11 Jul 2017

Ilika (AIM: IKA), the accelerated materials innovation company, announces its audited full-year results for the year ended 30 April 2017.

Operational highlights:

·     Launch of StereaxTM P180, the extended temperature range solid-state battery

·     Collaboration with a bioelectronics company to develop Stereax for miniature medical implants

·    Collaboration with Sharp to integrate Stereax solid-state batteries with Sharp’s photovoltaic technology

·     Grant of patents protecting Stereax technology

·     Award of grant to develop protected anodes for lithium sulphur batteries with Johnson Matthey

·     Award of grant to develop photonic materials for Hard Disk Drives with Seagate

·     Collaboration with Toyota Research Institute to identify new advanced battery materials and fuel cell catalysts that can power future zero-emissions and carbon-neutral vehicles

·     Grant of patents protecting unique High-Throughput Vapour Deposition method

Financial highlights:

·     Revenues of £1.1m (2016: £0.6m)

·     Net Loss for the year of £3.5m (2016: £3.5m)

·     Loss per share of 4.8p (2016: 5.2p)

·     Cash, cash equivalents and bank deposits of £5.4m (2016: £3.0m) post fundraising of £5.8m (net) in the year

Commenting on the results Ilika’s Chairman, Mike Inglis, said: “I have been very encouraged by the operational and commercial progress made at Ilika this year. We followed up the launch of our first Stereax product, the M250, with the launch of a high temperature battery, the P180, for industrial IoT applications. Using our Stereax pilot line we have been able to supply samples of our batteries to potential customers and support the discussions being led by our commercial team around the globe. The first commercial engagements for Stereax have been secured and I anticipate these, and other interactions, to lead to closer engagements going forward. I am also pleased to see revenues tick up this year, which based on our strong current order book, is a trend I expect to see continuing in 2017/18.”

STRATEGIC REPORT

The Directors present their Strategic Report for the year ended 30th April 2017.

Principal activities

Ilika plc is the holding company for Ilika Technologies Limited, a pioneer in solid-state battery technology and materials innovation. Ilika has developed ground-breaking solid-state battery technology to meet the demands of the Internet of Things (IoT). Ilika has a unique, patent protected high throughput technology platform which accelerates the discovery of new and patentable materials for identified end uses in the automotive, aeronautical and electronics sectors.

Business Strategy

The Company’s strategy is to commercialise the intellectual property (IP) that it has created and continues to create, in its Stereax solid-state battery programme. The Company has developed miniature batteries as an enabler for wireless sensors used in industrial and medical applications.

The Company’s objective is to have its batteries integrated into market-leading products sold by leading commercialisation partners around the world. The Company generally expects these end-products to fit into or create end-markets worth in excess of $1 billion per year, in which the Directors believe a number of the Company’s commercialisation partners are positioned to have a leading share.

The Company uses its processes to discover and commercialise novel materials for integration into products with high value end-markets. In order to ensure a high probability of commercial success, the Company prefers to develop these materials in collaboration with large multinational companies, which have the expertise to bring new products to market to address unmet needs in their sectors. The Company aims to create IP such that it will benefit from commercialisation rewards associated with the ultimate generally adopted technology.

The Company is pursuing its objectives through the following strategies:

·     Developing leading-edge high throughput development processes;
·     Partnering with companies committed to developing and globally commercialising jointly developed products;
·     Using high throughput processes to invent patentable functional materials across addressable markets in the automotive, aeronautical and electronic components sectors; and
·     Development of valuable products through the application of functional materials.

The Company’s revenue model involves three phases of activity: a) commercially-funded and grant-funded development projects; b) IP licensing; c) receipt of royalties when products incorporating Company IP reach market. The Company is currently in the first phase of activity, with its revenue being generated from development fees. The Company has built a pipeline of licensing opportunities to support the start of its second phase of revenue generation.

Operating Review

Solid-State Batteries

Ilika has been working with solid-state battery technology since 2008 and has developed a type of lithium-ion battery, which, instead of using liquid or polymer electrolyte, uses a ceramic ion conductor, making it particularly suitable for micro-battery applications. Battery technology is a key challenge in the electronics sector, with IoT being a key driver of growth and battery technology development.

IoT devices offer a different set of battery challenges compared to other electronic devices. They have similar pressures, such as cost and availability, but they also have some specific requirements:

o             Small size in both footprint and thickness
o             Ability to be trickle charged
o             Charged only when an energy harvester can get energy
o             Longer life span to match those of sensors and MCUs
o             Support wider temperature ranges

Ilika’s solid-state batteries have several benefits over currently available lithium-ion batteries:

o             6x faster to charge
o             Energy dense in a small footprint
o             10x lower leakage currents
o             Non-flammable
o             Can be integrated into IC components to reduce end device size

Battery Product Launch

In April 2016, Ilika launched its Stereax™ M250 solid-state battery IP. This is a miniaturised solid-state battery for IoT devices and is designed to address the key challenge of always-on, self-charging and efficient energy. Ilika Stereax™ batteries use patented materials and processes enabling superior energy density per battery footprint, up to 40% improvement on current solid-state solutions. Ilika’s batteries do not contain any free lithium which makes them more moisture resistant. The Stereax™ M250 operates in a temperature range to over 100°C, 30°C higher than existing solid-state products.

In April 2017, Ilika launched the Stereax™ P180 with the additional benefits of support for extended temperature ranges from -40°C up to +150°C. This range is required for many Industrial IoT and Automotive end applications enabling always on, self-charging energy efficient IoT solutions for more demanding environments. As the trend towards digitising industrial processes gathers momentum there is a growing requirement for components with enhanced tolerance to temperature, moisture and vibration.

Battery Roadmap

The Ilika Stereax™ roadmap focuses on three main areas:

·     Performance. The hostile environment of many industrial applications requires tolerance to extended temperature ranges and vibration. The Stereax™ P180 is the first solid-state battery to address these needs and its launch will be supported by further development in this area.

·     Capacity. For the launch of both the M250 and the P180, Ilika designed and made some wireless sensor nodes measuring temperature, humidity and light intensity. The power requirements of sensors does vary, depending on the nature of the sensor. For example, a motion detector has a higher power requirement than a temperature sensor. In order to be able to power a wider range of devices, Ilika is increasing the energy footprint of its batteries. Increasing the amount of energy for a given active footprint can be achieved by utilising Ilika’s patented stacking feature, which allows multiple cells to be stacked on top of one another.

·     Miniaturisation. This looks at progressively smaller footprints at smaller currents (µAh), making them ideal for small sensor driven devices.

Medical

During the year, the company announced a two-year collaborative project with a well-financed bioelectronics company to develop a battery for miniature medical implants to provide treatments for serious health conditions, through the body’s own nervous system. The programme is supported by Innovate UK and the Medical Research Council.

Integrated energy harvester and battery

During the year the company announced a two-year collaborative project with Sharp Laboratories of Europe (now known as Lightricity) to create an autonomous energy harvesting power source which will involve the integration of Ilika’s solid-state battery with Lightricity’s photovoltaic (PV) technology creating the world’s first fully integrated thin-film power source. This integration project is aligned with the development track for increasing the capacity of Stereax batteries.

Patent Position

In March 2017, Ilika announced it had received a granted Patent in the USA for its patent application supporting solid-state batteries jointly filed with Toyota Motor Company in July 2011. This Notice in USA followed the successful British grant in April 2014, the Notice of Grant in Europe in July 2015 and in China in September 2015. This patent family is one of the two earliest filings of a growing portfolio of IP exemplifying Ilika’s unique approach to solid-state battery production using evaporation sources. The more recent applications in the portfolio contain both jointly-owned and solely owned IP.

Materials Portfolio Activities

Solid-state battery development accounted for about 60% of activity in the year, the Company was also active in the development of aerospace alloys and materials for electronics applications.

Energy Materials

In August 2016, Ilika announced that it is taking part in a three-year project to develop protected anodes for lithium sulphur batteries, led by Johnson Matthey Plc. This project is developing an innovative protected lithium anode approach to discover new electrolyte composition options and fabricate a free-standing, lithium-containing protected anode/separator for integration into pouch cells. The novel protected anode is intended to mitigate a commonly experienced problem in lithium-sulphur cells, the so-called polysulphide shuttle effect, leading to enhanced performance cells that can be made with existing cell fabrication methods. The pouch cells being developed in this project are high capacity, low cost batteries for large scale renewable energy storage and therefore address a distinct market segment to the Internet of Things (IoT) applications for which Ilika’s Stereax™ batteries are designed

In March 2017, Ilika announced a $1m commercially funded program with the Toyota Research Institute (‘TRI’) to develop game changing energy materials. The program is part of a $35 million investment by TRI over the next four years in research that uses artificial intelligence to accelerate the design and discovery of advanced materials. In this initial one year collaboration with the Company, Ilika’s unique high throughput platform is being used to make and test candidate materials, which have been identified using simulation, machine learning and artificial intelligence strategies. Promising materials will be further scaled-up by Toyota and its suppliers for deployment in its future low-emission vehicles.

Aerospace Alloys

Ilika has continued in its lead role in a £2.15m, three year Innovate UK grant funded project with BAE Systems, GKN, Reliance Precision Engineering and the University of Sheffield. The project started in September 2015 to develop a new generation of self-healing alloys suitable for additive manufacturing (AM) processes and to develop a metallic manufacturing process that takes advantage of the flexibility of AM and the precision of subtractive manufacturing. This will enable the manufacture of novel components with critical feature tolerances, meeting the challenges faced in the design of mechanisms for the aerospace industry with lower weight, structural integrity and functional performance.

Additionally, Ilika has continued in its role leading a £1.33 million three year Innovate UK funded project with Rolls Royce, Diamond Light Source and the University of Cambridge to develop new superalloy compositions for gas turbine engines with better thermo efficiency than current alloys. The alloys are designed to increase gas turbine performance, reducing CO2 emissions and noise levels at take-off. This program is due to continue until September 2017.

Electronic Materials

The two-year project with Seagate and the University of Southampton (“UoS”), announced in February 2016, is providing a demonstration of “2D materials” for Hard Disk Drive (‘HDD’) applications. 2D materials are crystalline materials consisting of a single layer of atoms. Materials with superior nanophotonic properties are being developed to achieve improved hard drive performance and reliability. These materials must operate at temperatures of up to 300⁰C for thousands of hours, requiring extremely robust nanomaterials that have specific photonic properties allowing light energy to be conducted

In February 2017, the Company announced a further 18 month project with Seagate to develop photonic materials and processes for HDD technology. This project will deliver a process for photonic material development with improved data capacity using engineered materials to enable Heat Assisted Magnetic Recording (“HAMR”). Photonic materials, engineered with new process methods, will boost performance and reliability for HAMR hard drives, decreasing time to market.

Key performance indicators (‘KPIs’)

The board considers that the most important KPIs are technical and operational and relate to the sales pipeline and engagement of commercialisation partners resulting from the progress of the technical development programmes outlined above.

The most important financial KPIs are the cash position and the operating loss of the Group, which remain under constant focus and which are considered in the financial review.

FINANCIAL REVIEW

The Financial Review should be read in conjunction with the consolidated financial statements of the Company and Ilika Technologies Limited (together the ‘Group’) and the notes thereto. The consolidated financial statements are presented under International Financial Reporting Standards as adopted by the European Union. The financial statements of the Company continue to be prepared in accordance with International Financial Reporting Standards as adopted by the EU.

Statement of Comprehensive Income

Revenues

Revenue, all from continuing activities, for the year ended 30th April 2017 was £1.1m (2016: £0.6m). This includes £739k of grant income recognised from six projects that the company has in progress with Innovate UK (2016: £455k from three programs). Details of the various programmes are provided in the Materials Portfolio activities.

More of the Company’s activities are supported by grant or commercial funding than was the case in the prior year, where operational resources were more heavily devoted to the internally funded battery development programme. 

Administrative expenses and losses for the period

Total administrative costs for the year were slightly increased at £3.9m in 2017 relative to £3.8m in 2016. This increase is attributable to the increased spend on research and development in the year, particularly associated with the solid-state battery development program.

Combined cost of sales and administrative expenses were £4.3m in the year which is up from the £4.1m for 2016 and is associated with the increased level of commercial and grant supported programs.

Options were granted in the year and, taken together with a full year’s charge for options that were granted last year, gave rise to a share based payment charge than increased by around £0.2m to £0.5m.

This increased accounting adjustment meant that loss on continuing activities before tax remained at £3.9m.

Statement of financial position and cash flows

At 30th April 2017, net assets amounted to £6.2m (2016: £3.4m), including net funds of £5.4m (2016: £3.0m).

The principal elements of the £2.4m increase over the year ended 30 April 2017 in net funds were:

·     Funds raised in the year £5.8m (2016 £0.0m)

·     Cash used in operations of £3.6m (2016: £3.3m);

·     Purchase of plant, property and equipment of £0.2m (2016: £0.1m)

·     Research and development tax credits received of £0.4m (2016: £0.3m);

On 18th October 2016, gross funds of £6.3m was raised from new and existing institutional shareholders to strengthen the Group’s balance sheet and provide additional working capital during the solid-state battery commercialisation process. Expenses of £465k were incurred in the placing.

Trade receivables at the year-end increased from £28k to £133k, due to the start of the program with TRI. This balance was within payment terms and has been received post year end.

Accrued income at the year-end increased from £117k to £371k. This is revenue recognised from the six grant funded programs with Innovate UK relative to the three programs last year.

£75k of the increase in other receivables in the year is the funds placed in a bond account, taking it to £150k to cover the dilapidations provision shown in note 12.

Treasury policy and financial risk management

Details of the risks associated with financial instruments are shown in note 13.

PRINCIPAL RISKS AND UNCERTAINTIES

Commercial risk

The Group is subject to competition from competitors who may develop more advanced and less expensive alternative technology platforms, both for existing materials and for those materials currently under development. The Group is largely dependent on its partners to commercialise the end-products containing the Group’s materials.

The Group seeks to reduce this risk by continually assessing competitive technologies and competitors. The Group seeks to commercialise materials through multiple channels to reduce overreliance on individual partners and, in agreements with partners, it ensures that there are commercialisation milestones which must be met for the partner to retain the rights to commercialise the materials.

Financial risk

The Group is reliant on a small number of significant customers and partners. Termination of these agreements could have a material adverse effect on the Group’s results or operations or financial condition. The Group expects to incur further operating losses as progress on development programmes continue. There can be no assurance that the Group will ever achieve significant revenues or profitability.

The Group seeks to reduce this risk by broadening the number of customers and partners and thereby reduce reliance on individual significant companies. The Group applies for Research and Development tax credits to help mitigate its investment in these activities.

Intellectual property risk

The Group faces the risk that intellectual property rights necessary to exploit research and development efforts may not be adequately secured or defended. The Group’s intellectual property may also become obsolete before the products and services can be fully commercialised.

The Group seeks to reduce this risk by employing in-house staff with extensive global experience of patenting and licensing using commercially available patent searching and landscaping software. External patent agents and attorneys are used to advise on the drafting and filing of patent applications.

Dependence on senior management and key staff

Certain members of staff are considered vital to the successful development of the business. Failure to continue to attract and retain such highly skilled individuals could adversely affect operational results.

The Group seeks to reduce this risk by offering appropriate incentives to staff through competitive salary packages and participation in long-term share option schemes.

Brexit risk

The Group has reviewed the potential impact of Brexit on the risks identified above and believes that whilst intellectual property risk will remain largely unaffected, there may be an impact in the future regarding the Group’s ability to attract and retain highly skilled individuals.

The Group is alert to and continuously reviewing this potential risk and formulating its response at the appropriate time.

By order of the Board
Mike Inglis                                                         Graeme Purdy
Chairman                                                            CEO

To read the full RNS statement, please click here.