNANCE REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
2.
Remuneration Committee
The purpose of the Remuneration Committee is to develop and propose to the Board the framework and
policies for the remuneration of the Group’s Executive Directors and senior management.
The Committee normally meets at least twice a year and is responsible for determining and reviewing the policy
for the remuneration of the Executive Directors and such other members of the executive management as it is
designated to consider. Within the terms of the agreed policy, it determines the total individual remuneration
of the Executive Directors. The Committee also approves the design of, and determines targets for, any
performance-related pay schemes, reviews the design of any share incentive plans, determines the awards to
the Executive Directors and sets the policy for, and scope of, pension arrangements for each Executive Director,
as appropriate. Finally, the Committee approves the design and principles of the remuneration schemes for
the employees of the business outside of the management team, which are implemented by the Executive
Directors.
As at 29 September 2020, the Remuneration Committee is comprised of Bryan Dobson as Chair, James Barber,
and John Snow, each of whom is an Independent Non-Executive Director.
3.
Nominations Committee
The Company’s Nominations Committee is comprised of James Barber as Chair, Bryan Dobson, and John Snow.
The Committee is normally required to meet at least once a year and is responsible for reviewing the structure,
size and composition of the Board and recommending to the Board any changes required, for succession
planning, and for identifying and nominating for approval of the Board candidates to fill vacancies as and when
they arise, with a view to ensuring that the Board is composed of individuals with the necessary skills. The
Committee is also responsible for succession planning for Directors and Executives, reviewing the leadership
needs of the organisation, reviewing Board performance, making recommendations to the Board concerning
suitable candidates for the role of senior independent Director (if applicable) and the membership of the
Board’s committees, and the election or re-election of Directors at the annual general meeting.
Terms of Reference
All Board committees operate within defined terms of reference and sufficient resources are made available
for them to undertake their duties. The terms of reference for each committee are available on the Company’s
website (in the Investor Relations section and under Corporate Governance).
Corporate Social Responsibility
The Board recognises the critical role of ethics, the growing concerns for social and environmental matters, and
the need to take into account the interests of the Group’s stakeholders, including its investors, employees,
suppliers and business partners, when operating the business.
Employment
The Board recognises its legal responsibility to ensure the well-being, safety and welfare of its employees and
maintain a safe and healthy working environment for them and for its visitors.
Relations with Shareholders
Itaconix attaches a high priority to effective communication with both institutional and private shareholders.
The AGM is the principal forum for dialogue with private shareholders. A business presentation is made after
the AGM and there is an opportunity for shareholders to put questions to the Directors. Due to Covid-19, these
communications will be held virtually. Itaconix aims to maintain regular contact with institutional shareholders
through a programme of one to one presentations, group meetings, and briefings scheduled around the
announcement of significant commercial developments in the business and the preliminary and interim
financial results.
P a g e | 17
CORPORATE GOVERNANCE REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Share Dealing Code
The Company has adopted a share dealing code to ensure directors and certain employees do not abuse and
do not place themselves under suspicion of abusing inside information of which they are in possession and to
comply with its obligations under the Market Abuse Regulation ("MAR") which applies to the Company by virtue
of its shares being traded on AIM. Furthermore, the Company's share dealing code is compliant with the AIM
Rules for Companies published by the London Stock Exchange (as amended from time to time).
Under the share dealing code, the Company must:
•
•
•
Keep a list of each person who is in possession of inside information relating to the Group;
Procure that all persons discharging managerial responsibilities and certain employees are given
clearance by the Group before they are allowed to trade in Company securities; and
Procure that all persons discharging managerial responsibilities and persons closely associated to them
notify both the Company and the Financial Conduct Authority of all trades in Company securities that
they make.
Internal Control
The Board has overall responsibility for ensuring that the Group maintains a system of internal control to provide
its members with reasonable assurance regarding the reliability of financial information used within the business
and for publication and that the Group’s assets are safeguarded. There are inherent limitations in any system of
internal control and accordingly even the most effective system can provide only reasonable, and not absolute,
assurance with respect to the preparation of accurate financial information and the safeguarding of assets. The
key features of the internal control system that operated throughout the year are described under the following
headings:
•
•
Control environment: particularly the definition of the organisation structure and the appropriate
delegation of responsibility to operational management.
Identification and evaluation of business risks and control objectives: particularly through a formal process
of consideration and documentation of risks and controls which is periodically undertaken by the Board.
• Main control procedures: which include the setting of annual and longer term budgets and the monthly
reporting of performance against them, agreed treasury management and physical security procedures,
formal capital expenditure and investment appraisal approval procedures, and the definition of
authorisation limits (both financial and otherwise).
• Monitoring: particularly through the regular review of performance against budgets and the progress of
research activities undertaken by the Board. The Board reviews the operation and effectiveness of this
framework on a regular basis. The Directors consider that there have been no weaknesses in internal
controls that have resulted in any losses, contingencies or uncertainties requiring disclosures in the financial
statements.
Annual General Meeting
The Annual General Meeting of the Group will take place on 23 October 2020. Full details are included in the
Notice of Meeting that accompanies this Annual Report and is published on our website (www.itaconix.com).
James Barber
Chairman
29 September 2020
P a g e | 18
DIRECTORS’ REMUNERATION REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
I am pleased to present the report on behalf of the Remuneration Committee.
The Committee is responsible for setting the remuneration policy of the Executive Directors and other senior staff,
including terms of employment, salaries, any performance bonuses and share option awards.
Committee Composition
The members of the Remuneration Committee as at 29 September 2020 are Bryan Dobson as Chair, James
Barber, and John Snow. We are all Non-Executive Directors.
Committee Duties
The Company has established a formal and transparent procedure for developing policy on executive
remuneration and for fixing the remuneration packages of individual Directors. No Director is involved in deciding
his own remuneration.
Remuneration Policy
The key principles of the Remuneration Policy include:
•
•
•
•
The need to attract, retain, and motivate executives who have capability to ensure the Group achieve its
strategic objectives;
The need to ensure that short term benefits and long term incentive plans are aligned with the interests of
shareholders;
The need to take into account the competitive landscape in the North American and European specialty
chemicals industry and current best practices in setting appropriate levels of compensation; and
The Committee to meet at least twice per year.
Director’s Remuneration
The following table summarises the total gross remuneration for the qualifying services of the directors who
served during the year to 31 December 2019.
Directors’ Remuneration and Transactions
The Directors’ emoluments in the year ended 31 December 2019 were:
Basic salary
$’000
Benefits in
kind
$’000
Retirement
Bonus
2019 Total
2018 Total
$’000
$’000
$’000
$’000
237
60
45
46
-
388
-
-
-
-
-
-
7
-
-
-
-
7
-
-
-
-
-
-
244
112
60
45
46
-
51
72
12
-
395
247
Executive Director
John R. Shaw
Non-Executive Directors
James Barber
Bryan Dobson
John Snow III
Michael Townend(1)
Total
(1)
An amount of $7,938 was paid to IP Group plc for the services of Mr. Townend.
P a g e | 19
DIRECTORS’ REMUNERATION REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Directors’ Interests
The interests of the Directors in the share capital of the Company are disclosed below. Mike Townend resigned
on 24 May 2019. Below are the Directors’ interest:
Directors’ Interests
31 December 2019
Number of ordinary shares of 1p each
31 December 2018
Number of ordinary Shares of 1p each
John R. Shaw
John Snow III
James Barber
Bryan Dobson
Michael Townend (1)
(1) Michael Townend resigned on 24 May 2019
33,894,915
1,849,568
1,466,818
583,500
64,940
33,173,097
-
700,000
583,500
64,940
None of the Directors has a service contract with the Group requiring more than twelve months’ notice of
termination to be given. None of the Directors had, either during or at the end of the year, any material interest
in any contract of significance with the Company or its subsidiaries.
Executive Directors’ Service Contracts
The Executive Director signed service contracts on his appointment. These contracts are not of fixed duration.
The Chief Executive Officer’s contract is terminable by either party giving twelve months’ written notice.
Non-Executive Directors
The Non-Executive Directors signed letters of appointment with the Group for the provision of Non-Executive
Directors’ services, which may be terminated by either party giving written notice. The remuneration of the Non-
Executive Directors is determined by the Board as a whole.
The Committee met four times during the financial year to 31 December 2019.
Bryan Dobson
Chairman of the Remuneration Committee
29 September 2020
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AUDIT COMMITTEE REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The Audit Committee is responsible for promoting the quality of internal controls and ensuring that the financial
performance of Itaconix is reviewed and reported properly.
The Committee reviews reports on the interim and annual accounts, financial announcements, the Company’s
accounting and financial control systems, changes to accounting policies, the extent of non-audit services
undertaken by the external auditor, and the appointment of the external auditor.
During the period the Audit Committee reviewed the draft interim reports and associated announcements. The
Audit Committee considered the accounting policies and principles adopted in these accounts as well as
significant accounting issues and areas of judgement and complexity.
Committee Composition
The terms of reference for the Audit Committee require the committee to consist of preferably three members
but not less than two members and that a majority of the members shall be independent non-executives with
at least one with recent and relevant financial experience.
The members of the Audit Committee as at 29 September 2020 are John Snow as Chair, James Barber, and Bryan
Dobson. We are all Independent Non-Executive Directors.
The Board is of the view that the Audit Committee has recent and relevant financial experience. John Shaw,
CEO, and relevant management may attend Committee meetings by invitation.
Role of the Committee
The main duties of the Committee are set out in its terms of reference, which are available on Itaconix’s website.
The main items of business considered by the Committee included:
• Reviewing the Group's accounting policies and reports produced by internal and external audit
•
functions;
Considering whether the Group has followed appropriate accounting standards and made appropriate
estimates and judgments, taking into account the views of the external auditor;
• Reporting its views to the Board of Directors if it is not satisfied with any aspect of the proposed financial
reporting by the Group;
• Reviewing the adequacy and effectiveness of the Group’s internal financial controls and its internal
control and risk management systems;
• Reviewing the adequacy and effectiveness of the Group's anti-money laundering systems and controls
for the prevention of bribery and receive reports on non-compliance, and
• Overseeing the appointment of and the relationship with the external auditor.
Financial Reporting
The Committee reviews whether suitable accounting policies have been adopted and whether management has
made appropriate judgements and estimates. The Committee’s remit includes reviews of accounting papers
prepared by management providing details on the main financial reporting judgements as well as assessments
of the impact of potential new accounting standards.
The reporting currency was changed from UK Sterling to US Dollars, IFRS16 ‘Leases’ was adopted during the year,
and IFRIC 23 “Uncertainty over Income Tax Treatments” was adopted during the year, as described in Note 2 to
the financial statements.
The Committee has concluded that the Annual Report and financial statements are prepared appropriately and
provide the necessary information for shareholders to assess Itaconix’s strategy and performance.
P a g e | 21
AUDIT COMMITTEE REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Risk Management and Internal Controls
The risk and control management framework of Itaconix is designed to manage rather than eliminate the risk of
failure to meet Itaconix’s objectives. The system of controls can provide reasonable but not absolute assurances
against material misstatement or loss. Itaconix faces a number of risks, the significant ones of which are set out
in the section on Principal Risks and Uncertainties on Page 8 to 10.
Through the control systems outlined in the Statement of Corporate Governance on pages 14 to 18, Itaconix
operates an ongoing process of identifying, evaluating, and managing significant risks faced by the business. This
process includes the following:
• Defined organisation structure and appropriate delegation of authority;
•
•
Formal authorisation procedure for investments;
Clear responsibility for management to maintain good financial control and the production and review
of detailed, accurate and timely financial information;
Identification of operational risks and mitigation plans developed by senior management; and
•
• Regular reports to the Board from the Executive Directors.
Itaconix remains, in substance, in early stage development and is currently implementing appropriate internal
controls and processes to reflect its size and business complexity. The Committee has been kept up-to-date of
progress in implementing these processes, reviewed the Board’s processes, and the Committee is satisfied that
the risk management and internal control systems in place are currently operating effectively.
External Auditor
BDO was appointed auditor of Itaconix during 2019. The Committee considers that its relationship with the
auditor is working well and is satisfied with their effectiveness.
The Committee is responsible for implementing a suitable policy for ensuring that non-audit work undertaken
by the auditor is reviewed so that it will not impact their independence and objectivity. The breakdown of fees
between audit and non-audit services is provided in Note 7 to Itaconix’s financial statements.
The non-audit fees primarily relate to taxation advice and, as necessary, the Committee held private meetings
with the auditor to review key items within its scope of responsibility.
Taking into account the auditor’s knowledge of Itaconix and experience, the Committee has recommended to
the Board that BDO is reappointed as auditor for the year ending 31 December 2020.
For and on behalf of the Audit Committee
John I. Snow III
Chairman of the Audit Committee
29 September 2020
P a g e | 22
DIRECTORS’ REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The Directors of Itaconix plc (registered number 08024489) submit their report prepared in accordance with
Schedule 7 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008
(‘Schedule 7’).
Principal Activities
The principal activities of the Group are the research and production of proprietary specialty polymers that meet
significant customer needs, with a strategy of direct selling efforts to establish initial use of new polymers, and
then partner development to scale global demand.
Most of the Group’s activities are focused on homecare and personal care applications where consumer interest
and desires for safer and more sustainable products are particularly high.
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 herein.
Financial Instruments and Liquidity Risks Information about the use of financial instruments by the Company
and its subsidiaries and the Group’s financial risk management policies are given in Note 20.
Directors and their Interests
The Directors of the Group at 31 December 2019 were:
James Barber (Chairman);
John R. Shaw (Chief Executive Officer);
Bryan Dobson (Non-Executive); and
John I. Snow III (Non-Executive);
James Barber and Bryan Dobson were re-elected at the 2018 Annual General Meeting. John Shaw and John
Snow were elected at the 2019 Annual General Meeting. In accordance with Article 90 of the Company’s Articles
of Association, Bryan Dobson will stand for election at the 2020 Annual General Meeting.
Biographical details of all the Directors as at 31 December 2019 are given above on pages 12 to 13.
Liability Insurance for Directors, Officers and Employees
Itaconix has purchased insurance to cover the Directors, officers and employees of Itaconix plc and its subsidiaries
against defence costs and civil damages awarded following an action brought against them in their personal
capacity whilst carrying out their professional duties for the Group.
Dividends
Itaconix is seeking primarily to achieve capital growth for its shareholders. Its intention is to retain future
distributable profits, if any, and therefore the Company does not anticipate paying any dividends in the
foreseeable future. The Directors therefore do not recommend payment of a dividend (2018: £nil).
Events after the Balance Sheet Date
In May 2020, Itaconix Corporation applied for a US Government Paychecks Protection Program Loan to support
the business through the Covid-19 pandemic. The Group received $0.2m from the program to support the
Group’s employees and continue operations through the crisis.
In July 2020, the Group successfully raised gross proceeds of $2.2 million via an oversubscribed placing and
subscription from existing and new investors at the Issue Price of 1.1 pence ($0.01375) per share. A total of
P a g e | 23
DIRECTORS’ REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
163,318,182 new Ordinary Shares were placed. The net proceeds of the increased Placing and Subscription are
expected to provide sufficient funding for the Company until at least the end of 2021 during which the Company
expects to make significant progress towards its medium term plan to achieve break-even profitability.
Research and Development
Details of the Group’s activities on research and development during the year are set out in the Strategic Report
on pages 6 to 11 and Chief Executive Officer’s Report on pages 3 to 5.
Going Concern
Itaconix business activities, together with the factors likely to affect its future development, performance and
position are set out in the Strategic Report and the financial position of Itaconix, its cash flows and liquidity
position are described in the notes to the financial statements, in particular in the consolidated cash flow
statement and in Note 20 (financial instruments).
The financial statements have been prepared on a going concern basis. The Directors have reviewed the
Company’s and the Group’s going concern position taking account its current business activities, budgeted
performance and the factors likely to affect its future development, set out in the Annual Report, and including
the Group’s objectives, policies and processes for managing its working capital, its financial risk management
objectives and its exposure to credit and liquidity risks.
As described in Note 3, the Directors have reviewed the Group’s cash flow forecasts covering a period of at least
12 months from the date of approval of the financial statements, which foresee that the Group will be able to
meet its liabilities as they fall due. However, the success of the business is dependent on customer adoption of
our products in order to increase revenue and profit growth. Inability to deliver this could result in the
requirement to raise additional funds.
Subsequent to year end, the Group successfully raised funds of $2,246k.
The Directors have also taken into consideration the impact of the Covid-19 pandemic on the Group’s revenues
and supply chain. While there has not been a negative impact through the report date on the Group revenues
or supply chain due to the pandemic, the Directors have applied sensitivities to the timing, quantum, and
growth of new customer projects in revenue models and have assessed alternate supply chains that have been
developed by the Group to mitigate any issues to our customers.
The Directors have concluded that the circumstances set forth above represent a material uncertainty, which
may cast significant doubt about the Company and Group’s ability to continue as a going concern. However,
they believe that taken, as a whole, the factors described above enable the Company and Group to continue
as a going concern for the foreseeable future. The financial statements do not include the adjustments that
would be required if the Company and the Group were unable to continue as a going concern.
Substantial Shareholdings
In addition to the Directors’ interests, as disclosed in the Director’s Remuneration Report, the Company is aware
of the following shareholders with a percentage holding amounting to 3% or more of the ordinary share capital
based on the Company’s shareholder register as of 23 September 2020:
Shareholder
Hargreaves Lansdown Asset Management
IP Group
John R. Shaw
Walker Crips Stockbrokers
Octopus Investments
Interactive Investor
Guy Broadbent
Jarvis Investment Management
Halifax Share Dealing
P a g e | 24
Shares Held
55,466,862
48,291,522
44,076,733
22,701,474
21,387,288
19,006,035
18,275,000
17,103,561
14,787,584
% Holding
12.8%
11.2%
10.2%
5.3%
5.0%
4.4%
4.2%
4.0%
3.4%
DIRECTORS’ REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The percentage interest has been calculated on the total voting rights of 432,448,253, being the Company’s
issued share capital on 23 September 2020. No other person has reported an interest in the ordinary shares of the
Company required to be notified to the Company.
Information Presented in Other Sections
Certain information required to be included in a directors’ report by Schedule 7, including references to future
developments, research and development and financial instruments, can be found where applicable in the other
sections of this Annual Report. All of the information presented in those sections is incorporated by reference into
this Directors’ Report and is deemed to form part of this report.
P a g e | 25
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Directors’ Responsibilities
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 the 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 and
applicable law. 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 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. 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;
Prepare the financial statements on a 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.
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 company'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 company's website is the responsibility
of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements
contained therein.
Information Given to the Auditor
Each of the persons who are Directors of the Company at the date when this report was approved confirms that:
•
•
So far as the Director is aware, there is no relevant audit information (as defined in the Companies Act 2006)
of which the Company’s auditor is unaware; and
The Directors have taken all steps that they ought to have taken as Directors to make themselves aware of
any relevant audit information (as defined in the Companies Act 2006) and to establish that the Company’s
auditor is aware of that information. This confirmation is given and should be interpreted in accordance with
the provisions of s418 of the Companies Act 2006.
Auditor
BDO, LLP have expressed their willingness to continue in office as auditor. A resolution concerning their re-
appointment will be proposed at the 2020 Annual General Meeting.
Approved by the Board of Directors and signed on behalf of the Board,
John R. Shaw
Chief Executive Officer
29 September 2020
P a g e | 26
INDEPENDENT AUDITOR’S REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Independent auditor’s report to the members of Itaconix plc
Opinion
We have audited the financial statements of Itaconix plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 December 2019 which comprise the consolidated income statement, the consolidated statement of other
comprehensive income, the consolidated and company balance sheets, the consolidated and company statement of changes
in equity, the consolidated and company statement of cash flows 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
31 December 2019 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.
Material uncertainty related to going concern
We draw attention to note 3 in the financial statements which indicates that the Group may need to raise further finance
within the next 12 months to enable it to cover its operating expenses, especially in light of the current COVID-19 pandemic
causing economic uncertainty and making accurate forecasting even more judgmental and complex. These events or
conditions, along with the other matters as set forth in note 3, indicate the existence of a material uncertainty that may
cast significant doubt about the Parent Company and Group’s ability to continue as a going concern. Our opinion is not
modified in respect of this matter.
The calculations supporting the going concern assessment require management to make highly subjective judgements. We
have therefore spent significant audit effort in assessing the appropriateness of the assumptions involved, and as such this has
been identified as a Key Audit Matter.
Our audit procedures included the following:
•
•
•
•
•
Review of the internal forecasting process to confirm the projections are prepared by an appropriate level of staff
that are aware of the detailed figures included in the forecast but also have an understanding of the entity’s
market, strategy and changes in the customer base;
Reviewing management’s assessment of going concern through analysis of the Group’s cash flow forecast and other
projections through to 31 December 2021, including assessing and challenging the assumptions as to determine
whether there is adequate support for the assumptions underlying the forecasts and comparison against post year-
end results to date and performing sensitivity analysis to consider cash flow changes if the level of revenue and
costs. This includes reverse stress testing to ascertain what levels of cost increases or revenue decline cause a
cash shortage at any point in management’s post balance sheet assessment period and considering the likelihood
that those fact patterns could occur;
Reviewing the terms of the Group’s finance raised post year end. and plans for future fund raising;
Reviewing post-balance sheet events, specifically the cash flow position against budgeted performance; and
Considering the adequacy of the disclosures in the financial statements against the requirements of the accounting
standards.
Key audit matters
In addition to the matter described in the material uncertainty related to going concern section, 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
P a g e | 27
INDEPENDENT AUDITOR’S REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
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
Revenue Recognition
How we address the matter in our audit
The Group generates revenue from the sales of goods,
with revenue recognised at a point in time. Details of
the Group’s revenue streams and accounting policies
applied during the year are given in note 3 on page 42.
We considered there to be a significant audit risk
arising from inappropriate or incorrect recognition of
revenue.
The key audit matters related to revenue recognition are
as follows:
•
•
•
The existence and timing of revenue arising
from the sale of products to customers;
the recognition of revenue around the year
end (cut-off); and
the revenue recognition policy itself, as
detailed in notes 3 & 5 to these financial
statements.
Valuation of contingent consideration
Refer to the accounting policies in Note 3 and Notes 4
and 19 of the Consolidated Financial Statements.
The Group balance sheet reports a $2.4m (2018: $3.9m)
provision for contingent consideration that arose from
an acquisition in the prior period.
The contingent consideration is subject to an estimate
and judgement in respect of future expected annual
revenues until and including the year to 31 December
2022 and the discount rate; both impact the quantum of
the fair value of the contingent consideration as at the
balance sheet date. Any change in estimate in the
period, will change the fair value of the contingent
consideration, with an equal and opposite entry
recorded in the Income Statement.
P a g e | 28
With regards to the risk of material misstatement related
to the inappropriate or incorrect recognition of revenue
we performed the following specific testing:
• We agreed a sample of transactions from
throughout the year to invoice and evidence of
delivery;
• We tested a sample transactions either side of
the balance sheet date to check that they have
been recorded in the correct period; and
• We performed audit procedures to confirm
whether the processing and timing of journals to
record revenue around the year-end were
appropriate.
We assessed whether the revenue recognition policies
adopted by the Group comply with IFRS as adopted by
the European Union and Industry Standard. The relevant
IFRS is International Financial Reporting Standard 15
Revenue from Contracts with Customers.
Key observations:
Based on the procedures performed, we noted no material
instances of management bias or error associated with the
inappropriate or incorrect recognition of revenue, nor with
the accounting of any associated components to the sales
agreements. Based on the work performed we consider
that revenue has been materially recognised appropriately
and in accordance with the Group’s revenue recognition
accounting policy.
We have performed the following procedures:
•
•
Confirmed that the cash flow forecast used in
the measurement of the liability is consistent
with the information approved by the Board;
Evaluated forecasts
accuracy of management’s
subsequent results;
in
light of historical
forecasts and
• We tested the methodology applied in the
calculations and the mathematical accuracy of
management’s mode;
• We used specialists in the area of Valuation in in
assessing the appropriateness of the discount
rate adopted by management and applied to the
cash flow forecast; and
• We performed sensitivity analysis on the key
assumptions in the model.
Key observations:
Based on the procedures performed, we noted no
instances of material numerical or presentational
misstatements in the year relating to the accounting for
contingent consideration.
INDEPENDENT AUDITOR’S REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Our application of materiality
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, 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.
Level of materiality applied and rationale
We determined materiality for the Group financial statements as a whole to be $160,000 (2018: $153,000), which was
calculated with reference to the loss before tax.
Materiality for the Parent Company was based on total assets and capped at 72% (2018: 65%) of group materiality, at $115,000
(2018:$100,000).
The individual component materiality was set at 72% (2018: 65%) group materiality, at $115,000 (2018:$100,000).
We used loss before tax as a benchmark for the Group as this is the primary KPI used to address the performance of the
business by the Board, and is referenced within the RNS announcements released by the Group.
Performance materiality was set at 75% (2018:65%) of materiality at $120,000 (2018: $100,000). In setting the level of
performance materiality we considered a number of factors including the expected total value of known and likely
misstatements.
We agreed with the Audit Committee that misstatements in excess of $8,000 (2018:$3,000), which are identified during the
audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
An overview of the scope of our audit
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and
the industry in which the Group operates.
In establishing the overall approach to the Group audit, we assessed the audit significance of each component in the Group
by reference to both its individual financial significance to the Group or other specific nature or circumstances. We identified
three individually significant components, which makes up 100% of the Group activity.
To this extent:
–
–
The Group audit team performed a full scope audit for Itaconix Plc, Itaconix Corporation and Itaconix (U.K) Limited;
noting all these entities books and records are located in the USA, work was performed remotely. Furthermore, we
included specialists in the area of Valuation in our team in respect of the following matters – fair value of contingent
consideration and to assess the appropriateness of the increment borrowing rate adopted by management to
determine the right-of-use asset and lease liabilities at the date of transition to IFRS 16 – Leases.; and
The Group audit team visited the USA to meet with Group management at the Group’s US production facility.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the
Annual Report and Accounts, 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.
P a g e | 29
INDEPENDENT AUDITOR’S REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
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.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 26, 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.
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.
Iain Henderson (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
29 September 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
P a g e | 30
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2019
Continuing operations
Revenue
Cost of sales
Gross profit
Other operating income
Administrative expenses
Group operating loss before exceptional items
Exceptional income/ (expense) on revaluation of contingent
consideration
Exceptional expense on organizational restructuring
Finance income
Gain on sale of associate
Share of (loss) / profit of associate
Operating Loss before tax from operations
Taxation (charge)/credit
Loss for the year from operations
Loss for the year
Basic and diluted loss per share
Diluted loss per share
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
2019
$’000
2018
(Restated)
$’000
Notes
5
6
7
19
7
9
13
13
10
11
11
1,288
(838)
450
62
(3,390)
(2,878)
1,474
-
1
84
(38)
881
(741)
140
129
(5,935)
(5,666)
(3,323)
(1,190)
4
-
120
(1,357)
(10,055)
(1)
187
(1,358)
(9,868)
(1,358)
(9,868)
(0.5)
(0.5)
(6.3)
(6.3)
The accompanying notes 1 to 28 form an integral part of the financial statements.
P a g e | 31
CONSOLIDATED STATEMENT OF OTHER
COMPREHENSIVE INCOME
For the year ended 31 December 2019
Loss for the year
Items that will be reclassified subsequently to profit
or loss
Exchange gains / (losses) in translation of foreign
operations
Total comprehensive loss for the year, net of tax
Attributable to:
Equity holders of parent
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Notes
2019
$’000
2018
(Restated)
$’000
(1,358)
(9,868)
48
(193)
(1,310)
(10,061)
(1,310)
(10,061)
The accompanying notes 1 to 28 form an integral part of the financial statements.
P a g e | 32
CONSOLIDATED AND COMPANY
BALANCE SHEETS
At 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Group
Company
31 Dec
2019
31 Dec
2018
1 Jan
2018
(Restated) (Restated)
31 Dec
2019
31 Dec
2018
1 Jan
2018
(Restated) (Restated)
Non-current assets
Property, plant and equipment
Right-of-use assets
Trade and other receivables
Investment in subsidiary undertakings
Investment in associate undertakings
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Financed by
Equity shareholders’ funds
Equity share capital
Equity share premium
Own shares reserve
Merger reserve
Share based payment reserve
Foreign translation reserve
Retained earnings
Total equity
Non-current liabilities
Contingent consideration
Lease liabilities
Current liabilities
Trade and other payables
Lease liabilities
Notes
$’000
$’000
$’000
$’000
$’000
$’000
14
21
16
12
13
15
16
17
22
19
21
18
21
701
920
–
–
–
1,621
504
331
765
1,600
972
–
–
–
167
1,139
387
907
2,655
3,949
1,323
–
–
–
–
1,323
366
953
4,869
6,188
–
–
–
1,053
–
1,053
–
36
240
276
–
–
3,291
1,010
–
4,301
–
723
2,194
2,917
–
–
–
763
–
763
–
6,890
3,562
10,452
3,221
5,088
7,511
1,329
7,218
11,215
3,677
46,135
(5)
31,343
10,317
(219)
(92,245)
(997)
3,677
46,135
(5)
31,343
10,293
(267)
(90,887)
289
1,205
43,923
(7)
31,343
9,989
(74)
(81,019)
5,360
3,677
46,135
(5)
3,582
1,240
(2,273)
(53,807)
0
(1,451)
3,677
46,135
(5)
3,582
1,216
(2,455)
(48,913)
3,237
1,205
43,923
(7)
3,582
912
(2,301)
(37,005)
10,309
2,441
750
3,191
707
320
1,027
3,891
–
3,891
819
–
819
2,441
–
2,441
3,891
–
3,891
908
–
908
1,332
–
1,332
339
–
339
90
–
90
819
–
819
87
–
87
Total liabilities
4,218
4,799
2,151
2,780
3,981
906
Total equity and liabilities
3,221
5,088
7,511
1,329
7,218
11,215
P a g e | 33
CONSOLIDATED AND COMPANY
BALANCE SHEETS
At 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The loss for the year for the Company amounted to $4,894k (2018: $11,908K). The financial statements of
Itaconix plc, registered number 08024489, were approved by the Board of Directors for issue on 29 September
2020.
John R. Shaw
Director
James Barber
Director
The accompanying notes 1 to 28 form an integral part of the financial statements
P a g e | 34
CONSOLIDATED AND COMPANY
STATEMENTS OF CHANGES IN EQUITY
For the year ended 31 December 2019
Consolidated statement of changes in equity
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
At 1 January 2018 (Restated)
Loss for the year
Share issuance, net of expenses
Exchange differences on translation
of foreign operations
Exercise of share options
Share based payments
At 31 December 2018 (Restated)
Loss for the year
Exchange differences on translation
of foreign operations
Share based payments
At 31 December 2019
Equity
share
capital
$’000
1,205
–
2,472
–
–
–
3,677
–
–
–
3,677
Equity share
premium
Own shares
reserve
Merger
reserve
$’000
$’000
$’000
Share based
payment
reserve
$’000
Foreign
translation
reserve
$’000
43,923
–
2,212
–
_
–
46,135
–
–
–
46,135
(7)
–
–
–
2
–
(5)
–
–
–
(5)
31,343
–
–
–
–
–
31,343
–
–
–
31,343
9,989
–
–
–
–
304
10,293
–
–
24
10,317
(74)
–
–
(193)
–
–
(267)
–
48
–
(219)
Retained
deficit
$’000
(81,019)
(9,868)
–
–
–
–
(90,887)
(1,358)
–
–
(92,245)
Total
$’000
5,360
(9,868)
4,684
(193)
2
304
289
(1,358)
48
24
(997)
Company statement of changes in equity
Equity
share
capital
Equity share
premium
Own shares
reserve
Merger
reserve
Share based
payment
reserve
Foreign
translation
reserve
Retained
deficit
Total
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
At 1 January 2018 (Restated)
Loss for the year
Share issuance, net of expenses
Exchange differences on
translation of foreign operations
Exercise of share options
Share based payments
At 31 December 2018 (Restated)
Loss for the year
Exchange differences on
translation of foreign operations
Share based payments
At 31 December 2019
1,205
–
2,472
–
–
–
3,677
–
–
–
3,677
43,923
–
2,212
–
–
–
46,135
–
–
–
46,135
(7)
–
–
–
2
–
(5)
–
–
–
(5)
3,582
–
–
–
–
–
3,582
–
–
–
3,582
912
–
–
(2,301)
–
–
(37,005)
10,309
(11,908) (11,908)
4,684
–
–
–
304
1,216
–
–
24
1,240
(154)
–
–
(2,455)
–
–
–
–
(48,913)
(4,894)
(154)
2
304
3,237
(4,894)
182
–
(2,273)
–
–
(53,807)
182
24
(1,451)
The accompanying notes 1 to 28 form an integral part of the financial statements.
P a g e | 35
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
CONSOLIDATED AND COMPANY
STATEMENTS OF CHANGES IN EQUITY
For the year ended 31 December 2019
The reserves described above have the purposes described below:
Share capital
Amount subscribed for share capital at par value.
Share premium
Amount subscribed for share capital in excess of nominal value.
Own shares reserve
The reserve records the nominal value of shares purchased and held by the Employee Benefit Trust to satisfy
the future exercise of options under the Group’s share option schemes.
Merger reserve
This reserve arose as a result of a common control business combination on the formation of the Group. The
premium on the issue of shares as part of a business combination is credited to this reserve.
Share based payment reserve
This reserve records the credit to equity in respect of the share based payment cost.
Foreign exchange translation reserve
This reserve arises on the translation of the assets and liabilities of overseas subsidiaries.
P a g e | 36
CONSOLIDATED AND COMPANY
STATEMENTS OF CASH FLOWS
For the year ended 31 December 2019
Net cash (outflow) / inflow from operating activities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Proceeds from sales of associate investment, net of
transaction costs
Repayment on the loan to associate
Interest received - loan to associate
Cash loaned to subsidiary undertakings
Net cash inflow / (outflow) from investing activities
Cash received from issue of shares
Transactions costs paid on the issue of shares
Repayment of lease liability
Interest paid - leases
Net cash (outflow) / inflow from financing activities
Net (outflow) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Group
Company
Notes
23
2019
$’000
(1,831)
40
(39)
211
57
6
–
275
–
–
(320)
(14)
(334)
(1,890)
2,655
765
2018
(Restated)
$’000
(6,973)
74
–
–
–
–
–
74
4,946
(261)
–
4,685
(2,214)
4,869
2,655
2019
$’000
210
–
–
2018
(Restated)
(Restated)
$’000
119
–
–
–
–
–
(2,164)
(2,164)
–
–
–
–
–
–
(6,172)
(6,172)
4,946
(261)
–
–
4,685
(1,954)
2,194
240
(1,368)
3,562
2,194
The accompanying notes 1 to 28 form an integral part of the financial statements
P a g e | 37
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
1.
Introduction and statement of compliance with IFRS
The Board has considered compliance with IFRS carefully, and made disclosures that it deems appropriate in
the financial statements and notes, with emphasis to the reader where relevant.
The Group’s and the Company’s financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union and with the Companies Act 2006 as
applicable to companies reporting under IFRS. The principal accounting policies adopted by the Group are set
out in Note 3. The nature of the Group’s operations and its principal activities are set out in the Strategic
Report.
The Directors anticipate that the adoption of standards and interpretations issued, but not applied in these
financial statements as not yet effective, will have no material impact on the financial statements of the Group,
as further explained in note 2 below.
2.
Changes in Accounting Policies
The Group has applied the same accounting policies and methods of computation in its financial statements
as in its 2018 annual financial statements, except for the change in the Group’s reporting currency and those
that relate to new standards and interpretations effective for the first time for periods beginning on (or after)
1 January 2019, which have been adopted in the current year’s financial statements. New standards that have
impacted the Group for the year ended 31 December 2019 are IFRS 16 Leases and IFRIC 23 Uncertainty over
Income Tax Treatment.
Presentational currency
In this period, the Board decided to change the reporting currency due to the growing exposure to the US
Dollar (USD), as all major contracts and most of the new agreements for the Company are denominated in this
currency. The Board therefore believes that USD financial reporting provides a reliable and more relevant
presentation of the Group's financial position, funding and treasury functions, financial performance, and its
cash flows. Coupled with the evolution of the business, the Group's shareholder base is now largely comprised
of foreign investors to whom financial reporting in GBP is of limited relevance. Internally, the Board also bases
its performance evaluation and many investment decisions on USD financial information.
It should be noted that the functional currencies of the Group's underlying businesses - functional currencies
referring to the currencies of the primary economic environments in which underlying businesses operate -
remain unchanged and that foreign exchange exposures will therefore be unaffected by the change, albeit
that the effects of such exposures are presented in USD.
To assist investors in understanding the change in accounting policy, restated statements of financial position
have been presented, providing restated USD financial information for the financial years ended 31 December
2018 and 2017.
A change in reporting currency represents a change in an accounting policy in terms of IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors requiring the restatement of comparative information.
In accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates, the following methodology was
followed in restating historical financial information from GBP into USD:
• Non-USD assets and liabilities were translated at the relevant closing exchange rate at the end of the
reporting period. Non-USD items of income and expenditure and cash flows were translated at
average exchange rates for the reporting period disclosed;
•
•
Share capital, premium, and other reserves, as appropriate, were translated at the historic rates
prevailing at the dates of underlying transactions, and
The effects of translating the group's financial results and financial position into USD were recognised
in the foreign currency translation reserve.
The Group has provided the average exchange rates of its major functional currencies relative to US dollar as
an approximation for these rates for reference in the following table. The closing exchange rates of the Group's
P a g e | 38
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
major trading currencies relative to US dollar, used when translating the statements of financial position
presented in this release into US dollar, are also detailed in this table:
31 December 2019
31 December 2018
31 December 2017
Average rate
Closing rate
Average rate
Closing rate
Average rate
Closing rate
Sterling
1.2769
1.3267
1.3348
1.2760
1.2883
1.3502
Euro
1.1105
1.1227
1.1371
1.1455
1.1838
1.1998
The cumulative foreign currency translation reserve was $207k at the date of transition to IFRS. All subsequent
movements comprising differences on the retranslation of the opening net assets of non-sterling subsidiaries
have been taken to the foreign currency translation reserve. Share capital, share premium, and other reserves
were translated at the historic rates prevailing at the dates of transactions.
Statement of Financial Position:
1 January 2018
Total Assets
Total Liabilities
Share Capital
Share Premium
Other reserves
Accumulated losses
31 December 2018
Total Assets
Total Liabilities
Share Capital
Share Premium
Other reserves
Accumulated losses
As
restated
$’000
Translation
effect
‘000
As previously
reported
£’000
7,511
2,151
1,205
43,923
41,251
(81,019)
5,088
4,799
3,677
46,135
41,364
(90,887)
1,948
558
418
15,320
13,594
(27,942)
1,141
1,035
991
15,834
13,835
(30,554)
5,563
1,593
787
28,603
27,657
(53,077)
3,947
3,764
2,686
30,301
27,529
(60,333)
The 2019 consolidation has been presented in USD as the decision to change reporting currencies was taken
during the year. The currency translation effect has therefore not been disclosed. Share capital, share
premium, and other reserves were translated at the historic rates prevailing at the dates of transactions giving
rise to those equity items.
Adoption of new and revised standards effective from 1 January 2019
IFRS 16 “Leases”
IFRS 16 has replaced IAS 17: Leases, and has had an effect on the Group in the following areas (Note 21):
•
•
IFRS 16 changes the existing guidance in IAS 17 and requires lessees to recognise a lease liability that
reflects future lease payments and a "right-of-use asset" in all lease contracts within scope, with no
distinction between financing and operating leases. IFRS 16 exempts lessees in short-term leases or
when the underlying asset has a low value. The Group has elected to apply the practical expedient
not to recognise right-of-use assets and lease liabilities for leases of low-value assets only.
The adoption of IFRS 16 has resulted in the Group recognising right-of-use assets and lease liabilities
for all contracts that are, or contain, a lease. For leases historically classified as operating leases,
P a g e | 39
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
under IAS 17 requirements the Group did not recognise related assets or liabilities, disclosing instead
the total commitment in its annual financial statements. The Group has elected to apply the modified
retrospective method. Therefore, there will be no impact on any comparative accounting period
(interim or annual), with the lease liability and right-of-use assets relating to leases in existence at the
date of transition, being recognised on the balance sheet on the date of initial application of IFRS 16,
being 1 January 2019. In respect of the Group’s former headquarters in the UK, the group has applied
practical expedient to retain the IAS 17 valuation of this onerous lease of $0.3m, this being set off
against the right-of-use asset at 1 January 2019.
•
Finally, instead of recognising an operating expense for its operating lease payments, the Group now
recognises interest on its lease liabilities and amortisation on its right-of-use assets. This has increased
the reported Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA) by the amount
of its current operating lease cost, which for the period was approximately $212k.
IFRIC 23 “Uncertainty over Income Tax Treatments”
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in
circumstances in which there is uncertainty over income tax treatments. The Interpretation requires:
•
•
•
The Group to determine whether uncertain tax treatments should be considered separately, or
together as a group, based on which approach provides better predictions of the resolution;
The Group to determine if it is probable that the tax authorities will accept the uncertain tax
treatment; and
If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty
based on the most likely amount or expected value, depending on whichever method better predicts
the resolution of the uncertainty. This measurement is required to be based on the assumption that
each of the tax authorities will examine amounts they have a right to examine and have full
knowledge of all related information when making those examinations.
The Group elected to apply IFRIC 23 retrospectively with the cumulative effect recorded in retained
earnings as at the date of initial application, 1 January 2019. The adoption of IFRIC 23 did not result in an
increase in corporate tax liabilities.
3.
Accounting policies
Basis of accounting
These financial statements have been prepared in accordance with International Financial Reporting
Standards, International Accounting Standards and Interpretations (collectively IFRSs), which are adopted by
the EU. Set out below are the main accounting policies which applied in preparing the financial statements for
the years ended 31 December 2018 and 31 December 2019. As further explained in Note 2, the Group financial
statements are presented in USD because this is the currency of the primary economic environment in which
the Group currently operates, and all values are rounded to the nearest thousand ($’000) unless otherwise
indicated.
The Company’s functional currency is GBP because this is the currency of the primary economic environment
in which the Company currently operates.
The financial statements have been prepared on the historical cost basis, except for contingent consideration
which has been measured at fair value.
Going concern
The financial statements have been prepared on a going concern basis. The Directors have reviewed the
Company’s and the Group’s going concern position taking account its current business activities, budgeted
performance and the factors likely to affect its future development, set out in the Annual Report, and including
the Group’s objectives, policies and processes for managing its working capital, its financial risk management
objectives and its exposure to credit and liquidity risks.
P a g e | 40
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The Group made a loss before exceptional items for the year of $2,878k, had Net Current Assets at the period
end of $573k and a Net Cash Outflow from Operating Activities of $1,831k. Primarily, the Group meets its day
to day working capital requirements through existing cash resources and had on hand cash, cash equivalents
and short term deposits at the balance sheet date of $765k (2018: $2,655k).
Subsequent to year end, the Group successfully raised funds of $2,246k.
The Directors have reviewed the Group’s cash flow forecasts covering a period of at least 12 months from the
date of approval of the financial statements, which foresee that the Group will be able to meet its liabilities as
they fall due. However, the success of the business is dependent on customer adoption of our products in
order to increase revenue and profit growth. Inability to deliver this could result in the requirement to raise
additional funds.
The Directors have also taken into consideration the impact of the Covid-19 pandemic on the Group’s revenues
and supply chain. While there has not been a negative impact through the report date on the Group revenues
or supply chain due to the pandemic, the Directors have applied sensitivities to the revenue models and have
assessed alternate supply chains that have been developed by the Group to mitigate any issues to our
customers.
The Directors have concluded that the circumstances set forth above represent a material uncertainty, which
may cast significant doubt about the Company and Group’s ability to continue as a going concern. However,
they believe that, taken as a whole, the factors described above enable the Company and Group to continue
as a going concern for the foreseeable future. The financial statements do not include the adjustments that
would be required if the Company and the Group were unable to continue as a going concern.
Consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities
controlled by the Company (its subsidiaries) made up to 31 December each year. The Company controls an
investee if, and only if the Company has the following:
•
•
•
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee);
Exposure of rights, to variable returns from its involvement with the investee; and
The ability to use its power over the investee to affect its returns.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting
policies used into line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
In accordance with Section 408 of the Companies Act 2006, no profit and loss account is presented for the
Company.
Business combinations and contingent consideration
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured
as the aggregate of the consideration transferred, measured at the acquisition date fair value, and the amount
of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to
measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’s
identifiable net assets. Acquisition related costs are expensed as incurred and included in administrative
expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date.
Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration are recognised in accordance with IFRS 9
in profit or loss.
P a g e | 41
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The fair value of contingent consideration is determined by reference to the projected financial performance in
relation to the specific contingent consideration criteria for each acquisition.
Associates
An associate is an entity over which the Group has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee, but is not control or joint control
over those policies. The considerations made in determining significant influence are similar to those necessary
to determine control over subsidiaries.
The Group’s investments in its associates are accounted for using the equity method. Each investment in an
associate is recognised (and subsequently held) at cost when acquired.
The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint
venture. Any change in other comprehensive income (“OCI”) of those investees is presented as part of the
Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate, the
Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised
gains and losses resulting from transactions between the Group and the associate are eliminated to the extent
of the interest in the associate.
The aggregate of the Group’s share of profit or loss of an associate is shown on the face of the statement of
profit or loss separate from operating profit and represents profit or loss after tax and non-controlling interests
in the subsidiaries of the associate.
The financial statements of the associate are prepared for the same reporting period as the Group. When
necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an
impairment loss on its investment in its associate. At least at each reporting date, the Group determines whether
there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group
calculates the amount of impairment as the difference between the recoverable amount of the associate and
its carrying value and charges it to “Share of profit or loss of associate” in the statement of profit or loss.
Revenue recognition
Revenue is recognised to the extent that services have been delivered and the revenue can be reliably measured,
regardless of when the payment is being made. Revenue is measured at the fair value of the consideration
received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty.
Revenue from the sale of goods is recognised when performance obligations have been satisfied. The delivery
date is usually the date on which performance obligations have been satisfied. However, where goods are
supplied when title does not irrevocably pass on delivery, it may not be appropriate to recognise all the revenue
immediately. The Group provides for potential sales returns based on its actual experience of returns from
customers in such cases. Where it has no such history it makes estimates by reference to minimum sales
commitments in the relevant contract, or by reference, where available, to customer retail sales data or customer
inventory levels at the financial year end, or based on other reasonable and relevant judgements.
Leases
Leases are accounted for under IFRS 16: Leases. The standard sets out the principles for the recognition,
measurement, presentation and disclosure of leases.
IFRS 16 requires lessees to recognize a lease liability that reflects the net present value of future lease payments
and a corresponding “right-of-use asset” in all lease contracts, although lessees may elect not to recognize lease
liabilities and right-of-use assets in respect of short-term leases or leases of assets of low value.
The company has elected not to recognize right-of-use assets and lease liabilities in respect of certain leases of
office equipment of low value or of short term. The lease payments associated with these leases is recognized as
an expense on a straight-line basis over the lease term.
P a g e | 42
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
At inception of a contract, the group assesses whether a contract is, or contains, a lease based on whether the
contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration.
The group recognizes a right-of-use asset and a corresponding lease liability at the lease commencement date.
The lease liability is initially measured at the present value of the following lease payments:
•
•
•
•
•
fixed payments;
variable payments that are based on index or rate;
the exercise price of any extension or purchase option if reasonably certain to be exercised;
penalties for terminating the lease, if relevant; and
other payments to the landlord relating to the leased asset which are determined to be in substance
lease payments.
Judgement is applied to determine whether common area expenses paid to the landlord are determined to be
lease or non-lease payments. (See Note 4)
The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, the group’s incremental borrowing rate. The group has used its incremental borrowing rate as the
discount rate.
The right-of-use assets are initially measured based on the initial amount of the lease liability adjusted for any
lease payments made at or before the commencement date, plus any initial direct costs. The right-of-use assets
are depreciated over the period of the lease term, or, if earlier, the useful life of the asset, using the straight-
line method. The lease term includes periods covered by an option to extend, if the group is reasonably certain
to exercise that option. In addition, the right-of-use assets may during the lease term be reduced by impairment
losses, if any, or adjusted for certain remeasurements of the lease liability.
Government grants and research income
Government grants and research income are recognised as a credit to the income statement where there is
reasonable assurance that they will be received and all associated conditions will be complied with.
When the income relates to an expense item, it is recognised as income over the period necessary to match it
on a systematic basis to the costs that it is intended to compensate. Where the income relates to an asset, it is
recognised as deferred income and released to income in equal annual amounts over the expected useful life of
the related asset.
Research and development costs
Research costs are expensed as incurred. Development expenditure on an individual project is recognised as an
intangible asset only when the Group can demonstrate the technical feasibility of completing the intangible
asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset,
how the asset will generate future economic benefits, the availability of resources to complete the asset and
the ability to measure reliably the expenditure during development.
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring
the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses.
Amortisation of the asset begins when development is complete and the asset is available for use. It is
amortised over the period of expected future benefit. During the period of development, the asset is tested
for impairment annually.
The Group will also capitalise development costs to the extent they are intangible assets arising on
consolidation following an acquisition.
Foreign currencies
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the year-
P a g e | 43
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
end date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the
exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign
currency are translated using the exchange rates at the date when the fair value was determined.
Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates
different from those at which they were initially recorded are recognised in the income statement in the period
in which they arise. Exchange differences on non-monetary items are recognised in the statement of
comprehensive income to the extent that they relate to a gain or loss on that non-monetary item taken to the
statement of comprehensive income, otherwise such gains and losses are recognised in the income statement.
The assets and liabilities in the financial statements of foreign subsidiaries and those of the parent company
where the functional and presentational currency differ, are translated at the rate of exchange ruling at the
year-end date. Income and expenses are translated at the actual rate. The exchange differences arising from the
retranslation of the opening net investment in subsidiaries are taken directly to the ‘Foreign currency
retranslation reserve’ in equity. On disposal of a foreign operation the cumulative translation differences
(including, if applicable, gains and losses on related hedges) are transferred to the income statement as part of
the gain or loss on disposal.
Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and any accumulated
impairment in value. Such cost includes the cost of replacing part of the plant and equipment when that cost
is incurred, if the recognition criteria are met.
Depreciation is calculated to write off the cost less estimated residual value of all tangible assets over their
expected useful economic life on a straight-line basis. The rates generally applicable are:
Plant and equipment
Short leasehold improvements
Computer and office equipment
Financial assets
4-7 years
5 years
3 years
Financial assets are recognised in Itaconix’s and the Company’s statement of financial position when Itaconix
and the Company become party to the contractual provisions of the instrument. Under IFRS 9 the classification
of financial assets is based both on the business model and cash flow type under which the assets are held.
There are three principal classification categories for financial assets: amortised cost; fair value through other
comprehensive income; and fair value through profit or loss. Itaconix has not classified any of its financial
assets as fair value through other comprehensive income.
Amortised cost
These assets are non-derivative financial assets held under the ‘held to collect’ business model and
attracting cash flows that are solely payments of principal and interest. They comprise trade and other
receivables and cash and cash equivalents. They are initially measured at fair value plus transaction costs,
and are subsequently carried at amortised cost using the effective interest rate method, less provision for
impairment.
Impairment provisions for trade and other receivables are calculated using an expected credit loss model.
Under this model, impairment provisions are recognised to reflect expected credit losses based on
combination of historic and forward-looking information, the amount of such a provision being the
difference between the net carrying amount and the present value of the future expected cash flows
associated with the impaired receivable. For trade receivables, which are reported net; such provisions
are recorded in a separate allowance account. On confirmation that the trade receivable will not be
collectable, the gross carrying value of the asset is written off against the associated provision.
P a g e | 44
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
Cash, cash equivalents and investments
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand. Investments comprise
funds placed on short term deposits.
Income taxes
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the
taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance
sheet date.
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements, with the following exceptions:
• Where the temporary difference arises from the initial recognition of an asset or liability in a
transaction that is not a business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss; and
• Deferred income tax assets are recognised only to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences, carried forward tax credits or
tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are
expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted
or substantively enacted at the balance sheet date.
Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity.
Otherwise income tax is recognised in the income statement.
Research and development tax credit
Companies within the Group may be entitled to claim tax allowances in relation to qualifying research and
development 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.
Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other
financial liabilities.
Financial liabilities at fair value through profit or loss
Financial liabilities are stated at fair value with differences taken to the consolidated income statement.
Interest on financial liabilities up to maturity is included in the finance costs line item in the consolidated
income statement.
Trade and other payables
Trade payables and other payables are not interest bearing and are stated at their full value on initial
recognition. For disclosure purposes, the fair values of trade and other payables are estimated at the
present value of future cash flows, discounted at the market rate of interest at the reporting date. As
trade payables and other payables are short term in nature as at the reporting date, the carrying value is
considered to be a reasonable approximation of fair value.
Other financial liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs. They are
subsequently measured at amortised costs using the effective interest method, with interest recognised
on an effective rate basis.
P a g e | 45
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
Inventory valuation
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Inventories are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing
each product to its present location and condition.
Share based payments
The Company issues equity-settled share-based payments to certain employees and these payments are
measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of the grant
using appropriate pricing models. The fair value determined at the grant date of the equity-settled share-
based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate
of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions.
At the date of each statement of financial position, the Company revises its estimate of the number of equity
instruments that are expected to become exercisable. It recognises the impact of the revision of original
estimates, if any, in the income statement, and a corresponding adjustment is made to equity over the
remaining vesting period. The fair value of the awards and ultimate expense are not adjusted on a change in
market vesting conditions during the vesting period.
The value of share-based payment is taken directly to reserves and the charge for the period is recorded in the
income statement. Itaconix’s scheme, which awards shares in the parent entity, includes recipients who are
employees in all subsidiaries. In the consolidated financial statements, the transaction is treated as an equity-
settled share-based payment, as Itaconix has received services in consideration for equity instruments. An
expense is recognised in the Group income statement for the fair value of share-based payment over the
vesting year, with a credit recognised in equity.
In the subsidiaries’ financial statements, the awards, in proportion to the recipients who are employees in said
subsidiary, are treated as an equity-settled share-based payment, as the subsidiaries do not have an obligation
to settle the award. An expense for the grant date fair value of the aware is recognised over the vesting year,
with a credit recognised in equity. The credit is treated as a capital contribution, as the parent is compensating
the subsidiaries’ employees with no cost to the subsidiaries as there is no expectation to recharge the cost. In
the parent company’s financial statements, there is no share-based payment charge where the recipients are
employed by a subsidiary, with the parent company recognising an increase in the investment in the
subsidiaries as a capital contribution from the parent and a credit to equity.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received,
net of direct issue costs. Dividends and distributions relating to equity instruments are debited direct to equity.
Exceptional items
The Group has classified the organizational restructuring, the fair value adjustment of the contingent
consideration, and the impairment of the goodwill and other intangible assets as exceptional items in the income
statement. These items are not considered to reoccur and are of such significance to the results that they have
been presented as exceptional to provide a fair and balanced presentation in the financial statements.
4.
Critical accounting assumptions and key sources of estimation uncertainty
The preparation of the Group’s financial statements requires management to make judgements, estimates
and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the
disclosure of contingent assets and liabilities, at the end of the reporting period. However, uncertainty about
these assumptions and estimates could result in outcomes that require a material adjustment to the carrying
amount of the asset or liability affected in future periods.
P a g e | 46
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
Judgements and estimates
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
In the process of applying the Group’s accounting policies, management has made a number of judgements
and estimates. Those which have the most significant effect on the amounts recognised in the financial
statements are summarised below:
Judgements
Valuation of contingent consideration
The value of any contingent consideration is also reviewed at each period end by way of comparison to the
value of expected future payments, as estimated using appropriate methodologies, e.g. discounted cash flow
techniques. See Note 19 for further details.
Accounting for the investment in Alkalon
On 29 May 2019, the Group sold its interest in Alkalon as the final divestment in the nicotine gum business. As
part of the sale agreement Alkalon’s shareholder, indemnified the Group of the contingent liabilities for
Alkalon’s CMO’s payment obligations and annual orders for product minimums. Prior to the sale, management
would review the appropriateness of the equity accounting for the investment in Alkalon under IAS 28 as an
associate. At each period end the carrying value of the investment in Alkalon is also reviewed for impairment
with a view to assessing recoverability.
Fair value of Group indebtedness (Company only)
The fair value of amounts owing from group companies is impaired in those cases where the subsidiary is, at
the balance sheet date, both illiquid and not yet generating positive cash flows, or otherwise highly unlikely to
repay such indebtedness (See Note 16).
IFRS 16 – Lease Accounting - lease term, non-lease components
The determination of the lease term for some lease contracts of the group is based on the consideration as to
whether the Group is reasonably certain to exercise lessee options.
Judgement is applied to determine whether common area expenses paid to the landlord are determined to be
lease or non-lease payments. Consideration is made to the nature and variability of costs incurred and other
terms within such arrangements. (See Note 21)
Estimates
Valuation of contingent consideration
The value of any contingent consideration is also reviewed at each period end by way of comparison to the
value of expected future payments, as estimated using appropriate methodologies, e.g. discounted cash flow
techniques. See Note 19 for further details.
Share based payment cost
The estimation of share based payment costs requires the selection of an appropriate valuation model,
considerations as to the inputs necessary for the valuation model chosen and the estimation of the number of
awards that will ultimately vest, inputs for which arise from judgements relating to the probability of meeting
non-market performance conditions and the continuing participation of employees (See Note 24).
IFRS 16 – Lease Accounting - Incremental borrowing rate
The determination of the incremental borrowing rate used to measure lease liabilities and the right-of-use
asset at inception of a lease or on transition requires judgement to determine the rate appropriate for the
group.
P a g e | 47
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
5.
Revenue
Revenue recognised in the Group income statement is analysed as follows:
Sale of goods
Geographical information
North America
Europe
Asia
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
2019
$’000
1,288
1,288
2019
$’000
1,128
160
-
1,288
2018
$’000
881
881
2018
$’000
650
222
9
881
The revenue information is based on the location of the customer.
Segmental information
The revenue information above is derived from the continuing operations. The Group therefore has one
segment - the Specialty Chemicals segment which designs and manufactures proprietary specialty polymers to
meet customers’ needs in the home care and industrial markets and in personal care.
Net assets of the Group are attributable to geographical location as at 31 December 2019.
Europe
North America
2019
$’000
(2,195)
1,198
(997)
2018
$’000
115
174
289
6.
Other operating income
Other operating income arises mainly from grants and research income and sale of fixed assets. Since it is not
considered to be part of the main revenue generating activities, the group presents this income separately from
revenue.
2019
$’000
94
(32)
62
2018
$’000
129
–
129
Grant and research income
Loss on sale of assets
P a g e | 48
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
7.
Group operating loss
This is stated after charging:
Auditor’s remuneration:
Audit of the financial statements
Audit of the subsidiaries
Non-audit services
Total fees
Equity settled share based payment expense
Employer’s national insurance (credit) associated with
vested share options
Depreciation of owned assets
Amortisation of right-of-use assets
Operation lease expense:
– land and buildings
Research and development expenditure
Foreign exchange differences
2019
$’000
2018
$’000
10
76
6
92
24
(16)
223
198
-
101
56
13
75
9
97
304
(38)
347
-
443
238
64
On 1 June 2018, the Group announced an operational update regarding the restructuring of its UK subsidiary to
focus the Group’s resources on growing revenues of its core products. The Group’s activities were consolidated
into its US operations, thereby improving the link between product support and manufacturing. The Group
incurred a one-time exceptional cost of $1,190k to restructure the UK subsidiary, to pay Director’s and staff
redundancy payments, lease termination, and facility clean-up costs.
8.
Staff costs
Staff costs for the Group, including Directors, consist of:
Wages and salaries
Invoiced by third parties
Post-employment benefits
Equity settled share based payment expense
2019
$’000
1,457
8
35
24
1,524
2018
$’000
3,751
20
132
304
4,207
Details of Directors’ fees are included in the Directors’ Remuneration Report on page 19 to 20.
Details of key management personnel fees are included in Note 25.
P a g e | 49
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The average monthly number of Group employees, including Directors, during the year was made up as
follows:
Executive Directors
Non-executive Directors
Research and development
Finance and administration
Sales
Production
Contract staff
Itaconix plc had no employees other than the Directors.
9.
Finance income
Interest receivable on bank deposits
10.
Taxation
Corporation tax credits
Prior years’ corporation tax credits
Reduction in deferred tax liability on IP amortisation
Current year corporation tax liability
Current year corporation tax credits
Corporation tax credits
2019
No.
1
3
5
2
2
2
1
16
2019
$’000
1
2019
$’000
7
-
(8)
-
(1)
2018
No.
2
5
14
4
4
2
1
32
2018
$’000
4
2018
$’000
28
-
(8)
167
187
During the year ended 31 December 2019, the Group had a taxation expense of ($1k) (2018: credit of $187k),
$7k of which relates to R&D tax credits estimated to be claimable on qualifying expenditure for the year ended
31 December 2018, but also including a provision of $8k for US taxation payable in respect of 2019 by the US
subsidiary. The amount of R&D tax credits actually received in the year of $174k relates to the submitted R&D
tax claims for the year ended 31 December 2018.
P a g e | 50
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Total tax on loss on ordinary activities
The tax for the year can be reconciled to the loss per the income statement as follows:
Loss before tax relief
Loss on ordinary activities multiplied by standard
UK corporation tax rate of 19%
Effects of:
Disallowed expenses & non-taxable income
Adjustments in respect of prior periods
Other timing differences
Surrender of tax losses for R&D tax credit
Movement in deferred tax not recognised
Current year R&D tax credit
Total tax credit for the year
Release of previously recognised deferred tax liability
(shown on the face of the income statement due to its nature)
Corporation tax credit
The Group tax credit relates to continuing operations in the year.
Deferred tax
The Group has the following net deferred tax asset which is not recognised:
Accelerated capital allowances
Other timing differences
Tax losses carried forward
Share based payments
2019
$’000
(1,357)
(258)
(245)
-
(7)
-
511
-
1
-
1
2019
$’000
1
36
9,636
5
9,678
2018
$’000
(10,055)
(1,875)
485
(28)
860
222
316
(167)
(187)
-
(187)
2018
$’000
1
29
9,168
33
9,230
The net deferred tax asset is not recognised as there is insufficient evidence of future taxable profits against
which the asset will be available for offset. Certain operating losses will expire in 2030 if not profits are
generated to offset the loss carry forwards, these losses are also subject to certain regulatory restrictions.
Tax rate and tax rate changes
The main rate of UK corporation tax was 19% from 1 April 2015. This will fall to 17% for the year beginning 1
April 2020 however subsequent to the year-end legislation was updated such that the rate will revert to 19%
in 2020.
The US federal tax rate is 21% as of 1 January 2018.
P a g e | 51
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
11.
Loss per share
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue during the year.
Loss
2019
$’000
2018
$’000
Loss for the purposes of basic and diluted loss per share
Weighted average number of ordinary shares for the purposes of basic
and diluted loss per share (’000)
Basic and diluted loss per share
(1,358)
(9,868)
269,130
(0.5)
156,971
(6.3)
The loss for the period and the weighted average number of ordinary shares for calculating the diluted
earnings per share for the period to 31 December 2019 are identical to those used for the basic earnings per
share. This is because the outstanding share options (Note 24) would have the effect of reducing the loss per
ordinary share and would therefore not be dilutive.
12. Investment in subsidiary undertakings
In prior years, management has fully impaired the intangible assets arising on acquisition of Itaconix Corporation
and has also impaired the value of the investment in Itaconix Corporation in the Company balance sheet
proportionate to its shareholding. Impairment was calculated by comparing the asset carrying values with the
value in use of the relevant cash generating unit, using discounted cash flow techniques. Notwithstanding this, it
still expects the Group to become a profitable specialty chemicals business in the medium term.
At 1 January 2018
Foreign translation adjustment
At 31 December 2018
Foreign translation adjustment
At 31 December 2019
Company
$000
763
247
1,010
43
1,053
Name
Principal activity
Place of
incorporation
and operation
Proportion of
ownership
interest
Direct investments
Itaconix (U.K.) Limited (1)
Itaconix EBT Limited (1)(3)
Indirect investments
UK operating company
Trustee of Itaconix employee benefit trust
England
England
Itaconix Corporation (2)
Trading US subsidiary of Itaconix (U.K.) Ltd
USA
100%
100%
100%
(1) The registered address is Fieldfisher, LLP, Riverbank House, 2 Swan Lane, London, EC4R 3TT, UK
(2) The registered address is 2 Marin Way, Stratham, NH 03885, USA
(3) On 13 December 2019, the Company changed name from Revolymer EBT Limited to Itaconix EBT Limited.
P a g e | 52
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
13.
Investment in associate undertakings
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
During May 2019, the Group completed its divestment in the nicotine gum business when the Group sold its
holdings (22.49%) in its associate, Alkalon A/S (Alkalon), to the associate’s existing shareholders for $244k. this
netted a gain on the sale of associate of $84k. Loan and interest of $63k were also recovered. As part of the
transaction, the associate’s existing shareholders provided indemnification protecting the Group against any
exposure from the guarantees noted below. Further details of this event are noted in Note 27.
Alkalon was accounted for using the equity method in the consolidated financial statements. The acquisition
was considered to be a long term investment. The carrying value of the investment at the period end was arrived
at as described below.
Fair value of Alkalon investment at 1 January 2018
Increase in investment at 30 April 2018
Reclassification from impairment on loan to the investment in
associate
Reversal of impairment
Share of profit of equity-accounted investees, net of tax
Gain on foreign exchange
Fair value of Alkalon investment at 31 December 2018
Impairment of investment
Share of loss of equity-accounted investees, net of tax
Sale of investment at 29 May 2019
Fair value of Alkalon investment at 31 December 2019
$’000
-
35
20
117
3
(8)
167
(5)
(33)
(129)
-
Name
Alkalon A/S (from 31 October 2016)
Alkalon A/S (from 22 June 2017)
Alkalon A/S (from 30 April 2018)
Alkalon A/S (from 29 May 2019)
Principal
activity
Trading Danish associate of
Itaconix (U.K.) Ltd
Trading Danish associate of
Itaconix (U.K.) Ltd
Trading Danish associate of
Itaconix (U.K.) Ltd
Trading Danish associate of
Itaconix (U.K.) Ltd
Place of
incorporation
and operation
Proportion of
ownership
Interest
Denmark
Denmark
Denmark
Denmark
15%
17%
22%
-%
The associate had no contingent liabilities or commitments as at 31 December 2018.
During 2018, jointly and severally with all the other shareholders, the Group has provided further guarantees
to Alkalon’s contract manufacturer (CMO) up to a maximum EUR 0.8m (approximately USD 1.0m), callable
should Alkalon not meet its payment obligations to the CMO and/or not meet minimum annual orders for
product. These guarantees reduce by EUR 0.1m (approximately USD 0.2m) every year for 4 years, down to a
maximum of EUR 0.3m (approximately USD 0.4m). Management did not expect these guarantees to be called,
and none were called in the period. Accordingly, no liability has been recorded at 31 December 2018. In 2019
and as part of the sale agreement Alkalon’s shareholder, indemnified the Group for the contingent liabilities
for Alkalon’s CMO’s payment obligations and annual orders for product minimums.
P a g e | 53
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
14.
Property, plant and equipment
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Group
Cost
At 1 January 2018
Additions
Disposals
At 31 December 2018
Additions
Impairment
Disposals
At 31 December 2019
Accumulated depreciation
At 1 January 2018
Charge
Eliminated on disposal
At 31 December 2018
Charge
Eliminated on disposal
At 31 December 2019
Carrying Amount
At 31 December 2019
At 31 December 2018
Computer and
office
equipment
$’000
Plant and
equipment
$’000
Short
Leasehold
improvements
$’000
268
–
(243)
25
–
–
–
25
219
24
(223)
20
5
–
25
–
5
2,840
–
(1,556)
1,284
39
(43)
(44)
1,236
1,646
250
(1,532)
364
199
–
563
673
920
462
–
(366)
96
–
–
–
96
381
22
(354)
49
19
–
68
28
47
Total
$’000
3,570
–
(2,165)
1,405
39
(43)
(44)
1,357
2,246
296
(2,109)
433
223
–
656
701
972
At the end of 2018, the Group held certain assets for sale that were used in at the UK subsidiary, but due to the
reorganization were no longer needed. These assets were placed for sale in 2019 and were impaired at the end
of year.
2019
$’000
42
4
469
(11)
504
2018
$’000
108
19
260
–
387
15.
Inventories
Group
Raw materials
Work in progress
Finished goods
Inventory reserve
P a g e | 54
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
16.
Trade and other receivables
Current assets
Trade receivables
Amounts due from associate
Amounts owed by Group companies
Other receivables
Group
2019
$’000
247
–
–
84
331
2018
$’000
152
35
–
720
907
Company
2019
$’000
–
–
–
36
36
2018
$’000
–
–
712
11
723
Trade receivables are non-interest bearing and are generally on 30 day terms.
As at 31 December 2019, the unsecured shareholder loan and related accrued interest of $63k, due from its
associate Alkalon, was repaid as part of the sale transaction. At 31 December 2018, the unsecured shareholder
loan to its associate Alkalon remained outstanding as the primary credit facility with Danske Bank, remained
outstanding. The initial term of the loan agreement was 12 months from June 2017 and the interest rate of
4.5%. During 2018, the loan that had become past due was impaired $24k, as management was uncertain of the
financial status of repayment.
As at 31 December 2019, a provision of $nil (2018: $nil) has been made to trade receivables that were considered
to be impaired. Amounts due from group undertakings have been classified as current. The Company does not
consider any of the amounts due from group undertakings to be overdue.
Included within other receivables is $nil (2018: $174k) of R&D tax credit receivables (see Note 10).
In respect of the Company
•
The loss for the year includes a release of fair value impairment of group indebtedness of $nil resulting
from a movement in provisions for this indebtedness (2018: $nil).
• As at 31 December 2019 the balance of the fair value of impaired debt from Group undertakings is
$43,472k (2018: $41,308k).
•
There are no significant doubts as to the future recoverability of these balances, and as such, no
provision for bad and doubtful debts has been raised against the amounts due from group
undertakings, however to the extent the counter party is unable to do so, the Group does not intend
to recall the amounts due, within one year.
As at 31 December, the analysis of trade receivables that were past due but not impaired is as follows:
Group
2019
2018
Neither
past due
nor
impaired
$’000
–
–
Total
$’000
247
152
<30
days
$’000
155
90
30–60
Days
$’000
36
36
60–90
days
$’000
14
21
90–120
days
$’000
2
1
>120
Days
$’000
40
4
The fair value of amounts owing from Group companies to the Company has been impaired to the extent the
subsidiary is, at the balance sheet date, both illiquid and not yet generating positive cash flows, or otherwise
unlikely to repay such indebtedness. The Group provides against trade receivables where there are significant
doubts as to future recoverability based on prior experience, on assessment of the current economic climate and
on the length of time that the receivable has been overdue.
P a g e | 55
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Non-current assets
Group
Company
Amounts owed by Group companies
17.
Cash and cash equivalents
2019
$’000
–
–
2018
$’000
–
–
2019
$’000
–
–
2018
$’000
3,291
3,291
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with a maturity of
less than three months. The carrying amount of these assets approximates their fair value.
Analysis of cash and cash equivalents disclosed in the cash flow statement:
Group
2019
$’000
2018
$’000
Cash at bank and in hand
765
2,655
Credit, liquidity and market risk
Company
2019
$’000
240
2018
$’000
2,194
The Group’s principal financial assets are bank balances. The credit risk on these assets is limited because the
counterparties are banks with high credit ratings assigned by international credit rating agencies. The Directors
have carefully reviewed the carrying value of the Group’s financial assets and consider that at the date of this
report no impairment in those values is anticipated.
18.
Trade and other payables and lease liabilities
Current liabilities
Trade payables and other payables
Other payables and accruals
Lease liabilities (Note 21)
Group
Company
2019
$’000
307
400
320
1,027
2018
$’000
161
747
–
908
2019
$’000
65
274
–
339
2018
$’000
37
53
–
90
The Directors consider that the carrying amount of trade and other payables approximate to their fair value.
P a g e | 56
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
19.
Contingent Consideration
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
As at 1 January
Restructuring of contingent consideration
Movement in fair value and discounting unwind
Foreign exchange effect
As at 31 December
Current
Non-current
Contingent consideration
Group
Company
2019
$’000
3,891
–
(1,474)
24
2,441
–
2,441
2018
$’000
819
2,797
(48)
323
3,891
–
3,891
2019
$’000
3,891
–
(1,474)
24
2,441
–
2,441
2018
$’000
819
2,797
(48)
323
3,891
–
3,891
As part of the purchase agreement with the previous owners of Itaconix Corporation, a contingent consideration
was agreed with certain of the sellers (the “Sellers”). This would be payable to the Sellers, subject to the
achievement of revenue targets for products based on the technology acquired for the calendar years 2017 to
2020, based on 50% of incremental annual net sales value above $3m in 2017 and in excess of the prior year for
2018 to 2020 inclusive (and no less than $3m). The deferred performance-related consideration is capped at
$6m in aggregate. Such deferred performance consideration, if any, would be satisfied annually entirely in new
ordinary shares of Itaconix plc at the then prevailing price.
During 2018, in conjunction with the fund raise, a restructuring of the contingent consideration was executed.
The contingent consideration was restructured into two components:
• A one-time issue of 15 million new Itaconix plc shares to the Sellers.
•
The continuation of the previous contingent consideration mechanism (i.e. up to $6m in shares), but with
the window of time for potential achievement expanded to the end of 2023 (from the end of 2020) and
including all the revenues of the Group (which are primarily from products based on the acquired
technology in any event).
It should also be noted that the second component summarised above is intended to serve as an incentive
programme for the two members of management (John Shaw and Yvon Durant) who are also Sellers and are
entitled to 63% of the total contingent consideration (in both the existing and proposed construct). Accordingly,
they will not be eligible for any cash bonus or other share incentive programme for the years 2018 to 2020
inclusive. Simultaneously, the merger agreement with the former shareholders of Itaconix Corporation and
related agreements will be amended to remove various restrictive clauses, including minimum funding
requirements and employment terms.
Based on the share price at the execution of the restructuring agreement in 2018, the 15m shares had a value
of £0.3m which was expensed immediately.
In respect of 2019, the deferred consideration was valued using a discounted cash flow-based assessment of the
expected sales of the relevant products extracted from the latest Board approved forecasts, consistent with the
approach in prior years. A discount rate of 11.2% was used (2018: 11.2%). The valuation includes elements which
are unobservable and which have a significant impact on the fair value. Accordingly, contingent consideration is
classified as Level 3 fair value measurement.
The value of the adjusted contingent component using the latest Board approved forecasts and assumptions as
above is $2.4m (2018 - $3.9m)
P a g e | 57
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
As a result of the changed revenue forecasts, earn out period, and discount rate from the original value
assessments, the contingent consideration at 31 December 2019 was reduced to $2.4m. Sensitivity analysis was
also performed, summarised as follows:
•
If the sales in the period 2020 to 2022 were reduced by $1.0m, the fair value would be reduced by
approximately $0.4m
• A 1% increase in the discount rate would reduce the fair value by $55k
Since the forecasts used were a conservative base case, the computed fair value was deemed appropriate.
20.
Financial instruments
Financial risk management objectives and policies
Itaconix principal financial liabilities comprise trade and other payables and borrowings. The primary purpose
of these financial liabilities is to finance the operation. Itaconix has trade and other receivables and cash that
derive directly from its operations.
The Company has limited financial liabilities as its primary purpose is to hold investments in other Group
companies. The Company’s receivables largely relate to funding the operations of Itaconix.
Financial assets
Cash
Trade and other receivables
Intercompany receivable
Financial liabilities
Trade and other payables
Lease liabilities
Contingent consideration
Group
Company
2019
$’000
765
331
-
2018
$’000
2,655
907
-
2019
$’000
240
36
-
2018
$’000
2,194
723
-
(707)
(1,070)
(2,441)
(908)
-
(3,891)
(339)
-
(2,441)
(90)
-
(3,891)
(3,122)
(1,237)
(2,504)
(1,064)
The Directors consider that the carrying amount for all financial assets and liabilities approximates to their
fair value.
Financial risk management
The group is exposed to market risk, which includes interest rate risk and currency risk, credit risk and liquidity
risk. The senior management oversees the management of these risks and ensures that the financial risk
taken is governed by appropriate policies and procedures and that financial risks are identified, measured
and managed in accordance with Itaconix’s policies and risk appetite.
Liquidity risk
Itaconix seeks to manage financial risk by ensuring adequate liquidity is available to meet foreseeable needs
and to invest cash assets safely and profitably. Short-term flexibility is achieved by holding significant cash
balances in Itaconix’s main operational currencies, notably UK Sterling and US Dollar.
Credit risk
The principal credit risk for Itaconix arises from its trade receivables. In order to manage credit risk, new
customers undergo credit review and customer accounts are regularly reviewed for debt ageing and
collection history. As at 31 December 2019, there were no significant credit risk balances.
P a g e | 58
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Credit risk from cash balances with banks and financial institutions is managed in accordance with group
policy. Credit risk with respect to cash is managed by carefully selecting the institutions with which cash is
deposited
The financial assets of the Group comprise cash at banks, trade receivables and other receivables. Having
reviewed the recoverability of Itaconix’s financial assets since the reporting date, as well as the likelihood of
future losses over the next 12 months and the lifetime of the assets, the Board does not consider it necessary
to recognise any credit losses.
Interest rate risk
The Group finances its operations principally from equity funding and has no debt. Therefore the downside
risk associated with changes in interest rates is minimal. No sensitivity analysis has been presented for
changes in interest rates as these do not have a material impact on the loss before tax.
Currency risk
During the year, the Group received revenue in USD, EURO and GBP, whilst the majority of its cost base is in
USD. These receipts are currently relatively small and tend to be used first to cover costs in the same currency
before conversion to USD, and so currency risk impacting cash balances is deemed to be appropriately
managed. Intercompany loans from Itaconix plc to Itaconix Corporation to fund the US operations is
denominated in GBP and so is translated to USD each period end, potentially resulting in significant debits or
credits to the Company’s profit and loss but with no cash or other impact on the Group as the loan is
eliminated on consolidation. Management notes that such foreign exchange movements are non-cash items.
No forward foreign exchange contracts were entered into during the period (2018: nil). At 31 December 2019
the bank balances on hand of foreign currencies were:
Currency
GBP
CAD
EUR
2019
367,025
-
77,789
2018
1,796,758
66,017
50,891
The foreign currency balances are in aggregate higher than at the end of 2019, which is due to the US-based
Itaconix Corporation being the main operating entity. No sensitivity analysis has been presented for changes
in currency exchange rates, although management will keep the need for sensitivity analysis under regular
review going forward.
Liquidity risk
The Group seeks to manage financial risk, to ensure sufficient liquidity is available to meet foreseeable needs
and to invest cash assets safely and profitably. The Group’s policy through the period has been to ensure
continuity of funding by equity. The table below summarises the maturity profile of the Group’s financial
liabilities at the year-end based on contractual undiscounted payments, specifically noting that the lease
liability total is determined as the undiscounted lease payments including interest payable.
At 31 December 2019:
Group
Trade and other payables
Contingent consideration
Lease liability
On
demand
Less than
3 months
3 to 12
months
$’000
–
–
–
–
$’000
394
–
96
490
$’000
313
–
288
601
1 to 5
years
$’000
–
2,441
1,195
3,636
> 5 years
$’000
–
–
–
–
Total
$’000
707
2,441
1,579
4,727
P a g e | 59
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
At 31 December 2018:
Group
Trade and other payables
Contingent consideration
On
demand
$000
–
–
Less than
3 months
$000
161
–
3 to 12
months
$000
747
–
1 to 5
years
$000
–
3,891
> 5 years
$000
–
–
–
161
747
3,891
–
Total
$000
908
3,891
4,799
All of the trade and other payables balances ($339k) of the Company are due for payment in less than three
months (2018: $90k less than three months)
The range of interest rates applicable to instant access deposit accounts and term deposits at 31 December
2019 was 0.25% to 1.00% per annum (2018: 0.25% to 1.00%).
Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern while also
maximizing the operational potential of the business. The capital structure of Itaconix consists of cash and
cash equivalents and equity attributable to equity holders of the Company, comprising issued capital and
reserves as disclosed in the consolidated statement of changes in equity. Itaconix is not exposed to ext ernally
imposed capital requirements.
Committed facilities
The Group has no floating rate committed borrowing facilities as at 31 December 201 9 (2018: nil).
There are no material differences between the fair value of financial instruments and the amount a t which
they are stated in the financial statements. This is due to the fact that they are of short maturity and if
payable on demand the fair value is not materially different from the carrying value.
21.
Leases
The Group leases all its facilities from which it operates. The headquarters, production, and main offices are
located in Stratham, NH, USA. The facility is approximately 31,000 square feet and the lease expired in
September 2019. Management renewed the lease for a 5-year extension, through to September 2024. Lease
payments to September 2024 have been included in the initial recognition of the lease liability. There is
another office facility in Deeside, Flintshire, UK that expires in July 2021. At 31 December 2018 and under IAS
17, the Group recognized this lease as an onerous lease.
With effect from 1 January 2019, the Group has adopted IFRS 16 Leases, which specifies how to recognize,
measure, and present leases liabilities and the associated right-of-use assets. The Group has not restated
comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the
standard. The reclassifications and the adjustments arising from the new accounting standard are therefore
recognized in the opening balance sheet on 1 January 2019 and comparatives have not been restated. In
respect of the Group’s former headquarters in the UK, the group has applied practical expedient to retain the
IAS 17 valuation of this onerous lease of $0.3m, this being set off against the right-of-use asset at 1 January
2019.
On initial application, the Group recognized lease liabilities in relation to leases which had previously been
classified as ‘operating leases’ under the principles of IAS 17: Leases. These liabilities were measured at the
present value of the remaining lease payments, discounted using the lessee’s weighted average incremental
borrowing rate as at 1 January 2019 of 7.75%. The Group has elected to record right-of-use assets as equal
to the corresponding lease liabilities as the impact of potential additional costs or deductions to the assets
are immaterial.
In applying IFRS 16 for the first time, the Group used practical expedients permitted by the standard:
•
•
reliance on previous assessments on whether leases are onerous;
the use of hindsight in determining the lease term where the contract contains options to extend or
terminate the lease.
P a g e | 60
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The Group has also elected not to reassess whether a contract is or contains a lease at the date of initial
application. Instead, for contracts entered into before the application date, the Group has relied on its
assessment made applying IAS 17 and IFRIC 4 in determining whether an arrangement is or contains a lease.
Right-of-use asset
At 1 January 2019
Amortisation
Exchange differences
At 31 December 2019
Lease liability
At 1 January 2019
Additions in year
Interest expense
Lease payments
Exchange differences
At 31 December 2019
Leased Building
$’000
1,118
(198)
-
920
Leased Building
$’000
1,384
-
14
(334)
6
1,070
The above table also provides an evaluation of the material changes in the Group’s liabilities arising from
financial activities, as noted in the Group’s Cashflow.
At 31 December 2019, the maturity of the lease liability is as follows:
Leased building
Up to 3 months
$’000
82
Between 3
months and 12
months
$’000
One to two years
$’000
Two to five years
$’000
238
274
476
The following table sets out the impact of adopting IFRS 16 on the financial position of the Group at 1 January
2019:
As presented at 31
December 2018
IFRS 16 Adjustments
At 1 January 2019
Asset
Right-of-use asset (a)
Accrual – IAS 17 (c)
Liability
Lease liability (b)
Accrual – IAS 17(c)
Equity
Retained earnings
-
-
-
-
(266)
(266)
(90,887)
1,384
(266)
1,118
(1,384)
266
(1,118)
-
1,384
(266)
1,118
(1,384)
-
(1,384)
(90,887)
(a) The adjustment to right-of-use asset is related to all operating type lease assets
(b) The table below reconciles the minimum lease commitments disclosed in the Group’s 31 December 2019 annual financial statements
to the amount of the lease liabilities recognized on 1 January 2019.
(c) The adjustment to provisions related to an onerous lease provision reclassified to the right-of-use asset on the adoption of IFRS 16.
P a g e | 61
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The following table sets out the impact of adopting IFRS 16 on the financial position of the Group at 1 January
2019:
Minimum operating lease commitment at 31 December 2019
Effect of extension options reasonably likely exercised
Undiscounted lease payments
Effect of discounted at Group’s incremental borrowing rate
Lease liabilities recognized at 1 January 2019
22.
Share capital
At 1 January 2018 (78,717,948 shares in issue)
Issued as a result of an exercise of options
02/08/18 – 577,530
New share issued
03/08/18 – 15,000,000
03/08/18 – 174,834,593
At 31 December 2018 (269,130,071 shares in issue)
Issued as a result of an exercise of options
Nil
New share issued
Nil
At 31 December 2019 (269,130,071 shares in issue)
Leased Building
$’000
441
1,235
(292)
-
1,384
Group
$000
1,205
–
195
2,277
3,677
–
–
3,677
Company
$000
1,205
–
195
2,277
3,677
–
–
3,677
Itaconix plc (previously Revolymer plc) was incorporated on 10 April 2012.
On 3 August 2018 the Company issued 15,000,000 ordinary shares with a nominal value of 1p per share for 2p
per share as part of the restructuring of the contingent consideration for the acquisition of Itaconix Corp (See
Note 19).
On 3 August 2018, the Company issued 174,834,593 ordinary shares with a nominal value of 1p per share for
2p per share. The consideration was received in cash.
P a g e | 62
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
23.
Notes to the statements of cash flow
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Loss before tax
Depreciation of property, plant and equipment
Amortisation of right-of-use asset
Disposal of equipment
Impairment of Group indebtedness
Revaluation of deferred consideration
Loss / (gain) on foreign exchange
Gain on sale of associate
Share based payments charge
Share of loss / profit from associate
Recovery of loan to associate
Taxation
Operating cash flows before movements in working
capital
Increase in inventories
Decrease in receivables
Increase / (decrease) in payables
Net cash outflow from continuing operating activities
Group
Company
2019
$’000
(1,358)
223
198
42
–
(1,450)
48
(84)
24
38
(29)
(1)
(2,349)
(117)
542
93
(1,831)
2018
$’000
(10,055)
296
–
(19)
–
3,072
(193)
–
304
(120)
–
187
(6,528)
(21)
20
(444)
(6,973)
2019
$’000
(4,894)
–
–
–
6,169
(1,450)
182
–
24
–
–
–
31
–
(27)
206
210
2018
$’000
(11,908)
–
–
–
8,427
3,072
(154)
–
304
–
–
–
(259)
–
374
4
119
24.
Share based payments
An expense is recognised for share based payments based on the fair value of the awards at the date of grant,
the estimated number of shares that will vest and the vesting period of each award. The charge for share based
payments for the period to 31 December 2019 is $24k (2018: $304k) as disclosed in Note 8.
During the year to 31 December 2019 no share options (2018: nil) were granted under the Itaconix LTIP scheme
as either approved options (under the HMRC approved EMI scheme) or unapproved options. The management
team received nil cost share options (either HMRC approved or unapproved) with market facing performance
conditions required for vesting (“Management Options”). The fair value of Management Options as at the date
of grant was therefore estimated using a Monte Carlo simulation model. The remaining employees did not
receive share options under the EMI scheme (and with an exercise price of the market price as at the date of
grant) (“Employee Options”). Accordingly the fair value of the Employee Options was estimated as at the date
of grant using a Black Scholes model. Both models took into account the terms and conditions upon which the
options were granted using the following assumptions.
Grant date
2017 Option Grant
Number of options granted
Exercise price
Expected volatility
Risk free rate
Expected dividend yield
Expected option life
Unapproved
Management
Options
EMI
Management
Options
2,096,282
£nil
33.1%
0.4%
0%
36 months
1,582,127
£nil
33.1%
0.4%
0%
36 months
EMI
Employee
Options
834,051
£0.235
33.1%
0.4%
0%
36 months
P a g e | 63
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The Employee Options have a vesting period of 36 months with no performance criteria. The vesting period of
the Management Options is also 36 months but they only become exercisable if challenging market facing
performance conditions are met; namely that 50% of the grant becomes exercisable if the weighted average
ordinary share price in the 180 day period ending on 31 May 2020 of grant is £0.40. Between weighted average
ordinary share prices of £0.40 and £0.55, vesting shall be pro-rata and on a straight line basis between 50% and
100%. Below £0.40 the grants are not exercisable and lapse in full.
The valuation methodology used in valuing share based payments includes the key assumptions shown above.
Management have revisited and amended the assumptions in respect of expected volatility and risk free rate in
the year to 31 December 2019. The charge for share based payments for the period to 31 December 2019 is
accordingly $24k (31 December 2018 $304k).
Employee share option plan – unvested options
During the year the Company operated an employee share option plan (“the EMI plan”) for the benefit of
certain employees of the Company.
All options granted in the year are subject to the employee completing a specified period of service. All options
lapse when the employee ceases to be employed by the Company.
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements
in, unvested share options outstanding under the “EMI plan” during the year:
Unvested
Balance at beginning of year
Awarded during year
Lapsed during the year
Unvested options at end of year
2019
Number
of shares WAEP
£0.04
1,892,396
£nil
–
£0.02
(1,755,537)
2018
Number
of shares
3,741,837
–
(1,849,441)
WAEP
£0.14
£nil
£0.36
136,859
£0.25
1,892,396
£0.04
Unapproved share option plan – unvested options
During the year, the Company operated a share option plan for the benefit of employees who had received
grants under the EMI plan up to their personal limits.
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements
in, unvested share options outstanding under the Unapproved plan during the year:
Unvested
Balance at beginning of year
Awarded during year
Lapsed during the year
Unvested options at end of year
2019
Number of
2018
Number of
shares WAEP
shares WAEP
6,158,491
–
(5,264,550)
893,941
£nil
£nil
£nil
£nil
4,062,209
2,096,282
6,158,491
£nil
£nil
£nil
P a g e | 64
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
Summary of all options – vested and unvested
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
The following table summarises the position regarding all share options whether vested or not, including those
that vested at Admission in 2012:
2019
Number
of shares WAEP
2018
Number
of shares WAEP
6,915,677
–
(5,884,877)
–
£0.08
£nil
£nil
£nil
9,877,077
–
(2,070,333)
(891,067)
£0.08
£nil
£nil
£0.01
1,030,800
£0.07
6,915,677
£0.08
Vested and unvested
Balance at beginning of year
Awarded during the year
Lapsed during the year
Exercised during the year
Balance at end of year
25.
Related party transactions
Transactions with key management personnel
Remuneration of key management personnel
The remuneration of the Directors, who are considered to be the key management personnel of the Company,
is set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’.
Salaries and other short-term employee benefits
Post-employment benefits
Directors’ fees invoiced by third parties
Equity settled share based payment expense
Other related party transactions
2019
$’000
784
18
8
9
819
2018
$’000
1,518
44
20
173
1,755
The Group entered into the following related party transactions during the current and prior year:
IP2IPO invoiced the Group for the services of Mr. Townend who has served on the Board of Itaconix plc until
May 2019, when Mr. Townend stepped off the Board.
In 2019 the Group sold its investment in Alkalon and received payment for the outstanding loan and accrued
interest as part of the sale of its investment. In 2018 the Group invoiced Alkalon for the travel expenses of the
mutual board member Robin Cridland for attending the Alkalon board meetings in the year.
2019
IP2IPO Services Limited
Alkalon A/S
2018
IP2IPO Services Limited
Alkalon A/S
Receipts
from related
parties
$’000
–
61
Receipts
from related
parties
$’000
–
4
Payments
to related
parties
$’000
8
–
Payments
to related
parties
$’000
20
–
Amounts due
to related
parties
$’000
–
–
Amounts due
from related
parties
$’000
–
–
Amounts due
to related
parties
$’000
5
–
Amounts due
from related
parties
$’000
–
60
P a g e | 65
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2019
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
All related party transactions were made on terms equivalent to those that prevail in arm’s length transactions.
There have been no write-offs of related party balances during the year and there are no provisions against
any related party balances. The terms and conditions of related party transactions are the same as those for
other debtors and creditors.
26.
Contingent assets
There were no contingent assets in 2019 (2018 - nil).
27.
Contingent liabilities
During 2018, jointly and severally with all the other shareholders, the Group has provided further guarantees
to Alkalon’s contract manufacturer (CMO) up to a maximum EUR 0.8m (approximately USD 1.0m), callable
should Alkalon not meet its payment obligations to the CMO and/or not meet minimum annual orders for
product. These guarantees reduce by EUR 0.1m (approximately USD 0.2m) every year for 4 years, down to a
maximum of EUR 0.3m (approximately USD 0.4m). Management does not expect these guarantees to be
called, and none were up to and including the completed its divestment in Alkalon. Accordingly, no liability
was recorded at 31 December 2018.
During 2019, the Group sold its interest in Alkalon for $307k on 29 May 2019. As part of the divestment in
Alkalon, the Group was indemnified for the contingent liabilities for Alkalon’s CMO’s payment obligations and
annual orders for product minimums.
28.
Post Balance Sheet Events
In May 2020, Itaconix Corporation applied for a US Government Paychecks Protection Program Loan to support
the business through the Covid-19 crisis. The Group received $0.2m from the program to support the Group’s
employees and continue operations through the crisis.
In July 2020, the Group successfully raised gross proceeds of $2.2 million (£1.8 million) via an oversubscribed
placing and subscription from existing and new investors at the Issue Price of 1.1 pence ($0.01375) per share. A
total of 163,318,182 new Ordinary Shares have been placed. The net proceeds of the increased Placing and
Subscription are expected to provide sufficient funding for the Company until at least the end of 2021 during
which the Company expects to make significant progress towards its medium term plan.
In March 2020, the World Health Organisation declared a global pandemic due to the spread of Covid-19. The
pandemic has restricted people's movements globally, and caused economic disruption and uncertainty to
supply chain and customer stability. The impact of Covid-19 has been considered as part of the Group's going
concern assessment with a focus on the impact on the Group's revenues, working capital and non-current assets.
Management have considered the impact a non-adjusting balance sheet event.
Throughout the Covid-19 pandemic, the Group has maintained operations as an essential business. Efforts to
conserve available cash were taken in March 2020 until the new funding in July 2020. While some customer
formulation activities have slowed, the surge in demand for household detergents has significantly increased
order volumes for the Group’s detergent polymers. Effective customer engagement has continued without
travel through adaptation and innovation in customer communication and engagement.
P a g e | 66
APPENDIX TO THE ANNUAL REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Notice of Annual General Meeting
IMPORTANT INFORMATION: IMPACT OF THE COVID-19 PANDEMIC ON THE ANNUAL GENERAL
MEETING
Following the COVID-19 measures and guidance by the UK Government prohibiting, amongst other things large
public gatherings, the Board will be implementing the following measures in respect of the Annual General
Meeting in accordance with the provisions of the Corporate Insolvency and Governance Act 2020:
• we expect only one Director and another Shareholder representative to be in attendance in person at
•
•
•
•
•
the venue for quorum purposes to conduct the business of the meeting;
no other Directors will be present in person;
Shareholders will not be permitted to attend the Annual General Meeting, and if they attempt to do so,
will be refused entry to the meeting in line with the Government guidelines;
relevant questions related to the Annual General Meeting from Shareholders can be raised in advance
of the Annual General Meeting and in so far as is relevant to the business of the meeting, will be
responded to by email and taken into account as appropriate at the Annual General Meeting itself. A
presentation will also be made by the CEO after the Annual General Meeting which shareholders will
be able to access through a virtual platform, to be announced. Access details for the presentation will
be announced by the Company before the Annual General Meeting;
voting at the Annual General Meeting will be carried out by way of poll so that votes cast in advance
and the votes of all Shareholders appointing the Chairman of the meeting as their proxy can be taken
into account; and
as usual, the results of the Annual General Meeting will be announced as soon as practicable after it
has taken place.
We trust Shareholders will understand and co-operate with these arrangements.
NOTICE IS HEREBY GIVEN that the Annual General Meeting of Itaconix plc (the "Company") will be held at
Hillside, Station Road, Warkworth, Northumberland, NE65 0XP, United Kingdom on Friday 23 October 2020 at
2.00 p.m. (the “AGM”) to consider and, if thought fit, to pass the following resolutions, of which resolutions 1
to 7 will be proposed as ordinary resolutions of the Company and resolution 8 will be proposed as a special
resolution of the Company.
1. To receive and consider the Company’s Annual Report and Financial Statements for the year to 31
December 2019 (excluding the Directors’ Remuneration Report).
2. To receive and consider the Directors’ Remuneration Report contained in the Annual Report and
Financial Statements for the year to 31 December 2019.
3. To re-appoint Bryan Dobson as a Director of the Company.
4. To re-appoint BDO LLP as auditors of the Company to hold office from the conclusion of the AGM to
the conclusion of the next AGM at which accounts are laid before the Company.
5. To authorise the Directors to determine the remuneration of the auditors.
6. To amend the Itaconix 2019 Equity Incentive Plan by substituting the following in place of the existing
section 3.1 of the Plan:
"3.1 Number of Shares. Subject to adjustment under Section 3.3, an aggregate of 5% of the
issued and outstanding Shares as of 23 October 2020 may be issued pursuant to this Plan;
provided, however, that no more than an aggregate of 7% of the issued and outstanding Shares
as of 23 October 2020 may be issued pursuant to this Plan and Prior Plans. Notwithstanding
any other provision of this Plan, no more than 5% of the issued and outstanding Shares as of
23 October 2020 (the “ISO Limit”) may be issued pursuant to the exercise of Incentive Stock
Options."
P a g e | 67
APPENDIX TO THE ANNUAL REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
7. THAT in substitution for all existing authorities for the allotment of shares by the Directors, which
are hereby revoked but without prejudice to any allotment, offer or agreement already made
pursuant thereto, the Directors be and they are hereby generally and unconditionally authorised,
pursuant to section 551 of the Companies Act 2006 (the “2006 Act”) to exercise all the powers of
the Company to:
(a) allot shares in the Company and to grant rights to subscribe for or to convert any security
into such shares (all of which transactions are hereafter referred as an allotment of “Relevant
Securities”) up to an aggregate nominal amount of £1,441,494.18; and
(b) allot Relevant Securities up to an aggregate nominal amount of £1,441,494.18 in
connection with a rights issue, open offer, scrip dividend scheme or other pre-emptive offer
which satisfies the conditions and may be subject to all or any of the exclusions specified in
paragraph 8(b)(1) of the next following resolution,
in each case for a period expiring (unless previously renewed, varied or revoked by the Company in
general meeting) at midnight on the date falling 15 months after the date of the passing of this
resolution or at the conclusion of the next AGM of the Company following the passing of this
resolution, whichever occurs sooner, provided that the Company may before such expiry, variation
or revocation make an offer or agreement which would or might require such Relevant Securities to
be allotted after such expiry, variation or revocation and the Directors may allot Relevant Securities
pursuant to such an offer or agreement as if the authority conferred hereby had not expired or been
varied or revoked.
8. THAT, subject to and conditional upon the passing of resolution 7, the Directors be and they are
hereby empowered pursuant to section 570 of the 2006 Act to allot equity securities (within the
meaning of section 560 of the 2006 Act) for cash pursuant to the authority conferred by resolution
7 as if section 561(1) of the 2006 Act did not apply to any such allotment, provided that such power:
(a) shall, subject to the continuance of the authority conferred by resolution 7, expire at
midnight on the date falling 15 months after the date of the passing of this resolution or at the
conclusion of the next AGM of the Company following the passing of this resolution, whichever
occurs sooner, but may be previously revoked or varied from time to time by special resolution
but so that the Company may before such expiry, revocation or variation make an offer or
agreement which would or might require equity securities to be allotted after such expiry,
revocation or variation and the Directors may allot equity securities in pursuance of such offer
or agreement as if such power had not expired or been revoked or varied; and
(b) shall be limited to:
(1) the allotment of equity securities pursuant to a rights issue, open offer, scrip dividend
scheme or other pre-emptive offer or scheme which is in each case in favour of holders of
ordinary shares and any other persons who are entitled to participate in such issue, offer or
scheme where the equity securities offered to each such holder and other person are
proportionate (as nearly as may be) to the respective numbers of ordinary shares held or
deemed to be held by them for the purposes of their inclusion in such issue, offer or scheme
on the record date applicable thereto, but subject to such exclusions or other arrangements
as the Directors may deem fit or expedient to deal with fractional entitlements, legal or
practical problems under the laws of any overseas territory, the requirements of any
regulatory body or stock exchange in any territory, shares being represented by depositary
receipts, directions from any holders of shares or other persons to deal in some other
manner with their respective entitlements or any other matter whatever which the
Directors consider to require such exclusions or other arrangements with the ability for
the Directors to allot equity securities not taken up to any person as they may think fit;
and
P a g e | 68
APPENDIX TO THE ANNUAL REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
(2) the allotment of equity securities for cash otherwise than pursuant to sub paragraph
(b)(1) up to an aggregate maximum nominal amount of £648,672.38.
BY ORDER OF THE BOARD
Laura Denner
Chief Financial Officer and Company Secretary
Registered office:
Fieldfisher
Riverbank House
2 Swan Lane
London EC4R 3TT
United Kingdom
P a g e | 69
APPENDIX TO THE ANNUAL REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Notes
1.
Ordinarily, a shareholder is entitled to appoint one or more proxies to attend, speak and vote instead of him or her. The proxy need
not be a member of the Company. Where a shareholder appoints more than one proxy, each proxy must be appointed in respect of
different shares comprised in his or her shareholding which must be identified on the proxy form. Each such proxy will have the right
to vote on a poll in respect of the number of votes attaching to the number of shares in respect of which the proxy has been appointed
but such proxies will only be entitled to one vote between them on a poll. The proxy who is to exercise the one vote on a poll must
be identified on the appropriate proxy form. Where more than one joint shareholder purports to appoint a proxy in respect of the
same shares, only the appointment by the most senior shareholder will be accepted as determined by the order in which their names
appear in the Company’s Register of Members. However, as the meeting will be conducted as a closed meeting in accordance with
the Corporate Insolvency and Governance Act 2020, you are strongly advised to appoint the Chairman of the meeting as your proxy
to ensure that your vote is counted.
2.
You can vote either:
i.
ii.
iii.
by logging on to www.signalshares.com and following the instructions below;
You may request a hard copy form of proxy directly from the registrars, Link Asset Services (previously called Capita), on
Tel: 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United
Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday
excluding public holidays in England and Wales.
in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the
procedures set out below.
You may vote electronically using the link www.signalshares.com. You will need to log into your Signal Shares account, or register if
you have not previously done so. To register you will need your Investor Code which is detailed on your share certificate or available
from Link Asset Services whose contact details are set out in the notes to the enclosed Notice of Annual General Meeting. For an
electronic proxy appointment to be valid, your vote must be received by no later than 2.00 p.m. on 21 October 2020.
To be effective an instrument appointing a proxy and any authority under which it is executed (or a notarially certified copy of such
authority) must be deposited at the offices of Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU so as to be
received no later than 2.00 p.m. on 21 October 2020 except that: (a) should the meeting be adjourned, such deposit may be made
not later than 48 hours before the time of the adjourned meeting; and (b) in the case of a poll taken more than 48 hours after it was
demanded, such deposit may be made not later than 24 hours before the time appointed for the taking of the poll.
CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so by
utilising the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members and those
CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s),
who will be able to take the appropriate action on their behalf. In order for a proxy appointment made by means of CREST to be valid,
the appropriate CREST message (a CREST Proxy Instruction) must be properly authenticated in accordance with Euroclear UK & Ireland
Limited’s (“EUI”) specifications and must contain the information required for such instruction, as described in the CREST Manual.
The message, regardless of whether it relates to the appointment of a proxy or to an amendment to the instruction given to a
previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID RA10) by the latest
time(s) for receipt of the proxy appointments specified in the notice of meeting. For this purpose, the time of receipt will be taken by
the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is
able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. CREST members and,
where applicable, their CREST sponsors or voting service providers, should note that EUI does not make available special procedures
in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST
Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal
member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by a
particular time. In this connection, CREST members and, where applicable, their CREST sponsor or voting service providers are
referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
Any corporation which is a member can authorise one or more person(s) to act as its representative(s) at the meeting. However, as
the meeting will be conducted as a closed meeting in accordance with the Corporate Insolvency and Governance Act 2020, you are
strongly advised to appoint the Chairman of the meeting as your representative to ensure that your vote is counted.
An abstention (or “vote withheld”) option has been included on the Form of Proxy. The legal effect of choosing the abstention option
on any resolution is that the shareholder concerned will be treated as not having voted on the relevant resolution. The number of
votes in respect of which there are abstentions, will however, be counted and recorded, but disregarded in calculating the number
of votes for or against each resolution.
In accordance with Regulation 41 of the Uncertified Securities Regulations 2001, the Company specifies that only those shareholders
registered in the register of members of the Company as at 2.00 p.m. on 21 October 2020 or, in the event that the meeting is
adjourned, in such register not later than 48 hours before the time of the adjourned meeting, shall be entitled to attend, or vote
(whether in person or by proxy) at the meeting in respect of the number of shares registered in their names at the relevant time.
Changes after the relevant time will be disregarded in determining the rights of any person to attend or vote at the meeting.
If you are a person who has been nominated under section 146 of the 2006 Act to enjoy information rights, you may have a right,
under an agreement between you and the shareholder who has nominated you, to be appointed or to have someone else appointed
for you as a proxy for the meeting. If you do not have such a right, or you do have such a right but do not wish to exercise it, you may
3.
4.
5.
6.
7.
8.
9.
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YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
have a right under such an agreement to give instructions to the shareholder who nominated you as to the exercise of the voting
rights attached to the ordinary shares in respect of which you have been nominated.
10. As at 29 September 2020, being the last practicable date before the publication of this notice, the Company’s issued share capital
consists of 432,448,253 ordinary shares, carrying one vote each. No shares are held as treasury shares and therefore the total number
of votes at such date is 432,448,253.
11.
12.
Copies of Directors’ service contracts and letters of appointment would ordinarily be available for inspection for at least 15 minutes
prior to the meeting and during the meeting. As a consequence of the restrictions relating to the COVID-19 pandemic, we will only
allow for inspection of these documents as soon as the restrictions are lifted.
If you have any questions, please call us on 0871 664 0300. Calls cost 12p per minute plus your phone company's access charge. If
you are outside the United Kingdom, please call +44 371 664 0300. Calls outside the United Kingdom will be charged at the applicable
international rate. Lines are open between 9.00 a.m. – 5.30 p.m., Monday to Friday excluding public holidays in England and Wales.
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YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
EXPLANATORY NOTES
RESOLUTION 1: TO RECEIVE AND CONSIDER THE ANNUAL REPORT AND ACCOUNTS
The Directors are required to lay the Annual Report and Accounts before the shareholders each year at the AGM.
Resolution 1 is an ordinary resolution to receive and consider the Company’s Annual Report and Accounts for the financial year ended 31
December 2019 (excluding the Directors’ Remuneration Report).
RESOLUTION 2: TO RECEIVE AND CONSIDER THE DIRECTORS’ REMUNERATION REPORT
The Directors elect to lay the Directors’ Remuneration Report before the shareholders each year at the AGM.
Resolution 2 is an ordinary resolution to receive and consider the Directors’ Remuneration Report for the financial year ended 31
December 2019.
RESOLUTIONS 3: RE- APPOINTMENT OF DIRECTORS
The Company’s articles of association (the "Articles") require that at every AGM any Director appointed since the last annual general
meeting and any other Director who was not re-appointed as a Director at one of the preceding two AGMs, retire from office and, if
appropriate, seek re-appointment.
Although none of the current Directors are required to seek re-appointment under the Articles, the Board believe that it would be good
corporate governance for at least one Director to stand for re-appointment at the AGM. They have therefore resolved that Bryan Dobson,
who was last re-appointed as a Director at the 2018 annual general meeting, stand for re-appointment at the AGM. This Resolution is an
ordinary resolution.
Biographical details of all the Directors appear in the Company's Annual Report and Accounts for the financial year ended 31 December
2019. The Directors’ biographies can also be found on the Company’s website at http://itaconix.com/investors-old/corporate-governance.
RESOLUTION 4: RE-APPOINTMENT OF AUDITORS
The Company’s auditors are required to be re-appointed at every AGM. Resolution 4 is an ordinary resolution to approve the re-
appointment of BDOs LLP as auditors.
RESOLUTION 5: AUDITORS’ REMUNERATION
This Resolution is an ordinary resolution to authorise the Directors, as is customary, to negotiate and agree the remuneration of the
auditors of the Company. In practice, the audit committee will consider and approve the audit fees on behalf of the Directors.
RESOLUTION 6: AMENDMENT OF ITACONIX 2019 EQUITY INCENTIVE PLAN
This Resolution is an ordinary resolution to authorise the Directors to amend the Itaconix 2019 Equity Incentive Plan by updating the
reference at section 3.1 of the Plan to refer to an aggregate of 5% of the issued and outstanding Shares as of 23 October 2020 to take
account of the increased aggregate share capital following the placement of new ordinary shares in July 2020.
RESOLUTION 7: ALLOTMENT OF RELEVANT SECURITIES
The Directors may allot shares and grant rights to subscribe for, or convert any security into, shares only if authorised to do so by
shareholders. The authority granted at the last AGM is due to expire at this year’s AGM. Accordingly, Resolution 7 will be proposed as an
ordinary resolution to grant new authorities to allot shares and grant rights to subscribe for, or convert any security into, shares.
If given, these authorities will expire on the earlier of at the conclusion of the 2021 annual general meeting of the Company and the date
falling 15 months from the passing of the Resolution.
In accordance with the latest institutional guidelines issued by The Investment Association, paragraph (a) of Resolution 7 will allow
Directors to allot ordinary shares in connection with a rights issue, open offer or other pre-emptive offer to ordinary shareholders up to an
aggregate nominal amount of £1,441,494.18, representing approximately one third of the Company’s existing issued share capital as at 29
September 2020 (being the latest practicable date prior to the publication of this notice).
Paragraph (b) of Resolution 7 will also allow the Directors to allot Relevant Securities up to an aggregate nominal amount of
£1,441,494.18, representing approximately one third of the Company‘s existing issued share capital as at 29 September 2020.
It is customary for a UK quoted company to maintain such an authority irrespective of any intention to exercise it. The Directors confirm
that they do not currently have any intention to exercise this authority.
RESOLUTION 8: DISAPPLICATION OF PRE-EMPTION RIGHTS
The Directors also require a power from shareholders to allot equity securities for cash and otherwise than to existing shareholders pro
rata to their holdings. The power granted at the last annual general meeting is due to expire at this year’s AGM.
Accordingly, Resolution 8 will be proposed as a special resolution to grant such a power.
Apart from offers or invitations in proportion to the respective number of shares held, the power will be limited to the allotment of one
third of the current issued share capital up to £1,441,494.18 and a further limit of 15% of the current issued share capital for non – pre-
emptive issues for cash up to an aggregate nominal amount of £648.672.38
If given, this power will expire on the earlier of at the conclusion of the 2021 annual general meeting of the Company and the date falling
15 months from the passing of the Resolution.
It is customary for a UK quoted company to maintain such an authority irrespective of any intention to exercise it. The Directors confirm
that they do not currently have any intention to exercise this authority.
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APPENDIX TO THE ANNUAL REPORT
YEAR IN REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
Corporate Information
Advisors
Auditors
BDO, LLP
55 Baker Street
London
W1U 7EU
Solicitors
Fieldfisher LLP
Riverbank House
2 Swan Lane
London EC4R 3TT
NOMAD/Broker
N+1 Singer
One Bartholomew Lane
London
EC2N 2AX
Patent Agent
Grossman, Tucker, Perreault & Pfleger, LLP
55 South Commercial Street
Suite B14
Manchester, NH, USA
03101
Registered Office
Fieldfisher LLP
Riverbank House
2 Swan Lane
London EC4R 3TT
BPE Solicitors LLP
St James’ House
St James’ Square
Cheltenham
Gloucestershire GL50 3PR
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Bankers
HSBC plc
Vista
St David’s Park
Ewloe
US Operations
2 Marin Way
Unit 1
Stratham, NH, USA
03885
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