IP : Ilika plc - Final Results

Ilika (AIM: IKA), the accelerated materials innovation company, announce its audited full-year results for the year ended 30 April 2015.

Operational highlights:
· Grant of two patents covering methods for producing solid-state batteries
· Twenty-five fold increase in solid-state battery size achieved
· Official opening of pilot line by Rt. Hon Greg Clark MP, in Southampton
· Proof of concept contract win with European partner for development of batteries for WSN
· Commencement of solid-state battery pilot production leading to:
o 20 x larger deposition area of key battery materials
o 5 x increase in materials deposition rate
· Case study information released relating to aerospace alloy development work carried out with Rolls Royce and Boeing
· Board strengthened with the appointment of Keith Jackson, CTO of Meggitt plc, as NED

Financial highlights:
· Revenues up 4% to £1.09m (2014: £1.05m)
· Loss for the year reduced to £2.7m (2014: £2.8m)
· Loss per share reduced to 4.10p (2014: 5.37p)
· Cash, cash equivalents and bank deposits of £6.0m (2014: £7.1m)

Commenting on the results Ilika's Chairman, Jack Boyer, said: "The Company has made substantial progress this year in scaling up its proprietary solid-state battery technology. This operational progress has gone hand-in-hand with commercial discussions with OEM's and supply chain partners interested in integrating Ilika's battery technology into Internet of Things (IoT) devices."

For more information contact:
Ilika plc
http://www.ilika.com
Graeme Purdy, Chief Executive
Tel: 023 8011 1400
Steve Boydell, Finance Director

Numis Securities Limited
Tel: 020 7260 1000
Oliver Cardigan/ Adrian Trimmings /James Black

Walbrook PR Ltd
Tel: 020 7933 8780 / ilika@walbrookpr.com
Lianne Cawthorne (Media Enquiries) Mob: 07584 391 303
Paul Cornelius (Investor Enquiries) Mob: 07827 879 460

STRATEGIC REPORT
The Directors present their Strategic Report for the year ended 30 April 2015.

Principal activities
Ilika plc is the holding company for Ilika Technologies Limited, the advanced materials innovation company. Ilika accelerates the discovery of new and patentable materials using its unique, patent protected, high throughput process for identified end uses in the energy and electronics sectors. This process enables hundreds of scalable materials to be made in a single, automated operation and subsequently tested for key properties. The process can be applied to many market sectors, but Ilika's recent focus has been in the field of solid-state batteries.

Business Strategy
The Company's strategy is to use 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 end-products to market to address unmet needs in their sectors. On occasion, the Company has joint development programmes, which contribute to competing technologies (for instance, battery versus fuel cell technology). Thereby, the Company aims to create intellectual property such that it will benefit from commercialisation rewards associated with the ultimate generally adopted technology (or technologies). The Company's objective is to have its materials 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 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; and
· Applying improved functional materials to the development of valuable products.

Operating Review
The Company undertook a number of commercial and grant funded programmes in the year, but a significant part of the research and development effort in the year was focussed on its lead programme, the development of a solid-state battery.

Solid-state batteries
The mass-market commercialisation of solid-state batteries will be a step change in the evolution of battery technology; enabling lighter, non-flammable batteries which contain the same energy in half the volume, while charging up to 6x faster than the highest performance lithium ion incumbents.

The Company has been developing a proprietary solid-state battery chemistry and fabrication process, facilitating the scale-up manufacture of the next generation of solid-state lithium ion batteries. It has used its unique processing abilities to successfully turn a set of optimised high-performance materials into solid-state batteries with the following key advantages:
· A simple fabrication process
· Mechanical stability
· Stackable cells (necessary for building larger capacity batteries)

Battery production progress
In July 2014 the Company announced that it had succeeded in increasing the cross-sectional area and the energy capacity of the cells by more than 25 times the energy capacity of the cells it had previously manufactured on its development workflow. These new cells have similar characteristics, albeit on a larger scale, to the smaller devices. These cells have now been deposited over an area of 64 mm2, which is a footprint suitable for wireless sensor network ('WSN') and wearable applications.

The pilot line for the production of prototype batteries successfully completed its factory acceptance test in September 2014 and was then shipped from the fabricators in Finland to Southampton where it was officially opened by The Rt. Hon Greg Clark MP, Minister for Universities, Science and Cities in November 2014. In March 2015, the Company announced commencement of pilot production of solid-state batteries. At this point, the Company was able to confirm that the rate of deposition of materials, which is a key factor in establishing the price point of the resulting batteries, had been increased 10 fold relative to the rate of deposition of materials previously achieved on the Company's development workflow over an area 20 times larger, therefore delivering a 200 fold productivity increase. Deposition rates of 2 microns/hour, which compare favourably to commercially available solid-state micro-batteries, have already been achieved.
Significant increases in deposition rates are anticipated as the pilot line's capabilities are tested further. Operational parameters of the pilot line are currently being optimised to maximise the yield and performance of the batteries.
Battery patent application progress

In May 2014 Ilika announced that two of its patent applications, filed jointly with Toyota, had been granted in the UK. The patents cover the vapour deposition processes used to produce solid-state batteries directly from the elements. These represent a key part of the family of patents and patent applications covering the complete methodology for producing solid-state batteries.
In March 2015, Communication of Intention to Grant in Europe for one of these patent applications and a Notice of Allowance in the United States for the other, was received.
Other materials development programmes

Superalloys

Another significant area of activity in the year for Ilika has been the development of aerospace alloys.

Gas-turbine engine development for the aerospace industry continues to strive for improved fuel efficiency, reduced emissions and a reduction in noise at take-off. This development effort demands materials, which can tolerate increasingly high operating temperatures while retaining their mechanical strength. Nickel-based superalloys are widely used in gas turbines, however, the scope for further developing them is diminishing and therefore the rate of improvement of aeroengine technology is decreasing. Ilika, the University of Cambridge and Rolls Royce are investigating alternative lightweight alloy systems, which may also be able to operate under high temperatures, handle greater stresses and remain in service for longer.

Key performance indicators ('KPIs')
The board considers that the most important KPIs are technical and operational and relate to the progress of the technical development programmes outlined above leading to the engagement of commercialisation partners.

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. 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 30 April 2015 was up by 4% to £1.09m (2014: £1.05m). This includes £384k of grant income recognised from Innovate UK (2014: £94k), the majority of which relates to work together with the University of Cambridge, Diamond Light Source and Rolls Royce to develop new superalloy compositions for gas turbine engines.

Payments made by the Company's European-based partners for research and development activities increased from 33% of total revenues in 2014 to 40% in 2015 whilst those for US-based and Asian-based partners reduced from 19% and 38% to 13% and 12% respectively.

Administrative expenses and losses for the period

Total administrative costs for the year were slightly increased at £3.59m in 2015 relative to £3.57m in 2014. An accounting adjustment for a share based payment calculation is included within administration expenses. In 2015, because of the granting of a number of new options, there was an increase in the share based payment charge of £0.02m.

Depreciation and amortisation charges reduced by 42% to £325k (2014: £557k). This reduction was offset with some one-off costs associated with the recruitment of a new Non-Executive Director to the board and a new business development director for Japan.

Loss on continuing activities before tax is consistent at £3.0m in 2015 (2014: £3.1m) and loss and total comprehensive income and expense for the period has remained at £2.7m for 2015 (2014:£2.8m).

Statement of financial position and cash flows

At 30 April 2015, net assets amounted to £6.5m (2014: £7.8m), including net funds of £6.0m (2014: £7.1m).

The principal elements of the £1.1m decrease over the year ended 30 April 2015 in net funds were:
· Share proceeds (net of costs) of £1.4m (2014: £7.4m)
· Cash used in operations of £2.8m (2014: £2.5m);
· Research and development tax credits received of £0.3m (2014: £0.3m)

Subscription warrants were issued in 2010 with an exercise price of 51p per warrant. During the year 2,617,647 warrants were converted to ordinary shares with proceeds to the Company of £1.3m. The remaining unconverted 15,686 warrants expired on 28 May 2014.

Treasury policy and financial risk management

Credit risk

The Group follows a risk-averse policy of treasury management. Sterling deposits are held with one or more approved UK based financial institutions. The Group's primary treasury objective is to minimise exposure to potential capital losses whilst at the same time securing prevailing market rates.

Interest rate risk

The Group's cash held in current bank accounts is subject to the risk of fluctuating base rates. An element of the Group's financial assets is placed on fixed-term interest deposits.

Currency risk

During the year under review, the Group was exposed to Euro, Japanese Yen and US dollar currency movement as it engages business development staff in each of those territories. Additionally, a small element of expense and capital spend is denominated in these currencies. The Group has arranged for some of its programs, with customers based in these territories, to be denominated in these currencies to hedge against this exposure.

PRINCIPAL RISKS AND UNCERTAINTIES

Commercial risk

The Company 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 Company is largely dependent on its partners to commercialise the end-products containing the Company's materials.

The Company seeks to reduce this risk by continually assessing competitive technologies and competitors. The Company 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 Company 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 Company expects to incur further operating losses as progress on development programmes continue. There can be no assurance that the Company will ever achieve significant revenues or profitability.

The Company seeks to reduce this risk by broadening the number of customers and partners and thereby reduce reliance on individual significant companies. The Company has reduced the level of its operating loss and has significantly reinforced the balance sheet with a substantial capital raise in the year along with additional funding shortly after the year-end.

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 Company 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.

By order of the Board

Jack Boyer Graeme Purdy
Chairman CEO

9th July 2015