Tan Delta Systems PLC

("Tan Delta" or the "Company")

Full year results for the twelve months ended 31 December 2023

Tan Delta an industrial technology company providing analytics-based equipment monitoring and intelligent maintenance systems today announces its audited results for the twelve months ended 31 December 2023.

FINANCIAL HIGHLIGHTS

·       Successful IPO and Admission to AIM on 18 August 2023, raising gross proceeds of approximately £6.0 million

·       Revenue of £1.46 million

·       Gross profit margin of 60%

·       Adjusted Loss before tax of £0.37 million

·       Adjusting costs of £0.74 million relating to IPO (2022 - £nil) comprising IPO costs of £0.66m and £0.08 million share-based payment charges, fully charged to P&L

·       Cash and cash equivalents of £4.56 million

OPERATIONAL HIGHLIGHTS

·       Expanded sales team and activities in the period

·       New sales prospect pipeline of £4m, post period end

·       Good progress with several trials with very significant new OEM prospects in the period

·       Expanded production capacity in the period

·       Appointment of Joy Alvarez as an independent Non-Executive Director, post period end

SIMON TUCKER, CHAIRMAIN OF TAN DELTA, COMMENTED:

"Whilst revenues were lower than prior year, I am pleased with operational progress achieved following our successful IPO in August 2023, both during the rest of 2023 but also continuing into the current year. We have maintained a lean overhead structure, which is reflected in our relatively small loss for the period and stronger than expected year end cash position. Notably we have made material progress growing our new sales prospects pipeline to approximately £4.0 million, which we expect to start converting into sales during the second half of the current year. Additionally, we have several very substantial strategic customers where ongoing trials are expected to finalise in 2024 and result in long term supply contracts and commencement of revenues. Looking forward we see an increasing array of opportunities where the data our sensor can generate could be of significant value to equipment operators. Therefore, Tan Delta is strategically well positioned within the rapidly developing global commercial and industrial equipment health and efficiency monitoring and management market; our proposition is gaining traction and we are increasingly confident about our future prospects."

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ABOUT TAN DELTA SYSTEMS

Tan Delta Systems plc provides intelligent equipment monitoring systems that enable operators of all types of commercial and industrial equipment that rely on lubrication oil to operate more efficiently, cost effectively and with a reduced carbon footprint.

Our solutions are powered by our proprietary real time oil analysis and analytics sensors which are able to analyse oil at a molecular level and provide data and insight that informs the operator about the operating and maintenance health of the host equipment. This information enables equipment to be maintained when needed instead of on fixed time-based rotas. This helps to maximise intervals between maintenance, thus optimising maintenance costs, helps to identify unexpected and unseen issues before they cause costly damage or breakdown, and prevents wasting oil with unnecessary changes.

Our customers range across all market application segments from marine and mining to power generation and manufacturing. Customers vary from a single farm using a bio-gas powered generator to generate heat and power, to multi-national mining or oil and gas companies with fleets of assets, each of which can contain multiple engines and gear boxes.

CHIEF EXECUTIVE'S STATEMENT

Introduction

I am delighted to report the inaugural results for Tan Delta. Following the Company's successful IPO and admission to AIM in August 2023 we have made significant progress in several key areas of the business; our sales pipeline has grown, our production capacity has doubled and numerous projects have been furthered along their journey to full commercial roll out. Although revenue during the year ended 31 December 2023 was below our original expectations we do not believe this to be indicative of the future commercial prospects of the Company.

I think at this stage it is important to remind shareholders and prospective investors of the proposition of Tan Delta. Our ambition is to deliver value to our customers by enabling them to reduce oil consumption, maintenance costs, breakdowns and carbon footprint. We do this by utilising our own innovative technologies providing customers with actionable insights.

Financial Summary

Revenues for the year ended 31 December 2023 were marginally lower than the prior year at £1.46 million (2022: £1.58 million). This was mainly due to us overestimating the sales acceleration we would achieve during the last 4 months of the year, and thus shift revenues into the new financial year.

Gross profit margin of 60% was achieved (2022: 62%), which is in line with our expectations with the variance down to the specific mix of products sold. We anticipate being able to sustain this level of margin despite the inflationary pressures in the wider economic environment. Our product delivers excellent value and payback to our customers which in turn means that we believe our product can sustain price increases in line with inflation.

Overheads were lower than expected as we grew our team in a revised lean structure that enables us to achieve our operational targets more efficiently. Resulting in an adjusted loss before tax of £0.37 million (2022: profit of £0.28million) before one-off IPO costs of £0.74 million. The swing in profit in FY22 to loss in FY23 was driven predominantly by our investment in the business; increased marketing activities, increased staffing, increased governance costs and increased travel.

At the end of the year, cash and cash equivalents stood at £4.56 million (compared to £0.19 million in 2022), reflecting the capital injection from our IPO. The Company is now debt-free after repaying all outstanding loans in FY 2023. Inventory levels have increased during the year as we produced to meet the forecasted rise in sales. This increase in inventory provides the ability to deliver against increased customer demand alongside scaling manufacturing volumes to align not only with our revenue goals, but in our confidence of conversion of our rapidly growing project pipeline.

Operations Summary

Operationally our focus for the year was to grow our production and sales capacity. We have doubled our current production capacity through the purchase of some additional equipment and are now in progress to move production to a larger production facility where production capacity can be exponentially scaled as required. Alongside this we have expanded our production, product management and customer support departments who provide intensive deployment support to customers. Furthermore, we have embarked upon several projects looking at how we can further leverage our core real-time analysis sensing technologies. Post period end we have employed a new business development director in the Middle East, who will focus on the Middle East and Africa, further bolstered our core development team and appointed Joy Alvarez as our third NED bringing a wealth of industry experience, knowledge and independence to the board. We are also in the process of recruiting a Chief Operating Officer.

Sales and Marketing

Our marketing activity has significantly increased with a series of targeted campaigns aimed primarily at the Biogas sector, to augment this activity we also joined two relevant industry associations the Anaerobic Digestion and Bioresources Association (ADBA) and the World Biogas Association (WBA) which in turn enabled us to present our solution portfolio at the ADBA annual conference in London. In parallel to this activity we published a comprehensive customer endorsed case study. Post period end, we have attended numerous industry conferences and exhibitions in the UK, Europe and the USA, including the Lamma show (Agricultural), AEMP conference (Fleet Maintenance), and the Miami International Boat Show (Marine). I am extremely pleased with our increased social media exposure, where we are now posting regular content on LinkedIn and continue to experience healthy organic growth.

As noted above, recognised sales for the period were lower than expected due to slower conversion of a number of trials. However, our increased sales and marketing activities have resulted in our sales prospect pipeline growing from £2.5 million at the end of 2023 to £4.0 million at the time of writing, and we expect this to continue to grow as our activities continue to accelerate and knowledge and trust in our systems within the market spreads. It is worth noting that our growing pipeline is made up of a very diverse set of opportunities across a wide variety of markets and applications. Included in this we have several significant prospective customers where we have ongoing trials, which if successful could lead to very significant and sustained sales. These vary from a large ship engine manufacturer with an installed base of approximately 15,000 engines with each engine requiring up to 10 sensors, to a global oil and gas major seeking to optimize the operation of their own equipment as well as helping their own customers better use their range of lubricants. Post period end, key projects which had originally been forecast for revenue in H2 2023, are now becoming live and we will commence initial delivery during Q2 2024.

Products

Regarding product developments, following the successful upgrades to our MOT and Sense-2 products, we have developed a series of simple tools to aid installation, speed up commissioning and improve fault finding; these have all been very well received by our customers. We have continued with our internal production optimisation project which has allowed us to streamline our production processes, and as this project continues in 2024, it will deliver a reduction in our manufacturing costs. Post period end, we have also delivered an Amazon Web Service which enables our customers to undertake sensor configuration remotely. This exciting development further opens up our potential to introduce a recurring revenue model. Finally, we continue to work with one of our existing customers to scope the development for a new sensor (incorporating our core technology) targeting a completely different family of fluids.

Market and Outlook

The market for equipment monitoring continues to develop as it is critical for the efficient and effective operation of equipment. Equipment operators want to have reliable, simple to use solutions that enable them to easily optimise costs. Growing investment on analytics and AI means that we are seeing increasing attention on the requirement for and importance of high-quality data that can provide trusted insight. We believe that this trend plays to the strengths of Tan Delta given the core of our offer is our oil analysis sensor technology which produces very high-quality data from real time molecular analysis of oil. We are therefore increasingly cognisant of the value of the data our sensors produce and believe that this will open new and interesting opportunities for us in the coming years.

Summary

In final summary, I would like to express my sincere thanks to all of our stakeholders especially our staff, our shareholders, our customers and key suppliers. Their sterling efforts and support have put the business in an exciting position as we embark upon our next phase of accelerated growth and commercial success.

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023

All amounts are derived from continuing operations. The Notes to the Financial Statements form an integral part of these financial statements.

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023

All amounts are derived from continuing operations. The Notes to the Financial Statements form an integral part of these financial statements.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023

All amounts are derived from continuing operations. The Notes to the Financial Statements form an integral part of these financial statements.

The costs associated with the IPO, amounted to £658,977, which was recognised as adjusting expense in the income statement in 2023. Included in £658,977 IPO expenses, is £150,000 paid to the auditors for IPO services provided. All amounts are derived from continuing operations. The Notes to the Financial Statements form an integral part of these financial statements.

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023

All amounts are derived from continuing operations. The Notes to the Financial Statements form an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023

1.   General information and basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the UK adopted international accounting standards ('adopted IFRSs') and those parts of the Companies Act 2006 that are applicable to companies that prepare financial statements in accordance with IFRS. The principal accounting policies adopted in the preparation of these financial statements are set out below and are consistent in all material respects with those applied in the previous year. The financial statements have been prepared on a going concern basis and under the historical cost convention, as modified for the revaluation of certain financial assets and financial liabilities at fair value.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the Company's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in the notes.

The financial statements are presented in Sterling, which is also the Company's functional currency. The amounts presented in the financial statements are rounded off to the nearest whole number. The financial statements were approved and authorised for issue by the Board on 23 April 2024.

Going Concern

In evaluating the feasibility of preparing the financial statements of the Company on a going concern basis, the Directors thoroughly examined the Company's business operations alongside factors anticipated to impact its future growth, performance, and standing. This assessment encompassed scrutinising the Company's financial standing and cash flows.

Several pessimistic scenarios were simulated and analysed to establish a spectrum of potential outcomes, with the underlying assumptions rigorously scrutinised. The modelled cash flow forecast based on these scenarios, illustrated that the Company would be capable of meeting its financial obligations for 2025 financial year.

Consequently, the Directors are confident that preparing the financial statements on a going concern basis is appropriate.

2.   Accounting policies

The financial information has been prepared consistently in accordance with the UK adopted International Accounting Standards.

3.   Revenue from contract customers

One customer contributed 41% to revenue in 2023 (2022: 51%).

Segmental reporting

The Chief Operating Decision Maker ("CODM") has been identified as the Directors. The CODM reviews the Company's internal reporting in order to assess performance and allocate resources. The CODM has determined that there is one single operating segment, the manufacture and sale of oil sensors. Information concerning geographical revenue is disclosed in note 3.

4.   Use Of Non-GAAP Financial Performance Measures

This Annual Report and Financial Statements include disclosures and analyses that feature metrics not defined by generally accepted accounting principles ('GAAP') under UK-adopted IFRS. We consider this information, alongside comparable GAAP measures, beneficial to investors. Management utilises these financial metrics, in conjunction with the most directly comparable GAAP measures, to assess our operational performance. It's important not to view non-GAAP measures independently or as replacements for financial data presented in accordance with GAAP.

In the following table we provide a reconciliation of non-GAAP measures:

5.   Adjusting items

On Admission to AIM on 18 August 2023, the Company issued 23,074,000 new Ordinary Shares, taking the number of Ordinary Shares in issue to 73,223,800.  Total proceeds amounted to circa £6,000,000. The costs associated with the IPO, amounted to £658,977, which was recognised as adjusting expenses in the income statement in 2023. Included in £658,977 IPO expenses, is £150,000 paid to the auditors for IPO services provided.

6.   Interest expense

7.   Interest income

8.   Taxation

In 2023 Tan Delta used 23.52% (2022:19%) as the corporate effective tax rate. The Company was not liable for corporation tax during the past two years due to taxable losses being sustained in each of the years reported. A deferred tax asset has not been recognised in respect of such losses due to uncertainty of future profit streams. The Company will recognise a deferred tax asset when  there is clear visibility of profits. Accumulated tax losses carried forward were £1.1m (31 Dec 2022 unaudited: £1.0m).

9.   Earnings per share are as follows:

The calculation of basic earnings per share is based on the results attributable to ordinary shareholders divided by the number of ordinary shares outstanding as if the bonus issue and share split had occurred at the beginning of the earliest period presented. The earnings per share calculations for the period and prior period presented are based on the new number of shares.

The number of shares in issue at the end of the period is used as the denominator in calculating basic earnings per share.  As the Company is loss making the effect of instruments that convert into ordinary shares is considered anti-dilutive, hence there is no difference between the diluted and non-diluted loss per share.

During the period ended 31 December 2023, the Company completed a 110 for 1 bonus share issue and a subdivision of shares. The Company also issued 23,074,000 as part of the IPO process on 18 August 2023. Prior to the bonus issue there were 451,800 shares at £0.001, after the bonus issue and shares issued at IPO there are 73,223,800 shares at £0.001.

10. Trade and other receivables

11. Cash and cash equivalents

Cash and cash equivalents are held either in instance access accounts or in accounts where funds can be accessed when giving the bank thirty-two days' notice.

12. Trade and other payables

13. Borrowings and lease liabilities

Banks loans comprise of Coronavirus Bounce Back Loan Scheme loan at an interest rate of 3% per annum. The loan was taken out in August 2021 and repaid in August 2023.

14. Share Capital

Called up share capital represents the nominal value of shares that have been issued.  All classes of shares have full voting, dividends, and capital distribution rights. 

On 1 June 2023, the ordinary shares were subdivided from £0.01 to £0.001 (45,180 shares to 451,800 shares). Subsequently a bonus issue was made for all the shareholders holding 451,800 shares at that date.  The bonus issue offered 110 ordinary shares for every 1 ordinary share in issue, with a nominal value of £0.001 per share.  This increased the number of ordinary shares in issue by 49,698,000 to 50,149,800.

On the 18 August 2023 The Company issued  23,074,000 at £0.001 per share increasing the total number of shares in issue to 73,223,800. 

15. Share Premium

   In anticipation of re-registering the Company as a public limited Company, at a general meeting of the Company on 1 June 2023, it was resolved that the Company would reduce its share premium account by £1.52m by crediting the Profit and Loss Account.

16. Share based payments

When the Company listed on Aim in Augst 2023 it instituted an EMI share options scheme. The Company granted 1,253,745 share options in line with the disclosures made in the companies Admission document. The options have an exercise price of 26p. These options are granted in five equal tranches, and will vest over five years. The fair value of each option granted was estimated on the grant date using the Black Scholes option pricing model with the following assumptions:

Share-based payment reserve

This represents the cumulative fair value of share options charged to the statement of comprehensive income net of the transfers to the profit and loss reserve on exercised and cancelled/lapsed options.

17. Events after reporting date

No adjusting or significant non-adjusting events have occurred between reporting date and the date of authorisation. A new non - executive director was appointed in April 2024.

18. Full financial statements

The auditors have issued an unqualified opinion on the full financial statements for the year ended 31 December 2023 which will be made available for shareholders and delivered to the Registrar of Companies in due course.  Further copies of these results, and the full financial statements when published, will be available on Tan Delta Systems plc website www.tandeltasystems.com