Trackwise Designs Plc Annual Report 2018

Plain-text annual report

ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2018 PRINTED ELECTRICAL INTERCONNECT SYSTEMS Improved Harness Technology Less weight, less space, more repeatable, more reliable, faster installation, high speed data Trackwise Designs plc Annual Report and Financial Statements For the period ended 31 December 2018 1 Contents Highlights Chairman’s Statement Chief Executive’s Strategic Review Chief Financial Ofﬁcer’s Report Corporate Governance Review Directors’ Remuneration Report Directors’ Report Independent Auditor’s Report to the members of Trackwise Designs plc Statement of Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Company Information [Ofﬁcers and Professional Advisers] 2 3 5 10 12 18 20 23 28 29 30 31 32 51 Registered in England and Wales, Registration no: 3959572 Registered ofﬁce: 1 Ashvale, Alexandra Way, Ashchurch, Tewkesbury, Gloucestershire, England GL20 8NB Trackwise Designs plc 2 Highlights REVENUE UP OPERATING PROFIT UP EBITDA UP 2018 – A YEAR OF SIGNIFICANT ACHIEVEMENTS ¨ ¨ ¨ ¨ ¨ ¨ ¨ January 2018 takes occupancy of new 19,000sq ft manufacturing facility July 2018 admitted to the AIM market of the London Stock Exchange raising a net £4.6M Installation of 2 new process lines enhancing manufacturing capability and capacity Revenue up 23% - 2018: £3.5M (2017: £2.8M) Adjusted Operating Profit up 385% - 2018: £325K (2017: £67K) EPS 0.63p Adjusted EBITDA up 171% - 2018: £618K (2017: £228K) Ian Griffiths Non-Executive Chairman 3 Chairman’s statement Dear Shareholders BUILDING MOMENTUM It is my pleasure to present the Company’s ﬁrst Annual Report, as a quoted company, for the year ended 31 December 2018. It was a year of signiﬁcant progress for Trackwise. The IPO on 31 July 2018 provided an essential platform for the development and growth of the Company which will celebrate its 30th anniversary in 2019. The proceeds of the IPO are being invested to increase capacity, reﬁne our capability for the supply of IHT products and develop opportunities and resources to implement and accelerate our growth strategy. Performance I am pleased to report a year of signiﬁcant performance improvement throughout the Company with encouraging operational development and growth in the business throughout 2018 in line with our core strategy outlined at the time of the IPO. Revenues for the period show signiﬁcant growth over 2017 up 23% at £3,468K (2017: £2,821K) and EBITDA from recurring business increased 171% to £618K (2017: £228K). The impact of the ﬂotation on 31 July 2018 is reﬂected in the increase in net assets from £1.226M to £5.871M. Since becoming a public company, our corporate proﬁle has grown and we are experiencing increased recognition with both our existing customer base and new business potential. Our pipeline of opportunities in our chosen IHT markets has grown from 14 at the time of ﬂotation to 45 at the end of March 2019. In the early part of 2018, the Company’s operations moved to new premises in Tewkesbury which created the space for the anticipated growth within the IHT marketplace and facilitated improved operational performance. Market Review Our view of the opportunity for IHT is that all in our chosen industry sectors are showing increasing interest in the technology and we have a developing list of customers engaged in leading-edge technology projects who are placing orders. Our challenges in the near to mid-term are in meeting growing demand and the Company is deploying the funds raised at ﬂotation in readiness. Revenues from IHT in 2019 will comfortably exceed last year and we expect the nature of the orders to change to longer production programmes over the next two years. Our outlook is that over the medium term the expectations set out at the time of ﬂotation will be achieved. The Company’s proprietary and patented ﬂexible printed circuit technology, Improved Harness Technology (“IHT”) has signiﬁcant applications in multi-billion-pound global high technology markets where traditional wire harnesses are currently incumbent. IHT has material beneﬁts over wire harnesses, particularly through weight, space and installation time savings in aerospace, defence and satellite markets as well as automotive applications through electriﬁcation of vehicles. Board, Senior Management and Employees I and my non-executive Director colleague, Lesley Jackson, were appointed to the existing Board at ﬂotation. We joined the Chief Executive Ofﬁcer, Philip Johnston, inventor of the patented process which forms the basis of the IHT offering and Chief Financial Ofﬁcer, Mark Hodgkins. We have elected to adopt the Quoted Company Alliance Code for governance purposes. Trackwise Designs plc Chairman’s statement continued 4 2018 has been a year of major transformation, executed by a strong experienced management team. Following the factory move and the ﬂotation they are now focused on implementing the growth strategy that these two events have enabled. This includes continuing development and training of both existing employees and new recruits. I would like to thank the whole Trackwise team for their efforts during 2018 and the contribution that they continue to make to support and execute our growth strategy. Dividend The Directors do not recommend the payment of a dividend this year as the Company is still in the process of investing in essential capability and capacity requirements. It is intended that in the future, when commercial conditions allow, then a progressive dividend policy will be implemented. Outlook The new year has begun steadily with revenue in line with our expectations. There is some delay in ordering from new IHT customers and there is, inevitably, some uncertainty regarding the impact of Brexit, but we continue to experience accelerating interest and demand for the IHT technology. The precise timing of many of these new opportunities is outside of Trackwise’s control as a consequence of the development nature of the customers’ needs, but the accretion of customers, which has accelerated in this current year to date gives us conﬁdence that our strategy remains on track. Ian Grifﬁths Non-Executive Chairman 10th April 2019 Trackwise Designs plc Chief Executive’s Strategic Review Philip Johnston Chief Executive Officer 5 “2018 was a transformational year for Trackwise” 2018 was a landmark year for the business; we moved our manufacturing facility, achieved a major shift in impetus in the development of our unique wire harness replacement technology – Improved Harness Technology™ (“IHT”) and successfully ﬂoated the business on the London AIM market. I would like to express my thanks to all the stakeholders who contributed to this very busy and transformational year, in particular, to all of our loyal and hardworking staff, without whom none of this would have been possible, and to the customers and investors that have shown conﬁdence in us and our technology. IHT The opportunities for IHT are extremely diverse; wherever wire is used, IHT can potentially offer a beneﬁt. The main beneﬁts of IHT are: • Weight saving – up to 75 per cent • Space Saving • • Improved precision Improved reliability • Reduced installation time • Ability to be bonded onto/into supporting structure This conﬁdence has allowed Trackwise to plan and now to deliver a world class multi-layer ﬂexible PCB production facility. • to Ability integrate electronic components, changing an entirely passive interconnect into a ‘smart harness’ In 2018 we increased revenue by 23% compared to last year at the same time increasing our adjusted operating proﬁt by 385% to £325K (2017: £67K). A more complete commentary on our ﬁnancial performance in 2018 is given in the Chief Financial Ofﬁcer’s Report on page 10. Our legacy RF business will continue to underpin the business, but as laid out at IPO the growth opportunity is Improved Harness Technology™ (IHT). IHT is a unique, proprietary, patented technology. It is not a new technology, but rather a new method of manufacturing a proven technology that opens applicability of that proven technology to a vast new range of applications. In our ﬁrst report as a listed entity I set out below some of the key tenets of our unique product offering together with some of the nascent and established markets that can beneﬁt from our capabilities. length multi-layer ﬂexible PCBs are, we Unlimited believe, unique to Trackwise and represent a disruptive technological process that releases proven advantages over traditional wire harnesses to a signiﬁcant total addressable market, previously excluded by historic supply chain size limits. Trackwise Designs plc Chief Executive’s Strategic Review continued 6 We continue to develop a presence in four principal markets where there is signiﬁcant opportunity for the disruptive qualities that IHT has. These are: • Aerospace • Automotive • Space (including Satellites and Spacecraft) • Industrial and Scientiﬁc We seek to work with leading industry players in each sector who can bring scale and skillset to a global delivery strategy. Aerospace: The beneﬁts of IHT and their importance to aerospace demands that this sector represents a key target market (it is worth an estimated $47.5bn 2012-2031). In the short to medium term the Company has exciting aerospace opportunities High Altitude Pseudo-Satellite (HAPS) and Unmanned Aerial Vehicles (UAVs) aerospace sub-sectors are entrepreneurially driven and are not encumbered by legacy thinking and technology, with new-entrants driving change. The Company is winning work from this market sector (30% of IHT revenues in 2018). We are positioning ourselves at the forefront of these developing opportunities and our technology will have its maiden ﬂight in 2019; we are receiving repeat orders, a vote of conﬁdence in Trackwise technology. In UAVs we aim to support distributed propulsion, distributed batteries, distributed sensing and control all of which supports an already strong case for the use of ﬂexible printed circuits in place of conventional wire harnesses, let alone smart harnesses, rather than an entirely passive interconnect, delivering signiﬁcant weight reduction a key requirement. In conventional aerospace, UK and International R&D programs allow us to introduce the beneﬁts of ﬂat ﬂex wiring into multiple applications for example electro-thermal ice protection, embedded antennas, sensors and crack detection. We have worked extensively with GKN Aerospace and we intend to enter into a development contract for the industrialisation of GKN’s Type 8 Ice Protection System which will see the two companies building upon existing development work and so advance the manufacture of the Ice Protection System to rate production levels. Trackwise has engaged the services of a US sales resource to advance the many opportunities that exist in US Aerospace for IHT. Trackwise Designs plc Chief Executive’s Strategic Review continued 7 Automotive: Space: We have several developing customers in the Electric Vehicles space; in 2018 this market accounted for 19.8% of IHT revenue. This market is growing and though Brexit is clouding the future for the UK automotive sector the macro trend is unmistakable; our review of the electric vehicle market encompasses reports of one billion electric vehicles on the road globally by 2050. Participation in the Faraday Challenge is ensuring that we address the needs of not only road electric vehicles but also parallel developments in electric ﬂight (UAVs – leading into Urban Air Mobility (UAM)). The IHT capability enables the designer to add distributed electronic components into the ﬂexible harness itself making IHT products a compelling option for electric vehicles. The weight and space saving beneﬁts offered by IHT are of particular interest to the space industry. Trackwise is experiencing growing interest from a wide range of international space companies. Initial focus in this arena is regarding spacecraft solar arrays – deployable areas of photo-voltaic cells that convert sunlight into electrical power to power the spacecraft. Current technology comprises rigid solar arrays, built from an assembly of hinged panels. Our customers are exploring an opportunity for a ﬂexible solar array based on Trackwise ﬂexible circuits as the power transfer assembly. The power density of such ﬂexible solar array solutions is much increased, enabling both missions requiring high power, such as high-power telecom and also missions with very stringent accommodation constraints, such as constellation satellites. The increasing involvement of more countries and the opening up of space to private investment presents a valuable market for Trackwise. Trackwise Designs plc Chief Executive’s Strategic Review continued 8 Industrial and Scientiﬁc: RF The proven beneﬁts of IHT also apply to a very wide range of industrial and scientiﬁc applications. In 2018 Trackwise won customers in food processing (ﬂow measurement), nuclear (inspection equipment), as well as contracts with CERN and other scientiﬁc facilities. In 2018 revenue from these streams accounted for 32% of total revenue. 2018 saw an increasing volume of IHT of 300% across an increasing number of customers and the growth of that customer base has continued in the ﬁrst quarter of 2019. We are well established in the manufacture of antennas for cellular telephone networks, our legacy business with a global footprint. The forthcoming roll out of 5G technology is a re-equipment opportunity which the Directors believe will continue to create demand for the Company’s RF products. The Company’s manufacturing assets serve both the IHT and RF divisions and with the IPO-funding investment is ensuring that its offering to the market remains relevant and up-to-date. Our RF business has performed well in 2018 and remains a consistent source of income. I am pleased to say that many of the capacity and capability investments we are making for IHT will also beneﬁt our RF business in the coming years. Accreditations and Standards As a new aerospace product category aimed primarily at aerospace, AS9100 certiﬁcation was ﬁrst achieved in September 2015 for IHT, with the transition to the new AS9100D standard achieved in October 2017. We are working to win further accreditations e.g: • • Extending AS9100D to Design and Manufacture of Products using Printed Circuit Technology. Nadcap (National Aerospace and Defence Contractors Accreditation Program) • ISO/TS 16949. 2018 saw the Company’s IHT patent granted in China (previously granted in UK and US). Application processes in EU, Brazil and Canada are proceeding. Trackwise Designs plc Chief Executive’s Strategic Review continued 9 Employees We are committed to achieving a working environment which reﬂects diversity, provides equality of opportunity, ensures freedom from unlawful discrimination and our policy is to treat all employees, applicants and clients with respect and dignity giving due consideration to all. We will continue to invest and develop our workforce alongside the development of our IHT technology. Philip Johnston Chief Executive Ofﬁcer 10th April 2019 Trackwise Designs plc 10 Chief Financial Officer’s Report Mark Hodgkins Chief Financial Officer “Growth in IHT and RF enabled Trackwise to post a strong increase in proﬁts and the best revenue performance since 2014” During the year under review the Company made signiﬁcant strategic progress with changes that created impetus for the development of IHT, directly as a consequence of our move to new premises in Tewkesbury and the beneﬁts of our IPO which allowed us to invest over the last 12 months £154,000 in the facility and our capability that has enabled us to have a world class ﬂexible multi-layer PCB production facility. The success of the IPO has of course transformed the balance sheet of the Company and further investment is planned as a consequence. Trading Performance Overall Company Operating result Revenues Adjusted Operating proﬁt* Adjusted EBITDA* 2018 £’000 3,468 325 618 2017 £’000 2,821 67 228 *An analysis of adjusted Operating Proﬁt and adjusted EBITDA is given in note 26 of these ﬁnancial statements Company revenue for the year increased by 23% from £2.82M in 2017 to £3.47M in 2018 driven by growth in both the IHT division and the RF division. The IHT sharply increased revenues in the year to £606K against £191K for 2017 and missed out on much higher reported revenues only due to the delay in orders in the late part of the year. The growth came principally from our lead customer in the aerospace sector, but we had increased awareness and interest in IHT giving rise to revenues from a number of new sources. Since IPO we have increased the number of active customers and opportunities from 14 (at the time of ﬂotation) to 45 (as at 31 March 2019). We were held back in our ambitions when our customers, with whom we are partnering, also had elongated adoption processes for the new technology. The RF division recorded a growth of 10% in revenues year on year to £2.87M its best performance since 2014. Measuring Financial Performance The Company uses a number of speciﬁc measures to assess its performance, which are not deﬁned by IFRS, but are used by the Board to assess the progress of the business against its strategic plan and examines the underlying operational performance and as such these measures are important and should be considered alongside IFRS measures. The alternative performance measures are deﬁned in Note 26 of these ﬁnancial statements. Reported operating proﬁt increased by 140.3% after taking a charge in the year for share based payments of £155,000 and one-off move costs associated with the 20 years tenancy we vacated during the year of £45,000. Before these exceptional items our operating proﬁts rose by 385%. The listing costs are a burden for a small company such as Trackwise and amounted to £1,056K or 19.2% of gross new money raised and these costs have been charged to Share Premium in accordance with accepted accounting treatment. Trackwise Designs plc Chief Finance Officer’s Report continued 11 Results and Dividends Reported increased proﬁt after taxation of £75,000 (2017: £8,000) enabled the Company to report EPS 0.63p per share (2017: 0.084p) reﬂecting the increase in the number of shares in issue from 9,534,275 in 2017 to 14,772,372 in 2018. At the year end the Company demonstrated a strong balance sheet with net cash of £2,786,000 The Company invested heavily in infrastructure during the year to rapidly advance the Company’s capability. The total investment during the year in infrastructure was £154,000 and this was accompanied by increased development of the IHT technology where we spent a total of £1.056M. We anticipate continued investment in 2019 at similar levels to those in 2018. During the year we incurred costs in relation to our previous operating facility which the Directors consider to be of a non- recurring nature and have therefore been treated as such. The Company continues to develop the technology which we call IHT to enhance production processes and efﬁciencies in order to improve current uses for the technology and also other derivatives of the technology for exploitation commercially. In doing so, the Company beneﬁts from the UK Government’s R+D tax regime. This is expected to continue for the foreseeable future but cannot be guaranteed. As a consequence, the Company not only receives credits to its P&L account but also accumulates tax losses that are created in the process and these amount to in excess of £1M. Additionally, the Company has deferred tax liabilities of £308,000. Consequently, the Company is unlikely to pay tax on proﬁts in the short to medium term. The Company’s trading activities are such that there is a natural hedge to a proportion of our currency exposure where our principal exposures are the Euro and the US Dollar. The Board monitors the exposure carefully, in accordance with its adopted treasury policy and uses limited derivatives to manage foreign currency risks when exposure is considered to be higher than normal. Transactions of a speculative nature are, and will continue to be, prohibited. At 31 December 2018 the Company had no liabilities under any foreign currency hedging arrangement. On 31 July 2018 the Company was admitted to the listing of its shares on the AIM market of the London Stock Exchange. As part of that process the Company placed 5,238,097 ordinary shares at 105p such that after admission there were 14,772,372 ordinary shares of 4p each. Prior to ﬂotation the Company capitalised the credit standing to the Capital Redemption Reserve fund with a bonus issue of 367,195 shares to its existing Shareholders in proportion to their shareholding on 28 June 2018. Following that capitalisation, the nominal share value of the ordinary shares was reduced from £1 to 4p increasing the number of shares to 9,534,275. Mark Hodgkins Chief Financial Ofﬁcer 10th April 2019 Trackwise Designs plc Corporate Governance Review 12 The business of the Company is ultimately managed by the Directors of Trackwise Designs plc who are responsible for running the Company for the beneﬁt of its Shareholders in accordance with their ﬁduciary and statutory duties. The Directors acknowledge the importance of the principles set out in the Corporate Governance Code and the requirement for companies admitted to trading on AIM to apply a recognised corporate governance code and explain compliance with that code. The Directors have chosen to comply with the QCA Corporate Governance Code for Small and Mid-Size companies which has become a widely recognised benchmark for corporate governance of smaller quoted companies, particularly AIM companies. In accordance with Rule 26 of the AIM Rules for Companies, details of how the Company complies with the QCA Code are provided on the Company’s website: www.trackwise.co.uk/investors/corporate/governance The Board meets at least nine times a year to review, formulate and approve the Company’s strategy, budgets, corporate actions and oversee the Company’s progress towards its goals. It has established an Audit Committee, a Remuneration Committee and Nomination Committee with formally delegated duties and responsibilities and with written terms of reference. From time to time, separate committees may be set up by the Board to consider speciﬁc issues when the need arises. Board and Committee Independence The Company’s Board consists of two independent non-executive Directors (including the Chairman) and two executive Directors. The Company regards the non-executive Directors as “independent non-executive Directors” within the meaning of the UK Corporate Governance Code and free from any relationship that could materially interfere with the exercise of their independent judgement. The Audit Committee The Audit Committee is chaired by Lesley Jackson and its other members are Ian Grifﬁths and Philip Johnston. Mark Hodgkins will be invited to attend as appropriate. The Audit Committee is expected to meet formally at least four times a year and otherwise as required. It has the responsibility for ensuring that the ﬁnancial performance of the Company is properly reported on and reviewed and its role includes monitoring the integrity of the ﬁnancial statements of the Company (including annual and interim accounts and results announcements), reviewing internal controls and risk management systems (to enable compliance with the AIM Rules and with MAR), reviewing any changes to accounting policies, reviewing and monitoring the extent of the non-audit services undertaken by external auditors and advising on the appointment of external auditors. The Remuneration Committee The Remuneration Committee is chaired by Lesley Jackson and its other members are Ian Grifﬁths and Mark Hodgkins. The Remuneration Committee is expected to meet at least twice each year. It will have responsibility for determining, within the agreed terms of reference, the Company’s policy on remuneration packages of the Company’s Chairman, the executive Directors, Senior Managers and such other members of the executive management as it is designated to consider. The Remuneration Committee will also have responsibility for determining (within the terms of the Company’s policy and in consultation with the Chairman of the Board and/or the Chief Executive ofﬁcer) the total individual remuneration package for each executive Director and other designated senior executives (including bonuses, incentive payments and share options or other share awards). The remuneration of non-executive Directors will be a matter for the Chairman and executive Directors of the Board. No Director or Manager will be allowed to partake in any discussions as to their own remuneration. In addition, the Remuneration Committee will have the responsibility for reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board and giving full consideration to succession planning. It will also have responsibility for recommending new appointments to the Board. Trackwise Designs plc Corporate Governance Review continued 13 The Nomination Committee The Nomination Committee is chaired by Ian Grifﬁths and its other members are Lesley Jackson and Philip Johnston. The Nomination Committee is responsible for considering and making recommendations to the Board in respect of appointments to the Board, the Board committees and the chairmanship of the Board committees. It is also responsible for keeping the structure, size and composition of the Board under regular review, and for making recommendations to the Board with regard to any changes necessary, taking into account the skills and expertise that will be needed on the Board in the future. The Nomination Committee will meet at least twice a year. Trackwise Designs plc Corporate Governance Review continued 14 Internal Controls and Financial Management The Board has responsibility for establishing and monitoring the maintenance of the Company’s internal ﬁnancial and non-ﬁnancial controls. The Board is cognisant that whilst internal controls reduce risk it cannot eliminate the risk entirely. The key procedures which the Directors have established to enable to have conﬁdence that the controls are working and minimising risk are set out below. • The Board sets policies which are regularly reviewed both by executive management and the audit committee and gains assurance that these policies are appropriate to address the key ﬁnancial, operational, compliance and reputational risks. • Authorisation limits are in place – The Board ensures that appropriately qualiﬁed people are in place to exercise the controls that are in place; – Company performance is measured against diligently prepared budgets and variations are reviewed on a monthly basis; – The business has appropriate segregation of duties and limits to individual’s ability to authorise transactions; • Financial planning and monitoring – The Company sets annual budgets which cover operating performance and balance sheet management including working capital; – The Board reviews the performance monthly and re-evaluates future performance • Policies, procedures and authorisation limits – The Company has sufﬁcient authorisation limits in place which cover the key areas for the business. Quality and Integrity of Personnel The Company aims to recruit the highest calibre employees that it is able to do with high recruitment standards. Employees with integrity and strong work place ethics are considered essential to the operation of the control environment. Identiﬁcation of business risks The Directors are responsible for identifying the signiﬁcant business risks and their execution for this task is monitored by the Audit Committee as well as the main Board. Going Concern The Directors have prepared the ﬁnancial statements on a going concern basis as explained in note 2.1 to the ﬁnancial statements. As at 31 December 2018 the Company had cash deposits of £2.786 million. The Company also had undrawn funding facilities of £700,000 in place which it does not envisage utilising, thus there are sufﬁcient funds available to meet its liabilities as they fall due for a period not less than twelve months from the date of approval of the ﬁnancial statements. Trackwise Designs plc Corporate Governance Review continued 15 Principal Risks and Uncertainties Report KEY: l Low risk l Medium risk l High risk RISK DESCRIPTION AND POTENTIAL IMPACT MITIGATION Failing to successfully implement our growth strategies ➨ IHT market adoption ➨ Customer concentration ➨ Protection of intellectual property ➨ Technological risk ➨ Our future success is dependent on the effective implementation of our growth and diversiﬁcation strategies. The Company’s ability to implement its business strategy successfully may be adversely impacted by factors that the Company cannot currently foresee, such as unanticipated market forces, costs and expenses or technological factors. Should it be unsuccessful in implementing its strategy or should it take longer than expected to implement, the future ﬁnancial results of the Company could be negatively impacted. We focus our management effort to address the Company’s strategic goals and we have clear functional leadership. We continually assess our management capacity as well as our progress and remain alert to the changes in the market that impacts on our strategy. The Board monitors progress against the targets set. the executive’s The Company is still at a relatively early stage of engagement with IHT market participants. The Company is reliant, to some extent, on the IHT market participants increasing orders and engagement over the medium-term future. The Directors are conﬁdent about the early positive indications from various IHT customers. However, if the anticipated IHT market development is slower than anticipated, there is a risk that the future ﬁnancial results of the Company could be negatively impacted. the possible Further penetration of markets for IHT have reinforced that the technology has a wide spread of applications. As this develops the risk of market adoption will reduce further. The Company’s customer base is concentrated. Approximately 44% of the Company’s revenue for the year ended 31 December 2018 was derived from 4 customers. Any deterioration of the Company’s relationship with any one of these customers, or the loss of orders (or a reduction in the gross or net margin in respect of the Company’s orders) from any one of these, could have a material adverse effect on the Company’s business, ﬁnancial condition, results of operations, future prospects and/or the price of the Ordinary Shares. As we develop our IHT strategy and increase the acceptance of the new product our customer concentration decreases. This decrease in exposure to risk is expected to fall in the future. Furthermore we pay good attenton to monitoring our relationship with our key customers to moderate any adverse reaction from these customers. The technology used by the Company includes a speciﬁc manufacturing technique used to create IHT products. This process has been developed and is owned by the Company. Trademarks of the Company are registered and unregistered. The Company is dependent on proprietary rights in relation to this technology process, which relies on laws governing copyrights, trademarks and conﬁdentiality. The Company is also dependent on contractual provisions intellectual property ownership and licensing. These laws enable the Company to protect and/or enforce intellectual property rights, including the ability to restrict use of the manufacturing process to those who have obtained relevant authorisation. regarding If the Company cannot successfully enforce its intellectual property rights, this could have a material adverse effect on the Company’s business, ﬁnancial condition and prospects. The Company has developed an innovative solution to wiring harnesses that the Directors believe will offer superior advantages to traditional alternatives. Should technological developments improve wiring harnesses or offer an alternative solution to IHT, Trackwise’s product may become obsolete or may be superseded by new technologies. The Company may be forced to stop producing IHT or reduce its prices which could have a material impact on the ﬁnancial performance of the Company. The Company is vigilant as to whether others are adopting processes that infringe our IPR. This review is applied regularly, and any potential infringement is pursued. are The Management constantly reviewing the other options that could arise to IHT whilst at the same time we focus on continued development of the IHT technology. Trackwise Designs plc Corporate Governance Review continued 16 RISK DESCRIPTION AND POTENTIAL IMPACT MITIGATION The Company depends on the performance, reliability and availability of its plant, equipment and information technology systems. Any damage to, or failure of, its equipment and/or systems could result in disruption to the Company’s operations. The Company has a permanent planned maintenance programme to ensure preventative maintenance and protect from unforeseen down time of machines. The Company’s disaster recovery plans may not adequately address every potential event and its insurance policies may not cover any loss in full or in part or damage that it suffers fully or at all, which could have a materially adverse effect on the Company’s business, ﬁnancial condition and results of operations. Additionally, the Company monitors all its equipment on a daily basis and is continually seeking to improve its processes wherever possible. The Company principally the GBP, the US$ and the Euro. is exposed to exchange rate ﬂuctuations, Changes in foreign currency exchange rates may affect the Company’s pricing of products sold and materials purchased in foreign currencies. The Directors believe that its use of certain derivative ﬁnancial instruments, forward foreign currency including contracts sale to used commitments denominated in foreign the Company’s currencies, exposure to this risk. reduces hedge As at the date of this document the political, economic, legal and social consequences, the exact timing of the UKs exit from the European Union, as well as the potential ultimate outcome of any agreement between the UK and the European Union, remain uncertain. Such potentially prolonged uncertainty and the potential negative economic trends that may follow could have a material adverse effect on the Company’s access to European markets, one of the Company’s largest markets, which in turn could have a negative impact on the Company’s business, ﬁnancial position and/or results of operations. The risk to a “No Deal” Brexit is now a strong possibility, the consequences of which cannot be known. The Company has incorporated an Irish subsidiary to manage the import/export of material which may prevent disruption but in this uncertain time we cannot predict its efﬁcacy. Disruption to operations or systems ➨ Exposure to exchange rate ﬂuctuations ➨ The impact of Brexit ➨ Brexit The continuing political impasse concerning the terms upon which the United Kingdom will depart the European Union is causing uncertainty for the Company. We have a number of European nationals as employees who are important members of our team and the uncertainty they are facing could present difﬁculties for the Company. We are giving what support we can to those individuals but given the lack of clarity from the political institutions this cannot be a complete solution. Furthermore, 70% of our RF revenue is generated from Europe and the uncertainty concerning the nature of the trading relationship we will have be it Customs Union, potential tariffs, WTO etc., means no concrete plans can be made. We have incorporated an Irish subsidiary (Trackwise Europe Limited) which may aide the administrative burden of dealing with the European Union in the future but even this cannot be certain. We have bought forward extra material supplies which we source from France to cover any disruption that might arise from a precipitative exit under the no-deal scenario though given the extension to April and the possibility of a longer extension it is questionable whether this precaution will have been of beneﬁt. We will continue to carry heightened levels of material stock during this period of signiﬁcantly higher uncertainty. Given our plans for signiﬁcant capital expenditure a sum of which is denominated in Euros we have bought forward currency volatility protection to minimise our exposure to any signiﬁcant fall in the value of Sterling against the Euro. The Directors have given due consideration to the impact of a no-deal Brexit and consider that the Going Concern assumption adopted in preparing these ﬁnancial statements is appropriate. Trackwise Designs plc Corporate Governance Review continued 17 Trackwise Board Ian Grifﬁths Non-Executive Chairman Ian brings wide-ranging international experience of the engineering business-to-business sector at both strategic and operational levels, having spent nearly 30 years with GKN plc. Ian served as a non-executive director on the Board of Ultra Electronics Holdings plc from 2003 to 2012. He has been a non-executive director of Renold plc since 2010 where he also chairs the Remuneration Committee and was Chairman of Hydro International Limited which he joined as a non-executive director and Chairman-elect in October 2014. He is also a non-executive director of AIM listed Autins Group plc which he joined in 2016. Philip Johnston Chief Executive Ofﬁcer Philip’s early career was in the space industry which included a key management role in the Prime Contractor team for Envisat, a large European satellite, managing multi-million ECU work packages involving different companies across Europe. Philip joined Trackwise in 1999 and acquired the Company in 2000. Under his stewardship the Company has enjoyed sustained growth based largely through export success and innovation. Philip is named inventor on several UK and international patents and he has led several Government supported R&D consortiums including a European CleanSky programme. Mark Hodgkins Chief Financial Ofﬁcer & Company Secretary Mark is a chartered accountant, a former audit partner with Grant Thornton and corporate ﬁnance partner with Ernst & Young. Since 2005 he has served as CFO of a large private business as well as CEO of several engineering businesses and a private industrial holding company. As well as his role with the Company which began in May 2016, Mark is a non-executive director of EnSilica Limited a growing private fabless chip design business where he is responsible for overseeing the management’s delivery of its growth strategy. Lesley Jackson Non-Executive Director Lesley is the former CFO and executive director of Stock Spirits Group plc a position which she had held since 2011. Before Stocks Spirit Group plc, Lesley was the CFO of United Breweries Ltd from 2005 to 2008 and the group ﬁnance director of William Grant & Sons Distillers Limited from 2008 to 2011. Lesley is a Chartered Accountant. Trackwise Designs plc Directors’ Remuneration Report 18 The remuneration of senior executives is subject to the approval and oversight of the Remuneration Committee which is chaired by Lesley Jackson. The remuneration policy of the Company is designed to promote steady development towards its strategic goals with regard to exploiting the IHT technology and maintaining the underpinning RF revenue stream. In setting the measurement of executive performance careful observation is given to the risk proﬁle of the business to reward solid dependable progress. The committee believes that the executive team should be rewarded for growth that endures and provides a good long-term growth path for investor returns. Fixed pay is based on a market-based approach which takes into account the size of the Company, peer review of compensation packages and the experience and qualiﬁcations of the executive in question. Variable pay is designed to promote out-performance, which is both achievable, repeatable and sustainable. Directors The Directors of the Company are: Philip Johnston Mark Hodgkins Ian Grifﬁths Lesley Jackson As none of the Directors have had their appointment or re-appointment conﬁrmed at a General Meeting then they all retire and offer themselves for re-appointment by the members at the Annual General Meeting. Directors’ Interests – Interests in shares (audited) Philip Johnston Mark Hodgkins Ian Grifﬁths Lesley Jackson Holding Balance at 31 December 2018 Percentage of Share Capital at 31 December 2018 4,815,775 32.60% 47,619 14,286 28,571 0.33% 0.10% 0.19% Directors’ Interests – Interests in share options (audited) Details of options held by Directors who were in ofﬁce at 31 December 2018 are set out below. Details of the Company’s option schemes are set out in note 25 to the ﬁnancial statements. The market price of the Company’s shares at 31 December was 100.5 pence. The range of market prices during the year was 98 pence to 118 pence. M Hodgkins Date of Grant 15 June 2018 Number Exercise Price Expiry Date 78690 £0.28 15 June 2028 Trackwise Designs plc Directors’ Remuneration Report continued 19 Contracts of service The Executive Directors, Philip Johnston and Mark Hodgkins, each have a service agreement containing one year’s notice and claw back and malus clauses with regard to any paid or unpaid bonuses. The Non-Executive Directors, Ian Grifﬁths and Lesley Jackson, have a service agreement with a three-month notice period. Salaries and beneﬁts The Remuneration Committee meets at least once a year in order to consider and set the remuneration packages for Executive Directors. The remuneration packages are benchmarked annually to ensure comparability with companies of a similar size and complexity. Remuneration comprises basic salary, pension contributions and beneﬁts in kind. In addition, certain Directors are paid a car allowance or receive a contribution to their travel expenses. Remuneration also includes share options and carried interest as detailed above. P Johnston M Hodgkins I Grifﬁths L Jackson Salary £ 156,458 * 185,618 18,750 14,583 Bonus £ Beneﬁts & Car Allowance £ – – – – 19,202 6,375 – – Pension £ 12,117 6,250 – – Total 2018 £ 187,777 * 198,243 18,750 14,583 Total 2017 £ 140,549 0 0 0 * included in the remuneration of M Hodgkins are payments made to his personal services company of £112,238. M Hodgkins was appointed a director of the company on the 23 December 2017 and became an employee on 1 June 2018. His salary since 1 August 2018, the day after ﬂotation and disclosed in the Company’s admission document, is £150,000 per annum and there have been no alterations to that since ﬂotation. On behalf of the Board Mark Hodgkins Company Secretary 10th April 2019 Trackwise Designs plc Directors’ Report 20 Principal Activities The principal activities of the Company are the manufacture of ﬂexible Improved Harness Flex wiring solutions and large printed circuit boards for the mobile telephony industry. The results for the year are considered by the Directors to be satisfactory. The Directors have set out their update on strategy and its development in the Chief Executive’s Strategic Review on page 5 and that includes a review of the markets that the Company is addressing as well as the actions being taken to meet the strategic goals of the Company. The Directors of the Company are: Ian Grifﬁths Philip Johnston Mark Hodgkins Lesley Jackson Non-Executive Chairman Chief Executive Ofﬁcer Chief Financial Ofﬁcer and Company Secretary Non-Executive Director Statement of Director’s Responsibilities The Directors are responsible for preparing the Directors’ Report and the Financial Statements in accordance with applicable law and regulations. The Directors are required to prepare Financial Statements for each ﬁnancial year. The Directors have elected to prepare the Company Financial Statements in compliance with IFRSs as adopted by the European Union as it applies to the Financial Statements of the Company for the year ended 31 December 2018. 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 Company and of the proﬁt or loss of the Company for that period. In preparing these Financial Statements the Directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and estimates that are reasonable and prudent; • State whether the Financial Statements have been prepared in accordance with IFRS; and • Provide additional disclosures when compliance with speciﬁc requirements in IFRS is insufﬁcient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s ﬁnancial position and ﬁnancial performance; • Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufﬁcient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the ﬁnancial position of the Company. 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. Each of the persons who is a Director at the date of approval of this Annual Report conﬁrms that: • so far as the Director is aware, there is no relevant audit information of which the Company’s Auditor is unaware; and • the Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information. Trackwise Designs plc Directors’ Report continued 21 Dividends The Company’s ability to pay dividends in the future is affected by a number of factors, principally the generation of distributable proﬁts within the Company. The Board has adopted a progressive dividend policy for the Company subject to the availability of sufﬁcient distributable proﬁts. The Directors intend to commence the payment of dividends when it becomes commercially prudent to do so and expect to pay interim and ﬁnal dividends in the approximate ration of 1/3 interim and 2/3 ﬁnal. Research and Development The Company continues to develop their products to ensure that they remain at the forefront of their markets. The detail and cost of those developments are set out in the Chief Executive’s Strategic Review and Chief Financial Ofﬁcer’s Report. Director’s indemnity The Company’s Articles of Association provide, subject to the provisions of United Kingdom legislation, for an indemnity for Directors and Ofﬁcers of the Company with regard to liabilities that they may incur in the discharge of their duties or in the exercise of their powers, including any liability relating to proceedings brought against them which relates to anything done, or omitted, or anything alleged to have been done or omitted by them as ofﬁcers or employees of the Company or Group. Directors’ Liability Insurance is in place in respect of all the Company’s Directors. Donations The Company made no charitable or political donations during the year. Independent Auditor The Auditor, Mazars LLP, has indicated its willingness under section 489 of the Companies Act 2006 to continue in ofﬁce and a resolution that they be re-appointed will be proposed at the Annual General Meeting. Annual General Meeting The Company’s Annual General Meeting will be held at the Company premises – 1 Ashvale, Alexandra Way, Tewkesbury, Gloucestershire GL20 8NB on 26 June 2019 at 10.00 am. Matters covered elsewhere As permitted by Paragraph 1A of Schedule 7 to the large and medium sized companies and groups (Accounts and Reports) Regulations 2008 certain matters that are required to be disclosed in the Directors’ Report have been omitted as they have been included in either the Strategic Review, Chief Financial Ofﬁcer’s Report or the Principal Risks and Uncertainties Report instead. These matters relate to the business review, principle risks and uncertainties, key performance indicators, future developments and research and development activity. Trackwise Designs plc Directors’ Report continued 22 Other Information Each of the persons who is a Director at the date of approval of this Annual Report conﬁrms that: • In so far as the Directors are aware there is no relevant audit information of which the Company’s Auditor is unaware; • The Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of relevant audit information 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 section 418 of the Companies Act 2006. By order of the Board Mark Hodgkins Company Secretary 10th April 2019 Trackwise Designs plc Independent Auditor’s Report to the members of Trackwise Designs plc 23 Opinion We have audited the Financial Statements of Trackwise Designs plc (the ‘Company’) for the year ended 31 December 2018 which comprise the Company Statement of Comprehensive Income, the Company Statement of Financial Position, the Company Statement of Changes in Equity, the 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 their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. In our opinion, the ﬁnancial statements: • give a true and fair view of the state of the Company’s affairs as at 31 December 2018 and of its proﬁt for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; and • 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 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 SME 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. The impact of uncertainties due to the United Kingdom exiting the European Union on our audit The Directors’ view on the impact of Brexit is disclosed on page 16 The terms on which the United Kingdom may withdraw from the European Union, are not clear, and it is therefore not currently possible to evaluate all the potential implications to the Company’s trade, customers, suppliers and the wider economy. We considered the impact of Brexit on the Company as part of our audit procedures, applying a standard ﬁrm wide approach in response to the uncertainty associated with the Company’s future prospects and performance. However, no audit should be expected to predict the unknowable factors or all possible implications for the Company and this is particularly the case in relation to Brexit. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: – – the Directors’ use of the going concern basis of accounting in the preparation of the ﬁnancial statements is not appropriate; or the Directors have not disclosed in the ﬁnancial statements any identiﬁed material uncertainties that may cast signiﬁcant doubt about the Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the ﬁnancial statements are authorised for issue. Trackwise Designs plc Independent Auditor’s Report to the members of Trackwise Designs plc continued 24 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most signiﬁcance in our audit of the ﬁnancial statements of the current period and include the most signiﬁcant assessed risks of material misstatement (whether or not due to fraud) we identiﬁed, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the ﬁnancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Area of focus Revenue recognition The Company’s accounting policy for revenue recognition is set out in the accounting policy notes on “Revenue” on page 33. Revenue is a material balance for Trackwise Designs plc and represents the largest balance in the Statement of Comprehensive Income. An error in this balance could signiﬁcantly affect users’ interpretation of the ﬁnancial statements. Therefore, we consider cut-off to be a key audit matter due to the potential to inappropriately record revenue in the wrong period. Capitalisation of research and development expenditure the capitalisation of expenditure The Company has a signiﬁcant intangible asset arising from in respect of the development of its Improved Harness Technology (‘IHT’) product. The carrying value at 31 December 2018 was £2.5m. signiﬁcant judgement when Management exercise assessing the apportionment of costs to the development of the IHT product, and the expected future economic beneﬁts through sale of the product. An error in the carrying value due to inappropriate judgement has the potential to have a material impact on the ﬁnancial statements. Therefore capitalisation of development cost is considered a key audit matter. How our audit addressed the area of focus Our procedures performed over revenue recognition included, but were not limited to: – – the systems and Review and walkthrough of controls in place surrounding revenue recognition, in particular cut-off; Testing a sample of revenue transactions around the year end to ensure they were accounted for in the appropriate period; and – Reviewed for post year end credit notes that may reverse revenue previously reported during the year. No material misstatements were identiﬁed in cut-off as a result of the audit procedures performed. Our procedures performed over capitalisation of research and development expenditure included, but were not limited to: – – Testing a sample of additions to ensure they meet the recognition criteria of IAS 38. This included reviewing and challenging the apportionment of capitalised costs; Reviewing the level of sales in the period relating to the capitalised asset and the pipeline of forecasted IHT revenue to ensure technical and commercial feasibility of the product. No material misstatements in capitalised costs were identiﬁed as a result of the audit procedures performed. Trackwise Designs plc Independent Auditor’s Report to the members of Trackwise Designs plc continued 25 Our application of materiality The scope of our audit was inﬂuenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual ﬁnancial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the ﬁnancial statements as a whole. Based on our professional judgement, we determined materiality for the ﬁnancial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied £59,000 This has been calculated with reference to the Company’s revenue, of which it represents approximately 1.7%. Revenue has been identiﬁed as the principal benchmark within the ﬁnancial statements as it is considered to be the focus of the shareholders. Performance materiality £41,000 calculated as approximately 70% of overall materiality. Reporting threshold £1,800 calculated as approximately 3% of overall materiality. An overview of the scope of our audit As part of designing our audit, we determined materiality and assessed the risk of material misstatement in the ﬁnancial statements. In particular, we looked at where the Directors made subjective judgements such as making assumptions on signiﬁcant accounting estimates. We gained an understanding of the legal and regulatory framework applicable to the Company, the structure of the Company and the industry in which it operates. We considered the risk of acts by the Company which were contrary to the applicable laws and regulations including fraud. We designed our audit procedures to respond to those identiﬁed risks, including non-compliance with laws and regulations (irregularities) that are material to the ﬁnancial statements. We focused on laws and regulations that could give rise to a material misstatement in the ﬁnancial statements, including, but not limited to, the Companies Act 2006. We used the outputs of a risk assessment, our understanding of the Company’s accounting processes and controls and its environment and considered qualitative factors in order to ensure that we obtained sufﬁcient coverage across all ﬁnancial statement line items. Our tests included, but were not limited to, obtaining evidence about the amounts and disclosures in the ﬁnancial statements sufﬁcient to give reasonable assurance that the ﬁnancial statements are free from material misstatement, whether caused by irregularities including fraud, review of minutes of Directors’ meetings in the year and enquiries of management. As a result of our procedures, we did not identify any Key Audit Matters relating to irregularities, including fraud. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are discussed under “Key audit matters” within this report. Trackwise Designs plc Independent Auditor’s Report to the members of Trackwise Designs plc continued 26 Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the ﬁnancial statements and our auditor’s report thereon. Our opinion on the ﬁnancial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the ﬁnancial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the ﬁnancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the ﬁnancial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the ﬁnancial year for which the ﬁnancial statements are prepared is consistent with the ﬁnancial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In light of the knowledge and understanding of 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 Company, or returns adequate for our audit have not been received from branches not visited by us; or – the 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 20, 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 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 Company or to cease operations, or have no realistic alternative but to do so. Trackwise Designs plc Independent Auditor’s Report to the members of Trackwise Designs plc continued 27 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 the audit report This report is made solely to the 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 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 Company and the Company’s members as a body for our audit work, for this report, or for the opinions we have formed. Louis Burns (Senior Statutory Auditor) for and on behalf of Mazars LLP Chartered Accountants and Statutory Auditor 45 Church Street Birmingham B3 2RT 10th April 2019 Trackwise Designs plc 28 Company Statement of Comprehensive Income For the year ended 31 December 2018 Revenue Cost of sales * Gross proﬁt Other operating income Administrative expenses excluding exceptional costs and share based payment Exceptional premises move costs Share based payment charge Total administrative expenses * Operating proﬁt Finance income Finance costs Proﬁt/(loss) before taxation Taxation Proﬁt and total comprehensive income for the year Earnings per share (pence) Basic Diluted Notes 3 4 6 6 7 9 9 2018 £’000 3,468 (2,416) 1,052 – (727) (45) (155) (927) 125 8 (65) 68 7 75 0.63 0.61 2017 £’000 2,821 (1,917) 904 22 (859) – – (837) 67 – (80) (13) 21 8 0.084 0.084 * The cost of sales for 2017 has been restated on a basis consistent with 2018 to include an additional £166,000 of direct production overheads as well as direct labour and materials with a corresponding reduction in administrative expenses. Trackwise Designs plc Company Statement of Financial Position For the year ended 31 December 2018 29 ASSETS Non-current assets Intangible assets Property, plant and equipment Current assets Inventories Trade and other receivables Current tax receivable Cash and cash equivalents Total assets LIABILITIES Current liabilities Trade and other payables Derivative liability Borrowings Non-current liabilities Deferred income – grants Borrowings Deferred tax liabilities Total liabilities Net assets EQUITY Share capital Share premium account Retained earnings Revaluation reserve Capital redemption reserve Total equity Notes 2018 £’000 2017 £’000 2016 £’000 10 11 12 13 14 17 15 14 15 18 20 20 20 2,619 1,264 3,883 380 846 156 2,786 4,168 8,051 (815) – (161) (976) (539) (357) (308) (1,204) (2,180) 5,871 591 4,234 840 206 – 1,649 1,257 2,906 313 550 95 166 1,124 4,030 (1,123) (49) (662) (1,834) (306) (410) (254) (970) (2,804) 1,226 14 – 600 245 367 1,136 893 2,029 278 638 34 122 1,072 3,101 (504) – (277) (781) (189) (559) (234) (982) (1,763) 1,338 14 – 673 284 367 5,871 1,226 1,338 The ﬁnancial statements were approved and authorised for issue by the Board and were signed on its behalf by: Mark Hodgkins Director 10th April 2019 Trackwise Designs plc 30 Company Statement of Changes in Equity For the year ended December 2018 Share capital £’000 Share premium account £’000 Retained Revaluation reserve earnings £’000 £’000 Capital redemption reserve £’000 673 284 367 Total equity £’000 1,338 8 (120) – – – – 367 1,226 – (367) – – – – 75 – 4,444 126 – 5,871 8 (120) 39 600 75 – – 126 39 840 – – (39) 245 – – – – (39) 206 At 1 January 2017 Proﬁt and total comprehensive income for the year Dividends paid Revaluation realised in year At 31 December 2017 Proﬁt and total comprehensive income for the year Bonus issue of shares Issue of shares (net of £1,056,000 of issue expenses) Share based payment Revaluation realised in year 14 – – – 14 – 367 210 – – – – – – – – – 4,234 – – At 31 December 2018 591 4,234 Trackwise Designs plc Company Statement of Cash Flows For the year ended December 2018 31 Cash ﬂow from operating activities Proﬁt for the year before taxation Adjustment for: Employee share based payment charge Depreciation of property, plant & equipment Proﬁt on sale of ﬁxed assets Amortisation of intangible assets Net ﬁnance costs Changes in working capital: Decrease/(increase) in inventories (Increase)/decrease in trade and other receivables (Decrease)/Increase in trade and other payables Cash generated from operations Income tax received Net cash (used in)/from operating activities Cash ﬂow from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant & equipment Purchase of intangible assets Grant funding – purchase of intangible assets Interest received Net cash used in investing activities Cash ﬂow from ﬁnancing activities Dividends paid to shareholders Share capital issued Expenses relating to Share Capital issue Interest paid Increase/(decrease) in invoice discounting Proceeds from borrowings Repayment of borrowings Repayment of capital element of ﬁnance lease contracts Net cash from/(used in) ﬁnancing activities Increase in cash and cash equivalents Net cash and cash equivalents at beginning of the year Net cash and cash equivalents at end of year (all cash balances) Notes 2018 £’000 2017 £’000 68 (13) 11 10 6 12 13 14 155 196 (1) 97 57 (67) (275) (337) (107) 36 (71) (214) 11 10 (1,067) 128 8 – 158 – 3 80 (35) 88 599 880 – 880 (257) – (402) – – (1,134) (659) 8 – (120) 15 15 15 15 5,500 (1,056) (65) – – (515) (39) 3,825 2,620 166 2,786 – – (80) (129) 515 (241) (122) (177) 44 122 166 Trackwise Designs plc 32 Notes to the company financial statements For the year ended December 2018 1. Corporate information Trackwise Designs Plc (“the Company”) is a Public Company limited by Shares incorporated in the United Kingdom. The registered address of the Company is 1 Ashvale, Alexandra Way, Ashchurch, Tewkesbury, Gloucestershire, GL20 8NB. The principal activity of the Company is the development, manufacture and sale of printed circuit boards. 2. Accounting policies 2.1 Basis of preparation Statement of compliance These Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and in accordance with the applicable provisions of the Companies Act 2006. These are the ﬁrst Annual Financial Statements prepared by the Company under IFRS and details of the transition are set out in note 24. These policies have been applied consistently to all periods presented, unless otherwise stated. In line with the transition provisions of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers the Company has elected to apply on transition to these standards on 1 January 2018 a limited retrospective approach. Applying a limited retrospective approach on adoption of IFRS 9 and IFRS 15 in 2018 results in no restatement of comparative periods and there have been no classiﬁcation, measurement or recognition adjustments relating to application of these two new standards in these ﬁnancial statements. No contract balances arise under IFRS15 as income is recognised when goods are despatched, and performance of the seller’s obligations is complete. Basis of measurement The Financial Statements have been prepared on the historical cost basis as modiﬁed for the revaluation of plant on transition to IFRS and for certain ﬁnancial instruments at fair value. Going concern The Directors have considered the principal risks and uncertainties facing the business, along with the Company’s objectives, policies and processes for managing its exposure to ﬁnancial risk. In making this assessment the Directors have prepared cash ﬂows for the foreseeable future, being a period of at least 12 months from the expected date of approval of the ﬁnancial statements. These forecasts show that the Company should be able to manage its working capital and existing resources to enable it to meet its liabilities as they fall due. Based on the above factors, the Directors have prepared the Financial Statements on a going concern basis. Consolidation The Company is exempt by virtue of Section 402 of the Companies Act 2006 from the requirement to prepare group ﬁnancial statements as the Directors consider its subsidiary is not material for the purposes of giving a true and fair view. These ﬁnancial statements present information about the Company as an individual undertaking and not about its Group. Functional and presentational currency These Financial Statements are presented in Pound Sterling (“Sterling”) rounded to the nearest thousand pounds. Use of estimates and judgments The preparation of the Financial Statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The estimates and judgements that have a signiﬁcant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁnancial year are discussed below. Property, plant and equipment Management have estimated the useful life of assets based upon the period that the assets are able to and expected to generate revenue. These estimates are reviewed annually for continued appropriateness and events which may cause the estimate to be revised. (Note 11) Trackwise Designs plc Notes to the company financial statements continued For the year ended December 2018 33 Share Based Payments The Company uses the Black-Scholes option-pricing model where applicable, with inputs, in particular volatility, requiring signiﬁcant judgement in application. Intangible assets Management have used their judgement in respect of the capitalisation of development costs. The viability of the new technology and know-how supported by the results of testing and customer trials and by forecasts for the overall value and timing of sales supports the approach taken. (Note 10) Amortisation commences once management consider that the asset is available for use, i.e. when it is judged to be in the location and condition necessary for it to be capable of operating in the manner intended by management and the cost is amortised over the estimated useful life of the know-how based on expected customer product cycles and lives. 2.2 Revenue Revenue comprises income from the sale of printed circuit boards and represents the amount receivable for the sale of goods, excluding VAT and trade discounts. Revenue is recognised when all of the following conditions have been satisﬁed: I. The Company has received and accepted the purchase order from the customer II. Sales prices are based on quotes for each customer’s unique product and include transport which is insigniﬁcant in the context of the sale price. The sales price is determined after submission of a quote to each customer for their unique product and which has been agreed with them and includes transport which is also agreed with the customer III. Revenue is recognised when the goods have been despatched to the customer 2.3 Grants Income based grants Income based grants are recognised in other operating income based on the speciﬁc terms related to them as follows: – – – A grant is recognised in other operating income when the grant proceeds are received (or receivable) provided that the terms of the grant do not impose future performance-related conditions. If the terms of a grant do impose performance-related conditions then the grant is only recognised in income when the performance-related conditions are met. Any grants that are received before the revenue recognition criteria are met are recognised in the Statement of Financial Position as another creditor within liabilities. Capital grants Grants received relating to tangible and intangible ﬁxed assets are treated as deferred income and released to the Statement of Comprehensive Income over the expected useful lives of the assets concerned. 2.4 Share based payment The Company operates an equity-settled share-based compensation plan in which the Company receives services from employees as consideration for share options. The fair value of the services is recognised as an expense, determined by reference to the fair value of the options granted. 2.5 Income tax Current income tax assets and/or liabilities comprise obligations to, or claims from, ﬁscal authorities relating to the current or prior reporting periods, that are unpaid/due at the reporting date. Current tax is payable on taxable proﬁts, which may differ from proﬁt or loss in the Financial Statements. Calculation of current tax is based on the tax rates and tax laws that have been enacted or substantively enacted at the reporting period. Deferred taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable proﬁt will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting proﬁt nor taxable proﬁt (tax loss). Trackwise Designs plc Notes to the company financial statements continued 34 For the year ended December 2018 Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. 2.6 Goodwill Goodwill represents the future economic beneﬁts arising from other assets acquired in a business combination that are not individually identiﬁable and separately recognised. After initial recognition, goodwill is measured at cost less accumulated impairment losses. See Note 2.10 for a description of impairment testing procedures. 2.7 Research and development cost An internally generated intangible asset arising from development (or the development phase) of an internal project is recognised if, and only if, all of the following have been demonstrated: – It is technically feasible to complete the development such that it will be available for use, sale or licence; – There is an intention to complete the development; – There is an ability to use, sell or licence the resultant asset; – The method by which probable future economic beneﬁts will be generated is known; – There are adequate technical, ﬁnancial and other resources required to complete the development; – There are reliable measures that can identify the expenditure directly attributable to the project during its development. The amount recognised is the expenditure incurred from the date when the project ﬁrst meets the recognition criteria listed above. Expenses capitalised consist of employee costs incurred on development, direct costs including material or testing and an apportionment of appropriate overheads. Where the above criteria are not met, development expenditure is charged to the consolidated Statement of Comprehensive Income in the period in which it is incurred. Capitalised development costs are initially measured at cost. After initial recognition, they are recognised at cost less any accumulated amortisation and any accumulated impairment losses. The depreciable amount of a development cost intangible asset with a ﬁnite basis useful life is allocated on a straight line basis over its useful life, currently expected to be 20 years. Amortisation begins when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. The amortisation period and the amortisation method for the assets with a ﬁnite useful life is reviewed at least each ﬁnancial year-end. If the expected useful life of the asset is different from previous estimates, the amortisation period is changed accordingly. 2.8 Patent costs Patent cost assets are initially measured at cost. After initial recognition, they are recognised at cost less any accumulated amortisation and any accumulated impairment losses. The costs are amortised over the 15 year life of the patent. 2.9 Property plant and equipment Property, plant and equipment is recognised as an asset only if it is probable that future economic beneﬁts associated with the item will ﬂow to the Company and the cost of the item can be measured reliably. An item of property, plant and equipment that qualiﬁes for recognition as an asset is measured at its cost. Cost of an item of property, plant and equipment comprises the purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. On transition to IFRS, plant and equipment was revalued and this amount has been used as the deemed cost with no further revaluations. After recognition, all property, plant and equipment (including Leasehold improvements and plant and machinery) is carried at cost less any accumulated depreciation and any accumulated impairment losses. Depreciation is provided at rates calculated to write down the cost of assets, less estimated residual value, over their expected useful lives on the following basis: Leasehold improvements Plant and machinery Straight line over the period of the lease 10-33% straight line Trackwise Designs plc Notes to the company financial statements continued For the year ended December 2018 35 The residual value and the useful life of an asset is reviewed at least at each ﬁnancial year-end and if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying value of the asset and are recognised in proﬁt or loss. 2.10 Impairment of goodwill, other intangible assets and property, plant and equipment For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash ﬂows. As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to beneﬁt from synergies of the related business combination and represent the lowest level within the Company at which management monitors goodwill. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset or cash-generating unit is impaired when its carrying amount exceed its recoverable amount. The recoverable amount is measured as the higher of fair value less cost of disposal and value in use. The value in use is calculated as being net projected cash ﬂows based on ﬁnancial forecasts discounted back to present value. The impairment loss is allocated to reduce the carrying amount of the asset, ﬁrst against the carrying amount of any goodwill allocated to the cash-generating unit, and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset’s or cash-generating unit’s recoverable amount exceeds its carrying amount (see note 10). 2.11 Inventories Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and an appropriate proportion of ﬁxed and variable overheads incurred in bringing the inventories to their present location and condition. Net realisable value is calculated as the estimated selling price less costs to complete and sell. Where necessary, provision is made to reduce cost to no more than net realisable value having regard to the nature and condition of inventory, as well as its anticipated utilisation and saleability. 2.12 Financial instruments The Company classiﬁes all of its ﬁnancial assets at amortised cost. Financial assets do not comprise prepayments. Management determines the classiﬁcation of its ﬁnancial assets at initial recognition. These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of ﬁnancial assets where the objective is to hold their assets in order to collect contractual cash ﬂows and the contractual cash ﬂows are solely payments of the principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The Company’s ﬁnancial assets held at amortised cost comprises trade and other receivables and cash and cash equivalents in the Statement of Financial Position. Financial assets Financial assets are recognised in the Statement of Financial Position when, and only when, the Company becomes a party to the contractual provisions of the instrument. Financial assets are initially recognised at fair value, which is usually the cost, plus directly attributable transaction costs. Financial assets are measured at amortised cost using an effective interest method and discounting is omitted where the effect is immaterial. Impairment provisions are recognised based on the simpliﬁed approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within administrative expenses in the Statement of Comprehensive Income. On conﬁrmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Trackwise Designs plc Notes to the company financial statements continued 36 For the year ended December 2018 A ﬁnancial asset is derecognised when the contractual rights to the cash ﬂows from the ﬁnancial asset expire, or when the ﬁnancial asset and all substantial risks and reward are transferred. Financial liabilities Financial liabilities include borrowings, trade and other payables and derivatives in respect of forward foreign exchange contracts. Financial liabilities are obligations to pay cash or other ﬁnancial assets and are recognised in the Statement of Financial Position when, and only when, the Company becomes a party to the contractual provisions of the instrument. Financial liabilities, other than derivatives, are initially recognised at fair value adjusted for any directly attributable transaction costs. After initial recognition, ﬁnancial liabilities, other than derivatives, are measured at amortised cost using the effective interest method, with interest-related charges recognised as an expense in ﬁnance costs. Discounting is omitted where the effect of discounting is immaterial. Derivatives are measured at fair value through proﬁt and loss for any movements. A ﬁnancial liability is derecognised only when the contractual obligation is extinguished, that is, when the obligation is discharged, cancelled or expires. 2.13 Leased assets Finance leases and hire purchase obligations The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards of ownership of the leased asset. Where the Company is a lessee in this type of arrangement, the related asset is recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease or hire purchase payments plus incidental payments, if any. A corresponding amount is recognised as a ﬁnance lease or hire purchase liability. This liability is reduced by payments net of ﬁnance charges. The interest element of lease payments represents a constant periodic rate of interest on the outstanding capital balance and is charged to proﬁt or loss, as ﬁnance costs over the period of the lease. Operating leases All other leases are treated as operating leases. Where the Company is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. 2.14 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short term, highly liquid investments that are readily convertible into known amounts of cash and are subject to an insigniﬁcant risk of changes in value. 2.15 Foreign currencies Transactions entered into by the Company in a currency other than the functional currency of sterling are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the Statement of Comprehensive Income. The Company does not apply hedge accounting in respect of forward foreign exchange contracts held to manage the cash ﬂow exposures of forecast transactions denominated in foreign currencies. The Company utilises forward exchange contracts to mitigate the risk of adverse exchange rate movements on foreign currency denominated revenue. These derivatives are measured at the fair market value, at the reporting date, with the fair value gain or loss movements arising being recognised within administrative expenses in the Statement of Comprehensive Income. 2.16 Equity and reserves Share capital represents the nominal value of shares that have been issued. Share premium represents the excess consideration received over the nominal value of share capital upon the sale of shares, less any incidental costs of issue. Retained earnings include all current and prior period retained proﬁts. The revaluation reserve represents the extent to which a revaluation of plant on transition to IFRS exceeded the historical net book value. Transfers are made to retained earnings in respect of the depreciated element of the revaluation. Capital redemption reserves are non-distributable reserves relating to the redemption or purchase of the Company’s own shares. Trackwise Designs plc Notes to the company financial statements continued For the year ended December 2018 37 2.17 Standards, amendments and interpretations in issue but not yet effective The following new standards, interpretations and amendments that may or will have an effect on the Company’s future ﬁnancial statements are: IFRS 16 Leases This standard is effective for accounting periods beginning on or after 1 January 2019 and will therefore impact the results for the year ending 31 December 2019. It sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. It replaces IAS 17 Leases and IFRIC 4 determining whether an arrangement contains a lease. The most signiﬁcant changes are in relation to lessee accounting for operating leases. Under the new standard, the concept of assessing a lease contract as either operating or ﬁnancing is replaced by a single lessee accounting model. Under this new model, substantially all lease contracts will result in a lessee acquiring a right-to-use asset and obtaining ﬁnancing. The lessee will be required to recognise a corresponding asset and liability. The asset will be depreciated over the term of the lease and the interest on the ﬁnancing liability will be charged over the same period. Adopting this new standard will result in a material change to the Statement of Financial Position, with right-to-use assets and accompanying ﬁnancing liabilities for the Company’s lease of premises being recognised for the ﬁrst time. Based on the current lease in place it is estimated that an asset and corresponding liability of approximately £0.7m would be accounted for as at 31 December 2018. There are no other new standards, interpretations and amendments which are not yet effective in these Financial Statements, expected to have a material effect on the Company’s future Financial Statements. 3 Segmental reporting IFRS 8, Operating Segments, requires operating segments to be identiﬁed on the basis of internal reports that are regularly reviewed by the Company’s chief operating decision maker. The chief operating decision maker is considered to be the Board of Directors. The Company comprised only one operating segment until 31 December 2017 for the sale of printed circuit boards. The operating segments are monitored by the chief operating decision maker and strategic decisions are made on the basis of adjusted segment operating results. From January 2018 the RF and IHT activities have begun to be separately reviewed and monitored. Revenue of £2,862,000 arose from RF and £606,000 from IHT in the year ended 31 December 2018. All assets, liabilities and revenues are located in, or derived from, the United Kingdom. The material assets and liabilities relate to overall activity with the exception of the intangible development costs and deferred grants which are solely in respect of IHT. In 2018 the Company had a major customer who represented 26% of revenue reported in the Europe segment (2017: 2 customers representing 33% and 14%). Turnover by geographical destination UK Europe Other Operating Proﬁt by geographical destination UK Europe Other 2018 £’000 866 2,368 234 3,468 2018 £’000 31 85 9 125 2017 £’000 702 1,983 136 2,821 2017 £’000 17 47 3 67 Trackwise Designs plc Notes to the company financial statements continued 38 For the year ended December 2018 4 Operating proﬁt Operating proﬁt is stated after charging/(crediting) Amortisation of intangible assets Depreciation of property, plant and equipment Grant income (note 10) Cost of inventory sold Development expenditure expensed in year Foreign exchange (gains)/loss (Gain)/Loss on fair valued derivative Operating lease expenses Costs of moving main premises Share based payment charge 2018 £’000 2017 £’000 97 196 – 6 155 (22) 1,331 1,073 – 14 (49) 125 45 155 75 65 49 91 – – Staff payroll costs (net of capitalised development costs) 1,178 879 During the year the Auditors received £31,000 for audit services and £132,423 for non audit services of which £120,000 was related to the ﬂotation of the Company on AIM. 5 Staff and key management personnel Average monthly number of employees Management and administration Production Payroll costs Gross salaries Social security costs Share based payment Other pension contributions The directors’ remuneration was as follows. Year ended 31 December 2018 P Johnston M Hodgkins I Grifﬁths L Jackson Year ended 31 December 2017 P Johnston Trackwise Designs plc 2018 Number 2017 Number 13 29 42 £’000 1,401 139 155 58 10 23 33 £’000 933 85 – 35 1,753 1,053 Salary £’000 Beneﬁts £’000 Pension £’000 Total £’000 156 186 19 15 376 19 6 – – 25 12 6 – – 18 Salary £’000 121 Beneﬁts £’000 – Pension £’000 7 187 198 19 15 419 Total £’000 128 Notes to the company financial statements continued For the year ended December 2018 39 6 Finance income and Expense Finance income Interest receivable on bank deposits Finance expense Interest payable on loans and overdrafts Interest payable on ﬁnance leases 7. Income tax Current tax: UK corporation tax: Total current tax credit Deferred tax: Origination and reversal of temporary differences Effect of change in tax rate on opening liability Adjustment for prior periods Total deferred tax expense Total tax credit 2018 £’000 2017 £’000 8 30 35 65 – 63 17 80 2018 £’000 2017 £’000 61 61 (39) – (15) (54) 7 41 41 (20) – – (20) 21 The tax rate used for the reconciliation is the corporate tax rate of 19% (2017: 19.25%) payable by corporate entities in the UK on taxable proﬁts under UK tax law. Changes to reduce the corporation tax rate to 17% from 1 April 2020 have been substantively enacted. The tax rate used to calculate deferred tax is 17% (2017: 17%), being the rate at which the timing differences are expected to unwind based on currently enacted UK corporate tax legislation. The credit for the year can be reconciled to the proﬁt/(loss) for the year as follows: Proﬁt/(loss) before taxation Income tax calculated at 19% (2017: 19.25% 2016: 20%) Disallowable expenses including share based payment Enhanced research and development allowances Adjustment for prior periods Differing deferred tax and R&D tax credit rates Total tax credit 2018 £’000 68 (14) (27) 37 (15) 26 7 2017 £’000 (13) 3 – 28 – (10) 21 In addition to the tax credit, a further development expenditure tax related credit of £35,000 (2017: £20,000) is included in operating expenses. Trackwise Designs plc Notes to the company financial statements continued 40 For the year ended December 2018 8 Dividends paid and proposed Amounts recognised as distributions to equity holders in the period: Interim ordinary dividends paid for the year ended 31 December 2018 of £nil (2017: £8.47) paid per ordinary share 9 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Earnings Earnings for the purpose of basic and diluted earnings per share being net proﬁt attributable to the shareholders Number of shares 2018 £’000 2017 £’000 – 120 2018 £’000 2017 £’000 75 8 2018 2017 Weighted average number of ordinary shares for the purposes of basic earnings per share 11,830,427 9,534,275 Weighted average number of ordinary shares for the purposes of diluted earnings per share 12,370,189 9,534,275 Earnings per Share (pence) Basic Diluted 0.63 0.61 0.084 0.084 The earnings per share for both periods above is calculated from the number of £0.04 ordinary shares in issue at 30 June 2018 of 9,534,275. This reﬂected the 14,176 £1 shares allotted as of 31 December 2017, an issue of 367,195 £1 ordinary shares to existing shareholders utilising the capital redemption reserve on 28 June 2018 and a subdivision of £1 shares into £0.04 shares on 28 June 2018. On 24 July 2018, 5,238,097 £0.04 ordinary shares were issued at £1.05 per share. Options over 990,015 shares (after the subdivision) were granted to employees on 15 June 2018 which are potentially dilutive shares. They are exercisable at 28.25 pence per share after a period of 3 years. The share-based payment charge of 72.25 pence per option share has been measured using the Black Scholes model applying the three-year vesting period, a volatility of 50% and annual risk free rate of 1.5%. Trackwise Designs plc Notes to the company financial statements continued For the year ended December 2018 41 10 Intangible assets Cost As at 1 January 2017 Additions As at 31 December 2017 Additions As at 31 December 2018 Amortisation or impairment As at 31 January 2017 Charge As at 31 December 2017 Charge As at 31 December 2018 Carrying amount As at 31 December 2016 As at 31 December 2017 As at 31 December 2018 Goodwill £’000 Patent costs £’000 Computer Development costs £’000 Software £’000 104 – 104 – 104 – – – – – 104 104 104 52 3 55 7 62 13 3 16 3 19 39 39 43 78 – 78 11 89 72 3 75 2 77 6 3 12 987 516 1,503 1,049 2,552 – – – 92 92 987 1,503 2,460 Total £’000 1,221 519 1,740 1,067 2,807 85 6 91 97 188 1,136 1,649 2,619 The carrying amount of goodwill relates to the acquisition of the original RF technology based business, whilst all the capitalised development costs relate to projects in respect of the Company’s Improved Harness Technology (‘IHT’) process for unlimited length printed circuit boards and know-how which has since been developed by the Company with amortisation on the initial development projects commencing in 2018. To determine the values of the costs capitalised management include the actual cost of purchase for all materials which are acquired for product development purposes, they collect daily time analyses of work performed by design or product engineers which captures the time spent on development activities which is then evaluated using a labour rate appropriate for the engineer who has worked the time and ﬁnally an element of direct relevant overhead cost is incorporated to reﬂect the additional cost of operating the developmental department of the Company. Impairment tests for goodwill The Company tests goodwill annually for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The carrying values are assessed on a value in use basis for impairment purposes by calculating the net present value (NPV) of future cash ﬂows arising from the original acquired business. The goodwill impairment review assessed whether the carrying value of goodwill was supported by the NPV of future cash ﬂows based on management forecasts for 5 years, an assumed growth rate of 1% (2017: 1%) for the next 5 years and a discount rate of 12% (2017: 12%). There is signiﬁcant headroom in the assessment from a range of reasonable sensitivities. Government grants The Company has received aggregate grants from UK and European government research and development initiatives amounting to £633,000 (2017: £306,000) which fund a proportion of development work and which have been deferred in line with the capitalised development cost assets above that they relate to. In addition, £nil (2017: £22,000) of similar government technology income related grants have been recognised in other operating income. There are no unfulﬁlled conditions or contingencies attached to the grants. Trackwise Designs plc Notes to the company financial statements continued 42 For the year ended December 2018 11 Property, plant and equipment Leasehold improvements £’000 Plant and machinery £’000 Cost At 1 January 2017 Additions As at 31 December 2017 Additions Disposals As at 31 December 2018 Depreciation At 1 January 2017 Charge As at 31 December 2017 Charge Disposals As at 31 December 2018 Carrying amount As at 31 December 2016 As at 31 December 2017 As at 31 December 2018 62 159 221 154 – 375 62 – 62 29 – 91 – 159 284 Total £’000 1,593 519 2,112 214 (44) 1,531 360 1,891 60 (44) 1,907 2,282 638 155 793 167 (33) 927 893 1,098 980 700 155 855 196 (33) 1,018 893 1,257 1,264 Included within the carrying amount of the above, are assets held under ﬁnance leases of £692,000 (2017: £660,000) relating to plant and machinery. 12 Inventories Raw materials Work in progress Finished goods 2018 £’000 222 58 100 380 2017 £’000 143 122 48 313 There is no material difference between the value of inventories stated and their replacement cost. There are no material stock provisions at any period end, neither have material amounts of stock been written off in any of the periods presented. 13 Trade and other receivables Trade receivables Other receivables Prepayments and accrued income 2018 £’000 524 26 296 846 2017 £’000 419 99 32 550 2016 £’000 141 104 33 278 2016 £’000 577 46 15 638 Trade receivables are stated net of impairment for estimated irrecoverable amounts of £nil (2017: £61,000). There has been no material write off or change in impairment throughout the periods covered and as a result no expected credit loss provision is made for these. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. Trackwise Designs plc Notes to the company financial statements continued For the year ended December 2018 43 Trade receivables past their due dates but not impaired were: 31 December 2016 31 December 2017 31 December 2018 Less than 60 days overdue £’000 60 to 120 days overdue £’000 More than 120 days overdue £’000 7 24 15 – 56 12 – 2 – The Directors consider the credit quality of trade and other receivables that are neither past due nor impaired to be of good quality. 14 Trade and other payables Amounts falling due within one year: Trade payables Taxes and social security costs Other payables Accruals and deferred income Amounts falling due after more than one year: Deferred income - grants 2018 £’000 332 49 44 390 815 539 2017 £’000 428 32 476 187 1,123 306 2016 £’000 421 28 20 35 504 189 The Directors consider that the carrying amount of trade and other payables approximates to their fair values. 15 Borrowings Amounts falling due within one year: Revolving credit facility Invoice discounting facility Bank loans Finance leases (note 16) Amounts falling due after more than one year: Bank loans Finance leases (note 16) Total borrowings 2018 £’000 2017 £’000 2016 £’000 – – – 161 161 – 357 357 518 515 – – 147 662 – 410 410 1,072 – 129 44 104 277 197 362 559 836 The revolving credit facility was secured by ﬁxed and ﬂoating charges over the property and other assets of the Company and bore interest at a market rate for the facility which was typically 10%. Finance leases are secured on the speciﬁc tangible ﬁxed assets to which they relate. Trackwise Designs plc Notes to the company financial statements continued 44 For the year ended December 2018 Financing activities and movements in total borrowings As at 31 December 2016 Cash movements: Decrease in invoice discounting Repayment of loans Revolving loan advanced Finance lease repayments Interest paid Non-cash movements: Interest accrued New ﬁnance leases As at 31 December 2017 Cash movements: Repayment of revolving loan Revolving loan advanced Finance lease repayments Interest paid Non-cash movements: Interest accrued New ﬁnance leases As at 31 December 2018 16 Finance leases £’000 836 (129) (241) 515 (122) (80) 80 213 1,072 (515) – (164) (65) 65 125 518 Minimum lease payments under ﬁnance leases are as follows: In one year or less Between one and ﬁve years Future ﬁnance charges Present value of ﬁnance lease liabilities 2018 £’000 2017 £’000 2016 £’000 185 414 599 (81) 518 169 474 643 (86) 557 120 414 534 (68) 466 17 Financial instruments and capital management Risk management The Board has overall responsibility for the determination of the Company’s risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s innovation and ﬂexibility. All funding requirements and ﬁnancial risks are managed based on policies and procedures adopted by the Board of Directors. The Company is exposed to ﬁnancial risks in respect of market, credit, foreign exchange, liquidity and interest rate risk. Capital management The Company’s capital comprises all components of equity which includes share capital, retained earnings and other reserves as indicated in the Statement of Financial Position. The Company’s objectives when maintaining capital are to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for Shareholders and beneﬁts for other stakeholders, and to provide an adequate return to Shareholders by pricing products and services commensurately with the level of risk. Trackwise Designs plc Notes to the company financial statements continued For the year ended December 2018 45 The capital structure of the Company consists of Shareholders equity with all working capital requirements ﬁnanced from cash and revolving credit facilities. The Company sets the amount of capital it requires in proportion to risk. It manages its capital structure and makes adjustments to it in the light of changes in economic conditions, terms of borrowing facilities and the risk characteristics of the underlying assets and activity. The Company has complied with the minimum net asset requirements which are required by the borrowing facility. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to Shareholders, return capital to Shareholders, issue new shares, or sell assets to reduce debt. Market risks These arise from the nature and location of the customer markets, foreign exchange and interest rate risks. The Company trades within the UK, European and US aeronautical and communications markets, and accordingly there is a risk relating to the underlying performance of these markets. The Directors monitor this and the foreign exchange risk closely with the intention to foresee downturns in trade or changes in the use of technology. Foreign exchange risk The Company trades in overseas markets and, whilst it has net foreign currency balances, has forward contracts in place with an option to sell foreign currency receipts at a ﬁxed rate which it uses to manage pricing and the exposure to currency risks. There has therefore been limited sensitivity to ﬂuctuations in exchange rates. The company had the following net cash, sales ledger and purchase ledger balances denominated in foreign currencies: Euro denominated US dollar denominated Interest rate risk 2018 £’000 92 11 2017 £’000 313 (20) 2016 £’000 337 (6) The Company entered into a revolving credit facility with Growth Street in 2017, in order to ﬁnance development of the key technology, upon which interest was charged at a variable market rate for facilities of this nature. The outstanding value of this facility at 31 December 2017 was £515,000 on which the variable interest charged has typically been at a rate of 10%. This was fully repaid in 2018 and the Company now holds cash balances. The Directors do not consider that the Company is exposed to a material risk from ﬂuctuations in these interest rates; had the base rate been 1.0% higher throughout the 2017 ﬁnancial year this would have increased the interest cost by approximately £6,000. The Company makes use of ﬁxed rate ﬁnance lease or hire purchase agreements to acquire property, plant and equipment; this ensures that the Company maintains its existing working capital and ensures certainty of costs at the point of acquisition of those assets. These liabilities are set out in note 16. Credit risk Credit risk is the risk of ﬁnancial loss if a customer or counterparty to a ﬁnancial instrument fails to meet its contractual obligations. The Company is mainly exposed to credit risk from credit sales and attempts to mitigate credit risk by assessing the creditworthiness of customers and closely monitoring payments history. Given the long experience of the Company with its customers and in view of the systems and relations with customers that the Company has, the Directors do not consider there is any signiﬁcant risk at the balance sheet date. The ageing of debtors is included in note 13. There have been no material impairments to trade or other receivables invoiced within the 3 years included within these ﬁnancial statements. Credit risk on cash and cash equivalents is considered to be minimal as the counterparties are all substantial banks with high credit ratings. Trackwise Designs plc Notes to the company financial statements continued 46 For the year ended December 2018 Liquidity risk The maturity of the Company’s ﬁnancial liabilities including borrowing facilities detailed above is as set out below. Current liabilities were payable on demand or to normal trade credit terms with the exception of ﬁnance leases payable monthly. The derivative liability in 2017 related to a forward exchange contract expiring within a year. Liquidity risk of the business is managed by the preparation of and monitoring of a rolling weekly cash forecast which is integrated with a regular review of credit risk exposure (as detailed above) and the Board level review of three-month rolling ﬁnance facility headroom. At 31 December 2016 Trade and other payables Invoice discounting Bank loans Finance leases At 31 December 2017 Trade and other payables Bank loans Finance leases At 31 December 2018 Trade and other payables Finance leases (incl. interest) Up to 1 year £’000 1-2 years £’000 2-5 years £’000 441 129 44 120 734 – – 44 120 164 – – 153 294 447 Up to 1 year £’000 1-2 years £’000 2-5 years £’000 903 515 169 1,587 – – 169 169 – – 305 305 Up to 1 year £’000 1-2 years £’000 2-5 years £’000 543 185 728 – 180 180 – 234 234 Classiﬁcation of ﬁnancial instruments All ﬁnancial assets are held at amortised cost, and all ﬁnancial liabilities have been classiﬁed as other ﬁnancial liabilities measured at amortised cost with the exception of the forward currency contract measured at fair value as a derivative instrument. Financial assets Trade and other receivables Cash and cash equivalents Financial liabilities At amortised cost Trade and other payables Invoice discounting Bank loans Finance leases At fair value Derivative liability Trackwise Designs plc 2018 £’000 550 2,786 3,336 2018 £’000 543 – – 518 1,061 2017 £’000 550 166 716 2017 £’000 961 – 515 557 2016 £’000 638 122 760 2016 £’000 476 129 241 466 2,033 1,312 – 49 – Notes to the company financial statements continued For the year ended December 2018 47 234 20 254 54 308 2016 £’000 31 2016 £’000 – 14 – 14 18 Deferred tax liabilities Liability/(asset) in respect of: As at 31 December 2016 Debit to proﬁt or loss As at 31 December 2017 Debit to proﬁt or loss As at 31 December 2018 Accelerated/ (decelerated) capital allowances £’000 148 17 165 6 171 Intangible assets £’000 Share Based Payment £’000 Losses £’000 Total £’000 99 68 167 104 271 – – – (36) (36) (13) (65) (78) (20) (98) 19 Deﬁned contribution scheme The Company contributes to personal pension plans for the beneﬁt of certain employees. The pension cost charge represents contributions payable by the Company to the fund. Contributions payable by the Company for the year 20 Share capital Allotted, called up and fully paid 14,772,372 Ordinary Shares of £0.04 each 14,175 Ordinary Shares of £1 each 1 ‘A’ Ordinary Share of £1 each 2018 £’000 58 2018 £’000 591 – – 591 2017 £’000 35 2017 £’000 – 14 – 14 Ordinary shares have equal rights to votes in any circumstances and are non-redeemable. Ordinary shares have rights to receive dividends and capital distributions. There was an issue of 367,195 £1 ordinary shares to existing Shareholders utilising the capital redemption reserve on 28 June 2018 and a subdivision of all the £1 shares into 9,534,275 £0.04 ordinary shares on 28 June 2018. On 24 July 2018, 5,238,097 £0.04 ordinary shares were issued at £1.05 per share. This included a share premium amount of £5,290,000 against which £1,056,000 of share issue expenses were debited resulting in a net amount of £4,234,000 in the share premium account. Analysis of Movements in Share Capital 1 January Bonus Issue Sub-Division Share Issue 31 December 21 Contingent liabilities At 31 December 2018, the Company had no contingent liabilities (2017: none). 2018 £’000 2017 £’000 2016 £’000 14,176 367,195 9,152,904 5,238,097 14,176 14,176 – – – – – – 14,772,372 14,176 14,176 Trackwise Designs plc Notes to the company financial statements continued 48 For the year ended December 2018 22 Financial commitments At 31 December 2018, the Company’s future minimum rentals payable under non-cancellable operating leases were as follows: Land and buildings In one year or less Between one and ﬁve years Total ﬁnancial commitments 2018 £’000 110 328 438 2017 £’000 106 411 517 2016 £’000 60 – 60 The company leases its premises under a 10-year lease with a break option available after 5 years. 23 Ultimate controlling party and related party transactions There was no individual controlling party as at 31 December 2018. The key management personnel are considered to be the Directors. Please refer to Note 5 for details of key management personnel remuneration. M Hodgkins, a Director of the Company, holds options over 78,690 ordinary shares in the Company (see note 9). A company controlled by M Hodgkins, Manumit Strategies Limited, invoiced £75,420 of fees and expenses to the Company in respect of consultancy services relating to the AIM listing. A motor vehicle was sold to P Johnston, a Director of the Company, for £13,425 during the year. 24 IFRS transition adjustments The Statement of Comprehensive Income for the year ended 31 December 2017 and the Statement of Financial Position as of 31 December 2017 is extracted from the 31 December 2017 audited ﬁnancial statements prepared under UK Financial Reporting Standard 102. These have been adjusted to apply IFRS as presented in the Company’s AIM listing document with a transition date of 1 January 2017, together with a reclassiﬁcation of production overhead expenses from administrative expenses to costs of sales. IFRS 3 ‘Business combinations’: There are no business combinations that occurred after the transition date. Under the IFRS 1 exemption, the net book value of goodwill carried at the transition date has been adopted as cost at that date and is no longer amortised. It is subject to annual impairment testing resulting in a reversal of the amortisation charge of £19,000 for the year ended 31 December 2017 and £53,000 of accumulated amortisation at 31 December 2017. IFRS 1 and IAS 16: The Company applied the transition option under IFRS1 to fair value plant and equipment and to use this as deemed cost at transition resulting in an increase in net book value at 1 January 2017 of £284,000. Deferred taxation has been applied in respect of the adjustments made. This resulted in an additional £77,000 deferred tax liability at transition in respect of the increased ﬁxed asset values and additional tax credits of £25,000 for the three years ended 31 December 2017 with £2,000 of this relating to 2017 and a net increase in the deferred tax liability at 31 December 2017 of £52,000. Income statement for the year ended 31 December 2017 UK GAAP as reported £’000 Depreciation and amortisation £’000 Tax adjustments Reclassiﬁcation £’000 £’000 2,821 (1,749) 1,072 22 (1,044) 50 (80) (30) 19 (11) – (2) (2) – 19 17 – 17 – 17 – – – – – – – – 2 2 – (166) (166) – 166 – – – – – IFRS £’000 2,821 (1,917) 904 22 (859) 67 (80) (13) 21 8 Revenue Cost of sales Gross proﬁt Other operating income Administrative expenses Operating proﬁt Finance costs Loss before taxation Taxation (Loss)/proﬁt and total comprehensive income for the year Trackwise Designs plc Notes to the company financial statements continued For the year ended December 2018 49 Statement of ﬁnancial position as at 1 January 2017 UK GAAP Revaluation of ﬁxed assets £’000 as reported £’000 Reverse amortisation Deferred tax £’000 of goodwill Reclassiﬁcation £’000 £’000 Intangible assets Tangible assets Current assets Current liabilities Non-current liabilities Net assets Share capital Capital redemption reserve Revaluation reserve Retained earnings Total equity 1,096 615 1,072 (781) (928) 1,074 14 367 – 693 1,074 – 284 – – – 284 – – 284 – 284 Statement of ﬁnancial position as at 31 December 2017 – – – – (54) (54) – – – (54) (54) 34 – – – – 34 – – – 34 34 6 (6) – – – – – – – – – UK GAAP Revaluation of ﬁxed assets £’000 as reported £’000 Reverse amortisation Deferred tax £’000 of goodwill Reclassiﬁcation £’000 £’000 Intangible assets Tangible assets Current assets Current liabilities Non-current liabilities Net assets Share capital Capital redemption reserve Revaluation reserve Retained earnings Total equity 25. Share Option Plan Introduction 1,593 976 1,124 (1,834) (918) 941 14 367 – 560 941 – 284 – – – 284 – – 245 39 284 – – – – (52) (52) – – – (52) (52) 53 – – – – 53 – – – 53 53 3 (3) – – – – – – – – – IFRS £’000 1,136 893 1,072 (781) (982) 1,338 14 367 284 673 1,338 IFRS £’000 1,649 1,257 1,124 (1,834) (970) 1,226 14 367 245 600 1,226 The Company established the EMI Share Option Plan on 15 June 2018 which allows for the grant of enterprise management incentive share options which qualify for favourable tax treatment under the provisions of Schedule 5 to Income Tax (Earnings and Pensions) Act 2003 (ITEPA) (EMI Options) and awards of non-qualifying options (together Awards). The awards are not transferable. Only the person to whom an Award is granted or his or her personal representatives may acquire Ordinary Shares pursuant to an Award The Board and Remuneration Committee has overall responsibility for the operation and administration of the Share Option Plan and discretion to select the persons to whom Awards are to be granted. Size of EMI Options grants/plan limits The Company will grant EMI Options for as long as the Company satisﬁes the qualifying conditions set out in the EMI Code. Under the EMI Code, an employee may hold EMI Options over Ordinary Shares with a value (as at the date of grant) up to £250,000. Trackwise Designs plc Notes to the company financial statements continued 50 For the year ended December 2018 Where this threshold is exceeded, the employee may not receive EMI Options for three years. He may, however, receive non-qualifying Awards, subject to the limit as set out below. Unless the Remuneration Committee otherwise determines, the aggregate number of Ordinary Shares over which Awards may be granted under the Share Option Plan on any date shall be limited so that the total number of Ordinary Shares issued and issuable pursuant to Awards granted under the Share Option Plan and any other share scheme operated by the Company in any rolling 10-year period will be restricted to 10 per cent of the Company’s issued Ordinary Share capital from time to time calculated at the relevant time. Rights to attaching to shares Ordinary Shares issued in connection with the exercise of Awards will rank equally with Ordinary Shares of the same class then in issue. Application will be made for admission to trading on AIM of new Ordinary Shares issued. Malus and Clawback The Remuneration Committee may apply clawback where at any time before or within a year of vesting it determines that the ﬁnal results of the Company were misstated. The Remuneration Committee may also apply the clawback at any time if it is discovered that the participant engaged in fraudulent or dishonest conduct prior to vesting that justiﬁed, or would have justiﬁed, summary dismissal from ofﬁce or employment. Awards Included in these awards are options over 78,690 Ordinary Shares granted to Mark Hodgkins, one of the Directors. 26. Adjusted Operating Proﬁt and EBITDA In monitoring the performance of the business the Directors focus on operating proﬁt adjusted for material non-recurring or non- trading expenses and the adjustments so made are set out below: Adjusted Operating proﬁt: Operating proﬁt Add back: Share based payments Costs relating to factory move Adjusted operating proﬁt £ 125,000 155,000 45,000 325,000 The measure of EBITDA is not recognised by IFRS however it remains an important performance measure for management. The adjusted operating proﬁt (see above) adjusted for depreciation and amortisation is calculated and set out below: £ 125,000 196,000 97,000 155,000 45,000 618,000 Adjusted EBITDA: Operating proﬁts Depreciation Amortisation Share based payments Move costs Adjusted EBITDA Trackwise Designs plc Officer and Professional Advisers 51 Non-Executive Chairman Chief Executive Ofﬁcer Chief Financial Ofﬁcer Non-Executive Director Registered in England/Wales Company no: 3959572 Registered in Ireland Company no: 635429 DIRECTORS SECRETARY REGISTERED OFFICE Trackwise Designs plc REGISTERED OFFICE Trackwise Europe Ltd AUDITORS LAWYERS NOMINATED ADVISOR & BROKER REGISTRARS Ian Grifﬁths Philip Johnston Mark Hodgkins Lesley Jackson Mark Hodgkins 1 Ashvale Alexandra Way Tewkesbury Gloucestershire GL20 8NB The Black Church St. Mary’s Place Dublin 7 Ireland Mazars LLP 45 Church Street Birmingham B3 2RT Gateley Plc 111 Edmund Street Birmingham B3 2HJ Arden Partners Plc 5 George Road Edgbaston Birmingham B15 1NP Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA Trackwise Designs plc RF PRINTED CIRCUIT BOARDS World leading RF PCBs Providing connection under the most demanding conditions Trackwise Designs plc 1 Ashvale | Alexandra Way | Tewkesbury | Gloucestershire GL20 8NB | UK T: +44 (0)1684 299930 | E: enquiries@trackwise.co.uk | W: www.trackwise.co.uk

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