The directors present their annual report and financial statements for the year ended 31 December 2022. These are the first published financial statements of the company prepared in accordance with UK-adopted International Accounting Standards (“IFRS”). The financial statements were previously prepared under Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”).
In accordance with section 414B (b) of the Companies Act 2006, the directors are taking advantage of the small companies exemption to not prepare a strategic report.
The results for the year are set out on page 7.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The auditor, Johnston Carmichael LLP, was appointed as auditor in the current year and is deemed to be reappointed under section 487(2) of the Companies Act 2006.
On 29 December 2023, LumiraDx Limited, the company’s ultimate parent, announced that administrators had been appointed to two of its subsidiaries, LumiraDx Group Limited (the company’s direct parent) and LumiraDx International Limited, which together hold substantially all of the assets of the LumiraDx group.
Following their appointment, the Administrators have entered into a sale and purchase agreement with Roche Diagnostics Limited (“Roche”) providing for Roche’s acquisition of certain of the LumiraDx group companies (the “Point of Care Diagnostics Companies”) engaged in the operation of LumiraDx group’s point-of-care diagnostics platform business and certain related assets (the “Transaction”) which includes the company. The Administrators have not been appointed to any of the Point of Care Diagnostics Companies.
Pursuant to the Transaction, Roche is to acquire all of the Point of Care Diagnostics Companies for the sum of $295 million, subject to customary closing adjustments. The completion of the Transaction is subject to certain conditions, including antitrust and foreign direct investment approvals, and is expected to close once the antitrust and other regulatory approvals have been obtained and the conditions have otherwise been met.
LumiraDx UK Ltd is the only source of income for the entity and there is no likely alternative source of income outside of the LumiraDx group. If the Transaction is unable to close, LumiraDx UK Ltd would have insufficient liquidity to fund payment of the amounts that would be due to its lenders and if unsuccessful in raising additional capital, there can be no assurance that it could continue as a going concern.
Although the financial statements have been prepared on a going concern basis, the directors acknowledge that there is a material uncertainty over the company’s inability to close the Transaction. This may cast significant doubt on the entity's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
Small companies exemption
This report has been prepared in accordance with the provisions applicable to companies entitled to the small companies exemption.
We were engaged to audit the financial statements of LKM Innovations Limited (the 'company') for the year ended 31 December 2022 which comprise the income statement, the statement of financial position, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards.
We do not express an opinion on the accompanying financial statements of the company. Because of the significance of the matter described in the basis for disclaimer of opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements.
Basis for disclaimer of opinion
As described in the Going Concern accounting policy (Note 1.3), the directors have concluded that there are events or conditions which indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern.
As a result of this material uncertainty, we were unable to obtain sufficient appropriate evidence to support the directors’ assessment that the intercompany loan receivable of £95,751 due from LumiraDx UK Limited is not impaired.
We were unable to determine whether any adjustments might have been found necessary in respect of the carrying value of the intercompany loan receivable. This would have a potential impact on the profit and loss account, balance sheet and statement of changes in equity.
Due to the magnitude and interaction of these individual material uncertainties and their possible cumulative effect on the financial statements, we are unable to form an opinion on the financial statements.
Opinions on other matters prescribed by the Companies Act 2006
Because of the significance of the matter described in the basis for disclaimer of opinion section of our report, we have been unable to form an opinion whether, based on the work undertaken in the course of the audit:
the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the directors’ report have been prepared in accordance with applicable legal requirements.
Notwithstanding our disclaimer of an opinion on the financial statements, in the light of the knowledge and understanding of the company and its environment obtained in the course of the audit performed subject to the pervasive limitation described above, we have not identified material misstatements in the directors’ Report.
Arising from the limitation of our work referred to above:
we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
we were unable to determine whether adequate accounting records have been kept.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our responsibility is to conduct an audit of the company’s financial statements in accordance with International Standards on Auditing (UK) and to issue an auditor’s report. However, because of the matter described in the basis for disclaimer of opinion section of our report, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, as applied to listed public entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We assessed whether the engagement team collectively had the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations by considering their experience, past performance and support available.
All engagement team members were briefed on relevant identified laws and regulations and potential fraud risks at the planning stage of the audit. Engagement team members were reminded to remain alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
We obtained an understanding of the legal and regulatory frameworks that are applicable to company and the sector in which it operates, focusing on those provisions that had a direct effect on the determination of material amounts and disclosures in the financial statements. The most relevant frameworks we identified include:
Companies Act 2006;
UK tax legislation; and
UK Generally Accepted Accounting Practice.
We gained an understanding of how the company is complying with these laws and regulations by making enquiries of management and those charged with governance. We corroborated these enquiries through our review of submitted returns.
We assessed the susceptibility of the financial statements to material misstatement, including how fraud might occur, by meeting with management and those charged with governance to understand where it was considered there was susceptibility to fraud. This evaluation also considered how management and those charged with governance were remunerated and whether this provided an incentive for fraudulent activity. We considered the overall control environment and how management and those charged with governance oversee the implementation and operation of controls. We identified a heightened fraud risk in relation to:
Management override of controls;
Revenue recognition.
In addition to the above, the following procedures were performed to provide reasonable assurance that the financial statements were free of material fraud or error:
Enquiring of those charged with governance for any breaches of laws and regulation or for any indication of any potential litigation and claims; and events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud;
Performing audit work procedures over the risk of management override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing judgements made by management in their calculation of accounting estimates for potential management bias;
Re-calculating revenue to ensure costs are accurately re-charged;
Completion of appropriate checklists and use of our experience to assess the Company’s compliance with the Companies Act 2006; and
Agreement of the financial statement disclosures to supporting documentation.
Our audit procedures were designed to respond to the risk of material misstatements in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve intentional concealment, forgery, collusion, omission or misrepresentation. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.
Use of our report
This report is made solely to the company’s member in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s member those matters we are required to state to the member in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s member for our audit work, for this report, or for the opinions we have formed.
The income statement has been prepared on the basis that all operations are continuing operations.
There are no other gains or losses, other than those shown above, hence no statement of other comprehensive income or expenditure is presented.
LKM Innovations Limited ("the company") is a private company limited by shares and incorporated and domiciled in Scotland. The registered office is Unit 18, Stirling University Innovation Park Ltd, Scion House, Stirling University Innovation Park, Stirling, FK9 4NF.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The prior period financial statements have been restated to derecognise deferred tax assets previously recognised. In accordance with IAS 12, deferred tax assets should only be recognised to the extent that it is probable that taxable profit will be available against which the temporary differences can be utilised. The directors consider it necessary to revisit the assessment of probability supporting the recognition of a deferred tax asset at 31 December 2020 and to restate the financial statements accordingly.
The restatement has the following impact on financial statement line items:
Deferred tax assets have been reduced from £189,695 previously reported at 31 December 2021 and 1 January 2021 to £Nil.
Retained earnings previously reported at 1 January 2021 have been reduced from £803,312 to £613,617 and retained earnings previously reported at 31 December 2021 from £779,662 to £589,967.
On 29 December 2023, LumiraDx Limited, the company’s ultimate parent, announced that administrators had been appointed to two of its subsidiaries, LumiraDx Group Limited (the company’s direct parent) and LumiraDx International Limited, which together hold substantially all of the assets of the LumiraDx group.
Following their appointment, the Administrators have entered into a sale and purchase agreement with Roche Diagnostics Limited (“Roche”) providing for Roche’s acquisition of certain of the LumiraDx group companies (the “Point of Care Diagnostics Companies”) engaged in the operation of LumiraDx group’s point-of-care diagnostics platform business and certain related assets (the “Transaction”) which includes the company. The Administrators have not been appointed to any of the Point of Care Diagnostics Companies.
Pursuant to the Transaction, Roche is to acquire all of the Point of Care Diagnostics Companies for the sum of $295 million, subject to customary closing adjustments. The completion of the Transaction is subject to certain conditions, including antitrust and foreign direct investment approvals, and is expected to close once the antitrust and other regulatory approvals have been obtained and the conditions have otherwise been met.
LumiraDx UK Ltd is the only source of income for the entity and there is no likely alternative source of income outside of the LumiraDx group. If the Transaction is unable to close, LumiraDx UK Ltd would have insufficient liquidity to fund payment of the amounts that would be due to its lenders and if unsuccessful in raising additional capital, there can be no assurance that it could continue as a going concern.
Although the financial statements have been prepared on a going concern basis, the directors acknowledge that there is a material uncertainty over the company’s inability to close the Transaction. This may cast significant doubt on the entity's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the income statement.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.
The company recognises financial debt when the company becomes a party to the contractual provisions of the instruments. Financial liabilities are classified as either 'financial liabilities at fair value through profit or loss' or 'other financial liabilities'. The company has no financial liabilities at fair value through profit or loss at the reporting date.
Other financial liabilities, including borrowings, trade payables and other short-term monetary liabilities, are initially measured at fair value net of transaction costs directly attributable to the issuance of the financial liability. They are subsequently measured at amortised cost using the effective interest method. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Financial liabilities are derecognised when, and only when, the company’s obligations are discharged, cancelled, or they expire.
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
The tax expense represents the sum of the tax currently payable and deferred tax.
At inception, the company assesses whether a contract is, or contains, a lease within the scope of IFRS 16. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Where a non-current asset is acquired through a lease, the company recognises a right-of-use asset and a lease liability at the lease commencement date. Right-of-use assets are included within property, plant and equipment, apart from those that meet the definition of investment property.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date plus any initial direct costs and an estimate of the cost of obligations to dismantle, remove, refurbish or restore the underlying asset and the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of other property, plant and equipment. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the company uses its incremental borrowing rate which is based on the company's recent borrowings.
Lease payments included in the measurement of the lease liability comprise:
fixed lease payments (including in-substance fixed payments), less any lease incentives;
variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
the amount expected to be payable by the lessee under residual value guarantees;
the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;
the lease payments change to due changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is measured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); or
a lease contract is modified and lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
The company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less, or for leases of low-value assets including IT equipment. The payments associated with these leases are recognised in profit or loss on a straight-line basis over the lease term.
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2022 reporting periods and have not been early adopted by the company. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.
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Date noted denotes IASB effective date (for periods commencing on or after).
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are outlined below.
The company operates one principal area of activity in one principal geographical market being the United Kingdom, which is that of providing research and development services to other group companies within the LumiraDx Limited Group. The services provided are based on contracted terms over the service period with revenue recognised as the services are provided.
Any invoices raised for performance obligations that are unsatisfied or partly satisfied at the year end are recognised as contract liabilities. Contract assets relate to performance obligations partially satisfied or satisfied but not yet invoiced. There were no contract assets or liabilities at either the current or comparative reporting date.
An analysis of the company's revenue is as follows:
The average monthly number of persons (including directors) employed by the company during the year was:
The cost of remunerating directors is borne by another Group entity. The company’s share of the directors’ cost based on time spent on this entity by the directors is considered to be trivial. The directors are also regarded as key management and thus key management remuneration paid in the current and comparative period would also be regarded as trivial. The directors are party to the liability insurance policies maintained by the Group.
The charge for the year can be reconciled to the loss per the income statement as follows:
At the reporting date, the company has an unrecognised deferred tax asset of £262k (2021 - £192k) in respect of decelerated capital allowances which has not been recognised.
As outlined at note 19 the company's property, plant and equipment has been pledged as security in respect of certain borrowings of the company's ultimate parent undertaking, LumiraDx Limited.
All trade receivables recognised in the year are generated from services provided to other group companies within the LumiraDx Limited Group. Standard credit terms for trade receivables are 30 days from invoice date, although certain credit terms are contract-specific. No loss allowance (2021: £Nil) has been recognised on trade receivables as none were in default at the year end.
Amounts owed by fellow group undertakings are unsecured, interest free and repayable on demand.
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. Trade and other payables are unsecured, interest free and have a typical maturity profile of between 0-1 months.
Amounts owed to fellow group undertakings are unsecured, interest free and repayable on demand.
Finance lease liabilities are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows:
The company's lease liabilities were in respect of right of use property, being rented property units.
Borrowings are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date.
The company settled the above loans from fellow group undertakings during the current reporting period.
An analysis of the carrying value of the company's financial assets and liabilities is as follows:
As outlined at note 19 the company's financial assets have been pledged as security in respect of certain borrowings of the company's ultimate parent undertaking, LumiraDx Limited.
The directors consider that the carrying amounts of financial assets and liabilities carried at amortised cost in the financial statements approximate to their fair values.
Further aging analysis of the company's financial liabilities is outlined at notes 11, 12 and 13.
The following table details the changes in the company's liabilities arising from financing activities.
The company’s capital management objectives are:
to ensure the company's ability to continue as a going concern;
to provide an adequate return to shareholders;
to support the company's stability and growth;
to provide capital for the purpose of strengthening the company's risk management capability; and
to provide capital for the purpose of further research in biotechnologies.
The capital structure of the company consists of debt (interest free borrowings from group undertakings) and equity (comprising issued capital and retained earnings). The company is not subject to any externally imposed capital requirements.
The company actively and regularly reviews and manages its capital structure to ensure an optimal capital structure and to maximise equity holder returns, taking into consideration the future capital requirements of the company and capital efficiency, projected capital expenditures, prevailing and projected profitability, projected cash flows, and projected strategic investment and development opportunities.
Management regards capital as total equity and reserves for capital management purposes. At the reporting date, this was £548,710 (2021 as restated - £589,969)
Financial risks management
The company’s operations expose it to a number of financial risks, principally credit risk and liquidity risk. The company manages these risks through an effective risk management programme which is coordinated by the Board of Directors.
Liquidity risk
Liquidity risk refers to the company being unable to settle its obligations as these fall due.
The company closely monitors its access to funding facilities principally provided by fellow group undertakings in comparison to its outstanding commitments on a regular basis to ensure that it has sufficient funds to meet these obligations.
The Board regularly reviews debt management forecasts which estimate the cash inflows and outflows for the next twelve months, so that management can ensure that sufficient funding is in place as it is required. The Board acknowledge that there is an existing level of uncertainty over the management of the company's liquidity as a result of the ongoing Roche Transaction outlined within Note 1.3.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss for the company. Credit risk predominantly arises from the company's transactions with LumiraDx UK Ltd who remain the company's sole customer and source of income. As outlined at Note 1.3, the Board acknowledge that counterparty credit risk is directly impacted by the ongoing Roche Transaction and the Board consider both quantitative and qualitative information and analysis in the assessment of any expected credit losses.
With regard to cash and cash equivalents, these are held with large and stable financial institutions.
The company's maximum exposure to credit risk relating to its financial assets and financial liabilities is equal to their carrying value.
Retained earnings represent accumulated comprehensive income/(expenditure) for the year and prior periods less dividends paid.
On 29 December 2023, LumiraDx Limited, the company’s ultimate parent, announced that administrators had been appointed to two of its subsidiaries, LumiraDx Group Limited (the company’s direct parent) and LumiraDx International Limited, which together hold substantially all of the assets of the LumiraDx group.
During the year the company entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
The following amounts were outstanding at the reporting end date: