This announcement contains inside information

12 September 2024

HeiQ Plc

("HeiQ" or "the Company")

Trading Update

HeiQ Plc (LSE: HEIQ), a leading company in materials innovation and hygiene technologies, announces a trading update for its extended financial year ending 30 June 2024.

As announced earlier, the Board extended the Company's accounting reference date for its 2023 financial year by six months to 30 June 2024 to enable the new auditor to complete the audit. The Company will publish its audited financial report and accounts for the 18-month period commencing 1 January 2023 to 30 June 2024 ("FY 2024") by 31 October 2024.

Trading update

Challenging market conditions continued throughout the period, as pressure on consumer discretionary spending impacted our textiles, flooring, antimicrobials and other established revenue lines. Despite these challenges, the Company has managed to maintain relatively stable revenue generation over the past 24 months and expects to report total revenues of approximately US$62 million for the 18-month period (FY 2022 12-month period: US$47 million).

A breakdown of revenues on a half-yearly basis is shown below:

As previously announced, the Company has been focusing on improving operational efficiencies and adapting its cost base. Sales volumes were stable throughout the period. However, sales prices remained lower than usual whilst the cost of raw materials, energy and logistics remained high. The Company continues to implement its strategy of balancing cost reduction within its more established commercial businesses whilst making significant value building investment into its nascent ventures HeiQ AeoniQ™, HeiQ GrapheneX ™ and HeiQ Xpectra ™. HeiQ is also investing in its growing commercial business unit Life Sciences ("BU LS") which recently signed up the global market leader for hygiene, ECOLAB, as its exclusive distribution partner for the EU.

Therefore, losses from operations for the period are expected to be approximately US$18 million, significantly reduced from US$29 million in FY 2022 (12-months). Having reported losses from operations for the first 12 months in 2023 of US$11.6 million (US$6.9 million excluding depreciation & amortization charges), the loss from operations for the 6 months to 30 June 2024 is expected to be US$6 million (US$3.5 million excluding depreciation & amortization charges).

Business Unit Textile & Flooring / Business Unit Antimicrobials

Within our largest commercial business unit, Textiles & Flooring ("BU T&F"), pressure on consumer discretionary spending caused by macroeconomic pressures weakened demand in these markets which has persisted since H2 2022. BU T&F contributed approximately US$46 million to Group revenues during the period. Similar issues with low demand were seen within our Antimicrobials business unit, which contributed approximately US$4 million to Group revenues during the period. We anticipate demand to recover earliest during Q2/Q3 of the calendar year 2025.

Since the end of 2022, HeiQ has been implementing measures to reduce costs by relocating capabilities to its hub in Portugal and capturing synergies amongst business units with the objective of enhanced long-term resilience to market downturns and greater agility in the face of today's buyers-market.  Our recent innovations, HeiQ Allergen Tech and HeiQ Mint have allowed us to maintain sales levels and build a healthy pipeline.

Business Unit Life Sciences - HeiQ Synbio ™

Our growing Life Sciences business unit ("BU LS") achieved large contract wins and contributed approximately US$7 million in Group revenues during the period. An exclusive distribution agreement was entered into with ECOLAB, the global market leader in water, hygiene, and energy technologies and services. To capitalize on these contract wins and prepare for significant anticipated growth, the business unit has invested in its manufacturing capabilities and strengthened its commercial team. The new contracts are expected to start contributing to the growth of the business unit in Q4 2024. BU LS is an area of significant growth for HeiQ.

Venture Unit - HeiQ AeoniQ™

HeiQ AeoniQ™, our most advanced Venture, has made significant progress. In Q2 2024 HUGO BOSS, which invested in HeiQ AeoniQ™, launched the "HeiQ AeoniQ™ Change Sneaker", a statement to sustainability and change in the world of footwear. HeiQ acquired a 20'000m² factory building in Portugal and progressed the blueprints for a two-kiloton factory with its engineering partners. The production plant is scheduled to begin operations in 2026, subject to the required additional capital expenditure. As the project progresses, we expect funding needs to further accelerate. Therefore, we are happy to report that progress has been made regarding the acquisition of substantial Portuguese and European government grants, which we expect to be confirmed shortly. Further, we have engaged Banco Santander to source external equity financing for the HeiQ AeoniQ™ subsidiary.

Venture Unit - HeiQ Xpectra ™

HeiQ Xpectra™, our proprietary transparent conductive coating platform, has successfully performed a proof of concept with a leading German university. HeiQ Xpectra™ is currently preparing its market launch in Q1 2025 as an indoor building insulation varnish with a market leader in building materials. The opportunity is of the same magnitude as Ecolab. We have plans for further third party investment into this venture unit to capture the transformative short-term business opportunities in building insulation materials under Europe's Green Deal.

Venture Unit - HeiQ GrapheneX ™

HeiQ GrapheneX ™, our proprietary graphene membrane technology platform, has successfully performed a proof of concept with a leading Swiss university. HeiQ GrapheneX™ is currently executing joint development agreements with two large strategic partners. We anticipate raising third party investment into this venture unit to capture the transformative opportunities in advanced batteries.

Outlook

The requirement to fund our ventures and grow them into young companies during a prolonged period of poor market conditions for our main established commercial business unit continues to strain the liquidity of the Group.

While the Group has adapted its cost base over the past two years to the worsening market conditions, significant improvements to the Company's financial position will not be possible without material additional structural changes to the organization. The Board currently does not see, except for BU LS, a short-term improvement in market conditions for its commercialized businesses. Accordingly, it sees limited possibility of materially improving the Group's operating cashflow in the short term without such structural changes.

As of June 30, 2024, the cash balance of the Group was US$4.9 million (31 December 2022: US$8.5 million) and net debt (excl. leasing) stood at US$6.6 million (31 December 2022: net cash of US$4.2 million). The Company will consider refinancing one of the two industrial buildings acquired for US$4.4 million in Portugal at the beginning of the year.

Whilst the Board considers additional cost reduction measures to further stabilize operations and allow the Group to continue operating on a going concern basis, the historically low share price restricts the Group's ability to raise additional equity financing at Group level to finance its high-value ventures.

Further access to funding is key to enable the Group to achieve its growth plans, as it intends to scale multiple, high-potential ventures in parallel over the coming years and capture the value creation for shareholders. During these continuing challenging market conditions, the board does not believe that it is possible to sufficiently fund investment into its ventures exclusively from cash generated from its currently curtailed commercial activities.

As previously announced on 16^th July 2024, the Group has therefore initiated a process to raise capital for HeiQ AeoniQ™ at the subsidiary level by the H1 2025, to fund required investment into the HeiQ AeoniQ™ plant in Portugal. As part of the raise, HeiQ has engaged the investment bank Banco Santander, to lead the fundraise.

The Board is reviewing strategic options for individual units (including mergers, sales or carve-outs) to improve the balance sheet and financial position of the Group as required.

For further information, please contact:

About HeiQ

Founded in 2005, HeiQ is a Swiss-based international company that is a global leader in biotech ingredients and specialty chemicals for diverse applications such as textiles, flooring, building materials, glass, plastics, probiotic cleaning, cosmetics, and more. Working with more than 1000 partners in over 60 countries, our goal is to infuse ordinary products with extraordinary qualities, offering our co-creation partners sustainable and disruptive solutions across industries.

Our business model focuses on the commercialization of existing and as well as the incubation of new technologies, driving shareholder value through sales growth, entry into lucrative markets, and disruptive innovation. This model consists of three distinct technology ventures, being HeiQ AeoniQ, HeiQ Xpectra, and HeiQ GrapheneX, and three growth-orientated business units being HeiQ Textiles & Flooring, HeiQ Life Sciences, and HeiQ Antimicrobials.

We have a robust track record of innovation, with over 200 technologies developed in partnership with 300 major brands, including Hanes, Burberry, HUGO BOSS, Lycra, Zara, Itochu, Bosch Siemens, Ecolab, Woellner, Americhem, Lixil, and many more. Our global team comprises about 200 professionals from 30 nationalities across five continents. We're committed to shaping a future where everyday products drive positive change, one innovation at a time.

To learn more about HeiQ and our innovative solutions, visit www.heiq.com.