Latest Results

Chairman and Interim Chief Executive’s Statement 

2023 was the first full year of trading as an AIM quoted company for Sondrel (Holdings) PLC (‘Sondrel’ the ‘Company’ or, together with its subsidiaries, the ‘Group’) following the Group’s IPO in October 2022 and, as communicated by the Company throughout the period this proved to be a difficult and challenging year. These challenges extended into the first half of 2024. Delays in both existing and expected new contracts meant that the second half of the year was extremely difficult with little revenue generated and trading losses recorded. The Group’s cash position also diminished and became very weak in the second half of the year as a consequence, such that employee salaries were delayed for some employees in December 2023 and a fundraising process was commenced.  

The fundraising exercise recently concluded in June 2024, with Rox Equity Partners (‘Rox’) investing a total of £8.5 million.  It now owns 49% of Sondrel’s voting rights. The investment started with the issuance of two convertible loan notes of £0.9 million and £2 million, both during March 2024, and the signing of an exclusivity agreement between Sondrel and Rox. The exclusivity agreement allowed for Rox to invest up to a further £7.1 million alongside existing shareholders in the planned fundraise on an exclusive basis. The Rox loan notes have since been converted into equity and a further £5.6 million was subscribed for by way of a direct subscription.

One of the conditions of the fundraise was the approval by the UK secretary of state under the National Security and Investment Act 2021. The approval, received on 7 June 2024, took longer than initially anticipated and the publication of these accounts was consequently delayed beyond 30 June 2024, resulting in the suspension of trading in Sondrel’s ordinary shares on AIM. Publication of these accounts is expected to result in the restoration of trading in Sondrel’s ordinary shares.

The exclusivity agreement also committed Sondrel to a transformation plan to re-establish its baseline costs, introducing revised robust management processes and refocusing the business to resolve matters that are central to the cash flow issues faced by the Group to date. The plan has also involved the commitment to several board changes that are detailed below and an agreement to seek a proposal to cancel the admission of ordinary shares currently trading on AIM, which Sondrel remains committed to.   

Board changes 

The following board and executive management changes have been made since the publication of the last annual report: 

• In September 2023, Joe Lopez stood down as the Group’s CFO from the board by mutual agreement and was replaced by Nick Stone as the Interim CFO, in a non-board capacity.  
• In January 2024 Gordon Orr stood down as a non-executive director as part of steps taken to reduce his commitments.  
• As part of the commitments made by the Company in the exclusivity agreement signed with Rox, in March 2024 Graham Curren the Founder and Chief Executive moved to become Chief Executive of Sondrel Ventures, in a role that will concentrate on the strategy and future growth of the Group. Graham remains a non-executive director on the Group’s board in addition to performing this role. 
• Following the completion of the fundraise in June 2024, Nigel Vaughan stepped down from the board as Chairman and, having been appointed as Interim Chief Executive Officer in a non-board capacity in March 2024, I joined the board and took the role of Chairman whilst continuing in the role as Interim Chief Executive Officer. Miles Woodhouse also joined the board as Rox’s appointed non-executive director
• It was announced in May 2024 that John Chubb will join the Board on 18 July 2024 as Chief Executive Officer, at which point I will continue solely as the non-executive Chairman.     
• Finally, it is also announced today that Siobhan Martin will join Sondrel as Chief Financial Officer on 30 September 2024 and that Interim Chief Financial Officer, Nick Stone, will leave the Company upon the publication of these accounts.

I’d like to thank Nigel and Graham for their years of service as Chairman and Chief Executive Officer of the Group respectively, both before and after the IPO, and I look forward to continuing to working with Graham and the other members of the board as we embark on the next phase of Sondrel’s development. I would also like to thank Nick Stone for his significant contribution through what has been an uncertain period for the Company – in doing so working to secure the funding that was so critical for the Company’s continued operation.

Transformation Plan 

The transformation plan is ongoing and has involved the recruitment of a very experienced team of turnaround professionals who are putting a plan together to ensure that Sondrel’s management, cost structure and business processes are suitable for the growth ambitions that the Group continues to have. There is a particular focus on the pricing and management of projects, improved forecasting of the levels of engineering resource required to support the Business Plan and the management and continued development of the Group’s intellectual property.

Delisting 

The Board and Rox reached the conclusion in early discussions that the costs and complexities of being quoted on AIM do not benefit any stakeholders at this stage of the Group’s transition. It was therefore confirmed in the circular issued on 14 May 2024, that a proposal would be put to shareholders to cancel the trading of its shares on AIM. The proposal will incorporate a trading facility that Sondrel will make available to shareholders who wish to buy or sell shares on a matched bargain basis.  More information on this will be provided in due course.

The proposal to move forward with the cancellation will be put to shareholders at a general meeting in August 2024 and, if approved, the cancellation will become effective thereafter. The agenda for this meeting will also include resolutions to approve these accounts and the re-appointment of the auditors.

Trading Review 

Key Performance Indicators

The business experienced a very difficult and challenging year from a trading point of view that also came at the same time as a slow-down in the semi-conductor market in Europe in particular. Additionally, the strategic decision taken to focus on project-based ASIC work meant that some of the smaller scale time and materials-based services work was lost. Winning of new contracts in 2023 was particularly weak, with a total of new business won of only £4.0m (2022: £25.6m).  

Steady project progress was made during the first half of the year before the lack of new business won during the year and delays on the largest ASIC project being undertaken meant that second half revenues fell significantly. This project had originally been forecast to be completed in September 2023 but only reached its successful conclusion in April 2024. This led to revenue of some £2.7m being deferred from 2023 into 2024. In parallel to this, the second phase of the project that had been expected to commence in July 2023 was also delayed and has not yet commenced.

As a result, a significant loss was made during the year of £17.3m at the operating level. The loss was compounded by an exceptionally high accelerated amortisation charge of £4.9m relating to an intangible software asset, akin to an impairment charge. This reflects the reduced utility that the Group expected to get from the asset over its remaining lifetime given the reduced level of design activity experienced by the Group.  

On the positive note, two smaller ASIC projects achieved ‘tape out’ status during the year, one of which led to Sondrel’s first production order in late 2023. The first production revenues are anticipated in the second half of 2024 as a result. In addition, a significant new ASIC project was won in early 2024 for a next generation video processing chip with a total estimated value of US$23 million across the design, qualification and projected production life of the product. 

The ASIC Market 

The market for ASIC design remains one with significant opportunity for Sondrel particularly in the growing AI market, and is extremely dynamic and evolving:  

Market Size and Growth Trends 

The ASIC chip market was valued at an estimated USD 20.29 billion in 2024 and is projected to reach USD 32.84 billion by 2031, growing at a CAGR of 7.10% during this period (Source: ASIC Chip Market Size & Share Analysis - Industry Research Report - Growth Trends (coherentmarketinsights.com). 

Factors driving growth include the adoption of advanced technologies such as AI, machine learning, and 5G, and these all increase demand for ASICs across industries. 

Demand for Digitalization

The growing need for digitalization in various sectors fuels demand for specialized and efficient computing capabilities. ASIC chips can be customized for specific applications, delivering optimized performance. 

Industry Segments

ASIC chips find applications in automotive systems, aerospace subsystems, telecommunications products, medical instrumentation, data processing systems, and consumer electronics. Extensive research and development activities in automation and transportation sectors contribute to revenue generation. In summary, the ASIC market is poised for growth, driven by technological advancements and increasing demand for specialized computing solutions.  

Future Strategy 

The future strategy for Sondrel will, in part, be determined by the current transformation plan but will continue to be at least partially based on growing the volume of ASIC project work, leading to follow-on prototyping and testing work and ultimately production revenues. However, the balance between growth of capability and investment in new revenue streams and the traditional design services work that will keep the engineering work force busy will be more keenly managed in order to ensure a break-even position from both an operating profit and cash flow perspective. 

Summary and Outlook   

The completion of the recent fundraise and the support of Rox will ensure that the business is stabilised and put on a growth footing in the future based on a more solid foundation. In the short term, the current trading losses are targeted by the transformation plan to be eliminated by the last quarter of the year and thereby avoiding the need for any further fundraising to support trading activities. To achieve this target, new business wins and further cost saving measures will be required, some of them related to the de-listing process.

Rox has committed to providing a further £1.5m funding to Sondrel in the future which will provide more liquidity should it be necessary. However, it is recognised that this may not be sufficient should the expected new business wins fall short of current forecasts over the next 12 months.  This creates a material uncertainty over the cash flows of the business until such time as the revenues increase.

Despite this, the Board believes that the future prospects for the business will be more positive once the transformation plan has been delivered and Sondrel is able to compete more effectively for the many opportunities that are available in the market.    

David Mitchard
Non-Executive Chairman and Interim Chief Executive Officer
17 July 2024